Exhibit 2.1
STOCK PURCHASE AGREEMENT
By and Between
PMC ACQUISITION CORPORATION,
PHOENIX MICROWAVE CORPORATION,
XXXXXXXXXXXX XXXXXXXXX, AS REPRESENTATIVE,
And
THE PERSONS LISTED ON EXHIBIT A
Dated March 1, 1999
TABLE OF CONTENTS
Page
ARTICLE 1
DEFINITIONS .......................................................................................... 1
ARTICLE 2
PURCHASE PRICE AND PAYMENT TERMS...................................................................... 15
2.1 Sale of the Stock by the Sellers........................................................... 15
2.2 Purchase of the Stock by Purchaser; Total Purchase Price................................... 15
2.3 Payment of Purchase Price.................................................................. 15
2.4 Purchase Price Adjustment.................................................................. 17
2.5 Deferred Payment........................................................................... 19
2.6 Escrow Agreement; Initial Escrow Amount; Deferred
Payment Escrow Amount...................................................................... 22
2.7 Transfer Taxes............................................................................. 22
ARTICLE 3
THE CLOSING........................................................................................... 23
3.1 Closing Date............................................................................... 23
3.2 Closing Date Deliveries.................................................................... 23
3.3 Further Assurances......................................................................... 23
ARTICLE 4
CERTAIN COVENANTS..................................................................................... 24
4.1 Access to Books and Records and Personnel.................................................. 24
4.2 Notice of Certain Events................................................................... 24
4.3 Conduct of Business by the Company and the Subsidiaries.................................... 25
4.4 Regulatory Matters......................................................................... 30
4.5 Updated Financial Information.............................................................. 30
4.6 Transaction Proposals...................................................................... 30
4.7 Customers and Suppliers.................................................................... 31
4.8 Backlog.................................................................................... 31
4.9 Arrangements with Employees................................................................ 31
4.10 Permits and Approvals...................................................................... 32
4.11 Third Party Consents....................................................................... 32
4.12 Stockholders Representative Agreement...................................................... 32
4.13 Change Name. ............................................................................. 32
ARTICLE 5
ADDITIONAL CONTINUING COVENANTS....................................................................... 33
5.1 Noncompetition............................................................................. 33
5.2 Nondisclosure of Proprietary Data.......................................................... 33
5.3 Refund Claims and Warranty Claims.......................................................... 33
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5.4 Satisfaction of Warranty and Refund Claims................................................. 34
5.5 Change Orders.............................................................................. 34
5.6 Tax Matters................................................................................ 34
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF THE SELLERS......................................................... 36
6.1 Organization and Standing of the Company and
the Subsidiaries.......................................................................... 36
6.2 Authorization and Binding Obligation of the Stockholders................................... 36
6.3 Non-Contravention.......................................................................... 36
6.4 Capitalization; Stock...................................................................... 37
6.5 Ability to Perform Obligations............................................................. 39
6.6 Minute Books............................................................................... 39
6.7 Dividends and Other Distributions.......................................................... 39
6.8 Accounting Records; Internal Controls...................................................... 40
6.9 Financial Statements; Changes; Contingencies............................................... 40
6.10 Accounts Receivable........................................................................ 41
6.11 Inventory.................................................................................. 42
6.12 Intangible Personal Property............................................................... 42
6.13 Real Property.............................................................................. 44
6.14 Tangible Personal Property................................................................. 45
6.15 Insurance.................................................................................. 46
6.16 Accounts Payable........................................................................... 46
6.17 Tax Matters................................................................................ 46
6.18 Litigation................................................................................. 50
6.19 Labor Relations............................................................................ 50
6.20 Employee Benefits.......................................................................... 51
6.21 Certain Interests.......................................................................... 53
6.22 Intercompany Transactions.................................................................. 53
6.23 Governmental Approvals; Compliance with Laws............................................... 53
6.24 Customer Lists............................................................................. 54
6.25 Environmental Matters...................................................................... 54
6.26 Suppliers.................................................................................. 56
6.27 Brokers, Finders........................................................................... 57
6.28 Material Contracts......................................................................... 57
6.29 Bank Accounts.............................................................................. 59
6.30 Customer Warranties and Return Policies.................................................... 60
6.31 Products Liability......................................................................... 60
6.32 Federal Reserve Board Regulations.......................................................... 61
6.33 Consents and Governmental Approvals........................................................ 61
6.34 Absence of Undisclosed Changes............................................................. 61
6.35 Government Contracts....................................................................... 62
6.36 Disclosure; Due Diligence.................................................................. 64
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ARTICLE 7
REPRESENTATIONS AND WARRANTIES OF PURCHASER........................................................... 65
7.1 Organization and Standing of Purchaser..................................................... 65
7.2 Authorization and Binding Obligation of Purchaser.......................................... 65
7.3 Ability to Perform Obligations............................................................. 65
7.4 Brokers, Finders........................................................................... 65
7.5 Financing.................................................................................. 65
ARTICLE 8
TERMINATION........................................................................................... 66
8.1 Termination of Agreement................................................................... 66
8.2 Effect of Termination...................................................................... 67
8.3 Expenses................................................................................... 67
ARTICLE 9
CLOSING CONDITIONS OF PURCHASER....................................................................... 67
9.1 Representations, Warranties and Covenants of
the Stockholders.......................................................................... 67
9.2 Deliveries to Be Made by Each Seller at the Closing........................................ 68
9.3 Third Party Consents....................................................................... 69
9.4 Orders; Illegality......................................................................... 69
9.5 Absence of Investigations and Proceedings.................................................. 70
9.6 Governmental Approvals..................................................................... 70
9.7 Absence of Certain Changes................................................................. 70
9.8 Due Diligence.............................................................................. 70
9.9 Financing.................................................................................. 70
9.10 Employment Agreements...................................................................... 70
9.11 Noncompetition Agreements.................................................................. 70
9.12 Pay-Off Letters............................................................................ 71
9.13 Transfer Taxes............................................................................. 71
9.14 Stockholders Representative Agreement...................................................... 71
9.15 PIDA Financing............................................................................. 71
9.16 Buy-Sell Agreement......................................................................... 72
9.17 Insurance Trust Agreements................................................................. 72
9.18 Stock Option Agreement..................................................................... 72
9.19 Voting Trust Agreement..................................................................... 72
9.20 Retention of Key Employees................................................................. 72
9.21 Customer and Supplier Relations............................................................ 72
9.22 Facility................................................................................... 72
9.23 Escrow Agreement........................................................................... 73
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ARTICLE 10
CLOSING CONDITIONS OF SELLERS......................................................................... 73
10.1 Representations, Warranties and Covenants of Purchaser..................................... 73
10.2 Deliveries to be Made by Purchaser at the Closing.......................................... 73
10.3 Employment Agreements...................................................................... 74
10.4 Escrow Agreement........................................................................... 74
ARTICLE 11
INDEMNIFICATION; SURVIVAL OF REPRESENTATIONS
AND WARRANTIES........................................................................................ 75
11.1 Indemnification by the Sellers............................................................. 75
11.2 Indemnification by Purchaser............................................................... 76
11.3 Cooperation................................................................................ 77
11.4 Limitations on Indemnification............................................................. 77
11.5 Notice to Indemnifying Party............................................................... 77
11.6 Defense by Indemnifying Party.............................................................. 78
11.7 Indemnity Escrow Arrangement............................................................... 79
11.8 Survival of Representations and Warranties................................................. 80
11.9 Survival of Representations and Covenants of Purchaser..................................... 80
11.10 Tax Indemnification........................................................................ 81
11.11 Remedies................................................................................... 82
ARTICLE 12
CONFIDENTIALITY....................................................................................... 83
12.1 Confidentiality of the Sellers............................................................. 83
12.2 Confidentiality of Purchaser............................................................... 84
ARTICLE 13
MISCELLANEOUS......................................................................................... 85
13.1 Expenses................................................................................... 85
13.2 Notices and Other Communications........................................................... 85
13.3 Counterparts............................................................................... 86
13.4 Written Agreement to Govern................................................................ 86
13.5 Assignability.............................................................................. 86
13.6 No Waiver of Rights........................................................................ 86
13.7 Subject Headings........................................................................... 87
13.8 Further Assurances......................................................................... 87
13.9 Schedules and Exhibits..................................................................... 87
13.10 Severability............................................................................... 87
13.11 Publicity and Reports...................................................................... 87
13.12 Parties in Interest; Joint and Several Liability of the Sellers............................ 87
13.13 Specific Performance....................................................................... 88
13.14 GOVERNING LAW; CONSENT TO JURISDICTION..................................................... 88
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SCHEDULES AND EXHIBITS
Schedule 1............. Permitted Encumbrances
Schedule 2.5........... Deferred Payment
Schedule 4.3........... Conduct of Business
Schedule 5.4........... Warranty Work
Schedule 6.3........... Non-Contravention
Schedule 6.4........... Capitalization; Stock
Schedule 6.10.......... Accounts Receivable
Schedule 6.11.......... Inventory
Schedule 6.12.......... Intangible Personal Property
Schedule 6.13.......... Real Property
Schedule 6.14.......... Tangible Personal Property
Schedule 6.15.......... Insurance
Schedule 6.17.......... Tax Matters
Schedule 6.18.......... Litigation
Schedule 6.19.......... Labor Relations
Schedule 6.20.......... Employee Benefits; ERISA
Schedule 6.22.......... Intercompany Transactions
Schedule 6.23.......... Governmental Approvals
Schedule 6.25 ......... Environmental Matters
Schedule 6.25.4 ....... Environmental Permits
Schedule 6.25.8 ....... Disposal Facilities
Schedule 6.25.9 ....... Environmental Reports
Schedule 6.26.......... Suppliers
Schedule 6.28.......... Material Contracts
Schedule 6.29.......... Bank Accounts
Schedule 6.30.......... Customer Warranties
Schedule 6.31.......... Products Liability and Occurrences
Schedule 6.33.......... Consents and Governmental Approvals
Schedule 6.34.......... Absence of Undisclosed Changes
Schedule 6.35.......... Government Contracts
Schedule 9.2........... Officers
Schedule 9.12.......... Pay-Off Letters
Schedule 13.2.......... Notice Addresses
Exhibit A.............. List of Sellers
Exhibit B.............. Form of Escrow Agreement
Exhibit C.............. Form of Letter of Transmittal
Exhibit D.............. Form of Stockholders Representative Agreement
Exhibit E.............. Form of Opinion of the Company's and the Sellers'
Counsel
Exhibit F-1............ Form of Affidavit of Non-Foreign Status (Entity)
Exhibit F-2............ Form of Affidavit of Non-Foreign Status (Individual)
Exhibit G.............. Form of Opinion of Purchaser's Counsel
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made this 1st day
of March, 1999, by and between PMC ACQUISITION CORPORATION, a Delaware
corporation ("Purchaser"), PHOENIX MICROWAVE CORPORATION, a Pennsylvania
corporation (the "Company"), XXXXXXXXXXXX XXXXXXXXX, as Representative of the
Stockholders, and the persons listed on Exhibit A hereto (each is individually
referred to herein as a "Seller" and are collectively referred to herein as
the "Sellers").
RECITALS
1. The Company and the Subsidiaries are engaged in the business of
designing, developing, manufacturing, marketing and selling microelectronic,
radio frequency and microwave components and sub-assemblies (the "Business");
2. The Stockholders (as defined below) collectively own all of the
issued and outstanding shares of common stock, $0.002 par value per share, of
the Company (collectively, the "Stock");
3. The Stockholders desire to sell to Purchaser, and Purchaser
desires to purchase from the Stockholders, all of the Stock.
NOW, THEREFORE, in consideration of and subject to the mutual
undertakings and agreements hereinafter set forth, Purchaser, the Company and
each Seller agree as follows:
ARTICLE 1
DEFINITIONS
"Additional Accounting Firm" shall have the meaning set forth in Section
2.4.3.
"Additional Accounting Report" shall have the meaning set forth in Section
2.4.3.
"Adjustment Amount" means the excess of the Baseline Net Worth over
the Closing Date Net Worth. In the event that the Baseline Net Worth is less
than the Closing Date Net Worth, the Adjustment Amount shall be zero.
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"Affiliate" means, with respect to any Person, any other Person
directly or indirectly controlling, directly or indirectly controlled by, or
under direct or indirect common control with, such Person; or if such Person
is a partnership, any general partner of such Person or a Person controlling
any such general partner. For purposes of this definition, "control"
(including "controlled by" and "under common control with") shall mean the
power, directly or indirectly, to direct or cause the direction of the
management and policies of such Person whether through the ownership of voting
securities or by contract or otherwise.
"Agreed Adjustments" shall have the meaning set forth in Section 2.4.2.
"Agreed Rate" means, as of the date of any payment of interest to be
made by reference thereto, the "prime rate" listed on such date in the Wall
Street Journal as the base rate on corporate loans posted by at least 75% of
the nation's thirty (30) largest banks, or, if that rate is no longer
established or published, a comparable interest rate.
"Agreement" means this Stock Purchase Agreement, as the same may be
amended or otherwise modified from time to time in accordance with its terms.
"Assets" shall mean all of the Company's and the Subsidiaries' right,
title and interest in and to the goodwill, assets, properties and rights of
every nature, kind and description, whether tangible or intangible, real,
personal or mixed, wherever located and whether or not carried or reflected on
the books and records of the Company or the Subsidiaries, which are used or
useful in the operation of the Business including, without limitation, all
cash and cash equivalents, the Real Property, the Tangible Personal Property,
the Receivables, the Intangible Personal Property, the Licenses and Permits,
the Environmental Permits, the Inventory, the Customer Lists, the Customer
Contracts, the Government Contracts, the Governmental Approvals, the Material
Contracts and the Contracts.
"Assignment of Lease Agreement" means the Assignment of Lease
Agreement, dated October 21, 1994, by the Partnership, the Company and PIDA.
"Associate" of a Person means: (i) a corporation or organization
(other than the Company or a party to this Agreement) of which such person is
an officer or partner or is, directly or indirectly, the beneficial owner of
10% or more of any class of equity securities; (ii) any trust or other estate
in which such person has a substantial beneficial interest or as to which such
person serves as trustee or in a similar capacity; and (iii) any relative or
spouse of such person or any relative of such spouse.
"Audit Report" shall have the meaning set forth in Section 2.4.1.
2
"Audited Adjustment Amount" shall have the meaning set forth in Section
2.4.1.
"Audited Financial Statements" shall have the meaning set forth in Section
6.9.1.
"Base Purchase Price" shall have the meaning set forth in Section 2.2.
"Baseline Net Worth" shall mean $4,267,000.
"Best Efforts" shall mean the reasonable best efforts that a person
desirous of achieving a result would use in similar circumstances to insure
that such result is achieved as reasonably expeditiously as possible.
"Business" shall have the meaning set forth in the Recitals hereto.
"Business Disposition" shall have the meaning set forth in Section 2.5.5
"Buy-Sell Agreement" means that certain Buy-Sell Agreement dated June 18,
1998, by and among Xxxxxxx X. Xxxxxxxxxx, as trustee, under the Insurance Trust
Agreements, and Xxxxxxxxxxxx Xxxxxxxxx, Xxxxxx X. Xxxxxx, Xxxxxx Xxxxxxxxxx and
Xxxxxx Xxxxxxxxx.
"Closing" shall have the meaning set forth in Section 3.1.
"Closing Date" shall have the meaning set forth in Section 3.1.
"Closing Date Balance Sheet" shall have the meaning set forth in
Section 2.3.1.
"Closing Date Net Worth" shall mean the difference between the total
consolidated assets of the Company and the Subsidiaries (excluding any value
attributable to intangibles that were not reflected on the May 31 Balance
Sheet) and the total consolidated liabilities of the Company and the
Subsidiaries, in each case as determined in accordance with GAAP consistently
applied, as of the Closing Date.
"Code" means the Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder.
"Company" shall have the meaning set forth in the Preamble hereto.
"Company Documents" shall mean this Agreement and all other
agreements, instruments, certificates and other documents to be delivered by
the Company or any Stockholder in connection with this Agreement.
3
"Consent, Subordination and Assumption Agreement" means the Consent,
Subordination and Assumption Agreement, dated October 21, 1994, by the
Partnership, the Company, and Bucks County Industrial Development Corporation,
in favor of PIDA.
"Contracts" shall mean all contracts, agreements, commitments and
understandings of the Company and/or the Subsidiaries, whether oral or
written, including, but not limited to, purchase, sale or other commitments,
Customer Contracts, distributorship, franchise or similar agreements, patent
or trademark licensing agreements (either as licensor or licensee), lease or
sublease agreements (either as lessor or lessee), equipment leases, employment
agreements (including, but not limited to, agreements entered into by
employees of the Company or any of the Subsidiaries relating to the transfer
and/or safeguarding of intellectual property rights), consulting agreements
and union or collective bargaining agreements, guarantees, loan agreements,
non-competition agreements, severance agreements, letters of credit, joint
venture or partnership agreements and supply or requirements contracts.
"Credit Agreement" shall mean the Amended and Restated Credit
Agreement dated as of May 29, 1998, as amended, supplemented or modified from
time to time, among Stellex Industries, Inc., the financial institutions from
time to time party thereto, Societe Generale, as Administrative Agent, and
First Union Commercial
Corporation, as Collateral Agent.
"Customer Contracts" means all agreements, purchase orders, sales
confirmations or similar commitments entered into by the Company or any of the
Subsidiaries, which provide for obligations to deliver Products, the rights to
be paid for those Products and the obligations and rights that are ancillary
to those obligations and rights.
"Customer Lists" means all lists (including name, and to the extent
known to any Seller, current address and telephone number) of Persons which
have purchased Products from the Company or any of the Subsidiaries since
January 1, 1996.
"Deferred Payment" shall have the meaning set forth in Section 2.5.1.
"Deferred Payment Escrow Amount" shall have the meaning set forth in
Section 2.6.2.
"Deferred Payment Notice " shall have the meaning set forth in
Section 2.5.2.
"Dollars" or "$" means United States dollars.
4
"EBITDA" shall mean, for any period, determined for the Company and
the Subsidiaries on a consolidated basis in accordance with GAAP consistently
applied (i) the sum of the amounts for such period of (A) net income (i.e.,
the net earnings or loss after provision for taxes), (B) interest expense, (C)
losses on the disposition of fixed assets, (D) federal, state, local and
foreign income taxes (E) depreciation expense, (F) amortization expense
(including amortization of goodwill and other intangibles) and (G) overhead
costs allocated to the Company and the Subsidiaries by Purchaser or any other
parent corporation to the extent such costs exceed the costs that the Company
and the Subsidiaries would have incurred had any such services been provided
by a non-affiliated third party, minus (ii) extraordinary gains and gains on
the disposition of fixed assets, plus (iii) the amount by which the management
fee (exclusive of expenses) payable to Mentmore Holdings Corporation or its
Affiliates exceeds 1% of the total consolidated net sales of the Company for
such period.
"Employment Agreements" shall mean those certain Employment
Agreements, to be entered into as of the Closing Date, by each of Xxxxxxxxxxxx
Xxxxxxxxx, Xxxxxx X. Xxxxxx, Xxxxxx Xxxxxxxxxx and Xxxxxx Xxxxxxxxx, in form
and substance satisfactory to Purchaser and the Sellers.
"Encumbrance" in respect of any property or assets, means any
encumbrance or title defect of whatever kind or nature, regardless of form,
whether or not registered or registrable and whether or not consensual or
arising by Law, including any lien, mortgage, charge, pledge, security
interest, assignment, lease, option, easement, servitude, right-of-way,
conditional sales contract, encroachment, restrictive covenant, right of first
refusal, right of use or any other right or claim of any kind or nature
whatsoever (or any agreement to grant or furnish any of the foregoing) which
affects ownership or possession of, or title to, or any interest in, or the
right to use or occupy such property or assets.
"Environmental Law" shall mean any federal, state or local law, rule,
regulation, order, treaty, statute or permit of or issued by any governmental
authority, as amended from time to time, relating to the protection of human
health, safety, the environment, natural resources and wildlife, including,
but not limited to those relating to (i) the protection or use of surface
water, groundwater, rivers and other bodies of water; (ii) the protection of
ambient and indoor air quality; (iii) the management, manufacture, possession,
presence, use, generation, transportation, distribution, treatment, storage,
disposal, release, threatened release, abatement, removal, remediation of, or
exposure to, any Hazardous Substance; or (iv) the prevention, mitigation, or
remediation of environmental pollution in any form.
"Environmental Liabilities" shall include any and all Liabilities and
Costs of any kind imposed or incurred by, under, or pursuant to Environmental
Laws, including
5
without limitation those related to compliance, remediation,
removal, response, restoration, mitigation, abatement, investigation, testing,
monitoring, personal injury and property damage.
"Environmental Permits" means the permits and authorizations required
under applicable Environmental Laws to conduct the Business.
"Environmental Reports" shall have the meaning set forth in Section 6.25.9.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.
"ERISA Affiliate" shall mean any (i) corporation which is a member of
the same controlled group of corporations (within the meaning of Section
414(b) of the Code) as the Company or any of the Subsidiaries, (ii)
partnership or other trade or business (whether or not incorporated) under
common control (within the meaning of Section 414(c) of the Code) with the
Company or any of the Subsidiaries, or (iii) member of the same affiliated
service group (within the meaning of Section 414(m) of the Code) as the
Company or any of the Subsidiaries, any corporation described in clause (i)
above or any partnership or trade or business described in clause (ii) above.
"Escrow Agent" means the escrow agent set forth in the Escrow Agreement.
"Escrow Agreement" means the Escrow Agreement described in Section
2.6 to be entered into by Purchaser, the Representative, and the Escrow Agent,
substantially in the form of Exhibit B hereto.
"Escrow Fund" means the Initial Escrow Amount, the Deferred Payment
Escrow Amount and all interest and earnings thereon.
"Escrow Termination Date" means the later to occur of: (i) the second
anniversary of the Closing Date or (ii) the completion of an audit of the
consolidated financial statements of the Company and the Subsidiaries for the
year ended December 31, 2000 (but in no event later than April 15, 2001).
"Estimated Adjustment Amount" shall have the meaning set forth in
Section 2.3.1.
"Facility" shall mean the Company's facility located at 000 Xxxxx
Xxx, Xxxxxxx, Xxxxxxxxxxxx and adjacent property owned by the Partnership.
"GAAP" shall mean United States generally accepted accounting principles.
6
"Government Bid" shall have the meaning set forth in Section 6.35.1.
"Government Contract" shall mean any prime contract, subcontract,
teaming agreement or arrangement, joint venture, basic ordering agreement,
letter contract, purchase order, delivery order, Government Bid, change order,
or other contractual commitment of any kind to which the Company or any of the
Subsidiaries is a party, including, but not limited to, any Contract between
the Company or any Subsidiary and (i) any Governmental Authority, (ii) any
prime contractor of any Governmental Authority, or (iii) any subcontractor
with respect to any contract described in clauses (i) or (ii) above.
"Governmental Approval" shall mean any authorization, certificate,
consent, approval, waiver, exception, variance, franchise, permission, permit,
exception, filing, publication, declaration, notice, license, right or other
form of required permission from, of or with any Governmental Authority, and
shall include, without limitation, each environmental and operating permit and
license that is required for the ownership, use and operation of any facility
owned or leased by the Company or any of the Subsidiaries, or the conduct by
the Company and the Subsidiaries of the Business.
"Governmental Authority" means any federal, state, regional,
municipal, or local government, or other political subdivision thereof, U.S.
or foreign, or any entity, authority, agency, court, representative or person
exercising executive, legislative, judicial, regulatory or administrative
functions on behalf of such governmental entity or structure.
"Hazardous Substance" shall mean all substances, wastes, pollutants,
contaminants and materials regulated, or defined or designated as hazardous,
dangerous, or toxic, pursuant to any Environmental Law or any other law, rule,
regulation, order, decree, or ordinance having the force of law, of any
Governmental Authority, including, without limitation, all hazardous
substances, oils, pollutants or contaminants as such terms are defined in the
National Oil and Hazardous Substances Pollution Contingency Plan, 40 C.F.R.
ss. 300.5.
