Exhibit 10.17
STOCK PURCHASE AGREEMENT
AGREEMENT, dated the 14th day of July, 2005, by and among SigmaTron
International, Inc., a Delaware corporation ("Buyer"), Able Electronics
Corporation, a California corporation (the "Company"), and the shareholders of
the Company, all of whom are listed on the signature page hereof (each a
"Seller" and collectively, "Sellers").
W I T N E S S E T H:
WHEREAS, Sellers collectively own the Shares (as herein defined), and each
Seller individually owns the number of Shares set forth in Schedule 2.1; and
WHEREAS, each Seller desires to sell to Buyer all of the Shares which such
Seller owns, and Buyer desires to purchase such Shares from each Seller, upon
the terms and subject to the conditions hereinafter set forth;
The parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.1 Definitions.
(a) The following terms, as used herein, have the following meanings:
"Affiliate" means, with respect to any Person, any other Person directly or
indirectly controlling, controlled by, or under common control with such Person;
provided that neither the Company nor any Subsidiary shall be considered an
Affiliate of any Seller.
"Benefit Arrangement" means any employment, severance, change of control or
similar contract or arrangement (whether or not written) or any plan, policy,
fund, program, contract or arrangement (whether or not written) providing for
compensation, bonus, profit-sharing, stock option, stock appreciation or other
stock-related rights or other forms of incentive or deferred compensation,
vacation benefits, insurance coverage (including any self-insured arrangements),
health or medical benefits, disability benefits, workers' compensation,
supplemental unemployment benefits, severance benefits and post-employment or
retirement benefits (including compensation, pension, health, medical or life
insurance or other benefits) that is not an Employee Plan, and is entered into,
maintained, administered, sponsored or contributed to by the Company or any
Subsidiary.
"Closing Date" means the date of the Closing.
"Closing Financial Statement Date" means April 3, 2005.
"Common Stock" means the common stock, no par value, of the Company.
"Company" means Able Electronics Corporation, formerly known as Brea
Electronic Services & Test, Inc., a California corporation.
"Employee Plan" means any "employee benefit plan", as defined in Section
3(3) of ERISA, that is subject to any provision of ERISA, and either (i) is
maintained, administered, sponsored or contributed to by the Company or any
Subsidiary, or (ii) covers any employee or former employee of the Company or any
Subsidiary.
"Environmental Laws" means any and all statutes, laws, ordinances,
regulations and rules, in each case as in effect on the date hereof, that have
as their principal purpose the protection of the environment.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.
"ERISA Affiliate" of any entity means any other entity which, together with
such entity, would be treated as a single employer under Section 414 of the
Code.
"Hazardous Substances" means any pollutant, contaminant or any toxic,
radioactive or otherwise hazardous substance, as such terms are defined in, or
identified pursuant to, any Environmental Law.
"Intellectual Property Right" means any trademark, service xxxx, trade
name, mask work, invention, patent, trade secret, copyright, know-how (including
any registrations or applications for registration of any of the foregoing),
computer programs (including source codes) or any other similar type of
proprietary intellectual property right.
"Knowledge of Buyer" or any other similar knowledge qualification in this
Agreement means to the actual knowledge of Buyer or as to any of the following
individuals, what such individual knows or reasonably should have known in light
of such individual's position and responsibilities at Buyer after reasonable
inquiry: Xxxx X. Xxxxxxxx and Xxxxx X. Xxxxx.
"Knowledge of the Company" or any other similar knowledge qualification in
this Agreement means to the actual knowledge of the Company or as to any of the
following individuals, what such individual knows or reasonably should have
known in light of such individual's position and responsibilities at the Company
or the Subsidiaries after reasonable inquiry: Xxxxx Xxxxxx, Xxxx Xxxxx, Xxxxx
Xxxxxx and Xxxxx Xxxxx.
"Knowledge of Sellers" or any other similar knowledge qualification in this
Agreement means to the actual knowledge of any Seller.
"Lien" means, with respect to any property or asset, any mortgage, lien,
pledge, charge, security interest or encumbrance in respect of such property or
asset.
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"Material Adverse Effect" means a material adverse effect on the assets,
financial condition or result of operations of the Company and the Subsidiaries,
except any such effect resulting from or arising in connection with (i) this
Agreement or the transactions contemplated hereby; (ii) changes or conditions
affecting the business of the Company generally; or (iii) changes in economic,
regulatory or political conditions generally.
"Material Adverse Effect on Buyer" means a material adverse effect on the
assets, financial condition or result of operations of Buyer and its
subsidiaries, except any such effect resulting from or arising in connection
with (i) this Agreement or the transactions contemplated hereby; (ii) changes or
conditions affecting the business of Buyer generally; or (iii) changes in
economic, regulatory or political conditions generally.
"Multiemployer Plan" means each Employee Plan that is a multiemployer plan,
as defined in Section 3(37) of ERISA.
"1934 Act" means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.
"Person" means an individual, corporation, partnership, limited liability
company, association, trust or other entity or organization, including a
government or political subdivision or an agency or instrumentality thereof.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Shares" means two million (2,000,000) shares of Common Stock of the
Company.
"Subsidiary" means any entity of which securities or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions are at the time directly
or indirectly owned by the Company.
"Title IV Plan" means an Employee Plan subject to Title IV of ERISA other
than any Multiemployer Plan.
(b) Each of the following terms is defined in the Section set forth
opposite such term:
Term Section
---- -------
Accounting Referee 8.3(b)
Basket Amount 10.2(a)
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Term Section
---- -------
Cap 10.2(a)
Claim 10.3(a)
Closing 2.2(a)
Closing Date Balance Sheet 2.4(a)
Closing Financial Statements 2.3
Code 8.1
Commission 4.9
Company Securities 3.1.5(b)
Damages 10.2(a)
Disclosee 12.11(a)
Discloser 12.11(a)
Environmental Condition 3.1.19(e)
Federal Tax 8.1
Final Determination 8.1
Final Required Book Value 2.4(e)
Indemnifiable Loss 10.4(b)
Indemnified Party 10.3(a)
Indemnifying Party 10.3(a)
Indemnity Payment 10.4(b)
Intellectual Property Rights 3.1.14(a)
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Term Section
---- -------
Liabilities 3.1.7(b)
P-Com Claim 3.1.20
P-Com Escrow 2.2(b)
P-Com Escrow Agreement 10.7(a)
P-Com Escrow Amount 2.2(b)
Permitted Liens 3.1.13(e)
Pre-Closing Tax Period 8.1
Post-Closing Tax Period 8.1
Potential Contributor 10.5
Purchase Price 2.1
Regular Escrow 2.2(b)
Regular Escrow Agreement 10.7(b)
Regular Escrow Amount 2.2(b)
Required Book Value 2.4(a)
Returns 8.2(a)
Seller's Interest 2.1
Subsidiary Securities 3.1.6(b)
Tax or Taxes 8.1
Tax Asset 8.1
Taxing Authority 8.1
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Term Section
---- -------
Tax Loss 8.6(a)
Third Party Claim 10.3(a)
2004 Financial Statements 3.1.7(a)
ARTICLE 2
PURCHASE AND SALE
SECTION 2.1 Purchase and Sale. Upon the terms and subject to the conditions
of this Agreement, each Seller agrees to sell to Buyer, and Buyer agrees to
purchase from each Seller, at the Closing, the number of Shares set forth
opposite that Seller's name on Schedule 2.1. The purchase price for the Shares
being sold hereunder (the "Purchase Price") is $12,800,000. The Purchase Price
shall be paid as provided in Section 2.2 and shall be subject to adjustment as
provided in Section 2.4 and to the escrows described in Section 10.7. The
allocation of the Purchase Price among the Sellers (the respective allocation to
the Sellers is referred to herein as the "Seller's Interest") and the Sellers'
addresses are set forth in Schedule 2.1.
SECTION 2.2 Closing.
(a) The closing (the "Closing") of the purchase and sale of the Shares
hereunder shall take place through exchange of documents on agreed terms on July
12, 2005, and shall be considered completed on the date funded by Buyer's lender
after satisfaction of the conditions set forth in Article 9, or at such other
time or place as Buyer and Sellers may agree. The Closing shall be effective as
of 12:01 a.m. on July 1, 2005.
(b) At the Closing, Buyer shall deliver (i) to Sellers the Purchase Price,
less the P-Com Escrow Amount and the Regular Escrow Amount (as defined in
subsection (ii) below) in immediately available funds, which delivery shall be
satisfied by wire transfer in the amounts and to the bank accounts as shall be
designated in a pay proceeds letter addressed to Buyer and its lender prior to
the Closing Date and (ii) the amount of Seven Hundred Eighty-Five Thousand
Dollars ($785,000) (the "P-Com Escrow Amount") representing the escrow for the
P-Com, Inc. account receivable and inventory as described in Section 10.7(a)
(the "P-Com Escrow") and One Million Dollars ($1,000,000) (the "Regular Escrow
Amount") representing the escrow described in Section 10.7(b) (the "Regular
Escrow") in immediately available funds by wire transfer to the "Escrow Account"
established pursuant to the Escrow Agreement.
SECTION 2.3 Closing Financial Statements. Sellers will cause to be prepared
and delivered to Buyer the consolidated financial statements of the Company and
its Subsidiaries as of April 3, 2005 and the related consolidated statements of
operations, change in shareholder equity and cash flow for the year then ended,
together with an unqualified report of Armanino XxXxxxx LLP thereon (the
"Closing Financial Statements"). The Closing Financial Statements
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shall (i) fairly represent the consolidated financial position of the Company
and the Subsidiaries as at the close of business on the Closing Financial
Statement Date and the consolidated results of operations and cash flows of the
Company and the Subsidiaries for the period then ended in accordance with
accounting principles generally accepted in the United States of America applied
on a basis consistent with those used in preparation of the 2004 Financial
Statements; (ii) include line items substantially consistent with those in the
2004 Financial Statements; and (iii) be prepared in accordance with accounting
policies and practices described in Schedule 2.3-1, consistent with those used
in the preparation of the 2004 Financial Statements.
SECTION 2.4 Closing Date Balance Sheet.
(a) Within thirty (30) days after the Closing Date, Sellers will cause to
be prepared (with the assistance as requested of management of the Company and
Buyer in accordance with Sections 2.4(d) and 6.2 hereof) a balance sheet of the
Company and its Subsidiaries as of June 30, 2005 (the "Closing Date Balance
Sheet") and a certificate of Sellers setting forth Sellers' calculation of
adjusted book value of net worth as of June 30, 2005, which is required to be a
minimum of $3.7 million ("Required Book Value"). The Closing Date Balance Sheet
shall (i) fairly represent the consolidated financial position of the Company
and the Subsidiaries as at the close of business on June 30, 2005 in accordance
with accounting principles generally accepted in the United States of America
applied on a basis consistent with those used in preparation of the Closing
Financial Statements; (ii) include line items substantially consistent with
those in the Closing Financial Statements; (iii) be prepared in accordance with
accounting policies and practices described in Schedule 2.3-1, and consistent
with those used in the preparation of the Closing Financial Statements; and (iv)
reflect the Required Book Value calculated in a manner consistent with Schedule
2.3-2.
