EXHIBIT 2.1
Execution
Copy
STOCK PURCHASE AGREEMENT
by and among
ADVANCED PHOTONIX, INC.
As Purchaser
and
THE STOCKHOLDERS OF
PHOTONIC DETECTORS, INC.
NAMED HEREIN
As Sellers
Dated: as of December 21, 2004
TABLE OF CONTENTS
1. DEFINITIONS..............................................................................................1
1.1. DEFINED TERMS. ....................................................................................1
1.2. OTHER DEFINITIONAL PROVISIONS; INTERPRETATION.......................................................1
2. PURCHASE AND SALE OF THE STOCK...........................................................................1
2.1 PURCHASE AND SALE. .................................................................................1
2.2 ADJUSTMENT OF THE PURCHASE PRICE. .................................................................2
2.3 CONTINGENT PURCHASE PRICE...........................................................................3
2.4 REDEMPTION OF XXXXX SHARES. .......................................................................4
2.5 ESCROW. ...........................................................................................4
3. REPRESENTATIONS AND WARRANTIES OF SELLERS................................................................4
3.1 CORPORATE ORGANIZATION OF THE COMPANY...............................................................5
3.2 SUBSIDIARIES........................................................................................5
3.3 CAPITALIZATION OF COMPANY...........................................................................5
3.4 BUSINESS ASSETS.....................................................................................5
3.5 ACCOUNTS RECEIVABLE.................................................................................6
3.6 NO VIOLATION........................................................................................6
3.7 FINANCIAL STATEMENTS................................................................................6
3.8 NO UNDISCLOSED LIABILITIES; ETC.....................................................................7
3.9 ABSENCE OF CERTAIN CHANGES..........................................................................7
3.10 TITLE TO PROPERTIES; ENCUMBRANCES...................................................................9
3.11 LEASES..............................................................................................9
3.12 CUSTOMER AND SUPPLIER RELATIONS....................................................................10
3.13 PATENTS, TRADEMARKS, TRADE NAMES, ETC..............................................................10
3.14 BUSINESS PERMITS...................................................................................11
3.15 TAX MATTERS........................................................................................11
3.16 TRANSACTIONS WITH AFFILIATES.......................................................................13
3.17 CONTRACTS AND COMMITMENTS..........................................................................13
3.18 COMPLIANCE WITH CONTRACTS..........................................................................13
3.19 INSURANCE..........................................................................................14
3.20 LABOR RELATIONS....................................................................................14
3.21 SECURITIES ACT COMPLIANCE..........................................................................15
3.22 LITIGATION.........................................................................................16
3.23 NO CONDEMNATION OR EXPROPRIATION...................................................................16
3.24 COMPLIANCE WITH LAW; FOREIGN CORRUPT PRACTICES ACT.................................................16
3.25 ENVIRONMENTAL PROTECTION...........................................................................17
3.26 EMPLOYEE BENEFIT PLANS.............................................................................18
3.27 BROKERS AND FINDERS................................................................................19
3.28. CONSENTS...........................................................................................20
3.29. BOOKS AND RECORDS..................................................................................20
3.30. MANAGEMENT DISCLOSURE..............................................................................20
3.31. REPRESENTATIONS COMPLETE...........................................................................20
4. REPRESENTATIONS AND WARRANTIES OF PURCHASER.............................................................20
4.1 CORPORATE ORGANIZATIONS; ETC.......................................................................20
4.2 AUTHORIZATION, ETC.................................................................................20
4.3 NO VIOLATION.......................................................................................20
4.4 APPROVALS OF GOVERNMENTAL AUTHORITIES..............................................................21
4.5 TRUE AND COMPLETE..................................................................................21
4.6 THE PURCHASER'S STOCK..............................................................................21
4.7 BROKERS AND FINDERS................................................................................21
5 NON-COMPETITION, NON-SOLICITATION AND NON-DISPARAGEMENT....................................................21
5.1 NON-COMPETITION....................................................................................21
5.2 NON-SOLICITATION...................................................................................22
5.3 REASONALE SCOPE OF NON-COMPETITION AND NON-SOLICITATION............................................22
5.4 NON-DISPARAGEMENT..................................................................................22
5.5 ENFORCEMENT OF NON-COMPETITION AND NON-SOLICITATION................................................22
6 DOCUMENTS DELIVERED AT CLOSING.............................................................................22
6.1 THE SELLERS OBLIGATIONS............................................................................22
6.2 OBLIGATIONS OF THE PURCHASER.......................................................................23
7 POST CLOSING OBLIGATIONS...................................................................................23
7.1. COOPERATION IN POST-CLOSING REVIEW.................................................................23
7.2. FURTHER COOPERATION................................................................................23
7.3. NOTIFICATION.......................................................................................24
7.4. RULE 144 REPORTING.................................................................................24
8. INDEMNIFICATION.........................................................................................24
8.1 INDEMNIFICATION....................................................................................24
8.2 PROCEDURES.........................................................................................25
8.3 COOPERATION........................................................................................26
9 MISCELLANEOUS..............................................................................................26
9.1 EXPENSES...........................................................................................26
9.2 NOTICES AND LEGAL PROCESS..........................................................................26
9.3 DISCLOSURE.........................................................................................27
9.4 COUNTERPARTS.......................................................................................27
9.5 WAIVER AND AMENDMENT...............................................................................27
9.6 ENTIRE AGREEMENT...................................................................................28
9.7 BINDING AGREEMENT..................................................................................28
9.8 GOVERNING LAW, VENUE AND ATTORNEYS' FEES...........................................................28
9.9 SEVERABILITY; CONSTRUCTION.........................................................................28
STOCK PURCHASE AGREEMENT (the "Agreement") dated as of December 21, 2004 by
and among ADVANCED PHOTONIX, INC., a Delaware corporation (hereinafter referred
to as the "Purchaser") with its principal offices at 0000 Xxxxxxx Xxxxx,
Xxxxxxxxx, Xxxxxxxxxx 00000, and the STOCKHOLDERS (as set forth on Schedule 3.3,
and hereinafter collectively referred to as the "Sellers") of PHOTONIC
DETECTORS, INC., a California corporation with its principal offices located at
00-X Xxxx Xxxxxxx Xxxxxx, Xxxx Xxxxxx, Xxxxxxxxxx 00000 (the "Company").
R E C I T A L S:
A. The Company is in the business of the development, manufacture and
distribution of silicon photodiodes and silicon based photo detectors for the
original equipment manufacturer, commercial, military, aerospace, medical and
consumer markets.
B. The Sellers desire to sell their Ownership Interests (as hereinafter
defined) in the Company to Purchaser and Purchaser desires to purchase Sellers'
Ownership Interests from the Sellers on the terms and conditions herein set
forth.
Therefore, in consideration of the provisions and mutual covenants
contained herein, the Parties hereto hereby agree as follows:
1 DEFINITIONS.
--------------
1.1 Defined Terms. Except as otherwise defined herein, the capitalized
terms used in this Agreement have the meanings set forth in Schedule 1.1.
1.2 Other Definitional Provisions; Interpretation.
1.2.1 Unless otherwise specified therein, all terms defined in this
Agreement shall have the defined meanings when used in any certificate or
other agreement, instrument or document made or delivered pursuant hereto.
1.2.2 The words "hereof," "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as
a whole and not to any particular provision of this Agreement, and Section,
Exhibit and Schedule references are to this Agreement unless otherwise
specified.
1.2.3 The headings in this Agreement are included for convenience of
reference only and shall not in any way affect the meaning or
interpretation of this Agreement.
1.2.4 The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
2 PURCHASE AND SALE OF THE STOCK.
---------------------------------
2.1 Purchase and Sale. The Sellers hereby this day (the "Closing Date")
sell, assign, transfer and convey their Ownership Interests in the Company to
Purchaser or its assigns. In consideration therefore, Purchaser has this day
delivered to the Sellers the following Purchase Price (the "Purchase Price"):
2.1.1 Amounts specified beside each Seller's name on Schedule 2.1,
totaling an aggregate of $975,000 to be paid to the Sellers by certified or
bank check or by wire transfer of immediately available funds to the
accounts designated by Sellers in writing (the "Cash Consideration"),
subject to adjustment as set forth in Section 2.2 below, and subject to
terms of the Escrow Agreement;
2.1.2 At the Closing, the Purchaser shall cause its note payable by
the Company in the amount of $25,000 and guaranteed by the Sellers to be
converted into capital of the Company; and
2.1.3 The number of shares of Purchaser's Stock set forth beside each
Seller's name on Schedule 2.1, having a value in the aggregate of $125,000
based on the average closing price of the Purchaser's Stock during the ten
(10) Trading Days immediately preceding December 16, 2004 (the "Stock
Consideration"), to be delivered to each of the Sellers subject to the
terms of the Escrow Agreement.
2.2 Adjustment of the Purchase Price. The Purchase Price shall be subject
to adjustment by the amount (the "Adjustment Amount"), if any, that the Net
Working Capital of the Company as reflected in the Closing Balance Sheet is more
(or less) by an amount greater than $20,000 than the Net Working Capital as
reflected in the Interim Balance Sheet. Promptly after the Closing Date,
Purchaser's Independent Auditors shall perform a review of the financial
statements of the Company for the period beginning October 31, 2004 and ended
the Closing Date, including a balance sheet (the "Closing Balance Sheet"). The
Closing Balance sheet shall be prepared based on the same accounting principles,
assumptions and methodologies as those used to prepare the Interim Balance
Sheet. The Closing Balance Sheet shall be delivered to Sellers and Purchaser
within seventy-five (75) days after the Closing Date. Upon delivery of the
Closing Balance Sheet, the Purchase Price will be increased or decreased by the
Adjustment Amount. The Adjustment Amount shall be computed by subtracting
$92,795.44 (which the parties agree is the Net Working Capital of the Company as
at October 31, 2004 computed as set forth on Schedule 2.2(A) hereof) from the
Net Working Capital of the Company at Closing as shown on the Closing Balance
Sheet. In the event the Adjustment Amount is positive, the Purchase Price shall
be increased by the amount of the Adjustment Amount, and within fifteen (15)
days of the date of which the Closing Balance Sheet is delivered to Purchaser,
Purchaser will deliver the Adjustment Amount by certified or bank check or by
wire transfer of immediately available funds to the accounts designated by
Sellers in writing. In the event the Adjustment Amount is negative, the Purchase
Price shall be reduced by such amount and Escrow Agent will pay to Purchaser
such Adjustment Amount out of the Escrow Fund pursuant to the terms of the
Escrow Agreement. Payment shall be made first out of the cash portion of the
Escrow Fund and second out of the stock portion of the Escrow Fund to be valued
based on the average closing price for the Purchaser's Stock during the ten (10)
Trading Days immediately preceding the disbursement. After the adjustment of the
Purchase Price is complete, any remaining cash in the Escrow Fund will be
returned to Sellers in accordance with the terms of the Escrow Agreement and the
remaining Shares of the stock portion of the Escrow Fund will continue to be
held in escrow pursuant to the terms of the Escrow Agreement. Any adjustments
required in this Section will be subject to the dispute resolution procedures
set forth in Schedule 2.2(B) hereof. Notwithstanding the foregoing, in the event
the Adjustment Amount is less than $20,000, whether positive or negative, no
adjustment will be made to the Purchase Price pursuant to this section.
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2.3 Contingent Purchase Price.
