ASSET PURCHASE AGREEMENT
THIS AGREEMENT is made effective as of October 5, 1997, by and among Xxxx
Xxxxxxxx ("Xxxxxxxx"), Xxxxxxxx Charitable Remainder Unitrust ("Trust I"),
Xxxxxxxx Foundation ("Trust II"), Computer Dynamics, Inc., a South Carolina
corporation ("CDI"), Computer Dynamics Services, Inc., a South Carolina
corporation ("CDS"), Computer Dynamics Mfg., Inc., a South Carolina corporation
("CDM"), Xxx Xxxxxxxx d/b/a Lines Unlimited, a sole proprietorship ("Lines"),
Total Control Products, Inc., an Illinois corporation ("TCP"), SC Acquisition
#1, an Illinois corporation ("Purchaser"), and SC Acquisition #2, an Illinois
corporation ("TCP II"). CDI, CDS, CDM and Lines are each referred to herein as
a "Selling Entity" and collectively as the "Selling Entities". The Selling
Entities, Trust I, Trust II and Xxxxxxxx are collectively referred to herein as
"Sellers".
RECITALS
A. The Selling Entities manufacture, sell and distribute custom computer
hardware and software for the industrial control market. The business of the
Selling Entities is referred to herein as the "Business".
B. The Selling Entities desire to sell to Purchaser substantially all of
the Selling Entities' assets, and Purchaser desires to purchase said assets, all
on the terms contained in this Agreement.
AGREEMENTS
Therefore, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties agree as follows:
ARTICLE I
PURCHASE AND SALE OF ASSETS
1.1 AGREEMENT TO PURCHASE AND SELL. On the terms contained in this
Agreement, Purchaser hereby purchases from the Selling Entities, and the Selling
Entities hereby sell to Purchaser, all of the Selling Entities' assets,
properties, rights and business as a going concern as of the date hereof, of
whatever kind or nature and wherever situated and located and whether reflected
on the Selling Entities' books and records or previously written-off or
otherwise not shown on the Selling Entities' books and records (other than the
items set forth in Section 1.3 (the "Excluded Assets")). All of said assets,
properties, rights and business (other than the Excluded Assets) are
collectively referred to in this Agreement as the "Purchased Assets". All of
the Purchased Assets shall be sold to Purchaser free and clear of any liens,
title claims, encumbrances or security interests.
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1.2 ENUMERATION OF PURCHASED ASSETS. The Purchased Assets include,
without limitation, the following items of each of the Selling Entities:
(a) all trade accounts receivable, notes receivable, negotiable
instruments and chattel paper (collectively, the "Accounts Receivable");
(b) all deposits and rights with respect thereto;
(c) all inventory (including, without limitation, raw materials, work
in process, finished goods, service parts and supplies), including, without
limitation, supplies and parts which have historically been expensed or have not
been valued on the Selling Entities' books and records (collectively, the
"Inventory");
(d) all furniture, art work, fixtures, equipment (including office
equipment), machinery, parts, computer hardware, tools, dies, jigs, patterns,
molds and trucks and all other tangible personal property (other than the
Inventory), including, without limitation, any of the foregoing which has been
fully depreciated and including the equipment listed on EXHIBIT A attached
hereto (collectively, the "Equipment");
(e) the contracts, claims and rights (and benefits arising therefrom)
listed on EXHIBIT B attached hereto;
(f) all sales orders and sales contracts, purchase orders and
purchase contracts, quotations and bids;
(g) all intellectual property rights, including, without limitation,
patents and applications therefor, know-how, unpatented inventions, trade
secrets, secret formulas, business and marketing plans, copyrights and
applications therefor, trademarks and applications therefor, service marks and
applications therefor, trade names and applications therefor, trade dress, and
names and slogans used by any of the Selling Entities (including, without
limitation, the name Computer Dynamics and each Selling Entities' corporate
name), and all goodwill and royalties associated with such intellectual property
rights;
(h) all customer lists, customer records and information;
(i) all books and records, including, without limitation, blueprints,
drawings and other technical papers, payroll, employee benefit, accounts
receivable and payable, inventory, maintenance, and asset history records,
ledgers, and books of original entry, all insurance records and OSHA and EPA
files;
(j) all insurance policies and rights thereunder;
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(k) all rights in connection with prepaid expenses with respect to
the assets being sold hereunder;
(l) all letters of credit issued to any Selling Entity;
(m) all computer software, including all documentation and source
codes with respect to such software and licenses and leases of software;
(n) all sales and promotional materials, catalogues and advertising
literature; and
(o) all telephone numbers of the Selling Entities and all lock boxes
to which the Selling Entities' account debtors remit payments.
1.3 EXCLUDED ASSETS. The Excluded Assets shall consist of the following:
(a) all cash on hand and in banks, cash equivalents and investments;
(b) claims (and benefits to the extent they arise therefrom) and
litigation against third parties to the extent such claims and litigation are
not in any way related to the Purchased Assets or the Assumed Liabilities (as
herein defined), and claims (and benefits to the extent they arise therefrom)
that relate to Excluded Liabilities (as herein defined);
(c) rights arising from prepaid expenses, if any, with respect to the
Excluded Assets;
(d) the Selling Entities' respective rights under this Agreement;
(e) each Selling Entities' corporate charters, minute and stock
record books, and corporate seals;
(f) all contracts, claims and rights (and benefits arising therefrom)
binding on the Selling Entities other than (i) those contracts, claims and
rights listed on EXHIBIT B attached hereto; and (ii) all sales orders and sales
contracts, purchase orders and purchase contracts, quotations and bids binding
on the Selling Entities;
(g) all owned or leased passenger automobiles;
(h) all accounts receivable owed by employees of the Selling Entities
to any of the Selling Entities; and
(i) the assets of the Selling Entities listed on EXHIBIT C attached
hereto.
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ARTICLE II
ASSUMPTION OF LIABILITIES
2.1 AGREEMENT TO ASSUME. Purchaser agrees to assume and agrees to
discharge and perform when due, the liabilities of the Selling Entities (and
only those liabilities of the Selling Entities) which are enumerated in Section
2.2 (the "Assumed Liabilities"). All claims against and liabilities and
obligations of the Selling Entities not specifically assumed by Purchaser
pursuant to Section 2.2, including, without limitation, the liabilities
enumerated in Section 2.3, are collectively referred to herein as the "Excluded
Liabilities." Sellers jointly and severally agree to promptly pay and discharge
when due all of the Excluded Liabilities.
2.2 DESCRIPTION OF ASSUMED LIABILITIES. The Assumed Liabilities shall
consist of the following, and only the following, liabilities of the Selling
Entities:
(a) trade accounts payable for Inventory purchases as of the date
hereof, marketing accruals as of the date hereof, such as advertising and trade
show expenses, facility related expenses as of the date hereof, such as
utilities, telephone, repairs, maintenance and like items, in each case, to the
extent, and only to the extent, set forth on the Closing Balance Sheet (as
defined herein);
(b) liabilities of the Selling Entities under any written purchase
order and sales order and the agreements or commitments listed on EXHIBIT B
attached hereto, to the extent such liabilities relate to performance after the
date hereof; and
(c) liabilities of the Selling Entities under any Permits and
Environmental Permits which were issued to the Selling Entities in the ordinary
course of business prior to the date hereof and which are assigned or
transferred to Purchaser pursuant to the provisions hereof, to the extent such
liabilities relate to performance after the date hereof.
2.3 EXCLUDED LIABILITIES. Notwithstanding Section 2.2 (and without
implication that Purchaser is assuming any liability not expressly excluded by
this Section 2.3 and, where applicable, without implication that any of the
following would constitute Assumed Liabilities but for the provisions of this
Section 2.3), all liabilities and obligations of each of the Selling Entities,
other than those listed in Section 2.2 hereof, shall remain the obligations and
liabilities of the Selling Entities and shall not be assumed by Purchaser; such
liabilities and obligations include, without limitation, all trade account
payables and accrued and unpaid expenses not listed on EXHIBIT D attached
hereto, accounts payable, expenses incurred by the Selling Entities in
connection with the transactions contemplated hereby (including legal,
accounting and investment banking expenses), bank indebtedness or indebtedness
for borrowed money, accrued wages, accrued vacation, payroll and withholding tax
liability, contingent liabilities, liabilities under agreements not assumed by
Purchaser, claims relating to returns of product which were sold by the Selling
Entities prior to the date hereof or which constituted finished goods inventory
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of the Selling Entities on the date hereof, environmental liabilities,
liabilities owed to employees, Tax (as defined herein) liabilities, liabilities
to any affiliate of Sellers, any liabilities incurred to the U.S. Government for
price adjustments, any liabilities arising out of or in connection with any
violation of a statute or governmental rule, regulation or directive, and any
other liabilities of the Selling Entities.
2.4 NO EXPANSION OF THIRD PARTY RIGHTS. The assumption by Purchaser of
the Assumed Liabilities shall not expand the rights or remedies of any third
party against Purchaser or the Selling Entities as compared to the rights and
remedies which such third party would have had against the Selling Entities had
Purchaser not assumed the Assumed Liabilities. Without limiting the generality
of the preceding sentence, the assumption by Purchaser of the Assumed
Liabilities shall not create any third party beneficiary rights.
Notwithstanding the foregoing, unless and to the extent that the Selling
Entities have specifically made a representation or warranty under the
provisions of Article V hereof, the Selling Entities do not represent or warrant
the Purchaser the rights or remedies of any third party concerning the Assumed
Liabilities.
ARTICLE III
PURCHASE PRICE AND MANNER OF PAYMENT
3.1 PURCHASE PRICE AND ROYALTY PAYMENT.
(a) Subject to the adjustment set forth in Section 3.2 herein, the
"Purchase Price" of the Purchased Assets shall be equal to the sum of (i)
$511,815 of cash payable at Closing (the "Cash Portion"); and (ii) 932,039
shares of common stock ("TCP Common Stock"), no par value per share (the
"Share Portion"), of TCP, to be issued to the Selling Entities at the Closing.
(b) At the Closing, Purchaser agrees to pay Xxxxxxxx, Trust I and
Trust II an aggregate amount equal to $12,000,000 in cash (the "Royalty
Payment"), as consideration for the termination of all royalty payments owed by
any of the Selling Entities to Trust I, Trust II and/or Xxxxxxxx, including,
without limitation, all royalty payments owed by the Selling Entities to Trust
I, Trust II and/or Xxxxxxxx pursuant to the terms of the following agreements:
(i) Agreement to Sell SBC-SXE Design dated March 15, 1993 between Xxxxxxxx and
CDI; (ii) Agreement to Sell SBC-AT and CPU-AT Design dated January 15, 1991;
(iii) Agreement to Sell SBC-SX Design dated December 1, 1991; (iv) Agreement to
Sell SBC-XT and CPU-XT Design dated February 4, 1991; (v) Agreement to Sell FP
CARD Design dated March 15, 1993; (vi) Agreement to Sell DISPLAY PAC Design
dated January 3, 1991; (vii) Agreement to Sell VAMP Design dated March 15, 1993;
and (viii) Agreement to Sell SBC-DX Design dated November 1, 1993.
3.2 ADJUSTMENT TO THE PURCHASE PRICE. The Purchase Price shall be reduced
by the amount by which $7,250,000 exceeds the Net Book Value. The Net Book
Value shall be the
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amount by which the aggregate book amount of the Purchased Assets exceeds the
aggregate book amount of the Assumed Liabilities, all as determined in
accordance with this Article III and as shown on the Closing Balance Sheet.
3.3 MANNER OF PAYMENT OF THE PURCHASE PRICE AND THE ROYALTY PAYMENT.
For purposes of the Closing, the parties shall make a good-faith estimate of the
Cash Portion (the "Estimated Cash Payment"), based upon the most recent
ascertainable financial information. At the Closing, (a) Purchaser shall assume
the Assumed Liabilities; (b) Purchaser shall pay the Estimated Cash Payment to
the Selling Entities by wire transfer to the account designated by Sellers; (c)
Purchaser shall pay the Royalty Payment to Trust I, Trust II and/or Xxxxxxxx by
wire transfer to the account designated by Xxxxxxxx, Trust I and Trust II; (d)
Purchaser shall cause TCP to issue certificates representing 116,505 shares of
TCP Common Stock to American National Bank & Trust Company of Chicago, as escrow
agent (the "Escrow Agent"), to be held and distributed by the Escrow Agent in
accordance with the terms of the Escrow Agreement (the "Escrow Agreement") in
the form attached hereto as EXHIBIT E; and (e) Purchaser shall cause TCP to
issue and deliver certificates representing 815,534 shares of TCP Common Stock
to the Selling Entities as payment for the portion of the Stock Portion not
deposited in escrow pursuant to subparagraph (d) above. Following the Closing,
the parties shall determine the final Cash Portion, taking into account the
adjustments required pursuant to Section 3.2 and employing the procedures and
criteria set forth in Sections 3.4 and 3.5. If, based on the Cash Portion as
finally determined, the Estimated Cash Payment exceeds the Cash Portion, Sellers
shall, jointly and severally, forthwith pay the excess to Purchaser.
3.4 DETERMINATION OF NET BOOK VALUE. The Net Book Value shall be
determined from a statement of Purchased Assets and the Assumed Liabilities as
of the close of business on the date hereof (the "Closing Balance Sheet"). The
Closing Balance Sheet shall be prepared by Purchaser, at Purchaser's expense.
The Closing Balance Sheet shall be prepared in accordance with generally
accepted accounting principles ("GAAP") applied in a manner consistent with the
accounting principles applied in the preparation of the Financial Statements (as
herein defined). Notwithstanding, or without limitation, as the case may be,
of the foregoing:(a) the Closing Balance Sheet shall contain pro rata accruals
for utilities and like items;(b) Inventory shall be determined pursuant to a
physical count and valued, on an item by item basis, at the lower of the actual
cost thereof or market value (as of the date hereof) thereof, using the first
in, first out method; PROVIDED, HOWEVER, that obsolete inventories, inventories
which are unsalable or unusable in the ordinary course of business and slow
moving inventories shall be valued at net realizable value;(c) assets and
liabilities shall be reflected without regard to materiality;(d) the Closing
Balance Sheet shall be prepared on the basis that it is being used in the
computation of the Cash Portion and therefore items may be required to be
reflected thereon that are not normally reflected on a balance sheet of a
continuing business; (e) reserves for the Purchased Assets shall be determined
based upon TCP's past practices; and (f) the fixed assets included in the
Purchased Assets shall be valued between $150,000 and $350,000, as mutually
agreed upon by the Selling Entities and Purchaser. Purchaser shall cause the
Closing Balance Sheet to be delivered to Seller not later than sixty (60) days
after the date hereof. Purchaser shall make
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available to Seller and Seller's accountants the work papers, and shall permit
Sellers and Seller's accountants to observe the taking of the Inventory.