"Indebtedness" means, with respect to any Person, any obligations
(including, without limitation, principal, accrued interest, reimbursement or
indemnity obligations, prepayment penalties and fees) with respect to
indebtedness of such Person, whether or not contingent, in respect of borrowed
money or evidenced by bonds, notes, debentures or similar instruments or
letters of credit (or reimbursement agreements in respect thereof) or
representing capital lease obligations or the balance deferred and unpaid of
the purchase price of any property, except such balance that constitutes an
accrued expense or trade payable, if and to the extent any of the foregoing
7
indebtedness (other than letters of credit) would appear as a liability upon a
balance sheet of such Person prepared in accordance with GAAP, together with
any guarantee of any item that would constitute Indebtedness under the
foregoing provision. The amount of any Indebtedness outstanding as of any date
shall be the principal amount or accrued value thereof as of such date or, in
the case of any guarantee or other contingent obligation, the maximum
liability that may arise under such guarantee or contingent obligation.
"Indemnifiable Claim" means any Loss for or against which any party
is entitled to indemnification under this Agreement.
"Indemnified Party" shall have the meaning set forth in Section 11.5.
"Indemnifying Party" shall have the meaning set forth in Section 11.5.
"Independent Accountants" shall have the meaning set forth in Section
2.4.1.
"Initial Escrow Amount" shall mean $500,000, which shall be deposited
by Purchaser with the Escrow Agent on the Closing Date pursuant to Section
2.3.
"Installment Sale Agreement" means the Installment Sale Agreement
between PIDA and the Partnership dated January 26, 1994, as amended.
"Insurance Trust Agreements" means, collectively, the (i) Trust
Agreement dated June 18, 1998, between Xxxxxx Xxxxxxxxx, Xxxxxxxxxxxx
Xxxxxxxxx and Xxxxxx X. Xxxxxx and Xxxxxxx Xxxxxxxxxx; (ii) Trust Agreement
dated June 18, 1998, between Xxxxxx Xxxxxxxxxx, Xxxxxxxxxxxx Xxxxxxxxx and
Xxxxxx X. Xxxxxx and Xxxxxxx Xxxxxxxxxx, (iii) Trust Agreement dated June 18,
1998, between Xxxxxx Xxxxxxxxxx, Xxxxxx Xxxxxxxxx and Xxxxxx X. Xxxxxx and
Xxxxxxx Xxxxxxxxxx and (iv) Trust Agreement dated June 18, 1998, between,
Xxxxxx Xxxxxxxxxx, Xxxxxxxxxxxx Xxxxxxxxx and Xxxxxx Xxxxxxxxx and Xxxxxxx
Xxxxxxxxxx.
"Intangible Personal Property" means all of the intellectual property
rights, marketing rights, proprietary rights and other intangible properties
which are owned by the Company or any of the Subsidiaries or in which the
Company or any of the Subsidiaries has an interest, including, without
limitation, (i) trademarks, service marks, trade names, and each registration
and application for any of the foregoing; (ii) statutory, common law and
registered copyrights, and each registration and application therefor; (iii)
patents and associated inventions, industrial models, processes and designs,
technical information, know-how and operating, maintenance or other manuals and
each registration and application for any of the foregoing; (iv)
8
"software" and associated documentation; and (v) trade secrets, including
related processes or items of know-how or other technical data.
"Interim Financial Statements" shall have the meaning set forth in
Section 4.5.
"International" shall mean Phoenix Microwave International, Inc., a
U.S. Virgin Islands corporation.
"Inventory" shall mean all inventories, including, without
limitation, inventories of raw materials, scrap, work in progress, materials,
supplies, finished goods and consigned goods, owned by the Company or any of
the Subsidiaries or in which the Company or any of the Subsidiaries has any
interest (including the right to use), whether located on the premises of the
Company or any of the Subsidiaries, in transit to or from such premises, in
storage facilities or otherwise.
"IRS" means the Internal Revenue Service.
"Labor Agreements" shall mean, collectively, (i) all employment
agreements, collective bargaining agreements or other labor agreements to
which the Company or any of the Subsidiaries is a party or by which it or any
of its properties is bound; (ii) all pension, profit sharing, deferred
compensation, bonus, stock option, stock purchase, savings, retainer,
consulting, retirement, welfare or incentive plans or contracts (including
ERISA Plans) to which the Company or any of the Subsidiaries is a party or by
which the Company or any of the Subsidiaries or their respective properties is
bound; and (iii) all plans or agreements under which "fringe benefits"
(including, but not limited to, hospitalization plans or programs, medical
insurance, vacation plans or programs, sick plans or programs and related
benefits) are afforded to any employees of the Company or any of the
Subsidiaries.
"Law" or "Laws" means all constitutions, treaties, laws, statutes,
codes, regulations, rules, ordinances or other binding actions or requirements
of any Governmental Authority, whether domestic, foreign or international.
"Lease Agreement" means the Lease dated January 26, 1994, by and
between the Partnership and the Company.
"Letters of Transmittal" shall mean the letter of transmittal to be
delivered by each of the Stockholders pursuant to Section 9.2.1, substantially
in the form of Exhibit C.
"Liabilities and Costs" shall mean all indebtedness, claims,
liabilities, obligations, responsibilities, losses, diminutions in value,
damages, judgments, personal injury,
9
death, punitive damages, economic damages, treble damages, intentional, willful
or wanton injury, damage or threat to the environment, natural resources or
public health or welfare, costs and expenses (including, without limitation, r
easonable attorney, expert, engineering and consulting fees and costs and any
fees and costs associated with any investigation, feasibility, or remedial
action studies), fines, penalties and monetary sanctions, and interest, whether
accrued, absolute or contingent, and whether or not of a kind required by GAAP
to be set forth on a financial statement or in notes thereto.
"Licenses and Permits" means all of the Company's and the
Subsidiaries' respective rights to the licenses, permits, approvals,
clearances and authorizations desirable or required to conduct the Business,
including all Environmental Permits.
"Limited" shall mean Phoenix Microwave, Ltd., a Delaware corporation.
"Loss" or "Losses" shall mean all damages, awards, judgments,
payments, diminutions in value and other Liabilities and Costs, however
suffered or characterized, all interest thereon, all costs and expenses of
investigating any claim, lawsuit or arbitration and any appeal therefrom, all
actual attorneys' fees incurred in connection therewith, whether or not such
claim, lawsuit or arbitration is ultimately defeated and, subject to Section
11.4 hereof, all amounts paid incident to any compromise or settlement of any
such claim, lawsuit or arbitration.
"Material Adverse Effect" means any change in or effect that, either
individually or in the aggregate with all other changes or effects, (i) is or
would be materially adverse to the business, results of operations, condition
(financial or otherwise) or prospects of the Company and the Subsidiaries,
taken as a whole or (ii) would materially impair the ability of Purchaser, the
Company or any Stockholder to consummate the transactions contemplated by this
Agreement.
"Material Contract" shall have the meaning set forth in Section 6.28.1.
"May 31 Balance Sheet" shall have the meaning set forth in Section
6.9.1.
"Monolithics" shall mean Phoenix Monolithics Corporation, a Pennsylvania
corporation.
"Monthly Financial Statements" shall have the meaning set forth in
Section 4.5.
"Multiemployer Plan" shall mean a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA which is, or within the immediately preceding six
years was, contributed to by the Company or any of the Subsidiaries or an
ERISA Affiliate.
10
"Neutral Auditors" shall have the meaning set forth in Section 2.5.4.
"Noncompetition Agreement" shall mean those certain Noncompetition
Agreements, to be entered into as of the Closing Date, by each of Xxxxxxxxxxxx
Xxxxxxxxx, Xxxxxx X. Xxxxxx, Xxxxxx Xxxxxxxxxx and Xxxxxx Xxxxxxxxx, in form
and substance satisfactory to Purchaser and the Sellers.
"Occurrence" shall have the meaning set forth in Section 6.31.3.
"Order" shall mean any decree, order, judgment, writ, award,
injunction, rule or consent of or by a Governmental Authority.
"PBGC" means the Pension Benefit Guaranty Corporation.
"PIDA" means the Pennsylvania Industrial Development Authority.
"PIDA Financing" means all loans, guarantees and agreements by and
among the Company and/or the Partnership and PIDA and/or the Bucks County
Industrial Development Corporation relating to the Facility, including, but
not limited to, (i) the Consent, Subordination and Assumption Agreement, (ii)
the Lease Agreement, (iii) the Assignment of Lease Agreement and (iv) the
Installment Sale Agreement.
"Partnership" means the Phoenix Microwave Real Estate Partnership, a
Pennsylvania general partnership.
"Permitted Encumbrances" shall mean (i) Encumbrances for Taxes on
property not yet due and payable or which are being diligently contested in
good faith and by appropriate proceedings diligently conducted, and for which
the Company or any of the Subsidiaries have set aside full and adequate
reserves on their books as required by GAAP; (ii) Encumbrances imposed by Law,
such as carrier's, warehousemen's and mechanic's liens and other similar
liens, which arise in the ordinary course of business with respect to
obligations not yet due or being diligently contested in good faith by
appropriate proceedings and for which the Company or any of the Subsidiaries
shall have set aside full and adequate reserves on their books as required by
GAAP; (iii) Encumbrances arising out of pledges or deposits under workmen's
compensation laws, unemployment insurance, old age pensions, or other social
security benefits other than any lien imposed by ERISA; (iv) Encumbrances
incurred or deposits made in the ordinary course of business to secure surety
bonds provided that such Encumbrances shall extend only to cash collateral for
such surety bonds; and (iv) Encumbrances set forth on Schedule 1.
11
"Person" means any individual, corporation, partnership, joint
venture, trust, bank, unincorporated organization or government or any
department, agency or political subdivision thereof.
"Plan" shall have the meaning given in ERISA ss.3(3) (other than a
Multiemployer Plan) in respect of which the Company or any of the Subsidiaries
or any ERISA Affiliate is, or within the immediately preceding six years was,
an "employer" as defined in Section 3(5) of ERISA.
"Products" means products, technology and services manufactured,
sold, licensed, under development or otherwise exploited or provided by the
Company or any of the Subsidiaries, or proposed in the Company's or any of the
Subsidiaries' business plans or projections, including replacement parts or
components sold by the Company or any of the Subsidiaries for other products.
"Projections" shall have the meaning set forth in Section 6.9.1.
"Purchaser" shall have the meaning set forth in the Preamble hereto.
"Purchaser Documents" shall mean this Agreement and all other
agreements, instruments and certificates to be executed and delivered by
Purchaser in connection with this Agreement.
"Real Property" shall mean all real properties owned by the Company
or any of the Subsidiaries or in which the Company or any of the Subsidiaries
has any interest or estate (including the right to use), together with all
buildings, fixtures, trade fixtures, plant and other improvements located
thereon and attached thereto; all of the Company's or the Subsidiaries' rights
arising out of ownership or use thereof (including air, water, oil and mineral
rights); and all subleases, franchises, licenses, permits, easements and
rights-of-way which are appurtenant thereto.
"Recalls" shall have the meaning set forth in Section 6.31.1.
"Receivables" means all accounts, notes, accounts receivable,
contract rights, drafts and other forms of claims, demands, instruments,
receivables and rights to the payment of money or other forms of
consideration, whether for goods sold or leased, services performed or to be
performed, or otherwise, owned by the Company or any of the Subsidiaries or in
which the Company or any of the Subsidiaries has any interest, together with
all guarantees, security agreements and rights and interests securing the same.
"Refund Claim" shall have the meaning set forth in Section 5.3.
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"Reportable Event" shall mean any reportable event as defined in
Section 4043 of ERISA.
"Representative" shall mean Xxxxxxxxxxxx Xxxxxxxxx, as representative
of the Stockholders under the Stockholders Representative Agreement, or any
successor representative or representatives appointed under the Stockholders
Representative Agreement.
"Resolution Period" shall have the meaning set forth in Section 2.5.3.
"Restrictive Covenants" shall mean the covenants and agreements of
the Sellers contained in Sections 5.1 and 5.2.
"Seller" or "Sellers" shall have the respective meanings set forth in
the Preamble hereto.
"Sellers' Knowledge" shall mean the actual knowledge of Xxxxxxxxxxxx
Xxxxxxxxx, Xxxxxx X. Xxxxxx, Xxxxxx Xxxxxxxxxx, Xxxxxx Xxxxxxxxx, Xxxxxx Xxxxx,
Xx., Xx Xxxxxx and Xxxxxxx X. Xxxxxx.
"Stockholders Representative Agreement" shall have the meaning set
forth in Section 4.12.
"Stock" shall have the meaning set forth in the Recitals hereto.
"Stockholders" shall mean the Persons listed on Schedule 6.4 as the
record owners of all the issued and outstanding shares of Stock (each is
individually referred to herein as a "Stockholder").
"Stock Option Agreement" means the Stock Option Agreement dated as of
May 22, 1987 (as amended by the Agreement dated as of May 31, 1996), among the
Company, Xxxxxx Xxxxxx, Xxxxxxxxxxx Kimnitsis [sic], Xxxxxxx Xxxxxxxxx, Xxxxxx
Haluszack [sic], and Scientific Components Corporation.
"Subsidiary" or "Subsidiaries" shall mean International, Limited and/or
Monolithics, as appropriate.
"Tangible Personal Property" means all furniture, fixtures, equipment,
machinery, trucks, automobiles, tools, supplies, spare parts, computer
hardware, construction in progress and other tangible assets used or useful in
the operation of the Business and in which the Company or any of the
Subsidiaries has an interest, including, without limitation, any equipment or
other tangible assets subject to a lease
13
between the Company or any of the Subsidiaries and any Seller, and those items
described on Schedule 6.14.
"Tax Returns" shall mean, collectively, all Federal, state, foreign
and local tax reports, returns, information returns and other related
documents required to be filed by any relevant taxing authority.
"Taxes" means the obligations of the Company or any of the
Subsidiaries for any and all taxes imposed by any United States federal,
state, or local, or any foreign, taxing authority, including, without
limitation, all income, gross receipts, sales, capital gains, windfall
profits, severance, stamp, use, personal property, use and occupancy, business
occupation, mercantile, ad valorem, value added, transfer, license,
withholding, payroll, employment, excise, real estate, environmental, capital
stock, franchise, alternative or add-on, minimum, estimated or other tax or
customs duty of any kind whatsoever (including interest, penalties and other
additions thereto).
"Termination Event" shall mean (i) a Reportable Event with respect to
any Plan; (ii) the withdrawal of the Company or any of the Subsidiaries or any
ERISA Affiliate from a Plan during a plan year in which the Company or any of
the Subsidiaries or such ERISA Affiliate was a "substantial employer" as
defined in Section 4001(a)(2) of ERISA; (iii) the imposition of an obligation
on the Company or any of the Subsidiaries or any ERISA Affiliate under Section
4041 of ERISA to provide affected parties written notice of intent to
terminate a Plan in a distress termination described in Section 4041(c) of
ERISA; (iv) the institution by the PBGC of proceedings to terminate a Plan;
(v) any event or condition which might constitute grounds under Section 4042
of ERISA for the termination of, or the appointment of a trustee to
administer, any Plan; or (vi) the partial or complete withdrawal of the
Company or any of the Subsidiaries or any ERISA Affiliate from a Multiemployer
Plan.
"Total Purchase Price" shall have the meaning set forth in Section 2.2.
"Transaction Proposal" shall have the meaning set forth in Section 4.6.
"Trust" shall mean the trusts created on June 18, 1998 between Xxxxxx
Xxxxxxxxx, Xxxxxx Xxxxxxxxxx, Xxxxxxxxxxxx Xxxxxxxxx and Xxxxxx X. Xxxxxx and
Xxxxxxx Xxxxxxxxxx.
"Voting Trust Agreement" means the Voting Trust Agreement
dated June 18, 1998, by and among Xxxxxxxxxxxx Xxxxxxxxx, Xxxxxx X. Xxxxxx,
Xxxxxx Xxxxxxxxxx and Xxxxxx Xxxxxxxxx (collectively referred to as
depositors) and Xxxxxxxxxxxx Xxxxxxxxx, Xxxxxx X. Xxxxxx, Xxxxxx Xxxxxxxxxx
and Xxxxxx Xxxxxxxxx (individually referred to as trustees).
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"Warranty Claim" shall have the meaning set forth in Section 5.3.
"Warranty Work" shall have the meaning set forth in Section 5.4.
"Working Capital Facility" shall mean that certain Business Loan
Agreement dated October 19, 1998, between Union National Bank and Trust
Company of Souderton and the Company.
ARTICLE 2
PURCHASE PRICE AND PAYMENT TERMS
Section 2.1 Sale of the Stock by the Sellers. Subject to the
terms and conditions of this Agreement, each Seller agrees to sell all of the
shares of Stock owned by such Seller to Purchaser, and agrees to cause each
other Stockholder to sell all of the shares of Stock owned by each such other
Stockholder to Purchaser, and agrees to deliver or cause to be delivered the
certificates evidencing such shares of Stock to Purchaser at the Closing. The
certificates will be properly endorsed for transfer to, or accompanied by a
duly executed stock power in favor of, Purchaser or its nominee as Purchaser
may have directed prior to the Closing Date and otherwise in a form acceptable
for transfer on the books of the Company.
Section 2.2 Purchase of the Stock by Purchaser; Total
Purchase Price. Subject to the terms and conditions of this Agreement,
Purchaser agrees to purchase the Stock from the Stockholders and to pay to the
Representative, on behalf of the Stockholders, the Total Purchase Price. The
"Total Purchase Price" shall consist of the sum of (A) $14,000,000 (the "Base
Purchase Price"), minus the Adjustment Amount, if any, and (B) the Deferred
Payment, to the extent payable under Section 2.5.
Section 2.3 Payment of Purchase Price.
2.3.1 Not later than 5 days prior to the Closing Date,
the Sellers shall cause the Company to prepare and
deliver to Purchaser an estimated balance sheet for
the Company and the Subsidiaries as of the Closing
Date (the "Closing Date Balance Sheet"), which
balance sheet shall have been prepared in
conformity with GAAP applied on a basis consistent
with the May 31 Balance Sheet (except with respect
to inventory and warranty reserves) and shall not
reflect the results of or otherwise give effect to
Purchaser's purchase of the Stock under this
Agreement and the accounting treatment thereof,
together with
15
a notice setting forth the Sellers' good faith
estimate of the Adjustment Amount (the "Estimated
Adjustment Amount"), and a schedule setting forth
in detail the calculations supporting the Sellers'
computation thereof.
2.3.2 At the Closing, Purchaser shall deliver:
(a) to the Representative, on behalf of the
Stockholders, an amount equal to the Base
Purchase Price minus the Estimated
Adjustment Amount, if any, minus the
$500,000 Initial Escrow Amount, by wire
transfer of immediately available funds in
the City of New York to an account
specified by the Representative not later
than 5 days prior to the Closing Date; and
(b) to the Escrow Agent, the $500,000 Initial
Escrow Amount to be held by the Escrow
Agent pursuant to the Escrow Agreement.
2.3.3 Promptly, but in any event not later than 5 days,
after the final determination of the Adjustment
Amount pursuant to Section 2.4, (i) in the event
that the Estimated Adjustment Amount exceeds the
Adjustment Amount, Purchaser shall pay to the
Representative, on behalf of the Stockholders, by
wire transfer of immediately available funds in the
City of New York an amount equal to such excess
plus interest thereon from the Closing Date to the
date of payment thereof at the Agreed Rate, or (ii)
in the event the Adjustment Amount exceeds the
Estimated Adjustment Amount, the Representative, on
behalf of the Stockholders, shall take all action
necessary to cause the Escrow Agent to pay to
Purchaser, from the Escrow Fund, in immediately
available funds in the City of New York an amount
equal to such excess plus interest thereon from the
Closing Date to the date of payment thereof at the
Agreed Rate. The Representative and each of the
Sellers, shall be liable, jointly and severally, to
Purchaser to the extent the Escrow Fund is
insufficient to cover the payment referred to in
clause (ii) above or if the Escrow Agent, for any
reason other than a breach of the Escrow Agreement
by Purchaser, fails to pay to Purchaser any portion
of the Escrow Fund owing to it under clause (ii)
above. Any amount owing from the Representative and
the Sellers pursuant to the preceding sentence
shall bear interest
16
from the Closing Date to the date of payment
thereof at the Agreed Rate and be payable by wire
transfer of immediately available funds in the City
of New York.
Section 2.4 Purchase Price Adjustment.
2.4.1 Physical Inventory; Closing of Books;
Purchaser's Audit. On the day after the Closing
Date, Purchaser shall direct Deloitte & Touche LLP
(the "Independent Accountants") to conduct a
physical inventory (consistent with GAAP) of all of
the Inventory of the Company and the Subsidiaries,
such physical inventory to be completed as promptly
as practicable but in any event not later than 30
days after the Closing Date. Each Seller shall, and
shall cause its representatives to, cooperate with
Purchaser and/or its representative and provide all
information necessary to facilitate such physical
inventory. The Sellers and the Company shall
initiate and shall take all actions necessary to
effect a closing (effective as of the Closing Date)
of the Company's and the Subsidiaries' books of
account. Promptly following the Closing Date,
Purchaser shall prepare a consolidated balance
sheet of the Company and the Subsidiaries as of the
Closing Date, which balance sheet shall have been
prepared in conformity with GAAP applied on a
consistent basis with the May 31 Balance Sheet
(except with respect to inventory and warranty
reserves) and shall not reflect the results of or
otherwise give effect to Purchaser's purchase of
the Stock and the accounting treatment thereof.
Purchaser shall direct the Independent Accountants
to audit such balance sheet in accordance with the
standards of the American Institute of Certified
Public Accountants, such audit to be completed as
promptly as practicable but in any event not later
than 90 days following the Closing Date. Within
such 90-day period, Purchaser shall deliver to the
Representative the audit report (the "Audit
Report") with respect to such balance sheet and a
notice setting forth Purchaser's good faith
calculation of the Adjustment Amount (the "Audited
Adjustment Amount"), together with a schedule
setting forth in detail the calculations supporting
Purchaser's computation thereof.
2.4.2 Review by the Representative. Promptly following
receipt of the Audit Report and the Audited
Adjustment Amount the Representative shall review
the same and, as promptly as
17
practicable, but in any event not later than 30
days thereafter, shall deliver to Purchaser either
(i) a written notice stating that the Audit Report
and the Audited Adjustment Amount are accepted by
the Representative, on behalf of the Stockholders,
or (ii) a written notice stating that the Audit
Report and the Audited Adjustment Amount are not
accepted by the Representative, on behalf of the
Stockholders. In the event the Representative
delivers to Purchaser such a written notice stating
that the Audit Report and the Audited Adjustment
Amount are accepted by the Representative or does
not deliver such a certificate of objection within
such 30-day period, the Audited Adjustment Amount
shall, upon the earlier of such delivery or the end
of such 30-day period be final and binding as the
Adjustment Amount under this Agreement. In the
event the Representative so objects within such
30-day period, the Representative and Purchaser
shall endeavor to resolve by written agreement (the
"Agreed Adjustments") any differences as to the
Adjustment Amount and, in the event the
Representative and Purchaser so resolve any such
differences, the Audited Adjustment Amount, as
adjusted by the Agreed Adjustments, shall be final
and binding as the Adjustment Amount under this
Agreement.
