PURCHASE AGREEMENT
PURCHASE AGREEMENT (this "Agreement"), dated November 17, 1997, by and
among Motion Holdings, Inc., a Delaware corporation ("Buyer"), and The
Xxxxx and Xxxxxx Xxxxxxxx Family Trust, The Majid and Xxxxxx Xxxxxxxx
Family Trust, Xxx X. Xxxxx (collectively the "Employee Sellers") and The
Ali and Xxxxx Xxxxxxxx Family Trust, The Ali and Xxxxx Xxxxxxxx Irrevocable
Trust #1, The Ali and Xxxxx Xxxxxxxx Irrevocable Trust #2, The Ali and
Xxxxx Xxxxxxxx Irrevocable Trust #3, The Ali and Xxxxx Xxxxxxxx Irrevocable
Trust #4, The Ali and Xxxxx Xxxxxxxx Irrevocable Trust #5, and The Ali and
Xxxxx Xxxxxxxx Irrevocable Trust #6 (collectively, the "Nonemployee
Sellers," and together with the Employee Sellers, the "Sellers").
RECITALS:
WHEREAS, Sellers are the record and beneficial owners of 10,000 shares
(the "Shares") of common stock, par value $0.01 per share (the "Common
Stock"), of Motion Control Engineering, Inc., a California corporation
("Company"), representing all of the issued and outstanding shares of
capital stock of Company;
WHEREAS, Sellers desire to sell to Buyer, and Buyer desires to purchase
from Sellers, all of the Shares, all in accordance with the provisions of
this Agreement;
WHEREAS, the Board of Directors of Buyer has approved the acquisition of
Company by Buyer pursuant to this Agreement; and
WHEREAS, Buyer and Sellers desire to make certain representations,
warranties and agreements in connection with the sale and acquisition of
the Shares and also desire to set forth various conditions precedent
thereto.
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements herein contained, the parties
hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions. For purposes of this Agreement, the term:
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(a) "ACMs" has the meaning set forth in Section 3.20(e).
(b) "Accounting Firm" has the meaning set forth in Section 2.4.
(c) "Additional Purchase Price" means an amount equal to the
product of the net income of the Company for the period between January 1,
1997 and the Closing Date, which amount shall not include the Deemed Gain
on Sale of Assets or any other income resulting from the Section 338(h)(10)
Elections, the results of which are reflected in Closing Balance Sheet,
times the Tax Rate.
(d) "Adjustment Schedule" has the meaning set forth in Section 2.4.
(e) "affiliate" means a Person that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control with, another Person.
(f) "Agreement" has the meaning set forth in the Preamble of
this Agreement.
(g) "Audit Date" means September 30, 1997.
(h) "Audited Financials" has the meaning set forth in Section 5.14.
(i) "Benefitted Party" has the meaning set forth in Section 9.13.
(j) "Buyer" has the meaning set forth in the Preamble of this
Agreement.
(k) "CERCLIS" has the meaning set forth in Section 3.20(d).
(l) "Closing" has the meaning set forth in Section 7.1.
(m) "Closing Balance Sheet" means the balance sheet of the
Company as of the close of business two business days immediately preceding
the Closing Date, prepared by the Company in accordance with GAAP applied
on a consistent basis.
(n) "Closing Date" has the meaning set forth in Section 7.1.
(o) "Closing Financial Statements" has the meaning set forth in
Section 2.4.
(p) "Code" means the Internal Revenue Code of 1986, as amended
(including any successor code), and the rules and regulations promulgated
thereunder.
(q) "Common Stock" has the meaning set forth in the Recitals of
this Agreement.
(r) "Company" has the meaning set forth in the Recitals of this
Agreement.
(s) "Company Indemnified Parties" has the meaning set forth in
Section 5.9(b).
(t) "Contract" means any oral or written contract, agreement,
indenture, note, bond, loan, instrument, lease, conditional sales contract,
mortgage, license, franchise, insurance policy, commitment or other
arrangement or agreement.
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(u) "Debt" means the long-term indebtedness of the Company,
including any short-term portion thereof, as reflected on the Closing
Balance Sheet.
(v) "Debt Adjustment" means the amount of Debt of the Company,
except that "Debt", for purposes of this definition, shall not include
amounts outstanding under the equipment loan facility of the Bank of
America Business Loan Agreement, dated July 24, 1995, by and between the
Company and Bank of America National Trust and Savings Association, to the
extent the Company has sufficient cash or cash equivalents on hand as of
the Closing Date to repay such outstanding amount..
(w) "Debt Adjustment Discharge" means payment by the Company to
discharge Debt of the Company which comprises the Debt Adjustment with
funds contributed by the Buyer to the Company at the Closing.
(x) "Deemed Gain on Sale of Assets" means the taxable gain from
treatment of the stock sale as an asset sale as a result of the Section
338(h)(10) election.
(y) "Distribution Adjustment" means an amount equal to the sum
of distributions by the Company after January 1, 1997 through and including
the Closing Date, as reflected on the Closing Balance Sheet, other than
distributions to pay Taxes of shareholders of the Company attributable to
income of the Company for calendar 1996.
(z) "DOJ" has the meaning set forth in Section 3.6.
(aa) "Earn-Out Rights" means the aggregate of the interests of the
Sellers under the Earn-Out Rights Plan.
(bb) "Earn-Out Rights Plan" means the Earn-Out Rights Plan,
dated as of the Closing Date, substantially in the form of Exhibit A
attached hereto.
(cc) "Employee Benefit Plans" has the meaning set forth in
Section 3.13(a).
(dd) "Employee Sellers" has the meaning set forth in the Preamble
of this Agreement.
(ee) "Employment Agreement" means an Employment and
Noncompetition Agreement, dated as of the Closing Date, substantially in
the form of Exhibit C attached hereto.
(ff) "Environmental Claims" has the meaning set forth in
Section 3.20(c).
(gg) "Environmental Condition" means the presence or release of
Hazardous Materials in or into the environment at concentrations requiring
investigation or remediation under Environmental Laws.
(hh) "Environmental Laws" means all applicable federal, state or
local statutes, codes, rules or regulations relating to the protection of
the environment and/or natural resources.
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(ii) "Environmental Permits" has the meaning set forth in
Section 3.20(b).
(jj) "Environmental Reports" means the environmental assessments
listed on Schedule 3.20.
(kk) "ERISA" has the meaning set forth in Section 3.13(a).
(ll) "Escrow Agent" means escrow agent party to the Escrow
Agreement.
(mm) "Escrow Agreement" means the Escrow Agreement relating to
the Earn-Out Rights Plan, executed as of the Closing Date, substantially in
the form of Exhibit B attached hereto with any revisions on which the
parties agree.
(nn) "Financial Statements" has the meaning set forth in
Section 3.7.
(oo) "GAAP" has the meaning set forth in Section 3.7.
(pp) "Governmental Authority" means any nation or government,
any state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of
or pertaining to government.
(qq) "Hazardous Materials" means any material or substance
regulated or controlled by any Environmental Law, including, without
limitation, the Comprehensive Environmental Response Compensation and
Liability Act and the Resource Conservation Recovery Act and similar
federal and analogous state laws.
(rr) "HSR Act" has the meaning set forth in Section 3.6.
(ss) "Indemnification Agreements" has the meaning set forth in
Section 5.9(b).
(tt) "Indemnified Party" has the meaning set forth in
Section 9.12(e).
(uu) "Indemnifying Party" has the meaning set forth in
Section 9.12(e).
(vv) "Initial Payment" is $49,280,000 plus the Net Adjustment.
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(ww) "Insurance Policies" has the meaning set forth in
Section 3.19.
(xx) "Intellectual Property Rights" has the meaning set forth in
Section 3.17(a).
(yy) "knowledge" of Sellers means the actual knowledge of Xxxxx
Xxxxxxxx, Xxxxx Xxxxxxxx or Xxx X. Xxxxx.
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(zz) "Laws" means all foreign, federal, state and local laws,
statutes, rules, regulations, codes, ordinances, orders, judicial decrees,
writs, injunctions, notices or decisions issued, entered or promulgated
pursuant to any foreign, federal, state or local law.
(aaa) "Lease" means a Lease, dated as of the Closing Date,
substantially in the form of Exhibit D attached hereto with any revisions
required to conform to the economics of the prior lease for the applicable
property.
(bbb) "Lessor" means MacArthur Pointe, Ltd.
(ccc) "Liabilities" has the meaning set forth in Section 9.12(d).
(ddd) "Liens" has the meaning set forth in Section 3.11(b).
(eee) "Losses" has the meaning set forth in Section 9.12(c).
(fff) "Material Adverse Effect" means a material adverse effect
on the business, operations, liabilities, properties, assets or financial
condition of the Company taken as a whole.
(ggg) "Net Adjustment" means the Additional Purchase Price plus
the Section 338(h)(10) Payment minus the sum of (i) the Distribution
Adjustment, (ii) the Debt Adjustment Discharge, (iii) the Supplemental
Adjustment and (iv) the Working Capital Adjustment.
(hhh) "Non-Competition Agreement" means each Non-Competition
Agreement, dated as of the Closing Date, substantially in the form of
Exhibit E attached hereto.
(iii) "Nonemployee Sellers" has the meaning set forth in the
Preamble to this Agreement.
(jjj) "Notice of Disagreement" has the meaning set forth in
Section 2.4.
(kkk) "Ordinary Income Adjustment" means the portion of the
Deemed Gain on Sale of Assets not characterized as Capital Gain.
(lll) "Officers' Certificate" means the Officers' Certificate,
dated as of the date of Closing, substantially in the form of Exhibit H
attached hereto.
(mmm) "Offsetting Tax Benefit" has the meaning set forth in
Section 9.13.
(nnn) "Pass Through Returns" has the meaning set forth in
Section 9.18.
(ooo) "Pass Through Taxes" means Sellers' Taxes with respect to
Company income for its taxable periods ending on or before December 31,
1996.
(ppp) "Patent and Trademark Rights" has the meaning set forth in
Section 3.17(a).
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(qqq) "PCBs" has the meaning set forth in Section 3.20(e).
(rrr) "Person" means an individual, corporation, partnership,
joint venture, association, trust, unincorporated organization or, as
applicable, any other entity.
(sss) "Protocol" means the Protocol in the form of Exhibit F
attached hereto.
(ttt) "Purchase Price" has the meaning set forth in Section 2.2.
(uuu) "Purchase Price Allocation Schedule" has the meaning as set
forth in Section
9.19(b).
(vvv) "Reliance Letter" has the meaning as set forth in
Section 4.7.
(www) "Retention Amounts" has the meaning set forth in
Section 9.20.
(xxx) "Section 338(h)(10) Elections" has the meaning set forth
in Section 9.19(a).
(yyy) "Section 338(h)(10) Forms" has the meaning set forth in
Section 9.19(b).
(zzz) "Section 338(h)(10) Payment" has the meaning set forth in
Section 9.19(d).
(aaaa) "Sellers" has the meaning set forth in the Preamble of this
Agreement.
(bbbb) "Shares" has the meaning set forth in the Recitals of this
Agreement.
(cccc) "Subsidiary" means any Person of which at least a majority
of the outstanding shares or other equity interests having ordinary voting
power for the election of directors or comparable managers of such Person
are owned, directly or indirectly, by another Person.
(dddd) "Supplemental Adjustment" means an amount equal to the
excess, if any, of (i) fees and expenses paid by the Company to BA
Partners, O'Melveny & Xxxxx LLP and Xxxxxx Xxxxxxxx LLP, as such fees and
expenses relate to the transaction contemplated by this Agreement as
reflected on the Closing Balance Sheet over (ii) the amount paid by the
Sellers to the Company pursuant to Section 5.15 as reimbursement for such
fees and expenses.
(eeee) "Tax Benefit" has the meaning set forth in Section 9.13.
(ffff) "Taxes" means any net income, capital gains, gross income,
gross receipts, sales, use, transfer, ad valorem, franchise, profits,
license, capital, withholding, payroll, employment, excise, goods and
services, severance, stamp, occupation, premium, property, windfall profits
or other tax or customs duties, or any interest, any penalties, additions
to tax or additional amounts incurred or accrued under applicable tax law
or assessed or charged by any taxing authority (domestic or foreign). For
purposes of the definition of Tax, any interest, penalties, additions to
Tax or additional amounts that relate to Taxes for any period, or a portion
of any
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period, shall include any interest, penalties, additions to Tax, or
additional amounts relating to Taxes for such periods, regardless of when
such items are incurred, accrued, assessed or similarly charged.
(gggg) "Tax Rate" means 26.3502%.
(hhhh) "Tax Returns" means any report, return or statement
required to be supplied to a taxing authority in connection with Taxes.
(iiii) "USTs" has the meaning set forth in Section 3.20(e).
(jjjj) "Working Capital" means the current assets of the Company
minus the current liabilities of the Company as set forth on the Closing
Balance Sheet.
(kkkk) "Working Capital Adjustment" means an amount equal to the
excess, if any, of (i) $8,600,000 over (ii) Working Capital.
