AGREEMENT OF PURCHASE
AND SALE
DATED AS OF OCTOBER 1, 1998
BY AND BETWEEN
XXXX INDUSTRIES, INC.
AND
ARROW ELECTRONICS, INC.
TABLE OF CONTENTS
Page
1. Purchase and Sale of the Business 1
(a) Assets Transferred 1
(b) Excluded Assets 4
(c) Assumed Liabilities 5
(d) Retained Liabilities 7
2. Purchase Price 9
(a) Calculation of Purchase Price 9
(b) Closing Payments 9
(c) Allocation 9
(d) Distribution of Payments 10
3. Audited Balance Sheet; Adjustment to the Estimated Purchase
Price 11
4. Closing 12
5. Obligations of Seller and Purchaser at Closing; Further
Assurances 12
6. Representations and Warranties of Seller 13
(a) Organization, Standing and Qualification 13
(b) The Electronics Components Distribution Business 14
(c) Execution, Delivery and Performance of Agreement;
Authority 14
(d) Ownership and Capitalization 15
(e) Financial Statements 15
(f) Absence of Undisclosed Liabilities 16
(g) Absence of Changes or Events 17
(h) Litigation 18
(i) Compliance with Laws and Other Instruments 18
(j) Title to Properties 19
(k) Contracts 20
(l) Patents, etc. 21
(m) Employee Benefit Plans 21
(n) Taxes 22
(o) Proxy Statement 23
(p) Affiliate Transactions 24
(q) Inventory; Accounts Receivable 24
(r) Rights of Return 25
(s) Insurance 25
(t) Environmental Matters 25
(u) Determination of Taxability 27
(v) Vote Required 27
(w) Article SEVEN of Seller's Articles of Incorporation Not
Applicable 27
(x) Subsidiary Ownership of Real Property 28
(y) Proxies 28
(z) Labor Matters 28
(aa) Supplier Audits 28
(bb) Trading Practices; Ethical Standards 28
(cc) Value-Added Business 28
7. Purchaser's Representations and Warranties 29
(a) Organization and Standing 29
(b) Execution, Delivery and Performance of Agreement 29
(c) Information to be Included in the Definitive Proxy
Statement 29
(d) Litigation 29
(e) Ownership of Seller Common Stock 30
8. Certain Agreements 30
(a) Observance of Operations of the Business 30
(b) Maintain Business 30
(c) Approval of Shareholders; Proxy Statement 31
(d) Insurance 32
(e) Hiring of Employees 33
(f) Tax Matters 33
(g) Option Agreement 34
(h) Transition Services 34
9. Certain Covenants of Seller 35
(a) Obtain Consents 35
(b) Accomplish Sale 35
(c) Cooperate with Purchaser 35
(d) No Solicitation 35
(e) Access to Information 36
(f) Employee Benefits Plan 36
(g) Xxxx-Xxxxx Compliance 36
(h) Elimination of Intercompany Indebtedness 37
(i) Delivery of Documents 37
(j) Resignations of Directors 37
(k) Real Property 37
(l) Canadian Antitrust Compliance 38
(m) Security Deposits 38
(n) Delivery of Books and Records, etc.; Removal of
Property 38
(o) Noncompetition 38
(p) Takeover Statutes 39
(q) Declaration of Distribution 39
(r) Use of Name 40
10. Certain Covenants of Purchaser 40
(a) Obtain Consents 40
(b) Accomplish Sale 40
(c) Cooperate with Seller 40
(d) Xxxx-Xxxxx Compliance 40
(e) Employee Benefits and Employee Benefit Plans 40
(f) Required Documents 41
(g) Canadian Antitrust Compliance 41
(h) License of Xxxx Name 41
11. Conditions Precedent to Purchaser's Obligations 41
12. Conditions Precedent to Seller's Obligations 43
13. Indemnification 43
(a) Indemnification and Reimbursement of Purchaser 43
(b) Indemnification and Reimbursement of Seller 44
(c) Defense of Claims by Third Parties 44
(d) Notice of Other Claims; Non-Waiver 45
(e) Threshold 45
(f) Exclusive Remedy 45
14. Commission and Finder's Fees 45
15. Survival of Representations and Warranties 45
16. Expenses 46
17. Termination 46
18. Notices 47
19. Entire Agreement, Amendments and Certain Other Matters 47
20. Assignment 48
21. Counterparts 48
22. Effectiveness 48
23. Consent to Jurisdiction and Governing Law 48
24. Severability 48
LIST OF EXHIBITS AND SCHEDULES
Exhibit A Valuation Principles
Exhibit B General Assignment and Xxxx of Sale
Exhibit C Assumption Agreement
Exhibit D Trademark License Agreement
Exhibit E Certificate of Non-Foreign Status
Exhibit F Opinion of Counsel to Seller
Exhibit G Opinion of Counsel to Purchaser
Exhibit H Stock Option Agreement
Schedule 1(a)(i) Real Property
Schedule 1(a)(ii)(A) Real Property Leases (Seller as Lessor or Sublessor)
Schedule 1(a)(ii)(B) Real Property Leases (Seller as Lessee or Sublessee)
Schedule 1(a)(v) Tangible Personal Property
Schedule 1(a)(vi)(A) Personal Property Leases (Seller as Lessor or Sublessor)
Schedule 1(a)(vi)(B) Personal Property Leases (Seller as Lessee or Sublessee)
Schedule 1(a)(viii) Prepaid Expenses
Schedule 1(a)(ix) Intangible Personal Property
Schedule 1(a)(x) Business Licenses
Schedule 1(a)(xi) Vehicles
Schedule 1(a)(xiv) Business Litigation
Schedule 1(a)(xv) Acquired Subsidiaries
Schedule 1(b)(vii) Excluded Contracts and Inventory
Schedule 1(b)(viii) Excluded Real Estate
Schedule 1(b)(ix) Remaining Businesses
Schedule 1(c)(ii) Accounts Payable
Schedule 1(c)(v) Accrued Expenses
Schedule 1(c)(x) Ontario Warehouse Agreements
Schedule 1(c)(xii) Employment Agreements
Schedule 1(d)(i) Certain Indebtedness
Schedule 1(d)(vi) Retained Litigation Liabilities
Schedule 3(d) Terminated Lines
Schedule 6(b) Shared Facilities or Services
Schedule 6(c)(i) Conflicting Contracts - Seller
Schedule 6(c)(ii) Merger/Consolidation Conflicts
Schedule 6(d)(ii) Capitalization of Subsidiaries
Schedule 6(e)(ii) Exceptions to Financial Statements
Schedule 6(f) Certain Liabilities
Schedule 6(g) Material Changes Since June Balance Sheet
Schedule 6(g)(vi) Contractual Commitments to Employees
Schedule 6(h) Litigation
Schedule 6(j)(i) Exceptions to Good Title (Tangible Personal Property)
Schedule 6(j)(ii)(B) Exceptions to Good Title (Real Property)
Schedule 6(j)(ii)(C) Defaults under Real Property Lease
Schedule 6(j)(ii)(E) Tenant's Purchase Rights
Schedule 6(j)(ii)(F) Exceptions to Condition of Improvements
Schedule 6(k) Contracts and Material Defaults
Schedule 6(l) Exceptions to Patents
Schedule 6(n) Tax Filing Exceptions
Schedule 6(p) Affiliate Agreements
Schedule 6(q)(i) Inventory Exceptions
Schedule 6(q)(ii) Accounts Receivable Exceptions
Schedule 6(r) Inventory - Subject to a Right of Return
Schedule 6(s) Seller's Insurance Policies
Schedule 6(t) Environmental Matters
Schedule 6(y) Proxies
Schedule 6(z) Labor Matters
Schedule 6(aa) Supplier Audits
Schedule 7(b) Conflicting Contracts - Purchaser
Schedule 10(e)(i) Exceptions to Employees
Schedule 11(i) Ontario Warehouse Consents
AGREEMENT OF PURCHASE AND SALE
AGREEMENT dated as of October 1, 1998 (the "Agreement") by and between XXXX
INDUSTRIES, INC., a California corporation having its principal office at 0000
Xxxx Xx Xxxxxxx Xxxxxxxxx, Xx Xxxxxxx, Xxxxxxxxxx 00000 ("Seller") and ARROW
ELECTRONICS, INC., a New York corporation having its principal office at 00 Xxx
Xxxxx, Xxxxxxxx, Xxx Xxxx 00000 ("Purchaser").
RECITALS
Seller is engaged, among other things, in the distribution of
electronic components, including primarily semiconductors, passive components,
connectors and power supplies and board-level products, and the provision of
value-added services, including primarily kitting, turnkey, SMART (automated
replenishment system), assembly of custom cables, harnesses and connectors,
contract purchasing and direct programming of chips (collectively, the
"Business"). Purchaser wishes to purchase and acquire from Seller the Business
(but specifically excluding the other businesses conducted by Seller). Seller
will sell, transfer and assign to Purchaser, and Purchaser will purchase and
acquire from Seller, the assets, and assume the liabilities of the Business for
the consideration and on the terms and conditions hereinafter set forth.
Simultaneously with the execution and delivery of this Agreement, Seller and
Purchaser have entered into a stock option agreement in the form of Exhibit H
(the "Option Agreement").
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, the parties hereby agree as follows:
1. Purchase and Sale of the Business.
(a) Assets Transferred. On the terms and subject to the conditions set forth in
this Agreement, Seller will, or will cause its subsidiaries to, sell, transfer,
convey, assign and deliver to Purchaser, and Purchaser will purchase and pay
for, at the Closing, all of Seller's, or its applicable subsidiary's, right,
title and interest in, to and under the following Assets and Properties of
Seller (or its subsidiaries) used or held for use in connection with the
Business (except as otherwise provided in Section 1(a)(xvi)), as the same shall
exist on the Closing Date (the "Assets"):
(i) Real Property. The real property set forth on Schedule
1(a)(i), and all of the rights arising out of the ownership thereof or
appurtenant thereto (the "Real Property"), together with all buildings,
structures, facilities, fixtures and other improvements thereto (the
"Improvements");
(ii) Real Property Leases. Subject to Section 5(c), (A) the leases
and subleases of real property set forth on Schedule 1(a)(ii)(A) as to which
Seller (and its applicable subsidiaries) is the lessor or sublessor and (B) the
leases and subleases of real property set forth on Schedule 1(a)(ii)(B) as to
which Seller (and its applicable subsidiaries) is the lessee or sublessee, other
than such leases and subleases involving annual rental payments of less than
$75,000 individually or $500,000 in the aggregate (which shall be included in
the updated Schedule 1(a)(ii)(B) to be redelivered to Purchaser within thirty
(30) days after the date hereof), together with any options to purchase the
underlying property and leasehold improvements thereon, and in each case all
other rights, subleases, licenses, permits, deposits and profits appurtenant to
or related to such leases and subleases (the leases and subleases described in
subclauses (A) and (B), the "Real Property Leases");
(iii) Inventory. All inventories of raw materials, work-in-process,
finished goods, products under research and development, demonstration
equipment, office and other supplies, parts, packaging materials and other
accessories related thereto which are held at, or are in transit from or to, the
locations at which the Business is conducted, or located at customers' premises
on consignment or at the premises of third party processors, in each case, which
are used or held for use by Seller (or its applicable subsidiaries) in the
conduct of the Business, including any of the foregoing purchased subject to any
conditional sales or title retention agreement in favor of any other Person,
together with all rights of Seller (or its applicable subsidiaries) against
suppliers of such inventories (the "Inventory");
(iv) Accounts Receivable. All trade accounts receivable and all
notes, bonds and other evidences of indebtedness of and rights to receive
payments arising out of sales occurring in the conduct of the Business, and any
security arrangements and collateral securing the repayment or other
satisfaction thereof or related thereto, including any rights of Seller (or its
applicable subsidiaries) with respect to any third party collection procedures
or any other actions, suits, proceedings, arbitrations, or Governmental Entity
investigation or audit which have been commenced in connection therewith (the
"Accounts Receivable");
(v) Tangible Personal Property. All furniture, fixtures,
equipment, machinery and other tangible personal property (other than Inventory
and Vehicles) used or held for use in the conduct of the Business at the
locations at which the Business is conducted or at customers' premises on
consignment, or otherwise used or held for use by Seller (or its applicable
subsidiaries) in the conduct of the Business (including but not limited to the
items set forth on Schedule 1(a)(v), including any of the foregoing purchased
subject to any conditional sales or title retention agreement in favor of any
other Person (the "Tangible Personal Property"));
(vi) Personal Property Leases. Subject to Section 5(c), (A) the
leases or subleases of Tangible Personal Property including but not limited to
the items set forth on Schedule 1(a)(vi)(A) as to which Seller (or any of its
applicable subsidiaries) is the lessor or sublessor (which Schedule shall be
updated and redelivered to Purchaser within five (5) days prior to the Closing
Date) and (B) the leases of Tangible Personal Property including but not limited
to the items set forth on Schedule 1(a)(vi)(B) as to which Seller (or its
applicable subsidiaries) is the lessee or sublessee (which Schedule shall be
updated and redelivered to Purchaser within five (5) days prior to the Closing
Date), together with any options to purchase the underlying property (the leases
and subleases described in subclauses (A) and (B), the "Personal Property
Leases");
(vii) Business Contracts. Subject to Section 5(c), all contracts
(other than the Real Property Leases, the Personal Property Leases and the
Accounts Receivable) to which Seller (or any of its applicable subsidiaries) is
a party and which are utilized in the conduct of the Business, including without
limitation, contracts relating to suppliers, sales representatives,
distributors, purchase orders, marketing arrangements and manufacturing
arrangements (the "Business Contracts");
(viii) Prepaid Expenses. All prepaid expenses to the extent relating
to the Business, including but not limited to the items set forth on Schedule
1(a)(viii) (the "Prepaid Expenses"); provided, however, that the extent to which
any such Asset relates to the Remaining Businesses (as defined in Section
1(b)(ix)) shall be expressly noted on such Schedule and if not so noted shall be
an Asset;
(ix) Intangible Personal Property. All Intellectual Property to
the extent used or held for use in the conduct of the Business (including
Seller's or its applicable subsidiaries, goodwill therein) and all rights,
privileges, claims, causes of action and options relating or pertaining to the
Business or the Assets, including but not limited to the items set forth on
Schedule 1(a)(ix) (the "Intangible Personal Property"); provided, however, that
the extent to which any such Asset relates to the Remaining
Businesses shall be expressly noted on such Schedule and if not so noted shall
be an Asset;
(x) Licenses. To the extent their transfer is permitted under
applicable laws, rules and regulations and subject to Section 5(c), all licenses
(including applications therefor) to the extent utilized in the conduct of the
Business, including but not limited to the licenses set forth on Schedule
1(a)(x) (the "Business Licenses") (which Schedule shall be updated and
redelivered to Purchaser within thirty (30) days after the date hereof);
provided, however, that the extent to which any such Asset relates to the
Remaining Businesses shall be expressly noted on such Schedule and if not so
noted shall be an Asset;
(xi) Vehicles. All motor vehicles owned or leased by Seller (or
its applicable subsidiaries) and used or held for use in the conduct of the
Business, including but not limited to the vehicles set forth on Schedule
1(a)(xi) (the "Vehicles");
(xii) Security Deposits. All security deposits deposited by or on
behalf of Seller (or its applicable subsidiaries) as lessee or sublessee under
the Real Property Leases (the "Tenant Security Deposits");
(xiii) Books and Records. All Books and Records used or held for use
in the conduct of the Business or otherwise relating to the Assets, other than
the Excluded Books and Records (the "Business Books and Records");
(xiv) Litigation Claims. Any rights (including indemnification) and
claims and recoveries under litigation of Seller (or its applicable
subsidiaries) against third parties arising out of or relating to the Business
set forth on Schedule 1(a)(xiv) (the "Business Litigation");
(xv) Subsidiary Stock. All of the right, title and interest of
Seller in, to and under the issued and outstanding shares of capital stock (the
"Acquired Shares") of the subsidiaries of Seller set forth on Schedule 1(a)(xv)
(the "Subsidiaries");
(xvi) Tradenames and Logos. All of Seller's right, title and
interest in, to and under the names "Xxxx Industries", "Xxxx", "BI" and "Milgray
Electronics" and all derivatives thereof and all logos and typestyles used or
registered by Seller, and all goodwill associated therewith, whether or not used
or held for use in connection with the Business (the "Acquired Names"); and
(xvii) Other Assets and Properties. All other Assets and Properties
of Seller (or its applicable subsidiaries) used or held for use in connection
with the Business except as otherwise provided in Section 1(b) (the "Other
Assets").
