Exhibit 2.1
EXECUTION COPY
ASSET PURCHASE AGREEMENT
by and between
GSI LUMONICS INC.
and
DYNAMICS RESEARCH CORPORATION
dated as of
May 1, 2003
Table of Contents
Page
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ARTICLE I DEFINITIONS...................................................... 1
Section 1.1 Definitions........................................... 1
Section 1.2 Interpretation........................................ 10
ARTICLE II PURCHASE AND SALE OF ASSETS 11
Section 2.1 Purchase and Sale of Assets........................... 11
Section 2.2 Assumption of Liabilities............................. 12
Section 2.3 The Purchase Price.................................... 12
Section 2.4 Purchase Price Adjustment............................. 12
Section 2.5 Allocation of Purchase Price; Tax Filings............. 14
Section 2.6 Prorations for Taxes, Expenses........................ 15
Section 2.7 Physical Inventory.................................... 15
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER 16
Section 3.1 Organization; Qualification of Seller................. 16
Section 3.2 Authorization......................................... 16
Section 3.3 Binding Agreements.................................... 16
Section 3.4 Good Title Conveyed................................... 16
Section 3.5 Consents and Approvals; No Violations................. 17
Section 3.6 Compliance with Laws.................................. 17
Section 3.7 Title to Assets; Necessary Assets..................... 17
Section 3.8 Financial Statements.................................. 17
Section 3.9 Absence of Certain Changes or Events.................. 18
Section 3.10 Accounts Receivable................................... 19
Section 3.11 Inventory............................................. 19
Section 3.12 Assumed Contracts..................................... 19
Section 3.13 Miscellaneous Assets.................................. 19
Section 3.14 Litigation............................................ 19
Section 3.15 Labor Matters......................................... 19
Section 3.16 Employee Benefit Plans................................ 20
Section 3.17 Tax Matters........................................... 20
Section 3.18 Intellectual Property................................. 21
Section 3.19 Personal Property..................................... 22
Section 3.20 Products.............................................. 22
Section 3.21 Product Liability..................................... 22
Section 3.22 Customer Purchase Orders.............................. 23
Section 3.23 Trade Payables........................................ 23
Section 3.24 Product Warranties.................................... 23
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Section 3.25 Prepaid Expenses...................................... 23
Section 3.26 Goods Held on Consignment............................. 23
Section 3.27 Seller's Customers.................................... 23
Section 3.28 Suppliers............................................. 23
Section 3.29 Preliminary Statement of Specified Assets
and Liabilities....................................... 24
Section 3.30 Environmental Matters................................. 24
Section 3.31 Brokers or Finders.................................... 24
Section 3.32 Books and Records..................................... 24
Section 3.33 Full Disclosure....................................... 24
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PURCHASER 25
Section 4.1 Organization; Qualification of Purchaser.............. 25
Section 4.2 Authorization......................................... 25
Section 4.3 Binding Agreement..................................... 25
Section 4.4 Consents and Approvals; No Violations................. 25
Section 4.5 Brokers or Finders.................................... 26
Section 4.6 Solvency; Ability to Perform Agreement................ 26
ARTICLE V COVENANTS 26
Section 5.1 Reasonable Efforts and Further Assurances............. 26
Section 5.2 Publicity............................................. 27
Section 5.3 Access to Books and Records........................... 27
Section 5.4 Accounts Receivable; Future Sales..................... 28
Section 5.5 Noncompetition........................................ 28
Section 5.6 Transition Services................................... 28
Section 5.7 Waiver of Bulk Sales Requirement...................... 29
Section 5.8 Warranty Repairs; Customer Inquiries.................. 30
Section 5.9 Non-Confidentiality of Tax Structure.................. 30
Section 5.10 Non-Solicitation...................................... 30
ARTICLE VI THE CLOSING 30
Section 6.1 The Closing........................................... 30
Section 6.2 Deliveries by Seller.................................. 30
Section 6.3 Deliveries by Purchaser............................... 31
ARTICLE VII OBLIGATIONS AFTER CLOSING 31
Section 7.1 Survival of Representations, Warranties and
Covenants; Indemnification Survival................... 31
Section 7.2 Other Provisions with Respect to Indemnification...... 34
Section 7.3 Survival of Indemnification Claims; Escrow............ 36
ARTICLE VIII MISCELLANEOUS 36
Section 8.1 Fees and Expenses..................................... 36
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Section 8.2 Amendment and Modification............................ 36
Section 8.3 Notices............................................... 36
Section 8.4 Counterparts.......................................... 37
Section 8.5 Entire Agreement; No Third Party Beneficiaries........ 37
Section 8.6 Severability.......................................... 38
Section 8.7 Governing Law......................................... 38
Section 8.8 Enforcement; Venue.................................... 38
Section 8.9 Time of Essence....................................... 38
Section 8.10 Extension, Waiver..................................... 38
Section 8.11 Election of Remedies.................................. 39
Section 8.12 Assignment............................................ 39
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EXHIBIT A XXXX OF SALE AND ASSIGNMENT
EXHIBIT B INSTRUMENT OF ASSUMPTION OF LIABILITIES
EXHIBIT C ESCROW AGREEMENT
EXHIBIT D SUPPLY AGREEMENT
Schedule 3.5 Consents and Approvals
Schedule 3.8(a) Financial Statements
Schedule 3.8(b) Significant Accounting Policies
Schedule 3.9 Absence of Certain Changes or Events
Schedule 3.10 Accounts Receivable
Schedule 3.11 Inventory
Schedule 3.12 Assumed Contracts
Schedule 3.13 Miscellaneous Assets
Schedule 3.15(d) Division Employees
Schedule 3.16 Plans
Schedule 3.18(a) Division Intellectual Property
Schedule 3.18(c) Division Intellectual Property Fees
Schedule 3.18(d) Intellectual Property Claims
Schedule 3.19(a) Personal Property
Schedule 3.19(b) Equipment Not in Possession of Seller
Schedule 3.20(a) Products
Schedule 3.20(b) Product Recalls
Schedule 3.22 Customer Purchase Orders
Schedule 3.23 Trade Payables
Schedule 3.24 Product Warranties
Schedule 3.25 Prepaid Expenses
Schedule 3.26 Goods Held on Consignment
Schedule 3.28 Suppliers
Schedule 3.29 Preliminary Statement of Specified Assets and Liabilities
Schedule 3.30(a) Environmental Permits and Authorizations
Schedule 3.30(b) Environmental Matters
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ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement dated as of May 1, 2003 (this
"Agreement") is by and between GSI Lumonics Inc., a New Brunswick corporation
("Purchaser"), and Dynamics Research Corporation, a Massachusetts corporation
("Seller"), relating to the sale of certain specified assets, subject only to
those liabilities expressly assumed by Purchaser pursuant hereto, associated
with the Dynamics Research Corporation Encoder Division of Seller. Capitalized
terms used in this Agreement have the meanings assigned to them in Article I
hereof.
WHEREAS, each of the Boards of Directors of Purchaser and Seller has
approved, and deems it advisable and in the best interests of its respective
shareholders to consummate the acquisition of certain specified assets of the
Division by Purchaser, subject only to those liabilities expressly assumed by
Purchaser pursuant hereto, and otherwise upon the terms and subject to the
conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements set forth herein and
intending to be legally bound hereby, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. For all purposes of this Agreement, except as
otherwise expressly provided or unless the context clearly requires otherwise:
"Accounts Receivable" shall mean all trade and accounts receivable
relating to the Division, as determined in accordance with GAAP.
"Affiliate" of any Person shall mean any other Person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such first Person.
"Agreement" shall have the meaning set forth in the preamble.
"Allocation" shall have the meaning set forth in Section 2.5(a).
"Allocation Dispute Notice" shall have the meaning set forth in
Section 2.5(b).
"Ancillary Agreements" shall mean the Xxxx of Sale and Assignment,
Instrument of Assumption of Liabilities, the Escrow Agreement and the Supply
Agreement.
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"Assets" shall have the meaning set forth in Section 2.1.
"Assumed Contracts" shall have the meaning set forth in Section 3.12.
"Assumed Liabilities" shall have the meaning set forth in Section 2.2.
"Balance Sheet" shall mean the balance sheet of the Division included
in the Financial Statements.
"Xxxx of Sale and Assignment" shall mean the Xxxx of Sale and
Assignment between Seller and Purchaser attached hereto as Exhibit A.
"Business Day" shall mean any day other than (a) Saturday or Sunday or
(b) any other day on which banks are authorized or required to close in Boston,
Massachusetts.
"Claim" shall mean any claim, proceeding or other matter which may
give rise to a Loss.
"Closing" shall have the meaning set forth in Section 6.1.
"Closing Date" shall have the meaning set forth in Section 6.1.
"Closing Date Statement" shall have the meaning set forth in Section
2.4(a).
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Computer Software" shall mean computer software programs, databases
and all documentation related thereto.
"Confidentiality Agreement" shall mean the letter agreement dated
March 26, 2003, by and between Purchaser and Xxxxx, Xxxxxxxx & Xxxx, on behalf
of itself and Seller.
"Consent" shall mean any consent, approval, authorization, clearance,
exemption, waiver or similar affirmation by a Person pursuant to any Contract,
Law, Order or Permit.
"Contract" shall mean any agreement, valid quotation, purchase order,
arrangement or commitment, contract, indenture, instrument, lease or other
obligation of any kind, including obligations binding on a Person, its capital
stock, assets, properties or business.
"Customer Purchase Orders" shall have the meaning set forth in Section
3.22.
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"Defect" shall mean a defect or impurity of any kind, whether in
design, manufacture, processing or otherwise of a Product.
"Direct Claim" shall have the meaning set forth in Section 7.1(d).
"Disclosure Schedule" shall mean the disclosure schedule prepared and
signed by the Seller and delivered to Purchaser simultaneously with the
execution hereof.
"Dispute Notice" shall have the meaning set forth in Section 2.4(b).
"Disputed Item" shall have the meaning set forth in Section 2.4(b).
"Division" shall mean the design, manufacture, marketing and sales and
support business for encoders supplied to all industries, including, but not
limited to, automotive, semiconductor, processing, factory automation, medical
instrumentation and motion control sub-systems, heretofore conducted by Seller
under the name the "Dynamics Research Corporation Encoder Division," including
the Assets and the goodwill appurtenant to such business and assets.
"Division Employees" shall have the meaning set forth in Section
3.15(d).
"Division Intellectual Property" shall mean all Intellectual Property
used or held for use in connection with the Division, excluding readily
available "off the shelf," "shrink wrapped" software.
"Encoder Premises" shall have the meaning set forth in Section 2.7.
"Environmental Claim" shall mean any Claim by any Person alleging
actual or potential liability for investigatory, cleanup or governmental
response costs, or natural resources or property damages, or personal injuries,
attorney's fees or penalties relating to (i) the presence, or release into the
environment, of any Materials of Environmental Concern at any location owned or
operated by the Division, now or in the past, or (ii) circumstances forming the
basis of any violation, or alleged violation, of any Environmental Law.