2.4.3 Audit by Additional Accounting Firm. In the event
any objections lodged by the Representative in
accordance with Section 2.4.2 above are not
resolved by Agreed Adjustments within the 30-day
period next following the 30-day period referred to
in Section 2.4.2, then Purchaser and the
Representative shall jointly select a national
accounting firm acceptable to both Purchaser and
the Representative (or, if they cannot agree on
such selection, they shall select a national
(big-five) accounting firm by lot after eliminating
the Independent Accountants and any firm that has
had a business relationship with the Company, any
Seller or any of their respective Affiliates within
the past three years) and shall direct the firm so
selected (the "Additional Accounting Firm") to
conduct, as promptly as practicable, but in any
event not later than 30 days after such direction,
such audit of the Audited Adjustment Amount as they
believe to be necessary to resolve the objections
(it being understood that under no circumstances
shall they be charged with reconsidering or
conducting an audit of any elements of the Audited
Adjustment
18
Amount as to which no objection has been lodged by
Purchaser and which do not bear directly on the
matters or conclusions objected to by Purchaser),
and to deliver a written notice (the "Additional
Accounting Report") to each of Purchaser and the
Representative setting forth what adjustments, if
any, to the Audited Adjustment Amount the
Additional Accounting Firm believes to be required
under GAAP and this Agreement to resolve such
objections, and the amount of the Adjustment Amount
after giving effect to such adjustments. In such
event, the final Audited Adjustment Amount shall be
final and binding as the Adjustment Amount under
this Agreement.
2.4.4 Access to Information; Fees and Expenses. The
parties hereto shall make available to Purchaser,
the Representative, the Independent Accountants
and, if applicable, the Additional Accounting Firm,
such books, records and other information
(including all work papers, summary memoranda and
summary conclusions of the Independent Accountants)
as any of them may reasonably request to prepare
and review the Audit Report or the Additional
Accounting Report in accordance with the terms of
this Section 2.4. The fees and expenses of the
Additional Accounting Firm, if any, shall be paid
50% by Purchaser and 50% by the Representative, on
behalf of the Stockholders.
Section 2.5 Deferred Payment.
2.5.1 Purchaser shall pay the Representative, on behalf
of the Stockholders, the amount, if any, that is
payable pursuant to the formula set forth on
Schedule 2.5 (the "Deferred Payment"). EBITDA, as
used in such formula, shall be determined on a
consolidated basis for the calendar year ending
December 31, 1999. The Deferred Payment, if any,
shall be deposited by Purchaser with the Escrow
Agent pursuant to Section 2.6.2 within 30 days
following the final determination thereof pursuant
to Section 2.5.3 or 2.5.4.
2.5.2 As promptly as practicable after January 1, 2000
and not later than March 30, 2000, Purchaser shall
deliver to the Representative a consolidated
statement of income of the Company and the
Subsidiaries for the calendar year ended December
31, 1999, accompanied by (a) a certification
thereof
19
by the Company's chief financial officer to the
effect that such statement of income (i) has been
prepared in conformity with GAAP, applied on a
basis consistent with the application of such
principles in the Audited Financial Statements, and
(ii) fairly presents the results of the Company's
and the Subsidiaries' operations for such calendar
year, and (b) a notice specifying the EBITDA of the
Company and the Subsidiaries for such calendar year
(the "Deferred Payment Notice"), showing in
reasonable detail the computation thereof.
2.5.3 The Representative shall have 30 days to
review the Deferred Payment Notice after receiving
the same from Purchaser pursuant to Section 2.5.2.
For the purposes of such review, the Representative
and its agents and advisors shall have full access
during normal business hours to all relevant books
and records and employees of the Company and the
Subsidiaries and their independent accountants.
Unless the Representative delivers written notice
to Purchaser on or prior to the 30th day after its
receipt of the Deferred Payment Notice specifying
in reasonable detail all disputed items and the
basis therefor, the Representative, on behalf of
the Stockholders, shall be deemed to have accepted
and agreed to the Deferred Payment Notice. If the
Representative so notifies Purchaser of its
objection to the Deferred Payment Notice, the
Representative and Purchaser shall, within 30 days
following such Notice (the "Resolution Period"),
attempt to resolve their differences and any
resolution by them as to any disputed amounts shall
be final, binding and conclusive.
2.5.4 If at the conclusion of the Resolution Period
amounts shall remain in dispute, then all amounts
remaining in dispute shall be submitted to a firm
of nationally recognized independent public
accountants (the "Neutral Auditors") selected by
the Representative and Purchaser within 10 days
after the expiration of the Resolution Period. If
the Representative and Purchaser are unable to
agree on the Neutral Auditors, they shall select a
national (big-five) accounting firm by lot after
eliminating the Independent Auditors and any firm
(other than the Additional Accounting Firm, if any,
selected pursuant to Section 2.4.3) that has had a
business relationship with the Company, any Seller
or any of their respective Affiliates within the
past three years. The parties hereto agree to
execute, if
20
requested by the Neutral Auditors, a reasonable
engagement letter. All fees and expenses relating
to the work, if any, to be performed by the Neutral
Auditors shall be borne 50% by Purchaser and 50% by
the Representative, on behalf of the Stockholders.
The Neutral Auditors shall act as an arbitrator to
determine only those issues still in dispute. The
Neutral Auditors' determination shall be made
within 30 days of their selection, shall be set
forth in a written statement delivered to the
Representative and Purchaser and shall be final,
binding and conclusive.
2.5.5 In the event of the consummation of a Business
Disposition prior to December 31, 1999, Purchaser
shall pay to the Escrow Agent to be held by the
Escrow Agent pursuant to the Escrow Agreement, in
lieu of any payment under Section 2.5.1,
$1,000,000; and no further payments under this
Section 2.5 shall be due. For purposes of this
Section 2.5.5, "Business Disposition" shall mean
the transfer, in a transaction or series of related
transactions, of all or substantially all of the
assets or properties of the Company or more than
50% of the voting power or equity securities of the
Company by merger, stock sale, recapitalization,
reorganization, voting agreement or other transfer
from Purchaser to any other Person that is not a
direct or indirect subsidiary of Stellex
Industries, Inc. or Stellex Industries, Inc.
itself. In the event of the sale, transfer or
disposition of any assets or properties (other than
in the ordinary course of business) or interests in
the Company, the consolidation of the Company with
any Person, or upon a material change in the
business or operations of the Company that, in any
case, do not constitute a Business Disposition, the
Company shall maintain or cause to be maintained
separate financial records for the operations of
the Company and the Subsidiaries to permit EBITDA
to be calculated on the same basis as prior to any
such sale, transfer, disposition, consolidation or
material change.
Section 2.6 Escrow Agreement; Initial Escrow Amount;
Deferred Payment Escrow Amount.
2.6.1 Purchaser shall deposit the Initial Escrow Amount
in escrow with the Escrow Agent for the purpose of
satisfying any liabilities of the Representative or
any Seller to Purchaser
21
pursuant to (i) Section 2.3.3 in connection with
the determination of the Adjustment Amount and (ii)
Article 11 whereby the Representative and the
Sellers have agreed to indemnify Purchaser against
certain losses, damages and expenses. The Initial
Escrow Amount and any interest or earnings thereon
shall be disbursed by the Escrow Agent in
accordance with the provisions of this Agreement
and the Escrow Agreement.
2.6.2 Purchaser shall deposit the Deferred Payment, if
any, in escrow with the Escrow Agent for the
purpose of satisfying any liabilities of the
Representative or any Seller to Purchaser pursuant
to Article 11 whereby the Representative and the
Sellers have agreed to indemnify Purchaser against
certain losses, damages and expenses. Any portion
of the Deferred Payment that is deposited with the
Escrow Agent pursuant to this Section 2.6.2 is
hereinafter referred to as the "Deferred Payment
Escrow Amount". The Deferred Payment Escrow Amount
and any interest or earnings thereon shall be
disbursed by the Escrow Agent in accordance with
the provisions of this Agreement and the Escrow
Agreement.
Section 2.7 Transfer Taxes. All Taxes and other governmental
charges (including, without limitation, charges for or in connection with the
recording of any instrument or document as provided in this Agreement) payable
in connection with the transfer of the Stock as contemplated by this Agreement
shall be paid by the Sellers, jointly and severally.
ARTICLE 3
THE CLOSING
Section 3.1 Closing Date. The closing date (the "Closing
Date") shall be March 1, 1999, provided, however, that Purchaser, in its sole
discretion, may extend the Closing Date to any business day on or before March
15, 1999 to permit the satisfaction of the conditions to its obligations to
consummate the transactions contemplated by this Agreement as set forth in
Article 9. The closing ("Closing") shall take place at the offices of Winston
& Xxxxxx, 000 Xxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx beginning at 9:00 a.m., on the
Closing Date or at such other place as the parties shall agree to in writing
in advance thereof.
22
Section 3.2 Closing Date Deliveries. At the Closing,
Purchaser and the Sellers shall deliver or cause to be delivered to each other
the deliveries required by Articles 9 and 10 hereof.
Section 3.3 Further Assurances. Subject to the terms and
conditions herein provided, each of the parties agrees to use its Best Efforts
to take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary, proper, or advisable under applicable Law to consummate and
make effective the transactions contemplated by this Agreement, including
using its Best Efforts to defend any lawsuits or other legal proceedings,
whether judicial or administrative, whether brought derivatively or on behalf
of third parties (including any Governmental Authority), challenging this
Agreement. In addition, the Company and the Subsidiaries and each Seller shall
provide such information and assistance as Purchaser shall reasonably request
or require in connection with the financing of the transactions contemplated
by this Agreement, including by making available officers and advisors of the
Company and the Subsidiaries from time to time to attend and make
presentations regarding the Business and prospects of the Business, at
meetings of prospective lenders or other financing sources. Without limiting
the generality of the foregoing, the Sellers shall use their Best Efforts to
cause the Company's and the Subsidiaries' accountants, attorneys, advisors,
employees and other representatives to cooperate with Purchaser in order to
consummate and make effective the transactions contemplated by this Agreement,
including, without limitation, the financing of such transactions. In case at
any time after the Closing Date any further action is necessary or desirable
to carry out the purposes of this Agreement, each Seller and the proper
officers and directors of the Company and Purchaser shall take all such
necessary action. In addition, each of the Sellers shall use its Best Efforts
to cause each of the Stockholders to take, do, cause or perform all of the
actions contemplated in this Section 3.3.
ARTICLE 4
CERTAIN COVENANTS
Section 4.1 Access to Books and Records and Personnel. Upon
reasonable prior notice during business hours, the Company and the
Subsidiaries shall at all times prior to the Closing Date make the books,
accounts, inventory, equipment, records (financial and other), technical
information, Contracts and such other documents and information regarding the
Business available for examination, audit and inspection, including access for
the purposes of conducting environmental audits, by Purchaser and its
officers, employees, financial advisors, financing sources, consultants,
accountants, attorneys and authorized representatives. The Company and the
Subsidiaries shall furnish Purchaser as promptly as practicable with such
23
documents or copies thereof, and other information concerning the Business,
including, without limitation, any financial and operating data or other
periodic financial information, as Purchaser shall, from time to time,
reasonably request. In addition, the Company and the Subsidiaries shall give
Purchaser access at mutually agreed upon times and places to such officers,
managers, employees, accountants, advisors and other representatives of the
Company or the Subsidiaries as Purchaser shall reasonably request. No
investigation by Purchaser shall, however, diminish or obviate in any way, or
affect Purchaser's right to rely upon, any of the representations, warranties,
covenants or agreements of the Company or any of the Sellers contained in this
Agreement or any other Company Documents.
Section 4.2 Notice of Certain Events. On or prior to the
Closing Date, the Company and each Seller shall promptly notify Purchaser in
writing upon it becoming aware of the occurrence of any of the following:
4.2.1 the commencement of any proceeding or litigation at
law or in equity or before any Governmental
Authority;
4.2.2 any material violation by the Company or any of the
Subsidiaries (or notice of potential material
violation) of any Environmental Law or other Law;
4.2.3 the commencement or threat of any actions, suits,
claims, investigations or proceedings against,
relating to or involving or otherwise affecting any
party hereto;
4.2.4 any fact or circumstance which would make any
representation or warranty set forth herein untrue
or inaccurate in any material respect as of the
Closing Date or as of the date of this Agreement;
4.2.5 any condition set forth in this Agreement to be
unsatisfied as of the Closing Date;
4.2.6 any Transaction Proposal, including, without
limitation, the terms proposed and the identity of
such offeror;
4.2.7 any notice or other communication from any Person
alleging that the consent of such Person is or may
be required in connection with the transactions
contemplated by this Agreement;
24
4.2.8 any occurrence, event or circumstance materially
affecting or relating to the Business that is
outside the ordinary course of business of the
Company or any of the Subsidiaries; or
4.2.9 any event which has had or might reasonably be
expected to have a Material Adverse Effect or which
if known as of the date hereof would have been
required to be disclosed to Purchaser.
Section 4.3 Conduct of Business by the Company and the
Subsidiaries. Between the date of this Agreement and the Closing Date, the
Company and the Subsidiaries will operate only in the ordinary course of
business, consistent with past practices. The Company and the Subsidiaries and
each of the Sellers will use their respective Best Efforts to (i) preserve
intact the Business and the business organization of the Company and each of
the Subsidiaries, (ii) maintain in effect all material licenses, permits, and
approvals of Governmental Authorities which are necessary for the conduct of
the Business, (iii) keep available the services of the Company's and the
Subsidiaries' present management and workforce, and (iv) maintain good
business relationships with suppliers, customers and distributors and others
having business dealings with the Company or any of the Subsidiaries. Except
as otherwise contemplated by or permitted by this Agreement, or as otherwise
consented to or approved by Purchaser in writing, the Company and each of the
Subsidiaries shall not:
4.3.1 amend their respective Certificates of
Incorporation, Bylaws or other organizational
documents or take any corporate or other action if
any such action would have an adverse effect on the
ability of the Company or any Seller to consummate
the transactions contemplated by this Agreement or
otherwise adversely affect the value of the
Business;
4.3.2 issue, sell, grant, pledge, purchase, redeem, or
otherwise encumber, or agree or commit to issue,
sell, grant, pledge, purchase, redeem, or otherwise
encumber any shares of their capital stock; or
grant, issue, create, sell, pledge, purchase,
redeem, or otherwise encumber or agree to grant,
issue, sell, pledge, purchase, redeem, or otherwise
encumber any options, warrants or rights to
purchase shares of their capital stock or
securities of any kind convertible into or
exchangeable for shares of their capital stock;
4.3.3 except as set forth on Schedule 4.3, increase the
compensation or rate of compensation payable or to
become payable to any
25
of the present or former employees, directors,
consultants or officers of the Company or any of
the Subsidiaries, nor make any increase in
compensation or rate of compensation or benefits
payable or to become payable to employees,
directors, consultants or officers of the Company
or any of the Subsidiaries who are parties to
separation, severance, or employment agreements
with the Company or any of the Subsidiaries, nor
enter into any separation, severance, or "change in
control" agreements with any of their present or
former employees, officers, consultants or
directors, nor enter into any written or oral
employment agreement;
4.3.4 except as contemplated by or permitted by this
Agreement and except as set forth on Schedule 4.3,
set aside, or pay to any present or former officer,
director, consultant or employee of the Company or
any of the Subsidiaries any bonus, profit- sharing,
severance, retirement, insurance, death, fringe
benefit, or other extraordinary compensation, nor
adopt, amend, fund or commit itself to fund any
employee benefit plan or account related to any
Plan with or for the benefit of any of the present
or former employees, consultants, directors or
officers of the Company or any of the Subsidiaries;
4.3.5 acquire any business entity or all or substantially
all of the assets of a business entity or make any
other investment outside the ordinary course of
business;
4.3.6 except as set forth on Schedule 4.3, make any
capital expenditures, the aggregate amount of which
are in excess of $50,000, other than (i) emergency
repairs, and (ii) those
scheduled in the Company's and the Subsidiaries'
capital expenditure budgets for 1998 and 1999,
copies of which have been provided to Purchaser;
4.3.7 other than trade payables and contractual
obligations not in default which are incurred in
the ordinary course of business, create or incur
any Liabilities and Costs (absolute or contingent)
in excess of $50,000 in the aggregate;
4.3.8 make any loan, advance, guaranty or other extension
of credit to any Person or enter into any
commitment to make any loan, advance, guaranty or
other extension or credit, other than to
26
the Company or to any Subsidiary and other than
routine advances to employees of the Company and
the Subsidiaries, or enter into any other
transaction with any Affiliate or Associate of the
Company, the Subsidiaries, any Stockholder or any
employee (other than any such transaction between
the Company or one or more of the Subsidiaries);
4.3.9 create or incur any Encumbrance or fail to take
action to discharge any involuntary Encumbrance,
against or in respect of any of their respective
assets or properties except for Permitted
Encumbrances;
4.3.10 amend, terminate, fail to renew or renegotiate any
Material Contract in any manner adverse to the
Company or the Subsidiaries or default (or take or
omit to take any action that, with or without the
giving of notice or passage of time, would
constitute a default) in any of their respective
obligations under any Material Contract or enter
into any new Material Contract or take any action
that would jeopardize the continuance of its
supplier or customer relationships;
4.3.11 pay, discharge, settle or satisfy any claims,
liabilities or obligations (absolute, accrued,
asserted or unasserted, contingent or otherwise),
other than the payment, discharge or satisfaction,
in the ordinary course of the Business consistent
with past practices of the Company and the
Subsidiaries (provided that payment prior to
scheduled maturity of any Indebtedness, other than
revolving Indebtedness under the Working Capital
Facility, shall not be deemed under any
circumstances to be made in the ordinary course of
the Business) or in accordance with their terms, of
liabilities reflected or reserved against in the
May 31 Balance Sheet, or incurred since May 31,
1998 in the ordinary course of the Business
consistent with past practices and in accordance
with the Company's and each Seller's
representations, warranties and covenants contained
in this Agreement;
4.3.12 directly or indirectly terminate or reduce or
commit to terminate or reduce any bank line of
credit or the availability of any funds under any
other agreement or understanding, other than
through the use thereof in the ordinary course or
as expressly permitted by this Agreement;
27
4.3.13 institute, settle, or agree to settle any claims,
actions, or proceedings involving an expenditure in
excess of $50,000 in the aggregate, or involving
any contingent or non-monetary obligation having
value in excess of $50,000 in the aggregate, before
any court or other Governmental Authority;
4.3.14 dispose of or permit to lapse any rights to the use
of any Intangible Personal Property or disclose any
Intangible Personal Property not a matter of public
knowledge;
4.3.15 fail to maintain such liability, casualty,
property, loss, and other insurance coverage, on
such terms, in such amounts, and with such
insurance carriers and to such extent and covering
such risks as are maintained on the date hereof;
4.3.16 dispose of any of their respective assets or
properties, except for dispositions of obsolete
property in the ordinary course of business;
4.3.17 compromise or otherwise settle any claims, or
adjust any assertion or claim of a deficiency in
Taxes (or interest thereon or penalties in
connection therewith), or file any appeal from an
asserted deficiency, except in a form previously
approved by Purchaser in writing, or file or amend
any Tax Return, in any case before furnishing a
copy to Purchaser and affording Purchaser an
opportunity to consult with respect thereto;
4.3.18 make any Tax election or make any change in any
method or period of accounting or in any accounting
policy, practice or procedure;
4.3.19 introduce any new method of management or
operation;
4.3.20 terminate or fail to renew or preserve any Licenses
or Permits;
4.3.21 fail to collect Receivables and pay accounts
payable in the ordinary course of business
consistent with past practices of the Company and
the Subsidiaries;
4.3.22 declare, issue, make or pay any dividend or other
distribution of assets, whether consisting of
money, other personal property, real property or
other thing of value, to its
28
shareholders (other than dividends or distributions
solely to the Company);
4.3.23 deviate from past practice in the ordinary course
with respect to maintenance of Inventory;
4.3.24 fail to maintain and comply with all applicable
Laws and Orders, including, without limitation, all
Governmental Approvals;
4.3.25 fail to maintain working capital components at such
levels as are consistent with past practice and the
Projections and appropriate in connection with the
financing of the Company's and the Subsidiaries'
operations;
4.3.26 fail to maintain Inventory levels as are consistent
with past practice and the Projections and
appropriate in connection with the operation of the
Business;
4.3.27 make special or extraordinary payments to any
Person; or
4.3.28 authorize any of, or commit or agree to take any
of, the foregoing actions.
In addition to the foregoing, neither the Company nor any of the Subsidiaries
nor any Seller shall take any action that would, or that could reasonably be
expected to, result in (i) any of the representations and warranties of any
Seller forth in this Agreement becoming untrue or (ii) any of the conditions
to the consummation of the transactions contemplated by and set forth in this
Agreement not being satisfied.
Section 4.4 Regulatory Matters. The Company, Purchaser and
each Seller will make, or cause to be made, all other necessary governmental
and regulatory filings, as soon as practicable after the date hereof, in order
to facilitate prompt consummation of the transactions contemplated by this
Agreement. In addition, the Company, Purchaser and each Seller will use their
respective Best Efforts, and will cooperate fully with each other (i) to
comply as promptly as practicable with all governmental requirements
applicable to the transactions contemplated by this Agreement and (ii) to
obtain as promptly as practicable all necessary Governmental Approvals and
consents of all third parties necessary for the consummation of the
transactions contemplated by this Agreement. The Company, Purchaser and each
Seller shall use their respective Best Efforts to provide such information and
29
communications to Governmental Authorities as such Governmental Authorities
may request.
Section 4.5 Updated Financial Information. The Company has
delivered to Purchaser complete copies of internal unaudited statements of
earnings and balance sheets ("Interim Financial Statements") of the Company
and the Subsidiaries for the period from June 1, 1998 through January 31,
1999. From the date hereof until the Closing Date (or the earlier termination
of this Agreement), as soon as internally available and in any event within 25
days after the end of each calendar month of the Company, the Company shall
deliver to Purchaser complete copies of monthly financial statements ("Monthly
Financial Statements") for the preceding month. The Company and each Seller
represents and covenants that, except for normal interim and year-end audit
adjustments, the Interim Financial Statements and the Monthly Financial
Statements referred to in the preceding two sentences have been or shall be
prepared in accordance with GAAP consistently applied (except for changes
required by GAAP), and do or shall fairly present in all material respects the
consolidated financial condition and results of operations of the Company and
the Subsidiaries as of the dates indicated and for the periods then ended.
Section 4.6 Transaction Proposals. From the date hereof
until the Closing Date (or the earlier termination of this Agreement), neither
any Seller, the Company nor the Subsidiaries shall authorize or permit its
officers, directors, consultants, employees, shareholders, Affiliates,
investment bankers, attorneys, advisors, auditors, representatives or agents
to, directly or indirectly, (i) solicit, initiate or encourage the submission
of inquiries, proposals or offers from any Person or group of Persons relating
to any acquisition or purchase of any Assets of, or any equity interest in,
the Company or any of the Subsidiaries, or any tender or exchange offer,
merger, consolidation, business combination, recapitalization, restructuring,
spin-off, liquidation, dissolution or similar transaction involving, directly or
indirectly, the Company or any of the Subsidiaries, (each a "Transaction
Proposal"), (ii) participate in any discussions or negotiations regarding any
Transaction Proposal or furnish information about the Company or any of the
Subsidiaries to any Person except to (x) lenders and other parties to
agreements with the Company or any of the Subsidiaries (for the specific
purpose set forth in such agreements, which in no event shall include a
Transaction Proposal) and (y) Purchaser or its representatives, (iii)
otherwise cooperate in any way with, or assist or participate in, facilitate
or encourage, any effort or attempt by any other Person to make or enter into
a Transaction Proposal, or (iv) accept, approve or authorize, or enter into
any agreement concerning any Transaction Proposal or dispose of any equity
interest in the Company or any of the Subsidiaries. The Company, the
Subsidiaries and each Seller shall, as applicable, cause their respective
shareholders, Affiliates, agents, officers, directors, investment bankers,
advisors, representatives and Affiliates to abide by the terms of this Section
4.6. In the
30
event that the Company, any of the Subsidiaries or any Seller receives or
becomes aware of any Transaction Proposal, it shall promptly notify Purchaser
in writing of such communication and keep Purchaser informed of any subsequent
developments in connection therewith.
Section 4.7 Customers and Suppliers. The Company and the
Subsidiaries shall each, as promptly as practicable after the date hereof,
seek and use its Best Efforts to arrange such meetings and telephone
conferences with all material customers and suppliers of the Company and the
Subsidiaries as may be necessary and appropriate for Purchaser to conduct a
comprehensive review of the Company's and the Subsidiaries' relations with
customers and suppliers of the Company and the Subsidiaries.
