EXHIBIT 10.20
STOCK PURCHASE AGREEMENT
AMONG
EISI, INC.
as "Buyer,"
X. XXXXXXXXXXXX ENTERPRISES, INC.
as the "Company"
AND
XXXXXX X. XXXXXXXXXXXX
AND
X. XXXXXXXXXXXX ENTERPRISES, INC.
401(k) EMPLOYEE STOCK OWNERSHIP PLAN
as "Sellers"
Dated as of
June 10, 1998
TABLE OF CONTENTS
PAGE
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1. DEFINITIONS...................................................................... 1
2. PURCHASE AND SALE OF COMPANY SHARES.............................................. 5
(a) Basic Transaction......................................................... 5
(b) Purchase Price............................................................ 5
(c) Other Provisions With Respect to the Buyer Notes.......................... 6
(d) Additional Consideration Based on Pre-Tax Income.......................... 6
(e) Employment Agreements..................................................... 7
(f) Agreement Not To Compete.................................................. 7
(g) Stock Pledge Agreement.................................................... 7
(h) Lease Agreement........................................................... 7
(i) Right of Offset........................................................... 7
(j) Allocation of Amounts Due Sellers......................................... 7
(k) The Closing, Conditions Precedent......................................... 7
(l) Deliveries at the Closing................................................. 8
3. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION........................ 8
(a) Representations and Warranties of the Sellers............................. 8
(b) Representations and Warranties of the Buyer............................... 10
4. REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY AND ITS SUBSIDIARIES....... 11
(a) Organization, Qualification, and Corporate Power.......................... 11
(b) Capitalization............................................................ 11
(c) Noncontravention.......................................................... 11
(d) Brokers' Fees............................................................. 12
(e) Title to Assets........................................................... 12
(f) Subsidiaries.............................................................. 12
(g) Financial Statements...................................................... 12
(h) Events Subsequent to Most Recent Fisacal Year End......................... 12
(i) Undisclosed Liabilities................................................... 14
(j) Legal Compliance.......................................................... 15
(k) Tax Matters............................................................... 15
(l) Real Property............................................................. 16
(m) Intellectual Property..................................................... 17
(n) Tangible Assets........................................................... 19
(o) Inventory................................................................. 20
(p) Contracts................................................................. 20
(q) Notes and Accounts Receivable............................................. 21
(r) Powers of Attorney....................................................... 21
(s) Insurance................................................................ 21
(t) Litigation............................................................... 22
(u) Product Warranty......................................................... 22
(v) Product Liability........................................................ 23
(w) Employees................................................................ 23
(x) Employee Benefits........................................................ 23
(y) Guaranties............................................................... 25
(z) Environment, health, and Safety.......................................... 25
(aa) Certain Business Relationships with the Company.......................... 26
(bb) Disclosure............................................................... 26
5. POST-CLOSING COVENANTS........................................................... 26
(a) General.................................................................. 26
(b) Litigation Support....................................................... 26
(c) Transition............................................................... 26
(d) Certain Guarantees....................................................... 27
(e) Liabilities of the Company............................................... 27
6. REMEDIES FOR BREACHES OF THIS AGREEMENT.......................................... 27
(a) Survival of Representations and Warranties............................... 27
(b) Indemnification Provisions for Benefit of the Buyer...................... 27
(c) Indemnification Provisions for Benefit of the Sellers.................... 28
(d) Matters Involving Third Parties.......................................... 29
(e) Limitations.............................................................. 30
(f) Determination of Adverse Consequences.................................... 30
(g) Other Indemnification Provisions......................................... 30
7. TAX MATTERS...................................................................... 30
(a) Tax Periods ending on or Before the Closing Date........................ 30
(b) Tax Periods Beginning Before and Ending After the Closing Date.......... 31
(c) Cooperation on Tax Matters.............................................. 31
(d) Tax Sharing Agreements.................................................. 32
(e) Certain Taxes........................................................... 32
8. MISCELLANEOUS................................................................... 32
(a) Arbitration............................................................. 32
(b) Waiver of Jury Trial.................................................... 32
(c) Nature of Certain Obligations........................................... 32
(d) Press Releases and Public Announcements................................. 33
(e) No Third-Party Beneficiaries............................................ 33
(f) Entire Agreement........................................................ 33
(g) Succession and Assignment............................................... 33
(h) Counterparts............................................................ 33
(i) Headings................................................................ 33
(j) Notices................................................................. 33
(k) Governing Law........................................................... 34
(l) Amendments and Waviers................................................... 34
(m) Severability............................................................. 34
(n) Expenses................................................................. 34
(o) Construction............................................................. 35
(p) Incorporation of Exhibits, Annexes, and Schedules........................ 35
(q) Specific Performance..................................................... 35
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement") is entered into as of June
10, 1998 (the "Effective Date"), by and among EISI, INC., a California
corporation (the "Buyer"); X. XXXXXXXXXXXX ENTERPRISES, INC., a Texas
Corporation (the "Company"); and XXXXXX X. XXXXXXXXXXXX who resides in the State
of Texas ("Xxxxxxxxxxxx") and THE X. XXXXXXXXXXXX ENTERPRISES, INC. EMPLOYEE
STOCK OWNERSHIP PLAN (the "ESOP") (Xxxxxxxxxxxx and the ESOP being sometimes
referred to as the "Sellers"). The Buyer, the Company and the Sellers are
sometimes referred to collectively herein as the "Parties" and individually as a
"Party."
RECITALS
A. The Sellers own 1,060.027 shares of common stock of the Company which
constitutes all of the issued and outstanding capital stock of the Company (the
"Company Stock").
B. This Agreement contemplates a transaction in which the Buyer will
purchase from the Sellers, and the Sellers will sell to the Buyer, all of the
Company Stock subject to the terms and conditions set forth in this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
1. DEFINITIONS.
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"Accredited Investor" has the meaning set forth in Regulation D promulgated
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under the Securities Act.
"Adverse Consequences" means all actions, suits, proceedings, hearings,
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investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, Liabilities, obligations, Taxes, liens, losses, expenses, and
fees, including court costs and attorneys' fees and expenses.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
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promulgated under the Securities Exchange Act.
"Affiliated Group" means any affiliated group within the meaning of Code
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Section 1504(a) or any similar group defined under a similar provision of state,
local or foreign law.
"Applicable Rate" means the prime base rate of interest publicly announced
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from time to time by Xxxxx Fargo Bank (or its successor).
"Basis" means any past or present fact, situation, circumstance, status,
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condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms or could form the basis for any
specified consequence.
"Buyer" has the meaning set forth in the preface above.
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"Buyer Stock" has the meaning set forth in Section 2(b) below.
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"Buyer Stock Option" has the meaning set forth in Section 2(b) below.
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"Closing" has the meaning set forth in Section 2(g) below.
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"Closing Date" has the meaning set forth in Section 2(g) below.
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"Code" means the Internal Revenue Code of 1986, as amended.
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"Company" has the meaning set forth in the preface above.
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"Company Share" means any share of the Common Stock, par value $1.00 per
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share, of the Company.
"Confidential Information" means any information concerning the businesses
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and affairs of the Company that is not already generally available to the
public.
"Controlled Group of Corporations" has the meaning set forth in Code
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Section 1563.
"Deferred Intercompany Transaction" has the meaning set forth in Reg.
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Section 1.1502-13.
"Disclosure Schedule" has the meaning set forth in Section 4 below.
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"Earn Out" has the meaning set forth in Section 2(d) below.
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"Effective Date" has the meaning set forth in the preface above.
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"Employee Benefit Plan" means any (a) nonqualified deferred compensation or
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retirement plan or arrangement which is an Employee Pension Benefit Plan, (b)
qualified defined contribution retirement plan or arrangement which is an
Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or
arrangement which is an Employee Pension Benefit Plan (including any
Multiemployer Plan), or (d) Employee Welfare Benefit Plan or material fringe
benefit plan or program.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA
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Section 3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA
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Section 3(1).
"Environmental, Health, and Safety Laws" means the Comprehensive
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Environmental Response, Compensation and Liability Act of 1980, the Resource
Conservation and Recovery Act of 1976, the Occupational Safety and Health Act of
1970, the Federal Water Pollution Control Act, the Safe Drinking Water Act, the
Toxic Substances Control Act, the Clean Air Act, Title 2 of the Texas Water
Code, the Texas Solid Waste Disposal Act, and the Texas Clean Air Act, each as
amended, together with all other laws (including rules, regulations, codes,
plans, injunctions, judgments, orders, decrees, rulings, and charges thereunder)
of federal, state, local, and foreign governments (and all agencies thereof)
concerning pollution or protection of the environment, public health and safety,
or employee health and safety, including laws relating to emissions, discharges,
releases, or threatened releases of pollutants, contaminants, or chemical,
industrial, hazardous, or toxic materials or wastes into ambient air, surface
water, ground water, or lands or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport, or
handling of pollutants, contaminants, or chemical, industrial, hazardous, or
toxic materials or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1864, as
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amended.
"Excess Loss Account" has the meaning set forth in Reg. Section 1.1502-18.
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"Extremely Hazardous Substance" has the meaning set forth in Section 302
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of the Emergency Planning and Community Right-to-Know Act of 1986, as amended.
"Fiduciary" has the meaning set forth in ERISA Section 3(21).
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"Financial Statement" has the meaning set forth in Section 4(g) below.
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"GAAP" means United States generally accepted accounting principles as in
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effect from time to time.
"Indemnified Party" has the meaning set forth in Section 6(d) below.
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"Indemnifying Party" has the meaning set forth in Section 6(d) below.
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"Initial Public Offering" means the first public offering of the common
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stock (or securities convertible into common stock) of the Buyer pursuant to an
effective registration statement under the Securities Act.
"Intellectual Property" means (a) all inventions (whether patentable or
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unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith, (c) all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith, (d) all mask works and all
applications, registrations, and renewals in connection therewith, (e) all trade
secrets and confidential business information (including ideas, research and
development, know-how, formulas, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings, specifications,
customer and supplier lists, pricing and cost information, and business and
marketing plans and proposals), (f) all computer software (including data and
related documentation), (g) all other proprietary rights, and (h) all copies and
tangible embodiments thereof (in whatever form or medium).