ARTICLE II
THE ACQUISITION
SECTION 2.1 Purchase and Sale of Shares. On the terms and subject to
the conditions hereof, at the Closing, (i) Sellers will sell, assign,
transfer and convey to Buyer, and Buyer will purchase and acquire from
Sellers, all right, title and interest of Sellers in and to the Shares,
free and clear of all Liens and (ii) each Seller will enter into a separate
Non-Competition Agreement.
SECTION 2.2 Consideration for the Shares. The aggregate purchase price
payable by Buyer (the "Purchase Price") for the Shares and the
Non-Competition Agreements shall be as follows:
(a) the Initial Payment; and
(b) the Earn-Out Rights.
The Purchase Price shall be distributed to all the Sellers, pro rata, based
upon the number of Shares owned by such Sellers as set forth on Schedule
3.21.
SECTION 2.3 Allocation of Consideration. The Initial Payment shall be
allocated as follows: (i) $335,000 shall be allocated to each of The Xxxxx
and Xxxxxx Xxxxxxxx Family Trust, The Majid and Xxxxxx Xxxxxxxx Family
Trust and Xxx X. Xxxxx in consideration of the delivery of a
Non-Competition Agreement from each such Employee Seller; (ii) $1.00 shall
be allocated to each of the Nonemployee Sellers in consideration of the
delivery of a Non- Competition Agreement from each such Nonemployee Seller;
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and (iii) the remainder of the Initial Payment shall be allocated to all
the Sellers, pro rata, based upon the number of Shares owned by such
Sellers.
SECTION 2.4 Post-Closing Audit.
(a) Within 20 days after the Closing Date, Buyer shall deliver
to Seller the Company's audited financial statements (the "Closing
Financial Statements") for the fiscal period ending as of the Closing Date,
with sufficient detail to determine the calculation of each of the
Additional Purchase Price, Working Capital Adjustment and Section
338(h)(10) Payment as of such time (the "Adjustment Schedule"). The Closing
Financial Statements and the Adjustment Schedule shall be certified by
Buyer's auditors (which shall be Xxxxxx Xxxxxxxx LLP in Sacramento) to the
effect that the Closing Financial Statements have been audited and prepared
in accordance with GAAP applied on a consistent basis and in accordance
with the practice of the Company's auditors prior to the Closing Date, and
that the Adjustment Schedule has been prepared based on the Closing
Financial Statements. The Closing Financial Statements and the Adjustment
Schedule shall become final and binding upon the parties 15 days following
Sellers' receipt thereof or earlier if Seller so elects by delivering a
notice to Buyer, unless Sellers give written notice of its disagreement
("Notice of Disagreement") to Buyer prior to the termination of such 15-day
period. Any Notice of Disagreement shall specify in reasonable detail the
nature of any disagreement so asserted. If a timely Notice of Disagreement
is received by Buyer, then the Closing Financial Statements and the
Adjustment Schedule (as revised in accordance with clause (x) or (y) below)
shall become final and binding upon the parties on the earliest of (x) the
date Sellers and Buyer resolve in writing any differences they have with
respect to the matters specified in the Notice of Disagreement or (y) the
date all matters in dispute are finally resolved in writing by the
Accounting Firm (as defined below) pursuant to this Section 2.4. During the
10 days following delivery of a Notice of Disagreement, Seller and Buyer
shall seek in good faith to resolve in writing any differences which they
may have with respect to the matters specified in the Notice of
Disagreement. At the end of such 10-day period, Seller shall submit to an
independent "big-six" accounting firm (the "Accounting Firm"), other than
Buyer's accounting firm (in connection with this transaction or otherwise),
for review and resolution of all matters which remain in dispute which were
included in the Notice of Disagreement, and the Accounting Firm shall make
a final determination as to all such matters. The fees and expenses of the
Accounting Firm shall be shared equally by Buyer and Seller. The Accounting
Firm shall use its best efforts to review and resolve all matters which
remain in dispute as soon as possible.
(b) If the sum of the Additional Purchase Price, Working Capital
Adjustment and Section 338(h)(10) Payment as finally determined pursuant to
Section 2.4(a) is greater than the sum of the Additional Purchase Price,
Working Capital Adjustment and Section 338(h)(10) Payment calculated by
reference to the Closing Balance Sheet, Buyer shall, within three days of
such final determination pursuant to Section 2.4(a) pay to Sellers, in
immediately available funds, the amount of such difference, together with
interest thereon at 8% per annum from the Closing Date. If the sum of the
Additional Purchase Price, Working Capital Adjustment and Section
338(h)(10) Payment as finally determined pursuant to Section 2.4(a) is less
than the sum of the Additional Purchase Price, Working Capital Adjustment
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and Section 338(h)(10) Payment as determined by reference to the Closing
Balance Sheet, Sellers shall, within three days of such final determination
pursuant to Section 2.4(a), pay to Buyer, in immediately available funds,
the amount of such difference, together with interest thereon at 8% per
annum from the Closing Date. The limitations on indemnification set forth
in Section 9.12(c) shall not apply to any payment made pursuant to this
Section 2.4(b).
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
The Employee Sellers, jointly and severally, and the Nonemployee
Sellers, severally, represent and warrant to Buyer as set forth below.
SECTION 3.1 Organization and Qualification. Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of California, with all requisite corporate power and authority to
own, operate and lease its properties and to carry on its business as it is
now being conducted. Company is qualified or licensed to do business and is
in good standing in every jurisdiction where the nature of the business
conducted by it or the properties owned or leased by it requires
qualification. Sellers have delivered to Buyer complete and correct copies
of the Articles of Incorporation and Bylaws of Company.
SECTION 3.2 Authorization. Each of the Sellers has full legal capacity
to execute and deliver this Agreement and to perform their obligations
hereunder. This Agreement has been duly and validly executed and delivered
by each of the Sellers and constitutes a valid and binding obligation of
the Sellers, enforceable against each of them in accordance with its terms,
except to the extent that such enforcement may be subject to applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
now or hereafter in effect relating to creditors' rights generally, and the
remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the
court before which any proceeding therefore may be brought.
SECTION 3.3 No Violation. Except as set forth in Schedule 3.3, neither
the execution and delivery of this Agreement by the Sellers and the
performance by the Sellers of their respective obligations hereunder nor
the consummation by the Sellers of the transactions contemplated hereby
will (a) violate, conflict with or result in a violation or breach of, or
constitute a default (with or without due notice or lapse of time or both)
under the terms, conditions or provisions of any Contract to which any of
the Sellers or the Company is a party, (b) violate any Laws applicable to
the Sellers or the Company, or (c) violate, conflict with or result in a
breach of the certificate of incorporation or bylaws of the Company.
SECTION 3.4 Capitalization of Company. The authorized capital stock of
Company consists of 10,000 shares, all of which are designated Common
Stock. As of the date hereof, Company has 10,000 shares of Common Stock
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issued and outstanding (constituting the Shares), all of which have been
validly issued, are fully paid and non-assessable and none of which were
issued in violation of any preemptive rights. Except as set forth on
Schedule 3.4, there are no options, warrants, calls, subscriptions,
conversion or other rights, agreements or commitments obligating Company to
issue any additional shares of capital stock or any other securities
convertible into, exchangeable for or evidencing the right to subscribe for
any shares of capital stock of Company.
SECTION 3.5 Subsidiaries and Equity Investments. Company does not have
any Subsidiaries or any direct or indirect equity ownership in any Person
other than as set forth in Schedule 3.5.
SECTION 3.6 Consents and Approvals. Except as set forth in Schedule
3.6, no filing or registration with, no notice to and no permit,
authorization, consent or approval of any Governmental Authority is
necessary for the consummation by the Sellers of the transactions
contemplated by this Agreement other than (a) consents and approvals of or
filings or registrations with the Antitrust Division of the United States
Department of Justice (the "DOJ") pursuant to the Xxxx-Xxxxx-Xxxxxx
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), (b)
requirements of federal and state securities laws, and (c) those already
obtained.
SECTION 3.7 Financial Statements. Sellers have delivered to Buyer (a) a
copy of the balance sheet of Company as of December 31, 1996, together with
the related reviewed statements of operations and retained earnings and
cash flows for the year then ended (such financial statements being
hereinafter referred to as the "Financial Statements"). The Financial
Statements (i) were prepared in accordance with generally accepted
accounting principles applied on a consistent basis ("GAAP") throughout the
period covered thereby, except as otherwise noted thereon or disclosed in
Schedule 3.7, and (ii) present fairly the financial position, results of
operations and cash flows of Company as of such date and for the period
then ended.
SECTION 3.8 Absence of Undisclosed Liabilities. Except for matters
relating to the transactions contemplated by this Agreement, there are no
liabilities or financial obligations of Company that are required to be
reflected on a balance sheet prepared in accordance with GAAP, other than
liabilities and obligations (a) provided for or reserved against in the
Financial Statements, (b) arising after December 31, 1996 in the ordinary
course of business, or (c) disclosed in Schedule 3.8.
SECTION 3.9 Absence of Certain Changes. Except for matters arising in
the ordinary course of business or as disclosed in Schedule 3.9, and except
for matters relating to the transactions contemplated by this Agreement,
since July 31, 1997, Company has not (a) suffered any adverse change in its
business, operations or financial position other than in the ordinary
course of business, (b) conducted its business other than in the ordinary
and usual course, (c) incurred any long-term indebtedness for borrowed
money or issued any debt securities or assumed, guaranteed or endorsed the
obligations of any other Person, (d) (i) sold, transferred or otherwise
disposed of any of its material property or assets to Persons other than
customers of Company or (ii) mortgaged or encumbered any of its property or
assets; (e) increased the compensation payable or to become payable by the
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Company to its directors, officers, key employees, affiliates or any of the
Sellers; (f) changed its accounting methods, practices, or principles,
except in accordance with the audit conducted on the Audit Date; (g)
adopted or amended any collective bargaining, bonus, profit sharing,
compensation, stock option, pension, retirement, deferred compensation, or
other plan, agreement, trust, fund, Employee Benefit Plan or any other
arrangement for the benefit of employees; or (h) entered into any Contract
to do any of the foregoing.
SECTION 3.10 Litigation. Except (a) as set forth in Schedule 3.10, (b)
for claims under workers' compensation or similar laws, (c) for routine
claims for employee benefits and (d) for claims for money damages
aggregating not more than $50,000, there is no action, suit or proceeding
pending or, to the knowledge of Sellers, threatened against Company before
any Governmental Authority. Company is not in default under any judgment,
decree, injunction or order of any court, governmental department,
commission, agency, instrumentality or arbitrator outstanding against
Company.
SECTION 3.11 Real Property; Liens and Encumbrances.
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(a) Company does not own any real property. Schedule 3.11
contains a complete and accurate list of all real property leased by
Company as of the date hereof.
(b) Except as set forth in Schedule 3.11, all properties and
assets owned by Company are free and clear of all liens, pledges, claims,
escrows, options, indentures, security interests, mortgages, assessments,
easements, rights of way, covenants, restrictions, rights of first refusal,
defects in title, encroachments, encumbrances and other burdens of any kind
or character (collectively, "Liens") except (i) statutory Liens not yet
delinquent or the validity of which are being contested in good faith by
appropriate actions, (ii) purchase money Liens arising in the ordinary
course, (iii) Liens for taxes not yet delinquent and (iv) Liens reflected
in the Financial Statements (which have not been discharged).
(c) The Company has good and marketable title to all the
personal property and assets, tangible or intangible, shown on the
Financial Statements, except to the extent sold or disposed of in
transactions entered into in the ordinary course of business consistent
with past practices since the date of the Financial Statements. None of
such assets are subject to any (i) contracts of sale or lease, except
contracts for the sale of inventory in the ordinary and regular course of
business; or (ii) Liens, except as set forth in Schedule 3.11 or permitted
under Section 3.11(b) hereof.
(d) The inventories of finished goods, work-in-progress and raw
materials of the Company included on the Audited Financials and to be
included on Closing Balance Sheet are valued at the lower of cost or market
with cost being determined using a moving average method the average, which
approximates the first-in, first-out (FIFO) method. The Company has the
proper amount of inventories to conduct its business consistent with past
practices. There has not been, since the date of the Financial Statements,
any provision for markdowns or shrinkage with respect to inventories other
than in the ordinary and regular course of business consistent with past
practices or as otherwise consented to by Buyer.
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SECTION 3.12 Certain Agreements. Except as described in Schedule 3.12,
Company is not a party to any Contract with any officer, director or
employee of Company or with any affiliate of the Company or any Seller (a)
the benefits of which are contingent, or the terms of which are altered,
upon the occurrence of the transactions contemplated by this Agreement, (b)
providing severance benefits or other benefits after the termination of
employment regardless of the reason for such termination of employment, or
(c) any of the benefits of which will be increased, or the vesting of
benefits of which will be accelerated, by the occurrence of any of the
transactions contemplated by this Agreement or the value of any of the
benefits of which will be calculated on the basis of any of the
transactions contemplated by this Agreement. Except as disclosed in
Schedule 3.12, Company is not a party to any (i) Contract relating to the
borrowing of money or the guarantee of any obligation for the borrowing of
money or (ii) other Contract or commitment of Company, in each case,
involving an expenditure or commitment in excess of $50,000. Company is not
in default under any of the Contracts or obligations described in Schedule
3.12.
