STOCK PURCHASE AGREEMENT
TABLE OF CONTENTS
ARTICLE I.........................................................................................................1
1.1 The Closing.....................................................................................1
1.2 Acquisition.....................................................................................1
1.3 Purchase Price..................................................................................2
1.4 Procedure at the Closing........................................................................2
1.5 Adjustments at Closing..........................................................................3
1.5(a) Establishment of Target Net Asset Statement and Overall Accounting Principles,
Policies and Procedures................................................................3
1.5(b) Seller's Calculation of Pre-Closing Estimate of Net Assets.............................3
1.5(c) Review of Seller's Estimate............................................................3
1.6 Post-Closing Adjustments........................................................................4
1.6(a) Seller's Initial Calculation...........................................................4
1.6(b) Schwarzkopf's Review of Seller's Statement.............................................5
1.6(c) Post-Closing Price Adjustments.........................................................5
1.6(d) Disagreements Concerning Audited Closing Balance Sheet and Audited Closing Net Asset
Statement..............................................................................6
ARTICLE II: REPRESENTATIONS AND WARRANTIES OF SCHWARZKOPF.........................................................6
2.1 Corporate Status................................................................................6
2.2 Corporate Power and Authority...................................................................7
2.3 Enforceability..................................................................................7
2.4 No Violation....................................................................................7
2.5 No Commissions..................................................................................7
2.6 Accuracy of Information Furnished...............................................................7
ARTICLE III: REPRESENTATIONS AND WARRANTIES OF THE ACQUIRED ENTITY AND SELLER.....................................8
3.1 Corporate Status................................................................................8
3.2 Power and Authority.............................................................................8
3.3 Enforceability..................................................................................8
3.4 Capitalization..................................................................................8
3.5 Shareholders of the Acquired Entity.............................................................9
3.6 No Violation....................................................................................9
3.7 Records of the Acquired Entity.................................................................10
3.8 Financial Reports..............................................................................10
3.9 No Changes.....................................................................................10
3.10 Accounts Receivable............................................................................12
3.11 Inventory......................................................................................13
3.12 Liabilities....................................................................................13
3.13 Litigation.....................................................................................13
3.14 Environmental Matters. .......................................................................15
3.15 Real Estate....................................................................................17
3.16 Business; Good Title to and Condition of Assets................................................19
3.17 Compliance with Laws; Governmental Authorizations..............................................19
3.18 Labor and Employment Matters...................................................................21
3.19 Employee Benefit Plans.........................................................................22
(a) Definitions...........................................................................22
(b) Employee Benefit Plans................................................................23
(c) Compliance with Law...................................................................24
(d) Welfare Plans. .......................................................................27
(e) Controlled Group Liability............................................................27
(f) Other Liabilities.....................................................................28
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(g) Cooperation With Schwarzkopf..........................................................28
3.20 Tax Matters. .............................................................................28
3.21 Insurance......................................................................................31
3.22 Adequacy of the Assets: Affiliated Transactions. .............................................31
3.23 Intellectual Property..........................................................................31
3.24 Contracts......................................................................................32
3.25 Accuracy of Information Furnished..............................................................33
3.26 Certain Payments...............................................................................33
3.27 No Commissions.................................................................................34
3.28 Customer List..................................................................................34
3.29 Negotiated Discounts Regarding Accounts Payable................................................34
ARTICLE IV: CONDUCT OF BUSINESS PENDING THE CLOSING..............................................................34
4.1 Conduct of Business by the Acquired Entity Pending the Closing.................................35
ARTICLE V: ADDITIONAL AGREEMENTS.................................................................................37
5.1 Further Assurances.............................................................................37
5.2 Compliance with Covenants......................................................................37
5.3 Cooperation....................................................................................37
5.4 Access to Information..........................................................................37
5.5 Notification of Certain Matters................................................................37
5.6 Confidentiality; Publicity.....................................................................37
5.7 No Other Discussions...........................................................................38
5.8 Restrictive Covenants. .......................................................................38
(a) Seller................................................................................38
(b) Schwarzkopf...........................................................................39
(c) Non Applicability of Restrictions and Termination of Restrictions.....................40
5.9 Shareholder and Director Vote. ...............................................................41
5.10 Due Diligence Review...........................................................................41
5.11 Certain Tax Matters. .........................................................................41
5.12 Zhou Litigation. .............................................................................41
5.13 Sales Tax Escrow. ............................................................................42
5.14 San Diego Water Pollution Escrow................................................................43
ARTICLE VI: CONDITIONS TO THE OBLIGATIONS OF SCHWARZKOPF.........................................................43
6.1 Accuracy of Representations and Warranties and Compliance with Obligations. ..................43
6.2 No Material Adverse Change or Destruction of Property..........................................43
6.3 Corporate Certificate..........................................................................43
6.4 Consents. ....................................................................................44
6.5 Securities Laws................................................................................44
6.6 No Adverse Litigation..........................................................................44
6.7 Completion of Due Diligence....................................................................44
6.8 Contract with Xxxxx Xxxxxx.....................................................................44
6.9 Opinion of Counsel.............................................................................44
6.10 Minute Books...................................................................................45
6.11 Approvals. ...................................................................................45
6.12 Release Regarding Obligations to Xxxxx Xxxxxx..................................................45
ARTICLE VII: CONDITIONS TO THE OBLIGATIONS OF THE ACQUIRED ENTITY AND THE SELLER.................................45
7.1 Accuracy of Representations and Warranties and Compliance with Obligations. ...................45
7.2 No Order or Injunction.........................................................................45
7.3 Opinion of Counsel.............................................................................45
ARTICLE VIII: INDEMNIFICATION....................................................................................45
8.1 Agreement by the Seller for Indemnification....................................................46
8.2 Survival of Representations and Warranties.....................................................46
8.3 Remedies Cumulative; Waiver. ..................................................................47
8.4 Defense of Third Party Claims..................................................................47
8.5 Cooperation In Transfer of Obligations. ......................................................47
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ARTICLE IX: DEFINITIONS..........................................................................................48
9.1 Defined Terms..................................................................................48
9.2 Other Definitional Provisions..................................................................53
ARTICLE X: TERMINATION, AMENDMENT AND WAIVER.....................................................................54
10.1 Termination....................................................................................54
10.2 Effect of Termination..........................................................................54
ARTICLE XI: GENERAL PROVISIONS...................................................................................54
11.1 Notices........................................................................................54
11.2 Entire Agreement...............................................................................56
11.3 Expenses.......................................................................................56
11.4 Amendment: Waiver..............................................................................56
11.5 Binding Effect: Assignment.....................................................................56
11.6 Counterparts...................................................................................56
11.7 Interpretation.................................................................................56
11.8 Governing Law: Interpretation..................................................................57
11.9 Jurisdiction...................................................................................57
11.10 Arm's Length Negotiations......................................................................57
Schedule 1.5(a)(i): Target Net Asset Statement...................................................................59
Schedule 1.5(a)(ii): Basis of presentation for the Balance Sheet................................................61
Schedule 1.5(b): Policies and Procedures to Calculate Target Net Asset Statement, Estimated Closing Net Asset
Statement and Audited Closing Net Asset Statement.......................................................63
Schedule 1.6(c): ESCROW AGREEMENT...............................................................................67
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This STOCK PURCHASE AGREEMENT (this "Agreement") is entered into
effective as of January 16, 2003 by and among (i) Schwarzkopf Technologies
Corporation, a Maryland corporation ("Schwarzkopf"); (ii) XXXXXX COMPANY, INC.,
a California corporation (the "Acquired Entity"); and (iii) SEMX CORPORATION, a
Delaware corporation, the sole shareholder of the Acquired Entity (the
"Seller").
RECITALS
A. Seller is presently the owner of 100% of the issued and outstanding
shares of the capital stock of the Acquired Entity as represented by stock
certificates No. 2.
B. Seller desires to sell all of its shares of stock of the Acquired
Entity ("Purchased Shares") and Schwarzkopf desires to purchase the Purchased
Shares from Seller as a means of acquiring the Acquired Entity and its
businesses, rights and properties ("Business").
X. Xxxxxxxxxxx has determined that it is in the best interests of its
shareholders for Schwarzkopf to acquire all of the stock of the Acquired Entity
from the Seller as provided herein in order to effectuate the acquisition of the
business of the Acquired Entity.
TERMS OF AGREEMENT
In consideration of the mutual representations, warranties, covenants
and agreements contained herein, the parties hereto agree as follows:
ARTICLE I
ACQUISITION; RELATED TRANSACTIONS; CLOSING
1.1 THE CLOSING Subject to the terms and conditions of this Agreement,
the consummation of the Acquisition (as defined below) and the other
transactions contemplated hereby shall take place upon execution of this
Agreement or as promptly as practicable thereafter but in any event no later
than January 15, 2003, subject to the provisions of Section 1.5(c) of this
Agreement and/or the parties' mutual agreement to an adjournment. The Closing
will take place at the offices of Xxxxxxxxxxx Xxxxx Xxxxxxx Xxxxx & Xxxxx, LLP,
in Providence, Rhode Island, or such other place and time as the parties may
otherwise agree (the "Closing"), and the date of Closing is referred to herein
as the "Closing Date."
1.2 ACQUISITION. At Closing on the Closing Date, and upon all of the
terms and subject to all of the conditions of this Agreement, Seller shall sell,
assign, convey, transfer and deliver to Schwarzkopf, and Schwarzkopf shall
purchase for the Consideration set forth in Section 1.3 below, all of the
Seller's right, title and interest, legal and equitable, in and to the Purchased
Shares, free and clear of any and all claims, liens or encumbrances of third
parties.
1.3 PURCHASE PRICE. For purposes of this Agreement, "Consideration"
means cash in the amount of Four Million Six Hundred Twenty Five Thousand and
no/100 Dollars ($4,625,000), subject to the adjustments in Sections 1.5 and 1.6
of this Agreement.
1.4 PROCEDURE AT THE CLOSING..At the Closing, the parties agree that
the following shall occur:
(a) The Acquired Entity and the Seller shall have satisfied
each of the conditions set forth in Article VI and shall deliver to Schwarzkopf
the documents, certificates, opinions and consents required by Article VI.
(b) Seller shall transfer to Schwarzkopf appropriate stock
assignments separate from certificate, representing the Purchased Shares of the
Acquired Entity being purchased hereunder.
(c) Schwarzkopf shall deliver to Seller or its designee, by
wire transfer or certified check as designated upon reasonable notice by Seller,
cash in the amount of Three Million Three Hundred Twelve Thousand and no/100
Dollars ($3,312,000.00), subject to the adjustments set forth at Section 1.5
below.
(d) Schwarzkopf shall place Five Hundred Thirty Two Thousand
Dollars ($532,000) into escrow subject to adjustment as provided in Section 1.5
of this Agreement to be held and released as provided in Section 1.6 of this
Agreement and the Escrow Agreement attached as Schedule 1.6(c) hereto. This
amount will be referred to below as the "Escrow Fund." The Escrow Fund is
calculated as the sum of three amounts:
1. The Auditor's Adjustment Amount of $250,000,
which is placed in escrow to pay for
adjustments in the purchase price resulting
from accounting changes resulting from the
Post-Closing Audit;
2. The Sales Tax Escrow Amount of $250,000,
which is calculated to account for a
potential liability due to California Sales
Tax, as provided for in Section 5.13 below;
3. The San Diego Water Pollution Escrow Amount
of $32,000, which is calculated to account
for a potential liability in connection with
water pollution Notices of Violation issued
by the City of San Diego Metropolitan
Wastewater District, as provided for in
Section 5.14 below. 1.
1.5 ADJUSTMENTS AT CLOSING. The parties shall adjust the purchase price
at closing as follows:
1.5(a) Establishment of Target Net Asset Statement and Overall
Accounting Principles, Policies and Procedures.
A Target Net Asset Statement as of September 30, 2002 has
been provided and is included in Schedule 1.5(a)(i). As part of this Target Net
Asset Statement, there is a calculation of the "Target Net Worth," which is the
difference between certain assets and certain liabilities as of September 30,
2002, subject to the principles set forth in Schedule 1.5(a)(ii), the policies
and procedures set forth in Schedule 1.5(b) and, except as otherwise set forth
in such Schedules, in compliance with GAAP. That figure, as represented in the
bottom entry in the right column of Schedule 1.5(a)(i), is $3.927 Million.
For the purposes of all financial calculations made
throughout this Section 1.5 and the Section 1.6 that follows both parties will
prepare the financial statements and calculations described in accordance with
the principles, policies and procedures set forth in Schedule 1.5(a)(ii) and the
adjustments and special provisions set forth in Schedule 1.5(b) and, except as
otherwise set forth in such schedules, in accordance with GAAP.
1.5(b) Seller's Calculation of Pre-Closing Estimate of Net Assets
No less than three Business Days, or more than five Business Days prior
to the Closing Date, Seller shall deliver to Schwarzkopf a statement (the
"Estimated Closing Net Asset Statement") of the amount of Net Assets which it
estimates will exist as of the opening of the business on the Closing Date. This
Statement will include a net worth calculation (the "Estimated Closing Net
Worth"). Along with the Estimated Closing Net Asset Statement, Seller will
provide a representation that it was prepared in accordance with the principles
set forth in Schedule 1.5(a)(ii) and the adjustments and special provisions set
forth in Schedule 1.5(b) and, except as otherwise set forth in such Schedules,
in accordance with GAAP. The representation will also state that the Estimated
Closing Net Asset Statement was prepared in compliance with past company
practices, using the same accounting principles, practices, procedures, policies
and methods with consistent classifications, judgments, and valuation and
estimation methodologies that were employed in preparing the September 30, 2002
Balance Sheet, except to the extent that those practices were inconsistent with
the previously mentioned adjustments and special provisions of Schedule 1.5(b).
1.5(c) REVIEW OF SELLER'S ESTIMATE
Seller and Schwarzkopf shall work together diligently and in good faith
to review and discuss the Estimated Closing Net Asset Statement and make any
modifications thereto that are agreed upon. The resulting document (Seller's
original estimate as modified by any agreed-upon modifications) shall be
referred to below as the "Modified Estimated Closing Net Asset Statement," which
will include a calculation of the "Modified Estimated Closing Net Worth." If the
parties are unable to agree upon the entries contained in the Estimated Closing
Net Asset Statement on or before January 15, 2003, the Closing will be postponed
until promptly after agreement is reached or at seller's option, the amount in
dispute shall be deducted from the purchase price paid at Closing and added to
the escrow fund.
In the event that the Modified Estimated Closing Net Worth is less than
the Target Net Worth (such shortfall to be described as the "Estimated Net Worth
Deficit"), then the portion of the purchase price to be paid at Closing as
specified in Section 1.4(c) will be reduced by an amount equal to the Estimated
Net Worth Deficit and the amount of the Escrow Fund shall be increased by like
amount.
In the event that the Modified Estimated Closing Net Worth is more than
the Target Net Worth (such excess to be described as the "Estimated Net Worth
Excess"), then Schwarzkopf shall pay to the Escrow Fund, within thirty (30)
days, an amount equal to the Estimated Net Worth Excess.
1.6 POST-CLOSING ADJUSTMENTS
1.6(a) Seller's Initial Calculation
As soon as practicable, but in no event later than 60 days following
the Closing Date, Seller shall prepare (at its own expense) and deliver to
Schwarzkopf an Audited Closing Balance Sheet, together with footnotes setting
forth the basis of presentation, accounting principles, commitments and
contingencies, net operating losses and other such disclosures required by GAAP,
together with a Net Asset Statement of the Acquired Entity, standing alone and
not as a an integrated subsidiary of Seller, as of the close of business on
January 00, 0000 ("xxx Audited Closing Net Asset Statement"). During the audit
process, adjustments will be made (if necessary) if anticipated discounts used
to adjust purchase price (as described in Section 3.29 and Schedule 3.29) fail
to be realized due to a failure of the vendor to honor the discount; provided,
however, that such adjustments will not be made if the failure to realize the
anticipated discount was the result of Schwarzkopf's failure to comply with the
discount agreement's payment schedule. The Audited Closing Net Asset Statement
shall be prepared in accordance with the principles set forth in Schedule
1.5(a)(ii) and the adjustments and special provisions set forth in Schedule
1.5(b) and, except as otherwise set forth in such schedules, in accordance with
GAAP. The Audited Closing Net Asset Statement also will be prepared in
conformance with past company practices and will be prepared using the same
accounting principles, practices, procedures, policies and methods with
consistent classifications, judgments, and valuation and estimation
methodologies that were employed in preparing the September 30, 2002 Balance
Sheet, except to the extent that those practices were inconsistent with the
previously mentioned adjustments and special provisions set forth in Schedule
1.5(b). The Audited Closing Net Asset Statement will include a calculation of
the Acquired Entity's net worth ("Audited Closing Net Worth").
1.6(b) SCHWARZKOPF'S REVIEW OF SELLER'S STATEMENT
After receipt of the Audited Closing Net Asset Statement, Schwarzkopf
and its advisors shall have 15 Business Days to review the Audited Closing Net
Asset Statement (with the acknowledgment and understanding that time is of the
essence), together with the independent auditor's workpapers used in the
preparation thereof. Unless Schwarzkopf delivers written notice to Seller on or
prior to the 15th Business Day after Schwarzkopf is in receipt of the Audited
Closing Net Asset Statement specifying that it objects to any of the items
contained therein along with a description of the reason for such objections,
Schwarzkopf shall be deemed to have accepted and agreed to the items listed on
the Closing Net Asset Statement. If Schwarzkopf so notifies Seller of its
objection to the Audited Closing Net Asset Statement, Schwarzkopf and Seller
shall, within 30 days (or such longer period as the parties may agree) following
such notice (the "Resolution Period"), attempt to resolve their differences and
any resolution by them as to any disputed amounts shall be final, binding and
conclusive as provided in Section 1.6(d) below.
1.6(c) POST-CLOSING PRICE ADJUSTMENTS
At the end of the Resolution Period, the Seller shall produce a
document consisting of the Audited Closing Net Asset Statement as modified by
any changes agreed to by both parties. This document shall be known as the
"Modified Audited Closing Net Asset Statement." As part of this statement, there
will be a calculation of the Acquired Entity's net worth, referred to below as
the "Modified Audited Closing Net Worth."
In the event that the Modified Audited Closing Net Worth is less than
the Modified Estimated Closing Net Worth (such shortfall to be referred to as
the "Audited Net Worth Deficit"), then Schwarzkopf will receive from the Escrow
Fund (established under the Escrow Agreement attached as Schedule 1.6(c)) an
amount equal to said shortfall or deficit. If the Escrow Fund is exhausted
through this process, then Seller will, within 30 Business Days, (a) pay the
difference to Schwarzkopf and (b) repay the Sales Tax Escrow Amount (as
established in Section 5.13 below) and the San Diego Water Pollution Escrow
Amount (as established in Section 5.14 below) to the Escrow Fund. If the Escrow
Fund is not exhausted, but the remaining balance is less than the sum of the
remaining Sales Tax Escrow Amount (as established in Section 5.13 below) and the
San Diego Water Pollution Escrow Amount (as established in Section 5.14 below),
then Seller will, within 30 days, deposit sufficient funds within the Escrow
Account to restore the balance to the Sales Tax Escrow Amount and the San Diego
Water Pollution Escrow Amount.
If not all of Schwarzkopf's objections to the Audited Closing Net Asset
Statement have been resolved by the Modified Audited Closing Net Worth
Statement, the balance of the Escrow Fund (if any) will be held in escrow
pending dispute resolution under Section 1.6(d) below.