(b) If Buyer disagrees with Sellers' calculation of Required Book Value
delivered pursuant to Section 2.4(a), Buyer may, within 15 days after delivery
of the documents referred to in Section 2.4(a), deliver a notice to Sellers
disagreeing with such calculation and setting forth Buyer's calculation of such
amount. Any such notice of disagreement shall specify those items or amounts as
to which Buyer disagrees, and Buyer shall be deemed to have agreed with all
other items and amounts contained in Sellers' calculation of Required Book Value
delivered pursuant to Section 2.4(a).
(c) If a notice of disagreement shall be duly delivered pursuant to Section
2.4(b), Buyer and Sellers shall, during the 15 days following such delivery, use
their best efforts to reach agreement on the disputed items or amounts in order
to determine, as may be required, the amount of Required Book Value, which
amount shall not be more than the amount thereof shown in Sellers' calculation
delivered pursuant to Section 2.4(a) nor less than the amount thereof shown in
Buyer's calculation delivered pursuant to Section 2.4(b). If, during such
period, Buyer and Sellers are unable to reach such agreement, they shall
promptly thereafter cause independent accountants of nationally recognized
standing reasonably satisfactory to Buyer and Sellers (who shall not have any
material relationship with Buyer or Sellers) promptly to review this Agreement
and the disputed items or amounts for the purpose of calculating Required Book
Value. In making such calculation, such independent accountants shall consider
only those items or amounts in the Closing Date Balance Sheet or Sellers'
calculation of
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Required Book Value as to which Buyer has disagreed. Such independent
accountants shall deliver to Buyer and Sellers, as promptly as practicable, a
report setting forth their calculation of Required Book Value. Such report shall
be final and binding upon Buyer and Sellers. The cost of such review and report
shall be borne (i) by Sellers if the difference between Final Required Book
Value (as defined in Section 2.4(e)) and Sellers' calculation of Required Book
Value delivered pursuant to Section 2.4(a) is greater than the difference
between Final Required Book Value and Buyer's calculation of Required Book Value
delivered pursuant to Section 2.4(b); (ii) by Buyer if the first such difference
is less than the second such difference; and (iii) otherwise equally by Buyer
and Sellers.
(d) Buyer and Sellers agree that they will, and agree to cause their
respective independent accountants and the Company and each Subsidiary to,
cooperate and assist in the preparation of the Closing Date Balance Sheet and
the calculation of Required Book Value and in the conduct of the audits and
reviews referred to in this Section 2.4, including without limitation, the
making available to the extent necessary of books, records, work papers and
personnel (including those of accountants and consultants).
(e) If Final Required Book Value as finally determined equals or exceeds
$3.7 million, there shall be no adjustment to the Purchase Price. If Final
Required Book Value is less than $3.7 million, the Purchase Price shall be
adjusted to an amount equal to the deficiency and Sellers shall pay to Buyer the
deficiency. Sellers shall pay Buyer such amount within 10 days after the Final
Required Book Value has been finally determined by delivering a certified or
official bank check payable in immediately available funds to Buyer or by
causing such payments to be credited to such account of Buyer as Buyer may
direct. "Final Required Book Value" means the Required Book Value (i) as shown
in Sellers' calculation delivered pursuant to Section 2.4(a), if no notice of
disagreement with respect thereto is duly delivered pursuant to Section 2.4(b),
or (ii) if such a notice of disagreement is delivered, (A) as agreed by Buyer
and Sellers pursuant to Section 2.4(c), or (B) in the absence of such agreement,
as shown in the independent accountant's calculation delivered pursuant to
Section 2.4(c); provided that in no event shall Final Required Book Value be
more than Sellers' calculation of Required Book Value delivered pursuant to
Section 2.4(a) or less than Buyer's calculation of Required Book Value delivered
pursuant to Section 2.4(b). In no event shall any adjustment of the Purchase
Price under this Section 2.4 cause an adjustment to the Required Book Value.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF COMPANY AND SELLERS
SECTION 3.1 Representations and Warranties of the Company and Sellers. Each
of the Company and Sellers represents and warrants to Buyer as of the date
hereof that:
SECTION 3.1.1 Existence and Power. The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has all corporate powers and all governmental
licenses, authorizations, permits, consents and approvals required to carry on
its business as now conducted, except for those licenses, authorizations,
permits, consents and approvals the absence of which would not have a Material
Adverse Effect. The Company is duly qualified to do business as a foreign
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corporation and is in good standing in each jurisdiction where such
qualification is necessary, except for those jurisdictions where failure to be
so qualified would not, individually or in the aggregate, have a Material
Adverse Effect.
SECTION 3.1.2 Authorization. The Company has all necessary corporate
power and authority to enter into this Agreement and to perform its obligations
hereunder and to consummate the transactions contemplated hereby. This Agreement
has been duly executed and delivered by the Company and is the valid and binding
obligation of the Company enforceable against it in accordance with its terms,
except that such enforcement may be limited by any bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer or other laws (whether
statutory, regulatory or decisional), now or hereafter in effect, relating to or
affecting the rights of creditors generally or by equitable principles
(regardless of whether considered in a proceeding at law or in equity).
SECTION 3.1.3 Government Authorization. The execution, delivery and
performance by the Company and Sellers of this Agreement and the consummation of
the transactions contemplated hereby require no action by or in respect of, or
filing with, any governmental body, agency or official other than any such
action or filing as to which the failure to make or obtain would not have a
Material Adverse Effect.
SECTION 3.1.4 Noncontravention. The execution, delivery and
performance by the Company and Sellers of this Agreement and the consummation of
the transactions contemplated hereby do not and will not (i) violate the
articles of incorporation or bylaws of the Company or any Subsidiary; (ii)
assuming compliance with the matters referred to in Section 3.1.3, violate any
applicable law, rule, regulation, judgment, injunction, order or decree, except
for any such violations which would not have a Material Adverse Effect; (iii)
except as disclosed in Schedule 3.1.4 require any consent or other action by any
Person under, constitute a default under, or give rise to any right of
termination, cancellation or acceleration of any right or obligation of Sellers
or the Company or any Subsidiary or to a loss of any benefit to which Sellers or
the Company or any Subsidiary is entitled under any provision of any agreement
or other instrument binding upon Sellers or the Company or any Subsidiary; or
(iv) result in the creation or imposition of any Lien on any asset of the
Company or any Subsidiary, except for any Permitted Liens.
SECTION 3.1.5 Capitalization.
(a) The authorized capital stock of the Company consists of five million
(5,000,000) shares of Common Stock, all of which is voting stock. As of the date
hereof, there are two million (2,000,000) shares of voting Common Stock issued
and outstanding.
(b) All outstanding shares of capital stock of the Company have been duly
authorized and validly issued and are fully paid and non-assessable. There are
no outstanding (i) shares of capital stock or voting securities of the Company
other than the Shares; (ii) securities of the Company convertible into or
exchangeable for shares of capital stock or voting securities of the Company; or
(iii) options or other rights to acquire from the Company, or other obligation
of the Company to issue, any capital stock, voting securities or securities
convertible into or
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exchangeable for capital stock or voting securities of the Company (the items in
clauses 3.1.5(b)(i), 3.1.5(b)(ii) and 3.1.5(b)(iii) being referred to
collectively as the "Company Securities"). Except as disclosed in Schedule
3.1.5, there are no outstanding obligations of the Company or any Subsidiary to
repurchase, redeem or otherwise acquire any Company Securities.
SECTION 3.1.6 Subsidiaries.
(a) Each corporate Subsidiary is a corporation duly incorporated, validly
existing and in good standing under the laws of its jurisdiction of
incorporation. Each Subsidiary has all corporate or partnership powers, as the
case may be, and all governmental licenses, authorizations, permits, consents
and approvals required to carry on its business as now conducted, except for
those licenses, authorizations, consents and approvals the absence of which
would not have a Material Adverse Effect. All Subsidiaries and their respective
jurisdictions of incorporation or formation are identified on Schedule 3.1.6(a).
(b) Except as disclosed in Schedule 3.1.6(b) as to each of the
representations of this Section 3.1.6, (i) all of the outstanding capital stock
or other voting securities of each Subsidiary is owned by the Company, directly
or indirectly, free and clear of any Lien, and (ii) there are no outstanding (y)
securities of the Company or any Subsidiary convertible into or exchangeable for
shares of capital stock or voting securities of any Subsidiary or (z) options or
other rights to acquire from the Company or any Subsidiary, or other obligation
of the Company or any Subsidiary to issue, any capital stock, voting securities
or securities convertible into or exchangeable for capital stock or voting
securities of any Subsidiary (the items in clauses 3.1.6(b)(i) and 3.1.6(b)(ii)
being referred to collectively as the "Subsidiary Securities"). There are no
outstanding obligations of the Company or any Subsidiary to repurchase, redeem
or otherwise acquire any outstanding Subsidiary Securities.
SECTION 3.1.7 Financial Statements.
(a) The audited consolidated financial statements for the year ended April
4, 2004, and the related audited consolidated statements of income and cash
flows for the year ended April 4, 2004 of the Company and the Subsidiaries (the
"2004 Financial Statements"), the Closing Financial Statements and the Closing
Date Balance Sheet each fairly present, in conformity with accounting principles
generally accepted in the United States of America applied on a consistent basis
(except as may be indicated in the notes thereto or in Schedule 2.3-1), the
consolidated financial position of the Company and the Subsidiaries as of the
dates thereof and the consolidated results of operations and cash flows of the
Company and the Subsidiaries for the periods then ended.
(b) Except as set forth on Schedule 3.1.7(b), as of the Closing Financial
Statement Date, neither the Company nor any Subsidiary had any material
liabilities of any nature, whether known or unknown, accrued, absolute,
contingent or otherwise, whether due or to become due (the "Liabilities") which
were required to be reflected in and that were not reflected or reserved against
in the Closing Financial Statements. Since the Closing Financial Statement Date,
neither the Company nor any Subsidiary has incurred Liabilities that would be
required to be reflected in the Closing Financial Statements except Liabilities
that were incurred in the usual and ordinary
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course of business consistent with past practices.