SECTION 3.13 Employee Benefit Plans.
(a) Schedule 3.13 sets forth a true and complete list of each
"employee benefit plan" (within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")), each written
employment, severance, retention, termination, consulting or retirement
contract, and each bonus or other incentive compensation, stock purchase,
stock option, stock award or other equity-based compensation, or vacation
plan or policy (other than any governmental program), and any related
trust, as to which Company has any obligation or liability, contingent or
otherwise (collectively, "Employee Benefit Plans"). Sellers have provided
to Buyer true, correct and complete copies of the following documents with
respect to each of the Employee Benefit Plans for which such documents
exist: (i) the Employee Benefit Plan and related trust documents, and
amendments thereto, (ii) the most recent Form 5500, (iii) the last Internal
Revenue Service determination letter, and (iv) summary plan descriptions
and modifications thereto.
(b) Company does not maintain or contribute to, or has not
maintained or contributed to, any "multiemployer plan," as such term is
defined in Section 3(37) or Section 4001(a)(3) of ERISA, or any defined
benefit plans covered by Title IV of ERISA. Each Employee Benefit Plan
which is intended to be qualified under Section 401(a) and, if applicable,
Section 401(k) of the Code, is so qualified.
(c) Except as disclosed in Schedule 3.13, no action, suit or
proceeding relating to any Employee Benefit Plan (other than claims for
benefits for which the plan administrative procedures have not been
exhausted and "qualified domestic relations orders" as defined in Section
414(p) of the Code) is pending or, to the best of Sellers' knowledge,
threatened against Company before any court, arbitrator or administrative
or governmental body. Company has not failed to make contributions to any
Employee Benefit Plan that are required to be made under the terms of such
Employee Benefit Plans or under applicable law. To the best of Sellers'
knowledge, none of Company, any officer of Company, or any of the Employee
Benefit Plans (or any trusts created thereunder or any trustee or
12
administrator thereof) has engaged in a "prohibited transaction," as such
term is defined in Section 4975 of the Code or under ERISA, which could
reasonably subject Company, any officer of Company, any of such plans or
any trust to any material tax or penalty on prohibited transactions or any
other liability imposed by such Section 4975 or under ERISA.
(d) To the best of Sellers' knowledge, each of the Employee
Benefit Plans, comply in all material respects with the provisions of ERISA
and the Code and all other statutes, orders, governmental rules and
regulations applicable to such Employee Benefit Plans. Company has
performed all of its obligations currently required to have been performed
under all Employee Benefit Plans.
(e) To the best of Sellers' knowledge, each Employee Benefit
Plan has been administered to date in compliance with the requirements of
ERISA and the Code.
(f) To the best of Sellers' knowledge, all group health plans of
the Company (including any plans of affiliates of the Company that must be
taken into account under Section 4980B of the Code) have been operated in
material compliance with the group health continuation coverage
requirements of Section 4980B of the Code and Title I, Part 6 of ERISA.
(g) To the best of Sellers' knowledge, all written employment,
severance, retention, termination, consulting or retirement contract, and
each bonus or other incentive compensation, stock purchase, stock option,
stock award or other equity-based compensation, or vacation plan or policy
(other than any governmental program), and any related trust, as to which
Company has any obligation or liability, contingent or otherwise, are
legal, valid and binding and in full force and effect, and there are no
defaults thereunder. None of the rights of the Company thereunder will be
impaired by the consummation of the transactions contemplated by this
Agreement, and all of the rights of the Company thereunder will be
enforceable by Buyer at and after the Closing without the consent or
agreement of any other party.
SECTION 3.14 Taxes.
(a) For purposes of this Section 3.14, "Company" shall be deemed
to include any subsidiary of Company, any predecessor of Company or any
Person or entity from which Company incurs a liability for Taxes as a
result of transferee liability.
(b) Except as set forth in Schedule 3.14:
(i) Company has timely filed true, correct and complete
Tax Returns, reports or estimates, all prepared in accordance with
applicable laws, for all years and periods (and portions thereof) and
for all jurisdictions (whether federal, state, local or foreign) in
which any such returns, reports or estimates were due. All Taxes, as
due and payable in respect of such returns, reports and estimates have
been paid, and there is no current liability for any Taxes due in
connection with any such Tax Returns. Attached hereto as Schedule
3.14(b)(i) are copies of all federal, state and foreign Tax Returns
filed by Company for the past five years.
13
(ii) Company has never been a member of any consolidated,
combined or unitary group for federal, state, local or foreign Tax
purposes.
(iii) Company is not a party to any joint venture,
partnership or other arrangement that could be treated as a partnership
for federal income Tax purposes.
(iv) Company has (i) withheld all required amounts from
its employees, agents, contractors and nonresidents and remitted such
amounts to the proper agencies; and (ii) filed all federal, state,
local and foreign Tax Returns with respect to employee income Tax
withholding, social security and unemployment Taxes and premiums, all
in compliance with the withholding Tax provisions of the Code as in
effect for the applicable year and other applicable federal, state,
local or foreign laws.
(v) The federal income Tax Returns of Company have been
examined by the Internal Revenue Service (the "IRS"), or have been
closed by the applicable statute of limitations, for all periods
through 1993; the state Tax Returns of Company have been examined by
the relevant agencies or such returns have been closed by the
applicable statute of limitations for all periods through 1992; no
deficiencies or reassessments for any Taxes have been proposed,
asserted or assessed against Company by any federal, state, local or
foreign taxing authority.
(vi) Company has not executed or filed with any taxing
authority (whether federal, state, local or foreign) any agreement or
other document extending or having the effect of extending the period
for assessment, reassessment or collection of any Taxes, and no power
of attorney granted by Company with respect to any Taxes is currently
in force.
(vii) No federal, state, local or foreign Tax audits or
other administrative proceedings, discussions or court proceedings are
presently pending with regard to any Taxes or Tax Returns of Company
and no additional issues are being asserted against Company in
connection with any existing audits of Company.
(viii) Company has not entered into any agreement
relating to Taxes which affects any taxable year ending after the
Closing Date.
(ix) Company has not agreed to and it is not required to
make any adjustment by reason of a change in accounting methods that
affects any taxable year ending after the Closing Date. Neither the IRS
nor any other agency has proposed any such adjustment or change in
accounting methods that affects any taxable year ending after the
Closing Date. Company has no application pending with any taxing
authority requesting permission for any changes in accounting methods
that relate to its business or operations and that affects any taxable
year ending after the Closing Date.
(x) Company is not and never has been a party to any Tax
sharing agreement or similar arrangement for the sharing of Tax
liabilities or benefits.
14
(xi) None of Sellers or Company is a foreign person
within the meaning of Code section 1445.
(xii) Company has not consented to the application of
Code section 341(f).
(xiii) There is no Contract, plan or arrangement covering
any employee or former employee of Company that, individually or
collectively, could give rise to the payment by Company of any amount
that would not be deductible by reason of Code section 280G.
(xiv) No asset of Company is tax-exempt use property
under Code section 168(h).
(xv) No portion of the cost of any asset of Company has
been financed directly or indirectly from the proceeds of any
tax-exempt state or local government obligation described in Code
section 103(a).
(xvi) None of the assets of Company is property that
Company is required to treat as being owned by any other Person
pursuant to the safe harbor lease provision of former Code section
168(f)(8).
(xvii) Company does not have and has not had a permanent
establishment in any foreign country and does not and has not engaged
in a trade or business in any foreign country.
(xviii) Neither the Code nor any other provision of law
requires the Buyer to withhold any portion of the Purchase Price.
(xix) Company duly elected to be treated as an S
corporation pursuant to Code section 1362(a), and the laws of the State
of California, effective as of September 1, 1990. This election has not
been revoked and is currently effective, and no event has occurred that
would terminate Company's S corporation status (other than this
transaction). No taxing authority has challenged the effectiveness of
this election.
(xx) The Sellers will not claim any federal income Tax
deduction with respect to any corporate level California income or
franchise Taxes that are based on any income of the Company that
accrues after January 1, 1997.
SECTION 3.15 Compliance with Applicable Law. Except as set forth in
Schedule 3.15, the business of Company is not being conducted in violation
of any applicable Laws.
SECTION 3.16 Brokers' Fees and Commissions. Except for BA Partners, a
division of BancAmerica Xxxxxxxxx Xxxxxxxx, which is an affiliate of
BankAmerica Corporation, none of Sellers, Company and their respective
directors, officers, partners, employees or agents has employed any
investment banker, broker or finder in connection with the transactions
contemplated hereby.
15
SECTION 3.17 Proprietary Rights.
(a) Schedule 3.17 contains a complete and accurate list of (i)
all registered patents and trademarks of Company, (ii) all patent and
trademark applications of Company which have been filed and are currently
pending, and (iii) all licenses or other valid rights to use all United
States and foreign patents, trademarks, trade names, service marks,
copyrights and applications therefor (collectively, "Intellectual Property
Rights") which Company owns or possesses (the "Patent and Trademark
Rights").
(b) Except as set forth in Schedule 3.17, (i) as of the date of
this Agreement, the validity of the Patent and Trademark Rights and the
title thereto of Company are not being questioned in any litigation to
which Company is a party, nor to the knowledge of Sellers, is any such
litigation threatened, (ii) as of the date of this Agreement, to the
knowledge of Sellers, the conduct of the business of Company from January
1, 1994 to the date of this Agreement has not conflicted, and does not
conflict, with any valid patents, trademarks, trade name, service marks or
copyrights of others in any way which is reasonably likely to have a
Material Adverse Effect, and (iii) to the Sellers' knowledge, the Company
has the right to use all Intellectual Property Rights used in, or necessary
for, the operation of its business as currently conducted.
SECTION 3.18 Labor Relations. Except as listed or described on Schedule
3.18, (i) there have been no strikes, work stoppages or any demands for
collective bargaining by any union or labor organization of the Company's
employees since January 1, 1994, (ii) there is no collective bargaining
relationship between the Company and any union, and (iii) there is no
dispute or controversy with any union or other organization of the
Company's employees.
SECTION 3.19 Insurance. All insurance policies (the "Insurance
Policies") with respect to the property, assets, operations and business of
Company are listed in Schedule 3.19 and are in full force and effect.
Except as set forth in Schedule 3.19, as of the date of this Agreement,
there are no pending claims against the Insurance Policies by Company as to
which the insurers have denied liability. Sellers make no representation or
warranty that the Insurance Policies will be continued or are continuable
after the Closing.
SECTION 3.20 Environmental Matters. Except as disclosed on Schedule
3.20 or in the Environmental Reports delivered to Buyer:
(a) the operations of Company are in compliance with all
applicable Environmental Laws;
(b) Company has obtained all permits, licenses and other
authorizations that are required under applicable Environmental Laws
("Environmental Permits") to conduct its business;
(c) no judicial or administrative proceedings or investigations
are pending or, to the knowledge of Sellers, threatened against Company and
16
no written notice, citation, summons or order has been delivered to Company
by any Governmental Authority or private entity pursuant to any applicable
Environmental Laws (collectively, "Environmental Claims");
(d) no real property currently (or to the knowledge of Sellers,
formerly) owned, operated or leased by Company has been involved with any
release of Hazardous Materials, or is listed or has been formally proposed
for listing on the National Priorities List, the Comprehensive
Environmental Response Compensation and Liability and Information System
("CERCLIS") or any analogous state lists;
(e) there are not now on, in or under any real property owned,
leased or operated by Company (i) any underground storage tanks ("USTs"),
(ii) any asbestos-containing materials ("ACMs"), (iii) any polychlorinated
biphenyls ("PCBs"), or (iv) Hazardous Materials;
(f) Company has not caused or experienced any past or present
events, conditions, circumstances, plans or other matters which: (i) arise
from inventory of or waste from Hazardous Materials; or (ii) arise from any
off-site disposal, release or threatened release of Hazardous Materials;
(g) Company has not received notice, actual or threatened, that
it is a "potentially responsible party" for the costs of investigation,
removal or remediation for any real property listed on the National
Priorities List or any analogous state list; and
(h) Sellers have provided Buyer with copies of any environmental
investigation, study or audit conducted by Sellers or Company in relation
to any real property owned or leased by Company.
SECTION 3.21 Ownership of Shares. Sellers are the holders of record of
all the outstanding shares of capital stock of Company and own beneficially
that number of Shares set forth opposite their names on Schedule 3.21
hereto. Sellers own the Shares set forth on Schedule 3.21 free and clear of
any liens, claims or encumbrances. Sellers are not a party to any voting
trust, proxy or other agreement with respect to the voting of any Shares
which will remain in force or effect after the Closing.