"Knowledge" means actual knowledge after reasonable investigation.
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"Liability" means any liability (whether known or unknown, whether asserted
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or unasserted, whether absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated, and whether due or to become due), including
any liability for Taxes.
"Most Recent Balance Sheet" means the balance sheet contained within the
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Most Recent Financial Statements.
"Most Recent Financial Statements" has the meaning set forth in
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Section 4(g) below.
"Most Recent Fiscal Month End" has the meaning set forth in Section 4(g)
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below.
"Most Recent Fiscal Year End" has the meaning set forth in Section 4(g)
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below.
"Multiemployer Plan" has the meaning set forth in ERISA Section 3(36).
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"Ordinary Course of Business" means the ordinary course of business
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consistent with past custom and practice (including with respect to quantity and
frequency).
"Party" has the meaning set forth in the preface above.
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"PBGC" means the Pension Benefit Guaranty Corporation.
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"Person" means an individual, a partnership, a corporation, an association,
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a joint stock company, a trust, a joint venture, an unincorporated organization,
or a governmental entity (or any department, agency, or political subdivision
thereof).
"Prohibited Transaction" has the meaning set forth in ERISA Section 405
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and Code Section 4865.
"Purchase Price" has the meaning set forth in Section 2(b) below.
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"Reportable Event" has the meaning set forth in ERISA Section 4043.
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"Securities Act" means the Securities Act of 1933, as amended.
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"Securities Exchange Act" means the Securities Exchange Act of 1834, as
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amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance, charge,
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or other security interest, other than (a) mechanic's, materialmen's, and
similar liens, (b) liens for Taxes not yet due and payable, (c) purchase money
liens and liens securing rental payments under capital lease arrangements, and
(d) other liens arising in the Ordinary Course of Business and not incurred in
connection with the borrowing of money.
"Seller" has the meaning set forth in the preface above.
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"Subsidiary" means any corporation with respect to which a specified Person
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(or a Subsidiary thereof) owns a majority of the common stock or has the power
to vote or direct the voting of sufficient securities to elect a majority of the
directors.
"Survey" has the meaning set forth in Section 5(i) below.
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"Tax" means any federal, state, local, or foreign income, gross receipts,
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license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Code Section 59A),
customs duties, capital stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund, or
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information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Third Party Claim" has the meaning set forth in Section 6(d) below.
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"Threshold Amount" has the meaning set forth in Section 2(d) below.
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2. PURCHASE AND SALE OF COMPANY SHARES.
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(a) BASIC TRANSACTION. On and subject to the terms and conditions of this
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Agreement, the Buyer agrees to purchase from the Sellers, and the Sellers agree
to sell to the Buyer, all of their Shares of Company Stock for the consideration
specified below in this Section 2.
(b) PURCHASE PRICE. On and subject to the terms and conditions of this
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Agreement, as consideration for the sale of their Shares of Company Stock,
Sellers shall be entitled to receive, in the aggregate, the following:
(i) the payment by Buyer of ONE MILLION SIX HUNDRED THOUSAND DOLLARS
($1,600,000.00) (the "Cash") by wire transfer or delivery of other
immediately available funds on the Effective Date; and
(ii) subordinated promissory notes from the Buyer (the "Buyer Notes")
in the aggregate principal amount of FIVE HUNDRED THOUSAND DOLLARS
($500,000.00) on the terms and conditions set forth below and in the form
of Exhibit A attached hereto.
(iii) in the event that receipt by the ESOP of Buyer Notes shall
constitute a Prohibited Transaction, the Sellers will reallocate cash to
the ESOP and Buyer Notes to Xxxxxxxxxxxx on a dollar for dollar basis, such
that payments to the ESOP at the Closing will consist of cash only.
(c) OTHER PROVISIONS WITH RESPECT TO THE BUYER NOTES.
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(i) Subject to Sections 2(c)(ii)-(iii) below, the Buyer Notes
shall be due and payable on January 2, 1999 or the day immediately
following the Initial Public Offering, whichever is earlier (the "Buyer
Note Due Date").
(ii) On or before the Buyer Note Due Date, the Buyer shall have the
right to completely pay off the Buyer Note or elect to pay the Buyer Notes
in up to six (6) equal monthly installments, with the first installment
being due thirty (30) days from the Buyer Note Due Date (the "Buyer Note
Installment Payment Option"). If the Buyer elects the Buyer Note
Installment Payment Option, (x) the Buyer shall notify the Sellers in
writing of its election and state the number of months over which the Buyer
Notes will be paid and (y) the Buyer Notes shall bear interest at the
Applicable Rate.
(d) ADDITIONAL CONSIDERATION BASED ON PRE-TAX INCOME. Subject to the
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provisions of Sections 2(d)(i) and (ii) below, as additional consideration for
the sale of the Company Stock by the Seller to Buyer (the "Earn Out"), if the
Company earns pre-tax income of more than THREE HUNDRED FIFTY THOUSAND DOLLARS
($350,000.00) (the "Threshold Amount") for the Company's fiscal year ending June
30, 1999, the Sellers shall be entitled to receive from Buyer either cash or
common stock in the Buyer with a value equal to THREE DOLLARS ($3.00) for
each dollar by which the Company's pre-tax income exceeds the Threshold Amount
up to a maximum Earn Out of NINE HUNDRED THOUSAND DOLLARS ($900,000.00).
(i) If there is an Initial Public Offering on or before October 1,
1999, the Earn Out shall be payable to Sellers in shares of common stock in
the Buyer based on the price of the common stock on the date of the Initial
Public Offering. The share certificates shall be delivered to the Sellers
on October 1, 1999, and the Sellers shares shall be subject to the same
transfer and other restrictions as may be imposed on or applicable to the
shares held by the other principal stockholders of the Buyer's common
stock.
(ii) If there is no Initial Public Offering on or before October 1,
1999, the Earn Out shall be payable to the Sellers in cash on October 31,
1999 or, at the Buyer's written election in up to six (6) equal monthly
installments, with the first installment being due November 1, 1999. If the
Buyer elects to pay the cash Earn Out over time, (x) the Buyer shall notify
the Sellers in writing of its election and state the number of months over
which the Earn Out will be paid and (y) deliver an executed promissory note
to Xxxxxxxxxxxx with respect to his entitlement only on the terms and
conditions set forth in and in the form of Exhibit B attached hereto.
In determining the Company's pre-tax income for the fiscal year ending June 30,
1999, the Company shall, for accounting purposes, be treated as a separate
entity and shall not be charged with any overhead or other allocations from the
Buyer. Buyer shall not take any action, other than in the ordinary course of
business, which is designed to purposefully interfere with the Sellers' ability
to earn the Earn Out. If the Sellers dispute the Buyer's calculation of the Earn
Out and the parties are unable to resolve their differences informally, the
Sellers shall be required to submit the dispute to arbitration pursuant to
Section 8(a) below no later than November 1, 1999.
(e) EMPLOYMENT AGREEMENTS. Xxxxxxxxxxxx shall enter into an employment
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agreement with the Buyer on terms and conditions satisfactory to the Buyer in
form of Exhibit C attached hereto.
(f) AGREEMENT NOT TO COMPETE. Xxxxxxxxxxxx shall enter into an Agreement
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Not To Compete with the Company and Buyer on terms and conditions satisfactory
to the Buyer in form of Exhibit D attached hereto.
(g) STOCK PLEDGE AGREEMENT. The obligations of Buyer under the Buyer Notes
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and any promissory note provided pursuant to Section 2(d)(ii) shall be secured
by the Company Stock pursuant to the terms of a Stock Pledge Agreement in the
form of Exhibit E attached hereto.
(h) LEASE AGREEMENT. Xxxxxxxxxxxx shall enter into written lease
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agreements with the Company on terms and conditions satisfactory to the Company
and the Buyer relating to the Company's lease of those facilities owned by
Xxxxxxxxxxxx and located at 0000 Xxxxx, Xxxxxx, Xxxxx in the form of Exhibits F
and G attached hereto.
(i) RIGHT OF OFFSET. Subject to Section 6(e), the Buyer expressly reserves
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against the Sellers the right to offset against any and all sums payable under
the Buyer Note and/or the Earn Out an amount equal to all damages sustained by
the Buyer or the Company by reason of any default by the Sellers or the breach
of any representation, warranty or covenant of the Sellers under this Agreement.
(j) ALLOCATION OF AMOUNTS DUE SELLERS. The Cash, Buyer Notes and the Earn
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Out shall be allocated among the Sellers in proportion to their respective
holdings of Company Stock as set forth in Schedule 4(b) of the Disclosure
Schedule.
(k) THE CLOSING, CONDITIONS PRECEDENT.
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(i) the closing of the transactions contemplated in this Agreement
(the "Closing") shall take place at the offices of Xxxxx & Xxxxxx LLP, 0000
Xxxx Xxxxxx, Xxxxx 0000, Xxxxxx, Xxxxx 00000, commencing at 9:00 a.m. local
time on the first business day following the satisfaction of the conditions
precedent set forth in the following sentence, or at such other time, date
and place as shall be mutually satisfactory to the parties, but not later
than June 30, 1998 (the "Closing Date"). Notwithstanding any other
provision of this Agreement to the contrary, the Closing shall be subject
to the satisfaction of the following conditions precedent:
(a) each of the representations and warranties of the parties
hereto shall be true and complete as of the Closing, and each of the
parties hereto shall have performed their respective covenants;
(b) each third party lender to the Company having a security
interest in any of the property of the Company or whose indebtedness
from the Company would be in default as a result of the consummation
of any of the transactions contemplated herein, shall have consented
to the consummation of the transactions contemplated herein and agreed
(i) to waive any defaults occurring as a result of such consummation
for a period of not less than thirty days or (ii) agree to amend its
lending relationship with the Company in a manner satisfactory to the
Buyer;
(c) the ESOP shall have taken such steps as shall be reasonably
satisfactory to the Parties to assure that the transactions
contemplated herein, when consummated, will not constitute Prohibited
Transactions and that none of the Parties shall incur any liability
with respect to such transactions under ERISA following the Closing.