3.5 DISPUTES REGARDING CLOSING BALANCE SHEET. Disputes with respect to
the Closing Balance Sheet shall be dealt with as follows:
(a) Sellers shall have thirty (30) days after receipt of the Closing
Balance Sheet (the "Dispute Period") to dispute any of the elements of or
amounts reflected on the Closing Balance Sheet (a "Dispute"). If Sellers do not
give written notice of a Dispute within the Dispute Period to Purchaser (a
"Dispute Notice"), the Closing Balance Sheet shall be deemed to have been
accepted and agreed to by Sellers in the form in which it was delivered by
Purchaser, and shall be final and binding upon the parties hereto. If Sellers
have a Dispute, Sellers shall give Purchaser a Dispute Notice within the Dispute
Period, setting forth in reasonable detail the elements and amounts with which
it disagrees. Within thirty (30) days after delivery of such Dispute Notice,
the parties hereto shall attempt to resolve such Dispute and agree in writing
upon the final content of the disputed Closing Balance Sheet.
(b) If Purchaser and Seller are unable to resolve any Dispute within
the thirty (30) day period after Purchaser's receipt of a Dispute Notice, the
Chicago office of the certified public accounting firm of Price Waterhouse LLP
(the "Arbitrating Accountant") shall be engaged as arbitrator hereunder to
settle such Dispute as soon as practicable. In the event Price Waterhouse LLP
is unwilling or unable to serve as the Arbitrating Accountant, the parties
hereto shall select by mutual agreement another nationally recognized certified
public accounting firm, who is not rendering (and during the preceding two-year
period, has not rendered) services to any Seller, Purchaser or their respective
Affiliates (as defined herein), to serve as the Arbitrating Accountant. In
connection with the resolution of any Dispute, the Arbitrating Accountant shall
have access to all documents, records, work papers, facilities and personnel
necessary to perform its function as arbitrator. The arbitration before the
Arbitrating Accountant shall be conducted in accordance with the commercial
arbitration rules of the American Arbitration Association. The Arbitrating
Accountant's award with respect to any Dispute shall be final and binding upon
the parties hereto, and judgment may be entered on the award. Seller and
Purchaser shall each pay one-half of the fees and expenses of the Arbitrating
Accountant with respect to any Dispute.
3.6 ADDITIONAL PAYOUT.
(a) DEFINITIONS. For purposes of this Agreement, the following terms
shall have the following meanings:
(i) "Actual EBIT" means the actual net income of Purchaser, plus
interest expenses, taxes and goodwill amortization expenses related to the
transactions contemplated hereby for each Earn Out Period, as calculated in
accordance with GAAP applied in a manner consistent with Purchaser's past
practices and as determined from Purchaser's internal accounting records;
provided, however, that if the Actual EBIT for any Earn Out Period exceeds
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125% of the Base EBIT for such Earn Out Period, then the Actual EBIT for the
subsequent Earn Out Period shall be increased by the amount of such excess;
(ii) "Base EBIT" for each Earn Out Period shall mean (A) for the
first Earn Out Period, an amount equal to $5,100,000; and (B) for each
subsequent Earn Out Period, calculated on the day immediately after the day of
payment of the Contingent Consideration for an Earn Out Period, the greater of
(i) $5,100,000; and (ii) the greatest amount of Actual EBIT during any of the
previous Earn Out Periods; provided, however, that for purposes of determining
the Base EBIT for any Earn Out Period, (A) the Actual EBIT during any previous
Earn Out Period may not exceed 125% of the Base EBIT for such Earn Out Period;
and (B) if the Actual EBIT for any Earn Out Period is less than $5,100,000, then
the Base EBIT for the next Earn Out Period shall be increased by the amount of
such deficiency;
(iii) "Cost of Sales" shall be determined using the accrual
basis of accounting in accordance with GAAP. Cost of Sales with respect to any
product means the sum of the following amounts: (A) the purchase price for such
product paid by TCP to Purchaser, plus (B) freight paid by TCP to transmit such
product from Purchaser to TCP and from TCP to its customers, plus (C) all
commissions and royalties paid by TCP or its Affiliates on the sale of such
product;
(iv) "Earn Out Period" means each of the following periods: (A)
the date hereof through September 30, 1998; (B) October 1, 1998 through
September 30, 1999; (B) October 1, 1999 through September 30, 2000; (C) October
1, 2000 through September 30, 2001; (D) October 1, 2001 through September 30,
2002; and (E) October 1, 2003 through September 30, 2004.
(v) "Manufacturing Cost" means, with respect to any product,
Purchaser's Direct Material Costs and Direct Labor Costs with respect to such
product. "Direct Material Costs" shall include reasonable costs incurred in
purchasing raw materials (with reasonable deductions for waste), including sales
and excise taxes imposed thereon, and all costs of packaging components.
"Direct Labor Costs" shall include the reasonable cost of part-time and
full-time employees engaged in manufacturing activities who are directly
employed in such product manufacturing and packaging and in quality
assurance/quality control. The allocation and calculation of Purchaser's
Manufacturing Costs shall be made in accordance with standard cost and
reasonable cost accounting methods in accordance with GAAP, consistently
applied. In the case of products manufactured in whole or in part by a third
party on behalf of Purchaser, "Manufacturing Cost" shall include the costs paid
to such third party by Purchaser in order to complete the product for and on
behalf of Purchaser; and
(vi) "Net Sales" shall be determined using the accrual basis of
accounting in accordance with GAAP. Net Sales with respect to a product means
the actual gross invoice price of a product manufactured by Purchaser and sold
by TCP, less (A) any and all allowable promotional allowances, rebates, quantity
and cash discounts, and other usual and customary
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allowable discounts to its customers with respect to such product, (B) amounts
repaid or credited by reason of rejections or returns of goods with respect to
such product, and (C) reasonable allowances for doubtful accounts with respect
to such product.
Notwithstanding the foregoing, for purposes of calculating Actual EBIT, (w) to
the extent that TCP receives an order from any third party at any time during
any Earn Out Period for custom products of the nature that were manufactured by
the Selling Entities prior to the date hereof, (i) TCP shall deliver such order
to Purchaser; (ii) Purchaser shall manufacture such product and invoice such
third party directly for such product; and (iii) the calculation of Actual EBIT
with respect to the sale of such product by Purchaser to such third party shall
include all royalties and/or commissions paid by either TCP or Purchaser with
respect to the sale of such product; (x) if Purchaser can supply TCP with
products that replace any existing stock keeping unit regularly purchased by TCP
prior to the date hereof, the purchase price for each such unit shall be equal
to 125% of Purchaser's Manufacturing Cost with respect to each such unit of
product; (y) if Purchaser can supply TCP with new products that do not replace
any existing stock keeping unit regularly purchased by TCP prior to the date
hereof, Actual EBIT with respect to the sale of each such unit of product by
Purchaser to TCP shall be equal to (i) 50%; multiplied by (ii)(A) TCP's Net
Sales price for such unit of product less (B) the sum of (I) Purchaser's
Manufacturing Cost with respect to such unit of product; (II) freight paid by
TCP to transmit such unit of product from Purchaser to TCP and from TCP to its
customers; (III) all commissions and royalties paid by TCP or its Affiliates on
the sale of such unit of product; and (IV) TCP's manufacturing, overhead,
marketing and engineering support costs directly related to the manufacture,
storage, marketing and/or sale of such product; and (z) Purchaser and TCP shall
each be entitled to purchase the others raw materials at the cost paid by such
entity to purchase such raw materials from an unrelated third party.
(b) CONTINGENT CONSIDERATION. For each Earn Out Period, if the
Actual EBIT during such Earn Out Period exceeds one hundred and ten percent
(110%) multiplied by the Base EBIT for such Earn Out Period, Purchaser shall pay
CDI an aggregate amount equal to the following ("Contingent Consideration"):
$3,000,000 multiplied by the following fraction, (i) the numerator of which is
equal to (A) the Actual EBIT for such Earn Out Period less (B) one-hundred ten
percent (110%) multiplied by the Base EBIT for such Earn Out Period; and (ii)
the denominator of which is equal to fifteen percent (15%) multiplied by the
Base EBIT for such Earn Out Period; provided, however, that such fraction shall
not be greater then one.
(c) PAYMENT OF CONTINGENT CONSIDERATION. As soon as practicable
after the close of Purchaser's books for each Earn Out Period, but in any event,
no later than sixty (60) days after the end of each such Earn Out Period,
Purchaser will determine the final aggregate amount of the Contingent
Consideration, if any, for such preceding Earn Out Period based upon Purchaser's
internal accounting records, and shall notify CDI in writing of the amount of
Contingent Consideration, if any (the "Contingent Notice"). CDI may, within
thirty (30) days after receipt of the Contingent Notice, deliver to Purchaser
written notice (the "Dispute Notice") identifying any dispute that CDI may have
with respect to the amount set forth in the Contingent
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Notice. If a Dispute Notice is not delivered by CDI to Purchaser within such
thirty (30) day period, the amount of the Contingent Consideration, if any, set
forth in the Contingent Notice shall be final and binding on the parties hereto.
Within fifteen (15) days following Purchaser's receipt of a Dispute Notice,
Purchaser, on the one hand, and CDI, on the other hand, shall in good faith
attempt to agree upon the Contingent Consideration, if any, for such Earn Out
Period. If Purchaser, on the one hand, and CDI, on the other hand, cannot agree
to the amount of the Contingent Consideration, if any, for such fiscal year,
they shall jointly submit their dispute to the Arbitrating Accountant for final
determination, whose determination shall be made within ninety (90) days of the
date the dispute is submitted to the Arbitrating Accountant. The fees and
expenses of the Arbitrating Accountant shall be shared equally between the
Purchaser and Xxxxxxxx. The Arbitrating Accountant's determination as to the
amount of Contingent Consideration for such Earn Out Period shall be final and
binding on the parties hereto. The Contingent Consideration awarded to CDI in
respect of any particular Earn Out Period shall be paid by Purchaser to CDI
within fifteen days of the final determination of the Contingent Consideration,
if any, without interest, with respect to such Earn Out Period in accordance
with the provisions of Section 3.6(d) below. In connection with the
determination of the Contingent Consideration, Purchaser shall give CDI and the
Arbitrating Accountant, as applicable, reasonable access to the portion of its
books and records which are relevant to the calculation of the Contingent
Consideration for such Earn Out Period during normal business hours upon
reasonable advance notice.
(d) PAYMENT OF CONTINGENT CONSIDERATION. Notwithstanding anything to
the contrary contained in this Section 3.6, the Contingent Consideration for
each Earn Out Period, if any, shall be paid by Purchaser to CDI fifty percent
(50%) in cash and fifty percent (50%) in shares of TCP Common Stock; provided,
however, that, no more than an aggregate of 347,961 shares of TCP Common Stock
shall be issued to CDI in connection with the payment of any Contingent
Consideration and, to the extent that CDI have received an aggregate of 347,961
shares of TCP Common Stock in connection with the payment of Contingent
Consideration, all remaining amounts of Contingent Consideration shall be paid
by Purchaser to CDI in cash. With respect to each payment of Contingent
Consideration pursuant to this Section 3.6 for each Earn Out Period, each share
of TCP Common Stock to be issued pursuant to this Section 3.6(d) for each
respective Earn Out Period, shall be valued based upon the ten (10) consecutive
trading day average (the "Average Price") of the mid-point of the ask and bid
price at the end of each trading day of a share of TCP Common Stock for each day
during such ten day period ending on the day prior to the end of each Earn Out
Period, as such prices are quoted on the Nasdaq National Market System (and as
reported by The Wall Street Journal or, if not reported thereby, by another
authoritative source); provided, however, that (i) if 110% of the Average Price
for any Earn Out Period is less than the actual closing price of a share of TCP
Common Stock on the last day of such Earn Out Period, as such prices are quoted
on the Nasdaq National Market System (and as reported by The Wall Street Journal
or, if not reported thereby, by another authoritative source), for purposes of
this Agreement, the Average Price for such Earn Out Period shall be deemed to be
equal to 110% of the Average Price as calculated for such Earn Out Period; and
(ii) if 90% of the Average Price for any Earn Out Period is less than the actual
closing price of a share of TCP
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Common Stock on the day preceding the last day of such Earn Out Period, as such
prices are quoted on the Nasdaq National Market System (and as reported by The
Wall Street Journal or, if not reported thereby, by another authoritative
source), for purposes of this Agreement, the Average Price for such Earn Out
Period shall be deemed to be equal to 90% of the Average Price as calculated for
such Earn Out Period.
(e) TERMINATION OF PAYMENTS. Notwithstanding anything to the
contrary contained in this Section 3.6, Purchaser's obligation to make payments
of Contingent Consideration to CDI pursuant to this Section 3.6 shall
immediately terminate (i) as of the date of termination of Xxxxxxxx'x employment
with Purchaser, if Xxxxxxxx'x employment with Purchaser is terminated by
Xxxxxxxx at any time prior to the second anniversary of the date hereof for any
reason whatsoever (other than death or disability) or such employment is
terminated by Purchaser for "cause" at any time (as such term is defined in the
Employment Agreement attached hereto as EXHIBIT F); or (ii) upon payment to CDI
of the amount set forth in Section 3.6(f) below.
(f) SALE OF PURCHASER. Upon the closing of a Sale Event (as defined
below), Purchaser shall pay, or cause to be paid, the following aggregate amount
to CDI, 50% in cash and 50% in shares of TCP Common Stock in accordance with,
and subject to the provisions of, Section 3.6(d): the present value of the
maximum potential future payments of Contingent Consideration remaining as of
the closing of such Sale Event, using a discount factor equal to the thirty (30)
year treasury xxxx rate as of the date of the Sale Event, to calculate the
amount of such payment. For purposes of this Agreement "Sale Event" shall mean
(i) a sale of all or substantially all of the assets of Purchaser; (ii) a merger
or consolidation involving Purchaser, where Purchaser or an affiliate of TCP is
not the surviving entity or in which TCP does not remain the owner, either
directly or indirectly, of a majority of the outstanding shares of common stock
of Purchaser; and (iii) a sale of a majority of the outstanding capital stock of
Purchaser to any one person (other than to an affiliate of TCP).
3.7 TIME OF CLOSING. Subject to the terms of this Agreement, the closing
of the transactions contemplated by this Agreement (the "Closing") shall take
place at the offices of X'Xxxxxx & Xxxxxx, 00 Xxxxx XxXxxxx Xxxxxx, Xxxxx 0000,
Xxxxxxx, Xxxxxxxx 00000 at 10:00 a.m. The Closing shall be deemed to be
effective as of 12:01 a.m. on the date hereof at Chicago, Illinois.