SECTION 3.22 Bank Accounts. Schedule 3.22 lists all bank accounts, lock
boxes, post office boxes and safe deposit boxes maintained in the name of
or controlled by the Company and the names of the persons having access
thereto.
SECTION 3.23 Absence of Certain Business Practices. To the Sellers'
knowledge, no officer, employee or agent of the Company has (a) received,
directly or indirectly, any rebates, payments, commissions, promotional
allowances or any other economic benefit, regardless of its nature or type,
from any customer, supplier, trading company, shipping company,
governmental employee or other entity or individual with whom the Company
has done business directly or indirectly; or (b) directly or indirectly,
given or agreed to give any gift or similar benefit to any customer,
supplier, trading company, shipping company, governmental employee or other
person or entity who is or may be in a position to help or hinder the
17
business of the Company (or assist the Company in connection with any
actual or proposed transaction) which will subject the Company to any
damage or penalty in any civil, criminal or governmental litigation or
proceeding.
ARTICLE IV
REPRESENTATIONS AND
WARRANTIES OF BUYER
Buyer hereby represents and warrants to Sellers as set forth below.
SECTION 4.1 Organization and Qualifications. Buyer is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, with all requisite corporate power and authority to own,
lease and operate its properties and to carry on its businesses as now
being conducted. Buyer is qualified or licensed to do business and is in
good standing in every jurisdiction where the nature of the business
conducted by it or the properties owned or leased by it requires
qualification.
SECTION 4.2 Authorization. Buyer has full corporate power and authority
to execute and deliver this Agreement and to consummate the transactions
contemplated hereby. No other corporate proceeding on the part of Buyer is
necessary to authorize the execution and delivery of this Agreement or to
consummate the transactions contemplated hereby. This Agreement has been
duly and validly executed and delivered by Buyer and constitutes a valid
and binding obligation of Buyer, enforceable against it in accordance with
its terms, except to the extent that such enforcement may be subject to
bankruptcy, insolvency, reorganization, moratorium or other similar laws
now or hereafter in effect relating to creditors' rights generally, and the
remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the
court before which any proceeding therefor may be brought.
SECTION 4.3 No Violation. Neither the execution and delivery of this
Agreement by Buyer and the performance by Buyer of its obligations
hereunder nor the consummation by Buyer of the transactions contemplated
hereby will (a) violate, conflict with or result in any breach of any
provision of the Certificate of Incorporation or Bylaws of Buyer, (b)
violate, conflict with or result in a violation or breach of, or constitute
a default (with or without due notice or lapse of time or both) under the
terms, conditions or provisions of any note, bond, mortgage, indenture or
deed of trust, or any license, lease or agreement to which Buyer is a party
or (c) violate any order, writ, judgment, injunction, decree, statute, rule
or regulation of any court or Governmental Authority applicable to Buyer.
SECTION 4.4 Consents and Approvals. No filing or registration with, no
notice to and no permit, authorization, consent or approval of any third
party or any Governmental Authority is necessary for the consummation by
18
Buyer of the transactions contemplated by this Agreement other than (a)
consents and approvals of or filings or registrations with the DOJ pursuant
to the HSR Act, (b) requirements of federal and state securities laws and
(c) those consents already obtained.
SECTION 4.5 Brokers' Fees and Commissions. Except for Xxxxx Xxxxxx and
Company, neither Buyer nor any of its affiliates, Subsidiaries, directors,
officers, employees or agents has employed any investment banker, broker or
finder in connection with the transactions contemplated hereby.
SECTION 4.6 Purchase for Investment. Buyer is acquiring the Shares for
its own account for investment purposes and not with a view to the
distribution of the Shares. Buyer has such knowledge and experience in
financial and business matters so as to be capable of evaluating the merits
and risks of its investment in the Shares. Buyer is an "accredited
investor" as defined in Rule 501 of the Securities Act of 1933, as amended.
Buyer will not, directly or indirectly, dispose of the Shares except in
compliance with applicable federal and state securities laws.
SECTION 4.7 Financing. Through access to the cash and financing
available to Motors and Gears, Inc., Buyer has sufficient funds available
to satisfy, among other things, the obligation to pay (a) the Initial
Payment and other components of the Purchase Price and (b) all expenses
incurred by Buyer in connection with the transactions contemplated hereby.
Buyer has furnished to Sellers a reliance letter, dated the date hereof, of
Motors and Gears, Inc., substantially in the form of Exhibit J (the
"Reliance Letter").
ARTICLE V
COVENANTS
SECTION 5.1 Conduct of Business of Company Prior to the Closing. Except
as contemplated by this Agreement, as set forth in Schedule 5.1 or with the
prior written consent of Buyer (which consent shall not be unreasonably
withheld), during the period from the date of this Agreement to the
Closing, Sellers shall cause the Company to conduct its business and
operations according to Company's ordinary and usual course of business and
to use all reasonable efforts consistent therewith to preserve intact
Company's properties, assets and business organizations, to keep available
the services of Company's officers and employees and to maintain
satisfactory relationships with customers, suppliers, distributors and
others having commercially beneficial business relationships with Company,
in each case in the ordinary course of business. Without limiting the
generality of the foregoing, and except as otherwise provided in this
Agreement, the Sellers shall not permit the Company to do any of the
following prior to the Closing, without the prior written consent of Buyer
(which consent shall not be unreasonably withheld):
(a) issue, sell or pledge, or authorize or propose the issuance,
sale or pledge of additional shares of capital stock of any class or
19
interests, or securities convertible into any such shares or interests, or
any rights, warrants or options to acquire any such shares or interests or
other convertible securities;
(b) redeem, purchase or otherwise acquire any outstanding shares
of the capital stock of Company;
(c) propose or adopt any amendment to the Articles of
Incorporation or Bylaws of Company;
(d) incur any long-term indebtedness for borrowed money or issue
any debt securities or, except in the ordinary course of business, assume,
guarantee or endorse the obligations of any other Person;
(e) increase in any manner the rate or terms of compensation of
any of the Sellers, nor shall the Company so increase the rate or terms of
compensation of any of its other directors, officers or other employees,
except such increases as are granted in the ordinary course of business
consistent with past practice or as may be necessary to meet the
competition;
(f) except in the ordinary course of business, (i) sell,
transfer or otherwise dispose of any of its property or assets or (ii)
mortgage or encumber any of its property or assets;
(g) enter into other commitments or Contracts, except
commitments or Contracts made in the ordinary course of business;
(h) declare, set aside or pay any dividend or other distribution
in respect of the Shares; provided, however, that Company may make such
cash distributions to Sellers from time to time as necessary to allow
Sellers to pay their Tax obligations related to income of Company;
(i) except in the ordinary course of business or with respect to
capital projects begun prior to the date hereof, enter into any agreement
or commitment involving an aggregate capital expenditure or commitment
exceeding $100,000; or
(j) agree in writing to take any of the foregoing actions.
SECTION 5.2 Closing Balance Sheet. Sellers shall deliver to Buyer the
Closing Balance Sheet as soon as practicable after the close of business
two business prior to the Closing Date.
SECTION 5.3 Access to Information. Between the date of this Agreement
and the Closing Date, upon reasonable notice and at reasonable times
without significant disruption to the businesses of Company, Company will
give Buyer and its authorized representatives reasonable access to all
offices and other facilities, and to all books and records of Company and
will permit Buyer to make and will fully cooperate with regard to such
inspections as it may reasonably require, all in accordance with the
Protocol, and will cause its officers to furnish Buyer such financial and
operating data and other information with respect to the businesses and
properties of Company as Buyer may from time to time reasonably request,
20
all in accordance with the Protocol. Sellers shall cause Company,
commencing on the close of business two days prior to the Closing Date, to
provide Buyer and its authorized representatives access to all offices and
other facilities, and to all books and records of Company and will permit
Buyer to make and will fully cooperate with regard to such inspections as
it may require and will furnish Buyer and its authorized representatives
such financial and operating data and other information with respect to the
businesses and properties of Company as Buyer may reasonably request to
review the preparation of the Closing Balance Sheet and to calculate the
Net Adjustment. Buyer shall maintain confidential all information furnished
by the Company or the Sellers and, in the event of termination of the
Agreement pursuant to Article VIII, shall return to Sellers or the Company
all information theretofore furnished by Sellers or the Company and shall
destroy all writings or other media containing such information or
materials derived from, commenting upon or summarizing such information.
After the Closing Date, upon reasonable notice and at reasonable
times without significant disruption to the businesses of Company, Buyer
and Company will give Sellers and their authorized representatives
reasonable access to all offices and other facilities, and to all books and
records of Company necessary to review the preparation of the Closing
Financial Statements and Adjustment Schedule pursuant to Section 2.4 hereof
and to prepare amended tax returns referred to in Section 9.13 hereof, and
will cause officers of the Company to furnish to Sellers such financial and
other operational data and other information as Sellers may reasonably
request in connection with the preparation of such amended tax returns.
SECTION 5.4 All Reasonable Efforts. Subject to the terms and conditions
herein provided, each of the parties hereto agrees to use all reasonable
efforts to take, or cause to be taken, all action, and to do, or cause to
be done, all things necessary, proper and advisable under applicable laws
and regulations to consummate and make effective as promptly as practicable
the transactions contemplated by this Agreement. If at any time after the
Closing any further action is necessary or desirable to carry out the
purposes of this Agreement, including, without limitation, the execution of
additional instruments, the parties to this Agreement shall take all such
necessary action.
SECTION 5.5 Consents and Approvals. The parties hereto each will
cooperate with one another and use all reasonable efforts to prepare all
necessary documentation (including, without limitation, furnishing all
information required under the HSR Act), to effect promptly all necessary
filings and to obtain all necessary permits, consents, approvals, orders
and authorizations of, or any exemptions by, all third parties and
Governmental Authorities necessary to consummate the transactions
contemplated by this Agreement. Each party will keep the other parties
apprised of the status of any inquiries made of such party by the DOJ or
any other Governmental Authority or members of their respective staffs with
respect to this Agreement or the transactions contemplated hereby.
SECTION 5.6 Public Announcements. Buyer and Sellers will consult with
each other and will mutually agree (the agreement of each party not to be
unreasonably withheld) upon the content and timing of any press release or
21
other public statements with respect to the transactions contemplated by
this Agreement and shall not issue any such press release or make any such
public statement prior to such consultation and agreement.
SECTION 5.7 Disclosure Supplements. From time to time prior to the
Closing, Sellers will supplement or amend the Disclosure Schedules
delivered in connection herewith with respect to any matter which, if
existing or occurring at or prior to the date of this Agreement, would have
been required to be set forth or described in such Disclosure Schedules or
which is necessary to correct any information in such Disclosure Schedules
which has been rendered inaccurate by an event occurring after the date
hereof. Any such supplement or amendment to the Disclosure Schedules shall
be reasonably satisfactory to Buyer; provided, that any such supplement or
amendment to the Disclosure Schedules delivered to the Buyer shall be
deemed approved by Buyer if Buyer does not provide written notice to
Sellers within seven (7) days after delivery of such supplement or
amendment that such supplement or amendment is not reasonably satisfactory
to Buyer. If the Closing occurs, Buyer waives any right or claim it may
otherwise have or have had on account of any matter so disclosed in such
supplement or amendment.
SECTION 5.8 No Implied Representations or Warranties. Buyer hereby
acknowledges and agrees that neither Sellers nor Company is making any
representation or warranty whatsoever, express or implied, except those
representations and warranties of the Sellers explicitly set forth in this
Agreement or in the Disclosure Schedules or in any certificate contemplated
hereby and delivered by the Sellers in connection herewith. Subject to the
foregoing, the assets and businesses of Company being acquired by Buyer at
the Closing as a result of this Agreement and the transactions contemplated
hereby shall be acquired by Buyer on an "as is, where is" basis and in
their then present condition, and Buyer shall rely solely upon its own
examination thereof. In any event, except as explicitly set forth herein,
none of Sellers or Company, or any of their respective officers, directors,
partners, employees, affiliates or representatives, as the case may be, has
made or is making any representation, express or implied, as to the value
of any asset or business being so acquired, or any warranty of
merchantability, suitability or fitness for a particular purpose or
quality, with respect to any of the tangible assets being so acquired, or
as to the condition or workmanship thereof, or as to the absence of any
defects therein, whether latent or patent.
SECTION 5.9 Employee Benefit Matters.
(a) Benefit Arrangements. Buyer agrees that on and after the
Closing Date it will cause Company to promptly and in good faith honor all
written employment, severance, retention, termination, consulting and
retirement agreements to which Company is presently a party (all of which
are listed in Schedule 5.9(a)), including, without limitation, the
retention agreements described in Schedule 3.13, as such agreements may
hereafter be modified with the consent of the other party or as otherwise
permitted by such agreements.
