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OLYMPIC MANUFACTURING GROUP, INC.
STOCK PURCHASE AGREEMENT
Among
SAUGATUCK CAPITAL COMPANY LIMITED PARTNERSHIP III,
THE OTHER SELLERS NAMED HEREIN
and
HANDY & XXXXXX
Dated as of February 19, 1997
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TABLE OF CONTENTS
Page
ARTICLE 1. SALE AND PURCHASE OF SHARES................................ 1
1.1 Sale of Shares............................................. 1
1.2 Purchase Price and Payment for Shares...................... 1
1.3 Delivery of the Shares..................................... 3
1.4 Application of the Company's Cash.......................... 3
1.5 Cash Out of Options........................................ 3
ARTICLE 2. CLOSING AND TERMINATION.................................... 4
2.1 Closing.................................................... 4
2.2 Termination................................................ 4
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF SELLERS.................. 5
3.1 Organization and Authority of Seller....................... 5
3.2 Corporate Organization and Authority of
Company.................................................... 5
3.3 Subsidiaries and Equity Investments........................ 5
3.4 Ownership of Shares........................................ 6
3.5 Capitalization............................................. 6
3.6 Consents and Approvals; No Violation....................... 6
3.7 Financial Statements....................................... 7
3.8 Title to Properties; Absence of Liens...................... 7
3.9 Litigation................................................. 9
3.10 Compliance with Law........................................ 9
3.11 Contracts................................................. 10
3.12 Tax Matters............................................... 10
3.13 Employee Benefits; ERISA.................................. 12
3.14 Certain Events............................................ 14
3.15 Environmental Matters..................................... 17
3.16 Accounts Receivable....................................... 18
3.17 Inventories............................................... 19
3.18 Machinery and Equipment................................... 19
3.19 Patents; Trademarks; Trade Names; Copyrights;
Licenses, Etc............................................. 19
3.20 Certain Liabilities....................................... 19
3.21 Compensation and Consulting Arrangements.................. 20
3.22 Insurance................................................. 20
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3.23 Disclaimer of Other Representations and
Warranties; Best Knowledge; Disclosure.................... 21
3.24 Product Liability......................................... 22
3.25 Prior Acquisitions........................................ 22
3.26 Take or Pay Contracts..................................... 23
3.27 Restrictive Agreements.................................... 23
3.28 Nature of Business........................................ 23
3.29 Judgments................................................. 23
3.30 Existing Indebtedness..................................... 23
3.31 Accounts Payable.......................................... 23
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF BUYER................... 24
4.1 Organization.............................................. 24
4.2 Corporate Authority....................................... 24
4.3 Consents and Approvals; No Violation...................... 24
4.4 Investment Intent......................................... 24
4.5 Litigation................................................ 25
4.6 Knowledge of Buyer........................................ 25
ARTICLE 5. CERTAIN COVENANTS AND AGREEMENTS OF SELLERS AND
BUYER..................................................... 25
5.1 Conduct of Business Prior to the Closing Date............. 25
5.2 Tax Covenants............................................. 29
5.3 Expenses and Finders' Fees................................ 36
5.4 Access to Information; Verification of
Inventory and Confidentiality............................. 36
5.5 Press Releases............................................ 37
5.6 Books and Records......................................... 37
5.7 Options and Warrants...................................... 38
5.8 Accounts Payable.......................................... 38
5.9 Bank Waiver............................................... 38
ARTICLE 6. CONDITIONS PRECEDENT OF BUYER............................. 38
6.1 Representations and Warranties............................ 38
6.2 Opinion of Counsel........................................ 38
6.3 No Actions................................................ 38
6.4 Consents.................................................. 39
6.5 Closing Documentation..................................... 39
6.6 Approval of Legal Matters................................. 40
6.7 Bank Waiver............................................... 40
6.8 Escrow Agreement.......................................... 40
6.9 Fleet Bank Waiver......................................... 40
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ARTICLE 7. CONDITIONS PRECEDENT OF SELLERS........................... 40
7.1 Representations and Warranties............................ 40
7.2 Opinion of Buyer's Counsel................................ 41
7.3 No Actions................................................ 41
7.4 Consents.................................................. 41
7.5 Closing Documentation..................................... 41
7.6 Approval of Legal Matters................................. 41
7.7 Escrow Agreement.......................................... 42
7.8 No Material Adverse Change................................ 42
7.9 Repayment of Xxxxxx & Xxxxxx Indebtedness................. 42
ARTICLE 8. INDEMNIFICATION........................................... 42
8.1 Indemnification by Sellers................................ 42
8.2 Indemnification by Buyer.................................. 43
8.3 Remedies.................................................. 44
8.4 Period of Indemnity....................................... 44
8.5 Certain Limitations....................................... 44
8.6 Contribution.............................................. 46
ARTICLE 9. SURVIVAL OF REPRESENTATIONS AND WARRANTIES................ 46
9.1 Representations and Warranties............................ 46
ARTICLE 10. MISCELLANEOUS............................................. 46
10.1 Cooperation............................................... 46
10.2 Waiver.................................................... 46
10.3 Notices................................................... 46
10.4 Governing Law and Consent to Jurisdiction................. 47
10.5 Counterparts.............................................. 48
10.6 Headings.................................................. 48
10.7 Entire Agreement.......................................... 48
10.8 Amendment and Modification................................ 48
10.9 Binding Effect; Benefits.................................. 48
10.10 Assignability............................................. 48
10.11 Saugatuck as Agent of Sellers............................. 48
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LIST OF SCHEDULES AND EXHIBITS
Schedule 1.1 Number of Shares to be Sold by Each Seller
Schedule 1.2(a) Net Present Value of Balloon Payments on
Certain Operating Leases
Schedule 1.4 Third Party Indebtedness to be Repaid at
Closing
Schedule 1.5 Payments Relating to Cash Out of Certain
Options
Schedule 3.5 Capitalization
Schedule 3.6 No Violations; Consents
Schedule 3.7 Exceptions to GAAP on Financial Statements
Schedule 3.8 Encumbrances; Real Property; Property Not in
Satisfactory Condition
Schedule 3.9 Litigation
Schedule 3.11 Contracts
Schedule 3.13 Employee Plans
Schedule 3.14 Changes from and Events Outside of the
Ordinary Course
Schedule 3.15 Environmental Permits; Noncompliance
Schedule 3.16 Accounts Receivable
Schedule 3.18(a) Owned Equipment
Schedule 3.18(b) Leased Equipment
Schedule 3.19 Intellectual Property
Schedule 3.20 Certain Liabilities
Schedule 3.21 Employees and Compensation
Schedule 3.22(a) Insurance Policies
Schedule 3.22(b) Property Damage; Personal Injury Claims
Schedule 3.23 Persons with "Knowledge"
Schedule 3.24 Product Liability Claims
Schedule 3.30 Existing Indebtedness
Exhibit A Escrow Agreement
Exhibit B Proportionate Share of Each Seller
Exhibit C Opinion of Sellers's Counsel
Exhibit D Opinion of Buyer's Counsel
Exhibit E Stockholder Consent
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STOCK PURCHASE AGREEMENT dated as of February 19, 1997 (herein,
together with the Schedules and Exhibits attached hereto referred to as the
"Agreement") among SAUGATUCK CAPITAL COMPANY LIMITED PARTNERSHIP III, a Delaware
limited partnership, ("Saugatuck") and the other security holders listed on the
signature pages hereof (collectively, the "Sellers"), and HANDY & XXXXXX, a New
York corporation (the "Buyer").
W I T N E S S E T H:
WHEREAS, Sellers are the beneficial and record holders of all of the
presently issued and outstanding shares of capital stock of OLYMPIC
MANUFACTURING GROUP, INC., a Delaware corporation (together with its subsidiary,
the "Company"), together with certain options and warrants to acquire additional
shares of such capital stock (the presently issued shares, together with the
shares of capital stock to be issued upon exercise of such options and warrants,
being hereinafter referred to as the "Shares"); and
WHEREAS, Sellers wish to sell and Buyer wishes to purchase the
Shares and the parties wish to consummate the other transactions herein
provided, all upon the terms and conditions set forth in this Agreement;
NOW, THEREFORE, in reliance upon the representations and warranties
made herein and in consideration of the mutual agreements herein contained, the
parties agree as follows:
ARTICLE 1.
SALE AND PURCHASE OF SHARES
1.1 Sale of Shares. At the Closing provided for in Section 2.1, each
Seller shall sell the number of Shares set forth opposite his or its name on
Schedule 1.1 to Buyer and Buyer shall purchase the Shares for the aggregate
purchase price provided in Section 1.2.
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1.2 Purchase Price and Payment for Shares. (a) Purchase Price. The
aggregate purchase price (the "Purchase Price") for the Shares is $53,020,000
less (i) the amount of Third Party Indebtedness (as defined below) net of cash
as provided in Section 1.4 and (ii) the amount set forth on Schedule 1.2(a)
relating to the net present value of the balloon payments on the Company's
operating leases and the cost of repairs for noise abatement to be agreed to by
Buyer and Seller prior to Closing. The foregoing payments shall constitute the
full Purchase Price for the Shares. In addition, Buyer, Sellers and the Company
will act in concert to cause $2,300,000 of the Purchase Price (the "Initial
Escrow Amount") to be delivered to NationsBank, N.A., as escrow agent (the
"Escrow Agent"). Buyer shall deliver to the Escrow Agent the amounts set forth
in Section 5.2(e) (the "Additional Escrow Amount" and together with the Initial
Escrow Amount, the "Escrow Amount"), which will be held and disposed of by the
Escrow Agent pursuant to the Escrow Agreement, the form of which is attached
hereto as Exhibit A. Any portion of the Escrow Amount paid to the Buyer in
accordance with the Escrow Agreement and Section 8.1 hereof shall be deemed a
reduction in the Purchase Price paid by the Buyer for the Shares. Each Seller
shall be entitled to receive such percentage of the Purchase Price as set forth
on Schedule 1.1 and shall have such percentage interest in the Escrow Amount as
is set forth opposite such Seller's name on Exhibit B hereto; provided that
Escrow Agent shall distribute such funds to Saugatuck, which shall have the
right to apply such funds toward the payment of or reimbursement for any costs
and expenses incurred by it in connection with the transactions contemplated
hereby (including without limitation, the reasonable fees and expenses of
counsel), before distributing to each Seller its percentage interest. For the
purposes of this Agreement, "Third Party Indebtedness" means the indebtedness
listed on Schedule 1.4.
(b) Payment of Purchase Price. At the Closing, (i) Buyer shall
deliver to the Company an amount equal to the Third Party Indebtedness as set
forth on Schedule 1.4, (ii) the Company shall (A) pay each option holder such
option holder's cash out price, less in the case of each Seller, such Seller's
pro rata share (in accordance with each Seller's percentage interest set forth
in Exhibit B hereto) of the Initial Escrow Amount, which the Company shall
deliver to the Escrow Agent and (B) pay off the Third Party Indebtedness, (iii)
Buyer shall deliver to a payment agent to be mutually agreed to (the "Payment
Agent") the balance of the Purchase Price that has not been paid
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pursuant to clause (i) above, (iv) Payment Agent shall (A) deliver to the
Company the cash out price of the options before tax and escrow withholdings as
set forth on Schedule 1.5, (B) deliver to the Escrow Agent each Seller's pro
rata share (in accordance with each Seller's percentage interest set forth in
Exhibit B hereto) of the Initial Escrow Amount unless previously withheld
pursuant to clause (ii) above, (C) deliver to each warrant holder such warrant
holder's cash out price less such warrant holder's pro rata share (in accordance
with each warrant holder's percentage interest set forth in Exhibit B hereto) of
the Initial Escrow Amount, which Payment Agent shall deliver to the Escrow
Agent, (D) deliver to Saugatuck the amount of any costs and expenses incurred by
it in connection with the transactions contemplated hereby plus $75,000 to pay
for any transaction costs and expenses incurred after the Closing (and to pay at
the end of the indemnity period specified in Section 8.4 each option holder who
is not a Seller such option holder's pro rata share of any Additional Escrow
Amounts without regard to whether any indemnity claims have been paid and
without regard to whether any Escrow Amount remains with the Escrow Agent) and
(E) deliver to each Seller such Seller's pro rata share of the balance of the
Purchase Price (in accordance with each Seller's percentage interest set forth
in Schedule 1.1) and (v) Saugatuck shall pay all the costs and expenses incurred
by it in connection with the transactions contemplated hereby.
1.3 Delivery of the Shares. At the Closing, Sellers will deliver to
Buyer stock certificate(s), in form suitable for transfer, registered in the
name of Sellers, evidencing the Shares, with an executed blank stock transfer
power attached, and with all necessary stock transfer tax stamps attached
thereto.
1.4 Application of the Company's Cash. After making any payments
required by Section 5.8 hereof, Saugatuck shall cause the Company to settle, as
of the Closing Date, the Third Party Indebtedness listed on Schedule 1.4 by
applying to such indebtedness all of the Company's cash as of the Closing Date,
which shall include cash on hand, cash received but not posted to the Company's
account and cash equivalents. Within 10 days after the Closing, Buyer will
reimburse Saugatuck (for pro rata distribution to the Sellers in accordance with
each Seller's percentage interest set forth in Exhibit B hereto) for cash
received but not posted to the Company's account at Closing. An amount equal to
the balance of such Third Party Indebtedness (less the amount of any checks
drawn on Company accounts within
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90 days prior to the Closing which have not cleared), after application of the
Company's cash as provided above, shall be paid by Buyer to the Company at the
Closing and Saugatuck shall cause the Company to repay the balance of such Third
Party Indebtedness at the Closing. Saugatuck and the Company shall provide Buyer
with reasonably satisfactory evidence of the payment of all Third Party
Indebtedness listed on Schedule 1.4 upon such payment.
1.5 Cash Out of Options. At or prior to the Closing, Saugatuck will
cause the Company to repurchase, cash out or cancel certain outstanding options
as set forth on Schedule 1.5, which payments are to be made through the
Company's payroll or through the Company's operating account as specified in
Schedule 1.5. Payments of cash or other property (including stock of the
Company) in respect of the repurchase, cash out or cancellation of such options
shall, to the extent made in respect of options issued as compensation for
United States federal, state or local income tax purposes, be made net of any
Tax required by law to be deducted or withheld.
ARTICLE 2.
