STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("Agreement") is made and
entered into as of May 23, 1997, by and among KII ACQUISITION CORP., or its
permitted assigns ("Buyer"), and Xxxxxxxx Industrie Holding AG, a Swiss
corporation ("Seller"), and Xxxxxxxx Industries, Inc., a California corporation
(the "Company").
RECITALS
A. Seller owns all of the issued and outstanding shares of
common stock (the "Company Shares") of the Company.
B. Seller desires to sell to Buyer, and Buyer desires to
purchase from Seller, the Company Shares for the consideration and on the terms
and conditions set forth in this Agreement.
TERMS AND CONDITIONS
NOW, THEREFORE, in consideration of the foregoing recitals and
the mutual covenants, agreements, representations and warranties contained in
this Agreement, and other good and valuable consideration, the receipt of which
is hereby acknowledged, the parties hereto agree as follows:
1. Sale and Purchase of the Company Shares.
1.1 Agreement to Sell. Upon the terms and subject to
all of the conditions contained herein, Seller hereby agrees to sell, assign,
transfer and deliver to Buyer on the Closing Date (as defined in Section 2.4
hereof), and Buyer hereby agrees to purchase and accept from Seller on the
Closing Date, the Company Shares.
2. Purchase Price and Payment Thereof.
2.1 Purchase Price. The aggregate purchase price for
the Company Shares being purchased pursuant to Section 1.1 shall be
US$26,500,000 less the aggregate of the outstanding principal balance and
accrued but unpaid interest due on the Closing Date in respect of each of (i)
that certain Note Secured by Deed of Trust dated September 6, 1991, in the
original principal amount of US$2,850,000, by Paragon Precision Products, Inc.,
as Maker, in favor of Farm Bureau Life Insurance Company (the "Mortgage") (ii)
that certain Promissory Note dated October 29, 1990, in the original principal
amount of US$10,000,000, by the Company in favor of Credit Suisse (the
"Unsecured Note"), and (iii) US$4,300,000, plus the outstanding balance in
excess of US$4,600,000 of that certain Business Loan Agreement, dated as of
October 27, 1995, as amended to date, between Xxxxx, Paragon, GIL and SEAL (each
as defined below in Section 3.2), as Borrowers, and Bank of America National
Trust and Savings Association, relating to a revolving line of credit commitment
in the maximum principal amount of US$6,550,000 (the "Line of Credit"); (such
net amount, the "Purchase Price").
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2.2 Payment of Purchase Price. At the Closing (as
defined in Section 2.4 hereof), as payment of the Purchase Price, Buyer shall:
(a) execute and deliver to Seller the Note
(as defined in Section 9.1 hereof) in the principal amount of US$1,750,000;
(b) transfer and deliver the remaining
balance of the Purchase Price to Seller in cash, by wire transfer in immediately
available funds to such account as shall be specified by Seller.
2.3 Delivery of the Company Shares. At the Closing,
Seller shall deliver or cause to be delivered to Buyer stock certificates for
the Company Shares duly executed in blank or accompanied by stock powers duly
executed in blank, in proper form for transfer.
2.4 Closing Date. The closing ("Closing") of the
transactions contemplated by this Agreement shall take place at the offices of
Xxxxx Raysman Xxxxxxxxx Xxxxxx & Xxxxxxx LLP, 000 Xxxx 00xx Xxxxxx, Xxx Xxxx,
Xxx Xxxx, xx June 30, 1997, subject to extension pursuant to Section 7.1.12
hereof or at such other date, time and/or place as may hereafter be agreed upon
in writing by all of the parties hereto (the "Closing Date").
3. Representations and Warranties of Seller and the Company.
3.1 Representations and Warranties of the Seller.
Seller represents and warrants the following to Buyer, subject to exceptions and
other disclosures to be set forth in the various schedules referred to below.
The phrases "to the knowledge of," "known by" and phrases of similar import,
when applied to Seller, shall mean only that any of (i)Xxxxxx Xxxxxx, Chairman
of Seller, and (ii) Xxxx Xxxxxx, member of the board of Seller (neither of whom
shall have any personal liability to Buyer in connection with this Agreement) is
actually aware of such fact or other matter or should have been aware of such
fact or matter, whether through appropriate internal investigation or inquiry or
otherwise.
3.1.1 Authority. Seller has full corporate
power and authority to own, lease and operate its assets, properties and
business and to carry on its business as it is now being and has been conducted.
This Agreement constitutes the legal, valid and binding obligation of Seller
enforceable in accordance with its terms. Seller has the absolute and
unrestricted right, power, authority and capacity to execute and deliver this
Agreement and to perform its obligations hereunder. The execution and delivery
of this Agreement and the performance hereof has been authorized and ratified by
the Board of Directors of Seller.
3.1.2 Organization and Good Standing of
Seller. Seller is a corporation duly organized, validly existing and in good
standing under the laws of Switzerland.
3.1.3 Title to the Company Shares. Seller
owns beneficially and of record, free and clear of any lien, claim, right,
charge, security interest, option or other encumbrance, and has full power and
authority to convey free and clear of any lien, claim, right, charge, security
interest option or other encumbrance, the Company Shares, and, upon
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delivery of any payment for such Company Shares as herein provided, Seller will
convey to Buyer good and valid title thereto, free and clear of any lien or
other encumbrance.
3.1.4 No Brokerage or Finder's Fees. Seller
has not incurred any liability to any broker, finder or agent for any brokerage
fees, finder's fees or commissions with respect to the transactions contemplated
by this Agreement other than to Coopers & Xxxxxxx Securities LLC, the fees of
which will be the sole responsibility of Seller.
3.1.5 No Violation. Except as set forth in
Schedule 3.1.5, neither the execution and delivery of this Agreement nor the
consummation or performance of any of the transactions contemplated hereby will,
directly or indirectly: (a) contravene, conflict with or result (with or without
notice or lapse of time) in a violation of (i) any of the provisions of the
current charter documents of Seller or (ii) any resolution adopted by the Board
of Directors or shareholders of Seller; (b) contravene, conflict with or result
(with or without notice or lapse of time) in a violation of any federal, state,
local, municipal, foreign or other law, statute, ordinance, rule, regulation,
directive or other legal requirement or any order, judgment, injunction, ruling,
decision, writ or sentence rendered by any court, agency or other governmental
body to which Seller, or any of the assets owned or used by Seller including the
Company Shares, may be subject which would restrict or prohibit Seller from
performing its obligations hereunder; (c) contravene, conflict with or result
(with or without notice or lapse of time) in a violation or breach of any of the
provisions of, or give any person or entity the right (with or without notice or
lapse of time) to declare a default or exercise any remedy under, or to
accelerate the maturity or performance of or cancel, terminate or modify, any
contract, mortgage, license, permit or authorization to which Seller is a party
or under which the Seller has any rights, or by which Seller, or any of the
assets owned or used by Seller may be bound, which would in turn restrict or
prohibit Seller from performing its obligations hereunder; or (d) result (with
or without notice or lapse of time) in the imposition or creation of any
security interest, lien or other encumbrance upon, or with respect to, any of
the assets owned or used by Seller which would in turn restrict or prohibit
Seller from performing its obligations hereunder.
3.1.6 Third Party Consents. No consent,
approval or other action of any third party, including any Swiss court or other
Swiss governmental authority, is required to be obtained by Seller in connection
with the transactions contemplated in this Agreement except as set forth in
Schedule 3.1.6 attached hereto.
3.1.7 No Litigation. Except as set forth in
Schedule 3.1.7 attached hereto, (i) there are no legal, administrative,
arbitration or other proceedings, or claims, actions, disputes or
investigations, pending or, to the knowledge of Seller, threatened against
Seller or affecting Seller's, the Company's or any Subsidiary's businesses,
operations or properties which would restrict or prohibit Seller from performing
its obligations hereunder; and (iii) none of the Seller, the Company nor any
Subsidiary is subject to any judgment, order or decree entered in any lawsuit or
proceeding which would restrict or prohibit Seller from performing its
obligations hereunder.
3.2 Representations and Warranties of the Company.
The Company and each Subsidiary (as defined in Section 3.2.24) represents and
warrants the following to Buyer, subject to exceptions and other disclosures to
be set forth in the various schedules
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referred below. The phrases "to the knowledge of," "known by" and phrases of
similar import, when applied to the Company, shall mean only that any of (i)
Xxxxxxx X. Call, Chairman, CEO and President of the Company and President, Xxxxx
Machining International ("Xxxxx"), (ii) Xxxxxx X. Xxxxx, Chief Financial Officer
and Corporate Controller of the Company, (iii) Xxxxxxxx X. Xxxxx, President,
Paragon Precision Products, Inc. ("Paragon"), (iv) Xxxx Xxxxxxxxx, President,
General Inspection Laboratories, Inc. ("GIL"), and (v) Xxxxxx X. Xxxxx,
President, Scanning Electron Analysis Laboratories, Inc. ("SEAL") (none of whom
shall have any personal liability to Buyer in connection with this Agreement) is
actually aware of such fact or other matter or should have been aware of such
fact or matter, whether through appropriate internal investigation or inquiry or
otherwise.
3.2.1 Authority. The Company and each
Subsidiary has full corporate power and authority to own, lease and operate its
assets, properties and business and to carry on its business as it is now being
and has been conducted. This Agreement constitutes the legal, valid and binding
obligation of the Company enforceable against it in accordance with its terms,
and (ii) the Company has the absolute and unrestricted right, power, authority
and capacity to execute and deliver this Agreement and to perform its
obligations hereunder. The Company has delivered to Buyer true and correct
copies of (i) its Articles of Incorporation, (ii) its Bylaws and (iii)
resolution of its Board of Directors and its shareholder authorizing all the
transactions contemplated by this Agreement.
3.2.2 Organization and Good Standing of the
Company and Subsidiaries.
(a) The Company. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California. The Company is duly qualified or otherwise
authorized as a foreign corporation to transact business and is in good standing
in each jurisdiction set forth on Schedule 3.2.2(a), which are the only
jurisdictions in which the Company owns or leases real property or conducts
business, and in all other jurisdictions where such qualification or
authorization is otherwise required by law and in which the failure so to
qualify or be authorized could have a material adverse effect on the business or
properties of the Company. The Company has all requisite power and authority to
own and operate its assets and properties and carry on its business as and where
such is now being conducted.
(b) The Subsidiaries. Each
Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of the State of California. Each Subsidiary is duly
qualified to transact business and is in good standing in each jurisdiction set
forth on Schedule 3.2.2(b), which are the only jurisdictions in which such
Subsidiary owns or leases real property or conducts business, and in all other
jurisdictions where such qualification or authorization is otherwise required by
law and in which the failure so to qualify or be authorized could have a
material adverse effect on the business or properties of such Subsidiary. Each
Subsidiary has all requisite power and authority to own and operate its
respective assets and properties and carry on its respective business as and
where such is now being conducted.
3.2.3 Outstanding Stock of the Company and
the Subsidiaries.
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(a) The Company. The Company is
authorized to issue 1,000,000 shares of common stock, of which 10,000 shares are
issued and outstanding, all of which outstanding Company Shares are owned
directly by Seller. No other class of capital stock of the Company is authorized
or outstanding. All of the Company Shares are duly authorized and are validly
issued, fully paid and nonassessable.
(b) The Subsidiaries. The number of
shares of common stock, the par values of such shares, and the number of shares
which are issued and outstanding for each Subsidiary are set forth on Schedule
3.2.3(b). All of the outstanding shares of each Subsidiary are owned by the
Company. No other class of capital stock of any Subsidiary is authorized or
outstanding. All of the shares of each Subsidiary are duly authorized, validly
issued, fully paid and nonassessable.
3.2.4 Options or Other Rights in Stock of
the Company. There are no outstanding rights, subscriptions, warrants, calls,
unsatisfied preemptive rights, options, conversion rights, commitments or other
agreements of any kind to purchase or otherwise to receive from the Company any
of the outstanding, authorized but unissued, unauthorized or treasury shares of
the capital stock of the Company or any Subsidiary, including the Company Shares
or any other security of the Company or any Subsidiary, and there is no
outstanding security of any kind convertible into such capital stock, including
the Company Shares.
3.2.5 Title to Assets of the Company. Except
as set forth in Schedule 3.2.5 attached hereto, and without limiting the
representations and warranties set forth in Section 3.2.15 or elsewhere herein,
the Company and each Subsidiary has title to all of its assets (other than Real
Property as defined in Section 3.2.15), including, without limitation, all
assets shown on the Unaudited Balance Sheet (as defined in Section 3.2.6(a)) or
the Balance Sheet (as defined in Section 3.2.6(a)), free and clear of all
mortgages, liens, leases, pledges, charges, encumbrances, equities, claims under
bailment and storage agreements, charges and restrictions other than (i) liens,
if any, for personal property taxes and assessments not yet due and payable, or
(ii) inventories sold since the date of the Balance Sheet in the ordinary course
of business and consistent with past practice.
3.2.6 The Company's Financial Condition.
(a) Financial Statements. The
Company has delivered to Buyer: (a) audited consolidated balance sheets of the
Company, as of December 31, 1996, and the related audited consolidated
statements of income, changes in stockholders' equity and cash flow for the
fiscal year then ended, together with the report thereon of Coopers & Xxxxxxx
LLP, independent certified public accountants (such financial statements as of
December 31, 1996, including the notes thereto, are referred to herein
collectively as the "Balance Sheet") and (b) unaudited consolidated balance
sheets of the Company as of March 31, 1997 and the related unaudited
consolidated statements of income and cash flow (collectively, the "Unaudited
Balance Sheet"). Such financial statements and notes fairly present the
financial condition and results of operations of the Company and the
Subsidiaries at the respective dates thereof and for the periods therein
referred to, all in accordance with generally accepted accounting principles
consistently applied ("GAAP"), and the financial statements referred to in this
Section reflect the consistent application of such accounting principles
throughout the periods involved, except as disclosed in the notes to such
financial
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statements. No person or entity other than the Company and the Subsidiaries is
required by GAAP to be included in the consolidated financial statements of the
Company.
(b) Absence of Certain Changes.
Except as set forth on Schedule 3.2.6(b), the Unaudited Balance Sheet and the
notes thereto, since the date of the Balance Sheet, there has not been: (i) any
transaction not in the ordinary course of the Company's or any Subsidiary's
business; (ii) any change in the Company's or any Subsidiary's accounting
methods or practices (including, but not limited to, any change in depreciation
or amortization policies or rates); (iii) any sale or transfer of any of the
assets of the Company or any Subsidiary or any cancellation of any debts, claims
or contracts, except for the sale of inventory in the ordinary course of
business and consistent with past practice; (iv) any entering into, amendment or
termination of any material lease, or other material contract, purchase order or
other agreement to which the Company or any Subsidiary is a party or any waiver
of any material right thereunder; (v) any purchase by the Company or any
Subsidiary of fixed assets, including real property, in excess of amounts
budgeted therefor in the Company's fiscal 1997 operating budget, a copy of which
has been delivered to Buyer; (vi) any other event or condition of any character
which has materially and adversely affected, or is presently expected, to the
knowledge of the Company, to affect, the assets or the businesses of the Company
or any Subsidiary; (vii) any material loss, damage or destruction, whether
covered by insurance or not, affecting the assets, business or property of the
Company or any Subsidiary; (viii) any declaration, setting aside or payment of
any dividend or any other distribution in respect of the Company's capital
stock, any redemption, purchase or other acquisition by the Company of any of
the Company's common stock or any security relating thereto, or any other
payment to any shareholder of the Company as such; (ix) any material
indebtedness incurred, assumed or guaranteed by the Company or any Subsidiary;
(x) any lien made or created on any of the assets of the Company or any
Subsidiary; (xi) any loan or advance to any person (other than advances to
employees in the ordinary course of business) or any grant of credit to any
customer or distributor on terms or in amounts more favorable than those which
have been extended to such customer or distributor in the past, any change in
the terms of any credit heretofore extended, or any other change of the
Company's or any Subsidiary's policies or practices with respect to the granting
of credit; or (xii) any agreement, in writing or otherwise, by the Company or
any Subsidiary to do any of the things described in any of the preceding
subsections (i) through (xi).