ARTICLE IV
TCP'S, PURCHASER'S AND TCP II'S REPRESENTATIONS AND WARRANTIES
All of the representations and warranties contained in this Article IV and
all representations and warranties which are set forth elsewhere in this
Agreement and in any financial statement, exhibit or document delivered by TCP,
Purchaser or TCP II to Sellers pursuant to this Agreement or in connection
herewith shall survive the Closing (and none shall
11
merge into any instrument of conveyance), regardless of any investigation or
lack of investigation by Sellers. No specific representation or warranty shall
limit the generality or applicability of a more general representation or
warranty. Representations and warranties of TCP, Purchaser and TCP II are made
as of the date hereof. TCP, Purchaser and TCP II jointly and severally
represent and warrant to Sellers as of the date of this Agreement as follows:
4.1 EXISTENCE, GOOD STANDING, CORPORATE AUTHORITY. Each of TCP, Purchaser
and TCP II is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation. Each of TCP,
Purchaser and TCP II has all requisite corporate power and authority to own or
lease, and operate its properties and assets, and to carry on its business as
now conducted and as currently proposed to be conducted.
4.2 AUTHORIZATION, VALIDITY AND EFFECT OF AGREEMENTS. The execution and
delivery of this Agreement, the Escrow Agreement, the Employment Agreement, the
Lease and the other documents executed or to be executed in connection herewith
to which TCP, Purchaser or TCP II is a party (collectively, "Purchaser's
Ancillary Documents"), have been duly authorized by the Board of Directors and
shareholders, if necessary, of TCP, Purchaser and TCP II, to the extent each is
a party thereto, and no other proceedings on the part of TCP, Purchaser or TCP
II or their shareholders are necessary to authorize the execution, delivery or
performance of this Agreement or any of Purchaser's Ancillary Documents. This
Agreement and each of Purchaser's Ancillary Documents have been duly executed by
a duly authorized officer of TCP, Purchaser or TCP II, to the extent each is a
party thereto. This Agreement and all Purchaser's Ancillary Documents
constitute the valid and legally binding obligations of TCP, Purchaser and TCP
II, to the extent each is a party thereto, enforceable against TCP, Purchaser
and TCP II, to the extent each is a party thereto, in accordance with their
respective terms, subject to applicable bankruptcy, insolvency, moratorium or
other similar laws relating to creditors' rights and general principles of
equity (regardless of whether enforcement is considered in a proceeding at law
or in equity).
4.3 NO VIOLATION. Neither the execution and delivery by TCP, Purchaser or
TCP II of this Agreement and the Purchaser's Ancillary Documents, nor the
consummation by TCP, Purchaser and TCP II of the transactions contemplated
hereby in accordance with the terms hereof, will (a) conflict with or result in
a breach of any provisions of the Articles of Incorporation or Bylaws of TCP,
TCP II or Purchaser; (b) violate, conflict with, result in a breach by TCP,
Purchaser or TCP II, of any provision of, constitute a default by TCP, Purchaser
or TCP II (or an event which, with notice or lapse of time or both, would
constitute a default by TCP, Purchaser or TCP II) under, result in the
termination, or in a right of termination or cancellation of, accelerate the
performance by TCP, Purchaser or TCP II required by, result in the triggering of
any material payment or other material obligations by TCP, Purchaser or TCP II
pursuant to, result in the creation of any lien, security interest, charge or
encumbrance upon any of the material properties of TCP, Purchaser or TCP II
under, or result in being declared void, voidable, or without further binding
effect, any of the terms, conditions or provisions of any material note, bond,
mortgage, indenture, deed of trust or any material license, franchise, permit,
lease, contract, agreement or other instrument, commitment or obligation to
which TCP, Purchaser or TCP II is a
12
party, or by which TCP, Purchaser or TCP II or any of their respective
properties is bound or affected, except for any of the foregoing matters which
would not have a material adverse effect on the business, results of operations
or financial condition of TCP, Purchaser, TCP II and their respective
subsidiaries, taken as a whole (a "Purchaser Material Adverse Effect"); (c) to
the knowledge of TCP, contravene or conflict with or constitute a violation of
any provision of any law, regulation, judgement, injunction, order or decree
binding upon or applicable to TCP, Purchaser or TCP II which would have a
Purchaser Material Adverse Effect; or (d) to the knowledge of TCP, other than
the filings under applicable federal, state and local regulatory filings, the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder (the "Exchange Act"), the Securities Act of 1933, as
amended (the "Securities Act"), or applicable state securities and "Blue Sky"
laws or filings in connection with the maintenance of qualification to do
business in other jurisdictions (collectively, the "Regulatory Filings"),
require any material consent, approval or authorization of, or declaration, of
or registration with, any domestic governmental or regulatory authority, the
failure to obtain or make which would have a Purchaser Material Adverse Effect.
4.4 SEC DOCUMENTS. TCP has delivered to the Sellers each registration
statement, report, proxy statement or information statement (as defined in
Regulation 14C under the Exchange Act) prepared by it since March 11, 1997,
which reports constitute all of the documents required to be filed by TCP with
the Securities and Exchange Commission ("SEC") since such date, each in the form
(including exhibits and any amendments thereto) filed with the SEC
(collectively, the "TCP Reports"). As of their respective dates, the TCP
Reports (a) complied as to form in all material respects with the applicable
requirements of the Securities Act, the Exchange Act, and the rules and
regulations thereunder; and (b) did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements made therein, in the light of the circumstances
under which they were made, not misleading. Each of the consolidated balance
sheets of TCP included in or incorporated by reference into the TCP Reports
(including the related notes and schedules) fairly present in all material
respects the consolidated financial position of TCP as of its date, and each of
the consolidated statements of income, retained earnings and cash flows of TCP
included in or incorporated by reference into the TCP Reports (including any
related notes and schedules) fairly present in all material respects the results
of operations, retained earnings or cash flows, as the case may be, of TCP for
the periods set forth therein (subject, in the case of unaudited statements, to
normal year-end audit adjustments which would not be material in amount or
effect), in each case in accordance with GAAP consistently applied during the
periods involved, except as may be noted therein.
4.5 NO BROKERS. Neither Purchaser nor TCP has entered into any contract,
arrangement or understanding with any person or firm which may result in the
obligation of Sellers, TCP or Purchaser to pay any finder's fee, brokerage or
agent's commissions or other like payments in connection with the negotiations
leading to this Agreement or the consummation of the transactions contemplated
hereby, except that TCP has retained Xxxxxxx Xxxxxxx Associates and Xxxxx,
Xxxxxxxx & Xxxx, Inc. as its financial advisors. Other than the foregoing
13
arrangements, TCP is not aware of any claim for payment of any finder's fees,
brokerage or agent's commission or other like payments in connection with the
negotiations leading to this Agreement or the consummation of the transaction
contemplated hereby. Purchaser and TCP agree to be solely responsible for the
payment of all fees and commissions due and payable to Xxxxxxx Xxxxxxx
Associates and Xxxxx, Xxxxxxxx & Xxxx, Inc.
4.6 TCP COMMON STOCK. The issuance and delivery of shares of TCP Common
Stock in connection with this Agreement have been duly and validly authorized by
all necessary corporate action. The shares of TCP Common Stock to be issued in
connection with this Agreement, when issued in accordance with the terms of this
Agreement, will be validly issued, fully paid and nonassessable.
4.7 CAPITALIZATION The total authorized capital stock of TCP consists of
(i) 22,500,000 shares of TCP Common Stock, 6,916,465 shares of which are issued
and outstanding as of October 1, 1997; and (ii) 1,000,000 shares of blank check
preferred stock, none of which are issued and outstanding as of the date hereof.
The authorized capital stock of Purchaser consists of 1,000 shares of Common
Stock, $0.01 par value per share, 100 shares of which are issued and outstanding
as of the date hereof and are owned by TCP. The authorized capital stock of TCP
II consists of 1,000 shares of Common Stock, $0.01 par value per share, 100
shares of which are issued and outstanding as of the date hereof and are owned
by TCP. There are no shares of capital stock of TCP, Purchaser or TCP II of any
other class authorized, issued or outstanding.
4.8 MATERIAL ADVERSE CHANGE. Since June 30, 1997 to the date of hereof,
other than what has been disclosed by TCP in Form 8-K's filed by TCP with the
SEC (copies of which have been previously provided to Sellers) and TCP's recent
sale of its TESS product line to an entity controlled by Xxxx Xxxxxx, a current
director and executive officer of TCP, TCP and its subsidiaries, taken as a
whole, have not suffered any change in their businesses, operations, assets,
liabilities, financial condition or prospects which would have a Purchaser
Material Adverse Effect.
ARTICLE V
SELLERS' REPRESENTATIONS AND WARRANTIES
All of the representations and warranties contained in this Article V and
all representations and warranties which are set forth elsewhere in this
Agreement and in any financial statement, exhibit or document delivered by
Sellers to Purchaser pursuant to this Agreement or in connection herewith shall
survive the Closing (and none shall merge into any instrument of conveyance),
regardless of any investigation or lack of investigation by Purchaser. No
specific representation or warranty shall limit the generality or applicability
of a more general representation or warranty. Representations and warranties of
Sellers are made as of the date hereof. All representations and warranties of
Sellers are made subject to the exceptions noted in
14
the schedule delivered by Sellers to Purchaser concurrently herewith attached
hereto and incorporated herein by reference and identified as the "Disclosure
Statement". All exceptions noted in the Disclosure Statement shall be numbered
to correspond to the applicable sections to which such exception refers. Except
as otherwise set forth in the Disclosure Statement, Sellers jointly and
severally hereby represent and warrant to Purchaser as follows:
5.1 ORGANIZATION, STANDING AND QUALIFICATION. Each of the Selling
Entities (a) is an entity duly organized, validly existing and in good standing
under the laws of its jurisdiction of organization; (b) has all requisite power
and authority to own or lease, and operate its properties and assets, and to
carry on its business as now conducted and as proposed to be conducted; (c) is
duly qualified or licensed to do business and is in good standing in all
jurisdictions in which it owns or leases property or in which the conduct of its
business requires it to so qualify or be licensed; and (d) has obtained all
material licenses, permits, franchises and other governmental authorizations
necessary to the ownership or operation of its properties or the conduct of its
business.
5.2 CAPITALIZATION.
(a) The total authorized capital stock of CDI consists of 1,000
shares of common stock, $____ par value per share, 1000 shares of which are
issued and outstanding as of the date hereof and are owned of record by
Xxxxxxxx. There are no shares of capital stock of CDI of any other class
authorized, issued or outstanding.
(b) The total authorized capital stock of CDS consists of 1,000
shares of common stock, $____ par value per share, 1000 shares of which are
issued and outstanding as of the date hereof and 500 shares of which are owned
of record by Xxxxxxxx and 500 shares of which are owned of record by Xxxxx
X'Xxxxx. There are no shares of capital stock of CDM of any other class
authorized, issued or outstanding.
(c) The total authorized capital stock of CDM consists of 1,000
shares of common stock, $____ par value per share, 1000 shares of which are
issued and outstanding as of the date hereof and 500 shares of which are owned
of record by Xxxxxxxx and 500 shares of which are owned of record by Xxxxxxx
Xxxxxxx. There are no shares of capital stock of CDM of any other class
authorized, issued or outstanding.
(d) Each share of common stock of each Selling Entity is (i) duly
authorized and validly issued; (ii) fully paid and nonassessable; and (iii) free
and clear of all Claims and restrictions on voting and transfer other than
restrictions on transfer imposed by Federal and state securities laws.
(e) There are currently no outstanding, and as of the Closing, there
will be no outstanding (i) securities convertible into or exchangeable for any
capital stock of any of the Selling Entities, (ii) options, warrants or other
rights to purchase or subscribe to capital stock of
15
any of the Selling Entities or securities convertible into or exchangeable for
capital stock of any of the Selling Entities, or (iii) contracts, commitments,
agreements, understandings, arrangements, calls or claims of any kind to which
any of the Sellers is a party or is bound relating to the issuance of any
capital stock of any of the Selling Entities.
(f) None of the Selling Entities have any obligation or liability of
any nature whatsoever (direct or indirect, matured or unmatured, absolute,
accrued, contingent or otherwise), whether or not required by GAAP to be
provided or reserved against on a balance sheet (all the foregoing herein
collectively being referred to as the "Liabilities") except for: (i) Liabilities
provided for or reserved against in the Financial Statements or the Interim
Financial Statements (as defined herein); (ii) Liabilities which have been
incurred by the Selling Entities subsequent to August 31, 1997 in the ordinary
course of the Selling Entities' respective businesses and consistent with past
practices; (iii) Liabilities under the executory portion of any written purchase
order, sales order, lease, agreement or commitment of any kind by which the
Selling Entities are bound and which was entered into in the ordinary course of
the Selling Entities' respective businesses and consistent with past practices;
and (iv) liabilities and obligations of the Selling Entities disclosed in the
Disclosure Statement.
5.3 OWNERSHIP INTERESTS. None of the Selling Entities have any
subsidiaries nor do any of the Selling Entities own any direct or indirect
interest in any corporation, joint venture, limited liability company,
partnership, association or other entity. Since January 1, 1996, none of the
Selling Entities have (i) disposed of the capital stock or assets of any ongoing
business (or portion thereof), or (ii) purchased the business and/or assets of
another person, firm or corporation (whether by purchase of stock, assets,
merger or otherwise).
5.4 CONSTITUENT DOCUMENTS. True and complete copies of the Articles of
Incorporation and all amendments thereto, the Bylaws as amended and currently in
force, all stock records, and all corporate minute books and records of each of
the Selling Entities have been furnished by Sellers to Purchaser for inspection.
Said stock records accurately reflect all stock transactions and the current
stock ownership of each Selling Entity. The corporate minute books and records
of each Selling Entity contain true and complete copies of all resolutions
adopted by the respective stockholders or the board of directors of each Selling
Entity and any other action formally taken by them respectively as such.
5.5 AUTHORIZATION OF AGREEMENT AND OTHER DOCUMENTS. The execution and
delivery of this Agreement, the Escrow Agreement, the Employment Agreement, the
Lease and the other documents executed in connection herewith to which any
Seller is a party (collectively, the "Seller Ancillary Documents"), have been
duly authorized by the Board of Directors and stockholders, of each of the
Selling Entities, to the extent each is a party thereto, and no other
proceedings on the part of each of the Selling Entities or their respective
affiliates are necessary to authorize the execution, delivery or performance of
this Agreement or any Seller Ancillary Document. Each of Lines, Xxxxxxxx, Trust
I and Trust II have all the requisite power and authority to enter into this
Agreement and each of the Seller Ancillary Documents, to the extent each is a
16
party thereto. This Agreement and each of the Seller Ancillary Documents to
which any of the Sellers is a party, has been duly executed by a duly authorized
officer of such Seller, to the extent each is a party thereto. This Agreement
and each of the Seller Ancillary Documents to which any of the Sellers is a
party is a valid and binding obligation of such Seller, to the extent each is a
party thereto, enforceable against such Seller in accordance with its terms,
except to the extent that enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or other similar
laws affecting enforcement of creditors' rights generally, and by general
principles of equity (regardless of whether enforcement is considered in a
proceeding at law or in equity).