SECTION 3.1.8 Absence of Certain Changes. Except as disclosed in
Schedule 3.1.8, since the Closing Financial Statement Date, the business of the
Company and its Subsidiaries has been conducted in the ordinary course
consistent with past practices and there has not been:
(a) any event, occurrence or development which has had a Material Adverse
Effect;
(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of the Company, or any
repurchase, redemption or other acquisition by the Company or any Subsidiary of
any outstanding shares of capital stock or other securities of the Company or
any Subsidiary;
(c) any amendment of any term of any outstanding security of the Company or
any Subsidiary;
(d) any incurrence, assumption or guarantee by the Company or any
Subsidiary of any indebtedness for borrowed money in excess of $25,000 other
than indebtedness incurred to pay purchase orders in the ordinary course of
business consistent with past practices;
(e) any making of any loan, advance or capital contributions to or
investment in any Person other than loans, advances or capital contributions to
or investments made in the ordinary course of business consistent with past
practices;
(f) any transaction or commitment made, or any contract or agreement
entered into, by the Company or any Subsidiary relating to its assets or
business, in either case, material to the Company and the Subsidiaries, taken as
a whole, other than transactions and commitments in the ordinary course of
business consistent with past practices and those contemplated by this
Agreement;
(g) any material change in any method of accounting or accounting practice
by the Company or any Subsidiary except for any such change required by reason
of a concurrent change in accounting principles generally accepted in the United
States of America;
(h) any (i) employment, deferred compensation, severance, retirement or
other similar agreement entered into with any director, officer or employee of
the Company or any Subsidiary (or any amendment to any such existing agreement);
(ii) grant of any severance or termination pay to any director, officer or
employee of the Company or any Subsidiary; or (iii) change in compensation or
other benefits payable to any director, officer or employee of the Company or
any Subsidiary pursuant to any severance or retirement plans or policies
thereof, in each case other than in the ordinary course of business consistent
with past practices;
(i) any casualty loss in excess of $25,000 or termination of a contract
involving consideration in excess of $25,000; or
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(j) any execution of a contract in excess of $25,000, except for purchase
orders in the ordinary course of business.
SECTION 3.1.9 No Undisclosed Liabilities. There are no Liabilities
other than:
(a) Liabilities provided for in the Closing Financial Statements or
disclosed in the notes thereto;
(b) Liabilities not required under accounting principles generally accepted
in the United States of America to be shown on the Closing Financial Statements;
(c) Liabilities disclosed on Schedule 3.1.9; or
(d) Liabilities disclosed in, related to or arising under any agreements,
instruments or other matters disclosed in this Agreement or any Schedule hereto;
or Liabilities incurred in the ordinary course of business since the Closing
Financial Statement Date.
SECTION 3.1.10 Contracts.
(a) Except as disclosed in Schedule 3.1.10, neither the Company nor any
Subsidiary is a party to or bound by:
(i) any lease (whether of real or personal property) providing for
annual rentals of $25,000 or more that cannot be terminated on not more
than 60 days' notice without payment by the Company or any Subsidiary of
any material penalty;
(ii) any agreement for the purchase or license of materials, supplies,
goods, services, equipment or other assets providing for either (i) annual
payments by the Company and the Subsidiaries of $25,000 or more or (ii)
aggregate payments by the Company and the Subsidiaries of $25,000 or more,
in each case that cannot be terminated on not more than 60 days' notice
without payment by the Company or any Subsidiary of any material penalty;
(iii) any sales, distribution, lease or other similar agreement
providing for the sale or lease by the Company or any Subsidiary of
materials, supplies, goods, services, equipment or other assets (whether of
real or personal property) that provides for annual payments to the Company
and the Subsidiaries of $25,000 or more;
(iv) any cooperative development agreement or partnership, joint
venture or other similar agreement or arrangement;
(v) any agreement relating to the acquisition or disposition of any
material business (whether by merger, sale of stock, sale of assets or
otherwise);
(vi) any agreement relating to indebtedness for borrowed money or the
deferred purchase price of property (in either case, whether incurred,
assumed,
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guaranteed or secured by any asset), except any such agreement (A) with an
outstanding principal amount not exceeding $25,000 or (B) entered into
subsequent to the date of this Agreement as permitted by Section 3.1.8(d);
(vii) any agreement that limits the freedom of the Company or any
Subsidiary to compete in any line of business or with any Person or in any
area; or
(viii) any agreement with any Seller or any Affiliate of any Seller
that will bind the Company or any Subsidiary after the Closing.
(b) Each agreement, contract, plan, lease, arrangement or commitment
required to be disclosed pursuant to this Section is a valid and binding
agreement of the Company or a Subsidiary, as the case may be, and is in full
force and effect, and none of the Company, any Subsidiary or, to the Knowledge
of the Company or Sellers, any other party thereto is in default or breach in
any respect under the terms of any such agreement, contract, plan, lease,
arrangement or commitment.
SECTION 3.1.11 Litigation. Except as disclosed on Schedule 3.1.11,
(a) there is no action, suit, investigation or proceeding pending, or to the
Knowledge of the Company or Sellers threatened, against the Company or any
Subsidiary or any of their respective properties before any court or arbitrator
or any governmental body, agency or official, and (b) there is no action, suit,
investigation or proceeding pending, or to the Knowledge of the Company or
Sellers threatened, against any Seller or any of his respective properties
before any court or arbitrator or any governmental body, agency or official with
respect to the conduct of the Company's or any Subsidiary's business.
SECTION 3.1.12 Compliance with Laws and Court Orders. Neither the
Company nor any Subsidiary is in violation of any applicable law, rule,
regulation, judgment, injunction, order or decree, except for violations that
have not had and would not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect.
SECTION 3.1.13 Properties. The Company and the Subsidiaries have
good title to, or in the case of leased property and assets have valid leasehold
interests in, all property and assets (whether real, personal, tangible or
intangible) reflected on the Closing Financial Statements or acquired after the
Closing Financial Statement Date, except for properties and assets sold since
the Closing Financial Statement Date in the ordinary course of business
consistent with past practices. Schedule 3.1.13 is a complete list of all real
property owned by the Company or any Subsidiary, and the Company has delivered
to Buyer a complete list of each item of personal property with an original cost
in excess of $1000 owned by the Company or any Subsidiary. None of such property
or assets is subject to any Lien, except:
(a) Liens disclosed on Schedule 3.1.13;
(b) Liens disclosed on the Closing Financial Statements or notes thereto
or securing liabilities reflected on the Closing Financial Statements or notes
thereto;
13
(c) Liens for taxes, assessments and similar charges that are not yet due
and payable or are being contested in good faith and in accordance with
applicable law;
(d) mechanic's, materialman's, workmen's, carrier's, repairer's and other
similar Liens arising or incurred in the ordinary course of business or that are
not yet due and payable or are being contested in good faith and in accordance
with applicable law; and
(e) Liens incurred in the ordinary course of business since the Closing
Financial Statement Date (paragraphs (a)-(e) of this Section 3.1.13 are,
collectively, the "Permitted Liens").
SECTION 3.1.14 Intellectual Property.
(a) Schedule 3.1.14(a) contains a list of all intellectual property rights
owned or licensed and used or held for use by the Company or any Subsidiary
(without regard to registration) ("Intellectual Property Rights"), specifying as
to each, as applicable: (i) the nature of the Intellectual Property Right; (ii)
the owner of the Intellectual Property Right; (iii) the jurisdictions by or in
which the Intellectual Property Right has been issued or registered or in which
an application for such issuance or registration has been filed; (iv) the
registration or application numbers; and (v) the filing or issue and expiration
dates.
(b) Except as disclosed in Schedule 3.1.14(b), there are no licenses,
sublicenses or other agreements as to which the Company or any Subsidiary is a
party and pursuant to which any Person is authorized to use any Intellectual
Property Right.
(c) No Intellectual Property Right is subject to any outstanding judgment,
injunction, order, decree or agreement restricting the use thereof by the
Company or any Subsidiary or restricting the licensing thereof by the Company or
any Subsidiary to any Person.
SECTION 3.1.15 Insurance Coverage. Schedule 3.1.15 is a complete
list of (with coverage amounts and expiration dates), and the Company has made
available to Buyer complete copies of, all insurance policies and fidelity bonds
relating to the assets, business, operations, employees, officers or directors
of the Company and the Subsidiaries. Each insurance policy is valid and binding
and in full force and effect, no premiums due thereunder have not been paid and
neither the Company nor any Subsidiary has received any notice of cancellation
or termination in respect of any such policy or to its knowledge is in default
thereunder. Within the past three (3) years neither the Company nor any
Subsidiary has been denied insurance coverage for which it has applied. There
are no claims by the Company or any Subsidiary pending under any of such
policies or bonds as to which coverage has been questioned, denied or disputed
by the underwriters of such policies or bonds or in respect of which such
underwriters have reserved their rights.
SECTION 3.1.16 Finders' Fees. Except for Xxxxxxx & Company, Inc.,
whose fees will be paid by Sellers, there is no investment banker, broker,
finder or other intermediary which has been retained by or is authorized to act
on behalf of Sellers or the Company or any Subsidiary who might be entitled to
any fee or commission in connection with the transactions
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contemplated by this Agreement.
SECTION 3.1.17 Employees. The Company has made available to Buyer a
true and complete list of (a) the names, titles, annual salaries and other
compensation of all officers of the Company and its Subsidiaries and all other
employees of the Company and its Subsidiaries whose annual base salary equals or
exceeds $75,000 and (b) the wage rates for all other employees of the Company
and its Subsidiaries (by classification). There is no collective bargaining or
similar labor contract covering any group of employees of the Company or any
Subsidiary.
SECTION 3.1.18 Employee Benefit Plans.
(a) Schedule 3.1.18(a) identifies each Employee Plan. The Company has made
available to Buyer complete copies of the Employee Plans (and, if applicable,
related trust agreements) and all amendments thereto and written interpretations
thereof together with the most recent annual report (Form 5500 including, if
applicable, Schedule B thereto) and the most recent actuarial valuation report
prepared in connection with any Employee Plan. Schedule 3.1.18(a) identifies
each Employee Plan which is (i) a Title IV Plan or (ii) maintained in connection
with any trust described in Section 501(c)(9) of the Code. No Employee Plan is a
Multiemployer Plan.
(b) Neither the Company nor any ERISA Affiliate of the Company has (i)
engaged in, or is a successor or parent corporation to an entity that has
engaged in, a transaction described in Sections 4069 or 4212(c) of ERISA or (ii)
incurred, or reasonably expects to incur prior to the Closing Date, (A) any
liability under Title IV of ERISA arising in connection with the termination of,
or a complete or partial withdrawal from, any plan covered or previously covered
by Title IV of ERISA, (B) any liability under Section 4971 of the Code, or (C)
any liability for failure to make a contribution to any plan when due, that, in
any of cases (A), (B) or (C), could become a liability of the Company or any
Subsidiary or Buyer or any of its ERISA Affiliates after the Closing Date.
(c) Each Employee Plan that is intended to be qualified under Section
401(a) of the Code has been determined by the Internal Revenue Service to be so
qualified and, to the Knowledge of the Company, there has been no event since
the date of such determination which would adversely affect such qualification;
each trust created under any such Plan has been determined by the Internal
Revenue Service to be exempt from tax under Section 501(a) of the Code and, to
the Knowledge of the Company, there has been no event since the date of such
exemption which would adversely affect such exemption. The Company has provided
Buyer with the most recent determination letter of the Internal Revenue Service
relating to each such Employee Plan. Each Employee Plan has been maintained in
substantial compliance with its terms and with the requirements prescribed by
any and all applicable statutes, orders, rules and regulations, including but
not limited to ERISA and the Code.
(d) Schedule 3.1.18(d) identifies each Benefit Arrangement. The Company
has furnished to Buyer complete copies or descriptions of each Benefit
Arrangement (and, if applicable, related trust agreements) and all amendments
thereto and written descriptions thereof
15
provided to participants. Each Benefit Arrangement has been maintained in
substantial compliance with its terms and with the requirements prescribed by
any and all applicable statutes, orders, rules and regulations and has been
maintained in good standing with applicable regulatory authorities.