(c) No Undisclosed Liabilities. To
the knowledge of the Company, the Company and the Subsidiaries have no
liabilities or obligations of any nature (contingent, absolute, direct,
indirect, matured, unmatured, accrued or otherwise) except (i) liabilities which
are fully reflected or reserved against in the Balance Sheet (which reserves are
appropriate and reasonable) or disclosed in the related notes; and (ii)
non-material liabilities incurred in the ordinary course of business and
consistent with past practice since the date of the Balance Sheet; and (iii)
liabilities set forth in Schedule 3.2.6(c) hereto.
3.2.7 Books and Records. The books of
account, minute books, stock record books and other records of the Company and
each Subsidiary, all of which have been made available to Buyer, are complete
and correct in all material respects (with respect to each of the Subsidiaries
of the Company acquired from third parties, only insofar as the foregoing
representation relates to the period from and after the acquisition of said
Subsidiary). The minute books of the Company and its Subsidiaries each contain
records
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which are accurate and complete in all material respects of all meetings held
of, and corporate action taken by, the stockholders, the Boards of Directors and
committees of the Boards of Directors of the Company and each Subsidiary,
respectively. At the Closing, all of those books and records will be in the
possession of the Company and its Subsidiaries, respectively.
3.2.8 Compliance with Laws. Without limiting
the representations and warranties set forth in Section 3.2.25 or elsewhere
herein, and except as set forth in Schedule 3.2.8, to the knowledge of the
Company, the Company and each Subsidiary and the respective assets and
businesses of each, have, and on the Closing Date will have, complied in all
material respects with all laws, orders, regulations and rules of any
governmental department, commission, board, agency or instrumentality, domestic
or foreign, having jurisdiction over it or its operations, including but not
limited to, all laws, orders, regulations and rules relating to zoning, building
codes, antitrust, occupational safety and health, environmental protection,
water, ground or air pollution, the generation, treatment, storage,
transportation or disposal of waste or toxic or hazardous materials, consumer
product safety, product liability, hiring, wages, hours, employee benefit plans
and programs, collective bargaining and the payment of withholding and social
security taxes and all regulations of the Federal Aviation Administration. None
of Seller, the Company, or any of the Subsidiaries have received any notice of
any violation or alleged violation of any laws, orders, regulations or rules of
any governmental department, commission, board, agency or instrumentality.
3.2.9 Condition and Sufficiency of Assets.
Without limiting the representations and warranties set forth in Section 3.2.15,
to the knowledge of the Company the buildings, plants, structures and equipment
owned or occupied by the Company and each Subsidiary are structurally sound with
no known material defects, are in good operating condition and repair and are
adequate for the uses to which they are being put, and none of such buildings,
plants, structures or equipment is in need of maintenance or repairs except for
maintenance and repairs that are not material in nature or cost. To the
knowledge of the Company, the buildings, plants, structures and equipment owned
or occupied by the Company and each Subsidiary are sufficient for the continued
conduct of their respective businesses after the Closing in substantially the
same manner as conducted prior to the Closing.
3.2.10 No Brokerage or Finder's Fees.
Neither the Company nor any Subsidiary has incurred any liability to any broker,
finder or agent for any brokerage fees, finder's fees or commissions with
respect to the transactions contemplated by this Agreement.
3.2.11 No Violation. Except as set forth in
Schedule 3.2.11, neither the execution and delivery of this Agreement nor the
consummation or performance of any of the transactions contemplated hereby will,
directly or indirectly: (a) contravene, conflict with or result (with or without
notice or lapse of time) in a violation of (i) any of the provisions of the
current Articles of Incorporation or the Bylaws of the Company or any Subsidiary
or (ii) any resolution adopted by the Board of Directors or the stockholder of
the Company or any Subsidiary; (b) contravene, conflict with or result (with or
without notice or lapse of time) in a violation of any federal, state, local,
municipal, foreign or other law, statute, ordinance, rule, regulation, directive
or other legal requirement or any order, judgment, injunction, ruling, decision,
writ or sentence rendered by any court, agency or other
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governmental body to which the Company or any Subsidiary, or any of the assets
owned or used by the Company or any Subsidiary may be subject; (c) contravene,
conflict with or result (with or without notice or lapse of time) in a violation
or breach of any of the provisions of, or give any person or entity the right
(with or without notice or lapse of time) to declare a default or exercise any
remedy under, or to accelerate the maturity or performance of or cancel,
terminate or modify, any contract, mortgage, license, permit or authorization to
which the Company or any Subsidiary is a party or under which the Company or any
Subsidiary have any rights, or by which the Company or any Subsidiary, or any of
the assets owned or used by the Company or any Subsidiary may be bound; (d)
result (with or without notice or lapse of time) in the imposition or creation
of any security interest, lien or other encumbrance upon, or with respect to,
any of the assets owned or used by the Company or any Subsidiary. Neither the
Company nor any Subsidiary is in default under, or in material breach or
violation of, any contracts, mortgages, licenses, permits, commitments or
restrictions to which the Company or any Subsidiary is a party by which any of
them or the Company Shares or any shares of any Subsidiary is or are bound.
3.2.12 Third Party Consents. No consent,
approval or other action of any third party is required to be obtained by the
Company or any Subsidiary in connection with the transactions contemplated in
this Agreement except as set forth in Schedule 3.2.12 attached hereto.
3.2.13 No Litigation. Except as set forth in
Schedule 3.2.13 attached hereto, (i) there are no legal, administrative,
arbitration or other proceedings, or claims, actions, disputes or
investigations, pending or, to the knowledge of the Company, threatened against
the Company or any Subsidiary or affecting their respective businesses,
operations or properties; and (ii) neither the Company nor any Subsidiary is
subject to any judgment, order or decree entered in any lawsuit or proceeding
which has had a material adverse effect on the businesses, operations or
properties of the Company or any Subsidiary.
3.2.14 Employee Benefit Matters.
(a) Plans. Except as set forth in
Schedule 3.2.14(a) attached hereto, there are no Plans (as herein defined) in
which any current or former employees, officers or directors of the Company or
the Subsidiaries participate. As used in this Agreement, "Plan" and "Plans"
shall mean (i) any "employee benefit plan" within the meaning of Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended from time to
time, and the regulations promulgated thereunder ("ERISA"), (ii) any written or
unwritten profit sharing, pension, deferred compensation, bonus, stock option,
stock purchase, severance, retainer, consulting, health, welfare or incentive
plan or agreement whether legally binding or not, (iii) any written or unwritten
plan, policy, arrangement or commitment providing for "fringe benefits" to
employees, including but not limited to vacation, paid holidays, personal leave,
employee discount, perquisites, educational benefit or similar programs, or (iv)
any employment agreement, now or heretofore maintained, or contributed to, by
the Company or any ERISA Affiliate for the benefit of any present or former
employees, officers or directors of the Company. As used in this Agreement,
"ERISA Affiliate" means any trade or business (whether or not incorporated) that
is part of the same controlled group, or under common control with, or part of
an affiliated service group that includes, the Company, the Subsidiaries and/or
the Seller and any United States
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affiliates of Seller within the meaning of Sections 414(b), (c), (m) or (o) of
the Internal Revenue Code of 1986, as amended from time to time, and the
regulations promulgated thereunder (the "Code") and/or ERISA Section
4001(a)(14).
(b) Health Benefits. Except as set
forth in Schedule 3.2.14(b) attached hereto, no current or former employees,
officers or directors of the Company or the Subsidiaries (or their dependents)
participate in any Plan which provides health benefits after the employee's,
officer's or director's termination of employment or termination of position,
except as required under COBRA (as defined herein). "COBRA" shall mean the group
health plan continuation coverage provisions of Section 4980B of the Code or
Sections 601 through 608 of ERISA.
(c) Claims Related to Plans. Except
as set forth in Schedule 3.2.14(c) attached hereto, no actions, claims,
investigations, audits or complaints (other than routine claims for benefits
made in the ordinary course of Plan administration for which Plan administrative
review procedures have not been exhausted) are pending, or, to the knowledge of
the Company threatened or imminent against or with respect to the Plan, any
employer (including, without limitation, the Company and any Subsidiary) who is
participating (or who has participated) in any Plan or, to the knowledge of the
Company, any fiduciary (as defined in Section 3(21) of ERISA), of the Plan and
neither the Company nor, to the knowledge of the Company, any fiduciary has any
knowledge of any facts which could give rise to any such action, claim,
investigation, audit or complaint.
(d) Liability Relating to
Multiemployer Plans. Neither the Company nor any ERISA Affiliate has incurred,
nor as a consequence of the transaction to be completed pursuant to this
Agreement will incur any withdrawal liability with respect to any Plan described
in Section 3(37) of ERISA ("Multiemployer Plan") within the meaning of Sections
4201 and 4204 of ERISA, and no liabilities exist with respect to withdrawals
from any Multiemployer Plans which could subject the Company or any Subsidiary
to any controlled group liability under Section 4001(b) of ERISA.
(e) Plans in Compliance. Except as
set forth in Schedule 3.2.14(e), all of the Plans listed in Schedule 3.2.14(a)
hereto, to the extent applicable, are in compliance in all material respects
with COBRA, ERISA and the Code and have been administered in material compliance
with their terms. Each Plan that is subject to Section 1862(b)(1) of the Social
Security Act has been administered in compliance with the secondary payor
requirements of Section 1862 (b)(1) thereof in all material respects.
(f) Documents Relating to Plans.
True, correct and complete copies of all documents creating or evidencing any
Plan listed in Schedule 3.2.14(a) (including, without limitation, all summary
plan descriptions for such Plans) have been delivered to Buyer, and true,
correct and complete copies of all reports, forms and other documents required
to be filed with any governmental entity (including, without limitation, all
Forms 5300 and 5500) have been delivered to Buyer.
(g) No Negotiations, Demands or
Proposals. There are no negotiations, demands or proposals which are pending or,
to the knowledge of the Company, have been made which concern matters now
covered, or that would be covered, by
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the type of Plans listed in Schedule 3.2.14(a).
(h) Plan Administration. Except as
set forth in Schedule 3.2.14(h) attached hereto, with respect to the Plans:
(i) there are no Plans that are
Multiemployer Plans;
(ii) each Plan that is an "employee pension
benefit plan" within the meaning of ERISA Section 3(2) has received a
favorable determination letter from the Internal Revenue Service
("IRS") stating that such Plan meets all the requirements of the Code,
and that any trust or trusts associated with such Plan are tax exempt
under Section 501(a) of the Code; and the Company knows of no reason
why the tax-qualified status of any such Plan should be revoked,
whether retroactively or prospectively, by the IRS;
(iii) all amendments to the Plans which were
required by the IRS or any applicable statute rule or regulation to be
made through the date hereof and the Closing Date under Section 401(a)
of the Code, and any other applicable law, subsequent to the issuance
of each such Plan's IRS determination letter have been made; and the
Company knows of no amendments which are required to be made to such
Plans which adversely affect, or may result in the revocation or
discontinuance of, the continuing tax-qualification status of such
Plans under the Code;
(iv) all filings, notices, and disclosures,
required by ERISA, the Code or any other applicable laws that would
materially and adversely affect the Company and its subsidiaries have
been timely filed and made;
(v) all contributions and payments made or
accrued with respect to each Plan are deductible in full as an income
tax deduction under the Code; and all contributions, premiums or
payments required to be made with respect to each such Plan have been
made on or before their due date(s);
(vi) the Company and the Subsidiaries have
not, and to the knowledge of Seller and the Company, no ERISA
Affiliates have, incurred any liability to, or adopted any Plan or
other arrangement which may expose the Company or any Subsidiary to
liability of any nature whatsoever, to (1) the Pension Benefit Guaranty
Corporation under Title IV or Section 502 of ERISA, or (2) the IRS
under Chapter 43 of the Code, or (3) the Department of Labor;
(vii) with respect to each Plan, there has
not occurred, and no person or entity is contractually bound to enter
into, any nonexempt "prohibited transaction" within the meaning of
Section 4975 of the Code or Section 406 of ERISA;
(viii) no payment that is owed or may become
due to any current or former director, officer, employee or agent of
the Company or any Subsidiary is subject to Section 280G of the Code,
nor is the Company or any Subsidiary obligated, orally or in writing,
to "gross up" or otherwise compensate any such person due to the
imposition of an excise or similar tax on payments made to such person
by the
10
Company, any Subsidiary or its ERISA Affiliates under Section 4999 of
the Code;
(ix) the consummation of the transactions
contemplated by this Agreement will not accelerate or terminate, nor
does there exist any basis for the acceleration or termination of, (1)
benefits payable to current or former employees of, or other
compensated personnel at, the Company or an ERISA Affiliate under any
Plan, or any other plan, arrangement, contract or agreement, written or
oral, maintained by the Company or any Subsidiary, (2) a participant's
vesting credits or years of service under any Plan, or (3) accruals
with respect to any other benefits or amounts reserved under any such
Plan; and
(x) only current and former employees
(excluding "leased employees" as defined in Code Section 414(n)(2)) of
the Company and its ERISA Affiliates participate in, and are entitled
to receive benefits from, the Plans.
(i) Funding. Except as set forth in
Schedule 3.2.14(i), as of the last day of the most recent prior plan year, the
market value of assets of each Plan that is subject to Title IV of ERISA (a
"Defined Benefit Plan"), other than any Multiemployer Plan, equaled or exceeded
(and will, as of the Closing Date, equal or exceed) the present value of
"benefit liabilities" (within the meaning of ERISA Section 4001(a)(16))
thereunder determined in accordance with both (1) the Defined Benefit Plan's
actuarial valuation assumptions in effect for such prior plan year, and (2) the
provisions of Title IV of ERISA on a Defined Benefit Plan termination basis
(assuming each Defined Benefit Plan terminated on each of such dates). No
accumulated funding deficiency, whether or not waived, exists with respect to
any Defined Benefit Plan; no Defined Benefit Plan amendment with respect to
which security is required under ERISA Section 307 has been or will be made; and
the Pension Benefit Guaranty Corporation has not instituted, and, to the
knowledge of the Company, is not reasonably expected to institute, any
proceedings to terminate any Defined Benefit Plan.
(j) Funding of Deferred
Compensation Plan. Except as set forth in Schedule 3.2.14(j), to the Company's
knowledge, assuming payment of annual insurance premium payments, the
accumulated cash surrender values and anticipated death benefits of the life
insurance policies used to fund the deferred compensation agreements of the
Company which have been disclosed on Schedule 3.2.14(a) will be sufficient to
satisfy any liability of the Company without any contribution from the Company
or any other person and to reimburse the Company for its costs of providing the
insurance.
3.2.15 Real Property. All real property interests
owned by the Company or its Subsidiaries (the "Owned Real Property") or leased,
occupied or operated by the Company or its Subsidiaries (the "Leased Real
Property" and, collectively with Owned Real Property, the "Real Property")
consists of the sites described on Schedule 3.2.15A attached hereto (the
"Sites"). The Sites constitute all the Real Property of the Company and its
Subsidiaries. Sellers enjoy peaceful and undisturbed possession of all Leased
Real Property and all the leases of Leased Real Property are valid and
subsisting and in full force and effect, and there does not exist any default or
event that with notice or lapse of time, or both, would constitute a default by
the Company or any Subsidiary or, to the Company's best knowledge, by any other
party, under any of these leases. There is now in full force and
11
effect duly issued a certificate of occupancy permitting such Owned Real
Property and the improvements located thereon to be legally used and occupied as
the same are now constituted, and the Company has no knowledge of any violations
of the respective certificates of occupancy relating to any of the Sites which
are part of the Leased Real Property. The Company or its Subsidiaries has good
and marketable title to all of the Owned Real Property. There are no mortgages,
deeds of trust, encumbrances, liens and charges of any kind or character, rights
of way, building use restrictions, exceptions, variances, reservations or
limitations of any nature whatsoever on the Owned Real Property, except such as
are listed in the preliminary title report attached hereto as Schedule 3.2.15B,
and the Company has no knowledge of any mortgages, deeds of trust, encumbrances,
liens and charges of any kind or character, rights of way, building use
restrictions, exceptions, variances, reservations or limitations of any nature
whatsoever on the Leased Real Property which would restrict or prohibit the
Company and its Subsidiaries from carrying on their respective businesses as
presently conducted. Neither the whole nor any portion of the Owned Real
Property (or, to the knowledge of the Company, the Leased Real Property), nor
any other assets of the Company or any Subsidiary is subject to any governmental
decree or order to be sold or is being condemned, expropriated or otherwise
taken by any public authority with or without payment of compensation therefor,
nor to the best of the Company's knowledge, has any such condemnation,
expropriation or taking been proposed or threatened.
