EXHIBIT 2.1
EXECUTION COPY
STOCK PURCHASE AGREEMENT
AMONG
EMRISE ELECTRONICS CORPORATION
AND
THE SHAREHOLDERS
OF
RO ASSOCIATES INCORPORATED
EFFECTIVE AS OF
AUGUST 31, 2005
TABLE OF CONTENTS
PAGE
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1. Definitions....................................................................1
2. Purchase and Sale of Company Shares............................................6
2.1 Basic Transaction.....................................................6
2.2 Purchase Price........................................................6
2.3 Purchase Price Adjustments............................................6
3. The Closing....................................................................8
3.1 General...............................................................8
3.2 Documents to be Delivered to the Buyer................................8
3.3 Documents to be Delivered by the Buyer................................8
4. Representations and Warranties Concerning the Transaction......................9
4.1 Representations and Warranties of the Sellers.........................9
4.2 Representations and Warranties of the Buyer..........................10
5. Representations and Warranties Concerning the Company and the Subsidiary......11
5.1 Organization, Qualification, and Corporate Power.....................11
5.2 Capitalization.......................................................11
5.3 Noncontravention.....................................................11
5.4 Brokers' Fees........................................................12
5.5 Title to Assets......................................................12
5.6 Subsidiary...........................................................12
5.7 Financial Statements.................................................12
5.8 Events Subsequent to Most Recent Fiscal Year End.....................13
5.9 Undisclosed Liabilities..............................................15
5.10 Legal Compliance.....................................................15
5.11 Tax Matters..........................................................15
5.12 Real Property........................................................17
5.13 Intellectual Property................................................17
5.14 Tangible Assets......................................................19
5.15 Inventory............................................................19
5.16 Contracts............................................................20
5.17 Notes and Accounts Receivable........................................21
5.18 Powers of Attorney...................................................21
5.19 Insurance............................................................21
5.20 Litigation...........................................................22
5.21 Product Warranty.....................................................22
5.22 Product Liability....................................................22
5.23 Employees............................................................22
5.24 Employee Benefits....................................................23
5.25 Guaranties...........................................................25
5.26 Environmental, Health, and Safety Matters............................25
5.27 Certain Business Relationships with the Company and the Subsidiary...26
5.28 Disclosure...........................................................26
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6. Post-Closing Covenants........................................................26
6.1 General..............................................................26
6.2 Litigation Support...................................................26
6.3 Transition...........................................................27
6.4 Confidentiality......................................................27
6.5 Non-Competition......................................................27
6.6 Termination of Profit Sharing Plan...................................29
6.7 Collection of ACBEL Receivable. ....................................29
7. Remedies for Breaches of This Agreement.......................................30
7.1 Survival of Representations and Warranties...........................30
7.2 Indemnification Provisions for Benefit of the Buyer..................30
7.3 Indemnification Provisions for Benefit of the Sellers................31
7.4 Matters Involving Third Parties......................................31
7.5 Set Off..............................................................32
7.6 Other Indemnification Provisions.....................................33
8. Miscellaneous.................................................................33
8.1 Press Releases and Public Announcements..............................33
8.2 No Third-Party Beneficiaries.........................................33
8.3 Entire Agreement.....................................................33
8.4 Succession and Assignment............................................33
8.5 Counterparts.........................................................34
8.6 Headings.............................................................34
8.7 Notices..............................................................34
8.8 Governing Law........................................................34
8.9 Amendments and Waivers...............................................35
8.10 Severability.........................................................35
8.11 Expenses.............................................................35
8.12 Construction.........................................................35
8.13 Incorporation of Exhibits and Schedules..............................35
8.14 Specific Performance.................................................35
Exhibit A - Financial Statements
Exhibit B - Form of Facility Lease Agreement
Exhibit C - Form of Employment Agreement
Exhibit D - Form of Opinion of Counsel to the Company
Exhibit E - Form of Opinion of Counsel to the Buyer
Appendix I - Disclosure Schedule
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "AGREEMENT") is entered into
effective as of August 31, 2005 (the "EFFECTIVE DATE"), by and among EMRISE
ELECTRONICS CORPORATION, a New Jersey corporation (the "BUYER"), Xxxxxx X.
Xxxxx, as Trustee of the Xxxxxx X. Xxxxx Trust Agreement dated February 11, 1992
(the "OKADA TRUST"), and Xxxxxx Xxxxx, an individual ("XXXXX"). The Okada Trust
and Xxxxx are each referred to herein as a "SELLER" and collectively the
"SELLERS." The Buyer and the Sellers are each referred to herein as a "PARTY"
and collectively as the "PARTIES."
R E C I T A L S
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A. The Sellers in the aggregate own all of the outstanding common stock
of RO Associates Incorporated, a California corporation (the "COMPANY"), which
common stock comprises all of the capital stock of the Company.
B. This Agreement contemplates a transaction in which the Buyer will
purchase from the Sellers, and the Sellers will sell to the Buyer, all of the
outstanding common stock of the Company in return for the consideration
described in SECTION 2.2.
NOW, THEREFORE, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows.
1. DEFINITIONS.
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"ACBEL" means ACBEL Polytech, Inc.
"ACCOUNTANTS" has the meaning set forth in SECTION 2.3(B).
"ADVERSE CONSEQUENCES" means all actions, suits, proceedings,
hearings, investigations, charges, complaints, claims, demands, injunctions,
judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs,
amounts paid in settlement, Liabilities, obligations, Taxes, liens, losses,
expenses, and fees, including court costs and attorneys' fees and expenses.
"AFFILIATE" has the meaning set forth in Rule 12b-2 of the
regulations promulgated under the Exchange Act.
"AFFILIATED GROUP" means any affiliated group within the
meaning of Code Section 1504(a) or any similar group defined under a similar
provision of state, local or foreign law.
"BASIS" means any past or present fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction that forms or could form the
basis for any specified consequence.
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"BUYER" has the meaning set forth in the preface above.
"BUSINESS" means the manufacturing and sale of standard
high-density AC to DC, and DC to DC converters (i.e., power supplies) conducted
by the Company.
"BUSINESS DAY" means any day other than a Saturday, Sunday, or
day on which commercial banks are authorized by law to close in the State of
California.
"CASPIAN" means Caspian Associates, California general
partnership and an Affiliate of the Sellers.
"CLOSING" has the meaning set forth in SECTION 3.1.
"CLOSING BALANCE SHEETS" has the meaning set forth in SECTION
2.3(a).
"CLOSING DATE" has the meaning set forth in SECTION 3.1.
"CLOSING STATEMENT" has the meaning set forth in SECTION
2.3(a).
"COBRA" means the requirements of Part 6 of Subtitle B of
Title I of ERISA and Code Section 4980B and of any similar state law.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMPANY" has the meaning set forth in the recitals above.
"COMPANY SHARE" means any share of the common stock, no par
value per share, of the Company.
"CONFIDENTIAL INFORMATION" means any information concerning
the businesses and affairs of the Company or the Subsidiary that is not already
generally available to the public.
"CONTROLLED GROUP" has the meaning set forth in Code Section
1563.
"DEFERRED INTERCOMPANY TRANSACTION" has the meaning set forth
in Reg. Section 1.1502-13 under the Code.
"DISCLOSURE SCHEDULE" has the meaning set forth in SECTION 5.
"EFFECTIVE DATE" has the meaning set forth in the preface
above.
"EMPLOYEE BENEFIT PLAN" means any "EMPLOYEE BENEFIT PLAN" (as
such term is defined in ERISA Section 3(3)) and any other employee benefit plan,
program or arrangement of any kind.
"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in
ERISA Section 3(2).
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"EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in
ERISA Section 3(1).
"EMPLOYMENT AGREEMENT" has the meaning set forth in SECTION
3.2(c).
"ENVIRONMENTAL, HEALTH, AND SAFETY REQUIREMENTS" shall mean
all federal, state, local and foreign statutes, regulations, ordinances and
other provisions having the force or effect of law, all judicial and
administrative orders and determinations, all contractual obligations and all
common law concerning public health and safety, worker health and safety, and
pollution or protection of the environment, including without limitation all
those relating to the presence, use, production, generation, handling,
transportation, treatment, storage, disposal, distribution, labeling, testing,
processing, discharge, release, threatened release, control, or cleanup of any
hazardous materials, substances or wastes, chemical substances or mixtures,
pesticides, pollutants, contaminants, toxic chemicals, petroleum products or
byproducts, asbestos, polychlorinated biphenyls, noise or radiation, each as
amended and as now or hereafter in effect.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"ERISA AFFILIATE" means each entity which is treated as a
single employer with the Company for purposes of Code Section 414.
"EXCESS LOSS ACCOUNT" has the meaning set forth in Reg.
Section 1.1502-19 under the Code.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"FACILITY LEASE AGREEMENT" has the meaning set forth in
SECTION 3.2(b).
"FIDUCIARY" has the meaning set forth in ERISA Section 3(21).
"FINAL CLOSING STATEMENT" has the meaning set forth in SECTION
2.3(b).
"FINANCIAL STATEMENTS" has the meaning set forth in SECTION
5.7.
"GAAP" means United States generally accepted accounting
principles as in effect from time to time.
"INDEMNIFIED PARTY" has the meaning set forth in SECTION
7.4(a).
"INDEMNIFYING PARTY" has the meaning set forth in SECTION
7.4(a).
"INTELLECTUAL PROPERTY" means (a) all inventions (whether
patentable or unpatentable and whether or not reduced to practice), all
improvements thereto, and all patents, patent applications, and patent
disclosures, together with all reissuances, continuations,
continuations-in-part, revisions, extensions, and reexaminations thereof, (b)
all trademarks, service marks, trade dress, logos, trade names, and corporate
names, together with all translations, adaptations, derivations, and
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combinations thereof and including all goodwill associated therewith, and all
applications, registrations, and renewals in connection therewith, (c) all
copyrightable works, all copyrights, and all applications, registrations, and
renewals in connection therewith, (d) all mask works and all applications,
registrations, and renewals in connection therewith, (e) all trade secrets and
confidential business information (including ideas, research and development,
know-how, formulas, compositions, manufacturing and production processes and
techniques, technical data, designs, drawings, specifications, customer and
supplier lists, pricing and cost information, and business and marketing plans
and proposals), (f) all computer software (including data and related
documentation), (g) all other proprietary rights, and (h) all copies and
tangible embodiments thereof (in whatever form or medium).
"INTELLECTUAL PROPERTY RIGHTS" means patents, provisional
patents, copyrights, registrations of mask works, and trademark, service xxxx or
trade name registrations.
"KNOWLEDGE" means actual knowledge after reasonable
investigation.
"LIABILITY" means any liability (whether known or unknown,
whether asserted or unasserted, whether absolute or contingent, whether accrued
or unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"MATERIAL ADVERSE EFFECT" means a material and adverse effect
on the business, assets or financial condition of a Person, taken as a whole.
"MOST RECENT BALANCE SHEETS" means the balance sheets
contained within the Most Recent Financial Statements.
"MOST RECENT FINANCIAL STATEMENTS" has the meaning set forth
in SECTION 5.7.
"MOST RECENT FISCAL MONTH END" has the meaning set forth in
SECTION 5.7.
"MOST RECENT FISCAL YEAR END" has the meaning set forth in
SECTION 5.7.
"MULTIEMPLOYER PLAN" has the meaning set forth in ERISA
Section 3(37).
"OKADA TRUST" has the meaning set forth in the preface above.
"ORDINARY COURSE OF BUSINESS" means the ordinary course of
business consistent with past custom and practice (including with respect to
quantity and frequency).