In the event that the Modified Audited Closing Net Worth exceeds the
Modified Estimated Net Worth, and Schwarzkopf has no objections thereto, then
the balance of the Escrow Fund in excess of the Sales Tax Escrow Amount (as
defined in Section 5.13 below) shall be paid to Seller within 3 Business Days
and the balance, if any, due the Seller shall be paid by Schwarzkopf to Seller
within 30 Business Days. If the Modified Audited Closing Net Worth is greater
than the Modified Estimated Net Worth, and Schwarzkopf has objections thereto,
then if the balance in the Escrow Fund exceeds the amount of Schwarzkopf's
objections, such excess will be paid to Seller from the Escrow Fund within 3
Business Days, and the rest of the Escrow Fund will be retained for dispute
resolution as set forth in Section 1.6(d) below and for resolution of the
California State Tax issue as provided for in Section 5.13 below, and the San
Diego Water Pollution issue as provided for in Section 5.14 below.
1.6(d) DISAGREEMENTS CONCERNING AUDITED CLOSING BALANCE
SHEET AND AUDITED CLOSING NET ASSET STATEMENT
If the parties do not reach agreement during the Resolution Period
regarding the Audited Closing Net Worth, the areas remaining in dispute shall be
submitted, within 10 days after the expiration of the Resolution Period, to the
Deloitte & Touche accounting firm with office in Boston, Massachusetts. The
arbitrator's award will be defined by the range of the dispute between the
parties. Each party will bear its own costs, as well as one half of the
arbitration costs. The award of the arbitrator will be paid within 3 Business
Days from that portion of the Escrow Fund in excess of the Sales Tax Escrow
Amount, and any other remaining amounts will be paid within 30 Business Days
from the date of the arbitrator's award; provided, however, that if (1) the
arbitrator's net award is in favor of Schwarzkopf, and (2) the amount of the
award exceeds the balance of the Escrow Fund in excess of the Sales Tax Escrow
Amount, Schwarzkopf will collect its full award from the entire Escrow Fund to
the extent possible and Seller, within 30 days, will replenish the Sales Tax
Escrow Amount to the Escrow Fund and will pay Schwarzkopf any additional amounts
owed as a result of the arbitrator's award.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SCHWARZKOPF
As a material inducement to the Acquired Entity and the Seller to enter
into this Agreement and to consummate the transactions contemplated hereby,
Schwarzkopf makes the following representations and warranties to the Acquired
Entity and the Seller:
2.1 CORPORATE STATUS. Schwarzkopf is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation, is qualified to do business as a foreign corporation in all
jurisdictions where it presently carries on business, and has the requisite
power and authority to own or lease its properties and to carry on its business
as presently conducted. There is no pending or, to the Knowledge of Schwarzkopf,
threatened proceeding for the dissolution, liquidation, insolvency or
rehabilitation of Schwarzkopf.
2.2 CORPORATE POWER AND AUTHORITY. Schwarzkopf has the corporate power
and authority to execute and deliver this Agreement, to perform its respective
obligations hereunder and to consummate the transactions contemplated hereby.
Schwarzkopf has taken all corporate action necessary to authorize its execution
and delivery of this Agreement, the performance of its obligations hereunder and
the consummation of the transactions contemplated hereby.
2.3 ENFORCEABILITY. This Agreement has been duly executed and delivered
by Schwarzkopf and constitutes its legal, valid and binding obligation
enforceable against Schwarzkopf, as the case may be, in accordance with its
terms, except as the same may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and general equitable principles regardless of
whether such enforceability is considered in a proceeding at law or in equity.
2.4 NO VIOLATION. The execution and delivery of this Agreement by
Schwarzkopf, the performance by Schwarzkopf of its respective obligations
hereunder and the consummation by Schwarzkopf of the transactions contemplated
by this Agreement will not (a) contravene any provision of its respective
corporate charter or governing instruments, (b) violate or conflict with any
law, statute, ordinance, rule, regulation, decree, writ, injunction, judgment,
ruling or order of any Governmental Authority or of any arbitration award which
is either applicable to, binding upon, or enforceable against Schwarzkopf, (c)
conflict with, result in any breach of, or constitute a default (or an event
which would, with the passage of time or the giving of notice or both,
constitute a default) under, or give rise to a right to terminate, amend,
modify, abandon or accelerate, any Contract which is applicable to, binding upon
or enforceable against Schwarzkopf, (d) result in or require the creation or
imposition of any Lien upon or with respect to any of the property or assets of
Schwarzkopf, or (e) give to any individual or entity a right or claim against
Schwarzkopf, which would have a Material Adverse Effect on Schwarzkopf, or
require the consent, approval, authorization or permit of, or filing with or
notification to, any Governmental Authority, any court or tribunal or any other
Person.
2.5 NO COMMISSIONS. Schwarzkopf has not incurred any obligation for any
finder's or broker's or agent's fees or commissions or similar compensation in
connection with the transactions contemplated hereby.
2.6 ACCURACY OF INFORMATION FURNISHED. No representation, statement or
information contained in this Agreement (including, without limitation, the
various Schedules attached hereto) or any agreement executed in connection
herewith or in any certificate delivered pursuant hereto or thereto or made or
furnished to the Seller or its representatives by Schwarzkopf, contains or shall
contain any untrue statement of a material fact or omits or shall omit any
material fact necessary to make the information contained therein not
misleading. Schwarzkopf has provided the Acquired Entity and/or the Seller with
true, accurate and complete copies of all documents listed or described in the
various Schedules attached hereto, which are the responsibility of Schwarzkopf
to provide.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
THE ACQUIRED ENTITY AND SELLER
As a material inducement to Schwarzkopf to enter into this Agreement
and to consummate the transactions contemplated hereby, the Acquired Entity and
the Seller, jointly and severally make the following representations and
warranties to Schwarzkopf:
3.1 CORPORATE STATUS. The Acquired Entity is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California and has the requisite power and authority to own or lease its
properties and to carry on its business as now being conducted. The Acquired
Entity is qualified to do business as a foreign corporation in any other
jurisdiction in which it operates. The Acquired Entity has fully complied with
all of the requirements of any statute governing the use and registration of
fictitious names, and has the legal right to use the names under which it
operates its businesses. There is no pending or threatened proceeding for the
dissolution, liquidation, insolvency or rehabilitation of the Acquired Entity.
3.2 POWER AND AUTHORITY. The Acquired Entity and Seller have the
corporate power and authority to execute and deliver this Agreement, to perform
their respective obligations hereunder, and to consummate the transactions
contemplated hereby. The Acquired Entity and Seller have taken all corporate
action necessary to authorize the execution and delivery of this Agreement, the
performance of their respective obligations hereunder, and the consummation of
the transactions contemplated hereby.
3.3 ENFORCEABILITY. This Agreement has been duly executed and delivered
by the Acquired Entity and by the Seller, and constitutes the legal, valid and
binding obligation of each of them, enforceable against each of them in
accordance with its terms, except as the same may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and general equitable principles
regardless of whether such enforceability is considered in a proceeding at law
or in equity.
3.4 CAPITALIZATION. Schedule 3.4 sets forth, as of the date hereof,
with respect to the Acquired Entity (a) the number of authorized shares of each
class of its capital stock, (b) the number of issued and outstanding shares of
each class of its capital stock and (c) the number of shares of each class of
its capital stock which are held in treasury. All of the issued and outstanding
shares of capital stock of the Acquired Entity (i) have been duly authorized and
validly issued and are fully paid and nonassessable, (ii) were issued in
compliance with all applicable state and federal securities laws and (iii) were
not issued in violation of any preemptive rights or rights of first refusal or
similar rights. No preemptive rights or rights of first refusal or similar
rights exist with respect to any shares of capital stock of the Acquired Entity
and no such rights arise by virtue of or in connection with the transactions
contemplated hereby; there are no outstanding or authorized rights, options,
warrants, convertible securities, subscription rights, conversion rights,
exchange rights or other agreements or commitments of any kind that could
require the Acquired Entity to issue or sell any shares of its capital stock (or
securities convertible into or exchangeable for shares of its capital stock);
there are no outstanding stock appreciation, phantom stock, profit participation
or other similar rights with respect to the Acquired Entity; there are no
proxies, voting rights or other agreements or understandings with respect to the
voting or transfer of the capital stock of the Acquired Entity; the Acquired
Entity is not obligated to redeem or otherwise acquire any of its outstanding
shares of capital stock.
3.5 SHAREHOLDERS OF THE ACQUIRED ENTITY. Schedule 3.5 sets forth, with
respect to the Acquired Entity (i) the name, address and federal taxpayer
identification number of the Acquired Entity, and the number of outstanding
shares of each class of its capital stock owned by the Seller as of the close of
business on the date of this Agreement; and (ii) the name, address and federal
taxpayer identification number of, and number of shares of each class of its
capital stock beneficially owned by each beneficial owner of outstanding shares
of capital stock (to the extent that record and beneficial ownership of any such
shares or interests are different). The Seller constitutes the record and
beneficial holder of all issued and outstanding shares of capital stock of the
Acquired Entity, and the Seller owns such shares as is set forth on Schedule 3.5
free and clear of all Liens, restrictions and claims of any kind, other than the
lien of PNC Bank that will be released at Closing with funds paid from the
Consideration set forth at Section 1.2 supra.
3.6 NO VIOLATION. The execution and delivery of this Agreement by the
Acquired Entity and the Seller, the performance by the Acquired Entity and the
Seller of their respective obligations hereunder and the consummation by them of
the transactions contemplated by this Agreement will not (a) contravene any
provision of the Articles of Incorporation or Bylaws, any resolution adopted by
the Board of Directors of either the Seller or the Acquired Entity, or other
organizational or governing document or internal requirement of the Acquired
Entity and/or the Seller, (b) violate or conflict with any law, statute,
ordinance, rule, regulation, decree, writ, injunction, judgment or order of any
Governmental Authority or of any arbitration award which is either applicable
to, binding upon or enforceable against the Acquired Entity and/or the Seller,
(c) except as set forth on Schedule 3.6, conflict with, result in any breach of,
or constitute a default (or an event which would, with the passage of time or
the giving of notice or both, constitute a default) under, or give rise to a
right of payment under or the right to terminate, amend, modify, abandon or
accelerate, any Material Contract which is applicable to, binding upon or
enforceable against the Acquired Entity and/or the Seller, (d) result in or
require the creation or imposition of any Lien upon or with respect to any of
the properties or assets of the Acquired Entity, (e) except as set forth on
Schedule 3.6, give to any individual or entity a right or claim against the
Acquired Entity or (f) require the consent, approval, authorization or permit
of, or filing with or notification to, any Governmental Authority, any court or
tribunal or any other Person, except any applicable SEC or other filings
required to be made by Seller.
3.7 RECORDS OF THE ACQUIRED ENTITY. The copies of the Articles of
Incorporation, Bylaws and other documents and agreements of the Acquired Entity
which were provided to Schwarzkopf are true, accurate, and complete and reflect
all amendments made through the date of this Agreement. The minute books and
other records of corporate actions for the Acquired Entity made available to
Schwarzkopf for review were correct and complete as of the date of such review,
no further entries have been made through the date of this Agreement, such
minute books and records contain the true signatures of the persons purporting
to have signed them, and such minute books and records contain, to the Knowledge
of Acquired Entity and/or the Seller, an accurate record, in all material
respects, of all corporate actions of the shareholder and directors (and any
committees thereof) of the Acquired Entity taken by written consent or at a
meeting or otherwise since incorporation or formation. All corporate actions by
the Acquired Entity and Seller have been duly authorized or ratified. All
accounts, books, ledgers and official and other records of the Acquired Entity
are, in all material respects, accurate and complete, to the Knowledge of
Acquired Entity and/or the Seller, and there are no material inaccuracies or
discrepancies of any kind contained therein. The stock ledger of the Acquired
Entity, as previously made available to Schwarzkopf, contains accurate and
complete records of all issuances, transfers and cancellations of shares of the
capital stock of the Acquired Entity.
3.8 FINANCIAL REPORTS. The Acquired Entity has delivered or will
deliver to Schwarzkopf the financial statements and all federal and state tax
returns of the Acquired Entity filed for the fiscal years ended December 31,
2000 and December 31, 2001 and management's financial and profit and loss
statements for the period ending September 30, 2002 copies of which are attached
as Schedule 3.8 (the "Financial Statements"). The Acquired Entity has delivered
or will deliver to Schwarzkopf information about all of the significant
accounting policies used to prepare the Financial Statements. The balance sheet
of the Acquired Entity dated as of September 30, 2002, included in the Financial
Statements attached as Schedule 3.8, is referred to herein as the "Current
Balance Sheet"). The Financial Statements fairly present the financial position
of the Acquired Entity at each of the balance sheet dates thereof and the
results of operations for the periods covered thereby, and have been prepared in
accordance with GAAP as in effect at the relevant time consistently applied
throughout the periods indicated. The books and records of the Acquired Entity
fully and fairly reflect all of its transactions, properties, assets and
liabilities in all material respects. Except as set forth in Schedule 3.8, there
are no material special or non-recurring items of income or expense during the
periods covered by the Financial Statements, and the balance sheets included in
the Financial Statements do not reflect any write-up or revaluation increasing
the book value of any assets. The Financial Statements reflect all adjustments
necessary for a fair presentation of the financial information contained
therein, subject, in the case of unaudited statements, to normal audit
adjustments which, neither individually nor in the aggregate, exceed $50,000.
3.9 NO CHANGES.
Except as set forth on Schedule 3.9, since September 30, 2002, there
has not been any:
(a) transactions by the Acquired Entity except in the ordinary
course of business conducted as of that date;
(b) material adverse change in the financial condition,
liabilities, assets or results of operation of the business of the Acquired
Entity;
(c) indebtedness or liability, whether accrued, absolute,
contingent or otherwise incurred by the Acquired Entity except in the ordinary
course of business;
(d) default under any indebtedness of the Acquired Entity, or any
event which with the lapse of time or the giving of notice, or both, would
constitute such a default, other than defaults that will be cured or waived by
the Closing Date, which defaults will be disclosed to Schwarzkopf on an amended
Schedule 3.9 to be provided at the Closing;
(e) amendment or termination of any Material Contract, lease or
license to which the Acquired Entity is a party, other than notices of
termination that will be rescinded by the Closing Date;
(f) material increase in compensation paid, payable or to become
payable by the Acquired Entity to any of its employees;
(g) extraordinary losses (whether or not covered by insurance) or
waiver by the Acquired Entity of any rights of extraordinary value;
(h) commitment to or liability to any labor organization;
(i) lowering of the prices charged by the Acquired Entity for goods
or services in a manner not consistent with past practices;
(j) notice from any customer as to the customer's intention not to
conduct business with the Acquired Entity, the result of which loss or losses of
business, individually or in the aggregate, has had, or could reasonably be
expected to have, a material adverse effect on the business;
(k) change in the Acquired Entity's authorized or issued capital
stock; grant of any stock option or right to purchase shares of capital stock of
the Acquired Entity; issuance of any security convertible into such capital
stock; grant of any registration rights; purchase, redemption, retirement, or
other acquisition by the Acquired Entity of any shares of any such capital
stock; or declaration or payment of any dividend or other distribution or
payment in respect of shares of capital stock;
(l) amendment to the Organizational Documents of the Acquired
Entity;
(m) payment or increase by the Acquired Entity of any bonuses,
salaries, or other compensation to any stockholder, director, officer, or
(except in the ordinary course of business) employee or entry into any
employment, severance, or similar Contract with any director, officer, or
employee;
(n) adoption of, or increase in the payments to or benefits under,
any profit sharing, bonus, deferred compensation, savings, insurance, pension,
retirement, or other employee benefit plan for or with any employees of the
Acquired Entity;
(o) damage to, or destruction or loss of, any asset or property of
the Acquired Entity, whether or not covered by insurance, materially and
adversely affecting the properties, assets, business, or financial condition of
the Acquired Entity, taken as a whole;
(p) sale (other than sales of inventory in the ordinary course of
business), lease, or other disposition of any asset or property of the Acquired
Entity or mortgage, pledge, or imposition of any lien or other encumbrance on
any material asset or property of the Acquired Entity, including the sale,
lease, or other disposition of any of the Intellectual Property Assets;
(q) cancellation or waiver of any claims or rights with a value to
the Acquired Entity in excess of $10,000.00 per individual claim or right, or in
excess of $100,000.00 in the aggregate;
(r) change in the accounting methods used by the Acquired Entity;
(s) agreement, whether oral or written, by the Acquired Entity to
do any of the foregoing;
or
(t) other event or condition of any character, other than those
matters generally known to the public, that has or might reasonably have a
material adverse effect on the Acquired Entity's or the business' Assets,
financial condition, or business.
3.10 ACCOUNTS RECEIVABLE. All accounts receivable of the Acquired
Entity that are reflected on the Current Balance Sheet or on the accounting
records of the Acquired Entity as of the Closing Date (collectively, the
"Accounts Receivable") are recorded in compliance with GAAP and represent or
will represent receivables arising from sales actually made or services actually
performed in the ordinary course of business. Unless paid prior to the Closing
Date, the Accounts Receivable are or will be as of the Closing Date, to the
Knowledge of the Acquired Entity and/or the Seller, collectible net of the
respective reserves shown on the Current Balance Sheet or on the accounting
records of the Acquired Entity as of the Closing Date. Subject to such reserves,
each of the Accounts Receivable either has been collected in full or is expected
to be collected in full, without any set-off, within ninety days after the day
on which it first becomes due and payable, except as described in Schedule 3.10.
There is no contest, claim, or right of set-off, other than returns in the
ordinary course of business, under any Contract with any obligor of an Accounts
Receivable relating to the amount or validity of such Accounts Receivable.
Schedule 3.10 contains a complete and accurate list of all Accounts Receivable
as of the date noted thereon, which list sets forth the aging of such Accounts
Receivable, as well as any known actual or potential contest, claim, or right of
set-off other than returns in the ordinary course of business.
3.11 INVENTORY. All inventory of the Acquired Entity, whether or not
reflected in the Current Balance Sheet, is recorded in compliance with GAAP and
consists of a quality usable and salable in the ordinary course of business,
except for obsolete items and items of below-standard quality (as determined in
accordance with the Acquired Entity's standard policies), all of which have been
written off or written down to net realizable value in the Current Balance Sheet
or on the accounting records of the Acquired Entity as of the Closing Date, as
the case may be.
3.12 LIABILITIES. The Acquired Entity has no liabilities or
obligations, whether accrued, absolute, contingent or otherwise, except (a) to
the extent reflected on the Acquired Entity's Current Balance Sheet and not paid
or discharged, (b) liabilities incurred in the ordinary course of business
consistent with past practice since the date of the Acquired Entity's Current
Balance Sheet (identified in compliance with GAAP and none of which relates to
any breach of contract, breach of warranty, tort, infringement or violation of
law, or which arose out of any action, suit, claim, governmental investigation
or arbitration proceeding), and (c) liabilities incurred in the ordinary course
of business prior to the date of the Acquired Entity's Current Balance Sheet
which, in accordance with GAAP consistently applied, were not required to be
recorded thereon and which, in the aggregate, are not material (the liabilities
and obligations referenced in (a), (b) and (c) above are referred to as the
"Designated Liabilities"). Schedule 3.12 lists, for the Acquired Entity, (i) all
indebtedness of the Acquired Entity for borrowed money and for capitalized
equipment leases, and (ii) the account numbers and names of each bank, broker or
other depository institution and the names of all persons authorized to withdraw
funds from each such account.