5.6 NO VIOLATION. Neither the execution and delivery of this Agreement or
the Seller Ancillary Documents by Sellers nor the consummation by Sellers of the
transactions contemplated hereby and thereby in accordance with their respective
terms, will (a) conflict with or result in a breach of any provisions of the
Articles of Incorporation or Bylaws of each of the Selling Entities; (b)
violate, conflict with, result in a breach by any Seller of any provision of,
constitute a default by any Seller (or an event which, with notice or lapse of
time or both, would constitute a default by any Seller) under, result in the
termination, or in a right of termination or cancellation of, accelerate the
performance by any Seller required by, result in the triggering of any material
payment or other material obligations by any Seller pursuant to, result in the
creation of any lien, security interest, charge or encumbrance upon any of the
material properties of any of the Selling Entities under, or result in being
declared void, voidable, or without further binding effect, any of the terms,
conditions or provisions of any material note, bond, mortgage, indenture, deed
of trust or any material license, franchise, permit, lease, contract, agreement
or other instrument, commitment or obligation to which any of the Selling
Entities are a party, or by which any of the Selling Entities or any of their
respective properties is bound or affected; (c) to Sellers' knowledge,
contravene or conflict with or constitute a violation of any provision of any
law, regulation, judgement, injunction, order or decree binding upon or
applicable to any of the Selling Entities; or (d) to Sellers' knowledge, other
than the Regulatory Filings, require any material consent, approval or
authorization of, or declaration, of or registration with, any domestic
governmental or regulatory authority.
5.7 COMPLIANCE WITH LAWS.
(a) To Sellers' knowledge, each of the Selling Entities hold all
material permits, licenses, variances, exemptions, orders and approvals of any
court, arbitral, tribunal, administrative agency or commissioner or other
governmental or other regulatory authority or agency ("Governmental Entities")
necessary for the lawful conduct of their respective businesses (the "Permits").
(b) To Sellers' knowledge, each of the Selling Entities are in
substantial compliance with the terms of its Permits.
17
(c) Each of the Selling Entities are in substantial
compliance with all laws, ordinances or regulations of all Governmental
Entities, including, but not limited to, those related to occupational health
and safety, controlled substances or employment and employment practices.
(d) As of the date hereof, no investigation, review, inquiry
or proceeding by any Governmental Entity with respect to any of the Selling
Entities are pending or, to the best knowledge of Sellers, threatened.
(e) None of the Selling Entities are currently subject to any
agreement, contract or decree with any Governmental Entities arising out of any
current or previously existing violations.
5.8 BOOKS AND RECORDS. Each of the Selling Entities' books, accounts
and records are, and have been, maintained in such Selling Entities' usual,
regular and ordinary manner, in accordance with GAAP, and all material
transactions to which any Selling Entity are or have been a party are properly
reflected therein.
5.9 FINANCIAL STATEMENTS. (a) The Disclosure Statement contains
complete and accurate copies of the audited combined balance sheets, statements
of income and retained earnings, statements of cash flows and notes to financial
statements (together with any supplementary information thereto) of the Selling
Entities and the Related Entities (as defined herein) as of and for the year
ended December 31, 1996. The financial statements described in the preceding
sentence are hereinafter referred to as the "Financial Statements". The
Disclosure Statement also contains complete and accurate copies of the unaudited
combined balance sheet and statement of income and retained earnings and
unaudited statement of cash flows of the Selling Entities as of and for the
eight (8) month period ended August 31, 1997. The financial statements
described in the preceding sentence are referred to herein as the "Interim
Financial Statements". The Financial Statements and the Interim Financial
Statements present accurately and completely the combined financial position of
the Selling Entities and the Related Entities (as defined herein) as of the
dates thereof and the results of operations and cash flows of the Selling
Entities and the Related Entities for the periods covered by said statements, in
accordance with GAAP. The Disclosure Statement contains complete and correct
copies of all attorneys' responses to audit inquiry letters and all management
letters from each of the Selling Entities' independent certified public
accountants for calendar year 1996.
5.10 ACCOUNTS RECEIVABLES. None of the trade receivables and notes
receivable which are reflected on the Financial Statements, the Interim
Financial Statements or which arose subsequent to the date of the Interim
Financial Statements, is or was subject to any counterclaim or set off. All of
such trade receivables arose out of bona fide, arms-length transactions for the
sale of goods or performance of services, and all such trade receivables and
notes receivable are good and collectible (or have been collected) in the
ordinary course of business using normal collection practices at the aggregate
recorded amounts thereof, less the amount of applicable
18
reserves for doubtful accounts and for allowances and discounts. All such
reserves, allowances and discounts, were and are adequate and consistent in
extent with reserves, allowances and discounts previously maintained by the
Selling Entities and the Related Entities in the customary practice of their
respective businesses as historically conducted. None of the Selling Entities
have any outstanding sales on consignment, sales on approval, sales on return or
guaranteed sales.
5.11 INVENTORY. All Inventory of the Selling Entities consists of items
of a quantity and quality historically useable and/or saleable in the normal
course of business, except for items of obsolete and slow-moving material and
materials which are below standard quality, all of which have been written down
to estimated net realizable value on an item by item basis. With the exception
of items of below standard quality which have been written down to their
estimated net realizable value, the Inventory is free from defects in materials
and/or workmanship. All Inventory reflected in the Financial Statements or the
Interim Financial Statements is valued at the lower of cost or market with cost
determined by the first in first out accounting method. Since August 31, 1997,
there has not been a material change in the level of the Inventory. All
Inventory is, and all tools, dies, jigs, patterns, molds, equipment, supplies
and other materials used in the production of Inventory are, located at the
Leased Premises. To Seller's knowledge, all Inventory has been produced in
material compliance with applicable laws.
5.12 BANK ACCOUNTS. The Disclosure Statement contains a list showing:
(a) the name of each bank, safe deposit company or other financial institution
in which any of the Selling Entities has an account, lock box or safe deposit
box; (b) the names of all persons authorized to draw thereon or to have access
thereto and the names of all persons and entities, if any, holding powers of
attorney from the Selling Entities; and (c) all instruments or agreements to
which any Selling Entity is a party as an endorser, surety or guarantor, other
than checks endorsed for collection or deposit in the ordinary course of
business.
5.13. INTELLECTUAL PROPERTY.
(a) The Disclosure Statement identifies all of the following
which are used in the Business and in which any of the Selling Entities claims
any ownership rights: (i) all trademarks, service marks, slogans, trade names,
trade dress and the like (collectively with the associated goodwill of each,
"Trademarks"), together with information regarding all registrations and pending
applications to register any such rights; (ii) all common law Trademarks; (iii)
all proprietary formulations, manufacturing methods, know-how and trade secrets
which are material to the Business; (iv) all patents on and pending applications
to patent any technology or design; (v) all registrations of and applications to
register copyrights; and (vi) all licenses or rights in computer software,
Trademarks, patents, copyrights, unpatented formulations, manufacturing methods
and other know-how, whether to or by any of the Selling Entities. The rights
required to be so identified are referred to herein collectively as the
"Intellectual Property".
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(b) (i) One of the Selling Entities is the owner of or duly
licensed to use each Trademark and its associated goodwill; (ii) each Trademark
registration exists and has been maintained in good standing; (iii) each patent
and application included in the Intellectual Property exists, is owned by or
licensed to one of the Selling Entities, and has been maintained in good
standing; (iv) each copyright registration exists and is owned by one of the
Selling Entities; (v) no Seller has received any notice that any other firm,
corporation, association or person claims the right to use in connection with
similar or closely related goods and in the same geographic area, any xxxx which
is identical or confusingly similar to any of the Trademarks; (vi) Sellers have
no knowledge of any claim that any third party asserts ownership rights in any
of the Intellectual Property; (vii) Sellers have no knowledge of any claim or
any reason to believe that the Selling Entities' use of any Intellectual
Property infringes any right of any third party; (viii) Sellers have no
knowledge or any reason to believe that any third party is infringing on any of
the Selling Entities' rights in any of the Intellectual Property; and (ix)
Sellers have no knowledge or any reason to believe that any of its actions or
the actions of the Selling Entities have infringed or is infringing on any third
party's Intellectual Property rights.
5.14. TITLE TO PROPERTIES. Attached to the Disclosure Statement is a
list and description of each item of real or tangible personal property owned by
any of the Selling Entities which has a salable value in excess of $2,500. One
of the Selling Entities (i) has good, marketable, legal and valid title to such
property free and clear of all liens, claims, encumbrances or security interests
(collectively, "Liens"); and (ii) has not received any notice or become aware of
any condition which would materially and adversely affect its peaceful and
undisturbed possession under all leases to which it is a party as lessee. All
of the leases to which any of the Selling Entities is a party are legal, valid
and binding and in full force and effect, and no default by any of the Selling
Entities, or, to the knowledge of Sellers, any other party thereto has occurred
or is continuing thereunder. No property or asset used by the Selling Entities
in connection with the operation of the Business is held under any lease or
under any conditional sale or other title retention agreement. Except for such
assets and facilities as are immaterial to the Business, unless disclosed on the
Disclosure Statement, all tangible assets and facilities of the Selling Entities
being purchased by the Purchaser hereunder or to be used by the Purchaser
following Closing are in good operating condition and repair (ordinary wear and
tear excepted) and are sufficient to conduct the Business as previously
conducted prior to the date hereof.
5.15 REAL ESTATE.
(a) None of the Selling Entities own any real estate, or has
the option to acquire any real estate.
(b) None of the Selling Entities lease any real estate other
than the premises identified in the Disclosure Statement as being so leased (the
"Leased Premises"). The Leased Premises are leased to one of the Selling
Entities pursuant to written leases, true, correct and complete copies of which
are attached to the Disclosure Statement. None of the improvements comprising
the Leased Premises, or the businesses conducted or proposed to be conducted by
the
20
Selling Entities thereon, are in violation of any building line or use or
occupancy restriction, limitation, condition or covenant of record or any zoning
or building law, code or ordinance, public utility or other easements or other
applicable law, except for violations which do not have a material adverse
effect upon or materially interfere with the conduct of the Business. No
material expenditures are required to be made for the repair or maintenance of
any improvements on the Leased Premises or for the Leased Premises to be used
for its intended purpose. None of the Selling Entities are in default under any
agreement relating to the Leased Premises nor, to the best knowledge of Sellers,
is any other party thereto in default thereunder.
(c) The Leased Premises and each facility located on the
Leased Premises are currently served by gas, electricity, water, sewage and
waste disposal and other utilities adequate to operate such Leased Premises in
accordance with the operations that have been historically conducted thereon
and, to Sellers' knowledge, none of the utility companies serving any such
Leased Premises has threatened any of the Sellers with any reduction in service.
All of said utilities are installed and operating on the Leased Premises and all
installation and connection charges have been paid for in full.
(d) No Seller or Governmental Authority has asserted any
challenges or appeals regarding the amount of the taxes on, or the assessed
valuation of, the Leased Premises, and no Seller has any special arrangements or
agreements exist with any governmental authority with respect thereto (the
representations and warranties contained in this Section 5.15(e) shall not be
deemed to be breached by any prospective general increase in real estate tax
rates).
(e) There are no condemnation proceedings pending or, to the
best of Sellers' knowledge, threatened with respect to any portion of the Leased
Premises.
(f) There is no tax assessment (in addition to the normal,
annual general real estate tax assessment, including, ad valorem property taxes
imposed upon the real and personal property owned by the Sellers for 1997)
pending or, to the best of Sellers' knowledge, threatened with respect to any
portion of the Leased Premises to the extent the Selling Entities are liable for
payment therefor.
(g) The buildings and other facilities located on the Leased
Premises are free of any latent structural or engineering defects known to
Sellers or any patent structural or engineering defects.
5.16. CONTRACTS.
(a) Except as disclosed in the Disclosure Statement, none of
the Selling Entities are a party to, or bound by, or the issuer or beneficiary
of, any undischarged written or oral: (i) agreement or arrangement obligating
any of the Selling Entities to pay or receive, or pursuant to which any of the
Selling Entities have previously paid or received, an amount in excess of
$20,000; (ii) agreement or arrangement which by its terms cannot be terminated
by one
21
of the Selling Entities for a period in excess of thirty (30) days without
payment or penalty; (iii) employment or consulting agreement; (iv) collective
bargaining agreement; (v) plan or contract or arrangement providing for bonuses,
options, deferred compensation, retirement payments, profit sharing, medical and
dental benefits or the like covering employees of any of the Selling Entities;
(vi) agreement restricting in any manner any of the Selling Entities' right to
compete with any other person or entity, any Selling Entities' right to sell to
or purchase from any other person or entity, the right of any other party to
compete with any of the Selling Entities' or the ability of such person or
entity to employ any of the Selling Entities' employees; (vii) secrecy or
confidentiality agreement; (viii) guaranty, performance, bid or completion bond,
or surety or indemnification agreement; (ix) requirements contract; (x) loan or
credit agreement, pledge agreement, note, security agreement, mortgage,
debenture, indenture, factoring agreement or letter of credit; (xi) agreement
for the treatment or disposal of Materials of Environmental Concern; (xii) power
of attorney; or (xiii) partnership or joint venture agreement.
(b) All agreements, leases, subleases and other instruments
referred to in this Section 5.16, are in full force and binding upon the
respective Selling Entities and, to the Sellers' knowledge, upon the other
parties thereto. None of the Selling Entities, nor to Sellers' knowledge, any
of the other parties thereto are in default under any such agreement, lease,
sublease or other instrument. No event, occurrence or condition exists which,
with the lapse of time, the giving of notice, or both, or the happening of any
further event or condition, would become a default under any such agreement,
lease, sublease or other instrument by any of the Selling Entities, or, to
Sellers' knowledge, the other contracting party. None of the Selling Entities
have released or waived any material right under any such agreement, lease,
sublease or other instrument.
5.17 INSURANCE. The Disclosure Statement contains a true and correct
list of all insurance policies which are owned by any of the Selling Entities or
which name any of the Selling Entities as an insured (or loss payee), including
without limitation those which pertain to the Selling Entities' assets,
employees or operations. All such insurance policies are in full force and
effect and the Selling Entities have not received notice of cancellation of any
such insurance policies.
5.18 LITIGATION. Except as disclosed on the Disclosure Statement, there
is no litigation or proceeding, in law or in equity, and there are no
proceedings or governmental investigations before any commission or other
administrative authority, pending or, to the best of Sellers' knowledge,
threatened against any of the Selling Entities, or any of the Selling Entities'
respective officers, directors or Affiliates (as defined herein), with respect
to or affecting the Selling Entities' operations, business, products, sales
practices or financial condition, or related to the consummation of the
transaction contemplated hereby or the Seller Ancillary Documents. Except as
disclosed on the Disclosure Statement, there are no facts known to Sellers
which, if known by a potential claimant or governmental authority, would give
rise to a claim or proceeding which, if asserted or conducted with results
unfavorable to the Selling Entities, would
22
have a material adverse effect on the business, operations, assets, liabilities,
financial condition or prospects of the Selling Entities before or after the
Closing.