To the extent any of the Business Books and Records are items
susceptible to duplication and are either (x) used in connection with any of
Seller's businesses other than the Business or (y) are required by any law, rule
or regulation to be retained by Seller, Seller may deliver photostatic copies or
other reproductions from which, in the case of Business Books and Records
referred to in clause (x), information solely concerning Seller's businesses
other than the Business has been deleted. To the extent any of the Business
Books and Records relates to the Remaining Businesses, Purchaser will afford the
other party, its counsel and its accountants, during normal business hours,
reasonable access to such Business Books and Records and the right to make
copies and extracts therefrom. Further, Purchaser agrees for a period extending
six (6) years after the Closing Date not to destroy or otherwise dispose of any
such Business Books and Records unless Purchaser shall first offer in writing to
surrender such Business Books and Records to Seller and Seller shall not agree
in writing to take possession thereof during the ten (10) day period after such
offer is made.
(b) Excluded Assets. Notwithstanding anything in this Agreement to
the contrary, the following Assets and Properties of Seller and its applicable
subsidiaries used or held for use in connection with the Business shall be
excluded from and shall not constitute Assets (the "Excluded Assets"):
(i) Cash. Cash (including checks received prior to the close of
business on the Closing Date, whether or not deposited or cleared prior to the
close of business on the Closing Date), commercial paper, certificates of
deposit and other bank deposits, treasury bills and other cash equivalents;
(ii) Insurance. Life insurance policies of officers and other
employees of Seller and all other insurance policies relating to the operation
of the Business;
(iii) Employee Benefit Plans. All assets owned or held by any
Employee Benefit Plans (as defined in Section 6(m));
(iv) Tax Refunds. All refunds or credits, if any, of Taxes due to
or from Seller;
(v) Excluded Books and Records. The minute books, stock transfer
books and corporate seal of Seller and its subsidiaries other than the
Subsidiaries and any other Books and Records relating primarily to the Excluded
Assets or the Retained Liabilities (the "Excluded Books and Records");
(vi) Litigation Claims. Any rights (including indemnification) and
claims and recoveries under litigation of Seller against third parties arising
out of or relating to the Business, except the Business Litigation set forth on
Schedule 1(a)(xiv);
(vii) Excluded Contracts and Inventory. The rights of Seller in, to
and under all of the contracts and inventory set forth on Schedule 1(b)(vii);
(viii) Excluded Real Estate. The real property set forth on Schedule
1(b)(viii), together with all buildings, structures, facilities, fixtures and
the improvements thereto;
(ix) Other Business. All of Seller's Assets and Properties that are
not used or held for use in connection with the Business, including, without
limitation, those businesses set forth on Schedule 1(b)(ix) (the "Remaining
Businesses") and the shares of any direct or indirect subsidiaries of Seller
other than the Subsidiaries;
(x) Claims Against Third Parties. Claims against third parties for
damages suffered in connection with Excluded Assets and Retained Liabilities;
and
(xi) Agreements. Seller's rights under this Agreement, the Option
Agreement and any other agreements, instruments or documents executed by Seller
pursuant to or in connection with this Agreement and the transactions
contemplated hereby.
To the extent any Excluded Books and Records relate to the Business,
Seller will afford the other party, its counsel and its accountants, during
normal business hours, reasonable access to such Excluded Books and Records and
the right to make copies and extracts therefrom. Further, Seller agrees for a
period extending six (6) years after the Closing Date not to destroy or
otherwise dispose of any such Excluded Books and Records unless Seller shall
first offer in writing to surrender such Excluded Books and Records to Purchaser
and Purchaser shall not agree in writing to take possession thereof during the
ten (10) day period after such offer is made.
(c) Assumed Liabilities. In connection with the sale, transfer,
conveyance, assignment and delivery of the Assets pursuant to this Agreement, on
the terms and subject to the conditions set forth in this Agreement, at the
Closing, Purchaser will assume and agree to pay, perform and discharge when due
all of the obligations of Seller (or its applicable subsidiaries) relating
exclusively to the Business and arising in connection with the ordinary course
of operation of the Business other than the Retained Liabilities (the "Assumed
Liabilities"), including but not limited to the following:
(i) Real Property Lease Obligations. All obligations of Seller (or
its applicable subsidiaries) under the Real Property Leases;
(ii) Accounts Payable. All obligations of Seller (or its applicable
subsidiaries) with respect to accounts payable reflected or reserved against in
the June Balance Sheet (as defined in Section 6(e)(i)) or those arising in the
ordinary course of business since June 30, 1998, including but not limited to
the items set forth on Schedule 1(c)(ii) (the "Accounts Payable");
(iii) Personal Property Lease Obligations. All obligations of Seller
(or its applicable subsidiaries) under the Personal Property Leases;
(iv) Obligations under Contracts and Licenses. All obligations of
Seller (or its applicable subsidiaries) under the Business Contracts and
Business Licenses;
(v) Accrued Expenses. All obligations of Seller (or its applicable
subsidiaries) with respect to accrued expenses reflected or reserved against in
the June Balance Sheet or those incurred in the ordinary course of business
since June 30, 1998, including without limitation the items set forth on
Schedule 1(c)(v) (the "Accrued Expenses");
(vi) Returned Goods. All obligations with respect to the Business of
Seller (or its applicable subsidiaries) for replacement of, or refund for,
damaged, defective or returned goods, except Retained Returned Goods (as defined
in Section 1(d)(x));
(vii) Product Liabilities. All liabilities with respect to the
Business arising out of claims of third parties for damage or injury suffered as
the result of defective products sold by Seller (or its applicable subsidiaries)
prior to the Closing Date, except the Retained Product Liabilities (as defined
in Section 1(d)(xi));
(viii) Security Deposits. All obligations of Seller (or its applicable
subsidiaries) with respect to any security deposit held as lessor or sublessor
under the Real Property Leases (the "Landlord Security Deposits");
(ix) Sales Tax Liabilities. All sales and use Taxes collected from
customers with respect to the Business and held by Seller on the Closing Date,
except the Retained Sales Tax Liabilities (as defined in Section 1(d)(viii))
(the "Assumed Sales Tax Liabilities");
(x) Ontario Warehouse Agreements. All obligations of Seller (or its
applicable subsidiaries) under the agreements set forth on Schedule 1(c)(x);
(xi) Litigation Claims. All obligations and liabilities of Seller and
its applicable subsidiaries arising from litigation of third parties against
Seller or its applicable subsidiaries arising out of the activities of the
Business, except the Retained Litigation (as defined in Section 1(d)(vi));
(xii) Employment Agreements. All obligations of Seller under the
employment agreements and severance agreements set forth on Schedule 1(c)(xii)
(the "Assumed Employment Agreements"); and
(xiii) Other Liabilities. All other liabilities reserved or reflected
on the Audited Balance Sheet.
(d) Retained Liabilities. Notwithstanding anything in this Agreement to
the contrary, Purchaser shall not assume by virtue of this Agreement or the
transactions contemplated hereby, and shall have no liability for, any of the
following liabilities of Seller or any of its subsidiaries (the "Retained
Liabilities"):
(i) Certain Indebtedness. All obligations of Seller and its
subsidiaries for indebtedness set forth on Schedule 1(d)(i);
(ii) Tax Liabilities. All obligations of Seller and its subsidiaries
for Taxes other than the Assumed Sales Tax Liabilities;
(iii) Liabilities under this Agreement. Seller's liabilities under
this Agreement, the Option Agreement and any other agreements, instruments or
documents executed by Seller pursuant to or in connection with this Agreement
and the transactions contemplated hereby;
(iv) Employee Benefit Plan Liabilities. All liabilities and
obligations under each of the Employee Benefit Plans (as defined in Section
6(m)(i)) or any employee benefit plan, agreement or other arrangement, program
or policy maintained or sponsored by Seller or any of its subsidiaries;
(v) Post-Retirement Medical Plan Liabilities. All obligations of
Seller and its subsidiaries under any post-retirement medical benefits plan;
(vi) Litigation Claims. All liabilities of Seller and its
subsidiaries arising from claims and recoveries under litigation of third
parties against Seller or its subsidiaries set forth on Schedule 1(d)(vi) (the
"Retained Litigation");
(vii) Excluded Assets. All obligations of Seller and its subsidiaries
arising in connection with the Excluded Assets;
(viii) Retained Sales Tax Liabilities. All sales, use or other Taxes
collected from customers by Seller for delivery to a taxing authority, except
those Taxes reflected as liabilities on the Audited Balance Sheet (the "Retained
Sales Tax Liabilities");
(ix) Other Businesses. All obligations of Seller related to the
Remaining Businesses;
(x) Retained Returned Goods. All obligations of Seller (or its
applicable subsidiaries) for replacement of, or refund for, damaged, defective
or returned goods to the extent that (A) such goods are not subject to full
return privileges from the supplier thereof or (B) such goods are not non-
franchised products sold in the ordinary course of Seller's value-added business
(the "Retained Returned Goods");
(xi) Retained Product Liabilities. All liabilities arising out of
claims of third parties for damages or injury suffered as the result of
defective products sold by Seller (or its applicable subsidiaries) that (A) were
not sold under customary authorized distributor agreements, (B) were not sold in
the ordinary course under Seller's value-added business or (C) arise out of the
negligent acts or willful misconduct of Seller, its subsidiaries or its
employees or agents (the "Retained Product Liabilities"); and
(xii) Retained Employment Agreements. All obligations of Seller under
employment agreements and severance agreements, except the Assumed Employment
Agreements. Seller shall discharge, or shall cause the discharge, in a timely
manner or shall make adequate provision for all of the Retained Liabilities,
provided that Seller shall have the ability to contest, in good faith, any such
claim of liability asserted in respect thereof by any Person other than
Purchaser and its affiliates.
For purposes of this Agreement:
"Assets and Properties" of any Person means all assets and properties
of every kind, nature, character and description (whether real, personal or
mixed, whether tangible or intangible, whether absolute, accrued, contingent,
fixed or otherwise and wherever situated), including the goodwill related
thereto, operated, owned or leased by such Person, including without limitation
cash, cash equivalents, investment assets, accounts and notes receivable,
chattel paper, documents, instruments, general intangibles, real estate,
equipment, inventory, goods and Intellectual Property.
"Books and Records" of any Person means all files, documents,
instruments, papers, books and records relating to the business, operations,
condition of (financial or other), results of operations and Assets and
Properties of such Person, including without limitation financial statements,
Returns and related work papers and letters from accountants, budgets, pricing
guidelines, ledgers, journals, deeds, title policies, minute books, stock
certificates and books, stock transfer ledgers, contracts, licenses, customer
lists, computer files and programs, retrieval programs, operating data and plans
and environmental studies and plans.
"Governmental Entity" means any nation or government, any state or
other political subdivision thereof, including any municipality, town, village,
and subdivision thereof, and any entity exercising executive, legislative,
judicial, regulatory, or administrative functions of, or pertaining to,
governance.
"Intellectual Property" means all patents and patent rights,
trademarks and trademark rights, trade names and trade name rights, service
marks and service xxxx rights, service names and service name rights, brand
names, inventions, processes, formulae, copyrights and copyright rights, trade
dress, business and product names, logos, slogans, trade secrets, industrial
models, processes, designs, methodologies, computer programs (including all
source codes) and related documentation, technical information, manufacturing,
engineering and technical drawings, know-how and all pending applications for
and registrations of patents, trademarks, service marks and copyrights.
"Person" means any individual, partnership, corporation (including a
business trust), joint stock company, trust, unincorporated association, joint
venture or other entity, or a Governmental Entity.
2. Purchase Price.
(a) Calculation of Purchase Price. The purchase price (the "Purchase
Price") to be paid by Purchaser hereunder shall be $187,600,000, as adjusted
pursuant to Section 3.
(b) Closing Payments. Subject to the terms and conditions hereof,
Purchaser shall, subject to the adjustments, if any, contemplated under Section
3, pay to Seller an amount (the "Closing Cash Payment") equal to (A)
$187,600,000 less the Estimated Balance Sheet Adjustment (as defined below), if
any (the "Estimated Purchase Price") less (B) $20,000,000. Seller shall prepare
and deliver to Purchaser an estimated consolidated balance sheet (the "Estimated
Balance Sheet") of the Business as of the last day of the month immediately
prior to the Closing Date (the "Preceding Month"), or in the event the Closing
Date shall be within the first ten (10) days of any calendar month, as of the
last day of the month immediately prior to the Preceding Month. Such Estimated
Balance Sheet shall be prepared on the same terms and basis as specified in the
second sentence of Section 3(a) with respect to the Preliminary Audited Balance
Sheet (as defined in Section 3). If the net investment shown on the Estimated
Balance Sheet is at least $155 million, then there shall be no Estimated Balance
Sheet Adjustment. If the net investment shown on the Estimated Balance Sheet is
less than $135 million, Purchaser may at its option (1) terminate this Agreement
or (2) proceed with the transactions contemplated herein, including the
determination of the Closing Cash Payment as reduced by the Estimated Balance
Sheet Adjustment described in the following sentence. If the net investment
shown on the Estimated Balance Sheet is less than $155 million (the difference
between the net investment and $155 million is hereinafter referred to as the
"Estimated Shortfall"), then the Closing Cash Payment shall be reduced on a
dollar-for-dollar basis by the amount of the Estimated Shortfall (such reduction
being referred to as the "Estimated Balance Sheet Adjustment").
(c) Allocation. (i) As promptly as practicable after the Audited
Balance Sheet Date (as defined in Sections 3(b)), Purchaser and Seller shall use
their best efforts to agree on the allocation of the Purchase Price among the
Assets. As promptly as practicable and in any event not later than fifteen (15)
days following the Audited Balance Sheet Date, Purchaser shall deliver to Seller
an initial schedule allocating the Purchase Price among the Assets (the "Initial
Allocation"). The Initial Allocation shall be final and binding upon Seller and
Purchaser unless within ten (10) days of receipt thereof Seller gives written
notice to Purchaser that it does not agree with the Initial Allocation. If
Seller so notifies Purchaser within the ten-day period, Purchaser and Seller
will use good faith efforts to resolve any disagreements within seven (7) days
after Purchaser's receipt of Seller's written notice. If Seller and Purchaser
cannot reach agreement during such seven-day period, their disagreements shall
be promptly submitted to an independent public accounting firm jointly selected
by Purchaser and Seller (the "Independent Accountant"), which will conduct such
review as it deems necessary to resolve their disagreements regarding the
Initial Allocation. The allocation of the Purchase Price among the Assets
determined under this Section 2(c)(i) is referred to the "Final Allocation".
(ii) The review of the Independent Accountant will be restricted as to
scope to address only those matters as to which Seller and Purchaser have not
reached agreement pursuant to Section 2(c)(i). The Independent Accountant's
decision resolving any disagreements will be binding on Seller and Purchaser and
will be provided in writing to the parties as promptly as practicable and in any
event not later than thirty (30) days after the disagreements are submitted to
the Independent Accountant pursuant to Section 2(c)(i). The fees and expenses
incurred by the Independent Accountant in connection with resolving any
disagreements pursuant to Sections 2(c)(i) will be shared equally by Seller and
Purchaser.
(iii) Each of Seller and Purchaser agrees: (A) that the Final
Allocation will be consistent with the requirements of Code Section 1060, (B) to
complete jointly and to file separately Form 8594 with its federal income Tax
Return consistent with the Final Allocation for the tax year in which the
Closing Date occurs and (C) that no party will take a position on any federal,
state or local Tax Return, before any Governmental Entity charged with the
collection of any tax or in any action or proceeding that is in any manner
inconsistent with the terms of the Final Allocation without the consent of the
other party.
(d) Distribution of Payments. Following the receipt by Seller of the
Closing Cash Payment due under Section 2(b), Seller shall, subject to applicable
fraudulent conveyance laws and to the provisions of Section 500 et seq. of the
California Corporations Code (the "CCC"): (i) first apply the Closing Cash
Payment to the repayment of the outstanding principal under the Credit Agreement
dated as of January 7, 1997, as amended from time to time, by and among Seller,
Xxxx Ontario Holding, Inc., the lenders thereunder and Union Bank of California
N.A., as agent (as amended, the "Credit Agreement") as may be necessary to
obtain the release of any mortgage, pledge, lien, charge, security interest,
encumbrance, lease, license or claim ("Encumbrance") on the Assets securing
indebtedness under the Credit Agreement except as otherwise provided in this
Agreement; and (ii) except as otherwise provided in Section 9(q) of this
Agreement, prior to the Audited Balance Sheet Date, make no payments, dividends
or distributions to its shareholders (including the adoption by its Board of
Directors of a resolution declaring a dividend or distribution or declaring a
record date with respect thereto).