Section 4.8 Backlog. On the Closing Date, the Sellers shall
deliver to Purchaser a list prepared by the Company and the Subsidiaries of
Contracts constituting their customer backlog as of the most recent
practicable date prior to the Closing Date, which list shall be true, correct
and complete.
Section 4.9 Arrangements with Employees. From the date
hereof until the Closing Date, the Sellers, the Company and the Subsidiaries
shall use their respective Best Efforts to retain employees of the Company and
the Subsidiaries and permit Purchaser to approach and negotiate with any or
all employees of the Company and the Subsidiaries, including, without
limitation, managerial personnel, in an effort to persuade them to continue in
the employ of the Company or any of the Subsidiaries following the Closing.
The Sellers, the Company and the Subsidiaries shall use their respective Best
Efforts to assist Purchaser in such negotiations.
Section 4.10 Permits and Approvals. Purchaser and each of
the Sellers agrees to cooperate and use its Best Efforts to obtain (and will
immediately prepare all registrations, filings and applications, requests and
notices preliminary to all) Approvals and Permits that may be necessary or
which may be reasonably requested by Purchaser to consummate the transactions
contemplated by this Agreement.
Section 4.11 Third Party Consents. To the extent that any
consent, approval or waiver of a third party with respect to any Contract is
required in connection with the transactions contemplated by this Agreement,
the Sellers, the Company and the Subsidiaries shall use their respective Best
Efforts to obtain such consent, approval or waiver prior to the Closing Date
and in the event that any such consent, approval or waiver is not obtained
(but without limitation on Purchaser's rights under Section 9.3), the Sellers
shall cooperate with Purchaser to ensure that Purchaser obtains the benefits
of each such Contract. In addition, the Sellers shall, jointly and severally,
indemnify and hold harmless Purchaser and the Company and the
31
Subsidiaries for and against any and all Losses as a result, directly or
indirectly, of the failure to obtain any such consent, approval or waiver.
Section 4.12 Stockholders Representative Agreement. Each
Stockholder has executed the Stockholders Representative Agreement,
substantially in the form of Exhibit D (the "Stockholders Representative
Agreement"), irrevocably appointing the Representative to act on its behalf in
connection with the transactions contemplated by this Agreement, including,
without limitation, the execution and delivery of all deeds, bills of sale,
tax certifications and other certificates and documents to be delivered to
Purchaser in connection herewith, and a fully-executed copy of such
Stockholders Representative Agreement has been delivered to Purchaser. Each
Stockholder shall indemnify and hold harmless each other Stockholder, the
Representative, the Company and Purchaser for any actions taken by such
Stockholder that are in violation of or inconsistent with the terms of the
Stockholders Representative Agreement.
Section 4.13 Change Name. The Sellers shall cause the
Partnership to change its name so as to not include "Phoenix Microwave",
"Phoenix" or "Microwave", or any other trade names or trademarks used or held
by the Company or any of the Subsidiaries.
ARTICLE 5
ADDITIONAL CONTINUING COVENANTS
Section 5.1 Noncompetition. In consideration for the
transactions contemplated by this Agreement, Xxxxxxxxxxxx Xxxxxxxxx, Xxxxxx X.
Xxxxxx, Xxxxxx Xxxxxxxxxx and Xxxxxx Xxxxxxxxx shall enter into their
respective Noncompetition Agreements and deliver copies thereof to Purchaser,
at or prior to the Closing. At the election of Purchaser, the terms of the
Noncompetition Agreements may be contained in such individuals' respective
Employment Agreements.
Section 5.2 Nondisclosure of Proprietary Data. After the
Closing, none of the Sellers nor any of their Affiliates or representatives
shall, at any time, make use of, divulge or otherwise disclose, directly or
indirectly, any Intangible Personal Property or other proprietary data
(including, but not limited to, any Customer List, record or financial
information) concerning the Company, the Subsidiaries or the Business that any
such Seller or any Affiliate or representative of such Seller may have learned
as a shareholder, employee, officer, director or representative of the Company
or any of the Subsidiaries. In addition, none of the Sellers nor any of their
Affiliates or representatives shall make use of, divulge or otherwise
disclose, directly or indirectly, to Persons other than Purchaser, any
confidential information concerning the
32
Company, the Subsidiaries or the Business and which may have been learned in
any such capacity. The provisions of this Section 5.2 shall be in addition to,
and not in lieu of, the terms and provisions of Section 12.1.
Section 5.3 Refund Claims and Warranty Claims. Certain of
the Customer Contracts grant or will grant the customer or another Person a
right to reduce the contract price or receive a refund. Such claims by
customers and other Persons under Contracts that constitute or include the
Customer Contracts are referred to in this Agreement as "Refund Claims."
Certain of the Customer Contracts also confer warranty and similar rights on
customers or other Persons. Such claims under such rights are referred to in
this Agreement as "Warranty Claims." Subject to Section 5.4, from and after
the Closing, (a) the Sellers shall have full responsibility for all Refund
Claims, Warranty Claims and the costs of all Warranty Work, to the extent such
claims and costs exceed $250,000 in the aggregate (i) under all Customer
Contracts that were or are completed before the Closing and (ii) with respect
to all Products shipped by the Company or any of the Subsidiaries before the
Closing and (b) Purchaser shall have full responsibility for all Refund
Claims, Warranty Claims and the costs of all Warranty Work (i) with respect to
Customer Contracts that were or are completed before the Closing and with
respect to all Products shipped by the Company or any of the Subsidiaries
before the Closing, to the extent such claims and costs are less than $250,000
in the aggregate, (ii) under all Customer Contracts entered into by
the Company after the Closing and (iii) with respect to all Products shipped
by the Company or any of the Subsidiaries after the Closing.
Section 5.4 Satisfaction of Warranty and Refund Claims. The
Company and the Subsidiaries shall perform, as an independent contractor for
the Sellers, all warranty work necessary to satisfy all valid Warranty Claims
for which any Seller is responsible pursuant to Section 5.3 ("Warranty Work").
The principles set forth on Schedule 5.4 shall be used to calculate the costs
of Warranty Work. The Sellers shall bear the costs of Warranty Work to the
extent such costs, together with the aggregate amount of Refund Claims and
Warranty Claims, exceed $250,000. In addition, the Sellers shall bear the full
amount of any Refund Claims to the extent that such Refund Claims, together
with the aggregate amount of Warranty Claims and the costs of Warranty Work,
exceed $250,000. The Sellers shall be given reasonable access to the Company's
and the Subsidiaries' relevant records and personnel to enable them to verify
the costs of Warranty Work and the amount of any Refund Claims. Within 30 days
of receipt thereof, the Representative, on behalf of the Stockholders, shall
pay any invoice issued by the Company or any of the Subsidiaries in respect of
Warranty Claims or Refund Claims. The Company and the Subsidiaries shall
perform the Warranty Work competently and in a timely manner and shall bear
full responsibility for any defects or claimed defects in any Warranty Work.
Following the Closing, the Company and the Subsidiaries shall in general
respond to and deal
33
with customers bringing any Warranty Claims or Refund Claims for which any
Seller is responsible pursuant to Section 5.3 in a manner consistent with the
practices of the Company and the Subsidiaries prior to the Closing.
Section 5.5 Change Orders. Notwithstanding Sections 5.3 and
5.4, if, following the Closing, the Company or any of the Subsidiaries
authorizes any change orders or amendments to any Contract that affect the
obligations of the Company or any of the Subsidiaries under that Contract, the
Sellers shall not be required to participate in or bear any cost respecting
any Refund Claim or Warranty Claim connected with such change order or
amendment.
Section 5.6 Tax Matters.
5.6.1 The Sellers shall cause the Company and the
Subsidiaries to prepare and file all Tax Returns of
the Company and the Subsidiaries due on or prior to
the Closing Date, which shall be prepared and filed
timely and on a basis consistent with existing
procedures for preparing such Tax Returns in a
manner consistent with prior practice with respect
to the treatment of specific items on the Tax
Returns; provided, however, that if the treatment
of an item on any such Tax Return has not been
provided by prior practice, the Sellers shall cause
the Company and the Subsidiaries to report such
items in a manner that would result in the least
amount of Tax liability to the Company, the
Subsidiaries, and Purchaser for periods ending
after the Closing Date. Purchaser shall cause the
Company and the Subsidiaries to prepare and file
all Tax Returns of the Company due after the
Closing Date, which Tax Returns, to the extent they
relate to taxable periods beginning prior to, but
including the Closing Date, and for the purpose of
determining the Sellers' liability for Taxes, shall
be prepared and filed timely and on a basis
consistent with existing procedures for preparing
such Tax Returns and in a manner consistent with
prior practice with respect to the treatment of
specific items on the Tax Returns, unless such
treatment does not have sufficient legal support to
avoid the imposition of penalties. In the event
Sellers are liable under Section 11.10 hereof for
Taxes due in connection with the Tax Returns
described in the preceding sentence, Sellers (or
the Representative) shall pay the amount of such
liability to the Company immediately upon request
or at least three business days prior to the filing
of such Tax Returns, whichever is later.
34
5.6.2 Purchaser, the Company, the Subsidiaries, and the
Sellers shall provide each other with such
assistance as may reasonably be requested by the
others in connection with the preparation of any
Tax Return, any audit or other examination by any
taxing authority, or any judicial or administrative
proceedings relating to liabilities for Taxes. Such
assistance shall include making employees available
on a mutually convenient basis to provide
additional information or explanation of material
provided hereunder and shall include providing
copies of relevant Tax Returns and supporting
material. Purchaser, the Company, the Subsidiaries
and the Sellers will retain for the full period of
any statute of limitations and provide the others
with any records or information which may be
relevant to such preparation, audit, examination,
proceeding or determination.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
Each Seller, jointly and severally, hereby represents,
warrants and agrees for the benefit of Purchaser as follows:
Section 6.1 Organization and Standing of the Company and the
Subsidiaries. Each of the Company and the Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has all necessary corporate power and
authority to own its properties and assets and to carry on the Business as the
same has been and is currently conducted. Each of the Company and the
Subsidiaries is duly qualified to transact business in all jurisdictions where
the nature of its business or the ownership or leasing of its property
requires such qualification. Each of the Company and the Subsidiaries has the
power and authority to hold all rights, privileges, franchises, immunities,
licenses, permits, authorizations and approvals (governmental and otherwise)
necessary to carry on and conduct the Business as the same has been and is
currently conducted.
Section 6.2 Authorization and Binding Obligation of the
Stockholders. Each of the Stockholders and the Company has full power,
authority and/or capacity to enter into and perform this Agreement (to the
extent a party hereto) and each of the other Company Documents to be delivered
by it pursuant hereto. All corporate or other action on the part of each of
the Stockholders and the Company (as applicable) and the directors, officers,
trustees and stockholders of each of the Stockholders and the Company (as
applicable) necessary for the authorization,
35
execution and delivery of this Agreement and the other Company Documents and
for the performance of their respective obligations hereunder and thereunder,
as the case may be, have been taken. Each of this Agreement and the other
Company Documents to be delivered by the Company and the Stockholders pursuant
hereto, when executed and delivered, shall constitute a valid and legally
binding obligation of the Company and each Stockholder party thereto,
enforceable against the Company and each such Stockholder in accordance with
its terms, except as may be limited by (i) bankruptcy, insolvency, or other
similar laws affecting the enforcement of creditors' rights generally and (ii)
general principles of equity (whether enforcement is sought at law or in
equity).
Section 6.3 Non-Contravention. Except as set forth on Schedule 6.3, neither
the execution and the delivery by the Company and each of the Stockholders (to
the extent a party thereto) of this Agreement or the other Company Documents,
the performance by the Company and each of the Stockholders (to the extent a
party thereto) of their respective obligations hereunder or thereunder, nor
the performance or consummation by the Company and each of the Stockholders of
the transactions contemplated hereby or thereby will (i) violate or conflict
with any provision of the Certificate of Incorporation, By-laws or other
organizational documents of the Company, any Subsidiary or any of the
Stockholders (as applicable), (ii) violate or conflict with any Law or Order
to which any Stockholder, the Company, the Subsidiaries or the Business is
subject or bound, (iii) require the approval of or a filing or registration
with any Governmental Authority, (iv) whether after notice or lapse of time or
both, violate, breach or conflict with any provision of, result in the loss of
a material benefit under, or permit the termination or acceleration of any
Material Contract, (v) require any authorization, consent or approval of,
exemption or other action by, or notice to, any party to any Material Contract
or (vi) result in the creation or imposition of any Encumbrance upon any of
the Assets. The Partnership and the Company is each its own "ultimate parent
entity," as defined in 16 CFR 801.1(a)(3).
Section 6.4 Capitalization; Stock.
6.4.1 The authorized capital stock of the Company
consists of 559,375 shares of common stock, $0.002
par value per share, of which 557,708 shares are
outstanding and are validly issued, fully paid, and
nonassessable.
6.4.2 Except as set forth in Section 6.4.1 above, there
are no shares of capital stock or other equity or
voting securities of the Company issued, reserved
for issuance or outstanding. There are no
outstanding bonds, debentures, notes or other
indebtedness or other securities of the Company
having the
36
right to vote (or convertible into, or exchangeable
or exercisable for, securities having the right to
vote) on any matters on which stockholders of the
Company may vote. Except as set forth in Section
6.4.1 above, there are no outstanding options,
warrants, calls, rights, commitments, agreements,
arrangements or undertakings of any kind to which
the Company or any of the Subsidiaries is a party
or by which any of them is bound obligating the
Company or any of the Subsidiaries to issue,
deliver or sell, or cause to be issued, delivered
or sold, additional shares of capital stock or
other securities of the Company or any of the
Subsidiaries or obligating the Company or any of
the Subsidiaries to issue, grant, extend or enter
into any such security, option, warrant, call,
right, commitment, agreement, arrangement or
undertaking. There are no outstanding contractual
obligations, commitments, understandings or
arrangements of the Company or any of the
Subsidiaries to repurchase, redeem or otherwise
acquire or make payment in respect of any shares of
capital stock of the Company or any of the
Subsidiaries or to provide funds to or make any
investment (in the form of a loan, capital
contribution or otherwise) in any such Subsidiary
or any other entity. Except as set forth in
Schedule 6.4, there are no proxies with respect to
the shares of capital stock of the Company or any
of the Subsidiaries and there are no agreements or
understandings between or among any Persons which
affect or relate to the voting or giving of written
consents with respect to any security of the
Company or any of the Subsidiaries. Except as set
forth in Schedule 6.4, there are no agreements or
arrangements to which the Company or any of the
Subsidiaries is a party pursuant to which the
Company is or could be required to register shares
of Stock or other securities under the Securities
Act of 1933, as amended. Neither the Company nor
any of the Subsidiaries has adopted a shareholders'
rights plan. All outstanding shares of capital
stock of the Company are duly authorized, validly
issued, fully paid and nonassessable and not
subject to preemptive or similar rights.
6.4.3 Schedule 6.4 contains a true, accurate, and
complete list of the names of the shareholders of
record of the Company and the number and class of
shares of capital stock held of record by each
shareholder of the Company. All issued and
outstanding
37
shares of capital stock of the Company are owned of
record and beneficially by the Stockholders as set
forth in Schedule 6.4. The shares of Stock set
forth on Schedule 6.4 are owned by the Stockholders
free and clear of any Encumbrances, liens, security
agreements, claims, equities, charges, restrictions,
voting agreements, proxies, options, rights of first
refusal, calls, contractual rights or other
interests.
6.4.4 The Company has no subsidiaries other than
International, Limited and Monolithics, and does
not own or hold or have the right to acquire any
equity interest in any Person, directly or
indirectly. Schedule 6.4 sets forth a description
of the authorized and outstanding shares of capital
stock of each of the Subsidiaries. All of the
outstanding shares of capital stock of each of the
Subsidiaries have been validly issued and are fully
paid and non-assessable and not subject to
preemptive or similar rights. The Company owns all
of the issued and outstanding capital stock of
Monolithics and Limited, and Limited owns all of
the issued and outstanding stock of International,
free and clear of all Encumbrances, and there are
no outstanding options, warrants, or other rights
in or with respect to the unissued or treasury
shares of capital stock of International, Limited
and Monolithics, or any other securities
convertible into capital stock of International,
Limited and Monolithics.
6.4.5 Schedule 6.4 sets forth the outstanding
Indebtedness of the Company and the Subsidiaries.
Except as set forth on Schedule 6.4, neither the
Company nor any of the Subsidiaries is in conflict
with or in default or violation of (with or without
the giving of notice or lapse of time or both) of
any of the material terms of such Indebtedness nor
has any event or condition occurred which would
give the holders of such Indebtedness the right to
accelerate the maturity of or require repayment of
such Indebtedness prior to its stated maturity.
Section 6.5 Ability to Perform Obligations. Neither the
Company, the Subsidiaries nor any of the Stockholders is a party to, subject
to, or bound by any agreement, Law or Order that could prevent or materially
impair (i) the performance of any party's obligations under this Agreement,
(ii) the sale, conveyance, transfer and delivery of, or the right to sell,
convey, transfer and deliver, any shares of the Stock, or
38
(iii) the carrying on of or the right to carry on the Business as currently
constituted and conducted and as proposed to be conducted.
Section 6.6 Minute Books. The minute books of the Company
and each of the Subsidiaries provided to Purchaser accurately reflect all
actions and proceedings taken to date by their respective shareholders, boards
of directors and committees, and such minute books contain true and complete
copies of the charter documents of the Company and each of the Subsidiaries
and all related amendments. The stock record books of the Company and each of
the Subsidiaries reflect accurately all transactions in their capital stock of
all classes.
Section 6.7 Dividends and Other Distributions. Since May 31,
1998, neither the Company nor any of the Subsidiaries has (i) amended its
Certificate of Incorporation to alter its capital stock, (ii) declared, set
aside, made or paid any dividend or other distribution of assets or securities
whether consisting of money, property or any other thing of value, or (iii)
purchased or redeemed any shares of its capital stock.
Section 6.8 Accounting Records; Internal Controls. The
accounting records of the Company and the Subsidiaries that have been
furnished to Purchaser accurately and validly reflect, in all material
respects, the consolidated operations and financial position of the Company
and the Subsidiaries for the periods covered thereby. Such accounting records
will be available to Purchaser following the Closing Date.
Section 6.9 Financial Statements; Changes; Contingencies.
6.9.1 Audited Financial Statements. Copies of the audited
consolidated balance sheets of the Company and the
Subsidiaries as of May 31, 1998 (the "May 31
Balance Sheet") and May 31, 1997 and 1996, and the
related consolidated statements of income and cash
flow for the fiscal years ended May 31, 1998, 1997
and 1996, and the notes thereto (collectively, the
"Audited Financial Statements"), duly certified by
the Chief Financial Officer of the Company, have
been furnished to Purchaser. The Audited Financial
Statements (a) have been prepared in accordance
with GAAP applied on a consistent basis during the
periods covered thereby, (b) fairly present the
consolidated financial condition of the Company and
the Subsidiaries as of such dates and the
consolidated results of the operations of the
Company and the Subsidiaries for the periods
covered thereby, (c) contain and reflect all
39
necessary adjustments and accruals for a fair
presentation of the Company's and the Subsidiaries'
consolidated financial condition and the
consolidated results of operations of the Company
and the Subsidiaries for the periods covered
thereby, (d) contain and reflect adequate
provisions for all reasonably anticipated
liabilities for all Taxes, with respect to the
periods covered thereby and all prior periods, (e)
contain and reflect adequate reserves for all
anticipated losses, obligations (contingent or
otherwise), claims and costs (except no
representation is made with respect to inventory
and warranty reserves on the May 31 Balance Sheet
to the extent such reserves are included in the
January 31, 1999 consolidated balance sheet
delivered to Purchaser pursuant to Section 4.5),
(f) with respect to Contracts and commitments for
the sale of goods or the provision of services by
the Company or the Subsidiaries (including, without
limitation, all Customer Contracts), contain and
reflect adequate reserves for all anticipated
losses, returns and allowances and costs in excess
of anticipated receipts, and (g) do not reflect
items resulting directly from the transactions
contemplated by this Agreement. The projections,
dated November 5, 1998, provided to Purchaser
("Projections") were prepared in good faith by the
Company and the Subsidiaries based on reasonable
assumptions, and to the Sellers' Knowledge, no
event or condition relating to the Company, any of
the Subsidiaries or the Business has occurred that
would make the Projections inaccurate or misleading
in any material respect.
6.9.2 No Material Adverse Changes. Since May 31, 1998,
whether or not in the ordinary course of business,
there has not been, occurred or arisen: (i) any
change in or event affecting the Company, any of
the Subsidiaries or the Business that has had or
may reasonably be expected to have a Material
Adverse Effect; (ii) any strike or other labor
dispute affecting the Company, any of the
Subsidiaries or the Business; (iii) any casualty,
loss, damage or destruction (whether or not covered
by insurance) of any material Asset; or (iv) any
agreement, condition, action, omission or event
which would be proscribed (or require consent)
under Section 4.3 had it existed, occurred or
arisen after the date of this Agreement.
40
6.9.3 Absence of Undisclosed Liabilities. As of May 31,
1998, neither the Company nor any of the
Subsidiaries had any Liabilities and Costs which
were required to be but were not reflected on the
May 31 Balance Sheet. Since May 31, 1998, neither
the Company nor any of the Subsidiaries has
incurred any Liabilities and Costs which were
required to be but were not reflected in the
Interim Financial Statements or the Monthly
Financial Statements.
Section 6.10 Accounts Receivable. All Receivables accrued on
the May 31 Balance Sheet and all Receivables that have arisen since May 31,
1998 (i) resulted from valid sales in the ordinary course of business of the
Company and the Subsidiaries and represent fully completed bona fide
transactions that require no further act on the part of the Company or the
Subsidiaries to make such Receivables payable by the account debtors; (ii) to
the Sellers' Knowledge, were, and are, not subject to any claim, counterclaim,
offset or deduction; (iii) represent valid obligations owing to the Company or
the Subsidiaries by account debtors that are not Affiliates of the Company or
the Subsidiaries, which are enforceable in accordance with their respective
terms; (iv) are not more than 30 days' past due (except as set forth on
Schedule 6.10); and (v) were, and are, owned by the Company or the
Subsidiaries free and clear of all Encumbrances.
Section 6.11 Inventory. All Inventory of the Company and the
Subsidiaries consists of items of a quality and quantity useable and saleable
in the ordinary course of business of the Company and the Subsidiaries without
xxxx-down or discount, is of good merchantable quality and is fit for the
particular purpose for which it is intended. The value of obsolete, damaged or
excess Inventory and of Inventory below standard quality has been written down
on the May 31 Balance Sheet or, with respect to Inventory purchased since May
31, 1998, on the books and records of the Company or the Subsidiaries and in
the Interim Financial Statements or the Monthly Financial Statements, to
ascertainable market value, or adequate reserves have been provided therefor,
in accordance with GAAP. Except as set forth on Schedule 6.11, all such
Inventory is owned by the Company or one of the Subsidiaries free and clear of
any Encumbrances, other than Permitted Encumbrances, and is located on
property owned or leased by the Company or one of the Subsidiaries (each such
location being listed on Schedule 6.11) or is in transit to one of such
locations. No items included in such Inventory are held by the Company or the
Subsidiaries on consignment from others or held by others on consignment from
the Company or any of the Subsidiaries.
