EXHIBIT 10.54
STOCK PURCHASE AGREEMENT
AMONG
INTELLISYS GROUP, INC.
as "Buyer,"
PROLINE INDUSTRIES, INC.
as the "Company"
AND
XXXX XXXX AND XXXXX XXXX
as "Sellers"
Dated as of
December 8, 1998
TABLE OF CONTENTS
1. Definitions.................................................................................... 1
2. Purchase and Sale of Company Shares............................................................ 5
(a) Basic Transaction.................................................................... 5
(b) Purchase Price....................................................................... 6
(c) The Holdback Amount and Buyer's Right of Offset...................................... 6
(d) Allocation of Amounts Paid to Sellers................................................ 7
(e) Employment Agreement................................................................. 7
(f) The Closing.......................................................................... 7
(g) Deliveries at the Closing............................................................ 7
3. Representations and Warranties Concerning the Transaction...................................... 7
(a) Representations and Warranties of the Sellers........................................ 8
(i) Authorization of Transaction............................................. 8
(ii) Noncontravention......................................................... 8
(iii) Brokers' Fees............................................................ 8
(iv) Company Shares........................................................... 8
(b) Representations and Warranties of the Buyer.......................................... 9
(i) Organization and Corporate Power of Buyer................................ 9
(ii) Authorization of Transaction............................................. 9
(iii) Noncontravention......................................................... 9
(iv) Brokers' Fees............................................................ 9
(v) Investment............................................................... 10
4. Representations and Warranties Concerning the Company and Its Subsidiaries..................... 10
(a) Organization, Qualification, and Corporate Power..................................... 10
(b) Capitalization....................................................................... 10
(c) Noncontravention..................................................................... 11
(d) Brokers' Fees........................................................................ 11
(e) Title to Assets...................................................................... 11
(f) Subsidiaries......................................................................... 11
(g) Financial Statements................................................................. 11
(h) Events Subsequent to Most Recent Financial Statements................................ 12
(i) Undisclosed Liabilities.............................................................. 14
i
(j) Legal Compliance............................................................ 14
(k) Tax Matters................................................................. 14
(l) Real Property............................................................... 16
(m) Intellectual Property....................................................... 17
(n) Tangible Assets............................................................. 19
(o) Inventory................................................................... 20
(p) Contracts................................................................... 20
(q) Notes and Accounts Receivable............................................... 21
(r) Powers of Attorney.......................................................... 21
(s) Insurance................................................................... 21
(t) Litigation.................................................................. 22
(u) Product Warranty............................................................ 22
(v) Product Liability........................................................... 23
(w) Employees................................................................... 23
(x) Employee Benefits........................................................... 23
(y) Guaranties.................................................................. 25
(z) Environment, Health, and Safety............................................. 25
(aa) Certain Business Relationships with the Seller............................. 26
(bb) Disclosure................................................................. 26
5. Post-Closing Covenants................................................................ 26
(a) General..................................................................... 26
(b) Litigation Support.......................................................... 27
(c) Transition.................................................................. 27
(d) Tax Status Letter........................................................... 27
(e) Confidentiality............................................................. 27
(f) Covenant Not to Compete..................................................... 28
6. Remedies for Breaches of This Agreement............................................... 29
(a) Survival of Representations and Warranties.................................. 30
(b) Indemnification Provisions for Benefit of the Buyer......................... 30
(c) Indemnification Provisions for Benefit of the Sellers....................... 30
(d) Matters Involving Third Parties............................................. 31
(e) Determination of Adverse Consequences....................................... 32
(f) Other Indemnification Provisions............................................ 32
7. Tax Matters........................................................................... 33
(a) Tax Periods Ending on or Before the Closing Date............................ 33
(b) Tax Periods Beginning Before and Ending After the Closing Date.............. 33
ii
(c) Cooperation on Tax Matters..................................................... 34
(e) Tax Sharing Agreements......................................................... 34
(f) Certain Taxes.................................................................. 35