"Environmental Law" shall mean each federal, state, local and foreign
law and regulation relating to pollution, protection or preservation of human
health or the environment including ambient air, surface water, ground water,
land surface or subsurface strata, and natural resources, and including each law
and regulation relating to emissions, discharges, releases or threatened
releases of Materials of Environmental Concern, or otherwise relating to the
manufacturing, processing, distribution, use, treatment, generation, storage,
containment (whether above ground or underground), disposal, transport or
handling of Materials of Environmental
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Concern, or the preservation of the environment or mitigation of adverse effects
thereon and each law and regulation with regard to record keeping, notification,
disclosure and reporting requirements respecting Materials of Environmental
Concern.
"Equipment" shall mean all of the machinery, equipment, repair parts,
tools, laboratory and office equipment, engineering and design equipment, test
equipment and computer hardware used by the Division. Equipment shall include
any lease or license pursuant to which the Division currently uses the Equipment
and any maintenance or service contracts relating thereto.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"ERISA Affiliate" shall mean any trade or business, whether or not
incorporated, that together with the Seller would be deemed a "single employer"
within the meaning of Section 4001(b) of ERISA.
"Escrow Agent" shall have the meaning set forth in the Escrow
Agreement.
"Escrow Agreement" shall mean the Escrow Agreement between Seller and
Purchaser attached hereto as Exhibit C.
"Escrow Funds" shall have the meaning set forth in Section 2.3.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Excluded Assets" shall mean the following assets of the Seller:
(i) Seller's real property leases or tenant improvements except for
any tenant improvements (with respect to the Division), integral to the
production process of the Division which can be removed from Seller's
current premises;
(ii) any of Seller's cash, marketable or other securities,
commercial paper and cash equivalents or other investments, on hand or in
bank accounts and all of Seller's bank accounts;
(iii) the phone system used by the Division and any computers not
used primarily in the business or operations of the Division and any
software embodied in any such computers; any communication or data network
systems not used primarily in the business or operations of the Division,
including, without limitation, the MK Server used by the Division and the
email server shared by the Division and the Seller's Metrigraphics division
and the software included within each;
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(iv) all corporate records of Seller and its other businesses, all
financial and tax records of Seller relating in whole or in part to the
business or operations of Seller and all other records and files not
relating primarily to the business or operations of the Division;
(v) all personnel files of any employees of Seller;
(vi) the consideration received by Seller pursuant to this
Agreement;
(vii) all of Seller's rights, claims, actions, causes of action,
judgments and demands of whatever nature relating to the Excluded Assets;
(viii) all guarantees, letters of credit, bank drafts and similar
items given by Seller for the benefit of the Division, including but not
limited to any guarantees of bank loans or lines of credit;
(ix) all insurance policies of Seller and the rights to claims
thereunder; and
(x) all of Seller's deferred charges, advance payments, prepaid
items and assets, security and other deposits, claims for refunds, rights
of offset and credits of all kinds, relating to the Excluded Assets.
"Excluded Liabilities" shall mean any liability or obligation of
Seller that is not an Assumed Liability expressly assumed by Purchaser pursuant
to this Agreement.
"Facilities" shall have the meaning set forth in Section 5.6(a).
"Financial Statements" shall mean the unaudited balance sheet of the
Division as at December 31 for the year 2002, together with the statement of
income for the year then ended and the audited consolidated balance sheet of the
Seller and its Subsidiaries as at December 31 for the year 2002, together with
the consolidated statements of income, shareholders' equity and cash flows for
the year then ended.
"GAAP" shall mean United States generally accepted accounting
principles.
"Governmental Authority" shall mean any federal, state, local or
foreign court, arbitral tribunal, agency, authority, board, commission,
legislature or office of any federal, state, county, district, municipality,
city, foreign or other government unit.
"Independent Accountants" shall mean Deloitte & Touche LLP or such
other nationally recognized accounting firm as Purchaser and Seller shall in
good faith agree.
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"Indemnified Party" shall have the meaning set forth in Section
7.1(c).
"Indemnifying Party" shall have the meaning set forth in Section
7.1(c).
"Instrument of Assumption of Liabilities" shall mean the Instrument of
Assumption of Liabilities between Seller and Purchaser attached hereto as
Exhibit B.
"Intellectual Property" shall mean patents, trademarks, trade names,
service marks, Internet domain names, copyrights and applications for and
registrations of such patents, trademarks, trade names, service marks, Internet
domain names and copyrights, and all technology, know-how, Computer Software and
proprietary information.
"Intellectual Property Claims" shall have the meaning set forth in
Section 3.18(d).
"Interest Rate" shall mean six percent per year calculated on the
basis of a 365 day year and charged for the actual number of days elapsed.
"Inventory" shall mean all raw material, work-in-process, component
parts and finished goods inventory relating to the Division.
"IRS" shall mean the Internal Revenue Service.
"Knowledge" shall mean (a) with respect to an individual, an
individual will be deemed to have "Knowledge" of a particular fact or other
matter if such individual is actually aware of such fact or other matter and (b)
with respect to an entity, an entity (other than an individual) will be deemed
to have "Knowledge" of a particular fact or other matter if any of the senior
management or directors of such entity or such entity's divisions or segments
has Knowledge of such fact or other matter.
"Law" shall mean any federal, state, local or foreign law, statute,
ordinance, rule, regulation and any other executive or legislative proclamation.
"Lien" shall mean any lien, charges, security interest, attachment,
encumbrance or charge of any kind, mortgage and pledge (including any agreement
to give any of the foregoing); provided, however, that the term "Lien" shall not
include (i) statutory liens for Taxes, which are not yet due and payable or are
being contested in good faith by appropriate proceedings; (ii) statutory or
common law liens to secure landlords, lessors or renters under leases or rental
agreements confined to the premises rented; (iii) deposits or pledges made in
connection with, or to secure payment of, worker's compensation, unemployment
insurance, old age
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pension or other social security programs mandated under applicable Laws; (iv)
statutory or common law liens in favor of carriers, warehousemen, mechanics and
material men to secure claims for labor, materials or supplies and other like
liens; and (v) restrictions on transfers of securities imposed by applicable
securities Laws.
"Litigation" shall mean any suit, action, arbitration, cause of
action, Claim, complaint, criminal prosecution, investigation, demand letter,
governmental or other administrative proceeding, whether at law or at equity,
before or by any federal, state, local or foreign court, tribunal or agency or
before any arbitrator.
"Losses" shall mean actual, direct and out-of-pocket losses,
liabilities, damages, costs and expenses (including reasonable attorney's fees
and costs of investigation).
"Material Adverse Effect" shall mean any adverse change that is or is
reasonably likely to materially impair the value of the Assets or materially
increase the obligations pursuant to the Assumed Liabilities or materially
interfere with Purchaser's use of the Assets in substantially the same manner as
currently used by the Division.
"Materials of Environmental Concern" shall mean chemicals; pollutants;
contaminants; wastes; toxic or hazardous substances, materials and wastes;
petroleum and petroleum products; asbestos and asbestos-containing materials;
polychlorinated biphenyls; lead and lead-based paints and materials; and radon.
"Miscellaneous Assets" shall have the meaning set forth in Section
3.13.
"Multiemployer Plan" shall mean "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA to which Seller or any ERISA Affiliate is making, or
is accruing an obligation to make, contributions or has made, or been obligated
to make, contributions within the preceding six (6) years.
"Order" shall mean any decision or award, decree, injunction,
judgment, order, quasi-judicial decision or award, ruling or writ of any
Governmental Authority.
"Permit" shall mean any federal, state, local or foreign governmental
approval, authorization, certificate, license or permit.
"Person" shall mean a natural person, partnership, corporation,
limited liability company, business trust, joint stock company, trust,
unincorporated association, joint venture, Governmental Authority or other
entity or organization.
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"Personal Property" shall mean all furniture, fixtures, Equipment,
data processing and computer equipment and other tangible personal property
(other than Inventory) associated with the Division, including, without
limitation, any tenant improvements integral to the production process of the
Division which can be removed from Seller's current premises.
"Plan" shall mean each deferred compensation and each incentive
compensation, stock purchase, stock option and other equity compensation plan,
program, agreement or arrangement; each severance or termination pay, medical,
surgical, hospitalization, life insurance and other "welfare" plan, fund or
program (within the meaning of Section 3(1) of ERISA); each profit-sharing,
stock bonus or other "pension" plan, fund or program (within the meaning of
Section 3(2) of ERISA); each employment, termination or severance agreement; and
each other employee benefit plan, fund, program, agreement or arrangement, in
each case, that is sponsored, maintained or contributed to or required to be
contributed to by the Seller or by any ERISA Affiliate, or to which the Seller
or an ERISA Affiliate is party, whether written or oral, for the benefit of any
employee of the Division.
"Preliminary Statement of Specified Assets and Liabilities" shall have
the meaning set forth in Section 3.29.
"Prepaid Expenses" shall mean any operating costs, prepaid expenses,
credits, deferred charges, advance payments, security deposits and other prepaid
items incurred or which may be incurred in connection with the Division after
the date hereof and which were paid by Seller on or prior to the date hereof.
"Product" shall mean any product designed, manufactured, shipped,
sold, marketed, distributed and/or otherwise introduced into the stream of
commerce by the Division, including, without limitation, modular encoders,
rotary shaft encoders, hollow shaft encoders, linear encoders, interface
products and custom designed products.
"Product Liabilities" shall have the meaning set forth in Section
3.21.
"Product Warranties" shall mean all guarantees, warranties,
indemnities and similar obligations of Seller with respect to Products sold,
distributed or otherwise disposed of prior to the Closing Date to the extent the
same obligate Seller to repair or replace such Products or refund the purchase
price thereof.
"Purchase Price" shall have the meaning set forth in Section 2.3.
"Purchase Price Adjustment Payment" shall have the meaning set forth
in Section 2.4(c).
"Purchaser" shall have the meaning set forth in the preamble.
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"Purchaser Indemnified Parties" shall have the meaning set forth in
Section 7.1(a).
"Realized Tax Benefit" shall have the meaning set forth in Section
7.2(c).
"Seller" shall have the meaning set forth in the preamble.
"Seller Indemnified Parties" shall have the meaning set forth in
Section 7.1(b).
"Subsidiary" shall mean, with respect to any Person, any corporation
or other organization, whether incorporated or unincorporated, of which (a) a
majority of the securities or other interests having by their terms ordinary
voting power to elect a majority of the Board of Directors or others performing
similar functions with respect to such corporation or other organization is
directly or indirectly owned or controlled by such Person or by any one or more
of its Subsidiaries, or by such Person and one or more of its Subsidiaries or
(b) such Person or any other Subsidiary of such Person is a general partner
(excluding any such partnership where such Person or any Subsidiary of such
Person does not have a majority of the voting interest in such partnership).
"Supply Agreement" shall mean the supply agreement between Purchaser
and Seller attached hereto as Exhibit D.
"Taxes" shall mean all taxes, charges, fees, duties, levies, penalties
or other assessments imposed by any Governmental Authority, including, without
limitation, all income, gross receipts, excise, property, sales, gain, use,
license, custom duty, unemployment, capital stock, transfer, franchise, payroll,
withholding, social security, minimum estimated, profit, gift, severance, value
added, disability, premium, recapture, credit, occupation, service, leasing,
employment, stamp and other taxes, and shall include interest, penalties or
additions attributable thereto or attributable to any failure to comply with any
requirement regarding Tax Returns.