Without limiting the generality of the foregoing, the ESOP shall have
delivered, or caused to be delivered, notice of termination of ESOP
under applicable law and the Board of Directors of the Company shall
have taken such steps as are appropriate in connection with
terminating the ESOP and authorizing the transactions contemplated
hereby.
(l) DELIVERIES AT THE CLOSING. At the Closing, (i) Sellers will deliver to
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the Buyer stock certificates representing all of their Company Stock, endorsed
in blank or accompanied by duly executed assignment documents and (ii) the Buyer
will deliver to the Seller the consideration specified in Section 2(b) above .
3. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION.
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(a) REPRESENTATIONS AND WARRANTIES OF THE SELLERS. Each of the Sellers
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represents and warrants, jointly and severally, to the Buyer that the statements
contained in this Section 3(a) are correct and complete as of the Effective Date
except as set forth in Annex I attached hereto.
(i) AUTHORIZATION OF TRANSACTION. The Seller has full power and
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authority to execute and deliver this Agreement and to perform his
obligations hereunder. This Agreement constitutes the valid and legally
binding obligation of the Seller, enforceable in accordance with its terms
and conditions. The Seller need not give any notice to, make any filing
with, or obtain any authorization, consent, or approval of any government
or governmental agency in order to consummate the transactions contemplated
by this Agreement.
(ii) NONCONTRAVENTION. Neither the execution and the delivery of
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this Agreement, nor the consummation of the transactions contemplated
hereby, will (A) violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction
of any government, governmental agency, or court to which the Seller is
subject or (B) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to
which the Seller is a party or by which he or it is bound or to which any
of his or its assets is subject.
(iii) BROKERS' FEES. The Seller has no Liability or obligation to pay
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any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Buyer could
become liable or obligated.
(iv) INVESTMENT. The Seller (A) understands that the Buyer Note and
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the Buyer's common stock have not been, and will not be, registered under
the Securities Act, or under any state securities laws, and are being
offered and sold in reliance upon federal and state exemptions for
transactions not involving any public offering, (B) is acquiring the Buyer
Note and the potential for Buyer common stock solely for his/its own
account for investment purposes, and not with a view to the distribution
thereof, (C) is a sophisticated investor with knowledge and experience in
business and financial matters, (D) has received certain information
concerning the Buyer and has had the opportunity to obtain any and all
additional information as desired in order to evaluate the merits and the
risks inherent in holding the Buyer Note and Buyer common stock, (E) is
able to bear the
economic risk and lack of liquidity inherent in holding the Buyer Note or
Buyer common stock, and (F) Xxxxxx X. Xxxxxxxxxxxx is an Accredited
Investor for the reasons set forth on Annex I.
(v) COMPANY SHARES. The Seller holds of record and owns beneficially
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the number of Shares of Company Stock set forth next to his/its name in
Schedule 4(b) of the Disclosure Schedule, free and clear of any
restrictions on transfer (other than any restrictions under the Securities
Act and state securities laws), Taxes, Security Interests, options,
warrants, purchase rights, contracts, commitments, equities, claims, and
demands, and which constitute all of the issued and outstanding capital
stock of the Company. The Seller is not a party to any option, warrant,
purchase right, or other contract or commitment that could require the
Seller to sell, transfer, or otherwise dispose of any capital stock of the
Company (other than this Agreement). The Seller is not a party to any
voting trust, proxy, or other agreement or understanding with respect to
the voting of any capital stock of the Company.
(b) REPRESENTATIONS AND WARRANTIES OF THE BUYER. The Buyer represents and
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warrants to the Sellers that the statements contained in this Section 3(b) are
correct and complete as of the Effective Date except as set forth in Annex II
attached hereto.
(i) ORGANIZATION OF THE BUYER. The Buyer is a corporation duly
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organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation.
(ii) AUTHORIZATION OF TRANSACTION. The Buyer has full power and
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authority (including full corporate power and authority) to execute and
deliver this Agreement and to perform its obligations hereunder. This
Agreement constitutes the valid and legally binding obligation of the
Buyer, enforceable in accordance with its terms and conditions. The Buyer
need not give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental
agency in order to consummate the transactions contemplated by this
Agreement.
(iii) NONCONTRAVENTION. Neither the execution and the delivery of this
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Agreement, nor the consummation of the transactions contemplated hereby,
will (A) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which the Buyer is subject or
any provision of its charter or bylaws or (B) conflict with, result in a
breach of, constitute a default under, result in the acceleration of,
create in any party the right to accelerate, terminate, modify, or cancel,
or require any notice under any agreement, contract, lease, license,
instrument, or other arrangement to which the Buyer is a party or by which
it is bound or to which any of its assets is subject.
(iv) BROKERS' FEES. The Buyer has no Liability or obligation to pay
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any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which any Seller could
become liable or obligated.
(v) INVESTMENT. The Buyer is not acquiring the Company Shares with a
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view to or for sale in connection with any distribution thereof within the
meaning of the Securities Act.
4. REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY AND ITS SUBSIDIARIES.
---------------------------------------------------------------------------
The Sellers and the Company represent and warrant, jointly and severally, to the
Buyer that the statements contained in this Section 4 are correct and complete
as of the Effective Date except as set forth in the disclosure schedule
delivered by the Sellers to the Buyer and attached hereto as Annex I (the
"Disclosure Schedule"). Nothing in the Disclosure Schedule shall be deemed
--------------------
adequate to disclose an exception to a representation or warranty made herein,
however, unless the Disclosure Schedule identifies the exception with
particularity and describes the relevant facts in detail. Without limiting the
generality of the foregoing, the mere listing (or inclusion of a copy) of a
document or other item shall not be deemed adequate to disclose an exception to
a representation or warranty made herein (unless the representation or warranty
has to do with the existence of the document or other item itself). The
Disclosure Schedule will be arranged in paragraphs corresponding to the lettered
and numbered paragraphs contained in this Section 4.
(a) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. The Company is a
-------------------------------------------------
corporation duly organized, validly existing, and in good standing under the
laws of the jurisdiction of its incorporation. The Company is duly authorized to
conduct business and is in good standing under the laws of each jurisdiction
where such qualification is required. The Company has full corporate power and
authority and all licenses, permits, and authorizations necessary to carry on
the businesses in which it is engaged and to own and use the properties owned
and used by it. Schedule 4(a) of the Disclosure Schedule lists the directors and
officers of the Company. The Sellers have delivered to the Buyer correct and
complete copies of the charter and bylaws of the Company (as amended to date).
The minute books (containing the records of meetings of the stockholders, the
board of directors, and any committees of the board of directors), the stock
certificate books, and the stock record books of the Company are correct and
complete. The Company is not in default under or in violation of any provision
of its charter or bylaws.
(b) CAPITALIZATION. The entire authorized capital stock of the Company
---------------
consists of 100,000 Company Shares, of which 1,060.027 Company Shares are issued
and outstanding and no Company Shares are held in treasury. All of the issued
and outstanding Company Shares have been duly authorized, are validly issued,
fully paid, and nonassessable, and are held of record by the respective Sellers
as set forth in Schedule 4(b) of the Disclosure Schedule. There are no
outstanding or authorized options, warrants, purchase rights, subscription
rights, conversion rights, exchange rights, or other contracts or commitments
that could require the Company to issue, sell, or
otherwise cause to become outstanding any of its capital stock. There are no
outstanding or authorized stock appreciation, phantom stock, profit
participation, or similar rights with respect to the Company. There are no
voting trusts, proxies, or other agreements or understandings with respect to
the voting of the capital stock of the Company.
(c) NONCONTRAVENTION. Neither the execution and the delivery of this
-----------------
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Company is subject or any provision
of the charter or bylaws of the Company or (ii) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or require any
notice or consent under any agreement, contract, lease, license, instrument, or
other arrangement to which the Company is a party or by which it is bound or to
which any of its assets is subject (or result in the imposition of any Security
Interest upon any of its assets). The Company does not need to give any notice
to, make any filing with, or obtain any authorization, consent, or approval of
any government or governmental agency in order for the Parties to consummate the
transactions contemplated by this Agreement.
(d) BROKERS' FEES. The Company does not have any Liability or obligation
--------------
to pay any fees or commissions to any broker, finder, or agent with respect to
the transactions contemplated by this Agreement.
(e) TITLE TO ASSETS. The Company has good and marketable title to, or a
----------------
valid leasehold interest in, the properties and assets used by it, located on
its premises, or shown on the Most Recent Balance Sheet or acquired after the
date thereof, free and clear of all Security Interests, except for properties
and assets disposed of in the Ordinary Course of Business since the date of the
Most Recent Balance Sheet.
(f) SUBSIDIARIES. The Company has no subsidiaries, either direct or
-------------
indirect, whatsoever.
(g) FINANCIAL STATEMENTS. Attached hereto to Schedule 4(g) of the
---------------------
Disclosure Schedule are the following financial statements (collectively the
"Financial Statements"): (i) balance sheets and statements of income, changes in
---------------------
stockholders' equity, and cash flow as of and for the fiscal years ended June
30, 1994, 1995, 1996, and 1997 (the "Most Recent Fiscal Year End") for the
------------------------------
Company ; and (ii) balance sheets and statements of income, changes in
stockholders' equity, and cash flow (the "Most Recent Financial Statements") as
-----------------------------------
of and for the 3 months ended March 31, 1998 (the "Most Recent Fiscal Month
-------------------------
End") for the Company. The Financial Statements (including the notes thereto)
-----
have been prepared on a consistent basis throughout the periods covered thereby,
contain and reflect in all respects all necessary adjustments and present fairly
the financial condition of the Company as of such dates and the results of
operations of the Company for such periods, are correct and complete, and are
consistent with the books and records of the Company (which books and records
are correct and complete).