3. Audited Balance Sheet; Adjustment to the Estimated Purchase Price.
(a) After the Closing, Purchaser shall prepare or cause to be prepared,
and shall cause Ernst & Young LLP, independent accountants (the "Accountants"),
to prepare a certification of an audited consolidated balance sheet as of the
Closing Date for the Business (the "Preliminary Audited Balance Sheet"). The
Preliminary Audited Balance Sheet shall (i) be prepared from the books and
records of the Business in accordance with generally accepted accounting
principles, applied on a basis consistent with the Financial Statements, (ii) be
prepared in accordance with Seller's valuation principles attached as Exhibit A,
and (iii) reflect no write-up of any individual asset of the Business which was
included in the Financial Statements and is included in the Preliminary Audited
Balance Sheet to a book value greater than its book value in the Financial
Statements. As a part of the preparation of the Preliminary Audited Balance
Sheet, Purchaser and its employees shall conduct a complete physical inventory
of the Business as of the Closing Date, and the results of such inventory shall
be reflected in the Preliminary Audited Balance Sheet. Purchaser shall deliver
the Preliminary Audited Balance Sheet, and shall use its reasonable efforts to
cause the Accountants to deliver the form of the Accountants' report thereon, to
Seller as promptly as practicable and, in any event, not later than
ninety (90) days after the Closing Date.
(b) Employees of Seller and PricewaterhouseCoopers LLP ("PWC
Representatives") shall have the right, at Seller's expense, to observe and
reasonably review and comment to the Accountants upon the preparation of the
Preliminary Audited Balance Sheet. In addition, Seller and PWC Representatives
shall have the right to observe the taking of the physical inventory and to
comment to the Accountants with respect thereto. In the event that Seller shall
object to any matter relating to the Preliminary Audited Balance Sheet (which
objections shall be solely on the basis that such balance sheet has not been
prepared in accordance with the second sentence of Section 3(a) above or is
derived from obvious mathematical errors), Seller shall, as promptly as
practicable but in any event within thirty (30) days after receipt of the
Preliminary Audited Balance Sheet, notify Purchaser of such objections in
writing. The parties shall use their best efforts to resolve any such
objections as promptly as practicable. If the parties are unable to resolve any
such objections within twenty (20) days after the date that Seller receives the
certified Preliminary Audited Balance Sheet, then a nationally recognized
independent public accounting firm as shall be mutually agreed by the parties
shall be appointed as arbitrator to resolve the dispute in accordance with
Section 3(a) above as soon as practicable and its determination with respect to
such dispute shall be final and binding upon both parties hereto. The costs of
such accounting firm in connection with its acting as such arbitrator shall be
borne 50% by Seller and 50% by Purchaser. The final audited balance sheet,
reflecting the results of any resolution of objections or arbitrated settlement,
accompanied by the Accountants' report thereon, shall be the "Audited Balance
Sheet" and the date of delivery thereof to Purchaser and Seller shall be the
"Audited Balance Sheet Date".
(c) If the net investment shown on the Audited Balance Sheet is
greater than $155 million, then the Purchase Price shall be increased on a
dollar-for-dollar basis by the amount equal to the lesser of (i) the difference
between such net investment and $155 million and (ii) $10 million. If the net
investment shown on the Audited Balance Sheet is $155 million or less (the
difference between such net investment and $155 million is hereinafter referred
to as the "Audited Shortfall"), then the Purchase Price shall be reduced on a
dollar-for-dollar basis by the amount of the Audited Shortfall.
(d) The Purchase Price shall also be reduced by the amount, if any, of
the Terminated Lines Reduction. The "Terminated Lines Reduction" shall be the
sum of (i) the inventory related to terminated lines described on Schedule 3(d)
which has not been returned for full credit to the applicable manufacturer prior
to the Closing Date and for which value has been given on the Audited Balance
Sheet and (ii) to the extent reflected as an asset on the Audited Balance Sheet,
the pending debits related to terminated lines described on Schedule 3(d) which
have not been honored by the applicable manufacturer prior to the Closing Date.
(e) Within five (5) business days after the Audited Balance Sheet Date:
(i) in the event that the Purchase Price is greater than the Closing Cash
Payment, Purchaser shall promptly pay to Seller such difference with interest
thereon (accruing from the Closing Date until such payment is made) at the
Interest Rate (as defined below); and (ii) in the event that the Purchase Price
is less than the Closing Cash Payment, Seller shall promptly pay to Purchaser
such difference with interest thereon (accruing from the Closing Date until such
payment is made) at the Interest Rate. For purposes of this Agreement,
"Interest Rate" means 6% per annum (based on a year of 360 days). The payments
required pursuant to this Section 3(e) shall not be subject to any right of
setoff, counterclaim or recoupment.
4. Closing.
The Closing (the "Closing") shall take place at 10:00 A.M., local
time, on the earliest practicable date after all of the conditions set forth in
Sections 11 and 12 shall have been satisfied or waived but in any event not
later than three (3) business days after such date (the "Closing Date"), at the
offices of Milbank, Tweed, Xxxxxx & XxXxxx, 1 Xxxxx Manhattan Plaza, New York,
New York, or such other time and place as the parties may agree.
5. Obligations of Seller and Purchaser at Closing; Further Assurances.
(a) At the Closing:
(i) Seller will assign and transfer to Purchaser all of its right,
title and interest in and to the Assets (free and clear of all Encumbrances) by
delivery of (A) a General Assignment and Xxxx of Sale substantially in the form
of Exhibit B, duly executed by Seller, (B) an assignment of the Intellectual
Property in form and substance reasonably satisfactory to Purchaser, (C) general
warranty deeds in proper statutory form for recording and otherwise in form and
substance reasonably satisfactory to Purchaser conveying title to the Real
Property, (D) such other good and sufficient instruments of conveyance,
assignment and transfer, in form and substance reasonably acceptable to
Purchaser's counsel, as shall be effective to vest in Purchaser good title to
the Assets;
(ii) Seller will deliver the other documents, certificates and
opinions specified in Section 9;
(iii) Purchaser will pay to Seller, by wire transfer of immediately
available funds to the account previously designated by Seller to Purchaser, an
amount equal to the Closing Cash Payment;
(iv) Purchaser will assume from Seller the due payment, performance
and discharge of the Assumed Liabilities by delivery of (A) an Assumption
Agreement substantially in the form of Exhibit C duly executed by Purchaser, (B)
such other good and sufficient instruments of assumption, in form and substance
reasonably acceptable to Seller's counsel, as shall be effective to cause
Purchaser to assume the Assumed Liabilities as and to the extent provided in
Section 1(c); and
(v) Purchaser will deliver the other documents, certificates and
opinions specified in Section 10.
(b) At any time and from time to time after the Closing, at Purchaser's
request and without further consideration, Seller will take all action necessary
to execute and deliver such other instruments of sale, transfer, conveyance,
assignment and confirmation and take such action as Purchaser may reasonably
deem necessary or desirable in order to more effectively transfer, convey and
assign to Purchaser the Business.
(c) To the extent that any Real Property Lease, Personal Property Lease,
Business Contract or Business License is not assignable without the consent of
another party, this Agreement shall not constitute an assignment or an attempted
assignment thereof if such assignment or attempted assignment would constitute a
breach thereof or a default thereunder. Seller and Purchaser shall use
commercially reasonable efforts to obtain the consent of such other party to the
assignment of any such Real Property Lease, Personal Property Lease, Business
Contract or Business License to Purchaser in all cases in which such consent is
or may be required for such assignment. If any such consent shall not be
obtained, Seller shall cooperate with Purchaser in any reasonable arrangement
designed to provide for Purchaser the benefits intended to be assigned to
Purchaser under the relevant Real Property Lease, Personal Property Lease,
Business Contract or Business License, including enforcement at the cost and for
the account of Purchaser of any and all rights of Seller against the other party
thereto arising out of the breach or cancellation thereof by such other party or
otherwise. If and to the extent that such arrangement cannot be made, Purchaser
shall have no obligation pursuant to Section 1(c) or otherwise with respect to
any such Real Property Lease, Personal Property Lease, Business Contract or
Business License. The provisions of this Section 5(c) shall not affect the
right of Purchaser not to consummate the transactions contemplated by this
Agreement if the condition to its obligations hereunder contained in Section
11(i) has not been fulfilled.
6. Representations and Warranties of Seller
Seller represents and warrants to Purchaser, as of the date of this
Agreement as follows:
(a) Organization, Standing and Qualification. Each of Seller and the
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its respective jurisdiction of incorporation, and has
the corporate power and authority to carry on its business as now being
conducted and to own, lease or operate its properties; and each of Seller and
the Subsidiaries is duly qualified or licensed and in good standing as a foreign
corporation authorized to do business in all of the jurisdictions where the
nature of the activities conducted by it or the character of the properties
owned, leased or operated by it requires such qualification or licensing, except
where the failure to be so qualified or licensed would not result in loss,
liability, cost, expense (including but not limited to attorneys fees and
expenses), damage or decline in value to the business, condition or properties
of the Business, taken as a whole, or to Purchaser (collectively, "Losses") in
excess of $25,000 individually or $100,000 in the aggregate. Seller has
delivered to Purchaser true and complete copies (initialed by the Secretary of
Seller) of the certificates of incorporation (and all amendments thereto) and
the by-laws as presently in effect of Seller and each of the Subsidiaries.
(b) The Electronics Components Distribution Business. The Business is
conducted solely through Seller's Electronic Distribution Group (excluding any
Remaining Businesses) and the Subsidiaries. The sale of the Assets by Seller to
Purchaser pursuant to this Agreement will convey to Purchaser the entire
Business and all of the tangible and intangible property used by Seller (whether
owned, leased or held under license by Seller, by any of Seller's affiliates or
by others) in connection with the conduct of the Business as heretofore
conducted by Seller (except for the Excluded Assets) including, without
limitation, all Assets and Properties of Seller and its subsidiaries reflected
in the June Balance Sheet (as defined in Section 6(e)) included in the Financial
Statements and Assets and Properties acquired since June 30, 1998 used or held
for use in connection with the Business, other than the Excluded Assets and
Assets and Properties disposed of since such date, consistent with Section
6(g)(iii). Except as set forth on Schedule 6(b),with respect to the Assets or
the Business, there are no shared facilities or services which are used in
connection with any business or other operations of Seller or any of Seller's
affiliates other than the Business.
(c) Execution, Delivery and Performance of Agreement; Authority. The
execution, delivery and performance of the Agreement in accordance with its
terms by Seller will not, with or without the giving of notice or the passage of
time, or both, conflict with, result in a violation of, result in a default,
right to accelerate or loss of rights under, or result in the creation of any
Encumbrance pursuant to, any provision of the articles of incorporation (or
certificate of incorporation, as the case may be) or by-laws (and all amendments
thereto), of Seller or any of the Subsidiaries, or any mortgage, deed of trust,
lease, license, agreement (including any debt instrument), law, rule,
regulation, order or judgment or decree to which Seller, or any of the
Subsidiaries, is a party or by which any of them may be bound or affected,
except (i) as set forth on Schedule 6(c)(i) or as specifically noted on Schedule
1(a)(ii)(B), (ii) those which would not result in Losses in excess of $25,000
individually or $100,000 in the aggregate and (iii) any agreements pursuant to
which Seller or any of the Subsidiaries purchases inventory from the
manufacturers thereof ("Franchise Agreements"). Except as set forth on Schedule
6(c)(ii), the merger, consolidation, combination or amalgamation of any or all
of the Subsidiaries with or into Purchaser or its affiliates or, the transfer of
any or all of the Assets or any of the Subsidiaries to Purchaser or its
affiliates will not, with or without the giving of notice or the passage of time
or both, conflict with, result in a default, right to accelerate or loss of
rights under, or result in the creation of any Encumbrance, under any provision
of any mortgage, deed of trust, lease, license, material agreement (including
any debt instrument) to which Seller, any of its subsidiaries is a party or by
which any of them may be bound or affected that would have a materially adverse
effect on the business, financial condition, results of operations or properties
of Purchaser or of the Business taken as a whole. Seller has the full power and
authority to enter into this Agreement and the full power and authority to carry
out the transactions contemplated hereby. The Board of Directors of Seller has,
subject to approval by Seller's shareholders, approved the entering into by
Seller of this Agreement, and there are no other corporate proceedings required
to be taken by Seller, except for such shareholders' approval, to authorize the
execution, delivery and performance by Seller of this Agreement and the
consummation of the transactions contemplated hereby. This Agreement
constitutes a valid and binding obligation of Seller, enforceable against Seller
in accordance with its terms, except as limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other laws affecting the enforcement
of creditors' rights generally and subject to usual equity principles.
(d) Ownership and Capitalization. (i) Seller is the lawful record
and beneficial owner of all of the issued and outstanding shares of capital
stock of the Subsidiaries, free and clear of all Encumbrances, except those
created pursuant to the Credit Agreement. Upon completion of the transactions
contemplated by this Agreement, Purchaser will acquire as of the Closing Date
good and valid title to the Acquired Shares, free and clear of all Encumbrances.
(ii) The capitalization of the Subsidiaries consists of the number
of authorized shares of capital stock at the stated par values, the number of
issued and outstanding shares and the number of treasury shares, if any, set
forth on Schedule 6(d)(ii). All of the Acquired Shares have been validly issued
and are fully paid and non-assessable. Except for the rights created pursuant
to this Agreement and the Option Agreement, there are no outstanding options,
warrants or other rights of any kind to acquire any additional shares of capital
stock of the Subsidiaries or securities convertible or exchangeable for, or
which otherwise confer on the holder thereof any right to acquire, any such
additional shares, nor is Seller or any of the Subsidiaries committed to issue
any such option, warrant, right or security.
(e) Financial Statements. (i) Seller has delivered to Purchaser
copies (initialed by the chief financial officer of Seller and identified with a
reference to this section of this Agreement) of the following financial
statements (the financial statements set forth in clauses (A), (B) and (C) are
hereinafter collectively called the "Financial Statements"): (A) audited
consolidated balance sheets of Seller as of December 31, 1997, December 31, 1996
and December 31, 1995 and the related statements of income, shareholders' equity
and cash flows for the years then ended, and the unaudited consolidated balance
sheet of Seller as of June 30, 1998 and the related statement of income,
shareholders' equity and cash flows for the period then ended; (B) unaudited
combined balance sheets of the Business as of December 31, 1997, December 31,
1996 and December 31, 1995 and the related statements of income for the years
then ended, including Milgray Electronics, Inc. ("Milgray") from the date of
Seller's acquisition thereof, and the unaudited combined balance sheet of the
Business as of June 30, 1998 ("June Balance Sheet") and the related statement of
income for the period then ended; and (C) the management accounts for the period
ending August 31, 1998 for the Business (the "Management Accounts").
(ii) The Financial Statements set forth in clause (A) of Section
6(e)(i) and, except as set forth on Schedule 6(e)(ii), the Financial Statements
set forth in clauses (B) and (C) of Section 6(e)(i) have been prepared from the
Books and Records of Seller and its subsidiaries in accordance with generally
accepted accounting principles, consistently applied and maintained throughout
the periods indicated (except as disclosed therein), and present fairly the
consolidated financial condition of Seller (with respect to the Financial
Statements set forth in clause (A) of Section 6(e)(i)) and the Business (with
respect to the Financial Statements set forth in clauses (B) and (C) of Section
6(e)(i) as at their respective dates and the results of their operations for the
periods covered thereby in accordance with generally accepted accounting
principles. With respect to the statements of income contained in the Financial
Statements set forth in clauses (B) and (C) of Section 6(e)(i), such statements
of earnings do not contain any items of extraordinary or non-recurring income or
any other income not earned in the ordinary course of business which in the
aggregate for any period presented do not exceed $100,000, except as set forth
therein.
(iii) The Management Accounts are the only management accounts relating
to the Business prepared by Seller with respect to the period covered thereby
and have been prepared in the ordinary course of business.
(iv) Seller has delivered to Purchaser copies (initialed by the chief
financial officer of Seller and identified with a reference to this section of
this Agreement) of the following financial statements of Milgray (collectively,
the "Milgray Financial Statements"): audited consolidated balance sheets of
Milgray as of September 30, 1996 and September 30, 1995, and the related
statements of income, shareholders' equity and cash flows for the years then
ended. The Milgray Financial Statements have been prepared from the Books and
Records of Milgray and its subsidiaries in accordance with generally accepted
accounting principles, consistently applied and maintained throughout the
periods indicated (except as disclosed therein), and present fairly the
consolidated financial condition of Milgray as at their respective dates and the
results of their operations for the periods covered thereby in accordance
with generally accepted accounting principles.
(f) Absence of Undisclosed Liabilities. (i) All of the liabilities
reflected or reserved against on the June Balance Sheet were incurred in bona
fide transactions incurred in the ordinary course of business, except for any
such liabilities that were incurred outside the ordinary course of business and
would not result in Losses in excess of $25,000 individually or $100,000 in the
aggregate. There are no liabilities, contingent or otherwise, of Seller or any
of the Subsidiaries which are, in accordance with generally accepted accounting
principles, required to be reserved against or disclosed on the June Balance
Sheet which are not so reserved or disclosed.