CLOSING AND TERMINATION
2.1 Closing. The closing of the transactions provided for herein
(the "Closing") will take place at the offices of Winthrop, Stimson, Xxxxxx &
Xxxxxxx, Financial Centre, 000 Xxxx Xxxx Xxxxxx, Xxxxxxxx, Xxxxxxxxxxx at 10:00
A.M. (local time) on February 28, 1997 (the "Closing Date") or at such other
place, time and date as may be agreed upon by Buyer and Saugatuck.
2.2 Termination. Anything contained in this Agreement other than in
this Section 2.2 to the contrary notwithstanding, this Agreement may be
terminated in writing at any time:
(a) without liability on the part of any party hereto (unless
either party has a right of termination under subparagraph (b) or (c) below), by
mutual written consent of Buyer and Saugatuck;
(b) by Buyer, if (i) Sellers shall breach in any material
respect any of their respective representations, warranties or obligations
hereunder, (ii) Sellers shall not have provided reasonable assurance that such
breach will be cured in
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all material respects on or before the Closing Date, and (iii) such breach shall
not have been cured in all material respects or waived by Buyer prior to or as
of the Closing Date, but only if such breach, singly or together with all other
such breaches, constitutes a failure of the conditions contained in Section 6.1
as of the date of such termination;
(c) by Saugatuck, if (i) Buyer shall breach in any material
respect any of its representations, warranties or obligations hereunder, (ii)
Buyer shall not have provided reasonable assurance that such breach will be
cured in all material respects on or before the Closing Date, and (iii) such
breach shall not have been cured in all material respects or waived by Saugatuck
prior to or as of the Closing Date, but only if such breach, singly or together
with all other such breaches, constitutes a failure of the conditions contained
in Section 7.1 as of the date of such termination; or
(d) by either Buyer or Saugatuck after March 31, 1997 if the
Closing shall not have occurred prior to such date; provided, that, the party
terminating this Agreement shall not be permitted to so terminate this Agreement
if such party shall then be in breach in any material respect of its
representations, warranties or obligations under this Agreement.
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ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF SELLERS
Subject to the Schedules attached hereto and referred to below,
Xxxxxx X. Xxxxxx, Xxxxxx X. XxXxxxxx, Xxxxxx X. Xxxxxx and Xxxxxxx X. XxXxxxxxx
(collectively, the "Management Parties") and Saugatuck (together with the
Management Parties, the "Representing Parties") and with regard to Sections 3.1,
3.4, 3.6, 3.9 and 3.23, each other Seller as to itself only and not as to the
Company or any other Seller, represents and warrants to Buyer that:
3.1 Organization and Authority of Seller. If a corporation or
partnership, Seller is duly organized and validly existing under the laws of the
state of its organization. Such Seller has full corporate, partnership or other
power and authority to enter into this Agreement and all other documents
required to be entered into by such Seller pursuant hereto (this Agreement,
collectively with such other documents, the "Agreements") and to consummate the
transactions contemplated hereby and thereby. The execution, delivery and
performance by such Seller of the Agreements have been duly authorized by all
requisite corporate, partnership or other action. This Agreement has been, and
each of the other Agreements will be as of the Closing Date, duly executed and
delivered by such Seller, and (assuming due execution and delivery by Buyer)
this Agreement constitutes, and each of the other Agreements when executed and
delivered will constitute, a valid and binding obligation of such Seller,
enforceable in accordance with its terms, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally or by general equitable principles.
3.2 Corporate Organization and Authority of Company. The Company is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has all corporate power and authority to carry
on its business as now being conducted and to own its properties and is duly
licensed or qualified and in good standing as a foreign corporation in each
jurisdiction in which it is required to be so licensed or so qualified, except
where the failure to be so licensed or so qualified would not have a material
adverse effect on the financial condition, assets, liabilities (contingent or
otherwise), cash flows or results of operations of the Company considered as a
whole (a "Material Adverse Effect"). Saugatuck
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has heretofore delivered or made available to Buyer complete and correct copies
of the certificate of incorporation, by-laws or similar corporate organizational
documents of the Company and each Subsidiary (as defined below) as currently in
effect and as shall be in effect on the Closing Date.
3.3 Subsidiaries and Equity Investments. Except for
Olympic Marketing Foreign Sales Corporation, the Company has no
Subsidiaries (as defined below), is not a general or limited
partner in any partnership or coventurer in any joint venture or other business
enterprise and has no outstanding equity or other investments in any Person
other than Subsidiaries of the Company, whether by means of share purchase,
capital, equity or similar contribution, loan, advance, time deposit or
otherwise. The term "Subsidiary" means any corporation of which the Company,
directly or indirectly, owns or controls capital stock representing more than
fifty percent of the general voting power under ordinary circumstances of such
corporation.
3.4 Ownership of Shares. Seller is the lawful record and beneficial
owner of the Shares to be sold by it. Except for the Investor Stockholders
Agreement dated as May 26, 1994 by and among the Company, Saugatuck and certain
other Sellers (which will be terminated on or prior to the Closing), Seller owns
the Shares to be sold by it free and clear of all Encumbrances (as defined
below) except for restrictions on transfer under federal and state securities
laws. Seller will deliver beneficial and legal, valid and indefeasible title to
such Shares as contemplated under Section 1.3 to Buyer, free and clear of all
Encumbrances except for restrictions on transfer under federal and state
securities laws.
3.5 Capitalization. The authorized capital of the Company consists
of 12,600,000 shares of common stock, par value $0.00166 per share (the "Common
Stock"), of which (i) 4,355,340 shares are issued and outstanding, (ii)
1,884,660 shares are reserved for issuance upon exercise of warrants and options
and (iii) no shares are reflected on the books and records of the Company as
treasury shares. The Company has no other class of capital stock authorized or
outstanding. Except as set forth on Schedule 3.5, none of the Company's shares
of capital stock have been reserved for any purpose. All of the Shares are duly
authorized and validly issued, fully paid, nonassessable and were not issued in
violation of any preemptive rights. Except as set forth on Schedule 3.5, there
are no (i) options, warrants, calls,
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commitments or rights of any character to purchase or otherwise acquire from the
Company shares of any class of capital stock of the Company, (ii) outstanding
securities of the Company that are convertible into or exchangeable or
exercisable for shares of any class of capital stock of the Company, (iii)
options, warrants or other rights to purchase from the Company any such
convertible or exchangeable securities, or (iv) contracts, commitments,
agreements, understandings or arrangements of any kind relating to the issuance
or transfer of any capital stock of the Company.
3.6 Consents and Approvals; No Violation. Except as set forth in
Schedule 3.6 and except for applicable requirements of the Xxxx-Xxxxx-Xxxxxx
Antitrust Improvements Act of 1976, as amended, and the rules and regulations
thereunder (the "HSR Act"), there is no requirement applicable to any Seller or
the Company to make any filing with, or to obtain any permit, authorization,
consent or approval of, any court of competent jurisdiction, regulatory
authority or other public body, federal, state or local domestic or foreign (a
"Governmental Entity") as a condition to the lawful consummation by Seller of
the transactions contemplated by this Agreement. Except as set forth in Schedule
3.6 and except for applicable requirements of the HSR Act, neither the execution
and delivery of this Agreement by Seller, nor the consummation by Seller of the
transactions contemplated hereby, nor compliance by Seller with any of the
provisions hereof will (i) conflict with or result in any breach of any
provision of the certificate of incorporation or bylaws of the Company, (ii)
result in the creation of any material Encumbrance (as defined below) under, or
a breach of, or default under (or give rise to any right of termination,
cancellation or acceleration under), any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, license, agreement, lease or other
instrument or obligation to which any Seller or the Company is a party, or by
which any of their respective businesses, properties or assets may be bound,
except for such breaches or defaults (or rights of termination, cancellation or
acceleration) as to which requisite waivers or consents have been obtained or
will be obtained prior to the Closing Date or which would not have a Material
Adverse Effect or (iii) violate any order, judgment, writ, injunction, decree,
statute, rule or regulation applicable to any Seller, the Company or the
Company's assets or properties, except for such violations which would not have
a Material Adverse Effect.
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3.7 Financial Statements. The audited balance sheet of the Company
as of September 28, 1996 and the related audited income and cash flow statements
for the fiscal year then ended (including the notes thereto and any other
information included therein) and the unaudited year-to-date financial
statements as of December 28, 1996 are hereinafter collectively referred to as
the "Financial Statements." The Financial Statements are based on and reflect
the books and records of the Company (which books and records have been
routinely maintained on a consistent basis in accordance with the Company's
accounting policies). Except as noted therein or as set forth on Schedule 3.7,
the Financial Statements were prepared in accordance with the Company's
accounting policies referred to above and with generally accepted accounting
principles in the United States ("U.S. GAAP") applied on a consistent basis with
prior years. The Financial Statements fairly present in all material respects
the financial position of the Company at such date and the results of the
Company's operations and its cash flows for the period then ended.
3.8 Title to Properties; Absence of Liens. (a) Title to each piece
and parcel of (including improvements thereon) the Company's owned real property
reflected on the audited balance sheet of the Company as of September 28, 1996
(except for property and assets disposed of since September 28, 1996, or
acquired since September 28, 1996 in the ordinary course of business consistent
with past practice) and required by U.S. GAAP to be included on the balance
sheet of the Company, is marketable, good of record and in fact, insurable by a
recognized title insurance company and free and clear of any pledges, liens,
charges, encumbrances, rights-of-way, easements, defects, security interests,
claims, options and restrictions of every kind ("Encumbrances"), except for (i)
Encumbrances reflected in the audited balance sheet of the Company as of
September 28, 1996, (ii) Encumbrances created in the ordinary course of business
subsequent to September 28, 1996, none of which is in excess of $25,000
individually, except as set forth on Schedule 3.8, (iii) Encumbrances that,
individually or in the aggregate, do not materially interfere with the present
use by the Company or present value of the property subject thereto or affected
thereby, (iv) Encumbrances for taxes, assessments or governmental charges, or
landlords', mechanics', workmen's, materialmen's or similar liens, in each case
that are not delinquent or which are diligently being contested in good faith
and (v) Encumbrances that are reflected in the title reports delivered or
otherwise
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made available to Buyer by the Company or Saugatuck in connection with
the transactions contemplated hereby.
(b) To the Representing Parties' best knowledge, except as set
forth in Schedule 3.8 and except as would not have a Material Adverse Effect, no
improvements on the Company's owned real property are in violation of any zoning
or set-back requirement or similar restriction or regulation, all such
improvements are located within the legal metes and bounds of the real property
and none of such improvements on the real property encroach on any easement or
right of way.
(c) To the Representing Parties' best knowledge, except as set
forth in Schedule 3.8, the properties and the assets owned by or leased to the
Company are in satisfactory condition and repair for their continued use as they
have been used and adequate in all material respects for the continued conduct
of the business of the Company as presently conducted.
(d) Set forth in Schedule 3.8 is (i) a list of all interests
in real property, including improvements thereon, owned by the Company, (ii) a
description of all leasehold interests in real property of the Company, (iii) a
description of all options or other contracts to acquire any such interest,
specifying the location of each such property and (iv) a list of all
Encumbrances existing on any of the Company's properties and assets, real and
personal, other than Encumbrances described in clauses (a)(iv) and (a)(v) of
this Section 3.8.
(e) The Representing Parties have no knowledge of any default
or breach of any terms, covenants or conditions of any lease of, or leasehold
interest in, real property of the Company described in Schedule 3.8 (each, a
"Lease"), or of any actions which would be reasonably likely to, with the
passage of time or the giving of notice by the respective landlord, result in
any default or breach which would give rise to a right in the landlord to
terminate such Lease.
(f) Except as set forth on Schedule 3.8, the Company has good
and valid title to, or subsisting leasehold interests in, all of its personal
property and assets, whether tangible or intangible, reflected on the audited
balance sheet of the Company as of September 28, 1996 (except for personal
property and assets disposed of since September 28, 1996, or acquired since
September 28, 1996 in the ordinary course of
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business consistent with past practice) and required by U.S. GAAP to be included
on the balance sheet of the Company, free and clear of any pledges, liens,
security interests, claims, options and restrictions of every kind ("Personal
Property Liens"), except for (i) Personal Property Liens reflected in the
audited balance sheet of the Company as of September 28, 1996, (ii) Personal
Property Liens created in the ordinary course of business subsequent to
September 28, 1996, none of which is in excess of $25,000 individually, except
as set forth on Schedule 3.8, (iii) Personal Property Liens that, individually
or in the aggregate, do not materially interfere with the present use by the
Company or present value of the property subject thereto or affected thereby and
(iv) Personal Property Liens for taxes, assessments or governmental charges, or
lessors', mechanics', workmen's, materialmen's, warehousemen's or similar liens,
in each case that are not delinquent or which are diligently being contested in
good faith.
3.9 Litigation. Except as disclosed in Schedule 3.9, there is no
action, suit, proceeding or investigation as of the date hereof pending or, to
the best knowledge of the Representing Parties and Seller, threatened against
the Company or such Seller at law, in equity or otherwise, in, before, or by any
court of competent jurisdiction which would have a Material Adverse Effect on
the Company or materially and adversely affect such Seller's ability to
consummate the transactions contemplated hereby.
3.10 Compliance with Law. To the best knowledge of the Representing
Parties, since May 26, 1994, the business of the Company has been and is being
conducted in compliance with all material laws, ordinances and regulations of
any governmental entity applicable to the Company. To the best knowledge of the
Representing Parties since May 26, 1994, all governmental approvals, permits,
consents and licenses required ("Permits") by the Company in connection with the
conduct of its business have been obtained and are valid, subsisting and in full
force and effect and the Company has substantially fulfilled its obligations
under each Permit. To the best knowledge of the Representing Parties, no event
has occurred or condition or state of facts exists which constitutes or, after
notice or lapse of time or both, would constitute a default or violation under
any of the Permits or would permit revocation or termination of any of the
Permits. In respect of any such Permits, to the best knowledge of the
Representing Parties, no proceeding is pending for which notice has been
provided to the Company or, to the best
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17
knowledge of the Representing Parties, threatened, looking toward revocation or
termination of any such Permits.
3.11 Contracts. Except as set forth in Schedule 3.11, and except for
contracts made in connection with this Agreement and the transactions
contemplated hereby, the Company is not as of the date hereof a party to, or
bound by, any written (or to the Representing Parties' knowledge, oral)
contract, arrangement, agreement, or understanding of any kind to be performed
after the Closing Date pursuant to which the Company is obligated to expend more
than $100,000 in any twelve-month period and which is not subject to
cancellation by the Company without penalty or increased cost (referred to
herein as "Contracts"). Except as set forth on Schedule 3.11, to the best
knowledge of the Representing Parties, there is no default by any party to any
such contract, which default has had or could reasonably have a Material Adverse
Effect on the Company. Except as set forth on Schedule 3.11, neither the Company
nor any employee of the Company is a party to any contract, agreement or
understanding of any kind, written or otherwise, restricting the Company or its
affiliates or any such employee in any material way from competing in any
business or with any individual, company, corporation or other entity.