(e) Except as set forth in Schedule 3.1.18(e), neither the Company nor any
Subsidiary has any current or projected liability in respect of post-employment
or post-retirement health or medical or life insurance benefits for retired,
former or current employees of the Company or any Subsidiary, except as required
to avoid excise tax under Section 4980B of the Code.
(f) Except as disclosed in Schedule 3.1.18(f), with respect to each
Employee Plan and Benefit Arrangement, any fiduciary or plan administrator or
other person dealing with any Employee Plan or Benefit Arrangement or the assets
of any such Employee Plan or Benefit Arrangement, there are no actions, suits,
Liabilities, investigations or claims pending or to the Knowledge of the Company
threatened (other than routine claims for benefits and routine joinders in
domestic cases) and, to the Knowledge of the Company, there is no basis to
anticipate that any such actions, suits, Liabilities, investigations or claims
will be made.
SECTION 3.1.19 Environmental Matters. Except as disclosed on
Schedule 3.1.19 and except for matters that would not reasonably be expected to
have a Material Adverse Effect,
(a) No claim, written notice, request for information, order, complaint or
penalty has been received, and there are no judicial, administrative or other
actions, suits or proceedings pending or to the Knowledge of the Company or
Sellers threatened which allege a violation of any Environmental Law, in each
case relating to the Company or any Subsidiary or affecting any real property
owned or leased by the Company or any Subsidiary;
(b) The Company and each Subsidiary have all environmental permits
necessary for their operations to comply with all applicable Environmental Laws
and are in compliance with the terms of such permits and with all other
applicable Environmental Laws;
(c) There has been no written environmental audit conducted within the
past five years by Sellers, the Company or any Subsidiary of any real property
currently owned or leased by the Company or any Subsidiary which has not been
made available to Buyer prior to the date hereof;
(d) The Company has not caused or permitted any Hazardous Substances to
be, and the Company has no Knowledge that any Hazardous Substances were,
generated, manufactured, refined, transported, treated, stored, disposed,
handled, processed, produced, or released on any property owned or leased by the
Company or any Subsidiary except in compliance with all applicable federal state
and local laws and regulations;
(e) Neither the Company nor Sellers have any Knowledge of any
Environmental Condition (as that term is hereinafter defined) concerning any
real property adjacent to any property owned or leased by the Company or any
Subsidiary that would adversely affect any real property owned or leased by the
Company or any Subsidiary. The Company has caused to be
16
delivered to Buyer complete copies of all data, sampling results, reports and
other information regarding the Environmental Condition of any real property
owned or leased by the Company or any Subsidiary, which as of the date of this
Agreement are in the possession of the Company or any Subsidiary or of which as
of said date the Company has Knowledge. For purposes of this Agreement,
"Environmental Condition" means any condition that may exist or have existed
with respect to soil, surface or ground waters, stream sediments, and every
other environmental media, which condition could require investigation and/or
remedial action of any kind under applicable Environmental Laws or which could
result in claims, demands, orders or Liabilities by or to third parties,
including without limitation, governmental entities; and
(f) The Company has at all times complied with all Environmental Laws
applicable to any property owned or leased by the Company or any Subsidiary, and
any activities conducted thereon including, without limitation, those laws and
regulations which require notification to the applicable federal, state, county
or municipal agency.
SECTION 3.1.20 P-Com Claims. As of June 30, 2005, the amount of the
outstanding account receivable owed the Company by P-Com, Inc. is equal to
$415,383.10, and the value of the Company's claim against P-Com, Inc. for
inventory is $367,331.71 (collectively, "P-Com Claim").
SECTION 3.2 Representations and Warranties of Each Seller. Each of the
Sellers represents and warrants to Buyer, solely with respect to such Seller, as
of the date hereof that:
SECTION 3.2.1 Authorization. Each Seller is competent to enter into
this Agreement and to perform his obligations hereunder and to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by each Seller and is the valid and binding obligation of such Seller,
enforceable against such Seller in accordance with its terms, except that such
enforcement may be limited by any bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer or other laws (whether statutory, regulatory or
decisional), now or hereafter in effect, relating to or affecting the rights of
creditors generally or by equitable principles (regardless of whether considered
in a proceeding at law or in equity).
SECTION 3.2.2 Ownership of Shares. Each Seller is the record owner
of the Shares set forth opposite his respective name in Schedule 2.1, free and
clear of all Liens, except for restrictions imposed by federal and state
securities laws. Each Seller will transfer and deliver to Buyer at the Closing
valid title to the Shares free and clear of all Liens.
SECTION 3.3 No Omission. To the Knowledge of the Company and Sellers, the
Company's and Sellers' representations and warranties and all information made
available to the Buyer by or on behalf of the Company and Sellers are complete
and correct in all material respects and do not contain any untrue statement of
a material fact or omit to state a material fact necessary in order to make the
representations, warranties and information not misleading in light of the
circumstances under which such statements were made.
SECTION 3.4 Disclaimer of Other Representations and Warranties. Except as
expressly set forth in Sections 3.1 through 3.3 hereof, Sellers and the Company
disclaim all other
17
representations and warranties, whether express or implied.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to the Company and Sellers as of the date
hereof that:
SECTION 4.1 Corporate Existence and Power. Buyer is a corporation duly
incorporated, validly existing and in good standing under the laws of Delaware
and has all corporate powers and all governmental licenses, authorizations,
permits, consents and approvals required to carry on its business as now
conducted, except for those licenses, authorizations, permits, consents and
approvals the absence of which would not have a Material Adverse Effect on
Buyer.
SECTION 4.2 Authorization. Buyer has all necessary corporate power and
authority to enter into this Agreement and to perform its obligations hereunder
and to consummate the transactions contemplated hereby. This Agreement has been
duly executed and delivered by Buyer and is the valid and binding obligation of
Buyer, enforceable against Buyer in accordance with its terms except that such
enforcement may be limited by any bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer or other laws (whether statutory, regulatory or
decisional), now or hereafter in effect, relating to or affecting the rights of
creditors generally or by equitable principles (regardless of whether considered
in a proceeding at law or in equity).
SECTION 4.3 Government Authorization. The execution, delivery and
performance by Buyer of this Agreement and the consummation of the transactions
contemplated hereby require no material action by or in respect of, or filing
with, any governmental body, agency or official other than (i) compliance with
any applicable requirements of the 1934 Act and (ii) any such action or filing
as to which the failure to make or obtain would not have a Material Adverse
Effect on Buyer.
SECTION 4.4 Noncontravention. The execution, delivery and performance by
Buyer of this Agreement and the consummation of the transactions contemplated
hereby do not and will not (i) violate the certificate of incorporation or
bylaws of Buyer, (ii) assuming compliance with the matters referred to in
Section 4.3, violate any applicable law, rule, regulation, judgment, injunction,
order or decree, except for any such violations which would not have a Material
Adverse Effect on Buyer, (iii) except as disclosed on Schedule 4.4, require any
consent or other action by any Person under, constitute a default under, or give
rise to any right of termination, cancellation or acceleration of any right or
obligation of Buyer or to a loss of any benefit to which Buyer is entitled under
any provision of any agreement or other instrument binding upon Buyer; or (iv)
result in the creation or imposition of any Lien on any asset of Buyer, except
in connection with the financing of the transaction contemplated in this
Agreement.
SECTION 4.5 Financing. Buyer has, or will have prior to the Closing,
sufficient cash, available lines of credit or other sources of immediately
available funds to enable it to make payment of the Purchase Price and any other
amounts to be paid by it hereunder.
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SECTION 4.6 Purchase for Investment. Buyer is purchasing the Shares for
investment for its own account and not with a view to, or for sale in connection
with, any distribution thereof. Buyer (either alone or together with its
advisors) has sufficient 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 and is capable of bearing the economic risks of such investment
and agrees that the Shares may not be sold, transferred, encumbered or otherwise
disposed of except in compliance with applicable federal and state securities
laws.
SECTION 4.7 Litigation. There is no action, suit, investigation or
proceeding pending against, or to the Knowledge of Buyer threatened against or
affecting, Buyer before any court or arbitrator or any governmental body, agency
or official which in any manner challenges or seeks to prevent, enjoin, alter or
materially delay the transactions contemplated by this Agreement.
SECTION 4.8 Finders' Fees. There is no investment banker, broker, finder
or other intermediary which has been retained by or is authorized to act on
behalf of Buyer who might be entitled to any fee or commission from Sellers or
any of their Affiliates upon consummation of the transactions contemplated by
this Agreement.
SECTION 4.9 No Omission. To Buyer's Knowledge, Buyer's representations and
warranties and all information made available to the Company and Sellers by or
on behalf of Buyer are complete and correct in all material respects and do not
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the representations, warranties and information not
misleading in light of the circumstances under which such statements were made.
SECTION 4.10 Disclaimer of Other Representations and Warranties. Except as
expressly set forth in Sections 4.1 through 4.9 hereof, the Buyer disclaims all
other representations and warranties, whether express or implied.
ARTICLE 5
COVENANTS OF SELLERS
Sellers agree that:
SECTION 5.1 Conduct of the Company. From the date hereof until the Closing
Date, Sellers shall cause the Company and each Subsidiary to conduct its
businesses in the ordinary course consistent with past practices and to use its
reasonable efforts to preserve intact its business organization and
relationships with third parties and to keep available the services of its
present officers and employees. Without limiting the generality of the
foregoing, from the date hereof until the Closing Date, except as disclosed on
Schedule 5.1, Sellers will not permit the Company or any Subsidiary to do any of
the following without the prior written consent of Buyer:
(a) adopt or propose any change in the articles of incorporation or bylaws
of the Company or any Subsidiary;
19
(a) merge or consolidate with any other Person;
(b) sell, purchase, lease, license or otherwise dispose of or acquire any
assets or property with a value in excess of $25,000 except (i) pursuant to
existing contracts or commitments or (ii) otherwise in the ordinary course
consistent with past practices;
(c) authorize, issue, sell or otherwise dispose of any shares of capital
stock of or any option with respect to the Company or any Subsidiary, or modify
or amend any right of any holder of outstanding shares of capital stock of or
option with respect to the Company or any Subsidiary;
(d) declare, set aside or pay any dividend or other distribution in
respect of the capital stock of the Company or any Subsidiary not wholly owned
by the Company, or directly or indirectly redeem, purchase or otherwise acquire
any capital stock of or any option with respect to the Company or any Subsidiary
not wholly owned by the Company; or
(e) agree or commit to do any of the foregoing.