8. Miscellaneous............................................................................ 35
(a) Nature of Certain Obligations.................................................. 35
(b) Press Releases and Public Announcements........................................ 35
(c) No Third-Party Beneficiaries................................................... 35
(d) Entire Agreement............................................................... 36
(e) Succession and Assignment...................................................... 36
(f) Counterparts................................................................... 36
(g) Headings....................................................................... 36
(h) Notices........................................................................ 36
(i) Governing Law.................................................................. 37
(j) Amendments and Waivers......................................................... 37
(k) Severability................................................................... 37
(l) Expenses....................................................................... 38
(m) Construction................................................................... 38
(n) Incorporation of Exhibits, Annexes, and Schedules.............................. 38
(o) Specific Performance........................................................... 38
9. Arbitration.............................................................................. 38
(a) Exclusive Remedy............................................................... 38
(b) Procedures..................................................................... 39
(c) Final and Binding.............................................................. 39
(d) Waiver of Right to Jury Trial.................................................. 39
(e) Attorneys'Fees and Costs....................................................... 39
(f) Refusal to Arbitrate........................................................... 39
EXHIBIT A EXECUTIVE EMPLOYMENT AGREEMENT
DISCLOSURE SCHEDULE
iii
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement") is entered into as of
December 8, 1998 (the "Effective Date"), by and among INTELLISYS GROUP, INC., a
Delaware corporation (the "Buyer"); PROLINE INDUSTRIES, INC. a Washington
Corporation (the "Company"); and XXXX XXXX and XXXXX XXXX (collectively the
"Sellers" and each individually referred to herein as a "Seller") who each
reside in the State of Washington. The Buyer, the Company and the Sellers are
sometimes referred to collectively herein as the "Parties" and individually as a
"Party."
RECITALS
A. The Sellers own 45,000 shares of common stock of the Company which
constitutes all of the issued and outstanding capital stock of the Company (the
"Company Stock").
B. This Agreement contemplates a transaction in which the Buyer will
purchase from the Sellers, and the Sellers will sell to the Buyer, all of the
Company Stock subject to the terms and conditions set forth in this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
1. Definitions.
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"Accredited Investor" has the meaning set forth in Regulation D promulgated
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under the Securities Act.
"Adverse Consequences" means all actions, suits, proceedings, hearings,
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investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, Liabilities, obligations, Taxes, liens, losses, expenses, and
fees, including court costs and attorneys' fees and expenses.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
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promulgated under the Securities Exchange Act.
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"Affiliated Group" means any affiliated group within the meaning of Code
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(S)1504(a) or any similar group defined under a similar provision of state,
local or foreign law.
"Applicable Rate" means the prime base rate of interest publicly announced
---------------
from time to time by Xxxxx Fargo Bank (or its successor).
"Basis" means any past or present fact, situation, circumstance, status,
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condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms or could form the basis for any
specified consequence.
"Buyer" has the meaning set forth in the preface above.
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"Closing" has the meaning set forth in (S)2(d) below.
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"Closing Date" has the meaning set forth in (S)2(f) below.
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"Code" means the Internal Revenue Code of 1986, as amended.
----
"Company" has the meaning set forth in the preface above.
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"Company Stock" means any share of the common stock, par value $1.00 per
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share, of the Company.
"Confidential Information" means any information concerning the businesses
------------------------
and affairs of the Company that is not already generally available to the
public.
"Controlled Group of Corporations" has the meaning set forth in Code
--------------------------------
(S)1563.
"Deferred Intercompany Transaction" has the meaning set forth in Reg.
---------------------------------
(S)1.1502-13.
"Disclosure Schedule" has the meaning set forth in (S)4 below.
-------------------
"Effective Date" has the meaning set forth in the preface above.
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"Employee Benefit Plan" means any (a) nonqualified deferred compensation or
---------------------
retirement plan or arrangement which is an Employee Pension Benefit Plan, (b)
qualified defined contribution retirement plan or arrangement which is an
Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or
arrangement which is an Employee Pension Benefit Plan (including any
Multiemployer Plan), or (d) Employee Welfare Benefit Plan.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA (S)3(2).
-----------------------------
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"Employee Welfare Benefit Plan" has the meaning set forth in ERISA (S)3(1).