41
Section 6.12 Intangible Personal Property. Schedule 6.12
sets forth, as of the date hereof, (i) a true and accurate identification of
each registered and unregistered fictitious business name, trademark, service
xxxx, trade name, Internet domain name and slogan, and each registration and
application for any of the foregoing, constituting a part of the Intangible
Personal Property; (ii) a true and complete schedule of each statutory, common
law and registered copyright, and each registration and application therefor
constituting a part of the Intangible Personal Property; (iii) a true and
complete schedule of each patent and associated invention, industrial model,
process and design, technical information, know-how and operating, maintenance
or other manual and each registration and application for any of the
foregoing, constituting a part of the Intangible Personal Property; (iv) each
item of "software" and associated documentation constituting a part of the
Intangible Personal Property; (v) a true and complete list, without extensive
or revealing descriptions, of each trade secret constituting a part of the
Intangible Personal Property, including each related process or item of
know-how or other technical data, and including as to each such trade secret,
the specific location of each writing, computer program or other tangible
medium containing its complete description, specifications, source codes,
charts, procedures, manuals and other descriptive material relating to it; and
(vi) a true and complete list of each Contract to which the Company or any of
the Subsidiaries is a party either as licensee or licensor relating to any
item of the Intangible Personal Property. Except as indicated on Schedule
6.12:
6.12.1 the Company and/or the Subsidiaries is the owner of
all right, title and interest in and to each item
of the Intangible Personal Property, free and clear
of all Encumbrances;
6.12.2 all patents, copyrights and other state and federal
registrations and all applications therefor listed
on Schedule 6.12 are valid and in full force and
effect and are not subject to any Taxes,
maintenance fees or actions falling due within 120
days after the date hereof;
6.12.3 there are no pending claims, actions, judicial or
other adversary proceedings, disputes or
disagreements involving the Company or any of the
Subsidiaries concerning any item of the Intangible
Personal Property, and, to the Sellers' Knowledge,
no such action, proceeding, dispute or disagreement
is threatened;
6.12.4 the Company and the Subsidiaries have the right and
authority to use each item of the Intangible
Personal Property in perpetuity; such use did not
and will not conflict with, infringe upon, or
violate any patent or other proprietary right of
any
42
other Person, and neither the Company nor any of
the Subsidiaries has infringed and are not now
infringing upon any proprietary right belonging to
any other Person;
6.12.5 with respect to each trade secret comprising a part
of the Intangible Personal Property, such trade
secret is valid and protectible, and such trade
secret's documentation is current, accurate, and
sufficient in detail and content to identify and
explain it, and to allow its full and proper use
without reliance on the special knowledge or memory
of others;
6.12.6 each of the Company and the Subsidiaries has taken
all reasonable security measures to protect the
secrecy, confidentiality and value of its trade
secrets; and
6.12.7 all trade secrets of the Company and the
Subsidiaries are presently valid and protectible,
and are not part of the public knowledge or
literature, nor to the Sellers' Knowledge have they
been used, divulged or appropriated for the benefit
of any Person other than the Company and the
Subsidiaries or to the detriment of the Company and
the Subsidiaries.
Section 6.13 Real Property. Schedule 6.13 contains a true
and complete list and brief description of all Real Property which the Company
and the Subsidiaries use, have the right to use or require in the operation of
the Business and, to the Sellers' Knowledge, any imperfections concerning such
parcels which affect title or the interest of the Company or any of the
Subsidiaries to such Real Property.
6.13.1 The Company and the Subsidiaries have the right to
occupy all Real Property used in connection with
the operation of the Business pursuant to valid and
enforceable lease agreements, true and correct
copies of which are set forth in Schedule 6.13.
Each of Company and the Subsidiaries has complied
with the terms of the lease agreements set forth in
Schedule 6.13 to which it is a party, and no event
or condition has occurred and is continuing
(without regard to notice or lapse of time, or
both) would constitute a breach or default of any
such lease agreement.
6.13.2 None of the buildings, structures or improvements
located on the parcels of Real Property encroaches
upon or over any adjoining real estate or any
easement or right-of-way or
43
"setback" line and, all such buildings, structures
and improvements are located and constructed in
material conformity with all Laws (including,
without limitation, zoning ordinances and building
codes) applicable to such buildings, structures and
improvements. The use, operation and maintenance by
the Company and the Subsidiaries of the Real
Property as currently used, operated and maintained
by the Company and the Subsidiaries, and the
conduct of the Business as currently conducted by
the Company and the Subsidiaries, do not violate
and have not violated any local zoning or similar
land use laws or any other applicable Law or Order.
The current use of the Real Property is not
dependent on a nonconforming use or is not in
violation of any local zoning or similar land use
law or other governmental regulation.
6.13.3 The Real Property is adequately serviced by all
utilities necessary for the effective operations of
the Business and has not, during the last two
years, experienced any material interruption in the
delivery of adequate quantities of any utilities
(including, without limitation, electricity,
natural gas, potable water, water for cooling or
similar purposes and fuel oil, but excluding any
electricity interruption due to storm damage) or
other public services, including, without
limitation, sanitary and industrial sewer services,
required by the Company and the Subsidiaries in the
operation of the Business.
6.13.4 No condemnation or eminent domain proceedings have
been initiated by service of process on the Company
or any of the Subsidiaries which relate to the Real
Property, and no such proceedings are, to the
Sellers' Knowledge, threatened or have been filed
by any relevant governmental authority with respect
to the Real Property.
Section 6.14 Tangible Personal Property. Schedule 6.14 sets
forth (i) a description, including the location, of each item of the Tangible
Personal Property owned by the Company or any of the Subsidiaries having
either a depreciated book value or estimated fair market value in excess of
$25,000, or not owned by the Company or any of the Subsidiaries but in the
possession of or used by the Company or any Subsidiary in the operation of the
Business and having rental payments therefor or an economic value to the
Business in excess of $25,000 per year; and (ii) a description of the owner
of, and any Contract relating to the use of, each such item of
44
the Tangible Personal Property not owned by the Company or any of the
Subsidiaries and the circumstances under which such property is used. Except
as disclosed on Schedule 6.14:
6.14.1 the Company and/or the Subsidiaries have good and
marketable title to or a valid and enforceable
leasehold interest in each item of the Tangible
Personal Property, free and clear of all
Encumbrances other than Permitted Encumbrances;
6.14.2 each item of the Tangible Personal Property is in
good operating condition and repair, usable in the
ordinary course of business, and the operation
thereof as conducted during the twelve-month period
prior to the date hereof, as presently conducted
and as proposed to be conducted is not in any
material respect in violation of any applicable
building code, zoning ordinance or other Law
including, without limitation, applicable
Environmental Laws;
6.14.3 no item of the Tangible Personal Property has been
furnished to the Company or any Subsidiary by a
customer or other Person other than in connection
with a bona fide sale or lease transaction; and
6.14.4 during the past three years, there has not been any
significant interruption in the operations of the
Company or any of the Subsidiaries due to
inadequate maintenance of any item of the Tangible
Personal Property.
Section 6.15 Insurance. The Company and the Subsidiaries
are, and at all times during the past two years have been, insured with
reputable insurers against all risks normally insured against by companies in
similar lines of business, and all of the insurance policies and bonds
maintained by them are in full force and effect. Schedule 6.15 lists all
insurance policies and bonds that are material to the Company and the
Subsidiaries. Neither the Company nor any of the Subsidiaries is in default
under any such policy or bond. The Company and the Subsidiaries have timely
filed claims with insurers with respect to all material matters and
occurrences for which they have coverage. All insurance policies maintained by
the Company and the Subsidiaries will remain in full force and effect and to
the Sellers' Knowledge may reasonably be expected to be renewed on comparable
terms following consummation of the transactions contemplated by this
Agreement (subject to the Company's continuing compliance with the applicable
terms thereof and any right of insurers to terminate without cause), and
neither the Company nor any of the Subsidiaries has
45
received any notice or other indication from any insurer or agent of any
intent to cancel or not so renew any of such insurance policies. The Company
and the Subsidiaries have complied with and implemented in all material
respects all outstanding (i) requirements of and recommendations of any
insurance company that has issued a policy with respect to any of the material
properties and assets of the Company and the Subsidiaries and (ii)
requirements and recommendations of any Governmental Authority with respect to
any such insurance policy.
Section 6.16 Accounts Payable. All of the accounts payable
on the May 31 Balance Sheet and all accounts payable that have arisen since
May 31, 1998 arose from bona fide purchases of goods and services in the
ordinary course of business of the Company and the Subsidiaries.
Section 6.17 Tax Matters.
For the purposes of this Section 6.17, the Company and the
Subsidiaries shall be deemed to include any predecessor of the Company or the
Subsidiaries or any person or entity from which the Company or the
Subsidiaries incurs a liability for Taxes as a result of transferee liability.
Except as stated in Schedule 6.17:
6.17.1 The Company and the Subsidiaries have duly and
timely filed (and prior to the Closing Date will
duly and timely file) all Tax Returns due on or
prior to the Closing in all jurisdictions (whether
federal, state, local or foreign) in which any such
returns were due. All such Tax Returns were
prepared in accordance with applicable Law and were
true, complete and correct. All Taxes shown as due
and payable on such Tax Returns have been paid (or
will be), and there is no current liability for any
Taxes due and payable in connection with any such
Tax Returns. Any charges, accruals and reserves for
Taxes provided for on the financial statements
delivered or to be delivered pursuant to Sections
4.5 and 6.9.1 are adequate. There are no existing
Encumbrances for Taxes upon any of the Assets,
except for Permitted Encumbrances. The Company and
the Subsidiaries have provided the Purchaser with a
copy of all Tax Returns filed by the Company and
the Subsidiaries for the past five completed fiscal
years. All applicable sales Taxes, to the extent
due, were paid by the Company or the Subsidiaries
when the Assets were acquired by the Company or the
Subsidiaries;
46
6.17.2 The Company and the Subsidiaries have (i) withheld
all required amounts from its employees, agents,
contractors and nonresidents and remitted such
amounts to the proper agencies; (ii) paid all
employer contributions and premiums and (iii) filed
all federal, state, local and foreign Tax Returns
with respect to employee income tax withholding,
and social security and unemployment taxes and
premiums, all in compliance with the withholding
tax provisions of the Code and other applicable
laws;
6.17.3 None of the Assets is tax exempt use property under
Code Section 168(h). None of the Assets is property
that the Company and the Subsidiaries are required
to treat as being owned by any other person
pursuant to the safe harbor lease provision of
former Code Section 168(f)(8);
6.17.4 No portion of the cost of any of the Assets was
financed directly or indirectly from the proceeds
of any tax exempt state or local government
obligation described in Code Section 103 (a);
6.17.5 Neither the Company nor any of the Subsidiaries
other than International has (nor has the Company
or any of the Subsidiaries other than International
previously had) any permanent establishment in any
foreign country and neither the Company nor any of
the Subsidiaries other than International engages
(nor has the Company or any of the Subsidiaries
other than International previously engaged) in a
trade or business within the meaning of the Code
relating to the creation of a permanent
establishment in any foreign country;
6.17.6 Neither the Company, the Subsidiaries nor any of
the Stockholders is a foreign person within the
meaning of Code Section 1445;
6.17.7 Neither the Code nor any other provision of Law
requires Purchaser to withhold any portion of the
Purchase Price;
6.17.8 There is no Tax sharing or other Tax-related
agreement in effect among or between the Company
and the Subsidiaries and any other Person. Neither
the Company nor any of the Subsidiaries is subject
to any partnership, joint venture or other
47
arrangement which is treated as a partnership for
Federal or state income Tax purposes;
6.17.9 Neither the Company nor any of the Subsidiaries is
a "United States real property holding corporation"
as defined in Section 897(c)(1) of the Code;
6.17.10 Neither the Company nor any Subsidiary has ever
been a member of any consolidated, combined or
unitary group for federal, state, local or foreign
Tax purposes;
6.17.11 The federal income Tax Returns of the Company and
each of the Subsidiaries have been examined by the
IRS, or have been closed by the applicable statute
of limitations, for all periods through December
31, 1994; the state Tax Returns of the Company and
each of the Subsidiaries have been examined by the
relevant agencies or such returns have been closed
by the applicable statute of limitations for all
periods through December 31, 1994; no deficiencies
or reassessments for any Taxes have been proposed,
asserted or assessed against the Company or any of
the Subsidiaries by any federal, state, local or
foreign taxing authority;
6.17.12 Neither the Company nor any Subsidiary has executed
or filed with any taxing authority (whether
federal, state, local or foreign) any agreement or
other document extending or having the effect of
extending the period for assessment, reassessment
or collection of any Taxes, and no power of
attorney granted by the Company or any Subsidiary
with respect to any Taxes is currently in force;
6.17.13 No federal, state, local or foreign Tax audits or
other administrative proceedings, discussions or
court proceedings are presently pending with regard
to any Taxes or Tax Returns of the Company or the
Subsidiaries and no additional issues are being
asserted against the Company or the Subsidiaries in
connection with any existing audits of the Company
or any Subsidiary;
6.17.14 Neither the Company nor any Subsidiary has entered
into any agreement relating to Taxes which affects
any taxable year ending after the Closing Date;
48
6.17.15 Neither the Company nor any Subsidiary has agreed
to and is not required to make any adjustment by
reason of a change in accounting methods that
affects any taxable year ending after the Closing
Date. Neither the IRS nor any other agency has
proposed any such adjustment or change in
accounting methods that affects any taxable year
ending after the Closing Date. Neither the Company
nor any Subsidiary has an application pending with
any taxing authority requesting permission for any
changes in accounting methods that relate to its
business or operations and that affects any taxable
year ending after the Closing Date;
6.17.16 Neither the Company nor any Subsidiary has
consented to the application of Code section
341(f); and
6.17.17 There is no contract, agreement, plan or
arrangement covering any employee or former
employee of the Company or any Subsidiary that,
individually or collectively, could give rise to
the payment by the Company or any Subsidiary of any
amount that would not be deductible by reason of
Code section 280G.
Section 6.18 Litigation. Schedule 6.18 sets forth an
accurate and complete description of every pending or, to the Sellers'
Knowledge, threatened adverse claim, dispute, governmental investigation,
suit, action (including, without limitation, nonjudicial real or personal
property foreclosure actions), arbitration, legal, administrative or other
proceeding of any nature, domestic or foreign, criminal or civil, at law or in
equity, by or against or otherwise affecting the Company or any of the
Subsidiaries. The Company and the Subsidiaries have delivered to Purchaser
copies of all relevant court papers and other documents relating to the
matters referred to on Schedule 6.18. Except as disclosed on Schedule 6.18:
6.18.1 no such matter or matters, if decided adversely to
the Company or any of the Subsidiaries, could
reasonably be expected to result in liability in
excess of $25,000 or have an adverse effect on the
transactions contemplated by this Agreement;
6.18.2 neither the Company nor any of the Subsidiaries is
in default with respect to any Order by which it is
bound or to which its property or any Assets is
subject and there exists no Order enjoining or
requiring the Company or any of the Subsidiaries to
take any action of any kind;
49
6.18.3 neither the Company nor any of the Subsidiaries
nor, to the Sellers' Knowledge, any officer,
director or employee of the Company or any of the
Subsidiaries has been permanently or temporarily
enjoined by any Order from engaging in or
continuing any conduct or practice in connection
with the operation or the management of the
Company, the Subsidiaries or the Business; and
6.18.4 to the Sellers' Knowledge, no basis exists for any
claim, investigation, suit or proceeding which, if
decided adversely to the Company or any of the
Subsidiaries, could result in liability in excess
of $25,000 or have an adverse effect on the
transactions contemplated by this Agreement.
Section 6.19 Labor Relations. Neither the Company nor any of
the Subsidiaries is a party to or is subject to any collective bargaining
agreement, and there are no strikes or other labor disputes against the
Company or any of the Subsidiaries pending or, to the Sellers' Knowledge,
threatened. The Company and the Subsidiaries have complied in all material
respects with all Labor Agreements and all Laws relating to the employment of
labor, including those related to wages, hours, collective bargaining,
occupational safety, and the payment of social security and other payroll
related Taxes, and neither the Company nor any of the Subsidiaries has
received any notice alleging a failure to comply in any material respect with
any Law or Order relating to the employment of labor. No material
controversies, disputes or proceedings are pending or, to the Sellers'
Knowledge, threatened against the Company or any of the Subsidiaries with
respect to their employees. As of the date hereof, to the Sellers' Knowledge,
there are no activities or proceedings of any labor union to organize
non-unionized employees. All payments due from the Company or any of the
Subsidiaries for which any claim may be made against the Company or any of the
Subsidiaries on account of wages and employee health and welfare insurance and
other benefits have been paid or accrued as a liability on the financial
statements of the Company and the Subsidiaries, except as disclosed on
Schedule 6.19. Except as disclosed on Schedule 6.19, no present or former
employee, officer, consultant or director of the Company or any of the
Subsidiaries will have as of the Closing Date any claim against the Company,
any of the Subsidiaries, any Seller or Purchaser for any matter, including
without limitation (i) overtime pay for work done through the Closing Date,
(ii) wages or salary for work done through the Closing Date, (iii) vacation
time off or pay in lieu of vacation time off for the period through the
Closing Date, (iv) any violation of any Law relating to minimum wages or
maximum hours, workplace conditions, or any other matter, or (v) injuries or
other damages which are not fully covered by the insurance policies of the
Company or the Subsidiaries. Except as disclosed on Schedule 6.19, there are
no employment agreements, severance
50
agreements, change of control agreements or similar agreements covering the
employees, officers, directors or consultants of the Company or any of the
Subsidiaries.
Section 6.20 Employee Benefits.
6.20.1 Neither the Company, the Subsidiaries nor any ERISA
Affiliate maintains or contributes to any Plan other
than the Plans listed on Schedule 6.20 hereto, and
no ERISA Affiliate maintains or contributes to any
Multiemployer Plan.
6.20.2 Each Plan which is intended to be qualified under
Section 401(a) of the Code has been determined by
the IRS to be so qualified, and each trust related
to any such Plan has been determined to be exempt
from federal income tax under Section 501(a) of the
Code. Except as disclosed on Schedule 6.20, neither
the Company, the Subsidiaries nor any ERISA
Affiliate maintains or contributes to any employee
welfare benefit plan within the meaning of Section
3(1) of ERISA which provides benefits to employees
after termination of employment other than as
required by Section 601 of ERISA.
6.20.3 Neither the Company, the Subsidiaries nor any ERISA
Affiliate has materially breached any of the
responsibilities, obligations or duties imposed on
it by ERISA or regulations promulgated thereunder
with respect to any Plan. No Plan has incurred any
accumulated funding deficiency (as defined in
Section 302(a)(2) of ERISA and Section 412(a) of the
Code), whether waived or not waived. With respect to
each Plan, the market value of assets (exclusive of
any contribution due to the Plan) equals or exceeds
the present value of benefit liabilities as of the
latest actuarial valuation date for such Plan (but
not prior to twelve months prior to the date
hereof), determined on the basis of a shutdown of
the Business in accordance with actuarial
assumptions used by the PBGC in single-employer plan
terminations and since its last valuation date,
there have been no amendments to such Plan that
materially increased the present value of accrued
benefits nor any other material adverse changes in
the funding status of such Plan. Neither the
Company, the Subsidiaries nor any ERISA Affiliate
nor any fiduciary of any Plan which is not a
Multiemployer Plan (i) has engaged in a nonexempt
"prohibited transaction" described in Section 406 of
ERISA or Section 4975 of the Code or (ii) has
51
taken or failed to take any action which would
constitute or result in a Termination Event. Neither
the Company, the Subsidiaries nor any ERISA
Affiliate has incurred any liability to the PBGC
which remains outstanding other than the payment of
premiums, and there are no premium payments which
have become due which are unpaid. Schedule B to the
most recent annual report filed with the IRS with
respect to each Plan is complete and accurate. Since
the date of each such Schedule B, there has been no
adverse change in the funding status or financial
condition of the Plan relating to such Schedule B.
Since its last valuation date, there have been no
amendments to such Plan that increase the present
value of accrued benefits.
6.20.4 Neither the Company, the Subsidiaries nor any ERISA
Affiliate has (i) failed to make a required
contribution or payment to a Multiemployer Plan or
(ii) made a complete or partial withdrawal under
Sections 4203 or 4205 of ERISA from a Multiemployer
Plan, nor has the Company, any of the Subsidiaries
or any ERISA Affiliate suffered a 70% decline in its
contribution base units within the meaning of
Section 4205(h)(1)(j) of ERISA in any Plan Year
beginning after 1979. Neither the Company, the
Subsidiaries nor any ERISA Affiliate has failed to
make a required installment or any other required
payment under Section 412 of the Code on or before
the due date for such installment or other payment.
Neither the Company, the Subsidiaries nor any ERISA
Affiliate is required to provide security to a Plan
under Section 401(a)(29) of the Code due to a Plan
amendment that results in an increase in current
liability for the plan year.
Section 6.21 Certain Interests. Except with respect to the
Lease Agreement and the Assignment of Lease Agreement, which will be
terminated at the Closing, no Affiliate of the Company, any of the
Subsidiaries or any Stockholder nor any officer or director of the Company,
any of the Subsidiaries or any Stockholder, nor Associate of any such Person,
has any interest in any property or asset used or owned by the Company or any
of the Subsidiaries. The consummation of the transactions contemplated by this
Agreement will not (either alone, or upon the occurrence of any act or event,
or with the lapse of time, or both) result in any benefit or payment
(severance or other) arising or becoming due from the Company or, any of the
Subsidiaries or the successors or assigns of the Company or, any of the
Subsidiaries to any Person.
52
Section 6.22 Intercompany Transactions. Except as set forth
on Schedule 6.22, neither the Company nor any of the Subsidiaries has engaged
in a transaction with an Affiliate, any Stockholder or any Affiliate or
Associate of any Stockholder. Neither the Company or any of the Subsidiaries
has nor, upon consummation of the transactions contemplated hereby will have,
any liabilities or obligations to an Affiliate, any Stockholder or any
Affiliate or Associate of any Stockholder and none of the Stockholders or such
Affiliates or Associates has or, upon consummation of the transactions
contemplated hereby will have, any obligations to the Company or any of the
Subsidiaries. The consummation of the transactions contemplated hereby will not
(either alone, or upon the occurrence of any act or event, or with the lapse of
time, or both) result in any payment arising or becoming due from the Company
or any of the Subsidiaries or any of their respective successors or assigns to
an Affiliate, any Stockholder or any Affiliate or Associate of any Stockholder.
Section 6.23 Governmental Approvals; Compliance with Laws.
The Company and the Subsidiaries possess all Governmental Approvals, including,
without limitation, all Environmental Permits, necessary to operate the
Business. To the Sellers' Knowledge, all such Governmental Approvals are in
full force and effect, the Company and the Subsidiaries are in compliance with
their requirements, and no proceeding is pending or, to the Sellers' Knowledge,
threatened to revoke or amend any of them. Schedule 6.23 hereto contains a
complete list of all such Governmental Approvals. The operations of the Company
and the Subsidiaries comply in all material respects with all applicable Laws,
including, without limitation, all Environmental Laws. Neither the Company nor
any of the Subsidiaries is subject to any investigation, judicial or
administrative proceeding, or Order of or by a Governmental Authority.
Section 6.24 Customer Lists. The Sellers have provided
Purchaser with a correct and current list of all customers of the Company and
the Subsidiaries who purchased more than $150,000 of Products from the Company
and/or the Subsidiaries during their last fiscal year, together with summaries
of the sales made to each such customer during the Company's last fiscal year.
The Sellers have provided Purchaser with a full and complete list of the
customers of the Company and the Subsidiaries since January 1, 1996 who
purchased more than $150,000 in any twelve-month period since January 1, 1996.
The Company and the Subsidiaries have maintained good business relationships
with their respective customers. No material customer has decreased materially
or, to the Sellers' Knowledge, threatened to decrease materially its purchases
of Products from the Company or any of the Subsidiaries in the last 18 months.
Since January 1, 1996, to the Sellers' Knowledge, there has been no
termination, cancellation, or limitation of, or any material modification or
change in, the business relationship of the Company and the Subsidiaries with
any material customer. The consummation of the transactions contemplated
hereby will not, to the Sellers' Knowledge, adversely affect the
53
relationship between the Company or any of the Subsidiaries and any material
customers.