SECTION 5.2 Access to Information. From the date hereof until the Closing
Date, Sellers will (a) give, and will cause the Company and each Subsidiary to
give, Buyer, its counsel, financial advisors, auditors and other authorized
representatives reasonable access to the offices, properties, books and records
of the Company and the Subsidiaries; (b) furnish, and will cause the Company and
each Subsidiary to furnish, to Buyer, its counsel, financial advisors, auditors
and other authorized representatives such financial and operating data and other
information relating to the Company or any Subsidiary as such Persons may
reasonably request; and (c) instruct counsel and financial advisors of Sellers
or the Company or any Subsidiary to cooperate with Buyer in its investigation of
the Company or any Subsidiary. Any investigation pursuant to this Section shall
be conducted in such manner as not to interfere unreasonably with the conduct of
the business of Sellers, the Company or any Subsidiary. Notwithstanding the
foregoing, Buyer shall not have access to personnel records of the Company and
the Subsidiaries relating to individual performance or evaluation records,
medical histories or other information which in Sellers' good faith opinion the
disclosure of which could subject the Company or any Subsidiary to risk of
liability.
SECTION 5.3 Notices of Certain Events. The Company shall promptly notify
Buyer of:
(a) any notice or other communication from any Person alleging that the
consent of such Person is or may be required in connection with the transactions
contemplated by this Agreement;
(b) any notice or other communication from any governmental or regulatory
agency or authority in connection with the transactions contemplated by this
Agreement;
(c) any actions, suits, claims investigations or proceedings commenced
relating to Sellers or the Company or any Subsidiary that, if pending on the
date of this Agreement, would have been required to have been disclosed pursuant
to Section 3.1.11; and
20
(d) any material change in the financial condition of the Company or any
Subsidiary or in their properties, Liabilities or operations.
SECTION 5.4 Resignations. The Company will deliver to Buyer the
resignations of all directors and executive officers of the Company and each
Subsidiary at the Closing Date.
ARTICLE 6
COVENANTS OF BUYER
SECTION 6.1 Confidentiality. Prior to the Closing Date and after any
termination of this Agreement, Buyer and its Affiliates will hold, and will
cause their respective officers, directors, employees, accountants, lenders,
counsel, consultants, advisors and agents to hold, in confidence, unless
compelled to disclose by judicial or administrative process or by other
requirements of law, all documents and information concerning the Company or any
Subsidiary furnished by Sellers in connection with the transactions contemplated
by this Agreement, except to the extent that such information can be shown to
have been (i) known on a nonconfidential basis by Buyer or an Affiliate of Buyer
prior to its being furnished by the Company or a Subsidiary; (ii) in the public
domain through no fault of Buyer or an Affiliate of Buyer; or (iii) acquired on
a nonconfidential basis by Buyer or an Affiliate of Buyer from sources, other
than Sellers, the Company or any Subsidiary, under no obligation to maintain the
confidentiality thereof; provided that Buyer may disclose such information to
its officers, directors, employees, accountants, lenders, counsel, consultants,
advisors and agents in connection with the transactions contemplated by this
Agreement so long as such Persons are informed by Buyer of the confidential
nature of such information and agree to treat such information confidentially.
Buyer shall be responsible for any failure to treat such information
confidentially by such Persons. If this Agreement is terminated, Buyer and its
Affiliates will, and will cause their respective officers, directors, employees,
accountants, lenders, counsel, consultants, advisors and agents to, destroy or
deliver to the Company, upon request, all documents and other materials, and all
copies thereof, obtained by Buyer or its Affiliates or on their behalf from
Sellers, the Company or any Subsidiary in connection with this Agreement.
SECTION 6.2 Access; Assistance.
(a) Buyer agrees that it will cause the Company and each Subsidiary, on
and after the Closing Date, to afford promptly to Sellers, and each of them, and
their agents reasonable access to their properties, books, records, employees
and auditors to the extent necessary to permit Sellers to determine any matter
relating to their rights and obligations hereunder or to any period ending on or
before the Closing Date; provided that any such access by Sellers shall not
unreasonably interfere with the conduct of the business of Buyer. Sellers may
during such period, at their expense, make such copies thereof as they may
reasonably request. Sellers agree that all documents that are retained by
Sellers after the Closing Date and that are related to the Company or the
Subsidiaries shall be open for inspection by representatives of Buyer at any
time during regular business hours until such time as documents are destroyed or
possession thereof is given up to the other party as provided for in Section
6.2(b), and that Buyer may during such period, at its expense, make such copies
thereof as it may reasonably request.
21
(b) Without limiting the generality of Section 6.2(a), for the period
described in Section 8.5 with respect to items related to the matters covered by
Article 8 and on the sixth anniversary of the Closing Date with respect to all
other items, neither Buyer nor Sellers shall destroy or give up possession of
any item referred to in Section 6.2(a) without first offering to the other
party, or in the case of items belonging to the Company or the Subsidiaries, to
Sellers, the opportunity, at such other party's expense (but without any other
payment) to obtain the same. Thereafter, each party shall be free to dispose of
such properties, books and records as they see fit.
(c) Buyer agrees that it will cause the management of the Company and the
Subsidiaries to assist Sellers and Sellers' representatives in the preparation
of the Closing Date Balance Sheet to be delivered by Sellers to Buyer in
accordance with Section 2.4(a) hereof and the actions described in Article 8
hereof.
ARTICLE 7
COVENANTS OF BUYER AND SELLERS
Buyer and Sellers agree that:
SECTION 7.1 Reasonable Efforts; Further Assurances. Subject to the terms
and conditions of this Agreement, Buyer and Sellers will use their reasonable
efforts to take, or cause to be taken, all actions and to do, or cause to be
done, all things necessary or desirable under applicable laws and regulations to
consummate the transactions contemplated by this Agreement. Sellers and Buyer
agree, and Sellers, prior to the Closing, and Buyer, after the Closing, agree to
cause the Company and each Subsidiary, to execute and deliver such other
documents, certificates, agreements and other writings and to take such other
actions as may be necessary or desirable in order to consummate or implement
expeditiously the transactions contemplated by this Agreement.
SECTION 7.2 Certain Filings. Sellers and Buyer shall cooperate with one
another (i) in determining whether any action by or in respect of, or filing
with, any governmental body, agency, official or authority is required, or any
actions, consents, approvals or waivers are required to be obtained from parties
to any material contracts, in connection with the consummation of the
transactions contemplated by this Agreement and (ii) in taking such actions or
making any such filings, furnishing information required in connection therewith
and seeking timely to obtain any such actions, consents, approvals or waivers.
SECTION 7.3 Public Announcements. The parties agree to consult with each
other before issuing any press release or making any public statement with
respect to this Agreement or the transactions contemplated hereby and, except as
may be required by applicable law or any listing agreement with any national
securities exchange, will not issue any such press release or make any such
public statement prior to such consultation. If disclosure is required by
applicable law, the disclosing party shall consult in advance with the other
party and attempt in good faith to reflect such other party's concerns in the
required disclosure.
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ARTICLE 8
TAX MATTERS
SECTION 8.1 Tax Definitions. The following terms, as used herein, have the
following meanings:
"Code" means the United States Internal Revenue Code of 1986, as amended.
"Federal Tax" means any Tax imposed under the Code.
"Final Determination" shall mean, for purposes of Section 8.6(d), (i) with
respect to Federal Taxes, a "determination" as defined in Section 1313(a) of the
Code or execution of an Internal Revenue Service Form 870AD and, with respect to
Taxes other than Federal Taxes, any final determination of liability in respect
of a Tax or (ii) the payment of Tax by Buyer, Sellers, the Company, any
Subsidiary or any of their affiliates, whichever is responsible for payment of
such Tax under applicable law, with respect to any item disallowed or adjusted
by a Taxing Authority, provided that such responsible party determines that no
action should be taken to recoup such payment and the other party agrees.
"Post-Closing Tax Period" means any Tax period beginning after the Closing
Date and, with respect to a Tax period that includes but does not end on the
Closing Date, the portion of such Tax period beginning after the Closing Date.
"Pre-Closing Tax Period" means any Tax period ending on or before the
Closing Date and, with respect to a Tax period that includes but does not end on
the Closing Date, the portion of such Tax period ending on the Closing Date.
"Tax" or "Taxes" means (i) any and all federal, state, local and foreign
taxes, charges, fees, levies, assessments or other governmental charges, duties,
impositions and liabilities relating to taxes, including, but not limited to,
taxes based upon or measured by income, profits, gross receipts, sales, use and
occupation, and value added, services, ad valorem, alternative minimum,
transfer, license, franchise, capital stock, withholding, payroll, occupancy,
recapture, employment, unemployment, stamp, excise and property taxes, together
with any and all interest, penalties, additions to tax or additional amounts due
from, or in respect of, the Company or any Subsidiary imposed by any
governmental authority (domestic or foreign) responsible for the imposition of
any such tax or other amount (a "Taxing Authority").
SECTION 8.2 Tax Representations.
(a) Sellers represent and warrant to Buyer as of the date of this
Agreement and as of the Closing Date that, except as set forth in the Closing
Date Balance Sheet (including the notes thereto) or on Schedule 8.2 provided on
the date hereof, (i) all Tax returns, statements, estimates, declarations of
estimated tax, information tax reports and forms (collectively, the "Returns")
required to be filed with any Taxing Authority on or before the Closing Date
with respect to any Pre-Closing Tax Period by, or with respect to, the Company
or any Subsidiary have been filed or will be filed on or before the Closing Date
in accordance with all applicable laws; (ii) the
23
Company and the Subsidiaries have timely paid or had paid on their behalf all
Taxes due and payable with regard to the Company and its Subsidiaries; (iii) the
charges, accruals and reserves for Taxes with respect to the Company and the
Subsidiaries reflected on the Closing Date Balance Sheet and on the books of the
Company and the Subsidiaries as of the Closing Date are adequate, under
accounting principles generally accepted in the United States of America, to
cover the Tax liabilities accruing through the Closing Date; and (iv) there is
no action, suit, proceeding, investigation, audit or claim now pending against
or with respect to the Company or any Subsidiary in respect of any Tax or any
waiver of any statute of limitations.
(b) Between the date hereof and the Closing Date, to the extent Sellers or
the Company or any Subsidiary have Knowledge of the commencement or scheduling
of any Tax audit, the assessment of any Tax, the issuance of any notice of Taxes
due or any xxxx for collection of any Taxes due, or the commencement or
scheduling of any other administrative or judicial proceeding with respect to
the determination, assessment or collection of any Taxes of the Company or any
Subsidiary, Sellers shall provide prompt notice to Buyer of such matter, setting
forth information (to the extent known) describing any asserted Tax liability in
reasonable detail and including copies of any notice or other documentation
received from the applicable Taxing Authority with respect to such matter.
(c) Between the date hereof and the Closing Date, Sellers shall not, and
shall cause the Company and each Subsidiary not to, take any of the following
actions: (i) make, revoke or amend any Tax election; (ii) execute any waiver of
restrictions on assessment or collection of any Taxes; or (iii) enter into or
amend any agreement or settlement with any Taxing Authority.
SECTION 8.3 Tax Covenants.
(a) Buyer covenants that it will not cause or permit the Company, any
Subsidiary or any Affiliate of Buyer to amend any Return for a Pre-Closing Tax
Period that could give rise to any Tax liability of the Sellers under this
Agreement, except as otherwise agreed in writing by the parties. Buyer agrees
that Sellers are to have no liability for Taxes for a Post-Closing Tax Period,
and agrees to indemnify and hold harmless Sellers and their Affiliates against
any such Tax, the parties agreeing in that event to follow the procedures
described in Section 10.3.