"Tax Authority" shall mean any domestic, foreign, federal, national,
state, provincial, county or municipal or other local government or any
subdivision, agency, commission or authority thereof, exercising Tax regulatory
authority.
"Tax Return" shall mean any return, report or similar statement
required to be filed with respect to any Tax (including any attached schedules),
including any information return, claim for refund, amended return or
declaration of estimated Tax.
"Third Party" shall mean any Person other than Seller, Purchaser or
their respective Affiliates.
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"Third Party Claim" shall have the meaning set forth in Section
7.1(d).
"Trade Payables" shall have the meaning set forth in Section 3.23.
"Transaction" shall have the meaning set forth in Section 2.2.
"Transition Period" shall have the meaning set forth in Section
5.6(a).
"Transfer Taxes" shall mean all sales, use, transfer, recording, ad
valorem, documentary, registration, conveyance, excise, license, stamp or
similar Taxes and fees.
"Waiver Request" shall have the meaning set forth in Section 8.10.
"Warranty Reserve" shall mean the amount of $70,878, as reflected on
the Preliminary Statement of Specified Assets and Liabilities and the Closing
Date Statement.
"Warranty Obligation" shall have the meaning set forth in Section 5.8.
Section 1.2 Interpretation.
(a) Whenever the words "include," "includes" or "including" are
used in this Agreement they shall be deemed to be followed by the words "without
limitation."
(b) When a reference is made in this Agreement to a section or
article, such reference shall be to a section or article of this Agreement
unless otherwise clearly indicated to the contrary.
(c) The words "hereof," "herein" and "herewith" and words of
similar import shall, unless otherwise stated, be construed to refer to this
Agreement as a whole and not to any particular provision of this Agreement, and
article, section, paragraph, exhibit and schedule references are to the
articles, sections, paragraphs, exhibits and schedules of this Agreement unless
otherwise specified.
(d) The meaning assigned to each term defined herein shall be
equally applicable to both the singular and the plural forms of such term, and
words denoting any gender shall include all genders. Where a word or phrase is
defined herein, each of its other grammatical forms shall have a corresponding
meaning.
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(e) A reference to any party to this Agreement or any other
agreement or document shall include such party's successors and permitted
assigns.
(f) A reference to any legislation or to any provision of any
legislation shall include any amendment to, and any modification or re-enactment
thereof, any legislative provision substituted therefor and all regulations and
statutory instruments issued thereunder or pursuant thereto.
(g) In the event of any inconsistency between statements in the
body of this Agreement and statements in the Disclosure Schedule (excluding
exceptions expressly set forth in the Disclosure Schedule), the statements in
the body of this Agreement shall control.
(h) 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 provisions of this
Agreement.
ARTICLE II
PURCHASE AND SALE OF ASSETS
Section 2.1 Purchase and Sale of Assets. Subject to the terms and
conditions of this Agreement, at the Closing, Seller shall sell, convey, assign,
transfer and deliver to Purchaser and Purchaser shall purchase, acquire and
accept from Seller, all of Seller's right, title and interest in and to each of
the following, except for the Excluded Assets and except as otherwise
specifically provided herein (such right, title and interest collectively
referred to herein as the "Assets"):
(a) the Products;
(b) the Division Intellectual Property, including, without
limitation, patents and patent applications, the rights to the Dynamics Research
Corporation Encoder Division trade names in association with the Products,
including, without limitation, "Modular Encoder," "Rotary Shaft Encoder,"
"Hollow Shaft Encoder" and "Linear Encoder," and trademarks and all technical
drawings, descriptions, documentation, know-how and technology with respect to
the manufacturing, servicing and repair of the Products;
(c) the Inventory;
(d) all customer and supplier lists relating to the Division;
(e) the Accounts Receivable;
(f) the Assumed Contracts;
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(g) the Personal Property;
(h) the Prepaid Expenses;
(i) the Miscellaneous Assets;
(j) all guarantees, warranties, indemnities and similar rights in
favor of Seller with respect to any Asset;
(k) books and records related solely to the Assets transferred to
Purchaser pursuant to this Agreement; and
(l) all rights, claims, credits, causes of action or rights of
set-off against Third Parties related primarily to the Assets or the Assumed
Liabilities, including, without limitation, rights under manufacturers' and
vendors' warranties covering the Assets.
Section 2.2 Assumption of Liabilities. Subject to the terms and
conditions of this Agreement, at the Closing, Purchaser shall assume only the
liabilities and obligations of Seller as of the Closing Date with respect to
each of the following, which are collectively referred to herein as the "Assumed
Liabilities":
(a) any obligation or liability relating to the Assets or their
use to the extent arising out of an event which occurs after the Closing Date;
(b) any obligation or liability pursuant to the Assumed
Contracts, the Trade Payables or the Customer Purchase Orders; and
(c) the Warranty Obligation.
Purchaser shall assume none of the Excluded Liabilities. The transactions
referred to in Sections 2.1 and 2.2 are referred to herein as the "Transaction."
Section 2.3 The Purchase Price. Subject to the terms and conditions of
this Agreement, in consideration of the sale, conveyance, assignment, transfer
and delivery to Purchaser of the Assets, at the Closing, Purchaser shall pay a
total purchase price of $3,300,000 (the "Purchase Price"), subject to adjustment
as provided herein and shall assume the Assumed Liabilities. From the Purchase
Price, Purchaser shall deliver to the Escrow Agent an amount of cash equal to
$700,000 for deposit pursuant to the Escrow Agreement (the "Escrow Funds") and
shall pay to Seller an amount of cash equal to $2,600,000.
Section 2.4 Purchase Price Adjustment.
(a) As soon as practical, but in any event within thirty (30)
days following the Closing Date, unless otherwise extended by the mutual
agreement of the parties, Purchaser shall deliver to Seller a statement (the
"Closing Date Statement") reflecting the net book value as of April 30, 2003 of
the assets and
12
liabilities included in the Preliminary Statement of Specified Assets and
Liabilities referred to in Section 3.29. The Closing Date Statement shall be in
the same form, prepared in a manner consistent with the accounting practices and
policies of Seller used to prepare the Preliminary Statement of Specified Assets
and Liabilities and reflect the items included in the Preliminary Statement of
Specified Assets and Liabilities.
(b) Seller may dispute any amounts reflected on the Closing Date
Statement (each, a "Disputed Item") as delivered by Purchaser in accordance with
Section 2.4(a) hereof; provided, however, that Seller shall notify Purchaser in
writing (the "Dispute Notice") of each Disputed Item, specifying the amount
thereof in dispute and setting forth in reasonable detail the basis for such
dispute, within twenty (20) days of Seller's receipt of the Closing Date
Statement; and provided, further, however, that if an account or item is
recorded or treated in a manner consistent with the preparation of the
Preliminary Statement of Specified Assets and Liabilities, then, provided that
such recording or treatment does not prevent the Closing Date Statement from
being in accordance with GAAP, it shall be accepted as correct by Seller for
purposes of this Section 2.4. Seller shall submit only one Dispute Notice
containing all Disputed Items. In the event of such a dispute, Purchaser and
Seller shall attempt to reconcile their differences as to each Disputed Item and
any resolution by them as to any Disputed Item shall be final, binding and
conclusive on the parties hereto. If Purchaser and Seller are unable to reach a
resolution on all Disputed Items set forth in the Dispute Notice within fifteen
(15) days of the receipt by Seller of the Dispute Notice, Purchaser and Seller
shall submit the Disputed Items remaining in dispute for resolution to the
Independent Accountants which shall, within fifteen (15) days after submission,
determine and report to the parties upon such remaining Disputed Items, and such
report shall be final, binding and conclusive on the parties hereto; provided,
however, that the Independent Accountants shall not determine the amount of any
Disputed Item to be outside the range provided by each of Seller's and
Purchaser's submissions of the appropriate amount with respect to such Disputed
Item. All costs and expenses of the Independent Accountants relating to the
Disputed Items shall be allocated equally between Purchaser and Seller. The
Closing Date Statement as modified by resolution pursuant to this Section 2.4(b)
of the Disputed Items set forth in the Dispute Notice by (i) Purchase and Seller
or (ii) the Independent Accountants, shall be deemed the Closing Date Balance
Sheet for purposes of Section 2.4(c) hereof.
(c) Subject to the provisions of Section 2.4(b) hereof, within
three (3) Business Days after the date of final determination of the Closing
Date Statement in accordance with Section 2.4(b) hereof, (i) in the event that
the net book value of the total assets and liabilities reflected on the Closing
Date Statement is greater than the Purchase Price, the amount of any such
increase shall be paid by Purchaser to Seller as an adjustment to the Purchase
Price and (ii) in the event that the net book value of the total assets and
liabilities reflected on the Closing Date Statement is less than the Purchase
Price, the amount of any such difference shall be paid by Seller to Purchaser as
an adjustment to the Purchase Price. Any payment pursuant to this Section 2.4(c)
(a "Purchase Price Adjustment Payment") shall be
13
made by wire transfer of immediately available funds and shall be made together
with interest thereon at the Interest Rate, payable for the period commencing on
the Closing Date and ending on the day immediately prior to the date of such
Purchase Price Adjustment Payment.
(d) During the periods in which (i) the Closing Date Balance
Sheet is being prepared or (ii) any dispute as contemplated by Section 2.4(b)
hereof is pending, Seller and Purchaser shall provide each other, including
their authorized agents and representatives, with reasonable access, during
normal business hours and without disruption to their normal business, to their
respective books, records, facilities, employees, accountants, counsel or other
representatives pertaining to the Division and the Transaction, and Seller shall
promptly provide to Purchaser copies of all books, records, contracts, reports
and other information which Purchaser may reasonably request in connection with
the preparation of the Closing Date Balance Sheet.
Section 2.5 Allocation of Purchase Price; Tax Filings.
(a) The Purchase Price shall be allocated among the Assets as
shall be determined by Purchaser and reflected in a statement of Allocation of
Purchase Price delivered by Purchaser to Seller within thirty (30) days of the
Closing (the "Allocation"). Each of Purchaser and Seller shall (i) timely file
all forms (including Internal Revenue Service Form 8594) and Tax Returns
required to be filed in connection with the Allocation, (ii) be bound by the
Allocation for purposes of determining Taxes, (iii) prepare and file, and cause
its Affiliates to prepare and file, its Tax Returns on a basis consistent with
the Allocation and (iv) take no position, and cause its Affiliates to take no
position, inconsistent with the Allocation on any applicable Tax Return, in any
audit or proceeding before any taxing authority, in any report made for Tax,
financial accounting or any other purposes, or otherwise. In the event that the
Allocation is disputed by any Tax Authority, the party receiving notice of such
dispute shall promptly notify the other party hereto concerning the existence
and resolution of such dispute.