(h) EVENTS SUBSEQUENT TO MOST RECENT FISCAL YEAR END. Since the Most
-------------------------------------------------
Recent Fiscal Month End, there has not been any adverse change in the business,
financial condition, operations, results of operations, or future prospects of
the Company. Without limiting the generality of the foregoing, since that date:
(i) the Company has not sold, leased, transferred, or assigned any
of its assets, tangible or intangible, other than for a fair consideration
in the Ordinary Course of Business;
(ii) the Company has not entered into any agreement, contract,
lease, or license (or series of related agreements, contracts, leases, and
licenses) either involving more than $10,000 or outside the Ordinary Course
of Business;
(iii) no party (including the Company ) has accelerated, terminated,
modified, or canceled any agreement, contract, lease, or license (or series
of related agreements, contracts, leases, and licenses) involving more than
$10,000 to which the Company is a party or by which any of them is bound;
(iv) the Company has not imposed any Security Interest upon any of
its assets, tangible or intangible;
(v) the Company has not made any capital expenditure (or series of
related capital expenditures) either involving more than $10,000 or outside
the Ordinary Course of Business;
(vi) the Company has not made any capital investment in, any loan
to, or any acquisition of the securities or assets of, any other Person (or
series of related capital investments, loans, and acquisitions) either
involving more than $10,000 or outside the Ordinary Course of Business;
(vii) the Company has not issued any note, bond, or other debt
security or created, incurred, assumed, or guaranteed any indebtedness for
borrowed money or capitalized lease obligation either involving more than
$10,000 singly or $50,000 in the aggregate;
(viii) the Company has not failed to pay any of its obligations when
due or delayed or postponed the payment of accounts payable and other
Liabilities outside the Ordinary Course of Business;
(ix) the Company has not canceled, compromised, waived, or released
any right or claim (or series of related rights and claims) either
involving more than $10,000 or outside the Ordinary Course of Business;
(x) the Company has not granted any license or sublicense of any
rights under or with respect to any Intellectual Property;
(xi) there has been no change made or authorized in the charter or
bylaws of the Company;
(xii) the Company has not issued, sold, or otherwise disposed of any
of its capital stock, or granted any options, warrants, or other rights to
purchase or obtain (including upon conversion, exchange, or exercise) any
of its capital stock;
(xiii) the Company has not declared, set aside, or paid any dividend
or made any distribution with respect to its capital stock (whether in cash
or in kind) or redeemed, purchased, or otherwise acquired any of its
capital stock;
(xiv) the Company has not experienced any damage, destruction, or
loss (whether or not covered by insurance) to its property;
(xv) the Company has not made any loan to, or entered into any
other transaction with, any of its directors, officers, and employees
outside the Ordinary Course of Business;
(xvi) the Company has not entered into any employment contract or
collective bargaining agreement, written or oral, or modified the terms of
any existing such contract or agreement;
(xvii) the Company has not granted any (a) increase in the
compensation or (b) bonuses, incentive compensation or other benefits,
contingent or otherwise, of or for the benefit of any of its directors,
officers, and employees outside the Ordinary Course of Business;
(xviii) the Company has not adopted, amended, modified, or terminated
any bonus, profit-sharing, incentive, severance, or other plan, contract,
or commitment for the benefit of any of its directors, officers, and
employees (or taken any such action with respect to any other Employee
Benefit Plan);
(xix) the Company has not made any other change in employment terms
for any of its directors, officers, and employees outside the Ordinary
Course of Business;
(xx) the Company has not made or pledged to make any charitable or
other capital contribution outside the Ordinary Course of Business;
(xxi) there has not been any other occurrence, event, incident,
action, failure to act, or transaction outside the Ordinary Course of
Business involving the Company; and
(xxii) the Company has not committed to any of the foregoing.
(i) UNDISCLOSED LIABILITIES. The Company has no Liability (and there is no
------------------------
Basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against any of them giving
rise to any Liability), except for (i) Liabilities set forth on the face of the
Most Recent Balance Sheet (rather than in any notes thereto) and (ii)
Liabilities which have arisen after the Most Recent Fiscal Month End in the
Ordinary Course of Business (none of which results from, arises out of, relates
to, is in the nature of, or was caused by any breach of contract, breach of
warranty, tort, infringement, or violation of law).
(j) LEGAL COMPLIANCE. Each of the Company and its predecessors and
-----------------
Affiliates has complied with all applicable laws (including rules, regulations,
codes, plans, injunctions, judgments, orders, decrees, rulings, and charges
thereunder) of federal, state, local, and foreign governments (and all agencies
thereof), and no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, demand, or notice has been filed or commenced against any of
them alleging any failure so to comply.
(k) TAX MATTERS.
(i) The Company has filed all Tax Returns that it was required to
file. All such Tax Returns were correct and complete in all respects. All
Taxes owed by the Company (whether or not shown on any Tax Return) have
been paid. None of the Company currently is the beneficiary of any
extension of time within which to file any Tax Return. No claim has ever
been made by an authority in a jurisdiction where the Company does not file
Tax Returns that it is or may be subject to taxation by that jurisdiction.
There are no Security Interests on any of the assets of the Company that
arose in connection with any failure (or alleged failure) to pay any Tax.
(ii) The Company has withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder, or other third
party.
(iii) No Seller or director or officer (or employee responsible for
Tax matters) of the Company expects any authority to assess any additional
Taxes for any period for which Tax Returns have been filed. There is no
dispute or claim concerning any Tax Liability of the Company either (A)
claimed or raised by any authority in writing or (B) as to which any of the
Seller and the directors and officers (and employees responsible for Tax
matters) of the Company has Knowledge based upon personal contact with any
agent of such authority. Schedule 4(k) of the Disclosure Schedule lists all
federal, state, local, and
foreign income Tax Returns filed with respect to the Company for taxable
periods ended on or after December 31, 1991 indicates those Tax Returns
that have been audited, and indicates those Tax Returns that currently are
the subject of audit. The Seller have delivered to the Buyer correct and
complete copies of all federal income Tax Returns, examination reports, and
statements of deficiencies assessed against or agreed to by the Company
since December 31, 1991.
(iv) The Company has not waived any statute of limitations in respect
of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
(v) The Company has not filed a consent under Code Section 341(f)
concerning collapsible corporations. The Company has not made any payments,
is obligated to make any payments, or is a party to any agreement that
under certain circumstances could obligate it to make any payments that
will not be deductible under Code Section 270G. The Company has not been a
United States real property holding corporation within the meaning of Code
Section 797(c)(2) during the applicable period specified in Code
Section 797(c)(1)(A)(ii). The Company has disclosed on its federal income
Tax Returns all positions taken therein that could give rise to a
substantial understatement of federal income Tax within the meaning of Code
Section 5552. The Company is not a party to any Tax allocation or sharing
agreement. The Company (A) has not been a member of an Affiliated Group
filing a consolidated federal income Tax Return (other than a group the
common parent of which was the Company) or (B) has no Liability for the
Taxes of any Person (other than the Company ) under Reg. Section 1.1502-5
(or any similar provision of state, local, or foreign law), as a transferee
or successor, by contract, or otherwise.
(vi) The Sellers will provide the following information before
Closing with respect to the Company as of the most recent practicable date
(as well as on an estimated pro forma basis as of the Closing giving effect
to the consummation of the transactions contemplated hereby): (A) the basis
of the Company or Subsidiary in its assets; (B) the amount of any net
operating loss, net capital loss, unused investment or other credit, unused
foreign tax, or excess charitable contribution allocable to the Company;
and (C) the amount of any deferred gain or loss allocable to the Company or
Subsidiary arising out of any Deferred Intercompany Transaction.
(vii) The unpaid Taxes of the Company (A) did not, as of the Most
Recent Fiscal Month End, exceed the reserve for Tax Liability (rather than
any reserve for deferred Taxes established to reflect timing differences
between book and Tax income) set forth on the face of the Most Recent
Balance Sheet (rather than in any notes thereto) and (B) do not exceed that
reserve as adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of the Company in filing its
Tax Returns.
(l) REAL PROPERTY.
(i) The Company does not own any real property whatsoever.
(ii) Schedule 4(l)(ii) of the Disclosure Schedule lists and describes
briefly all real property leased or subleased to the Company. The Sellers
have delivered to the Buyer correct and complete copies of the leases and
subleases listed in Schedule 4(l)(ii) of the Disclosure Schedule (as
amended to date). With respect to each lease and sublease listed in
Schedule 4(l)(ii) of the Disclosure Schedule:
(a) the lease or sublease is legal, valid, binding, enforceable,
and in full force and effect;
(b) the lease or sublease will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms
following the consummation of the transactions contemplated hereby;
(c) no party to the lease or sublease is in breach or default,
and no event has occurred which, with notice or lapse of time, would
constitute a breach or default or permit termination, modification, or
acceleration thereunder;
(d) no party to the lease or sublease has repudiated any
provision thereof;
(e) there are no disputes, oral agreements, or forbearance
programs in effect as to the lease or sublease;
(f) with respect to each sublease, the representations and
warranties set forth in subsections (A) through (E) above are true and
correct with respect to the underlying lease;
(g) the Company has not assigned, transferred, conveyed,
mortgaged, deeded in trust, or encumbered any interest in the
leasehold or subleasehold;
(h) all facilities leased or subleased thereunder have received
all approvals of governmental authorities (including licenses and
permits) required in connection with the operation thereof and have
been operated and maintained in accordance with applicable laws,
rules, and regulations;
(i) all facilities leased or subleased thereunder are supplied
with utilities and other services necessary for the operation of said
facilities; and
(m) INTELLECTUAL PROPERTY.
(i) The Company owns or has the right to use pursuant to license,
sublicense, agreement, or permission all Intellectual Property necessary or
desirable for the operation of the businesses of the Company as presently
conducted and as presently proposed to be conducted. Each item of
Intellectual Property owned or used by the Company immediately prior to the
Closing hereunder will be owned or available for use by the Company on
identical terms and conditions immediately subsequent to the Closing
hereunder. The Company has taken all necessary and desirable action to
maintain and protect each item of Intellectual Property that it owns or
uses.
(ii) The Company has not interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual
Property rights of third parties, and none of the Sellers and the directors
and officers (and employees with responsibility for Intellectual Property
matters) of the Company has ever received any charge, complaint, claim,
demand, or notice alleging any such interference, infringement,
misappropriation, or violation (including any claim that the Company must
license or refrain from using any Intellectual Property rights of any third
party). To the Knowledge of any of the Sellers and the directors and
officers (and employees with responsibility for Intellectual Property
matters) of the Company, no third party has interfered with, infringed
upon, misappropriated, or otherwise come into conflict with any
Intellectual Property rights of the Company.