3.13 LITIGATION.
(a) Except as provided on Schedule 3.13 or with regard to
Section 3.14 below, there is no action, suit or other legal or administrative
proceeding or governmental investigation pending, or, to the Knowledge of the
Acquired Entity and the Seller, threatened, anticipated or contemplated (i)
against, by or affecting the Acquired Entity (relating to the transactions
herein or to the Acquired Entity), or the Acquired Entity's properties or
assets, except for routine customer claims and complaints arising in the
ordinary course consistent with past practice which involve amounts less than
$10,000, or (ii) which question the validity or enforceability of this Agreement
or the transactions contemplated hereby, and, to the Knowledge of the Acquired
Entity and the Seller, there is no basis for any of the foregoing. There are no
outstanding orders, decrees or stipulations issued by any Governmental Authority
including IRS or any taxing authority in any proceeding to which the Acquired
Entity is or was a party which have not been complied with in full or which
continue to impose any material obligations on the Acquired Entity.
(b) Seller has delivered or otherwise made available to
Schwarzkopf, copies of all pleadings, correspondence, and other documents
relating to each pending action listed in Schedule 3.13. Except as set forth on
Schedule 3.13 or with regard to Section 3.14 below, the matters listed in
Schedule 3.13 will not have a material adverse effect on the business,
operations, assets, condition, or prospects of the Acquired Entity.
(c) Except as set forth in Schedule 3.13 or with regard to
Section 3.14 below:
(i) there is no Order to which the Acquired Entity, or any
of the assets owned or used by the Acquired Entity, is subject;
(ii) to the Knowledge of Seller or the Acquired Entity,
Seller is not subject to any Order that relates to the business of, or any of
the assets owned or used by, the Acquired Entity; and
(iii) to the Knowledge of the Acquired Entity and Seller,
no officer, director, agent, or employee of the Acquired Entity is subject to
any Order that prohibits such officer, director, agent, or employee from
engaging in or continuing any conduct, activity, or practice relating to the
business of the Acquired Entity.
(d) Except as set forth on in Schedule 3.13 or with regard to
Section 3.14 below:
(i) to the Knowledge of Seller or the Acquired Entity, the
Acquired Entity is, and since the Acquisition Date has been, in full compliance
with all of the terms and requirements of each Order to which it, or any of the
assets owned or used by it, is or has been subject;
(ii) no event has occurred or circumstance exists that may
constitute or result in (with or without notice or lapse of time) a violation of
or failure to comply with any term or requirement of any Order to which the
Acquired Entity, or any of the assets owned or used by the Acquired Entity, is
subject; and
(iii) to the Knowledge of the Seller or the Acquired
Entity, the Acquired Entity has not received, at any time any notice or other
communication (whether oral or written) from any Governmental Body or any other
Person regarding any actual, alleged, possible, or potential violation of, or
failure to comply with, any term or requirement of any Order to which the
Acquired Entity, or any of the assets owned or used by the Acquired Entity, is
or has been subject.
3.14 ENVIRONMENTAL MATTERS.
(a) Except as set forth in Schedule 3.14, the Acquired Entity
is and has, at all times been in full compliance in all material respects with
all Environmental Laws governing its business, operations, properties and
assets, including, without limitation:
(i) all requirements relating to the Discharge and
Handling of Hazardous Substances;
(ii) all requirements relating to notice, record keeping
and reporting;
(iii) all requirements relating to obtaining and
maintaining Licenses (as defined herein) for the ownership by the Acquired
Entity of its properties and assets and the operation of its business as
presently conducted and the use by the Acquired Entity of the Company Leased or
Owned Properties (as defined in Section 3.15); and
(iv) all applicable writs, orders, judgments, injunctions,
governmental communications, decrees, informational requests or demands issued
pursuant to, or arising under, any Environmental Laws.
(b) There are no (and there is no basis for any)
non-compliance orders, warning letters, notices of violation (collectively
"Notices"), claims, suits, actions, judgments, penalties, fines, or
administrative or judicial investigations of any nature or proceedings
(collectively "Proceedings") pending or, to the Knowledge of the Acquired Entity
and/or the Seller, threatened against or involving the Acquired Entity, its
businesses, operations, properties or assets issued by any Governmental
Authority or third party with respect to any Environmental Laws or Licenses
issued to the Acquired Entity thereunder in connection with, related to or
arising out of the ownership or lease by the Acquired Entity of its properties
or assets or the operation of its businesses, which have not been resolved to
the satisfaction of the issuing Governmental Authority or third party in a
manner that would not impose any obligation, burden or continuing liability on
Schwarzkopf in the event that the transactions contemplated by this Agreement
are consummated.
(c) The Acquired Entity has not Discharged, nor has it at any
time allowed or arranged for any third party to Discharge, Hazardous Substances
to, at or upon: (i) any location other than a site lawfully permitted to receive
such Hazardous Substances; (ii) any parcel of real property owned or leased at
any time by the Acquired Entity (including, without limitation, the Company
Owned Properties (as defined in Schedule 3.15), except in compliance with
applicable Environmental Laws in all material respects; or (iii) any site which,
pursuant to CERCLA or any similar state law has been placed on the National
Priorities List or its state equivalent, or the Environmental Protection Agency
or any relevant state agency has notified the Acquired Entity that it has
proposed or is proposing to place on the National Priorities List or its state
equivalent. There has not occurred, nor is there presently occurring, a
Discharge, or threatened Discharge of any Hazardous Substance on, into or
directly beneath the surface of any real property owned or leased at any time by
the Acquired Entity.
(d) Neither Seller nor the Acquired Entity, or any other
Person for whose conduct they are responsible for, has any material
Environmental, Health, and Safety Liabilities with respect to the Facilities or
with respect to any other properties and assets (whether real, personal, or
mixed) in which Seller or the Acquired Entity (or any predecessor), has or had
an interest, or, to the Knowledge of Seller of the Acquired Entity, at any
property geologically or hydrologically adjoining the Facilities or any such
other property or assets.
(e) There are no Hazardous Materials present on or in the
Environment at the Facilities in violation of Environmental Laws, including any
Hazardous Materials contained in barrels, above or underground storage tanks,
landfills, land deposits, dumps, equipment (whether moveable or fixed) or other
containers, either temporary or permanent, and deposited or located in land,
water, sumps, or any other part of the Facilities or incorporated into any
structure therein or thereon. None of Seller, the Acquired Entity, has permitted
or conducted, or is aware of, any Hazardous Activity conducted with respect to
the Facilities or any other properties or assets (whether real, personal, or
mixed) in which Seller or the Acquired Entity has or had an interest except in
full compliance with all applicable Environmental Laws in all material respects.
(f) There has been no Discharge by Seller or the Acquired
Entity or Threat of Discharge of any Hazardous Materials in violation of
Environmental Laws at or from the Facilities or at any other locations where any
Hazardous Materials were generated, manufactured, refined, transferred,
produced, imported, used, or processed from or by the Facilities, or from or by
any other properties and assets (whether real, personal, or mixed) in which
Seller or the Acquired Entity, has or had an interest to any geologically or
hydrologically adjoining property, whether by Seller or the Acquired Entity.
(g) Schedule 3.14 identifies, for the prior five (5) years
with respect to clauses (i) and (ii), and for the prior twelve (12) months with
respect to clauses (iii) and (iv):
(i) all environmental audits, assessments or occupational
health studies undertaken by any Governmental Authority, the Acquired Entity
and/or the Seller or their agents or representatives, or any third party,
relating to or affecting the Acquired Entity or the Company Owned or Leased
Properties;
(ii) all ground, water, soil, air or asbestos monitoring
undertaken by the Acquired Entity, the Seller or its agents or representatives
thereof or undertaken by any Governmental Authority or any third party, relating
to or affecting the Company Owned or Leased Properties or any real property
owned or leased at any time by the Acquired Entity;
(iii) all material written communications between the
Acquired Entity and any governmental authority arising under or relative to
Environmental Laws including, but not limited to, all Notices issued to the
Acquired Entity and/or the Seller and pertaining to the Company Owned or Leased
Properties that have not been cured; and
(iv) all outstanding citations issued under OSHA, or similar
state or local statutes, laws, ordinances, codes, rules, regulations, orders,
rulings or decrees, relating to or affecting the Acquired Entity or any real
property owned or leased at any time by the Acquired Entity that have not been
cured. Seller has delivered to Schwarzkopf or given its representatives an
opportunity to review all of the documents set forth in Schedule 3.14.
(h) For purposes of this Section 3.14 only, "Licenses" means, for
purposes of this Section 3.14 only, all licenses, certificates, permits,
approvals, decrees and registrations required under the Environmental Laws.
3.15 REAL ESTATE. Schedule 3.15:
(a) contains the legal description of, any real property or any
leasehold or other interest therein (including without limitation any option or
other right or obligation to purchase any real property or any interest therein)
as used throughout this agreement owned by the Acquired Entity as of the date
hereof (the "Company Owned Properties"); and
(b) lists all real property (or any interest therein) owned by the
Acquired Entity within the past five years that is not owned by the Acquired
Entity as of the date of this Agreement. With respect to each such parcel of
Company Owned Properties:
(i) the Acquired Entity or Schwarzkopf or their assignee has
or will have at Closing good and marketable title, free and clear of any
covenants, conditions, easements and exceptions other than (a) the exceptions
set forth in Schedule 3.15, (b) any Lien (including the mortgage held by (CNL
Commercial Finance Company) set forth in Schedule 3.15, (c) liens for real
estate taxes not yet due and payable, as set forth in Schedule 3.15, and (d) the
covenants, conditions, easements and exceptions set forth in Schedule 3.15;
(ii) there are no pending or, to the Knowledge of the Acquired
Entity and/or the Seller, threatened condemnation proceeding, suits or
administrative actions relating to the Company Owned Properties or other matters
affecting adversely the current use, occupancy or value thereof;
(iii) the legal descriptions for the Company Owned Properties
contained in the deeds thereof describe such parcels fully and adequately;
(iv) the buildings and improvements, if any, are located
within the boundary lines of the described parcels of land and are not in
violation of applicable setback requirements, local comprehensive plan
provisions, zoning laws and ordinances (and none of the properties or buildings
or improvements thereon is subject to "permitted nonconforming use" or
"permitted non-conforming structure" classifications), applicable building code
requirements, permits, licenses or other forms of approval, regulation or
restrictions by any Governmental Authority, and do not encroach on any easement
which may burden the land except as set forth in Schedule 3.15; the land does
not serve any adjoining property for any purpose inconsistent with the use of
the land; and the Company Owned Properties are not located within any flood
plain or subject to any similar type restriction for which any permits or
licenses necessary to the use thereof have not been obtained;
(v) all facilities, if any, have received all approvals of
Governmental Authorities (including licenses and permits) required in connection
with the ownership or operation thereof and to the Knowledge of the Acquired
Entity and/or the Seller, have been operated and maintained in all material
respects in accordance with applicable laws, ordinances, rules and regulations;
provided, however, that representations and warranties under this subparagraph
are in addition to, and not in lieu of, the representations and warranties made
in Section 3.14 above;
(vi) there are no Contracts granting to any party or parties
the right of use or occupancy of any portion of the Company Owned Properties,
and there are no parties (other than the Acquired Entity) in possession of any
of the Company Owned Properties;
(vii) there are no outstanding options or rights of first
refusal or similar rights to purchase any of the Company Owned Properties or any
portion thereof or interest therein;
(viii) all facilities, if any, located on the Company Owned
Properties are supplied with utilities and other services necessary for their
operation, all of which services are adequate in accordance with all applicable
laws, ordinances, rules and regulations, and are provided via public roads or
via permanent, irrevocable, appurtenant easements benefiting the Company Owned
Properties;
(ix) the Owned Properties abut on and have adequate direct
vehicular access to a public road and there is no pending or, to the Knowledge
of the Acquired Entity and/or the Seller, threatened termination of such access;
and
(x) all improvements, buildings and systems on the Owned
Properties are suitable for their current use. Seller has made available to
Schwarzkopf copies of the deeds and other instruments (as recorded) by which the
Acquired Entity acquired such real property and interests, and copies of all
title insurance policies, opinions, abstracts, and surveys in the possession of
Seller or the Acquired Entity and relating to such property or interests.
3.16 BUSINESS; GOOD TITLE TO AND CONDITION OF ASSETS.
(a) Upon the consummation of the transactions contemplated
hereby, Schwarzkopf will have acquired and own all of the Acquired Entity's
Assets and operations of its Business, and any related rights and interests
thereto. Except as set forth in Schedule 3.16 and except for the Lien of PNC
Bank which will be released at closing with funds from the Consideration
described in Section 1.2, the Acquired Entity has good and marketable title to
all of its Assets free and clear of any Liens.
(b) The Fixed Assets currently in use or necessary for the
business and operations of the Acquired Entity are in operating condition,
normal wear and tear excepted, and have been maintained in all material respects
in accordance with all applicable manufacturer's specifications and warranties.
For purposes of this Agreement, the term "Fixed Assets" means all vehicles,
machinery, equipment, tools, supplies, leasehold improvements, furniture and
fixtures, owned, used by or located on the premises of the Acquired Entity.
3.17 COMPLIANCE WITH LAWS; GOVERNMENTAL AUTHORIZATIONS.
(a) To the Knowledge of the Acquired Entity and/or the Seller, the
Acquired Entity and its Affiliates have been in compliance in all material
respects with all laws, regulations and orders applicable to them, their
business and operations (as conducted by them now and in the past), the Assets,
the Company Owned Properties, and any other properties and assets (in each case
owned or used by them now or in the past). The Acquired Entity has not been
cited, fined or otherwise notified of any asserted past or present failure to
comply with any laws, regulations or orders and no proceeding with respect to
any such violation is pending or threatened. The Acquired Entity is not subject
to any Contract, decree or injunction to which it is a party which restricts the
continued operation of any business or the expansion thereof to other
geographical areas, customers and suppliers or lines of business. Neither the
Acquired Entity, nor any of its employees or agents, has made any payment of
funds in connection with its business which is prohibited by law, and no funds
have been set aside to be used in connection with its business for any payment
prohibited by law. The Acquired Entity is and at all times has been in full
compliance with the terms and provisions of the Immigration Reform and Control
Act of 1986, as amended (the "Immigration Act"). With respect to each Employee
(as defined in 8 C.F.R. 274a.1(f)) of the Acquired Entity for whom compliance
with the Immigration Act is required, the Acquired Entity has on file a true,
accurate and complete copy of (i) each Employee's Form I-9 (Employment
Eligibility Verification Form) and (ii) all other records, documents or other
papers prepared, procured and/or retained pursuant to the Immigration Act. The
Acquired Entity has not been cited, fined, served with a Notice of Intent to
Fine or with a Cease and Desist Order, nor has any action or administrative
proceeding been initiated or to the Knowledge of the Acquired Entity and/or the
Seller threatened against the Acquired Entity, by the Immigration and
Naturalization Service by reason of any actual or alleged failure to comply with
the Immigration Act. Schedule 3.17 contains, for the period of January 1, 2002
to the date of its preparation, a description of any written notice or other
communication from any Governmental Body or any other Person regarding any
actual, alleged, possible, or potential violation of, or failure of the Acquired
Entity to comply with, any Legal Requirement that has been cured. Seller and the
Acquired Entity have not received, subsequent to Seller's acquisition of the
Acquired Entity any written notice or other communication or, to the Knowledge
of Seller or the Acquired Entity, prior to Seller's acquisition of the Acquired
Entity any oral or written notice or other communication from any Governmental
Body or any other Person regarding
(i) any actual, alleged, possible, or potential violation of,
or failure of the Acquired Entity to comply with, any Legal Requirement that has
not been cured, or
(ii) any actual, alleged, possible, or potential obligation on
the part of the Acquired Entity to undertake, or to bear all or any portion of
the cost of, any remedial action of any nature other than costs already incurred
or accrued on the Current Balance Sheet.
(b) Schedule 3.17 contains a complete and accurate list of each
material Governmental Authorization that is held by the Acquired Entity or that
otherwise relates to the business of, or to any of the assets owned or used by,
the Acquired Entity. Each Governmental Authorization listed or required to be
listed on Schedule 3.17 is valid and in full force and effect. Except as set
forth on Schedule 3.17:
(i) the Acquired Entity is, and at all times has been, in full
compliance in all material respects with all of the terms and requirements of
each Governmental Authorization identified or required to be identified on
Schedule 3.17;
(ii) To the Knowledge of the Acquired Entity and/or the
Seller, no event has occurred or circumstance exists that may (with or without
notice or lapse of time) (A) constitute or result directly or indirectly in a
violation of or a failure to comply in any material respect with any term or
requirement of any Governmental Authorization listed or required to be listed on
Schedule 3.17, or (B) result directly or indirectly in the revocation,
withdrawal, suspension, cancellation, or termination of, or any modification to,
any Governmental Authorization listed or required to be listed on Schedule 3.17;
(iii) The Acquired Entity has not received, subsequent to
Seller's acquisition of the Acquired Entity any written notice or other
communication or, to the Knowledge of Seller or the Acquired Entity, prior to
Seller's acquisition of the Acquired Entity any oral or written notice or other
communication from any Governmental Body or any other Person regarding
(A) any actual, alleged, possible, or potential violation
of or failure of the Acquired Entity, during the period January 1, 2002 up until
the Closing Date, to comply with any term or requirement of any Governmental
Authorization except for violations that are set forth in Schedule 3.17,
(whether or not said violations have been cured), or
(B) any actual, proposed, possible, or potential
revocation, withdrawal, suspension, cancellation, termination of, or
modification to any Governmental Authorization prior to January 1, 2002 except
those that are set forth in Schedule 3.17, or that have been rescinded; and
(iv) all applications required to have been filed for the
renewal of the Governmental Authorizations listed or required to be listed in
Schedule 3.17 have been duly filed on a timely basis with the appropriate
Governmental Bodies, and all other filings required to have been made with
respect to such Governmental Authorizations have been duly made on a timely
basis with the appropriate Governmental Bodies.
The Governmental Authorizations listed in Schedule 3.17 collectively
constitute all of the Governmental Authorizations necessary to permit the
Acquired Entity to lawfully conduct and operate its businesses in the manner it
currently conducts and operates such businesses and to permit the Acquired
Entity to own and use its assets in the manner in which it currently owns and
uses such assets, including those Authorizations , if any, that are required to
be obtained as a result of the Closing contemplated under this Agreement
provided, however, that representations and warranties under this Section 3.17
are in addition to, and not in lieu of, the representations and warranties made
in Section 3.14 above;
3.18 LABOR AND EMPLOYMENT MATTERS.
(a) THE ACQUIRED ENTITY IS NOT A PARTY TO OR BOUND BY ANY
COLLECTIVE BARGAINING AGREEMENT OR any other agreement with a labor union, and
there has been no labor union prior to the date hereof organizing any employees
of the Acquired Entity into one or more collective bargaining units. There is
not now, and there has not been within the last two (2) years, any actual or
threatened labor dispute, strike or work stoppage which affects or which may
affect the business of the Acquired Entity or which may interfere with its
continued operations. To the Knowledge of the Acquired Entity and/or the Seller,
neither the Acquired Entity, nor any employee, agent or representative thereof,
has since the date of incorporation or formation of the Acquired Entity
committed any unfair labor practice as defined in the National Labor Relations
Act, as amended. There is no pending or threatened charge or complaint against
the Acquired Entity by or with the National Labor Relations Board or any
representative thereof. There has been no strike, walkout or work stoppage
involving any of the employees of the Acquired Entity prior to the date hereof
to the Knowledge of the Seller or the Acquired Entity. The Acquired Entity has
complied in all material respects with applicable laws, rules and regulations
relating to employment, civil rights and equal employment opportunities,
including but not limited to, the Civil Rights Act of 1964, the Fair Labor
Standards Act, and the Americans with Disabilities Act, all as amended to
continue its Business as now being conducted.