(b) Buyer shall have the right and obligation to timely prepare and file
and cause to be timely prepared and filed when due all Returns that are required
to be filed by the Company or any Subsidiary after the Closing Date. With
respect to the Federal, state and local income tax returns for the tax period
ended April 3, 2005 and for any tax period of the Company or any Subsidiary that
includes (but does not end on) the Closing Date, all such Returns shall be
prepared in a manner consistent with past practice in accordance with applicable
law and without a change of any election or any accounting method and shall be
submitted by Buyer to Sellers (together with schedules, statements and, to the
extent requested by Sellers, supporting documentation) at least 15 business days
prior to the due date (including extensions) for such Return. Sellers shall have
the right to review all work papers and procedures used to prepare any such
Return. If Sellers within 10 business days after delivery of any such Return
notify Buyer in writing that they object to any item in such Return, the
disputed items shall be resolved (within a reasonable time, taking into account
the deadline for filing such Return) by independent
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accountants of nationally recognized standing reasonably satisfactory to Buyer
and Sellers (who shall not have any material relationship with Buyer or Sellers)
(the "Accounting Referee"). Upon resolution of all such items, the relevant
Return shall be adjusted to reflect such resolution and shall be binding upon
the parties without further adjustment. The costs, fees and expenses of such
Accounting Referee shall be borne one-half by Buyer and one-half by Sellers.
SECTION 8.4 Other Taxes. All transfer, documentary, sales, use, stamp,
registration and other such taxes and fees (including any penalties and
interest) incurred in connection with this Agreement shall be borne and paid by
Sellers, and Sellers will, at their own expense, file all necessary tax returns
and other documentation with respect to all such taxes and fees, and, if
required by applicable law, Buyer will, and will cause its Affiliates to, join
in the execution of any such tax returns and other documentation.
SECTION 8.5 Cooperation on Tax Matters.
(a) Buyer and Sellers agree to furnish or cause to be furnished to each
other, upon request, as promptly as practicable, such information (including
access to books and records) and assistance relating to the Company, its
Subsidiaries or affiliates as is reasonably necessary for the filing of any
return, for the preparation for any audit, and for the prosecution or defense of
any claim, suit or proceeding relating to any proposed adjustment. Buyer and
Sellers agree to retain or cause to be retained all books and records pertinent
to the Company and the Subsidiaries until the applicable period for assessment
under applicable law (giving effect to any and all extensions or waivers) has
expired, and to abide by or cause the abidance with all record retention
agreements entered into with any Taxing Authority. Buyer and Sellers shall
cooperate with each other in the conduct of any audit or other proceedings
involving the Company for any Tax purposes and each shall execute and deliver
such powers of attorney and other documents as are necessary to carry out the
intent of this subsection.
(b) Buyer and Sellers further agree, upon request, to provide the other
party with all information that either party may be required to report pursuant
to Section 6043 of the Code and all Treasury Regulations promulgated thereunder.
SECTION 8.6. Indemnification by Sellers.
(a) Sellers hereby indemnify Buyer and its Affiliates against and agree to
hold each of them harmless from any (i) Tax of the Company or any Subsidiary,
and (ii) liabilities, costs, expenses (including, without limitation, reasonable
expenses of investigation and reasonable attorneys' fees and expenses), arising
out of or incident to the imposition, assessment or assertion of any Tax,
including those incurred in the contest in good faith in appropriate proceedings
relating to the imposition, assessment or assertion of any Tax, in each case
with respect to any Pre-Closing Tax Period to the extent not reflected on the
Closing Date Balance Sheet (the sum of 8.6(a)(i) and 8.6(a)(ii) being referred
to as a "Tax Loss").
(b) For purposes of this Section 8.6, in the case of any Tax that is
imposed on a periodic basis and is payable for a Tax period that includes but
does not end on the Closing Date, the portion of such Tax relating to the
portion of such Tax period ending on the Closing Date
25
shall be deemed equal to the amount which would be payable if the relevant
taxable period ended on the Closing Date. All determinations necessary to give
effect to the foregoing allocation shall be made in a manner consistent with
past practice of the Company and the Subsidiaries in accordance with applicable
law.
(c) If any claim or demand for a Tax Loss in respect of which indemnity
may be sought pursuant to this Section 8.6 is assessed or asserted in writing
against Buyer, any of its Affiliates, the Company or any Subsidiary, the parties
shall follow the procedures described in Section 10.3.
(d) Any amount paid by Sellers under Section 8.6 shall be treated as an
adjustment to the Purchase Price unless a Final Determination causes any such
amount to not constitute an adjustment to the Purchase Price for Federal Tax
purposes.
SECTION 8.7. Survival. Notwithstanding anything in this Agreement to the
contrary, the provisions of this Article 8 shall survive until the third
anniversary of the Closing Date. Notwithstanding the preceding sentence, any
covenant, agreement, representation or warranty in respect of which indemnity
may be sought under this Agreement shall survive the time at which it would
otherwise terminate pursuant to the preceding sentence, if notice of the
inaccuracy or breach thereof giving rise to such right of indemnity shall have
been given to the party against whom such indemnity may be sought prior to such
time.
ARTICLE 9
CONDITIONS TO CLOSING
SECTION 9.1 Conditions to Obligations of Buyer and Sellers. The
obligations of Buyer and Sellers to consummate the Closing are subject to the
satisfaction of the following conditions, any one or more of which may be waived
by mutual agreement of Buyer and Sellers.
(a) No provision of any applicable law or regulation and no judgment,
injunction, order (including a temporary restraining order) or decree of any
state or federal court or other governmental agency shall prohibit the
consummation of the Closing or prohibits Buyer's ownership of the Shares shall
have been issued and remain in effect.
(b) All actions by or in respect of or filings with any governmental body,
agency, official or authority required to permit the consummation of the Closing
shall have been taken, made or obtained, except for any such actions or filings
the failure to take, make or obtain would not reasonably be expected to have
either a Material Adverse Effect or a Material Adverse Effect on Buyer.
SECTION 9.2 Conditions to Obligation of Buyer. The obligation of Buyer to
consummate the Closing is subject to the satisfaction of the following further
conditions, any one or more of which may be waived by Buyer:
(a) (i) Sellers and the Company shall have performed in all material
respects all of their obligations hereunder required to be performed by them on
or prior to the Closing Date, (ii)
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the representations and warranties of Sellers and the Company contained in this
Agreement and in any certificate or other writing delivered by Sellers or the
Company pursuant hereto shall be true at and as of the Closing Date, as if made
at and as of such date, and (iii) Buyer shall have received a certificate signed
by each of Sellers and the CEO or CFO of the Company to the foregoing effect.
(b) Buyer shall have received an opinion of Silicon Valley Law Group,
counsel to the Company and Sellers, dated the Closing Date to the effect
specified in Sections 3.1.1, 3.1.2, 3.1.3, and 3.1.4. In rendering such opinion,
such counsel may rely upon certificates of public officers; upon opinions of
counsel reasonably satisfactory to Buyer as to matters governed by the laws of
jurisdictions other than California, or the federal laws of the United States of
America; and, as to matters of fact, upon certificates of officers of the
Company or any Subsidiary, copies of which opinions and certificates shall be
contemporaneously delivered to Buyer.
(c) Sellers shall have received all consents, authorizations or approvals
from the governmental agencies set forth in Section 9.1(b), in each case in form
and substance reasonably satisfactory to Buyer, and no such consent,
authorization or approval shall have been revoked.
(d) Buyer shall have received all documents it may reasonably request
relating to the existence of the Company and the Subsidiaries, all in form and
substance reasonably satisfactory to Buyer.
(e) Sellers shall have caused the Company's 401(k) plan to have been
terminated effective immediately before the Closing.
(f) Brea Industries, Inc., the owner of the premises occupied by the
Company, shall have executed and delivered to the Company a new lease for said
premises.
(g) Buyer's lender shall have approved the transaction contemplated by
this Agreement.
(h) Buyer shall have received certificates for the Shares and for the
Subsidiary's stock (as required to transfer all such stock that is not owned by
the Company to Buyer or its nominee) duly endorsed or accompanied by stock
powers duly endorsed in blank, with any required transfer stamps affixed
thereto.
(i) Buyer shall have received copies of resolutions of the Company's Board
of Directors and Shareholders, authorizing the execution, delivery and
performance of this Agreement and the transactions contemplated hereby.
(j) Buyer shall have received the Company's and Subsidiaries' corporate
minute books, seals and stock ledger books.
(k) Buyer shall have received the resignations described in Section 5.4.
(l) Buyer shall have received covenants not to compete from Xxxxx Xxxxxx,
Xxxxx
27
Xxxxx, Xxxxx Xxxxx and Xxxxx Xxxxxx, all in form and substance satisfactory to
Buyer.
SECTION 9.3 Conditions to Obligation of Sellers. The obligation of Sellers
to consummate the Closing is subject to the satisfaction of the following
further conditions, any one or more of which may be waived by Sellers:
(a) (i) Buyer shall have performed in all material respects all of its
obligations hereunder required to be performed by it at or prior to the Closing
Date; (ii) the representations and warranties of Buyer contained in this
Agreement and in any certificate or other writing delivered by Buyer pursuant
hereto shall be true in all material respects at and as of the Closing Date, as
if made at and as of such date; and (iii) Sellers shall have received a
certificate signed by the CEO or CFO of Buyer to the foregoing effect.
(b) Sellers and the Company shall have received an opinion of Xxxxxxx &
Xxxxx LLC, counsel to Buyer, dated the Closing Date to the effect specified in
Sections 4.1, 4.2, 4.3, and 4.4. In rendering such opinion, such counsel may
rely upon certificates of public officers; upon opinions of counsel reasonably
satisfactory to Sellers as to matters governed by the laws of jurisdictions
other than Illinois and Delaware (as to corporate law) or the federal laws of
the United States of America; and, as to matters of fact, upon certificates of
officers of Buyer, copies of which opinions and certificates shall be
contemporaneously delivered to Sellers.
(c) Buyer shall have received all consents, authorizations or approvals
from governmental agencies referred to in Section 9.1(b), in each case in form
and substance reasonably satisfactory to Sellers, and no such consent,
authorization or approval shall have been revoked.
(d) Sellers shall have received all documents they may reasonably request
relating to the existence of Buyer and the authority of Buyer to execute and
deliver this Agreement, all in form and substance reasonably satisfactory to
Sellers.
(e) Funds in the amounts and payable as set forth in Section 2.1 shall be
available to Sellers.
ARTICLE 10
SURVIVAL; INDEMNIFICATION
SECTION 10.1 Survival. The covenants, agreements, representations and
warranties of the parties hereto contained in this Agreement or in any
certificate or other writing delivered pursuant hereto or in connection herewith
shall survive the Closing until the second anniversary of the Closing Date;
provided that the covenants, agreements, representations and warranties
contained in (a) Section 3.1.19 shall survive until the fifth anniversary of the
Closing Date; (b) Section 6.2 shall survive as set forth therein; (c) Article 8
shall survive as set forth in Section 8.6; (d) Sections 10.2(c) and 10.2(d)
shall survive as set forth therein; and (e) Buyer's confidentiality letter
agreement dated May 7, 2004 shall survive for the period set forth therein.