2.3.1 During the five (5) Contract Years following the Closing Date
(the "Earn-Out Period"), at the times described below, Purchaser shall pay
to Seller an amount equal to 20% of Incremental Net Sales for (i) all sales
of PDI Products to the PDI Customer Base during the Earn-Out Period and
(ii) all Catalog Sales during the Earn-Out Period.
2.3.2 "Incremental Net Sales" shall mean:
(a) For the first Contract Year following the Closing Date, Net
Sales in excess of $2,400,000.
(b) For each subsequent Contract Year during the Earn-Out Period,
NetSales in excess of the greater of (1) $2,400,000 or (2) the highest
Net Sales during any prior Contract Year during the Earn-Out Period.
2.3.3 On or before the 30th day following each Contract Year,
Purchaser shall pay to Seller all amounts owed to Seller pursuant to this
Section 2.3 for sales during such preceding Contract Year. Purchaser shall
deliver to Seller with each such payment a written report stating in
reasonable detail Purchaser's calculations of such payment and related
information.
2.3.4 Purchaser shall maintain accurate books and records related to
the sale of the PDI Products to the PDI Customer Base and Catalog Sales
sufficient to calculate, and allow Seller to verify, the payments under
this Section 2.3. From time to time prior to the sixth anniversary of the
Closing Date, Seller shall have the right to review, and Purchaser shall
provide access to, such books and records to verify the accuracy of such
payments, provided that such reviews shall not occur more frequently than
once per calendar year. Each such review shall be (i) upon not less than 10
days' prior notice to Purchaser, (ii) conducted during normal business
hours, (iii) conducted by Seller's independent accounting firm and (iv)
conducted in a manner so as to not unreasonably interfere with Purchaser's
operations. If any such review accurately determines that additional
amounts are due to Seller, then Purchaser shall pay to Seller such
additional amounts within 15 days following Seller's notice to Purchaser
thereof. Seller shall bear the full cost and expense of each such review,
except if a discrepancy in Incremental Net Sales exists in favor of Seller
in excess of 10% for a period so reviewed (as compared to payments actually
made regarding such period), then Purchaser shall bear, and promptly pay to
Seller, the full cost and expense of such review. 1.1.1
2.3.5 In connection with the transaction, Xxxxxx Xxxxxx and Xxxxxx
Xxxxxxx shall enter into employment agreements with the Purchaser in the
form attached hereto as Exhibits 6.1.3 and 6.1.4. The expiration or earlier
termination of either of Messrs. Xxxxxx'x or Mattock's employment with the
Purchaser shall have no effect on the Contingent Purchase Price payable
pursuant to this section.
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2.3.6 For purposes of this section the following definitions apply:
(a) "Catalog Sales" means all online and telephone sales of PDI
Product through the catalog published by the Digi-Key Corporation its
replacement, successor in interest or assign.
(b) "Contract Year" means the 12 consecutive month period
commencing on the Closing Date or the Closing Date anniversary of each
year during the Earn-Out Period.
(c) "Net Sales" means the amount of gross revenue received by
Purchaser or any of its Affiliates regarding sales of PDI Product,
less the amount actually allowed by Purchaser or such Affiliate to
such third parties regarding the PDI Product for (A) normal and
customary credits and allowances for rejections or returns, (B) normal
and customary charges for transportation, shipping and handling and
insurance regarding such transportation, shipping and handling, in
each case to the extent included in gross revenue and (C) sales,
excise and similar taxes and any duties and other governmental charges
actually imposed upon sales (but excluding taxes in the nature of
income taxes), in each case to the extent included in gross revenue.
(d) "PDI Product" means Product within the Company's product line
listed on Schedule 2.3.5 as such product line exists on the Closing
Date (the "PDI Product").
(e) "PDI Customer Base" means customers that have purchased PDI
Products from the Company within the eighteen months immediately
preceding the Closing Date or who the Company actively solicited as a
prospective customer during the eighteen months immediately proceeding
the Closing Date as set forth on Schedule 2.3.5 or as may be agreed by
Purchaser and Sellers in writing following the date hereof.
2.4 Redemption of Xxxxx Shares. Purchaser shall deliver on behalf of the
Company in consideration for the redemption of the PDI Stock owned by Xx. Xxxxx
by the Company and in settlement of all claims by Xxxx Xxxxx against the Company
(i) funds in the amount of $75,000 by certified or bank check payable to Xx.
Xxxxx or by wire transfer of immediately available funds to the accounts
designated by Xx. Xxxxx in writing and (ii) Shares of Purchaser's Stock having a
value of $75,000 based on the average closing price of the Purchaser's Stock
during the ten (10) Trading Day period ending on December 16, 2004.
2.5 Escrow. At Closing, Sellers agree to deliver to the Escrow Agent, to
hold in escrow (a) Fifty Thousand Dollars ($50,000) representing the cash
portion of the Escrow Fund payable by check or wire transfer; and (b) the Stock
Consideration representing the stock portion of the Escrow Fund. The Escrow Fund
will be delivered by Seller to, and held in escrow by, the Escrow Agent, with
the Stock Consideration being held for a period of two years as security for the
indemnity obligations of Sellers set forth in Section 8 and with the Cash
Consideration being held for a period of 90 days as security for the payment of
the Closing Balance Sheet Adjustment under Section 2.2. The Escrow Fund will be
subject to the terms of an Escrow Agreement substantially in the form annexed
hereto as Exhibit 2.5 (the "Escrow Agreement").
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3 REPRESENTATIONS AND WARRANTIES OF SELLERS.
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In order to induce Purchaser to enter into this Agreement and to consummate
the transactions contemplated herein, the Sellers jointly and severally make
each of the representations and warranties set forth in this Article 3 as
follows:
3.1 Corporate Organization of the Company.
3.1.1 The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of California and has full
power and authority to carry on its business as it is now being conducted
and to own the properties and assets it now owns; the Company has qualified
as a foreign corporation in all jurisdictions in which the Company's
ownership or leasing of property or the conduct of its business requires
qualification as a foreign corporation as set forth on Schedule 3.1.1. The
copies of the Certificate of Incorporation and Bylaws of the Company
heretofore delivered to Purchaser are complete and correct copies of such
instruments as presently in effect.
3.1.2 Schedule 3.1.2 hereto sets forth the name, position and total
compensation of each officer and director of the Company, and the name,
position and total compensation for each other employee of or consultant to
the Company whose total compensation in the fiscal year ended March 31,
2004 was, or in the current fiscal year is expected to be, in excess of
$50,000.
3.2 Subsidiaries. The Company has no Subsidiaries.
3.3 Capitalization of Company. The authorized and outstanding capital of
the Company consists solely of the shares of common stock (the "PDI Stock")
listed on Schedule 3.3 hereof and the persons (the "Stockholders") set forth on
Schedule 3.3 hereof are the owners of the PDI Stock in the Company in the
percentages set forth after their respective names on Schedule 3.3 (the
"Ownership Interests") and, except as disclosed on Schedule 3.3, each has good,
valid and marketable title to the PDI Stock free and clear of all Liens or
claims whatsoever, with full power and authority to transfer and convey the
same. Except for the PDI Stock owned by Xxxx Xxxxx and Xxx Xxxxx to be redeemed
at the Closing pursuant to the Redemption and Termination Agreement and Release
attached hereto as Exhibit 6.1.8, no other person has any record or beneficial
equity interest in the Company of any kind. All of the outstanding PDI Stock in
the Company is validly issued, fully paid and nonassessable. There are no
outstanding (i) securities convertible into or exchangeable for any equity
interests in the Company; (ii) options, warrants, calls or other rights
(including conversion rights, preemptive rights or appreciation rights) with
respect to the issued and outstanding equity interests in the Company, or to
purchase or subscribe to any of the equity interests in the Company or
securities convertible into or exchangeable for equity interests in the Company;
or (iii) contracts, commitments, agreements, understandings or arrangements of
any kind relating to the issuance, sale, transfer, and/or assignment of any
equity interests in the Company, any convertible or exchangeable securities or
any such options, warrants or rights.
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3.4 Business Assets. All of the tangible assets used by the Company,
including, without limitation, all machinery, office and other equipment,
furniture, computers and related equipment, network and customer support
systems, business machines, telephone systems, parts and accessories, telephone
and facsimile numbers, Web sites, e-mail addresses, Internet domain names, and
IP addresses presently utilized by the Company, shall be referred to herein
collectively as the "Tangible Assets". Attached hereto as Schedule 3.4 is a true
and correct list or description of the Tangible Assets. The Tangible Assets
include all of the hardware, software (other than off-the-shelf software
licensed by the Company or the Subsidiary) and other equipment used to support,
maintain and service the customers of the Company. As of the Closing Date, each
of the Tangible Assets is in good and operable condition, normal wear and tear
excepted. Inventory items of Seller are disclosed on the detail descriptive
listing at Schedule 3.4, and that all inventory listed on the Schedule will be
of a quality and quantity that is usable or salable in the ordinary course of
business, consistent with past practice and not obsolete except as is consistent
with past practice.
3.5 Accounts Receivable.
3.5.1 The Company has made available to Purchaser a list of all
accounts receivable of the Company as of the Interim Balance Sheet Date,
together with an aging schedule indicating a range of days elapsed since
invoice.
3.5.2 All of the Company's accounts receivable arose in the ordinary
course of business, are carried at values determined in accordance with the
Company's historic accounting principles, assumptions and methodologies,
consistently applied, and are collectible except to the extent of reserves
therefor set forth in the Interim Balance Sheet or, for receivables arising
subsequent to Interim Balance Sheet Date, as reflected on the books and
records of the Company (which are prepared in accordance with Company's
historic accounting principles, assumptions and methodologies, consistently
applied). No person has any Lien on any of the Company's accounts
receivable and no request or, except as may be reflected on the Company's
books and records, agreement for deduction or discount has been made with
respect to any of the Company's accounts receivable.
3.6 No Violation. Neither the execution, delivery or performance of this
Agreement nor the consummation of the transactions contemplated hereby will
violate any provision of the Certificate of Incorporation or Bylaws or similar
documents of the Company or will (a) violate, or be in conflict with, or
constitute a breach or default (or an event which, with the giving of notice or
lapse of time or both, would constitute a default) under, or result in the
termination of, or acceleration of the performance required by, or cause the
acceleration of the maturity of any debt or obligation pursuant to, or result in
the creation or imposition of any security interest, Lien or other encumbrance
upon any property or assets of the Company under any Contractual Obligation to
which the Company or any of the Sellers is a party or by which the Company or
any of the Sellers is bound, or to which the property of the Company is subject;
or (b) violate any statute or law or any judgment, decree, order, regulation or
rule of any court or Governmental Authority to which the Company is subject.
3.7 Financial Statements. The Company has heretofore delivered to Purchaser
the Interim Balance Sheet, and the statements of income and cash flow for the
seven month period ended October 31, 2004. Except as otherwise disclosed to
Purchaser in writing, such balance sheets and notes thereto are true, complete
and accurate in all respects and fairly present in accordance with GAAP the
assets, liabilities and financial condition of the Company as at the respective
dates thereof and for the periods covered thereby, and all such statements of
income and statements of cash flow and the notes thereto are true, complete and
accurate in all respects and fairly present in accordance with GAAP the results
of operations for the periods therein referred to. Except as otherwise disclosed
to Purchaser in writing, all of the foregoing financial statements were prepared
in accordance with GAAP consistently applied throughout the periods involved
(except in the case of the Interim Balance Sheet to the extent subject to normal
year end adjustments).