(iii) Schedule 4(m)(iii) of the Disclosure Schedule identifies each
patent or registration which has been issued to the Company with respect to
any of its Intellectual Property, identifies each pending patent
application or application for registration which the Company has made with
respect to any of its Intellectual Property, and identifies each license,
agreement, or other permission which the Company has granted to any third
party with respect to any of its Intellectual Property (together with any
exceptions). The Sellers have delivered to the Buyer correct and complete
copies of all such patents, registrations, applications, licenses,
agreements, and permissions (as amended to date) and have made available to
the Buyer correct and complete copies of all other written documentation
evidencing ownership and prosecution (if applicable) of each such item.
Schedule 4(m)(iii) of the Disclosure Schedule also identifies each trade
name or unregistered trademark used by the Company in connection with any
of its businesses. With respect to each item of Intellectual Property
required to be identified in Schedule 4(m)(iii) of the Disclosure Schedule:
(A) the Company possesses all right, title, and interest in and
to the item, free and clear of any Security Interest, license, or
other restriction;
(B) the item is not subject to any outstanding injunction,
judgment, order, decree, ruling, or charge;
(C) no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand is pending or is threatened which
challenges the legality, validity, enforceability, use, or ownership
of the item; and
(D) the Company has never agreed to indemnify any Person for or
against any interference, infringement, misappropriation, or other
conflict with respect to the item.
(iv) Schedule 4(m)(iv) of the Disclosure Schedule identifies each item
of Intellectual Property that any third party owns and that the Company
uses pursuant to license, sublicense, agreement, or permission. The Sellers
have delivered to the Buyer correct and complete copies of all such
licenses, sublicenses, agreements, and permissions (as amended to date).
With respect to each item of Intellectual Property required to be
identified in Schedule 4(m)(iv) of the Disclosure Schedule:
(A) the license, sublicense, agreement, or permission covering
the item is legal, valid, binding, enforceable, and in full force and
effect;
(B) the license, sublicense, agreement, or permission will
continue to be legal, valid, binding, enforceable, and in full force
and effect on identical terms following the consummation of the
transactions contemplated hereby (including the assignments and
assumptions referred to in Section 2 above);
(C) no party to the license, sublicense, agreement, or
permission is in breach or default, and no event has occurred which
with notice or lapse of time would constitute a breach or default or
permit termination, modification, or acceleration thereunder;
(D) no party to the license, sublicense, agreement, or
permission has repudiated any provision thereof;
(E) with respect to each sublicense, the representations and
warranties set forth in subsections (A) through (D) above are true and
correct with respect to the underlying license;
(F) the underlying item of Intellectual Property is not subject
to any outstanding injunction, judgment, order, decree, ruling, or
charge;
(G) no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand is pending or, to the Knowledge of any of
the Seller and the directors and officers (and employees with
responsibility for Intellectual Property matters) of the Company, is
threatened which challenges the legality, validity, or enforceability
of the underlying item of Intellectual Property; and
(H) the Company has not granted any sublicense or similar right
with respect to the license, sublicense, agreement, or permission.
(v) To the Knowledge of the Sellers and the directors and officers
(and employees with responsibility for Intellectual Property matters) of
the Company, the Company will not interfere with, infringe upon,
misappropriate, or otherwise come into conflict with, any Intellectual
Property rights of third parties as a result of the continued operation of
its businesses as presently conducted and as presently proposed to be
conducted.
(vi) None of the Sellers and the directors and officers (and employees
with responsibility for Intellectual Property matters) of the Company had
any Knowledge of any new products, inventions, procedures, or methods of
manufacturing or processing that any competitors or other third parties
have developed which reasonably could be expected to supersede or make
obsolete any product or process of the Company.
(n) TANGIBLE ASSETS. The Company owns or leases all buildings, machinery,
----------------
equipment, and other tangible assets necessary for the conduct of their
businesses as presently conducted. To the best knowledge of Sellers, each such
tangible asset is free from defects (patent and latent), has been maintained in
accordance with normal industry practice, is in good operating condition and
repair (subject to normal wear and tear), is suitable for the purposes for which
it presently is used and presently is proposed to be used and is in conformity
in all material respects with all applicable laws, ordinances, orders,
regulations and other requirements (including applicable zoning, environmental,
motor vehicle safety or standards, occupational health and safety laws and
regulations) relating thereto currently in effect.
(o) INVENTORY. The inventory of the Company consists of raw materials and
----------
supplies, manufactured and purchased parts, goods in process, and finished
goods, all of which is merchantable and fit for the purpose for which it was
procured or manufactured, and none of which is slow-moving, obsolete, damaged,
or defective, subject only to the reserve for inventory writedown set forth on
the face of the Most Recent Balance Sheet (rather than in any notes thereto) as
adjusted for the passage of time through the Closing Date in accordance with the
past custom and practice of the Company.
(p) CONTRACTS. Schedule 4(p) of the Disclosure Schedule lists all
----------
contracts and other agreements to which the Company is a party including, but
not limited to, the following:
(i) any agreement (or group of related agreements) for the lease of
personal property to or from any Person providing for lease payments;
(ii) any agreement (or group of related agreements) for the purchase
or sale of raw materials, commodities, supplies, products, or other
personal property, or for the
furnishing or receipt of services, the performance of which will extend
over a period of more than one year, result in a loss to the Company, or
involve consideration in excess of $1,000;
(iii) any agreement concerning a partnership or joint venture;
(iv) any agreement (or group of related agreements) under which it
has created, incurred, assumed, or guaranteed any indebtedness for borrowed
money, or any capitalized lease obligation, or under which it has imposed a
Security Interest on any of its assets, tangible or intangible;
(v) any agreement concerning confidentiality or noncompetition;
(vi) any agreement with any of the Sellers and their Affiliates
(other than the Company);
(vii) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other plan or
arrangement for the benefit of its current or former directors, officers,
and employees;
(viii) any collective bargaining agreement;
(ix) any agreement for the employment of any individual on a full-
time, part-time, consulting, or other basis providing any form of
compensation or providing severance benefits;
(x) any agreement under which it has advanced or loaned any amount
to any of its directors, officers, and employees outside the Ordinary
Course of Business;
(xi) any agreement under which the consequences of a default or
termination could have an adverse effect on the business, financial
condition, operations, results of operations, or future prospects of the
Company ; or
(xii) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of $1,000.
The Sellers have delivered to the Buyer a correct and complete copy of each
written agreement listed in Schedule 4(p) of the Disclosure Schedule (as amended
to date) and a written summary setting forth the terms and conditions of each
oral agreement referred to in Schedule 4(p) of the Disclosure Schedule. With
respect to each such agreement: (A) the agreement is legal, valid, binding,
enforceable, and in full force and effect; (B) the agreement will continue to be
legal, valid, binding, enforceable, and in full force and effect on identical
terms following the consummation of the transactions contemplated hereby; (C) no
party is in breach or default, and no event has
occurred which with notice or lapse of time would constitute a breach or
default, or permit termination, modification, or acceleration, under the
agreement; and (D) no party has repudiated any provision of the agreement.
(q) NOTES AND ACCOUNTS RECEIVABLE. All notes and accounts receivable of
------------------------------
the Company are reflected properly on their books and records, are valid
receivable subject to no setoffs or counterclaims, are current and collectible,
and will be collected in accordance with their terms at their recorded amounts,
subject only to the reserve for bad debts set forth on the face of the Most
Recent Balance Sheet (rather than in any notes thereto) as adjusted for the
passage of time through the Closing Date in accordance with the past custom and
practice of the Company .
(r) POWERS OF ATTORNEY. There are no outstanding powers of attorney
-------------------
executed on behalf of the Company.
(s) INSURANCE. Schedule 4(s) of the Disclosure Schedule sets forth the
----------
following information with respect to each insurance policy (including policies
providing property, casualty, liability, and workers' compensation coverage and
bond and surety arrangements) to which the Company has been a party, a named
insured, or otherwise the beneficiary of coverage at any time within the past 5
years:
(i) the name, address, and telephone number of the agent;
(ii) the name of the insurer, the name of the policyholder, and the
name of each covered insured;
(iii) the policy number and the period of coverage;
(iv) the scope (including an indication of whether the coverage was
on a claims made, occurrence, or other basis) and amount (including a
description of how deductibles and ceilings are calculated and operate) of
coverage; and
(v) a description of any retroactive premium adjustments or other
loss-sharing arrangements.
With respect to each such insurance policy: (A) the policy is legal, valid,
binding, enforceable, and in full force and effect; (B) the policy will continue
to be legal, valid, binding, enforceable, and in full force and effect on
identical terms following the consummation of the transactions contemplated
hereby; (C) neither the Company nor any other party to the policy is in breach
or default (including with respect to the payment of premiums or the giving of
notices), and no event has occurred which, with notice or the lapse of time,
would constitute such a breach or default, or permit termination, modification,
or acceleration, under the policy; and (D) no party to the policy has repudiated
any provision thereof. The Company has been covered during the past
5 years by insurance in scope and amount customary and reasonable for the
businesses in which it has engaged during the aforementioned period. Schedule
4(s) of the Disclosure Schedule describes any self-insurance arrangements
affecting the Company.
(t) LITIGATION. Schedule 4(t) of the Disclosure Schedule sets forth each
-----------
instance in which the Company (i) is subject to any outstanding injunction,
judgment, order, decree, ruling, or charge or (ii) is a party or is threatened
to be made a party to any action, suit, proceeding, hearing, or investigation
of, in, or before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction or before any arbitrator. None of
the actions, suits, proceedings, hearings, and investigations set forth in
Schedule 4(t) of the Disclosure Schedule could result in any adverse change in
the business, financial condition, operations, results of operations, or future
prospects of the Company. None of the Sellers and the directors and officers
(and employees with responsibility for litigation matters)of the Company has any
reason to believe that any such action, suit, proceeding, hearing, or
investigation may be brought or threatened against the Company.