"PARTY" has the meaning set forth in the preface above.
"PBGC" means the Pension Benefit Guaranty Corporation.
"PERSON" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, or a governmental entity (or any department, agency, or political
subdivision thereof).
"PRODUCTS" means the products manufactured by the Company.
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"PROFIT SHARING PLAN" means The RO Profit Sharing Plan dated
effective June 1, 1973.
"PROHIBITED TRANSACTION" has the meaning set forth in ERISA
Section 406 and Code Section 4975.
"PURCHASE PRICE" has the meaning set forth in SECTION 2.2.
"PURCHASE PRICE ADJUSTMENT" has the meaning set forth in
SECTION 2.3(c).
"REPORTABLE EVENT" has the meaning set forth in ERISA Section
4043.
"RESTRICTED PERIOD" has the meaning set forth in SECTION
6.5(a).
"RESTRICTED TERRITORY" means all states, territories,
districts, provinces and commonwealths of the United States, and Canada and
throughout the world in which the Company has conducted any aspect of the
Business, and all states, territories, districts and commonwealths of the United
States, Canada and throughout the world in which the Buyer conducts its business
(including, without limitation, the Business of the Company) hereafter.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITY INTEREST" means any mortgage, pledge, lien or other
security interest, other than (a) mechanic's, materialmen's, and similar liens,
(b) liens for Taxes not yet due and payable or for Taxes that the taxpayer is
contesting in good faith through appropriate proceedings, (c) purchase money
liens and liens securing rental payments under capital lease arrangements, and
(d) other liens arising in the Ordinary Course of Business and not incurred in
connection with the borrowing of money.
"SELLER" has the meaning set forth in the preface above.
"SJNB" means San Xxxx National Bank.
"SUBSIDIARY" means RO International, a California corporation
and a wholly-owned subsidiary of the Company.
"TAX" means any federal, state, local, or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under Code
Section 59A), customs duties, capital stock, franchise, profits, withholding,
social security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax of any kind whatsoever, including any interest,
penalty, or addition thereto, whether disputed or not.
"TAX RETURN" means any return, declaration, report, claim for
refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
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"THIRD PARTY CLAIM" has the meaning set forth in SECTION
7.4(a).
"XXXXX" has the meaning in the preface above.
2. PURCHASE AND SALE OF COMPANY SHARES.
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2.1 BASIC TRANSACTION. On and subject to the terms and
conditions of this Agreement, the Buyer agrees to purchase from each of the
Sellers, and each of the Sellers agrees to sell to the Buyer, all of his or its
Company Shares for the consideration specified in SECTION 2.2. The consideration
set forth in SECTION 2.2 shall be the aggregate consideration delivered by the
Buyer to the Sellers. Such aggregate consideration shall be divided pro-rata
among the Sellers based upon their respective percentage ownership of the
Company Shares on the Effective Date in relation to all of the Company Shares as
set forth in Section 5.2 of the Disclosure Schedule.
2.2 PURCHASE PRICE. Subject to SECTION 2.3, the Buyer agrees
to pay to the Sellers an aggregate purchase price (the "PURCHASE PRICE")
comprised of the following elements:
(a) cash in the amount of Two Million Four Hundred
Thousand Dollars ($2,400,000), payable at the Closing to Fenwick & West, LLP,
counsel to the Company; and
(b) cash in the amount equal to the amount received
by the Buyer or the Company after the Effective Date from ACBEL relating to
amounts owed by ACBEL to the Company, up to an aggregate amount of $600,000,
payable within five (5) Business Days of the receipt by the Buyer or the Company
of such amounts from ACBEL to the Sellers in proportion to their respective
percentage ownership interests in the Company as set forth in Section 5.2 of the
Disclosure Schedule.
2.3 PURCHASE PRICE ADJUSTMENTS.
(a) CLOSING BALANCE SHEETS. Within forty-five (45)
days after Closing, the Sellers shall deliver to the Buyer (i) the consolidated,
unaudited balance sheets of the Company as of the Effective Date, prepared in
accordance with GAAP consistently applied, except for the absence of footnotes
and annual year-end adjustments (the "CLOSING BALANCE SHEETS"), and (ii) a
preliminary written determination (the "CLOSING STATEMENT") of the Purchase
Price Adjustment (as defined in SECTION 2.3(c)). The Sellers shall cooperate
fully and completely in responding to questions and requests for information
submitted by the Buyer or its representatives in connection with the preparation
of the Closing Statement, and shall, with reasonable prior notice, provide them
with full access to all books and records of Sellers, as well as to the
personnel and work papers of Sellers' accountants of a nature customarily made
available to audit reviewers, in any way relating to the preparation of the
Closing Statement.
(b) REVIEW OF CLOSING STATEMENT. If within thirty
(30) days following delivery of the items described in clauses (i) through (ii)
of SECTION 2.3(a), the Buyer does not give the Sellers written notice objecting
to the Closing Statement (specifying (i) its calculations of the Purchase Price
Adjustment and (ii) the facts and circumstances supporting the reasonableness
and propriety of such adjustment under the standards set forth in SECTION
2.3(c)), the Purchase Price Adjustment reflected on the Closing Statement shall
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be conclusive and binding on the parties. If the Buyer timely gives such notice
of objection, then the Sellers and the Buyer shall attempt in good faith to
mutually resolve all such objections. If they have not done so (in writing)
within fifteen (15) days of Buyer's notice of objection, then the issues in
dispute shall be promptly submitted to a nationally recognized firm of certified
public accountants selected by the mutual agreement of the Sellers and the Buyer
(the "ACCOUNTANTS") for resolution. If the Sellers and the Buyer cannot agree
within fifteen (15) days on the selection of the Accountants, then the
Accountants will be selected by mutual agreement of the then primary firm of
independent public accountants of each of the Sellers and the Buyer. If issues
in dispute are submitted to the Accountants for resolution, (i) each party shall
promptly furnish to the Accountants such workpapers and other documents and
information relating to the disputed issues as the Accountants may request and
are available to that party (or its independent public accountants), and shall
be afforded the opportunity to present to the Accountants any material relating
to the determination and to discuss the determination with the Accountants, and
(ii) the Accountants shall promptly determine the Purchase Price Adjustment in
accordance with GAAP consistently applied and notify the parties thereof in a
written notice (the "FINAL CLOSING STATEMENT") delivered to both parties by the
Accountants, which shall be binding and conclusive on the parties. The Buyer, on
the one hand, and the Sellers, on the other, shall each pay 50% of the fees and
expenses of the Accountants. The fees and expenses of the independent
accountants of the Buyer and the Sellers shall be paid by the Buyer and the
Sellers, respectively.
(C) PURCHASE PRICE ADJUSTMENT.
(i) The "PURCHASE PRICE ADJUSTMENT" shall
mean the absolute value of the sum of (X) and (Y), where (X) equals the amount
of the Company's shareholders' equity as reflected on the Closing Balance Sheets
minus $2,000,000 (provided the difference results in a negative number,
otherwise the value of (X) shall be deemed to equal zero), and (Y) equals the
sum of (A) the difference between the amount of the Company's accounts
receivable as reflected on the Closing Balance Sheets and $675,000 (if such
amount on the Closing Balance Sheets is less than $675,000, the difference shall
be expressed as a negative number and if such amount on the Closing Balance
Sheets is greater than $675,000, the difference shall be expressed as a positive
number), (B) the difference between the amount of the Company's accounts payable
as reflected on the Closing Balance Sheets and $700,000 (if such amount on the
Closing Balance Sheets is greater than $700,000, the difference shall be
expressed as a negative number and if such amount on the Closing Balance Sheets
is less than $700,000, the difference shall be expressed as a positive number),
(C) the difference between the amount of the Company's cash as reflected on the
Closing Balance Sheets and $50,000 (if such amount on the Closing Balance Sheets
is less than $50,000, the difference shall be expressed as a negative number and
if such amount is greater than $50,000, the difference shall be expressed as a
positive number), and (D) the difference between the amount of the Company's net
inventory as reflected on the Closing Balance Sheets and $3,000,000 (if such
amount on the Closing Balance Sheets is less than $3,000,000, the difference
shall be expressed as a negative number and if such amount is greater than
$3,000,000, the difference shall be expressed as a positive number), provided
that the mathematical sum of (A), (B), (C) and (D) equals a negative number,
otherwise the value of (Y) shall be deemed to equal zero.
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(ii) On or before the fifth (5th) Business
Day following the final determination of the Purchase Price Adjustment, the
Sellers shall pay to the Buyer an amount equal to the Purchase Price Adjustment,
if any. Any payment made pursuant to this SECTION 2.3(c) shall be made by wire
transfer of immediately available funds to the account designated in writing by
the Buyer; PROVIDED, HOWEVER, that to the extent the Buyer has not made any
payments to the Sellers pursuant to SECTION 2.2(b), and the obligation to make
such payment occurs within the time Sellers are required to make a payment to
Buyer under this SECTION 2.3(c)(ii), at Buyer's election, Buyer may offset
amounts it otherwise owes to the Sellers under SECTION 2.2(b) by the amount the
Sellers owe to the Buyer under this SECTION 2.3(c)(ii) in accordance with the
provisions of SECTION 7.5.
3. THE CLOSING.
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3.1 GENERAL. The closing of the transactions contemplated by
this Agreement (the "CLOSING") shall take place on September 2, 2005 (the
"CLOSING DATE").
3.2 DOCUMENTS TO BE DELIVERED TO THE BUYER. At the Closing,
the following shall be delivered to the Buyer:
(a) each Seller shall deliver to the Buyer stock
certificates representing all of his or her Company Shares, endorsed in blank or
accompanied by duly executed assignment documents;
(b) Caspian shall execute and deliver to the Buyer a
lease agreement dated effective as of September 1, 2005 (the "FACILITY LEASE
AGREEMENT") with the Buyer for the lease by Buyer of 25,700 square feet of the
approximately 30,700 square foot facility located at 000 Xxxxxxx Xxxxx, a copy
of which is attached hereto as EXHIBIT B;
(c) Xxxxxxx Xxxxx shall execute and deliver to the
Buyer the employment agreement dated effective as of September 1, 2005 (the
"EMPLOYMENT AGREEMENT") with the Buyer, a copy of which is attached hereto as
EXHIBIT C;
(d) an opinion of Fenwick & West, LLP, counsel to the
Company, a copy of which is attached hereto as EXHIBIT D;
(e) resignations, effective as of the Effective Date,
of each director and officer of the Company and the Subsidiary;
(f) copies of all consents required to effectuate
this Agreement; and
(g) good standing certificate for the Company and the
Subsidiary from the Secretary of State of California and from the appropriate
state authorities in each jurisdiction in which the Company and the Subsidiary
are qualified to do business, dated not more than thirty (30) days prior to the
Closing Date.
3.3 DOCUMENTS TO BE DELIVERED BY THE BUYER. At the Closing,
the following shall be delivered by the Buyer:
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(a) the consideration specified in SECTION 2.2(a) by
wire transfer to the account of Fenwick & West, LLP;
(b) to Caspian, the Facility Lease Agreement executed
by the Buyer;
(c) to Xxxxxxx Xxxxx, the Employment Agreement
executed by the Buyer;
(d) to the Sellers, an opinion of Xxxxx & Xxxxxx,
LLP, counsel to the Buyer, a copy of which is attached hereto as EXHIBIT E;
(e) to the Sellers, copies of resolutions of the
Board of Directors of the Buyer authorizing and approving this Agreement and all
other transactions and agreements contemplated hereby;
(f) to the Sellers, a letter from SJNB confirming
that (A) all SNJB credit facilities for the Company have been paid in full and
any associated line of credit, promissory notes and /or loan agreements (along
with any amendments thereto) have been terminated, (B) SJNB has released any and
all liens against the Company's assets, (C) any and all obligations of Caspian
with respect to the Company's credit facilities referenced above, including
Caspian's obligations as guarantor with respect to such credit facilities, have
been fully performed, and (D) Caspian has been released for any and all
obligation with respect to such credit facilities.
4. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION.
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4.1 REPRESENTATIONS AND WARRANTIES OF THE SELLERS. Each
Seller, severally and not jointly, represents and warrants to the Buyer that the
statements contained in this SECTION 4.1 are correct and complete as of the
Effective Date, except as set forth in the Disclosure Schedule delivered by the
Sellers to the Buyer on the date hereof and attached hereto as APPENDIX I (the
"DISCLOSURE SCHEDULE").
(a) AUTHORIZATION OF TRANSACTION. This Agreement
constitutes the valid and legally binding obligation of such Seller, enforceable
in accordance with its terms and conditions. Such Seller need not give any
notice to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order to consummate the
transactions contemplated by this Agreement.
(b) NONCONTRAVENTION. Neither the execution and the
delivery of this Agreement by such Seller, nor the consummation by such Seller
of the transactions contemplated hereby, will (i) violate any constitution,
statute, regulation, rule, injunction, judgment, order, decree, ruling, or other
restriction of any government, governmental agency, or court to which such
Seller is subject, or (ii) result in a breach of, constitute a default under,
result in the acceleration of, create in any party the right to accelerate,
terminate, modify, or cancel, or require any notice under any agreement,
contract, lease, license, instrument, or other arrangement to which such Seller
is a party.
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(C) BROKERS' FEES. Such Seller has no Liability or
obligation to pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement other than the fees
payable to the parties set forth in SectionS 4.1(c) and 5.4 of the Disclosure
Schedule.
(D) COMPANY SHARES. Such Seller holds of record and
owns beneficially the number of Company Shares set forth next to his or her name
in Section 5.2 of the Disclosure Schedule, free and clear of any restrictions on
transfer (other than any restrictions under the Securities Act and state
securities laws), Taxes, Security Interests, options, warrants, purchase rights,
contracts, commitments, equities or claims. The Seller is not a party to any
option, warrant, purchase right, or other contract or commitment that could
require such Seller to sell, transfer, or otherwise dispose of any capital stock
of the Company (other than this Agreement). Such Seller is not a party to any
voting trust, proxy, or other agreement or understanding with respect to the
voting of any capital stock of the Company.
4.2 REPRESENTATIONS AND WARRANTIES OF THE BUYER. The Buyer
represents and warrants to the Sellers as follows:
(a) ORGANIZATION OF THE BUYER. The Buyer is a
corporation duly organized, validly existing, and in good standing under the
laws of the jurisdiction of its incorporation. The Buyer is authorized to do
business as a foreign corporation in the State of California.
(b) AUTHORIZATION OF TRANSACTION. The Buyer has full
power and authority (including full corporate power and authority) to execute
and deliver this Agreement and to perform its obligations hereunder. This
Agreement has been duly authorized, executed and delivered by the Buyer and
constitutes the valid and legally binding obligation of the Buyer, enforceable
in accordance with its terms and conditions. The Buyer need not give any notice
to, make any filing with, or obtain any authorization, consent, or approval of
any government or governmental agency in order to consummate the transactions
contemplated by this Agreement.
(c) NONCONTRAVENTION. Neither the execution and the
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will (i) violate any constitution, statute, regulation,
rule, injunction, judgment, order, decree or other restriction of any
government, governmental agency, or court to which the Buyer is subject or any
provision of its charter or bylaws or (ii) result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to which
the Buyer is a party. The Buyer is not required to give any notice to, make any
filing with, or obtain any authorization, consent, or approval of any government
or governmental agency in order for the Parties to consummate the transactions
provided for in this Agreement.
(d) BROKERS' FEES. The Buyer has no Liability or
obligation to pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement.
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(e) INVESTMENT. The Buyer is not acquiring the
Company Shares with a view to or for sale in connection with any distribution
thereof within the meaning of the Securities Act.
5. REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY AND THE
-------------------------------------------------------------
SUBSIDIARY.
-----------
The Sellers, severally and not jointly, represent and warrant
to the Buyer that the statements contained in this SECTION 5 are correct and
complete as of the Effective Date, except as set forth in the Disclosure
Schedule.
5.1 ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. Each of
the Company and the Subsidiary is a corporation duly organized, validly
existing, and in good standing under the laws of the jurisdiction of its
incorporation. Each of the Company and the Subsidiary is duly authorized to
conduct business and is in good standing under the laws of each jurisdiction
where the failure to obtain such qualification would have a Material Adverse
Effect. Each of the Company and the Subsidiary has full corporate power and
authority and all licenses, permits, and authorizations necessary to carry on
the businesses in which it is engaged and in which it presently proposes to
engage and to own and use the properties owned and used by it. Section 5.1 of
the Disclosure Schedule lists the directors and officers of the Company and the
Subsidiary as of the date hereof. The Sellers have delivered to the Buyer
correct and complete copies of the charter and bylaws of each of the Company and
the Subsidiary (as amended to date). The minute books (containing the records of
meetings of the shareholders, the board of directors, and any committees of the
board of directors), the stock certificate books, and the stock record books of
each of the Company and Subsidiary are correct and complete. Neither the Company
nor the Subsidiary is in default under or in violation of any provision of its
charter or bylaws.
5.2 CAPITALIZATION. The entire authorized capital stock of the
Company consists of 7,500 Company Shares, of which 1,210 Company Shares are
issued and outstanding. All of the issued and outstanding Company Shares have
been duly authorized, are validly issued, fully paid, and nonassessable, and are
held of record by the respective Sellers as set forth in Section 5.2 of the
Disclosure Schedule. There are no outstanding or authorized options, warrants,
purchase rights, subscription rights, conversion rights, exchange rights, or
other contracts or commitments that could require the Company to issue, sell, or
otherwise cause to become outstanding any of its capital stock. There are no
outstanding or authorized stock appreciation, phantom stock, profit
participation stock rights, or similar rights with respect to the Company. There
are no voting trusts, proxies, or other agreements or understandings with
respect to the voting of the capital stock of the Company.
5.3 NONCONTRAVENTION. Neither the execution and the delivery
of this Agreement, nor the consummation of the transactions contemplated hereby,
will (a) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling or other restriction of any government,
governmental agency, or court to which either the Company or the Subsidiary is
subject or any provision of the charter or bylaws of either the Company or the
Subsidiary or (b) result in a breach of, constitute a default under, result in
the acceleration of, create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under any agreement, contract, lease,
license, instrument, or other arrangement to which either the Company or the
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Subsidiary is a party or by which it is bound or to which any of its assets is
subject (or result in the imposition of any Security Interest upon any of its
assets). Neither the Company nor the Subsidiary needs to give any notice to,
make any filing with, or obtain any authorization, consent, or approval of any
government or governmental agency in order for the Parties to consummate the
transactions contemplated by this Agreement.
5.4 BROKERS' FEES. Neither the Company nor the Subsidiary has
any Liability or obligation to pay any fees or commissions to any broker,
finder, or agent with respect to the transactions contemplated by this
Agreement. All fees payable to the parties set forth on Section 5.4 of the
Disclosure Schedule shall be paid by the Sellers.
5.5 TITLE TO ASSETS. The Company and the Subsidiary have good
and marketable title to, or a valid leasehold interest in, the properties and
assets used by them, located on their premises, or shown on the Most Recent
Balance Sheets or acquired after the date thereof, free and clear of all
Security Interests, except for properties and assets disposed of in the Ordinary
Course of Business since the date of the Most Recent Balance Sheets.
5.6 SUBSIDIARY. Section 5.6 of the Disclosure Schedule sets
forth for the Subsidiary (i) its name and jurisdiction of incorporation, (ii)
the number of shares of authorized capital stock of each class of its capital
stock, (iii) the number of issued and outstanding shares of each class of its
capital stock, the names of the holders thereof, and the number of shares held
by each such holder, and (iv) the number of shares of its capital stock held in
treasury. All of the issued and outstanding shares of capital stock of the
Subsidiary have been duly authorized and are validly issued, fully paid, and
nonassessable. The Company holds of record and owns beneficially all of the
outstanding shares of capital stock of the Subsidiary, free and clear of any
restrictions on transfer (other than restrictions under the Securities Act and
state securities laws), Taxes, Security Interests, options, warrants, purchase
rights, contracts, commitments, equities or claims. There are no outstanding or
authorized options, warrants, purchase rights, subscription rights, conversion
rights, exchange rights, or other contracts or commitments that could require
either of the Company and the Subsidiary to sell, transfer, or otherwise dispose
of any capital stock of the Subsidiary or that could require the Subsidiary to
issue, sell, or otherwise cause to become outstanding any of its own capital
stock. There are no outstanding stock appreciation, phantom stock, profit
participation stock rights, or similar rights with respect to the Subsidiary.
There are no voting trusts, proxies, or other agreements or understandings with
respect to the voting of any capital stock of the Subsidiary. Neither the
Company nor the Subsidiary controls directly or indirectly or has any direct or
indirect equity participation in any corporation, partnership, trust, or other
business association.
5.7 FINANCIAL STATEMENTS. Attached hereto as EXHIBIT A are the
following financial statements (collectively the "FINANCIAL STATEMENTS"): (i)
audited consolidated and unaudited consolidating balance sheets and statements
of income, changes in stockholders' equity, and cash flow as of and for the
fiscal years ended May 31, 2001, May 31, 2002, May 31, 2003, May 31, 2004, and
May 31, 2005 (the "MOST RECENT FISCAL YEAR END") for the Company and the
Subsidiary; and (ii) unaudited consolidated and consolidating balance sheets and
statements of income, changes in stockholders' equity, and cash flow (the "MOST
RECENT FINANCIAL STATEMENTS") as of and for the two (2) months ended July 31,
12
2005 (the "MOST RECENT FISCAL MONTH END") for the Company and the Subsidiary.
The Financial Statements (including the notes thereto) have been prepared in
accordance with GAAP applied on a consistent basis throughout the periods
covered thereby, other than the absence of footnotes and annual year-end
adjustments with respect to the unaudited financial statements, present fairly
the financial condition of the Company and the Subsidiary as of such dates and
the results of operations of the Company and the Subsidiary for such periods,
are correct and complete, and are consistent with the books and records of the
Company and the Subsidiary (which books and records are correct and complete).