(b) In the event that Seller reasonably determines that the
Allocation will have a material detrimental effect on Seller, Seller may dispute
amounts reflected in the Allocation as delivered by Purchaser in accordance with
this Section 2.5(b); provided, however, that Seller shall notify Purchaser in
writing (the "Allocation Dispute Notice"), specifying the allocated amounts in
dispute and setting forth in reasonable detail the basis for such dispute,
within ten (10) days of Seller's receipt of the Allocation. In the event of such
a dispute, Purchaser and Seller shall attempt to reconcile their differences as
to the disputed amounts in the Allocation, and any resolution by them shall be
final, binding and conclusive on the parties hereto. If Purchaser and Seller are
unable to reach a resolution on all disputed amounts set forth in the Allocation
Dispute Notice within fifteen (15) days of the receipt by Seller of the
Allocation Dispute Notice, Purchaser and Seller shall submit the allocation
amounts remaining in dispute for resolution to the Independent Accountants which
shall, within fifteen (15) days after submission, determine and
14
report to the parties upon such remaining disputed amounts, and such report
shall be final, binding and conclusive on the parties hereto; provided, however,
that the Independent Accountants shall not determine the allocation of any
disputed amounts to be outside the range provided by each of Seller's and
Purchaser's submissions of the appropriate allocation with respect to such
amounts. All costs and expenses of the Independent Accountants relating to
disputed allocation amounts shall be allocated equally between Purchaser and
Seller. The Allocation as modified by resolution pursuant to this Section 2.5(b)
of the disputed allocation amounts set forth in the Allocation Dispute Notice by
(i) Purchaser and Seller or (ii) the Independent Accountants, shall be deemed
the Allocation for purposes of Section 2.5(a) hereof.
Section 2.6 Prorations for Taxes, Expenses. Seller and Purchaser agree
that Taxes with respect to the Assets (but in no event including income Taxes)
shall be prorated as of the Closing, with Seller liable to the extent such items
relate to any time period on or before the Closing, and Purchaser liable to the
extent such items relate to periods commencing after the Closing. In connection
with these prorations, in the event that actual figures are not available at the
Closing, the proration shall be based upon the actual Taxes or other amounts
accrued through the Closing Date or paid for the most recent year (or other
appropriate period) for which actual Taxes or other amounts paid are available.
Such prorated Taxes or other amounts shall be re-prorated and paid to the
appropriate party within sixty (60) days of the date that the previously
unavailable actual figures become available. Seller and Purchaser agree to
furnish each other with such documents and other records as may be reasonably
requested in order to confirm all adjustment and proration calculations made
pursuant to this Section 2.6. Notwithstanding anything to the contrary herein,
no proration shall be made under this Section 2.6 with respect to Transfer
Taxes.
Section 2.7 Physical Inventory. Seller and Purchaser shall conduct a
physical inventory of 80% of the on-hand value of the Inventory plus the
stockroom of finished goods Inventory to be completed on or promptly following
the Closing Date at Seller's facilities located at Wilmington, Massachusetts
(the "Encoder Premises"). Upon completion of the physical inventory, Purchaser
and Seller shall mutually agree upon the final list of Inventory to be reflected
on the Closing Date Balance Sheet, and Seller shall indemnify Purchaser pursuant
to Article VII for the difference in the amount of the Inventory reflected on
the Preliminary Statement of Specified Assets and Liabilities and the amount of
the Inventory to be reflected on the Closing Date Balance Sheet pursuant to this
Section 2.7. The valuation of Inventory will be computed consistent with
Seller's past practices and procedures. To the extent that Seller and Purchaser
agree not to physically inventory segments of Inventory, the quantity of such
Inventory on the books of Seller shall be assumed. The Seller shall pay the cost
and expense of having a representative of KPMG attend the physical inventory for
the purpose of making any procedural or other determinations as to the conduct
of the physical inventory. If required by Purchaser, Purchaser shall pay the
cost and expense of having a representative of its auditor attend the physical
inventory for the purpose of advising Purchaser as to any procedural or other
determinations made by Seller and KPMG regarding the conduct
15
of the physical inventory. Each party shall bear its own costs in connection
with the physical inventory.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Except as specifically set forth in the Disclosure Schedule prepared
and signed by Seller and delivered to Purchaser simultaneously with the
execution hereof, Seller represents and warrants to Purchaser that all of the
statements contained in this Article III are true and complete as of the date
hereof (or, if made as of a specified date, as of such date). Each exception set
forth in the Disclosure Schedule and each other response to this Agreement set
forth in the Disclosure Schedule is identified by reference to a specific
individual section of this Agreement, it being understood and agreed that each
such exception and response shall be deemed to be disclosed both under such
section and any other section to which such disclosure reasonably relates).
Section 3.1 Organization; Qualification of Seller. Seller (i) is a
Massachusetts corporation duly organized, validly existing and in good standing
under the laws of the Commonwealth of Massachusetts; (ii) has the requisite
corporate power and corporate authority to carry on the business of the Division
as it is now being conducted and to own and operate the Assets and (iii) is duly
qualified or licensed to do business as a foreign corporation in good standing
in every jurisdiction in which the conduct of the Division's business requires
such qualification.
Section 3.2 Authorization. Seller has the requisite corporate power
and corporate authority to execute and deliver this Agreement, the Ancillary
Agreements and to consummate the Transaction. No further corporate action on the
part of Seller is necessary to authorize the execution, delivery and performance
by Seller of this Agreement, the Ancillary Agreements and the consummation by it
of the Transaction.
Section 3.3 Binding Agreements. This Agreement and each of the
Ancillary Agreements has been duly executed and delivered by Seller and,
assuming due and valid authorization, execution and delivery thereof by
Purchaser this Agreement and each of the Ancillary Agreements is a valid and
binding obligation of Seller, enforceable against Seller in accordance with its
respective terms, except as such enforcement may be limited by (i) applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and
other similar laws of general application now or hereinafter in effect relating
to or affecting creditors' rights generally and (ii) general principles of
equity (regardless of whether enforceability is considered in a proceeding at
equity or at law).
Section 3.4 Good Title Conveyed. The Xxxx of Sale and Assignment and
the endorsements, assignments and other instruments to be executed
16
and delivered by Seller to Purchaser at the Closing will be valid and binding
obligations of Seller, enforceable in accordance with their respective terms,
and will effectively vest in Purchaser good, valid and marketable title to all
of the Assets free and clear of all Liens, except Liens to be assumed by
Purchaser pursuant to the Instrument of Assumption of Liabilities.
Section 3.5 Consents and Approvals; No Violations. Except for the
filings, Permits and Consents as may be required under, and other applicable
requirements of, the Exchange Act and state securities or blue sky laws and as
otherwise set forth on Schedule 3.5, none of the execution, delivery or
performance of this Agreement and each of the Ancillary Agreements by Seller,
the consummation by Seller of the Transaction or compliance by Seller with any
of the provisions hereof or thereof will (i) conflict with or result in any
breach of any provision of the articles of organization, by-laws or similar
organizational documents of Seller, (ii) require any filing with, Permit or
Consent of, any Governmental Authority or other Person (including, without
limitation, Consents from parties to loans, contracts, leases and other
agreements to which Seller is a party), (iii) require any Consent or notice
under, or result in a violation or breach of, or constitute (with or without due
notice or the passage of time or both) a default (or give rise to any right of
termination, amendment, cancellation or acceleration) under, any of the terms,
conditions or provisions of any agreement to which Seller is a party, or (iv)
violate any Order, statute, rule or regulation applicable to Seller or the
Assets or Assumed Liabilities.
Section 3.6 Compliance with Laws. Seller has complied in a timely
manner and in all material respects with all Laws, Orders and Permits with
respect to the Division, and no notice, charge, Claim, action or assertion has
been received by Seller (with respect to the Division) or has been filed,
commenced or, to the Knowledge of Seller, threatened against Seller (with
respect to the Division) alleging any violation of any of the foregoing.
Section 3.7 Title to Assets; Necessary Assets. Except as set forth on
Schedule 3.7, Seller has good and marketable title to, or a valid leasehold or
other relevant interest in, all the Assets, free and clear of all Liens. The
Assets to be conveyed to Purchaser pursuant to this Agreement include all
rights, properties and other assets necessary to permit Purchaser to conduct the
business of the Division after the Closing in materially the same manner as such
business has been conducted by Seller and the Seller Subsidiaries prior to the
date hereof, other than those assets specifically listed as Excluded Assets.
Section 3.8 Financial Statements.
(a) True and complete copies of the Financial Statements,
together with the related auditors reports, are included in Schedule 3.8(a). The
Financial Statements have been prepared from, are in accordance with and
accurately reflect, the books and records of the Division, Seller and its
Subsidiaries, comply in all material respects with applicable accounting
requirements, and with respect to
17
Seller and its Subsidiaries, have been prepared in accordance with GAAP applied
on a consistent basis during the periods involved (except as may be stated in
the notes thereto) and fairly present the consolidated financial position and
the consolidated results of operations and cash flows (and changes in financial
position, if any) of the Seller and its Subsidiaries and the financial position
and the results of operations of the Division as a component of the consolidated
financial statements of the Seller as of the times and for the periods referred
to therein.
(b) Schedule 3.8(b) is a complete and accurate list of all
significant accounting policies with respect to the Division, including, without
limitation, accounting policies with respect to revenue recognition, inventory
valuation, depreciation, costs, reserves and receivables.
Section 3.9 Absence of Certain Changes or Events. Since December 31,
2002, the Division has conducted its business only in the ordinary and usual
course consistent with past practice, and, except as set forth on Schedule 3.9,
neither the Division nor the Seller (with respect to the Division) has:
(a) suffered any material adverse change in its working capital,
financial condition, results of operation, assets, liabilities (absolute,
accrued, contingent or otherwise), reserves, business or operations;
(b) incurred any liability or obligation (absolute, accrued,
contingent or otherwise) except non-material items incurred in the ordinary
course of business and consistent with past practice, none of which exceeds
$25,000 (counting obligations or liabilities arising from one transaction or a
series of similar transactions, and all periodic installments or payments under
any lease or other agreement providing for periodic installments or payments, as
a single obligation or liability), or increased, or experienced any change in
any assumptions underlying or methods of calculating, any bad debt, contingency
or other reserves;
(c) permitted or allowed any of its property or assets (real,
personal or mixed, tangible or intangible) to be subjected to any Lien;
(d) disposed of or permitted to lapse any rights to the use of
any Division Intellectual Property, or disposed of or disclosed to any Person
other than representatives of Purchaser any trade secret, formula, process,
know-how or other Division Intellectual Property not theretofore a matter of
public knowledge;
(e) granted any general increase in the compensation of officers
or employees (including any such increase pursuant to any bonus, pension,
profit-sharing or other plan or commitment) or any other increase in the
compensation payable or to become payable to any officer or employee, and no
such increase is customary on a periodic basis or required by agreement or
understanding; or
18
(f) agreed, whether in writing or otherwise, to take any action
described in this section.
Section 3.10 Accounts Receivable. Schedule 3.10 is a complete and
accurate list of the Accounts Receivable. All Accounts Receivable of the Seller,
whether reflected in the Balance Sheet or otherwise, represent sales actually
made in the ordinary course of business, and are current and collectible net of
any reserves shown on the Balance Sheet.
Section 3.11 Inventory. Schedule 3.11 is a complete and accurate list
of the Inventory. All of the Inventory, whether reflected in the Balance Sheet
or otherwise, consist of a quality and quantity usable and salable in the
ordinary and usual course of business, except for items of obsolete materials
and materials of below-standard quality, all of which items have been written
off or written down on the Balance Sheet to fair market value or for which
adequate reserves have been provided therein. All Inventories have been valued
for purposes of this Agreement on a basis consistent with the Seller's current
inventory valuation standards and in a manner consistent with past practices and
procedures. All work-in-process and finished goods Inventory is free of any
Defect or other deficiency.