(ii) Except as set forth on Schedule 6(f), neither Seller nor any of
the Subsidiaries has any liabilities (contingent or otherwise) with respect to
the Business under any guarantee, indemnity, bond, reimbursement agreement or
pledge agreement with respect to any obligation of third parties or under any
joint or joint and several contractual obligation of Seller or any of the
Subsidiaries with any other person that are not reflected in or reserved against
on the June Balance Sheet or the notes thereto.
(g) Absence of Changes or Events. Except as set forth on Schedule 6(g) or
otherwise contemplated under this Agreement, since the date of the June Balance
Sheet, each of Seller and its subsidiaries has conducted the Business only in
the ordinary course and consistent with its prior practice and, with respect to
the Business each of Seller and its subsidiaries has not:
(i) incurred any obligation or liability, absolute, accrued,
contingent or otherwise, whether due or to become due, except liabilities or
obligations incurred in the ordinary course of business and consistent with its
prior practice;
(ii) mortgaged, pledged or subjected to any other Encumbrance, or
restriction any of its property, business or assets, tangible or intangible
except pursuant to the Credit Agreement or in the ordinary course of business,
consistent with past practice;
(iii) sold, transferred, leased to others or otherwise disposed of any
of its assets, except for inventory sold to customers or returned to vendors in
the ordinary course of business and consistent with its prior practice; or
canceled or compromised any debt or claim, or waived or released any right of
substantial value, except (y) in the ordinary course of business and consistent
with its prior practice and (z) outside the ordinary course of business debts,
claims or rights having a value less than $25,000 individually or $100,000 in
the aggregate;
(iv) suffered any damage, destruction or casualty or theft loss of
assets that is not covered by insurance, except for damage, destruction or loss
that is less than $25,000 individually or $100,000 in the aggregate;
(v) encountered any labor union organizing activity or had any actual
or threatened employee strikes, work stoppages, slow-downs or lock-outs;
(vi) made any change in the rate of compensation, commission, bonus or
other direct or indirect remuneration payable, or paid or agreed or orally
promised to pay, conditionally or otherwise, any bonus, extra compensation,
pension or severance or vacation pay, to any employee, except (A) in the
ordinary course of business and consistent with its practice prior to the date
hereof, (B) with respect to any payments of pension, severance or vacation after
the date hereof, in accordance with the existing policies of Seller or the
relevant subsidiary, as the case may be, (C) promises and commitments made
jointly with, or with the consent of Purchaser to secure the services of
Seller's employees pending and following the Closing or (D) as to which there is
a contractual commitment entered into before the signing of this Agreement;
provided, however that any such prior contractual commitment to any employee
having total compensation in excess of $100,000 or to a category of employees
having more than five persons shall be set forth on Schedule 6(g)(vi);
(vii) made any capital expenditures or capital additions or betterments
in excess of $250,000;
(viii) suffered any change, event or condition which has materially and
adversely affected the business, financial condition, results of operations or
properties of the Business taken as a whole, except for such as may result from
the announcement or disclosure of the transactions contemplated hereby or
actions by Purchaser;
(ix) issued or sold any shares of capital stock, or issued or sold any
options, warrants to purchase or rights to subscribe for, or issued any debt
instrument or security convertible into, or entered into any arrangement or
contract with respect to, any shares of capital stock or any of the Subsidiaries
or made any other changes in its capital structure;
(x) made any material change in (A) any pricing, investment,
accounting, financial reporting, inventory, credit, allowance or tax practice or
policy of the Business or (B) any method of calculating any bad debt,
contingency or other reserve of the Business for accounting, financial reporting
or tax purposes;
(xi) entered into any amendment, modification, termination (partial or
complete) or granted a waiver under or given any consent with respect to (A) any
contract which is required (or had it been in effect on the date hereof would
have been required) to be set forth on Schedule 6(k) pursuant to Section 6(k) or
(B) any Business License;
(xii) entered into any transaction with any officer, director or
affiliate or Seller or any of its subsidiaries; or
(xiii) entered into a contract to do or engage in any of the foregoing
after the date hereof.
(h) Litigation. Except as set forth on Schedule 6(h), no action, suit,
litigation, arbitration, dispute, proceeding, governmental investigation or
governmental audit is pending against, or to the knowledge (as defined at the
end of this Section 6) of Seller threatened against, the Business or the Assets.
None of such action, suit, litigation, arbitration, dispute, proceeding,
governmental investigation or governmental audit is reasonably likely to have a
material adverse effect on Seller's ability to consummate the transactions
contemplated by this Agreement. To Seller's knowledge, there is no set of facts
or circumstances which could result in any action, suit, litigation,
arbitration, dispute, proceeding, governmental investigation or governmental
audit which could reasonably be expected to result in Losses in excess of
$25,000 individually or $100,000 in the aggregate. Except as set forth on
Schedule 6(h), there are no orders, judgments or decrees of any court or
governmental agency in which Seller or any of its subsidiaries is named and
which apply specifically to the Business or the Assets and which involve Losses
in excess of $25,000 individually or $100,000 in the aggregate.
(i) Compliance with Laws and Other Instruments. Except with respect to
environmental matters (which are covered by Section 6(t)), Seller and each of
its subsidiaries has complied in all material respects with all laws, rules,
regulations, ordinances, orders, judgments and decrees applicable to the
Business or the Assets. Except with respect to environmental matters (which are
covered by Section 6(t)), neither the ownership by Seller or any of its
subsidiaries, nor the use by Seller or any of its subsidiaries, of the Assets
nor the conduct of the Business by Seller or any of its subsidiaries conflicts
with the rights of any other Person or violates, in any material respect, any
law, ordinance, rule or regulation, or any order, judgment or decree to which
Seller or any of its subsidiaries is a party or by which it may be bound or
affected. Except with respect to environmental matters (which are covered by
Section 6(t)), neither Seller nor any of its subsidiaries has violated or
defaulted under any terms or provisions of its articles of incorporation or by-
laws, as presently in effect, or any lien, mortgage, lease, agreement or
instrument relating to the Business, except for (i) defaults under leases set
forth on Schedule 6(c)(i) as requiring consent to this transaction by the
landlord thereunder where such consent is not obtained; or (ii) violations or
defaults which will not hereafter result in Losses in excess of $25,000
individually or $100,000 in the aggregate. Except with respect to environmental
matters (which are covered by Section 6(t)), Seller and each of its subsidiaries
has all approvals, authorizations, consents, licenses, orders, and other permits
from all governmental agencies, whether federal or local ("Approvals"), required
to permit the operation of the Business as presently conducted other than any
Approvals the absence of which will not result in Losses in excess of $25,000
individually or $100,000 in the aggregate.
(j) Title to Properties. (i) Except as set forth on Schedule 6(j)(i),
(A) Seller and its subsidiaries have good title to all of the Tangible Personal
Property and (B) none of the Tangible Personal Property is subject to any
Encumbrance of any nature whatsoever, direct or indirect, whether accrued,
absolute, contingent or otherwise, except such as are created pursuant to the
Credit Agreement.
(ii) (A) Other than the Real Property set forth on Schedule
1(b)(viii), Schedule 1(a)(i) contains a true and correct list of each parcel of
real property owned by Seller or its subsidiaries and used or held for use in
connection with the Business, and Schedules 1(a)(ii)(A) and 1(a)(ii)(B) contain
true and correct lists of each parcel of real property leased by Seller or its
subsidiaries (as lessor and lessee, respectively) and used or held for use in
connection with the Business.
(B) Seller or its subsidiaries has good and marketable fee simple
title to the Real Property, free and clear of all Encumbrances other than: (1)
the exceptions to title, if any, set forth on Schedule 6(j)(ii)(B) or as set
forth in any applicable title policies or reports attached to such Schedule, (2)
Encumbrances for real estate taxes and assessments not yet delinquent, and (3)
zoning ordinances and governmental regulations (which have not been violated by
the existing improvements or the use thereof), covenants, conditions,
limitations, declarations, easements, restrictions, matters of record (other
than mortgages and other Encumbrances) and minor irregularities of title, which
do not individually or in the aggregate materially detract from the value or
materially interfere with the use of any of the Real Property or Real Property
Leases (the items set forth in clauses (1), (2) and (3) above are collectively
called the "Real Estate Encumbrances"). Either Seller or one of its
subsidiaries is in possession of the Real Property. Either Seller or one of its
subsidiaries has adequate rights of ingress and egress with respect to the Real
Property and the Improvements. None of the Real Property or the Improvements,
or the use thereof, contravenes or violates any building, zoning,
administrative, occupational safety and health or other applicable law in any
material respect (whether or not permitted on the basis of prior nonconforming
use, waiver or variance).
(C) Either Seller or one of its subsidiaries has a valid and
subsisting leasehold estate in and the right to quiet enjoyment of the real
properties subject to the Real Property Leases set forth on Schedule 1(a)(ii)(B)
for the full term thereof. Each Real Property Lease is a legal, valid and
binding agreement, enforceable in accordance with its terms, of Seller or its
subsidiaries and of each other Person that is a party thereto, and except as set
forth on Schedule 6(j)(ii)(C), there is no, nor has Seller or its subsidiaries
received any notice of any, default (or any condition or event which, after
notice or lapse of time or both, would constitute a default) thereunder.
Neither Seller nor any of its subsidiaries owes any brokerage commissions with
respect to any such leased space.
(D) Seller has delivered to Purchaser prior to the execution of
this Agreement true and complete copies of (i) all deeds, leases, mortgages,
deeds of trust, certificates of occupancy, title insurance policies, title
reports, surveys and similar documents, and all amendments thereof, with respect
to the Real Property, and (ii) all Real Property Leases (including any
amendments and renewal letters) and, to the extent reasonably available, all
other documents referred to in clause (i) of this paragraph (D) with respect to
the real property subject to the Real Property Leases set forth on Schedule
1(a)(ii)(B).
(E) Except as set forth on Schedule 6(j)(ii)(E), no tenant or
other party in possession of any of the real properties subject to the Real
Property Leases set forth on Schedule 1(a)(ii)(A) has any right to purchase, or
holds any right of first refusal to purchase, such properties.
(F) Except as set forth on Schedule 6(j)(ii)(F), the Improvements
are in good operating condition and in a state of good maintenance and repair,
ordinary wear and tear excepted, are adequate and suitable for the purposes for
which they are presently being used and, to the knowledge of Seller, there are
no condemnation or appropriation proceedings pending or threatened against any
of the Real Property or the Improvements.
(k) Contracts. All of the contracts, leases and other agreements of
Seller and its subsidiaries and relating to the Business were entered into in
bona fide transactions in the ordinary course of business. Schedule 6(k) sets
forth a complete and correct list of all contracts and other agreements to which
Seller or any of its subsidiaries is a party and relating to the Business.
Notwithstanding the foregoing, Schedule 6(k) need not disclose (i) contracts
involving obligations not exceeding $250,000 individually or $1,000,000 for any
one kind of related contract in the aggregate, (ii) the leases set forth on
Schedules 1(a)(ii)(A) and 1(a)(ii)(B), (iii) purchase orders with Seller's
customers or suppliers in the ordinary course of business consistent with past
practice, (iv) value-added contracts in the ordinary course of business
consistent with past practice and (v) contracts that are no longer in effect.
Except as set forth on Schedule 6(k), to the knowledge of Seller, there is not
under any such contract any existing default by Seller or any of its
subsidiaries, or any event or circumstance which, after notice or lapse of time
or both, would constitute a default by Seller or any of its subsidiaries, or to
the knowledge of Seller, by the other party, or result in a right to accelerate
or loss of rights as against Seller or any of its subsidiaries which would in
each such case result in Losses in excess of $25,000 individually or $100,000 in
the aggregate for all kinds of contracts. There are no contracts, leases or
agreements which are required under generally accepted accounting principles to
be disclosed in the Financial Statements which have not been so disclosed.
(l) Patents, etc. Except as set forth on Schedule 6(l), each of Seller
and each of the Subsidiaries owns, or has the right to use or possess, all
Intellectual Property used in the Business as it is presently operated,
including, without limitation, the names Xxxx, Xxxx Industries, Xxxx
Electronics, Milgray and Milgray Electronics and variants thereof. Except to
the extent that no Losses in excess of $25,000 individually or $100,000 in the
aggregate would result, neither Seller nor any of the Subsidiaries is infringing
upon or otherwise acting adversely to any copyrights, trademarks, trademark
rights, service marks, service names, trade names, patents, patent rights,
licenses or trade secrets owned by any person or persons, and there is no claim
or action pending, or to the knowledge of Seller threatened, with respect
thereto.
(m) Employee Benefit Plans. There are no Encumbrances against the
Assets under Section 412(n) of the Internal Revenue Code of 1986, as amended
(the "Code"), or Sections 302(f) or 4068 of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"). Neither Seller nor any corporation,
trade, business or other entity under common control with Seller, within the
meaning of Sections 414(b), (c), (m) or (o) of the Code, or under Section 4001
of ERISA (an "ERISA Affiliate") is or was obligated to contribute to any
multiemployer plan within the meaning of Section 3(37) of ERISA or any plan
subject to Title IV of ERISA. As of and after the Closing Date, Purchaser will
have no obligation to contribute to, or any liability in respect of, (i) any
employee benefit plan within the meaning of Section 3(3) of ERISA, or (ii) any
employment, severance or other agreement, arrangement, policy or plan (whether
written or oral) providing for insurance coverage (including without limitation
self-insured arrangements), workers' compensation, disability benefits,
supplemental unemployment benefits, vacation benefits or retirement benefits, or
for profit sharing, deferred compensation, bonuses, stock options, stock
appreciation or other forms of incentive compensation or post-retirement
insurance, or any other forms of compensation or benefits (an "Employee Benefit
Plan"), sponsored or maintained by Seller or any ERISA Affiliate, or to which
Seller or any ERISA Affiliate is or was obligated to contribute, except for the
agreements set forth on Schedule 1(c)(xii). Each Employee Benefit Plan of
Seller which has been required to comply with the provisions of Section 4980B of
the Code and Sections 601 through 608 of ERISA has complied in all material
respects. Seller does not maintain any plans, arrangements, contracts or other
programs outside the United States for the purpose of providing or otherwise
making available retirement or other benefits to employees of the Business. The
Xxxx Industries Savings and Profit Sharing Plan has received a favorable
determination letter regarding its qualification under Section 401(a) of the
Code, and nothing has occurred, to the knowledge of Seller, since the date of
such determination which would cause the loss of such qualification. Neither
Seller nor any ERISA Affiliate maintains or participates in any voluntary
employees' beneficiary association governed by Section 501(c)(9) of the Code.
There are no actions, suits or claims (other than routine claims for benefits in
the ordinary course) rising in connection with the Employee Benefit Plans of
Seller pending or, to the knowledge of Seller, threatened, and to the knowledge
of Seller, there are no facts which could give rise to any such actions, suits
or claims (other than routine claims for benefits in the ordinary course) for
which Purchaser could be liable. Neither Seller nor any ERISA Affiliate nor any
other "disqualified person" or "party-in-interest" (as defined in Section 3 of
ERISA and Section 4975 of the Code, respectively) has, with respect to any such
plan, engaged in a prohibited transaction, as such term is defined in Section
4975 of the Code or Section 406 of ERISA, which would subject Purchaser to any
Taxes, penalties or other liabilities resulting from prohibited transactions
under Section 4975 of the Code or under Sections 409 or 502(i) or ERISA.
(n) Taxes. (i) For purposes of this Agreement, (A) "Tax" or "Taxes"
shall mean any federal, state, local, foreign or other taxes (including, without
limitation, income (net or gross), gross receipts, profits, alternative or add-
on minimum, franchise, license, capital, capital stock, intangible, services,
premium, mining, transfer, gains, sales, use, ad valorem, payroll, wage,
severance, employment, occupation, property (real or personal), windfall
profits, import, excise, custom, stamp, withholding or estimated taxes), fees,
duties, assessments, withholdings or governmental charges of any kind whatsoever
(including interest, penalties, additions to tax or additional amounts with
respect to such items) and (B) "Returns" shall mean all returns, declarations,
reports, estimates, information returns and statements of any nature regarding
Taxes required to be filed by Seller, any of its subsidiaries, or any affiliate
of Seller or any of its subsidiaries.