3.12 Tax Matters. (a) For purposes of this
Agreement,
(i) "Tax" or "Taxes" shall mean any federal, state,
local, foreign or other taxes (including, without limitation, income (net
or gross), gross receipts, profits, alternative or add-on minimum,
franchise, license, capital, capital stock, intangible, services, premium,
mining, transfer, sales, use, ad valorem, payroll, wage, severance,
employment, occupation, property (real or personal), windfall profits,
import, excise, custom, stamp, withholding or estimated taxes), fees,
duties, assessments, withholdings or governmental charges of any kind
whatsoever, and shall include interest, penalties, additions to tax or
additional amounts with respect to such items;
(ii) "Pre-Closing Periods" shall mean all Tax periods
ending on or before the Closing Date and, with respect to any Tax period
that includes but does not end on the Closing Date (a "Straddle Period"),
the portion of such Straddle Period that ends on and includes the Closing
Date;
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18
(iii) "Returns" shall mean all returns, declarations,
reports, estimates, information returns and statements of any nature
regarding Taxes required to be filed by any person or entity and relating
to the Company;
(iv) "Code" shall mean the Internal Revenue Code of
1986, as amended, or, if appropriate, any predecessor statute; and
(v) the term "Tax deficiency" shall include a reduction
in any net operating losses.
(b) Solely with respect to the period beginning after May 26, 1994:
(i) all Returns for all Pre-Closing Periods required to
be filed by the Company have been duly and timely filed and all such
Returns are true, correct and complete. All estimated Tax payments due for
the taxable period beginning on October 1, 1996 have been or will be duly
and timely paid to the extent due and payable prior to the Closing Date;
(ii) the Company has paid or accrued on its books all
Pre-Closing Period Taxes due or claimed to be due by any taxing authority;
(iii) the payments, charges, accruals and reserves for
Taxes due, or accrued but not yet due, relating to the income, properties
or operations of the Company for any Pre-Closing Period as reflected on
the books of the Company (including, without limitation, the audited
balance sheet of the Company as of September 28, 1996) are adequate to
cover such Taxes through the Closing Date;
(iv) there is no action, suit, proceeding,
investigation, audit or claim now pending or threatened in writing
regarding any Taxes of the Company;
(v) there are no agreements for the extension of the
time for assessment of any Taxes of the Company and the Company has not
waived any statute of limitations for the assessment of Taxes of the
Company;
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19
(vi) all Taxes which the Company is required by law to
withhold or collect have been duly withheld or collected, and have been
timely paid over to the proper authorities to the extent due and payable;
(vii) all federal income and sales Tax Returns of the
Company for Tax periods through fiscal 1995 have been audited by the
appropriate taxing authorities, or the statute of limitations for the
assessment of such Taxes has expired;
(viii) no power of attorney has been executed by, or on
behalf of, the Company with respect to any matter relating to Taxes which
is currently in force;
(ix) the Company is not a party to a tax sharing or tax
indemnity agreement or any other agreement of a similar nature that will
remain in effect as of the Closing Date;
(x) there are no liens for Taxes upon the assets of the
Company except statutory liens for Taxes not yet due;
(xi) the Company has not filed a consent pursuant to
Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code
apply to any disposition of a subsection (f) asset (as such term is
defined in Section 341(f)(2) of the Code) owned by the Company;
(xii) the Company has not requested or received an
adverse ruling from any taxing authority or signed a closing or other
agreement with any taxing authority which could have a Material Adverse
Effect;
(xiii) all tax deficiencies which have been claimed,
proposed or asserted against the Company have been fully paid or finally
settled;
(xiv) the Company is not required to include in income
any adjustment pursuant to Section 481(a) of the Code, by reason of any
voluntary or involuntary change in accounting method (nor has any taxing
authority proposed in writing any such adjustment or change of accounting
method);
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20
(xv) the Company has not participated in, or
cooperated with, an international boycott within the meaning
of Section 999 of the Code; and
(xvi) prior to Closing, the requisite percentage of the
Company's stockholders have approved the stockholder consent, the form of
which is attached hereto as Exhibit E, for purposes of Section 280G of the
Code.
3.13 Employee Benefits; ERISA. (a) Schedule 3.13 contains a true and
complete list of each bonus, deferred compensation, incentive compensation,
stock purchase, stock option, severance or termination pay, change-in-control,
hospitalization, medical, life or other insurance, supplemental unemployment
benefits, profit-sharing, pension, or retirement plan, program, agreement or
arrangement, and each other employee benefit plan, program, agreement or
arrangement, sponsored, maintained or contributed to or required to be
contributed to by the Company or by any trade or business, whether or not
incorporated (an "ERISA Affiliate") that together with the Company would be
deemed a "single employer" within the meaning of section 4001(b)(1) of ERISA,
for the benefit of any employee or former employee of the Company (the "Plans").
(b) With respect to each of the Plans, the Company has
heretofore delivered to Buyer true and complete copies of each of the following
documents: (i) a copy of the Plan; (ii) a copy of the most recent annual report;
(iii) a copy of the most recent actuarial report; (iv) a copy of the most recent
Summary Plan Description ("SPD"), together with all Summaries of Material
Modification issued with respect to such SPD and all other material employee
communications relating to such Plan; (v) if the Plan is funded through a trust
or any other funding vehicle, a copy of the trust or other funding agreement and
the latest financial statements thereof; and (vi) the most recent determination
letter received from the Internal Revenue Service with respect to each Plan that
is intended to be qualified under section 401 of the Code.
(c) No Plan is subject to Title IV of ERISA or to the minimum
funding requirements of section 412 of the Code or Part 3 of Title I of ERISA.
No Plan is a "multiemployer plan" within the meaning of section 4001(a)(3) of
ERISA. To the best knowledge of the Representing Parties, since May 26, 1994 no
liability under Title IV of ERISA or under section 412 of the
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21
Code or Part 3 of Title I of ERISA has been incurred by the Company or any ERISA
Affiliate since the effective date of ERISA that has not been satisfied in full.
To the best knowledge of the Representing Parties, since May 26, 1994 neither
the Company nor any other ERISA Affiliate has taken any action or failed to take
any action, nor has any event occurred, which has resulted or will likely result
in the Company becoming subject to liability under Title IV of ERISA (including
any withdrawal liability with respect to any multiemployer plan) or under
section 412 of the Code or Part 3 of Title I of ERISA.
(d) To the best knowledge of the Representing Parties, since
May 26, 1994 none of the Company, any of the Plans, any trust created thereunder
or any trustee or administrator thereof has engaged in a transaction or has
taken or failed to take any action in connection with which the Company, any of
the Plans, any such trust, any trustee or administrator thereof, or any party
dealing with the Plans or any such trust could be subject to either a material
civil penalty assessed pursuant to section 409 or 502(i) of ERISA or a material
tax imposed pursuant to section 4975, 4976 or 4980B of the Code.
(e) To the best knowledge of the Representing Parties, since
May 26, 1994 full payment has been made, or will be made in accordance with
section 404(a)(6) of the Code, of all amounts which the Company is required to
pay under the terms of each of the Plans and all such amounts properly accrued
through the Closing Date with respect to the current plan year thereof will be
paid by the Company on or prior to the Closing date or will be properly accrued.
(f) To the best knowledge of the Representing Parties, since
May 26, 1994 each of the Plans has been operated and administered in all
material respects in accordance with applicable laws, including but not limited
to ERISA and the Code. To the best knowledge of the Representing Parties, since
May 26, 1994 each of the Plans that is intended to be "qualified" within the
meaning of section 401(a) of the Code is so qualified and the trusts maintained
thereunder are exempt from taxation under section 501(a) of the Code, and no
event has occurred which may affect such qualification or exemption.
(g) No amounts payable under the Plans or any other agreement
or arrangement to which the Company is a party (except for the exercise,
repurchase, cash out or cancellation of
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22
warrants and options contemplated hereby, as to which no representation is made,
except as set forth in Section 3.12(b)(xvi)) will, as a result of the
transaction contemplated hereby, fail to be deductible for federal income tax
purposes by virtue of section 280G of the Code.
(h) No Plan provides benefits, including without limitation
death or medical benefits (whether or not insured), with respect to current or
former employees of the Company after retirement or other termination of service
other than (i) coverage mandated by applicable law or (ii) death benefits or
retirement benefits under any "employee pension plan," as that term is defined
in section 3(2) of ERISA.
(i) The consummation of the transactions contemplated by this
Agreement will not (i) entitle any current or former employee or officer of the
Company to severance pay, unemployment compensation or any other payment, except
as expressly provided in this Agreement or (ii) accelerate the time of payment
or vesting, or increase the amount of compensation due any such employee or
officer.
(j) There are no pending or, to the best knowledge of the
Representing Parties since May 26, 1994, threatened or anticipated claims by or
on behalf of any Plan, by any employee or beneficiary covered under any such
Plan, or otherwise involving any such Plan (other than routine claims for
benefits).
3.14 Certain Events. Except as and to the extent set forth on
Schedule 3.14 or as expressly contemplated by this Agreement, since December 28,
1996:
(a) the Company has operated its business in the ordinary
course consistent with past practice;
(b) there has not been any Material Adverse Effect on the
Company;
(c) the Company has not incurred any material damage,
destruction or loss (whether or not covered by insurance) to its owned or leased
property or assets;
(d) to the best knowledge of the Representing Parties, the
Company has not transferred, licensed, sublicensed,
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23
disposed of, abandoned or permitted to lapse or otherwise failed to preserve any
material rights to use any intellectual property owned or licensed by the
Company or disclosed to any Person, other than authorized representatives of the
Buyer, any intellectual property not in the public domain material to the
Company's business or operations;
(e) to the best knowledge of the Representing Parties, the
Company has not transferred, disposed of, abandoned or permitted to lapse or
otherwise failed to preserve any material Permit (not including Environmental
Permits which are covered by Section 3.15(a)) or other form of authorization
issued by a Governmental Entity;
(f) to the best knowledge of the Representing Parties, the
Company has not sold, assigned, leased, transferred, incurred any Encumbrance on
or license with respect to, or disposed of, abandoned, or conveyed any of its
properties or assets (whether real, personal or mixed, tangible or intangible),
except in the ordinary course of business consistent with past practice;
(g) the Company has not canceled any debts or claims, or
waived any rights of any material value;
(h) the Company has not made, or committed to make, any
capital expenditures except capital expenditures made in the ordinary course of
business as set forth on the Company's budget which in the aggregate do not
exceed $200,000;
(i) to the best knowledge of the Representing Parties, the
Company has not incurred any liabilities or obligations (whether absolute,
accrued or contingent, for borrowed money or otherwise, and whether due or to
become due) except liabilities or obligations incurred in the ordinary course of
business consistent with past practice;
(j) the Company has not paid, discharged or satisfied any
Encumbrance or liability (whether absolute, accrued, contingent or otherwise and
whether due or to become due), other than Encumbrances or liabilities which are
reflected or reserved against in the Financial Statements or incurred after the
respective dates thereof in the ordinary course of business consistent with past
practice and which were paid, discharged
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24
or satisfied in the ordinary course of business consistent with past practice;
(k) to the best knowledge of the Representing Parties, except
in respect of the transactions contemplated hereby, the Company has not (i)
entered into any employment, deferred compensation, retention, consulting or
similar agreement, (ii) granted or promised any bonus or severance payment to
any shareholder, director, officer, employee, distributor, independent
contractor or agent of the Company, (iii) created any additional Plan or
modified or amended any existing Plan (whether or not such Plan would increase
the benefit obligation to any director, officer, employee, distributor,
independent contractor or agent of the Company), or (iv) except in the ordinary
course of business, granted or promised any increase in the rates or terms of
compensation, conditionally or otherwise, including, without limitation, any
commission, bonus, pension, severance or vacation pay, employee welfare or
benefit payment or other direct or indirect remuneration, in each case to any
director, officer, employee, distributor, independent contractor or agent of the
Company;
(l) the Company has not declared, paid or made or set aside
for payment or making, any dividend or other payment or distribution of any kind
in respect of its capital stock or other securities, or to its security holders
(other than salary and benefits), or directly or indirectly retired, redeemed,
purchased or otherwise acquired any of its Shares or other securities, except
with respect to the redemption of existing options and warrants as contemplated
hereby;
(m) the Company has not issued, authorized or proposed the
issuance of, reclassified, or sold any shares of capital stock of the Company,
or securities convertible into or exchangeable or exercisable for, or rights,
warrants or options to acquire, any such shares or other convertible securities
or acquired any capital stock or other securities or interests of any Person, or
otherwise made a loan or advance to or investment in any Person, except for the
sale of Shares pursuant to the exercise of certain options and warrants as
contemplated hereby;
(n) the Company has not made any change in any accounting
methods, principles or practices (including, without limitation, changes in
depreciation or amortization policies or
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25
rates or relating to the establishment of accrual of reserves) or any material
election with respect to Taxes;
(o) the Company has not paid, loaned or advanced any amount to
or in respect of, or sold, transferred or leased any properties or assets
(whether real, personal or mixed, tangible or intangible) to, or entered to any
agreement, arrangement or transaction with, any Seller, other than salary, bonus
and benefits paid to any Seller who is an employee of the Company in the
ordinary course of business consistent with past practice;
(p) the Company has not entered into any lease, as lessor or
lessee, of real or personal property involving the expenditure of more than
$5,000, individually, or $10,000, in the aggregate, on a monthly basis;
(q) except as set forth on Schedule 3.14, to the best
knowledge of the Representing Parties, the Company has not (i) entered into any
Contract requiring annual payments in excess of $100,000 by the Company over the
term of such Contract, (ii) terminated or amended, breached, or failed to
perform in all material respects all of its obligations under, any Contract, and
to the best knowledge of the Representing Parties, no other party thereto has
terminated or amended, breached, or failed to perform in all material respects
all of its obligations under, any Contract;
(r) to the best knowledge of the Representing Parties, the
Company has not issued any warranties, express, implied or otherwise, with
respect to any products or services created, sold or licensed by the Company,
except in the ordinary and usual course of business consistent with past
practice (including those imposed by applicable law);
(s) the Company has not experienced any actual or, to the best
knowledge of the Representing Parties, threatened employee strikes, disputes,
work stoppages, slow-downs or lockouts, or had any material change in its
relationship with its employees, salesmen, distributors, or independent
contractors;
(t) the Company has not changed any of its significant
business policies;
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26
(u) the Company has not instituted, settled or agreed to
settle any litigation, action or proceeding before any Governmental Entity; or
(v) the Company has not agreed, whether in writing or, to the
best knowledge of the Representing Parties, otherwise, to take any action
described in this Section 3.14.