5.8 EVENTS SUBSEQUENT TO MOST RECENT FISCAL YEAR END. Since
the Most Recent Fiscal Year End, there has not been any Material Adverse Effect
of either the Company or the Subsidiary. Without limiting the generality of the
foregoing, since that date:
(a) neither the Company nor the Subsidiary has sold,
leased, transferred, or assigned any of its assets, tangible or intangible,
other than for a fair consideration in the Ordinary Course of Business;
(b) neither the Company nor the Subsidiary has
entered into any agreement, contract, lease, or license (or series of related
agreements, contracts, leases, and licenses) either involving more than $50,000
or outside the Ordinary Course of Business;
(c) no party (including the Company and the
Subsidiary) has accelerated, terminated, modified, or cancelled any agreement,
contract, lease, or license (or series of related agreements, contracts, leases,
and licenses) involving more than $50,000 to which either the Company or the
Subsidiary is a party or by which either of them is bound;
(d) neither the Company nor the Subsidiary has
granted any Security Interest upon any of its assets, tangible or intangible;
(e) neither the Company nor the Subsidiary has made
any capital expenditure (or series of related capital expenditures) either
involving more than $50,000 or outside the Ordinary Course of Business;
(f) neither the Company nor the Subsidiary has made
any capital investment in, any loan to, or any acquisition of the securities or
assets of, any other Person (or series of related capital investments, loans,
and acquisitions) either involving more than $50,000 or outside the Ordinary
Course of Business;
(g) neither the Company nor the Subsidiary has issued
any note, bond, or other debt security or created, incurred, assumed, or
guaranteed any indebtedness for borrowed money or capitalized lease obligation
either involving more than $50,000 in the aggregate;
(h) neither the Company nor the Subsidiary has
delayed or postponed the payment of accounts payable and other Liabilities
outside the Ordinary Course of Business;
13
(i) neither the Company nor the Subsidiary has
cancelled, compromised, waived, or released any right or claim (or series of
related rights and claims) either involving more than $10,000 or outside the
Ordinary Course of Business;
(j) neither the Company nor the Subsidiary has
granted any license or sublicense of any rights under or with respect to any
Intellectual Property;
(k) there has been no change made or authorized in
the charter or bylaws of either the Company or the Subsidiary;
(l) neither the Company nor the Subsidiary has
issued, sold, or otherwise disposed of any of its capital stock, or granted any
options, warrants, or other rights to purchase or obtain (including upon
conversion, exchange, or exercise) any of its capital stock;
(m) neither the Company nor the Subsidiary has
declared, set aside, or paid any dividend or made any distribution with respect
to its capital stock (whether in cash or in kind) or redeemed, purchased, or
otherwise acquired any of its capital stock;
(n) neither the Company nor the Subsidiary has
experienced any damage, destruction, or loss (whether or not covered by
insurance) to its property in an amount greater than $10,000;
(o) neither the Company nor the Subsidiary has made
any loan to, or entered into any other transaction with, any of its directors,
officers, and employees outside the Ordinary Course of Business;
(p) neither the Company nor the Subsidiary has
entered into any employment contract or collective bargaining agreement, written
or oral, or modified the terms of any existing such contract or agreement;
(q) neither the Company nor the Subsidiary has
granted any increase in the base compensation of any of its directors, officers,
and employees outside the Ordinary Course of Business;
(r) except as contemplated by SECTION 6.6, neither
the Company nor the Subsidiary has adopted, amended, modified, or terminated any
bonus, profit-sharing, incentive, severance, or other plan, contract, or
commitment for the benefit of any of its directors, officers, and employees (or
taken any such action with respect to any other Employee Benefit Plan);
(s) neither the Company nor the Subsidiary has made
any other change in employment terms for any of its directors, officers, and
employees outside the Ordinary Course of Business;
(t) neither the Company nor the Subsidiary has made
or pledged to make any charitable or other capital contribution outside the
Ordinary Course of Business;
14
(u) there has not been any other occurrence, event,
incident, action, failure to act, or transaction outside the Ordinary Course of
Business involving the Company or the Subsidiary; and
(v) neither the Company nor the Subsidiary has
committed to any of the foregoing.
5.9 UNDISCLOSED LIABILITIES. Neither the Company nor the
Subsidiary has any Liability (and to the Knowledge of Sellers there is no Basis
for any present or future action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand against any of them giving rise to any
Liability), except for (i) Liabilities set forth on the face of the Most Recent
Balance Sheets (rather than in any notes thereto) and (ii) Liabilities which
have arisen after the Most Recent Fiscal Month End in the Ordinary Course of
Business (none of which results from, arises out of, relates to, is in the
nature of, or was caused by any breach of contract, breach of warranty, tort,
infringement, or violation of law).
5.10 LEGAL COMPLIANCE. Each of the Company and the Subsidiary
has complied with all applicable laws (including rules, regulations, codes,
plans, injunctions, judgments, orders, decrees, rulings, and charges thereunder)
of federal, state, local, and foreign governments (and all agencies thereof),
and no action, suit, proceeding, hearing, investigation, charge, complaint,
claim or demand has been filed or commenced against any of them alleging any
failure so to comply.
5.11 TAX MATTERS.
(a) Each of the Company and the Subsidiary has filed
all Tax Returns that it was required to file. All such Tax Returns were correct
and complete in all respects. All Taxes due to be paid by the Company and the
Subsidiary (whether or not shown on any Tax Return) have been paid or have been
accrued in accordance with GAAP. Neither the Company nor the Subsidiary
currently is the beneficiary of any extension of time within which to file any
Tax Return. No claim has ever been made that has not been settled by an
authority in a jurisdiction where either the Company or the Subsidiary does not
file Tax Returns that it is or may be subject to taxation by that jurisdiction.
There are no Security Interests on any of the assets of either the Company or
the Subsidiary that arose in connection with any failure (or alleged failure) to
pay any Tax.
(b) Each of the Company and the Subsidiary has
withheld and paid all Taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, independent contractor,
creditor, stockholder, or other third party.
(c) No Seller or director or officer (or employee
responsible for Tax matters) of the Company or the Subsidiary expects any
governmental authority to assess any additional Taxes for any period for which
Tax Returns have been filed. There is no pending dispute or claim concerning any
Tax Liability of the Company or the Subsidiary either (i) claimed or raised by
any governmental authority in writing or (ii) as to which any of the Sellers and
the directors and officers (and employees responsible for Tax matters) of the
Company and the Subsidiary has Knowledge based upon personal contact with any
agent of such authority. Section 5.11(c) of the Disclosure Schedule lists all
15
federal, state, local, and foreign income Tax Returns filed with respect to the
Company and the Subsidiary for taxable periods ended on or after May 31, 2002,
indicates those Tax Returns that have been audited, and indicates those Tax
Returns that currently are the subject of audit. The Sellers have delivered to
the Buyer correct and complete copies of all federal income Tax Returns,
examination reports, and statements of deficiencies assessed against or agreed
to by the Company or the Subsidiary for the fiscal years ended May 31, 2002,
2003 and 2004.
(d) Neither the Company nor the Subsidiary has waived
any statute of limitations in respect of Taxes or agreed to any extension of
time with respect to a Tax assessment or deficiency.
(e) Neither the Company nor the Subsidiary has filed
a consent under Code Section 341(f) concerning collapsible corporations. Neither
the Company nor the Subsidiary has made any payments, is obligated to make any
payments, or is a party to any agreement that under certain circumstances could
obligate it to make any payments that will not be deductible under Code Section
280G. Neither the Company nor the Subsidiary has been a United States real
property holding corporation within the meaning of Code Section 897(c)(2) during
the applicable period specified in Code Section 897(c)(1)(A)(ii). Each of the
Company and the Subsidiary has disclosed on its federal income Tax Returns all
positions taken therein that could give rise to a substantial understatement of
federal income Tax within the meaning of Code Section 6662. Neither the Company
nor the Subsidiary is a party to any Tax allocation or sharing agreement.
Neither the Company nor the Subsidiary (i) has been a member of an Affiliated
Group filing a consolidated federal income Tax Return (other than a group the
common parent of which was the Company) or (ii) has any Liability for the Taxes
of any Person (other than the Company or the Subsidiary) under Reg. Section
1.1502-6 of the Code (or any similar provision of state, local, or foreign law),
as a transferee or successor, by contract, or otherwise.
(f) Section 5.11(f) of the Disclosure Schedule sets
forth the following information with respect to each of the Company and the
Subsidiary (or, in the case of clause (i) below, with respect to the Subsidiary)
as of the most recent practicable date (as well as on an estimated pro forma
basis as of the Effective Date giving effect to the consummation of the
transactions contemplated hereby): (i) the basis of the Company in the
Subsidiary's stock (or the amount of any Excess Loss Account), and (ii) the
amount of any deferred gain or loss allocable to the Company or the Subsidiary
arising out of any Deferred Intercompany Transaction.
(g) The unpaid Taxes of the Company and the
Subsidiary (i) did not, as of the Most Recent Fiscal Month End, exceed the
reserve for Tax Liability (rather than any reserve for deferred Taxes
established to reflect timing differences between book and Tax income) set forth
on the face of the Most Recent Balance Sheet (rather than in any notes thereto)
and (ii) do not exceed that reserve as adjusted for the passage of time through
the Effective Date in accordance with the past custom and practice of the
Company and the Subsidiary in filing their Tax Returns.
16
5.12 REAL PROPERTY.
(a) Neither the Company nor the Subsidiary owns any
real property.
(b) Section 5.12(b) of the Disclosure Schedule lists
and describes briefly all real property leased or subleased to the Company or
the Subsidiary. The Sellers have delivered to the Buyer correct and complete
copies of the leases and subleases listed in Section 5.12(b) of the Disclosure
Schedule (as amended to date). With respect to each lease and sublease listed in
Section 5.12(b) of the Disclosure Schedule:
(i) the lease or sublease is legal, valid,
binding, enforceable, and in full force and effect;
(ii) no party to the lease or sublease is in
breach or default, and no event has occurred which, with notice or
lapse of time, would constitute a breach or default or permit
termination, modification, or acceleration thereunder;
(iii) no party to the lease or sublease has
repudiated any provision thereof;
(iv) there are no disputes, oral agreements,
or forbearance programs in effect as to the lease or sublease;
(v) with respect to each sublease, the
representations and warranties set forth in subsections (i) through
(iv) above are true and correct with respect to the underlying lease;
(vi) neither the Company nor the Subsidiary
has assigned, transferred, conveyed, mortgaged, deeded in trust or
encumbered any interest in the leasehold or subleasehold;
(vii) all facilities leased or subleased
thereunder have received all approvals of governmental authorities
(including licenses and permits) required in connection with the
operation thereof and have been operated and maintained in accordance
with applicable laws, rules, and regulations; and
(viii) all facilities leased or subleased
thereunder are supplied with utilities and other services necessary for
the operation of said facilities.
5.13 INTELLECTUAL PROPERTY.
(a) The Company and the Subsidiary own or have the
right to use pursuant to license, sublicense, agreement, or permission all
Intellectual Property necessary for the operation of the businesses of the
Company and the Subsidiary as presently conducted. Each item of Intellectual
Property owned or used by any of the Company or the Subsidiary immediately prior
to the Effective Date will be owned or available for use by the Company or the
Subsidiary on identical terms and conditions immediately subsequent to the
Effective Date.
17
(b) Neither the Company nor the Subsidiary has
interfered with, infringed upon or misappropriated any Intellectual Property
Rights of third parties, and none of the Sellers has ever received any
complaint, claim, demand, or notice alleging any such interference,
infringement, misappropriation, or violation (including any claim that the
Company or the Subsidiary must license or refrain from using any Intellectual
Property Rights of any third party) that have not been withdrawn or settled. To
the Knowledge of the Sellers, no third party has interfered with, infringed upon
or misappropriated any Intellectual Property Rights of the Company or the
Subsidiary.