(b) To the Knowledge of the Seller or the Acquired Entity, no
executive or key employee with the exception of Xxxxx Xxxxxx as hereinafter set
forth, or group of employees has any plans to terminate his, her or their
employment with the Acquired Entity as a result of the transactions contemplated
hereby or otherwise.
(c) Schedule 3.18 contains a complete and accurate list of the
following information for each employee and director of the Acquired Entity,
including each employee on leave of absence or layoff status: employer; name;
job title; current compensation paid or payable, employee's date of hire,
commission arrangement and fringe benefits, including accrued leave and other
credits.
(d) To the Knowledge of Acquired Entity and/or the Seller, no
employee or director of the Acquired Entity is a party to, or is otherwise bound
by, any agreement or arrangement, including any confidentiality,
non-competition, or proprietary rights agreement, between such employee or
director and any other Person ("Proprietary Rights Agreement") that in any way
adversely affects or will affect (i) the performance of his duties as an
employee or director of the Acquired Entity, or (ii) the ability of the Acquired
Entity to conduct its business, including any proprietary rights agreement with
the Acquired Entity or the Seller by any such employee or director.
(e) No employee of Seller is or will be entitled to any
additional consideration from the Acquired Entity as a result of the transaction
contemplated by this Agreement.
3.19 EMPLOYEE BENEFIT PLANS
(a) DEFINITIONS. For the purposes of this Section 3.19, the
following terms have the following definitions:
"Acquired Entity Other Benefit Obligation" means any Other Benefit
Obligation owed, adopted, or followed by the Acquired Entity or an ERISA
Affiliate of the Acquired Entity.
"Acquired Entity Plan" means all Plans of the Acquired Entity or an
ERISA Affiliate of the Acquired Entity is or was a Plan Sponsor, or to which or
an ERISA Affiliate of otherwise contributes or has contributed, or in which the
Acquired Entity or an ERISA Affiliate of the Acquired Entity otherwise
participates or has participated. All references to Plans are to Acquired Entity
Plans unless the context requires otherwise.
"Acquired Entity VEBA" means a VEBA whose members include employees of
the Acquired Entity.
"Claim" means any action, suit, claim or dispute other than Ordinary
Payment Requests, as defined below.
"ERISA Affiliate" means, with respect to the Acquired Entity, any other
person that, together with the Acquired Entity, would be treated as a single
employer under IRC ss. 414.
"Multi-Employer Plan" has the meaning given in ERISA ss. 3(37)(A).
"Ordinary Payment Requests" are requests for payment from the Plan in
the ordinary course of business that do not involve claims of overdue payment.
"Other Benefit Obligations" means all obligations, arrangements, or
customary practices, whether or not legally enforceable, to provide benefits,
other than salary, as compensation for services rendered, to present or former
directors, employees, or agents, other than obligations, arrangements, and
practices that are Plans. Other Benefit Obligations include consulting
agreements under which the compensation paid does not depend upon the amount of
service rendered, sabbatical policies, severance payment policies, and fringe
benefits within the meaning of IRC ss. 132. Other Benefit Obligations also
include extra vacation benefits (other than Plan benefits) provided or to be
provided to Xxxxx Xxxxxx, Xxxxx Xxxxxxx and Xxxxxxx Xxxxxx pursuant to letter or
other agreements, copies of which have been delivered to Schwarzkopf.
"PBGC" means the Pension Benefit Guaranty Corporation, or any
successor thereto.
"Pension Plan" has the meaning given in ERISA ss. 3(2)(A).
"Plan" has the meaning given in ERISA ss. 3(3).
"Plan Sponsor" has the meaning given in ERISA ss. 3(16)(B).
"Qualified Plan" means any Plan that meets or purports to meet the
requirements or IRC ss. 401(a).
"Title IV Plans" means all Pension Plans that are subject to Title IV
of ERISA, 29 U.S.C.ss.1301 et seq., other than Multi-Employer Plans.
"VEBA" means a voluntary employees' beneficiary association under IRC
ss. 501(c)(9).
"Welfare Plan" has the meaning given in ERISA ss. 3(1).
(b) Employee Benefit Plans. Schedule 3.19 contains a list setting
forth each employee benefit plan or arrangement of the Acquired Entity,
including but not limited to employee pension benefit plans, as defined in
Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), multiemployer plans, as defined in Section 3(37) of ERISA, employee
welfare benefit plans, as defined in Section 3(1) of ERISA, deferred
compensation plans, stock option plans, bonus plans, stock purchase plans,
hospitalization, disability and other insurance plans, severance or termination
pay plans and policies, whether or not described in Section 3(3) of ERISA, in
which employees, their spouses or dependents, of the Acquired Entity participate
("Employee Benefit Plans") (true and accurate copies of which, together with the
most recent annual reports on Form 5500 and summary plan descriptions with
respect thereto, were furnished to Schwarzkopf).
(c) Compliance with Law. The Acquired Entity and the Seller
represent (EXCEPT AS otherwise indicated):
(i) each Acquired Entity Plan and each Acquired Entity Benefit
Obligation has been administered in compliance with its terms and with all
applicable laws, including, but not limited to, ERISA and the Internal Revenue
Code of 1986, as amended (the "Code");
(ii) no Claims or disputes are pending, or threatened with
respect to an Acquired Entity Plan or Acquired Entity Other Benefit Obligation;
(iii) no audits, inquiries, reviews, proceedings, claims, or
demands with respect to any Acquired Entity Plan or Acquired Entity Other
Benefit Obligation are pending with any governmental or regulatory agency;
(iv) to the Knowledge of the Acquired Entity and/or the
Seller, there are no facts which could give rise to any liability in the event
of any such investigation, claim, action, suit, audit, review, or other
proceeding;
(v) all reports, returns and similar documents required to be
filed in respect of any Acquired Entity Plan or Acquired Entity Other Benefit
Obligation with any governmental agency or distributed to any plan participant
or other person entitled thereto have been duly or timely filed or distributed;
(vi) the Acquired Entity has performed all of their respective
obligations under all Acquired Entity Plans (other than the SEMX Corporation
401(k) Plan) and Acquired Entity Other Benefit Obligations. The Seller has
performed all of its obligations under the SEMX Corporation 401(k) Plan.
(vii) the Acquired Entity has made appropriate entries in
their financial records and statements for all obligations and liabilities under
such Plans and Obligations that have accrued but are not due;
(viii) no statement, either written or oral, has been made by
the Acquired Entity to any Person with regard to any Plan or Other Benefit
Obligation that was not in accordance with the Plan or Other Benefit Obligation
and that could have an adverse economic consequence to the Acquired Entity or to
Buyer;
(ix) the Acquired Entity, with respect to all Acquired Entity
Plans and Acquired Entity Other Benefits Obligations are, and each Acquired
Entity Plan, Acquired Entity and Other Benefit Obligation is in full compliance
in all material respects with ERISA, the IRC, and other applicable Laws
including the provisions of such Laws expressly mentioned in this Section 3.19,
and with any applicable collective bargaining agreement;
(x) no transaction prohibited by ERISAss.406 and no
"prohibited transaction" under IRC ss. 4975(c) has occurred with respect to any
Acquired Entity Plan.
(xi) neither Seller nor the Acquired Entity has any liability
to the IRS with respect to any Plan, including any liability imposed by Chapter
43 of the IRC;
(xii) neither Seller nor the Acquired Entity has any liability
to the PBGC with respect to any Plan or has any liability under ERISA ss.502
or ss.4071;
(xiii) all filings required by ERISA and the IRC as to each
Plan have been timely filed, and all notices and disclosures to participants
required by either ERISA or the IRC have been timely provided;
(xiv) all contributions and payments of the Acquired Entity
made or accrued with respect to all Acquired Entity Plans and Acquired Entity
Other Benefit Obligations are deductible under IRC ss. 162 or ss. 404. No
amount, or any asset of any Acquired Entity Plan, is subject to tax as unrelated
business taxable income;
(xv) each Acquired Entity Plan can be terminated within thirty
days, without payment of any additional contribution or amount and (except for
the SEMX Corporation 401(k) Plan) without the vesting or acceleration of any
benefits promised by such Plan;
(xvi) no event has occurred or circumstance exists that could
result in a material increase in premium costs of Acquired Entity Plans and
Acquired Entity Other Benefit Obligations that are insured, or a material
increase in benefit costs of such Plans and Obligations that are self-insured;
(xvii) no Acquired Entity Plan is a VEBA;
(xviii) no Acquired Entity Plan or Acquired Entity Other
Benefit Obligation is provided pursuant to, under, or governed by a collective
bargaining agreement;
(xix) each Qualified Plan of the Acquired Entity is qualified
in form and operation under IRC ss. 401(a); each trust for each such Plan is
exempt from federal income tax under IRC ss. 501(a). To the Knowledge of the
Acquired Entity and/or the Seller, no event has occurred or circumstance exists
that will or could give rise to disqualification or loss of tax-exempt status of
any such Plan or trust;
(xx) no Acquired Entity Plan is subject to the minimum funding
standard under ERISA ss. 302 and IRC ss. 402;
(xxi) no Acquired Entity Plan is subject to Title IV of ERISA;
(xxii) in regard to the SEMX Corporation 401(k) Plan, all
elective deferrals reducing participants' compensation have been contributed to
such Plan within the time frames established by Title 29, Code of Federal
Regulations, ss.2510.3-102;
(xxiii) neither the Acquired Entity nor any ERISA Affiliate of
the Acquired Entity has filed a notice of intent to terminate any Plan or has
adopted any amendment to treat a Plan as terminated;
(xxiv) no amendment has been made, or is reasonably expected
to be made, to any Acquired Entity Plan that has required or could require the
provision of security under ERISA ss. 307 or IRC ss. 401(a)(29);
(xxv) no accumulated funding deficiency, whether or not
waived, exists with respect to any Acquired Entity Plan; no event has occurred
or circumstance exists that may result in an accumulated funding deficiency as
of the last day of the current plan year of any such Plan;
(xxvi) the financial information statement for each Pension
Plan of the Acquired Entity and each ERISA Affiliate of the Acquired Entity
fairly presents the financial condition and the results of operations of each
such Plan in accordance with GAAP;
(xxvii) since the last valuation date for each Pension Plan of
the Acquired Entity and each ERISA Affiliate of the Acquired Entity, no event
has occurred or circumstance exists (other than normal market fluctuations in
the value of assets, and contributions and distributions made in the ordinary
course of plan operations) that would increase the amount of benefits under any
such Plan or that would cause the excess of Plan assets over benefit liabilities
to decrease, or the amount by which benefit liabilities exceed assets to
increase;
(xxviii) no reportable event (as defined in ERISA ss.4043 and
in regulations issued thereunder) has occurred;
(xxix) neither Seller nor the Acquired Entity has Knowledge of
any facts or circumstances that may give rise to any liability of any Seller,
the Acquired Entity, or Schwarzkopf to the PBGC under Title IV of ERISA;
and
(xxx) neither the Acquired Entity nor any ERISA Affiliate of
the Acquired Entity has ever established, maintained, or contributed to or
otherwise participated in, or had an obligation to maintain, contribute to, or
otherwise participate in, any Multi-Employer Plan.
The foregoing representations are not made by the Acquired Entity
with respect to SEMX Corporation with respect to the SEMX Corporation 401(k)
Plan insofar as the Acquired Entity may have had duties with respect thereto.
(d) WELFARE PLANS.
(i) The Acquired Entity is not obligated under any employee
welfare benefit plan as described in Section 3(1) of ERISA ("Welfare Plan") to
provide medical or death benefits with respect to any employee or former
employee of the Acquired Entity or its predecessors after termination of
employment except as required by Part 6 of Title I or ERISA;
(ii) the Acquired Entity has complied with the notice and
continuation coverage requirements of Section 4980B of the Code and the
regulations thereunder with respect to each Welfare Plan that is, or was during
any taxable year for which the statute of limitations on the assessment of
federal income taxes remains open, by consent or otherwise, a group health plan
within the meaning of Section 5000(b)(1) of the Code; and
(iii) there are no reserves, assets, surplus or prepaid
premiums under any Welfare Plan which is an Employee Benefit Plan. Except as set
forth in Schedule 3.19, the consummation of the transactions contemplated by
this Agreement will not entitle any individual to severance pay, and, will not
accelerate the time of payment or vesting, or increase the amount of
compensation due to any individual.
(e) CONTROLLED GROUP LIABILITY. Neither the Acquired Entity, nor
any entity that would be aggregated with the Acquired Entity under Code Section
414(b), (c), (m) or (o):
(i) has ever terminated or withdrawn from an employee benefit
plan under circumstances resulting (or expected to result) in liability to the
Pension Benefit Guaranty Corporation ("PBGC"), the fund by which the employee
benefit plan is funded, or any employee or beneficiary for whose benefit the
plan is or was maintained (other than routine claims for benefits);
(ii) has any assets subject to (or expected to be subject to)
a lien for unpaid contributions to any employee benefit plan;
(iii) has failed to pay premiums to the PBGC when due;
(iv) is subject to (or expected to be subject) an excise tax
under Code Section 4971;
(v) has engaged in any transaction which would give rise to
liability under Section 4069 or Section 4212(c) of ERISA; or (vi) has violated
Code Section 4980B or Section 601 through 608 of ERISA.
(f) OTHER LIABILITIES.
(i) None of the Employee Benefit Plans obligates the Acquired
Entity to pay separation, severance, termination or similar benefits solely as a
result of any transaction contemplated by this Agreement or solely as a result
of a "change of control" (as such term is defined in Section 280G of the Code);
(ii) All required or discretionary (in accordance with
historical practices) payments, premiums, contributions, reimbursements, or
accruals for all periods ending prior to or as of the Closing Date shall have
been made or properly accrued on the Current Balance Sheet or will be properly
accrued on the books and records of the Acquired Entity as of the Closing Date
except that contributions with respect to be made in connection with the most
recent pay date will be made in the ordinary course. Payments will be made with
respect to all pay periods ending on or prior to January 19, 2003; and
(iii) none of the Employee Benefit Plans has any unfunded
liabilities payable or accrued by the Acquired Entity which are not reflected on
the Financial Reports or the books and records of the Acquired Entity.
(g) COOPERATION WITH SCHWARZKOPF.
Seller will issue all necessary approvals and otherwise
cooperate with Schwarzkopf in effecting the transfer to Schwarzkopf of any
401(k) Plan assets currently in Seller's custody and/or possession that relate
to accounts established for the benefit of current or former employees of the
Acquired Entity.
3.20 TAX MATTERS.
(a) All Tax Returns required to be filed prior to the date hereof
with respect to the Acquired Entity and/or its subsidiaries or any of its
income, properties, franchises or operations have been timely filed or placed on
extension, each such Tax Return has been prepared in compliance in all material
respects with all applicable laws and regulations, and all such Tax Returns are
true and accurate in all material respects.
(b) All Taxes due and payable by or with respect to the Acquired
Entity (whether or not shown on any Tax Return) have been paid or are accrued on
the Current Balance Sheet or will be accrued on the Acquired Entity's books and
records as of the Closing. There are no income taxes payable for any period
prior to December 31, 2002. Except as provided in Schedule 3.20(b) with respect
to each taxable period of the Acquired Entity,
(i) either such taxable period has been audited by the relevant
taxing authority or the time for assessing or collecting Taxes with respect to
each such taxable period has closed and each taxable period is not subject to
review by any relevant taxing authority;
(ii) no deficiency or proposed adjustment which has not been
settled or otherwise resolved for any amount of Taxes has been asserted or
assessed by any taxing authority against the Acquired Entity;
(iii) the Acquired Entity has not consented to extend the time in
which any Taxes may be assessed or collected by any taxing authority;
(iv) the Acquired Entity has not requested or been granted an
extension of the time for filing any Tax Return to a date later than the
Closing;
(v) there is no action, suit, taxing authority proceeding, or
audit or claim for refund now in progress, pending or threatened against or with
respect to the Acquired Entity regarding Taxes;
(vi) the Acquired Entity has not made an election or filed a
consent under Section 341 (f) of the Code (or any corresponding provision of
state, local or foreign law) on or prior to the Closing Date;
(vii) there are no Liens for Taxes (other than for current Taxes
not yet due and payable) upon the assets of the Acquired Entity;
(viii) the Acquired Entity will not be required
(A) as a result of a change in method of accounting for a
taxable period ending on or prior to the Closing Date, to include any adjustment
under Section 481(c) of the Code (or any corresponding provision of state, local
or foreign law) in taxable income for any taxable period (or portion thereof)
beginning after the Closing Date or
(B) as a result of any "closing agreement," as described in
Section 7121 of the Code (or any corresponding provision of state, local or
foreign law), to include any item of income or exclude any item of deduction
from any taxable period (or portion thereof) beginning after the Closing Date;
(ix) the Acquired Entity is not a party to or bound by any tax
allocation or tax sharing agreement and has no current or potential contractual
obligation to indemnify any other Person with respect to Taxes;
(x) no taxing authority will claim or assess any additional Taxes
against the Acquired Entity for any period for which Tax Returns have been
filed;
(xi) the Acquired Entity has not made any payments and is not and
will not become obligated (under any contract entered into on or before the
Closing) to make any payments, that will be non-deductible under Section 280G of
the Code (or any corresponding provision of state, local or foreign law);
(xii) the Acquired Entity has not been a United States real
property holding corporation within the meaning of Section 897(c)(2) of the Code
(or any corresponding provision of state, local or foreign law) during the
applicable period specified in Section 897(c)(1)(a)(ii) of the Code (or any
corresponding provision of state, local or foreign law);
(xiii) to the Knowledge of the Acquired Entity and/or the Seller,
no claim has ever been made by a taxing authority in a jurisdiction where the
Acquired Entity does not file Tax Returns that the Acquired Entity is or may be
subject to Taxes assessed by such jurisdiction;
(xiv) the Acquired Entity does not have any permanent
establishment in any foreign country, as defined in the relevant tax treaty
between the United States of America and such foreign country;
(xv) true, correct and complete copies of all income Tax Returns
filed by or with respect to the Acquired Entity for the past three years have
been furnished or made available to Schwarzkopf; and
(xvi) other than with respect to taxes accrued on the Current
Balance Sheet the Acquired Entity will not be subject to any Taxes, for the
period ending at the Closing for any period for which a Tax Return has not been
filed, imposed pursuant to Section 1374 or Section 1375 of the Code (or any
corresponding provision of state, local or foreign law); and (xviii) no sales or
use tax will be payable by the Acquired Entity or Schwarzkopf or transferee as a
result of this transaction, and there will be no non-recurring intangible tax,
documentary stamp tax or other excise tax (or comparable tax imposed by any
governmental entity) as a result of this transaction.
(xvii) the Acquired Entity and its subsidiaries (if any) has/have
withheld and paid all Taxes required to have been withheld and paid in
connection with any amounts paid or owing to any employee, independent
contractor, creditor, stockholder or other third party;
(xix) no election pursuant to Section 338(h)(10) of the Internal
Revenue Code will be made in connection with the transaction contemplated by
this Agreement;
(c) Schedule 3.20(c) sets forth any tax deductions and/or credits
(including, but not limited to, actual net operating losses to carry forward for
the years 2001 and prior, and an estimate of net operating losses to carry
forward for years 2002 and 2003) that will be claimed by the Seller and/or the
Acquired Entity on its final tax returns relating to the Acquired Entity's
affiliation with Seller. Schedule 3.20(c) also sets forth any tax deductions
and/or credits (including, but not limited to, actual net operating losses to
carry forward for the years 2001 and prior, and an estimate of net operating
losses to carry forward for years 2002 and 2003) that will be available to the
Acquired Entity and/or Schwarzkopf (as the owner of the Acquired Entity)
following the Closing.