3.15 Environmental Matters. (a) Except as set forth in Schedule
3.15, the Company has obtained, with respect to the business of and the real
property owned or leased by the Company, all material permits, licenses, and
other authorizations which are required under federal, state and local statutes,
ordinances, and other laws in effect on the Closing Date relating to pollution
or protection of the environment ("Environmental Permits"), including laws and
regulations relating to emissions, discharges, releases, threatened releases,
investigations or remediation of pollutants, contaminants, chemicals, or
industrial, hazardous, or toxic materials or waste into the environment
(including, without limitation, ambient air, surface water, ground water, land
surface, sediments, building materials or subsurface strata) or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling of pollutants, contaminants, chemicals, or
industrial, hazardous, or toxic materials or wastes, or any regulation, rule,
code, plan, judicial order, decree, judgment, injunction, or notice issued,
entered, promulgated, or approved thereunder ("Environmental Laws"). All such
Environmental Permits are now and as of the Closing Date will be in full force
and effect, except for any Environmental Permits which singly or in the
aggregate the failure to obtain has not had a Material Adverse Effect. The
Company has, or as of the Closing Date will have, filed for all renewals of
Environmental Permits required to be filed as of the Closing Date, except for
any Environmental Permits which singly or in the aggregate the failure to obtain
has not had a Material Adverse Effect. A list of all material Environmental
Permits is set forth in Schedule 3.15. To the best knowledge of the Representing
Parties, except as set forth in Schedule 3.15, the Company, with respect to the
business of and the real property owned or leased by the Company, is in
compliance with all terms and conditions of such Environmental Permits and is
also in compliance, with respect to the business of and the real property owned
or leased by the Company, with all other requirements of Environmental Laws,
except for such lack of
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27
compliance, if any, which singly or in the aggregate has not had a Material
Adverse Effect.
(b) There is no pending civil, administrative or criminal
investigation, litigation, material notice of violation, or administrative
proceeding relating, with respect to the business of or the real property owned
or leased by the Company, in any way to Environmental Laws that, individually or
in the aggregate, would be reasonably likely to have a Material Adverse Effect.
(c) To the knowledge of the Representing Parties, with respect
to the business of or the real property owned or leased by the Company, there
have not been and there are not any conditions, circumstances, activities,
practices or incidents on-site or off-site, which may reasonably be expected to
prevent substantial compliance with existing Environmental Laws after the
Closing Date, require investigation or remediation pursuant to any Environmental
Law or otherwise form the basis of any claim, action or suit under any
Environmental Law based on or related to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling, or the
emission, discharge, release, or threatened release into the environment, of any
pollutant, contaminant, chemical, industrial, hazardous, or toxic material or
waste, including, without limitation, any liability arising, or any claim,
action, demand, suit, proceeding or investigation which may be brought, under
the Resource Conservation and Recovery Act, the Comprehensive Environmental
Response, Compensation and Liability Act or similar state or local laws that, in
the aggregate, would have a Material Adverse Effect on the Company (an
"Environmental Condition").
(d) To the knowledge of the Representing Parties, there are no
underground storage tanks, above ground storage tanks, polychlorinated biphenyls
or asbestos-containing materials present at any real property owned or leased by
the Company.
3.16 Accounts Receivable. Saugatuck has delivered to Buyer a list
and aging of all unpaid accounts receivable owing to the Company as of December
28, 1996. Except as set forth on Schedule 3.16, all accounts receivable of the
Company are bona fide receivables incurred in the ordinary course of business of
the Company, are collectible at the aggregate recorded amounts thereof, subject
to the reserve for doubtful accounts maintained by the Company in the ordinary
course of business, and are not
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28
subject to any known counterclaims or setoffs. To the extent the accounts
receivable listed on Schedule 3.16 are not collected by the Company after
exercising its best efforts, Buyer shall have the right to make an indemnity
claim pursuant to Article 8.
3.17 Inventories. All inventories of the Company are valued using
the FIFO method and are stated in accordance with U.S. GAAP at the lower of cost
or market.
3.18 Machinery and Equipment. (a) Owned Equipment. Schedule 3.18(a)
hereto sets forth a list of all material machinery, equipment, motor vehicles,
furniture and fixtures owned by the Company (collectively, the "Owned
Equipment").
(b) Leased Equipment. Schedule 3.18(b) hereto contains a list
of all leases or other agreements, whether written or oral, under which the
Company is lessee of or holds or operates any material items of machinery,
equipment, motor vehicles, furniture and fixtures or other property (other than
real property) owned by any third party (collectively, the "Leased Equipment").
3.19 Patents; Trademarks; Trade Names; Copyrights; Licenses, Etc.
Except as set forth on Schedule 3.19 hereto, there are no patents, trademarks,
trade names, service marks, service names and copyrights, and there are no
applications therefor or licenses thereof, inventions, trade secrets, computer
software, logos, slogans, proprietary processes and formulae and all other
proprietary information, know-how and intellectual property rights, whether
patentable or unpatentable, that are owned, licensed or leased by the Company or
used in the conduct of the Company's business. The Company is not a party to,
nor pays any royalty to anyone under, any license or similar agreement. Except
as set forth on Schedule 3.19, to the best knowledge of the Representing
Parties, there is no existing claim, or basis for any claim, against the Company
that any of its operations, activities or products infringe the patents,
trademarks, trade names, copyrights or other property rights of others or that
the Company is wrongfully or otherwise using the property rights of others.
3.20 Certain Liabilities. (a) Saugatuck has delivered to Buyer a
listing of all accounts payable owing by the Company as of December 28, 1996.
All accounts payable by the
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Company to third parties as of the date hereof arose in the ordinary course of
business and none are delinquent or past-due.
(b) Schedule 3.20 hereto sets forth a list of all indebtedness
and guarantees of the Company in excess of $50,000, other than accounts payable,
as of the close of business on the day preceding the date hereof, including,
without limitation, money borrowed, indebtedness of the Company owed to its
stockholders and former stockholders, the deferred purchase price of assets,
letters of credit and capitalized leases, indicating, in each case, the name or
names of the lender, the date of maturity, the rate of interest, any prepayment
penalties or premiums and the unpaid principal amount of such indebtedness as of
such date. Saugatuck has provided the Buyer with copies of all material
documents relating to such indebtedness. The Company is not in default in the
performance or observance of any obligation or condition with respect to any
indebtedness having a principal amount, individually or in the aggregate, in
excess of $1,000,000.
(c) Except as and to the extent set forth on Schedule 3.20, to
the best knowledge of the Representing Parties, the Company has no material
liabilities or obligations arising from or relating to its business and
operations of any nature (whether absolute, accrued, fixed, contingent,
liquidated, unliquidated or otherwise and whether due or to become due) which
were not reflected or reserved against in the Financial Statements, except for
liabilities or obligations incurred since December 28, 1996 in the ordinary
course of business and consistent with past practice and none of which
individually exceeds $100,000 or in the aggregate exceed $500,000. All reserves
established by the Company and set forth on the Financial Statements were
determined in accordance with U.S. GAAP. The sale of the Shares pursuant to this
Agreement will not cause the acceleration of or otherwise adversely affect the
terms or conditions of such liabilities or obligations.
3.21 Compensation and Consulting Arrangements. Set forth on Schedule
3.21 hereto is a list as of December 28, 1996 of all employees (including sales
representatives) and consultants of the Company earning over $50,000 per year in
total cash compensation for the fiscal year ended September 28, 1996, together
with the amount of total cash compensation paid to each such person for such
fiscal year and a listing of the current
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aggregate base salary or hourly rate (including any bonus or commission) for
each such person.
3.22 Insurance. (a) Schedule 3.22(a) hereto contains a list of all
policies of liability, theft, fidelity, life, fire, product liability and
worker's compensation, and other forms of insurance maintained by the Company
(specifying the insurer, amount of coverage, type of insurance, policy number
and any pending claims in excess of $50,000 thereunder). All such policies of
insurance are valid and in force and all premiums due and payable with respect
thereto are currently paid. No notice of cancellation or termination has been
received with respect to any such policy.
(b) Schedule 3.22(b) hereto sets forth a summary of
information pertaining to all pending and, to the best knowledge of the
Representing Parties, threatened, property damage and personal injury claims in
excess of $50,000 against the Company since October 1, 1995, all of which are
fully satisfied or are being defended by the insurance carrier and involve no
exposure to the Company.
3.23 Disclaimer of Other Representations and Warranties; Best
Knowledge; Disclosure. (a) The Representing Parties and Sellers do not make, and
have not made, any representations or warranties relating to Sellers or the
Company or any one of them or otherwise in connection with the transactions
contemplated hereby other than those expressly set out herein which are made by
the Representing Parties and any Seller. Subject to the last sentence of this
Section 3.23(a), without limiting the generality of the foregoing, the
Representing Parties and Sellers have not made, and shall not be deemed to have
made, any representations or warranties in any presentation of the business of
the Company in connection with the transactions contemplated hereby, and no
statement contained in any such presentation shall be deemed a representation or
warranty hereunder or otherwise. Subject to the last sentence of this Section
3.23(a), it is understood that any cost estimates, projections, forecasts or
other predictions, any data, any financial information or any memoranda or
offering materials or presentations are not and shall not be deemed to be or to
include representations or warranties of the Representing Parties or Sellers. No
Person has been authorized by the Representing Parties or Sellers to make any
representation or warranty relating to Sellers or the Company or otherwise in
connection
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31
with the transactions contemplated hereby and, if made, such representation or
warranty must not be relied upon as having been authorized by the Representing
Parties or Sellers. No representation or warranty by the Representing Parties or
Sellers in this Agreement and no statement by the Representing Parties or
Sellers in any document referred to herein (including the Schedules and Exhibits
hereto), contains any untrue statement of a material fact or omits to state any
material fact necessary, in order to make the statements made herein or therein,
in light of the circumstances under which they were made, not misleading.
(b) Whenever a representation or warranty made herein by the
Representing Parties or Sellers refers to the "knowledge" or "best knowledge" of
the Representing Parties or Sellers, such knowledge or best knowledge shall be
deemed to consist only of the actual knowledge of any of those persons listed on
Schedule 3.23. Whenever any representation or warranty is made as to the
"knowledge" or "best knowledge" of the Representing Parties or Sellers, the
Representing Parties and Sellers shall have made due inquiry as to the accuracy
of such representation or warranty, but need not have undertaken, nor shall they
have any duty to undertake, any special investigation concerning any such
matter.
(c) Notwithstanding anything to the contrary contained in this
Agreement or in any of the Schedules, any information disclosed in one Schedule
shall be deemed to be disclosed in all Schedules only to the extent that such
information is cross-referenced in each applicable Schedule. Certain information
set forth in the Schedules is included solely for informational purposes and may
not be required to be disclosed pursuant to this Agreement. The disclosure of
any information shall not be deemed to constitute an acknowledgment that such
information is required to be disclosed in connection with the representations
and warranties made by the Representing Parties or Sellers and in this Agreement
or is material, nor shall such information be deemed to establish a standard of
materiality.
3.24 Product Liability. Except as and to the extent set forth on
Schedule 3.24, there are not presently pending, or to the best knowledge of the
Representing Parties, threatened, any civil, criminal or administrative actions,
suits, demands, claims, hearings, notices of violation, investigations,
proceedings or demand letters relating to any alleged hazard or
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alleged defect in design, manufacture, materials or workmanship, including,
without limitation, any failure to warn or alleged breach of express or implied
warranty or representation, relating to any product manufactured, distributed or
sold by or on behalf of the Company. The Company has not extended to its
customers any written non-uniform product warranties, indemnifications or
guarantees.
3.25 Prior Acquisitions. With regard to the Asset Purchase Agreement
by and among the Company, Olympic Manufacturing Group, Inc. ("Old Olympic"),
Tamarack Realty ("Tamarack"), Xxxxxx Xxxxxxxx and Xxxxxx Xxxxxxxx (collectively,
Old Olympic, Tamarack, Xxxxxx Xxxxxxxx and Xxxxxx Xxxxxxxx are referred to
herein as the "Prior Sellers"), dated as of May 26, 1994 (the "Prior Acquisition
Agreement"):
(a) there have been and there are no claims for
indemnification of Buyer Damages (as defined in the Prior Acquisition Agreement)
by the Company against the Prior Sellers pursuant to the Agreement or otherwise;
(b) there have been and to the best knowledge of the
Representing Parties there are no claims for indemnification by the Prior
Sellers against the Company pursuant to the Agreement or otherwise;
(c) to the best knowledge of the Representing Parties, the
provisions of Article 10 of the Prior Acquisition Agreement, to the extent set
forth therein, are in full force and effect and are enforceable by the Company
against the Prior Sellers in accordance with their terms and such rights to
indemnification have not been assigned, terminated, waived, subrogated,
transferred, limited or forgiven in any way; and
(d) all amounts payable to the Prior Sellers pursuant to the
Prior Acquisition Agreement and the Note (as defined in the Prior Acquisition
Agreement) have been paid in full, except pursuant to the Employment and
Consulting Agreement between the Company and Xxxxxx Xxxxxxxx; the Escrow
Agreement (as defined in the Prior Acquisition Agreement) has been terminated in
accordance with its terms and is of no further force or effect. Saugatuck has
provided, or before the Closing Date shall provide, evidence of such payment and
termination to Buyer.
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3.26 Take or Pay Contracts. Except for the contract with Xxxxxxxx
Corporation (which the Representing Parties do not believe is a "take or pay"
contract) neither the Company nor any of its Subsidiaries is a party to any
material arrangement for the purchase of materials, supplies, other property or
services that by its express terms requires that payment be made by the Company
or any of its Subsidiaries regardless of whether such materials, supplies, other
property or services are delivered or furnished to it.