(ii) Except as set forth on Schedule 6(n), (A) all Returns have been
or will be timely filed when due in accordance with all applicable laws; (B) all
Taxes shown on such Returns have been or will be timely paid when due; (C) such
Returns completely, accurately and correctly in all material respects reflected
or will reflect the facts regarding the income, properties, operations and
status of any entity required to be shown thereon; (D) the charges, accruals,
and reserves for Taxes due, or accrued but not yet due, relating to the income,
properties or operations of Seller or any of its subsidiaries as reflected on
their books are and will be adequate to cover such Taxes; (E) there are no
agreements or consents currently in effect for the extension or waiver of the
time (1) to file any Return or (2) for assessment or collection of any Taxes
relating to the income, properties or operations of Seller or any of its
subsidiaries, and none of Seller, its subsidiaries, or any affiliate of Seller
or any of its subsidiaries, has been requested in writing to enter into any such
agreement or consent; (F) all federal income tax Returns with respect to taxable
years ended on or prior to June 30, 1994 have been examined and closed, or are
Returns with respect to which the applicable statute of limitations, after
giving effect to any extensions and waivers, has expired; (G) all Taxes which
Seller or any of its subsidiaries is required by law to withhold or collect have
been duly withheld or collected, and have been timely paid over to the
appropriate governmental authorities to the extent due and payable; (H) there is
no action, suit, proceeding, investigation, audit or claim currently pending, or
to the knowledge of Seller, threatened, regarding any Taxes relating to the
income, properties or operations of Seller or any of its subsidiaries or any
group of which any of the Subsidiaries is now or was formerly a member; (I) all
Tax deficiencies which have been claimed, proposed or asserted in writing
against Seller or any of its subsidiaries or any group of which any of the
Subsidiaries is now or was formerly a member, have been fully paid, finally
settled or are being contested in good faith by appropriate proceedings; (J)
none of Seller, its subsidiaries, or any affiliate of Seller or its subsidiaries
has executed or entered into a closing agreement pursuant to Code Section 7121
(or any comparable provision of state, local or foreign law) that is currently
in force and determines the Tax liabilities of any of the Subsidiaries; (K)
there is no, and will not be any, agreement or consent made under Code Section
341(f) (or any comparable provision of state, local or foreign law) affecting
either of the Subsidiaries; (L) none of the Subsidiaries (1) is required to
treat any asset as owned by another person pursuant to the "safe harbor" leasing
provisions of the Code or as "tax-exempt use property" within the meaning of
Code Section 168(h) or (2) is required to apply any of the foregoing rules under
any comparable foreign, state or local Tax provision; (M) none of the
Subsidiaries is a party to any agreement, contract, arrangement or plan that
would result, separately or in the aggregate, in the payment of any "excess
parachute payments" within the meaning of Code Section 280G (or any comparable
provision of state, local or foreign law); (N) none of the Subsidiaries has
agreed, or is required, to make any adjustment under Code Section 481(a) (or any
comparable provision of state, local or foreign law) by reason of a change in
accounting method or otherwise; (O) none of the Subsidiaries has been or is
included in any consolidated, affiliated, combined, unitary or other similar
Returns that include Seller or any affiliate of Seller; (P) no power of attorney
is currently in effect, and no Tax ruling has been requested of any governmental
authority, with respect to any Tax matter relating to the income, properties or
operations of any of the Subsidiaries; (Q) there are no liens for Taxes upon any
of the Assets and, to the knowledge of Seller, no event has occurred which with
the passage of time or the giving of notice, or both, could reasonably be
expected to result in a lien for Taxes on any of the Assets; and (R) Seller is
not a United States real property holding corporation (as defined in Code
897(c)(2)) and has not been a United States real property holding corporation
during any period specified in Code 897(c)(1)(A)(ii).
(o) Proxy Statement. The proxy statement relating to the Seller's
Shareholders Meeting (as defined in Section 8(c)), as amended or supplemented
from time to time (as so amended and supplemented, the "Proxy Statement"), and
any other documents to be filed by Seller with the Securities and Exchange
Commission (the "SEC") or any other Governmental Entity in connection with the
transactions contemplated hereby will not, on the date of its filing or, in the
case of the Proxy Statement, at the date it is mailed to shareholders of Seller
and at the date of Seller's Shareholders Meeting, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading, except that no
representation is made by Seller with respect to information supplied in writing
by or on behalf of Purchaser expressly for inclusion therein. The Proxy
Statement and any such other documents filed by Seller with the SEC under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), will comply as
to form in all material respects with the requirements of the Exchange Act.
(p) Affiliate Transactions. Each contract, agreement or arrangement
between any of Seller or any affiliate of Seller, existing as of the date of
this Agreement and relating to the Business ("Affiliate Agreements") is
described as set forth on Schedule 6(p) annexed hereto, and all such Affiliate
Agreements will be terminated effective as of the close of business on the
Closing Date except as set forth on Schedule 6(p).
(q) Inventory; Accounts Receivable. (i) Except (A) as set forth on
Schedule 6(q)(i), (B) for inventory having an aggregate book value not greater
than $500,000 and (C) for inventory purchased for use in kitting, none of the
items of the Business' inventory was purchased from a source other than the
manufacturer thereof or a distributor duly licensed or franchised to distribute
such items by such manufacturer and, except for inventory purchased for customer
specific requirements (so long as subject to a contract for the purchase thereof
by such customer), all such items of inventory meet the requirements for return
to the manufacturer under the applicable Franchise Agreement other than as a
result of quantity limitations with respect to such return rights. Except as
set forth on Schedule 6(q)(i), to the extent that any items of inventory
intended to be sold to the military are, in order to meet military or similar
specifications, required to be accompanied by (or the seller thereof is required
to maintain) traceability, testing or other documentation, all such
documentation has been so maintained and is in the possession of Seller or its
subsidiaries at one of their respective offices.
(ii) Except as set forth on Schedule 6(q)(ii), the Accounts Receivable
(A) arose from bona fide sales transactions in the ordinary course of business
of the Business and are payable consistent with past practice, (B) are legal,
valid and binding obligations of the respective debtors enforceable in
accordance with their terms, (C) are not subject to any valid set-off or
counterclaim except as may be required by law, (D) do not represent obligations
for goods sold on consignment, on approval or on a sale-or-return basis or
subject to any other repurchase or return arrangement, (E) are collectible in
the ordinary course of business consistent with past practice of the Business in
the aggregate recorded amounts thereof, net of any applicable reserve reflected
in the balance sheet included in the Financial Statements, and (F) are not the
subject of any action, suit or proceeding brought by or on behalf of Seller.
Schedule (6)(q)(ii) sets forth a description of any security arrangements and
collateral securing the repayment or other satisfaction of the Accounts
Receivable. All steps necessary to render all such security arrangements set
forth on Schedule 6(q)(ii) legal, valid, binding and enforceable, and to give
and maintain for Seller a perfected security interest in the related collateral,
have been taken.
(r) Rights of Return. Except as set forth on Schedule 6(r), none of
Seller and its subsidiaries has sold any inventory of the Business which the
purchaser thereof has the right to return to Seller or any subsidiary or cause
the seller thereof to repurchase for any reason except (i) pursuant to the
customary express warranties of Seller or the relevant subsidiary, as the case
may be, for product quality or mistake in shipment or implied warranties at law
for title and against infringement, (ii) to the extent the same will be
reflected in reserves on the Audited Balance Sheet or (iii) for inventory having
a value not exceeding $50,000 individually or $250,000 in the aggregate.
(s) Insurance. Schedule 6(s) sets forth a complete and accurate list
of all of Seller's Insurance Policies (as defined in Section 8(d)). Each of
Seller's Insurance Policies is in full force and effect, and, to the knowledge
of Seller, there is not under any of Seller's Insurance Policies, any existing
default by Seller or any of the Subsidiaries, or any event which, after notice
or lapse of time or both, would constitute a default by Seller or any of the
Subsidiaries.
(t) Environmental Matters. Except as set forth on Schedule 6(t)
hereto:
(i) The operations of the Business and, to the knowledge of
Seller, the respective tenants of Seller and its subsidiaries are in compliance
with all Environmental Laws, except for noncompliance which may result in
Environmental Liabilities and Costs which individually or in the aggregate could
not have a material adverse effect on the Business;
(ii) With respect to any currently or previously owned or leased
property of Seller and its subsidiaries utilized in the current or previous
operation of the Business, none of Seller, its subsidiaries, and (to the
knowledge of Seller) their respective tenants is or are subject to any
outstanding or threatened order or notice from or agreement with any
Governmental Entity or other Person or is subject to any judicial or docketed
administrative proceeding with respect to (A) failure to comply with
Environmental Laws, (B) Remedial Action under Environmental Laws, (C) any
Environmental Liabilities and Costs, or (D) any Release or threatened Release of
Contaminants, except (I) as set forth on Schedule 6(h) or (II) for orders,
notices, agreements, or proceedings which may result in Environmental
Liabilities and Costs which individually or in the aggregate could not have a
material adverse effect on the Business;
(iii) There are no conditions or events associated with the
currently or previously owned or leased properties of Seller or any of its
subsidiaries or current or previous operations of the Seller and its
subsidiaries or, to the knowledge of Seller, their respective tenants, that may
result in any Environmental Liabilities and Costs which individually or in the
aggregate could have a material adverse effect on the Business;
(iv) Neither the facilities utilized in the current or previous
operations of the Business of Seller or any of its subsidiaries nor, to the
knowledge of Seller, such facilities of their respective tenants, is a
treatment, storage or disposal facility requiring a permit under the Resource
Conservation and Recovery Act, 42 U.S.C. 6901 et seq. ("RCRA"), the
regulations promulgated thereunder, or any analogous provision of state law;
(v) None of Seller, its subsidiaries and to the knowledge of
Seller, their respective tenants, has caused or allowed any Release of
Contaminants, relating to any property owned or leased or previously owned or
leased by the Seller or any of its subsidiaries that may result in Environmental
Liabilities and Costs which individually or in the aggregate could have a
material adverse effect on the Business;
(vi) With respect to any currently or previously owned or leased
property of Seller and its subsidiaries utilized in the current or previous
operation of the Business, none of Seller and any of its subsidiaries has
entered into any agreement that may require any of them to pay to, reimburse,
guarantee, pledge to, defend, indemnify, or hold harmless any Person for or
against Environmental Liabilities and Costs;
(vii) With respect to any currently or previously owned or leased
property of Seller and its subsidiaries utilized in the current or previous
operation of the Business, none of Seller and its subsidiaries has ever directly
or indirectly disposed of any Hazardous Material (as defined below) at any site
or location that is listed on any estate or federal list of sites requiring
Remedial Action.
For the purposes of this Agreement:
"Contaminant" means any substance regulated or forming the basis of
liability under any Environmental Law, including, without limitation, any waste,
pollutant, hazardous substance, toxic substance, hazardous waste, special waste,
petroleum or petroleum-derived substance or waste, or any material of which such
substance or waste is a constituent.
"Environmental Laws" means all federal, state, and local laws,
statutes, ordinances and regulations in effect as of the date hereof, and any
judicial or administrative interpretation thereof, including, without
limitation, any judicial or administrative order, consent decree or judgment
relating to the regulation and protection of human health, safety, the
environment and natural resources (including, without limitation, ambient air,
surface water, groundwater, wetlands, land surface or subsurface strata,
wildlife, aquatic species and vegetation). Environmental Laws include but are
not limited to the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended (42 U.S.C. 9601 et seq.) ("CERCLA"); the
Hazardous Material Transportation Act, as amended (49 U.S.C. 5101 et seq.);
the Federal Insecticide, Fungicide, and Rodenticide Act, as amended (7 U.S.C.
136 et. seq.); RCRA; the Toxic Substances Control Act, as amended (15 U.S.C.
2601 et seq.); the Clean Air Act, as amended (42 U.S.C. 7401 et seq.); the
Federal Water Pollution Control Act, as amended (33 U.S.C. 1251 et seq.); and
the Safe Drinking Water Act, as amended (42 U.S.C. 300f and their foreign,
state and local counterparts or equivalents, and any transfer or ownership
notification or approval statutes such as the New Jersey Industrial Site
Recovery Act (N.J. Stat. Xxx. 13:1K-6 et seq.).
"Environmental Liabilities and Costs" means as to any Person, all
liabilities, obligations, responsibilities, Remedial Actions, losses, damages,
treble damages, costs and expenses (including, without limitation, all fees,
disbursements and expenses of counsel, experts and consultants, and costs of
investigation and feasibility studies), fines, penalties, sanctions and interest
incurred as a result of any claim or demand by any other Person, whether based
on contract, tort, implied or express warranty, strict liability, criminal or
civil statute, including, without limitation, any thereof arising under any
Environmental Law, license, permit, order or agreement with any Governmental
Entity or other Person, and which relate to any environmental, health or safety
condition, or a Release or threatened Release.
"Release" means, as to any Person, any release, spill, emission,
leading, pumping, injection, deposit, disposal, discharge, dispersal, leaching
or migration of Contaminants into the indoor or outdoor environment or into,
onto or from any property owned or leased by such Person, including, without
limitation, the movement of Contaminants through or in the air, soil, surface
water, groundwater or property.
"Remedial Action" means all actions required to (i) clean up, remove,
treat or in any other way address Contaminants in the indoor or outdoor
environment, (ii) prevent the Release or threat of Release or minimize the
further Release of Contaminants so they do not migrate or endanger or threaten
to endanger public health or welfare or the indoor or outdoor environment, or
(iii) perform preremedial studies and investigations and post-remedial
monitoring and care.
(u) Determination of Taxability. No event or circumstance exists
which could reasonably be expected to have an adverse effect on the exemption of
interest on the Ontario Industrial Development Authority, Adjustable Tender
Industrial Development Revenue Bonds (X.X. Xxxxxxxx & Co. - West Coast Project)
Series 1985 from federal income taxation.
(v) Vote Required. Assuming the accuracy of the representation and
warranty contained in Section 7(e), the approval by the affirmative vote of a
majority of the outstanding shares of the common stock of Seller ("Seller Common
Stock") entitled to vote is the only vote of the holders of any class or series
of the capital stock of Seller required to approve the transactions contemplated
by this Agreement and the Option Agreement.
(w) Article SEVEN of Seller's Articles of Incorporation Not
Applicable. Seller has taken all necessary actions so that the provisions of
Article SEVEN of Seller's Articles of Incorporation will not, before the
termination of this Agreement, apply to this Agreement or the transactions
contemplated by this Agreement and the Option Agreement.
(x) Subsidiary Ownership of Real Property. None of the Subsidiaries
has now, or has had at any time, any rights arising out of or appurtenant to the
ownership or leasing of real property.
(y) Proxies. Each of the directors and officers of Seller named on
Schedule 6(y) has on the date hereof granted to Purchaser an irrevocable proxy
to vote the shares of Seller Common Stock beneficially owned by such person to
approve this Agreement and the transactions contemplated by this Agreement.
(z) Labor Matters. Except as set forth on Schedule 6(z), neither
Seller nor any of its subsidiaries is a party to any collective bargaining
agreement with any labor union, confederation or association and there are no
discussions, negotiations, demands or proposals that are pending or have been
conducted or made with or by any labor union, confederation or association. To
Seller's knowledge, there are not pending or threatened against Seller or any of
its subsidiaries any general labor disputes, strikes or work stoppages. There
is no present or former employee, manager or director of Seller or any of its
subsidiary who has made any claim since January 1, 1998 against Seller or any of
its subsidiaries (whether under law, any employment agreement or otherwise) on
account of or for: (i) overtime pay, other than overtime pay for the current
payroll period; (ii) wages or salaries, other than wages or salaries for the
current payroll period; (iii) vacations, sick leave, time off or pay in lieu of
vacation, sick leave or time off, other than vacation, sick leave or time off
(or pay in lieu thereof) earned in the twelve-month period immediately preceding
the date of this Agreement; or (iv) termination of employment, and to Seller's
knowledge, there is no basis for any such claim.
(aa) Supplier Audits. Schedule 6(aa) sets forth the dates of each
audit conducted since January 1, 1995 by each material supplier to the Business
and its subsidiaries.
(bb) Trading Practices; Ethical Standards. The directors, employees
and independent commission agents of Seller and its subsidiaries are in
compliance with ethical standards and other trading practices mandated by
applicable laws and contractual arrangements and have not made payments to any
third parties other than in the ordinary course of business or pursuant to
contracts.
(cc) Value-Added Business. The products assembled and sold by or on
behalf of Seller under Seller's value-added business (i) are first quality
merchandise, useable and saleable in the ordinary course of business within a
period of not more than twelve (12) months, (ii) were assembled in conformity in
all material respects with applicable specifications and quality control
standards and in conformity with all applicable laws, rules and regulations and
(iii) are not obsolete, damaged, defective or shopworn.
For purposes of this Agreement, "knowledge" of Seller shall mean and
be limited to the actual knowledge of any director of Seller or Xxxxx Xxxxxxx,
Xxxxxxx Xxxx, Xxxxxx Xxxxx, X.X. Xxxxx or Xxxxx Xxxxxxx, in each case, at the
date hereof.