3.21 INSURANCE. Schedule 3.21 lists all valid, outstanding enforceable
policies of insurance issued to the Acquired Entity by reputable insurers
covering its properties, assets and business insuring against such risks and in
such coverage amounts (the "Insurance Policies"). The Insurance Policies are in
full force and effect, and all premiums due thereon have been paid through the
date of this Agreement and will be paid through the Closing. The Acquired Entity
has complied with the provisions of such Insurance Policies applicable to it,
and has or will provide to Schwarzkopf, at least ten Business Days prior to the
Closing, copies of all Insurance Policies and all amendments and riders thereto.
Except as set forth in Schedule 3.21, there are no pending claims under any of
the Insurance Policies for an amount in excess of $25,000 in the aggregate,
including any claim for loss or damage to the properties, assets or business of
the Acquired Entity. The Acquired Entity has not failed to give, in a timely
manner, any notice required under any of the Insurance Policies to preserve its
rights thereunder.
3.22 ADEQUACY OF THE ASSETS: Affiliated Transactions. Except as set
forth in Schedule 3.22, the Assets, Owned Properties, Leased Premises and other
equipment leased by the Acquired Entity constitute, in the aggregate, all of the
assets and properties necessary for the conduct of the business of the Acquired
Entity in the manner in which and to the extent to which such business is
currently being conducted. Except as provided in Schedule 3.22 , no officer,
director or shareholder of the Acquired Entity, nor any person related by blood
or marriage to any such person, nor any entity in which any such person owns any
beneficial interest, is a party to any Contract or transaction with the Acquired
Entity or has any interest in any property used by the Acquired Entity.
3.23 INTELLECTUAL PROPERTY. The Acquired Entity has full legal right,
title and interest in and to or the right to use all trademarks, service marks,
trade names, copyrights, know-how, patents, trade secrets, customer lists,
software, technical data processing technology, licenses (including licenses for
the use of computer software programs), and other intellectual property used in
the conduct of its business as specifically listed on Schedule 3.23 hereof (the
"Intellectual Property"), which schedule shall include specific information
about both intellectual property owned by the Acquired Entity and the
instruments by which it has the right to use the intellectual property of
another party. The conduct of the business of the Acquired Entity as presently
conducted, and the unrestricted conduct and the unrestricted use and
exploitation of the Intellectual Property, does not to the Knowledge of the
Acquired Entity and/or the Seller, infringe or misappropriate any rights held or
asserted by any Person and , to the Knowledge of the Acquired Entity and/or the
Seller, no Person is infringing on any Intellectual Property. No payments are
required for the continued use of the Intellectual Property. None of the
Intellectual Property has ever been declared invalid or unenforceable, or is the
subject of any pending or threatened action for opposition, cancellation,
declaration, infringement, or invalidity, unenforceability or misappropriation
or like claim, action or proceeding.
3.24 CONTRACTS. Schedule 3.24 sets forth a list of each
Material Contract (as defined below), true, correct and complete copies of which
have been provided to Schwarzkopf. Schedule 3.24 identifies certain Material
Contracts that require the Consents of third parties to the transactions
contemplated hereby. Schedule 3.24 indicates, for each Material Contract,
whether it is currently in default. For each such contract, Schedule 3.24
indicates (i) the consequences of the default, and (ii) the conditions under
which the default may be lifted. Except for actual defaults identified in
Schedule 3.24 that, as indicated in Schedule 3.24 will be cured by Closing, the
Acquired Entity has not violated any of the material terms or conditions of any
Material Contract or any term or condition which would permit termination or
material modification of any Material Contract, all of the covenants to be
performed by any other party thereto have been fully performed, and there are no
claims for breach or indemnification or notice of default or termination under
any Material Contract. To the Knowledge of the Acquired Entity and the Seller,
no event has occurred which constitutes, or after notice or the passage of time,
or both, would constitute, a default by the Acquired Entity under any Material
Contract, and no such event has occurred which constitutes or would constitute a
default by any other party. As used in this Section 3.24, "Material Contracts"
shall mean formal or informal, written or oral:
(a) loan agreements, indentures, mortgages, pledges,
hypothecations, deeds of trust, conditional sale or title retention agreements,
security agreements, equipment financing obligations or guaranties, or other
sources of contingent liability in respect of any indebtedness or obligations to
any other Person, or letters of intent or commitment letters with respect to
same;
(b) contracts obligating the Acquired Entity to provide or obtain
products or services for a period of one year or more;
(c) leases of real property;
(d) leases of personal property;
(e) distribution, sales agency or franchise or similar agreements,
or agreements providing for an independent contractor's services, or letters of
intent with respect to same (other than those which individually provide for
annual payments of less than $10,000);
(f) employment agreements, management service agreements,
consulting agreements, confidentiality agreements, non-competition agreements,
employee handbooks, policy statements and any other agreements relating to any
employee, officer or director of the Acquired Entity;
(g) licenses, assignments or transfers of trademarks, trade names,
service marks, patents, copyrights, trade secrets or know how, or other
agreements regarding proprietary rights or intellectual property;
(h) contracts relating to pending capital expenditures by the
Acquired Entity;
(i) contracts other than purchase orders entered into in the
ordinary course of business obligating the Acquired Entity to purchase parts,
accessories, supplies, equipment, advertising, media and media related services
of any kind;
(j) non-competition or non-disclosure agreements restricting the
Acquired Entity in any manner,
(k) any contracts other than purchase orders entered into in the
ordinary course of business obligating the Acquired Entity to make payments in
excess of $10,000, in the aggregate, over the remaining term of such contract;
and
(1) all other Contracts or understandings which are material to
the Acquired Entity or its Business, assets or properties, irrespective of
subject matter and whether or not in writing, and not otherwise disclosed on the
Schedules.
3.25 ACCURACY OF INFORMATION FURNISHED. No representation, warranty,
statement or information contained in this Agreement (including, without
limitation, the various Schedules attached hereto) or any agreement executed in
connection herewith or in any certificate delivered pursuant hereto or thereto
or made or furnished to Schwarzkopf or its representatives by the Acquired
Entity or the Seller pursuant to the terms hereof, contains or shall contain any
untrue statement of a material fact or omits or shall omit any material fact
necessary to make the information contained therein, in light of the
circumstances made therein, not misleading. The Acquired Entity has or will
provide Schwarzkopf, at least five Business Days prior to Closing, with true,
accurate and complete copies of all documents listed or described in the various
Schedules attached hereto. A disclosure on one Schedule shall be deemed a
disclosure with respect to any other applicable Schedule.
3.26 CERTAIN PAYMENTS. To the Knowledge of the Acquired Entity and/or
the Seller, no director, officer, agent, or employee of the Acquired Entity, nor
any other Person associated with or acting for or on behalf of the Acquired
Entity, has directly or indirectly
(a) made any contribution, gift, bribe, rebate, payoff, influence
payment, kickback, or other payment to any Person, private or public, regardless
of form, whether in money, property, or services
(i) to obtain favorable treatment in securing business,
(ii) to pay for favorable treatment for business secured,
(iii) to obtain special concessions or for special
concessions already obtained, for or in respect of the Acquired Entity or any
Affiliate of the Acquired Entity, or
(iv) in violation of any Legal Requirement,
(b) (i) used any funds for unlawful contributions, gifts,
entertainment or other unlawful expenses related to political activity,
(ii) made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political parties or
campaigns or violated any provision of the Foreign Corrupt Practices Act of
1977, as amended, or
(iii) made any other unlawful payment,
(c) established or maintained any fund or asset that has not been
recorded in the Acquired Entity's books and records.
3.27 NO COMMISSIONS. The Acquired Entity has not incurred any obligation for any
finder's or broker's or agent's fees or commissions or similar compensation in
connection with the transactions contemplated hereby.
3.28 CUSTOMER LIST. Schedule 3.28 sets forth, as of the date hereof, the 20
largest customers of the Acquired Entity in terms of sales volume during the
period January 1, 2002 -- September 30, 2002, along with the amount of sales
generated by each customer. To the Knowledge of the Acquired Entity, none of
these customers have given notice to the Acquired Entity that they no longer
intend to remain a customer of the Acquired Entity.
3.29 Negotiated Discounts Regarding Accounts Payable. Schedule 3.29 contains
true and accurate copies of all settlement agreements with creditors to discount
amounts owed, to the extent that Seller seeks a purchase price adjustment based
upon said discounts. Seller and/or the Acquired Entity do not recognize any
discounts for accounts payable except for the Enron settlement discount (which
is addressed in Paragraph 17 of Schedule 1.5(b)) and those included in Schedule
3.29. These settlement agreements will result in actual savings equal to or
greater than the discounts claimed as part of the purchase price adjustment
mechanism. The claimed discounts generally will result in adjustments to the
purchase price as part of the post-closing audit process according to the terms
of Schedule 1.5(b), paragraph 17, which provides for a calculation of the
adjustment related to the discount associated with the Enron payment THAT IS
DIFFERENT THAN THOSE CALCULATED FOR THE OTHER SETTLEMENT AGREEMENTS.
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE CLOSING
4.1 Conduct of Business by the Acquired Entity Pending the Closing. The Acquired
Entity and the Seller, jointly and severally, covenant and agree that, except as
otherwise expressly required or permitted by the terms of this Agreement,
between September 30, 2002 and the Closing, the business of the Acquired Entity
shall be conducted only in, and the Acquired Entity shall not take any action
except in, the ordinary course of business consistent with past practice. The
Acquired Entity and the Seller shall use its or their reasonable best efforts to
preserve intact the Acquired Entity's business organizations, to keep available
the services of their current officers, employees and consultants, and to
preserve their present relationships with Persons with which they have business
relations. By way of amplification and not limitation, the Acquired Entity shall
not, except as expressly required or permitted by the terms of this Agreement,
between the date of this Agreement and the Closing, directly or indirectly, do
or propose or agree to do any of the following (except to the extent such is
contemplated to be done herein) without the prior written consent of Schwarzkopf
which consent will not be unreasonably withheld or delayed :
(a) amend or otherwise change its Articles of Incorporation, Bylaws or
equivalent organizational documents;
(b) issue, sell, pledge, dispose of, encumber, or authorize the issuance,
sale, pledge, disposition, grant or encumbrance of any of its assets, tangible
or intangible, except in the ordinary course of business consistent with past
practice; or any shares of its capital stock of any class, or any options,
warrants, convertible securities or other rights of any kind to acquire any
shares of such capital stock, or any other ownership interest, of it;
(c) declare, set aside, make or pay any dividend or other distribution,
payable in cash, stock, property or otherwise, with respect to any of its
capital stock or other securities;
(d) reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock or other
securities; or acquire (including, without limitation, for cash or shares of
stock, by merger, consolidation or acquisition of stock or assets) any interest
in any corporation, partnership or other business organization or division
thereof or any assets;
(e) except in the ordinary course of business consistent with past
practice,
(i) sell, lease or transfer any of its properties or assets,
(ii) make any investment either by purchase of stock or securities,
contributions of capital or property transfer, or purchase any property or
assets of any other Person;
(iii) except for routine repairs and maintenance and except for
capital expenditures not exceeding $25,000 in the aggregate, make or obligate
itself to make capital expenditures;
(iv) incur any obligations or liabilities other than in the
ordinary course of business consistent with past practice including, without
limitation, any indebtedness for borrowed money, issue any debt securities or
assume, guarantee or endorse or otherwise as an accommodation become responsible
for, the obligations of any Person, or make any loans or advances;
(v) modify, terminate, amend or enter into any Contract other than
in the normal course of business consistent with past practice as expressly
required or permitted herein; or
(vi) impose any security interest or other Lien on any of its
Assets;
(f) other than in the ordinary course of business consistent with past
practice, pay any bonus to its officers or employees, or increase the
compensation payable or to become payable to its officers or employees or,
except as presently bound to do, grant any severance or termination pay to, or
enter into any employment or severance agreement with, any of its directors,
officers or employees, or establish, adopt, enter into or amend or take any
action to accelerate any rights or benefits under any collective bargaining,
bonus, profit sharing trust, compensation, stock option, restricted stock
pension, retirement, deferred compensation, employment, termination, severance
or other plan, agreement, trust, fund, policy or arrangement for the benefit of
any directors, officers or employees;
(g) take any action with respect to accounting policies or procedures
other than in the ordinary course of business consistent with past practice;
(h) pay, discharge or satisfy any existing claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the ordinary
course of business and consistent with past practice of due and payable
liabilities reflected or reserved against in its financial statements, as
appropriate, or liabilities incurred after the date thereof in the ordinary
course of business consistent with past practice;
(i) enter into any transaction with the Seller or an Affiliate thereof
other than in the ordinary course of business consistent with past practice;
(j) make or pledge any charitable contributions in excess of $5,000 in
the aggregate;
or
(k) agree, in writing or otherwise, to take or authorize any of the
foregoing actions or any action which would make any representation or warranty
in Article III untrue or incorrect in any respect.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 FURTHER ASSURANCES. Each party shall execute and deliver such additional
instruments and other documents and shall take such further actions as may be
necessary or appropriate to effectuate, carry out and comply with all of the
terms of this Agreement and the transactions contemplated hereby.
5.2 COMPLIANCE WITH COVENANTS. The Seller shall cause the Acquired Entity to
comply with all of the covenants of the Acquired Entity under this Agreement.
5.3 COOPERATION. Each of the parties agrees to cooperate with the others in the
preparation and filing of all forms, notifications, reports and information, if
any, required or reasonably deemed advisable pursuant to any law, rule or
regulation in connection with the transactions contemplated by this Agreement,
and to use his or its best efforts to agree jointly on a method to overcome any
objections by any Governmental Authority to any such transactions.
5.4 ACCESS TO INFORMATION. From the date hereof to Closing, the Acquired Entity
and Seller shall afford to Schwarzkopf and its officers, employees, auditors,
counsel and agents reasonable access at all reasonable times to its properties,
offices and other facilities, to its officers and employees and to all books and
records, and shall furnish such persons with all financial, operating and other
data and information as may be requested.
5.5 NOTIFICATION OF CERTAIN MATTERS. Each of the parties to this Agreement shall
give prompt notice to the other parties of the occurrence or non-occurrence of
any event which would likely cause any representation or warranty made by such
party herein to be untrue or inaccurate or any covenant, condition or agreement
contained herein not to be complied with or satisfied (provided, however, that,
any such disclosure shall not in any way be deemed to amend, modify or in any
way affect the representations, warranties and covenants made by any party in or
pursuant to this Agreement).
5.6 CONFIDENTIALITY; PUBLICITY. Except as may be required by law or as otherwise
permitted or expressly contemplated herein, no party hereto or their respective
Affiliates, employees, agents and representatives shall disclose to any third
party any confidential information or other proprietary knowledge concerning the
business or affairs of any other party which it may have acquired from such
party in the course of pursuing the transactions contemplated by this Agreement
without the prior consent of the other parties hereto; provided, that any
information that is otherwise publicly available, without breach of this
provision, or has been obtained from a third party without a breach of such
third party's duties, shall not be deemed confidential information.
5.7 NO OTHER DISCUSSIONS. The Acquired Entity and the Seller, and their
Affiliates, and their employees, agents and representatives will not (a)
initiate, encourage the initiation by others of discussions or negotiations with
third parties, or respond to solicitations by third persons relating to any
merger, sale or other disposition of any substantial part of the assets, capital
stock (or derivatives thereof), business or properties of the Acquired Entity
(whether by merger, consolidation, sale of stock, sale of assets, or otherwise),
or (b) enter into any agreement or commitment (whether or not binding) with
respect to any of the foregoing transactions. The Acquired Entity and the Seller
will immediately notify Schwarzkopf if any third party attempts to initiate any
solicitation, discussion, or negotiation with respect to any of the foregoing
transactions, and shall provide Schwarzkopf with the name of such third parties
and the terms of any offers.
5.8 RESTRICTIVE COVENANTS.
(a) SELLER.
SELLER (a "RESTRICTED PARTY") AGREES AS FOLLOWS:
(i) Competitive Business. The Restricted Party hereby agrees that
for a period of five (5) years following the Closing, the Restricted Party will
not, with the exception of the Silvar technology, manufacture or sell products
or perform any services whatsoever that Acquired Entity actually sold or
provided ("Prohibited Products and Services") during calendar year 2002, or
become financially interested in any such business or services, whether directly
or indirectly as an owner, partner, trustee, beneficiary, stockholder, officer,
director, employee or agent; provided, however, that performing services for
Schwarzkopf or an Affiliate of Schwarzkopf, shall not be in violation of this
covenant.
(ii) Hiring. The Restricted Party hereby agrees that for a period
of five (5) years following the Closing, the Restricted Party will not hire or
attempt to hire any employee of the Acquired Entity, Schwarzkopf, or any
Affiliate or otherwise encourage or attempt to encourage any such employee to
leave the Acquired Entity's, Schwarzkopf's or such Affiliate's employ.
(iii) Solicitation. The Restricted Party hereby further agrees that
for a period of five (5) years following the Closing, the Restricted Party will
not, in any manner or at any time, solicit or encourage any person, firm,
corporation, or other business entity that does business with Schwarzkopf, the
Acquired Entity, or any Affiliate of to cease doing such business; provided,
however, that the foregoing shall not be construed to prohibit the Restricted
Party from soliciting sales from any such Person for products and services that
are not Prohibited Products and Services.
(iv) Covenants Independent. Each restrictive covenant on the part
of the Restricted Party set forth in this Section 5.8 shall be construed as a
covenant independent of any other covenant or provisions of this Agreement or
any other agreement which the Restricted Party may have, fully performed and not
executory, and the existence of any claim or cause of action by the Restricted
Party against the Acquired Entity, Schwarzkopf, or any Affiliate, whether
predicated upon another covenant of this Agreement or otherwise, shall not
constitute a defense to the enforcement by Schwarzkopf of any other covenant.
(v) Divisibility of Covenant Areas and Periods. If any portion of
the restrictive covenants contained herein is held to be unreasonable, arbitrary
or against public policy, each covenant shall be considered divisible both as to
time and geographical area; and each one (1) month of the specified period shall
be deemed a separate period of time and each county of the geographical area, so
that the maximum lesser time period and geographical area shall remain effective
so long as the same is not unreasonable, arbitrary, or against public policy.
(vi) Injunctive and Equitable Relief. The Restricted Party
recognizes and hereby expressly agrees that the extent of damages to Schwarzkopf
or any Affiliate in the event of a breach by the Restricted Party of any
restrictive covenant set forth herein would be impossible to ascertain, that the
irreparable harm arising out of any breach shall be irrebuttably presumed, and
that the remedy at law for any breach will be inadequate to compensate
Schwarzkopf or any Affiliate. Consequently, the Restricted Party hereby agrees
that in the event of a breach of any such covenant, in addition to any other
relief to which Schwarzkopf or any Affiliate may be entitled, Schwarzkopf and
any Affiliate shall be entitled to enforce the covenant by injunctive or other
equitable relief ordered by a court of competent jurisdiction.
(b) SCHWARZKOPF.
Schwarzkopf, a "Restricted Party," hereby agrees as follows:
(i) COMPETITIVE BUSINESS. The Restricted Party hereby agrees that
for a period of five (5) years following the Closing, the Restricted Party will
not, with the exception of the Silvar technology, manufacture or sell products
or perform any services whatsoever that SPM, a division of Seller, actually sold
or provided during calendar year 2002 ("Prohibited Products and Services"), or
become financially interested in any such business or services, whether directly
or indirectly as an owner, partner, trustee, beneficiary, stockholder, officer,
director, employee or agent; provided, however, that performing services for
Schwarzkopf or an Affiliate of Schwarzkopf, shall not be in violation of this
covenant.