(u) PRODUCT WARRANTY. Each product manufactured, sold, leased, or
-----------------
delivered by the Company has been in conformity with all applicable contractual
commitments and all express and implied warranties, and the Company has no
Liability (and there is no Basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand against
any of them giving rise to any Liability) for replacement or repair thereof or
other damages in connection therewith, subject only to the reserve for product
warranty claims set forth on the face of the Most Recent Balance Sheet (rather
than in any notes thereto) as adjusted for the passage of time through the
Closing Date in accordance with the past custom and practice of the Company. No
product manufactured, sold, leased, or delivered by the Company is subject to
any guaranty, warranty, or other indemnity beyond the applicable standard terms
and conditions of sale or lease. Schedule 4(u) of the Disclosure Schedule
includes copies of the standard terms and conditions of sale or lease for the
Company (containing applicable guaranty, warranty, and indemnity provisions).
(v) PRODUCT LIABILITY. The Company has no Liability (and there is no
------------------
Basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against any of them giving
rise to any Liability) arising out of any injury to individuals or property as a
result of the ownership, possession, or use of any product manufactured, sold,
leased, or delivered by the Company.
(w) EMPLOYEES. To the Knowledge of any of the Sellers and the directors
----------
and officers (and employees with responsibility for employment matters) of the
Company, no executive, key employee, or group of employees has any plans to
terminate employment with the Company. The Company is not a party to or bound by
any collective bargaining agreement, nor has any of them experienced any
strikes, grievances, claims of unfair labor practices, or other collective
bargaining disputes. The Company has not committed any unfair labor practice.
None of the Sellers and the directors and officers (and employees with
responsibility for employment
matters) of the Company has any Knowledge of any organizational effort presently
being made or threatened by or on behalf of any labor union with respect to
employees of the Company.
(x) EMPLOYEE BENEFITS.
(i) Schedule 4(x) of the Disclosure Schedule lists each Employee
Benefit Plan that the Company maintains or to which the Company
contributes.
(A) Each such Employee Benefit Plan (and each related trust,
insurance contract, or fund) complies in form and in operation in all
respects with the applicable requirements of ERISA, the Code, and
other applicable laws.
(B) All required reports and descriptions (including Form 5500
Annual Reports, Summary Annual Reports, PBGC-1's, and Summary Plan
Descriptions) have been filed or distributed appropriately with
respect to each such Employee Benefit Plan. The requirements of Part 5
of Subtitle B of Title I of ERISA and of Code Section 4970B have been
met with respect to each such Employee Benefit Plan which is an
Employee Welfare Benefit Plan.
(C) All contributions (including all employer contributions and
employee salary reduction contributions) which are due have been paid
to each such Employee Benefit Plan which is an Employee Pension
Benefit Plan and all contributions for any period ending on or before
the Closing Date which are not yet due have been paid to each such
Employee Pension Benefit Plan or accrued in accordance with the past
custom and practice of the Company. All premiums or other payments for
all periods ending on or before the Closing Date have been paid with
respect to each such Employee Benefit Plan which is an Employee
Welfare Benefit Plan.
(D) Each such Employee Benefit Plan which is an Employee Pension
Benefit Plan meets the requirements of a "qualified plan" under Code
(S)401(a) and has received, within the last two years, a favorable
determination letter from the Internal Revenue Service.
(E) The market value of assets under each such Employee Benefit
Plan which is an Employee Pension Benefit Plan (other than any
Multiemployer Plan) equals or exceeds the present value of all vested
and nonvested Liabilities thereunder determined in accordance with
PBGC methods, factors, and assumptions applicable to an Employee
Pension Benefit Plan terminating on the date for determination.
(F) The Sellers have delivered to the Buyer correct and complete
copies of the plan documents and summary plan descriptions, the most
recent
determination letter received from the Internal Revenue Service, the
most recent Form 5500 Annual Report, and all related trust agreements,
insurance contracts, and other funding agreements which implement each
such Employee Benefit Plan.
(ii) With respect to each Employee Benefit Plan that the Company
maintains or ever has maintained or to which it contributes, ever has
contributed, or ever has been required to contribute:
(A) No such Employee Benefit Plan which is an Employee Pension
Benefit Plan (other than any Multiemployer Plan) has been completely
or partially terminated or been the subject of a Reportable Event as
to which notices would be required to be filed with the PBGC. No
proceeding by the PBGC to terminate any such Employee Pension Benefit
Plan (other than any Multiemployer Plan) has been instituted or
threatened.
(B) There have been no Prohibited Transactions with respect to
any such Employee Benefit Plan. No Fiduciary has any Liability for
breach of fiduciary duty or any other failure to act or comply in
connection with the administration or investment of the assets of any
such Employee Benefit Plan. No action, suit, proceeding, hearing, or
investigation with respect to the administration or the investment of
the assets of any such Employee Benefit Plan (other than routine
claims for benefits) is pending or threatened. None of the Seller and
the directors and officers (and employees with responsibility for
employee benefits matters) of the Company has any Knowledge of any
Basis for any such action, suit, proceeding, hearing, or
investigation.
(C) The Company has not incurred, and none of the Seller and
the directors and officers (and employees with responsibility for
employee benefits matters) of the Company has any reason to expect
that the Company will incur, any Liability to the PBGC (other than
PBGC premium payments) or otherwise under Title IV of ERISA (including
any withdrawal Liability) or under the Code with respect to any such
Employee Benefit Plan which is an Employee Pension Benefit Plan.
(iii) The Company does not contribute to, never has contributed to,
and never has been required to contribute to any Multiemployer Plan or has
any Liability (including withdrawal Liability) under any Multiemployer
Plan.
(iv) The Company does not maintain, never has maintained or
contributed and never has been required to contribute to any Employee
Welfare Benefit Plan providing medical, health, or life insurance or other
welfare-type benefits for current or future
retired or terminated employees, their spouses, or their dependents (other
than in accordance with Code (S)4860B).
(y) GUARANTIES. The Company is not a guarantor or otherwise liable for any
-----------
Liability or obligation (including indebtedness) of any other Person.
(z) ENVIRONMENT, HEALTH, AND SAFETY.
(i) The Company and its predecessors and Affiliates have complied
with all Environmental, Health, and Safety Laws, and no action, suit,
proceeding, hearing, investigation, charge, complaint, claim, demand, or
notice has been filed or commenced against any of them alleging any failure
so to comply. Without limiting the generality of the preceding sentence,
the Company and its predecessors and Affiliates has obtained and been in
compliance with all of the terms and conditions of all permits, licenses,
and other authorizations which are required under, and has complied with
all other limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules, and timetables which are contained
in, all Environmental, Health, and Safety Laws.
(ii) The Company has no Liability (and none of the Company and its
predecessors and Affiliates have handled or disposed of any substance,
arranged for the disposal of any substance, exposed any employee or other
individual to any substance or condition, or owned or operated any property
or facility in any manner that could form the Basis for any present or
future action, suit, proceeding, hearing, investigation, charge, complaint,
claim, or demand against the Company giving rise to any Liability) for
damage to any site, location, or body of water (surface or subsurface), for
any illness of or personal injury to any employee or other individual, or
for any reason under any Environmental, Health, and Safety Law.
(iii) All properties and equipment used in the business of the
Company and its predecessors and Affiliates have been free of asbestos,
PCB's, methylene chloride, trichloroethylene, 1,2-trans-dichloroethylene,
dioxins, dibenzofurans, and Extremely Hazardous Substances.
(aa) CERTAIN BUSINESS RELATIONSHIPS WITH THE COMPANY. None of the Sellers
------------------------------------------------
and their Affiliates has been involved in any business arrangement or
relationship with the Company within the past 12 months, and none of the Sellers
and their Affiliates owns any asset, tangible or intangible, which is used in
the business of the Company.
(bb) DISCLOSURE. The representations and warranties contained in this
-----------
Section 4 do not contain any untrue statement of a fact or omit to state any
fact necessary in order to make the statements and information contained in this
Section 4 not misleading.
5. POST-CLOSING COVENANTS. The Parties agree as follows with respect to the
-----------------------
period following the Closing.
(a) GENERAL. In case at any time after the Effective Date any further
-------
action is necessary or desirable to carry out the purposes of this Agreement,
each of the Parties will take such further action (including the execution and
delivery of such further instruments and documents) as any other Party
reasonably may request, all at the sole cost and expense of the requesting Party
(unless the requesting Party is entitled to indemnification therefor under
Section 6 below). The Sellers acknowledge and agree that from and after the
Effective Date the Buyer will be entitled to possession of all documents, books,
records (including Tax records), agreements, and financial data of any sort
relating to the Company.
(b) LITIGATION SUPPORT. In the event and for so long as any Party
-------------------
actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection with
(i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or prior
to the Effective Date involving the Company, each of the other Parties will
cooperate with him or it and his or its counsel in the contest or defense, make
available their personnel, and provide such testimony and access to their books
and records as shall be necessary in connection with the contest or defense, all
at the sole cost and expense of the contesting or defending Party (unless the
contesting or defending Party is entitled to indemnification therefor under
Section 6 below).
(c) TRANSITION. The Sellers will not take any action that is designed or
-----------
intended to have the effect of discouraging any lessor, licensor, customer,
supplier, or other business associate of the Company from maintaining the same
business relationships with the Company after the Closing as it maintained with
the Company prior to the Closing. The Sellers will refer all customer inquiries
relating to the businesses of the Company to the Buyer from and after the
Closing.
(d) Certain Guarantees. Buyer will use best reasonable efforts to cause
------------------
Xxxxxxxxxxxx to be released from each Guaranty or similar arrangement pursuant
to which Xxxxxxxxxxxx has agreed to provide security or be liable with respect
to any loan or advance of money by any third party or financial institution,
equipment lessor, landlord or the like providing goods or services or making
available real property for the benefit of the Company; provided, however, Buyer
shall not be obligated pursuant to this Section 5(d) with respect to any such
guaranty which relates to any debt or any obligation of any kind not reflected
on or reserved for in the Most Recent Balance Sheet.