Section 3.12 Assumed Contracts. Schedule 3.12 is a list of the
Contracts relating to the operation of the Division being transferred to
Purchaser pursuant to this Agreement (such Contracts as set forth on Schedule
3.12, the "Assumed Contracts"). Each Assumed Contract is in full force and
effect and is a legal, valid and binding obligation of Seller and to the
Knowledge of Seller, each of the parties thereto, enforceable in accordance with
its terms. No condition exists or event has occurred which would constitute a
material default by Seller or result in a right of termination under any Assumed
Contract.
Section 3.13 Miscellaneous Assets. Schedule 3.13 is a complete and
accurate list of the miscellaneous assets being transferred to Purchaser
pursuant to this Agreement (such miscellaneous assets as set forth on Schedule
3.13, the "Miscellaneous Assets").
Section 3.14 Litigation. There is no Litigation pending or, to the
Knowledge of Seller, threatened against or affecting the Assets, or which
questions or challenges the validity of this Agreement or any action taken or to
be taken by Seller pursuant to this Agreement or in connection with the
Transaction; and to the Knowledge of Seller, there is no valid basis for any
such action, proceeding or investigation. Seller is not subject to any judgment,
order or decree which may have an adverse effect on the Division or on its
ability to acquire any property or conduct the business of the Division in any
area.
Section 3.15 Labor Matters.
(a) Seller (with respect to the Division) is, and has at all
times been, in compliance, in all material respects, with all applicable Laws
19
respecting employment and employment practices, terms and conditions of
employment, wages, hours of work and occupational safety and health; and there
are no complaints, lawsuits or other proceedings pending or, to the Knowledge of
Seller, threatened in any forum by or on behalf of any Division Employees
alleging breach of any express or implied contract of employment, any laws
governing employment or the termination thereof or other discriminatory,
wrongful or tortious conduct in connection with the employment relationship.
(b) There is no labor strike, dispute, corporate campaign,
slowdown, stoppage or lockout actually pending, or to the Knowledge of Seller,
threatened against or affecting the Division, and during the past five years
there has not been any such action.
(c) Seller (with respect to the Division) is not a party to or
bound by any collective bargaining or similar agreement with any labor
organization or work rules or practices agreed to with any labor organization or
employee association applicable to the Division Employees.
(d) Schedule 3.15(d) is a complete and accurate list of the date
of hire, base salary, title and annual cash bonus opportunity of each employee
of the Division (the "Division Employees") as well as group insurance programs
in effect for such Division Employees as of the date hereof.
(e) Seller has provided to Purchaser a true and complete copy of
each written personnel policy, rule and procedure applicable to the Division
Employees.
Section 3.16 Employee Benefit Plans. Schedule 3.16 is a complete and
accurate list of all Plans. None of the Plans are Multiemployer Plans. All
obligations of any nature under any Plan arising prior to or after the Closing
will constitute a liability of Seller, and Purchaser shall have no obligation or
duty with respect thereto.
Section 3.17 Tax Matters.
(a) Seller has timely filed all Tax Returns relating to the
Division and the Assets that are required to be filed, and all such Tax Returns
are true, complete and accurate in all respects. Seller has timely paid, or
provided adequate accrual for, all Taxes which are due (whether or not shown as
due on a Tax Return), or claimed or asserted by any Tax Authority to be due.
(b) There has been no issue raised or adjustment proposed (and
none is pending) by any Tax Authority with respect to Taxes attributable to the
Assets or the Division. There are no encumbrances for Taxes upon any of the
Assets except for liens for Taxes not yet due. There is no pending Tax audit or
20
examination, nor any action, suit, investigation, claim or deficiency asserted
with respect to the Assets or the Division.
(c) All amounts required to be withheld or collected for Taxes
for payments made to employees of the Division or others have been withheld or
collected and have been or will be remitted to the appropriate Tax Authority
when due.
Section 3.18 Intellectual Property.
(a) Schedule 3.18(a) sets forth a complete and accurate list of
the Division Intellectual Property, together with all licenses related to the
foregoing, whether Seller is the licensee or licensor thereunder.
(b) Seller is the sole and exclusive owner or valid licensee of
all Division Intellectual Property, free and clear of all Liens.
(c) Except as set forth on Schedule 3.18(c), all patents,
registrations and applications for Division Intellectual Property (i) are valid,
subsisting, in proper form and enforceable, and have been duly maintained,
including the submission of all necessary filings and fees in accordance with
the legal and administrative requirements of the appropriate jurisdictions and
(ii) have not lapsed, expired or been abandoned, and no patent, registration or
application therefor is the subject of any opposition, interference,
cancellation proceeding or other legal or governmental proceeding before any
Governmental Authority.
(d) Seller owns or has the valid right to use all of the Division
Intellectual Property. To the Knowledge of Seller, there are no conflicts with
or infringements of any Division Intellectual Property by any third party. The
conduct of the business of the Division as currently conducted does not conflict
with or infringe in any way on any proprietary right of any third party. Except
as set forth on Schedule 3.18(d), there is no claim, suit, action or proceeding
pending or, to the Knowledge of Seller, threatened against Seller (with respect
to the Division) ("Intellectual Property Claims") (i) alleging any such conflict
or infringement with any third party's proprietary rights or (ii) challenging
the ownership, use, validity or enforceability of the Division Intellectual
Property.
(e) The Computer Software used in the conduct of the business of
the Division was either (i) developed by employees of the Seller within the
scope of their employment, (ii) developed on behalf of the Seller by a third
party, and all ownership rights therein have been assigned or otherwise
transferred to or vested in Seller pursuant to written agreements or (iii)
licensed or acquired from a third party pursuant to a written license,
assignment, or other contract that is in full force and effect and of which
Seller is not in material breach.
(f) All consents, filings, and authorizations by or with
Governmental Entities or third parties necessary with respect to the
consummation of
21
the Transaction, as they may affect the Division Intellectual Property, have
been obtained.
(g) Seller has not entered into any consent, indemnification,
forbearance to xxx, settlement agreement or cross-licensing arrangement with any
Person relating to the Division Intellectual Property or, to the Knowledge of
Seller, any Division Intellectual Property licensed by Seller for use in the
conduct of the business of the Division, or the Intellectual Property of any
third party, except as contained in any license agreements listed in Schedule
3.18(a).
(h) Neither Seller nor Purchaser is, or will be as a result of
the execution and delivery of this Agreement or the performance of its
obligations under this Agreement, in breach of any license, sublicense or other
agreement relating to the Division Intellectual Property.
Section 3.19 Personal Property.
(a) Schedule 3.19(a) is a complete and accurate list of the
Personal Property. All Personal Property is in good condition and repair,
reasonable wear and tear excepted, conforms with all applicable Laws and is fit
for its intended use; and Seller has no Knowledge of any pending or threatened
change of any applicable Law with which any of such property would not conform.
(b) Schedule 3.19(b) lists each item of Equipment which is not in
the possession of the Seller, if any, together, in each case, with the name,
address and telephone number of each Person who holds such property.
Section 3.20 Products.
(a) Schedule 3.20(a) is a complete and accurate list of the
Products.
(b) Except as set forth on Schedule 3.20(b), none of the Products
have been recalled or withdrawn (whether voluntarily or otherwise) at any time
during the past five (5) years and there have been no proceedings (whether
completed or pending) at any time during the past five (5) years seeking the
recall, withdrawal, suspension or seizure of any Product.
Section 3.21 Product Liability. There are not presently pending, or,
to the Knowledge of Seller, threatened, and, to the Knowledge of Seller, there
is no basis for, any civil, criminal or administrative actions, suits, demands,
claims, hearings, notices of violation, investigations, proceedings or demand
letters relating to any alleged hazard or alleged Defect in design, manufacture,
materials or workmanship, including any failure to warn or alleged breach of
express or implied warranty or representation, relating to any Product
manufactured, distributed or sold in connection with the Division ("Product
Liabilities"). Except as set forth on Schedule 3.24, Seller has not extended to
any of its customers any written, non-
22
uniform product warranties, indemnifications or guarantees in connection with
the business of the Division.
Section 3.22 Customer Purchase Orders. Schedule 3.22 is a complete and
accurate list of all customer purchase orders for the sale of Products relating
to the Division (such customer purchase orders as set forth on Schedule 3.22,
the "Customer Purchase Orders").
Section 3.23 Trade Payables. Schedule 3.23 is a complete and accurate
list of all trade payables relating to the Division (such trade payables as set
forth on Schedule 3.23, the "Trade Payables").
Section 3.24 Product Warranties. Schedule 3.24 is a complete and
accurate list of all Product Warranties.
Section 3.25 Prepaid Expenses. Schedule 3.25 is a complete and
accurate list of all Prepaid Expenses.
Section 3.26 Goods Held on Consignment. Schedule 3.26 lists all goods,
if any, held by the Division on consignment or other goods, if any, in the
possession of Seller for the benefit of the Division which goods are not owned
by Seller, together, in each case, with a description of the terms of such
consignment and the name, address and telephone number of the owner of such
property. Schedule 3.26 lists all goods, if any, owned by Seller for the benefit
of the Division which goods have been consigned by Seller to another Person,
together, in each case, with a description of the terms of such consignment and
the name, address and telephone number of the Person to whom such property has
been consigned. The Division is not otherwise under any liability or obligation
with respect to the return of inventory or merchandise in the possession of
wholesalers, distributors, retailers or other customers of the Division.
Section 3.27 Seller's Customers. To the Knowledge of Seller, the
relationship of Seller with each of such customers of Seller is a good
commercial working relationship. Except with respect to Stanadyne Corporation,
Seller has no Knowledge that any such customer intends to cancel or otherwise
substantially modify its relationship with Seller or limit materially its
purchases from Seller either as a result of the transactions contemplated hereby
or otherwise.
Section 3.28 Suppliers. Schedule 3.28 sets forth the lists of all
suppliers whose supplies to Seller and the Division as presently conducted
exceeded $25,000 during calendar year 2002. During the period from January 1,
2001 through the date hereof, none of such suppliers has canceled or
substantially modified its agreement or commitment with Seller to supply
products or services (or threatened in writing to do any of the foregoing). To
the Knowledge of Seller, the relationship of Seller with each of such suppliers
of Seller is a good commercial working relationship. Seller has no Knowledge
that any such supplier intends to cancel or otherwise substantially modify its
relationship with Seller or limit materially its
23
services, supplies or materials to Seller either as a result of the transactions
contemplated hereby or otherwise.
Section 3.29 Preliminary Statement of Specified Assets and
Liabilities. Schedule 3.29 is a complete and accurate statement of the net book
value of the assets and liabilities of Seller, other than the Warranty Reserve,
reflected thereon as of March 31, 2003 (the "Preliminary Statement of Specified
Assets and Liabilities"). The Preliminary Statement of Specified Assets and
Liabilities has been prepared from, and in accordance with and accurately
reflects, the books and records of Seller and its Subsidiaries, complies in all
material respects with applicable accounting requirements and has been prepared
in accordance with Seller's policies and practices applied on a consistent
basis, as of the time referred to therein.
Section 3.30 Environmental Matters.