(ii) HIRING. The Restricted Party hereby agrees that for a period of
five (5) years following the Closing, the Restricted Party will not hire or
attempt to hire any employee of Seller or its Affiliates or otherwise encourage
or attempt to encourage any such employee to leave Seller's or its Affiliates'
employ.
(iii) SOLICITATION. The Restricted Party hereby further agrees that for
a period of five (5) years following the Closing, the Restricted Party will not,
in any manner or at any time, solicit or encourage any person, firm,
corporation, or other business entity that does business with Seller or its
Affiliates to cease doing such business; provided, however, that the foregoing
shall not be construed to prohibit the Restricted Party from soliciting sales
from any such Person for products and services that are not Prohibited Products
and Services.
(iv) COVENANTS INDEPENDENT. Each restrictive covenant on the part of
the Restricted Party set forth in this Section 5.8 shall be construed as a
covenant independent of any other covenant or provisions of this Agreement or
any other agreement which the Restricted Party may have, fully performed and not
executory, and the existence of any claim or cause of action by the Restricted
Party against SPM, whether predicated upon another covenant of this Agreement or
otherwise, shall not constitute a defense to the enforcement by SPM of any other
covenant.
(v) DIVISIBILITY OF COVENANT AREAS AND PERIODS. If any portion of the
restrictive covenants contained herein is held to be unreasonable, arbitrary or
against public policy, each covenant shall be considered divisible both as to
time and geographical area; and each one (1) month of the specified period shall
be deemed a separate period of time and each county of the geographical area, so
that the maximum lesser time period and geographical area shall remain effective
so long as the same is not unreasonable, arbitrary, or against public policy.
(vi) INJUNCTIVE AND EQUITABLE RELIEF. The Restricted Party recognizes
and hereby expressly agrees that the extent of damages to Seller or any
Affiliate in the event of a breach by the Restricted Party of any restrictive
covenant set forth herein would be impossible to ascertain, that the irreparable
harm arising out of any breach shall be irrebuttably presumed, and that the
remedy at law for any breach will be inadequate to compensate Seller or any
Affiliate. Consequently, the Restricted Party hereby agrees that in the event of
a breach of any such covenant, in addition to any other relief to which Seller
or any Affiliate may be entitled, Seller and any Affiliate shall be entitled to
enforce the covenant by injunctive or other equitable relief ordered by a court
of competent jurisdiction.
(c) NON APPLICABILITY OF RESTRICTIONS AND TERMINATION OF RESTRICTIONS.
(1) For the avoidance of doubt, the parties hereto agree that the
restrictions contained in this Section 5.8 shall not apply to any Person
acquired by a Restricted Party with respect to any Prohibited Products and
Services that such acquired Person manufactured and/or sold at the time of
acquisition.
(2) The parties also agree that if a Restricted Party is acquired after
the Closing by a party that is not an Affiliate of the Restricted Party, then
the restrictions contained in this Section 5.8 upon the Restricted Party shall
not apply to the extent that the acquiring party engaged in the sale and/or
manufacture of any Prohibited Product for a period of at least six (6) months
prior to the date of acquisition.
5.9 SHAREHOLDER AND DIRECTOR VOTE. The Seller, in executing this Agreement,
consents as sole shareholder of the Acquired Entity, to the Acquisition and
other transactions contemplated hereby.
5.10 DUE DILIGENCE REVIEW. Schwarzkopf shall be entitled to conduct prior to
Closing a due diligence review of the assets, properties, books and records, and
other materials of the Acquired Entity including, without limitation, records of
accounts receivable, contracts, policies and procedures, vendor names and
addresses, customer lists with addresses and telephone numbers, equipment and
maintenance records, leases, liability and health insurance policies, payroll
records, employment records, and records of any employee benefit plans. Further,
Schwarzkopf may conduct an interview of the Acquired Entity's counsel,
accountants and other persons with respect to the Business of the Acquired
Entity and the transactions contemplated herein. Schwarzkopf also shall be
entitled to conduct prior to Closing an environmental assessment of the Owned
and Leased Premises, if applicable (hereinafter referred to as "Environmental
Assessment"). The Environmental Assessment may include, but not be limited to, a
physical examination of the Owned and Leased Premises and any structures,
facilities, or equipment located thereon, soil samples, ground and surface water
samples, storage tank testing, review of pertinent records (including but not
limited to, off-site disposal records and manifests), documents, and Licenses of
the Acquired Entity. The Seller and the Acquired Entity shall provide
Schwarzkopf or its designated agents or consultants with reasonable access to
such property as Schwarzkopf, its agents or consultants require to conduct the
Environmental Assessment. Schwarzkopf's failure or decision not to conduct any
such Environmental Assessment shall not affect any representation or warranty of
the Acquired Entity and/or the Seller under this Agreement.
5.11 CERTAIN TAX MATTERS. The Seller shall duly prepare or cause to be prepared,
and file or cause to be filed, on a timely basis, all Federal, State and Local
Tax Returns for the Acquired Entity for any period ending on or before Closing.
The Seller shall provide such Tax Returns to Schwarzkopf for review at least
fifteen (15) business days prior to their due date (including extensions where
applicable). If the Seller determines that it is required to file an amended Tax
Return with respect to the Acquired Entity, then it shall provide a copy to
Schwarzkopf at least fifteen (15) days prior to filing the same. After Closing,
each party shall provide the other with such information and records and access
to such of its officers, directors, employees and agents as may be reasonably
requested in connection with the preparation of any tax return or any audit or
other proceeding relating to the Acquired Entity.
5.12 ZHOU LITIGATION. (a) Seller will enter into an agreement with the Acquired
Entity and current counsel representing the Acquired Entity in the litigation
Zhou et. al. x. Xxxxxx et. al. ("Zhou Litigation") such that Seller will be
directly responsible for the payment of all counsel fees and Schwarzkopf will
have no liability therefor. Seller will not terminate the engagement of counsel
for the Zhou Litigation without first obtaining (1) an engagement agreement
which makes Seller the only party responsible for paying counsel fees, and (2)
the consent of Schwarzkopf, which consent will not be unreasonably withheld.
Schwarzkopf will be consulted on all major litigation issues that arise in these
matters (including, but not limited to, settlement negotiations).
(b) Seller will enter into an agreement with the plaintiffs in the litigation
Zhou et. al. x. Xxxxxx et. al. ("Zhou Litigation") such that the plaintiffs are
bound not to seek any payment from the Acquired Entity in connection with the
litigation, as well as the other warranties and offers of indemnification set
forth in the proposed agreement attached as Schedule 5.12.
(3) The Acquired Entity will assign to Seller all of its claims against Xx Xxxxx
Industries and the other defendants in the Zhou Litigation for business
interruption, indemnity and any and all other claims the Acquired Entity may
have against such parties for damages arising out of the incident that forms the
basis of plaintiffs' claims in the Zhou Litigation. The Acquired Entity will
also assign to Seller all of its rights against Chubb Insurance Company with
respect to the defense of and coverage of damages with respect to the Zhou
Litigation.
(4) Schwarzkopf will use its reasonable best efforts to cause the Acquired
Entity and its employees to cooperate in the defense of the Zhou Litigation.
5.13 Sales Tax Escrow. Seller and/or the Acquired Entity will, prior to the
Closing, reach a binding agreement with the State of California Board of
Equalization under which Seller will pay for all liability for sales and use tax
due to sale-leaseback transactions entered into between 1998 and 2001 and the
Acquired Entity will be released from any claims for said tax liability. Seller
and/or the Acquired Entity will, at least three (3) Business Days prior to the
Closing, provide Schwarzkopf with adequate documentation that demonstrates that
such a binding agreement ("Novation Agreement") has been reached; if no such
resolution is possible by the Closing Date, Schwarzkopf shall deduct the amount
in dispute ("Sales Tax Escrow Amount") from the purchase price to be paid at
Closing and the amount so deducted will be added to the Escrow Fund to be held
pending the resolution of such claim or the execution of a Novation Agreement
and the Escrow Fund as a whole will be dealt with as provided for in Sections
1.5 and 1.6 of this Agreement and as provided for immediately below. Upon
execution of a Novation Agreement, the Sales Tax Escrow Amount shall be released
from escrow and paid over to the Seller. If a Novation Agreement is not executed
and instead the claim is resolved, then upon resolution of such claim, the
amount required to be paid to the State of California Board of Equalization
shall be paid out of the Escrow Fund and the balance of the Sales Tax Escrow
Amount, if any, shall be paid to the Seller. Conversely, if the amount required
to be paid to the State of California Board of Equalization exceeds the Sales
Tax Escrow Amount, Seller will pay the deficit to the State of California Board
of Equalization in compliance with said Board's payment deadline.
5.14 SAN DIEGO WATER POLLUTION ESCROW. Schwarzkopf will place $32,000 in escrow
("the Water Pollution Escrow Amount") to pay for any and all equipment upgrade
costs and/or environmental penalties assessed by the San Diego Metropolitan
Wastewater District in connection with Notices of Violation issued during
calendar year 2002 due to nickel levels in wastewater discharged by the Acquired
Entity ("Nickel Discharge Issues"). If at any time it is reasonably determined
that all Nickel Discharge Issues have been resolved and there is a remaining
balance of the Water Pollution Escrow Amount, said amount will be refunded to
Seller within 30 Business Days.
ARTICLE VI
CONDITIONS TO THE OBLIGATIONS OF SCHWARZKOPF
The obligations of Schwarzkopf to effect the Acquisition and the other
transactions contemplated hereby shall be subject to the fulfillment at or prior
to the Closing Date of the following conditions, any or all of which may be
waived in whole or in part by Schwarzkopf:
6.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES AND COMPLIANCE WITH OBLIGATIONS.
The representations and warranties of the Acquired Entity and the Seller in this
Agreement shall be true and correct in all material respects at and as of the
Closing Date with the same force and effect as though made at and as of that
time except that those representations and warranties which address matters only
as of particular date shall remain true and correct as of such date. The
Acquired Entity and the Seller shall have performed or complied with all of
their obligations required by this Agreement to be performed or complied with at
or prior to the Closing Date. The Acquired Entity and the Seller shall have
delivered to Schwarzkopf a certificate, dated as of the Closing Date, (which in
case of the Acquired Entity shall be duly signed by its President and Secretary)
certifying that such representations and warranties are true and correct and
that all such obligations have been performed and complied with.
6.2 NO MATERIAL ADVERSE CHANGE OR DESTRUCTION OF PROPERTY. Between the date
hereof and the Closing Date; (a) there shall have been no Material Adverse
Change to the Acquired Entity (excluding a Material Adverse Change resulting
from losses suffered after September 30, 2002 to the extent taken into account
in adjusting the Purchase Price pursuant to Sections 1.5 and 1.6 hereof), (b)
there shall have been no adverse federal, state or local legislative or
regulatory change having a Material Adverse Effect on the services, products or
business of the Acquired Entity, and (c) none of the Assets of the Acquired
Entity shall have been damaged by fire, flood, casualty, act of God or the
public enemy or other cause (regardless of insurance coverage for such damage)
which damages may have a Material Adverse Effect on the Acquired Entity, and the
Acquired Entity and the Seller shall have delivered to Schwarzkopf a
certificate, dated as of the Closing Date, to that effect.
6.3 CORPORATE CERTIFICATE. The Acquired Entity and the Seller shall have
delivered to Schwarzkopf (i) copies of the Articles of Incorporation of the
Acquired Entity certified by the California Secretary of State no longer than
fifteen (15) business days prior to the Closing Date and copies of the Bylaws of
the Acquired Entity as in effect immediately prior to the Closing Date, (ii)
copies of resolutions adopted by the Board of Directors and the shareholder of
the Acquired Entity authorizing the transactions contemplated by this Agreement,
and (iii) a certificate of good standing of the Acquired Entity issued by the
State of California and each other state in which it is qualified to do business
as of a date not more than five (5) business days prior to the Closing Date, and
all of such documents as to the Acquired Entity shall be certified as of the
Closing Date by the Secretary of the Acquired Entity as being true, correct and
complete.
6.4 CONSENTS. The Acquired Entity, the Seller, and Schwarzkopf shall have
received consents to the Acquisition and other transactions contemplated hereby
and waivers of rights to terminate or modify any material rights or obligations
of the Acquired Entity, from any Person from whom such consent or waiver is
required, including without limitation, under any Material Contract listed or
required to be listed in Schedule 3.24 prior to the Closing, or who as a result
of the transactions contemplated hereby, would have such rights to terminate or
modify such Material Contracts or instruments, either by the terms thereof or as
a matter of law. Schwarzkopf, Seller and Acquired Entity shall have obtained
other approvals required under state laws and all other Governmental Authorities
with respect to the transactions contemplated hereby.
6.5 SECURITIES LAWS. Seller shall have received all necessary consents, if any,
and otherwise complied with any state Blue Sky or securities laws and Federal
SEC laws and regulations, if any, applicable to the transactions contemplated
hereby.
6.6 NO ADVERSE LITIGATION. There shall not be pending or threatened any action
or proceeding by or before any court or other governmental body which shall seek
to restrain, prohibit, invalidate or collect damages arising out of the
Acquisition or other transactions hereunder, or which, in the reasonable
judgment of Schwarzkopf, makes it inadvisable to proceed with the transactions
contemplated hereby.
6.7 COMPLETION OF DUE DILIGENCE. Schwarzkopf's due diligence review shall be
completed by the Closing Date.
6.8 CONTRACT WITH XXXXX XXXXXX. (1) Xxxxxxxxxxx shall have obtained a statement
from Xxxxx Xxxxxx that he does not have any contractual or other obligations
that would conflict with his continued, indefinite service as President of
Xxxxxx and Xx. Xxxxxx and (2) Schwarzkopf shall have reached an agreement for
Xxxxx Xxxxxx'x continued service as President of Xxxxxx.
6.9 OPINION OF COUNSEL. Schwarzkopf shall have received an opinion from Seller's
counsel dated as of the Closing Date, addressed to Schwarzkopf, substantially in
the form attached hereto as Schedule 6.9.
6.10 MINUTE BOOKS. Schwarzkopf shall have received all of the original corporate
records of the Acquired Entity.
6.11 APPROVALS. Seller and/or the Acquired Entity shall have complied with all
State and Federal laws and regulations relative to Seller's sale of the Acquired
Entity to Schwarzkopf.
6.12 RELEASE REGARDING OBLIGATIONS TO XXXXX XXXXXX. Seller will execute an
agreement releasing Schwarzkopf from any claims Seller may make against
Schwarzkopf in connection with Xxxxx Xxxxxx'x employment at the Acquired Entity
up until the Closing Date.
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF THE
ACQUIRED ENTITY AND THE SELLER
The obligations of the Acquired Entity and the Seller to effect the Acquisition
and the other transactions contemplated hereby shall be subject to the
fulfillment at or prior to the Closing Date of the following conditions, any or
all of which may be waived in whole or in part by the Acquired Entity and the
Seller.
7.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES AND COMPLIANCE WITH OBLIGATIONS.
The representations and warranties of Schwarzkopf contained in this Agreement
shall be true and correct in all material respects at and as of the Closing Date
with the same force and effect as though made at and as of that time except (i)
for changes specifically permitted by this Agreement, and (ii) that those
representations and warranties which address matters only as of a particular
date shall remain true and correct as of such date. Schwarzkopf shall have
performed and complied with all of its obligations required by this Agreement to
be performed or complied with at or prior to the Closing Date. Schwarzkopf shall
have delivered to the Seller a certificate, dated as of the Closing Date, and
signed by an executive officer, certifying that such representations and
warranties are true and correct and that all such obligations have been
performed and complied with.
7.2 NO ORDER OR INJUNCTION. There shall not be issued and in effect by or before
any court or other governmental body an order or injunction restraining or
prohibiting the transactions contemplated hereby.
7.3 OPINION OF COUNSEL. Seller shall have received an opinion from Schwarzkopf's
counsel dated as of the Closing Date, addressed to Seller, substantially in the
form attached hereto as Schedule 7.3.
ARTICLE VIII
INDEMNIFICATION
8.1 AGREEMENT BY THE SELLER FOR INDEMNIFICATION. The Seller agrees to indemnify
and hold Schwarzkopf and its stockholders, directors, officers, employees,
attorneys, agents and Affiliates harmless from and against the aggregate of all
expenses, losses, costs, deficiencies, liabilities and damages (including,
without limitation, related counsel and paralegal fees and expenses) incurred or
suffered by Schwarzkopf arising out of, relating to, or resulting, from (i) any
breach of a representation or warranty made by the Acquired Entity and/or the
Seller in or pursuant to this Agreement, (ii) any breach of the covenants or
agreements made by the Acquired Entity, or the Seller in or pursuant to this
Agreement, (iii) any inaccuracy in any certificate, instrument or other document
delivered by the Acquired Entity and/or the Seller as required by this
Agreement; (iv) any Tax liability that may be charged against the Acquired
Entity for activity that took place prior to the Closing Date net of any net
operating losses available to Xxxxxx or other credits that may be applied to
reduce any such Tax Liability ("Indemnifiable Damages"); or (v) any expense
resulting from the Zhou litigation; provided, however, Indemnifiable Damages
shall not include any item that was taken into account in determining the
Closing Net Worth. Without limiting the generality of the foregoing, with
respect to the measurement of Indemnifiable Damages, Schwarzkopf, its
stockholders, directors, officers, employees, attorneys, agents, and Affiliates
shall have the right to be put in the same after-tax consolidated financial
position as they would have been in if the breach or inaccuracy referenced in
the foregoing clauses (i), (ii), (iii), and (iv) that caused such Indemnifiable
Damages had not occurred, taking into consideration insurance proceeds actually
received by Schwarzkopf or the Acquired Entity or agreed to be paid to
Schwarzkopf or the Acquired Entity. Notwithstanding the foregoing provisions, no
claim for Indemnifiable Damages shall be asserted by Schwarzkopf or any other
Person, until the aggregate of all Indemnifiable Damages exceeds the sum of
Fifty Thousand and no/100 Dollars ($50,000.00) (the "Indemnification
Threshold"), in which case Schwarzkopf shall be entitled to Indemnifiable
Damages in excess of $25,000. In no event shall Seller's liability hereunder
exceed in the aggregate the Consideration paid to it by Schwarzkopf for the
Purchased Shares.
8.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties made by the Acquired Entity and the Seller in this Agreement or
pursuant hereto shall survive for two (2) years following the Closing Date. No
claim for the recovery of Indemnifiable Damages may be asserted in writing by
Schwarzkopf after such representations and warranties shall thus have expired;
provided, however, that claims for Indemnifiable Damages first asserted within
the applicable period shall not thereafter be barred. Notwithstanding any
Knowledge of facts determined or determinable by any party by investigation,
each party shall have the right to fully rely on the representations,
warranties, covenants and agreements of the other parties contained in this
Agreement or in any other documents or papers delivered in connection herewith;
provided, however, if Schwarzkopf discovers in its due diligence review that one
or more of the representations and warranties made by Seller or the Acquired
Entity is incomplete or inaccurate in any respect it shall so inform the Seller.
Each representation, warranty, covenant and agreement of the parties contained
in this Agreement is independent of each other representation, warranty,
covenant and agreement. Each of the representations and warranties of
Schwarzkopf shall survive for two (2) years following the Closing Date.
8.3 REMEDIES CUMULATIVE; WAIVER. The remedies provided herein shall be the sole
remedies for breach of contract, but shall not preclude Schwarzkopf from
asserting any other right or from seeking any other remedies against the Seller,
including remedies for injunctive relief. The Seller hereby waives and right to
contribution or any other similar right it may have against the Acquired Entity
as a result of its Agreement to Indemnify in this Article VIII.