-----------------------------
"Environmental, Health, and Safety Laws" means the Comprehensive
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Environmental Response, Compensation and Liability Act of 1980, the Resource
Conservation and Recovery Act of 1976, the Occupational Safety and Health Act of
1970, the Federal Water Pollution Control Act, the Safe Drinking Water Act, the
Toxic Substances Control Act, the Clean Air Act, each as amended, together with
all other laws (including rules, regulations, codes, plans, injunctions,
judgments, orders, decrees, rulings, and charges thereunder) of federal, state,
local, and foreign governments (and all agencies thereof) concerning pollution
or protection of the environment, public health and safety, or employee health
and safety, including laws relating to emissions, discharges, releases, or
threatened releases of pollutants, contaminants, or chemical, industrial,
hazardous, or toxic materials or wastes into ambient air, surface water, ground
water, or lands or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling of
pollutants, contaminants, or chemical, industrial, hazardous, or toxic materials
or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
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amended.
"Extremely Hazardous Substance" has the meaning set forth in (S)302 of the
-----------------------------
Emergency Planning and Community Right-to-Know Act of 1986, as amended.
"Fiduciary" has the meaning set forth in ERISA (S)3(21).
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"Financial Statement" has the meaning set forth in (S)4(g) below.
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"GAAP" means United States generally accepted accounting principles as in
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effect from time to time.
"Indemnified Party" has the meaning set forth in (S)6(d) below.
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"Indemnifying Party" has the meaning set forth in (S)6(d) below.
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"Intellectual Property" means (a) all inventions (whether patentable or
---------------------
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith, (c) all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith, (d) all mask works and all
applications, registrations, and renewals in
3
connection therewith, (e) all trade secrets and confidential business
information (including ideas, research and development, know-how, formulas,
compositions, manufacturing and production processes and techniques, technical
data, designs, drawings, specifications, customer and supplier lists, pricing
and cost information, and business and marketing plans and proposals), (f) all
computer software (including data and related documentation), (g) all other
proprietary rights, and (h) all copies and tangible embodiments thereof (in
whatever form or medium).
"Knowledge" means actual knowledge, or with respect to a material matter,
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knowledge that a reasonable person in a like position would be expected to
acquire if put on notice of the matter.
"Liability" means any liability (whether known or asserted, whether
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absolute or contingent, whether accrued or unaccrued, whether liquidated or
unliquidated, and whether due or to become due), including any liability for
Taxes.
"Most Recent Balance Sheet" means the balance sheet contained within the
-------------------------
Most Recent Financial Statements.
"Most Recent Financial Statements" has the meaning set forth in (S)4(g)
--------------------------------
below.
"Most Recent Fiscal Month End" has the meaning set forth in (S)4(g) below.
----------------------------
"Most Recent Fiscal Year End" has the meaning set forth in (S)4(g) below.
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"Multiemployer Plan" has the meaning set forth in ERISA (S)3(37).
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"Ordinary Course of Business" means the ordinary course of business
---------------------------
consistent with past custom and practice (including with respect to quantity and
frequency).
"Party" has the meaning set forth in the preface above.
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"PBGC" means the Pension Benefit Guaranty Corporation.
----
"Person" means an individual, a partnership, a corporation, an association,
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a joint stock company, a trust, a joint venture, an unincorporated organization,
or a governmental entity (or any department, agency, or political subdivision
thereof).
"Prohibited Transaction" has the meaning set forth in ERISA (S)405 and Code
----------------------
(S)4975.
"Purchase Price" has the meaning set forth in (S)2(b) below.
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4
"Reportable Event" has the meaning set forth in ERISA (S)4043.
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"Requisite Sellers" means Sellers holding a majority in interest of the
-----------------
Company Shares as set forth in (S)4(b) of the Disclosure Schedule.
"Securities Act" means the Securities Act of 1933, as amended.
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"Securities Exchange Act" means the Securities Exchange Act of 1934, as
-----------------------
amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance, charge,
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or other security interest, other than (a) mechanic's, materialmen's, and
similar liens, (b) liens for Taxes not yet due and payable, (c) purchase money
liens and liens securing rental payments under capital lease arrangements, and
(d) other liens arising in the Ordinary Course of Business and not incurred in
connection with the borrowing of money.
"Seller" has the meaning set forth in the preface above.