(a) Schedule 3.30(a) is a complete and accurate list of each
permit and other governmental authorization currently held by Seller with
respect to the Assets and the operations of the Division relating to the
applicable Environmental Laws.
(b) Except as set forth on Schedule 3.30(b), Seller, with respect
to the Assets and the operations of the Division (i) is now, and at all times
prior to the Closing Date has been, in compliance in all material respects with
all applicable Environmental Laws (including, without limitation, the possession
of all permits and other governmental authorizations required under all
applicable Environmental Laws and compliance with the terms and conditions
thereof) and (ii) is not subject to any pending or, to the Knowledge of Seller,
threatened, Environmental Claims.
Section 3.31 Brokers or Finders. No agent, broker, investment banker,
financial advisor or other firm or Person is or will be entitled to any broker's
or finder's fee or any other commission or similar fee in connection with the
Transaction, except for Xxxxx, Xxxxxxxx & Xxxx, for which Seller shall be solely
responsible.
Section 3.32 Books and Records. The books of account, minute books and
other records of Seller relating to the Division are complete and correct in all
material respects and have been maintained in accordance with sound business
practices, including the maintenance of an adequate system of internal controls.
Section 3.33 Full Disclosure. No representation or warranty by Seller
contained in this Agreement and no statement contained in any document
(including, without limitation, financial statements and the Disclosure
Schedule), certificate, or other writing furnished or to be furnished by Seller
to Purchaser or any of its representatives pursuant to the provisions hereof or
in connection with the Transaction, contains or will contain any untrue
statement of material fact or omits
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or will omit to state any material fact necessary, in light of the circumstances
under which it was made, in order to make the statements herein or therein not
misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Seller that:
Section 4.1 Organization; Qualification of Purchaser. Purchaser is a
corporation duly organized, validly existing and in good standing under the laws
of New Brunswick.
Section 4.2 Authorization. Purchaser has the requisite corporate power
and corporate authority to execute and deliver this Agreement, the Ancillary
Agreements and to consummate the Transaction. No further corporate action on the
part of Purchaser is necessary to authorize the execution and delivery by
Purchaser of this Agreement, the Ancillary Agreements or the consummation by
Purchaser of the Transaction.
Section 4.3 Binding Agreement. This Agreement and each of the
Ancillary Agreements has been duly executed and delivered by Purchaser and,
assuming due and valid authorization, execution and delivery thereof by Seller,
this Agreement and each of the Ancillary Agreements is a valid and binding
obligation of Purchaser, enforceable against Purchaser in accordance with its
terms, except as such enforcement may be limited by (i) applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance and other similar
laws of general application now or hereinafter in effect relating to or
affecting creditors' rights generally and (ii) general principles of equity
(regardless of whether enforceability is considered in a proceeding at equity or
at law).
Section 4.4 Consents and Approvals; No Violations. Except for the
filings, Consents or Permits, as may be required under, and other applicable
requirements of, the Exchange Act and state securities or blue sky laws, none of
the execution, delivery or performance of this Agreement and each of the
Ancillary Agreements by Purchaser, the consummation by Purchaser of the
Transaction or compliance by Purchaser with any of the provisions hereof or
thereof will (i) conflict with or result in any breach of any provision of the
certificate and articles of continuance, the by-laws or similar organizational
documents of Purchaser, (ii) require any filing with Consent or Permit of any
Governmental Authority, (iii) result in a violation or breach of, or constitute
(with or without due notice or the passage of time or both) a default (or give
rise to any right of termination, amendment, cancellation or acceleration) under
any Contract to which Purchaser is a party, or (iv) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to Purchaser,
excluding from the foregoing clauses (ii), (iii) and (iv) such violations,
breaches or defaults which would not, individually or in the aggregate, have a
material adverse effect on the ability of Purchaser to consummate the
Transaction.
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Section 4.5 Brokers or Finders. Neither Purchaser nor any of its
Subsidiaries or its Affiliates has entered into any agreement or arrangement
entitling any agent, broker, investment banker, financial advisor or other firm
or Person to any broker's or finder's fee or any other commission or similar fee
in connection with the Transaction.
Section 4.6 Solvency; Ability to Perform Agreement. Purchaser is
solvent, now has available funds necessary to pay the Purchase Price without the
need to obtain additional financing, and there is no occurrence, event or
condition with respect to it that would prevent it from performing this
Agreement in all material respects. Purchaser will not become insolvent as a
result of consummating the transaction contemplated by this Agreement.
ARTICLE V
COVENANTS
Section 5.1 Reasonable Efforts and Further Assurances.
(a) Following the Closing, upon the terms and subject to the
conditions of this Agreement, Purchaser and Seller shall use their respective
reasonable best efforts to take, or cause to be taken, all actions, and to do,
or cause to be done and cooperate with each other in order to do, all things
necessary, proper or advisable (subject to any applicable laws) to give effect
to the Transaction, including, but not limited to, (i) the preparation and
filing of all forms, registrations and notices required to be filed in
connection with the Transaction; or (ii) the taking of such actions as are
necessary to obtain any Permits or Consents required to be made or obtained in
connection with the Transaction; and (iii) the execution of any additional
documents or instruments which may be necessary or appropriate to carry out the
provisions of this Agreement.
(b) Following the Closing, each party shall promptly consult with
the other party hereto with respect to, provide any necessary information with
respect to and provide the other party (or their respective counsel) with copies
of, all filings made by such party with any Governmental Authority or any other
information supplied by such party to a Governmental Authority in connection
with this Agreement and the Transaction. Each party hereto shall promptly inform
the other party, and if applicable, provide the other party with copies, of any
written or oral communication received by such party, from any Governmental
Authority regarding the Transaction. If any party hereto or Affiliate thereof
receives a request for additional information or documentary material from any
such Governmental Authority with respect to the Transaction, then such party
shall endeavor in good faith to make, or cause to be made, as soon as reasonably
practicable and after consultation with the other party, an appropriate response
in compliance with such request. To the extent that transfers, amendments or
modifications of Permits are required as a result of the execution of this
Agreement or consummation of the
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Transaction, Seller shall use all reasonable commercial efforts to effect such
transfers, amendments or modifications.
(c) Seller will use all reasonable commercial efforts to obtain
an acknowledgment from each supplier holding patterns, dies, tooling or other
property for the benefit of the Division, that such patterns, dies, tooling or
other property will be held for the benefit of Purchaser, following the Closing
and that Purchaser will be entitled to repossess such patterns, dies, tooling or
other property at any time.
Section 5.2 Publicity. Seller and Purchaser will consult with each
other and will mutually agree upon any press release or public announcement
pertaining to the Transaction and shall not issue any such press release or
public announcement prior to such consultation and agreement, except as may be
required by applicable Law or by obligations pursuant to any listing agreement
with any national securities exchange, in which case the party required to issue
such press release or public announcement shall use its reasonable efforts to
consult in good faith with the other party before issuing any such press release
or public announcement.
Section 5.3 Access to Books and Records.
(a) On and after the Closing, during normal business hours,
Seller will permit Purchaser and its authorized representatives to have access
to, examine and make copies of all books and records of Seller relating to the
Division which are not delivered to Purchaser pursuant hereto (including
correspondence, memoranda, books of account and the like) and relating to
transactions or events occurring prior to the date hereof.
(b) Purchaser shall cooperate with Seller and make available to
Seller such documents, books, records or information transferred to Purchaser
and relating to the Division prior to or after the Closing as Seller may
reasonably require after the Closing in connection with any Tax determination or
contractual obligations to third parties or to defend or prepare for the defense
of any Claim against Seller or to prosecute or prepare for the prosecution of
Claims against Third Parties by Seller relating to the conduct of the business
of the Division by Seller prior to the Closing or in connection with any
governmental investigation of Seller or any of its Affiliates by a Governmental
Authority.
(c) Each party will direct its employees to render any assistance
which the other party may reasonably request in examining or utilizing records
referred to in this section, provided that each party shall be reimbursed by the
other for any out-of-pocket expenses which it may incur in rendering the
services provided for in this section. Each party agrees not to destroy any
files or records which are subject to this section without giving reasonable
notice to the other, and within 15 days of receipt of such notice, such other
party may cause to be delivered to it the records intended to be destroyed, at
such other party's expense.
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Section 5.4 Accounts Receivable; Future Sales.
(a) Following the Closing, Purchaser shall use all reasonable
commercial efforts in the collection of the Accounts Receivable and Seller shall
indemnify Purchaser pursuant to Article VII hereof for the amount of any
Accounts Receivable not collected by Purchaser as of October 31, 2003. Seller
shall direct to Purchaser all future sales and other opportunities with respect
to the Division.
(b) Purchaser agrees not to take any action to reduce the amounts
collectible or otherwise affect any customer's obligation to pay with respect to
the Accounts Receivable without the prior written consent of Seller.
(c) Commencing with the week beginning Monday, June 2, 2003,
Purchaser shall deliver to Seller a weekly report of the amounts collected and
remaining to be collected by Purchaser with respect to the Accounts Receivable.
(d) Seller shall have the right to contact directly any customer
owing amounts to Purchaser with respect to the Accounts Receivable regarding
such obligations or the collection thereof.
(e) Within seven (7) days of November 1, 2003, Purchaser shall
transfer to Seller all of Purchaser's right, title and interest in and to such
portion of the Accounts Receivable which have not been collected by Purchaser as
of October 31, 2003 and for which Purchaser has been indemnified by Seller.
Section 5.5 Noncompetition. Without the express prior written consent
of Purchaser, Seller shall not, at any time during the three-year period
immediately following the Closing Date, directly or indirectly, own, manage,
control or participate in the ownership, management or control of, or be related
or otherwise affiliated in any manner with, any business or enterprise engaged
in the design, manufacture, marketing or sales and support of encoders,
interface products and custom designed products related to encoders and
interface products; and provided, further, that the foregoing shall not prohibit
Seller from owning as a passive investment 5% or less of the outstanding equity
of any publicly-traded entity. Seller agrees that Seller and Seller's
Subsidiaries will not, for a period of one year after the Closing Date, seek to
employ any person now employed by Seller for the primary benefit of the Division
if such Person is then employed by Purchaser or any Subsidiary of Purchaser.
Section 5.6 Transition Services.
(a) Seller shall grant Purchaser a license to occupy and use the
space located at 00/00 Xxxxxxx Xxxxxx, Xxxxxxxxxx, Xxxxxxxxxxxxx used in
connection with the Division immediately prior to the Closing, as well as any
other space located in any facility owned or leased by Seller and at which
Assets are located (collectively, the "Facilities") for a period beginning on
the Closing Date and terminating, with respect to each Facility, on the date
that is the earlier of (i) one
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hundred eighty (180) days following the Closing or (ii) seven (7) days following
the date of a notice from Purchaser to Seller indicating it no longer requires
the use of such premises (with respect to each premises, the "Transition
Period"); and, Purchaser shall pay Seller an amount equal to $20,000 per month
in exchange for the use of such Facilities, including, without limitation, rent,
maintenance costs and utility payments.
(b) During the Transition Period, Seller shall make available to
Purchaser the tenant improvements, fixtures, office furniture, phones, and other
relevant items of personal property to the extent not acquired by Purchaser
pursuant to this Agreement in connection with Purchaser's use and occupancy of
any Facility in accordance with this Section 5.6. Seller shall not be entitled
for any reimbursement in respect of any Personal Property purchased by Purchaser
under this Agreement.