(c) Section 5.13(c) of the Disclosure Schedule
identifies each patent or registration which has been issued to the Company or
the Subsidiary with respect to any of its Intellectual Property, identifies each
pending patent application or application for such registration which the
Company or the Subsidiary has made with respect to any of its Intellectual
Property, and identifies each license, agreement, or other permission which the
Company or the Subsidiary has granted to any third party with respect to any of
its Intellectual Property (together with any exceptions). The Sellers have
delivered to the Buyer correct and complete copies of all such patents,
registrations, applications, licenses, agreements, and permissions (as amended
to date) and have made available to the Buyer correct and complete copies of all
other written documentation evidencing ownership and prosecution (if applicable)
of each such item. Section 5.13(c) of the Disclosure Schedule also identifies
each unregistered trade name or unregistered trademark used by the Company or
the Subsidiary in connection with any of its businesses. With respect to each
item of Intellectual Property required to be identified in Section 5.13(c) of
the Disclosure Schedule:
(i) the Company and the Subsidiary possess
all right, title, and interest in and to the item, free and clear of
any Security Interest, license, or other restriction on use;
(ii) the item is not subject to any
outstanding injunction, judgment, order, decree, ruling, or charge
naming the Company or the Subsidiary as a party;
(iii) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending or, to
the Seller's Knowledge, is threatened, which challenges the legality,
validity, enforceability, use, or ownership of the item; and
(iv) neither the Company nor the Subsidiary
has agreed to indemnify any Person for or against any interference,
infringement, misappropriation, or other conflict with respect to the
item.
(d) Section 5.13(d) of the Disclosure Schedule
identifies each item of Intellectual Property that any third party owns and that
the Company or the Subsidiary uses or that the Company or the Subsidiary owns
and that a third party uses pursuant to license, sublicense, agreement, or
permission. The Company has delivered to the Buyer correct and complete copies
of all such licenses, sublicenses, agreements, and permissions (as amended to
date). With respect to each item of Intellectual Property required to be
identified in Section 5.13(d) of the Disclosure Schedule:
18
(i) the license, sublicense, agreement, or
permission covering the item is legal, valid, binding, enforceable, and
in full force and effect;
(ii) the license, sublicense, agreement, or
permission will continue to be legal, valid, binding, enforceable, and
in full force and effect on identical terms following the consummation
of the transactions contemplated hereby;
(iii) to the Seller's Knowledge, no party to
the license, sublicense, agreement, or permission is in breach or
default, and no event has occurred which with notice or lapse of time
would constitute a breach or default or permit termination,
modification, or acceleration thereunder;
(iv) no party to the license, sublicense,
agreement, or permission has repudiated to the Company or the
Subsidiary any provision thereof;
(v) with respect to each sublicense, the
representations and warranties set forth in subsections (i) through
(iv) above are true and correct with respect to the underlying license;
(vi) the underlying item of Intellectual
Property is not subject to any outstanding injunction, judgment, order,
decree, ruling, or charge naming the Company or the Subsidiary as a
party;
(vii) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending or, to
the Seller's Knowledge, is threatened, which challenges the legality,
validity, or enforceability of the underlying item of Intellectual
Property; and
(viii) neither the Company nor the
Subsidiary has granted any sublicense or similar right with respect to
the license, sublicense, agreement, or permission.
(e) To the Knowledge of the Sellers, neither the
Company nor the Subsidiary will interfere with, infringe upon, misappropriate,
or otherwise come into conflict with, any Intellectual Property rights of third
parties as a result of the continued operation of its businesses as presently
conducted and as presently proposed to be conducted.
5.14 TANGIBLE ASSETS. The Company and the Subsidiary own or
lease all buildings, machinery, equipment, and other tangible assets necessary
for the conduct of their businesses as presently conducted. Each such tangible
asset is free from defects (patent and latent), has been maintained in
accordance with normal industry practice, is in good operating condition and
repair (subject to normal wear and tear), and is suitable for the purposes for
which it presently is used.
5.15 INVENTORY. The inventory of the Company and the
Subsidiary consists of raw materials and supplies, manufactured and purchased
parts, goods in process, and finished goods, all of which is merchantable and
fit for the purpose for which it was procured or manufactured, and none of which
is slow-moving, obsolete, damaged, or defective, subject only to the reserve for
inventory writedown set forth on the face of the Most Recent Balance Sheet
(rather than in any notes thereto) as adjusted for the passage of time through
the Effective Date in accordance with the past custom and practice of the
Company and the Subsidiary.
19
5.16 CONTRACTS. Section 5.16 of the Disclosure Schedule lists
the following currently effective contracts and other agreements to which the
Company or the Subsidiary is a party:
(a) any agreement (or group of related agreements)
for the lease of personal property to or from any Person providing for lease
payments in excess of $10,000 per annum;
(b) any agreement (or group of related agreements)
for the purchase or sale of raw materials, commodities, supplies, products, or
other personal property, or for the furnishing or receipt of services, the
performance of which will extend over a period of more than one year, result in
a loss to the Company or the Subsidiary, or involve consideration in excess of
$50,000;
(c) any agreement making the Company or the
Subsidiary a partner, member or equity owner in a partnership, limited liability
company or joint venture;
(d) any agreement (or group of related agreements)
under which it has created, incurred, assumed, or guaranteed any indebtedness
for borrowed money, or any capitalized lease obligation, in excess of $10,000 or
under which it has imposed a Security Interest on any of its assets, tangible or
intangible;
(e) any agreement concerning confidentiality or
noncompetition;
(f) any agreement with any of the Sellers and their
Affiliates (other than the Company and the Subsidiary);
(g) any profit sharing, stock option, stock purchase,
stock appreciation, deferred compensation, severance, or other plan or
arrangement for the benefit of its current or former directors, officers, and
employees;
(h) any collective bargaining agreement;
(i) any agreement for the employment of any
individual on a full-time, part-time, consulting, or other basis providing
annual compensation in excess of $50,000 or providing severance benefits;
(j) any agreement under which it has advanced or
loaned any amount to any of its directors, officers, and employees outside the
Ordinary Course of Business;
(k) any agreement under which the consequences of a
default or termination could have a Material Adverse Effect on the Company or
the Subsidiary; or
20
(l) any other agreement (or group of related
agreements) the performance of which involves consideration in excess of
$50,000.
The Sellers have delivered to the Buyer a correct and complete
copy of each written agreement listed in Section 5.16 of the Disclosure Schedule
and a written summary setting forth the terms and conditions of each oral
agreement referred to in Section 5.16 of the Disclosure Schedule. With respect
to each such agreement: (A) the agreement is legal, valid, binding, enforceable,
and in full force and effect; (B) the agreement will continue to be legal,
valid, binding, enforceable, and in full force and effect on identical terms
following the consummation of the transactions contemplated hereby; (C) to the
Seller's Knowledge, no party is in breach or default, and no event has occurred
which with notice or lapse of time would constitute a breach or default, or
permit termination, modification, or acceleration, under the agreement; and (D)
no party has repudiated to the Company or the Subsidiary any provision of the
agreement.
5.17 NOTES AND ACCOUNTS RECEIVABLE. All notes for funds loaned
by the Company and accounts receivable of the Company and the Subsidiary are
reflected properly on their books and records, are valid receivables subject to
no setoffs or counterclaims, are current and collectible, and will be collected
in accordance with their terms at their recorded amounts, subject only to the
reserve for bad debts set forth on the face of the Most Recent Balance Sheets
(rather than in any notes thereto) as adjusted for the passage of time through
the Effective Date in accordance with the past custom and practice of the
Company and the Subsidiary.
5.18 POWERS OF ATTORNEY. There are no outstanding powers of
attorney executed on behalf of the Company or the Subsidiary.
5.19 INSURANCE. Section 5.19 of the Disclosure Schedule sets
forth the following information with respect to each insurance policy (including
policies providing property, casualty, liability, and workers' compensation
coverage and bond and surety arrangements) to which the Company or the
Subsidiary is currently a party, a named insured, or otherwise the beneficiary
of coverage:
(a) the name, address, and telephone number of the
agent;
(b) the name of the insurer, the name of the
policyholder, and the name of each covered insured;
(c) the policy number and the period of coverage;
(d) the scope (including an indication of whether the
coverage was on a claims made, occurrence, or other basis) and amount (including
a description of how deductibles and ceilings are calculated and operate) of
coverage;
(e) any claim for coverage that has been denied
(including partially denied) or is being contested; and
(f) a description of any retroactive premium
adjustments or other loss-sharing arrangements.
21
With respect to each such insurance policy: (A) the policy is
in full force and effect; (B) the policy will continue to be in full force and
effect on identical terms following the consummation of the transactions
contemplated hereby; (C) neither the Company and the Subsidiary nor any other
party to the policy is in breach or default (including with respect to the
payment of premiums or the giving of notices), and no event has occurred which,
with notice or the lapse of time, would constitute such a breach or default, or
permit termination, modification, or acceleration, under the policy; and (D) no
party to the policy has repudiated any provision thereof. Each of the Company
and the Subsidiary has been covered during the past seven (7) years by insurance
in scope and amount customary and reasonable for the businesses in which it has
engaged during the aforementioned period. Section 5.19 of the Disclosure
Schedule describes any self-insurance arrangements affecting the Company or the
Subsidiary.
5.20 LITIGATION. Neither the Company nor the Subsidiary (i) is
subject to any outstanding injunction, judgment, order, decree, ruling, or
charge that names the Company or the Subsidiary or to which the Company or the
Subsidiary is bound or (ii) is a party or, to the Knowledge of the Sellers, is
threatened to be made a party to any action, suit, proceeding, hearing, or
investigation of, in, or before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction or before any
arbitrator.
5.21 PRODUCT WARRANTY. Each product manufactured, sold,
leased, or delivered by the Company or the Subsidiary has been in conformity
with all applicable contractual commitments and all express and implied
warranties, and neither the Company nor the Subsidiary has any Liability (and
there is no Basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against any of them giving
rise to any Liability) for replacement or repair thereof or other damages in
connection therewith, subject only to the reserve for product warranty claims
set forth on the face of the Most Recent Balance Sheet (rather than in any notes
thereto) as adjusted for the passage of time through the Effective Date in
accordance with the past custom and practice of the Company and the Subsidiary.
No product manufactured, sold, leased, or delivered by the Company or the
Subsidiary is subject to any guaranty, warranty, or other indemnity beyond the
applicable standard terms and conditions of sale or lease. Section 5.21 of the
Disclosure Schedule includes copies of the standard terms and conditions of sale
or lease for each of the Company and the Subsidiary (containing applicable
guaranty, warranty, and indemnity provisions).
5.22 PRODUCT LIABILITY. Neither the Company nor the Subsidiary
has any Liability (and there is no Basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand against
any of them giving rise to any Liability) arising out of any injury to
individuals or property as a result of the ownership, possession, or use of any
product manufactured, sold, leased, or delivered by the Company or the
Subsidiary.
5.23 EMPLOYEES. To the Knowledge of Sellers, no executive, key
employee, or group of employees has any plans to terminate employment with the
Company or the Subsidiary. Neither the Company nor the Subsidiary is a party to
or bound by any collective bargaining agreement, nor has any of them experienced
any strikes, grievances, claims of unfair labor practices, or other collective
bargaining disputes that have not been satisfied or settled in full. Neither the
Company nor the Subsidiary has committed any unfair labor practice. None of the
Sellers has any Knowledge of any organizational effort presently being made or
threatened by or on behalf of any labor union with respect to employees of the
Company or the Subsidiary.
22
5.24 EMPLOYEE BENEFITS.
(a) Section 5.24(a) of the Disclosure Schedule lists
each Employee Benefit Plan that the Company or the Subsidiary maintains, to
which the Company or the Subsidiary contributes or has any obligation to
contribute, or with respect to which the Company or the Subsidiary has any
Liability or potential Liability.
(i) Each such Employee Benefit Plan (and
each related trust, insurance contract, or fund) has been maintained,
funded and administered in accordance with the terms of such Employee
Benefit Plan and complies in form and in operation in all respects with
the applicable requirements of ERISA, the Code, and other applicable
laws.