Section 6.25 Environmental Matters. For purposes of Section
6.25.1 through 6.25.9, inclusive, the "Company and the Subsidiaries" shall be
deemed to include any predecessor to the Company and the Subsidiaries and any
Persons from which the Company and the Subsidiaries have assumed liabilities
by contract, operation of Law, or otherwise. Except as disclosed on Schedule
6.25:
6.25.1 The Company and the Subsidiaries, and the operation
of the Business, are in compliance with all
applicable Environmental Laws and neither the
Company nor any of the Subsidiaries has received a
notice, demand, letter, claim or request for
information indicating that Company and the
Subsidiaries may be in violation of or liable under
any Environmental Law;
6.25.2 There is no civil, criminal, or administrative
action, suit, demand, claim, notice of violation,
investigation, or proceeding pending against the
Company and the Subsidiaries or, to the Sellers'
Knowledge, threatened against the Company and the
Subsidiaries relating in any way to Environmental
Laws;
6.25.3 To the Sellers' Knowledge, there are no facts or
circumstances that material capital expenditures
will likely be required within five years of the
Closing Date to maintain compliance with all current
and any currently pending or proposed Environmental
Laws. Neither the Company nor any of the
Subsidiaries has actual or potential liability for
indemnity or similar obligations with respect to any
third party under any Environmental Law;
6.25.4 The Company and the Subsidiaries possess all
permits, licenses, authorizations, and approvals
required under applicable Environmental Laws
("Environmental Permits") and all such Environmental
Permits are currently maintained in full force and
effect. Neither the Company nor any of the
Subsidiaries has received notice or other
communication, and to the Sellers' Knowledge there
are no facts or circumstances, that any such
Environmental Permits may be suspended, revoked or
modified by any Governmental Authority. Schedule
6.25.4 contains a true and complete listing of all
such Environmental Permits;
54
6.25.5 No Hazardous Substances have been placed, stored,
buried, released, dumped or disposed of in
quantities requiring investigation or cleanup, or
otherwise in a manner that could form the basis of
liability under Environmental Laws, on the
properties of the Company or the Subsidiary, nor to
the Sellers' Knowledge, at any offsite location,
including any storage, treatment or disposal
facility. No cleanup has occurred at any property
owned or operated by the Company or any of the
Subsidiaries that could reasonably be expected to
result in the assertion or creation of an
Encumbrance on such property by any Governmental
Authority with respect thereto, nor has any such
assertion of an Encumbrance been made by any
Governmental Authority;
6.25.6 Neither the Company nor any of the Subsidiaries has
received a notice or other communication from any
Governmental Authority or other Person seeking
information in connection with, or advising it that
it is responsible for, or potentially responsible
for, costs with respect to a release, a threatened
release or a clean-up of Hazardous Substances
generated, stored, treated, disposed of or
transported by or for the Company or any of the
Subsidiaries;
6.25.7 There is not at, on or in any property owned or
operated by the Company or any of the Subsidiaries
(i) any friable asbestos- containing material; (ii)
any poly-chlorinated biphenyls or lead- based paint
in concentrations that would impose regulatory
obligations on the Company or the Subsidiaries; or
(iii) other than naturally occurring radioactive
materials that are present at the property such as
radon, any radioactive material including but not
limited to, any source, special nuclear or byproduct
material as defined in 42 U.S.C.ss.2011 et seq., as
amended or hereafter amended;
6.25.8 There are no underground storage tanks or regulated
surface impoundments at, on or in any property owned
or operated by the Company or the Subsidiaries.
Schedule 6.25.8 contains a true and complete list of
any such tanks or impoundments; and
6.25.9 The Company and the Subsidiaries have provided
Purchaser copies of all environmental reports,
studies, assessments, and sampling data
("Environmental Reports") within their
55
possession that have been issued within the past six
years by or for the Company and the Subsidiaries, or
by any Governmental Authority, relating to the
property or operations of the Company and the
Subsidiaries. Schedule 6.25.9 contains a true and
complete list of all such Environmental Reports.
Section 6.26 Suppliers. The Company and the Subsidiaries have
good business relationships with all suppliers that are material to the
Business. Except as set forth on Schedule 6.26, no material supplier of
materials or services to the Company or any of the Subsidiaries has during the
last 18 months decreased materially or, to the Sellers' Knowledge, threatened
to decrease or limit materially, except upon the request of the Company or any
of the Subsidiaries, its provision of such materials or services. To the
Sellers' Knowledge, there has not occurred any termination, cancellation, or
limitation of, or any material modification or change in, the business
relationships of the Company or any of the Subsidiaries with any supplier of
materials or services within the last 18 months. The consummation of the
transactions contemplated hereby will not, to the Sellers' Knowledge, adversely
affect the relationships between the Company or any of the Subsidiaries and any
such supplier.
Section 6.27 Brokers, Finders. Other than Xxxxxx, Xxxxxx &
Co. (whose fees will be paid by the Representative, on behalf of the
Stockholders), neither this Agreement nor the sale and purchase of the Stock
nor any other transactions contemplated by this Agreement was induced by or
procured through or otherwise involved in any way any Person acting on behalf
of or representing the Company, the Subsidiaries or any Stockholder as broker,
finder, investment banker, financial advisor or in any similar capacity.
Section 6.28 Material Contracts.
6.28.1 Schedule 6.28 lists each Contract to which the
Company or any of the Subsidiaries is a party or to
which the Company or any of the Subsidiaries is
subject or bound that (a) is a Customer Contract
that provides for payments to or performance by the
Company or any of the Subsidiaries in an amount
equal to or in excess of $100,000 in the aggregate,
(b) represents a Contract upon which the Company or
any of the Subsidiaries is substantially dependent
or the absence of which could have a Material
Adverse Effect, (c) is a supplier, vendor or other
Contract that provides for payments by the Company
or any of the Subsidiaries in excess of $50,000 per
annum and which
56
cannot be terminated by the Company or any such
Subsidiary after the Closing in accordance with its
terms upon not more than 30 days' notice without
penalty or cost, (d) limits or restricts the ability
of the Company or any of the Subsidiaries to compete
or otherwise to conduct its business in any manner
or place, (e) provides for a guaranty or indemnity
by the Company or any of the Subsidiaries, (f)
grants a power of attorney, agency or similar
authority to another Person, (g) has an unexpired
term as of the date hereof in excess of two years,
(h) provides for the sale of assets outside the
ordinary course of business of the Company or any of
the Subsidiaries, (i) grants any preferential right
to purchase any assets, (j) relates to a joint
venture or partnership involving the Company or any
of the Subsidiaries, (k) represents a Contract for
the employment of any director, officer, consultant
or employee or a Contract, program or policy
providing for benefits or compensation to any
director, officer, consultant or employee, (l) is a
Contract to which any Affiliate of the Company, any
of the Subsidiaries or any Seller or any officer or
director of the Company, any of the Subsidiaries or
any Seller, or any Associate of any such Person, is
directly or indirectly a party or (m) is a
Government Contract (each of the Contracts described
under clauses (a) through (m) being a "Material
Contract"). True copies of each Material Contract,
including all amendments and supplements thereto,
have been furnished to Purchaser. Except as set
forth on Schedule 6.28, each Material Contract is
valid and subsisting; the Company and/or each of the
Subsidiaries has duly performed in all material
respects all of its obligations thereunder to the
extent that such obligations to perform have
accrued; and no material breach or default, alleged
material breach or default, or event which would
(with the passage of time, notice or both)
constitute a material breach or default thereunder
by the Company or any of the Subsidiaries or, to the
Sellers' Knowledge, any other party or obligor with
respect thereto, has occurred or as a result of this
Agreement or the performance hereof will occur. No
Material Contract (i) requires the Company or any of
the Subsidiaries to buy or sell goods or services
with respect to which there will be losses or will
be costs and expenses in excess of expected receipts
or (ii) is expected to result in gross margins less
than those assumed in connection with the
preparation of the Projections. The consummation of
the transactions
57
contemplated by this Agreement will not (and will
not give any Person a right to) terminate or modify
any rights of, or accelerate or augment any
obligation of the Company or any of the Subsidiaries
under any Material Contract.
6.28.2 With respect to each Material Contract (a) the
Company or any of the Subsidiaries party thereto has
complied with all requirements of all material Laws
or agreements pertaining to such Material Contract;
(b) all representations and certifications executed,
acknowledged or set forth in such Material Contract
were complete and correct in all material respects
as of their effective date, and the Company or any
of the Subsidiaries party thereto has complied in
all material respects with all such representations
and certifications; (c) neither any party with whom
the Company or any of the Subsidiaries has
contracted nor any other Person has notified the
Company, any of the Subsidiaries or any of the
Sellers, either in writing or, to the Sellers'
Knowledge, orally, that the Company or any of the
Subsidiaries has breached or violated any Law,
Order, certification, representation, clause,
provision or requirement pertaining to such Material
Contract; (d) no termination for convenience,
termination for default, cure notice or show cause
notice is currently in effect pertaining to such
Material Contract; (e) no material cost incurred by
the Company or any of the Subsidiaries pertaining to
such Material Contract has been formally questioned
or challenged or, is the subject of any
investigation; and (f) no money due to the Company
or any of the Subsidiaries pertaining to such
Material Contract has been withheld or offset nor
has any claim been made to withhold or offset money.
6.28.3 There exist (i) no outstanding material claims
against the Company or any of the Subsidiaries,
either by any party with whom the Company or any of
the Subsidiaries has contracted or by any prime
contractor, subcontractor, vendor or other third
party, arising under or relating to any Contract;
and (ii) no material disputes between the Company or
any of the Subsidiaries and any party with whom the
Company or any of the Subsidiaries has contracted,
any prime contractor, subcontractor or vendor
arising under or relating to any Contract. Neither
the Company nor any of the Subsidiaries has any
interest in any pending or potential claim against
any party
58
with whom the Company or any of the Subsidiaries has
contracted or any prime contractor, subcontractor or
vendor arising under or relating to any Contract.
Section 6.29 Bank Accounts. Schedule 6.29 contains a true and
complete list of:
6.29.1 each bank, savings and loan or similar financial
institution in which the Company or any of the
Subsidiaries has an account or safety deposit box
and the numbers of the accounts or safety deposit
boxes maintained by the Company or any of the
Subsidiaries' thereat; and
6.29.2 the names of all Persons authorized to draw on each
such account or to have access to any such safety
deposit box facility, together with a description of
the authority (and conditions thereof, if any) of
each such Person with respect thereto.
Section 6.30 Customer Warranties and Return Policies. Set
forth on Schedule 6.30 are warranties given and return policies offered by the
Company or the Subsidiaries to any of their respective customers, together
with an historical summary of all warranty and return claims made against the
Company or any of the Subsidiaries since January 1, 1997, and a description of
their status or disposition. There are not pending, or, to the Sellers'
Knowledge, threatened, any claims under or pursuant to any warranty or return
policy, whether expressed or implied, on Products sold prior to the date of
this Agreement by the Company or any of the Subsidiaries that are not
disclosed or referred to in the May 31 Balance Sheet and which are not fully
reserved against.
Section 6.31 Products Liability.
6.31.1 Claims. Except as disclosed on Schedule 6.31 (i)
there is no claim now pending or, to the Sellers'
Knowledge, threatened by or before any Governmental
Authority alleging any defect in any Product
manufactured, shipped, sold or delivered by the
Company or any of the Subsidiaries or alleging, with
respect thereto, the failure of the Company or any
of the Subsidiaries to warn or any breach by the
Company or any of the Subsidiaries of any express or
implied warranties or representations, nor is there
any valid basis for any such claim; (ii) to the
Sellers' Knowledge, there has not within the last
five
59
years been any product recall or post-sale warning
or similar action (collectively "Recalls") conducted
with respect to any Product manufactured, shipped,
sold or delivered by the Company or any of the
Subsidiaries, or any investigation by any
Governmental Authority concerning whether to
undertake or not undertake any Recalls; and (iii)
within the last five years there have been no
material defects in, failures to warn, or breaches
of express or implied warranties or representations
with respect to, any Product manufactured, shipped,
sold or delivered by the Company or any of the
Subsidiaries.
6.31.2 Compliance With Standards. All manufacturing
standards applied, testing procedures used, and
product specifications disclosed to customers by the
Company or any of the Subsidiaries comply in all
material respects with all applicable Laws and
Orders.
6.31.3 Occurrences. Except as disclosed on Schedule 6.31,
there have been no Occurrences within the last five
years. For purposes of this Section 6.31.3,
"Occurrence" shall mean any occurrence which is
caused or allegedly caused by any defect in, or
failure to warn or any breach of express or implied
warranties or representations with respect to, a
Product manufactured, shipped, sold or delivered by
the Company or any of the Subsidiaries which results
or is alleged to have resulted in injury or death to
any Person or damage to or destruction of property
(including damage to or destruction of the Product
itself) or other consequential damages.
Section 6.32 Federal Reserve Board Regulations. Neither the
Company nor any of the Subsidiaries owns any "margin security," as such term
is defined in Regulation U of the Board of Governors of the Federal Reserve
System.
Section 6.33 Consents and Governmental Approvals. Except as
set forth on Schedule 6.33, no consent, authorization, license, permit,
registration, Governmental Approval or exemption or other action by any
Governmental Authority or any other Person (including, without limitation, any
parties to Contracts) is required in connection with the Company's or any
Stockholder's execution and delivery of this Agreement or any other Company
Document or the performance by the Company or any Stockholder of its
obligations hereunder or thereunder.
60
Section 6.34 Absence of Undisclosed Changes. Since May 31,
1998, other than as set forth on Schedule 6.34, and other than the transactions
contemplated by this Agreement, there has not been (a) any material adverse
change in the business, condition (financial or otherwise), results of
operations or prospects of the Company and the Subsidiaries, taken as a whole,
(b) any damage, destruction or loss (whether or not covered by insurance) with
respect to any Asset of the Company or any of the Subsidiaries having,
individually or in the aggregate, a Material Adverse Effect, or (c) any entry
by the Company or any of the Subsidiaries into any commitment or transaction
material to the Company and the Subsidiaries taken as a whole other than in the
ordinary course of business. In addition, since May 31, 1998, other than as set
forth on Schedule 6.34, and other than the transactions contemplated by this
Agreement, (i) none of the Company nor any of the Subsidiaries has incurred any
Liabilities and Costs except Liabilities and Costs incurred in the ordinary
course of business consistent with past practices, (ii) the Company and the
Subsidiaries have conducted their businesses only in the ordinary course of
business consistent with past practices and have not taken any of the actions
proscribed by Section 4.3, (iii) there has not been (a) any change by the
Company or any of the Subsidiaries in their accounting methods, principles and
practices, (b) any reevaluation by the Company or any of the Subsidiaries of
any assets (including, without limitation, any write down of inventory or
writeoff of accounts receivable) other than as required by GAAP, (c) any
declaration, setting aside or payment of any dividend or distribution in
respect of any capital stock of the Company or any redemption, purchase or
other acquisition of any of its securities, or (d) any increase in or
establishment of any bonus, insurance, severance, deferred compensation,
pension, retirement, profit sharing, stock option (including, without
limitation, the granting of stock options, stock appreciation rights,
performance awards or restricted stock awards), stock purchase or other
employee benefit plan, or any other increase in the rate of compensation
payable or to become payable to any officer or key employee of the Company or
any of the Subsidiaries.
Section 6.35 Government Contracts.
6.35.1 In addition to the representations and warranties in
Section 6.28, with respect to each and every
Government Contract or bid which, if accepted, would
result in a Government Contract (a "Government
Bid"): (i) each of the Company and the Subsidiaries
has complied with all material terms and conditions
of such Government Contract or Government Bid,
including all clauses, provisions and requirements
incorporated expressly, by reference or by operation
of Law therein; (ii) each of the Company and the
Subsidiaries has complied with all requirements of
all material Laws or agreements pertaining to
61
such Government Contract or Government Bid; (iii)
all representations and certifications executed,
acknowledged or set forth in or pertaining to such
Government Contract or Government Bid were complete
and correct in all material respects as of their
effective date, and the Company and the Subsidiaries
have complied in all material respects with all such
representations and certifications; (iv) neither the
U.S. Government nor any prime contractor,
subcontractor or other Person has notified the
Company or any of the Subsidiaries, either in
writing or, to its knowledge after diligent inquiry,
orally, that the Company or any of the Subsidiaries
has breached or violated any Law, Order,
certification, representation, clause, provision or
requirement pertaining to such Government Contract
or Government Bid; (v) no termination for
convenience, termination for default, cure notice or
show cause notice is currently in effect pertaining
to such Government Contract or Government Bid; (vi)
no material cost incurred by the Company or any of
the Subsidiaries pertaining to such Government
Contract or Government Bid has been formally
questioned or challenged, is the subject of any
investigation or has been disallowed by the U.S.
Government; and (vii) no money due to the Company or
any of the Subsidiaries pertaining to such
Government Contract or Government Bid has been
withheld or offset nor has any claim been made to
withhold or offset money, and the Company or such
Subsidiary is entitled to all progress payments
received with respect thereto.
6.35.2 (i) Neither the Company nor any of the Subsidiaries
nor, to the Sellers' Knowledge, any of their
directors, officers, employees, consultants or
agents is (or during the last three years has been)
under administrative, civil or criminal
investigation, indictment or information by any
Governmental Authority, or any audit or
investigation of the Company or any of the
Subsidiaries with respect to any alleged
irregularity, misstatement or omission arising under
or relating to any Government Contract or Government
Bid; and (ii) during the last three years, the
Company and the Subsidiaries have not conducted or
initiated any internal investigation or made a
voluntary disclosure to the U.S. Government with
respect to any alleged irregularity, misstatement or
omission arising under or relating to a Government
Contract or Government Bid. There
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exists no irregularity, misstatement or omission
arising under or relating to any Government Contract
or Government Bid that has led to any of the
consequences set forth in clause (i) or (ii) of the
immediately preceding sentence or any other damage,
penalty assessment, recoupment of payment or
disallowance of cost.
6.35.3 There exist (i) no outstanding material claims
against the Company or any of the Subsidiaries,
either by the U.S. Government or by any prime
contractor, subcontractor, vendor or other third
party, arising under or relating to any Government
Contract or Government Bid; and (ii) no material
disputes between the Company or any of the
Subsidiaries and the U.S. Government under the
Contract Disputes Act or any other Federal statute
or between the Company or any of the Subsidiaries
and any prime contractor, subcontractor or vendor
arising under or relating to any Government Contract
or Government Bid. Neither the Company nor any of
the Subsidiaries has any interest in any pending or
potential claim against the U.S. Government or any
prime contractor, subcontractor or vendor arising
under or relating to any Government Contract or
Government Bid. Schedule 6.35 identifies each
Government Contract which is currently under audit
by the U.S. Government or any other Person that is a
party to such Government Contract.
6.35.4 All material test and inspection results provided by
the Company or any of the Subsidiaries to the U.S.
Government pursuant to any Government Contract or to
any other Person pursuant to a Government Contract
or as a part of the delivery to the U.S. Government
or to any other Person pursuant to a Government
Contract of any article designed, engineered or
manufactured in the Business were complete and
correct in all material respects as of the date so
provided. The Company and/or any of the Subsidiaries
have provided all material test and inspection
results to the U.S. Government and each other Person
who is required to receive such information under
applicable Law and the terms of the Government
Contracts.
Section 6.36 Disclosure; Due Diligence. No representation or
warranty by the Company, the Subsidiaries or any Stockholder contained in this
Agreement and in documents delivered to Purchaser from the Company, the
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Subsidiaries or any Stockholder, nor any writing, certificate, exhibit, list
or other instrument required to be furnished by the Company, the Subsidiaries
or any Stockholder to Purchaser pursuant hereto contains or will contain any
material untrue statement of fact or omits or will omit any fact necessary in
order to make the statements and information contained herein or therein not
materially misleading. To the Sellers' Knowledge, the due diligence materials
provided to Purchaser by the Company, the Subsidiaries and the Sellers are
complete and responsive to Purchaser's due diligence requests. Such materials
do not contain any untrue statements of a material fact or omit any material
facts necessary to make the information contained therein not misleading.
ARTICLE 7
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents, warrants and agrees for the benefit of
each of the Sellers as follows:
Section 7.1 Organization and Standing of Purchaser.
Purchaser is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, and has all the corporate
power and authority to execute this Agreement and consummate the transactions
contemplated hereby.
Section 7.2 Authorization and Binding Obligation of
Purchaser. Purchaser has full corporate power and authority to enter into and
perform this Agreement and all other Purchaser Documents. All corporate action
on the part of Purchaser and the directors, officers and stockholders of
Purchaser necessary for the authorization, execution and delivery of this
Agreement and all agreements to be executed by Purchaser pursuant to this
Agreement and for the performance of all of Purchaser's obligations hereunder
and thereunder, as the case may be, have been taken, and each of this
Agreement and each of the other Purchaser Documents to be delivered by it
pursuant hereto, when executed and delivered, shall constitute a valid and
legally binding obligation of Purchaser, enforceable in accordance with their
respective terms, except as may be limited by (i) bankruptcy, insolvency, or
other similar laws affecting the enforcement of creditors' rights generally
and (ii) general principles of equity (whether enforcement is sought at law or
in equity).
Section 7.3 Ability to Perform Obligations. Purchaser is not
a party to, subject to, or bound by any agreement, Law or Order of any
Governmental Authority that could prevent or materially impair (i) the
performance of its obligations under this Agreement, or (ii) the purchase and
receipt of, or the right to purchase or receive any of the Stock.
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Section 7.4 Brokers, Finders. Other then Mentmore Holdings
Corporation (whose fees will be paid by Purchaser), neither this Agreement nor
the sale and purchase of the Stock or any other transaction contemplated by
this Agreement was induced by or procured through or otherwise involved in any
way any Person acting on behalf of or representing Purchaser as broker,
finder, investment banker, financial advisor or in any similar capacity.
Section 7.5 Financing. As of the date of this Agreement,
Purchaser intends to finance the portion of the Total Purchase Price due at
Closing through an intercompany loan from its parent corporation, Stellex
Industries, Inc., who will, in turn, fund such amount through borrowings under
the Credit Agreement. As of the date hereof, Purchaser is not aware of any
default or event of default under the Credit Agreement that would preclude
Stellex Industries, Inc. from borrowing thereunder to fund the portion of the
Total Purchase Price due at Closing. Purchaser shall use its Best Efforts, and
shall cause Stellex Industries, Inc. to use its Best Efforts, to satisfy all
applicable conditions to borrowing under the Credit Agreement in order to
finance the transactions contemplated by this Agreement.
ARTICLE 8
TERMINATION
Section 8.1 Termination of Agreement. Anything herein to the
contrary notwithstanding, this Agreement and the transactions contemplated
hereby shall terminate if the Closing does not occur on or before the close of
business on March 15, 1999. In addition, this Agreement and the transactions
contemplated hereby may be terminated at any time before the Closing as
follows:
8.1.1 Mutual Consent. By mutual consent in writing of
Purchaser, the Company and each of the Sellers.
8.1.2 Conditions to Purchaser's Performance Not Met. By
Purchaser by written notice to the Representative if
any event occurs or condition exists which would
render impossible the satisfaction of one or more
conditions to the obligations of Purchaser to
consummate the transactions contemplated by this
Agreement as set forth in Article 9.
8.1.3 Conditions to the Stockholders' Performance Not Met.
By the Representative, on behalf of the
Stockholders, by written notice to Purchaser if any
event occurs or condition exists which would render
impossible the satisfaction of one or more
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conditions to the obligation of the Sellers to
consummate the transactions contemplated by this
Agreement as set forth in Article 10.
8.1.4 The Company's or Seller's Material Breach. By
Purchaser if there has been a material
misrepresentation or other material breach by the
Company or any Stockholder in its representations,
warranties and covenants set forth herein or in any
other Company Document; provided, however, that if
such breach is susceptible to cure, the breaching
party or parties shall have twenty (20) calendar
days after receipt of written notice from Purchaser
of its intention to terminate this Agreement if such
breach continues in which to cure such breach.