(c) Seller shall make available to Purchaser the use of any
phone, computer or other network reasonably necessary for the operation of the
business of the Division prior to Purchaser's migration of the Division to its
own facilities.
(d) Seller shall make available to Purchaser all data networks,
systems and data, in such format as requested by Purchaser, with respect to the
business or operations of the Division, including, without limitation, in
connection with the MK Server and the ERP system, prior to Purchaser's migration
of the Division.
(e) Each of the Division Employees will be made available by the
Seller to the Purchaser on a full time basis until the date that is the earlier
of (i) one hundred eighty (180) days following the Closing or (ii) seven (7)
days following the date of a notice from Purchaser to Seller indicating it no
longer requires the use of such Division Employee. The Division Employees shall
not be considered employees of the Purchaser. Purchaser shall reimburse to
Seller the full direct cost (including benefits) for each Division Employee for
a full day for each of the days a Division Employee is made available to
Purchaser. Purchaser will use the Division Employees to assist in the
transition, start up, implementation and operation of the Division, following
the Closing Date. Seller agrees that for the time that each Division Employee is
requested to be made available to Purchaser, Seller shall not terminate such
Division Employee's employment relationship with Seller. Further, Seller shall
hold harmless and indemnify Purchaser from any and all claims by a Division
Employee against Purchaser for any employment or other benefits including,
without limitation, severance costs, which arise as a result of the acts or
omissions of the Seller.
Section 5.7 Waiver of Bulk Sales Requirement. Each of the parties
waives compliance with any applicable bulk sales laws, including, without
limitation, the Uniform Commercial Code Bulk Transfer provisions. Seller agrees
to pay and discharge in due course and will indemnify and save harmless
Purchaser,
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from and against all claims made by creditors of Seller, including expenses and
attorneys' fees incurred by Purchaser in defending against such claims, except
those expressly assumed by Purchaser pursuant hereto.
Section 5.8 Warranty Repairs; Customer Inquiries. From and after the
Closing Date, Purchaser shall assume responsibility for and perform at its own
cost and expense all warranty repairs relating to the Products, including with
respect to all products shipped by Seller prior to the Closing Date (the
"Warranty Obligation").
Section 5.9 Non-Confidentiality of Tax Structure. Notwithstanding
anything to the contrary contained in this Agreement, the Confidentiality
Agreement or the Ancillary Agreements, the parties (and each employee,
representative or other agent of the parties) may disclose to any and all
persons, without limitation of any kind, the tax treatment and tax structure of
the transaction; provided, however, that no party (and no employee,
representative, or other agent thereof) shall disclose any information that is
not necessary to understanding the tax treatment and tax structure of the
transaction (including the identity of the parties and any information that
could lead another to determine the identity of the parties), or any other
information to the extent that such disclosure could result in a violation of
any federal or state securities law.
Section 5.10 Non-Solicitation. Notwithstanding anything to the
contrary herein or in the Confidentiality Agreement, nothing shall prohibit
Purchaser from offering any Division Employee employment with Purchaser.
ARTICLE VI
THE CLOSING
Section 6.1 The Closing. The closing of the Transaction (the
"Closing") shall take place at the offices of Skadden, Arps, Slate, Xxxxxxx &
Xxxx LLP, One Beacon Street, 31st Floor, Boston, Massachusetts, on the date
hereof concurrently with the last to occur of the deliveries by the parties
pursuant to Sections 6.2 and 6.3 hereof. The date on which the Closing occurs is
referred to herein as the "Closing Date."
Section 6.2 Deliveries by Seller. At the Closing, Seller shall deliver
to Purchaser:
(a) executed counterparts of this Agreement;
(b) a duly executed copy of each of the Ancillary Agreements;
(c) all documents of title and instruments of conveyance
necessary to transfer to Purchaser all of Seller's rights, title and interest in
and to the Assets;
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(d) all Consents necessary to the consummation of the Closing and
the Transaction, including Consents from parties to contracts or other
agreements and Consents from Governmental Authorities;
(e) assignments of all of Seller's rights in any registrations of
patents, trademarks, trade names, assumed names, service marks and copyrights,
and all applications for any registration of any of the foregoing, and all other
Division Intellectual Property which are in each case owned by Seller and are
Division Intellectual Property; and
(f) such other documents as are required to be delivered by
Seller to Purchaser pursuant to this Agreement.
Section 6.3 Deliveries by Purchaser. At the Closing, Purchaser shall
deliver to Seller:
(a) executed counterparts of this Agreement;
(b) a duly executed copy of each of the Ancillary Agreements;
(c) cash by wire transfer in federal or other immediately
available funds to the Escrow Agent in an amount equal to $700,000 and to an
account or accounts designated by Seller in an amount equal to $2,600,000;
(d) such other documents as are required to be delivered by
Purchaser to Seller pursuant to this Agreement.
ARTICLE VII
OBLIGATIONS AFTER CLOSING
Section 7.1 Survival of Representations, Warranties and Covenants;
Indemnification Survival. All representations and warranties contained in this
Agreement shall survive until November 1, 2004. This Section 7.1 shall not limit
any covenant or agreement of the parties hereto which by its express terms
contemplates performance after the Closing.
(a) Indemnification by Seller. Subject to the other provisions of
this Section 7.1, Seller shall indemnify Purchaser, its Subsidiaries and their
present and former directors, officers, employees and agents (collectively, the
"Purchaser Indemnified Parties") from and against and in respect of any and all
Losses incurred by a Purchaser Indemnified Party, which may be imposed on,
sustained, incurred or suffered by or assessed against a Purchaser Indemnified
Party, directly or indirectly, to the extent relating to or arising out of:
(i) the breach of any of the representations or warranties
of Seller contained in Article III hereof;
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(ii) any failure by Seller to perform or comply with its
covenants and agreements contained in this Agreement;
(iii) the Excluded Liabilities; and
(iv) the failure of Seller to transfer to Purchaser any
Asset free and clear of all Liens.
(b) Indemnification by Purchaser. Subject to the other provisions
of this Section 7.1, Purchaser shall indemnify Seller, its Subsidiaries and
their present and former directors, officers, employees and agents
(collectively, the "Seller Indemnified Parties") from and against and in respect
of any and all Losses incurred by a Seller Indemnified Party, which may be
imposed on, sustained, incurred or suffered by or assessed against a Seller
Indemnified Party, directly or indirectly, to the extent relating to or arising
out of:
(i) any breach of any of the representations or warranties
of Purchaser contained in Article IV;
(ii) any failure by Purchaser to perform or comply with its
covenants and agreements contained in this Agreement; and
(iii) the Assumed Liabilities.
(c) Limitation of Liability. No party shall be liable under
Sections 7.1(a) and (b), respectively, for any Losses pursuant to Sections
7.1(a) or (b) unless the party seeking such indemnification (the "Indemnified
Party") has (x) delivered the notice of Claim in respect of such Loss required
by Section 7.1(d) below and (y) such notice of Claim is received by the party
from which indemnification is sought (the "Indemnifying Party") on or prior to
November 1, 2004, except that for breach of any covenant or agreement, such
notice of Claim may be delivered at any time prior to the expiration of the
applicable statute of limitations. Notwithstanding anything in this Section 7.1
to the contrary, the Indemnifying Party shall not be liable for any Losses
arising out of a matter to the extent that the Losses with respect to such
matter have been mitigated as a result of having been subject to a Purchase
Price Adjustment pursuant to Section 2.4 (provided that the fact that any such
matter has been subject to such Purchase Price Adjustment shall not determine
whether or to what extent any related Losses have been mitigated).
(d) Notice of Claim. If the Indemnified Party shall become aware
of any Claim, that will be taken into account for purposes of calculating
whether the Indemnifying Party's indemnification obligation arises pursuant to
Section 7.1(a) or Section 7.1(b) above, the Indemnified Party shall promptly
give notice thereof to the Indemnifying Party. Such notice shall specify whether
the
32
Claim arises as a result of a Claim by a Person against the Indemnified Party (a
"Third Party Claim") or whether the Claim does not so arise (a "Direct Claim"),
and shall also specify with reasonable particularity the factual basis for the
Claim and the amount of the Claim. If the Indemnified Party does not promptly
give notice of any Claim as specified above, such failure shall not be deemed a
waiver of the Indemnified Party's right to indemnification except to the extent
it prejudices the Indemnifying Party.
(e) Direct Claims. With respect to any Direct Claim, following
receipt of notice from the Indemnified Party of the Claim, the Indemnifying
Party shall have 30 days to make such investigation of the Claim as is
considered necessary or desirable. For the purpose of such investigation, the
Indemnified Party shall make available to the Indemnifying Party the information
relied upon by the Indemnified Party to substantiate the Claim, together with
all such other information as the Indemnifying Party may reasonably request. If
both parties agree at or prior to the expiration of such 30-day period (or any
mutually agreed upon extension thereof) to the validity and amount of such
Claim, the Indemnifying Party shall immediately pay to the Indemnified Party the
full agreed upon amount of the Claim, failing which the matter shall be
determined by a court of competent jurisdiction in the Commonwealth of
Massachusetts.
(f) Third Party Claims.
(i) With respect to any Third Party Claims, the
Indemnifying Party shall have the right, at its expense and at its election, to
assume control of the negotiation, settlement and defense of the Claim through
counsel of its choice. In such event, the Indemnifying Party shall reimburse the
Indemnified Party for all the Indemnified Party's reasonable out-of-pocket
expenses as a result of such assumption. The election of the Indemnifying Party
to assume such control shall be made within 20 days of receipt of notice of the
Third Party Claim, failing which the Indemnifying Party shall be deemed to have
elected not to assume such control. If the Indemnifying Party elects to assume
such control, the Indemnified Party shall have the right to be informed and
consulted with respect to the negotiation, settlement or defenses of such Third
Party Claim and to retain counsel to act on its behalf, but the fees and
disbursements of such counsel shall be paid by the Indemnified Party unless the
Indemnifying Party consents to the retention of such counsel or unless the named
parties to any action or proceeding include both the Indemnifying Party and the
Indemnified Party and a representation of both the Indemnifying Party and the
Indemnified Party by the same counsel would be inappropriate due to the actual
or potential differing interests between them (such as the availability of
different defenses). If the Indemnifying Party, having elected to assume such
control, thereafter fails to defend the Third Party Claim within a reasonable
period of time, the Indemnified Party shall be entitled to assume such
33
control, and the Indemnifying Party shall be bound by the results obtained by
the Indemnified Party with respect to the Third Party Claim. If any Third Party
Claim is of a nature such that the Indemnified Party is required by applicable
Law to make a payment to any Third Party with respect to the Third Party Claim
before the completion of settlement negotiations or related legal proceedings,
the Indemnified Party may make such payment and the Indemnifying Party shall,
subject to the provisions of this Section 7.1, after demand by the Indemnified
Party, reimburse the Indemnified Party for such payment. If the amount of any
liability of the Indemnified Party under the Third Party Claim in respect of
which such payment was made, as finally determined, is less than the amount
which was paid by the Indemnifying Party to the Indemnified Party, the
Indemnified Party shall, promptly after receipt of the difference from the Third
Party, pay the amount of such difference to the Indemnifying Party.