5.19 WARRANTIES. Except as disclosed on the Disclosure Statement, none
of the Selling Entities have made any oral or written warranties with respect to
the quality or absence of defects of its products or services which it has sold
or performed which are in force as of the date hereof. Except as disclosed on
the Disclosure Statement, there are no material claims pending, or to Sellers'
knowledge, anticipated or threatened against any of the Selling Entities with
respect to the quality of or absence of defects in any of its products or
services. The Disclosure Statement sets forth a summary, which is accurate in
all material respects, of all returns of defective products during the period
beginning January 1, 1996 and ending on the date hereof, and all credits and
allowances for defective products given to customers during said period, and
said summary in each case accurately describes the defect which resulted in the
return, allowance or credit. Except as disclosed on the Disclosure Statement,
none of the Selling Entities have paid or been required to pay direct,
incidental, or consequential damages to any person in connection with any of
such products or services.
5.20 PRODUCTS LIABILITY. The Selling Entities have received no notice
nor do the Sellers have any knowledge relating to any claim involving any
product manufactured, produced, distributed or sold by or on behalf of any of
the Selling Entities resulting from an alleged defect in design, manufacture,
materials or workmanship, or any alleged failure to warn, or from any breach of
implied warranties or representations.
5.21 ARBITRATION. None of the Selling Entities are a party to, or bound
by, any decree, order or arbitration award (or agreement entered into in any
administrative, judicial or arbitration proceeding with any governmental
authority) with respect to or affecting the properties, assets, personnel or
business activities of any of the Selling Entities.
5.22 TAXES.
(a) As used in this Agreement, (i) "Taxes" means all
federal, state, local, foreign and other net income, gross income, gross
receipts, sales, use, ad valorem, transfer, franchise, profits, license, lease,
service, service use, withholding, payroll, employment, social security,
Medicare or other health program, excise, severance, stamp, occupation, premium,
property (including property Taxes assessed against a landlord of any Seller,
but borne by such Seller pursuant to a lease), windfall profits, customs, duties
or other taxes, fees, assessments or charges of any kind whatever of a nature
similar to taxes, together with any interest and any penalties, additions to tax
or other additional amounts with respect thereto; (ii) "Tax" means any one of
the foregoing Taxes; (iii) "Returns" means all returns, information returns or
statements, declarations, reports, statements and other documents (including any
related or supporting information) filed or required to be filed with any taxing
authority with respect to Taxes; and (iv) "Return" means any one of the
foregoing Returns.
23
(b) Each of the Selling Entities has filed all required Tax
Returns for all Tax periods in all jurisdictions where Returns have been
required and, except with respect to matters set forth in the Disclosure
Statement, all such Returns were correct and complete and not susceptible to
adjustment by any taxing authority. Except as disclosed in the Disclosure
Statement, all Taxes owed by each of the Selling Entities have been paid for
each taxable period for which such Returns have been filed or were required to
be filed. None of the Selling Entities have filed any Returns in any state or
local jurisdiction other than South Carolina which is not listed on the
Disclosure Statement, nor have any of the Selling Entities failed to file a
Return in any state or local jurisdiction which, under the laws, rules and
regulations of such jurisdiction, is or was required to be filed. Purchaser
cannot be assessed or otherwise held liable for any Tax obligation of any
Selling Entity.
(c) Except as otherwise stated in the Disclosure Statement:
(i) no extension of time, within which to file any Return which has not been
filed, has been requested by any of the Selling Entities or granted by any Tax
authority; (ii) no Selling Entity has waived or extended any statute of
limitations with respect to any Tax or agreed to any extension of time with
respect to any Tax assessment or deficiency, which waiver or extension is still
in effect; (iii) no examinations of any Returns are pending, and the Disclosure
Statement sets forth those years since 1987 for which examinations have been
completed and the results of such examinations; (iv) no issues have been raised
in writing (and are currently pending) by any taxing authority in connection
with any of the Tax Returns filed by any of the Selling Entities, and none of
the Selling Entities have received any written notice of deficiency or
assessment from any taxing authority, other than deficiencies or assessments
which have been paid or finally settled, or which are disclosed in the
Disclosure Statement and are being contested in good faith through appropriate
proceedings; and (v) there are no liens filed against, or threatened to be filed
against, any asset of any of the Selling Entities resulting from the failure to
pay any Tax when due.
(d) None of the Selling Entities: (i) have ever been a member
of an affiliated group of corporations, within the meaning of section 1504 of
the Internal Revenue Code of 1986, as amended (the "Code"); (ii) have any
liability, whether under Treas. Reg. Section 1.1502-6 (or any similar provision
of state, local, or foreign law), as a transferee or successor, by contract, or
otherwise, for the Taxes of any person other than the Selling Entities; (iii)
are or at any time have been a party to or bound by any Tax indemnity, Tax
sharing or Tax allocation agreement; (iv) is or has been a United States real
property holding corporation within the meaning of Section 897(c)(2) of the
Code; or (v) is or has been a person other than a United States person within
the meaning of the Code (and the transaction contemplated herein is not subject
to the withholding provisions of section 3406 or subchapter a of Chapter 3 of
the Code).
(e) None of the assets of any of the Selling Entities (i) are
"tax-exempt use property" within the meaning of Section 168(h) of the Code; (ii)
is property that any of the Selling Entities is required to treat as being owned
by any other person pursuant to the "safe harbor lease" provisions of former
section 168(f)(8) of the Code; or (iii) directly or indirectly secures any debt
the interest on which is tax-exempt under section 103(a) of the Code.
24
5.23 EMPLOYEE BENEFITS. None of the Selling Entities nor any corporation
or business which is now or at the relevant time was an affiliate of any of the
Selling Entities as determined under the Code section 414(b), (c), (m) or (o)
("ERISA Affiliate") maintains, administers, contributes to or has any liability
under, or has maintained, administered, contributed to or had any liability
under, nor do the employees of any of the Selling Entities or any ERISA
Affiliate receive or have any reason to expect to receive as a condition of
employment, benefits pursuant to any: employee pension benefit plan (as defined
in Section 3(2) of ERISA) ("Plan"), including, without limitation, any
multi-employer plan as defined in Section 3(37) of ERISA ("Multi-Employer Plan")
or any non-qualified deferred compensation plan or retirement plan; employee
welfare benefit plan (as defined in Section 3(1) of ERISA) ("Welfare Plan"),
including any other plan, program, agreement or arrangement under which former
employees of any of the Selling Entities or an ERISA Affiliate (or their
beneficiaries) are entitled, or current employees of any of the Selling Entities
or an ERISA Affiliate will be entitled, following termination of employment, to
medical, health or life insurance or other benefits other than pursuant to
benefit continuation rights granted by state or federal law; or bonus, stock,
stock purchase, or stock option plan, severance plan, salary continuation,
vacation, sick leave, fringe benefit, incentive, insurance, welfare or similar
plan or arrangement ("Employee Benefit Plan") other than those Plans, Welfare
Plans and Employee Benefit Plans described in the Disclosure Statement;
(a) There is no provision in any Plan, Welfare Plan or
Employee Benefit Plan, and none of the Selling Entities or their ERISA
Affiliates or any officer or agent of the same has made any promise or
representation, to the effect that any employee of the Selling Entities may look
to Purchaser or its affiliates or any other "successor-in-interest" (by whatever
manner defined) to the Selling Entities to provide or be obligated to provide or
arrange for the provision of any benefit promised, whether actually or
contingently, under any Plan, Welfare Plan or Employee Benefit Plan.
(b) True and complete copies of each Plan, Welfare Plan and
Employee Benefit Plan, related trust agreements, insurance contracts, annuity
contracts or other funding vehicles, determination letters, summary plan
descriptions, copies of any pending applications, filings or notices with
respect to any of the Plans, Welfare Plans or Employee Benefit Plans with the
IRS, the PBGC, the Department of Labor or any other governmental agency, copies
of all corporate resolutions or other documents pertaining to the adoption of
the Plans, Welfare Plans or Employee Benefit Plans or any amendments thereto or
to the appointment of any fiduciaries thereunder and copies of any investment
management agreements thereunder and of any fiduciary insurance policies, surety
bonds, rules, regulations or policies, of the trustees or of any committee
thereunder, all communications and notices to employees regarding any Plan,
Welfare Plan, or Employee Benefit Plan, annual reports on Form 5500, Form 990
financial statements and actuarial reports for the most recent five Plan years,
and each plan, agreement, instrument and commitment referred to herein, have
been furnished or made available to Purchaser and are attached to the Disclosure
Statement. All of the foregoing are legally valid, binding, in full force and
effect as to applicable the Selling Entity or their ERISA Affiliates or any
officer or agent of the same, as the case may be, and there are no defaults
thereunder by any Selling Entity or their
25
ERISA Affiliates or any officer or agent of the same, as the case may be. The
annual reports on Form 5500 and Form 990 and actuarial statements furnished to
Purchaser fully and accurately set forth the financial and actuarial condition
of each Plan and each trust funding any Welfare Plan. With respect to each
Plan, Welfare Plan and Employee Benefit Plan, the Disclosure Statement sets
forth the name and address of the administrator and trustees and the policy
number and insurer under all insurance policies;
(c) None of the Plans, Welfare Plans or Employee Benefit
Plans has any material unfunded liabilities which are not reflected on the
Financial Statements or, in the case of any Plan, on the latest actuarial report
and with respect to the Plans. None of the Plans is a "top-heavy" plan, as
defined in Section 416 of the Code. Except as disclosed in the Disclosure
Statement, none of the Selling Entities have any plans, programs, arrangements
or made any other commitments to its employees, former employees or their
beneficiaries under which it has any obligation to provide any retiree or other
employee benefit payments which are not adequately funded through a trust or
other funding arrangement. There have been no material changes in the operation
or interpretation of any of the Plans, Welfare Plans or Employee Benefit Plans
since the most recent annual report or actuarial report which would have any
material effect on the cost of operating or maintaining such Plans Welfare Plans
on Employee Benefit Plans; and
(d) There are no pending or, to Seller's knowledge,
threatened claims, lawsuits, arbitrations, or governmental audits, examinations
or inquiries asserted or instituted against any of the Plans, Welfare Plans, or
Employee Benefit Plans, or any fiduciaries thereof, except in the case of
Multi-Employer Plans, fiduciaries that are officers, employees, directors,
agents or owners of the Selling Entities or ERISA Affiliates, with respect to
their duties to the Plan, Welfare Plans or Employee Benefit Plan or the assets
of any trusts thereunder, by any employee or beneficiary covered under any
Plans, Welfare Plans or Employee Benefit Plans or otherwise involving any Plan,
Welfare Plan or Employee Benefit Plan (other than routine claims for benefits);
and the Sellers have no knowledge of any facts which would give rise to or could
reasonably be expected to give rise to any such claims, lawsuits or
arbitrations. None of the Selling Entities nor any of the ERISA Affiliates, nor
any of their directors, officers, employees or any other "fiduciary", as such
term as defined in Section 3(21) of ERISA, knows of or has received any notice
of any liability for failure to comply with ERISA or the Code or failure to act
in connection with the administration or investment of any Plan.
5.24 LABOR MATTERS. Except as set forth in the Disclosure Statement or
for events that occur after the date hereof which are disclosed in writing by
the Sellers to Purchaser, (a) there is no labor strike, dispute, slowdown, work
stoppage or lockout pending or, to the knowledge of Sellers, threatened against
or affecting the Selling Entities, and during the past three years, there has
not been any such action; (b) to Sellers' knowledge, there are no union claims
or petitions to represent the employees of the Selling Entities; (c) none of the
Selling Entities are a party to or bound by any collective bargaining or similar
agreement with any labor organization, or work rules or practices agreed to with
any labor organization or employee association applicable to
26
employees of the Selling Entities; (d) none of the employees of the Selling
Entities are represented by any labor organization and none of the Sellers have
any knowledge of any current union organizing activities among the employees of
the Selling Entities, nor to their knowledge does any question concerning
representation exist concerning such employees; (e) the Selling Entities are,
and have at all times been, in material compliance with all applicable
employment laws and practices, including, without limitation, any such laws
relating to employment discrimination, occupational safety and health and unfair
labor practices; (f) there is no unfair labor practice charge or complaint
against the Selling Entities pending or, to the best knowledge of Sellers,
threatened before the National Labor Relations Board or any charges or
complaints, or facts which could give rise to a charge or complaint, pending or
threatened with any Governmental Entity who has jurisdiction over unlawful
employment practices; (g) there is no grievance or arbitration proceeding
arising out of any collective bargaining agreement or other grievance procedure
pending relating to the Selling Entities; (h) none of the Selling Entities are
delinquent in payments to any of its employees for any wages, salaries,
commissions, bonuses or other direct compensation for any services performed by
them to the Closing or amounts required to be reimbursed to such employees; (i)
upon termination of the employment of any of the employees of the Selling
Entities after the Closing, none of the Selling Entities will be liable to any
of its employees for severance pay; (j) the employment of each of the Selling
Entities employees is terminable at will without cost to any of the Selling
Entities except for payments required under the Plans, Welfare Plans and
Employee Benefit Plans and payment of accrued salaries or wages and vacation
pay; (k) no employee or former employee of the Selling Entities has any right to
be rehired by any of the Selling Entities prior to the Selling Entities hiring a
person not previously employed by any of the Selling Entities; and (l) the
Disclosure Statement contains a true and complete list of all employees who are
employed by the Selling Entities as of the date hereof, and said list correctly
reflects their salaries, wages, other compensation (other than benefits under
the Plans, Welfare Plans and Employee Benefit Plans), dates of employment and
positions. Except as disclosed on the Disclosure Statement, none of the Selling
Entities owes any past or present employee any sum in excess of $5,000
individually and $20,000 in the aggregate other than for accrued wages or
salaries for the current payroll period, and amounts payable under Plans,
Welfare Plans or Employee Benefit Plans. Except as disclosed on the Disclosure
Statement, no employee owes any sum to any of the Selling Entities in excess of
$5,000, and all employees together do not owe the Selling Entities in excess of
$20,000.
5.25. ENVIRONMENTAL MATTERS.
(a) All of the Selling Entities and their respective assets
and businesses are in substantial compliance with all Environmental Laws and
Environmental Permits (as herein defined). A copy of any notice, citation,
inquiry or complaint which any of the Selling Entities has received in the past
three years of any alleged violation of any Environmental Law or Environmental
Permit is contained in the Disclosure Statement, and all violations alleged in
said notices have been or are being corrected. A description of all such
violations currently being corrected is contained in the Disclosure Statement.