3.2.16 Condition of Accounts Receivable. Except as
set forth on Schedule 3.2.16, the accounts receivable of the Company and each
Subsidiary that are reflected in the Balance Sheet or the Unaudited Balance
Sheet, as of the Closing Date (i) have arisen in the ordinary course of business
of the Company or the applicable Subsidiary; (ii) represent or will represent
valid obligations due to the Company or any Subsidiary, as the case may be,
enforceable in accordance with their terms; (iii) subject only to reserves for
bad debts set forth on the Balance Sheet or the Unaudited Balance Sheet,
respectively, which reserves have been computed in a manner consistent with GAAP
and subject to customer trade discounts consistent with past practice, are
current and have been collected or are collectible in the ordinary course of
business of the Company or any Subsidiary in the aggregate recorded amounts
thereof in accordance with their terms; and (iv) to the knowledge of the
Company, will not be subject to any recoupments, set-offs or counterclaims,
except as allowed in clause (iii). At the Closing, the Company will confirm the
foregoing representation as of the Closing Date, as to the accounts receivable
on such date.
3.2.17 Inventory. Except as set forth on Schedule
3.2.17, all inventory of the Company and the Subsidiaries reflected on the
Unaudited Balance Sheet consists of a quality and quantity usable and salable in
the ordinary course of business, had a commercial value at least equal to the
value shown on such Unaudited Balance Sheet and is valued in accordance with
GAAP at the lower of cost (on a FIFO basis) or market, all determined in
accordance with Company's Inventory Valuation Policy attached hereto as part of
Schedule 3.2.17. Schedule 3.2.17 sets forth a list of all inventory which, given
its age or other characteristics, is of questionable value or may not be salable
in the ordinary course of business. All inventory acquired since the date of the
Unaudited Balance Sheet consists of a quality and quantity usable and salable in
the ordinary course of business. All inventory of the Company and the
Subsidiaries is located on the Real Property. All work-in-process contained in
inventory constitutes items in process or production (i) pursuant to contracts
or open orders taken in the ordinary course of business from regular customers
of the Company
12
or a Subsidiary, or (ii) pursuant to Company's normal policies of manufacturing
products in excess of amounts currently covered by open contracts or purchase
orders, in order to take advantage of production economies of scale or for items
as to which Company anticipates future demand. Neither the Company or any
Subsidiary nor, to the knowledge of the Company , any such customer is in
material breach of the terms of any obligation to the other, and to the
knowledge of the Company , no valid grounds exist for any set-off of amounts
billable to such customers on the completion of orders to which work-in-process
relates. All work-in-process is of a quality ordinarily produced, and to the
knowledge of the Company will require no material rework with respect to work
done prior to the Closing other than reworking in connection with the Company's
normal quality control efforts.
3.2.18 Customers. Schedule 3.2.18 contains a list of
the ten (10) largest customers of each Subsidiary for each of the two most
recent fiscal years (determined on the basis of the total dollar amount of net
sales) showing the total dollar amount of net sales to each such customer during
each such year. Except as set forth on Schedule 3.2.18, the Company has no
knowledge or information of any facts indicating, nor any other reason to
believe, that any of the customers listed on Schedule 3.2.18 will not continue
to be customers of the Subsidiaries after the Closing.
3.2.19 Product Warranty and Product Liability.
Schedule 3.2.19 contains a true, correct and complete copy of the Company and
Subsidiaries' standard warranties for sales of all products currently or
previously manufactured or services performed by the Company or any Subsidiary
(including by any businesses which are no longer owned by the Company) and,
except as stated therein, there are no warranties, commitments or obligations
with respect to the return, repair or replacement of such products or the cure
of any errors or omissions in the performance of services. Schedule 3.2.19 sets
forth the estimated aggregate annual cost to the Company on a consolidated basis
of performing warranty obligations for customers since 1995 and a description of
all product liability claims or claimed errors or omissions and similar claims,
actions, litigation and other proceedings relating to products manufactured or
sold, or services rendered, which are presently pending or which, to the
Company's knowledge, are threatened, which have been asserted or commenced
against the Company or any of the Subsidiaries within the last five years, in
which a party thereto requests injunctive relief or alleges damages (whether or
not covered by insurance). To the best of the Company's knowledge, there are no
defects in manufacture of the Company's or any Subsidiary's products or errors
or omissions in the performance of any service by the Company or any Subsidiary
which would adversely affect performance or create an unusual risk of injury to
persons or property.
3.2.20 Adequate Insurance. Schedule 3.2.20 attached
hereto contains an accurate and complete description of all material policies of
fire, liability, workers' compensation and other forms of insurance owned or
held by the Company and each Subsidiary. Such policies (i) are in full force and
effect; and (ii) to the knowledge of the Company, are sufficient for compliance
with all requirements of law imposed on the Company or the Subsidiaries. Without
limitation on the generality of the foregoing, the Company and each Subsidiary
each maintain liability insurance adequate to cover all losses, claims,
liabilities, damages, actions, costs and expenses (including attorneys' fees and
expenses) of the type customarily insured against in the conduct of their
respective businesses,
13
arising out of, in connection with, or relating to the operation or conduct of
their respective businesses prior to the Closing Date. All such insurance shall
be in effect through the Closing Date. No insurance coverage of the Company or
any Subsidiary is maintained through self-insurance.
3.2.21 Machinery and Equipment. The facilities,
machinery, equipment, furniture, leasehold improvements, fixtures, vehicles,
structures, any related capitalized items and other tangible property material
to the business of the Company and each Subsidiary are, and on the Closing Date
will be, owned by the Company and each Subsidiary, respectively, free and clear
of all liens and encumbrances, except as listed on Schedule 3.2.21.
3.2.22 Intellectual Properties. The Company and its
Subsidiaries use no Intellectual Properties, except as set forth on Schedule
3.2.22. "Intellectual Properties" shall include the Company's and each
Subsidiary's names, all fictitious business names, trade names, registered and
unregistered trademarks, service marks and applications (collectively "Marks"),
all patents and patent applications (collectively "Patents"), all copyrights in
both published works and unpublished works which are material to the business
("Copyrights"), all rights in mask works (collectively "Rights in Mask Works"),
and all know-how, trade secrets, confidential information, software (including
documentation and source code listings), technical information, process
technology, plans, drawings, blue prints and other proprietary properties or
information ("Trade Secrets") owned, used or licensed by the Company and each
Subsidiary as licensee or licensor in connection with their respective
businesses. Except as set forth on Schedule 3.2.22, the Intellectual Properties
are, and on the Closing Date will be, owned by the Company or any Subsidiary, as
the case may be, free and clear of all liens and encumbrances, and not subject
to any license, royalty arrangement or dispute. The Company and each Subsidiary
has filed fictitious business name statements necessary to be filed with respect
to trade names presently in use. No officer, director, trustee or employee of
the Company or any Subsidiary and, to the Company's knowledge, no other person
owns or has, nor at the Closing Date will own or have, any interest in any
Intellectual Property used by the Company or any Subsidiary in connection with
its business.
(a) Schedule 3.2.22 is an accurate and
complete listing and summary of all Marks. The Company or its Subsidiaries,
respectively, (i) is the owner of all right, title and interest in and to each
of the Marks free and clear of all liens, claims, rights, security interests,
collateral assignments, licenses, charges, encumbrances, equities and other
claims; (ii) none of the Marks have been registered; (iii) no Xxxx has been or
is now involved in any opposition, invalidation or cancellation proceeding nor,
to the best of the Company's knowledge, is any such action threatened with
respect to any of the Marks; (iv) the Company is not aware of any potentially
interfering trademark or trademark application of any third party; and (v) no
Xxxx is infringed or, to the best of the Company's knowledge, has been
challenged or threatened in any way. None of the Marks used by the Company or
any Subsidiary infringe or are alleged to infringe any trade name, trademark or
service xxxx of any third party.
(b) Neither the Company nor any Subsidiary
owns or uses any Patents, Copyrights, Rights in Mask Works or Trade Secrets.
14
3.2.23 Capital Projects and Expenditures.
All capital projects and capital expenditures undertaken by the Company and each
Subsidiary, or to which the Company or any Subsidiary is committed, which have
not been completed by the date hereof are set forth on Schedule 3.2.23 attached
hereto which schedule sets forth a description of the capital project, the
status of such project, the amount committed thereto, and the amount expended as
of the date hereof.
3.2.24 Subsidiaries. At the Closing Date,
the Company will not, directly or indirectly, own any stock or other equity
interest in any other person or entity, except for those entities (each a
"Subsidiary" and collectively, the "Subsidiaries") set forth on Schedule 3.2.24
attached hereto.
3.2.25 Hazardous Substances. Without
limiting the representations and warranties contained in Section 3.2.8 or
elsewhere herein:
(a) Use, Storage, Disposition of
Hazardous Materials. Except as set forth in Schedule 3.2.25(a) attached hereto,
none of the Company and the Subsidiaries, and, to the knowledge of the Company,
no other person (including predecessors to the business of any of the Company
and the Subsidiaries) (i) has ever caused or permitted any release, disposal or
discharge of any Hazardous Materials (as defined in Section 3.2.25(e) hereof) to
occur in, on, under or from about the Real Property or any part thereof, or any
property or facility previously owned, leased, occupied or operated by the
Company or any Subsidiary ("Prior Facilities"), in a manner which would require
reporting and/or remediation, or that could cause the Real Property or any part
thereof to be subject to any restrictions on the ownership, occupancy,
transferability or use thereof, under any Hazardous Materials Law; or (ii) has
ever caused or permitted to be incorporated into or utilized in the construction
of any improvements located on the Real Property any chemical, material, or
substance to which exposure is prohibited, limited or regulated by any Hazardous
Materials Laws or which, even if not so regulated, is known by the Company to
pose a hazard (either in its present form or if disturbed or removed) to the
health and safety of the occupants of the Real Property or of property adjacent
to the Real Property. .
(b) Asbestos; Urea Formaldehyde;
PCBs. Except as set forth in Schedule 3.2.25(b), to the knowledge of the
Company, none of the Company or any Subsidiary or any other person has ever
caused or permitted to be located on the Real Property any asbestos in any form,
any urea formaldehyde foam insulation or any transformers or other equipment
which contain dielectric fluid containing levels of polychlorinated biphenyls in
excess of 50 parts per million.
(c) Environmental Litigation.
Except as set forth in Schedule 3.2.25(c) attached hereto, no litigation, claim,
demand, notice of material violation, administrative enforcement action or
proceeding exists or has been brought or, to the knowledge of the Company,
threatened against the Company or any Subsidiary or the business or property of
the Company or any Subsidiary, nor have any settlements been reached by or with
any party or parties, public or private, relating to damage, contribution, cost
recovery, compensation, loss or injury resulting from any Hazardous Materials,
or directly or indirectly arising out of or attributable to their use,
generation, storage, release, threatened release, discharge, transportation or
disposal and, to the knowledge of the Company, no litigation,
15
claim, demand, notice of material violation, administrative enforcement action
or proceeding exists or has been brought or threatened against any predecessor
of or any business previously owned or operated by the Company or any
Subsidiary.
(d) Compliance. Except as set forth
in Schedule 3.2.25(d): (i) the business of the Company and of each Subsidiary,
as currently conducted, does not result in any material non-compliance with
Hazardous Materials Laws; (ii) neither the Company nor any Subsidiary has failed
to file any reports, apply for and/or obtain, or comply with, any licenses,
approvals and permits, or generate and maintain all data, documentation and
records, required under Hazardous Materials Laws, which failure results in the
Company and/or any Subsidiary being in material non-compliance with Hazardous
Materials Laws; (iii) neither the Company nor any Subsidiary, or to the
knowledge of the Company, any other person, has stored, used, generated,
manufactured, processed, treated, transported or disposed of Hazardous Materials
on or about, or to or from, the Real Property or any Prior Facilities in any
manner which results in the Company and/or any Subsidiary being in material
non-compliance with Hazardous Materials Laws; (iv) the Company and each
Subsidiary are and at all relevant times have been in compliance with all
enforcement, cleanup, removal or other governmental or regulatory actions
instituted, completed or threatened pursuant to any Hazardous Materials Laws;
and (v) neither the execution of this Agreement nor the consummation of the
transactions required hereunder shall require or result in any remedial action
with respect to any Real Property. For purposes of this Section 3.2.25(d), the
term "material non-compliance" shall mean any failure to comply with Hazardous
Materials Laws which results in the Company or any Subsidiary being (x) liable
for any fines, penalties or similar impositions imposed by a governmental
authority having jurisdiction under applicable Hazardous Materials Laws, (y)
unable to continue its business operations in the ordinary course; or (z)
required to make additional capital improvements to its facilities in order to
bring such facilities into compliance with applicable Hazardous Materials Laws.
(e) Storage and Disposal of
Hazardous Materials; Underground Storage Tanks. To the actual knowledge of the
Company, without duty to investigate, all on-site and off-site locations where
the Company or any Subsidiary stores, disposes or arranges for the disposal of
Hazardous Materials are identified in Schedule 3.2.25(e), and, as to off-site
locations operated by third parties, are utilized pursuant to contracts with
vendors which are, to the actual knowledge of the Company and the Subsidiaries
without duty to investigate, properly licensed. To the actual knowledge of the
Company, without duty to investigate, all underground storage tanks located on
the Real Property, including the location, capacity and contents of such tanks,
are identified on Schedule 3.2.25(e).
(f) Environmental Reports. All
written compliance audits and site assessment reports prepared by or on behalf
of the Company or any Subsidiary which relate to the Company's or any
Subsidiary's compliance with Hazardous Materials Laws or the presence of any
Hazardous Materials on the Real Property or the Prior Facilities or the effects
or consequences thereof have been made available to Buyer.
(g) Definitions. For purposes
hereof, the term "Hazardous Materials" means and includes, but shall not be
limited to, any chemical,
16
compound, substance, pollutant, contaminant, waste, by-product, or material, the
generation, manufacture, handling, use, storage, emission, discharge, disposal,
treatment, transportation, or management of which, or exposure to which, is
prohibited, limited or regulated by, or for which reporting, testing, worker
safety measures, or remedial action may be required by, any Hazardous Materials
Laws, as defined below, including, but not limited to, hazardous substances,
toxic substances, petroleum, waste oil and petroleum by-products, asbestos in
any form, urea formaldehyde and solid and hazardous wastes. For purposes herein,
the term "Hazardous Materials Laws" means and includes, but shall not be limited
to, any federal, state or local statute, law, ordinance, code, rule, regulation,
guidance, policy, order or decree regulating, relating to or imposing liability
or standards of conduct concerning any Hazardous Materials, including but not
limited to the Comprehensive Environmental Response, Compensation, and Liability
Act, as amended (42 U.S.C. Section 9601 et seq.); the Hazardous Materials
Transportation Act (49 U.S.C. Section 1801 et seq.); Resource Conservation and
Recovery Act (42 U.S.C. Section 6901 et seq.); the Emergency Planning and
Community Right-to-Know Act of 1986 (42 U.S.C. Section 11001 et seq.); the
Federal Water Pollution Control Act, as amended (33 U.S.C. Section 1257 et
seq.); the Safe Drinking Water Act (42 U.S.C. Section 300f et seq.); the Toxic
Substances Control Act (15 U.S.C. Section 2601 et seq.); the Clean Air Act (42
U.S.C. Section 7401 et seq.); the Oil Pollution Control Act (33 U.S.C. Section
2701 et seq.) and analogous or similar state, regional or local law and any
so-called "Superfund" or "Superlien" law.
3.2.26 Tax Matters.
(a) Definitions. For purposes of
this Agreement, the following definitions shall apply:
(1) The term "Group" shall
mean, individually and collectively, (i) the Company, (ii) each Subsidiary, and
(iii) any other entity that is or was a member of the affiliated group of
corporations that file a consolidated federal income tax return with the
Company, and as to which the Company or any Subsidiary is liable for Taxes
incurred by such entity pursuant to Treasury Regulations Section 1.1502-6.