(ii) All required reports and descriptions
(including annual reports (IRS Form 5500), summary annual reports, and
summary plan descriptions) have been timely filed and/or distributed in
accordance with the applicable requirements of ERISA and the Code with
respect to each such Employee Benefit Plan. The requirements of COBRA
have been met with respect to each such Employee Benefit Plan which is
an Employee Welfare Benefit Plan subject to COBRA.
(iii) All contributions (including all
employer contributions and employee salary reduction contributions)
which are due have been made within the time period prescribed by ERISA
to each such Employee Benefit Plan which is an Employee Pension Benefit
Plan and all contributions for any period ending on or before the
Effective Date which are not yet due have been made to each such
Employee Pension Benefit Plan or accrued in accordance with the past
custom and practice of the Company and the Subsidiary. All premiums or
other payments for all periods ending on or before the Effective Date
have been paid with respect to each such Employee Benefit Plan which is
an Employee Welfare Benefit Plan.
(iv) Each such Employee Benefit Plan which
is intended to meet the requirements of a "qualified plan" under Code
Section 401(a) has received a determination from the Internal Revenue
Service that such Employee Benefit Plan is so qualified, and nothing
has occurred since the date of such determination that could adversely
affect the qualified status of any such Employee Benefit Plan.
(v) The market value of assets under each
such Employee Benefit Plan which is an Employee Pension Benefit Plan
(other than any Multiemployer Plan) equals or exceeds the present value
of all vested and nonvested Liabilities thereunder determined in
accordance with PBGC methods, factors, and assumptions applicable to an
Employee Pension Benefit Plan terminating on the date for
determination.
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(vi) The Sellers have delivered to the Buyer
correct and complete copies of the plan documents and summary plan
descriptions, the most recent determination letter received from the
Internal Revenue Service, the most recent annual report (IRS Form 5500,
with all applicable attachments), and all related trust agreements,
insurance contracts, and other funding arrangements which implement
each such Employee Benefit Plan.
(b) With respect to each Employee Benefit Plan that
any of the Company, the Subsidiary, and any ERISA Affiliate maintains, to which
any of them contributes or has any obligation to contribute, or with respect to
which any of them has any Liability or potential Liability:
(i) No such Employee Benefit Plan which is
an Employee Pension Benefit Plan (other than any Multiemployer Plan)
has been completely or partially terminated or been the subject of a
Reportable Event. No proceeding by the PBGC to terminate any such
Employee Pension Benefit Plan (other than any Multiemployer Plan) has
been instituted or, to the Sellers, threatened.
(ii) There have been no Prohibited
Transactions with respect to any such Employee Benefit Plan. No
Fiduciary has any Liability for breach of fiduciary duty or any other
failure to act or comply in connection with the administration or
investment of the assets of any such Employee Benefit Plan. No action,
suit, proceeding, hearing, or investigation with respect to the
administration or the investment of the assets of any such Employee
Benefit Plan (other than routine claims for benefits) is pending or, to
the Knowledge of Sellers, threatened. None of the Sellers has any
Knowledge of any Basis for any such action, suit, proceeding, hearing,
or investigation.
(iii) Neither the Company nor the Subsidiary
has incurred, and none of the Sellers has any Knowledge that the
Company or the Subsidiary will incur, any Liability to the PBGC (other
than with respect to PBGC premium payments not yet due) or otherwise
under Title IV of ERISA (including any withdrawal liability as defined
in ERISA Section 4201) or under the Code with respect to any such
Employee Benefit Plan which is an Employee Pension Benefit Plan, or
under COBRA with respect to any such Employee Benefit Plan which is an
Employee Welfare Benefit Plan.
(c) None of the Company, the Subsidiary, and any
ERISA Affiliate has incurred any Liability on account of a "partial withdrawal"
or a "complete withdrawal" (within the meaning of ERISA Section Section 4205 and
4203, respectively) from any Multiemployer Plan, no such Liability has been
asserted, and there are no events or circumstances which could result in any
such partial or complete withdrawal; and none of the Company, the Subsidiary,
and any ERISA Affiliate is bound by any contract or agreement or has any
obligation or Liability described in ERISA Section 4204. Each Multiemployer Plan
complies in form and has been administered in accordance with the requirements
of ERISA and, where applicable, the Code, and each Multiemployer Plan is
qualified under Code Section 401(a).
24
(d) Neither the Company nor the Subsidiary maintains,
contributes to or has an obligation to contribute to, or has any Liability or
potential Liability with respect to, any Employee Welfare Benefit Plan providing
medical, health, or life insurance or other welfare-type benefits for current or
future retired or terminated employees, their spouses, or their dependents
(other than in accordance with COBRA).
(e) The Profit Sharing Plan of the Company may be
terminated by the Company, in cooperation with the Trustees thereof, in
accordance with SECTION 6.6 and such termination in accordance with the terms of
the Profit Sharing Plan shall not subject the Buyer to any Adverse Consequences.
5.25 GUARANTIES. Neither the Company nor the Subsidiary is a
guarantor or otherwise is liable for any Liability or obligation (including
indebtedness) of any other Person.
5.26 ENVIRONMENTAL, HEALTH, AND SAFETY MATTERS.
(a) Each of the Company and the Subsidiary has
complied and is in compliance with all Environmental, Health, and Safety
Requirements.
(b) Without limiting the generality of the foregoing,
each of the Company and the Subsidiary has obtained and complied with, and is in
compliance with, all permits, licenses and other authorizations that are
required pursuant to Environmental, Health, and Safety Requirements for the
occupation of its facilities and the operation of its business.
(c) Neither the Company nor the Subsidiary has
received any written or oral notice, report or other information regarding any
actual or alleged violation of Environmental, Health, and Safety Requirements,
or any liabilities or potential liabilities (whether accrued, absolute,
contingent, unliquidated or otherwise), including any investigatory, remedial or
corrective obligations, relating to any of them or its facilities arising under
Environmental, Health, and Safety Requirements that has not been withdrawn or
satisfied in full.
(d) None of the following exists at any property or
facility owned or operated by the Company or the Subsidiary: (1) underground
storage tanks, (2) asbestos-containing material in any form or condition, (3)
materials or equipment containing polychlorinated biphenyls, or (4) landfills,
surface impoundments, or disposal areas.
(e) None of the Company nor the Subsidiary has
treated, stored, disposed of, arranged for or permitted the disposal of,
transported, handled, or released any substance, including without limitation
any hazardous substance, or owned or operated any property or facility (and no
such property or facility is contaminated by any such substance) in a manner
that has given or would give rise to liabilities, including any liability for
response costs, corrective action costs, personal injury, property damage,
natural resources damages or attorney fees, pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
("CERCLA"), the Solid Waste Disposal Act, as amended ("SWDA") or any other
Environmental, Health, and Safety Requirements.
(f) Neither this Agreement nor the consummation of
the transaction that is the subject of this Agreement will result in any
obligations for site investigation or cleanup, or notification to or consent of
government agencies or third parties, pursuant to any of the so-called
"transaction-triggered" or "responsible property transfer" Environmental,
Health, and Safety Requirements.
25
(g) Neither the Company nor the Subsidiary has,
either expressly or by operation of law, assumed or undertaken any liability,
including without limitation any obligation for corrective or remedial action,
of any other Person relating to Environmental, Health, and Safety Requirements.
(h) No facts, events or conditions relating to the
past or present facilities, properties or operations of the Company, the
Subsidiary, or any of their respective predecessors or Affiliates will prevent,
hinder or limit continued compliance with Environmental, Health, and Safety
Requirements, give rise to any investigatory, remedial or corrective obligations
pursuant to Environmental, Health, and Safety Requirements, or give rise to any
other liabilities (whether accrued, absolute, contingent, unliquidated or
otherwise) pursuant to Environmental, Health, and Safety Requirements, including
without limitation any relating to onsite or offsite releases or threatened
releases of hazardous materials, substances or wastes, personal injury, property
damage or natural resources damage.
5.27 CERTAIN BUSINESS RELATIONSHIPS WITH THE COMPANY AND THE
SUBSIDIARY. None of the Sellers and their Affiliates has been involved in any
business arrangement or relationship with the Company or the Subsidiary within
the past twelve (12) months, and none of the Sellers and their Affiliates owns
any asset, tangible or intangible, which is used in the business of the Company
or the Subsidiary.
5.28 DISCLOSURE. The representations and warranties contained
in this SECTION 5 do not contain any untrue statement of a fact or omit to state
any fact necessary in order to make the statements and information contained in
this SECTION 5 not misleading.
6. POST-CLOSING COVENANTS.
-----------------------
The Parties agree as follows with respect to the period
following the Closing.
6.1 GENERAL. In case at any time after the Closing any further
action is necessary to carry out the purposes of this Agreement, each of the
Parties will take such further action (including the execution and delivery of
such further instruments and documents) as any other Party reasonably may
request, all at the sole cost and expense of the requesting Party (unless the
requesting Party is entitled to indemnification therefor under SECTION 7). The
Sellers acknowledge and agree that from and after the Closing the Buyer will be
entitled to possession of all documents, books, records (including Tax records),
agreements, and financial data of any sort relating to the Company and the
Subsidiary.
6.2 LITIGATION SUPPORT. In the event and for so long as any
Party actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection with
(i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or prior
to the Effective Date involving the Company or the Subsidiary, each of the other
Parties will cooperate with him or it and his or its counsel in the contest or
defense, make available their personnel, and provide such testimony and access
to their books and records as shall be necessary in connection with the contest
or defense, all at the sole cost and expense of the contesting or defending
Party (unless the contesting or defending Party is entitled to indemnification
therefor under SECTION 7).
26
6.3 TRANSITION. None of the Sellers will take any action that
is designed or intended to have the effect of discouraging any lessor, licensor,
customer, supplier, or other business associate of the Company or the Subsidiary
from maintaining the same business relationships with the Company or the
Subsidiary after the Closing as it maintained with the Company or the Subsidiary
prior to the Closing. Each of the Sellers will refer all customer inquiries
relating to the businesses of the Company and the Subsidiary to the Buyer from
and after the Closing.
6.4 CONFIDENTIALITY. Each of the Sellers will treat and hold
as such all of the Confidential Information, refrain from using any of the
Confidential Information except in connection with this Agreement, and deliver
promptly to the Buyer or destroy, at the request and option of the Buyer, all
tangible embodiments (and all copies) of the Confidential Information which are
in his or its possession. In the event that any of the Sellers is requested or
required (by oral question or request for information or documents in any legal
proceeding, interrogatory, subpoena, civil investigative demand, or similar
process) to disclose any Confidential Information, that Seller shall notify the
Buyer promptly of the request or requirement so that the Buyer may seek an
appropriate protective order or waive compliance with the provisions of this
SECTION 6.4. If, in the absence of a protective order or the receipt of a waiver
hereunder, any of the Sellers is, on the advice of counsel, compelled to
disclose any Confidential Information to any tribunal or else stand liable for
contempt, that Seller may disclose the Confidential Information to the tribunal;
PROVIDED, HOWEVER, that the disclosing Seller shall use his or her best efforts
to obtain, at the reasonable request of the Buyer, an order or other assurance
that confidential treatment will be accorded to such portion of the Confidential
Information required to be disclosed as the Buyer shall designate. The foregoing
provisions shall not apply to any Confidential Information which is generally
available to the public immediately prior to the time of disclosure.