The Selling Entities possess all material Environmental Permits which are
required for the operation of the Business, and are in
27
substantial compliance with the provisions of all such Environmental Permits.
Copies of all Environmental Permits issued to the Selling Entities are contained
in the Disclosure Statement. The Sellers have delivered to Purchaser copies of
all environmental reports with respect to the Leased Premises in its possession
which were conducted during the last five years.
(b) The Disclosure Statement sets forth a complete list of
all Materials of Environmental Concern stored, treated, generated, used,
transported or Released (as herein defined) in connection with the operation of
the Business. There has been no storage, treatment, generation, transportation
or Release of any Materials of Environmental Concern by any of the Selling
Entities or their respective predecessors in interest, or by any other person or
entity for which the Selling Entities are or may be held responsible, at any
Facility (as herein defined) or any Offsite Facility (as herein defined) in
violation of, or which could give rise to any obligation under, Environmental
Laws.
(c) The Disclosure Statement sets forth a complete list of
all Containers (as herein defined) that are now present at, or have heretofore
been removed from the Leased Premises. All Containers which have been
heretofore removed from the Leased Premises have been removed in accordance with
all applicable Environmental Laws.
(d) For the purposes of this Agreement: (i) "Environmental
Laws" means all federal, state and local statutes, regulations, ordinances,
rules, regulations and policies, all court orders and decrees and arbitration
awards, and the common law, which pertain to environmental matters or
contamination of any type whatsoever. Environmental Laws include, without
limitation, those relating to: manufacture, processing, use, distribution,
treatment, storage, disposal, generation or transportation of Materials of
Environmental Concern; air, surface or ground water or noise pollution;
Releases; protection of wildlife, endangered species, wetlands or natural
resources; Containers; health and safety of employees and other persons; and
notification requirements relating to the foregoing; (ii) "Environmental
Permits" means licenses, permits, registrations, governmental approvals,
agreements and consents which are required under or are issued pursuant to
Environmental Laws; (iii) "Materials of Environmental Concern" means (A)
pollutants, contaminants, pesticides, radioactive substances, solid wastes or
hazardous or extremely hazardous, special, dangerous or toxic wastes,
substances, chemicals or materials within the meaning of any Environmental Law,
including without limitation any (i) "hazardous substance" as defined in CERCLA,
and (ii) any "hazardous waste" as defined in the Resource Conservation and
Recovery Act ("RCRA"), 42 U.S.C., Sec. 6902 ET. SEQ., and all amendments thereto
and reauthorizations thereof; and (B) even if not prohibited, limited or
regulated by Environmental Laws, all pollutants, contaminants, hazardous,
dangerous or toxic chemical materials, wastes or any other substances, including
without limitation, any industrial process or pollution control waste (whether
or not hazardous within the meaning of RCRA) which could pose a hazard to the
environment or the health and safety of any person, or impair the use or value
of any portion of the Leased Premises; (iv) "Release" means any spill,
discharge, leak, emission, escape, injection, dumping, or other release or
threatened release of any Materials of Environmental Concern into the
environment, whether or not notification or reporting to any
28
governmental agency was or is, required, including without limitation any
Release which is subject to CERCLA; (v) "Facility" means any facility as defined
in the Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C. 9601, ET. SEQ., as amended and reauthorized ("CERCLA"); (vi) "Offsite
Facility" means any Facility which is not presently, and has not heretofore
been, owned, leased or occupied by the Selling Entities; and (vii) "Containers"
means above-ground and under-ground storage tanks, vessels and related equipment
and containers.
5.26 INTERIM CONDUCT OF BUSINESS. Except as otherwise contemplated by
this Agreement or as disclosed in the Disclosure Statement, since August 31,
1997, none of the Selling Entities have:
(a) sold, assigned, leased, exchanged, transferred or
otherwise disposed of any material portion of its assets or property, except for
sales of Inventory and cash applied in the payment of any of the Selling
Entities' Liabilities, in the usual and ordinary course of business in
accordance with the Selling Entities' past practices;
(b) suffered any material casualty, damage, destruction or
loss, or interruption in use, of any material asset, property or portion of
Inventory (whether or not covered by insurance), on account of fire, flood,
riot, strike or other hazard or Act of God;
(c) written off any material asset as unusable or obsolete or
for any other reason;
(d) made or suffered any material change in the conduct or
nature of any aspect of its business, whether or not made in the ordinary course
of business or whether or not such change had a material adverse effect of the
financial condition or operations of the Selling Entities;
(e) waived any material right arising out of the conduct of,
or with respect to, their respective businesses;
(f) made (or committed to make) capital expenditures in an
amount which exceeds $10,000 for any item or $50,000 in the aggregate;
(g) discharged any material liability except in the usual and
ordinary course of business in accordance with past practices, or prepaid any
liability;
(h) made any change in accounting methods or principles;
(i) entered into any material transaction with, or made any
payment to, or incurred any liability to, any Related Party;
29
(j) made any payments or distributions to its employees,
officers or directors except such amounts as constitute currently effective
compensation for services rendered, or reimbursement for reasonable ordinary and
necessary out-of-pocket business expenses;
(k) paid or incurred any management or consulting fees, or
engaged any consultants;
(l) adopted any new Plan, Welfare Plan or Employee Benefit Plan;
(m) issued or sold any securities of any class;
(n) paid, declared or set aside any dividend or other
distribution on its securities of any class or purchased, exchanged or redeemed
any of its securities of any class; or
(o) without limitation by the enumeration of any of the
foregoing, entered into any transaction other than in accordance with past
practices.
Notwithstanding the foregoing, none of the Selling Entities shall be deemed to
have breached the terms of this Section 5.26 by entering into this Agreement or
by consummating the transactions contemplated hereby.
5.27. AFFILIATED TRANSACTIONS. Since January 1, 1993, none of the
Selling Entities or any of the Related Entities have been a party to any
transaction (other than employee compensation and other ordinary incidents of
employment) with a "Related Party". For purposes of this Agreement, the term
"Related Party" shall mean: any present or former officer, director, stockholder
or affiliate of any of the Selling Entities or any predecessor in interest to
any of the Selling Entities, any present or former known spouse, ancestor or
descendant of any of the aforementioned persons or any trust or other similar
entity for the benefit of any of the foregoing persons. No property or interest
in any property (including, without limitation, designs and drawings concerning
machinery) which relates to and is or will be necessary or useful in the present
or currently contemplated future operation of the Business, is presently owned
by or leased or licensed by or to any Related Party. All amounts due and owing
to or from any of the Selling Entities by or to any of the Related Parties
(excluding employee compensation and other incidents of employment) have been
paid in full. Except for the ownership of securities representing less than a
2% equity interest in various publicly traded companies, none of the Sellers,
any Related Entity, nor to Sellers' knowledge, any Related Party has an
interest, directly or indirectly, in any business, corporate or otherwise, which
is in competition with any of the Selling Entities' business.
5.28. SIGNIFICANT CUSTOMERS, SUPPLIERS, DISTRIBUTORS AND EMPLOYEES. The
Disclosure Statement sets forth an accurate list of the Selling Entities'
Significant Customers (as defined herein), Significant Suppliers (as defined
herein), Significant Distributors (as defined herein) and Significant Employees
(as defined herein). None of the Sellers have any knowledge of any
30
intention or indication of intention by a (a) Significant Customer to terminate
its business relationship with any of the Selling Entities or to limit or alter
its business relationship with any of the Selling Entities in any material
respect; (b) Significant Supplier to terminate its business relationship with
any of the Selling Entities or to limit or alter its business relationship with
any of the Selling Entities in any material respect; (c) Significant Distributor
to terminate its business relationship with any of the Selling Entities or to
limit or alter its business relationship with any of the Selling Entities in any
material respect; or (d) Significant Employee intends to terminate or has
terminated his employment with any of the Selling Entities. As used herein, (w)
"Significant Customer" means the 10 largest customers of each of the Selling
Entities measured in terms of sales volume in dollars for each of the years
ended December 31, 1996 and 1995, (x) "Significant Supplier" means any supplier
of the Selling Entities from whom the Selling Entities have purchased $250,000
or more of goods during either of years ended December 31, 1996 or 1995 for use
in the any of the Selling Entities' respective businesses; (y) "Significant
Distributor" means any distributor that, on any of the Selling Entities' behalf,
has distributed to other distributors, wholesalers, retailers or end users, the
Selling Entities' products with a value in excess of $250,000 during either of
years ended December 31, 1996 or 1995; and (z) "Significant Employee" means the
Chief Executive Officer, the Chief Operating Officer, the President, any Vice
President, the Treasurer, any sales representative or sales manager or any other
executive officer of any of the Selling Entities.
5.29. MATERIAL ADVERSE CHANGE. Since December 31, 1996, none of the
Selling Entities have suffered or been threatened with (and none of the Sellers
have knowledge of any facts which may cause or result in) any material adverse
change in the business, operations, assets, liabilities, financial condition or
prospects of the Selling Entities, including, without limiting the generality of
the foregoing, the existence or threat of a labor dispute, or any material
adverse change in, or loss of, any relationship between any of the Selling
Entities and any of its key employees.
5.30. BRIBES. None of the Sellers or any Related Entity, nor, to
Sellers' knowledge, any of their respective former or current officers,
directors, employees, agents or representatives has made, directly or
indirectly, with respect to the Selling Entities or the Business, any bribes or
kickbacks, illegal political contributions, payments from corporate funds not
recorded on the books and records of the Selling Entities, payments from
corporate funds to governmental officials, in their individual capacities, for
the purpose of affecting their action or the action of the government they
represent, to obtain favorable treatment in securing business or licenses or to
obtain special concessions, or illegal payments from corporate funds to obtain
or retain business. Without limiting the generality of the foregoing, none of
the Sellers or any Related Entity have directly or indirectly made or agreed to
make (whether or not said payment is lawful) any payment to obtain, or with
respect to, sales other than usual and regular compensation to its employees and
sales representatives with respect to such sales.
5.31. ABSENCE OF INDEMNIFIABLE CLAIMS, ETC. None of the Selling Entities
have received any notice of, or have knowledge of any losses, claims, damages,
costs, expenses, liabilities or
31
judgements which would entitle any director, officer or employee of any of the
Selling Entities to indemnification by any of the Selling Entities under
applicable law, the articles of incorporation or bylaws of any of the Selling
Entities or any insurance policy maintained by the Selling Entities.
5.32. BROKERS. Except as set forth in the Disclosure Statement, none of
the Selling Entities are under any obligation to pay any financial advisory,
broker's, finder's or similar fee or commission in connection with the
transactions provided for in this Agreement.
5.33. ACCURACY AND COMPLETENESS OF INFORMATION. The representations and
warranties of the Sellers in this Agreement, and all representations, warranties
and statements of the Sellers contained in any schedule, financial statement,
exhibit, list or document delivered pursuant hereto or in connection herewith,
do not contain or will not contain any untrue statement of material fact or do
not omit to state a material fact necessary in order to make the
representations, warranties or statements contained herein or therein not
misleading. The copies of all documents furnished by the Sellers to Purchaser
pursuant to or in connection with this Agreement are complete and accurate. The
information contained in the Disclosure Statement is complete and accurate.
5.34. NO MATERIAL ASSETS. Other than employment rights relating to
certain of the employees of the Selling Entities engaged in the conduct of the
Business or the rights to the royalty payments described in Section 3.1(b) of
this Agreement, none of the Sellers, other than CDI, has any ownership rights in
any assets used in connection with the operation of the Business, including,
without limitation, any Intellectual Property rights relating to the Business,
or has any interest in the operating income of the Business. None of CD
Electronics, Inc., Warehouse, First Computer Dynamics, Inc., Blue Ridge
Technical Services, GE Custom Services, TM Services, Dynamic Software, Inc., CDI
Sales, Inc., Computer Dynamics Systems, Inc., CDI Sales and Applications, Inc.,
Computer Dynamics International, Inc., Computer Dynamics Distribution, LLC,
Computer Dynamics Sales, Inc., CDI Services, Inc., CDI Computer Dynamics, Inc.
(collectively, the "Related Entities"), or any other entity affiliated with
Xxxxxxxx or, to Priester's knowledge, any employees of the Selling Entities, has
any ownership rights in any assets currently used in connection with the
operation of the Business, including, without limitation, any Intellectual
Property rights relating to the Business, or has any interest in the operating
income of the Business or is engaged in any Business which competes with the
Business. None of the Related Entities currently owns any assets of material
value or has any rights to any assets of material value.
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ARTICLE VI
POST-CLOSING AGREEMENTS
6.1 POST-CLOSING AGREEMENTS. From and after the Closing, the parties
shall have the respective rights and obligations which are set forth in the
remainder of this Article VI.
6.2 INSPECTION OF RECORDS. Sellers, Purchaser and their respective
Affiliates shall each retain and make their respective books and records
(including work papers in the possession of their respective accountants)
available for inspection by the other party, or by its duly accredited
representatives, for reasonable business purposes at all reasonable times during
normal business hours, for a seven (7) year period after the date hereof, with
respect to all transactions of the Selling Entities or the Related Entities
occurring prior to and those relating to the Closing, and the historical
financial condition, assets, liabilities, operations and cash flows of the
Selling Entities or the Related Entities. In the case of records owned by
Sellers or any of its Affiliates, such records shall be made available at the
Selling Entities' executive offices, and in the case of records owned by
Purchaser, such records shall be made available at Purchaser's executive office.
As used in this Section 6.2, the right of inspection includes the right to make
extracts or copies. The representatives of a party inspecting the records of
the other party shall be reasonably satisfactory to the other party.
6.3 CERTAIN ASSIGNMENTS. Any other provision of this Agreement to the
contrary notwithstanding, this Agreement shall not constitute an agreement to
transfer or assign, or a transfer or assignment of, any claim, contract, lease,
Permit, Environmental Permit, commitment, sales order or purchase order, or any
benefit arising thereunder or resulting therefrom, if an attempt at transfer or
assignment thereof without the consent required or necessary for such
assignment, would constitute a breach thereof or in any way adversely affect the
rights of Purchaser or one of the Selling Entities thereunder. If (w) any
required consent to the transfer or assignment to Purchaser of any claim,
contract, lease, Permit, Environmental Permit, commitment, sales order or
purchase order is not obtained, (x) an attempted transfer or assignment would be
ineffective or would adversely affect the rights of Purchaser or one of the
Selling Entities thereunder so that Purchaser would not receive substantially
all of such rights, (y) a contract is assigned to Purchaser pursuant to the
provisions hereof and the other contracting party thereafter raises objections
to the assignment and refuses to allow Purchaser to perform the contract on the
terms therein provided, or threatens to terminate the contract or xxx for
damages, or (z) a surety company issuing a bond to one of the Selling Entities
objects to the completion of a sales order or contract included among the
Purchased Assets by Purchaser, Purchaser and Sellers shall cooperate in any
arrangement Purchaser may reasonably request to provide for Purchaser the
benefits under such claim, contract, lease, Permit, Environmental Permit,
commitment or order. Cooperation may include, without limitation, and at
Purchaser's request shall include, an arrangement (a so-called "Seconding
Arrangement"), to be entered into between Purchaser and one of the Selling
Entities pursuant to which such Selling Entity shall nominally perform an order
or contract, Purchaser shall retain the economic benefits or detriments of the
33
order or contract and such the Selling Entity shall perform the order or
contract with employees lent to such Selling Entity by Purchaser (which
employees shall be treated as employees of such Selling Entity during the period
of performance) and with inventory, equipment and supplies of Purchaser
necessary to complete the order or contract transferred from Purchaser to such
Selling Entity as required.