(b) Indemnification and Insurance. Buyer agrees that all rights
to indemnification or exculpation now existing in favor of the employees,
agents, directors or officers of Company (the "Company Indemnified
Parties") as provided in the Articles of Incorporation or Bylaws of Company
(or other comparable governing documents), or as provided in an agreement
22
between a Company Indemnified Party and Company (the "Indemnification
Agreements") (all of which are listed in Schedule 5.9(b)) shall continue in
full force and effect for a period of not less than seven years from the
Closing Date; provided, however, that, in the event any claim or claims are
asserted or made within such seven-year period, all rights to
indemnification in respect of any such claim or claims shall continue until
disposition of any and all such claims; provided, however, that such
Company Indemnified Parties shall have no rights to indemnification or
exculpation under this Section 5.9(b) for any losses arising out of a
breach of this Agreement by such Company Indemnified Party except to the
extent covered by any insurance maintained by the Company. Any
determination required to be made with respect to whether a Company
Indemnified Party's conduct complies with the standards set forth in the
Articles of Incorporation or Bylaws of Company (or other comparable
governing documents) or under the Indemnification Agreements shall be made
by independent counsel selected by the Company Indemnified Party reasonably
satisfactory to Buyer (whose fees and expenses shall be paid by Company).
(c) Binding on Successors. In the event Company or any of its
successors or assigns (i) consolidates with, or merges into, any other
Person and shall not be the continuing or surviving corporation or entity
of such consolidation or merger or (ii) transfers all or substantially all
of its properties, assets or stock to any Person, then and in each such
case, proper provision shall be made so that the successors and assigns of
Company (or their successors and assigns) shall assume the obligations set
forth in Section 5.9.
SECTION 5.10 Solvency After the Closing. After the Closing, Buyer
agrees that it shall not, and that it shall cause Company not to, take or
cause to be taken or omit to take any action which could result in a
determination pursuant to state or federal law that, after giving effect to
the transactions contemplated hereby (or after giving effect to such
transactions and to such other subsequent actions or omissions), Company
(a) was insolvent at the time of the Closing, (b) became insolvent as a
result of the transactions contemplated hereby, (c) was left with
unreasonably small capital with which to engage in its business or (d)
incurred debts beyond its ability to pay such debts as they mature, such
that the payment of the Purchase Price may be deemed a "fraudulent
conveyance" or impermissible dividend or distribution under applicable law
or otherwise subject to claims of certain creditors of Company or its
trustees in a bankruptcy proceeding.
SECTION 5.11 Confidentiality. Prior to the Closing, Buyer shall, keep
confidential, and shall use its best efforts to cause to be kept
confidential by its affiliates and representatives, all information
concerning Company or Sellers disclosed prior to the date of this Agreement
or hereafter to any such Persons in connection with this Agreement and the
consummation of the transactions contemplated hereby and the relating
financing, and none of such information shall be used in any manner other
than in connection with this Agreement and the other agreements
contemplated hereby, except to the extent (i) required by any Governmental
Authority, (ii) such information is generally known in the industries in
which the Company is engaged or (iii) is lawfully obtainable from other
sources. In the event of the termination of this Agreement, Buyer shall
return to Sellers (or destroy and certify such destruction to the Company
and Sellers in writing) all documents and materials (and reproductions
23
thereof) furnished to Buyer or its affiliates or representatives in
connection with this Agreement for the transactions contemplated hereby.
SECTION 5.12 Resignation of Officers and Directors. Prior to or at the
Closing, Sellers will cause each of the officers and directors of Company
identified by Buyer to resign effective as of the Closing.
SECTION 5.13 Lease Agreements. Sellers shall cause Lessors to enter
into the Lease.
SECTION 5.14 Audited Financials. The Buyer shall initiate an audit of
the Company's financial statements for fiscal year 1996 and the fiscal
period ended as of the Audit Date (the "Audited Financials"). The
accounting firm conducting the audit shall be the Sacramento office of
Xxxxxx Xxxxxxxx and the financial statements shall be prepared in
accordance with GAAP. Buyer shall bear the cost of this audit. The audit
shall be completed by November 20, 1997. A copy of the audit shall be
delivered to each Seller.
SECTION 5.15 Certain Payments. Prior to or at the Closing, Sellers
shall pay to the Company an amount equal to all fees and expenses of BA
Partners, O'Melveny & Xxxxx LLP and Xxxxxx Xxxxxxxx LLP, relating to the
transaction contemplated by this Agreement, paid by Company.
SECTION 5.16 Discharge of Debt. Contemporaneously with the Closing,
Buyer shall pay or otherwise discharge the Debt pursuant to Sections 1.1(w),
1.1(bg)(ii) and 2.2(a).
ARTICLE VI
CLOSING CONDITIONS
SECTION 6.1 Conditions to Each Party's Obligations Under this
Agreement. The respective obligations of each party under this Agreement
shall be subject to the fulfillment at or prior to the Closing of the
following conditions:
(a) Any waiting period applicable to the consummation of the
transactions contemplated hereby under the HSR Act shall have expired or
been terminated;
(b) No injunction, restraining order or other ruling or order
issued by any court of competent jurisdiction or Governmental Authority or
other legal restraint or prohibition preventing the consummation of the
transactions contemplated hereby shall be in effect;
(c) Any and all permits, consents, waivers, clearances,
approvals and authorizations of all third parties and Governmental
Authorities which are necessary or advisable in connection with the
consummation of the transactions contemplated hereby shall have been
obtained;
24
(d) The Escrow Agent shall have executed and delivered the
Escrow Agreement;
(e) The Audited Financials shall be reasonably satisfactory to
each of Buyer and Sellers; and
(f) The Buyer shall have completed a review of the Closing
Balance Sheet, the results of which shall be satisfactory to each of Buyer
and Sellers.
SECTION 6.2 Conditions to the Obligations of Buyer Under this
Agreement. The obligations of Buyer under this Agreement shall be further
subject to the satisfaction, at or prior to the Closing, of the following
conditions:
(a) Except for the Section 5.15 hereof, each of the obligations
of Sellers and Company required to be performed by them at or prior to the
Closing pursuant to this Agreement shall have been duly performed and
complied with in all material respects, and the representations and
warranties of the Sellers contained in this Agreement shall be true and
correct in all material respects as of the date of this Agreement and as of
the Closing Date as though made at and as of the Closing Date (except as to
any representation or warranty which specifically relates to an earlier
date), and Buyer shall have received a certificate to that effect signed by
each of the Employee Sellers to the best of their knowledge and Buyer shall
have received a certificate of each Seller that Section 3.21 is true and
correct insofar as it applies to such Seller;
(b) Supplements or amendments to the Disclosures Schedules, if
any, shall have been approved by the Buyer in accordance with Section 5.7
hereof;
(c) Each Seller shall have executed and delivered a
Non-Competition Agreement;
(d) The Employee Sellers shall have executed and delivered the
Escrow Agreement;
(e) Each Employee Seller shall have executed and delivered an
Employment Agreement;
(f) Certain officers of the Company, as agreed upon by Buyer and
Sellers, shall each have entered into an employment agreement in form and
substance reasonably satisfactory to Buyer;
(g) The Lease shall have been executed and delivered;
(h) The Buyer shall have received, within six (6) business days
after the date of this Agreement, any Disclosure Schedule not delivered on
the date of this Agreement and such Disclosure Schedule shall be reasonably
satisfactory to Buyer; provided, that any such Disclosure Schedule
delivered after the date of this Agreement shall be deemed approved by
Buyer if Buyer does not provide written notice to Sellers within seven (7)
days after delivery of such Disclosure Schedule that such Disclosure
Schedule is not reasonably satisfactory to Buyer;
25
(i) The Buyer shall have received an executed withholding
certificate from each Seller in the form of Exhibit G attached hereto;
(j) The Buyer shall have completed a due diligence review of the
Company in accordance with the Protocol the results of which shall be
reasonably satisfactory to Buyer;
(k) The marketing survey conducted by Xxxxxxxxx & XxXxxxxxxx,
Inc. shall be satisfactory to Buyer;
(l) Buyer shall have received the Officers' Certificate;
(m) Buyer shall have reviewed and approved Sellers'
determination of the Deemed Gain on Sale of Assets and Section 338(h)(10)
Payment; and
(n) Sellers will furnish or cause the Company to furnish to
Buyer such other documents and certificates of the Company's officers as
Buyer shall reasonably request to evidence compliance with the conditions
set forth in this Agreement.
SECTION 6.3 Conditions to the Obligations of Sellers Under this
Agreement. The obligations of Sellers under this Agreement shall be further
subject to the satisfaction, at or prior to the Closing, of the following
conditions:
(a) Each of the obligations of Buyer required to be performed by
it at or prior to the Closing pursuant to the terms of this Agreement shall
have been duly performed and complied with in all material respects, and
the representations and warranties of Buyer contained in this Agreement
shall be true and correct in all material respects as of the date of this
Agreement and as of the Closing Date as though made at and as of the
Closing Date (except as to any representation or warranty which
specifically relates to an earlier date), and Sellers shall have received a
certificate to that effect signed by an officer of Buyer to the best of his
or her knowledge;
(b) Company and Buyer shall have executed and delivered an
Employment Agreement for each of the Employee Sellers;
(c) The Company and Buyer shall have executed and delivered the
Escrow Agreement;
(d) Sellers shall have received an opinion substantially in the
form of Exhibit I hereto from counsel to Buyer;
(e) Sellers and/or Sellers' representatives shall have reviewed
and approved Buyer's determination of the Modified Aggregate Deemed Sales
Price and the Purchase Price Allocation Schedule; and
(f) The Reliance Letter shall have been confirmed as of the
Closing Date.
26
ARTICLE VII
CLOSING
SECTION 7.1 Closing. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of O'Melveny
& Xxxxx LLP, 000 Xxxxx Xxxx Xxxxxx, Xxx Xxxxxxx, Xxxxxxxxxx 00000, 15th
Floor, subject to the satisfaction or waiver of the conditions set forth in
Article VI, on the later of December 5, 1997, or two business days after
the receipt of all requisite governmental approvals, or at such other time
and place and on such other date as Buyer and Sellers shall agree (the
"Closing Date"). At the Closing:
(a) Sellers shall deliver or cause to be delivered to Buyer the
following:
(i) the certificates described in Section 6.2;
(ii) a certificate or certificates representing all of
the Shares in appropriate form for transfer to Buyer or accompanied by
stock powers duly executed in blank;
(iii) all documents, including without limitation,
executed UCC-3 termination statements, as are necessary to release all
Liens on the Company's assets, except the UCC-1 financing statement
filed in favor of Aromat Corporation; and
(iv) all other previously undelivered documents required
to be delivered by Sellers to Buyer at or prior to the Closing pursuant
to the terms of this Agreement.
(b) Buyer shall deliver or cause to be delivered to Sellers the
following:
(i) the certificate described in Section 6.3(a);
(ii) all other previously undelivered documents required
to be delivered by Buyer to Sellers at or prior to the Closing pursuant
to the terms of this Agreement; and
(iii) an executed Earn-Out Rights Plan.
(c) Buyer shall pay the Initial Payment and the Section
338(h)(10) Payment to Sellers, by wire transfer of immediately available
funds to such account or accounts as Sellers shall designate at least two
(2) days prior to the Closing Date.
27
ARTICLE VIII
TERMINATION AND ABANDONMENT
SECTION 8.1 Termination. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time prior to the
Closing:
(a) by mutual consent of Sellers and Buyer; or
(b) by either Sellers or Buyer;
(i) if there is a material breach by the other party of
any representation, warranty, covenant or agreement contained herein
which is not cured or curable within ten days after written notice of
such breach is given to the party committing such breach by the other
party;
(ii) if any approval, consent or waiver of a Governmental
Authority required to permit consummation of the transactions
contemplated by this Agreement shall have been denied;
(iii) if a court of competent jurisdiction or
Governmental Authority shall have issued an order, decree or ruling or
taken any other action (which order, decree or ruling the parties
hereto shall use their best efforts to lift), in each case permanently
restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement, and such order, decree, ruling or other
action shall have become final and nonappealable; or
(iv) if the Closing shall not have occurred on or before
December 31, 1997;
provided, however, that the right to terminate this Agreement shall not be
available to any party whose breach of this Agreement has been the cause
of, or resulted in, the failure of the Closing to occur on or before such
date.
SECTION 8.2 Procedure and Effect of Termination. In the event of
termination and abandonment of the transactions contemplated hereby
pursuant to Section 8.1, written notice thereof shall forthwith be given to
the other parties to this Agreement and this Agreement shall terminate and
the transactions contemplated hereby shall be abandoned, without further
action by any of the parties hereto. If this Agreement is terminated as
provided herein, each party shall bear its own expenses and no party hereto
shall have any liability or further obligation to any other party to this
Agreement resulting from such termination except (a) that the provision of
Section 5.3, this Section 8.2 and the proviso of Section 8.1(b) shall
remain in full force and effect and (b) no party waives any claim or right
against a breaching party to the extent that such termination results from
the breach by a party hereto of any of its representations, warranties,
covenants or agreements set forth in this Agreement.
28
ARTICLE IX
MISCELLANEOUS PROVISIONS
SECTION 9.1 Amendment and Modification. This Agreement may be amended,
modified or supplemented by a written instrument signed by all of the
parties hereto.