8.4 DEFENSE OF THIRD PARTY CLAIMS. With respect to each third party claim for
which a party seeks indemnification under this Article VIII (a "Third Party
Claim"), the indemnified party shall give prompt notice to the indemnifying
party of the Third Party Claim, provided that failure to give such notice
promptly shall not relieve or limit the obligations of the indemnifying party
unless the indemnifying party has been materially prejudiced thereby (and such
failure to notify the indemnifying party will not relieve them from any other
liability they may have to the indemnified party). If the remedy sought in the
Third Party Claim is solely money damages, or if indemnified party otherwise
permits, then the indemnifying party at its sole cost and expense, may, upon
notice to the indemnified party within fifteen (15) days after the indemnifying
party receives notice of the Third Party Claim, assume the defense of the Third
Party Claim. If the indemnifying party assumes the defense of a Third Party
Claim, then the indemnifying party shall select counsel reasonably satisfactory
to the indemnified party to conduct the defense. The indemnifying party shall
not consent to a settlement of, or the entry of any judgment arising from, any
Third Party Claim, unless (i) the settlement or judgment is solely for money
damages and the indemnifying party admits in writing its liability to hold the
indemnified party harmless from and against any losses, damages, expenses and
liabilities arising out of such settlement or judgment or (ii) the indemnified
party consents thereto, which consent shall not be unreasonably withheld. The
indemnifying party shall provide the indemnified party with fifteen (15) days
prior notice before it consents to a settlement of, or the entry of a judgment
arising from, any Third Party Claim. The indemnified party shall be entitled to
participate, at its own expense, in the defense of any Third Party Claim, the
defense of which is assumed by the indemnifying party with its own counsel and
at its own expense. With respect to Third Party Claims in which the remedy
sought is not solely money damages and the indemnified party does not permit the
indemnifying party to assume the defense, the indemnifying party shall, upon
notice to the indemnified party within fifteen (15) days after the indemnifying
party receives notice of the Third Party Claim, be entitled to participate in
the defense with its own counsel at its own expense. If the indemnifying party
does not assume or participate in the defense of any Third Party Claim in
accordance with the terms of this Section, then the indemnifying party shall be
bound by the results obtained by the indemnified party with respect to the Third
Party Claim. The parties shall cooperate in the defense of any Third Party
Claim.
8.5 COOPERATION IN TRANSFER OF OBLIGATIONS.
(a) Seller has guaranteed certain obligations of the Acquired Entity
("Guaranteed Obligations"), including obligations of the Acquired Entity to the
counter-parties (the "Guaranteed Parties") to the contracts noted in Schedule
3.24. To the extent that such guarantees relate exclusively to obligations of
the Acquired Entity, Schwarzkopf agrees to use its reasonable best commercial
efforts to cause the Guaranteed Parties to release the Seller from the
guarantees it has issued to the Guaranteed Parties. Accordingly, Schwarzkopf
agrees to provide such financial information as is reasonably requested by the
Guaranteed Parties and shall execute the Guaranteed Parties' standard form
guarantees.
(b) Schwarzkopf agrees to indemnify and hold Seller and its
stockholders, directors, officers, employees, attorneys and agents and
Affiliates harmless from and against the aggregate of all expenses, losses,
costs, deficiencies, liabilities and damages (including, without limitation,
related counsel and paralegal fees and expenses) incurred or suffered by the
Seller or any of the other indemnified parties arising out of or relating to or
resulting from(i) the failure of the Acquired Entity or Schwarzkopf to pay any
of the Guaranteed Obligations or (ii) the operation of the business of the
Acquired Entity after Closing.
ARTICLE IX
DEFINITIONS
9.1 DEFINED TERMS. As used herein, the following terms shall have the following
meanings:
"Affiliate" shall have the meaning ascribed to it in Rule 12b-2 of the General
Rules and Regulations under the Exchange Act, as in effect on the date hereof.
"Business Days" shall mean any day on which banks are generally open to conduct
business in New York.
"Code" means the Internal Revenue Code of 1986, as amended.
"Contract" means any agreement, contract, lease, note, mortgage, indenture, loan
agreement, franchise agreement, covenant, employment agreement, license,
instrument, purchase and sales order, commitment, undertaking, obligation,
whether written or oral, express or implied.
"Discharge" means any manner of spilling, leaking, dumping, discharging,
releasing, migrating or emitting, as any of such terms may further be defined in
any Environmental Law, into or through any medium including, without limitation,
ground water, surface water, land, soil or air in violation of law, whether
intentional or unintentional.
"Environmental Costs" shall mean any and all expenses, costs, damages,
liabilities, or obligations (including, without limitation, fees and expenses of
counsel) incurred by, under or pursuant to any Environmental Laws or related to
the Discharge, Handling, presence or clean up of Hazardous Substances arising as
a result of events occurring or facts or circumstances arising or existing on or
prior to the Closing Date whether or not in the ordinary course of business.
"Environmental, Health, and Safety Liabilities" -- any cost, damages, expense,
liability, obligation, or other responsibility arising from or under
Environmental Law or Occupational Safety and Health Law and consisting of or
relating to:
(a) any environmental, health, or safety matters or conditions
(including on-site or off-site contamination, occupational safety and health,
and regulation of chemical substances or products);
(b) fines, penalties, judgments, awards, settlements, legal or
administrative proceedings, damages, losses, claims, demands and response,
investigative, remedial, or inspection costs and expenses arising under
Environmental Law or Occupational Safety and Health Law;
(c) financial responsibility under Environmental Law or Occupational
Safety and Health Law for cleanup costs or corrective action, including any
investigation, cleanup, removal, containment, or other remediation or response
actions ("Cleanup") required by applicable Environmental Law or Occupational
Safety and Health Law (whether or not such Cleanup has been required or
requested by any Governmental Body or any other Person) and for any natural
resource damages; or
(d) any other compliance, corrective, investigative, or remedial
measures required under Environmental Law or Occupational Safety and Health Law.
The terms "removal," "remedial," and "response action" include the
types of activities covered by the United States Comprehensive Environmental
Response, Compensation, and Liability Act, 42 U.S.C. ss. 9601 et seq., as
amended ("CERCLA").
"Environmental Law" or "Environmental Laws" means any and all of the
following:
(a) the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended by the Superfund Amendment and Reauthorization
Act of 1986, 42 U.S.C.ss.9601, et. MC .., (herein, collectively, "CERCLA"); the
Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery
Act of 1976 and subsequent Hazardous and Solid Waste Amendments of 1984, 42
U.S.C.ss.6901 et. seq. (herein, collectively, -- --- "RCRA"); the Hazardous
Materials Transportation Act, as amended, 49 U.S.C.ss.1801, et. seq. (the
"Hazardous -- --- Materials Transportation Act"); the Clean Water Act, as
amended, 33 U.S.C.ss.1311, et. seq., (the "Clean Water -- --- Act"); the Clean
Air Act, as 10 amended, 42 U.S.C.ss.7401-7642, (the "Clean Air Act"); the Toxic
Substances Control Act, as amended, 15 U.S.C.ss.2601 et. seq., (the "Toxic
Substances Control Act"); the Federal -- --- Insecticide, Fungicide, and
Rodenticide Act as amended, 7 U.S.C.ss.136-136y ("FIFRA"); the Emergency
Planning and Community Right-to-Know Act of 1986 as amended 42 U.S.C.ss.11001,
et. seq., (Title III of XXXX) ("EPCRA"); and -- --- the Occupational Safety and
Health Act of 1970, as amended, 29 U.S.C.ss.651, et. seq., ("OSHA"); -- ---
as well as any Legal Requirement that requires or relates to:
(b) advising appropriate authorities, employees, and the public of
intended or actual releases of pollutants or hazardous substances or materials,
violations of discharge limits, or other prohibitions and of the commencements
of activities, such as resource extraction or construction, that could have
significant impact on the Environment,
(c) preventing or reducing to acceptable levels the release of
pollutants or hazardous substances or materials into the Environment;
(d) reducing the quantities, preventing the release, or minimizing the
hazardous characteristics of wastes that are generated;
(e) assuring that products are designed, formulated, packaged, and used
so that they do not present unreasonable risks to human health or the
Environment when used or disposed of;
(f) protecting resources, species, or ecological amenities;
(g) reducing to acceptable levels the risks inherent in transportation
of hazardous substances, pollutants, oil, or other potentially harmful
substances;
(h) cleaning up pollutants that have been released, preventing the
threat of release, or paying the costs of such clean up or prevention; or
(i) making responsible parties pay private parties, or groups of them,
for damages done to their health or the Environment, or permitting
self-appointed representatives of the public interest to recover for injuries
done to public assets.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor law, and regulations and rules issued pursuant to that
act or any successor law.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Excluded Liabilities" shall mean
(i) any obligations and liabilities of the Acquired Entity,
absolute or contingent, known or unknown, other than Designated Liabilities;
(ii) any liability or obligation of the Acquired Entity arising
under this Agreement;
(iii) any liability or obligation of the Acquired Entity relating to
any default under any Designated Liability to the extent such default existed
and was not cured prior to the Closing;
(iv) any liability or obligation of the Acquired Entity with respect
to, or arising out of, any employee benefit plan, executive deferred
compensation plan, or any other plans or arrangements for the benefit of any
employees or officers of the Acquired Entity;
(v) any liability or obligation of the Acquired Entity to the Seller or
any Affiliate of the Acquired Entity and/or the Seller or to any party claiming
to have a right to acquire any shares of capital stock or other securities
convertible into or exchangeable for any shares of capital stock of the Acquired
Entity, and
(vi) any Environmental Costs or Litigation Costs.
"Facilities" means any real property, leaseholds, or other interests
currently or formerly owned or operated by the Company and any buildings,
plants, structures, or equipment (including motor vehicles, tank cars, and
rolling stock) currently or formerly owned or operated by the Company.
"GAAP" means generally accepted accounting principles in effect in the
United States of America in effect as of the date of this Agreement.
"Governmental Authority" means any nation or government, any state,
regional, local or other political subdivision thereof, and any entity or
official exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"Governmental Authorization" shall mean -- any approval, consent,
license, permit, waiver, or other authorization issued, granted, given, or
otherwise made available by or under the authority of any Governmental Authority
or pursuant to any Legal Requirement.
"Handle" means any manner of generating, accumulating, storing,
treating, disposing of, transporting, transferring, labeling, handling,
manufacturing or using, as any of such terms may further be defined in any
Environmental Law.
"Hazardous Substances" shall be construed broadly to include any toxic
or hazardous substance, material or waste, and any other contaminant, pollutant
or constituent thereof, whether liquid, solid, semi-solid, sludge and/or
gaseous, including without limitation, chemicals, compounds, by-products,
pesticides, asbestos containing materials, petroleum or petroleum products, and
polychlorinated biphenyls, the presence of which requires investigation or
remediation under any Environmental Laws or which are or become regulated,
listed or controlled by, under or pursuant to any Environmental Laws, or which
has been or shall be determined or interpreted at any time by any Governmental
Authority to be a hazardous or toxic substance regulated under any other
statute, law, regulation, order, code, rule, order, or decree.
"Knowledge" shall mean,
(a) in the case of an individual, that individual will be deemed to
have "Knowledge" of a particular fact or other matter if:
(i) the individual is actually aware of such fact or other matter;
or
(ii) the individual could be expected to discover such fact or
other matter in the course of conducting a reasonable and usual investigation
concerning the existence of such fact or other matter.
(b) in the case of a firm, that firm will be deemed to have "Knowledge"
of a particular fact or other matter if, for any individual who is an agent of
the firm,:
(i) the individual is actually aware of such fact or other matter
in his or her official capacity; or
(ii) the individual could be expected, in his or her official
capacity, to discover such fact or other matter in the course of conducting a
reasonable and usual investigation concerning the existence of such fact or
other matter.
"Legal Requirement" shall mean any federal, state, local, municipal,
foreign, or other administrative order, law, ordinance, principle of common law,
regulation, or statute.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien
or charge of any kind (including, but not limited to, any conditional sale or
other title retention agreement any lease in the nature thereof, and the filing
of or agreement to give any financing statement under the Uniform Commercial
Code or comparable law or any jurisdiction in connection with such mortgage,
pledge, security interest, encumbrance, lien or charge).
"Litigation Costs" shall mean any and all expenses, costs, damages,
liabilities, or obligations (including, without limitation, fees and expenses of
counsel) incurred in connection with any action, suit, or other legal or
administrative proceeding or governmental investigation arising as a result of
events occurring or facts or circumstances arising or existing on or prior to
the Closing Date (whether or not in the ordinary course of business), including
those matters set forth on Schedule 3.11.
"Material Adverse Change (or Effect)" means a change (or effect), in
the condition (financial or otherwise), properties, assets, liabilities, rights,
obligations, operations, business or prospects which change (or effect)
individually or in the aggregate, is materially adverse to such condition,
properties, assets, liabilities, rights, obligations, operations, business or
prospects. If the aggregate result of the changes (or effects) in the overall
net worth of the Acquired Entity is a decrease in excess of $100,000 subsequent
to the Closing, then the Acquired Entity would have sustained a Material Adverse
Change (or Effect) over that given period of time.
"Occupational Safety and Health Law" means any Legal Requirement
designed to provide safe and healthful working conditions and to reduce
occupational safety and health hazards.
"Organizational Documents" means --
(a) the articles or certificate of incorporation and the bylaws of a
corporation;
(b) the partnership agreement and any statement of partnership of a
general partnership;
(c) the limited partnership agreement and the certificate of limited
partnership of a limited partnership;
(d) any charter or similar document adopted or filed in connection with
the creation, formation, or organization of a Person; and
(e) any amendment to any of the foregoing.
"Person" means an individual, partnership, corporation, limited
liability company, business trust, joint stock company, estate, trust,
unincorporated association, joint venture, Governmental Authority or other
entity, of whatever nature.
"Proceeding" means any action, arbitration, audit, hearing,
investigation, litigation, or suit (whether civil, criminal, administrative, or
investigative) commenced, brought, conducted, or heard by or before, or
otherwise involving, any Governmental Body or arbitrator.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Tax Return" means any tax return, filing or information statement
required to be filed in connection with or with respect to any Taxes whether
Federal, State or Local.
"Tax" and/or "Taxes" mean all taxes, fees or other assessments,
including, but not limited to, income, excise, property, sales, use, franchise,
intangible, payroll, withholding, social security, gross receipts, license,
employment, severance, stamps, occupation, premium, customs duties, transfer,
registration, estimated and unemployment taxes imposed by any federal, state,
local or foreign government agency, including any obligations to indemnify or
otherwise assume or succeed to the Tax liability of any other person, and any
interest or penalties related thereto.
9.2 Other Definitional Provisions.
(a) All terms defined in this Agreement shall have the defined
meanings when used in any certificates, reports or other documents made or
delivered pursuant hereto or thereto, unless the context otherwise requires.
(b) Terms defined in the singular shall have a comparable meaning
when used in the plural, and vice versa.
(c) All matters of an accounting nature in connection with
this Agreement and the transactions contemplated hereby shall be determined in
accordance with GAAP applied on a basis consistent with prior periods, where
applicable.
(d) As used herein, the neuter gender shall also denote the
masculine and feminine, and the masculine gender shall also denote the neuter
and feminine, where the context so permits.
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
10.1 TERMINATION. This Agreement may be terminated at any time prior to
Closing:
(a) by mutual written consent of all of the parties hereto at any
time prior to the Closing; or
(b) by Schwarzkopf upon delivery of written notice to the Acquired
Entity and the Seller in accordance with this Agreement in the event of a
material breach by the Acquired Entity and/or the Seller of any provisions of
this Agreement, including covenants, warranties or representations; or
(c) by the Acquired Entity and the Seller upon delivery of written
notice to Schwarzkopf in accordance with this Agreement in the event of a
material breach by Schwarzkopf of any provision of this Agreement, including
covenants, warranties or representations; or
(d) by (i) Schwarzkopf or (ii) the Acquired Entity and the Seller
upon delivery of written notice in accordance with this Agreement, if the
Closing shall not have occurred by January 15, 2003, provided that the reason
for failing to Close is not the result of the party seeking to terminate.
10.2 EFFECT OF TERMINATION. Except for the provisions of Section 5.6
regarding confidentiality, in the event of termination of this Agreement, this
Agreement shall forthwith become void and of no further force and effect, and
the parties shall be released from any and all obligations hereunder; provided,
however, that nothing herein shall relieve any party from liability for the
willful breach of any of its representations, warranties, covenants or
agreements set forth in this Agreement.
ARTICLE XI
GENERAL PROVISIONS
11.1 NOTICES. All notices, requests, demands, claims, and other
communications hereunder shall be in writing and shall be deemed given if
delivered by certified or registered mail (first class postage prepaid),
guaranteed overnight delivery or facsimile transmission if such transmission is
confirmed by delivery by certified or registered mail (first class postage
prepaid) or guaranteed overnight delivery, to the following addresses and
telecopy numbers (or to such other addresses or telecopy numbers which any party
shall designate in writing to the other parties):
(a) if to Schwarzkopf to:
Xxxx Xxxxxxxxxx
Chief Financial Officer
Schwarzkopf Technologies Corporation
000 Xxxxxxxxxxxx Xxxxxxxxx
Xxxxxxxx, XX 00000
Telephone No.: (000) 000-0000, x224
Facsimile No.: (000) 000-0000
with copies to:
Xxxxxxxx Xxxxxxxxx
Plansee Aktiengesellschaft
A-6600
Reutte/Austria
Telephone No.: (000) 00 0000 000-0000
Facsimile No.:
and
Xxxxxx X. Xxxxxxxxx, Esq.
Xxxxxxxxxxx Xxxxx Xxxxxxx Xxxxx & Xxxxx, LLP
Ten Xxxxxxxxx Xxxxxx, 00xx Xxxxx
Xxxxxxxxxx, XX 00000
000-000-0000, ext. 333
000-000-0000 fax
(b) If to the Seller to:
SEMX Corporation
0 Xxxxxxxx Xxxxx
Xxxxxx, Xxx Xxxx 00000
Attention: Chairman
000-000-0000
000-000-0000 fax
with a copy to:
Xxxx Salon, Esq.
Salon, Marrow, Xxxxxxx & Xxxxxx, LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
(000) 000-0000
(000) 000-0000 (fax)
11.2 ENTIRE AGREEMENT. This Agreement (including any Schedules and
Exhibits attached hereto) and other documents delivered at Closing pursuant
hereto, contains the entire understanding of the parties in respect of its
subject matters and supersedes all prior agreements and understandings (oral or
written) between or among the parties with respect to such subject matter. The
Schedules and Exhibits constitute a part hereof as though set forth in full
above.
11.3 EXPENSES. Except as otherwise provided herein, the Seller shall
all pay their own and the Acquired Entity's fees and expenses, including counsel
fees incurred in connection with this Agreement or any transaction contemplated
hereby. Schwarzkopf shall pay its own fees and expenses, including its own
counsel fees.
11.4 AMENDMENT: WAIVER. This Agreement may not be modified, amended,
supplemented, canceled, or discharged, except by written instrument executed by
all parties. No failure to exercise, and no delay in exercising, any right,
power or privilege under this Agreement shall operate as a waiver, nor shall any
single or partial exercise of any right, power or privilege hereunder preclude
the exercise of any other right, power or privilege. No waiver of any breach of
any provision shall be deemed to be a waiver of any preceding or succeeding
breach of the same or any other provision, nor shall any waiver be implied from
any course of dealing between the parties. No extension of time for performance
of any obligations or other acts hereunder or under any other agreement shall be
deemed to be an extension of the time for performance of any other obligations
or any other acts.
11.5 BINDING EFFECT: ASSIGNMENT. The rights and obligations of this
Agreement shall bind and inure to the benefit of the parties and their
respective successors and assigns. Nothing expressed or implied herein shall be
construed to give any other person any legal or equitable rights hereunder.