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3.8 No Undisclosed Liabilities; Etc. Except as set forth on Schedule 3.8,
the Company has no liabilities or obligations of any nature (absolute, accrued,
contingent or otherwise) except for liabilities and obligations incurred in the
ordinary course of business and consistent with past practice since the Interim
Balance Sheet Date and except as set forth in this Agreement.
3.9 Absence of Certain Changes. Except as and to the extent set forth on
Schedule 3.9, from the Interim Balance Sheet Date through the date hereof, the
Company has not (except as contemplated by, or disclosed in, this Agreement):
3.9.1 conducted its business in other than the ordinary course
consistent with past practice;
3.9.2 instituted any new methods of purchase, sale, lease, management,
accounting or operation or engage in any transaction or activity, entered
into any agreement or made any commitment or amended any existing
agreement, except in the ordinary course of business and consistent with
past practice;
3.9.3 entered into or amended any employment agreement, entered into
any agreement with any labor union or association representing any employee
or entered into or amended any Plan or amended any certificate;
3.9.4 incurred any liabilities or obligations (absolute, accrued,
contingent or otherwise) except items incurred in the ordinary course of
business, or increased, or experienced any change in any assumptions
underlying or methods of calculating, any bad debt, contingency or other
reserves not in accordance with the Company's historic accounting
principles, assumptions and methodologies consistently applied or entered
into any lease or sublease of real property or exercised any purchase
options or rights of first refusal contained in any of the Leases (as
hereinafter defined) except in the ordinary course of business and
consistent with past practice;
3.9.5 paid, discharged or satisfied any claims, liabilities or
obligations (absolute, accrued, contingent or otherwise) other than the
payment, discharge or satisfaction in the ordinary course of business and
consistent with past practice of liabilities and obligations reflected on
or reserved against on the Interim Balance Sheet or incurred in the
ordinary course of business and consistent with past practice since the
Interim Balance Sheet Date;
3.9.6 permitted or allowed any property demised under the Leases or
assets (real, personal or mixed, tangible or intangible, including without
limitation, accounts receivable) to be subjected to any Lien, assignment,
restriction or charge of any kind, except for Liens for current taxes not
yet due;
3.9.7 entered into or consent to any amendment of, or sublease with
respect to the properties demised under the Leases except in the ordinary
course of business and consistent with past practice;
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3.9.8 written down the value of any inventory (including write-downs
by reason of shrinkage or xxxx-down) or written off as uncollectible any
notes or accounts receivable, except for immaterial write-downs and
write-offs in the ordinary course of business and consistent with past
practice;
3.9.9 canceled any debts or waived any claims or rights involving more
than $1,000;
3.9.10 sold, transferred, abandoned or otherwise disposed of any
properties or assets (real, personal or mixed, tangible or intangible,
including without limitation, accounts receivable or entered into any lease
(as lessor or lessee)) except as required by Section 3.4 or in the ordinary
course of business and consistent with past practice;
3.9.11 disposed of or permitted to lapse (except by its own terms) any
rights to the use of any existing patent, trademark, trade name or
copyright, or disposed of or disclosed (except as necessary in the conduct
of its business) to any person, other than representatives of Purchaser,
any trade secret, formula, process or know-how not theretofore a matter of
public knowledge;
3.9.12 granted or committed to grant any general increase in the
compensation of officers, directors or employees (including any such
increase pursuant to any bonus, pension, profit sharing or other plan or
commitment) or any increases in the compensation payable or to become
payable to any officer, director or employee, including payments or
commitments to pay severance or termination pay except increases granted in
the ordinary course of business consistent with past practices or pursuant
to existing agreements;
3.9.13 made any single capital expenditure or commitment in excess of
$5,000 for additions to property, plant, equipment or intangible capital
assets or made aggregate capital expenditures and commitments in excess of
$10,000 since the Interim Balance Sheet Date for additions to property,
plant, equipment or intangible capital assets;
3.9.14 declared, paid or set aside for payment any dividend or other
distribution in respect of its equity securities or redeemed, purchased or
otherwise acquired, directly or indirectly, any equity security of the
Company;
3.9.15 made any change in any method of accounting or accounting
practice except as required by GAAP;
3.9.16 paid, distributed, loaned or advanced any amount to, or sold,
transferred or leased any properties or assets (real, personal or mixed,
tangible or intangible, including without limitation, accounts receivable)
to, or entered into any agreement or arrangement with any Affiliates,
officers or directors of the Company, or any Affiliate or associate of any
officers or directors of the Company except for directors' fees, and
compensation to officers at rates not exceeding the rates of compensation
in effect during the period ended on the Interim Balance Sheet Date;
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3.9.17 entered into or amended any written contract or other agreement
pursuant to which it agrees to indemnify any party or to refrain from
competing with any party;
3.9.18 except for inventory, supplies or equipment acquired in the
ordinary course of business, made any acquisition of all or any part of the
assets, properties, capital stock or business of any other entity;
3.9.19 entered into any transaction other than in the ordinary course
of business;
3.9.20 terminated, surrendered, canceled or assigned any of its
properties demised under the Leases, or any part thereof, except in the
ordinary course of business consistent with past practice;
3.9.21 terminated any Plan or withdrawn from any Multiemployer Plan or
failed to notify the Purchaser of any "prohibited transaction", as such
term is defined in Section 4975 of the Internal Revenue Code; or
3.9.22 agreed, whether in writing or otherwise, to take any action
described in this Section.
3.10 Title to Properties; Encumbrances. The Company owns no real property.
3.11 Leases.
3.11.1 Schedule 3.11 hereto is an accurate and complete list of all
leases or rights of occupancy pursuant to which the Company leases or
subleases any real property or interest therein or personal property (the
"Leases"). A true and correct copy of each Lease has been delivered to
Purchaser together with all amendments and modifications thereto, and all
subordination, non-disturbance and/or attornment agreements related
thereto, and no changes have been made thereto since the date of delivery.
Each Lease is valid and in full force and effect. There are no existing
defaults under any provision of any Lease, and no event has occurred which
(with or without notice, lapse of time or both) would constitute a default
thereunder.
3.11.2 The Company is in actual possession of the properties demised
under the Leases and, except as shown on Schedule 3.11, has good and
indefeasible title to the leasehold estates conveyed under the Leases free
and clear of all title defects or objections, Liens, claims or charges of
any nature whatsoever, and are not, in the case of the properties demised
under the Leases, to the knowledge of Seller, subject to any rights of way,
building use restrictions, exceptions, variances, reservations or
limitations of any nature whatsoever except, (i) Liens shown on the Interim
Balance Sheet as securing specific liabilities or obligations or other
matters with respect to which no default exists, and (ii) Liens for taxes
not yet due and payable. No portion of any of the improvements erected by
and under the direction of the Company on the properties demised under the
Leases encroach on adjoining property or public streets and, to the
knowledge of the Company, no portion of any of the properties demised under
the Leases are, or have been, subjected to a special ad valorem tax
valuation such that a change in ownership or use (whether now existing or
in the future) has caused or will cause additional ad valorem taxes to be
imposed upon the properties demised under the Leases.
9
3.11.3 The basic rent and all additional rent payable under the Leases
have been paid to date. To the knowledge of Seller, except as set forth on
Schedule 3.11, all work required to be performed under the Leases by the
landlord thereunder or by the Company has been performed and to the extent
that the Company is responsible for payment of such work, has been fully
paid for, whether directly to the contractor performing such work or to
such landlord as reimbursement therefor except for items which the Company
is disputing in good faith.
3.11.4 There have been no casualties which could result in the
termination of any Lease or the application of any buy-out provisions
contained in any Lease relative to damage by casualty.
3.12 Customer and Supplier Relations.
3.12.1 Schedule 3.12 contains a complete list of all customers of the
Company's business who, during the past eighteen (18) months, have
purchased goods from the Company, including a separate notation of all
customers that accounted for more than ten percent (10%) of the Company's
sales in the next previous or current fiscal years; provided, however,
customers whose purchases from the Company in an eighteen-month period were
less than $5,000 in the aggregate shall not be included on Schedule 3.12.
Except as shown on Schedule 3.12, during the past eighteen (18) months none
of those customers has given written notice or, to the knowledge of any of
the Sellers, oral notice of intention to terminate their relationship with
the Company or, to decrease or delay, in any significant respect, its
purchases or usage of the Company's products. The Company is not required
to be approved or certified as a supplier for any of its customers
resulting from any formal application for an approval or certification
process required by a customer as a condition to conducting business with
it.
3.12.2 Schedule 3.12 also contains a complete list of all suppliers of
the Company's business in any one of the past twelve (12) months. Except as
shown on Schedule 3.12, during the past 12 months, no supplier (including
any supplier who is the Company's sole source of supply of any product or
service) has given written notice or to the knowledge of any of the
Sellers, oral notice of intention to terminate its relationship with the
Company, or to decrease or delay, in any significant respect, its sale of
products to the Company.
3.13 Patents, Trademarks, Trade Names, Etc.
3.13.1 Except as set forth on Schedule 3.13, the Company neither owns
nor licenses any patents, trademarks, trade names, service marks,
copyrights, or applications included in the Company's intellectual
property.
3.13.2 The Company owns or is licensed to use, in each case free and
clear of any Lien created by the Company, all patents, trademarks, trade
names, service marks, copyrights and applications for any of the foregoing,
together with all other technology, know-how, tangible or intangible
proprietary information or material and formulae that are used in the
business of the Company as currently conducted. 1.1.1
10
3.13.3 Except as disclosed in Schedule 3.13, the Company has received
no written notice of any claims by any person, (i) to the effect that the
manufacture, sale or use of any product or process as now used or offered
by the Company infringes on any patents, (ii) against the use by the
Company of any trademarks, trade names, technology, know-how or processes
used in the operation of the business of the Company as currently conducted
or presently contemplated, or (iii) challenging or questioning the validity
or effectiveness of any of the Company's intellectual property. The Company
has provided the Purchaser with a true and complete copy of each patent
that constitutes the Company's Intellectual Property and each license or
sublicense pursuant to which the Company is permitted to sell, distribute
or otherwise use the Company's Intellectual Property owned by third
parties.
3.14 Business Permits. Sellers have obtained all approvals, authorizations,
consents, licenses, franchises, orders, certificates or other permits of all
governmental or regulatory agencies, whether federal, state, local or foreign
(collectively, the "Approvals") necessary to the operations of the business as
presently conducted, including, without limitation, the constructions,
alterations, operation, use and occupancy of the properties demised under the
Leases or any part thereof, or any of the improvements thereon, including, but
not limited to the certificates of occupancy or the local equivalents, if any,
and certificates relating to fire and health approval. All such Approvals are in
full force and effect and good standing, neither Sellers nor the Company is in
default under any Approval and there exists no basis for the termination,
suspension or revocation of any such Approvals.