SECTION 9.2 Waiver of Compliance; Consents. Any failure of Buyer, on
the one hand, or of Sellers or the Company, on the other hand, to comply
with any obligation, covenant agreement or condition contained herein may
be waived in writing by Sellers or Buyer, respectively, but such waiver or
failure to insist upon strict compliance with such obligation, covenant,
agreement or condition shall not operate as a waiver of, or estoppel with
respect to, any other failure.
SECTION 9.3 Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability
of any other provisions of this Agreement, which shall remain in full force
and effect.
SECTION 9.4 Expenses and Obligations. All costs and expenses incurred
in connection with the consummation of the transactions contemplated by
this Agreement by Buyer shall be paid by Buyer, and all costs and expenses
incurred in connection with the consummation of the transactions
contemplated by this Agreement by Sellers or Company shall be paid by
Sellers.
SECTION 9.5 Parties in Interest. This Agreement shall be binding upon
and, except as provided below, inure solely to the benefit of each party
hereto, and nothing in this Agreement, except as set forth below, express
or implied, is intended to confer upon any other Person any rights or
remedies of any nature whatsoever under or by reason of this Agreement.
SECTION 9.6 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given upon the earlier of delivery
thereof if by hand or upon receipt if sent by mail (registered or
certified, postage prepaid, return receipt requested) or on the second next
business day after deposit if sent by a recognized overnight delivery
service or upon transmission if sent by telecopy or facsimile transmission
(with request of assurance of receipt in a manner customary for
communication of such type) as follows:
29
(a) If to Buyer, to:
Motion Holdings, Inc.
x/x Xxxxxx & Xxxxx, Xxx.
XxxxxXxxx Xxxxxx, Xxxxx 000
0000 Xxxx Xxxx Xxxx
Xxxxxxxxx, Xxxxxxxx 00000
Attention: Xxxxxx X. Xxxxx, President
Xxxxxx X. Xxxxxx, Vice President
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
with a copy to:
Xxxxx Xxxx LLP
One Kansas City Place
0000 Xxxx, Xxxxx 0000
Xxxxxx Xxxx, Xxxxxxxx 00000
Attention: G. Xxxxxx Xxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
(b) If to Sellers or Company, to:
Motion Control Engineering, Inc.
00000 Xxxxxxxxx Xxxx
Xxxxxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxx Xxxxxxxx
Telephone: (000) 000-0000, ext. 244
Facsimile: (000) 000-0000
with a copy to:
O'Melveny & Xxxxx LLP
000 Xxxxx Xxxx Xxxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxx X. XxXxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
SECTION 9.7 Governing Law; Dispute Resolution.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois without regard to the
conflicts-of-laws rules thereof.
30
(b) Any dispute between any of the parties hereto or any claim
by a party against another party arising out of or relating to this
Agreement or relating to any alleged breach hereof including, without
limitation, the calculation of the Audited Financials, shall be determined
by arbitration in accordance with the rules then in force of the American
Arbitration Association, subject to the modifications set forth in this
Section 9.7(b). The arbitration proceedings shall take place in Sacramento
or such other location as the parties in dispute may agree upon. The
arbitration proceedings shall be subject to the substantive laws of the
State of Illinois. There shall be one arbitrator, as shall be agreed upon
by the parties in dispute within twenty (20) calendar days of delivery of
written notice of the dispute, who shall be an individual skilled in the
business aspects of the subject matter of this Agreement and of the dispute
and is not a lawyer. In the absence of such an agreement in the 20-day
period referred to in the preceding sentence, each party to the dispute
shall select one arbitrator within ten (10) calendar days after the
termination of such 20-day period and the arbitrators so selected shall
select a third arbitrator who shall be an individual skilled in the
business aspects of the subject matter of this Agreement and of the dispute
and is not a lawyer. The failure of a party to designate an arbitrator
within such 10-day period shall constitute a waiver of that party's right
to select an arbitrator and the arbitrator selected by the other party
shall be the sole arbitrator of the arbitration proceedings. In the event
the arbitrators cannot agree upon the selection of a third arbitrator
within forty-five (45) calendar days of delivery of written notice of the
dispute, such third arbitrator shall be appointed by the American
Arbitration Association at the request of any of the parties in dispute.
The American Arbitration Association shall appoint, within ten (10)
calendar days of such request, a third arbitrator skilled in the business
aspects of the subject matter of this Agreement and of the dispute and is
not a lawyer. The arbitration proceedings shall begin within fifteen (15)
calendar days of the final selection of the arbitrator or arbitrators. In
any arbitration in which the decision, or a portion of the decision, of the
arbitrator(s) can be expressed numerically, each party shall, ten (10)
business days prior to any proceedings before the arbitrator(s), propose a
settlement number to the other party. During the five (5) business days
prior to the start of such proceedings, the parties shall consult with each
other in an effort to reach agreement. With respect to any such numerical
dispute, each party shall, on the first day of such proceedings before the
arbitrator(s), submit a settlement number to the arbitrator(s) and to the
other party. The decision, or the portion of the decision, of the
arbitrator(s) is limited to one of the two proposed settlement numbers.
Each party shall have twenty (20) calendar days to present to the
arbitrator(s) its case in chief, ten (10) calendar days to reply in writing
to the other party's case in chief, five (5) calendar days to prepare for
presentation to the arbitrator(s) and ten (10) calendar days to present its
case. The arbitrator(s) shall deliver a written decision within thirty (30)
days of the last day specified for presentation by the parties and, in any
event, within 125 days after appointment of such arbitrator(s). Any
decision rendered by the arbitrator(s) shall be accompanied by a written
opinion in support thereof. Such decision shall be final and binding upon
the parties in dispute without right of appeal. Judgment upon any such
decision may be entered into in any court having jurisdiction thereof, or
application may be made to such court for a judicial acceptance of the
decision in an order of enforcement. Costs of the arbitration shall be
assessed by the arbitrator(s) against all or any of the parties in dispute
and shall be paid promptly by the party or parties so assessed. Each party
to a dispute agrees to cooperate and use its best efforts to obtain the
final decision of the arbitrator(s) within 125 days after appointment of
such arbitrator(s).
;
31
SECTION 9.8 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
SECTION 9.9 Headings. The article and section headings contained in
this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 9.10 Entire Agreement. This Agreement, the Disclosure Schedules
and exhibits attached hereto embody the entire agreement and understanding
of the parties hereto in respect of the subject matter contained herein or
therein. There are no agreements, representations, warranties or covenants
other than those expressly set forth herein or therein. This Agreement and
the Disclosure Schedules and exhibits attached hereto supersede all prior
agreements and understandings between the parties with respect to such
subject matter.
SECTION 9.11 Assignment. This Agreement shall not be assigned by
operation of law or otherwise, except that Buyer may assign its rights and
obligations hereunder to an affiliate of Buyer, and may assign all or a
portion of its rights hereunder, subject to any defenses that Sellers may
have, to one or more of its lenders; provided, that Buyer shall remain
liable with respect to its liabilities and obligations hereunder.
SECTION 9.12 Survival of Representations and Warranties, Etc.
-----------------------------------------------
(a) The representations and warranties set forth in this
Agreement shall survive the Closing and the consummation of the
transactions contemplated hereby until June 30, 1999, except that the
representations and warranties set forth in Section 3.14 hereof shall
survive for the statute of limitations applicable to such Tax
representation plus a period of fifteen (15) days.
(b) No claim for the recovery of indemnifiable damages based
upon the inaccuracy of such representations and warranties may be asserted
by a party after such representations and warranties have expired;
provided, however, that claims first asserted by a party in writing within
the applicable period shall not thereafter be barred.
(c) The Employee Sellers, jointly and severally, and the
Nonemployee Sellers, severally, agree to indemnify and hold harmless Buyer
and each of its respective officers, directors, employees, successors and
assigns, and Buyer agrees to indemnify and hold harmless each Seller, and
each of his, her or its respective successors or assigns, and Company, and
each of its respective officers, directors, employees, successors and
assigns, in respect of any and all claims, actions, suits or other
proceedings and any and all losses, costs, expenses, liabilities, fines,
penalties, interest, and damages (including reasonable fees and expenses of
counsel, accountants and consultants and all other reasonable costs and
expenses of investigation, defense or settlement of claims and amounts paid
in settlement) (collectively, "Losses") incurred by, imposed on or borne by
such party, resulting from the breach of any representation, warranty or
covenant by the Seller or Buyer, as applicable, contained in this
Agreement; provided, however, that Sellers, or Buyer as applicable, will
32
only be liable for Losses to the extent such Losses, in the aggregate,
exceed $1,000,000. Notwithstanding the foregoing and except for Losses
incurred by, imposed on or borne by Buyer resulting from the breach of the
representations and warranties of Sellers set forth in Section 3.14 or in
the provisions set forth in Section 9.21 hereof, in no event shall the
aggregate liability of a Seller exceed 25% of the Purchase Price received
by such Seller. The foregoing limitations on indemnification shall not
apply to any Losses resulting from violations under Sections 3.2, 3.4, or
3.21 and such representations and warranties shall survive for the
applicable statute of limitation.
(d) If a claim by a third party is made against an indemnified
party (the "Indemnified Party"), and if such Indemnified Party intends to
seek indemnity with respect thereto under this Agreement from the other
party (the "Indemnifying Party"), the Indemnified Party shall promptly, but
in any event, within ten (10) business days, notify the Indemnifying Party
in writing of such claims setting forth such claims in reasonable detail.
The failure to give such notice shall not relieve the Indemnifying Party of
any liability hereunder except to the extent that the Indemnifying Party is
actually prejudiced thereby. The Indemnifying Party shall have thirty (30)
days after receipt of such notice to undertake, conduct and control,
through counsel of its own choosing and at its own expense, the settlement
or defense thereof (except in such instances where the settlement includes
matters other than strictly the payment of money, in which case such
settlement shall not be entered into without the written consent of the
Indemnified Party, which consent shall not be unreasonably withheld or
delayed). The Indemnified Party may participate in (but not control) such
settlement or defense through counsel chosen by such Indemnified Party,
provided that the fees and expenses of such counsel shall be borne by such
Indemnified Party. So long as the Indemnifying Party is reasonably
contesting any such claim in good faith, the Indemnified Party shall not
pay or settle any such claim. Notwithstanding the foregoing, the
Indemnified Party shall have the right to pay or settle any such claim,
provided that in such event it shall waive any right to indemnity therefor
by the Indemnifying Party. If the Indemnifying Party does not notify the
Indemnified Party in writing within thirty (30) days after the receipt of
the Indemnified Party's notice of a claim of indemnity hereunder that it
elects to undertake the defense thereof, the Indemnified Party shall have
the right to contest, settle or compromise the claim but shall not thereby
waive any right to indemnity therefor pursuant to this Agreement.
(e) Notwithstanding anything to the contrary contained in this
Agreement, any indemnification owed under this Agreement shall be reduced
as provided in Section 9.13 and by the amount of any reimbursements
actually received by the Indemnified Party from any insurance carriers or
from third parties.
SECTION 9.13 Certain Refunds and Tax Benefits. Any refunds for Taxes
(other than Pass Through Taxes) that are received by the Company, after the
Closing Date shall be property of the Company and shall not be for the
benefit of the Sellers. Any refund for federal or state income Taxes of any
Seller that is attributable to the earnings of the Company for the period
between January 1, 1997 and the Closing Date shall be the property of the
Company. Sellers shall be permitted to file amended tax returns for years
ending on or before December 31, 1996 for the purpose of claiming
additional tax credits for research and development expenses, provided,
that the Sellers have substantial authority for claiming such additional
tax credits.
33
SECTION 9.14 Exclusive Remedy. Except as set forth in Section 2.4
hereof, Buyer and Sellers agree that, to the fullest extent permitted by
law, the sole and exclusive remedy of the Buyer and Sellers after the
Closing with respect to any claim or cause of action asserted by the Buyer
or Sellers against the other relating to or arising from breaches of the
representations, warranties or covenants contained in this Agreement or any
list, certificate or other instrument furnished by or to be furnished by or
on behalf of such party or its affiliates, if any, to the other party or
any of such party's representatives in connection with the transactions
contemplated by this Agreement shall be limited to the rights of the Buyer
and Sellers under, and shall be subject to the terms and conditions of the
provisions set forth in, Section 9.12.
SECTION 9.15 Jurisdiction and Venue. The parties hereto agree that any
suit, action or proceeding seeking to enforce the decision of the
arbitrator rendered pursuant o Section 9.7 hereof shall be instituted only
in the United States District Courts for the Northern District of
California and the District of Illinois. Each party waives any objection it
may have now or hereafter to the laying of the venue of any such suit,
action or proceeding, and irrevocably submits to the jurisdiction of any
such court in any such suit, action or proceeding.
SECTION 9.16 Tax Audits.