(ii) If the Indemnifying Party fails to assume control of
the defense of any Third Party Claim, the Indemnified Party shall have the
exclusive right to consent, settle or pay the amount claimed. Whether or not the
Indemnifying Party assumes control of the negotiation, settlement or defense of
any Third Party Claim, the Indemnifying Party shall not settle any Third Party
Claim without the written consent of the Indemnified Party, which consent shall
not be unreasonably withheld, conditioned or delayed, unless such settlement
provides solely for monetary damages or other monetary payments.
The Indemnified Party and the Indemnifying Party shall cooperate fully with each
other with respect to Third Party Claims and, regardless of which party has
control thereof as provided for herein, shall keep each other reasonably advised
with respect thereto.
Section 7.2 Other Provisions with Respect to Indemnification.
(a) Seller shall not be required to indemnify a Purchaser
Indemnified Party pursuant to this Article VII with respect to any claim for
indemnification under Section 7.1(a)(i) unless the aggregate amount of Losses
for which the Purchaser Indemnified Parties are otherwise entitled to
indemnification pursuant to Section 7.1(a)(i) hereof, exceeds $30,000, whereupon
the Purchaser Indemnified Parties shall be entitled to recover the amount of
such Losses in excess of such amount, subject to the limitation on maximum
recovery set forth below.
(b) The aggregate Losses payable by Seller to the Purchaser
Indemnified Parties pursuant to this Article VII with respect to all claims for
indemnification under Section 7.1(a)(i) and (ii) (other than any claims made
pursuant to Section 7.1(a)(i) with respect to breaches of the representations
and warranties set
34
forth in Sections 3.1, 3.2, 3.3, 3.5, 3.7, 3.17, 3.18 and 3.21), shall not
exceed $1,500,000.
(c) In the event that, after Seller makes a payment to a
Purchaser Indemnified Party with respect to any claim made by a Purchaser
Indemnified Party pursuant to Section 7.1(a), such Person (i) receives a refund
or exercises a right to set off monetary payment obligations that are presently
due and payable, with respect to the event or Loss that was the subject of the
claim; or (ii) is able to realize a Tax benefit that has resulted in such Person
being able to avoid paying an amount that would otherwise be due to a taxing
jurisdiction, and such Tax benefit is solely and directly attributable to the
event or Loss that was the subject to the claim (a "Realized Tax Benefit") the
Purchaser Indemnified Party shall promptly reimburse Seller for the amount of
the refund or set-off not contested by the other party as described above, or
the Realized Tax Benefit, provided that in each case the amount to be reimbursed
Seller shall be reduced by the amount of any Taxes imposed upon the Purchaser
Indemnified Party by reason of Purchaser 's receipt or exercise of such refund,
set-off or Realized Tax Benefit.
(d) Upon making an indemnity payment pursuant to this Agreement,
the Indemnifying Party will, to the extent of such payment, be subrogated to all
rights of the Indemnified Party against any third party in respect of the
damages to which the payment related; provided, however, in no event may an
Indemnifying Party be entitled to exercise its rights of subrogation hereunder
until the Indemnified Party shall have been paid in full the amount of any Loss
with respect to such indemnified amount. Without limiting the generality of any
other provision hereof, each such Indemnified Party and Indemnifying Party will
duly execute upon request all instruments reasonably necessary to evidence and
perfect the above described subrogation rights.
(e) Notwithstanding anything herein to the contrary, no party
shall be entitled to indemnification or reimbursement under any provision of
this Agreement for any amount to the extent such party or its Affiliate has been
indemnified or reimbursed for such amount under any other provision of this
Agreement, or any document executed in connection with this Agreement or
otherwise.
(f) Except with respect to claims based upon fraud or intentional
misrepresentation, the indemnification provided in this Article VII shall be the
sole and exclusive remedy after the Closing Date available to the parties for
breach of any of the terms, conditions, representations, warranties or covenants
contained herein or any right, claim or action arising from the transactions
contemplated by this Agreement. Nothing contained herein, however, shall
preclude a party from seeking injunctive relief or specific performance, under
circumstances where such relief might be appropriate, provided that the moving
party shall not be entitled to ancillary relief in the nature of damages or fee
awards unless specifically so provided for herein.
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Section 7.3 Survival of Indemnification Claims; Escrow. The
indemnification obligations of Seller set forth in this Article VII shall
survive the Closing and, subject to the terms of the Escrow Agreement, may be
satisfied with respect to any Purchaser Indemnified Parties, in whole or in
part, by recourse to the Escrow Funds. Any portion of the Escrow Funds which has
not been so applied and which is not otherwise the subject of a disputed claim,
together with any interest thereon, shall be paid by the Escrow Agent to Seller
on the six month anniversary of the Closing. Notwithstanding any other provision
herein, the termination of the Escrow Agreement and the release of the Escrow
Funds shall not limit the obligations of Seller hereunder.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Fees and Expenses. All costs and expenses incurred in
connection with this Agreement and the consummation of the Transaction shall be
paid by the party incurring such expenses, including, without limitation, all
legal and accounting fees and expenses, except as specifically provided to the
contrary in this Agreement, all Transfer Taxes arising out of, in connection
with or attributable to the Transaction shall be borne and paid by Seller.
Seller shall prepare and timely file all relevant Tax Returns and other
documentation required to be filed in respect of any such Transfer Tax, pay the
Transfer Tax shown on such Tax Return, and notify Purchaser in writing of the
Transfer Tax shown on such Tax Return and how such Transfer Tax was calculated,
and, if required by applicable Law, Purchaser will join in the execution of any
such Tax Returns or other documentation.
Section 8.2 Amendment and Modification. This Agreement may be amended,
modified and supplemented in any and all respects, but only by a written
instrument signed by each of the parties hereto expressly stating that such
instrument is intended to amend, modify or supplement this Agreement.
Section 8.3 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given when mailed, delivered personally,
sent by facsimile (which is confirmed) or sent by an overnight courier service,
such as Federal Express, to the parties at the following addresses (or at such
other address for a party as shall be specified by such party by like notice):
if to Purchaser, to:
GSI Lumonics Inc.
00 Xxxxxxx Xxxx
Xxxxxxxxx, Xxxxxxxxxxxxx 00000
Attention: Xxxxxxx Xxxxxxx, VP and General Manager
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
36
with a copy to:
Skadden, Arps, Slate, Xxxxxxx & Xxxx LLP
Xxx Xxxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Attention: Xxxxxxxx X. Xxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
and
if to Seller, to:
Dynamics Research Corporation
00 Xxxxxxxx Xxxx
Xxxxxxx, Xxxxxxxxxxxxx 00000
Attention: General Counsel
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
with a copy to:
Xxxxx Xxxxxxx LLP
000 Xxxxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Attention: Xxxxxxx X. Xxxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Section 8.4 Counterparts. This Agreement may be executed in
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other party.
Section 8.5 Entire Agreement; No Third Party Beneficiaries. This
Agreement, the Confidentiality Agreement and the Ancillary Agreements (a)
constitute the entire agreement and supersede all prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter hereof and thereof and (b) are not intended to confer upon any
Person other than the parties hereto and thereto any rights or remedies
hereunder. EXCEPT AS SET FORTH IN ARTICLE III, SELLER MAKES NO REPRESENTATIONS
OR WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY
REPRESENTATION OR WARRANTY WITH RESPECT TO THE MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE, WITH RESPECT TO THE SALE OF THE ASSETS.
37
Section 8.6 Severability. Any term or provision of this Agreement that
is held by a court of competent jurisdiction or other authority to be invalid,
void 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. If the final judgment of a court of
competent jurisdiction or other authority declares that any term or provision
hereof is invalid, void or unenforceable, the parties agree that the court
making such determination shall have the power to reduce the scope, duration,
area or applicability of the term or provision, to delete specific words or
phrases, or to replace any invalid, void or unenforceable term or provision with
a term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision.
Section 8.7 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Massachusetts
without giving effect to the principles of conflicts of law thereof.
Section 8.8 Enforcement; Venue. The parties agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions of this Agreement in any court of the
United States located in the Commonwealth of Massachusetts or in Massachusetts
state court, this being in addition to any other remedy to which they are
entitled at law or in equity. In addition, each of the parties hereto (a)
consents to submit itself to the personal jurisdiction of any federal court
located in the Commonwealth of Massachusetts or any Massachusetts state court in
the event any dispute arises out of this Agreement or the Transaction, (b)
agrees that it shall not attempt to deny or defeat such personal jurisdiction by
motion or other request for leave from any such court and (c) agrees that it
shall not bring any action relating to this Agreement or the Transaction in any
court other than a federal or state court sitting in the Commonwealth of
Massachusetts.
Section 8.9 Time of Essence. Each of the parties hereto hereby agrees
that, with regard to all dates and time periods set forth or referred to in this
Agreement, time is of the essence.
Section 8.10 Extension, Waiver. The parties may (a) extend the time
for the performance of any of the obligations or other acts of the other party,
(b) waive any inaccuracies in the representations and warranties of the other
party contained in this Agreement or in any document delivered pursuant to this
Agreement or (c) waiver compliance by the other party with any of the agreements
or conditions contained in this Agreement. Any agreement on the part of a party
to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party. The failure of any party
to this Agreement to assert any of its rights under this Agreement or otherwise
shall not constitute a
38
waiver of those rights. If any right to waive compliance described in this
Section 8.10 is exercised with actual knowledge obtained pursuant to a writing
from another party specifically describing the condition or conditions which
have not been satisfied and requesting a written waiver of such conditions
pursuant to this Section 8.10 (the "Waiver Request"), the party exercising such
right to proceed shall be deemed to have waived any claim for Losses for the
specific breach of conditions set forth in the Waiver Request. Any such waiver
shall not affect the survival or representations, warranties, covenants and
agreements as provided herein, except as to specific representations,
warranties, covenants and agreement specified in such written waiver delivered
pursuant to this Section 8.10.
Section 8.11 Election of Remedies. Neither the exercise of nor the
failure to exercise a right of set-off or to give notice of a claim under this
Agreement will constitute an election of remedies or limit Purchaser, or any of
the Purchaser Indemnified Parties, in any manner in the enforcement of any other
remedies that may be available to any of them, whether at law or in equity.
Section 8.12 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by either of the parties
hereto (whether by operation of law or otherwise) without the prior written
content of the other party, except that Purchaser may, in its sole discretion,
assign any or all of its rights and interests hereunder to any direct or
indirect wholly owned Subsidiary of Purchaser. Subject to the preceding
sentence, this Agreement shall be binding upon, inure to the benefit of and be
enforceable by the parties and their respective successors and assigns.
39
IN WITNESS WHEREOF, Purchaser and Seller have executed this Agreement
under seal as of the date first written above.
GSI LUMONICS INC.
By /s/ Xxxxxxx Xxxxxxx
-----------------------------------------
Name: Xxxxxxx Xxxxxxx
Title: Vice President and General Manager
DYNAMICS RESEARCH CORPORATION
By /s/ Xxxxx X. Xxxxx
-----------------------------------------
Name: Xxxxx X. Xxxxx
Title: Chairman, President and
Chief Executive Officer