Except as expressly provided herein, the rights and obligations of this
Agreement may not be assigned or delegated by the Acquired Entity and/or the
Seller without the prior written consent of Schwarzkopf. Schwarzkopf may assign
all or any portion of its rights hereunder to one or more of its wholly owned
subsidiaries; provided, however, that notwithstanding any such assignment,
Schwarzkopf shall not be released of its obligations hereunder and it shall
remain jointly and severally liable with respect thereto together with its
assignee.
11.6 COUNTERPARTS. This Agreement may be executed by signatures
transmitted by facsimile and in any number of counterparts, each of which shall
be an original but all of which together shall constitute one and the same
instrument.
11.7 INTERPRETATION. When a reference is made in this Agreement to an
article, section, paragraph, clause, Schedule or exhibit, such reference shall
be deemed to be to this Agreement unless otherwise indicated. The headings
contained herein and on the Schedules are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement or the
Schedules. A disclosure on one Schedule shall be deemed a disclosure on all
Schedules. Whenever, the words "include," "includes," or "including" are used in
this Agreement they shall be deemed to be followed by the words "without
limitation." Except as otherwise provided herein, time shall be of the essence
in this Agreement.
11.8 GOVERNING LAW: Interpretation. This Agreement shall be construed
in accordance with and governed for all purposes by the laws of the State of New
York applicable to contracts executed and to be wholly performed within such
State.
11.9 JURISDICTION.
(a) The parties to this Agreement agree that any suit, action
or proceeding arising out of, or with respect to, this Agreement or any judgment
entered by any court in respect thereof shall be brought in either the state
court of New York or Rhode Island or in the U.S. District Court for New York or
Rhode Island, and the parties hereby irrevocably accept the exclusive personal
jurisdiction of those courts for the purpose of any suit, action or proceeding.
(b) In addition, Schwarzkopf, the Acquired Entity and the
Seller each hereby irrevocably waives, to the fullest extent permitted by law,
any objection which it may now or hereafter have to the laying of venue of any
suit, action or proceeding arising out of or relating to this Agreement or any
judgment entered by any court in respect thereof brought in such jurisdiction
and hereby further irrevocably waives any claim that any suit, action or
proceedings brought in any such court has been brought in an inconvenient forum.
11.10 ARM'S LENGTH NEGOTIATIONS. Each party herein expressly represents
and warrants to all other parties hereto that (a) before executing this
Agreement, said party has fully informed itself of the terms, contents,
conditions, and effects of this Agreement; (b) said party has relied solely and
completely upon its own judgment in executing this Agreement; (c) said party has
had the opportunity to seek and has obtained the advise of counsel before
executing this Agreement; (d) said party has acted voluntarily and of its own
free will in executing this Agreement; (e) said party is not acting under
duress, whether economic or physical, in executing this Agreement; and (f) this
Agreement is the result of arm's length negotiations conducted by and among the
parties and their respective counsel.
The parties hereto have caused this Agreement to be duly executed and
delivered as of the day and year first above written.
SCHWARZKOPF TECHNOLOGIES CORPORATION
By:__________________________
Name: Xxxxxxxx Xxxxxxxxx
Title: Director
XXXXXX COMPANY, INC.
By:
Name: Xxxxx Xxxxxx
Title: President
SEMX CORPORATION
By:
Name: Xxxxxxx Xxxxx
Title: C.E.O.
Schedule 1.5(a)(i): Target Net Asset
Statement
09/30/02 Adjustments Target Net Assets
And Target Net Worth
Current Assets
Cash $ (325) $ 397 $ 72
Intercompany X/X 000 -000 -
Xxxxx X/X 2,163 2,163
A/R allowance (287) (287)
Other Receivables 81 - 81
Inventory
Raw Materials 2,049 2,049
WIP 843 843
Finished goods 519 519
Inventory reserve (1,208) (1,208)
------- ------- ---------
Total Inventory 2,203 2,203
Prepaid expenses 326 326
Deferred income taxes 1,531 (1,531) -
------- ------- ---------
Total Current Assets 5,986 -1,428 4,558
LT Assets
PP&E, net 14,945 - 14,945
Deposits 360 360
Patents, net 475 475
Patents, APC, net 777 777
AISIC Tech, net 94 94
Silver Tech, net 99 99
Goodwill, net - -
------- ------- ---------
16,750 - 16,750
Reserve for write off of assets to NRV -7,891 - -7,891
------- ------- ---------
Total Assets 14,845 -1,428 13,417
------- ------- ---------
Current Liabilities
Accounts payable 2,180 397 2,577
Accrued accounts payable 359 359
A/P interco 194 (194) -
Accrued payroll 555 555
Accrued other 21 21
Accrued tax (1,098) 1,098 -
Other liabilities 83 83
Current portion of
SEMX term loan 300 (300) -
Current portion of 1,319 1,319
long term leases/mortgages
------- ------- ---------
Total Current liabilities 3,913 1,001 4,914
Long Term Liabilities
Cap leases payable, long term 2,149 2,149
Notes payable 8 (8) -
SEMX term note 937 (937) -
Mortgage payable, long term 2,427 2,427
Deferred tax 770 (770) -
------- ------- ---------
Total Liabilities 10,204 (714) 9,490
------- ------- ---------
Equity, including Parent Investment 4,641 -714 3,927
Account
------- ------- ---------
Total liabilities & Equity 14,845 -1,428 13,417
------- ------- ---------
Net Assets $ 4,641 $ (714) $ 3,927
======= ======= =========
Schedule 1.5(a)(ii): Basis of presentation for the Balance Sheet
The September 30, 2002 Balance Sheet as presented in the Financial Statements
has been prepared in accordance with GAAP and on the following basis:
1. Drafts Outstanding represent book overdrafts resulting from uncleared checks
to third parties against the bank accounts
2. Trade AR, intercompany represents activity between Xxxxxx and Related
Affiliates, including trade show costs; car allowance, travel and wages for XX
Xxxx and Xxxxx Xxxxxx; and other charges to SPM or SEMX.
3. Trade accounts receivable consists of billed receivables for products shipped
on or prior to September 30, 2002 (or the relevant period in the case of the
Estimated Closing Net Asset Statement and Audited Closing Net Asset Statements).
The trade accounts receivable is net of reserve for doubtful accounts and sales
returns. Management evaluates doubtful account reserves on an individual
customer-by-customer basis. The bad debt reserve at September 30, 2002 totaled
$287 thousand. The Company records sales returns within 30 days of receipt of
the returned product depending on the outcome.
4. Other Receivables include employee loans and advances and other receivables.
5. Inventories consist of raw materials, work in process (WIP) and finished
goods. Raw materials primarily consist of gold, gold reclaim, silvar, powder,
sheet stock and ceramic products. Raw materials are valued at actual cost.
Finished goods and a portion of WIP are valued using the selling price less an
effective gross margin of 25%. Management evaluates excess and obsolete
inventory based on historical and anticipated usage compared with quantities on
hand.
6. Prepaid expenses consist primarily of supplies, insurance, property taxes and
service contracts.
7. Other long-term assets include note receivable, net of reserve and deposits.
8. Reserve for write-off of net assets represents the reduction of net assets to
net realizable value which represents the amount included by Seller in the 10-Q
Statement filed with the Securities and Exchange Commission as of September 30,
2002.
9. Property, plant and equipment include land, building, leasehold improvements,
tools & dies, capitalized equipment leases and machinery and equipment used to
produce products. All property, plant and equipment are stated at cost, less
accumulated depreciation.
10. Intangible Assets consists of patents, ALSIC technology and Silvar
technology. Intangible assets are amortized over a period up to 17 years.
11. Deposits consist primarily of capital equipment to be purchased, one-month
rent for capital leases, energy supplier credit and other long-term deposits.
12. Accounts payable consists of third party trade payables.
13. Accrued accounts payable includes unvouchered third party payables, workers
compensation, property taxes, travel expenses and dispute settlements for MER,
Coining and OSHA.
14. Accounts payable, intercompany represents activity between Polese and
Related Affiliates including trade purchases, rent for the England sales office
and Malaysia facility, employee loans and other related party expenses.
15. Accrued payroll, accrued other and other liabilities represents payroll and
related benefits, commissions, silvar technology royalties, deposits from
tenants and sales tax payables.
16. Current portion of SEMX term loan and SEMX Term Note Payable includes the
allocated PNC debt from SEMX to the Acquired Entity.
17. Current portion and long term portion of Long Term Lease/Mortgage, Capital
Leases Payable and Mortgage Payable consists of third party debt for capital
leases and the mortgages.
Schedule 1.5(b): Policies and Procedures to Calculate Target Net Asset
Statement, Estimated Closing Net Asset Statement and Audited Closing Net Asset
Statement
The policies and practices used in preparing the "Target Net Asset Statement",
including those set forth below, will be used in preparing the "Estimated
Closing Net Asset Statement" and the "Audited Closing Net Asset Statement",
except to the extent that specific policies are set forth below for purposes of
the Estimated Closing Net Asset Statement and Audited Closing Net Asset
Statement.
1. Cash within the PNC banking system is excluded for purposes of the Target Net
Asset, Estimated Closing Net Asset and Audited Closing Net Asset Statements. To
the extent that there is a book overdraft resulting from uncleared checks to
third parties against the PNC bank accounts, the drafts outstanding will be
included in accounts payable except to the extent that those drafts outstanding
are funded by Parent (SEMX) as checks are cleared.
2. Trade AR, intercompany represents activity between Xxxxxx and Related
Affiliates, including trade show costs; car allowance, travel and wages for XX
Xxxx and Xxxxx Xxxxxx; and other charges to SPM or SEMX. This account is
excluded for the purposes of the Target, Estimated Closing Net Asset Statement
and Audited Closing Net Asset Statement. This balance will be forgiven by Polese
and shall be classified in Investment from Parent prior to closing.
3. Trade accounts receivable consists of billed receivables for products shipped
on or prior to September 30, 2002 (or the relevant period in the case of the
Estimated Closing Net Asset Statement and Audited Closing Net Asset Statements).
The trade accounts receivable is net of reserve for doubtful accounts and sales
returns.
a. Management evaluates doubtful account reserves on an individual
customer-by-customer basis. The bad debt reserve at September 30, 2002 totaled
$287 thousand. The bad debt reserve on the Estimated Closing Net Asset Statement
and Audited Closing Net Asset Statement shall be determined in accordance with
GAAP and prior practice, but shall in no event be lower than $287 thousand,
except to the extent that balances are written off.
b. The Company records sales returns within 30 days of receipt of the
returned product depending on the outcome. All known returns received for Sales
included on the Estimated and Closing Balance Sheet shall be appropriately
accounted for in the Estimated Closing Net Asset Statement and Audited Closing
Net Asset Statement in accordance with GAAP.
4. Other Receivables include employee loans and advances and other receivables.
5. Inventories consist of raw materials, work in process (WIP) and finished
goods. Raw materials consist primarily of gold, gold reclaim, silvar, powder,
sheet stock and ceramic products. Raw materials are valued at actual cost.
Finished goods and a portion of WIP are valued using the selling price less an
effective gross margin of 25%. The effective gross margin of 25% will remain
unchanged for the purposes of the Estimated Closing Net Asset Statement and
Audited Closing Net Asset Statement.
Management evaluates excess and obsolete inventory based on historical
and anticipated usage compared with quantities on hand. The inventory reserve
shall remain at an agreed upon amount of $1.2 million on the Estimated Closing
Net Asset Statement and Audited Closing Net Asset Statement.
6. Prepaid expenses consist primarily of supplies, insurance, property taxes and
service contracts.
7. Other long-term assets include note receivable, net of reserve and deposits.
The note receivable reserve of $198 thousand offsetting the amount due from APC
shareholders will remain unchanged on the Estimated Closing Net Asset Statement
and Audited Closing Net Asset Statement.
8. Deferred income taxes (asset) including any net operating losses acquired by
Schwarzkopf are excluded for the purposes of the Target Net Asset Statement,
Estimated Closing Net Asset Statement and Closing Net Asset Statement.
9. Property, plant and equipment include land, building, leasehold improvements,
tools & dies, capitalized equipment leases and machinery and equipment used to
produce products. All property, plant and equipment are stated at cost, less
accumulated depreciation. For purposes of the Estimated Closing Net Asset
Statement and Audited Closing Net Asset Statement, no depreciation and
amortization expense shall be recorded between the Target Balance Sheet date and
the Closing Balance Sheet date.
10. Intangible Assets consists of patents, ALSIC technology and Silvar
technology. Intangible assets are amortized over a period up to 17 years. For
purposes of the Estimated Closing Net Asset Statement and Audited Closing Net
Asset Statement, no depreciation and amortization expense shall be recorded
between the Target Balance Sheet date and the Closing Balance Sheet date.
11. Deposits consist primarily of capital equipment to be purchased, one-month
rent for capital leases, energy supplier credit and other long-term deposits.
12. Reserve for write off of assets to net realizable value of $7.9 million,
which represents the amount included by Seller in the 10-Q Statement filed with
the Securities and Exchange Commission as of September 30, 2002 shall remain
unchanged for the purposes of the Estimated Closing Net Asset Statement and
Audited Closing Net Asset Statement.
13. Accounts payable consists of third party trade payables.
14. Accrued accounts payable includes unvouchered third party payables, workers
compensation, property taxes, travel expenses and dispute settlements for MER,
Coining and OSHA.
15. Accounts payable, intercompany represents activity between Polese and
Related Affiliates including trade purchases, rent for the England sales office
and Malaysia facility, employee loans and other related party expenses. This
amount is excluded for purposes of the Target Net Asset Statement, Estimated
Closing Net Asset Statement and Closing Net Asset Statement. This balance will
be transferred to SEMX and SPM, and shall be classified in Investment from
Parent prior to closing.
16. Accrued payroll, accrued other and other liabilities represents payroll and
related benefits, commissions, silvar technology royalties, deposits from
tenants and sales tax payables except for any sales tax assessed as a result of
the State of California Audit. This balance does not include any potential
liabilities arising from the litigation entitled Zhou et al. x. Xxxxxx currently
pending in California Federal Court and/or Superior Court, as well as any
related litigation (referred to below as the "Zhou litigation"). All Xxxxxx
related silvar technology royalty liabilities shall be included in the Target
Net Asset Statement, Estimated Closing Net Asset Statement and Audited Closing
Net Asset Statement. Amounts outstanding within accounts payable, accrued
accounts payable, accrued other and other liabilities which are past due or
potentially in dispute including legal matters (excluding the above-mentioned
Zhou litigation and State of California tax audit) and interest and penalties,
and included in the Target Net Asset Statement shall be recorded in accordance
with GAAP, except that balances may only be reduced in the Closing Net Asset
Statement to the extent Xxxxxx is in possession of written, binding settlement
documentation and/or has paid such amounts. Signed Settlement Agreements
substantially in the form attached hereto as Schedule 1.5(b)(16) shall qualify
as written, binding settlement documentation regardless of whether the Acquired
Entity makes the payment after the Closing Date. With respect to amounts due
Enron, balances may be reduced only to the extent of two-thirds (_) of any
written, binding settlement realized prior to delivery of the Audited Closing
Net Asset Statement.
17. There are no income taxes payable for any period prior to December 31, 2002.
Accrued (prepaid) income taxes are excluded for the purposes of the Target Net
Asset Statement, Estimated Closing Net Asset Statement and Audited Closing Net
Asset Statement.
18. Current portion of SEMX term loan and SEMX Term Note Payable includes the
allocated PNC debt from SEMX to Xxxxxx. These liabilities are excluded for the
purposes of the Target Net Asset Statement, Estimated Closing Net Asset
Statement and Audited Closing Net Asset Statement. These balances will be
transferred to SEMX and classified in Investment from Parent prior to closing.
19. Current and long term portion of Long Term Lease/Mortgage, Capital Leases
Payable and Mortgage Payable consists of third party debt for capital leases and
the mortgages. Interest and penalties associated with late payments shall be
classified in accounts payable or accrued other expenses in the Estimated
Closing Net Asset Statement and Audited Closing Net Asset Statement. For the
purposes of the Estimated Closing Balance Sheet and the Audited Closing Net
Asset Statement, principal balances owed will be adjusted by principal payments
for each lease and/or mortgage up until the close of business on January 15,
2003.
20. Deferred income taxes (liability) are excluded for the purposes of the
Target Net Asset Statement, Estimated Closing Net Asset Statement and Audited
Closing Net Asset Statement.
Schedule 1.6(c): ESCROW AGREEMENT
(a) Xxxxxx X. Xxxxxxxxx, Esq., and Xxxx Salon, Esq. (collectively, the "Escrow
Agents") acknowledge receipt of the sum of _________ (the "Deposit") and agree
to hold the Deposit in escrow and to invest and apply the Deposit in accordance
with subparagraphs (b) and (c) of this paragraph.
(b) The Deposit shall be held in an account in Providence, Rhode Island under
the Joint control of the Escrow Agents and shall be duly accounted for as
provided in this Agreement. Notwithstanding anything to the contrary in this
Agreement. The Deposit shall be paid over as and at the time the Escrow Agents
receive joint written instructions from Seller and Schwarzkopf or as directed by
a final order of a Court of Competent Jurisdiction from which no further appeal
can be taken.
(c) The Escrow Agents shall be subject to the following terms and conditions and
no others:
(i) The Escrow Agents shall not be liable to anyone by reason of any
error of judgment, or for any act done or step taken or omitted by the Escrow
Agents in good faith, or for any mistake of fact or law, or for anything which
the Escrow Agents may do or refrain from doing in connection herewith, unless
caused by or arising out of the Escrow Agents' actual and intentional
misconduct;
(ii) The Escrow Agents shall be entitled to rely, and shall be
protected in acting in reliance, upon any writing furnished to the Escrow Agents
by either Seller or Schwarzkopf and shall be entitled to treat as genuine, and
as the document it purports to be, any letter, paper or other document furnished
to the Escrow Agents in connection with their role as Escrow Agents. The Escrow
Agents may rely on any affidavit of either Seller or Schwarzkopf or any other
person as to the existence of any facts stated therein to be known by the
affiant;
(iii) Schwarzkopf and Seller each agree to indemnify and hold harmless
the Escrow Agents against any and all losses, liabilities, costs (including
legal fees) and other expenses in any way incurred by the Escrow Agents in
connection with or as a result of any disagreement between Seller and
Schwarzkopf under this Agreement or otherwise incurred by the Escrow Agents in
any way on account of their role as escrow agents, except that neither
Schwarzkopf or Buyer shall have any obligation to pay the Escrow Agents any fee
for escrow services hereunder;
(iv) The Escrow Agents may resign at any time upon five (5) business
days' written notice to Seller and Schwarzkopf. Concurrently with such
resignation, the Escrow Agents shall cause the Deposit to be transferred to a
successor escrow agent designated in writing by Seller and Schwarzkopf, and
failing such designation, may transfer the Deposit to a bank account in the
joint names of Seller and Schwarzkopf; and
(v) The Escrow Agents shall not be disqualified from representing
Schwarzkopf or the Seller, as the case may be, in any dispute arising in
connection with this Agreement.
(vi) This Agreement may be executed by signatures transmitted by
facsimile and in any number of counterparts, each of which shall be an original
but all of which together shall constitute one and the same instrument.
SCHWARZKOPF TECHNOLOGIES CORPORATION
By:
Name: Xxxxxxxx Xxxxxxxxx
Title: Director
SEMX CORPORATION (Seller)
By:
Name: Xxxxxxx Xxxxx
Title: C.E.O.
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XXXXXX XXXXXXXXX
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XXXX SALON