(a) The Buyer and the Sellers hereby agree that in the event a
claim with respect to Taxes is made pursuant to this Agreement, each party
shall furnish to any of them all books, records, tax returns and other
information reasonably requested by such other party that relate to such
claims, and each party agrees to file on behalf of the other party, if
reasonably requested, any appropriate returns, forms or other statements
that relate to such claims. For the purpose of this Section 9.16(a), a
claim with respect to Taxes shall include a request for determination
relating to a refund or credit.
(b) Except as provided below, if in connection with any
examination, investigation, audit or other proceeding in respect of any Tax
Return covering the operations of the Company through the Closing Date, any
governmental body or authority issues to the Company a written notice of
deficiency, a notice of reassessment, a proposed adjustment, an assertion
of claim or demand concerning the tax period covered by such Tax Return,
the Company shall notify Sellers of its receipt of such communication from
the governmental body or authority within fifteen (15) business days after
receiving such notice of deficiency, reassessment, adjustment or assertion
of claim or demand. No failure or delay of the Company in the performance
of the foregoing shall reduce or otherwise affect the obligations of the
Sellers pursuant to this Section 9.16, except to the extent that such
failure or delay shall have adversely affected Sellers' ability to defend
against, settle or satisfy any liability or claim for Taxes that Sellers
are obligated to pay hereunder. Except as provided below, Sellers shall, at
their expense, have the nonexclusive right to participate in the contest of
any such assessment, proposal, claim, reassessment, demand or other
proceedings in connection with any Tax Return covering operations of the
Company for periods ending on, before or including the Closing Date. The
Company will not be obligated to settle or resolve any issue related to
Taxes for such a period, which, if so settled or resolved, could have an
effect on the Company or Buyer for periods after Closing Date, unless
Sellers agree in writing with Buyer, or the Company, as the case may be, in
34
terms reasonably satisfactory to the Buyer or the Company, as the case may
be, to indemnify the Buyer and the Company from any cost, damage or loss
relating to such settlement or resolution. Similarly, neither the Company
nor the Buyer will settle or resolve any dispute relating to Taxes for such
a period, which if so settled or resolved, could have an effect on the
Sellers for periods before the Closing Date, unless the Company or the
Buyer agree in writing with the Sellers in terms reasonably satisfactory to
Sellers to indemnify Sellers for any cost, damage or loss relating to such
settlement or resolution.
(c) If there is an adjustment to any return or report of Taxes
for the Company which creates a deficiency in any Taxes for which Sellers
are liable under this Agreement or by operation of law or if Sellers shall
receive a refund with respect to Taxes that is for the benefit of Buyer or
the Company under the provisions of this Agreement, Sellers shall pay to
the Buyer or the Company, as the case may be, either (i) the amount of such
deficiency in Taxes, or (ii) the refund received by Sellers (plus any
interest thereon actually received from any governmental agency). No
liability of Sellers under this Section 9.16(c) shall be payable until the
occurrence of any action by any Tax authority that is final or, if not
final, is acquiesced in by Sellers during the course of any audit or any
proceeding relating to Taxes. The Company and Buyer shall similarly be
obligated for any Taxes or refunds owed to Sellers. All payments required
to be made pursuant to this Section 9.16(c) shall be made within ten (10)
days of receipt in the case of a refund, and within thirty (30) days of the
occurrence of the event described in the immediately preceding sentence, in
all other cases.
(d) The Buyer, the Company, and the Sellers shall provide each
other with such assistance as may be reasonable requested by each of them
in connection with any audit or other examination by any taxing authority,
or any judicial or administrative proceeding relating to liability for
Taxes. The Buyer, the Company, and the Sellers will retain for the full
period of any statute of limitations and provide the others with any
records or information which may be relevant to the preparation of a Tax
Return or an audit, examination, proceeding, or determination. The party
requesting assistance hereunder shall reimburse the assisting party for
reasonable out-of-pocket expenses incurred in providing such assistance.
SECTION 9.17 Transfer Taxes. Sellers shall pay, or cause to be paid,
any Tax, charge, fee or other similar cost or expense of any kind required
or customary in the applicable jurisdiction in connection with the transfer
of the Shares pursuant to this Agreement, whether such Tax, charge, fee or
other cost is imposed on Sellers, Company or Buyer.
SECTION 9.18 Certain Tax Returns. The Sellers shall properly and timely
prepare (or cause to be prepared), at the sole cost and expense of Company,
all federal income Tax Returns of Company (and any state, local or foreign
income Tax Returns that treat Company as a pass through entity) with
respect to taxable periods that end on or before the Closing Date (the
"Pass Through Returns"), and Company shall timely file any Pass Through
Returns which are prepared in a manner consistent with this Section 9.18.
The Company shall pay any corporate level Taxes due with respect to such
Tax Returns, which payment shall not alter any right of indemnification the
Company may have under Section 9.21 hereof. The Pass Through Returns shall
be prepared in a manner which is consistent with past practices, except as
35
otherwise required by applicable law. Income, gain, loss, deduction and
credit of Company shall be allocated between the Pass Through Returns and
any succeeding taxable period on the basis of a closing of the books of
Company at the close of business on the day preceding the Closing Date in
accordance with Section 1362(e)(6)(D) of the Code. Buyer and Company agree
to cooperate with the Sellers in connection with the preparation of the
Pass Through Returns, including without limitation by providing the Sellers
(and their agents) with access to all books and records which are
reasonably related to the preparation of the Pass Through Returns. None of
Buyer and Company will file any amended Pass Through Tax Returns or other
Tax Returns with respect to Pass Through Taxes without obtaining the prior
written consent of the Sellers; with the exception of amended tax returns
prepared by Sellers to claim additional tax credit for research and
development expenses.
SECTION 9.19 Section 338 Election.
--------------------
(a) Each of the Sellers agree to join, in an appropriate and
timely manner, with the Buyer in making elections under Section 338(h)(10)
of the Code (and, to the extent necessary to allow for an election under
section 338(h)(10) of the Code, an election under Section 338(g) of the
Code) and any corresponding election under state, local, or foreign law
(the "Section 338(h)(10) Elections") with respect to Buyer's acquisition of
the Shares.
(b) Each of the Sellers agrees to cooperate with the Buyer to
take all actions necessary or appropriate to effect and preserve timely
Section 338(h)(10) Elections, including, but not limited to, participating
in the filing of IRS Form 8023-A and any related or comparable forms for
state, local, or foreign law purposes (the "Section 338(h)(10) Forms").
Buyer shall be responsible for preparing, and filing with the appropriate
agency, all Section 338(h)(10) Forms and for preparing a schedule (the
"Purchase Price Allocation Schedule") allocating the Modified Aggregate
Deemed Sales Price (as defined Treasury Regulation section
1.338(h)(10)-1(f)) among the assets of the Company. Sellers and/or Sellers'
representatives shall review and approve Buyer's determination of the
Modified Aggregate Deemed Sales Price and the Purchase Price Allocation
Schedule prior to the Closing Date. Sellers' and/or Sellers' representative
shall use this material for the purpose of determining the Deemed Gain on
Sale of Assets and the Section 338(h)(10) Payment. These determinations of
the Deemed Gain on Sale of Assets and the Section 338(h)(10) Payment shall
be subject to the Buyer's review and approval prior to the Closing Date.
(c) Each of the Sellers and the Buyer agree to report, or caused
to be reported, and to take no position on any return, or in any audit,
examination, or other proceeding that is inconsistent with the Section
338(h)(10) Elections or the Purchase Price Allocation Schedule.
(d) The Buyer and the Company agree to hold each of the Sellers
harmless from any and all Taxes imposed or incurred by the Sellers for any
Taxes resulting directly from the Section 338(h)(10) Elections, other than
those Taxes resulting directly from the Section 338(h)(10) Elections that
would have not occurred but for a breach of a representation contained in
Section 3.14. Buyer will pay Sellers a Section 338(h)(10) payment (the
"Section 338(h)(10) Payment"), consisting of (1) the Ordinary Income
36
Adjustment times the Tax Rate, plus (2) Sellers' out-of-pocket legal and
accounting fees associated with accommodating the Section 338(h)(10)
Election in an aggregate amount not to exceed $52,000, plus (3) 1.344 times
Sellers' underpayment of estimated tax penalties under Code Section 6654,
in an aggregate amount not to exceed $150,000, resulting from Sellers'
inability to perform their customary 1997 year-end tax planning after the
Closing Date.
(e) The obligation of Buyer and each of the Sellers pursuant to
this Section 9.19 shall expire upon the expiration of the applicable
statute of limitations plus a period of fifteen (15) days.
SECTION 9.20 Tax Benefits Related to Retention Agreements. Pursuant to
Section 5.9(a) of this Agreement, certain amounts may be paid on or after
the Closing Date to officers and other employees of Company ("Retention
Amounts"). Buyer agrees that upon the realization by Buyer, Company, or
their successors or affiliates of any Tax Benefit with respect to the
Retention Amounts attributable to any taxable period beginning on or after
the Closing Date, Buyer shall pay to the Sellers the amount of such Tax
Benefit so realized within forty-five (45) days after the filing of any Tax
Return or claim for refund in which any such Tax Benefit is realized (or,
in the case of Retention Amounts with respect to employees of the Company,
within forty-five (45) days after any audit adjustment becomes final with
respect to the deduction of Retention Amounts which allows such deduction
in a later taxable period than is herein contemplated). For purposes of
this provision, a Tax Benefit with respect to Retention Amounts shall be
deemed to be realized in the taxable period in which such Retention Amounts
first become deductible, and shall be treated as realized in full in such
period at the maximum federal income Tax rate applicable to corporations
with respect to such taxable period.
SECTION 9.21 Tax Indemnification.
(a) Subject to Buyer's obligation to pay the Additional Purchase
Price, the Sellers shall be liable and indemnify Buyer and the Company for
all Taxes of the Company (i) for all taxable periods ending on or before
the Closing Date and (ii) for any period not ending on or before the
Closing Date, the portion of the Taxes attributable to the period ending on
the Closing Date. Notwithstanding the foregoing, the Sellers shall not be
liable for any Taxes of the Company that directly result from the Code
Section 338(h)(10) Elections other than those Taxes resulting directly from
the Code Section 338(h)(10) Elections that would not have occurred but for
a breach of a representation contained in Section 3.14.
(b) All Taxes attributable to the operations of the Company for
all periods (or portions thereof) after the Closing Date shall be borne by
the Company. For any period that includes but does not end on the Closing
Date, (i) the liability for any Taxes determined by reference to income,
capital gains, gross income, gross receipts, sales, net profits, windfall
profits or similar items or resulting from a sale, transfer, or other
disposition of assets shall be allocated between the Sellers and the
Company based on the date on which such items accrued and (ii) the
liability for all other Taxes shall be allocated between the Sellers and
the Company, pro rata based upon the number of days in a taxable period for
37
which each party is liable for Taxes hereunder. With respect to any item
described in Code Section 1366(a), the tax liability of the Sellers shall
be determined as provided in Code Section 1362(e)(6)(D).
(c) The Sellers agree that the Taxes referred to in Section
3.14(xx) will not be reported as a deductible item on the Pass Through
Returns and Sellers agree to indemnify the Buyer and the Company if the
Sellers breach the representation contained in Section 3.14(xx) hereof.
Sellers also agree to pay to the Buyer the benefit of any federal income
Tax deduction attributable to the Taxes referred to in Section 3.14(xx) if
it is ultimately determined that the Sellers and not the Company are
entitled to the federal income Tax deduction for such Taxes. The Sellers
also agree to cooperate with the Company with respect to any audit of this
issue, including filing amended Tax Returns to claim a deduction for such
Taxes if requested by the Company. Company shall pay expenses associated
with the aforementioned audit and/or amended Tax Returns.
(d) The obligations of Sellers pursuant to this Section 9.21
shall expire upon the expiration of the applicable statute of limitations
plus a period of fifteen (15) days.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
38
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be signed on its behalf by its duly authorized officers, all
as of the day and year first above written.
BUYER Motion Holdings, Inc.
By:____________________________________
Name: Xxxxxx X. Xxxxxx
Title: Vice President
S-1
The Xxxxx and Xxxxxx Xxxxxxxx Family Trust
By: Xxxxx Xxxxxxxx and Xxxxxx Xxxxxxxx,
as Trustors and Trustees
______________________________________
Xxxxx Xxxxxxxx
______________________________________
Xxxxxx Xxxxxxxx
S-2
The Majid and Xxxxxx Xxxxxxxx Family Trust
By: Xxxxx Xxxxxxxx and Xxxxxx Xxxxxxxx,
as Trustors and Trustees
___________________________________________
Xxxxx Xxxxxxxx
___________________________________________
Xxxxxx Xxxxxxxx
S-3
Xxx X. Xxxxx
____________________________________________
S-4
The Ali and Xxxxx Xxxxxxxx Family Trust
By: Xxx Xxxxxxxx and Xxxxx Xxxxxxxx,
as Trustors and Trustees
___________________________________________
Xxx Xxxxxxxx
___________________________________________
Xxxxx Xxxxxxxx
S-5
__________________________________________________
X. X. Xxxxx, Trustee of The Ali and Xxxxx Xxxxxxxx
Irrevocable Trust #1
__________________________________________________
X. X. Xxxxx, Trustee of The Ali and Xxxxx Xxxxxxxx
Irrevocable Trust #2
__________________________________________________
X. X. Xxxxx, Trustee of The Ali and Xxxxx Xxxxxxxx
Irrevocable Trust #3
__________________________________________________
X. X. Xxxxx, Trustee of The Ali and Xxxxx Xxxxxxxx
Irrevocable Trust #4
__________________________________________________
X. X. Xxxxx, Trustee of The Ali and Xxxxx Xxxxxxxx
Irrevocable Trust #5
__________________________________________________
X. X. Xxxxx, Trustee of The Ali and Xxxxx Xxxxxxxx
Irrevocable Trust #6
S-6
EXHIBIT F
PROTOCOL
1. All due diligence to take place off-site.
2. No faxes will be sent to the Company unless otherwise directed. All
correspondence will be directed to BA Partners, O'Melveny & Xxxxx LLP
or Sellers' designated representative.