3.15 Tax Matters.
3.15.1 The Company has (i) filed or has caused to be filed all
federal, foreign, state and local sales, use, property, ad valorem,
franchise, income, gross receipts, capital gains or other tax returns and
statements which were required to be filed prior to the date hereof (the
"Tax Returns and Statements") on a timely basis in accordance with the
laws, regulations and administrative requirements of the appropriate
Governmental Authorities, and (ii) paid within the time and in the manner
prescribed by law all amounts of Taxes (as defined in Schedule 1.1) shown
on any Tax Returns and Statements, due for all periods ending on or prior
to the date hereof. All Tax Returns and Statements were, when filed, and
continue to be, complete and accurate in all respects, and there exist no
inaccuracies in the Tax Returns and Statements. Except as set forth on
Schedule 3.15, no tax assessments or deficiency has been made or proposed
against the Company nor has any notice been given of any actual or proposed
assessment or deficiency. Except as set forth on Schedule 3.15, the Tax
Returns and Statements are not presently the subject of any audit or other
administrative or court proceeding by any Governmental Authority. No
consents extending any applicable statute of limitations have been filed
and no Governmental Authority has made a written request for such a
consent.
3.15.2 The Company files Tax Returns and Statements with respect to
the income, capital gain, gross receipts or profits earned by it in
California and in no other states or localities.
11
3.15.3 The Company has withheld or collected and, to the extent
required, has paid to the appropriate Governmental Authority on a timely
basis, all Taxes that it was required to withhold, collect and pay,
including but not limited to Taxes pursuant to the Federal Insurance
Contribution Act, the Federal Unemployment Tax Act, and income Taxes
subject to withholding. There are no liens with respect to Taxes upon any
of the properties or assets, real or personal, tangible or intangible, of
the Company (except for Taxes not yet due).
3.15.4 No consent to the application of Section 341(f)(2) of the Code
has been filed with respect to any assets acquired by the Company.
3.15.5 No property owned by the Company is property as to which an
election was made under Section 168(f)(8) of the Internal Revenue Code of
1954, as amended and in effect immediately before the enactment of the Tax
Reform Act of 1986, or is "tax-exempt use property" within the meaning of
Section 168(h)(1) of the Code.
3.15.6 The Company: (i) has not agreed to or been required to make any
adjustment pursuant to Section 481(a) of the Code; (ii) has received no
written notice that the Internal Revenue Service has proposed any such
adjustment or change in accounting method; and (iii) does not have an
application pending with any Governmental Body requesting permission for
any change in accounting method.
3.15.7 The Company does not have in effect any tax elections under
Section 108, 168, 338, 441, 471, 1017, 1033 or 4977 of the Code, except
that the Company has elected under Section 471 of the Code to cost its
inventory at the lower of cost or market.
3.15.8 The Company is not a party (other than as an investor) to any
industrial development bond.
3.15.9 During the previous two fiscal years the Company has not
engaged in any exchange under which the gain realized on such exchange was
not recognized due to Section 1031 of the Code.
3.15.10 No written claim has ever been received from any Governmental
Authority representing any jurisdiction in which the Company does not file
Tax Returns that the Company is or may be subject to taxation by that
jurisdiction.
3.15.11 The Company is not and has not been a party to any tax sharing
or similar agreement or arrangement.
3.15.12 The Company has provided Purchaser with copies of: (i) all Tax
Returns and Statements of or with respect to the Company for the three year
period prior to the Closing Date; (ii) any written notices, protests, or
closing agreements relating to issues arising in any audit, litigation or
similar proceeding with respect to the liability for Taxes of the Company;
(iii) any elections or disclosures filed by or on behalf of the Company
with any taxing authority (whether or not filed with any Tax Returns and
Statements); and (iv) any letter, rulings, determination letters or similar
documents issued by any taxing authority with respect to the Company.
3.15.13 The Company is not a U.S. Real Property Holding Corporation
within the meaning of Section 897(c)(2) of the Code.
12
3.16 Transactions with Affiliates. Except as set forth on Schedule 3.16
hereto, no Affiliate, officer, director or employee of the Company has any
interest, directly or indirectly, in any lease, Lien, contract, license, loan or
other Agreement to which the Company is a party, or any interest in any
competitor, supplier or customer of the Company. Except as set forth on Schedule
3.16 hereto, the Company is not indebted, directly or indirectly, or to any
Affiliate for any liability or obligation, whether arising by reason of stock
ownership, contract, oral or written agreement or otherwise.
3.17 Contracts and Commitments. Schedule 3.17 hereto contains a complete,
current and correct list of all material contracts, commitments, obligations or
agreements of the Company (other than the Leases) whether written or oral (the
"Contracts"). For purposes of this Section 3.17 a contract which is "material"
shall mean a single contract, whether written or oral:
3.17.1 pursuant to which any party thereto is obligated to make annual
payments aggregating more than $10,000;
3.17.2 which constitutes an employment agreement or an agreement with
any union or member organization;
3.17.3 which is not subject to cancellation by the Company on not more
than thirty (30) days notice without penalty;
3.17.4 which constitutes a purchase or sale contract or commitment
which continues for a period of more than twelve (12) months;
3.17.5 which constitutes an agreement which restricts the Company from
carrying out its business anywhere in the world or from competing with any
other person;
3.17.6 which constitutes an agreement by the Company with any
Affiliate.
True, correct and complete copies of all written contracts described in
this Section 3.17 have been delivered to Purchaser. The Company is not in
default, nor does the Company have any knowledge of any factual circumstances
which can reasonably be expected to give rise to a claim of default under any
contract.
3.18 Compliance with Contracts. To the knowledge of the Sellers, each of
the Contracts and Leases is valid and in full force and effect. The Company is
not in default under any the Contracts or Leases and, to the knowledge of
Seller, no act or omission has occurred which, with notice or lapse of time or
both, would constitute a breach or default under any term or provision of any
such Contract or Lease and no party is in breach or default under any of the
Contracts or Leases, and no act or omission has occurred by any party which,
with notice or lapse of time or both, would constitute such a breach or default
under any term or provision thereof.
13
3.19 Insurance.
3.19.1 Schedule 3.19.1 contains a complete list of all policies of
fire, business interruption, liability, worker's compensation and other
forms of insurance owned or held by the Company. All such policies are in
full force and effect, all premiums with respect thereto covering all
periods up to and including the date hereof have been paid, and no notice
of cancellation or termination has been received with respect to any such
policy. Such policies are sufficient for compliance with all requirements
of law and of all of the Contracts and Leases; provide adequate insurance
coverage for the assets and operations of the Company in light of current
industry practice; will remain in full force and effect through the
respective dates set forth on Schedule 3.19.1. The Company has not been
unable to obtain any insurance with respect to its assets or operations,
nor has its coverage been limited by any insurance carrier to which it has
applied for any such insurance or with which it has carried insurance.
3.19.2 Schedule 3.19.2 sets forth a true and complete list of all
group insurance programs in effect for employees of the Company. The
Company is not in default with respect to any of its obligations with
respect to any such group insurance program.
3.20 Labor Relations. Except to the extent set forth on Schedule 3.20:
3.20.1 The Company is in compliance with all applicable federal, state
and local laws respecting employment and employment practices (including,
without limitation, the Fair Labor Standards Act and all matters related to
immigration or citizenship status), terms and conditions of employment and
wages and hours and is not engaged in any unfair labor practice;
3.20.2 there is no unfair labor practice charge or complaint against
the Company pending before the NLRB;
3.20.3 there is no labor strike, dispute, slowdown or stoppage
actually pending or threatened against or affecting the Company;
3.20.4 no representation question is pending before the NLRB exists
respecting the employees of the Company;
3.20.5 no grievance against the Company or the conduct of its
business, nor any arbitration proceeding arising out of or under collective
bargaining agreements is pending;
3.20.6 the Company is not a party to any collective bargaining
agreement;
3.20.7 the Company has never experienced any work stoppage or other
labor difficulty; and
3.20.8 the Company has not, and prior to the Closing Date will not
have, suffered a "plant closing" or "mass layoff" within the meaning of the
US Worker Adjustment and Retraining Notification Act.
14
3.21 Securities Act Compliance.
3.21.1 Each of the Sellers and Xxxx Xxxxx (collectively, the
"Holders") are acquiring the shares of Purchaser's Stock (the "Shares") for
his own account.
3.21.2 Each of the Holders understands that the offering and sale of
the Shares is intended to be exempt from registration under the Securities
Act by virtue of Section 4(2) of the Securities Act and under similar
provisions under the applicable state securities laws, and understands and
agrees that the Shares may not be sold, transferred, hypothecated or
pledged, except pursuant to an effective registration statement under the
Securities Act and under the applicable state securities laws or pursuant
to an available exemption under the registration requirements of the
Securities Act, including pursuant to Rule 144 under the Securities Act,
and under the applicable state securities laws, established to the
satisfaction of the Purchaser, and that the Purchaser is under no current
obligation to register the Shares or, except as set forth in Section 7.4,
to assist the Holders in complying with any exemption from the registration
thereof in connection with the sale or transfer of the Shares. Any
certificates representing Purchaser's Stock delivered as the Stock
Consideration will bear the usual and customary legend noting that
transferability of the Purchaser's Stock is subject to Securities Act
restriction.
3.21.3 Each of the Holders has all documents which he has requested
relating to the business, payments and financial condition of the
Purchaser, including Purchaser's current filings under the Exchange Act,
and understands that, to the extent that any information set forth in
material previously presented to it is inconsistent with the provisions of
this Agreement, the provisions of this Agreement shall prevail and
supersede such prior information.
3.21.4 Each of the Holders has been given the opportunity to obtain
such additional information as is necessary to verify the accuracy of the
information which was provided in order for him to evaluate the merits and
risks relating to a purchase of the Shares.
3.21.5 Each of the Holders has such knowledge and experience in
financial and business affairs that he or she is capable of evaluating the
merits and risks of a purchase of the Shares and has not relied in
connection with such purchase upon any representations, warranties or
agreements other than those set forth in this Agreement and in the
documents filed with the SEC by Purchaser pursuant to the Exchange Act and
delivered to the Holders.
3.21.6 Each of the following individuals is an "accredited investor"
within the meaning of Rule 501 of Regulation D under the Act as presently
in effect and each such individual shall deliver at Closing the Accredited
Investor Certificate in the form attached at Exhibit 6.1.9: Xx. Xxxxxx
Xxxxxx and Xxxxxx Xxxxxxx.
3.21.7 Legend. The Holders understand that each stock certificate
representing Shares of Purchaser's Stock to be delivered to the Holders
pursuant to this Agreement, in addition to any other legends required,
shall bear a legend in substantially the following form until such time as
the shares represented thereby are no longer subject to the provisions
hereof:
15
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or under
any state securities laws. Such shares have been acquired for
investment purposes only and not with a view to, or in connection
with, the sale or distribution thereof. These securities may not
be offered, sold, transferred or otherwise disposed of unless
registered under the Securities Act of 1933, as amended, and any
applicable state securities laws or an exemption from such
registration is available."
3.22 Litigation. Except as set forth on Schedule 3.22 hereto:
3.22.1 there is no claim, action, suit or arbitration proceeding,
before any federal, state, municipal, foreign or other court or
governmental or administrative body or agency, or any private arbitration
tribunal or any investigation or inquiry before any federal, state,
municipal, foreign or other court or governmental or administrative body
now pending, relating to or affecting the Company or any director, officer,
agent or employee thereof in his capacity as such, or the assets,
properties or business of the Company, or the transactions contemplated by
this Agreement, nor has the Company received written notice of any threat
to institute such a proceeding;
3.22.2 there is not in effect any order, judgment or decree of any
court or governmental or administrative body enjoining, barring,
suspending, prohibiting or otherwise limiting the Company or any officer,
director, employee or agent of the Company from conducting or engaging in
any aspect of its business, or requiring the Company or any officer,
director, employee or agent of the Company to take certain action with
respect to any aspect of the its business;
3.22.3 the Company is not in violation of or default under any order,
judgment, writ, injunction or decree of any court or regulatory authority;
and
3.22.4 none of the matters identified on Schedule 3.22 have had or
could reasonably be anticipated to have a material adverse effect.