7. Purchaser's Representations and Warranties.
Purchaser represents and warrants to Seller, as of the date of this
Agreement, as follows:
(a) Organization and Standing. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State of
New York.
(b) Execution, Delivery and Performance of Agreement. The execution,
delivery and performance of this Agreement by Purchaser will not, with or
without the giving of notice or the passage of time, or both, conflict with,
result in violation of, result in a default, right to accelerate or loss of
rights under, or result in the creation of any Encumbrance pursuant to, any
provision of Purchaser's certificate of incorporation or bylaws or any mortgage,
deed of trust, lease, license, material agreement (including any debt
instrument), law, rule, regulation, order or judgment or decree to which
Purchaser is a party or by which it may be bound or affected, except as set
forth on Schedule 7(b) or as could not be reasonably expected to have a material
adverse effect on Purchaser's ability to consummate the transactions
contemplated by this Agreement. Purchaser has the full corporate power and
authority to enter into this Agreement and to carry out the transactions
contemplated hereby. The Board of Directors of Purchaser has approved the
entering into by Purchaser of this Agreement. There are no other corporate
proceedings required to be taken by Purchaser to authorize the execution,
delivery and performance by Purchaser of this Agreement and the consummation of
the transactions contemplated hereby. This Agreement constitutes a valid and
binding obligation of Purchaser, enforceable against Purchaser in accordance
with its terms, except as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws affecting the enforcement of
creditor's rights generally and subject to usual equity principles.
(c) Information to be Included in the Definitive Proxy Statement.
Neither the information supplied or to be supplied in writing by or on behalf of
Purchaser for inclusion in the Proxy Statement in connection with the
transactions contemplated hereby will, at the date it is mailed to shareholders
of Seller and at the date of the Seller's Shareholders Meeting, contain any
untrue statement of a material fact or omit to state any, material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading.
(d) Litigation. No action, suit, litigation, arbitration, dispute,
proceeding or governmental investigation or governmental audit is pending
against, or to the knowledge (as defined at the end of this Section 7) of
Purchaser, threatened against, Purchaser or any of its properties, assets or
businesses, or any direct or indirect shareholder of Purchaser in its or his
capacity as such, which individually or in the aggregate is reasonably likely to
have a material adverse effect on Purchaser's ability to consummate the
transactions contemplated by this Agreement. There are no orders, judgments or
decrees of any court or governmental agency in which the Purchaser is named and
which apply specifically to the Purchaser or any of its properties, assets or
businesses and which individually or in the aggregate is reasonably likely to
have a material adverse effect on Purchaser's ability to consummate the
transactions contemplated by this Agreement.
(e) Ownership of Seller Common Stock. Neither Purchaser nor any of
its subsidiaries beneficially owns more than 100 shares of Seller Common Stock.
8. Certain Agreements.
(a) Observance of Operations of the Business. From the date hereof
until the Closing Date, Purchaser may, at its election, have a reasonable number
of representatives (which shall be employees of Purchaser or existing
consultants of Purchaser who are acting as such in connection with this
Agreement) at the facilities of Seller and its subsidiaries to observe and
consult with representatives of Seller and its subsidiaries with respect to the
management of the operations of the Business, except as otherwise provided in
Section 8(b). Notwithstanding anything in this Agreement to the contrary, all
rights of Purchaser or its representatives to access to or inspection of the
Business or to obtain information with respect to the Business pursuant to
Sections 8(a), 8(b), 9(c) and 9(e) shall be effected solely through Xxxxxx
Xxxxxx, Xxxxx Xxxxxxx or such other persons as may be mutually agreed by the
parties hereto and shall be subject to the right of a representative of Seller
to accompany Purchaser or its representative in connection therewith.
(b) Maintain Business. From the date hereof to the Closing, except as
otherwise provided in this Section 8(b), Seller shall, and shall cause each of
its subsidiaries to, conduct the Business only in the ordinary course and
consistent with its prior practice (including with respect to the collections of
Accounts Receivable and replenishment of Inventory), maintain, keep and preserve
the Assets and the assets and properties of the Subsidiaries in good condition
and repair and shall use its best efforts to maintain insurance thereon in
accordance with present practices, and Seller shall, except as provided in this
Section 8(b), use its best efforts to act in such manner to preserve the
business and organization of the Business intact, to use its best efforts, at
current compensation levels, to keep available to Purchaser the services of
present employees of the Business and to use its best efforts to preserve for
the benefit of Purchaser the goodwill of suppliers and customers and others
having business relations with the Business. Without limiting the generality of
the foregoing, unless Purchaser shall have otherwise consented in writing,
Seller shall:
(i) permit Purchaser's representatives to communicate, orally, in
writing or by other media, with the employees of Seller and of the Subsidiaries
in connection with matters other than integration planning, due diligence and
purchase price determination, as long as such communications are made jointly
with designated representatives of Seller and are reviewed and approved in
advance by Seller;
(ii) not, and cause each of the Subsidiaries not to, conduct the
Business in a manner such that the provisions of Section 6(g) will not remain
true and correct in all material respects without the consent of Purchaser;
(iii) not cause any of the Subsidiaries to change its charter or
by-laws in any manner or merge or consolidate or obligate themselves to do so
with or into any other entity;
(iv) cause those employees of Seller as shall be designated by
Xxxxxx Xxxxxx and Xxxxx Xxxxxxx and as may be mutually agreed by the parties
hereto to assist Purchaser in the human resource planning and the planning of
the integration of the Business with and into the businesses of Purchaser (it
being agreed that such plans shall not be implemented prior to the Closing
without the consent of Seller);
(v) not modify or change any existing Franchise Agreement or
contract required to be set forth on Schedule 6(k) or renew or extend any
existing Real Property Lease (unless such renewal or extension is for no more
than six (6) months and is otherwise on terms substantially similar to such
renewed or extended lease);
(vi) not open any new facility in respect of the Business;
(vii) not fail to pay all Taxes as they become due and payable,
except in cases where the payment of such Taxes is being disputed in good faith
by Seller with appropriate reserves reflected or to be reflected in the Audited
Balance Sheet;
(viii) with respect to any employee of the Business having total
compensation in excess of $100,000 annually, not hire, promote or fire any such
employee other than for cause;
(ix) not make any capital expenditures or capital additions or
betterment in excess of $250,000 in the aggregate in respect of the Business;
(x) not make any payment, loan, or other transfer of any assets
to, or assume any obligations or liabilities of, Seller or any affiliates of
Seller except in the ordinary course of business consistent with past practice
of the Business; and
(xi) consult with and advise Purchaser with respect to (A) any
inventory purchases out of the ordinary course of business or inconsistent with
past practice and (B) inventory management.
(c) Approval of Shareholders; Proxy Statement. (i) Seller shall cause
a meeting of its shareholders (the "Seller's Shareholders Meeting") to be duly
called and held as soon as reasonably practicable for the purpose of voting to
approve the transactions contemplated by this Agreement (the "Seller
Shareholders' Approval"). The Board of Directors of Seller shall recommend to
its shareholders the approval of all such matters and shall use all reasonable
efforts to obtain the approval of such shareholders; provided, however, that
nothing herein shall require the Board of Directors of Seller to act, or refrain
from acting, in any manner that it may determine, after consultation with its
outside counsel, to be necessary to the proper discharge of the directors'
fiduciary duties to its shareholders. In the event that the Seller
Shareholders' Approval is not obtained on the date on which the Seller's
Shareholders Meeting is initially convened, the Board of Directors of Seller
agrees to adjourn such Seller's Shareholders Meeting at least twice for the
purpose of obtaining the Seller Shareholders' Approval and to use its best
efforts during any such adjournments to obtain the Seller Shareholders'
Approval, unless failure to obtain the Shareholders' Approval is caused by the
holders of a majority of outstanding shares of Seller Common Stock voting
against the approval of the transactions contemplated by this Agreement.
(ii) In connection with Seller's Shareholders Meeting, Seller shall
prepare and file a preliminary proxy statement relating to the transactions
contemplated hereby (the "Preliminary Proxy Statement") with the SEC, and Seller
shall use its best efforts to respond to the comments of the SEC and to cause a
definitive proxy statement (the "Definitive Proxy Statement") to be mailed to
its shareholders, all as soon as reasonably practicable. Seller shall notify
Purchaser as soon as reasonably practicable of the receipt of any comments from
the SEC and of any requests by the SEC for amendments or supplements to the
Preliminary Proxy Statement or the Definitive Proxy Statement or for additional
information, and shall as soon as reasonably practicable supply to Purchaser
copies of all correspondence between it or its representatives and the SEC or
members of its staff with respect to the Preliminary Proxy Statement or the
Definitive Proxy Statement. If at any time prior to Seller's Shareholders
Meeting, any event should occur relating to Seller, any of the Subsidiaries,
Purchaser, their respective officers or directors or otherwise, which should be
set forth in an amendment of, or a supplement to, the Definitive Proxy
Statement, the first party learning of such event shall promptly notify the
other, and Seller, with Purchaser's reasonable cooperation, shall thereupon
promptly prepare and mail such amendment or supplement. Anything to the
contrary contained herein notwithstanding, Seller shall not (except to the
extent required by law) include in its Preliminary Proxy Statement or Definitive
Proxy Statement any information with respect to Purchaser, or any of its
officers, directors, affiliates or associates, or Purchaser's plans or
intentions, the form and content of which shall not have been approved by
Purchaser prior to such inclusion, such approval not to be unreasonably
withheld.
(d) Insurance. (i) To the extent that (A) there are third-party
insurance policies maintained by Seller and its affiliates covering any loss,
liability, damage or expense relating to the Assets, operations, conduct,
products and employees (including former employees) of the Business ("Seller's
Insurance Policies") (all such losses, liabilities, claims, damages or expenses
regardless of the availability of insurance coverage, are herein referred to
collectively as the "Business Liabilities") and relating to or arising out of
occurrences prior to the Closing, and (B) Seller's Insurance Policies continue
after the Closing to permit claims ("Claims") to be made with respect to such
Business Liabilities relating to or arising out of occurrences prior to the
Closing, Seller agrees to cooperate and cause its affiliates to cooperate with
Purchaser in submitting Claims on behalf of Purchaser or the Subsidiaries under
Seller's Insurance Policies with respect to such Business Liabilities relating
to occurrences prior to the Closing, except for Claims relating to Retained
Liabilities.
(ii) Seller shall maintain each of Seller's Insurance Policies in full
force and effect until the Closing.
(e) Hiring of Employees. Seller and Purchaser agree that pending the
Closing, and in the event of termination of this Agreement, until six months
after such termination, (i) Purchaser will not hire, employ, solicit, or offer
employment to any present employee of Seller or any of its subsidiaries, whether
or not such employee remains in the employ of Seller or any of its subsidiaries,
after the date hereof, without Seller's written consent, except for discussions
prior to the termination of this Agreement in accordance with Section 8(b)(i)
with employees relating to their employment by Purchaser after the consummation
of the transactions contemplated herein, and (ii) Seller will not, and will
cause each of its subsidiaries not to, hire, employ, solicit or offer employment
to any present employee of Purchaser, whether or not such employee remains in
the employ of Purchaser after the date hereof, without Purchaser's written
consent. The foregoing mutual covenants shall survive any breach or alleged
breach of this Agreement or the termination of this Agreement for any reason.
(f) Tax Matters. (i) Any and all existing Tax sharing, allocation,
compensation or like agreements or arrangements, whether or not written, that
include any of the Subsidiaries, including without limitation any arrangement by
which any of the Subsidiaries makes compensating payments to each other or any
other member of any affiliated, consolidated, combined, unitary or other similar
Tax group for the use of certain tax attributes, shall be terminated as to the
Subsidiaries on or prior to the Closing Date (pursuant to a writing executed on
or before the Closing Date by all parties concerned) and shall have no further
force or effect as to the Subsidiaries. Any and all powers of attorney relating
to Tax matters concerning any of the Subsidiaries shall be terminated as to that
Subsidiary on or prior to the Closing Date and shall have no further force or
effect.
(ii) After the Closing Date, Purchaser and Seller shall provide each
other, and Purchaser shall cause the Subsidiaries to provide Seller, with such
cooperation and information relating to the Subsidiaries as either party
reasonably may request in (A) filing any Tax return, amended return or claim for
refund, (B) determining any Tax liability or a right to refund of Taxes, (C)
conducting or defending any audit or other proceeding in respect of Taxes or (D)
effectuating the terms of this Agreement. The parties shall retain, and
Purchaser shall cause the Subsidiaries to retain, all returns, schedules and
work papers, and all material records (including accounting records) and
other documents relating thereto, until the expiration of the statute of
limitation (and, to the extent notified by any party, any extensions thereof) of
the taxable years to which such returns and other documents relate and, unless
such returns and other documents are offered and delivered to Seller or
Purchaser, as applicable, until the final determination of any Tax in respect of
such years. Any information obtained under this Section 8(f)(ii) shall be kept
confidential, except as may be otherwise necessary in connection with filing any
Tax return, amended return, or claim for refund, determining any Tax liability
or right to refund of Taxes, or in conducting or defending any audit or other
proceeding in respect of Taxes. Notwithstanding the foregoing, neither Seller
nor Purchaser, nor any of their affiliates, shall be required unreasonably to
prepare any document, or determine any information not then in its possession,
in response to a request under this Section 8(f)(ii).
(iii) Purchaser shall have received, on or before the Closing Date, an
affidavit in the form of Exhibit E that Xxxx Ontario Holding, Inc. is not a
"foreign person" within the meaning of Code Section 1445. If, on or before the
Closing Date, Purchaser shall not have received such affidavit, Purchaser may
withhold from the Purchase Price payable at Closing to the Seller pursuant
hereto such sums as are required to be withheld therefrom under Code Section
1445.
(iv) Seller shall pay when due, any transfer, gains, documentary,
sales, use, registration, stamp, value added or other similar Taxes payable by
reason of the transactions contemplated by this Agreement or attributable to the
sale, transfer or delivery of the Acquired Shares hereunder, and Purchaser shall
reimburse Seller one-half of any such payment, provided that the amount of
reimbursement by Purchaser shall not exceed $500,000. Seller shall, at its own
expense, file all necessary Tax Returns and other documentation with respect to
all such Taxes.
(g) Option Agreement. Seller and Purchaser will perform fully their
respective obligations under the Option Agreement.
(h) Transition Services. At Purchaser's request, Seller agrees to provide
to Purchaser and the Business data processing and other computer services, data-
induced communications, accounting services, human resources and other
administrative support to the extent used by the Business prior to the Closing
Date, and the facilities and services set forth on Schedule 6(b) and the
facility set forth on Schedule 1(b)(viii) (collectively, the "Transition
Services") for up to twelve (12) months from the Closing Date. Purchaser shall
reimburse Seller for all out-of-pocket costs incurred in providing the
Transition Services, including any reasonable payments deemed necessary by
Seller (and consented to in advance by Purchaser, which consent shall not be
unreasonably withheld) to ensure continuing services of the personnel performing
such services during such period.
9. Certain Covenants of Seller.
(a) Obtain Consents. Seller will, and will cause each of its subsidiaries
to, upon the request of Purchaser, use its reasonable efforts to obtain the
consents necessary in connection with the transactions contemplated hereby with
respect to each (i) of the items set forth on Schedule 6(c)(i), (ii) lease set
forth on Schedules 1(a)(ii)(A) and 1(a)(ii)(B) and (iii) Franchise Agreement,
and deliver to Purchaser evidence thereof, it being understood however that (A)
neither Seller nor any of its subsidiaries shall be required to pay any
consideration or relinquish valuable rights to obtain such consents and (B)
Purchaser shall cooperate with Seller in obtaining such consents.
(b) Accomplish Sale. Seller will, and will cause each of its subsidiaries
to, enter into no transaction and make no agreement or commitment which would
prevent or unreasonably delay the Closing, and will, and will cause each of its
subsidiaries to, act in such manner to consummate the transactions contemplated
by this Agreement and will, and will cause each of its subsidiaries to, use its
reasonable efforts not to permit any event to occur which would result in any of
its representations, warranties or covenants contained in this Agreement or
delivered in connection herewith not being true and correct at and as of the
time immediately after the occurrence of such transaction or event except to the
extent Purchaser has (y) consented thereto or (z) requested Seller to take or
omit to take an action (and Seller has complied with such request), in each case
where such consent or request has resulted in such representation and warranty
not being true and correct, it being agreed that Purchaser shall notify Seller
of any breach of this provision of which it has actual knowledge and provide
Seller with a reasonable opportunity to cure such breach.