3. Limitations will be placed on scheduled items such as material Contracts.
4. All direct correspondence and requests from Buyer will be directed to
Xxxxx Xxxxxxxx, designated representative of the Sellers.
5. Buyer will use (i) Xxxxxx Xxxxxxxx (Sacramento) for all on-site audit
work, and (ii) Ernst & Young for all off-site review and observation.
EXHIBIT F - Page 1
EXHIBIT G
WITHHOLDING CERTIFICATE
I, ____________________, hereby certify the following:
1. I am not a nonresident alien for purposes of U.S. income
taxation;
2. My U.S. taxpayer identification number (Social Security
number) is ____________________; and
3. My home address is
-------------------------------
-------------------------------
I understand that this certification may be disclosed to the
Internal Revenue Service.
Under penalty of perjury I declare that I have examined this
certification and to the best of my knowledge and belief it is true,
correct, and complete.
-------------------------------
[Name]
-------------------------------
[Date]
Exhibit G - Page 1
EXHIBIT H
FORM OF OFFICERS' CERTIFICATE
-----------------------------
The undersigned, the President and chief executive officer, and
Executive Vice President and chief operating officer, respectively, of
Motion Control Engineering, Inc. (the "Company"), each hereby certify, to
the best of their knowledge, to Motion Holdings, Inc. ("Holdings") that the
representations and warranties made by the Sellers (as defined below) in
the Purchase Agreement, dated as of November 17, 1997 (the "Agreement"), by
and among The Xxxxx and Xxxxxx Xxxxxxxx Family Trust, The Majid and Xxxxxx
Xxxxxxxx Family Trust, Xxx X. Xxxxx, The Ali and Xxxxx Xxxxxxxx Family
Trust, The Ali and Xxxxx Xxxxxxxx Irrevocable Trust #1, The Ali and Xxxxx
Xxxxxxxx Irrevocable Trust #2, The Ali and Xxxxx Xxxxxxxx Irrevocable Trust
#3, The Ali and Xxxxx Xxxxxxxx Irrevocable Trust #4, The Ali and Xxxxx
Xxxxxxxx Irrevocable Trust #5 and The Ali and Xxxxx Xxxxxxxx Irrevocable
Trust #6 (collectively, the "Sellers"), and Holdings, are true and correct
on the date hereof and Sellers have performed and complied with all
agreements, covenants and conditions required by the Agreement and to be
performed and complied with by Sellers prior to the date hereof. This
Officers' Certificate does not constitute an amendment to the Agreement.
Dated: December __, 1997
------------------------------
Xxxxx Xxxxxxxx
President and
chief executive officer
------------------------------
Xxxxx Xxxxxxxx
Executive Vice President and
chief operating officer
Exhibit H - Page 1
EXHIBIT J
FORM OF RELIANCE LETTER
MOTORS & GEARS, INC.
Arborlake Centre, Suite 550
0000 Xxxx Xxxx Xxxx
Xxxxxxxxx, Xxxxxxxx 00000
November ___, 1997
Xx. Xxxxx Xxxxxxxx
Motion Control Engineering, Inc.
00000 Xxxxxxxxx Xxxx
Xxxxxx Xxxxxxx, Xxxxxxxxxx 00000
Re: Purchase Agreement by and among Motion Holdings, Inc. a Delaware
corporation ("Buyer") and all of the stockholders of Motion Control
Engineering, Inc. (the "Purchase Agreement")
Dear Xxxxx:
This letter confirms that Motors & Gears, Inc. is the parent
corporation of Buyer and that Buyer, through its access to the funds of
Motors & Gears, has sufficient cash and credit available to fund the
closing of the transactions contemplated by the Purchase Agreement other
than those associated with the Earn-Out Rights Plan.
Very truly yours,
MOTORS & GEARS, INC.
Xxxxxx Xxxxxx
Vice President
Exhibit J - Page 1
CONFIDENTIAL
PURCHASE AGREEMENT
BY AND AMONG
MOTION HOLDINGS, INC.
THE XXXXX AND XXXXXX XXXXXXXX FAMILY TRUST,
THE MAJID AND XXXXXX XXXXXXXX FAMILY TRUST,
XXX X. XXXXX,
THE ALI AND XXXXX XXXXXXXX FAMILY TRUST,
THE ALI AND XXXXX XXXXXXXX IRREVOCABLE TRUST #1,
THE ALI AND XXXXX XXXXXXXX IRREVOCABLE TRUST #2,
THE ALI AND XXXXX XXXXXXXX IRREVOCABLE TRUST #3,
THE ALI AND XXXXX XXXXXXXX IRREVOCABLE TRUST #4,
THE ALI AND XXXXX XXXXXXXX IRREVOCABLE TRUST #5,
AND
THE ALI AND XXXXX XXXXXXXX IRREVOCABLE TRUST #6
Dated November 17, 1997
[CAPTION]
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions................................................................................... 1
ARTICLE II
THE ACQUISITION
SECTION 2.1 Purchase and Sale of Shares................................................................... 7
SECTION 2.2 Consideration for the Shares.................................................................. 7
SECTION 2.3 Allocation of Consideration................................................................... 7
SECTION 2.4 Post-Closing Audit............................................................................ 8
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
SECTION 3.1 Organization and Qualification................................................................ 9
SECTION 3.2 Authorization................................................................................. 9
SECTION 3.3 No Violation.................................................................................. 9
SECTION 3.4 Capitalization of Company..................................................................... 9
SECTION 3.5 Subsidiaries and Equity Investments........................................................... 10
SECTION 3.6 Consents and Approvals........................................................................ 10
SECTION 3.7 Financial Statements.......................................................................... 10
SECTION 3.8 Absence of Undisclosed Liabilities............................................................ 10
SECTION 3.9 Absence of Certain Changes.................................................................... 10
SECTION 3.10 Litigation.................................................................................... 11
SECTION 3.11 Real Property; Liens and Encumbrances......................................................... 11
SECTION 3.12 Certain Agreements............................................................................ 12
SECTION 3.13 Employee Benefit Plans........................................................................ 12
SECTION 3.14 Taxes......................................................................................... 13
SECTION 3.15 Compliance with Applicable Law................................................................ 15
SECTION 3.16 Brokers' Fees and Commissions................................................................. 15
SECTION 3.17 Proprietary Rights............................................................................ 16
SECTION 3.18 Labor Relations............................................................................... 16
SECTION 3.19 Insurance..................................................................................... 16
SECTION 3.20 Environmental Matters......................................................................... 16
SECTION 3.21 Ownership of Shares........................................................................... 17
SECTION 3.22 Bank Accounts................................................................................. 17
SECTION 3.23 Absence of Certain Business Practices......................................................... 17
i
ARTICLE IV
REPRESENTATIONS AND
WARRANTIES OF BUYER
SECTION 4.1 Organization and Qualifications............................................................... 18
SECTION 4.2 Authorization................................................................................. 18
SECTION 4.3 No Violation.................................................................................. 18
SECTION 4.4 Consents and Approvals........................................................................ 18
SECTION 4.5 Brokers' Fees and Commissions................................................................. 19
SECTION 4.6 Purchase for Investment....................................................................... 19
SECTION 4.7 Financing..................................................................................... 19
ARTICLE V
COVENANTS
SECTION 5.1 Conduct of Business of Company Prior to the Closing........................................... 19
SECTION 5.2 Closing Balance Sheet......................................................................... 20
SECTION 5.3 Access to Information......................................................................... 20
SECTION 5.4 All Reasonable Efforts........................................................................ 21
SECTION 5.5 Consents and Approvals........................................................................ 21
SECTION 5.6 Public Announcements.......................................................................... 21
SECTION 5.7 Disclosure Supplements........................................................................ 22
SECTION 5.8 No Implied Representations or Warranties...................................................... 22
SECTION 5.9 Employee Benefit Matters...................................................................... 22
SECTION 5.10 Solvency After the Closing.................................................................... 23
SECTION 5.11 Confidentiality............................................................................... 23
SECTION 5.12 Resignation of Officers and Directors......................................................... 24
SECTION 5.13 Lease Agreements.............................................................................. 24
SECTION 5.14 Audited Financials............................................................................ 24
SECTION 5.15 Certain Payments.............................................................................. 24
SECTION 5.16 Discharge of Debt............................................................................. 24
ARTICLE VI
CLOSING CONDITIONS
SECTION 6.1 Conditions to Each Party's Obligations Under this Agreement................................... 24
SECTION 6.2 Conditions to the Obligations of Buyer Under this Agreement................................... 25
SECTION 6.3 Conditions to the Obligations of Sellers Under this Agreement................................. 26
ARTICLE VII
CLOSING
SECTION 7.1 Closing....................................................................................... 27
ii
ARTICLE VIII
TERMINATION AND ABANDONMENT
SECTION 8.1 Termination................................................................................... 28
SECTION 8.2 Procedure and Effect of Termination........................................................... 28
ARTICLE IX
MISCELLANEOUS PROVISIONS
SECTION 9.1 Amendment and Modification.................................................................... 29
SECTION 9.2 Waiver of Compliance; Consents................................................................ 29
SECTION 9.3 Validity...................................................................................... 29
SECTION 9.4 Expenses and Obligations...................................................................... 29
SECTION 9.5 Parties in Interest........................................................................... 29
SECTION 9.6 Notices....................................................................................... 29
SECTION 9.7 Governing Law; Dispute Resolution............................................................. 30
SECTION 9.8 Counterparts.................................................................................. 32
SECTION 9.9 Headings...................................................................................... 32
SECTION 9.10 Entire Agreement.............................................................................. 32
SECTION 9.11 Assignment.................................................................................... 32
SECTION 9.12 Survival of Representations and Warranties, Etc............................................... 32
SECTION 9.13 Certain Refunds and Tax Benefits.............................................................. 33
SECTION 9.14 Exclusive Remedy.............................................................................. 34
SECTION 9.15 Jurisdiction and Venue........................................................................ 34
SECTION 9.16 Tax Audits.................................................................................... 34
SECTION 9.17 Transfer Taxes................................................................................ 35
SECTION 9.18 Certain Tax Returns........................................................................... 35
SECTION 9.19 Section 338 Election.......................................................................... 36
SECTION 9.20 Tax Benefits Related to Retention Agreements.................................................. 37
SECTION 9.21 Tax Indemnification........................................................................... 37
DISCLOSURE SCHEDULES
Schedule 3.3 - Violations
Schedule 3.4 - Capitalization of Company
Schedule 3.5 - Subsidiaries and Equity Investments
Schedule 3.6 - Consents and Approvals
Schedule 3.7 - Financial Statements
Schedule 3.8 - Undisclosed Liabilities
Schedule 3.9 - Certain Changes
Schedule 3.10 - Litigation
Schedule 3.11 - Leased Property; Liens and Encumbrances
Schedule 3.12 - Certain Agreements
Schedule 3.13 - Employee Benefit Plans
iii
Schedule 3.14 - Taxes
Schedule 3.14(b)(i) - Tax Returns
Schedule 3.15 - Compliance with Applicable Laws
Schedule 3.17 - Proprietary Rights
Schedule 3.18 - Labor Relations
Schedule 3.19 - Insurance
Schedule 3.20 - Environmental Matters
Schedule 3.21 - Ownership of Shares
Schedule 3.22 - Bank Accounts
Schedule 5.1 - Conduct of Business of Company Prior to the
Closing
Schedule 5.9(a) - Benefit Arrangements
Schedule 5.9(b) - Indemnification Agreements
EXHIBITS
Exhibit A - Form of Earn-Out Rights Plan
Exhibit B - Form of Escrow Agreement
Exhibit C - Form of Employment and Noncompetition Agreement
Exhibit D - Form of Lease
Exhibit E - Form of Non-Competition Agreement
Exhibit F - Protocol
Exhibit G - Withholding Certificate
Exhibit H - Form of Officers' Certificate
Exhibit I - Form of Opinion of Counsel to Buyer
Exhibit J - Form of Reliance Letter
iv