Notwithstanding the preceding sentence, any covenant, agreement, representation
or warranty in respect of which indemnity may be sought under this Agreement
shall survive the time at which
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it would otherwise terminate pursuant to the preceding sentence, if notice of
the inaccuracy or breach thereof giving rise to such right of indemnity shall
have been given to the party against whom such indemnity may be sought prior to
such time.
SECTION 10.2 Indemnification.
(a) Sellers hereby indemnify Buyer and its Affiliates against and agrees
to hold each of them harmless from any and all damage, loss, liability and
expense (including, without limitation, reasonable expenses of investigation and
reasonable attorneys' fees and expenses in connection with any action, suit or
proceeding) ("Damages") incurred or suffered by Buyer or any of its Affiliates
arising out of any misrepresentation or breach of warranty, covenant or
agreement made or to be performed by the Company or Sellers pursuant to this
Agreement (other than pursuant to Article 8); provided that Sellers shall not be
liable under this Section 10.2(a) unless the aggregate amount of Damages with
respect to all matters referred to in this Section 10.2(a) exceeds $50,000 (the
"Basket Amount"), in which case Sellers shall be liable to Buyer for only such
Damages in excess of the Basket Amount, but in no event shall Sellers be liable
to Buyer in an aggregate amount in excess of the Purchase Price (the "Cap"), and
in no event shall any individual Seller be liable to Buyer in an aggregate
amount in excess of his respective portion of the Purchase Price.
Notwithstanding anything to the contrary in this Agreement, Sellers shall not be
liable for, and shall not be required to indemnify Buyer against, any Damages
related to the Company's or the Subsidiary's inventory.
(b) Buyer hereby indemnifies Sellers and their respective Affiliates
against and agrees to hold each of them harmless from any and all Damages
incurred or suffered by Sellers or any of their respective Affiliates arising
out of any misrepresentation or breach of warranty, covenant or agreement made
or to be performed by Buyer pursuant to this Agreement (other than pursuant to
Article 8); provided that Buyer shall not be liable under this Section 11.2(b)
unless the aggregate amount of Damages with respect to all matters referred to
in this Section 11.2(b) exceeds the Basket Amount, in which case Buyer shall be
liable to Sellers for only such Damages in excess of the Basket Amount, but in
no event shall Buyer be liable to Sellers in an aggregate amount in excess of
the Cap.
(c) Notwithstanding anything to the contrary in this Agreement, and
without regard to any disclosures made by Sellers or the Company hereunder,
until the fifth anniversary of the Closing Date, Sellers hereby indemnify Buyer
and its Affiliates against and agrees to hold each of them harmless from any and
all Damages incurred or suffered by Buyer or any of its Affiliates arising out
of any failure of the cash-in-lieu of coverage option (that is available to the
Company's employees who decline health and dental insurance coverage under the
Able Electronics Corporation Health and Welfare Plan) to be included in or
subject to a cafeteria plan under Section 125 of the Code. Sellers'
indemnification obligations under this Section 10(c) are not limited to (i)
amounts in excess of the Basket Amount, or (ii) the Cap, and shall not reduce
amounts available to Buyer under either the P-Com Escrow or the Regular Escrow.
In no event shall any individual Seller be liable to Buyer in an aggregate
amount in excess of his respective portion of the Purchase Price.
(d) Notwithstanding anything to the contrary in this Agreement, and
without regard to
29
any disclosures made by Sellers or the Company hereunder, until the first
anniversary of the Closing Date, Sellers hereby indemnify Buyer and its
Affiliates against and agree to hold each of them harmless from any and all
Damages incurred or suffered by Buyer or any of its Affiliates arising out of
claims by the Company's employee, Xxxxxxx Xxxxxx, that the Company through its
employee, Xxxxxxxx Xxxxxxx, has a hostile work environment.
SECTION 10.3 Procedures.
(a) The party seeking indemnification under Article 8 or Section 10.2 (the
"Indemnified Party") agrees to give prompt notice to the party against whom
indemnity is sought (the "Indemnifying Party") of the assertion of any claim or
Tax Loss, or the commencement of any action or proceeding (including a Tax
audit) ("Claim") in respect of which indemnity may be sought under such Section
and will provide the Indemnifying Party such information with respect thereto
that the Indemnifying Party may reasonably request and the Indemnified Party's
calculation of the Damages related to the Claim. The delay or failure to so
notify the Indemnifying Party shall not relieve the Indemnifying Party of its
obligations hereunder, except to the extent such delay or failure shall have
adversely prejudiced the Indemnifying Party. The Indemnifying Party shall have a
period of 30 days within which to give written notice of objection to the Claim
or calculation of Damages under this Section 10.3. If the Indemnifying Party
does not give written notice of objection or does not respond within said 30-day
period, the Indemnified Party shall be paid the amount of Damages related to the
Claim, in immediately available funds, either by the Escrow Agent from the
Escrow Account to the extent available, or by the Indemnifying Party as soon as
practicable but not later than 5 business days after the expiration of said
30-day period. If the Indemnifying Party gives written notice of objection to
the Claim or Damages within said 30-day period, the parties shall resolve the
dispute in accordance with the procedures set out in Article 15 of the Escrow
Agreement.
The Indemnifying Party shall be entitled to participate in the defense of
any Claim asserted by any third party ("Third Party Claim") and, subject to the
limitations set forth in this Section, shall be entitled to control and appoint
lead counsel for such defense, in each case at its expense, which lead counsel
shall be reasonably satisfactory to the Indemnified Party. If the Indemnifying
Party assumes the control of the defense, the Indemnifying Party shall provide
the Indemnified Party with such assurances as may be reasonably required by the
Indemnified Party to assure that the Indemnified Party will assume and be
responsible for the entire Third Party Claim. If the Indemnifying Party does not
respond within the 30-day period set forth in Section 10.3(a), the Indemnified
Party shall be free to pursue, without prejudice to any of its rights hereunder,
such remedies as may be available to the Indemnified Party under applicable law.
The Indemnified Party agrees to cooperate fully with the Indemnifying Party and
its counsel in the defense against any such Third Party Claim. In any event, the
Indemnified Party shall be entitled to employ counsel, at its expense, separate
from the counsel employed by the Indemnifying Party.
(b) If the Indemnifying Party shall assume the control of the defense of
any Third Party Claim in accordance with the provisions of this Section 10.3,
(i) the Indemnifying Party shall obtain the prior written consent of the
Indemnified Party (which shall not be unreasonably withheld) before entering
into any settlement or compromise of such Third Party Claim, if the
30
settlement or compromise does not release the Indemnified Party from all
liabilities and obligations with respect to such Third Party Claim or the
settlement or compromise imposes injunctive or other equitable relief against
the Indemnified Party and (ii) the Indemnified Party shall be entitled to
participate in the defense of such Third Party Claim and to employ separate
counsel of its choice for such purpose. The fees and expenses of such separate
counsel shall be paid by the Indemnified Party. If the Indemnified Party refuses
to provide its prior written consent to a bona fide offer of settlement or
compromise that the Indemnifying Party wishes to accept, the Indemnifying Party
may continue to pursue such settlement or compromise, free of any participation
by the Indemnified Party, at the sole expense of the Indemnifying Party. In such
event, the obligation of the Indemnifying Party to the Indemnified Party shall
be equal to the lesser of (y) the amount of the offer of settlement or
compromise which the Indemnified Party refused to accept plus the costs and
expense of the Indemnified Party prior to the date the Indemnifying Party
notifies the Indemnified Party of the offer of settlement or compromise, and (z)
the actual out-of-pocket amount the Indemnified Party is obligated to pay as a
result of the Indemnified Party's continuing to pursue the underlying matter.
The Indemnifying Party shall be entitled to recover from the Indemnified Party
any additional expenses incurred by the Indemnifying Party as a result of the
decision of the Indemnified Party to pursue such matter.
(c) Each party shall cooperate, and cause their respective Affiliates to
cooperate, in the defense or prosecution of any Third Party Claim and shall
furnish or cause to be furnished such records, information and testimony, and
attend such conferences, discovery proceedings, hearings, trials or appeals, as
may be reasonably requested in connection therewith.
SECTION 10.4 Calculation of Damages; Reduction for Insurance.
(a) The Indemnifying Party shall not be liable under Section 10.2 for any
(i) Damages relating to any matter to the extent that (a) there is included in
the Closing Financial Statements a specific liability or reserve relating to
such matter so long as such liability or reserve is not exceeded or (b) the
Indemnified Party had otherwise been compensated for such matter pursuant to the
Purchase Price adjustment under Section 2.4; (ii) consequential or punitive
Damages; or (iii) Damages for lost profits.
(b) The amount which an Indemnifying Party is required to pay to, for or
on behalf of an Indemnified Party pursuant to this Article 10 shall be reduced
(including, without limitation, retroactively) by any insurance proceeds
actually recovered by or on behalf of the Indemnified Party in reduction of the
related indemnifiable loss (the "Indemnifiable Loss"). Amounts required to be
paid, as so reduced, are hereinafter sometimes called an "Indemnity Payment". If
an Indemnified Party shall have received, or if an Indemnifying Party shall have
paid on behalf of such Indemnified Party, an Indemnity Payment in respect of an
Indemnifiable Loss and shall subsequently receive, directly or indirectly,
insurance proceeds in respect of such Indemnifiable Loss, then such Indemnitee
shall promptly pay to the Indemnifying Party the amount of such insurance
proceeds or, if less, the amount of the Indemnity Payment. The parties hereto
agree that the foregoing shall not affect the subrogation rights of any
insurance companies making payments hereunder.
(c) Notwithstanding any other provision of this Agreement to the contrary,
if on the
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Closing Date the Indemnified Party actually knows of any information that would
cause one or more of the representations and warranties made by the Indemnifying
Party to be inaccurate as of the date made, the Indemnified Party shall have no
right or remedy after the Closing with respect to such inaccuracy and shall be
deemed to have waived its rights to indemnification in respect thereof.
(d) Payments not paid when due under Sections 10.3 and 10.4 hereof shall
bear interest at the rate of 6% per annum for each day until paid.
SECTION 10.5 Assignment of Claims. If the Indemnified Party receives any
payment from an Indemnifying Party actually in respect of any Damages pursuant
to Section 10.2 and the Indemnified Party could have recovered all or a part of
such Damages from a third party (a "Potential Contributor") based on the
underlying Claim asserted against the Indemnifying Party, the Indemnified Party
shall assign such of its rights to proceed against the Potential Contributor as
are necessary to permit the Indemnifying Party to recover from the Potential
Contributor the amount of such payment.
SECTION 10.6 Exclusivity. Except as specifically set forth in this
Agreement, effective as of the Closing, Buyer waives any rights and claims Buyer
may have against Sellers, whether in law or in equity, relating to the Company,
any Subsidiary or the Shares or the transactions contemplated hereby. The rights
and claims waived by Buyer include, without limitation, claims for contribution
or other rights of recovery arising out of or relating to any Environmental Law,
claims for breach of contract, breach of representation or warranty, negligent
misrepresentation and all other claims for breach of duty. After the Closing,
the provisions of Article 8 and Section 10.2 will provide the exclusive remedy
for any misrepresentation, breach of warranty, covenant or other agreement
(other than those contained in Sections 2.4 and 6.1) or other claim arising out
of this Agreement or the transactions contemplated hereby.