(e) Liabilities of the Company. The Buyer shall cause the Company to
--------------------------
perform its obligations reflected on the Most Recent Balance Sheet to the extent
of the Company's ability to do so and shall not, until the satisfaction of such
obligations or the third anniversary of the Closing accept any dividend or other
distribution of money or property (excluding dividends payable solely in the
equity or debt securities of the Company) in respect of its ownership of the
equity securities of the Company. Notwithstanding the foregoing sentence, Buyer
may accept dividends and distributions with respect to the equity securities of
the Company prior to the third anniversary of the Closing or the satisfaction of
the liabilities reflected on the Most Recent Balance Sheet if, at the time of
accepting such dividends or distribution, it covenants to make a contribution to
the capital of the Company in the amount of such dividend or distribution in the
event that prior to the third anniversary of the Closing or the satisfaction of
the last to be satisfied of the liabilities reflected on the Most Recent Balance
Sheet a claim is made by any third party against the Sellers with respect to the
liabilities reflected on the Most Recent Balance Sheet.
6. REMEDIES FOR BREACHES OF THIS AGREEMENT.
(a) SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
All of the representations and warranties of the Parties contained in this
Agreement shall survive the Closing hereunder without regard to any
investigation made by any of the Parties (even if the damaged Party knew or had
reason to know of any misrepresentation or breach of warranty or covenant at the
time of Closing) and continue in full force and effect forever thereafter
(subject to any applicable statutes of limitations).
(b) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE BUYER.
(i) Subject to the limitations set forth in Section 6(e) below, in
the event the Sellers breach (or in the event any third party alleges facts
that, if true, would mean the Sellers have breached) any of their
representations, warranties, and covenants contained herein (other than the
covenants in Section 2(a) above and the representations and warranties in
Section 3(a) above), and, if there is an applicable survival period
pursuant to Section 6(a) above, provided that the Buyer makes a written
claim for indemnification against the Sellers pursuant to Section 8(h)
below within such survival period, then the Sellers agree to indemnify the
Buyer from and against the entirety of any Adverse Consequences the Buyer
may suffer through and after the date of the claim for indemnification
(including any Adverse Consequences the Buyer may suffer after the end of
any applicable survival period) resulting from, arising out of, relating
to, in the nature of, or caused by the breach (or the alleged breach).
(ii) Subject to the limitations set forth in Section 6(e) below, in
the event the Sellers breach (or in the event any third party alleges facts
that, if true, would mean any of the Sellers has breached) any of his or
its covenants in Section 2(a) above or any of his or its representations
and warranties in Section 3(a) above, and, if there is an applicable
survival period pursuant to Section 6(a) above, provided that the Buyer
makes a written claim for indemnification against the Sellers pursuant to
Section 8(h) below within such survival period, then the Sellers agree to
indemnify the Buyer from and against the entirety of any Adverse
Consequences the Buyer may suffer through and after the date of the claim
for indemnification (including any Adverse Consequences the Buyer may
suffer after the end
of any applicable survival period) resulting from, arising out of, relating
to, in the nature of, or caused by the breach (or the alleged breach).
(iii) Subject to the limitations set forth in Section 6(e) below, the
Sellers agree to indemnify the Buyer from and against the entirety of any
Adverse Consequences the Buyer may suffer resulting from, arising out of,
relating to, in the nature of, or caused by any Liability of the Company
(A) for any Taxes of the Company with respect to any Tax year or portion
thereof ending on or before the Closing Date (or for any Tax year beginning
before and ending after the Closing Date to the extent allocable
(determined in a manner consistent with Section 8(c)) to the portion of
such period beginning before and ending on the Closing Date), to the extent
such Taxes are not reflected in the reserve for Tax Liability (rather than
any reserve for deferred Taxes established to reflect timing differences
between book and Tax income) shown on the face of the Most Recent Balance
Sheet (rather than in any notes thereto)[, as such reserve is adjusted for
the passage of time through the Closing Date in accordance with the past
custom and practice of the Company in filing their Tax Returns, and (B) for
the unpaid Taxes of any Person (other than the Company) under Reg. Section
1.1502-5 (or any similar provision of state, local, or foreign law), as a
transferee or successor, by contract, or otherwise.
(c) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE SELLERS. Subject to the
------------------------------------------------------
limitations set forth in Section 6(e) below, in the event the Buyer breaches (or
in the event any third party alleges facts that, if true, would mean the Buyer
has breached) any of its representations, warranties, and covenants contained
herein, and, if there is an applicable survival period pursuant to Section 6(a)
above, provided that the Sellers make a written claim for indemnification
against the Buyer pursuant to Section 8(h) below within such survival period,
then the Buyer agrees to indemnify each of the Seller from and against the
entirety of any Adverse Consequences the Sellers may suffer through and after
the date of the claim for indemnification (including any Adverse Consequences
the Sellers may suffer after the end of any applicable survival period)
resulting from, arising out of, relating to, in the nature of, or caused by the
breach (or the alleged breach).
(d) MATTERS INVOLVING THIRD PARTIES.
(i) If any third party shall notify any Party (the "Indemnified
------------
Party") with respect to any matter (a "Third Party Claim") which may give
------ -------------------
rise to a claim for indemnification against any other Party (the
"Indemnifying Party") under this Section 6, then the Indemnified Party
--------------------
shall promptly notify each Indemnifying Party thereof in writing; provided,
--------
however, that no delay on the part of the Indemnified Party in notifying
any Indemnifying Party shall relieve the Indemnifying Party from any
obligation hereunder unless (and then solely to the extent) the
Indemnifying Party thereby is prejudiced.
(ii) Any Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of its choice
reasonably satisfactory to the Indemnified Party so long as (A) the
Indemnifying Party notifies the Indemnified
Party in writing within 30 days after the Indemnified Party has given
notice of the Third Party Claim that the Indemnifying Party will indemnify
the Indemnified Party from and against the entirety of any Adverse
Consequences the Indemnified Party may suffer resulting from, arising out
of, relating to, in the nature of, or caused by the Third Party Claim, (B)
the Indemnifying Party provides the Indemnified Party with evidence
reasonably acceptable to the Indemnified Party that the Indemnifying Party
will have the financial resources to defend against the Third Party Claim
and fulfill its indemnification obligations hereunder, (C) the Third Party
Claim involves only money damages and does not seek an injunction or other
equitable relief, (D) settlement of, or an adverse judgment with respect
to, the Third Party Claim is not, in the good faith judgment of the
Indemnified Party, likely to establish a precedential custom or practice
materially adverse to the continuing business interests of the Indemnified
Party, and (E) the Indemnifying Party conducts the defense of the Third
Party Claim actively and diligently.
(iii) So long as the Indemnifying Party is conducting the defense of
the Third Party Claim in accordance with Section 6(d)(ii) above, (A) the
Indemnified Party may retain separate co-counsel at its sole cost and
expense and participate in the defense of the Third Party Claim, (B) the
Indemnified Party will not consent to the entry of any judgment or enter
into any settlement with respect to the Third Party Claim without the prior
written consent of the Indemnifying Party (not to be withheld
unreasonably), and (C) the Indemnifying Party will not consent to the entry
of any judgment or enter into any settlement with respect to the Third
Party Claim without the prior written consent of the Indemnified Party (not
to be withheld unreasonably).
(iv) In the event any of the conditions in Section 6(d)(ii) above is
or becomes unsatisfied, however, (A) the Indemnified Party may defend
against, and consent to the entry of any judgment or enter into any
settlement with respect to, the Third Party Claim in any manner it
reasonably may deem appropriate (and the Indemnified Party need not consult
with, or obtain any consent from, any Indemnifying Party in connection
therewith), (B) the Indemnifying Parties will reimburse the Indemnified
Party promptly and periodically for the costs of defending against the
Third Party Claim (including reasonable attorneys' fees and expenses), and
(C) the Indemnifying Parties will remain responsible for any Adverse
Consequences the Indemnified Party may suffer resulting from, arising out
of, relating to, in the nature of, or caused by the Third Party Claim to
the fullest extent provided in this Section 6.
(e) LIMITATIONS. The provisions of this Section 6 notwithstanding, neither
-----------
the Buyer nor the Sellers shall be liable to or required to indemnify the other
under Sections 6(b) or (c) until the aggregate amount otherwise due the party to
be indemnified exceeds an accumulated total of Thirty Thousand Dollars
($30,000.00).
(f) DETERMINATION OF ADVERSE CONSEQUENCES. The Parties shall take into
-------------------------------------
account the time cost of money (using the Applicable Rate as the discount rate)
in determining Adverse
Consequences for purposes of this Section 6. All indemnification payments under
this Section 6 shall be deemed adjustments to the Purchase Price.
(g) OTHER INDEMNIFICATION PROVISIONS. The foregoing indemnification
--------------------------------
provisions are in addition to, and not in derogation of, any statutory,
equitable, or common law remedy any Party may have for breach of representation,
warranty, or covenant. The Sellers hereby agree that they will not make any
claim for indemnification against the Company by reason of the fact that he or
it was a director, officer, employee, or agent of any such entity or was serving
at the request of any such entity as a partner, trustee, director, officer,
employee, or agent of another entity (whether such claim is for judgments,
damages, penalties, fines, costs, amounts paid in settlement, losses, expenses,
or otherwise and whether such claim is pursuant to any statute, charter
document, bylaw, agreement, or otherwise) with respect to any action, suit,
proceeding, complaint, claim, or demand brought by the Buyer against such Seller
(whether such action, suit, proceeding, complaint, claim, or demand is pursuant
to this Agreement, applicable law, or otherwise).
7. TAX MATTERS. The following provisions shall govern the allocation of
responsibility as between Buyer and Sellers for certain tax matters following
the Closing Date:
(a) TAX PERIODS ENDING ON OR BEFORE THE CLOSING DATE. Buyer shall prepare
------------------------------------------------
or cause to be prepared and file or cause to be filed all Tax Returns for the
Company for all periods ending on or prior to the Closing Date which are filed
after the Closing. Buyer shall permit Company to review and comment on each such
Tax Return described in the preceding sentence prior to filing. Sellers shall
reimburse Buyer for Taxes of the Company with respect to such periods within
fifteen (15) days after payment by Buyer or the Company of such Taxes to the
extent such Taxes are not reflected in the reserve for Tax Liability (rather
than any reserve for deferred Taxes established to reflect timing differences
between book and Tax income) shown on the face of the Most Recent Balance Sheet
or incurred in the ordinary course of business since that date.