(c) Cooperate with Purchaser. Subject to Section 8(b), Seller shall, and
shall cause each of its subsidiaries and shall direct each of their respective
officers and employees to, reasonably cooperate and assist Purchaser and
Purchaser's accountants, attorneys, employees, lenders and other representatives
in consummating the transactions contemplated under this Agreement.
(d) No Solicitation. Seller shall not, and shall direct each of its
subsidiaries and their respective officers, employees, representatives and
agents not to, directly or indirectly, induce, solicit or initiate discussions
or negotiations with, or provide any non-public information to, any corporation,
partnership, person or other entity or group concerning any merger, sales of
substantial assets, sales of shares of capital stock or similar transactions
involving Seller or any subsidiary or division of Seller if such transaction
involves the Business or any of the Assets ("Alternative Proposal") or enter
into any agreement with respect thereto; provided that, prior to the receipt of
the Seller Shareholders' Approval and upon receipt of advice of Seller's legal
counsel that such provision, discussion or negotiation is required pursuant to
fiduciary obligations under applicable law, Seller may provide information
(including non-public information, but only pursuant to a confidentiality
agreement in customary form, including customary standstill provisions), and
enter into (or induce) discussions or negotiations with, any person who has made
a bona fide unsolicited Alternative Proposal in respect of such a transaction
which the Board of Directors of Seller in good faith determines is a better
offer than the transactions contemplated by this Agreement. Seller will
promptly communicate to Purchaser the terms of any Alternative Proposal
(including the maker thereof) which it may receive in respect of all such
transactions prohibited by the foregoing and keep Purchaser informed of the
status and material information with respect to such discussions or
negotiations. Nothing in this Section 9(d) shall (x) permit Seller to terminate
this Agreement (except as specifically provided in Section 17, (y) permit Seller
to enter into any agreement with respect to an Alternative Proposal for so long
as this Agreement remains in effect (it being agreed that for so long as this
Agreement remains in effect, Seller shall not enter into any agreement with any
person or group that provides for, or in any way facilitates, an Alternative
Proposal (other than a confidentiality agreement under the circumstances
described above)), or (z) affect any other obligation of Seller under this
Agreement.
(e) Access to Information. Prior to the Closing or termination of this
Agreement in accordance with its terms, Seller will, and will cause each of its
subsidiaries to, (i) give Purchaser and its authorized representatives
reasonable access during normal business hours to all offices and other
facilities relating to the Business and to all its books and records relating to
the Business and will request that its independent accountants allow Purchaser's
independent accountants access to all of their work papers, including, but not
limited to, all plan documents, audit programs, lists of proposed adjustments
and conclusion memoranda, (ii) permit Purchaser to make such inspections as it
may reasonably require, and (iii) subject to Section 8(b), cause its officers to
furnish Purchaser with such financial and operating data and other information
with respect to the Business and their properties as Purchaser may from time to
time reasonably request, in each case to the extent that the same does not
unreasonably interfere with the operations of the Business (it being understood
that Seller shall, and shall cause its subsidiaries to, develop (with the
cooperation of Purchaser) such information as may be reasonably required in
connection with Purchaser's integration planning, provided that such development
does not unreasonably interfere with the operations of the Business or conflict
with applicable law or the provisions of any existing confidentiality agreement
and there exists sufficient underlying data to develop such information).
Purchaser will, and will direct each of its representatives to, hold all such
information and documents confidential in accordance with and subject to the
terms of the Confidentiality Agreement dated April 8, 1998 executed by Purchaser
and Seller (the "Confidentiality Agreement"); provided, however, that the terms
of the Confidentiality Agreement relating to the Assets and the Business shall
not apply to Purchaser after the Closing Date. Seller shall hold all
information relating to the Assets or the Business confidential in accordance
with and subject to the terms of the Confidentiality Agreement as if Seller were
the recipient of such information.
(f) Employee Benefits Plan. As of the Closing Date, each employee of the
Business shall become 100% vested in his or her interest in or his or her
accrued benefits under all Employee Benefit Plans.
(g) Xxxx-Xxxxx Compliance. Seller shall promptly prepare and file all
reports and provide all additional information required under the Xxxx-Xxxxx-
Xxxxxx Antitrust Improvements Act of 1976, as amended ("Xxxx-Xxxxx"), and use
its best efforts to obtain all approvals required thereunder.
(h) Elimination of Intercompany Indebtedness. Other than intercompany
indebtedness and receivables between the Subsidiaries, prior to the Closing
Date, Seller shall cause all intercompany indebtedness involving the Business to
be canceled or eliminated or contributed to the Subsidiaries and all
intercompany receivables involving the Business to be canceled or eliminated or
distributed to Seller.
(i) Delivery of Documents. Seller shall cause to be delivered to Purchaser
all documents required to be delivered to Purchaser at or prior to the Closing.
(j) Resignations of Directors. Seller shall cause to be delivered to
Purchaser at or prior to the Closing the resignations of the boards of directors
of each of the Subsidiaries as Purchaser shall have requested.
(k) Real Property. At or prior to the Closing, the following shall occur:
(i) Subject to Section 8(f)(iv), all real estate transfer and gains
Taxes payable by reason of the transaction contemplated hereunder shall be paid
and borne by Seller. Seller and Purchaser shall cooperate to prepare and file
all required documents and filings with applicable authorities.
(ii) Seller shall deliver to Purchaser and its title insurer such
evidence as may be reasonably required by Purchaser or its title insurer of the
due authorization, execution and delivery of this Agreement.
(iii) In connection with Purchaser's efforts to obtain an owner's title
insurance policy or policies (the "Policies") for any of the Real Property,
Seller shall provide for the delivery of such executed and acknowledged
affidavits and/or agreements as Purchaser's title insurer shall reasonably
require in order to omit from each of the Policies all exceptions (other than
Real Estate Encumbrances) for (A) judgments, bankruptcies or other returns
against persons or entities whose names are the same as or similar to name of
Seller or any of the Subsidiaries, (B) rights of tenants, (C) mechanics' and
materialmen's Encumbrances not reflected on the June Balance Sheet and (D)
unrecorded documents to which any of the Subsidiaries or Seller is a party or of
which any of the Subsidiaries or Seller has knowledge.
(iv) Seller shall cause its subsidiary Xxxx Ontario Holding, Inc. to
deliver to Purchaser the general warranty deed for the Real Property located in
the City of Ontario, County of San Bernardino, State of California, sometimes
commonly referred to as 0000 Xxxxx Xxxxxxxxxxx Xxxxxx, Xxxxxxx, Xxxxxxxxxx.
(l) Canadian Antitrust Compliance. Seller shall promptly file any notice
and provide any information required under Investment Canada and the Competition
Act of Canada.
(m) Security Deposits. Seller will take all actions necessary to transfer
to Purchaser on the Closing Date all of Seller's or its applicable subsidiaries'
right, title and interest in and to the Tenant Security Deposits and the
Landlord Security Deposits.
(n) Delivery of Books and Records, etc.; Removal of Property. (i) On the
Closing Date, Seller will deliver or make available to Purchaser at the
locations at which the Business is conducted all of the Business Books and
Records and such other Assets as are in Seller's or its applicable subsidiaries'
possession at other locations, and if at any time after the Closing Seller
discovers in its possession or under its control any other Business Books and
Records or other Assets, it will forthwith deliver such Business Books and
Records or other Assets to Purchaser.
(ii) Within sixty (60) days after the Closing Date, Seller shall
remove all Assets and Properties not being sold to Purchaser hereunder from the
Real Property and Improvements. Such removal shall be at the sole cost and risk
of Seller, including risk of loss and damage to such Assets and Properties.
Purchaser shall have no liability
to Seller with respect to such removal and transportation. Seller shall be
responsible for all repairs to the Real Property and Improvements due to damage
caused by Seller and its employees and agents in connection with the removal of
Seller's Assets and Properties.
(o) Noncompetition. (i) Seller will, for a period of five (5) years from
the Closing Date, refrain from, either alone or in conjunction with any other
Person, or directly or indirectly through its present or future affiliates;
(A) causing or attempting to cause (A) any client, customer or
supplier of the Business to terminate or materially reduce its business with
Purchaser or any of its affiliates or (B) any officer, employee or consultant of
Purchaser or any of its affiliates engaged in the Business to resign or sever a
relationship with Purchaser or any of its affiliates;
(B) disclosing (unless compelled by judicial or administrative
process) or using any confidential or secret information relating to the
Business or any client, customer or supplier of the Business; or
(C) participating or engaging in, or otherwise lending assistance
(financial or otherwise) to any Person participating or engaged in, any of the
lines of business which comprised the Business on the Closing Date; provided,
however, that nothing in this clause (C) will be deemed to prohibit Seller from
continuing the business conducted by its Computer Division (as set forth on
Schedule (1)(b)(ix)), namely selling computer systems and related items and
value-added services to businesses, governmental agencies and academic
institutions.
(ii) The parties hereto recognize that the laws, rules, regulations and
public policies of the various states of the United States may differ as to the
validity and enforceability of covenants similar to those set forth in this
Section 9(o). It is the intention of the parties that the provisions of this
Section 9(o) be enforced to the fullest extent permissible under the laws and
policies of each jurisdiction in which enforcement may be sought, and that the
unenforceability (or the modification to conform to such laws, rules,
regulations or policies) of any provisions of this Section 9(o) shall not render
unenforceable, or impair, the remainder of the provisions of this Section 9(o).
Accordingly, if any provision of this Section 9(o) shall be determined to be
invalid or unenforceable, such invalidity or unenforceability shall be deemed to
apply only with respect to the operation of such provision in the particular
jurisdiction in which such determination is made and not with respect to any
other provision or jurisdiction.
(iii) The parties hereto acknowledge and agree that any remedy at law for
any breach of the provisions of this Section 9(o) would be inadequate, and
Seller hereby consents to the granting by any court of an injunction or other
equitable relief, without the necessity of actual monetary loss being proved, in
order that the breach or threatened breach of such provisions may be effectively
restrained.
(p) Takeover Statutes. If any "fair price", "moratorium", "control share
acquisition" or other form of antitakeover statute or regulation shall become
applicable to the transactions contemplated hereby, Seller and the members of
the Board of Directors of Seller shall grant such approvals and take such
actions as are reasonably necessary so that the transactions contemplated hereby
may be consummated as promptly as practicable on the terms contemplated hereby
and thereby and otherwise act to eliminate or minimize the effects of such
statute or regulation on the transactions contemplated hereby and thereby.
(q) Declaration of Distribution. Seller shall not take any action to
declare a dividend or to make any distribution of the Purchase Price to the
holders of Seller Common Stock (including the adoption by its Board of Directors
of a resolution declaring such distribution and establishing a record date and
such distribution date), unless (i) such action occurs after the Audited Balance
Sheet Date, (ii) such distribution would not constitute a fraudulent conveyance
under applicable bankruptcy laws and (iii) such distribution would not violate
Section 500 et seq. of the CCC.
(r) Use of Name. Following the Closing and continuing thereafter
indefinitely, Seller shall not, and shall cause its subsidiaries not to,
directly or indirectly, use or otherwise exploit the name "Milgray Electronics"
or any derivatives thereof or any other trade name, domain name, trademark or
service xxxx similar or confusingly similar thereto or used or held for use in
the Business. Within one (1) week after the Closing Date, Seller shall cause
each of its subsidiaries to change its name to no longer contain the name
"Milgray" or any derivatives thereof.
10. Certain Covenants of Purchaser.
(a) Obtain Consents. Purchaser will use its best efforts to obtain and
deliver to Seller all consents necessary to the transactions contemplated
hereunder.
(b) Accomplish Sale. Purchaser will enter into no transaction and make no
agreement or commitment which would prevent or unreasonably delay the Closing
and will act in such manner, and cause its officers to act in such manner, to
consummate the transactions contemplated by this Agreement and will use its
reasonable efforts not to permit any event to occur which would result in any of
its representations, warranties or covenants contained in this Agreement or
delivered in connection herewith not being true and correct at and as of the
time immediately after the occurrence of such transaction event.
(c) Cooperate with Seller. Purchaser shall, and shall direct each of its
officers and employees to, cooperate fully and assist Seller and Seller's
accountants, attorneys, employees and other representatives in completing the
transactions contemplated under this Agreement.
(d) Xxxx-Xxxxx Compliance. Purchaser shall promptly prepare and file all
reports and provide all additional information required under Xxxx-Xxxxx, and
use its best efforts to obtain all approvals required thereunder.
(e) Employee Benefits and Employee Benefit Plans. (i) Purchaser shall
offer employment to all persons who were employed by Seller or its subsidiaries
primarily in connection with the Business on the date immediately preceding the
Closing Date, including those on disability and vacation ("Employees"), except
those Employees set forth on Schedule 10(e)(i). Each such Employee shall be
eligible to participate in all Employee Benefit Plans maintained or sponsored by
Purchaser, or to which Purchaser contributes, and in which comparable employees
of Purchaser are entitled to participate. Each such Employee's period of
service with Seller or its subsidiaries shall be counted in determining
eligibility for participation under each Employee Benefit Plan of Purchaser,
including, without limitation, Purchaser's ESOP and Capital Accumulation Plan,
and such service shall be counted in determining vesting of benefits under each
Employee Benefit Plan of Purchaser other than Purchaser's ESOP; provided,
however, that such service shall not be counted for benefit contribution or
accrual purposes under any Employee Benefit Plans of Purchaser. Each such
Employee shall be eligible to be covered as of his date of hire under any
Employee Benefit Plan of Purchaser providing health care benefits (whether or
not through insurance) without regard to any waiting period or any condition or
exclusion based on any pre-existing conditions, and shall receive full credit
for any copayments or deductible payments made before the Closing Date.
Purchaser shall use its reasonable best efforts to cause its Capital
Accumulation Plan to accept direct rollovers of eligible rollover distributions
(within the meaning of Section 402(f)(2)(A) of the Code) received by Employees
under the Xxxx Industries Savings and Profit Sharing Plan.
(ii) Purchaser shall be responsible for any legally mandated
continuation of health care coverage with respect to any "group health plan" (as
such term is defined in Section 607(l) of ERISA and Section 5000(b)(1) of the
Code) as may be required under Section 4980B of the Code ("COBRA Liability"),
for Employees and/or their dependents who have a loss of health care coverage
under Section 4980B of the Code due to a qualifying event (within the meaning of
Section 4980B(f)(iii) of the Code) which occurs after the Closing Date ("Post-
Closing COBRA Liability").
(iii) Purchaser agrees that it shall not, at any time prior to sixty
days after the Closing Date, effectuate a "plant closing" or "mass layoff'" as
those terms are defined in the Worker Adjustment and Retraining Notification Act
of 1988 ("WARN") affecting in whole or in part any facility, site of employment,
operating unit or Employee of Seller or any of the Subsidiaries to the extent
that the requirements of WARN are applicable under the circumstances without
complying fully with the applicable requirements of WARN.
(f) Required Documents. Purchaser shall cause to be delivered to Seller
all documents required to be delivered to Seller at or prior to the Closing.
(g) Canadian Antitrust Compliance Purchaser shall promptly file any notice
and provide any information required under Investment Canada and the Competition
Act of Canada.
(h) License of Xxxx Name. At the Closing, Purchaser shall grant to Seller
a royalty-free, paid up, transferable, non-exclusive license, in the form
attached hereto as Exhibit D, to use the name "Xxxx Industries", "Xxxx" or any
derivatives thereof.
11. Conditions Precedent to Purchaser's Obligations
All obligations of Purchaser hereunder are subject to the fulfillment
or waiver of each of the following conditions at or prior to the Closing:
(a) All representations and warranties of Seller contained in this
Agreement shall be true and correct in all material respects when made and shall
be deemed to have been made again at and as of the date of the Closing, and
shall then be true and correct in all material respects.
(b) There shall not have been any breach in any material respect by Seller
of any of its covenants, agreements and obligations required by the terms of
this Agreement to be performed by Seller at or before the Closing.
(c) Since the date of this Agreement, none of the following shall have
occurred: (i) improper conduct by Seller or any of its subsidiaries
constituting fraud in connection with transactions with a significant supplier
of inventory to Seller or any of its subsidiaries and (ii) violations of
government contract laws, rules and practices committed by Seller or any of its
subsidiaries that both (A) result in a termination or suspension of performance
under a government prime or subcontract or debarment and (B) significantly
impair the ability of Seller or any of its subsidiaries to conduct business as a
government prime contractor or subcontractor.
(d) There shall have been no material adverse change since June 30, 1998 in
the Assets or the financial condition, results of operations, prospects or
business of the Business taken as a whole; provided that the foregoing shall not
include the termination of any Franchise Agreements due to the public
announcement of this Agreement or the transactions contemplated hereby.
(e) There shall be delivered to Purchaser a certificate executed by the
chief executive officer and chief financial officer of Seller, dated the Closing
Date, certifying, in their capacities as such officers, that the conditions set
forth in paragraphs (a), (b), (c) and (d) of this Section 11 have been
fulfilled.