SECTION 10.7 Escrow Agreement.
(a) At the Closing, Buyer shall pay the P-Com Escrow Amount into the
escrow account established pursuant to the P-Com Escrow Agreement substantially
in the form designated as Schedule 10.7(a) (the "P-Com Escrow Agreement"). The
portion of the P-Com Escrow Amount equal to the amount received by the Company
as payment for the P-Com, Inc. receivable or inventory shall be paid to Sellers
in proportion to Sellers' interest, pursuant to the terms and conditions set
forth in the P-Com Escrow Agreement. The P-Com, Inc. Series E Convertible
Preferred Stock received by the Company (delivered by the method set forth in
the P-Com Escrow Agreement) shall be held in escrow pursuant to the terms and
conditions set forth in the P-Com Escrow Agreement. Any amount received by the
Company as a payment by P-Com, Inc. related to a P-Com Claim that is required to
be returned by the Company as a preference shall constitute a Claim that may be
asserted against the Regular Escrow.
(b) At the Closing, Buyer shall pay the Regular Escrow Amount into the
Escrow Account established pursuant to the Escrow Agreement substantially in the
form designated as Schedule 10.7 (b) (the "Regular Escrow Agreement"). Such cash
may be reduced and paid back to Buyer pursuant to the terms and conditions of
the Escrow Agreement. At the first anniversary of
32
the Closing Date, the amount in the Regular Escrow Agreement in excess of
$500,000 shall be paid to Sellers in proportion to Seller's Interest. The Escrow
Agreement provides, among other things, that (a) Buyer shall offset against such
cash deposited in the escrow account indemnification payments due under this
Article 10, and (b) there shall be released to Sellers on the second anniversary
of the Closing Date the balance of the escrow account, less any indemnification
payments made under this Article 10, subject to the holdback for unresolved
claims for which a notice of claim has been given in accordance with the Escrow
Agreement.
ARTICLE 11
TERMINATION
SECTION 11.1 Grounds for Termination. This Agreement may be terminated at
any time prior to the Closing:
(a) by mutual written agreement of Sellers, the Company and Buyer;
(b) by either Sellers or Buyer if the Closing shall not have been
consummated on or before July 31, 2005, so long as the party giving the notice
is not in breach of its obligations hereunder;
(c) by either Sellers or Buyer if consummation of the transactions
contemplated hereby would violate any nonappealable final order, decree or
judgment of any court or governmental body having competent jurisdiction;
(d) by Buyer, if any of the conditions specified in Section 9.2 hereof
shall not have been met by July 31, 2005 and shall not have been waived in
writing by Buyer;
(e) by Sellers, if any of the conditions specified in Section 9.3 hereof
shall not have been met by July 31, 2005 and shall not have been waived in
writing by Sellers; or
(f) by Buyer, if the Company or Sellers amend or supplement the Schedules
pursuant to Section 12.11(b) in a manner that would have a Material Adverse
Effect, in Buyer's reasonable discretion, on the Company or the transactions
contemplated hereunder.
The party desiring to terminate this Agreement pursuant to clauses
11.1(b), 11.1(c), 11.1(d), 11.1(e) or 11.1(f) shall give notice of such
termination to the other party.
SECTION 11.2 Effect of Termination. If this Agreement is terminated as
permitted by Section 12.1 such termination shall be without liability of either
party (or any shareholder, director, officer, employee, agent, consultant or
representative of such party) to the other party to this Agreement; provided
that if such termination shall result from the willful (a) failure of either
party to fulfill a condition to the performance of the obligations of the other
party; (b) failure to perform a covenant of this Agreement; or (c) breach by
either party hereto of any representation or warranty or agreement continued
herein, such party shall be fully liable for any and all Damages incurred or
suffered by the other party as a result of such failure or breach. The
33
provisions of Sections 6.1, 12.3, 12.5, 12.6, 12.7, 12.8, and 12.9 shall survive
any termination hereof pursuant to Section 11.1.
ARTICLE 12
MISCELLANEOUS
SECTION 12.1 Notices. All notices, requests and other communications to
any party hereunder shall be in writing (including facsimile transmission) and
shall be given,
if to Sellers, to:
the addresses and fax numbers set forth next to their names on
Schedule 2.1
with a copy to:
Xxxxxxx X. Xxxxx, Esq.
Silicon Valley Law Group
00 Xxxxx Xxxxx, Xxxxx 000
Xxx Xxxx, XX 00000
Fax: 408/000-0000
if to Buyer, to:
SigmaTron International, Inc.
000x Xxxxxxxxx Xxxx
Xxx Xxxxx Xxxxxxx, XX 00000
Attn: Xxxx X. Xxxxxxxx
Fax: 847/000-0000
with a copy to:
Xxxxxxx & Xxxxx LLC
000 Xxxxx Xxxxxxxx Xxxxxx
Xxxxx 0000
Xxxxxxx, XX 00000
Attention: Xxxxx X. Xxxxxxxxx
Fax: 312/000-0000
or at such other place as any party hereto shall furnish to each other party
hereto in writing.
All such notices, requests and other communications shall be deemed
received on the date of receipt by the recipient thereof if delivered personally
or by overnight courier or via facsimile, if received prior to 5:00 p.m. in the
place of receipt and such day is a business day in the place of receipt.
Otherwise, any such notice, request or communication shall be deemed received on
the next succeeding business day in the place of receipt.
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SECTION 12.2 Amendments and Waivers.
(a) Any provision of this Agreement may be amended or waived if, but only
if, such amendment or waiver is in writing and is signed, in the case of an
amendment, by each party to this Agreement, or in the case of a waiver, by the
party against whom the waiver is to be effective.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and no exclusive of any rights or remedies provided
by law.
SECTION 12.3 Expenses. All costs and expenses incurred in connection with
this Agreement shall be paid by the party incurring such cost or expense.
SECTION 12.4 Successors and Assigns. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided that no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the consent of each other party hereto.
SECTION 12.5 Joint and Several Obligations of Sellers. Except as provided
in Section 10.2(a), the obligations and liabilities of Sellers hereunder shall
be the joint and several obligations of all of the Sellers.
SECTION 12.6 Governing Law. This Agreement shall be governed by and
construed in accordance with the law of the State of California, without regard
to the conflicts of law rules of such state.
SECTION 12.7 WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
SECTION 12.8 Counterparts; Third-Party Beneficiaries. This Agreement may
be signed in any number of counterparts, each of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement shall be deemed delivered when each party hereto
shall have received a counterpart hereof signed by the other party hereto. No
provision of this Agreement is intended to confer upon any Person other than the
parties hereto any rights or remedies hereunder.
SECTION 12.9 Entire Agreement. This Agreement, the Escrow Agreement and
Buyer's confidentiality agreement dated May 7, 2004 constitute the entire
agreement between the parties with respect to the subject matter of this
Agreement and supersede all prior agreements and understandings, both oral and
written, between the parties with respect to the subject matter of this
Agreement, the Escrow Agreement and said letter agreement.
35
SECTION 12.10 Captions. The captions herein are included for convenience
of reference only and shall be ignored in the construction or interpretation
hereof.
SECTION 12.11 Disclosure Schedules.
(a) The parties acknowledge and agree that (i) the Schedules to this
Agreement may include certain items and information solely for informational
purposes for the convenience of the party or parties to whom disclosures are
made (collectively, "disclosee") and (ii) the disclosure by the disclosing party
or parties (collectively, "discloser") of any matter in the Schedules shall not
be deemed to constitute an acknowledgment by discloser that the matter is
required to be disclosed by the terms of this Agreement or that the matter is
material. Where the terms of an agreement, contract or such other disclosure
item have been summarized or described in a Disclosure Schedule, such summary or
description does not purport to be a complete statement of the material terms of
such agreement, contract or other item. If any Schedule discloses an item or
information in such a way as to make its relevance to the disclosure required by
another Schedule readily apparent, the matter shall be deemed to have been
disclosed in such other Schedule, notwithstanding the omission of an appropriate
cross-reference to such other Schedule.
(b) From the date hereof until the Closing Date, discloser may amend
and/or supplement its respective Schedules to this Agreement to reflect events
or changes apparent after the execution of this Agreement.
SECTION 12.12 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transaction contemplated hereby is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or otherwise incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner to
the end that transactions contemplated hereby are fulfilled to the extent
possible.
SECTION 12.13 Sellers' Representative. Xxxxx Xxxxxx (by virtue of the
transaction contemplated by this Agreement) be, and he hereby is, irrevocably
appointed attorney-in-fact and authorized and empowered to act for and on behalf
of any or all of the Sellers (with full power of substitution in the premises)
in connection with all matters required to be performed by the Sellers
hereunder, including without limitation, deliveries to be made by the Sellers
(except as may otherwise be agreed to in writing by all parties to this
Agreement), indemnity provisions of Articles 8 or 10, the Escrow Agreement, the
notices and consent provisions of this Agreement, and such other matters as are
reasonably necessary for the consummation of the transaction. Buyer may rely on
any certificate, statement, opinion, report, notice, request, consent or other
document believed by it to be genuine and to have been signed or presented by
said agent acting in accordance with this power of attorney. Buyer may assume
the validity and accuracy of any statement or assertion contained in any of the
above, and may assume that said agent purporting to give any writing, notice,
advice or instruction in connection with the
36
provisions hereof has been duly authorized to do so. If Xxxxx Xxxxxx resigns or
is otherwise unable or unwilling to act as Sellers' Representative hereunder, L.
P. Xxxxx Xxxxx shall immediately succeed him as Sellers' Representative with the
same effect as if originally named. If L. P. Xxxxx Xxxxx resigns or is otherwise
unable or unwilling to act as Sellers' Representative hereunder, J. Xxxxx Xxxxxx
shall immediately succeed him as Sellers' Representative with the same effect as
if originally named. If J. Xxxxx Xxxxxx resigns or is otherwise unable or
unwilling to act as Sellers' Representative hereunder, Xxxxx Xxxxx shall
immediately succeed him as Sellers' Representative with the same effect as if
originally named.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
SIGMATRON INTERNATIONAL, INC.
By: /s/ Xxxx X. Xxxxxxxx
----------------------------
Xxxx X. Xxxxxxxx,
President and CEO
ABLE ELECTRONICS CORPORATION
By: /s/ J. Xxxxx Xxxxxx
--------------------------
Title: President and
Chief Financial Officer
SELLERS:
/s/ Xxxxx Xxxxxx
---------------------------------
Xxxxx Xxxxxx
/s/ L. P. Xxxxx Xxxxx
---------------------------------
L. P. Xxxxx Xxxxx
/s/ J. Xxxxx Xxxxxx
---------------------------------
J. Xxxxx Xxxxxx
/s/ Xxxxx Xxxxx
---------------------------------
Xxxxx Xxxxx
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