3.23 No Condemnation or Expropriation. Neither properties demised under the
Leases, or any portion thereof or any other assets of the Company are subject to
any governmental decree or order to be sold of which the Company has received
notice or are being condemned, expropriated or otherwise taken by any public
authority with or without payment of compensation therefor, nor, to the
knowledge of the Company, has any such condemnation, expropriation or taking
been proposed.
3.24 Compliance with Law; Foreign Corrupt Practices Act. The operation of
the Company have been conducted in accordance with all applicable laws,
regulations and other requirements of all national governmental authorities, and
of all states, municipalities and other political subdivisions and agencies
thereof, having jurisdiction over the Company, including, without limitation,
all such laws, regulations and requirements relating to antitrust, consumer
protection, equal opportunity, discrimination on the basis of race, national
origin, sex, age, immigration, health, occupational safety, plant closing,
pension, requirements of any Board of Fire Underwriters or similar body,
Environmental Laws or toxic waste laws. The Company has never received any
notification of any asserted present or past failure by the Company to comply
with such laws, rules or regulations.
16
The Company (including any of its officers or directors) has not taken any
action which would cause it to be in violation of the Foreign Corrupt Practices
Act of 1977, as amended, or any rules or regulations thereunder.
3.25 Environmental Protection. Except as set forth on Schedule 3.25:
3.25.1 None of the properties demised under the Leases or real
property previously owned or leased by the Company (which shall mean the
Company, any subsidiaries of the Company and all corporation or other
business entities substantially all of the capital stock or other interest
of which, or all or substantially all of the assets of which, the Company
has acquired) has been used at any time during which the Company owned or
leased such real property, or otherwise has been in possession or control
of such real property or leased property, and, to the knowledge of the
Company, none of the properties demised under the Leases or any real
property previously owned or leased by the Company was used at any time
prior to the time such company owned, leased, possessed or controlled such
real property or leased property (i) as a site for the disposal or storage
of Hazardous Materials, or (ii) so as (x) to cause a violation or (y) to
give rise to a removal or restoration obligation or liability for the costs
of removal or restoration by others or a material for damages to others
under, any Environmental Law or under the regulations of any Governmental
Authority having jurisdiction over any of such real property. The Company
has complied and is in compliance with all applicable Environmental Laws.
3.25.2 The Company has obtained and is in compliance with all
environmental permits, licenses and other authorizations which are required
with respect to the operation of its business. As to any such permit,
license or other authorization which has or is about to expire, the Company
has timely applied for renewal thereof under Environmental Laws.
3.25.3 There is no civil, criminal or administrative action, suit,
demand, claim, hearing, notice of violation, investigation, proceeding,
notice or demand letter pending or, to the knowledge of Seller, threatened
against the Company relating in any way to the Environmental Laws or any
regulation, code, plan, order, decree, judgment, injunction, notice or
demand letter issued, entered, promulgated or approved thereunder.
3.25.4 No release, spill, seepage, leak or emission has occurred to
the knowledge of the Company on the properties demised under the Leases or
on any real property previously owned or leased by the Company during the
time of the Company's ownership or possession.
3.25.5 There are no underground storage tanks located on any of the
properties demised under the Leases, nor to the knowledge of the Company
have there been any underground storage tanks removed from any real
property owned or leased by any company during the period such real
property was owned or leased by the Company, except to the extent that such
underground storage tanks were removed in compliance with all applicable
laws or required by applicable laws, ordinances, rules and regulations,
and, to the extent such removal was performed upon notice and with the
approval of, and the inspection and confirmation of closure as to such
removal was performed by, all applicable governmental agencies having
jurisdiction.
17
3.25.6 The Company has delivered to Purchaser true, correct and
complete copies or results of any reports inspections, safety procedures,
logs, data, contracts, invoices, studies or tests initiated by the Company
or landlords or by any Governmental Authority which are in the possession
of the Company pertaining to Hazardous Materials, at any part of the
properties demised under the Leases or the Company with respect to the
business, any of the Company's predecessors or concerning compliance with
or liability under Environmental Laws and other environmental matters in
the operation of the business and such properties.
3.26 Employee Benefit Plans.
3.26.1 Schedule 3.26 hereto contains a complete list of "Plans" of the
Company consisting of each: 1.1.1
(a) "multiemployer pension plan," as defined in Section 3(37) of
ERISA, to which the Company (or any entity that is treated as a single
employer with the Company under Section 414(b), (c), (m) or (o) of the
Code ("Common Control Entity") contributes or is required to
contribute, or with respect to which any of the Company or a Common
Control Entity has any liability (the foregoing plans and any
additional multiemployer pension plan to which the Company or any
Common Control Entity has previously contributed or been required to
contribute at any time after September 25, 1980 (the "Multiemployer
Plans");
(b) "employee welfare benefit plan," as defined in Section 3(l)
of ERISA, sponsored or maintained by the Company or any Common Control
Entity, or to which the Company or any Common Control Entity
contributes or is required to contribute, including each multiemployer
welfare plan ("Welfare Plan");
(c) "employee pension benefit plan," as defined in Section 3(2)
of ERISA (other than a Multiemployer Plan), sponsored or maintained by
the Company or any Common Control Entity or to which the Company or
any Common Control Entity contributes or is required to contribute
("Pension Plan"); and
(d) any other bonus, deferred or incentive compensation, pension,
profit-sharing, retirement, stock purchase, stock grant, stock option,
disability, sick pay, salary continuation, cafeteria, flexible
spending account, dependent care assistance, or any other fringe
benefit plan, arrangement or practices, other than normal payroll
practices and policies concerning holidays and vacations, sponsored or
maintained by the Company, whether formal or informal (collectively,
"Employment Plans").
3.26.2 There are no "accumulated funding deficiencies," as defined in
Section 302(a)(2) of ERISA and Section 412 of the Code, whether or not
waived, with respect to any of the Pension Plans.
18
3.26.3 The Interim Balance Sheet reflects an accrual of all accrued
but unpaid contributions to any Pension Plan, a Multiemployer Plan, and an
accrual of all amounts accrued but unpaid under the Welfare Plans and the
Employment Plans, all as of the Balance Sheet Date.
3.26.4 Each Pension Plan and each related trust agreement, annuity
contract, or other funding instrument, is qualified and tax exempt under
the provisions of Sections 401(a) (or 403(a) as appropriate) and 501(a) of
the Internal Revenue Code ("Code"), and a determination letter has been
received from the Internal Revenue Service as to such qualified status.
3.26.5 Each Pension Plan, Welfare Plan and Employment Plan complies in
all respects with all applicable laws (including to the extent applicable,
without limitation, the Code and ERISA) and is operated in accordance with
its terms.
3.26.6 Each of the Company and any Common Control Entity has paid all
premiums (and interest charges and penalties for late payment, if
applicable), due heretofore to the PBGC with respect to each Pension Plan.
Except as described on Schedule 3.26, there has been no "reportable event",
as defined in Section 4043(b) of ERISA and the PBGC regulations under that
Section, with respect to any Pension Plan as to which notice has not been
waived under applicable PBGC under PBGC regulations. No liability to the
PBGC has been incurred by the Company or any Common Control Entity, on
account of the termination of any Pension Plan. The PBGC has not instituted
proceedings to terminate any Pension Plan and to the knowledge of Seller,
there exists no condition or set of circumstances which could reasonably be
expected to present a significant risk of the termination of any Pension
Plan by the PBGC.
3.26.7 Except as set forth on Schedule 3.26, none of the Company nor
any Common Control Entity has withdrawn from a Multiemployer Plan in a
"complete withdrawal" or a "partial withdrawal" as defined in Sections 4203
and 4205 of ERISA, respectively.
3.26.8 True and complete copies of each of the following documents
have been delivered by the Company to the Purchaser: (i) each Welfare Plan,
each Pension Plan and each Multiemployer Plan, related trust agreements,
annuity contracts, or other funding instruments; (ii) each Employment Plan
and complete descriptions of any such plans that are not in writing; (iii)
the most recent determination letter issued by the Internal Revenue Service
with respect to each Pension Plan; (iv) Annual Reports on Form 5500 Series
required to be filed with any governmental agency for each Welfare Plan and
each Pension Plan for the two most recent plan years; and (v) all actuarial
reports prepared for the last two available plan years for each Pension
Plan.
3.26.9 Except as described on Schedule 3.26, neither the Company nor
any Welfare Plan or Employment Plan is obligated to make any payment of
post-retirement life, accidental death, medical or disability insurance
benefits of any type, excluding, for this purpose, the provisions of any
such benefit as a result of an individual's exercise of his or her health
care continuation rights under the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended, to or with respect to any former
employee of the Company.
3.27 Brokers and Finders. Neither the Sellers nor the Company is party to
any agreement with any person that would obligate the Purchaser to pay any
brokerage fee, commission, finder's fees or investment banking fee in connection
with the transactions contemplated by this Agreement.
19
3.28 Consents. Except as set forth in this Agreement, the consummation of
the transactions contemplated hereby in respect of the Company and the
fulfillment of the terms of this Agreement in respect of the Company do not
require the consent, approval, filing with, registration or release of any
governmental authority or any other Person including, without limitation, any
Person who is a party to a contract or a lease.
3.29 Books and Records. Sellers have maintained complete and correct copies
of: (a) the Certificate of Incorporation and Bylaws and all amendments thereto;
and (b) the equity ownership records of the Company. Minutes or other records of
the meetings and other proceedings of the members and directors of the Company
have not been maintained except to the extent heretofore delivered to Purchaser.
3.30 Management Disclosure. Sellers (i) have never been charged with,
convicted of, or pled guilty or nolo contendere to, a misdemeanor, felony or
crime of moral turpitude, (ii) have never sought relief under any federal or
state bankruptcy or insolvency law, and (iii) are not currently involved in any
litigation as a defendant or as a party subject to counterclaims, nor is any
such litigation threatened.
3.31 Representations Complete. None of the representations or warranties
made by the Company or the Sellers (as modified by the Schedules) in this
Agreement, and none of the statements made in any exhibit, schedule or
certificate furnished by the Company or the Sellers pursuant to this Agreement
contains any untrue statement of a material fact, or omits to state any material
fact necessary in order to make the statements contained herein or therein, in
the light of the circumstances under which made, not misleading.
4 REPRESENTATIONS AND WARRANTIES OF PURCHASER.
----------------------------------------------
In order to induce Sellers to enter into this Agreement and to consummate
the transactions contemplated herein, the Purchaser represents and warrants to
the Sellers as follows:
4.1 Corporate Organizations; Etc. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware.
4.2 Authorization, Etc.. This Agreement and each agreement, document and
instrument required to be delivered by Purchaser at the Closing have been duly
and validly authorized by all necessary corporate action of Purchaser full
corporate power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The issuance of the Shares of Purchaser's
Stock constituting the Stock Consideration has been duly and validly authorized
by all necessary corporate action of Purchaser. This Agreement is the valid and
binding agreement of Purchaser enforceable against Purchaser in accordance with
its terms.