(2) The term "Taxes" shall
mean all taxes however denominated, including any interest, penalties or other
additions to tax that may become payable in respect thereof, imposed by any
federal, territorial, state, local or foreign government or any agency or
political subdivision of any such government, which taxes shall include, without
limiting the generality of the foregoing, all income or profits taxes
(including, but not limited to, federal income taxes and state income taxes),
payroll and employee withholding taxes, unemployment insurance, social security
taxes, sales and use taxes, ad valorem taxes, excise taxes, franchise taxes,
gross receipts taxes, business license taxes, occupation taxes, real and
personal property taxes, stamp taxes, environmental taxes, transfer taxes,
workers' compensation, and other governmental charges of a similar nature, and
other obligations of the same or of a similar nature to any of the foregoing,
which the Group is required to pay, withhold or collect.
(3) The term "Returns"
shall mean all reports, estimates, declarations of estimated tax, information
statements and returns relating to, or required to be filed in connection with,
any Taxes, including information returns or reports
17
with respect to backup withholding and other payments to third parties.
(b) Returns Filed and Taxes Paid.
All Returns required to be filed by or on behalf of any member of the Group have
been duly filed on a timely basis (including extensions) and such Returns are
true, complete and correct in all material respects. Schedule 3.2.26(b) sets
forth a list of all Returns for Taxes as to which extensions have been
requested, and the date to which each such extension runs. All Taxes shown to be
payable on the Returns or on subsequent assessments with respect thereto have
been paid in full on a timely basis, or adequate reserves (as set forth on
Schedule 3.2.26(c)) have been established to cover any such Taxes not paid as of
the date of this Agreement. Each member of the Group has withheld and paid over
all Taxes required to have been withheld and paid over, and complied with all
information reporting and backup withholding requirements, including maintenance
of required records with respect thereto, in connection with amounts paid or
owing to any employee, creditor, independent contractor, or other third party.
There are no liens on any of the assets of any member of the Group with respect
to Taxes, other than liens for Taxes not yet due and payable or for Taxes that a
member of the Group is contesting in good faith through appropriate proceedings
and for which appropriate reserves have been established.
(c) Tax Reserves. Schedule
3.2.26(c) sets forth all reserves for Taxes (including deferred Taxes) as of the
date hereof. Except as set forth in Schedule 3.2.26(c), the amount of the
Group's liability for unpaid Taxes for all periods ending on or before the date
of this Agreement does not, in the aggregate, exceed the amount of the reserves
for Taxes solely with respect to the Company and the Subsidiaries, as such
reserves are reflected on said Schedule, and the amount of the Group's liability
for unpaid Taxes for all periods ending on or before the Closing Date shall not,
in the aggregate, exceed the amount of the reserves for Taxes solely with
respect to the Company and its Subsidiaries, as such reserves are reflected on
said Schedule.
(d) Returns Furnished. Buyer has
been furnished by the Company with true and complete copies of (i) all income
tax audit reports, statements of deficiencies, closing or other agreements or
other notices of any kind from and any requests for rulings to and rulings from
governmental authorities pertaining to the Company and/or the Subsidiaries
received by any member of the Group or on behalf of any member of the Group
relating to Taxes, and (ii) all federal and state income or franchise tax
returns for the Group to the extent they pertain to the Company and/or the
Subsidiaries for all periods ending on and after December 31, 1993 and until the
date of this Agreement. All such reports, statements, agreements and notices of
the type described in clause (i) above are listed on Schedule 3.2.26(d) attached
hereto. The Company and the Subsidiaries have never been members of an
affiliated group filing consolidated returns other than a group of which the
Company and the Subsidiaries and their corporations and other entities, the
names of which are set forth on Schedule 3.2.26(d), were the only members.
Except as set forth on Schedule 3.2.26(d), to the Company's knowledge, neither
the Company nor any member of the Group do business in or derive income from any
state, local, territorial or foreign taxing jurisdiction other than those for
which the above-referenced Returns have been furnished to Buyer. The Company and
the Subsidiaries have never filed an election under 341(f) of the Code.
(e) Tax Deficiencies; Audits;
Statutes of Limitations.
18
The Returns of the Group have never been audited by a government or taxing
authority, nor is any such audit in process, pending or, to the Company's
knowledge, threatened (either in writing or verbally, formally or informally).
The Return of Paragon was audited for the 1987 tax year, resulted in a "no
changes" determination, and has not been audited since. No deficiencies exist or
have been asserted (either in writing or to the Company's knowledge verbally,
formally or informally), with respect to Taxes of the Group, and no member of
the Group has received notice (either in writing or to the Company's knowledge
verbally, formally or informally), or expects to receive notice that it has not
filed a Return or paid Taxes required to be filed or paid by it. No member of
the Group is a party to any action or proceeding for assessment or collection of
Taxes, nor has such action or proceeding been asserted or, to the Company's
knowledge, threatened (either in writing or verbally, formally or informally)
against any member of the Group or any of its assets. No waiver or extension of
any statute of limitations is in effect with respect to Taxes or Returns of any
member of the Group. The Company and each member of the Group have disclosed on
its federal income tax returns all positions taken therein that could give rise
to a substantial understatement penalty within the meaning of Code Section 6662.
Any exceptions to any of the foregoing are set forth in Schedule 3.2.26(e)
hereto.
(f) Tax Sharing and Other
Agreements. None of the Company or any Subsidiary is (or ever has been) a party
to any tax sharing or tax allocation agreement with any person or to any
closing, pricing or other agreement with any governmental authority with respect
to the payment of any Taxes.
3.2.27 Employment Matters. Attached hereto
as Schedule 3.2.27 is (i) a list of the names, titles and annual compensation of
each salaried employee of the Company or any Subsidiary; (ii) a list of the
names, titles and compensation of each hourly employee of the Company or any
Subsidiary who, as of the date hereof, is expected to receive compensation in
excess of US$50,000 per annum; and (iii) the accrued vacation time of all
employees of the Company and the Subsidiaries. There is shown as a liability on
the Unaudited Balance Sheet vacation and holiday pay and bonuses, commissions or
other compensation of every kind with respect to work done prior to the date of
the Unaudited Balance Sheet due to any present or former employees. Except as
set forth on Schedule 3.2.27, there have been no increases in salary or
compensation or any bonus paid to any employee since the date of the Unaudited
Balance Sheet. Except as set forth on Schedule 3.2.27, there are no written or
oral contracts, agreements, policies or arrangements which would restrict the
ability of the Company or any Subsidiary to terminate an employee without having
to make any severance payment.
3.2.28 Labor Matters. None of the Company's
or any Subsidiaries employees are subject to, and the Company and the
Subsidiaries are not parties to, any collective bargaining agreement. Within the
last five years, neither the Company nor any Subsidiary has experienced a labor
dispute, union organization attempt or any work stoppage due to labor disputes
in connection with its business. There is no (a) unfair labor practice charge or
complaint against the Company or any Subsidiary pending or, to the Company's
knowledge, threatened; (b) labor strike, lockout, dispute, request for
representation, slowdown or stoppage actually pending or, to the Company's
knowledge, threatened against or affecting the Company or any Subsidiary or any
secondary boycott with respect to products of the Company or any Subsidiary; or
(c) grievance which, if adversely
19
decided, might have a material adverse affect on the assets, business, financial
condition or results of operation of the Company or any Subsidiary.
3.2.29 Bank Accounts and Investments.
Attached hereto as Schedule 3.2.29 is a list of (a) each financial institution
in which the Company and each Subsidiary maintain an account or safety deposit
box, the number of such account or safety deposit box, and the names of all
persons holding check signing or withdrawal powers or other authority with
respect thereto and (b) all certificates of deposit, securities and other
investments owned by or on behalf of the Company or any Subsidiary.
3.2.30 Contracts and Other Agreements.
Schedule 3.2.30 sets forth all of the following contracts and other agreements
to which the Company or any Subsidiary is currently a party or by which either
is bound or to which a material part of their respective assets or properties
are subject: (i) contracts and other agreements with any current or former
shareholder or any current officer, director, trustee or relative of the
foregoing or other affiliate of Seller, the Company or any Subsidiary or with
any other current employee or consultant or with an entity in which the Company
or any Subsidiary is a controlling person; (ii) contracts and other agreements
with any labor union or association representing any employee; (iii) contracts
and other agreements for the sale of any of its assets other than in the
ordinary course of business or for the grant to any person of any preferential
rights to purchase any of its assets; (iv) joint venture agreements; (v)
contracts and other agreements under which it agrees to indemnify any party;
(vi) material contracts and other material agreements , except those which can
be canceled without liability, premium or penalty on not more than thirty (30)
days' notice; (vii) contracts and other agreements with customers, tenants,
distributors or suppliers for the rebating of charges or other similar
arrangements pursuant to which payments in excess of US$25,000 have been or may
hereafter be made, whether by or to the Company or a Subsidiary; (viii)
contracts and other agreements containing covenants of the Company or any
Subsidiary not to compete in any line of business or with any person in any
geographical area or covenants of any other person not to compete with the
Company or any Subsidiary in any line of business or in any geographical area;
(ix) contracts and other agreements relating to the acquisition by the Company
or any Subsidiary of any assets, operating business or the capital stock of any
other person; (x) contracts and other agreements relating to the management by
the Company or any Subsidiary of any real property owned by a third party, or
the management by a third party of any Real Property; (xi) contracts and other
agreements not entered into in the ordinary course of business pursuant to which
payments in excess of US$25,000 have been or may hereafter be made; (xii)
management, consulting and employment agreements; (xiii) outstanding powers of
attorney empowering any person to act on behalf of the Company or any
Subsidiary; or (xiv) any other contracts or other agreements pursuant to which
payments in excess of US$25,000 may, on a contractual basis, hereafter be made,
whether by or to the Company or a Subsidiary. There have been made available to
Buyer, its affiliates and their representatives true and complete copies of all
of the contracts and other agreements set forth on Schedule 3.2.30 or any other
Schedule. Except as set forth on Schedule 3.2.30, all of such contracts and
other agreements are valid and binding upon the Company or any Subsidiary,
respectively, and, to the knowledge of the Company, on the other parties
thereto, and are enforceable in accordance with their terms. Except as set forth
on Schedule 3.2.30, neither the Company nor any Subsidiary is in default in any
material respect under any such agreements, nor, to the knowledge of the
Company, is any other party to any such contract or
20
other agreement in default thereunder in any material respect, nor, to the
knowledge of the Company, does any condition exist that with notice would
constitute a material default thereunder.
3.2.31 Permits and Licenses. Schedule 3.2.31
sets forth all the permits and licenses held by the Company and the Subsidiaries
for the operation of the business of the Company and the Subsidiaries, copies of
which have been furnished to Buyer. Such permits and licenses constitute all
authorizations necessary for the Company and the Subsidiaries to own their
assets or conduct their respective businesses, and (i) each is in full force and
effect, (ii) there is no material violation of any such permit or license and
(iii) no proceeding is pending or threatened seeking the relocation or
limitation of any such permit or license.
3.2.32 Indebtedness. Except as set forth in
Schedule 3.2.32, the Company and the Subsidiaries have no indebtedness, and are
not parties to any contract or other agreements relating to the borrowing of
money, including notes, mortgages, credit agreements, guarantees, equipment
lease agreements or security agreements. Neither the Company nor any Subsidiary
has any indebtedness to Seller or any of Seller's affiliates.
3.2.33 Material Misstatements or Omissions.
No representation or warranty by the Company or the Subsidiaries contained in
this Agreement or the Schedules attached hereto, and no document or certificate
furnished or to be furnished or made available to Buyer in connection herewith
or with the transactions contemplated hereby, contains an untrue statement of a
material fact or omits to state a material fact necessary to make the statements
of fact contained herein or therein not misleading.
4. Representations and Warranties of Buyer. Buyer hereby
represents and warrants to the Seller as follows:
4.1 Authority. Buyer has full corporate power and
authority to own, lease and operate its assets, properties and business and to
carry on its business as it is now being and has been conducted. This Agreement
constitutes the legal, valid and binding obligation of Buyer, enforceable
against it in accordance with its terms. Subject to the approval contemplated in
Section 7.1.12, Buyer has the absolute and unrestricted right, power, and
authority to execute and deliver this Agreement, and to perform the obligations
hereunder. The execution and delivery of this Agreement and the performance
hereof has been authorized and ratified by the Board of Directors of Buyer.
4.2 Organization and Good Standing. Buyer is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware.
4.3 Brokerage or Finder's Fees. Buyer has not
incurred any liability to any broker, finder or agent for any brokerage fees,
finder's fees or commissions other than to Xxxxxx Xxxxxxx & Company, the fees of
which will be the sole responsibility of Buyer.
4.4 No Violation. Neither the execution and delivery
of this Agreement nor the consummation or performance of any of the contemplated
transactions will, directly or indirectly: (a) contravene, conflict with or
result (with or without notice or
21
lapse of time) in a violation of (i) any of the provisions of the current
Certificate of Incorporation or the Bylaws of Buyer or (ii) any resolution
adopted by the Board of Directors or the stockholders of Buyer; (b) contravene,
conflict with or result (with or without notice or lapse of time) in a violation
of any federal, state, local, municipal, foreign or other law, statute,
ordinance, rule, regulation, directive or other legal requirement or any order,
judgment, injunction, ruling, decision, writ or sentence rendered by any court,
agency or other governmental body to which Buyer, or any of the assets owned or
used by the Buyer, may be subject; (c) contravene, conflict with or result (with
or without notice or lapse of time) in a violation or breach of any of the
provisions of, or give any person or entity the right (with or without notice or
lapse of time) to declare a default or exercise any remedy under, or to
accelerate the maturity or performance of or cancel, terminate or modify, any
contract, mortgage, license, permit or authorization to which Buyer is a party
or under which Buyer has any rights, or by which Buyer, or any of the assets
owned or used by Buyer may be bound; (d) result (with or without notice or lapse
of time) in the imposition or creation of any encumbrance upon or with respect
to any of the assets owned or used by Buyer; or (e) result in the creation or
imposition of any security interest, lien or other encumbrance upon the property
or assets of Buyer, which would in turn restrict or prohibit Buyer from
performing its obligations hereunder.
4.5 Sufficient Funds. Buyer will have or has access
to sufficient funds (i) to pay the cash amounts contemplated by Section 2.2 as
of the Closing Date, and (ii) to fulfill its obligations under this Agreement.
5. Covenants and Agreements. Buyer, Seller, the Company and/or
the Subsidiaries, as the case may be, each hereby afford the following
affirmative and negative covenants, thereby agreeing to do or not to do, the
following:
5.1 No Corporate Borrowings. From the date hereof
through the Closing Date, the Company and the Subsidiaries shall not, except in
the ordinary course of their respective businesses, without the prior written
consent of Buyer which shall not be unreasonably withheld, borrow monies for any
reason or draw down on any line of credit or long-term debt obligation, or
become the guarantor, surety or endorser of the obligation of any other person,
partnership, corporation or other business entity.
5.2 Conduct of Business.
5.2.1 Diligent Conduct. From the date hereof
through the Closing Date, the Company and each Subsidiary shall use its
reasonable efforts to (i) conduct its business diligently and in the ordinary
course, (ii) preserve intact its business and marketing organization, (iii)
retain in its employ all of its key employees and (iv) preserve its
relationships with its suppliers, customers, sales representatives, and others
having business relations with it.
5.2.2 Capital Transactions. From the date
hereof through the Closing Date, the Company and each Subsidiary shall not,
without the prior written consent of Buyer, make commitments for capital
expenditures in excess of the amount budgeted therefor in the Company's 1997
operating budget, a copy of which is attached hereto as Schedule 5.2.2.
22
5.2.3 Properties and Assets. Schedule 5.2.3
sets forth a list of all of the personal property owned by the Company and the
Subsidiaries as of the date hereof. From the date hereof through the Closing
Date, the Company and each Subsidiary shall not, without the prior written
consent of Buyer, (i) sell or transfer any of the Real Property, terminate or
renew any lease of or other agreement with respect to any Leased Real Property
or mortgage, pledge or subject the Real Property to liens, charges, claims or
encumbrances of any kind, (ii) other than in the ordinary course of business
sell or transfer any other assets (including the Company's shares of stock in
any Subsidiary), cancel any debts or claims, or mortgage, pledge or subject any
of such other assets to liens, charges, claims or encumbrances of any kind (in
the case of clauses (i) and (ii), other than liens for taxes and assessments not
delinquent).