6.4 USE OF TRADEMARKS; REFERENCES TO SELLER. Sellers shall cease to
use and shall not license or permit any third party to use the name "Computer
Dynamics", or any name, slogan, logo or trademark which is similar or
deceptively similar to any of the Trademarks. Purchaser may refer to its
business as formerly being the Selling Entities'.
6.5 EMPLOYEES. Purchaser shall not be obligated to offer employment to
any employee of the Selling Entities, but Purchaser shall have the right to
employ employees of the Selling Entities as of the date hereof, on terms and
conditions established by Purchaser in its sole discretion. For a period of two
(2) years commencing on the date hereof, neither Sellers nor any of their
respective Affiliates shall take any actions which are calculated to persuade
any salaried, technical or professional employees, representatives or agents of
Purchaser to terminate their association with Purchaser. In the event that any
employee of any of the Selling Entities hired by Purchaser after the date hereof
is terminated by Purchaser, Purchaser shall be solely responsible for payment of
any unemployment compensation or other claims related to the termination of such
employment.
6.6 PAYMENTS OF ACCOUNTS RECEIVABLE. In the event Sellers shall
receive any instrument of payment of any of the Accounts Receivable, Sellers
shall forthwith deliver it to Purchaser, endorsed where necessary, without
recourse, in favor of Purchaser.
6.7 PRODUCT WARRANTIES. Purchaser will accept returns of products of
the Business shipped by the Selling Entities on and prior to the date hereof, or
which constitute finished goods inventory on the date hereof, which are
defective or which fail to conform to the customer's order in accordance with
the following provisions (but Purchaser does not hereby assume any liability to
any third party claimant or, except as provided in this Section 6.7, to
Sellers). Purchaser shall notify Sellers of each such return, specifying the
customers, products and shipment orders involved and stating whether any
consequential damages are claimed to have been suffered. If such products are
defective or fail to conform to the customer's order, Purchaser shall, at its
option, repair or replace the defective or nonconforming products in accordance
with the Selling Entities' practices in effect at the time of shipment.
Purchaser will repair, rather than replace, such products whenever it is
economically and technically practical to do so. To the extent that the costs
incurred by Purchaser to repair or replace such products exceed any reserve for
returns set forth on the Interim Financial Statements, the costs and expenses
incurred by Purchaser with respect to such repair or replacement (which costs
shall include (a) in the case of repair, Purchaser's direct costs therefor, an
allocable share of manufacturing and general and administrative overhead, and
shipping costs from and to the customer; and (b) in the case of replacement,
Purchaser's direct manufacturing cost for the
34
replaced item, including an allocable share of manufacturing and general and
administrative overhead in connection therewith, and shipping costs to and from
the customer) shall be treated as a claim for indemnification subject to the
limitations on Sellers' indemnification obligations set forth in Section 8.3(f)
hereof. Payments with respect to products which can be resold by Purchaser
shall be made to Sellers not later than thirty (30) days after the date of
resale. Sellers shall reimburse Purchaser for its reasonable out-of-pocket
costs (including freight out) of handling and disposing of such defective or
nonconforming products which are unsuitable for repair or sale to other
customers. At Sellers' request, Purchaser shall provide Sellers with all
reasonable information and documentation in Purchaser's possession that would be
helpful to Sellers in filing damage claims with any shipper of such products.
6.8 SALES AND TRANSFER TAXES AND FEES. Sellers shall pay when due from
assets other than the Purchased Assets, all sales taxes and/or use taxes,
recording fees, personal property title application fees, patent and trademark
assignment registration fees, real property transfer taxes and fees and all
other taxes and fees on transfer of the Purchased Assets arising by virtue of
the sale of the Purchased Assets to Purchaser, regardless of whether the
liability for said taxes or fees is imposed by law upon Sellers or upon
Purchaser.
6.9 COVENANT NOT TO COMPETE. As an inducement for Purchaser to enter
into this Agreement, each Seller agrees that:
(a) from and after the Closing and continuing for the lesser of
five (5) years from the date hereof or the longest time permitted by applicable
law, none of the Sellers nor any of their respective Affiliates shall do any one
or more of the following, directly or indirectly:
(i) engage or participate, anywhere in the continental
United States, as an owner, partner, shareholder, consultant or (without
limitation by the specific enumeration of the foregoing) otherwise in any
business which is competitive with the Business, as conducted on the date
hereof or as proposed to be conducted on the date hereof; or
(ii) solicit any customer of Purchaser which has been a
customer of one of the Selling Entities or any of their respective
Affiliates within the past two (2) years, to purchase from any source other
than Purchaser any product or service which is able to be supplied by
Purchaser.
(iii) in the event of any breach of paragraph (a) of this
Section 6.9, the time period of the breached covenant shall be extended for
the period of such breach. Each Seller and each of their respective
Affiliates recognizes that the territorial, time and scope limitations set
forth in this Section 6.9 are reasonable and are required for the
protection of Purchaser and in the event that any such territorial, time or
scope limitation is deemed to be unreasonable by a court of competent
jurisdiction, Purchaser and each Seller agree to the reduction of either or
any of said territorial, time or scope limitations to
35
such an area, period or scope as said court shall deem reasonable under the
circumstances.
For purposes of this Agreement, the term "Affiliate" shall mean and include any
person or entity which controls a party, which such party controls or which is
under common control with such party. "Control" means the power, direct or
indirect, to direct or cause the direction of the management and policies of a
person or entity through voting securities, contract or otherwise.
6.10 DISCLOSURE OF CONFIDENTIAL INFORMATION. As a further inducement
for Purchaser to enter into this Agreement, each Seller agrees that for the
longest period permitted by law after the date hereof, each Seller shall, and
shall cause their respective Affiliates to, hold in strictest confidence, and
not, without the prior written approval of Purchaser, use for their own benefit
or the benefit of any party other than Purchaser or disclose to any person, firm
or corporation other than Purchaser (other than as required by law) any
Confidential Information. For purposes of this Agreement, intending that the
term shall be broadly construed to include anything protectible as a trade
secret or confidential information under applicable law, "Confidential
Information" shall mean all information, and all documents and other tangible
items which record information relating to or useful in connection with the
Purchaser's business (including the business of any of the Purchaser's
Affiliates), which at the time or times concerned is protectible as a trade
secret or confidential information under applicable law which has not otherwise
entered the public domain through no fault of any Seller and which has been or
is from time to time disclosed to or known by each Seller either before or after
the date hereof.
6.11 INJUNCTIVE RELIEF. Each Seller specifically recognizes that any
breach of Sections 6.4, 6.5, 6.9 or 6.10 will cause irreparable injury to
Purchaser and that actual damages may be difficult to ascertain, and in any
event, may be inadequate. Accordingly (and without limiting the availability of
legal or equitable, including injunctive, remedies under any other provisions of
this Agreement), each Seller agrees that in the event of any such breach,
Purchaser shall be entitled to injunctive relief in addition to such other legal
and equitable remedies that may be available. Each Seller and Purchaser
recognize that the absence of a time limitation in Section 6.10 is reasonable
and properly required for the protection of Purchaser and in the event that the
absence of such limitation is deemed to be unreasonable by a court of competent
jurisdiction, each Seller agrees and submits to the imposition of such a
limitation as said court shall deem reasonable.
6.12 FURTHER ASSURANCES. The parties shall execute such further
documents, and perform such further acts, as may be necessary to transfer and
convey the Purchased Assets to Purchaser, on the terms herein contained, and to
otherwise comply with the terms of this Agreement and consummate the transaction
contemplated hereby.
6.13 DELIVERY OF FINANCIAL STATEMENTS. On or prior to November 30,
1997, Sellers shall deliver to Purchaser a copy of the audited combined balance
sheet, statement of income and retained earnings, statement of cash flows and
notes to financial statements (together with any
36
supplementary information thereto) of the Selling Entities for the period from
January 1, 1997 through the date hereof, together with the unqualified opinion
of Cherry, Xxxxxxx & Xxxxxxx, the Selling Entities' independent accountants.
For each day after November 30, 1997 that Sellers fail to deliver such financial
statements to Purchaser, Sellers jointly and severally agree to pay Purchaser an
amount equal to $5,000.
6.14 SHAREHOLDER MEETING. In connection with its annual meeting of
shareholders to be held during TCP's 1998 fiscal year, Purchaser shall cause TCP
to solicit a vote from its shareholders to permit an amendment to this Agreement
to allow Purchaser to issue in excess of 347,961 shares of TCP Common Stock in
connection with the payment of Contingent Consideration. Until such amendment
is approved by the shareholders of TCP, Purchaser shall not be permitted to
issue in excess of 347,961 shares of TCP Common Stock in connection with the
payment of any Contingent Consideration pursuant to the provisions of this
Agreement.
ARTICLE VII
EMPLOYEES AND EMPLOYEE BENEFIT PLANS
7.1 EMPLOYEES. Effective as of the date hereof, employees of the
Selling Entities who accept employment with Purchaser or TCP II (the
"Employees") shall cease to be employees of the Selling Entities and shall
thereafter become employees of the Purchaser or TCP II, as the case may be.
Sellers shall bear the full cost and expense of any entitlement to benefits due
to Employees under the Plans, Welfare Plans or Employee Benefit Plans of the
Selling Entities. Sellers shall bear the full cost and expense (including the
costs of defense, administration, audit and response to inquiries or allegations
of governmental regulators and/or aggrieved participants, employees or
beneficiaries), fines, taxes, excise taxes, awards of compensatory, actual or
punitive damages or plaintiffs' legal fees, attributable to actual or alleged
legal noncompliance, mismanagement, misadministration, fiduciary or contractual
breach, error or omissions under any of the Selling Entities' Plans, Welfare
Plans or Employee Benefit Plans.
7.2 PLAN ASSUMPTION/TERMINATION. Neither Purchaser nor TCP II
undertakes to assume the sponsorship of or liabilities under any of the Selling
Entities' Plans, Welfare Plans or Employee Benefit Plans. Purchaser will
attempt, subject to availability, cost considerations and other material
business considerations identified at the Purchaser's discretion, to establish
for Employees a commercially insured medical benefits plan similar to the
Selling Entities' commercially insured medical benefits plan, but it is not
intended by the parties that any such plan established or previously maintained
by Purchaser will be a continuation or assumption of the plan of the Selling
Entities or that Purchaser will be a successor in interest to any Selling Entity
with respect to such a plan. At Purchaser's request, the Selling Entities will
use all necessary or appropriate efforts to accomplish the assignment of the
medical benefits insurance policy owned by the Selling Entities to Purchaser.
The Employees are not intended to be third party beneficiaries of Purchaser's
obligations under this Section 7.2.
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7.3 CLAIM ASSUMPTION. With respect to all claims which have been
incurred prior to the date hereof, regardless whether reported, such Claims
shall be processed through and paid under the Selling Entities' Welfare Plans
(including for this purpose, any educational reimbursement or assistance
program). For this purpose, a claim shall be deemed incurred (i) with respect
to medical benefits, other than as described in (ii) below, at the time services
or materials are received; (ii) with respect to benefits for hospital or nursing
home confinement, including doctors' visits, nursing services and other services
and supplies furnished in conjunction with the confinement, at the time the
confinement commenced; (iii) with respect to life or survivor benefits, at the
time of the death; (iv) with respect to short- or long-term disability or
accident and sickness benefits, at the time the disability commenced; (v) with
respect to amounts payable under workers' compensation or other similar laws, at
the time the disability, accident or illness commenced; and (vi) with respect to
tuition or educational reimbursements, at the time the class or program
commenced. With respect to any employee of the Selling Entities who is not
actively at work on the date hereof (for reasons other than normal scheduling or
vacation), including former employees who terminated or retired prior to the
date hereof, employees on leave of absence for medical or other reasons, and
employees on layoff, the Selling Entities shall remain responsible for and
continue any applicable welfare benefit plan coverage until such time, if any,
as such employee returns to active service with the Purchaser. The Selling
Entities shall also remain responsible for and continue to provide any
applicable health care continuation coverage under section 4980B of the Code to
employees or their dependents if the "qualifying event" (as defined in section
4980B(f)(3) of the Code) occurred prior to Closing.
7.4 SEVERANCE TREATMENT. The Selling Entities shall be responsible for
any severance or other similar benefit payable to any Employee on account of the
transaction contemplated hereby under any severance plans, programs or
arrangements which the Selling Entities may have maintained; provided, however,
that Purchaser shall be responsible for such severance obligations to the extent
Purchaser hires such employees and such severance obligations are described in
the employment agreements listed on Exhibit B attached hereto. The Selling
Entities agree to indemnify Purchaser for and against any and all claims,
expenses and losses for severance or other similar benefit which it might incur
as a result of this transaction.
ARTICLE VIII
INDEMNIFICATION
8.1 GENERAL. From and after the Closing, the parties shall indemnify
each other as provided in this Article VIII. No specifically enumerated
indemnification obligation with respect to a particular subject matter as set
forth below shall limit or affect the applicability of a more general
indemnification obligation as set forth below with respect to the same subject
matter.
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8.2 CERTAIN DEFINITIONS. As used in this Agreement, the following
terms shall have the indicated meanings:
(a) "Damages" shall mean all liabilities, demands, claims,
actions or causes of action, regulatory, legislative or judicial proceedings or
investigations, assessments, levies, losses, fines, penalties, damages, costs
and expenses, including, without limitation, reasonable attorneys',
accountants', investigators', and experts' fees and expenses, sustained or
incurred in connection with the defense or investigation of any such claim;
(b) "Indemnified Party" shall mean a party hereto who is
entitled to indemnification from another party hereto pursuant to this
Article VIII;
(c) "Indemnifying Party" shall mean a party hereto who is
required to provide indemnification under this Article VIII to another party
hereto; and
(d) "Third Party Claims" shall mean any claims for Damages which
are asserted or threatened by a party other than the parties hereto, their
successors and permitted assigns, against any Indemnified Party or to which an
Indemnified Party is subject.