(b) TAX PERIODS BEGINNING BEFORE AND ENDING AFTER THE CLOSING DATE. Buyer
--------------------------------------------------------------
shall prepare or cause to be prepared and file or cause to be filed any Tax
Returns of the Company for Tax periods which begin before the Closing Date and
end after the Closing Date. Seller shall pay to Buyer within fifteen (15) days
after the date on which Taxes are paid with respect to such periods an amount
equal to the portion of such Taxes which relates to the portion of such Taxable
period ending on the Closing Date to the extent such Taxes are not reflected in
the reserve for Tax Liability (rather than any reserve for deferred Taxes
established to reflect timing differences between book and Tax income) shown on
the face of the Closing Balance Sheet. For purposes of this Section, in the case
of any Taxes that are imposed on a periodic basis and are payable for a Taxable
period that includes (but does not end on) the Closing Date, the portion of such
Tax which relates to the portion of such Taxable period ending on the Closing
Date shall (i) in the case of any Taxes other than Taxes based upon or related
to income or receipts, be deemed to be the amount of such Tax for the entire
Taxable period multiplied by a fraction the numerator
of which is the number of days in the Taxable period ending on the Closing Date
and the denominator of which is the number of days in the entire Taxable period,
and (ii) in the case of any Tax based upon or related to income or receipts be
deemed equal to the amount which would be payable if the relevant Taxable period
ended on the Closing Date. Any credits relating to a Taxable period that begins
before and ends after the Closing Date shall be taken into account as though the
relevant Taxable period ended on the Closing Date. All determinations necessary
to give effect to the foregoing allocations shall be made in a manner consistent
with prior practice of the Company .
(c) COOPERATION ON TAX MATTERS.
(i) Buyer, the Company and Sellers shall cooperate fully, as and to
the extent reasonably requested by the other party, in connection with the
filing of Tax Returns pursuant to this Section and any audit, litigation or
other proceeding with respect to Taxes. Such cooperation shall include the
retention and (upon the other party's request) the provision of records and
information which are reasonably relevant to any such audit, litigation or
other proceeding and making employees available on a mutually convenient
basis to provide additional information and explanation of any material
provided hereunder. The Company and Sellers agree (A) to retain all books
and records with respect to Tax matters pertinent to the Company relating
to any taxable period beginning before the Closing Date until the
expiration of the statute of limitations (and, to the extent notified by
Buyer or Sellers, any extensions thereof) of the respective taxable
periods, and to abide by all record retention agreements entered into with
any taxing authority, and (B) to give the other party reasonable written
notice prior to transferring, destroying or discarding any such books and
records and, if the other party so requests, the Company or Sellers, as the
case may be, shall allow the other party to take possession of such books
and records.
(ii) Buyer and Sellers further agree, upon request, to use their
best efforts to obtain any certificate or other document from any
governmental authority or any other Person as may be necessary to mitigate,
reduce or eliminate any Tax that could be imposed (including, but not
limited to, with respect to the transactions contemplated hereby).
(iii) Buyer and Sellers further agree, upon request, to provide the
other party with all information that either party may be required to
report pursuant to Section 6043 of the Code and all Treasury Department
Regulations promulgated thereunder.
(d) TAX SHARING AGREEMENTS. All tax sharing agreements or similar
----------------------
agreements with respect to or involving the Company shall be terminated as of
the Closing Date and, after the Closing Date, the Company shall not be bound
thereby or have any liability thereunder.
(e) CERTAIN TAXES. All transfer, documentary, sales, use, stamp,
-------------
registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement (including any New York
State Gains Tax, New York City Transfer Tax and any similar tax imposed in other
states or subdivisions), shall be paid by Sellers when due, and Seller will, at
their own expense, file all necessary Tax Returns and other documentation with
respect to all such transfer, documentary, sales, use, stamp, registration and
other Taxes and fees, and, if required by applicable law, Buyer will, and will
cause its affiliates to, join in the execution of any such Tax Returns and other
documentation.
8. MISCELLANEOUS.
(a) ARBITRATION. The Parties agree that except with respect to any action
-----------
for an injunction pursuant to the provisions of the Agreement Not To Compete
(Exhibit D hereto), all disputes among the Parties after the Closing arising out
of or relating to this Agreement, including without limitation the indemnities
provided above or the breach thereof, shall be submitted to the American
Arbitration Association ("AAA") for arbitration before a single arbitrator for
final and binding arbitration in accordance with the rules of AAA then in effect
or such other procedures as the Parties may agree to as the sole and exclusive
remedy for resolving such disputes. The Parties agree that the decision of the
arbitrator shall be final and binding between the Parties thereto, and shall be
enforceable by any court having jurisdiction over the party against whom
enforcement is sought. The Parties agree that any such arbitration shall take
place in Dallas, Texas. The fees and expenses of such arbitration (including
reasonable attorneys' fees) or any action to enforce an arbitration award shall
be paid by the party that does not prevail in such arbitration.
(b) WAIVER OF JURY TRIAL. THE PARTIES EACH ACKNOWLEDGE AND AGREE THAT BY
--------------------
SELECTING ARBITRATION AS THE SOLE AND EXCLUSIVE REMEDY FOR RESOLVING ALL
DISPUTES AMONG THEM (OTHER THAN THOSE SET FORTH IN SECTION 5(d)), THEY ARE
WAIVING THEIR RIGHT TO A JURY TRIAL TO WHICH THEY MAY OTHERWISE BE ENTITLED.
(c) NATURE OF CERTAIN OBLIGATIONS. The representations, warranties, and
------------------------------
covenants in this Agreement are a material inducement to Buyer in entering into
this Agreement. Thus, Sellers ill be responsible to the extent provided in
Section 6 above for the entirety of any Adverse Consequences the Buyer may
suffer as a result of any breach thereof.
(d) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No Party shall issue any
---------------------------------------
press release or make any public announcement relating to the subject matter of
this Agreement prior to the Closing without the prior written approval of the
Buyer and Xxxxxxxxxxxx; provided, however, that any Party may make any public
-------- -------
disclosure it believes in good faith is required by applicable law or any
listing or trading agreement concerning its publicly-traded securities (in which
case the disclosing Party will use its reasonable best efforts to advise the
other Parties prior to making the disclosure).
(e) NO THIRD-PARTY BENEFICIARIES. This Agreement shall not confer any
----------------------------
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
(f) ENTIRE AGREEMENT. This Agreement (including the documents referred to
-----------------
herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements, negotiations or representations by or among
the Parties or their representatives, whether written or oral, to the extent
they related in any way to the subject matter hereof.
(g) SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon and
-------------------------
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of his
or its rights, interests, or obligations hereunder without the prior written
approval of the Buyer and the Seller; provided, however, that the Buyer may (i)
-------- -------
assign any or all of its rights and interests hereunder to one or more of its
Affiliates and (ii) designate one or more of its Affiliates to perform its
obligations hereunder (in any or all of which cases the Buyer nonetheless shall
remain responsible for the performance of all of its obligations hereunder).
(h) COUNTERPARTS. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(i) HEADINGS. The section headings contained in this Agreement are
--------
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(j) NOTICES. All notices, requests, demands, claims, and other
-------
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to the Sellers: X. Xxxxxxxxxxxx Enterprises, Inc.
------------------
0000 Xxxxx Xxxxx
Xxxxxx, Xxxxx 00000
Attention: Xx. Xxxxxx X. Xxxxxxxxxxxx
If to the Buyer: EISI, Inc.
----------------
000 Xxxx Xxxx Xxxxxx
Xxxxxxxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxx
Chairman of the Board
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.
(k) GOVERNING LAW. This Agreement shall be governed by and construed in
-------------
accordance with the domestic laws of the State of Texas without giving effect to
any choice or conflict of law provision or rule (whether of the State of Texas
or any other jurisdiction) that would cause the application of the laws of any
other jurisdiction.
(l) AMENDMENTS AND WAIVERS. No amendment of any provision of this
----------------------
Agreement shall be valid unless the same shall be in writing and signed by the
Buyer and the Sellers. No waiver by any Party of any default, misrepresentation,
or breach of warranty or covenant hereunder, whether intentional or not, shall
be deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence.
(m) SEVERABILITY. Any term or provision of this Agreement that is invalid
------------
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(n) EXPENSES. Each of the Parties will bear his or its own costs and
--------
expenses (including legal fees and expenses) incurred in connection with this
Agreement and the transactions contemplated hereby. The Sellers agree that the
Company has not borne or will bear any of the Sellers' costs and expenses
(including any of their legal fees and expenses) in connection with this
Agreement or any of the transactions contemplated hereby.
(o) CONSTRUCTION. The Parties have participated jointly in the negotiation
------------
and drafting of this Agreement. In the event an ambiguity or question of intent
or interpretation arises, this Agreement shall be construed as if drafted
jointly by the Parties and no presumption or burden of proof shall arise
favoring or disfavoring any Party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The Parties intend
that each representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or
covenant relating to the same subject matter (regardless of the relative levels
of specificity) which the Party has not breached shall not detract from or
mitigate the fact that the Party is in breach of the first representation,
warranty, or covenant.
(p) INCORPORATION OF EXHIBITS, ANNEXES, AND SCHEDULES. The Exhibits,
-------------------------------------------------
Annexes, and Schedules identified in this Agreement are incorporated herein by
reference and made a part hereof.
(q) SPECIFIC PERFORMANCE. Each of the Parties acknowledges and agrees that
--------------------
the other Parties would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of the Parties agrees that
the other Parties shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in any arbitration proceeding.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on [AS OF]
the date first above written.
EISI, INC.
By: /s/ XXXXXX X. XXXXXX
--------------------------------
Xxxxxx X. Xxxxxx
Chairman of the Board
X. XXXXXXXXXXXX ENTERPRISES, INC.
By: /s/ XXXXXX X. XXXXXXXXXXXX
--------------------------------
Name:
------------------------------
Title:-----------------------------
SELLERS
/s/ XXXXXX X. XXXXXXXXXXXX
-----------------------------------
Xxxxxx X. Xxxxxxxxxxxx
X. XXXXXXXXXXXX ENTERPRISES, INC.
401(K) EMPLOYEE STOCK OWNERSHIP
PLAN
By: /s/ XXXXXX X. XXXXXXXXXXXX
--------------------------------
Its:
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