5.2.4 Contracts. From the date hereof
through the Closing Date, the Company and each Subsidiary shall not, without the
prior written consent of Buyer, amend or terminate any material contract or
agreement to which it is a party, including without limitation those set forth
on Schedules 3.2.15B and 3.2.30, or enter into or become a party to any
agreement under which the reasonably anticipated costs and expenses will exceed
the reasonably anticipated revenues or which would materially and adversely
affect its business, enter into or become a party to any agreement or other
arrangement with Seller or with any affiliate of Seller, the Company or any
Subsidiary, or agree to indemnify, defend or hold any person harmless for any
liability of any kind whatsoever.
5.2.5 Insurance. From the date hereof
through the Closing Date, the Company and each Subsidiary shall not voluntarily
discontinue any of their respective insurance policies, as described in Schedule
3.2.20 attached hereto.
5.2.6 Compensation of Employees. From the
date hereof through the Closing Date, neither the Company nor any Subsidiary may
increase the compensation payable or to become payable to any of their
respective officers, employees, independent contractors or agents, or make any
bonus payment or similar arrangement with any such person or increase the
benefits provided or payable to such person, without the prior written consent
of Buyer, except for regular wage increases for non-salaried employees which are
part of a regular review cycle, and are consistent with in amount and timing
with the regular policies of the Company or any Subsidiary, as applicable, and
consistent with past practice.
5.2.7 Taxes; Consent. Schedule 3.2.26(b)
sets forth a list of all Returns of the Company and the Subsidiaries under
extension as of the date hereof. The Company and the Subsidiaries shall use
their best efforts to prepare and timely file all Returns listed on Schedule
3.2.26(b) and amendments thereto required to be filed by them and the Group on
or before the Closing Date. The Company and each member of the Group shall pay
and discharge all Taxes, assessments and governmental charges upon or against
it, the Real Property or any of its properties or assets, and all liabilities at
any time existing, before the same shall become delinquent and before penalties
accrue thereon, except to the extent and as long as: (a) the same are being
contested in good faith and by appropriate proceedings pursued diligently; and
(b) the Company shall have set aside on its books reserves in the amount of the
demanded principal imposition (together with interest and penalties relating
thereto, if any). Any and all refunds of Taxes or Tax credits attributable to
fiscal year 1996
23
shall be for Seller's account and, if any such amounts are received by Buyer or
the Company or any Subsidiary, such amounts shall be paid immediately by such
person to Seller. Any and all Taxes due in connection with the returns listed on
Schedule 3.2.26(b) in excess of the reserves therefor shall be borne by Seller
and Seller shall immediately indemnify the Company therefor, without any regard
for the limitations contained in Section 8 of this Agreement.
5.2.8 Matters Affecting the Real Property.
From the date hereof through the Closing Date, in the event the Company or any
Subsidiary receives a written notice regarding any threatened litigation,
condemnation or sale in lieu thereof with respect to any portion of the Real
Property relating to or arising out of the ownership or lease of such portion of
the Real Property, the Company agrees to promptly remit a copy of such notice to
Buyer. Further, in the event that the Company or any Subsidiary receives any
notice regarding a proposed change in the assessed valuation of any portion of
the Real Property, the Company shall remit same to Buyer.
5.2.9 Existing Indebtedness. From and after
the date of this Agreement and until and through the date of the Closing, the
Company agrees that it will pay, as and when same becomes due and payable, all
principal and interest and all deposits and other charges payable under its
existing indebtedness, as set forth on Schedule 3.2.32 including without
limitation all indebtedness secured by the Real Property, and will fully comply
with all the provisions thereof, except as to those items of existing
indebtedness set forth on Schedule 5.2.9. The Principal balance as of the date
of this Agreement of each of the Mortgage, Unsecured Note, and Line of Credit
shall be set forth on Schedule 3.2.32. Notwithstanding the foregoing, the
Company agrees not to voluntarily make, cause or permit any prepayment of the
principal of the Unsecured Note or the Mortgage, respectively, prior to the
scheduled payment date thereof.
5.2.10 Corporate Changes. From the date
hereof through the Closing Date, neither the Company nor any Subsidiary shall
amend its Articles of Incorporation or Bylaws or make any changes in the terms
or amount of their respective authorized, issued or outstanding capital stock
(including authorizing, selling, redeeming or purchasing any shares thereof).
5.2.11 Distributions. From the date hereof
through the Closing Date, the Company may not declare, set aside or pay any
dividend or other distribution in respect of the Company Shares.
5.2.12 Other Changes. From the date hereof
through the Closing Date, the Company and the Subsidiaries will not take any
action which would result in any representation contained in Section 3.2.6(b) of
this Agreement to become untrue or which would have required disclosure
thereunder if such action had occurred immediately prior to execution hereof.
5.3 Due Diligence Cutoff Date; Final Disclosure
Schedules; Access and Information.
5.3.1 In order to expedite the execution of
this Agreement,
24
Buyer acknowledges that as of the date hereof the Schedules contemplated herein
have not yet been completed. Without limiting the covenants contained in Section
5.3.3 below, Seller, the Company and the Subsidiaries shall prepare as promptly
as possible and deliver to Buyer not later than May 23, 1997 the "Disclosure
Schedule Completion Date"), Schedules which shall be complete and accurate in
all respects as of the Disclosure Schedule Completion Date.
5.3.2 Subject to Section 5.3.7, not later
than the first to occur of (i) the date upon which the proxy statement referred
to in Section 6.3 below shall have been mailed and (ii) May 30, 1997 or, if
Seller amends any schedule to this Agreement after the Disclosure Schedule
Complete Date pursuant to Section 5.3.7 hereof, then June 2, 1997 (the "Due
Diligence Cutoff Date"). 5:00 p.m. (Pacific daylight time), Buyer must indicate
in writing that either (x) it is satisfied with the results of its due diligence
investigation (including without limitation those investigations contemplated by
Sections 5.3.3 and 5.3.6) and elects to proceed with the transactions
contemplated by this Agreement; or (y) that it is not so satisfied (stating the
reasons therefor), and that it elects to terminate the Agreement pursuant to
Section 10.1.4 hereof. Following the Due Diligence Cutoff Date, Buyer may
continue its due diligence but shall not have the right to terminate this
Agreement pursuant to Section 10.1.4.
5.3.3 UCC/Lien Searches. Buyer may obtain
from a title company or search firm selected by Buyer Uniform Commercial Code
financing statement searches, tax lien searches, judgment lien searches and
pending litigation (including bankruptcy) searches respecting the Company, the
Subsidiaries and Seller in the appropriate local and state offices in the State
of California and all other state and local jurisdictions in which the Company
or any Subsidiary has assets or properties or conducts business (the "Lien
Searches") and any necessary updates of such Lien Searches with as-of or through
dates as near to the Closing as reasonably possible. All Lien Searches shall be
performed at Buyer's cost and expense.
5.3.4 Title Policies. At Buyer's sole
option, Buyer may obtain from a title company selected by Buyer and shall be
satisfied with commitments (the "Commitments") to issue an ALTA Owner's Policy
of Title Insurance in an amount acceptable to Buyer and reasonably reflecting
the value of the Owned Real Property and an ALTA Leasehold Owner's Policy of
Title Insurance with respect to each Leased Real Property location in an amount
acceptable to Buyer and reasonably reflecting the value of the respective
premises (the "Title Policies"). The Title Policies and the Commitments shall
provide for full extended coverage over all general exceptions to Buyer's title
contained in the Title Policies and shall contain such endorsements as Buyer or
its Lenders may reasonably request. The title examination, the Commitments and
the Title Policies shall be performed or issued at Buyer's cost and expense.
5.3.5 Surveys. At Buyer's sole option, Buyer
may obtain a plat survey of the Owned Real Property and any of the Leased Real
Property as Buyer or its lenders may require certified according to ALTA/ACSM
standards (the "Survey"). The Survey shall satisfy the Minimum Standard Detail
Requirements for ALTA/ACSM Land Title Surveys and shall show a legend of all
symbols and abbreviations, a vicinity map showing the property surveyed in
reference to nearby highways or major street intersections, any flood zone
designations, land area, the current zoning for the entire property setback,
height and
25
bulk restrictions of record or disclosed by applicable zoning or building codes
(in addition to those recorded in subdivision maps), square footage of all
buildings, improvements and parking areas (and, if striped, the striping and
number of parking spaces), indication of access to a public way, and location of
all utilities serving the property, together with such other additional matters
as Buyer may request. The Survey shall be certified to the Company and the
applicable Subsidiary, the title company designated under Section 5.3.4 above,
Buyer and any lender of Buyer. The Survey shall be performed at Buyer's cost and
expense.
5.3.6 Environmental Compliance Audits. Buyer
may obtain a review of the Dames & Xxxxx reports previously provided by Seller
and such further environmental site assessments, compliance audits and liability
evaluations as Buyer's environmental consultant shall have recommended be
performed (including invasive testing and sampling) of the Company's and the
Subsidiaries' facilities, business and operations and of the Real Property (the
"Environmental Audits") and Buyer and its lenders shall be satisfied, in their
sole and absolute discretion, with the scope, parameters and results of the
Environmental Audits. The Company and the Subsidiaries shall cooperate fully
with Buyer's and its agents', counsel's and consultant's requests for
information and for access to the Company's and the Subsidiaries' records,
employees, and facilities in connection with such investigation. The Company and
the Subsidiaries shall use their best efforts to obtain, at Seller's sole
expense, "reliance letters" and the right for Buyer and Buyer's consultants and
lenders, to rely upon the facts and conclusions of the Company's prior
environmental consultants with respect to the Real Property, including Dames &
Xxxxx, Xxxxxx Environmental, Inc. and Environmental Managers and Auditors, Inc.
The Environmental Audits shall be performed at Buyer's cost and expense.
5.3.7 If, prior to the Due Diligence Cutoff
Date, any party shall become aware of any facts, circumstances or information
which, if they prevailed in a claim after the Closing Date, would constitute a
breach of a representation, warranty or covenant made by such party or another
party hereto, or which would cause one or more of the Schedules to this
Agreement produced by such party to be inaccurate, then such party shall
promptly notify the other party or parties of such breach or inaccuracy. In the
case of any such breach or inaccuracy, the party in breach shall promptly take
such action as may be appropriate under the circumstances to cure such breach or
correct the affected Schedule or Schedules prior to (i) the Disclosure Schedule
Completion Date, as to matters discovered by Seller, the Company or the
Subsidiaries, and the Due Diligence Cutoff Date as to matters discovered by
Buyer and not disclosed to Seller prior to the Disclosure Schedule Completion
Date.
5.3.8 Subject to Section 6.4 hereof, (i) the
Company shall afford to Buyer and Buyer's counsel, accountants, consultants and
other representatives, access to all of its assets, properties (subject to the
rights of tenants under any lease with respect to which the Company or any
Subsidiary is lessor), books, contracts and records and any records concerning
the Company or the Subsidiaries maintained and accumulated by their respective
counsel, accountants and other representatives, and to furnish such persons with
all information, including copies of books, contracts and records, concerning
its affairs which such persons may reasonably request, including without
limitation any documents or information held by the Company, any Subsidiary or
their respective legal counsel concerning or relating to any litigation
involving the Company or any Subsidiary; and (ii) the Company
26
shall furnish to Buyer copies of all deeds and recorded instruments by which the
Company or any Subsidiary acquired the Real Property or leasehold or other real
property interests, and copies of all title insurance policies, opinions,
abstracts and surveys in possession of the Company or any Subsidiary relating to
the Real Property, all so that Buyer may have a full opportunity to make such
investigation in advance of the Due Diligence Cutoff Date as it shall desire.
5.4 Loss by Fire or Other Casualty; Condemnation. In
the event that, prior to Closing, the Real Property, or any material portion
thereof, or any other material property of the Company or any Subsidiary is
destroyed or damaged, or if material condemnation proceedings are commenced
against the Real Property, Buyer shall have the right, exercisable by giving
notice of such decision to Seller within fifteen (15) days after receiving
written notice of such damage, destruction or condemnation proceedings, to
terminate this Agreement, in which case the parties shall not have any further
rights or obligations hereunder. If Buyer elects to accept the Real Property or
other property in its then condition, all proceeds of insurance or condemnation
awards payable to the Company and the Subsidiaries by reason of such damage,
destruction or condemnation shall be paid or assigned to Buyer. In the event of
non-material damage to the Real Property or other property, which damage the
Company and the Subsidiaries are unwilling to repair or replace, Buyer shall
have the right, exercisable by giving notice within fifteen (15) days after
receiving written notice of such damage, either (a) to terminate this Agreement
as hereinabove in this Section provided, or (b) to accept the Real Property or
other property in its then condition and proceed with the purchase, in which
case Buyer shall be entitled to any insurance proceeds and, if Seller agrees, a
reduction of the Purchase Price to the extent the cost of repairing or replacing
such damage exceeds such insurance proceeds, but if Seller does not agree to
such reduction Buyer may terminate this Agreement. For the purposes of this
Section, a material portion of the Real Property or other property shall be
deemed to be destroyed or damaged only if the cost of repair exceeds US$100,000
or casualty occurs which cannot be repaired within sixty (60) days.
5.5 No Transfer of Shares. Seller shall not transfer
or attempt to transfer the Company Shares except to Buyer pursuant hereto and
the Company shall refuse to accept any certificates for the Company Shares to be
transferred upon its books except to Buyer pursuant hereto.
5.6 Repayment of Certain Indebtedness by the Company.
Concurrent with the Closing, Buyer shall loan, advance or contribute to the
Company such amounts as are necessary to repay and satisfy all obligations then
outstanding under the Line of Credit and the Unsecured Note, and the Company
(or, as applicable, one or more Subsidiaries) shall use the proceeds of said
advance so to repay and satisfy the Line of Credit and the Unsecured Note,
against evidence reasonably acceptable to Buyer that all liens and encumbrances
relating to such indebtedness shall be released concurrently with such repayment
and satisfaction.
5.7 Use of "Xxxxxxxx" Trade Name; License of Xxxxxxxx
Xxxx. Buyer, and, after the Closing, the Company and Subsidiaries, agree that
after the Closing, none of said parties will use the name "Xxxxxxxx" in any way,
including without limitation in connection with the operation of the business of
the Company and its Subsidiaries; provided,
27
however; that the Company and its Subsidiaries may continue for a period of six
(6) months following the closing use such printed materials such as advertising
brochures, business cards, invoices, purchase orders, letterhead, signs, phone
listings and the like as may exist on the Closing Date (it being understood that
any new materials of this nature which are prepared will not use the name
"Xxxxxxxx"). Seller hereby grants to Buyer, Company and each Subsidiary an
exclusive, perpetual, royalty-free right and License to use the Xxxx consisting
of four (4) overlapping circles (one of which is sometimes blackened), an
example of which appears in Schedule 3.2.22 hereto, within the United States of
America.
6. Mutual Covenants.
6.1 Xxxx-Xxxxx-Xxxxxx Act; Other Filings. Upon the
execution hereof, Buyer and Seller shall make or cause to be made all filings,
if any, which are required (i) under Title II of the Xxxx-Xxxxx-Xxxxxx Antitrust
Improvement Act of 0000 (xxx "XXX Xxx"), if necessary, and (ii) in order to
comply with any other law, rule or regulation necessary in connection with the
consummation of the transactions contemplated hereby. Each party will furnish to
the other such reasonable assistance as it may request in connection with the
preparation of any filings with or submissions to any governmental agency,
including without limitation any filings necessary under the provisions under
the HSR Act. Any filing fees required to be paid in connection with filings
under the HSR Act and all other filings with other governmental agencies shall
be borne equally by Buyer and Seller. For purposes of the foregoing covenants,
each of Buyer and Seller represent and warrant to the other that within the
meaning of the HSR Act, neither the total assets nor total net sales of its
ultimate parent entity (if other than itself), on a consolidated basis with all
of its controlled entities, exceeds the sum of US$100,000,000.