20
4.3 No Violation. Neither the execution, delivery or performance of this
Agreement nor the consummation of the transactions contemplated hereby will
violate any provision of the Certificate of Incorporation or By-Laws or similar
corporate documents of Purchaser or will (a) violate, or be in conflict with, or
constitute a breach or default (or an event which, with the giving of notice or
lapse of time or both, would constitute a default) under, or result in the
termination of, or acceleration of the performance required by, or cause the
acceleration of the maturity of any debt or obligation pursuant to, or result in
the creation or imposition of any security interest, lien or other encumbrance
upon any property or assets of Purchaser or any subsidiary of Purchaser under
any Contractual Obligation to which Purchaser or any subsidiary of Purchaser is
a party or by which Purchaser or any subsidiary of Purchaser is bound, or to
which the property of Purchaser or any subsidiary of Purchaser is subject; or
(b) violate any statute or law or any judgment, decree, order, regulation or
rule of any court or Governmental Authority to which Purchaser is subjects.
4.4 Approvals of Governmental Authorities. No action, consent, approval or
authorization of or declaration, filing or registration with any person or
entity, including without limitation, any Governmental Authority is required to
be obtained or made by or on behalf of Purchaser in connection with the
execution, delivery and performance by the Purchaser of this Agreement or the
consummation of the transactions contemplated hereby in respect of the
Purchaser.
4.5 True and Complete. None of the documents filed by the Purchaser under
the Exchange Act and delivered to the Company (which are listed on Schedule 4.5)
contained any untrue statement of a material fact or omits to state a material
fact necessary to make the statements contained therein not misleading.
4.6 The Purchaser's Stock. The Shares of Purchaser's Stock, if any, to be
issued as the Stock Consideration hereunder, when issued and delivered in
accordance with the provisions of this Agreement, will be duly authorized,
validly issued shares of Purchaser's Stock and will be fully paid and
nonassessable.
4.7 Brokers and Finders. The Purchaser is not a party to any agreement with
any person or entity which would obligate the Company or the Sellers to pay any
commission, finder's fee, investment banking fee, or brokerage fee in connection
with the transactions contemplated by this Agreement.
5 NON-COMPETITION, NON-SOLICITATION AND NON-DISPARAGEMENT.
----------------------------------------------------------
5.1 Non-Competition. Xx. Xxxxxx Xxxxxx agrees that he will not for a period
of two (2) years from the Closing Date and Xxxxxx Xxxxxxx agrees that he will
not for a period of one (1) year from the Closing Date, without the prior
written approval of the Purchaser, directly or indirectly, whether as an owner,
partner, member, employee, officer, director or stockholder (other than as the
owner of less than 5% of the stock of a corporation registered under the
Securities and Exchange Act of 1934, as amended), or in any other capacity,
engage in any business activity competitive with the business of the Company,
which is the development, manufacture, distribution and commercialization of
optoelectronic products (a "Competing Activity"), or (ii) enter into any
agreement or arrangement by means of which either Seller agrees to assist, or in
any other manner facilitate another Person in engaging in a Competing Activity,
or the supplying of products or furnishing of services to another Person engaged
in a Competing Activity. Purchasers acknowledge and agree that a breach of this
Section by one of the Sellers individually shall not be the basis for a claim by
the Purchaser against the non-breaching Seller and that Purchaser's redress
shall be limited to the breaching Seller.
21
5.2 Non-Solicitation. Each Seller agrees that he will not for a period of
five (5) years from the Closing Date, directly or indirectly solicit, induce,
encourage or attempt to influence any employee, client, customer, salesman or
supplier of the Company or the Purchaser to cease to do business with or to
terminate his employment with the Company or the Purchaser, and shall not
utilize for any such purposes any names and addresses of customers or clients of
the Company or the Purchaser or any data on or relating to past, present or
prospective customers or clients of the Company or the Purchaser.
5.3 Reasonableness of Non-Competition and Non-Solicitation. Sellers
acknowledge and agree that their agreement not to compete and not to solicit is
an incentive for Purchaser to purchase their Ownership Interests pursuant to the
terms of this Agreement, and that the non-compete and non-solicitation
obligations imposed on each Seller are reasonable in scope and time, thus such
obligations do not impose restrictions which are not necessary to preserve and
protect the Commercial Activities of the Company and of Purchaser.
5.4 Non-Disparagement. The Sellers shall not disparage the Company or any
of the Company's partners, shareholders, directors, officers, employees, agents
or affiliates.
5.5 Enforcement of Non-Competition and Non-Solicitation. If a final
judgment of a court or tribunal of competent jurisdiction determines that any
term or provision contained in this Article 5 is invalid or unenforceable, then
the parties agree that the court or tribunal will have the power to reduce the
scope, duration or geographic area of the term or provision, to delete specific
words or phrases or to replace any invalid or unenforceable term or provision
that is valid and enforceable that comes closest to expressing the intention of
the invalid or unenforceable term or provision. This Article 5 will be
enforceable as so modified after the expiration of the time within which the
judgment may be appealed. This Article 5 is reasonable and necessary to protect
and preserve the Purchaser's legitimate business interests and the value of the
Company and to prevent any unfair advantage conferred on Seller.
6 DOCUMENTS DELIVERED AT CLOSING.
---------------------------------
6.1 The Sellers Obligations. On the date hereof, Seller has delivered to
Purchaser or to Purchaser's designee:
6.1.1 the Company's Books and Records including: (i) its minute books
containing all records required to be set forth of all proceedings,
consents, actions and meetings of the shareholders and Board of Directors;
(ii) all permits, orders, and consents issued by any governmental authority
with respect to the Company, and all applications for such permits, orders,
and consents; and (iii) its transfer books setting forth all transfers of
any shares of stock;
6.1.2 the duly executed consents and approvals from all third parties,
including, without limitation, the Landlord consents (which consents shall
not be conditioned on any increased rental, other payment, reduced term, or
other change of Lease terms and shall be in form and substance reasonably
satisfactory to the Purchaser) and customary estoppel certificates, in
substantially the form of Exhibit 6.1.2 hereof, duly executed on behalf of
the Company and the Landlord;
22
6.1.3 the Employment Agreement between Xxxxxx Xxxxxx and the
Purchaser, in substantially the form of Exhibit 6.1.3, duly executed by Xx.
Xxxxxx with all parties acknowledging that the execution thereof is a
material part of Xx. Xxxxxx'x consenting to this Agreement;
6.1.4 the Employment Agreement of Xxxxxx Xxxxxxx, substantially in the
form of Exhibit 6.1.4, duly executed by Xx. Xxxxxxx with all parties
acknowledging that the execution thereof is a material part of Xx.
Xxxxxxx'x consenting to this Agreement;
6.1.5 releases from Xx. Xxxxxx, Xxxxx Xxxxxx, Xx. Xxxxxxx and Xx.
Xxxxxx Xxxxxxx to the Purchaser, in substantially the form of Exhibit
6.1.5;
6.1.6 stock certificates representing all of the PDI Stock owned by
Sellers, Xxxx Xxxxx and Xxx Xxxxx with duly executed stock powers attached;
6.1.7 the Escrow Agreement in the form attached hereto as Exhibit 2.5
duly executed by the Sellers and the Escrow Agent;
6.1.8 the Redemption and Termination Agreement and Release attached
hereto as Exhibit 6.1.8 duly executed by Xxxx Xxxxx, Xxx Xxxxx and the
Company;
6.1.9 the Accredited Investor Certificates of Xx. Xxxxxx and Xx.
Xxxxxxx; and
6.1.10 the Escrow Fund will be delivered to the Escrow Agent.
6.2 Obligations of the Purchaser. At the Closing, and against delivery of
each of the items required to be delivered by the Company under Section 6.1
above, Purchaser shall deliver the following.
6.2.1 the Purchase Price;
6.2.2 the Employment Agreements in substantially the form annexed as
Exhibits 6.1.3 and 6.1.4, duly executed on behalf of Purchaser; and 1.1.1
6.2.3 the Escrow Agreement in the form attached hereto as Exhibit 2.5,
duly executed on behalf of the Purchaser.
7 POST CLOSING OBLIGATIONS.
---------------------------
7.1 Cooperation in Post-Closing Review. The Company and the Sellers will
provide all cooperation reasonably requested to assist Purchaser's Independent
Auditor in completing its post-closing Review of the Company's financial
statements.
7.2 Further Cooperation. Each of the Company and the Purchaser will, at any
time and from time to time after the Closing Date, execute and deliver such
further instruments of conveyance, transfer and license, and take such
additional actions as the Purchaser or the Company or their respective
successors and/or assigns may reasonably request, to effect, consummate, confirm
or evidence the sale of the Ownership Interests and the other transactions
contemplated by this Agreement.
23
7.3 Notification. The Company will reasonably cooperate with the Purchaser
in notifying its customers that its business has been sold to the Purchaser,
including, without limitation, executing any additional notices which the
Purchaser may reasonably request. The Company will not, directly or indirectly,
take any action which is designed or intended to have the effect of discouraging
customers, suppliers or vendors and other business associates of its business
from maintaining the same business relationship with the Purchaser or its
respective successors and/or assigns after the Closing Dates as were maintained
with the Company with respect to such business prior to the Closing Date.
7.4 Rule 144 Reporting. With a view to making available the benefits of
Rule 144 to the Holders, the Purchaser shall:
7.4.1 Make and keep available public information, as those terms are
understood and defined in Rule 144, at all times during which the Purchaser
is subject to the reporting requirements of the 1933 Act or the 1934 Act;
7.4.2 File with the SEC in a timely manner all reports and other
documents required by the SEC to be filed by the Purchaser as a condition
to the availability of an exemption under Rule 144 for the sale of Shares;
and
7.4.3 Provide each Holder, promptly upon request, with such
information as such Holder may reasonably request to avail itself of any
rule or regulation of the SEC allowing a Holder to sell any Shares without
registration.
8 INDEMNIFICATION.
------------------
8.1 Indemnification. The Sellers, jointly and severally, shall defend,
indemnify and hold Purchaser, its Affiliates and their directors, officers,
employees and agents (the "Indemnified Buyers") harmless from and against any
and all claims, demands, damages, liabilities, losses, costs and expenses
(including attorneys' fees and expenses and costs of investigation, including,
without limitation, fees and disbursements of counsel incurred by the
Indemnified Buyers in any action or proceeding between the Indemnitor and the
Indemnified Buyers or Indemnified Buyers and any third party) of any kind or
nature whatsoever (collectively, the "Losses") that may be asserted by anyone
against the any Indemnified Buyer, or sustained or suffered by any Indemnified
Buyer based upon or related to a breach of any representation, warranty,
covenant or Agreement made by the Sellers or the Company in this Agreement or in
any exhibit, schedule, or certificate delivered thereunder. The obligations of
the Sellers under this Section 8.1 shall survive the Closing for two (2) years
following the Closing Date except that the obligation to indemnify against
losses incurred by reason of a misrepresentation of the representations
contained in Sections 3.1 (relating to the corporate organization of the
Company), 3.3 (relating to the Seller's sole ownership of all equity interests
in the Company) and 3.24 (relating to environmental matters) shall survive in
perpetuity, and 3.14 (Tax Matters) shall survive until any action by the
respective taxing authorities is barred by the relevant statute of limitations.
24
8.2 Procedures.
8.2.1 Claims. A party entitled to indemnification hereunder (together
with its Affiliates, designees, nominees, successors and assigns, an
"Indemnified Party") shall notify the indemnifying party ("Indemnitor") and
the Escrow Agent of any claim of such Indemnified Party for indemnification
under this Agreement within thirty (30) days of the date on which an
executive officer of such Indemnified Party first becomes aware of the
existence of such claim. Such notice shall specify the nature of such claim
in reasonable detail and the Indemnitor shall be given reasonable access to
any documents or properties within the control of the Indemnified Party as
may be useful in the investigation of the basis for the claim.