8.3 INDEMNIFICATION OBLIGATIONS OF SELLERS. Sellers shall, jointly and
severally, indemnify, save and keep harmless Purchaser and TCP II and each of
their respective successors and permitted assigns against and from all Damages
sustained or incurred by any of them resulting from or arising out of or by
virtue of:
(a) any inaccuracy in or breach of any representation and
warranty made by any Seller in this Agreement or in any of the Seller Ancillary
Documents;
(b) any breach by any Seller of, or failure by any Seller to
comply with, any of its respective covenants or obligations under this Agreement
(including, without limitation, their respective obligations under this
Article VIII);
(c) the failure to discharge when due any liability or
obligation of any of the Sellers other than the Assumed Liabilities, or any
claim against Purchaser or TCP II with respect to any such liability or
obligation or alleged liability or obligation;
(d) any Third Party Claims to the extent caused by the acts or
omissions of Sellers prior to the date hereof and not constituting an Assumed
Liability, including, without limitation, Damages which arise out of Sellers'
operation of the Business prior to the date hereof; and
(e) without being limited by paragraphs (a), (b), (c) or (d) of
this Section 8.3 (and without regard to the fact that any one or more of the
items referred to in this Section 8.3(e) may be disclosed in the Disclosure
Statement or in any documents included or referred to therein
39
or may be otherwise known to Purchaser or TCP II at the date hereof), (i) any
action or failure to act, in whole or in part, on or prior to the date hereof,
with respect to any Plan, Welfare Plan or Employee Benefit Plan which any of the
Selling Entities or any ERISA Affiliate of any of the Selling Entities has at
any time maintained or administered or to which any of the Selling Entities or
any ERISA Affiliate of any of the Selling Entities has at any time contributed;
(ii) the violation of any Environmental Law or the presence or release of any
Hazardous Materials upon, about or beneath the Leased Premises or any other real
property used in connection with the conduct of the Business at any time prior
to the date hereof or the migration to or from the Leased Premises or any other
real property used in connection with the conduct of the Business at any time
prior to the date hereof, or arising in any manner whatsoever out of the
violation of any Environmental Law pertaining to the Leased Premises or any
other real property used in connection with the conduct of the Business at any
time prior to the date hereof and the activities thereon, whether foreseeable or
unforeseeable, provided such violation commenced prior to the date hereof; (iii)
any liability for Taxes owed by any Seller (whether or not shown on any Return),
any Related Entity or any affiliate of any Seller or any Related Entity that
were due and payable on or prior to the date hereof; (iv) any inaccuracy in the
representations set forth in Section 5.14 hereof; or (v) any violation of, or
delinquency in respect to, any decree, order or arbitration award or law,
statute, or regulation in effect on or prior to the date hereof of, or agreement
of any Seller with, or any license or Permit granted to any Sellers from, any
Governmental Authority to which the Purchased Assets are subject, including,
without limitation, laws, statutes and regulations relating to occupational
health and safety, equal employment opportunities, fair employment practices and
discrimination.
(f) Notwithstanding anything to the contrary contained in this
Section 8.3, (a) Purchaser agrees to pay 50% of the first $100,000 of Damages
incurred by Purchaser pursuant to the provisions of this Section 8.3; and (b)
Sellers' indemnification obligations pursuant to Section 8.3(a) shall be limited
to $3,000,000 in the aggregate; provided, however, that there shall be no
limitation on Sellers' indemnification obligations for a breach of a
representation or warranty contained in Sections 5.1, 5.5, 5.7(c), 5.14, 5.22,
5.24(e), 5.25 and 5.34.
8.4 TCP'S, PURCHASER'S AND TCP II'S INDEMNIFICATION COVENANTS. TCP,
TCP II and Purchaser jointly and severally shall indemnify, save and keep
harmless Sellers and their respective successors and permitted assigns against
and from all Damages sustained or incurred by any of them resulting from or
arising out of or by virtue of:
(a) any inaccuracy in or breach of any representation and
warranty made by TCP, Purchaser or TCP II in this Agreement or in any Purchaser
Ancillary Document;
(b) any breach by TCP, Purchaser or TCP II of, or failure by
TCP, Purchaser or TCP II to comply with, any of their respective covenants or
obligations under this Agreement (including, without limitation, their
respective obligations under this Article VIII);
40
(c) Purchaser's failure to pay, discharge and perform any of the
Assumed Liabilities when due; or
(d) any Third Party Claims to the extent caused by the acts or
omissions of Purchaser after the date hereof and not constituting an Excluded
Liability, including, without limitation, Damages which arise out of Purchaser's
operation of the Business after the date hereof.
8.5 COOPERATION. Subject to the provisions of Section 8.8, the
Indemnifying Party shall have the right, at its own expense, to participate in
the defense of any Third Party Claim, and if said right is exercised, the
parties shall cooperate in the investigation and defense of said Third Party
claim.
8.6 SUBROGATION. The Indemnifying Party shall not be entitled to
require that any action be brought against any other person before action is
brought against it hereunder by the Indemnified Party but shall be subrogated to
any right of action to the extent that it has paid or successfully defended
against any Third Party Claim.
8.7 THIRD PARTY CLAIMS SUBJECT TO INDEMNIFICATION.
(a) Promptly following the receipt of notice of a Third Party
Claim, the party receiving the notice of the Third Party Claim shall notify the
other party hereto of such Third Party Claim. The failure to give such notice
shall not relieve the Indemnifying Party of its obligations under this Agreement
except to the extent that the Indemnifying Party is prejudiced as a result of
the failure to give such notice. Within fifteen business days after receipt of
the notice by the Indemnifying Party pursuant to the preceding sentence, the
Indemnifying Party shall notify the Indemnified Party whether it elects to
control the defense of the Third Party Claim. If the Indemnifying Party elects
to undertake the defense of such Third Party Claim, it shall do so at its own
expense with counsel of its own choosing and it shall acknowledge in writing
without qualification its indemnification obligations as provided in this
Agreement to the Indemnified Party as to such Third Party Claim. If the
Indemnifying Party elects not to defend the Third Party Claim or does not
diligently pursue such Third Party Claim, the Indemnified Party shall have the
right to undertake, conduct and control the defense of such Third Party Claim
through counsel of its own choosing. The party that litigates or contests the
Third Party Claim shall keep the other party fully advised of the progress and
disposition of such claim.
(b) In the event the Indemnifying Party elects not to undertake
the defense of the Third Party Claim or fails to pursue diligently the defense
of such a claim and the Indemnified Party litigates or otherwise contests or
settles the Third Party Claim, then, provided that a final determination has
been made that the Indemnified Party is entitled to indemnification hereunder,
the Indemnifying Party shall promptly reimburse the Indemnified Party for all
amounts paid to settle such claim or all amounts paid in satisfaction of a
judgment against the
41
Indemnified Party in contesting such claim and in providing its right to
indemnification hereunder, all in accordance with the provisions of this Article
VIII.
(c) No Third Party Claim will be settled by the Indemnifying
Party without the consent of the Indemnified Party, which consent will not be
unreasonably withheld; provided, however, that if the Indemnified Party shall be
fully released from all liability relating to such Third Party Claim in
connection with such settlement, the Indemnifying Party shall not be required to
obtain the consent of the Indemnified Party. If, however, the Indemnified Party
refuses to consent to a bona fide offered settlement which the Indemnifying
Party wishes to accept, the Indemnified Party may continue to pursue such Third
Party Claim free of any participation by the Indemnifying Party, at the sole
expense of the Indemnified Party. In such event, the Indemnifying Party shall
pay to the Indemnified Party the amount of the offer of settlement which the
Indemnified Party refused to accept, plus the costs and expenses incurred by the
Indemnified Party prior to the date the Indemnifying Party notifies the
Indemnified Party of the offer of settlement, all in accordance with the terms
of this Article VIII, and, upon the payment or receipt of such amount, as the
case may be, the Indemnifying Party shall have no further liability with respect
to such Third Party Claim. The Indemnifying Party shall be entitled to recover
from the Indemnified Party any additional expenses incurred by such Indemnifying
Party as a result of the decision of the Indemnified Party to pursue the matter.
8.8 THIRD PARTY CLAIMS NOT SUBJECT TO INDEMNIFICATION. Each Seller,
Purchaser and TCP II shall cooperate with each other with respect to the defense
of any claims or litigation made or commenced by third parties subsequent to the
date hereof which are not subject to the indemnification provisions contained in
this Article VIII, provided that the party requesting cooperation shall
reimburse the other party for the other party's reasonable out-of-pocket costs
and expenses of furnishing such cooperation.
ARTICLE IX
MISCELLANEOUS
9.1 NOTICES. All notices required or permitted to be given
hereunder shall be in writing and may be delivered by hand, by facsimile, by
nationally recognized private courier, or by United States mail. Notices
delivered by mail shall be deemed given three (3) business days after being
deposited in the United States mail, postage prepaid, registered or certified
mail. Notices delivered by hand by facsimile, or by nationally recognized
private carrier shall be deemed given on the first business day following
receipt; provided, however, that a notice delivered by facsimile shall only
be effective if such notice is also delivered by hand, or deposited in the
United States mail, postage prepaid, registered or certified mail, on or
before two (2) business days after its delivery by facsimile. All notices
shall be addressed as follows:
If to any Seller:
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c/o Xxxx Xxxxxxxx
000 Xxxxxxxxx Xxxx
Xxxxx, Xxxxx Xxxxxxxx 00000
Fax: 864-_______________
with a copy to:
Xxxxxxxxxxx Xxxxxx Xxxx & Xxxx, P.C.
000 Xxxx Xxxxxx Xxxxxx
Xxxxxxxxxx, Xxxxx Xxxxxxxx 00000
Attention: Xxxxxxx X. Few, Jr.
Fax: 000-000-0000
If to Purchaser or TCP II:
c/o Total Control Products, Inc.
0000 Xxxxx Xxxxxx Xxxxxx
Xxxxxxx Xxxx, Xxxxxxxx
Attention: Xxxxxxxx Xxxx, President
Fax: (000) 000-0000
with a copy to:
X'Xxxxxx & Xxxxxx
00 Xxxxx XxXxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
Attention: Xxxx X. Xxxxxx
Fax: (000) 000-0000
and/or to such other respective addresses and/or addressees as may be designated
by notice given in accordance with the provisions of this Section 9.1.
9.2 EXPENSES; TRANSFER TAXES. Except as otherwise provided herein,
each party hereto shall bear all fees and expenses incurred by such party in
connection with, relating to or arising out of the negotiation, preparation,
execution, delivery and performance of this Agreement and the consummation of
the transaction contemplated hereby, including, without limitation, attorneys',
accountants' and other professional fees and expenses.
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9.3 ENTIRE AGREEMENT. This Agreement and the instruments to be
delivered by the parties pursuant to the provisions hereof constitute the entire
agreement between the parties and shall be binding upon and inure to the benefit
of the parties hereto and their respective legal representatives, successors and
permitted assigns. Each Exhibit, Schedule and the Disclosure Statement, shall
be considered incorporated into this Agreement. Any amendments, or alternative
or supplementary provisions to this Agreement must be made in writing and duly
executed by an authorized representative or agent of each of the parties hereto.
9.4 SURVIVAL; NON-WAIVER. All representations and warranties shall
survive the Closing for a period of two years regardless of any investigation or
lack of investigation by any of the parties hereto; provided, however, that the
representations and warranties contained in Sections 5.1, 5.5, 5.7(c), 5.14,
5.22, 5.24(e), 5.25 and 5.34 shall survive the Closing forever. The failure in
any one or more instances of a party to insist upon performance of any of the
terms, covenants or conditions of this Agreement, to exercise any right or
privilege in this Agreement conferred, or the waiver by said party of any breach
of any of the terms, covenants or conditions of this Agreement, shall not be
construed as a subsequent waiver of any such terms, covenants, conditions,
rights or privileges, but the same shall continue and remain in full force and
effect as if no such forbearance or waiver had occurred. No waiver shall be
effective unless it is in writing and signed by an authorized representative of
the waiving party. A breach of any representation, warranty or covenant shall
not be affected by the fact that a more general or more specific representation,
warranty or covenant was not also breached.
9.5 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed to be an original, and all such
counterparts shall constitute but one instrument.
9.6 SEVERABILITY. The invalidity of any provision of this Agreement or
portion of a provision shall not affect the validity of any other provision of
this Agreement or the remaining portion of the applicable provision.
9.7 APPLICABLE LAW. This Agreement shall be governed and controlled as
to validity, enforcement, interpretation, construction, effect and in all other
respects by the internal laws of the State of Illinois applicable to contracts
made in that State.
9.8 BINDING EFFECT; BENEFIT. This Agreement shall inure to the benefit
of and be binding upon the parties hereto, and their successors and permitted
assigns. Nothing in this Agreement, express or implied, is intended to confer
on any person other than the parties hereto, and their respective successors and
permitted assigns any rights, remedies, obligations or liabilities under or by
reason of this Agreement.
9.9 ASSIGNABILITY. This Agreement shall not be assignable by either
party without the prior written consent of the other party.
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9.10 AMENDMENTS. This Agreement shall not be modified or amended except
pursuant to an instrument in writing executed and delivered on behalf of each of
the parties hereto.
9.11 HEADINGS. The headings contained in this Agreement are for
convenience of reference only and shall not affect the meaning or interpretation
of this Agreement.
9.12 REPRESENTATION. Each of the parties acknowledges that (i) each
party has had an opportunity to consult with independent legal counsel
concerning the terms of this Agreement before executing it; (ii) it fully
understands all of the terms and conditions of this Agreement; and (iii) it is
entering into this Agreement knowingly and voluntarily and without coercion,
promises or representations not expressly contained herein.
[THE REMAINDER OF THIS PAGE WAS INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.
SELLERS: PURCHASER:
COMPUTER DYNAMICS, INC. SC ACQUISITION #1, INC.
By: /s/Xxxx Xxxxxxxx By: /s/Nic Gihl
---------------------------- --------------------------------
Title: President Title: President
---------------------------- --------------------------------
COMPUTER DYNAMICS SERVICES, INC. SC ACQUISITION #2, INC.
By: /s/Xxxx Xxxxxxxx By: /s/Nic Gihl
---------------------------- --------------------------------
Title: President Title: President
---------------------------- --------------------------------
COMPUTER DYNAMICS MFG., INC. TOTAL CONTROL PRODUCTS, INC.
By: /s/Xxxx Xxxxxxxx By: /s/Nic Gihl
---------------------------- --------------------------------
Title: President Title: President
---------------------------- --------------------------------
XXX XXXXXXXX d/b/a LINES UNLIMITED XXXXXXXX FOUNDATION
By: /s/Xxxxx Xxxxxxxx By: /s/Xxxx Xxxxxxxx
---------------------------- --------------------------------
Title: as Trustee
----------------------------
XXXXXXXX CHARITABLE REMAINDER UNITRUST
By: /s/Xxxx Xxxxxxxx /s/Xxxx Xxxxxxxx
---------------------------- ---------------------------------------
As Trustee Xxxx Xxxxxxxx
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