(f) Seller shall have obtained evidence in form reasonably satisfactory to
Purchaser that any Encumbrances on the Assets pursuant to the Credit Agreement
have been or will, immediately following the Closing, be released by the lenders
thereunder.
(g) The consummation of the transactions contemplated hereby shall not have
been enjoined by any court or federal, state or foreign governmental agency,
including, without limitation, the Department of Justice, the Federal Trade
Commission or the SEC.
(h) Seller shall have filed all reports and satisfied all requests for
additional information pursuant to Xxxx-Xxxxx, and all applicable waiting
periods shall have expired.
(i) The consents set forth on Schedule 11(i) shall have been obtained and
shall be in full force and effect and not subject to any condition that has not
been satisfied or waived.
(j) Purchaser shall have received the opinion of Irell & Xxxxxxx LLP,
counsel to Seller, substantially in the form of Exhibit F.
(k) There shall not be a moratorium on commercial bank lending declared by
a federal or New York State regulatory authority or other circumstances or state
of facts constituting a disruption in the financial markets causing banks and
other financial institutions not to extend credit.
12. Conditions Precedent to Seller's Obligations.
All obligations of Seller hereunder are subject to the fulfillment or
waiver of each of the following conditions at or prior to the Closing:
(a) All representations and warranties of Purchaser contained in this
Agreement shall be true and correct in all material respects when made and shall
be deemed to have been made again at and as of the Closing, and shall then be
true and correct in all material respects.
(b) There shall not have been any breach in any material respect by
Purchaser of any of its covenants, agreements and obligations required by the
terms of this Agreement to be performed by Purchaser at or before the Closing.
(c) There shall be delivered to Seller a certificate executed by the chief
executive officer and chief financial officer of Purchaser, dated the Closing
Date, certifying that the conditions set forth in paragraphs (a) and (b) of this
Section 12 have been fulfilled.
(d) The consummation of the transactions contemplated hereby shall not have
been enjoined by any court or federal, state or governmental agency, including,
without limitation, the Department of Justice, the Federal Trade Commission or
the SEC.
(e) Purchaser shall have filed all reports and satisfied all requests for
additional information pursuant to Xxxx-Xxxxx and all applicable waiting periods
shall have expired.
(f) The shareholders of Seller shall have approved the transactions
contemplated hereby in accordance with applicable law and with the articles of
incorporation and by-laws of Seller.
(g) The banks under the Credit Agreement shall have consented to the
transactions contemplated hereby.
(h) Seller shall have received the opinion of Milbank, Tweed, Xxxxxx &
XxXxxx, special counsel to Purchaser, substantially in the form of Exhibit G.
13. Indemnification.
(a) Indemnification and Reimbursement of Purchaser. Seller agrees to
defend, indemnify and hold harmless Purchaser and its successors and assigns,
against and in respect of any and all loss, liability, cost, expense, damage, or
decline in value, including all costs and expenses incurred in enforcing rights
under this Section 13, but after deducting the benefits actually or reasonably
expected to be received (offset by any costs related to such benefits) with
respect to Taxes or insurance (collectively, "Indemnification Losses"),
resulting from, arising out of or relating to (A) (i) any misrepresentation or
breach of warranty by Seller made as a part of or contained in this Agreement or
in any certificate or document executed and delivered in connection with this
Agreement or the transactions contemplated herein and (ii) any failure of the
representations and warranties of Seller contained in Section 6 of this
Agreement to be true and correct as if made again at and as of the Closing Date,
(B) any failure by Seller to perform or otherwise fulfill any covenant or
agreement made herein or contemplated hereby and (C) Retained Liabilities.
(b) Indemnification and Reimbursement of Seller. Purchaser agrees to
defend, indemnify and hold harmless Seller, and its successors and assigns,
against and in respect of any and all Indemnification Losses resulting from,
arising out of or relating to (A) (i) any misrepresentation or breach of
warranty by Purchaser made as a part of or contained in this Agreement or in any
certificate or document executed and delivered in connection with this Agreement
or the transactions contemplated herein and (ii) any failure of the
representations and warranties of Purchaser contained in Section 7 of this
Agreement to be true and correct as if made again at and as of the Closing Date,
(B) any failure by Purchaser to perform or otherwise fulfill any covenant or
agreement made herein or contemplated hereby, (C) the conduct of the Business by
Purchaser after the Closing Date and (D) any Assumed Liabilities.
(c) Defense of Claims by Third Parties. Whenever a claim shall arise for
indemnification under this Section 13 (except in respect of Taxes which shall be
governed by the provisions of Section 8(g)), the party entitled to
indemnification (the "Indemnified Party") shall promptly notify the party from
whom indemnification is sought (the "Indemnifying Party") of such claim and,
when known, the facts constituting the basis for such claim; provided, however,
that in the event of any claim for indemnification hereunder resulting from or
in connection with any claim or legal proceedings by a third party, the
Indemnified Party shall give such notice thereof to the Indemnifying Party no
later than ten (10) days prior to the time any response to the asserted claim is
required, if possible. In the event of any such claim for indemnification
resulting from or in connection with a claim or legal proceeding by a third
party, the Indemnifying Party may, at its sole cost and expense, assume the
defense thereof. If an Indemnifying Party assumes the defense of any such claim
or legal proceeding, the Indemnifying Party shall be entitled to select counsel
and take all steps necessary in the defense thereof; provided, however, that, no
settlement shall be made without the prior written consent of the Indemnified
Party (except that if the Indemnified Party shall withhold its consent to any
settlement proposed by the Indemnifying Party, the Indemnifying Party shall in
no event be deemed for purposes of this Section 13 to have suffered losses,
liabilities or damages in connection with such claim or proceeding in excess of
the proposed amount of such settlement); and provided further, however, that the
Indemnified Party may, at its own expense, participate in any such proceeding
with the counsel of its choice. So long as the Indemnifying Party is in good
faith defending such claim or proceeding, the Indemnified Party shall not
compromise or settle such claim without the prior written consent of the
Indemnifying Party. If the Indemnifying Party does not assume the defense of
any such claim or litigation in accordance with the terms hereof, the
Indemnified Party may defend against such claim or litigation in such manner as
it may deem appropriate, including , but not limited to, settling such claim or
litigation (after giving notice of the same to the Indemnifying Party) on such
terms as the Indemnified Party may deem appropriate, and the Indemnifying Party
will promptly indemnify the Indemnified Party in accordance with the provisions
of this Section 13.
(d) Notice of Other Claims; Non-Waiver. Any party claiming indemnification
hereunder shall give reasonably prompt written notice to the other as soon as
practicable after it becomes aware of any condition or event that gives rise to
Indemnification Losses for which indemnification is sought under this Section
13, except as otherwise provided in Section 13(c). Failure of an Indemnified
Party to give reasonably prompt notice of any claim or claims shall not release,
waive or otherwise affect an Indemnifying Party's obligations with respect
thereto except to the extent of actual loss or prejudice as a result of such
failure.
(e) Threshold. No Indemnified Party shall be entitled to indemnification
pursuant to this Section 13 for any Indemnification Losses incurred unless the
aggregate amount for which indemnification is sought with respect to the
aggregate of all Indemnification Losses is in excess of $1,000,000 (the
"Threshold"). If the amount of claims for Indemnification Losses exceeds the
Threshold, then the Indemnified Party entitled to indemnification pursuant to
this Section 13 shall be entitled to indemnification for all Indemnification
Losses, including the first $1,000,000 of such losses incurred.
(f) Exclusive Remedy. The provisions of this Section 13 shall constitute
the sole and exclusive remedy of and means by which any Indemnified Party after
the Closing may obtain recompense for any damages, including Indemnification
Losses, arising out of, resulting from or incurred in connection with this
Agreement, including, without limitation, any inaccuracy and/or breach of any
representation or warranty contained in this Agreement or any other agreement
under this Agreement or any other agreement or instrument, or any other act or
omission by any party hereto.
14. Commission and Finder's Fees.
Each of the parties hereto represents and warrants to the other that no
individual, firm or corporation, as a result of any action of such party, has
any right, interest or valid claim against or upon the other party for any
commission, fee or other compensation as broker or finder or for acting in any
similar capacity. The parties acknowledge that Seller is obligated to pay a fee
to Lincoln Partners LLC for rendering a fairness opinion in connection with the
transactions contemplated by this Agreement.
15. Survival of Representations and Warranties.
The representations and warranties made by the parties hereto under
this Agreement or in connection with the transactions contemplated hereby or in
any certificate, list or other instrument delivered pursuant hereto shall
survive the Closing until after the Audited Balance Sheet Date and thereafter
until the earlier of (a) the second anniversary of the Closing Date and (b)(i)
the liquidation of Seller or (ii) the merger of Seller with, or the sale of all
of Seller's equity to, an acquiring Person and thereafter no claim for
indemnification under Section 13 may be made based upon a breach of any
representation or warranty.
16. Expenses.
Whether or not the transactions contemplated herein shall be
consummated, each of the parties hereto shall bear and pay all costs and
expenses incurred by it under or in connection with such transactions, and shall
not be liable to any other party for any damages suffered due to the failure to
consummate such transactions; provided, however, that (a) if this Agreement
shall be terminated by Seller pursuant to Section 17(a)(ii) or by Purchaser
pursuant to Section 17(a)(iii), Seller shall promptly thereafter pay to
Purchaser an expenses reimbursement of $5,000,000; (b) if this Agreement shall
be terminated pursuant to Section 17(a)(i)(C), Seller shall promptly thereafter
pay to Purchaser an expenses reimbursement of $750,000, provided, however, that
if the Proxy Statement (or any amendment, supplement or supplemental mailing by
Seller to such shareholders with respect thereto) shall disclose any Alternative
Proposal and the Seller's shareholders shall fail to approve the transactions
hereunder, Seller shall pay $5,000,000 to Purchaser under this clause (b); and
(c) if the Closing shall not occur in accordance with the terms of this
Agreement and the failure to occur is based solely upon the non-satisfaction of
a condition of Closing under Section 11(b) due to a willful breach by Seller or
the non-satisfaction of a condition of Closing under Section 12(b) due to a
willful breach by Purchaser, then the party in willful breach shall promptly pay
to the other party, as an expenses reimbursement and not as a penalty, an amount
equal to $5,000,000. The parties hereto acknowledge and agree that the amount
of liquidated damages provided hereby is reasonable in the light of the
anticipated harm caused by the breach, the difficulties of proof of loss, and
the inconvenience and infeasibility of otherwise obtaining an adequate remedy.
Neither Seller nor Purchaser shall be obligated to pay more than $5,000,000
pursuant to this Section 16.
17. Termination.
(a) Anything herein to the contrary notwithstanding, at any time
before the Closing this Agreement
(i) may be terminated by either party;
(A) if the Closing has not occurred on or before March 31, 1999;
(B) if Xxxx-Xxxxx clearance is not obtained; or
(C) if approval of Seller's shareholders is not obtained;
(ii) may be terminated by Seller if it receives an Alternative Proposal
providing for terms better, in the good faith determination of Seller's Board of
Directors, than those provided by the transactions contemplated hereunder
provided that Seller shall have complied with the provisions of Section 8(d) and
shall notify Purchaser promptly of its intention to terminate this Agreement or
enter into a definitive agreement with respect to such Alternative Proposal, but
in no event shall such notice be given less than forty-eight (48) hours prior to
the public announcement of Seller's termination of this Agreement; provided that
Seller's ability to terminate this Agreement pursuant is conditioned upon the
prior payment by Seller to Purchaser of any amounts owed by it pursuant to
Section 16;
(iii) may be terminated by Purchaser if the Board of Directors of Seller
(or any committee thereof) shall have withdrawn or modified in a manner
materially adverse to Purchaser its approval or recommendation of this Agreement
or shall have recommended an Alternative Proposal to the shareholders of Seller;
(iv) may be terminated by Purchaser if the net investment shown on the
Estimated Balance Sheet is less than $135 million; or
(v) may be terminated by the mutual consent of Seller and Purchaser. (b)
In the event of the termination of this Agreement pursuant to this Section 17,
all further obligations of the parties under this Agreement shall terminate
without further liability of any party to any other party or to the
shareholders, directors or officers of any party (except as set forth in Section
17(a)(ii)), provided that the obligations of the parties contained in Section
8(e) and in the Confidentiality Agreement shall survive any such termination.
18. Notices.
Any notice, request, instruction or other document to be given
hereunder shall be in writing and delivered personally or sent by certified or
registered mail, postage prepaid, as follows: If to Seller, addressed to it at
0000 X. Xx Xxxxxxx Xxxx., Xx Xxxxxxx, Xxxxxxxxxx 00000, Attention: Xxxxxx
Xxxxxx, with concurrent copies to Irell & Xxxxxxx LLP, 000 Xxxxx Xxxx Xxxxxx,
Xxxxx 0000, Xxx Xxxxxxx, Xxxxxxxxxx 00000, Attention: Xxxx Cost, Esq. and Xxx
Xxxxxxxx, Esq., and if to Purchaser addressed to it at 00 Xxx Xxxxx, Xxxxxxxx,
Xxx Xxxx 00000, Attention: President, with concurrent copies to Purchaser's
General Counsel at the same address and Milbank, Tweed, Xxxxxx & XxXxxx, 0 Xxxxx
Xxxxxxxxx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000, Attention: Xxxxxx X. Xxxxxxx, Esq.
Any party may change the address to which notices are to be sent by giving
written notice of such change of address to the other party.
19. Entire Agreement, Amendments and Certain Other Matters.
This Agreement, including the lists, exhibits, schedules, the
Confidentiality Agreement, the Option Agreement and other agreements and
attachments referred to herein, which are a part hereof, or agreements signed
and delivered contemporaneously herewith, contains the entire understanding of
the parties hereto, and supersedes all prior agreements of the parties, with
respect to the acquisition of all or any part of the Business, the Assets or the
Subsidiaries and may be amended only by a written instrument executed by the
parties hereto or their respective successors or assigns, although any condition
to a party's obligation hereunder may be waived in writing by such party. The
section and paragraph headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. A failure or delay of either party to this Agreement to enforce
at any time any of the provisions of this Agreement, or to exercise any option
which is herein provided, or to require at any time performance of any of the
provisions hereof, shall in no way be construed to be a waiver of such
provisions of this Agreement. Nothing in this Agreement, expressed or implied,
is intended to confer upon any person other than the parties any rights or
remedies under or by reason of this Agreement.
20. Assignment.
This Agreement is not assignable by Seller. Purchaser may assign all or
a portion of its rights in this Agreement to a wholly-owned subsidiary of
Purchaser provided that Purchaser and assignee jointly and severally remain
fully liable for payment of all monies and performance of all obligations of
Purchaser described in this Agreement.
21. Counterparts.
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
22. Effectiveness.
This Agreement will not become effective until executed by each of the
parties hereto.
23. Consent to Jurisdiction and Governing Law.
This Agreement shall be governed by and construed in accordance with
the internal substantive laws and not the choice of law rules of the State of
New York. Any judicial proceeding brought with respect to this Agreement must
be brought in any federal or state court of competent jurisdiction in any state
of the United States, and, by the execution and delivery of this Agreement, each
party (i) accepts, generally and unconditionally, the non-exclusive jurisdiction
of any courts and any related appellate court in the State of New York, and
irrevocably agrees to be bound by any judgment rendered by such courts in
connection with this Agreement and (ii) irrevocably waives any objection it may
now or hereafter have as to the venue of any such suit, action or proceeding
brought in such a court or that such court is an inconvenient forum. In
furtherance of the preceding clause, so long as this Agreement is in effect,
Purchaser and Seller (if it is not a New York corporation and is not qualified
to do business in New York as a foreign corporation) will at all times have an
authorized agent in the City of New York, upon whom process may be served in any
legal action or proceeding in any court of competent jurisdiction in the State
of New York arising out of or in connection with this Agreement. Seller hereby
irrevocably appoints CT Corporation System, as its agent for service of process
in New York with respect to all disputes arising out of or in connection with
this Agreement.
24. Severability.
In case any one or more of the provisions contained in this Agreement
should be invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein shall
not in any way be affected or impaired thereby.
[Next Page Is Signature Page]
IN WITNESS WHEREOF, the parties hereto have duly executed and agreed
to all the terms of this Agreement including the exhibits hereto, as of the date
first above written.
XXXX INDUSTRIES, INC.
By: /s/ Xxxxxx Xxxxxx
----------------------
Name: Xxxxxx Xxxxxx
Title: President & CEO
ARROW ELECTRONICS, INC.
By: /s/ Xxxxxx X. Xxxxxxx
-------------------------------
Name: Xxxxxx X. Xxxxxxx
Title: Executive Vice President