8.2.2 Third Party Claims.
(a) In the event any Indemnified Party is entitled to
indemnification hereunder based upon a claim asserted by a third
party, the Indemnitor shall be given prompt notice thereof, in
reasonable detail. The Indemnitor shall have the right (without
prejudice to the right of any Indemnified Party to participate at its
expense through counsel of its own choosing) undertake, conduct,
control, at its expense and through counsel of its own choosing
(subject to the consent of the Indemnified Party, which consent shall
not be unreasonably withheld) the settlement or defense of such claim
by giving written notice of its intention to do so not later than
twenty (20) days following notice of such claim by the Indemnified
Party, or such shorter time period as required so that the interests
of the Indemnified Party would not be materially prejudiced as a
result of its failure to have received such notice; provided, however,
that if the defendants in any action shall include both an Indemnitor
and an Indemnified Party, the Indemnified Party shall have the right
to select separate counsel to participate in the defense of such
action on its behalf, at the expense of the Indemnitor.
(b) The Indemnified Party shall be entitled to recover from the
Indemnitor, on a monthly basis, all reasonable attorney's fees and
other costs and expenses incurred in the defense of such claim and the
Indemnified Party shall have the right to contest, settle or
compromise any claims in the exercise of its sole discretion at the
expense of the Indemnitor. The Indemnified Party shall, however,
notify the Indemnitor in writing of any settlement or compromise of
such claim at least fifteen (15) days prior to any proposed settlement
or compromise.
(c) If the Indemnitor assumes the defense of any such claim, the
Indemnitor will promptly reimburse the Indemnified Party for the full
amount of any loss resulting from such claim incurred by the
Indemnified Party as determined by a Court of competent jurisdiction
by authorizing the Escrow Agent to deliver shares of Purchasers Stock
to the Indemnified Party. For purposes of this Article 8, the value of
Purchaser's Stock shall be calculated based on the average closing
price of the Purchaser's Class A Shares of Common Stock on the
American Stock Exchange for the ten (10) Trading Days preceding the
date on which payment for the Claim is made. So long as the Indemnitor
is reasonably contesting any such claim in good faith, the Indemnified
Party shall not pay or settle any such claim provided that in the
event of any such payment of settlement, the Indemnified Party shall
waive any right to indemnity by the Indemnitor.
25
8.3 Cooperation. The Indemnitor and Indemnified Party shall cooperate in
furnishing evidence and testimony and in any other manner which the other may
reasonably request, and shall in all other respects have an obligation of good
faith dealing, one to the other, so as not to unreasonably expose the other to
an undue risk of loss. The Indemnified Party shall be entitled to reimbursement
for out-of-pocket expenses reasonably incurred by it in connection with such
cooperation. Except for fees and expenses for which indemnification is provided
pursuant to Article 8.2.2 hereof, as the case may be, and as provided in the
preceding sentence, each party shall bear its own fees and expenses incurred
pursuant to this Section 8.3.
9 MISCELLANEOUS.
----------------
9.1 Expenses. Except as otherwise provided herein, the parties hereto shall
each bear its own expenses in connection with the transactions contemplated by
this Agreement, including the fees of attorneys, accountants, advisors, brokers,
investment bankers and other representatives.
9.2 Notices and Legal Process. All notices and other communications and
legal process shall be in writing and shall be personally delivered, transmitted
by facsimile, or transmitted by postage prepaid, registered or certified mail
with return receipt requested or by recognized courier service, as elected by
the party giving such notice, addressed as follows:
(a) If to the Sellers:
Xx. Xxxxxx Xxxxxx and Xxxxx Xxxxxx
0000 Xxxxxxx Xxxxx
Xxxx Xxxxxx, Xxxxxxxxxx 00000
Fax: (000) 000-0000
Xxxxxx Xxxxxxx
000 Xxxxxxxxxx Xxxxxx
Xxxx Xxxxxx, Xxxxxxxxxx 00000
Xxxxxx Xxxxxxx
0000 Xxxxx Xxxxxx
Xxxx Xxxxxx, Xxxxxxxxxx 00000
With copies to:
The Law Offices of Xxx Xxxxxx Xxxxxxx
00000 Xxxxxxxx Xxxxxx Xxxxx
Xxxxx 000
Xxxxxxxxxx, Xxxxxxxxxx 00000
Attn: Xxx Xxxxxxx, Esq.
Fax: (000) 000-0000
26
(b) If to the Purchaser:
Advanced Photonix, Inc.
305 County YZ
X.X. Xxx 000
Xxxxxxxxxx, Xxxxxxxxx 00000
Attn: Xxxx X. Xxxxxx, President
Fax: (000) 000-0000
With copies to:
Advanced Photonix, Inc.
0000 Xxxxxxx Xxxxx
Xxxxxxxxx, Xxxxxxxxxx 00000
Attn: Xxxxxxx X. Xxxxx, Chief Executive Officer
Fax: (000) 000-0000
-and-
Dornbush Xxxxxxxxx Xxxxxxxx & Xxxxxxxxx, LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attn: Xxxxxx Xxxxxxxx, Esq.
Fax: (000) 000-0000
All notices and other communications hereunder shall be in writing and addressed
to as set forth above and shall be deemed to have been duly given (i) on the
date sent if delivered by hand (or the next business day if sent after 5:00 p.m.
on a business day or on a weekend or holiday), (ii) within three days of the
date mailed if sent by registered or certified mail, postage prepaid, return
receipt requested, (iii) or the next business day when given by prepaid courier
delivery services such as Federal Express, DHL or other similar services, (iv)
or when given by facsimile transmission upon receipt by sender of confirmed
answer-back. Any party hereto may change its address for purpose hereof by
notice to the other parties hereto.
9.3 Disclosure. Each party shall provide the other a reasonable opportunity
for consultation with respect to the text of any press release announcing the
execution of this Agreement or the transactions contemplated hereby.
9.4 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but such counterparts together
shall constitute one and the same instrument.
9.5 Waiver and Amendment. The parties may by written instrument extend the
time for the performance of any of the obligations or other acts of the other
hereunder and may waive (i) any inaccuracies of the other in the representations
or warranties contained in this Agreement or in any document delivered pursuant
hereto, (ii) compliance with any of the covenants, undertakings or agreements of
the other, or satisfaction of any of the conditions to its or their obligations,
contained in this Agreement or (iii) the performance (including performance to
the satisfaction of a party or its counsel) by the other of any of its or their
obligations set out herein. Any waiver, amendment or supplement hereof shall be
in writing signed by the party against whom enforcement is sought.
27
9.6 Entire Agreement. Unless otherwise specifically agreed in writing, this
Agreement and the Schedules and Exhibits hereto and the other agreements
anticipated hereby represent the entire understanding of the parties with
reference to the transactions set forth herein and supersede all prior
representations, warranties, understandings and agreements heretofore made by
the parties, and neither this Agreement nor any provisions hereof may be
amended, waived, modified or discharged except by an Agreement in writing signed
by the party against whom the enforcement of any amendment, waiver, change or
discharge is sought.
9.7 Binding Agreement. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs, successors and
permitted assigns except that no party may assign or transfer its rights or
obligation xxxxxx this Agreement without the prior written consent of the other
parties to this Agreement.
9.8 Governing Law, Venue and Attorneys' Fees. The interpretation and
enforceability of this Agreement shall be governed by and construed in
accordance with the internal laws of the State of Delaware without reference to
the conflicts of laws provisions thereof. Each of the parties and Xxxx Xxxxx and
Xxx Xxxxx hereby submit to the nonexclusive jurisdiction of the United States
District Court for the Central District of California and of any California
State court sitting in the County of Ventura, for purposes of all legal
proceedings arising out of or relating to this Agreement and the transactions
contemplated hereby. In the event of any action at law or suit in equity in
relation to this Agreement, the prevailing party in each action or suit shall be
entitled to receive its attorneys' fees and all other costs and expenses of each
suit or action.
9.9 Severability; Construction. In the event any provision hereof is
determined to be invalid or unenforceable, the remaining provisions hereof shall
be deemed severable therefrom and shall remain in full force and effect. Words
and phrases defined in the plural shall also be used in the singular and vice
versa and be construed in the plural or singular as appropriate and apparent in
the context used. Unless otherwise specifically provided herein, accounting
terms shall be given and assigned their usual meaning and effect as defined or
used in GAAP.
[SIGNATURE PAGE FOLLOWS]
28
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written:
PURCHASER
ADVANCED PHOTONIX, INC.
By: /s/Xxxxxxx X. Xxxxx
--------------------------------------------
Xxxxxxx X. Xxxxx, Chief Executive Officer
By: /s/Xxxx X. Xxxxxx
--------------------------------------------
Xxxx X. Xxxxxx, President
SELLERS
/s/Xxxxxx Xxxxxx
--------------------------------------------
Xxxxxx Xxxxxx
SELLERS
/s/ Xxxxx Xxxxxx
--------------------------------------------
Xxxxx Xxxxxx
SELLERS
/s/ Xxxxxx Xxxxxxx
--------------------------------------------
Xxxxxx Xxxxxxx
SELLERS
/s/ Xxxxxx Xxxxxxx
--------------------------------------------
Xxxxxx Xxxxxxx
AGREED AND ACCEPTED WITH RESPECT TO
SECTIONS 3.21 AND ARTICLE 9:
/s/Xxxx Xxxxx
---------------------------------------
Xxxx Xxxxx
/s/ Xxx Xxxxx
---------------------------------------
Xxx Xxxxx
EXHIBIT LIST
2.5 Escrow Agreement
6.1.2 Landlord Consent and Estoppel
6.1.3 Employment Agreement for Xx. Xxxxxx Xxxxxx
6.1.4 Employment Agreement for Xxxxxx Xxxxxxx
6.1.5 Releases of Xx. Xxxxxx Xxxxxx, Xxxxx Xxxxxx, Xxxxxx Xxxxxxx and Xxxxxx Xxxxxxx
6.1.8 Redemption and Termination Agreement and Release from Xxxx Xxxxx and Xxx Xxxxx
6.1.9 Accredited Investor Certifications of Xxxxxx Xxxxxx and Xxxxxx Xxxxxxx
SCHEDULES
1.1 Definitions
2.1 Cash Consideration and Stock Consideration
2.2(A) Computation of the Company's Net Working Capital at October 31, 2004
2.2(B) Certain Matters Relating to Dispute Resolution of Adjustment Amount
2.3.5 PDI Product Line and PDI Customer Base
3.1.1 Foreign Qualification of the Company
3.1.2 Officers and Directors of the Company
3.3 Stockholders of the Company
3.4 Business Assets and Inventory
3.8 Obligations Not Disclosed on Interim Balance Sheet
3.9 Certain Changes
3.11 Leases
3.12 Customers and Suppliers
3.13 Intellectual Property
3.15 Taxes, Assessments and Deficiencies
3.16 Transactions with Affiliates
3.17 Contracts and Commitments
3.19.1 Insurance Policies
3.19.2 Group Insurance Policies
3.20 Labor Matters
3.22 Litigation
3.25 Environmental Matters
3.26 Employee Benefit Plans
6.1.2 Required Consents
SCHEDULE 1.1
DEFINED TERMS
-------------
As used in this Agreement, the following terms should have the following
meanings:
"Adjustment Amount" shall have the meaning set forth in Section 2.2 hereof.