3.27 Restrictive Agreements. Except for the Company's existing
Credit Agreement dated as of December 12, 1996 between the Company and
NationsBank, N.A., as agent for the lenders party thereto, (the "Company Credit
Agreement"), which shall be terminated at or prior to the Closing, neither the
Company nor any of its Subsidiaries is a party to any agreement prohibiting its
ability to make any payments, directly or indirectly, to its equity holders by
way of dividends, advances, repayments of loans or advances, reimbursement or
management and other intercompany charges, expenses and accruals or other
returns on investments or any other payment of any nature whatsoever.
3.28 Nature of Business. Neither the Company nor any of its
Subsidiaries is engaged in the business of extending credit for the purpose of
purchasing or carrying margin stock. Neither the Company nor any its
Subsidiaries is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended, or a "holding company", or an "affiliate" of a
"holding company" or of a "subsidiary company" of a "holding company", within
the meaning of the Public Utility Holding Company Act of 1935, as amended.
3.29 Judgments. There are no outstanding judgments or orders for the
payment of money in excess of $1,000,000 that have been rendered against the
Company or any of its Subsidiaries.
3.30 Existing Indebtedness. Schedule 3.30 hereto contains a true and
complete list of all indebtedness of the Company other than accounts payable.
3.31 Accounts Payable. All accounts payable of the Company at the
Closing Date will, over the prior 120 days, average less than seventy (70) days
outstanding.
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ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Sellers that:
4.1 Organization. Buyer is a corporation duly organized and validly
existing and in good standing under the laws of the State of New York.
4.2 Corporate Authority. Buyer has full corporate power and
authority to enter into the Agreements and to consummate the transactions
contemplated hereby and thereby. The execution, delivery and performance by
Buyer of the Agreements have been duly authorized by all requisite corporate
action. This Agreement has been, and each of the other Agreements will be as of
the Closing Date, duly executed and delivered by Buyer, and (assuming due
execution and delivery by Sellers) this Agreement constitutes, and each of the
other Agreements when executed and delivered will constitute, a valid and
binding obligation of Buyer, enforceable in accordance with its terms, except as
such enforceability may be limited by bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally or by general equitable
principles.
4.3 Consents and Approvals; No Violation. Except for consents
already received and except for applicable requirements of the HSR Act, there is
no requirement applicable to Buyer to make any filing with, or to obtain any
permit, authorization, consent or approval of a Governmental Entity as a
condition to the lawful consummation by Buyer of the transactions contemplated
by this Agreement. Except for consents already received and except for
applicable requirements of the HSR Act, neither the execution and delivery of
this Agreement by Buyer, nor the consummation by Buyer of the transactions
contemplated hereby, nor compliance by Buyer with any of the provisions hereof
will (i) conflict with or result in any breach of any provision of the
certificate of incorporation or bylaws of Buyer, (ii) result in a breach of, or
default under (or give rise to any right of termination, cancellation or
acceleration under), any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, license, agreement, lease or other instrument or
obligation to which Buyer is a party, or by which any of its businesses,
properties or assets may be bound or (iii) violate any order, judgment, writ,
injunction, decree, statute, rule or regulation applicable to Buyer or the
Buyer's assets or
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properties, in each case that would prevent the execution, delivery and
performance by Buyer of this Agreement and the consummation of transactions
contemplated hereby.
4.4 Investment Intent. Buyer is acquiring the Shares for its own
account for investment and not with a view to any distribution thereof.
4.5 Litigation. There is no action, suit, proceeding or
investigation as of the date hereof pending or to the best knowledge of Buyer,
threatened against Buyer at law, in equity or otherwise, in, before, or by any
court of competent jurisdiction which would materially and adversely affect
Buyer's ability to consummate the transactions contemplated hereby.
4.6 Knowledge of Buyer. To the knowledge of Buyer, except for the
environmental matters disclosed to Sellers by Buyer in the draft Phase I
Environmental Site Assessment, Limited Subsurface Investigation, and Preliminary
Regulatory Compliance Screening prepared by Paragon Environmental Services,
Inc., prior to the date hereof, nothing has come to the attention of Buyer
during the course of its due diligence investigation of the Company as of the
date of this Agreement which would give rise to a claim for indemnification of
Buyer Losses (as defined herein) under Section 8.1(a)(i) hereof.
ARTICLE 5.
CERTAIN COVENANTS AND AGREEMENTS
OF SELLERS AND BUYER
5.1 Conduct of Business Prior to the Closing Date.
(a) During the period from the date of this Agreement through
the Closing Date, the Representing Parties shall cause the Company, except as
provided in Section 5.1(c) and (d), (i) to conduct its business in the ordinary
and usual course consistent with past practice and (ii) to use commercially
reasonably efforts to maintain and preserve intact the Company's business, to
keep available the services of its officers and employees and to maintain
satisfactory relations with lessors, suppliers, contractors, distributors,
customers and others having business relationships with the Company.
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(b) During the period from the date of this Agreement through
the Closing Date, the Representing Parties shall cause the Company to do each of
the following:
(i) promptly advise Buyer in writing of (A) any Material
Adverse Effect on the Company; (B) the occurrence of any event which
causes the representations and warranties made by the Representing Parties
or the Sellers in this Agreement or the information included in the
Schedules attached hereto to be incomplete or inaccurate in any material
respect; and (C) the receipt of any inquiry relating to an Acquisition
Proposal (as defined below) from a third party, including the identity of
the third party and a copy of the inquiry; and
(ii) prior to the Closing Date, prepare updated
Schedules under the signature of its Chief Executive Officer setting forth
all information (including information not previously disclosed) necessary
to make all representations and warranties of the Representing Parties and
the Sellers accurate as of the Closing Date. The parties expressly
acknowledge and agree that the determination whether and to what extent
any representation or warranty has been breached for any purpose in this
Agreement (including rights to indemnification for breach of
representations and warranties) shall be made without reference to such
updated Company Schedules.
(c) During the period from the date of this Agreement through
the Closing Date, the Representing Parties shall cause the Company not to do any
of the following, except as expressly contemplated hereby, without Buyer's prior
written
consent:
(i) undertake a course of action inconsistent with this
Agreement or which would cause any representation or warranty in this
Agreement to become materially inaccurate or which would prevent any
condition precedent to their obligations under this Agreement from being
satisfied at or prior to the Closing Date;
(ii) amend the Company's organizational documents as
previously delivered to Buyer;
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(iii) except for the issuance of Shares upon exercise of
options and warrants outstanding on the date hereof, issue any of the
Company's capital shares or grant any options, warrants or rights to
acquire any capital shares, or modify the terms or waive any rights under
any options, warrants or other securities currently outstanding; or
declare, set aside or pay any dividend or make any other distribution in
respect of the Company's capital shares, or make any direct or indirect
redemption, purchase or other acquisition of the Company's capital shares,
except as contemplated hereby;
(iv) undertake any stock split, combination
recapitalization, reorganization or similar transaction;
(v) solicit, encourage, negotiate, provide information
for, or otherwise cooperate in any way with, assist, or facilitate, and
the Representing Parties shall use their best efforts to prevent any
officers and directors, employees, representatives and agents of the
Company or any Seller from assisting or facilitating, any of the
following:
(A) any merger or consolidation of the Company
with any person other than Buyer,
(B) any sale of material assets of the Company,
except in the ordinary course of business, to any person other than Buyer,
(C) any equity or debt investment in the Company
by any person, except for the repayment of indebtedness of approximately
$1,000,000 plus accrued interest to Saugatuck with the proceeds of a
drawdown on the facility under the Company Credit Agreement, or
(D) any purchase of outstanding securities of the
Company by any person, except by Buyer and except for the exercise of
options and warrants as contemplated hereby, (any of the foregoing an
"Acquisition Proposal");
(vi) make any investment in any other business or entity
through purchase of stock or securities, contribution to capital, property
transfer, purchase of
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property or assets or otherwise (except short-term investments of idle
funds in the ordinary course of business consistent with past practice);
(vii) make any loans to or engage in transactions with
any of their stockholders, officers, directors or employees, except in the
ordinary and usual course consistent with past practice and except with
respect to existing options and warrants as contemplated hereby;
(viii) except pursuant to employment agreements existing
on the date hereof or as contemplated by the transactions which are the
subject of this Agreement or as required by applicable laws, (A) increase
the compensation payable or to become payable or grant any incentive or
equity-based awards to its executive officers (other than in accordance
with Plans as in effect on the date hereof), (B) grant any severance or
termination pay to, or enter into any employment or severance agreement
with, any director or executive officer, of the Company (other than in
accordance with Plans as in effect on the date hereof) or (C) establish,
adopt, enter into or amend in any material respect or take any action to
accelerate any rights or benefits under any Plan (other than as required
by applicable law);
(ix) impair any of its copyrights, trademarks or other
intellectual property rights;
(x) alter the manner of keeping its books and accounts
or accounting practices and procedures;
(xi) revalue any of its assets, including without
limitation writing down the value of inventory or accounts receivable
other than in the ordinary course of business consistent with past
practice or as contemplated by the Company's budget;
(xii) make any material Tax election except in the
ordinary course of business consistent with past practice, change any
material Tax election already made, adopt any material Tax accounting
method except in the ordinary course of business consistent with past
practice, change any material Tax accounting method, enter into any
closing agreement, settle any Tax claim or assessment or
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consent to any Tax claim or assessment or any waiver of the statute of
limitations for any such claim or assessment, except as contemplated
hereby;
(xiii) fail to maintain its qualifications to do
business in every state in which such qualification is required, or fail
to maintain any other material permit, license, authorization or approval
required or useful to the operations of its business, except where such
failure would not have a Material Adverse Effect;
(xiv) make any capital expenditure or other purchase of
or improvements to any fixed asset except in the ordinary course of
business as set forth on the Company's budget; or
(xv) collect accounts receivable other than in the
normal course of business in accordance with past practice of the Company;
(xvi) enter into contracts with Xxxxxxx Door Corporation
or N.T.B. Fastening Systems, Inc., each of which could be construed as a
"take or pay" contract; or
(xvii) agree to do any of the foregoing.
(d) During the period from the date of this Agreement through
the Closing Date, the Representing Parties shall cause the Company not to do any
of the following, except as expressly contemplated hereby, without first
consulting with Buyer:
(i) waive any material rights arising out of the conduct
of, or with respect to, the Company or its business;
(ii) except as contemplated by this Agreement, enter
into, amend in any material respect or terminate any material sales agency
or distribution agreement, any management or employment or consulting
agreement, any lease, operating lease, capital lease, sale-leaseback or
similar transaction, material license or material royalty agreement, or
any other material agreement or Contract or waive any rights thereunder in
any material respect;
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(iii) incur any material obligation other than in
ordinary course of business, or mortgage, pledge or subject to an
Encumbrance any of its property or assets;
(iv) except for the repayment of indebtedness of
approximately $1,000,000 plus accrued interest to Saugatuck with the
proceeds of a drawdown on the facility under the Company Credit Agreement,
borrow money or incur new or additional indebtedness (other than accounts
payable or trade payables incurred in the ordinary course of business) or
lend money to any person (other than travel and similar advances to
employees in the ordinary course of business) or incur any contingent
liability as a guarantor or otherwise with respect to the obligations of
any person; or
(v) incur liabilities in connection with the leasing of
property, equipment or other assets.
(e) During the period from the date of this Agreement through
the Closing Date, the Representing Parties shall cause the Company not to, and
each Seller shall not, and shall not authorize or permit any of their respective
subsidiaries, officers, directors or employees or any of their respective
independent auditors, counsel, other advisors or representatives, directly or
indirectly, to (i) solicit, initiate or knowingly encourage or induce the making
of any Acquisition Proposal, (ii) furnish information regarding the Company in
connection with an Acquisition Proposal or potential Acquisition Proposal, (iii)
negotiate or engage in discussions with any third party with respect to any
Acquisition Proposal, (iv) approve, endorse or recommend any Acquisition
Proposal or (v) enter into any letter of intent, contract or other instrument
related directly or indirectly to any Acquisition Proposal.
(f) During the period from the date of this Agreement through
the Closing Date, the Representing Parties shall cause the Company to promptly
advise Buyer orally and in writing of the receipt of any Acquisition Proposal or
any inquiry relating to an Acquisition Proposal prior to the Closing Date.
(g) During the period from the date of this Agreement through
the Closing Date, the Representing Parties shall cause the Company to
immediately cease and cause to be terminated any discussions or negotiations
with any parties
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existing as of the date of this Agreement and that relate to any Acquisition
Proposal.
5.2 Tax Covenants. (a) (i) Except as provided in Section 5.2(a)(ii),
and subject to Section 5.2(a)(iii), Buyer shall timely prepare and file, or
cause to be prepared and filed, all Returns of the Company required to be filed
after the Closing Date and shall timely pay, or cause to be paid, when due all
Taxes relating to such Returns. Such Returns shall be prepared or completed in a
manner consistent with prior practice of the Company with respect to Returns
concerning the income, properties or operations of the Company (including
elections and accounting methods and conventions), except as otherwise required
by law or regulation or otherwise agreed to by Saugatuck prior to the filing
thereof.
(ii) Subject to Section 5.2(a)(iii), Saugatuck shall timely
prepare, or cause to be prepared, the United States federal income tax return of
the Company for the taxable period ending on the Closing Date, as well as any
similar state and local income tax Returns of the Company for taxable periods
ending as a result of the sale and purchase of the Shares pursuant to this
Agreement. Such Returns shall be prepared or completed in a manner consistent
with prior practice of the Company with respect to Returns concerning the
income, properties or operations of the Company (including elections and
accounting methods and conventions), except as otherwise required by law or
regulation or otherwise agreed to by Buyer prior to the filing thereof. Subject
to Section 5.2(a)(iii), Buyer shall timely file, or cause to be filed, all such
Returns and shall timely pay, or cause to be paid, when due all Taxes relating
to such Returns. Within a reasonable time after the due date for filing any such
Returns, Saugatuck shall deliver to Buyer an invoice for one-half the cost of
preparing such Returns, including without limitation all fees and expenses, and
Buyer shall, within 5 days after receipt of such invoice, pay to Saugatuck the
amount shown as due thereon.
(iii) With respect to any Return (including any Return in
respect of estimated Taxes) described in Section 5.2(a)(i) or (ii) that covers
or includes any Pre-Closing Period and is due to be filed on or before the later
of the first anniversary of the Closing Date (the "First Anniversary") and the
first day as of which all Buyer claims against the Escrow Amount have been
resolved, the party responsible for preparing such
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Return pursuant to Section 5.2(a)(i) or (ii) shall, no later than 30 days before
the due date of such Return, send such Return to the other party for its review
and approval, which approval shall not be unreasonably withheld or delayed.