6.2 Intercompany Matters.
6.2.1 Elimination of Intercompany Accounts.
All intercompany payables from Seller and its affiliates to the Company or the
Subsidiaries, shall be paid upon the Closing. Schedule 6.2.1 contains a complete
and accurate description of all such intercompany accounts.
6.2.2 Termination of Intercompany
Agreements. Schedule 6.2.2. sets forth a description of all contracts and
agreements, written and oral, between the Company and the Subsidiaries, on the
one hand, and Seller and its affiliates (other than the Company and the
Subsidiaries) on the other hand. As of the Closing Date, each party hereto
agrees that all such agreements and contracts shall be deemed terminated on and
as of the Closing Date, and agrees to take such actions and execute such
documents, and shall cause its respective subsidiaries to take such actions and
execute such documents, as are necessary or convenient to effect such
termination. The foregoing shall not apply to the Management Participation Plan
II agreements referred to in Section 7.1.14, which shall be dealt with in the
manner therein described.
6.3 Public Statements. The parties hereto will not
make, issue or release any oral or written public announcement, filing or
statement concerning, or acknowledgment of the existence of, or reveal the
terms, conditions and status of the transaction contemplated by this Agreement,
without first making a good-faith attempt to
28
obtain the prior approval of, or concurrence in, the contents of such
announcement, acknowledgment or statement by the other parties, which approval
or concurrence will not be unreasonably withheld or delayed; provided, however,
that any of the parties hereto may at any time make any announcements which are
required by applicable law so long as the party so required to make an
announcement promptly upon learning of such requirement notifies the other
parties of such requirement and discusses with the other parties in good faith
the exact wording of any such announcement. Seller and the Company hereby
consent to the inclusion of the terms, conditions and details of this
transaction and the business of the Company in the proxy statement to be
submitted to the shareholders of Buyer's parent corporation, which is
contemplated pursuant to Section 7.1.12 hereto, in accordance with the rules and
regulations of the Securities and Exchange Commission ("SEC").
6.4 Confidentiality. Except as contemplated by
Section 6.2 hereof, between the date of this Agreement and the Closing Date,
each party will maintain in confidence, and cause its directors, officers,
employees, agents and advisors to maintain in confidence, and not use to the
detriment of another party or any of the Subsidiaries any written, oral or other
information obtained in confidence from another party in connection with this
Agreement or the transactions contemplated hereby unless such information is
already known to such party or to others not bound by a duty of confidentiality
or unless such information becomes publicly available through no fault of such
party, unless the use of such information is necessary or appropriate in making
any filing or obtaining any consent or approval required for the consummation of
the transaction contemplated by this Agreement or unless the furnishing or use
of such information is required by or necessary or appropriate in connection
with any legal proceedings.
If the transactions contemplated by this Agreement
are not consummated, each party will return or destroy as much of such written
information as may reasonably be requested. Whether or not the Closing takes
place, Seller and the Company waive any cause of action, right or claim arising
out of the access of Buyer or its representatives to any trade secrets or other
confidential information of the Company or the Subsidiaries, except for the
intentional competitive misuse by Buyer of such trade secrets or confidential
information, and except for breach of the covenant above in this Section 6.4.
6.5 Other Actions. Each party hereto agrees to
execute and to deliver such instruments, in form and substance mutually
agreeable to the parties, as another party may reasonably require in order to
carry out the terms of this Agreement or the transactions contemplated by this
Agreement.
6.6 Best Efforts. Each party hereto will use those
efforts that a prudent person desirous of achieving a result would use under
similar circumstances to ensure that such result is achieved as expeditiously as
possible in order to cause all conditions to the consummation of the
transactions contemplated hereby to be satisfied, and shall not take any action
that would cause any of its representations and warranties in this Agreement not
to be true and correct as of the Closing Date.
6.7 Notification of Certain Matters. If, prior to the
Closing, any party shall become aware of any facts, circumstances or information
which, if they prevailed on the Closing Date, would constitute a breach of a
representation, warranty or covenant made
29
by such party or another party hereto, or which would cause one or more of the
Schedules to this Agreement produced by such party to be inaccurate, then such
party shall promptly notify the other party or parties of such breach or
inaccuracy. In the case of any such breach or inaccuracy, the party in breach
shall promptly take such action as may be appropriate under the circumstances to
cure such breach prior to the Closing Date; provided, however, that no schedule
hereto shall be amended after the Disclosure Schedule Completion Date except in
accordance with Section 5.3.7 hereof.
6.8 Tax Matters and Post-Closing Cooperation.
6.8.1 Seller shall pay all Taxes imposed on
Seller arising from or relating to the transactions contemplated by this
Agreement. In addition, Seller shall pay all other Taxes imposed on Seller that
may be due after the Closing Date in connection with the transaction
contemplated by this Agreement. In order appropriately to apportion any of these
Taxes relating to a period that includes (but that would not, but for this
section, close on) the Closing Date, the parties hereto will, to the extent
permitted by applicable law, elect with the relevant taxing authorities to treat
for all purposes the Closing Date as the last day of the taxable period of the
Company that immediately precedes the Closing Date, and such period shall be
treated as a "Short Period" and a "Pre-Closing Period" for purposes of this
Agreement. In any case where applicable law does not permit the Company to treat
the Closing Date as the last day of a Short Period, then for purposes of this
Agreement, the portion of such Taxes that is attributable to the operations of
the Company for such Interim Period (as defined below) shall be (i) in the case
of Taxes that are not based on income or gross receipts, the total amount of
such Taxes for the taxable period in question multiplied by a fraction, the
numerator of which is the number of days in the Interim Period, and the
denominator of which is the total number of days in the entire taxable period in
question, and (ii) in the case of Taxes that are based on income or gross
receipts, the Taxes that would be due with respect to the Interim Period, if
such Interim Period were a Short Period. "Interim Period" means with respect to
any Taxes imposed on the Company on a periodic basis for which the Closing Date
is not the last day of a Short Period, the period of time beginning on the first
day of the actual taxable period that includes (but does not end on) the Closing
Date and ending on and including the Closing Date.
6.8.2 If for any period ending after the
Closing Date the Group earns any credit or recognizes any loss which cannot be
applied against its tax liability for such period, and is permitted by law to
carry back such credit or loss to a period ending on or prior to the Closing
Date, and if the Group shall receive a tax reduction for the period which it
otherwise would not have enjoyed and to which such credit or loss is properly
carried back, then Seller shall immediately upon receipt of the benefit remit to
Buyer the amount of such tax reduction actually realized by the Group up to the
amount which the Group would have received if such carryback were the only item
giving rise to a tax reduction for such period. Seller agrees that it will
cooperate with Buyer and the Company and their respective representatives, in a
prompt and timely manner, in connection with (i) the preparation and filing of,
and (ii) any administrative or judicial proceedings involving, any return of tax
or information filed or required to be filed by or for the Company or Buyer for
all taxable years of Seller through the taxable year that includes the Closing
Date.
6.8.3 Buyer shall pay all Taxes imposed on
Buyer arising from
30
or relating to the transaction contemplated by this Agreement. In addition,
Buyer shall pay all other Taxes imposed on Buyer that may be due after the
Closing Date in connection with the transaction contemplated by this Agreement.
Buyer and the Company shall file and control any Returns required to be filed by
the Company after the Closing Date with respect to any taxable year ending after
the Closing Date. Seller agrees that it shall provide, and shall cause its
accountants and other representatives to provide, to Buyer on a timely basis the
information, including but not limited to all work papers and records relating
to the Company, that it or the accountants or other representatives have within
their control and that may be reasonably necessary or related to (i) the
preparation of any and all Returns required to be filed by Buyer or the Company
and (ii) audits or other tax determinations or proceedings by or before
governmental agencies, such information to be provided in the form in which it
has in the past been maintained by Seller, its accountants or other
representatives.
6.9 Exclusivity. Neither Seller nor any
officer, director, employee, attorney, agent or representative of Seller or any
one or more of them shall contact, consult or negotiate with any other person,
firm, corporation, entity or organization for the potential sale and purchase of
the Company by Seller until the expiration of the date set for the Closing
pursuant to Section 2.4 hereof (subject to extension as provided in this
Agreement) has occurred or such earlier date as this Agreement is terminated
pursuant to Section 10.1 hereof.
7. Conditions Precedent to Closing.
7.1 Conditions Precedent to Obligations of Buyer. The
obligation of Buyer under this Agreement and to purchase the Company Shares
hereunder is subject to the satisfaction of each of the following conditions.
Notwithstanding anything to the contrary contained herein Buyer shall have the
right to waive all or any part of each such condition and to close the
transactions contemplated hereby.
7.1.1 Correctness of Representations and
Warranties. There shall be no representation or warranty of the Company or
Seller contained in this Agreement that is untrue or inaccurate in any respect
on the Closing Date. Buyer shall have received certificates dated the Closing
Date and executed by or on behalf of the Company and Seller and to the effect
that all such representations and warranties are true and accurate in all
respects.
7.1.2 Performance of Covenants and
Agreements. There shall be no covenant or agreement of the Company or Seller
contained in this Agreement which has been breached. Buyer shall have received
certificates dated the Closing Date and executed on behalf of the Company and
Seller to the effect that there has been no such breach of any such covenant or
agreement.
7.1.3 Opinion of the Company's Counsel.
Buyer shall have received from Xxxxx Raysman Xxxxxxxxx Xxxxxx & Xxxxxxx LLP
and/or Xxxxxxxx & Xxxxxxxx LLP, counsel for the Seller, an opinion dated the
Closing Date covering such matters on behalf of the Seller as will be reasonably
acceptable to Buyer (it being understood that opinions as to the law of the
country of Switzerland will be rendered by Swiss legal counsel and certain
opinions relating to the Company and/or the Subsidiaries will be rendered by
Company's counsel, all of which in any event will be reasonably acceptable to
Buyer). Such
31
opinions shall be issued for the benefit of Buyer, and Buyer's lenders. In
rendering such opinions such counsel may rely on governmental advice, factual
certificates, opinions of local counsel (so long as such local counsel opinions
are rendered for the benefit of Buyer and Buyer's lenders) and such other
matters as such counsel may deem reasonably appropriate and as are acceptable to
Buyer's counsel. Such opinions may also contain such assumptions and
qualifications as such counsel deems appropriate and as are reasonably
acceptable to Buyer's counsel.
7.1.4 Good Title to Shares. Seller shall
have transferred all the Company Shares to Buyer, free and clear of all liens,
claims, rights, options, charges or other encumbrances or restrictions and any
applicable transfer taxes thereon shall have been paid by Seller. No claim shall
have been filed, made or threatened against Buyer and not withdrawn by any
person or entity (other than Seller) asserting that he, she or it is entitled to
be paid any part of the Purchase Price paid for the Company Shares.
7.1.5 No Prohibition of Transaction. No
proceeding or regulation or legislation shall have been instituted, or to
Buyer's or the Company's knowledge, threatened or proposed before, nor any order
issued by, any administrative, judicial or other governmental body to enjoin,
restrain, prohibit or obtain substantial damages (a) in respect of, relating to,
or arising out of, this Agreement or the consummation of these transactions, or
(b) which, in the reasonable judgment of Buyer, could have a materially adverse
effect on the assets, liabilities, business or condition of the Company or any
Subsidiary.
7.1.6 Compliance with Law. Seller, the
Company and the Subsidiaries shall have obtained any and all permits, approvals
and consents of any governmental body which counsel for Buyer may reasonably
deem necessary or appropriate so that consummation of these transactions will be
in compliance with applicable requirements, including without limitation those
specifically set forth on Schedule 7.1.6.
7.1.7 Statement Under Code Sections 897 and
1445. Buyer shall have received from Seller a copy of a statement, dated not
more than thirty days prior to the Closing, issued by the Company pursuant to
and meeting the requirements of Treasury Regulation Section 1.897-2(h)(1)
stating the Company's determination that the Company does not constitute a
"United States real property holding corporation within the meaning of Section
897(c)(2)of the Code during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code. In the event that Seller fails to deliver to Buyer
such a statement on the Closing Date, then Buyer, at its sole option, may deduct
and withhold from the cash payable to Seller at Closing a tax equal to 10
percent of the amount realized on the disposition of the Company Shares,
pursuant to Section 1445(a) of the Code.
7.1.8 Consents. On or prior to the Closing
Date, the Company and Seller shall furnish Buyer with evidence of consents as
the Company or Seller knows or Buyer shall determine to be required to enable
Buyer to continue to enjoy the material benefit of any material license,
agreement, authorization, permit, or other document to or of which the Company
or any Subsidiary is a party or a beneficiary and which can, by its terms (with
consent) be so enjoyed after the transfer of the Company Shares to Buyer. If
such consent is necessary or desirable, Buyer shall have obtained or been
furnished by the Company or Seller,
32
as the case may be, an equivalent of that license or permit, effective as of and
after the Closing Date. Buyer agrees to cooperate in the obtaining of any such
consent, permit or license.
7.1.9 Xxxx-Xxxxx-Xxxxxx. All applicable
waiting periods under the HSR Act shall have expired or earlier been terminated
without any adverse action or determination.
7.1.10 Resignation of Officers and
Directors. Buyer shall have received written resignations, effective as of the
Closing, from all members of the Board of Directors and all corporate officers
of the Company and each Subsidiary, stating that such directors and officers are
resigning from their respective positions as director or officer of the Company
or Subsidiaries, as applicable.
7.1.11 Certificates. Seller, the Company and
the Subsidiaries shall have delivered to Buyer such certificates of their
respective officers, directors and others to evidence compliance with the
conditions set forth in this Section 7.1 as may be reasonably requested by Buyer
which may include, without limitation, Seller's waiver of conditions set forth
in Section 7.2 known by Seller to be unfulfilled as of the Closing.
7.1.12 Shareholder Approval. Buyer's parent
corporation shall have received the approval of its shareholders for the
transactions contemplated hereby, provided, however, that if any SEC comments,
order or waiting period with respect to its proxy statement or other delay in
scheduling of the shareholder meeting resulting from the foregoing results in a
delay of the shareholder vote with respect to the transactions contemplated
hereby, the Closing Date in Section 2.4 shall be extended accordingly.
7.1.13. No Adverse Material Change. There
shall have occurred no material adverse change in the financial condition,
results of operations, net book value, business, assets or prospects of the
Company or its Subsidiaries from the date of the Unaudited Balance Sheet to the
Closing Date.
7.1.14. Management Participation Plan II.
Seller and each of Xxxxxxx X. Call, Xxxxxx X. Xxxxx, Xxxxxxxx X. Xxxxx, Xxxx
Xxxxxxxxx and Xxxxxx X. Xxxxx, or any other participating members of management
(collectively, the "Participating Managers") shall have released the Company
from its obligations under those certain Management Participation Plan II
agreements, each dated as of January 1, 1996, among Seller and the Company, on
the one hand, and each of the Participating Managers and any other similar
participation plan among Seller and/or the Company and other members of
management (the "Management Participation Plans"), and the Participating
Managers shall have acknowledged that any payments owed under the Management
Participation Plans shall be subject to all federal, state and local withholding
taxes. Seller shall have paid or otherwise made reasonable provisions for the
payment of all appropriate withholding taxes payable in connection with payments
by the Seller under the Management Participation Plans and have provided Buyer
with evidence of the same.
7.1.15. Guarantees. Company and each
Subsidiary shall have delivered a Guarantee, in form and substance satisfactory
to Seller, guaranteeing the payment
33
of the Note.
7.2 Conditions Precedent to Obligations of Seller.
The obligation of Seller under this Agreement and to sell the Company Shares
hereunder is subject to the satisfaction of each of the following conditions.
Notwithstanding anything to the contrary contained herein Seller shall have the
right to waive all or any part of each such condition and to close the
transactions contemplated hereby.
7.2.1 Correctness of Representations and
Warranties. There shall be no representation or warranty of Buyer contained in
this Agreement which is untrue or inaccurate in any respect on the Closing Date.
Seller shall have received a certificate dated the Closing Date and executed by
or on behalf of Buyer to the effect that all such representations and warranties
are true and accurate in all respects.
7.2.2 Performance of Covenants and
Agreements. There shall be no covenant or agreement of Buyer contained in this
Agreement which has been breached. Seller shall have received a certificate
dated the Closing Date and executed by or on behalf of Buyer to the effect that
there has been no such breach of any such covenant or agreement.