8.1.5 Purchaser's Material Breach. By the Representative,
on behalf of the Stockholders, if there has been a
material misrepresentation or other material breach
by Purchaser in its representations, warranties and
covenants set forth herein; provided, however, that
if such breach is susceptible to cure, Purchaser
shall have twenty (20) calendar days after receipt
of written notice from the Representative of its
intention to terminate this Agreement if such breach
continues in which to cure such breach.
Section 8.2 Effect of Termination. In the event that this
Agreement shall be terminated pursuant to Section 8.1, all further obligations
of the parties under this Agreement shall terminate; provided that the
obligations of the parties contained in Sections 8.3 and 13.1 and Article 12
shall survive any such termination. A termination under Section 8.1 shall not
relieve any party of any liability for a breach of, or for any
misrepresentation under this Agreement, or be deemed to constitute a waiver of
any available remedy (including specific performance if available) for any
such breach or misrepresentation.
Section 8.3 Expenses. Without limiting the rights and
remedies of any party with respect to a breach of any other party's
representations, warranties or covenants under this Agreement or any other
document delivered in connection herewith, in the event the transactions
contemplated by this Agreement shall not be consummated, the parties hereto
shall bear their own respective expenses, as provided in Section 13.1.
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ARTICLE 9
CLOSING CONDITIONS OF PURCHASER
The obligations of Purchaser to consummate the transactions
contemplated by this Agreement are subject to the satisfaction at or prior to
the Closing Date of each of the following conditions, any one or more of which
may be waived (but only in writing) by Purchaser (provided that no such waiver
shall be deemed to have cured any breach of any representation, warranty or
covenant made in this Agreement):
Section 9.1 Representations, Warranties and Covenants of the
Stockholders. (i) All of the representations and warranties made by the
Sellers, or any one of them, in this Agreement and all of the representations
and warranties made by the Sellers and the other Stockholders in the other
Company Documents which they have executed and delivered in connection with
this Agreement, shall be true and correct, in the case of any representation or
warranty contained in Section 6.2, 6.4 or 6.5 or any similar representation or
warranty contained in the Letters of Transmittal or any representation or
warranty that is qualified as to materiality, in all respects, and in the case
of any other representation or warranty, in all material respects, as of the
date hereof and as of the Closing Date as though made at and as of the Closing
Date, except to the extent such representations and warranties speak as of an
earlier date; (ii) the Company and the Stockholders shall have performed and
complied with all agreements and covenants required by this Agreement to be
performed by them on or prior to the Closing Date; and (iii) with respect to
clauses (i) and (ii), at the Closing there shall be delivered to Purchaser a
certificate signed by the President of the Company and by each Seller to the
foregoing effect.
Section 9.2 Deliveries to Be Made by Each Seller at the
Closing. At the Closing, the Company and each Seller, as applicable, shall
deliver or cause to be delivered to Purchaser the following in form and
substance reasonably satisfactory to Purchaser:
9.2.1 Certificates representing all of the Stock, which
Certificates shall be either duly endorsed for
transfer or accompanied by stock powers executed in
blank, together with a properly completed Letter of
Transmittal executed by each Stockholder;
9.2.2 Copies of resolutions of the board of directors of
the Company authorizing and approving the execution
and delivery of this Agreement and the performance
by the Company of its obligations hereunder,
certified by the Secretary of the Company;
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9.2.3 An incumbency certificate dated the Closing Date for
the Company executed by the Secretary of the Company
which shall identify the name and title and bear the
signature of the officer of the Company individually
authorized to execute and deliver this Agreement and
related documents;
9.2.4 A certificate executed by each Seller certifying
that all of the Sellers' representations and
warranties in this Agreement are true and complete
as of the Closing Date and confirming that all
conditions applicable to the Sellers have been
satisfied and that no covenants of the Sellers or
the Company have been breached;
9.2.5 An opinion of counsel to the Company and the
Sellers, dated as of the Closing Date, in the form
of Exhibit E hereto;
9.2.6 Good standing certificates for the Company and each
of the Subsidiaries, dated as of a date within 10
days of the Closing Date, from the jurisdiction of
its incorporation and each other jurisdiction in
which it is required to be qualified to do business,
and "bring-down" certificates from each such
jurisdiction dated the Closing Date;
9.2.7 Copies of the certificate of incorporation and
by-laws of the Company and each of the Subsidiaries
and the organizational documents of the Trust, in
each case certified by a duly appointed officer or
other representative of the Company, each
Subsidiary, each corporate Seller and the Trust, as
applicable;
9.2.8 The Customer Lists;
9.2.9 Each Seller shall have delivered to the Purchaser an
affidavit of non-foreign status, in the form of
Exhibit F;
9.2.10 Resignations, effective as of the Closing Date, of
all directors of the Company and the Subsidiaries
and the resignations of all officers thereof other
than those officers set forth in Schedule 9.2; and
9.2.11 All other documents, assurances and other matters
provided in this Agreement to be delivered to
Purchaser at or before the Closing and not delivered
to Purchaser before the Closing.
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Section 9.3 Third Party Consents. There shall have been
obtained all consents, approvals and waivers from parties to Contracts that
are required in connection with the transactions contemplated by this
Agreement, including, without limitation, those set forth on Schedule 6.33,
and the same shall be in full force and effect.
Section 9.4 Orders; Illegality. There shall not be in effect
any statute, rule, regulation, preliminary or permanent injunction or other
order or decree of a Governmental Authority which enjoins, prohibits, makes
illegal or materially restricts or otherwise prevents the consummation of the
transactions contemplated hereby.
Section 9.5 Absence of Investigations and Proceedings. There
shall be no decree, judgment, Order or litigation at law or in equity, no
arbitration proceedings, and no proceeding before or by any Governmental
Authority pending, or to the Sellers' Knowledge, threatened, to which any of
the Company or the Subsidiaries or any of the Stockholders is or may be a
party that could reasonably be expected to affect the Business. No proceeding
or formal investigation by any Governmental Authority shall be pending, or to
the Sellers' Knowledge, threatened, with the object of challenging or
preventing consummation of the transactions contemplated by this Agreement and
no other proceedings shall be pending with such object or to collect damages
from the Company or any of the Subsidiaries, any Stockholder or Purchaser on
account thereof.
Section 9.6 Governmental Approvals. All Governmental
Approvals necessary in connection with the consummation of the transactions
contemplated by this Agreement, including, without limitation, those set forth
on Schedule 6.33, shall have been obtained and shall be in full force and
effect.
Section 9.7 Absence of Certain Changes. Between the date of
this Agreement and the Closing Date, there shall have been no events,
occurrences or conditions that have had or could reasonably be expected to
have a Material Adverse Effect.
Section 9.8 Due Diligence. Purchaser shall have made such
investigations of the Company, the Subsidiaries and the Business as Purchaser
in its sole discretion deems necessary or desirable, including, without
limitation, operational results of the Company and the Subsidiaries, and the
Company's and the Subsidiaries' relationship with their customers and
suppliers, and Purchaser in each case shall have determined that the results
of such due diligence are satisfactory to Purchaser in its sole discretion.
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Section 9.9 Financing. All conditions to borrowing set forth
in the Credit Agreement shall be satisfied as of the Closing Date.
Section 9.10 Employment Agreements. Xxxxxxxxxxxx Xxxxxxxxx,
Xxxxxx X. Xxxxxx, Xxxxxx Xxxxxxxxxx and Xxxxxx Xxxxxxxxx shall have executed and
delivered their respective Employment Agreements to Purchaser.
Section 9.11 Noncompetition Agreements. Xxxxxxxxxxxx
Xxxxxxxxx, Xxxxxx X. Xxxxxx, Xxxxxx Xxxxxxxxxx and Xxxxxx Xxxxxxxxx shall have
executed and delivered their respective Noncompetition Agreements to Purchaser,
unless the terms of the Noncompetition Agreements are contained in the
Employment Agreements pursuant to Section 5.1.
Section 9.12 Pay-Off Letters. The Company shall have
received from each bank, creditor or other person listed on Schedule 9.12, and
delivered to Purchaser, a written commitment and/or certification, in form and
substance satisfactory to Purchaser, to the effect that (upon receipt of
payment in full of specified amounts owing by the Partnership, the Company or
any of the Subsidiaries to such Person, if applicable), all claims against the
Partnership, the Company and the Subsidiaries, all guaranties or sureties made
by the Partnership, the Company or any of the Subsidiaries and all
Encumbrances and security interests in its favor will be released and
extinguished. Without limiting the foregoing, the Company shall have received,
and delivered to Purchaser, written commitments and/or certifications, in form
and substance satisfactory to Purchaser, evidencing the payment in full of all
obligations of the Partnership and the Company to Union National Bank and
Trust Company of Souderton with respect to the Facility and the release and
termination of all guaranties and sureties made by the Company or any of the
Subsidiaries with respect to loans or other extensions of credit or
obligations of the Partnership or any other third party. The Company and each
of the Subsidiaries shall also have received Uniform Commercial Code
termination statements and mortgage releases sufficient to release all
Encumbrances and security interests, with authority to file and/or record the
same in the appropriate governmental offices and shall have transmitted the
same for filing and/or recordation.
Section 9.13 Transfer Taxes. The Representative, on behalf
of the Stockholders, shall have paid or caused to be paid all stock transfer
and other Taxes required to be paid in connection with the sale and delivery
to Purchaser of the Stock, and shall have caused all appropriate stock
transfer tax stamps to be affixed to the certificate(s) representing the Stock
so sold and delivered.
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Section 9.14 Stockholders Representative Agreement. Each
Stockholder shall have executed and delivered the Stockholders Representative
Agreement, and a fully-executed copy thereof shall have been furnished to
Purchaser.
Section 9.15 PIDA Financing. The Company shall have received
from PIDA, and delivered to Purchaser, a written commitment, release and/or
certification, in form and substance satisfactory to Purchaser, to the effect
that, with respect to the PIDA Financing, all of the obligations and guarantees
of the Partnership, the Company or any of the Subsidiaries to PIDA, all of
PIDA's rights against the Partnership, the Company or any of the Subsidiaries,
all claims against the Partnership, the Company and the Subsidiaries, all
guarantees with respect to such claims, all rights of PIDA with respect to the
Lease Agreement and the Assignment of Lease Agreement and all Encumbrances and
security interests in PIDA's favor will be released and extinguished. The
Company and each of the Subsidiaries shall also have received Uniform
Commercial Code termination statements and mortgage releases sufficient to
release all Encumbrances and security interests, with authority to file and/or
record the same in the appropriate governmental offices and shall have
transmitted the same for filing and/or recordation.
Section 9.16 Buy-Sell Agreement. Purchaser shall have
received evidence, satisfactory to Purchaser, that the Company's obligations
under the Buy-Sell Agreement have been terminated.
Section 9.17 Insurance Trust Agreements. Purchaser shall
have received evidence, satisfactory to Purchaser, that the Sellers have
terminated the Insurance Trust Agreements.
Section 9.18 Stock Option Agreement. Purchaser shall have
received evidence, satisfactory to Purchaser, that the Company and the Sellers
have terminated the Stock Option Agreement.
Section 9.19 Voting Trust Agreement. Purchaser shall have
received evidence, satisfactory to Purchaser, that the Sellers have terminated
the Voting Trust Agreement.
Section 9.20 Retention of Key Employees. Purchaser shall
have been given the opportunity to approach and negotiate with all employees
of the Company and the Subsidiaries in an effort to persuade them to continue
in the employ of the Company or any of the Subsidiaries following the Closing,
and Purchaser, in its sole discretion, shall be satisfied with the
arrangements made to ensure that following the Closing the Company and the
Subsidiaries will retain the services of their key employees.
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Section 9.21 Customer and Supplier Relations. Purchaser,
after having been afforded the opportunity to conduct a comprehensive review
of the Company's and the Subsidiaries' relations with their customers and
suppliers, shall be satisfied, in its sole discretion, that such relations are
good and will not be negatively affected by the transactions contemplated by
this Agreement.
Section 9.22 Facility. The Purchaser shall be reasonably
satisfied with the arrangements made to ensure the continued use of the
Facility by the Company following the Closing.
Section 9.23 Escrow Agreement. The Company, the
Representative and the Escrow Agent shall have executed and delivered the
Escrow Agreement.
ARTICLE 10
CLOSING CONDITIONS OF SELLERS
Section 10.1 Representations, Warranties and Covenants of
Purchaser. (i) All of the representations and warranties made by Purchaser in
this Agreement and in the other Purchaser Documents, or otherwise in
connection with the transactions contemplated hereby, shall be true and
correct, in the case of any representation or warranty that is qualified as to
materiality, in all respects, and in the case of any representation or
warranty that is not so qualified, in all material respects, as of the date
hereof and as of the Closing Date as though made at and as of the Closing
Date, except to the extent such representations and warranties speak as of an
earlier date; (ii) Purchaser shall each have performed and complied with all
agreements and covenants required by this Agreement to be performed by it on
or prior to the Closing Date; and (iii) with respect to clauses (i) and (ii),
at the Closing there shall be delivered to the Sellers a certificate signed by
a duly authorized officer of Purchaser to the foregoing effect.
Section 10.2 Deliveries to be Made by Purchaser at the
Closing. At the Closing, Purchaser shall deliver or cause to be delivered to
the Representative the following:
10.2.1 The cash portion of the Total Purchase Price due at
Closing, as provided in Section 2.3;
10.2.2 An opinion of Purchaser's counsel, dated as of the
Closing Date, in the form of Exhibit G hereto;
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10.2.3 A copy of the resolutions of the Board of Directors
of Purchaser authorizing the execution and delivery
of this Agreement and the performance by Purchaser
of its obligations hereunder, certified by the
Secretary or any Assistant Secretary of Purchaser;
10.2.4 A certificate by a duly authorized officer of
Purchaser to the effect that the representations and
warranties in this Agreement are true and complete
as of the Closing Date and confirming that all
conditions applicable to Purchaser have been
satisfied and that no covenants of Purchaser have
been breached;
10.2.5 An incumbency certificate dated the Closing Date for
Purchaser executed by the Secretary of Purchaser
which shall identify the name and title and bear the
signature of each officer of Purchaser individually
authorized to execute and deliver this Agreement and
related documents;
10.2.6 Good standing certificates for Purchaser, dated as
of a date within 10 days of the Closing Date, from
the State of Delaware and each other jurisdiction in
which it is required to be qualified to do business,
and "bring-down" certificates from each such
jurisdiction dated the Closing Date;
10.2.7 Copies of the certificate of incorporation and
by-laws of Purchaser, certified by the Secretary or
any Assistant Secretary of Purchaser; and
10.2.8 All other documents, assurances and other matters
provided in this Agreement to be delivered to the
Sellers at or before the Closing and not delivered
to the Sellers before the Closing.
Section 10.3 Employment Agreements. The Company or Stellex
Microwave Systems, Inc., as applicable, shall have entered into the Employment
Agreements and delivered copies thereof to each of Xxxxxxxxxxxx Xxxxxxxxx,
Xxxxxx X. Xxxxxx, Xxxxxx Xxxxxxxxxx and Xxxxxx Xxxxxxxxx.
Section 10.4 Escrow Agreement. Purchaser and the Escrow Agent
shall have executed and delivered the Escrow Agreement.
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ARTICLE 11
INDEMNIFICATION; SURVIVAL OF REPRESENTATIONS AND WARRANTIES
Section 11.1 Indemnification by the Sellers. Each of the
Sellers agrees to indemnify and hold harmless Purchaser, its Affiliates and
their respective shareholders, directors, officers, employees, agents,
successors in interest, assigns and representatives from and against any and
all Losses which may be incurred or suffered by any such party and which,
directly or indirectly, arise out of or result from:
11.1.1 any inaccuracy in or breach of any of the
representations and warranties made by any Seller or
any other Stockholder or the Company in or pursuant
to this Agreement or in the other Company Documents
(other than the Letters of Transmittal);
11.1.2 any inaccuracy in or breach of any of the
representations and warranties made by any Seller or
any other Stockholder in the Letters of Transmittal;
11.1.3 any inaccuracy in the Closing Date Balance Sheet;
11.1.4 any breach or nonperformance of any of the covenants
or agreements made by any Seller or any other
Stockholder or, prior to the Closing, the Company in
or pursuant to this Agreement or in the other
Company Documents;
11.1.5 any matter as to which any Seller or any other
Stockholder in other provisions of this Agreement or
in the other Company Documents has agreed to
indemnify Purchaser;
11.1.6 any third party claim or demand regarding the
conduct of the Business prior to the Closing;
11.1.7 any violation of an applicable Law or Order, prior
to the Closing, by the Company or any of the
Subsidiaries, including, without limitation, any
Environmental Law;
11.1.8 the generation, use, transportation, treatment,
storage, release or disposal, prior to the Closing,
of Hazardous Substances by, or at any property or
facility of, the Company or any of the Subsidiaries;
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11.1.9 the presence of Hazardous Substances at any property
or facility of the Company or any of the
Subsidiaries;
11.1.10 the invalidity, unenforceability of, or claims of
material breach or default arising under, any
Contract;
11.1.11 the failure of the Sellers to pay the costs of any
Warranty Work and the amount of any Refund Claims
for which any Seller is responsible pursuant to
Sections 5.3 and 5.4; and
11.1.12 any and all actions, suits, proceedings, claims,
demands, assessments, judgments, costs and expenses,
including, without limitation, legal fees and
expenses, incurred in enforcing the indemnity
provided by this Section 11.1.
Section 11.2 Indemnification by Purchaser. Purchaser agrees
to indemnify and hold harmless the Sellers from and against any Losses of the
Sellers, directly or indirectly, as a result of, or based upon or arising
from:
11.2.1 any inaccuracy in or breach of any of the
representations and warranties made by Purchaser in
or pursuant to this Agreement or in the other
Purchaser Documents;
11.2.2 any breach or nonperformance of any of the covenants
or agreements made by Purchaser in or pursuant to
this Agreement or in the other Purchaser Documents;
11.2.3 any matter as to which Purchaser in other provisions
of this Agreement or in the other Purchaser
Documents has agreed to indemnify the Sellers;
11.2.4 any third party claim or demand regarding the
conduct of the Business following the Closing;
11.2.5 any violation of Law following the Closing by
Purchaser (except for any violation of Law with
respect to which the Sellers are obligated to
provide indemnity under this Agreement); and
11.2.6 any and all actions, suits, proceedings, claims,
demands, assessments, judgments, costs and expenses,
including, without limitation, legal fees and
expenses, incurred in enforcing the indemnity
provided by this Section 11.2.
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Section 11.3 Cooperation. The parties shall cooperate in the
defense of all third party claims which may give rise to Indemnifiable Claims
hereunder. In connection with the defense of any claim, each party shall make
available to the party controlling such defense any books, records or other
documents within its control and access to employees that are reasonably
requested in the course of such defense.
Section 11.4 Limitations on Indemnification. Sellers shall
not be required to indemnify any other Person under Section 11.1 unless the
aggregate of all amounts for which indemnity would otherwise be payable by the
Sellers exceeds $100,000, and, in such event, the Sellers shall be responsible
for the entire amount. Purchaser shall not be required to indemnify any other
Person under Section 11.2 unless the aggregate of all amounts for which
indemnity would otherwise be payable by Purchaser exceeds $100,000, and in
such event, Purchaser shall be responsible for the entire amount. The Sellers'
indemnity obligations under Section 11.1.1 with respect to any breach of the
representations and warranties under Article 6 (except with respect to any
inaccuracy in or breach of any of the representations and warranties contained
in Sections 6.2, 6.4, 6.17, 6.20, 6.25 and 6.27) and the Sellers' obligations
under Section 5.3 and 5.4 shall be limited, in the aggregate, to the total
amount of the Escrow Fund plus $500,000 and shall be determined on a several
and equal basis. Purchaser's indemnity obligations under Section 11.2 shall be
limited, in the aggregate, to $1,000,000. Except with respect to
representations, warranties and covenants contained in the Letters of
Transmittal, the liability of the Stockholders to Purchaser under the
transactions contemplated by this Agreement shall be limited to the amount
contained in the Escrow Fund; provided, however, that the foregoing limitation
shall not apply to any Stockholder who is also a Seller under this Agreement
or any such Seller's successors or assigns.
Section 11.5 Notice to Indemnifying Party. If any party (the
"Indemnified Party") receives notice of any claim or other commencement of any
action or proceeding with respect to which any other party (or parties) (the
"Indemnifying Party") is obligated to provide indemnification pursuant to
Sections 11.1 or 11.2 or pursuant to any other specific indemnification
covenant contained in this Agreement, the Indemnified Party shall promptly give
the Indemnifying Party written notice thereof which notice shall specify, if
known, the amount or an estimate of the amount of the liability arising
therefrom. The failure of a party to give notice under this Section 11.5 shall
not relieve any party from liability, unless and to the extent the other party
has been materially prejudiced thereby. The Indemnified Party shall not settle
or compromise any claim by a third party for which it is entitled to
indemnification hereunder, without the prior written consent of the
Indemnifying Party (which shall not be unreasonably withheld or delayed) unless
a suit shall have been instituted against it and the Indemnifying Party either
(i) shall not have undertaken the defense of such
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suit after notification thereof as provided in Section 11.6 or (ii) is
demonstrably unable to undertake the defense of such suit or satisfy the claims
arising thereunder.
Section 11.6 Defense by Indemnifying Party. In connection
with any claim giving rise to indemnity hereunder resulting from or arising
out of any claim or legal proceeding by a person who is not a party to this
Agreement, the Indemnifying Party at its sole cost and expense may, upon
written notice to the Indemnified Party, assume the defense of any such claim
or legal proceeding using counsel of its choice (subject to the approval of
the Indemnified Party, which approval may not be unreasonably withheld or
delayed) if it (i) acknowledges to the Indemnified Party in writing its
obligations to indemnify the Indemnified Party with respect to all elements of
such claim and (ii) demonstrates its ability to undertake the defense of such
claim or proceeding and satisfy any liabilities resulting therefrom. The
Indemnified Party shall be entitled to participate in (but not control) the
defense of any such action, with its counsel and at its own expense; provided,
however, that if the Indemnified Party, in its reasonable discretion,
determines that there exists a conflict of interest between the Indemnifying
Party (or any constituent party thereof) and the Indemnified Party, the
Indemnified Party (or such constituent party thereof) shall have the right to
engage separate counsel, the reasonable costs and expenses of which shall be
paid by the Indemnifying Party, but in no event shall the Indemnified Party be
liable to pay for the costs and expenses of more than one separate firm of
attorneys (in addition to any local counsel). If the Indemnifying Party does
not assume the defense of any such claim or litigation resulting therefrom,
the Indemnified Party may settle or defend against such claim or litigation,
after giving notice of the same to the Indemnifying Party, on such terms as
the Indemnified Party may deem appropriate, and the Indemnifying Party shall
be entitled to participate in (but not control) the defense of such action,
with its counsel and at its own expense. If the Indemnifying Party thereafter
seeks to question the manner in which the Indemnified Party defended such
third-party claim or the amount or nature of any such settlement, the
Indemnifying Party shall have the burden to prove by a preponderance of the
evidence that the Indemnified Party did not defend or settle such third-party
claim in a reasonably prudent manner. Notwithstanding the foregoing, however,
Purchaser shall in all cases be entitled to control of the defense of any such
action if it (i) may result in injunctions or other equitable remedies in
respect of Purchaser, the Company, any of the Subsidiaries or the Business;
(ii) may result in liabilities which, taken with other then-existing claims by
Purchaser under this Article 11, would not be fully indemnified hereunder; or
(iii) may have an adverse impact on the Business or the financial condition of
Purchaser, the Company or any of the Subsidiaries (including an effect on the
Tax liabilities, earnings or ongoing business relationships of Purchaser) even
if the Sellers pay all indemnification amounts in full.
Section 11.7 Indemnity Escrow Arrangement.
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11.7.1 Pursuant to Section 2.6.1, on the Closing Date,
Purchaser shall deposit the $500,000 Initial Escrow
Amount with the Escrow Agent to be held and
disbursed by the Escrow Agent in accordance with the
terms of this Agreement and the Escrow Agreement.