(iv) No later than 10 days before the due date of any Returns
described in Section 5.2(a)(i) or (ii), Buyer shall be entitled to receive from
the Escrow Agent, pursuant to the Escrow Agreement, a distribution amount equal
to the net tax payable due, if any, shown on such Returns to the extent
attributable to the Pre-Closing Period and to the extent not previously paid or
accrued on the books of the Company. For purposes of this Agreement, the amount
of Taxes attributable to any Straddle Period shall be determined based upon an
interim closing of the books as of the close of the Closing Date, except that
the amount of any Taxes that are imposed on a periodic basis shall be determined
by reference to the relative number of days in the pre-closing and post-closing
portions of such Straddle Period.
(v) Any disputes with respect to any Return described in
Section 5.2(a)(i) or (ii) arising on or before the later of the First
Anniversary and the first day as of which all Buyer claims against the Escrow
Amount have been resolved shall be resolved by a "Big Six" accounting firm
jointly selected by Buyer and Saugatuck; provided, however, that the pending
resolution of any such disputes shall not prevent the timely filing by Buyer of
any such Return, and distribution by the Escrow Agent to Buyer of the amounts
described in Section 5.2(a)(iv), as initially determined by Buyer. Any
overpayments or underpayments of such amounts determined by the independent
accountants to have been made shall be (A) in the case of an overpayment,
deposited with the Escrow Agent by Buyer (or, if the Escrow Agreement shall have
terminated, repaid by Buyer to Saugatuck (for pro rata distribution to the
Sellers in accordance with each Seller's percentage interest set forth in
Exhibit B hereto)) and (B) in the case of an underpayment (up to the Escrow
Amount), distributed by the Escrow Agent to Buyer (or, if the Escrow Agreement
shall have terminated, paid by the Sellers (pro rata in accordance with each
Seller's percentage interest set forth in Exhibit B hereto payable solely from
the Escrow Amount previously distributed to each Seller)) to Buyer, in each case
with interest at the rate for overpayments determined by Section 6621(a) (2) of
the Code from the date that such payment was made or due through the date of
such deposit or payment; provided
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further, however, that, except in extraordinary circumstances, Saugatuck and
Buyer shall cause any such disputes to be resolved prior to the First
Anniversary.
(b) Saugatuck shall have the right to represent the interests
of the Company in any Tax audit or administrative or court proceeding relating
to Returns for Pre-Closing Periods; provided, however, that Buyer shall have the
right to participate at its own expense in any such audit or proceeding to the
extent that any such audit or proceeding may affect the Tax liability of Buyer,
any of its affiliates or the Company for any period ending after the Closing
Date, and to employ counsel of its choice at its own expense for purposes of
such participation. Notwithstanding anything to the contrary contained or
implied in this Agreement, without the prior written approval of Buyer, which
approval shall not be unreasonably withheld, each Seller agrees that neither
such Seller nor any affiliate of such Seller shall agree or consent to
compromise or settle, either administratively or after the commencement of
litigation, any issue or claim arising in any such audit or proceeding, or
otherwise agree or consent to any Tax liability, to the extent that any such
compromise, settlement, consent or agreement may affect the Tax liability of
Buyer, any of its affiliates or the Company for any period ending after the
Closing Date.
(c) Buyer shall promptly notify Saugatuck (which shall notify
the other Sellers) in writing upon receipt by Buyer, any affiliate of Buyer or
the Company of notice of any pending or threatened Tax audits or assessments
relating to the income, properties or operations of the Company, in each case
for Pre-Closing Periods only, so long as Pre-Closing Periods remain open;
provided, however, that failure by Buyer to comply with this Section 5.2(c)
shall not affect Buyer's right to indemnification relating to Taxes if such
failure does not materially prejudice the rights of Sellers. Each Seller shall
promptly notify Saugatuck, which will in turn notify Buyer in writing, upon
receipt by such Seller or any affiliate of such Seller of notice of any pending
or threatened Tax audits or assessments relating to the income, properties or
operations of the Company.
(d) Except as provided in Section 5.2(a)(ii), each Seller
agrees that neither such Seller nor any affiliate of such Seller shall, without
the prior written consent of Buyer, file, or cause to be filed, any amended
Return or claim for Tax refund, with respect to the Company for any Pre-Closing
Period,
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to the extent that any such filing may affect the Tax liability of Buyer, any of
its affiliates, or the Company for any period ending after the Closing Date
(including, but not limited to, the imposition of Tax deficiencies, the
reduction of asset basis or cost adjustments, the lengthening of any
amortization or depreciation periods, the denial of amortization or depreciation
deductions, or the reduction of loss or credit carryforwards).
(e)(i) Notwithstanding anything to the contrary contained or
implied in this Agreement: (A) Saugatuck and Buyer shall, no later than the due
date for the first filed Return of the Company described in Section 5.2(a)(ii),
acting together reasonably and in good faith, and subject to the dispute
resolution provision of Section 5.2(a)(v), determine the Sellers' Tax Benefit
(as defined below); (B) within 15 business days after the Company, Buyer or any
of their affiliates Realizes (as defined below) a Tax Benefit (as defined below)
that is Realized at any time before the First Anniversary, Buyer shall, or shall
cause the Company to, deposit with the Escrow Agent an amount equal to 40% of
such Tax Benefit, to be held and disposed of pursuant to the Escrow Agreement;
and (C) no later than the fifth day immediately preceding the First Anniversary,
Buyer shall, or shall cause the Company to, deposit with the Escrow Agent an
amount equal to the Sellers' Tax Benefit (whether or not Realized by that day or
expected to be Realized at any other time) less the sum of all amounts
previously deposited with the Escrow Agent pursuant to clause (B) of this
Section 5.2(e)(i), to be held and disposed of pursuant to the Escrow Agreement.
For the avoidance of any doubt, except as expressly provided
in this Agreement, neither Buyer's obligation to make payments to the Escrow
Agent pursuant to this Section 5.2(e)(i), nor the amounts so payable, shall
depend upon any factor, including without limitation the earnings of the
Company, Buyer, any affiliate of Buyer, or any consolidated, affiliated or
combined group of which Buyer is a member, and Buyer shall in all events make
such payments in such amounts as provided herein notwithstanding any reason to
the contrary whatsoever.
(ii) For purposes of this Agreement, "Sellers' Tax Benefit"
means an amount equal to 40% of the sum of all Tax Benefits (as defined below).
(iii) For purposes of this Agreement, "Tax Benefit" means: (A)
in the case of a separate United States
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federal, state, local or other Tax Return (including an estimated Tax Return),
the sum of (x) the undiscounted amount by which the Tax liability of the Company
is or will be reduced (or would be reduced assuming the exercise of reasonable
diligence in Realizing any Tax Benefit at the earliest possible time) as a
result of a Transaction Deduction/Loss (as defined below) (including, without
limitation, by deduction, entitlement to refund, credit or otherwise, whether
available in the current taxable year (including a reduction in estimated Tax
payable), as an adjustment to taxable income in any other taxable year, as a
carryforward from a Pre-Closing Period to a taxable period beginning after the
Closing Date (a "Post-Closing Period"), or as a carryback from a Post-Closing
Period to a Pre-Closing Period, as applicable) and (y) any interest payable in
respect of such reduction in Tax liability; and (B) in the case of a
consolidated United States federal Tax Return (including an estimated Tax
Return) or any similar state or local Tax Return, the sum of (x) the
undiscounted, amount by which the Tax liability of the relevant consolidated,
combined or affiliated group of corporations is or will be reduced (or would be
reduced assuming the exercise of reasonable diligence in Realizing any Tax
Benefit at the earliest possible time) as a result of a Transaction
Deduction/Loss (including, without limitation, by deduction, entitlement to
refund, credit or otherwise, whether available in the current taxable year
(including a reduction in estimated Tax payable), as an adjustment to taxable
income in any other taxable year, as a carryforward from a Pre-Closing Period to
Post-Closing Period, or as a carryback from a Post-Closing Period to a
Pre-Closing Period, as applicable) and (y) any interest payable in respect of
such reduction in Tax liability.
(iv) For purposes of this Agreement, a "Transaction
Deduction/Loss" means any deduction, credit, refund, carryback, carryforward, or
loss for purposes of income Taxes arising in the taxable period of the Company
ending on the Closing Date or in connection with or as a result of the
transactions contemplated by this Agreement (including, without limitation, any
operating losses, deductions resulting from deferred financing charges and
deductions resulting from payments of cash or other property (including stock of
the Company) made by the Company with respect to options, warrants, or other
such securities in connection with the transactions contemplated by this
Agreement).
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(v) For purposes of this Agreement, a Tax Benefit shall be
deemed to have been "Realized" at the time any refund of Taxes is received or
applied against other Taxes due or, with respect to any periods beginning on or
after the Closing Date, at the time of filing of a Tax Return (including any Tax
Return relating to estimated Taxes) (other than an amended Tax Return or claim
for refund) on which a Transaction Deduction/Loss is applied in reduction of
Taxes that would otherwise be due; provided, however, that Transaction
Deduction/Losses shall be deemed to be the last items utilized in any such Tax
Return. In determining the amount of Tax Benefit Realized, the amount by which
the Tax liability of the Company, or a consolidated, combined or affiliated
group of which the Company is a member, is reduced shall be the excess of (A)
the Tax Liability for the period if such Tax Benefit had not been Realized over
(B) the actual Tax Liability for the period.
(vi) Following the Closing, Saugatuck, Buyer and the Company,
in consultation with one another, shall, and shall cause their affiliates to, in
either case absent a good faith determination by Buyer that such steps would
have a material adverse effect on the Company, Buyer, or their affiliates (which
determination shall not be unreasonably delayed), take, as promptly as is
reasonably practicable, all reasonable steps to ensure that all reasonably
available Tax Benefits are Realized at the earliest possible time, including,
without limitation, the filing of the Company's Returns for taxable periods
ending on or before the Closing Date, estimated Tax Returns of the consolidated,
combined or affiliated groups that include the Company for taxable periods
ending after the Closing Date, applications for tentative refunds and claims for
refund.
(vii) Unless otherwise agreed to by Saugatuck in its sole
discretion, Buyer and each Seller shall, to the fullest extent permitted by
applicable law, treat any Transaction Deduction/Loss as having occurred within
the taxable period of the Company ending on the Closing Date. It is also
understood that Buyer will have paid the full amount of the Sellers' Tax Benefit
to the Escrow Agent at or before the First Anniversary.
(f) Subject to Section 5.2(e), which alone shall apply to the
subject matter addressed therein, if Buyer or any affiliate of Buyer (including
the Company) receives a refund of Taxes directly relating to any Pre-Closing
Period of the Company (including but not limited to (A) a refund received in
respect of
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the Massachusetts tax refund claim filed by the Company in February 1997 (the
"Massachusetts Claim"), it being understood that (i) any carrybacks relating to
the Massachusetts Claim shall be for the account of Sellers; provided that
Sellers shall pay any additional federal income Tax payable by Buyer or the
Company as a result of the use of such carrybacks by Sellers and (ii) any
carryforwards relating to the Massachusetts Claim shall be for the account of
Buyer or (B) any refund in respect of an overpayment of estimated federal or
state taxes, for which the Company hereby agrees to file a claim) or if any
Seller receives a refund of any Taxes of the Company directly relating to any
Post-Closing Period, the party receiving such refund shall, within 30 days after
receipt of such refund, remit such refund (net of any Tax cost relating thereto)
to Saugatuck (for pro rata distribution to the Sellers in accordance with each
Seller's percentage interest set forth in Exhibit B hereto), in the case of
Taxes relating to a Pre-Closing Period, or Buyer, in the case of Taxes relating
to a Post-Closing Period. For purposes of this Section 5.2(f), the term "refund"
shall include a reduction in Tax and the use of an overpayment as a credit or
other Tax offset, and the receipt of a refund shall be deemed to occur upon the
filing of a Return or an adjustment thereto utilizing such reduction,
overpayment or offset upon the receipt of cash. Refunds attributable to any
Straddle Period shall be equitably apportioned pursuant to the principles of
this Agreement.
(g) Buyer shall cause the Company to make a valid and timely
election for United States federal income tax purposes (and any similar state,
local or other election) to waive its right to carry back any net operating loss
arising in its taxable year that will end on the Closing Date. The immediately
preceding sentence shall not be read to imply any restriction on Buyer's ability
to cause the Company to carry back a net operating loss from any taxable year
beginning after termination of the indemnity period set forth in Section 8.4.
(h) After the Closing Date, Buyer and Saugatuck shall provide
each other, and Buyer shall cause the Company to provide Saugatuck, with such
cooperation and information relating to the Company as either party reasonably
may request in (A) filing any Return, amended Return or claim for refund, (B)
determining any Tax liability or a right to refund of Taxes, (C) conducting or
defending any audit or other proceeding in respect of Taxes or (D) effectuating
the terms of this Agreement. The parties shall retain, and Buyer shall cause the
Company to
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retain, all Returns, schedules and work papers, and all material records and
other documents relating thereto, until the expiration of the statute of
limitation (and, to the extent notified by any party, any extensions thereof) of
the taxable years to which such Returns and other documents relate and, unless
such Returns and other documents are offered and delivered to Sellers or Buyer,
as applicable, until the final determination of any Tax in respect of such
years. Any information obtained under this Section 5.2 shall be kept
confidential, except as may be otherwise necessary in connection with filing any
Return, amended Return, or claim for refund, determining any Tax liability or
right to refund of Taxes, or in conducting or defending any audit or other
proceeding in respect of Taxes. Notwithstanding the foregoing, no Seller nor
Buyer, nor any of their respective affiliates, shall be required unreasonably to
prepare any document, or determine any information not then in its possession,
in response to a request under this Section 5.2(g).
(i) Buyer shall be liable for any transfer, real property
gains, documentary, sales, use, registration, stamp, value added or other
similar Taxes payable by reason of the transactions contemplated by this
Agreement or attributable to the sale, transfer or delivery of the Shares
hereunder and shall reimburse Sellers for any such Taxes paid by Sellers within
30 days after receipt of an invoice therefor. All Returns related to such Taxes
shall be filed by Buyer (unless required by law to be filed by Sellers).