6.5 NON-COMPETITION.
(a) As further consideration for the purchase and
sale of the Company Shares and the transactions contemplated by this Agreement,
during the period commencing on the Closing Date, and ending on the date which
is three (3) years thereafter (the "RESTRICTED PERIOD"), none of the Sellers
shall, in any Restricted Territory, directly or indirectly:
(i) engage in any business, activity, or
enterprise competitive with or substantially similar to the Business,
including, without limitation, in the manufacture, production, design,
engineering, importation, purchase, marketing, sale, distribution,
research or development of any Products, or engage or invest in, own,
manage, operate, finance, control, solicit business related to, or
participate in the ownership, management, operation, financing, or
control of, be employed by, lend his name or any similar name, or lend
his credit to, or render services or advice to, any Person engaged in
any business, activity or enterprise competitive with or substantially
similar to the Business including, without limitation, in the
manufacture, production, design, engineering, importation, purchase,
marketing, sale, distribution, research or development of any Products;
27
(ii) individually or on behalf of any other
Person, recruit or solicit any person who has been an employee,
representative, consultant or agent of the Buyer or former employee of
the Company or the Subsidiary hired by the Buyer, to terminate his or
her employment with the Buyer;
(iii) use, incorporate or otherwise create
any business organization whose business is competitive with the
business of the Company and which utilizes any name which uses, the
symbol "RO" or which is confusingly similar to any such symbol; or
(iv) solicit, call upon, or attempt to
communicate with any customer, former customer, or prospective customer
of the Buyer, the Company or the Subsidiary for the purposes of
manufacture, production, design, engineering, importation, purchase,
marketing, sale, distribution, research or development of any Products
competitive with the Products currently produced by the Company. This
restriction shall only apply to any customer, former customer or
prospective customer of the Buyer, the Company or the Subsidiary with
whom the Company, the Sellers or the Subsidiary had contact with prior
to the Closing Date. For purposes of this paragraph, "contact" means
interaction between the Sellers directly or indirectly, and the
customer, former customer or prospective customer which takes place to
further the business relationship, or performing of services, on behalf
of the Company, the Subsidiary or the Sellers.
(b) The Sellers shall be deemed to be competing with
Buyer in violation of SECTION 6.5(a) if any thereof, or any Affiliate of the
Sellers, is engaged or participates in any activity or activities described in
SECTION 6.5(a), directly or indirectly, whether for his own account or for that
of any other Person, and whether as a shareholder, partner or investor
controlling any such entity or as principal, agent, representative, proprietor
or partner, or in any other capacity; PROVIDED, HOWEVER, that nothing herein
shall prohibit purely passive investments in any business so long as the
aggregate interest represented by such investments does not exceed one percent
(1%) of any class of the outstanding debt or equity securities of said business.
(c) Because a breach, or failure to comply with, this
SECTION 6.5 will cause irreparable injury to the Buyer for which there is no
adequate remedy at law and the exact amount of which will be difficult to
ascertain, if any of the Sellers or any Affiliate of any of the Sellers, should
in any way breach, or fail to comply with, the terms of this SECTION 6.5, the
Buyer shall be entitled to seek and obtain an injunction restraining such
Person(s) from any such breach or failure. All remedies expressly provided for
herein are cumulative of any and all other remedies now existing at law or in
equity, to the extent permitted under applicable law. The Buyer shall, in
addition to the remedies herein provided, be entitled to avail itself of all
such other remedies as may now or hereafter exist at law or in equity for
compensation, and for the specific enforcement of the covenants contained herein
without the necessity of proving actual damages. Resort to any remedy provided
for hereunder or provided for by law shall not preclude or bar the concurrent or
subsequent employment of any other appropriate remedy or remedies, or preclude
the recovery by the Buyer of monetary damages and compensation.
28
(d) If any provision of this SECTION 6.5 shall
finally be judicially determined to be invalid, ineffective or unenforceable,
such determination shall apply only in the jurisdiction in which such
adjudication is made and every other provision of this SECTION 6.5 shall remain
in full force and effect. The invalid, ineffective or unenforceable provision
shall, without further action by the parties, be automatically amended, to the
extent permitted under applicable law, to effect the original purpose and intent
of the invalid, ineffective or unenforceable provision (and if such provision
governs the duration of the Restricted Period or geographic scope of the
Restricted Territory, such provision shall be amended to reduce such duration or
scope, as applicable, as minimally as possible so that such provision is valid,
effective and enforceable for the longest period of time and fullest geographic
area as is adjudged permissible for such provision to be valid, effective and
enforceable); PROVIDED, HOWEVER, that such amendment shall apply only with
respect to the operation of such provision in the particular jurisdiction in
which such adjudication is made.
(e) Each of the Sellers acknowledges that the
duration of the Restricted Period, the geographic scope of the Restricted
Territory, and the scope of restricted activities described in SECTION 6.5(a)
are reasonable and necessary to protect the legitimate business interests of the
Buyer in view of the nature of the Business of the Company and the Subsidiary,
the nature of the business in which the Buyer is engaged, and the nature of the
transactions contemplated by this Agreement. Each of the Sellers understands
that the foregoing restrictions will significantly limit or bar his ability to
earn a livelihood in the Business or a business related to the Business, but
each of them nevertheless believes that he or it has received and will receive,
directly or indirectly, sufficient consideration and other benefits pursuant to
this Agreement and the other agreements relating to this Agreement to clearly
justify such restrictions.
6.6 TERMINATION OF PROFIT SHARING PLAN. Buyer will terminate,
and will cause the Company to terminate, in cooperation with the trustees of the
Profit Sharing Plan, the Profit Sharing Plan in accordance with ERISA, the Code,
and other applicable laws as soon as practicable following the Closing. Xxxxxx
Xxxxx, as a trustee under the Profit Sharing Plan, agrees to use reasonable,
diligent efforts, in cooperation with the Company and the other trustee, to
terminate the Profit Sharing Plan as soon as practicable following the Closing.
Buyer will use reasonable, diligent efforts to terminate such plan, and will
cause the Company to use reasonable, diligent efforts to terminate such plan, in
a manner that minimizes any adverse consequence to, or hardship upon, any
beneficiary thereof.
6.7 COLLECTION OF ACBEL RECEIVABLE. The Buyer will use
reasonable, diligent efforts to collect from ACBEL, and will cause the Company
to, use reasonable, diligent efforts to collect from ACBEL, the $600,000 portion
of the license fees described in SECTION 2.2(B), when due. The license agreement
pursuant or other agreement to which such funds are to become due shall not be
amended, modified or terminated in a manner that would amend, modify or
terminate the right of the Sellers to receive any such payment without the prior
written consent of the Sellers.
29
6.8 ASSUMPTION OF ACBEL AGREEMENT. The Buyer agrees to the
terms of the License Agreement, dated February 9, 1999, between the Company and
ACBEL, as amended by Amendment No. 1 dated December 7, 2004 and Amendment No. 2
dated August 1, 2005, and hereby assumes responsibility of the Company's
obligations thereunder.
7. REMEDIES FOR BREACHES OF THIS AGREEMENT.
----------------------------------------
7.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations and warranties of the Sellers contained in SECTION 4.1, SECTIONS
5.1-5.10 and SECTIONS 5.12-5.25, 5.27 AND 5.28 shall survive the Closing
hereunder and continue in full force and effect for a period of eighteen (18)
months thereafter. All of the other representations and warranties of the
Parties contained in this Agreement (including the representations and
warranties of the Sellers contained in SECTIONS 5.11 AND 5.26) shall survive the
Closing and continue in full force and effect forever thereafter (subject to any
applicable statutes of limitations).
7.2 INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE BUYER.
(a) In the event either Seller breaches (or in the
event any third party alleges facts that, if true, would mean either Seller has
breached) any of their representations, warranties, and covenants contained
herein (other than the covenants in SECTION 2.1 and the representations and
warranties in SECTION 4.1 and, if there is an applicable survival period
pursuant to SECTION 7.1, provided that the Buyer makes a written claim for
indemnification against either Seller pursuant to SECTION 9.7 within such
survival period), then each Seller agrees to indemnify the Buyer from and
against the entirety of any Adverse Consequences the Buyer may suffer through
and after the date of the claim for indemnification (including any Adverse
Consequences the Buyer may suffer after the end of any applicable survival
period) resulting from, arising out of, relating to, in the nature of, or caused
by the breach (or the alleged breach); PROVIDED, HOWEVER, that the disclosures
contained in Section 5.1 of the Disclosure Schedule under the heading "Stock
Records" shall not act a limitation of the representations and warranties
contained in SECTION 5.1 (i.e., the indemnification provisions of this SECTION 7
shall continue to exist notwithstanding such disclosures); and PROVIDED,
FURTHER, that the Sellers shall not have any obligation to indemnify the Buyer
from and against any Adverse Consequences resulting from, arising out of,
relating to, in the nature of, or caused by the breach (or alleged breach) of
any representation or warranty contained herein until the Buyer has suffered
Adverse Consequences by reason of all such breaches (or alleged breaches) in
excess of a $25,000 aggregate threshold (at which point the Sellers will be
obligated to indemnify the Buyer from and against all such Adverse Consequences
relating back to the first dollar).
(b) In the event any of the Sellers breaches (or in
the event any third party alleges facts that, if true, would mean any of the
Sellers has breached) any of his or her covenants in SECTION 2.1 or any of his
representations and warranties in SECTION 4.1 above, and, if there is an
applicable survival period pursuant to SECTION 7.1, provided that the Buyer
makes a written claim for indemnification against the Seller pursuant to SECTION
9.7 within such survival period, then such Seller agrees to indemnify the Buyer
30
from and against the entirety of any Adverse Consequences the Buyer may suffer
through and after the date of the claim for indemnification (including any
Adverse Consequences the Buyer may suffer after the end of any applicable
survival period) resulting from, arising out of, relating to, in the nature of,
or caused by the breach (or the alleged breach).
(c) Each Seller agrees to indemnify the Buyer from
and against the entirety of any Adverse Consequences the Buyer may suffer
resulting from, arising out of, relating to, in the nature of, or caused by any
Liability of the Company or the Subsidiary for any Taxes of the Company or the
Subsidiary with respect to any Tax year or portion thereof ending on or before
the Effective Date (or for any Tax year beginning before and ending after the
Effective Date to the extent allocable (determined in a manner consistent with
SECTION 8.3 to the portion of such period beginning before and ending on the
Effective Date), to the extent such Taxes are not reflected in the reserve for
Tax Liability (rather than any reserve for deferred Taxes established to reflect
timing differences between book and Tax income) shown on the face of the Most
Recent Balance Sheet (rather than in any notes thereto).
(d) The total aggregate amount payable by the Sellers
pursuant to this SECTION 7.2 shall be limited to $1,000,000 and total amount
payable by each Seller shall not exceed the percentage of the aggregate Purchase
Price received by each such Seller.
7.3 INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE SELLERS. In
the event the Buyer breaches (or in the event any third party alleges facts
that, if true, would mean the Buyer has breached) any of its representations,
warranties, and covenants contained herein, and, if there is an applicable
survival period pursuant to Section 7.1, provided that any of the Sellers makes
a written claim for indemnification against the Buyer pursuant to SECTION 9.7
within such survival period, then the Buyer agrees to indemnify each of the
Sellers from and against the entirety of any Adverse Consequences the Seller may
suffer through and after the date of the claim for indemnification (including
any Adverse Consequences the Seller may suffer after the end of any applicable
survival period) resulting from, arising out of, relating to, in the nature of,
or caused by the breach (or the alleged breach).