7.2.3 Opinion of Buyer's Counsel. Seller
shall have received from Xxxxxx, XxXxxx & Xxxxxxxxxxx, counsel for Buyer, an
opinion dated the Closing Date, covering such matters as shall be reasonably
acceptable to Seller. In rendering such opinion such counsel may rely on
governmental advice, factual certificates, opinions of local counsel and such
other matters as such counsel may deem reasonably appropriate and as are
reasonably acceptable to Seller's counsel. Such opinion may also contain such
assumptions and qualifications as such counsel deems appropriate and as
reasonably are acceptable to Seller's counsel.
7.2.4 Xxxx-Xxxxx-Xxxxxx. All applicable
waiting periods under the HSR Act shall have expired or earlier been terminated
without any adverse action or determination.
7.2.5 No Prohibition of Transaction. No
proceeding or regulation or legislation shall have been instituted, or to the
Company's or Seller's knowledge, threatened or proposed before, nor any order
issued by, any administrative, judicial or other governmental body to enjoin,
restrain, prohibit or obtain substantial damages (a) in respect of, relating to,
or arising out of, this Agreement or the consummation of these transactions, or
(b) which, in the reasonable judgment of the Seller, could have a materially
adverse effect on the assets, liabilities, business or condition of the Buyer.
7.2.6 Certificates. Buyer shall have
delivered to Seller such certificates of its officers, directors and others to
evidence compliance with the conditions set forth in this Section 7.2 as may be
reasonably requested by Seller which may include, without limitation, Buyer's
waiver of conditions set forth in Section 7.1 which are known by Buyer to be
unfulfilled as of the Closing.
7.2.7 Name Change. The Company shall have
taken all such action necessary (other than filing, which must be done within
five (5) days following the
34
Closing) to amend its Articles of Incorporation so as to change its corporate
name to such other name as Buyer may designate, provided that it shall not
include the name "Xxxxxxxx".
8. Indemnifications.
8.1 Seller's Promise to Indemnify. Subject to Section
8.5 hereof, Seller agrees to indemnify, defend and hold harmless Buyer against
any and all losses, claims, liabilities, damages, actions, costs or expenses,
including reasonable attorneys' fees and costs, regardless of whether an action
has been filed or asserted against Buyer after the Closing Date, arising from,
in connection with or with respect to (i) any misrepresentation, breach or
inaccuracy of any representation or warranty of Seller under this Agreement (it
being understood that, with respect to any right of offset against the Note by
Buyer pursuant to Section 9.2, Buyer shall not also have a right of
indemnification pursuant to this Section 8.1); (ii) any misrepresentation,
breach or inaccuracy of the representations and warranties of the Company and
the Subsidiaries under this Agreement; or (iii) nonfulfillment of or failure to
comply with any agreement, condition or covenant on the part of Seller, the
Company or any Subsidiary under this Agreement or in any agreement or document
delivered pursuant hereto or in connection herewith or with the closing of the
transactions contemplated hereby (the "Indemnified Losses"); provided, however,
that as a condition precedent to any indemnification pursuant hereto, the
Indemnitor (as hereinafter defined) shall have received written notice of a
claim from the Indemnified Party (as hereinafter defined) prior to that date
which is twenty-four (24) months following the Closing Date except in the event
of any indemnification for any breach of representation contained in Section
3.2.26 hereof in which case Indemnitor shall have received written notice of a
claim from the Indemnified Party prior to the expiration of the applicable
statue of limitations for actions by the IRS. For the purposes of Seller's
indemnifications under this Section 8, after the Closing, the word "Buyer" shall
be deemed to be a reference to Buyer, the Company and the Subsidiaries.
8.2 Buyer's Promise to Indemnify. Buyer agrees to
indemnify, defend and hold harmless Seller against any and all losses, claims,
liabilities (including without limitation liabilities for Taxes), damages,
actions, costs or expenses, including, without limitation, attorneys' fees and
costs, regardless of whether an action has been filed or asserted against Seller
after the Closing Date, arising from, in connection with or with respect to (i)
the operation or conduct of the Company's or any Subsidiary's business after the
Closing Date; (ii) any misrepresentation, breach or inaccuracy of any
representation or warranty under this Agreement; or (iii) nonfulfillment of or
failure to comply with any agreement, condition or covenant on the part of Buyer
under this Agreement or in any agreement or document delivered pursuant hereto
or in connection herewith or with the closing of the transactions contemplated
hereby (the "Indemnified Losses"); provided, however, that as a condition
precedent to any indemnification pursuant to the foregoing, the Indemnitor (as
hereinafter defined) shall have received written notice of a claim from the
Indemnified Party (as hereinafter defined) prior to that date which is
twenty-four (24) months following the Closing Date, unless such claim is for
indemnification pursuant to (i) above and the claim arises solely out of events
that occurred after the Closing, in which case such claim may be submitted at
any time after the Closing.
8.3 Indemnification Period for Fraud. Notwithstanding
the provisions of Sections 8.1 and 8.2 hereof, Seller agrees to indemnify,
defend and hold
35
harmless Buyer against any and all losses, claims, liabilities, damages,
actions, costs or expenses, including, without limitation, attorneys' fees and
costs, regardless of whether an action has been filed or asserted against Buyer
after the Closing Date until the applicable statute of limitations has expired,
arising from any fraud by Seller or, on or prior to the Closing Date, the
Company or any Subsidiary, and Buyer agrees to indemnify, defend, and hold
harmless Seller against any and all losses, claims, liabilities, damages,
actions, costs or expenses, including, without limitation, attorneys' fees and
costs, regardless of whether an action has been filed or asserted against Seller
after the Closing Date until the applicable statute of limitations has expired,
arising from any fraud by Buyer or, after the Closing Date, the Company or any
Subsidiary.
8.4 Procedure for Indemnification of Third Party
Claims. If there is asserted by a third party any claim, liability or obligation
(a "Claim") that in the judgment of a party indemnified pursuant to Sections 8.1
or 8.2 above (the "Indemnified Party") may give rise to any Indemnified Losses
(including Indemnified Losses for which Seller may not be responsible pursuant
to Section 8.5 hereof), or if the Indemnified Party determines the existence of
a Claim, whether or not the same shall have been asserted, such Indemnified
Party shall give the party from whom indemnity is sought (the "Indemnitor")
notice within 30 days of the assertion of any Claim, or within 10 days of
receipt of notice of the filing and service upon the Indemnified Party of any
lawsuit based upon such assertion, or, with respect to a Claim not yet asserted
against the Indemnified Party, promptly upon the determination by an executive
officer of the Indemnified Party of the existence of the same, which notice
shall describe the Claim in reasonable detail, and shall include the amount
(estimated if necessary) of the related Indemnified Loss. Failure by the
Indemnified Party to give timely notice pursuant to this Section 8.4 shall not
relieve the Indemnitor of its obligations, except to the extent that the
Indemnitor is actually and materially prejudiced by such failure to give timely
notice. The Indemnified Party shall permit the Indemnitor to assume the defense
of such Claim and any litigation resulting therefrom (and to prosecute by way of
counterclaim or third party complaint any claim against such third party arising
out of or relating to the Claim in question) upon receipt by the Indemnified
Party of Indemnitor's written acknowledgment of its obligation to indemnify the
Indemnified Party pursuant to this Agreement with respect to the Claim and its
agreement to assume the defense of all claims or counts of such Claim. After
giving such notice of assumption, the Indemnitor shall not be liable under this
Agreement for any legal or other expenses subsequently incurred by the
Indemnified Party in connection with such defense but the Indemnitor shall be
responsible for all such expenses incurred by the Indemnified Party in
connection with the Claim prior to such assumption. Notwithstanding the
foregoing, any Indemnified Party shall be entitled to conduct its own defense at
the cost and expense of the Indemnitor if the Indemnified Party can establish,
by reasonable evidence, that the conduct of its defense by the Indemnitor would
reasonably be likely to prejudice the Indemnified Party due to the nature of any
claims or counterclaims presented or by virtue of a conflict between the
interest of the Indemnified Party and the Indemnitor, and provided further that
in any event the Indemnified Party may participate in such defense at its own
expense. Counsel selected by the Indemnitor or by the Indemnified Party to
defend any Claim shall be subject to the reasonable approval of the other party.
If the Indemnitor fails to assume the defense of any such Claim as provided
above within a reasonable time (which shall be such period of time as will not,
in the judgment of the Indemnified Party, result in prejudice to the rights of
the Indemnified Party) after due notice has been given of a Claim, then until
such time as the Indemnitor shall make such
36
assumption, the Indemnified Party shall have the right to prosecute and conduct
its own defense by counsel of its choice, and in connection therewith shall have
full right to conduct the defense thereof and to enter into any compromise or
settlement thereof without the consent of the Indemnitor. Such defense shall be
at the cost and expense of the Indemnitor if the Indemnitor subsequently assumes
such defense as provided above, or if it is subsequently determined that the
Indemnitor is or was obligated to defend or indemnify the Indemnified Party with
respect to such Claim. The Indemnitor shall not, without the prior written
consent of the Indemnified Party, consent to the terms of any compromise or
settlement of any Claim or litigation defended by the Indemnitor in accordance
herewith (other than terms related solely to the payment of money damages and
only after the Indemnitor has furnished the Indemnified Party with such evidence
as the Indemnified Party may reasonably request of the Indemnitor's capacity to
pay promptly the amount of such money damages at such times as provided in the
compromise or settlement) which consent will not be unreasonably withheld or
delayed in circumstances where compromise or settlement would not adversely
affect the Indemnified Party. The Indemnitor shall not, except with the prior
written consent of the Indemnified Party, consent to entry of any judgment or
enter into any compromise or settlement of an action or portion of an action
relating to the Indemnified Party which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to the Indemnified Party of
an unconditional release in respect of such Claim or litigation.
If the Indemnitor chooses to defend any Claim, the
Indemnified Party shall cooperate with the Indemnitor and make available to the
Indemnitor any personnel or any books, records or other documents within its
control that are necessary or appropriate for such defense. The Indemnitor shall
pay the Indemnified Party's actual out-of-pocket expenses incurred in connection
with such cooperation.
8.5 Limitations on Seller's Liability. Other than for
claims made by Buyer pursuant to Section 8.3 above which shall have no
limitations, (i) Seller shall not be liable hereunder for Indemnified Losses
pursuant to Section 8.1 sustained by or assessed against Buyer or for the
Inventory Reserve Amount determined pursuant to Section 9.1 until the aggregate
of such Indemnified Losses and said Inventory Reserve Amount exceeds the "Basket
Amount", at which xxxx Xxxxxx shall be liable for all Indemnified Losses,
including those comprising the Basket Amount, and thereafter (ii) Seller's
aggregate liability for all such Indemnified Losses and said Inventory Reserve
Amount shall not exceed US$1,750,000. As used above, the term "Basket Amount"
shall mean US$100,000.
8.6 Limitations on Buyer's Liability. (i) Buyer shall
not be liable hereunder for Indemnified Losses pursuant to Section 8.2 sustained
by or assessed against Seller until the aggregate of such Indemnified Losses
exceeds the "Basket Amount" at which time Buyer shall be liable for all
Indemnified Losses, including those comprising the Basket Amount, and thereafter
(ii) Buyer's aggregate liability for all such Indemnified Losses shall not
exceed US$1,750,000. As used in this Section, the term "Basket Amount" shall
mean US$100,000.
8.7 Exclusive Remedy. The rights of Buyer under this
Section 8 and Section 9 shall be the exclusive remedy of Buyer with respect to
claims based upon a breach or alleged breach of the representations and
warranties of Seller contained herein or otherwise made hereunder. The rights of
Seller under this Section 8 shall be the exclusive remedy of
37
Seller with respect to claims based upon a breach or alleged breach of the
representations and warranties of Buyer contained herein or otherwise made
hereunder.
8.8 Subrogation. To the extent that an Indemnitor
reimburses an Indemnified Party for any Indemnified Loss sustained by such
Indemnified Party, such Indemnitor shall be subrogated to all rights, claims and
causes of action the Indemnified Party may have against insurers with respect to
any insurance policy held by the Indemnified Party which may cover such
Indemnified Loss, including without limitation claims brought under title
policies, if permitted by such policies of insurance.
9. Buyer Promissory Note; Inventory Reserve Amount.
9.1 Buyer Promissory Note. As part of the Purchase
Price hereunder, Buyer shall issue its promissory note to Seller, in the form
attached hereto as Exhibit A, in the principal amount of US$1,750,000 (the
"Note"). In order to secure and ensure payment of Seller's obligations under
Section 8 and Section 9.2 hereof, Buyer shall have the right to offset any
amounts due to it under said Section 8 and Section 9.2 against the amounts due
to Seller as specified herein and under the terms of the Note. The Note shall be
guaranteed by the Company and each Subsidiary pursuant to guarantees in form and
substance satisfactory to Seller.
9.2 Inventory Reserve Amount. As of the Closing Date,
Buyer shall cause Buyer's independent public accountant to physically observe
and determine the Recorded Inventory Cost of the Xxxxx Inventory (each as
defined in the Inventory Reserve Policy attached as Schedule 9.2 hereto), and to
prepare an agreed upon procedures report setting forth a costed inventory
detailed on a part number basis ("Closing Inventory"). Buyer shall cause to be
prepared a determination of an amount to be taken as a reserve against the Xxxxx
Inventory (as defined in Schedule 9.2) as of a date which is the last day of the
calendar month and is at least twenty-two (22) months after the Closing Date
(the "Inventory Adjustment Date"), pursuant to the Inventory Reserve Policy
attached as Schedule 9.2 hereto (such reserve amount, the "Inventory Reserve
Amount"). The Inventory Reserve Amount shall be computed by analyzing sales, by
part number, occurring from the Closing Date through the Inventory Adjustment
Date (using a first-in, first-out methodology), comparing such sales to the
Closing Inventory, and applying the provisions of the Inventory Reserve Policy.
Such Inventory Reserve Amount shall be prepared by Buyer's independent public
accountant, which shall cause its report and determination of said Inventory
Reserve Amount to be delivered to Buyer and Seller within thirty (30) days after
the Inventory Adjustment Date. Within thirty (30) days after its receipt of said
determination, Seller shall notify Buyer of its agreement or disagreement with
Buyer's determination of the Inventory Reserve Amount. If Seller agrees with
said determination, then Buyer will be entitled to offset said amount against
the Note, subject to the procedures and limitations set forth in Section 8.5
hereof. If Seller disputes the determination of the Inventory Reserve Amount,
the Seller shall have the right to cause its own independent public accountant
to review the report of Buyer's accountant and the related determination of the
Inventory Reserve Amount. Buyer and Buyer's accountants shall give to Seller and
its accountant access to the books and records of the Company and the
Subsidiaries, and to the work papers of Buyer's accountant. Seller's accountant
shall complete its review within thirty (30) days after the date upon which
Seller disputed Buyer's determination of the Inventory Reserve Amount. If after
such review by
38
Seller, Seller still disagrees with Buyer's determination of the Inventory
Reserve Amount, the parties shall jointly select a neutral independent public
accountant to conduct a review of each party's determination of the Inventory
Reserve Amount, and resolve the dispute within forty-five (45) days by choosing
between the parties' respective determinations. The neutral accountant's
determination shall be binding on all parties hereto. The fees and expenses of
the neutral accountant shall be borne one-half by Buyer and one-half by Seller,
and otherwise each party shall bear its own expenses in connection with the
foregoing procedures. The final Inventory Reserve Amount, determined in
accordance with the foregoing, shall be due from Seller to Buyer, and may be
offset against amounts due Seller under the Note under the terms specified in
the Note.
10. Termination.
10.1 Termination Events. Subject to the provisions of
Section 10.2 below, this Agreement may be terminated by written notice given at
or prior to the Closing in the manner hereinafter provided:
10.1.1 by mutual consent of Buyer and Seller; or
10.1.2 by Buyer or Seller if any court of competent
jurisdiction in the United States or other United States governmental body or
any foreign governmental body shall have issued an order, decree or ruling or
taken any other action restraining, enjoining or otherwise prohibiting the
transactions contemplated by this Agreement and such order, decree, ruling or
other action shall have become final and nonappealable; or
10.1.3 by Buyer pursuant to Section 5.4 hereof;
10.1.4 by Buyer pursuant to Section 5.3.2 hereof; or
10.1.5 by either Buyer or Seller if the Closing shall
not have occurred, on or before July 15, 1997; provided, however, that Seller
shall not be permitted to terminate this Agreement pursuant to this Section
10.1.5 until July 31, 1997 if the Buyer used its reasonable efforts to obtain
SEC approval of the proxy statement described in Section 7.1.12 hereof and that
it shall obtain all necessary shareholder approval of the transaction
contemplated herein and/or otherwise be in a position to close the transaction
contemplated hereby on or before July 31, 1997.