5.3 Expenses and Finders' Fees. Buyer and each Seller will bear
their own transaction expenses in connection with this Agreement and its
performance that would not have been incurred in the ordinary course of the
Company's business. It is understood that the Company will continue to be
responsible for all audit, legal and tax fees and expenses incurred in the
ordinary course of its business. Each Seller, on the one hand, and Buyer, on the
other hand, each represents and warrants to the other that the negotiations
relative to this Agreement and the transactions contemplated hereby have been
carried on in such a manner as not to give rise to any valid claims against the
other party or the Company for a brokerage commission, finder's fee or other
like payment.
5.4 Access to Information; Verification of Inventory and
Confidentiality. (a) The Representing Parties shall, and
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shall cause the Company to, permit Buyer and its representatives at Buyer's
expense to have reasonable access during normal business hours, upon reasonable
advance notice, to the books and records and facilities of the Company for the
purpose of among other things verifying the representations and warranties of
the Representing Parties and Sellers hereunder, conducting a physical inventory
of product and equipment, and conducting an audit of the Company's financial
statements.
(b) Prior to execution of this Agreement, Buyer will have
verified (i) the adequacy of the inventory obsolescence reserve and completed a
net realizable value test of the inventory and (ii) the physical existence and
suitability for use of the tooling but Buyer shall not object to the valuation
methodology (including without limitation, cost standards and other procedures
used to value such items) of either the inventory or tooling. Any material
differences except for differences resolved pursuant to Section 5.4(d) (net of
existing balance sheet reserves for such items as of January 25, 1997) relating
to inventory or tooling in the aggregate shall have been resolved by Buyer and
Saugatuck prior to the execution of this Agreement and, if necessary, the
Purchase Price shall be adjusted as mutually agreed to by Saugatuck and Buyer.
(c) Buyer and each Seller hereby confirm the terms and
provisions of that certain Confidentiality Letter executed dated December 4,
1996 between Buyer and Saugatuck (the "Confidentiality Letter") and hereby
incorporate the Confidentiality Letter herein, in its entirety, by this
reference. Buyer and each Seller further acknowledge and agree that all
information provided to the Buyer hereunder shall constitute Confidential
Material (as such term is defined in the Confidentiality Letter), and that the
provisions of this Section 5.4, including the terms and provisions of the
Confidentiality Letter, shall survive the termination of this Agreement for any
reason before Closing.
(d) Buyer will conduct a physical inventory on March 1 and 2,
1997. Buyer shall be entitled to make an indemnity claim pursuant to Article 8
for variances that exceed all the inventory reserves set forth on the Company's
records as of February 28, 1997, in the aggregate, plus $100,000; provided, that
any indemnification claims made hereunder shall be paid from the first dollar
and shall not be subject to the $75,000 basket set forth in Section 8.5(c). If
the value of the physical
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inventory exceeds the amount set forth on the Company's records as of February
28, 1997 by more than $100,000, then Buyer will make payment in cash of an
amount equal to the excess of the value of the physical inventory over the
record amount to Saugatuck (for pro rata distribution to the Sellers in
accordance with each Seller's percentage interest set forth in Exhibit B
hereto).
(e) No claims shall be made after the execution of this
Agreement relating to valuation methodology, net realizable value or
obsolescence of inventory or tooling.
5.5 Press Releases. Any public announcements regarding the
transactions contemplated hereby shall be made only with the mutual consent of
Sellers and Buyer, except (i) as required by law or the rules of the New York
Stock Exchange (in which event Sellers will be notified before such announcement
is made) and (ii) Sellers shall be permitted to announce the sale after the
Closing to the trade and, in each Seller's discretion, to publish a so-called
"Tombstone" advertisement.
5.6 Books and Records. Buyer will, and will cause the Company to,
retain all books, records and other documents pertaining to the business of the
Company in existence on the Closing Date for a period of seven (7) years from
the Closing Date and to make the same available after the Closing Date for such
seven (7) year period for inspection and copying by Sellers at Sellers' expense
during the normal business hours of the Company, upon reasonable request and
upon reasonable advance notice. Without limiting the generality of the
foregoing, Buyer will, and will cause the Company to, make available to Sellers
and their representatives all information deemed necessary or desirable by
Sellers in preparing their respective financial statements and Returns and
conducting any audits in connection therewith.
5.7 Options and Warrants. On or before the Closing, Saugatuck shall
cause the Company to repurchase, cash out or cancel the outstanding options and
warrants as set forth in Article 1.
5.8 Accounts Payable. Saugatuck will cause the Company to pay at or
before the Closing (i) all accounts payable over ninety (90) days except for
accounts payable which are being disputed by the Company in good faith or are in
accordance with
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the payment terms plus ten days of a particular vendor and (ii) the Nissho Iwai
invoice #SH-2023-0 in the amount of approximately $130,500 relating to a
Nakashimada TH2-6A Cold Header.
5.9 Bank Waiver. Buyer shall use its best efforts to
obtain the requisite waivers from its banks as set forth in
Section 6.7.
ARTICLE 6.
CONDITIONS PRECEDENT OF BUYER
Buyer need not consummate the transactions contemplated by this
Agreement unless the following conditions shall be fulfilled or waived by the
Buyer:
6.1 Representations and Warranties. Except as otherwise contemplated
or permitted by this Agreement, (a) the representations and warranties of the
Representing Parties and Sellers contained in this Agreement or in any
certificate or document delivered to Buyer pursuant hereto shall be deemed to
have been made again at and as of the Closing Date and shall then be true in all
material respects, except to the extent that any representation or warranty is
made as of a specified date, in which case such representation and warranty
shall be true in all material respects as of such date, (b) Sellers shall have
performed and complied in all material respects with all agreements and
conditions required by this Agreement to be performed or complied with by
Sellers prior to or on the Closing Date, and (c) there shall not be issued or
outstanding any options, warrants or other rights of any kind to acquire any
shares of capital stock of the Company or securities convertible into or
exchangeable for any such shares of capital stock, and Buyer shall have been
furnished with a certificate of an appropriate officer of each Seller, dated the
Closing Date, certifying to the effect of clauses (a), (b) and (c) of this
Section 6.1 to the extent applicable to such Seller.
6.2 Opinion of Counsel. Buyer shall have been furnished with an
opinion dated the Closing Date of Winthrop, Stimson, Xxxxxx & Xxxxxxx, counsel
for Sellers, substantially in the form attached hereto as Exhibit C.
6.3 No Actions. No action, suit, or proceeding before any court or
governmental or regulatory authority shall be
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pending, no investigation by any governmental or regulatory authority shall have
been commenced, and no action, suit or proceeding by any governmental or
regulatory authority shall have been threatened, against Buyer, Sellers, the
Company, or any of the principals, officers or directors of any of them, seeking
to restrain, prevent or change the transactions contemplated hereby or
questioning the legality or validity of any such transactions or seeking damages
in connection with any such transactions.
6.4 Consents. All material consents, approvals and authorizations of
governmental and regulatory authorities, and all material filings with and
notifications of governmental authorities and regulatory agencies or other
entities which regulate the business of Sellers, the Company or Buyer, necessary
on the part of Sellers, the Company or Buyer, to the execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby,
shall have been obtained or effected (and all applicable waiting periods, if
any, including any extensions thereof, under any applicable law, statute,
regulation or rule, including but not limited to the HSR Act, if applicable,
shall have expired or terminated, as applicable).
6.5 Closing Documentation. Buyer shall have received the following
documents, agreements and instruments from Sellers:
(a) the stock certificates representing the Shares described
in Section 1.3 hereof;
(b) such duly signed resignations of directors and officers of
the Company as Buyer shall have previously requested;
(c) a certificate dated as of a recent date from (i) the
Secretary of State of the State of Delaware to the effect that the Company is
duly incorporated and in good standing in such state and stating that the
Company owes no franchise taxes in such state and listing all documents of the
Company on file with said Secretary of State, and (ii) a certificate of the
Secretary of State of the State of Massachusetts to the effect that the Company
is duly qualified as a foreign corporation and is in good standing in such
jurisdiction;
(d) a copy of the Company's Certificate of Incorporation,
including all amendments thereto, certified as of a recent date by the Secretary
of State of the State of Delaware;
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(e) evidence, reasonably satisfactory to Buyer, of the
authority and incumbency of the persons acting on behalf of Sellers in
connection with the execution of any document delivered in connection with this
Agreement; and
(f) such other instruments and documents as Buyer shall
reasonably request not inconsistent with the provisions hereof.
6.6 Approval of Legal Matters. The form of all instruments,
certificates and documents to be executed and delivered by Sellers to Buyer
pursuant to this Agreement and all legal matters in respect of the transactions
as contemplated hereby shall be reasonably satisfactory to Buyer and its
counsel, none of whose approval shall be unreasonably withheld or delayed.
6.7 Bank Waiver. Buyer shall have received the requisite waivers
from its banks pursuant to the Revolving Credit Agreement (the "Credit
Agreement"), dated as of September 28, 1994, among Buyer and the financial
institutions named therein, the Bank of Nova Scotia, Chemical Bank and The Bank
of New York, as co-agents, and The Bank of Nova Scotia, as administrative agent,
providing for a waiver (or amendment) (i) to the effect that the goodwill
created in connection with the transaction contemplated by this Agreement will
not be considered in calculating the tangible net worth of Buyer for purposes of
the Credit Agreement and (ii) with respect to any other matters required to be
waived or consented to under the Credit Agreement.
6.8 Escrow Agreement. Sellers, Buyer and the Escrow Agent shall have
entered into the Escrow Agreement substantially in the form attached hereto as
Exhibit A, pursuant to which the Escrow Amount will be held in escrow in order
to secure the obligations of the Sellers pursuant to Article 8 hereof.
6.9 Fleet Bank Waiver. The Company shall have received a waiver from
Fleet Capital Corporation ("Fleet") with respect to the technical default in the
Master Equipment Lease Agreement No. 31974-01 dated July 10, 1995 between the
Company and Fleet as a result of transactions entered into by the Company
with NationsBank, N.A.
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ARTICLE 7.
CONDITIONS PRECEDENT OF SELLERS
Sellers need not consummate the transactions contemplated hereby
unless the following conditions shall be fulfilled or waived by Saugatuck:
7.1 Representations and Warranties. Except as otherwise contemplated
or permitted by this Agreement, (a) the representations and warranties of Buyer
contained in this Agreement or in any certificate or document delivered to
Sellers pursuant hereto shall be deemed to have been made again at and as of the
Closing Date and shall then be true in all material respects, except to the
extent that any representation or warranty is made as of a specified date, in
which case such representation and warranty shall be true in all material
respects as of such date, and (b) Buyer shall have performed and complied in all
material respects with all agreements and conditions required by this Agreement
to be performed or complied with by it prior to or on the Closing Date, and
Sellers shall have been furnished a certificate of an appropriate officer of
Buyer, dated the Closing Date, certifying to the effect of clauses (a) and (b)
of this Section 7.1.
7.2 Opinion of Buyer's Counsel. Sellers shall have been furnished
with an opinion dated the Closing Date of Xxxx X. Xxxxx, Esq., general counsel
of Buyer, substantially in the form attached hereto as Exhibit D.
7.3 No Actions. No action, suit, or proceeding before any court or
governmental or regulatory authority shall be pending, no investigation by any
governmental or regulatory authority shall have been commenced, and no action,
suit or proceeding by any governmental or regulatory authority shall have been
threatened, against Buyer, Sellers, the Company, or any of the principals,
officers or directors of any of them, seeking to restrain, prevent, or change
the transactions contemplated hereby or questioning the legality or validity of
any such transactions or seeking damages in connection with any such
transactions.
7.4 Consents. All material consents, approvals and authorizations of
governmental and regulatory authorities, and all material filings with and
notifications of governmental authorities and regulatory agencies or other
entities which regulate the business of Sellers, the Company or Buyer, necessary
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on the part of Sellers, the Company or Buyer, to the execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby,
shall have been obtained or effected (and all applicable waiting periods, if
any, including any extensions thereof, under any applicable law, statute,
regulation or rule, including but not limited to the HSR Act, if applicable,
shall have expired or terminated, as applicable).
7.5 Closing Documentation. Sellers shall have received the following
documents, agreements and instruments from Buyer:
(a) payment of the Purchase Price pursuant to Section 1.2
hereof;
(b) evidence, reasonably satisfactory to Saugatuck, of the
authority and incumbency of the persons acting on behalf of Buyer in connection
with the execution of any document delivered in connection with this Agreement;
and
(c) such other instruments and documents as Saugatuck shall
reasonably request not inconsistent with the provisions hereof.
7.6 Approval of Legal Matters. The form of all certificates,
instruments and documents to be executed or delivered by Buyer to Sellers
pursuant to this Agreement and all legal matters in respect of the transactions
as contemplated hereby shall be reasonably satisfactory to Saugatuck and its
counsel, none of whose approval shall be unreasonably withheld or delayed.
7.7 Escrow Agreement. The Sellers, Buyer and the Escrow Agent shall
have entered into the Escrow Agreement.
7.8 No Material Adverse Change. As of the Closing Date, there shall
have been no material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), cash flows or results of operations of
the Company considered as a whole since the date hereof.
7.9 Repayment of Xxxxxx & Xxxxxx Indebtedness. The indebtedness to
Xxxxxx & Xxxxxx as set forth on Schedule 1.4 shall be paid in full.
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ARTICLE 8.