7.4 MATTERS INVOLVING THIRD PARTIES.
(a) If any third party shall notify any Party (the
"INDEMNIFIED PARTY") with respect to any matter (a "THIRD PARTY CLAIM") which
may give rise to a claim for indemnification against any other Party (the
"INDEMNIFYING Party") under this SECTION 7, then the Indemnified Party shall
promptly notify each Indemnifying Party thereof in writing; PROVIDED, HOWEVER,
that no delay on the part of the Indemnified Party in notifying any Indemnifying
Party shall relieve the Indemnifying Party from any obligation hereunder unless
(and then solely to the extent) the Indemnifying Party thereby is prejudiced.
(b) Any Indemnifying Party will have the right to
defend the Indemnified Party against the Third Party Claim with counsel of its
choice reasonably satisfactory to the Indemnified Party so long as (A) the
Indemnifying Party notifies the Indemnified Party in writing within fifteen (15)
days after the Indemnified Party has given notice of the Third Party Claim that
the Indemnifying Party will indemnify the Indemnified Party from and against the
entirety of any Adverse Consequences the Indemnified Party may suffer resulting
from, arising out of, relating to, in the nature of, or caused by the Third
Party Claim, (B) the Indemnifying Party provides the Indemnified Party with
evidence reasonably acceptable to the Indemnified Party that the Indemnifying
31
Party will have the financial resources to defend against the Third Party Claim
and fulfill its indemnification obligations hereunder, (C) the Third Party Claim
involves only money damages and does not seek an injunction or other equitable
relief, (D) settlement of, or an adverse judgment with respect to, the Third
Party Claim is not, in the good faith judgment of the Indemnified Party, likely
to establish a precedential custom or practice adverse to the continuing
business interests of the Indemnified Party, and (E) the Indemnifying Party
conducts the defense of the Third Party Claim actively and diligently.
(c) So long as the Indemnifying Party is conducting
the defense of the Third Party Claim in accordance with SECTION 7.4(b), (A) the
Indemnified Party may retain separate co-counsel at its sole cost and expense
and participate in the defense of the Third Party Claim, (B) the Indemnified
Party will not consent to the entry of any judgment or enter into any settlement
with respect to the Third Party Claim without the prior written consent of the
Indemnifying Party (not to be withheld unreasonably), and (C) the Indemnifying
Party will not consent to the entry of any judgment or enter into any settlement
with respect to the Third Party Claim without the prior written consent of the
Indemnified Party (not to be withheld unreasonably).
(d) In the event any of the conditions in SECTION
7.4(b) above is or becomes unsatisfied, however, (A) the Indemnified Party may
defend against, and consent to the entry of any judgment or enter into any
settlement with respect to, the Third Party Claim in any manner it reasonably
may deem appropriate (and the Indemnified Party need not consult with, or obtain
any consent from, any Indemnifying Party in connection therewith), (B) the
Indemnifying Parties will reimburse the Indemnified Party promptly and
periodically for the costs of defending against the Third Party Claim (including
attorneys' fees and expenses), and (C) the Indemnifying Parties will remain
responsible for any Adverse Consequences the Indemnified Party may suffer
resulting from, arising out of, relating to, in the nature of, or caused by the
Third Party Claim to the fullest extent provided in this Section 7.
7.5 SET OFF. In addition to any and all other remedies
hereunder or at law or in equity, (i) the Buyer shall be entitled to recover any
indemnification payment or other amounts due from either of the Sellers
(including amounts due from either of the Sellers under SECTION 2.3(c)(ii)), by
retaining and setting off the amounts (whether or not such amounts are
liquidated or reduced to judgment) against any amounts due or to become due from
the Buyer to either of the Sellers under SECTION 2.2(b), and (ii) the Buyer
shall be entitled to recover any indemnification payment or other amounts due
from the Okada Trust (including amounts due from the Okada Trust under SECTION
2.3(c)(ii)), by retaining and setting off the amounts (whether or not such
amounts are liquidated or reduced to judgment) against any rental amounts (i.e.,
not including "triple net" charges and other expenses) due or to become due from
the Buyer to Caspian under the Facility Lease Agreement; PROVIDED, HOWEVER, that
the amount of set off with respect to the monthly lease amounts owed by the
Buyer to Caspian under the Facility Lease Agreement shall be limited to a
percentage of the monthly rental amount equal to the aggregate percentage
ownership interest in Caspian held by the Okada Trust. By way of example, if the
Okada Trust's aggregate ownership interest in Caspian equals 50% and the monthly
rental amount under the Facility Lease Agreement is $9,210, the Buyer may offset
a maximum of $4,605 per month.
32
7.6 OTHER INDEMNIFICATION PROVISIONS. The foregoing
indemnification provisions are in addition to, and not in derogation of, any
statutory, equitable, or common law remedy (including without limitation any
such remedy arising under Environmental, Health, and Safety Requirements) any
Party may have with respect to the Company, the Subsidiary, or the transactions
contemplated by this Agreement. Each of the Sellers hereby agrees that he or she
will not make any claim for indemnification against the Company or the
Subsidiary by reason of the fact that he or she was a director, officer,
employee, or agent of any such entity or was serving at the request of any such
entity as a partner, trustee, director, officer, employee, or agent of another
entity (whether such claim is for judgments, damages, penalties, fines, costs,
amounts paid in settlement, losses, expenses, or otherwise and whether such
claim is pursuant to any statute, charter document, bylaw, agreement, or
otherwise) with respect to any action, suit, proceeding, complaint, claim, or
demand brought by the Buyer against such Seller (whether such action, suit,
proceeding, complaint, claim, or demand is pursuant to this Agreement,
applicable law, or otherwise).
8. MISCELLANEOUS.
--------------
8.1 PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No Party or any
of their respective subsidiaries, affiliates, officers, directors, employees or
agents shall make any public statement or announcement or any release to trade
publications or through the press or otherwise, or make any statement to any
third party with respect to this Agreement or the transactions contemplated
hereby (including, without limitation, with respect to the entering into of this
Agreement and the terms hereof) without the prior written approval of the Buyer
and each Seller, which approval shall not be unreasonably withheld and shall be
given within forty-eight (48) hours after delivery of a copy of the proposed
press release or public announcement to the Party whose approval is being
requested; PROVIDED, HOWEVER, that any Party may make any public disclosure it
believes in good faith is required by applicable law, governmental order or
regulation, stock exchange rule or regulation or legal proceeding, and then only
after notice to the other Parties. The Parties agree and acknowledge that the
Buyer will file with the Securities and Exchange Commission a Form 8-K
disclosing the terms of this Agreement, including the financial terms of the
Agreement, after the Closing and within the time period prescribed by the
Exchange Act.
8.2 NO THIRD-PARTY BENEFICIARIES. This Agreement shall not
confer any rights or remedies upon any Person other than the Parties and their
respective successors and permitted assigns.
8.3 ENTIRE AGREEMENT. This Agreement (including the documents
referred to herein) constitutes the entire agreement among the Parties and
supersedes any prior understandings, agreements, or representations by or among
the Parties, written or oral, to the extent they related in any way to the
subject matter hereof.
8.4 SUCCESSION AND ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement or
any of his or its rights, interests, or obligations hereunder without the prior
written approval of the Buyer and each Seller; PROVIDED, HOWEVER, that the Buyer
may (i) assign any or all of its rights and interests hereunder to one or more
of its Affiliates and (ii) designate one or more of its Affiliates to perform
its obligations hereunder (in any or all of which cases the Buyer nonetheless
shall remain responsible for the performance of all of its obligations
hereunder).
33
8.5 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
8.6 HEADINGS. The Section headings contained in this Agreement
are inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
8.7 NOTICES. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two (2)
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to the Sellers: Xx. Xxxxxx Xxxxx and Xx. Xxxxxx Xxxxx
000 Xxxxxxxx Xxxx
Xxx Xxxxx, XX 00000
Copy to: Fenwick & West, LLP
000 Xxxxxxxxxx Xxxxxx
Xxxxxxxx Xxxx, XX 00000
Attention: Xxxx X. Xxxxxx, Esq.
If to the Buyer: EMRISE Electronics Corporation
0000 Xxxxx Xxxxxx, Xxxxx 000
Xxxxxx Xxxxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxx X. Xxxxx
Copy to: Xxxxx & Xxxxxx, LLP
000 Xxxxx Xxxxxxxxx, 00xx Xxxxx
Xxxxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxxxx X. Xxxxxxx, Esq.
Any Party may send any notice, request, demand, claim, or
other communication hereunder to the intended recipient at the address set forth
above using any other means (including personal delivery, expedited courier,
messenger service, telecopy, telex, ordinary mail, or electronic mail), but no
such notice, request, demand, claim, or other communication shall be deemed to
have been duly given unless and until it actually is received by the intended
recipient. Any Party may change the address to which notices, requests, demands,
claims, and other communications hereunder are to be delivered by giving the
other Parties notice in the manner herein set forth.
34
8.8 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of California
without giving effect to any choice or conflict of law provision or rule
(whether of the State of California or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of
California.
8.9 AMENDMENTS AND WAIVERS. No amendment of any provision of
this Agreement shall be valid unless the same shall be in writing and signed by
the Buyer and each Seller. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
8.10 SEVERABILITY. Any term or provision of this Agreement
that is invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction.
8.11 EXPENSES. Each of the Parties will bear his or its own
costs and expenses (including legal fees and expenses) incurred in connection
with this Agreement and the transactions contemplated hereby (and in the case of
the costs and expenses of the Company and the Subsidiary, such costs and
expenses shall be borne by the Sellers). The Sellers agree that neither the
Company nor the Subsidiary has borne or will bear any of the Sellers' costs and
expenses (including any of their legal fees and expenses) in connection with
this Agreement or any of the transactions contemplated hereby.
8.12 CONSTRUCTION. The Parties have participated jointly in
the negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
Parties intend that each representation, warranty, and covenant contained herein
shall have independent significance. If any Party has breached any
representation, warranty, or covenant contained herein in any respect, the fact
that there exists another representation, warranty, or covenant relating to the
same subject matter (regardless of the relative levels of specificity) which the
Party has not breached shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty, or covenant.
8.13 INCORPORATION OF EXHIBITS AND SCHEDULES. The Exhibits and
Schedules identified in this Agreement are incorporated herein by reference and
made a part hereof.
8.14 SPECIFIC PERFORMANCE. Each of the Parties acknowledges
and agrees that the other Parties would be damaged irreparably in the event any
of the provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, each of the Parties
agrees that the other Parties shall be entitled to seek and obtain an injunction
or injunctions to prevent breaches of the provisions of this Agreement and to
enforce specifically this Agreement and the terms and provisions hereof in any
action instituted in any court of the United States or any state thereof having
jurisdiction over the Parties and the matter, in addition to any other remedy to
which they may be entitled, at law or in equity.
35
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement
effective as of the date first above written.
BUYER: EMRISE ELECTRONICS CORPORATION,
a New Jersey corporation
By: _________________________________________________
Xxxxxxx X. Xxxxx, President and Chief
Executive Officer
SELLERS: ______________________________________________________
XXXXXX XXXXX, as Trustee of the Xxxxxx X. Xxxxx Trust
Agreement Dated February 11, 1992
______________________________________________________
XXXXXX XXXXX, an individual
36
EXHIBIT A
Financial Statements
37
EXHIBIT B
Form of Facility Lease Agreement
38
EXHIBIT C
Form of Employment Agreement
39
EXHIBIT D
Form of Opinion of Counsel to the Company
40
EXHIBIT E
Form of Opinion of Counsel to the Buyer
41
APPENDIX I
Disclosure Schedule
42