10.2 Effect of Termination. In the event this Agreement is
terminated pursuant to Section 10.1, all further obligations of the parties
hereunder shall terminate, except that the provisions of this Section 10.2,
Section 6.4, Section 6.5 and Section 10 shall survive and continue in full force
and effect. Nothing in this Section 10.2 shall relieve any party from liability
for any willful breach of its obligations under this Agreement prior to the
termination hereof. Any election made pursuant to Section 10.1 shall be merely
an election to terminate the Agreement and shall not be deemed to be an election
of remedies.
11. General Provisions.
11.1 Interest. Each party hereto hereby agrees to pay
any other party
39
hereto interest at a variable rate per annum equal to the prime rate of interest
as quoted in the "Money Rates" or similar column of the Wall Street Journal, as
such rate may change from time to time, on any amounts required to be paid
hereunder from and after the date upon which such payment becomes due and
payable and continuing until paid in full, together with accrued but unpaid
interest, whether before or after judgment. Each party further agrees to pay
interest to any other party hereto, at said prime rate of interest, on all
amounts due for any damages incurred by such party, based on the breach of each
party's obligations under this Agreement, as the case may be, whether before or
after judgment. Damages shall begin bearing interest as of the date such breach
occurs. Interest shall be paid as agreed above even if the damages are
unliquidated, uncertain, or not capable of being made certain by calculation.
11.2 Expenses. Subject to Section 11.7 below, (i)
Seller shall pay its, the Company's and each Subsidiary's legal, accounting,
out-of-pocket and other costs and expenses incident to this Agreement and the
transactions contemplated thereby, and (ii) Buyer shall pay its legal,
accounting, out-of-pocket and other costs and expenses incident to this
Agreement and the transactions contemplated thereby; provided, however, that (x)
the Company shall be responsible for the payment of up to $13,250 in accounting
fees charged by Coopers & Xxxxxxx LLP in connection with assisting the Company
and the Subsidiaries in the preparation of the Schedules hereto and the
Unaudited Balance Sheet, and (y) none of the parties hereto will be responsible
for any costs and expenses of the Company or any Subsidiary incurred on behalf
of or for the benefit of the "Management Group," as that term is understood
between Buyer and Seller.
11.3 Further Assurances. Each party will, upon
request of another party, from time to time after the Closing, execute and
deliver, and use its reasonable best efforts to cause other persons to execute
and deliver all such further documents and instruments, and will do or use its
reasonable best efforts of cause to be done such other acts, as such other party
may reasonably request more completely to consummate and make effective the
contemplated transactions.
11.4 Notices. Notices and other communications
provided for herein shall be in writing (including wire, telex, telecopy or
similar writing) and shall be sent, delivered, telexed, or telecopied to:
Seller: Xxxxxxxx Industrie Holding AG
c/o Schweizerische Treuhandgesellschaft
Coopers & Xxxxxxx XX
Xxxxxxxxxxx 0
Xxxxxxxx - XX-0000 Xxxx
Xxxxxxxxxxx
Attention: Xx. Xxxxxx Xxxxxx, Chairman
Voice: 011.41.31.326.7225
Fax: 000.00.00.000.0000
with copies to: Coopers & Xxxxxxx Securities LLC
0000 Xxxxxx Xxxx Xxxxxx
Xxxxxxxxxxxx, XX 00000
40
Attention: Mr. Xxxxxxx Xxxxxxx
Voice: 215.963.8869
Fax: 000.000.0000
Xxxxx Raysman Xxxxxxxxx
Xxxxxx & Xxxxxxx LLP
11th Floor
0000 Xxxxxxx Xxxx Xxxx
Xxx Xxxxxxx, XX 00000
Attention: Xxxx X. Xxxxxxxxx, Esq.
Voice: 310.789.2100
Fax: 000.000.0000
and
Xxxxxxxx & Xxxxxxxx
000 Xxxx Xxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxxxxx, XX 00000
Attention: Xxxxxx X. Xxxxxx, Esq.
Voice: 213.892.5200
Fax: 000.000.0000
Buyer: KII Acquisition Corporation
c/o Mentmore Holdings Corp.
0000 Xxxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xx. Xxxxxxx X. Xxxxxx
Voice: 212.391.1392
Fax: 000.000.0000
with copies to: Mentmore Holdings Corporation
0000 Xxxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx X. Xxxxxxxx, General Counsel
Voice: 212.391.1392
Fax: 000.000.0000
Xxxxxx, XxXxxx & Livingstone
35th Floor, BP America Building
000 Xxxxxx Xxxxxx
Xxxxxxxxx, Xxxx 00000-0000
Attention: Xxxxx X. Xxxxxxxxxx, Xx., Esq.
Voice: 216.241.3141
Fax: 000.000.0000
11.5 Assignment. This Agreement shall not be
assignable by any party without the prior written consent of the other parties;
provided, however, that Buyer will have the right to assign this Agreement to
Mentmore Holdings Corporation, one of its
41
affiliates, or any company having substantially the same officers or directors
of Mentmore Holdings Corporation, if the shareholder approval contemplated by
Section 7.1.12 shall not have been obtained or shall not be expected to be
obtained. Nothing contained in this Agreement, express or implied, is intended
to confer upon any person or entity other than the parties hereto and their
successors in interest and permitted assignees, any rights or remedies under or
by reason of this Agreement unless expressly so stated to the contrary.
11.6 Venue. Buyer and Seller agree, pursuant to
Section 5-1402 of the New York General Obligations Law, that all actions or
proceedings arising directly, indirectly or otherwise in connection with, out
of, related to or from this Agreement shall be litigated, only in courts having
a situs within the County of New York, State of New York. Seller hereby consents
and submits to the jurisdiction of any local, state or federal Court located
within said County and State. Seller hereby irrevocably appoints and designates
CT Corporation System, having an address at 0000 Xxxxxxxx, Xxx Xxxx, XX 00000,
as their duly authorized agent for service of legal process and agree that
service of such process upon such agent shall constitute personal service of
process upon Seller. In the event service is undeliverable because such agent
moves or ceases to do business, Seller shall, within ten (10) days after Buyer's
request, appoint a substitute agent on their behalf and within such period
notify Buyer of such appointment. If such substitute agent is not timely
appointed, Buyer shall, in its sole discretion, have the right to designate a
substitute agent upon five (5) days notice to Seller.
11.7 Attorneys' Fees and Litigation Costs. If any
legal action is brought for the enforcement of the Agreement, or attorneys are
hired because of an alleged dispute, breach, default or misrepresentation in
connection with any of the provisions of this Agreement, the successful or
prevailing party or parties shall be entitled to recover his, its or their
reasonable attorneys' fees and other costs incurred in such arbitration
proceeding or other legal action, in addition to any other relief to which he,
it or they may be entitled, whether before or after judgment, including any
appeal.
11.8 Time is of the Essence. Time is of the essence
in respect to all provisions of this Agreement in which a definite time for
performance is specified, provided, however, that the foregoing shall not be
construed to limit or deprive a party of the benefit of any grace or use period
provided for in this Agreement.
11.9 Accounting Terms. All accounting terms not
specifically defined herein shall be construed in accordance with GAAP
consistently applied.
11.10 Entire Agreement. This Agreement and the
schedules, exhibits and certificates specifically referred to herein or required
to be delivered pursuant to the terms hereof represent the entire agreement of
the parties hereto with respect to the subject matter hereof superseding all
prior agreements, understandings, discussions, negotiations and commitments of
any kind, including without limitation the Letter of Intent between Orion
Acquisition Corp. II, Mentmore Holdings Corp. and Seller dated March 13, 1997,
as amended to the date hereof. This Agreement may not be amended or
supplemented, nor may any rights hereunder be waived, except in a writing signed
by each of the parties.
42
11.11 Section Headings. The section headings in this
Agreement are included for convenience only, are not a part of this Agreement
and shall not be used in construing it.
11.12 Severability. In the event that any provision
or any part of any provision of this Agreement is held to be illegal, invalid or
unenforceable, such illegality, invalidity or unenforceability shall not affect
the validity or enforceability of any other provision or part hereof.
11.13 Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
11.14 Governing Law. The validity, interpretation,
enforceability, and performance of this Agreement shall be governed by and
construed in accordance with the law of the State of California.
[Remainder of Page Intentionally Left Blank]
43
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the date first above mentioned.
Seller: XXXXXXXX INDUSTRIE HOLDING AG, a
Swiss corporation
By: /s/ Xxxxxx Xxxxxx
-----------------------------------------
Name & Title: Xxxxxx Xxxxxx
Chairman
By: /s/ Hans Xxxxx Xxxxxx
-----------------------------------------
Name & Title: Hans Xxxxx Xxxxxx
------------------------------
Member of the Board
------------------------------
Company: XXXXXXXX INDUSTRIES, INC., a California
corporation
By: /s/ Xxxxxxx X. Call
-----------------------------------------
Name & Title: Xxxxxxx X. Call
------------------------------
Chairman and CEO
------------------------------
Buyer: KII ACQUISITION CORP., a Delaware
corporation
By: /s/ Xxxxxxx X. Xxxxxx
-----------------------------------------
Name & Title: Xxxxxxx X. Xxxxxx
------------------------------
Vice Chairman
------------------------------
44
Exhibit A
US$1,750,000 Los Angeles, California
June __, 1997
PROMISSORY NOTE
FOR VALUE RECEIVED, the undersigned, a Delaware corporation
(hereinafter called the "Maker"), hereby promises to pay to the order of
XXXXXXXX INDUSTRIE HOLDING AG, a corporation organized under the laws of
Switzerland ("Xxxxxxxx") at [____________], or at such other address as shall be
designated from time to time by Xxxxxxxx, the sum of ONE MILLION SEVEN HUNDRED
FIFTY THOUSAND and NO/100ths UNITED STATES DOLLARS (US$1,750,000) on the second
anniversary of the date hereof, in immediately available funds, and to pay
interest annually on the Adjusted Principal Balance (as hereinafter defined) in
like funds at said address at the rate of eight per cent (8%) per annum. Unless
otherwise defined herein, capitalized terms in this Note shall have the same
meaning given them in that certain Stock Purchase Agreement (the "Agreement"),
dated May ___, 1997 by and among Maker, Xxxxxxxx and Xxxxxxxx Industries, Inc.,
a California corporation.
The principal balance of this Note shall be reduced by the
amount of: (a) all payments and losses for which Maker is entitled to
indemnification under Section 8 of the Agreement at the time the same are made
or suffered, and (b) effective as of the date hereof for purposes of interest
Payable hereunder, the credit against the Purchase Price to which Buyer is
entitled pursuant to Section 9.2 of the Agreement. The principal balance as same
may be reduced from time to time hereunder shall constitute the "Adjusted
Principal Balance." If the aggregate of all such payments, losses and credits
exceeds the original principal balance hereof, then the interest accrued
hereunder shall be reduced by the amount by which such payments, losses and
credits exceeded the original principal balance, and any previously paid
interest which should not have been paid or accrued pursuant to this provision
shall be refunded.
If Maker wishes to make a claim for an adjustment to the
Purchase Price pursuant to Section 9.2 of the Agreement, the procedures for such
claim, and the resolution of any disputes with respect thereto, shall be as
specified in said Section 9.2. If Maker wishes to make a claim that Xxxxxxxx is
liable to Maker by reason of Section 8.1 of the Agreement, Maker shall serve a
notice of such claim upon Xxxxxxxx. Such notice shall explain the claim and
shall state the amount of claimed damages and a reasonably detailed explanation
thereof, including such supporting materials as Maker may then have in its
possession. Within a thirty (30) day period following the delivery of said
notice, Xxxxxxxx shall send a notice to Maker as to its agreement or
disagreement with Maker's claim. If Xxxxxxxx agrees with such claim, then the
outstanding principal amount of this Note shall be reduced as contemplated by
clause (a) of the immediately preceding paragraph. If Xxxxxxxx objects to such
claim, Maker's ultimate entitlement to reduce the principal amount of this Note
as contemplated by said clause (a) shall only be determined by (a) an agreement
in writing executed by Maker and Xxxxxxxx, or (b) a final judgment of a court of
competent jurisdiction, as to which the time for appeal form such judgment shall
have expired and no appeal shall be pending.
Any claim under Section 8.1 or Section 9.2 to which Xxxxxxxx objects or
with which Xxxxxxxx disagrees shall become a "Disputed Claim" hereunder. Any
Disputed Claim (including accrued but unpaid interest on the amount thereof)
which has not been resolved in accordance with the foregoing or the provisions
of Section 9.2 of the Agreement, as applicable, at the stated maturity of this
Note shall not then be due and payable, but rather shall continue to remain
outstanding hereunder in accordance herewith until such Disputed Claim shall
have been so resolved. Notwithstanding the foregoing, the excess, if any, of the
Adjusted Principal Balance over the amount of the Disputed Claim on the stated
maturity date (said excess, the "Undisputed Amount"), together with accrued but
unpaid interest on said Undisputed Amount, shall be due and payable upon such
stated maturity date in accordance with the provisions of this Note.
The Maker promises to pay interest, on demand, on any overdue
principal and, to the extent permitted by law, overdue interest from their due
dates at the same rate provided above.
The Maker hereby waives diligence, presentment, demand,
protest and notice of any kind whatsoever. The nonexercise by the holder of any
of its rights hereunder in any particular instance shall not constitute a waiver
thereof in that or any subsequent instance. The unenforceability or invalidity
of any one or more provisions of this Note shall not render any other provision
herein contained unenforceable or invalid.
The interest on this Note shall be paid without deduction of
any income, withholding or other tax of any kind imposed by the United States or
any state or local jurisdiction therein, unless required by law.
Xxxxxxxx represents and warrants to Maker, its officers,
directors, stockholders, agents, employees, affiliates and associates (under
United States tax and securities laws) as follows: (a) that it is not (i) a
citizen, resident (under U.S. tax or immigration laws) or domestic entity of the
United States of America and is not a corporation, partnership or trust created,
organized or controlled by such persons, (ii) a controlled foreign corporation,
foreign personal holding company, passive foreign investment company with any
U.S. shareholders, foreign partnership with U.S. partners, U.S. grantor trust
with any U.S. beneficiaries, or foreign estate with U.S. distributees, as all of
those terms are understood under the United States Internal Revenue Code of
1986, as amended (the "Code"); and that it is acquiring this Note for
investment, for its own account and not for resale to any such person, and (b)
it is not a foreign individual or entity engaged in a U.S. trade or business to
which any income or gain from this Note is effectively connected. Holder agrees
to execute and deliver a Forms W-8, 1001 and 8306 (and any updates thereto) in
connection herewith.
This Note shall only be transferable to a person who can
properly make the representations and comply with the restrictions set forth in
the previous paragraph. Any transfer of this Note (including any rights to any
principal and/or Interest represented by this Note) shall only be effective and
binding as to any person (including the Maker and/or payee hereof) upon (i)
delivery of written agreement by the transferee to comply with all the
provisions of this Note, (ii) consent of the Maker and/or payee hereof, and
(iii) registration of such transfer of the books and records of Maker at the
office of the Maker, ,
accompanied by a written instrument of transfer in form satisfactory to the
Maker,
duly executed by the payee hereof or its attorney duly authorized in writing by
the payee. This Note may not be transferred or assigned in any other way and is
specifically not transferable by negotiation. This Note is only issuable in
registered form and is intended to be in registered form as defined in Treas.
Reg. ss.5(f).103-1(c).
This Note shall be construed under the laws of the State of
California, without regard to its conflicts of laws principles. This Note shall
be entitled to the benefits of the respective Guarantees of the Company and each
of its Subsidiaries (as such terms are defined in the Agreement).
KII ACQUISITION CORPORATION,
a Delaware corporation
By:
---------------------------------
Title:
------------------------------