11.7.2 Pursuant to Section 2.6.2, in the event the Deferred
Payment shall become payable pursuant to Section
2.5, such amount shall be deposited with the Escrow
Agent to be held and disbursed by the Escrow Agent
in accordance with the terms of this Agreement and
the Escrow Agreement.
11.7.3 (i) In the event Purchaser becomes entitled to
indemnification under Section 11.1 hereof with
respect to any Losses incurred by it or makes a
claim for any such indemnification against the
Representative or any Seller, or (ii) in the event
the Representative, the Stockholders, or any one of
them, becomes liable to Purchaser for any other
amounts under this Agreement, any Letter of
Transmittal, or otherwise, or Purchaser makes a
claim in respect thereof against the Representative
or any Stockholder, the Representative, on behalf of
the Stockholders, shall take all action necessary to
cause the Escrow Agent to pay to Purchaser, from the
Escrow Fund, in immediately available funds in the
City of New York, an amount equal to such Losses or
other liabilities (it being understood that if
amounts in the Escrow Fund are not sufficient to
satisfy such Losses and other liabilities, Purchaser
shall be entitled to exercise any other remedies
available to it).
11.7.4 On the Escrow Termination Date, any remaining
portion of the Initial Escrow Amount and Deferred
Payment Escrow Amount in excess of any pending
claims by Purchaser or the Company for
indemnification shall be disbursed by the Escrow
Agent to the Representative, for the benefit of the
Stockholders, and thereafter any remaining portion
of the Initial Escrow Amount and Deferred Payment
Escrow Amount shall be disbursed by the Escrow Agent
as the pending claims to which they relate are
resolved.
Section 11.8 Survival of Representations and Warranties.
Notwithstanding any right of Purchaser to fully investigate the affairs of the
Company and the Subsidiaries and notwithstanding any knowledge of facts
determined or
78
determinable by Purchaser pursuant to such investigation or right of
investigation, whether before or after the Closing and notwithstanding any
waiver of any condition to the Closing, Purchaser shall have the right to rely
fully upon the representations, warranties, covenants and agreements of the
Company and each of the Stockholders contained in this Agreement or in any
other Company Document. Except as otherwise provided herein, each
representation, warranty, covenant and agreement of the Company or any
Stockholder contained herein or in any other Company Document, or in any
instrument or document furnished in connection with this Agreement or the
transactions contemplated hereby, shall survive the execution and delivery of
this Agreement and the Closing and any investigation at any time made by or on
behalf of Purchaser indefinitely. Notwithstanding the foregoing, (i) the
representations and warranties of the Sellers contained in Sections 6.20 and
6.25 shall terminate and expire on the fifth anniversary of the Closing Date,
unless on or prior to such date Purchaser has delivered to the Representative a
written notice of a claim with respect to any such representation or warranty,
(ii) the representations and warranties of the Sellers contained in Sections
5.6 and 6.17 shall terminate and expire 90 days after the expiration of the
statute of limitations applicable to claims by third parties against Purchaser
and the Company in respect of the matter or matters which are the subject of
said representations and warranties, unless on or prior to such date Purchaser
has delivered to the Representative a written notice of a claim with respect to
any such representation or warranty and (iii) all other representations and
warranties contained in Article 6 (other than those contained in Sections 6.2,
6.4 and 6.27, which shall survive the execution and delivery of this Agreement
and the Closing and any investigation at any time made by or on behalf of
Purchaser indefinitely) shall terminate and expire on the Escrow Termination
Date, unless on or prior to such date Purchaser has delivered to the
Representative a written notice of a claim with respect to any such
representation or warranty.
Section 11.9 Survival of Representations and Covenants of
Purchaser. With the sole exception of those covenants which are to be
performed by Purchaser after the Closing (which shall survive until a claim
thereon is barred by the applicable statute of limitations), each
representation, warranty, covenant and agreement of Purchaser contained herein
shall survive the execution and deliver of this Agreement and the Closing and
shall thereafter terminate and expire on the second anniversary of the Closing
Date, unless, on or before such date, the Representative has delivered to
Purchaser a written notice of claim with respect to such representation,
warranty, covenant or agreement.
Section 11.10 Tax Indemnification.
11.10.1 The Sellers shall be jointly and severally liable
and indemnify Purchaser and the Company and each of
the Subsidiaries for all
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Taxes of the Company or the Subsidiaries to the
extent such Taxes are not adequately provided for in
the Closing Date Balance Sheet and included in the
calculation of the Adjustment Amount (i) for taxable
periods ending on or before the Closing Date and
(ii) for any period not ending on or before the
Closing Date, for the portion of any Taxes
attributable to the period ending on the Closing
Date.
11.10.2 If in connection with any examination,
investigation, audit or other proceeding in respect
of any Tax Return covering the operations of the
Company or any of the Subsidiaries on or before the
Closing Date, any Governmental Authority issues to
the Company or a Subsidiary a written notice of
deficiency, a notice of reassessment, a proposed
adjustment, an assertion of claim or demand
concerning the taxable period covered by such
return, Purchaser or the Company or the applicable
Subsidiary shall notify the Representative of its
receipt of such communication from the Governmental
Authority within thirty (30) business days after
receiving such notice of deficiency, reassessment,
adjustment or assertion of claim or demand. No
failure or delay of Purchaser or the Company or any
of the Subsidiaries in the performance of the
foregoing shall reduce or otherwise affect the
obligations or liabilities of the Sellers pursuant
to this Agreement, except to the extent that such
failure or delay shall have adversely affected the
Sellers' ability to defend against any liability or
claim for Taxes that the Sellers are obligated to
pay hereunder. Except as provided below, the
Representative shall, at its own expense, have the
nonexclusive right to participate in the contest of
any such assessment, proposal, claim, reassessment,
demand or other proceedings in connection with any
Tax Return covering taxable periods of the Company
ending on or before the Closing Date. Purchaser, the
Company, and the Subsidiaries will not be obligated
to settle or resolve any issue related to Taxes for
such a period, which, if so settled or resolved,
could have an effect on Purchaser or the Company or
the Subsidiaries for periods after the Closing Date,
unless the Sellers agree in writing with Purchaser,
the Company and the Subsidiaries on terms reasonably
satisfactory to Purchaser, the Company and the
Subsidiaries to indemnify Purchaser, any affiliate
of the Purchaser, the Company and the Subsidiaries
from any cost, damage, loss or expense relating to
such settlement or
80
resolution. Notwithstanding anything in this
Agreement to the contrary, if any examination,
investigation, audit or other proceeding relates to
a Tax Return for a period that begins before and
ends after the Closing Date, Purchaser and the
Company and the Subsidiaries shall solely
participate in, control and resolve such
examination, investigation, audit or other
proceeding, provided that Purchaser shall
communicate with the Representative regarding the
status of such examination, investigation, audit or
proceeding.
11.10.3 If there is an adjustment to any Tax Return for the
Company or the Subsidiaries which creates a
deficiency in any Taxes for which the Sellers are
liable under the provisions of Section 11.10.1
hereof, the Sellers shall pay to Purchaser the
amount of such deficiency in Taxes. No liability of
the Sellers under this Section 11.10.4 shall be
payable until the occurrence of any action by any
Tax authority that is final or, if not final, is
acquiesced in by the Sellers during the course of
any audit or any proceeding relating to Taxes. All
payments required to be made by the Sellers pursuant
to this Section 11.10.4 shall be made within ten
business days of this occurrence of the event
described in the immediately preceding sentence.
11.10.4 To the extent of any inconsistency between this
Section 11.10 and the other provisions of Article 11
this Section 11.10 shall control.
Section 11.11 Remedies. Prior to making a claim against any
Seller personally pursuant to the provisions of this Article 11, Purchaser
shall make a claim against the Escrow Fund in accordance with this Agreement
and the Escrow Agreement and pursue and exhaust its remedies thereunder;
provided, however, that Purchaser shall not be required to make a claim
against the Escrow Fund or exhaust its remedies thereunder if, at the time of
any such claim, the funds in the Escrow Fund would not be sufficient to
satisfy such claim in full.
ARTICLE 12
CONFIDENTIALITY
Section 12.1 Confidentiality of the Sellers. Unless this
Agreement shall have been terminated pursuant to Article 8, the Company and
each of the Sellers agrees to, and agrees to use its Best Efforts to cause its
agents, representatives,
82
Affiliates, employees, officers and directors to: (i) treat and hold as
confidential (and not disclose or provide access to any Person) all Intangible
Personal Property and information relating to product development, price,
distributors, Customer Lists, pricing and marketing plans, policies and
strategies, details of client and consultant contracts, operations methods,
product development techniques, business acquisition plans, new personnel
acquisition plans and all other confidential information with respect to the
Company, any of the Subsidiaries or the Business, except as may be required by
applicable Law, in which event the Company and each Seller agrees to, and
agrees to use its Best Efforts to cause its agents, representatives,
Affiliates, employees, officers and directors to, furnish only that portion of
such confidential information which they reasonably believe is legally required
to be provided and exercise their reasonable efforts to obtain assurances that
confidential treatment will be afforded such information, and (ii) in the event
that the Company, any Seller or any of their respective agents,
representatives, Affiliates, employees, officers or directors becomes legally
compelled to disclose any such information, provide Purchaser with prompt
written notice of such requirement so that Purchaser may, at the expense of
Purchaser, seek a protective order or other remedy. This Section 12.1 shall not
apply to any information that, at the time of disclosure, is known to the
receiving party before disclosure thereof, is independently developed by the
receiving party, is or becomes publicly available through no fault of the
receiving party, is obtained by the receiving party from a third party not
known by the receiving party to be under any obligation not to disclose such
information and which the receiving party has no reason to believe is not
otherwise publicly available (provided, however, that once the Company or any
Seller is advised that information obtained under such circumstance is indeed
confidential hereunder, this Section 12.1 shall thereafter apply to such
information) or is reasonably necessary in order for the Company or any Seller
to litigate any claim against Purchaser pursuant to this Agreement. The Company
and each Seller agrees and acknowledges that remedies at law for any breach of
its obligations under this Section 12.1 are inadequate and that in addition
thereto Purchaser shall be entitled to seek equitable relief, including
injunction and specific performance, in the event of any such breach.
Notwithstanding the foregoing, (x) the Company may make such disclosures to the
independent public accountant of the Company and the Subsidiaries as may be
necessary in connection with their auditing of the books and records of the
Company and the Subsidiaries; provided, however, that such independent public
accountants shall enter into a confidentiality and nondisclosure agreement on
substantially the same terms as set forth in this Section 12.1, and (y) any
Seller, with the consent of Purchaser (which consent shall not be unreasonably
withheld), may make such disclosures in connection with defending any claim
brought against such Seller or any of its Affiliates by any third person as may
be reasonably necessary in order for such Seller to conduct its defense
thereof; provided, however, that the Company and each Seller agrees to, and
agrees to cause its agents, representatives, Affiliates, employees, officers
and directors to, exercise their respective Best Efforts to
82
obtain assurances that confidential treatment will be afforded such information
and to seek a protective order or other remedy to preserve the confidentiality
of such information.
Section 12.2 Confidentiality of Purchaser. During the period
starting at the execution of this Agreement and ending on the earlier of (A)
the Closing Date or (B) Xxxxx 0, 0000, Xxxxxxxxx agrees to, and agrees to use
its Best Efforts to cause its agents, representatives, Affiliates, employees,
officers and directors to: (i) treat and hold as confidential (and not disclose
or provide access to any Person) all Intangible Personal Property, and
information relating to product development, price, distributors, Customer
Lists, pricing and marketing plans, policies and strategies, details of client
and consultant contracts, operations methods, product development techniques,
business acquisition plans, new personnel acquisition plans and all other
confidential information with respect to the Company, any of the Subsidiaries
or the Business, except as may be required by applicable Law, in which event
Purchaser agrees to, and agrees to use its Best Efforts to cause its agents,
representatives, Affiliates, employees, officers and directors to, furnish only
that portion of such confidential information which Purchaser reasonably
believes is legally required to be provided and exercise its reasonable efforts
to obtain assurances that confidential treatment will be accorded such
information, and (ii) in the event that Purchaser or any such agent,
representative, Affiliate, employee, officer or director becomes legally
compelled to disclose any such information, provide the Sellers with prompt
written notice of such requirement so that the Sellers may, at the expense of
the Sellers, seek a protective order or other remedy. This Section 12.2 shall
not apply to any information that, at the time of disclosure, is known to the
receiving party before disclosure thereof, is independently developed by the
receiving party, is or becomes publicly available through no fault of the
receiving party, or is obtained by the receiving party from a third party not
known by the receiving party to be under any obligation not to disclose such
information and which the receiving party has no reason to believe is not
otherwise publicly available (provided, however, that once Purchaser is advised
that information obtained under such circumstance is indeed confidential
hereunder, this Section 12.2 shall thereafter apply to such information) or is
reasonably necessary in order for Purchaser to litigate any claim against the
Sellers pursuant to this Agreement. Purchaser agrees and acknowledges that
remedies at law for any breach of its obligations under this Section 12.2 are
inadequate and that in addition thereto the Sellers shall be entitled to seek
equitable relief, including injunction and specific performance, in the event
of any such breach. Notwithstanding the foregoing, (x) Purchaser may make such
disclosure of confidential information relating to the Company, any of the
Subsidiaries or the Business to its officers, directors, employees, Affiliates,
agents, accountants, financial advisors, attorneys, financing sources, direct
and indirect shareholders and representatives; provided, however, that
Purchaser shall advise such Persons of the confidentiality and non- disclosure
provisions of this Section
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12.2 and be responsible for any violation or breach of such provisions by such
Persons, and (y) Purchaser, with the consent of the Sellers (which consent
shall not be unreasonably withheld), may make such disclosures in connection
with defending any claim brought against Purchaser or any of its Affiliates by
any third person as may be reasonably necessary in order for Purchaser to
conduct its defense thereof; provided, however, that Purchaser agrees to, and
agrees to cause its agents, representatives, Affiliates, employees, officers
and directors to, exercise their respective Best Efforts to obtain assurances
that confidential treatment will be afforded such information and to seek a
protective order or other remedy to preserve the confidentiality of such
information.
ARTICLE 13
MISCELLANEOUS
Section 13.1 Expenses. The Stockholders and Purchaser shall
pay their own expenses incident to the negotiation, preparation and
performance of this Agreement and the transactions contemplated hereby,
including, without limitation, expenses and disbursements of their respective
financial advisors, accountants and counsel. The Stockholders shall bear all
costs and expenses incurred by or on behalf of the Company in connection with
the transactions contemplated by this Agreement, including, without
limitation, all fees and expenses of counsel to the Company, the Company's
accountants, any brokers, finders, investment bankers, financial advisors and
any other Persons specifically engaged to provide consulting, professional or
other services to the Company or any Stockholder in connection with the
transactions contemplated by this Agreement.
Section 13.2 Notices and Other Communications. Every notice
or other communication required or contemplated by this Agreement by any party
shall be delivered by personal delivery, postage prepaid return receipt
requested certified mail, or by facsimile, addressed to the party for whom
intended as set forth on Schedule 13.2, or at such other address as the
intended recipient previously shall have designated by written notice to the
other parties. Notice by certified mail shall be effective on the date it is
officially recorded as delivered to the intended recipient by return receipt or
equivalent. All notices and other communication required or contemplated by
this Agreement delivered in person or sent by facsimile with answer back
receipt shall be deemed to have been delivered to and received by the addressee
and shall be effective on the date of personal delivery or on the date sent if
answer back receipt received. Notice not given in writing shall be effective
only if acknowledged in writing by a duly authorized representative of the
party to whom it was given.
84
Section 13.3 Counterparts. This Agreement may be executed in
any number of counterparts, and each counterpart shall constitute an original
instrument, but all such separate counterparts shall constitute only one and
the same instrument.
Section 13.4 Written Agreement to Govern. This Agreement
constitutes the entire understanding between the parties as to the subject
matter hereof, except as may be explicitly set forth in writing in any
agreement, certificate or document specifically referenced herein, and cancels
any and all previous contracts or agreements between the parties with respect
to the subject matter hereof. This Agreement may not be altered, amended, or
modified except by a written instrument executed by or on behalf of each of
the parties hereto. This Agreement shall become binding only after the same is
signed and delivered by or on behalf of each of the parties hereto.
Section 13.5 Assignability. Neither this Agreement nor any
right or obligation hereunder is assignable in whole or in part, whether by
operation of law or otherwise, by any party without the express written
consent of the other parties hereto and any such attempted assignment shall be
void and unenforceable; provided, however, that Purchaser may transfer or
assign this Agreement or any right or obligation hereunder to any lender or
other financing source, subsidiary or Affiliate at any time prior to or after
the Closing. This Agreement and the rights and obligations hereunder shall be
binding upon, and shall inure to the benefit of, the parties hereto and their
respective successors or assignees, and no other person shall acquire or have
any rights under or by virtue of this Agreement.
Section 13.6 No Waiver of Rights. All waivers hereunder must
be made in writing, and failure of any party at any time to require another
party's performance of any obligation under this Agreement shall not affect
the right subsequently to require performance of that obligation. Any waiver
of any breach of any provision of this Agreement shall not be construed as a
waiver of any continuing or succeeding breach of such provision or a waiver or
modification of any other provision.
Section 13.7 Subject Headings. The subject headings of the
Articles and Sections of this Agreement are included for the purposes of
convenience only, and shall not affect the construction or interpretation of
any of the provisions of this Agreement.
Section 13.8 Further Assurances. At all times before and
after the Closing, the parties hereto shall each perform such acts, execute
and deliver such instruments and documents and do all such other things
consistent with the terms of
85
this Agreement as may be reasonably necessary to accomplish the transactions
contemplated in this Agreement or to otherwise carry out the purpose of this
Agreement.
Section 13.9 Schedules and Exhibits. All Schedules and
Exhibits referred to in and attached to this Agreement are incorporated herein
by such reference as if fully set forth in the text hereof.
Section 13.10 Severability. Whenever possible, each
provision of this Agreement shall be interpreted in such manner as to be
effective and valid under applicable Law, but if any provision of this
Agreement should be prohibited or invalid under applicable Law, such provision
shall be ineffective to the extent of such prohibition or invalidity without
invalidating the remainder of such provision or the remaining provisions of
this Agreement.
Section 13.11 Publicity and Reports. The Company, the
Representative and Purchaser shall coordinate all publicity relating to the
transactions contemplated by this Agreement and, except to the extent required
by Law or applicable stock exchange rules or required in connection with
Purchaser's financing of the transactions contemplated hereby, no party shall
issue any press release, publicity statement or other public notice relating
to this Agreement, or the transactions contemplated by this Agreement, without
obtaining the prior consent of the other parties hereto. Purchaser and the
Representative shall consult with each other with respect to the form and
content of any application or report made to any Governmental Authority which
relates to this Agreement or the transactions contemplated hereby.
Section 13.12 Parties in Interest; Joint and Several
Liability of the Sellers. This Agreement shall be binding upon and inure to the
benefit of each party, and nothing in this Agreement, express or implied, is
intended to confer upon any other Person any rights or remedies of any nature
whatsoever under or by reason of this Agreement except for the provisions of
Article 11 (which are intended to be for the benefit of the Persons provided
for therein and may be enforced by such Persons). Nothing in this Agreement is
intended to relieve or discharge the obligation of any third Person to (or to
confer any right of subrogation or action over against) any party to this
Agreement. Unless otherwise expressly provided herein, the obligations of the
Sellers under this Agreement shall be joint and several and all actions to be
undertaken by the Sellers hereunder may be undertaken by the Sellers jointly or
by the Representative on their behalf.
Section 13.13 Specific Performance. Each Seller acknowledges
that, in view of the uniqueness of the Business and the transactions
contemplated by this
86
Agreement, Purchaser would not have an adequate remedy at law for money damages
in the event that this Agreement has not been performed in accordance with its
terms, and therefore agrees that Purchaser shall be entitled to specific
enforcement of the terms hereof in addition to any other remedy to which it may
be entitled, at law or in equity.
Section 13.14 GOVERNING LAW; CONSENT TO JURISDICTION. THE
VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS AGREEMENT SHALL BE GOVERNED
IN ALL RESPECTS BY THE INTERNAL LAWS (AS OPPOSED TO CONFLICT PROVISIONS) OF
THE COMMONWEALTH OF PENNSYLVANIA. EACH PARTY TO THIS AGREEMENT, ON BEHALF OF
ITSELF AND ITS SUCCESSORS IN INTEREST AND ASSIGNS, HEREBY SUBMITS TO THE
JURISDICTION OF THE FEDERAL AND STATE COURTS LOCATED IN THE CITY OF
PHILADELPHIA, COMMONWEALTH OF PENNSYLVANIA, IN CONNECTION WITH ANY DISPUTE
RELATED TO THIS AGREEMENT OR ANY OF THE MATTERS CONTEMPLATED HEREBY.
[SIGNATURE PAGE FOLLOWS]
87
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective duly authorized officers as of the date first
written above.
PURCHASER:
PMC ACQUISITION CORPORATION
By: /s/ Xxxxxxx X. Xxxxxx
--------------------------------------
Name: Xxxxxxx X. Xxxxxx
Title: President
PHOENIX MICROWAVE CORPORATION
By: /s/ Xxxxxxxxxxxx Xxxxxxxxx
--------------------------------------
Name: Xxxxxxxxxxxx Xxxxxxxxx
Title: President
SELLERS:
Xxxxxxxxxxxx Xxxxxxxxx, individually and
as Representative of the Stockholders
By: /s/ Xxxxxxxxxxxx Xxxxxxxxx
--------------------------------------
Name: Xxxxxxxxxxxx Xxxxxxxxx
Xxxxxx Xxxxxxxxx
By: /s/ Xxxxxx Xxxxxxxxx
--------------------------------------
Name: Xxxxxx Xxxxxxxxx
Xxxxxx Xxxxxxxxxx
By: /s/ Xxxxxx Xxxxxxxxxx
--------------------------------------
Name: Xxxxxx Xxxxxxxxxx
Xxxxxx X. Xxxxxx
By: /s/ Xxxxxx X. Xxxxxx
--------------------------------------
Name: Xxxxxx X. Xxxxxx
88
SCHEDULE 2.5
EBITDA (1) DEFERRED PAYMENT
Less than $2,500,000 $0
Equal to $2,500,000 $145,000
Greater than $2,500,000 and less $145,000 plus (a) the amount by
than $2,800,000 which EBITDA exceeds
$2,500,000 (not to exceed
$300,000), divided by $300,000,
(b) multiplied by $855,000.
Greater than or Equal to $2,800,000 $1,000,000
--------
1/ Determined on a consolidated basis for the Company and the Subsidiaries for
the year ended December 31, 1999.
EXHIBIT A
Xxxxxx Xxxxxxxxx
Xxxxxx Xxxxxxxxxx
Xxxxxxxxxxxx Xxxxxxxxx
Xxxxxx X. Xxxxxx
EXHIBIT F-1
The undersigned hereby certifies the following on behalf of ___________________:
1. ___________________________ is not a foreign corporation, foreign
partnership, foreign trust, or foreign estate (as those terms are defined in
the Internal Revenue Code and Income Tax Regulations);
2. _____________________'s U.S. employer identification number is
_______________; and
3. ________________________'s office address is
------------------------------
------------------------------
_____________________ understands that this certification may be
disclosed to the Internal Revenue Service.
Under penalties of perjury I declare that I have examined this
certification and to the best of my knowledge and belief that it is true,
correct and complete, and I further declare that I have authority to sign this
document on behalf of ____________________________.
------------------------------
By:
---------------------------
Its:
--------------------------
Date:
-------------------------
EXHIBIT F-2
I, ______________________, hereby certify the following:
1. I am not a nonresident alien for purposes of U.S. income taxation;
2. My U.S. taxpayer identification number (Social Security number) is
__________________; and
3. My home address is
------------------------------
------------------------------
I understand that this certification may be disclosed to the Internal
Revenue Service.
Under penalties of perjury I declare that I have examined this
certification and to the best of my knowledge and belief it is true, correct,
and complete.
---------------------------
[Name]
---------------------------
Date