INDEMNIFICATION
8.1 Indemnification by Sellers. Notwithstanding that certain of the
representations and warranties set forth in Article 3 hereof are being made only
by certain of the Sellers, each of the Sellers severally and not jointly hereby
agree to defend, indemnify and hold harmless Buyer, the Company, and their
respective successors, assigns and affiliates (collectively, the "Buyer
Indemnitees") from and against any and all losses, deficiencies, liabilities,
damages, assessments, judgments, costs and expenses, including reasonable
attorneys' fees (collectively, "Buyer Losses"), caused by, resulting from or
arising out of:
(a) (i) breaches of the representations and warranties
hereunder on the part of the Representing Parties and any Seller; and/or (ii)
failures by any Seller to perform or otherwise fulfill any undertaking or other
agreement or obligation hereunder; and/or
(b) any Environmental Condition arising in connection with
real property owned or the business operated by the Company and resulting from
the Company's or its predecessors' ownership or operation of its business or the
real property owned or leased by the Company or its predecessors or arising
under any Environmental Laws or Environmental Permits, in each case existing on
or prior to the Closing Date, whether or not known to Buyer, the Company or
Sellers at the time of Closing and regardless of whether or not such events
constitute a breach of a representation or warranty hereunder; provided, however
that such indemnity shall be limited solely to remediation (i) the need for
which has arisen as a result of the Company's or its predecessors' ownership or
operation of such real property or the business prior to the Closing and (ii) is
required under applicable Environmental Laws; and/or
(c) any and all actions, suits, proceedings, claims, demands,
incident to any of the foregoing or such indemnification;
provided, however, that if any claim, liability, demand, assessment, action,
suit or proceeding shall be asserted in respect of which a Buyer Indemnitee
proposes to demand indemnification ("Buyer Indemnified Claims"), Buyer or such
other
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Buyer Indemnitee shall notify Saugatuck thereof, provided, further, however,
that failure to give such notification shall not affect the indemnification
provided hereunder except to the extent the indemnifying party shall have been
actually prejudiced as a result of such failure. Subject to rights of or duties
to any insurer or other third Person having liability therefor, Saugatuck shall
have the right promptly upon receipt of such notice to assume the control of the
defense, compromise or settlement of any Buyer Indemnified Claims arising out of
a lawsuit or claim brought by a third party (provided that any compromise or
settlement must include as an unconditional term thereof the delivery by the
claimant or plaintiff to the indemnified party of a written release from all
liability in respect of such claims and must otherwise be reasonably approved by
Buyer), including, at its own expense, employment of counsel reasonably
satisfactory to Buyer; provided, however, that if Saugatuck shall have exercised
its right to assume such control, Buyer may, in its sole discretion and at its
expense, employ counsel to represent it (in addition to counsel employed by
Saugatuck) in any such matter, and in such event counsel selected by Saugatuck
shall be required to cooperate with such counsel of Buyer in such defense,
compromise or settlement.
8.2 Indemnification by Buyer. Buyer hereby agrees to defend,
indemnify and hold harmless Sellers and their respective successors, assigns and
affiliates (collectively, "Seller Indemnitees") from and against any and all
losses, deficiencies, liabilities, damages, assessments, judgments, costs and
expenses, including reasonable attorneys' fees (collectively, "Seller Losses"),
resulting from or arising out of:
(a) (i) breaches of the representations and warranties
hereunder on the part of Buyer; (ii) failures by Buyer to perform or otherwise
fulfill any undertaking or agreement or obligation hereunder; and/or (iii) any
action, suit, proceeding or claim against any Seller Indemnitees with respect to
employees of the Company ("Company Employees") incident to events arising on or
after the Closing Date including but not limited to (A) termination of
employment; (B) changes in compensation or terms and conditions of employment;
and (C) changes in or failure to comply with the terms of any employee benefit
or compensation plans or programs (or any legal requirement applicable thereto);
and/or
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(b) any and all actions, suits, proceedings, claims and
demands incident to any of the foregoing or such indemnification;
provided, however, that if any claim, liability, demand, assessment, action,
suit or proceeding shall be asserted in respect of which such Seller Indemnitee
proposes to demand indemnification ("Seller Indemnified Claims"), Sellers shall
notify Buyer thereof, provided, further, however, that failure to give such
notification shall not affect the indemnification provided hereunder except to
the extent the indemnifying party shall have been actually prejudiced as a
result of such failure. Subject to rights of or duties to any insurer or other
third Person having liability therefor, Buyer shall have the right promptly upon
receipt of such notice to assume the control of the defense, compromise or
settlement of any such Seller Indemnified Claims arising out of a lawsuit or
claim brought by a third party (provided that any compromise or settlement must
include as an unconditional term thereof the delivery by the claimant or
plaintiff to the indemnified party of a written release from all liability in
respect of such claims and must otherwise be reasonably approved by Sellers)
including, at their own expense, employment of counsel reasonably satisfactory
to Sellers; provided, however, that if Buyer shall have exercised its right to
assume such control, Sellers may, in their sole discretion and at their expense,
employ counsel to represent them (in addition to counsel employed by Buyer) in
any such matter, and in such event counsel selected by Buyer shall be required
to cooperate with such counsel of Sellers in such defense, compromise or
settlement.
8.3 Remedies. Except as specifically provided in this Agreement, the
sole and exclusive remedy of both Buyer and Sellers hereunder for breaches of
representations, warranties and covenants shall be restricted to the
indemnification rights set forth in this Article 8, including the right to
enforce such indemnification rights.
8.4 Period of Indemnity. The indemnities contained in Sections 8.1
and 8.2 hereof shall expire one (1) year from the Closing Date, except with
respect to (i) Section 5.4(d) relating to inventory and tooling which will
expire on the close of business on Xxxxx 00, 0000, (xx) Sections 3.17 and 5.4
(except Section 5.4(d)) relating to inventory and tooling which will expire on
the date hereof and (ii) Buyer Losses or Seller Losses
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as to which notice has been given pursuant to Sections 8.1 or 8.2 within such
period, in which case the indemnification period shall be extended until final
resolution of such losses.
8.5 Certain Limitations. (a) Notwithstanding any other provision
hereof, Sellers shall not be liable for punitive damages or any damages that
Buyer could have avoided by exercise of prudent business practices or are a
result of Buyer's bad faith, gross negligence or misconduct.
(b) Payments by Sellers shall be limited to Buyer Reimbursable
Losses (as defined below) that remain after deducting therefrom (i) any
insurance proceeds actually received by Buyer, (ii) any indemnity, contribution
or other similar payment recovered by the Buyer Indemnitees from any third party
with respect thereto and (iii) any Tax benefit to the Buyer Indemnitees arising
as a result of recognizing on any Tax Return the Buyer Reimbursable Losses
giving rise to the indemnification payment. The calculation of the amount due in
the preceding sentence shall be increased such that the indemnification payment
less any income Taxes payable by the Buyer Indemnitees, solely as a result of
having received such indemnification payment, equals the Buyer Reimbursable
Losses giving rise to the indemnification payment. To the extent such Buyer
Reimbursable Losses do not result in a Tax benefit in the taxable period in
which such Buyer Reimbursable Losses are incurred, the Buyer shall cause the
Company to transfer to the Sellers the amount of such Tax benefit within 30 days
of the date such Tax benefit is actually realized. Buyer shall file, or shall
cause to the Company to file, for and obtain any refunds or credits to which
Sellers are entitled under this Section 8.5, unless Buyer determines in good
faith that such action will have a Material Adverse Effect, directly or
indirectly, on the Company or Buyer. Notwithstanding anything to the contrary
contained or implied herein, Sellers and Buyer agree that, to the extent
permitted by applicable law, they shall treat any indemnification payment made
pursuant to this Agreement as an adjustment to the Purchase Price.
(c) Sellers' obligation to indemnify for Buyer Losses under
this Agreement shall be limited to Buyer Losses that individually, and after the
application of Section 8.5(b), exceed $5,000 ("Buyer Reimbursable Losses") and
only after the aggregate of all such Buyer Reimbursable Losses exceeds
Seventy-five Thousand Dollars ($75,000), in which event, indemnification shall
be made by Sellers from the first dollar of such Buyer
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Reimbursable Losses, provided that breaches of the representation and warranty
contained in Section 3.16 (Accounts Receivable) shall be limited to Buyer Losses
that individually exceed $1,000 and shall not be subject to such $75,000
"basket." If Buyer makes a claim for indemnification hereunder relating to
accounts receivable, then Saugatuck shall have the right to collect payment from
the person which originated the account receivable without interference from the
Company, which will cooperate with Saugatuck in attempting to collect such
account receivable and supply Saugatuck with all information necessary to
collect such payment. Sellers shall have no obligation to make any
indemnification payments under this Agreement for items which have a reserve on
the Company's balance sheet as of January 25, 1997 until Buyer has exhausted the
reserves for such item on the balance sheet, which use of reserves will not
apply toward the $75,000 "basket." Buyer's obligation to indemnify for Seller
Losses under this Agreement shall be limited to Seller Losses that individually
exceed $5,000 ("Seller Reimbursable Losses") and only after the aggregate of all
such Seller Reimbursable Losses exceeds Seventy-five Thousand Dollars ($75,000),
in which event, indemnification shall be made by Buyer from the first dollar of
such Seller Reimbursable Losses. Indemnification payments hereunder shall be
made in cash from immediately available funds and shall not be subject to any
right of setoff.
(d) Sellers' obligation to indemnify for Buyer Losses shall be
limited to an amount or amounts in the aggregate equal to $2,300,000 plus the
Sellers' Tax Benefit (as defined in Section 5.2), all of which Buyer Losses
shall be payable solely from the Escrow Amount.
8.6 Contribution. Each Seller agrees that it shall contribute to the
amount of Buyer Losses paid or payable by the Sellers in accordance with each
Seller's percentage interest set forth in Exhibit B hereto; provided, that if
any Buyer Losses are found to be caused by the intentional misrepresentation or
intentional misconduct of any Seller or Sellers, then such Seller or Sellers
shall be obligated to the other Sellers for the total amount of such Buyer
Losses, based on the relative fault and benefit to those Sellers who
participated in such intentional misrepresentation or intentional misconduct.
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ARTICLE 9.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
9.1 Representations and Warranties. The representations and
warranties of the parties contained herein shall survive the Closing for the
periods set forth in Section 8.4.
ARTICLE 10.
MISCELLANEOUS
10.1 Cooperation. Each of the parties hereto shall use its
reasonable efforts to take or cause to be taken all actions, to cooperate with
the other party hereto, with respect to all actions, and to do or cause to be
done all things necessary, proper or advisable to consummate and make effective
the transactions contemplated by this Agreement.
10.2 Waiver. Any failure of Sellers to comply with any of their
obligations or agreements herein contained may be waived only in writing by
Buyer. Any failure of Buyer to comply with any of its obligations or agreements
herein contained may be waived only in writing by Sellers.
10.3 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given upon receipt of: hand
delivery; certified or registered mail, return receipt requested; or telecopy
transmission with confirmation of receipt:
(i) If to Buyer, to:
Handy & Xxxxxx
International Corporate Center at Rye
000 Xxxxxxxx Xxxxx Xxxxxx
Xxx, XX 00000
Telecopier: (000) 000-0000
Telephone: (000) 000-0000
Attention: Xxxx X. Xxxxx, Esq.
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(with a copy to):
Skadden, Arps, Slate, Xxxxxxx and Xxxx LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
Telecopier: (000) 000-0000
Telephone: (000) 000-0000
Attention: Xxxxxx X. Xxxxx, Esq.
(ii) If to Sellers, to:
c/o Saugatuck Associates
Xxx Xxxxxxxxxx Xxxxx
Xxxxxxxx, XX 00000
Telecopier: (000) 000-0000
Telephone: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxx
(with a copy to):
Winthrop, Stimson, Xxxxxx & Xxxxxxx
Financial Centre
000 Xxxx Xxxx Xxxxxx
Xxxxxxxx, XX 00000
Telecopier: (000) 000-0000
Telephone: (000) 000-0000
Attention: Xxxxx Xxxxxx, III, Esq.
Such names and addresses may be changed by written notice to each person listed
above.
10.4 Governing Law and Consent to Jurisdiction. (a) This Agreement
shall be governed by and construed in accordance with the internal substantive
laws and not the choice of law rules of the State of New York.
(b) Any judicial proceeding brought with respect to this
Agreement must be brought in any court of competent jurisdiction in the State of
New York, and, by execution and delivery of this Agreement, each party (i)
accepts, generally and unconditionally, the exclusive jurisdiction of such
courts and any related appellate court, and irrevocably agrees to be bound by
any judgment rendered thereby in connection with this Agreement and (ii)
irrevocably waives any objection it may now or hereafter have as to the venue of
any such suit, action or
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proceeding brought in such a court or that such court is an inconvenient forum.
THE PARTIES HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING TO WHICH THEY
ARE BOTH PARTIES INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY
ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT.
10.5 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
10.6 Headings. The section headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
10.7 Entire Agreement. This Agreement, including the Exhibits and
Schedules hereto and the documents referred to herein, embodies the entire
agreement and understanding of the parties hereto in respect of the subject
matter contained herein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
10.8 Amendment and Modification. This Agreement may be amended or
modified only by written agreement of Saugatuck and Buyer.
10.9 Binding Effect; Benefits. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and 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 assigns (and, to the extent provided in Sections 8.1
and 8.2, the other Buyer Indemnitees and Seller Indemnitees) any rights,
remedies, obligations or liabilities under or by reason of this Agreement.
10.10 Assignability. This Agreement shall not be assignable by any
party hereto without the prior written consent of the other parties.
10.11 Saugatuck as Agent of Sellers. (a) Each Seller hereby
irrevocably appoints Saugatuck as such Seller's attorney-in-fact, to do any and
all things and to execute any and all documents in such Seller's name, place and
stead in connection with this Agreement and the transactions contemplated
hereby,
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including, without limitation, to accept on such Seller's behalf any amount
payable to such Seller under this Agreement or the Escrow Agreement, to engage
counsel and other professionals for and on behalf of the Sellers in connection
with the transactions contemplated hereby, to give or receive, on such Seller's
behalf, any notice or instruction under this Agreement, or, with the consent of
66-2/3% or more of the percentage interest of the Sellers as set forth on
Exhibit B and if all Sellers are treated equally, to amend, modify, terminate or
extend, or waive the terms of, this Agreement or resolve any disputes with Buyer
or Escrow Agent (including without limitation, settlement of any claims for
indemnification) arising under this Agreement or the Escrow Agreement. Buyer
shall be entitled to rely, as being binding upon each Seller, upon any document
or other writing executed by Saugatuck.
(b) Notwithstanding the provisions of Article 8 hereof,
Saugatuck agrees to indemnify and hold harmless Buyer for any act or omission of
Saugatuck under Section 1.2(b) hereof and under this Section 10.11.
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
BUYER
HANDY & XXXXXX
By:______________________________________________
Name:
Title:
SELLERS
SAUGATUCK CAPITAL COMPANY LIMITED
PARTNERSHIP III
By: GREYROCK PARTNERS LIMITED
PARTNERSHIP
By:______________________________________________
Name:
Title:
XXXXXX & XXXXXX
By:______________________________________________
Name:
Title:
SYMMETRIX CAPITAL PARTNERS
By: SYMMETRIX, INC.
By:______________________________________________
Name:
Title:
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SYMMETRIX, INC.
By:______________________________________________
Name:
Title:
________________________________
Xxxxxx X. Xxxxxx
________________________________
Xxxxxx X. XxXxxxxx
________________________________
Xxxxxx X. Xxxxxx
________________________________
Xxxx X. X'Xxxxx
________________________________
Xxxxxxx X. XxXxxxxxx
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