"Affiliate" means, as to any Person, a Person controlling, controlled by or
under common control with such Person.
"Agreement" means this Agreement, as amended, supplemented or otherwise
modified from time to
time.
"Anniversary" means the first anniversary of the Effective Date as set
forth in Section 2.2.2.
"Approvals" has the meaning set forth in Section 3.14.
"Business Day" means a day of the year on which banks are not permitted or
authorized to close in New York City.
"CERCLA" means the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended.
"Closing Balance Sheet" shall mean the balance sheet of the assets and
liabilities acquired by Purchaser as anticipated hereby, as of the Closing Date,
and as reviewed by Purchaser's Independent Auditor pursuant to Section 2.2
hereof.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and the regulations and rulings issued thereunder.
"Common Control Entity" has the meaning set forth in Section 3.26.1.
"Company's Financial Statements" has the meaning set forth in Section 3.7.
"Company's Interim Financial Statements" has the meaning set forth in
Section 3.7.
"Company's Independent Auditor" means Xxxxxx & Xxxx, LLP.
"Contracts" has the meaning set forth in Section 3.18.
"Contractual Obligation" means as to any Person, any provision of any
agreement, instrument or other undertaking to which such Person is a party or by
which it or any of its property is bound.
"Effective Date" means the date upon which the Effective Time occurs.
"Effective Time" means the time at which the Closing is completed.
"Employment Plans" has the meaning set forth in Section 3.26.1.
"Environmental Laws" means any and all federal, state, local or municipal
laws, rules, orders, regulations, statutes, judgments, decrees, orders, consent
agreements, (including common laws), licenses, rules or regulations pertaining
to environmental protection, health or safety matters, including without
limitation those arising under the Resource Conservation and Recovery Act, as
amended, CERCLA, the Superfund Amendments and Reauthorization Act of 1986, as
amended, Water Act, as amended, the Federal Clean Air Act, as amended, the Toxic
Substances Control act, those relating to the disposition of hazardous
materials, or any state or local analogue.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations and rulings issued thereunder.
"Escrow Agent" means American Escrow Company in its capacity as Escrow
agent.
"Escrow Agreement" means the Escrow Agreement, in substantially the form
annexed as Exhibit 2.5, to be entered into at Closing among Purchaser, the
Company and the Escrow Agent, pursuant to Section 6.1.5 hereof.
"Escrow Fund" means the $50,000 to be delivered by Seller to the Escrow
Agent at the Closing pursuant to Escrow Agreement attached hereto as Exhibit 2.5
and the Stock Consideration to be delivered by Purchaser to the Escrow Agent at
the Closing pursuant to the Escrow Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"GAAP" means generally accepted accounting principles in the United States
of America in effect from time to time.
"Governmental Authority" means any nation, state, county, local or other
governmental authority or any political subdivision thereof and any federal,
state, county, local or foreign entity or body exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Hazardous Materials" means any (i) "hazardous substance," "waste,"
"pollutants," or "contaminant" (as defined in Sections 101(14),(33) of the
CERCLA or the regulations issued pursuant to Section 102 of CERCLA and found at
40 C.F.R. `302), including any element, compound, mixture, solutions, or
substance that is or may be designated pursuant to Section 102 of CERCLA; (ii)
substance that is or may be designated pursuant to Section 311(b)(2)(A) of the
Federal Water Pollution Control Act, as amended (33 U.S.C. "1251, 1321(b)(2)(A)
("FWPCA"); (iii) hazardous waste having the characteristics identified under or
listed pursuant to Section 3001 of the Resource Conservation and Recovery Act,
as amended (42 U.S.C. " 6901, 6921) ("RCRA"); (iv) substance containing
petroleum, as that term is defined in Section 9001(8) of RCRA; (v) toxic
pollutant that is or may be listed under Section 307(a) of FWPCA; (vi) hazardous
air pollutant that is or may be listed under Section 112 of the Clean Air Act,
as amended (42 U.S.C. " 7401, 7412); (vii) asbestos, asbestos-containing
material, or urea formaldehyde or material that contains it; and (viii) waste
oil and other petroleum products.
2
"Holders" has the meaning set forth in Section 3.21.1.
"Interim Balance Sheet" means the unaudited balance sheets of the Company
for the seven month period ended October 31, 2004 previously delivered to
Purchaser pursuant to Section 3.6.
"Interim Balance Sheet Date" means October 31, 2004.
"Inventory" means all inventory owned by the Company, whether on order from
the Company's suppliers, raw materials, work-in-process, finished products or in
process of being delivered to the Company's customers (Purchaser acknowledges
that the Company has advised it does not have title to inventory being
delivered.)
"IRS" means the Internal Revenue Service.
"Landlords" means the parties signatory as Landlords to the Leases.
"Leases" has the meaning set forth in Section 3.11.
"Lien" means any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), or preference, priority or
other security interest or agreement or preferential arrangement of any kind or
nature whatsoever (including, without limitation, any conditional sale or other
title retention agreement, any financing lease having substantially the same
economic effect as any of the foregoing, and the filing of any financing
statement under the Uniform Commercial Code or comparable law of any
jurisdiction in respect of any of the foregoing).
"Multiemployer Plans" has the meaning set forth in Section 3.26.1.
"Net Working Capital of the Company" means on the Closing Date, the amount
by which Current Assets of the Company exceeds Current Liabilities of the
Company as at the date on which such computation is made. The terms "Current
Assets" and "Current Liabilities" shall have the meanings generally ascribed to
them as applied to the financial statements consistent with past practices
reflected in the historical financial statements of the Company, and all
computations to be made hereunder shall be made in accordance with the Company's
historic accounting principles, assumptions and methodologies consistently
applied, and shall include a reasonable allowance for normal year-end
adjustments, if any, on a basis consistent with the historical practices of the
Company "Current Assets."
"NLRB" means the U.S. National Labor Relations Board.
"Ownership Interests" has the meaning set forth in Section 3.3.
"PBGC" means the Pension Benefit Guaranty Corporation.
3
"PDI Stock" has the meaning set forth in Section 3.3.
"Pension Plan" has the meaning set forth in Section 3.26.1.
"Person" means an individual, partnership, corporation, limited liability
company, business trust, joint stock company, trust, unincorporated association,
joint venture, Governmental Authority or other entity of whatever nature.
"Plans" has the meaning set forth in Section 3.26.1.
"Purchaser's Independent Auditors" shall mean Xxxxxx & Xxxx, LLP, certified
public accountants or such other firm of certified public accountants as the
Purchaser may designate.
"Purchaser's Stock" means the Class A Common Stock of Purchaser, par value
$.001.
"Requirement of Law" means as to any Person, any law, treaty, rule or
regulation or determination of an arbitrator or a court or other Governmental
Authority, in each case applicable to or binding upon such Person or any of its
property or to which such Person or any of its property is subject.
"Rule 144" means Rule 144, promulgated under the Securities Act, as in
effect at the date
hereof.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Sellers" are the record and beneficial owners of all equity interests (as
members or otherwise) in the Company as set forth on Schedule 3.3.
"Shares" means the shares of Purchaser's Stock, if any, delivered as the
Stock Consideration.
"Subsidiary" means any Person of which shares of stock or other ownership
interests having ordinary voting power (other than stock having such power only
by reason of the happening of a contingency) to elect a majority of the board of
directors or other managers of such Person are at the time owned, or the
management of which is otherwise controlled, directly or indirectly through one
or more intermediaries.
"Tangible Property" means as to any Person, the plant, machinery,
equipment, leasehold improvements, vehicles, and structures of such Person and
related capitalized items and other tangible property used in the business of
such Person.
"Taxes" shall mean all foreign, federal, state, county, local and other
taxes, levies, impositions, deductions, charges and withholdings, including,
without limitation, income or franchise taxes or other taxes imposed on or with
respect to net income or capital gain, gross receipts, profits, sales, use,
occupation, value added, ad valorem, transfer, withholding, payroll, employment,
excise or property taxes, and shall include any interest, penalties or additions
thereto.
4
"Tax Returns and Statements" has the meaning set forth in Section 3.15.1.
"Trading Day" means a day on which the Purchaser's Stock is actually traded
on the American Stock Exchange.
"Welfare Plan" has the meaning set forth in Section 3.26.1.
5
SCHEDULE 2.1
CASH CONSIDERATION
------------------
Stockholder Ownership Percentage Amount of Cash Consideration
----------- -------------------- ----------------------------
Xxxxxx Xxxxxx 76.93% $750,067.50
Xxxxxx Xxxxxxx 23.07% $224,932.50
STOCK CONSIDERATION
-------------------
Stockholder Ownership Percentage Amount of Stock Consideration
----------- -------------------- -----------------------------
Xxxxxx Xxxxxx 76.93% $96,162.50
Xxxxxx Xxxxxxx 23.07% $28,837.50
SCHEDULE 2.2(A)
COMPUTATION OF THE COMPANY'S NET WORKING CAPITAL
AT OCTOBER 31, 2004
Balances are from the Interim Financial Statements provided to the Purchaser.
Total Current Assets $289,815.75
Total Current Liabilities $197,020.31
-----------
Net Working Capital $ 92,795.44
============
SCHEDULE 2.2(B)
CERTAIN MATTERS RELATING TO
DISPUTE RESOLUTION OF ADJUSTMENT AMOUNT
---------------------------------------
Section 2.2 of the Agreement provides that the "Adjustment Amount" be
computed from the review by the Purchaser's Independent Auditor of the financial
statements as at the Closing Date which review shall be completed within
seventy-five (75) days after the Closing, and that any payments required by said
Section 2.2, either from the Purchaser to the Company or from the Company to the
Purchaser, be made within fifteen (15) business days after such computation is
completed.
The foregoing, notwithstanding, the Sellers shall have the right, to be
exercised by written notice to the Purchaser prior to the expiration of such
fifteen (15) business day period, to extend such period for payment for an
additional fifteen (15) days to permit an auditor chosen by Sellers (the
"Seller's Independent Auditor") to review such computation (including the
components of such audited balance sheet) to determine whether it concurs or
disagrees with the amount of the Adjustment Amount so computed.
In the event the Sellers and the Seller's Independent Auditor disagree with
the computation of the Adjustment Amount, they shall so notify the Purchaser, in
writing, within such fifteen (15) day period. In such case, the Sellers and the
Purchaser, and their respective Independent Auditors, shall endeavor in good
faith to reconcile or compromise their differences and agree to an Adjustment
Amount.
In the event the Purchaser and the Sellers, and their respective
Independent Auditors, fail to reach agreement on the Adjustment Amount within
such second fifteen (15) day period, a third firm of independent certified
public accountants shall be selected by agreement between the Seller's
Independent Auditor and Purchaser's Independent Auditor to act as arbitrator of
the dispute. Such arbitrator shall be instructed to deliver its decision within
thirty (30) days of the time the matter has been presented to it.
Each party shall bear its own costs in the foregoing procedure, including
the fees of its respective Independent Auditor; provided, however, that in the
event the arbitration provisions of the preceding paragraph are invoked, the
party losing such arbitration will be responsible for all costs of the
arbitrator, including all fees of the arbitrator and all fees and expenses of
the other party's Independent Auditor in conducting such arbitration proceeding.