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"Subsidiary" means any corporation with respect to which a specified Person
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(or a Subsidiary thereof) owns a majority of the common stock or has the power
to vote or direct the voting of sufficient securities to elect a majority of the
directors.
"Tax" means any federal, state, local, or foreign income, gross receipts,
---
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Code (S)59A), customs
duties, capital stock, franchise, profits, withholding, social security (or
similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund, or
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information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Third Party Claim" has the meaning set forth in (S)6(d) below.
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"Threshhold Amount" has the meaning set forth in section 2(c)(iii) below.
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2. Purchase and Sale of Company Shares.
-----------------------------------
(a) Basic Transaction. On and subject to the terms and conditions of this
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Agreement, the Buyer agrees to purchase from each of the Sellers, and each of
the Sellers
5
agrees to sell to the Buyer, all of their shares of Company Stock for the
consideration specified below in this Section 2.
(b) Purchase Price. On and subject to the terms and conditions of this
--------------
Agreement, as consideration for the sale of all of their shares of Company
Stock, Buyer shall provide and Sellers shall be entitled to receive, in the
aggregate, the sum of SIX MILLION FOUR HUNDRED THOUSAND DOLLARS ($6,400,000.00)
(the "Purchase Price") less any amounts deducted from the Holdback Amount in
accordance with the procedure set forth in section 2(c) below, payable as
follows:
(i) a cash payment in the amount of SIX MILLION ONE HUNDRED AND FIFTY
THOUSAND DOLLARS ($6,150,000.00) by wire transfer or delivery of other
immediately available funds on the Closing Date (the "Cash Payment"); and
(ii) the Holdback Amount less any amounts deducted from the Holdback
Amount in accordance with the procedure set forth in section 2(c) below, by
wire transfer or delivery of other immediately available funds (the "Final
Payment").
(c) The Holdback Amount and Buyer's Right of Offset.
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(i) The Buyer shall withhold from the Purchase Price the sum of TWO
HUNDRED AND FIFTY THOUSAND DOLLARS ($250,000.00) (the "Holdback Amount")
subject to the provisions of this section 2(c). The Buyer shall have the
right to deduct from the Holdback Amount and reduce the Purchase Price by
an amount equal to any damages sustained by the Buyer, to the extent such
damages exceed the "Threshhold Amount" as defined below, by reason of any
default by the Sellers or the breach of any representations, warranties or
covenants of the Company or the Sellers (collectively a "Sellers' Default")
under this Agreement. Notwithstanding the foregoing, if the Buyer believes
a Sellers' Default has occurred causing damages which exceed the Threshhold
Amount, Buyer may provide Sellers with a written "Notice of Default"
notifying Sellers of such belief and the amount to be deducted from the
Holdback Amount (the "Holdback Deduction") to compensate Buyer for the
default. Sellers' shall have thirty (30) days from the date of the Notice
of Default within which to deny the occurrence of a Sellers' Default, cure
the Sellers' Default and/or challenge the amount of the proposed Holdback
Deduction (the "Sellers' Response"). If a timely Seller's Response is
provided to Buyer, Buyer and Sellers shall attempt to resolve their
differences within ten (10) business days. If the Buyer and Sellers are
unable to resolve their differences, the dispute shall be submitted to
final and binding arbitration pursuant to the provisions of Section 9 of
this Agreement. If the Sellers' fail to submit a timely Sellers' Response,
the Buyer shall be entitled to retain the Holdback Deduction as if the
Purchase Price was reduced.
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(ii) Buyer shall pay to the Sellers the Holdback Amount less any
Holdback Deduction which is the subject of a timely Notice of Default no
later than ninety (90) days after the Closing Date.
(iii) For the purposes of this section 2(c), the term "Threshhold
Amount" shall mean FIFTY THOUSAND DOLLARS ($50,000.00).
(iv) The Sellers each acknowledge and agree that the Buyer's right of
offset provided by this section 2(c) is in addition to, and not in lieu of,
any other right or remedy the Buyer may have against the Sellers or any of
them as a result of any Sellers' Default under this Agreement, and the
Buyer shall have the right to pursue all available rights and remedies as
the result of a Sellers' Default even though Buyer may not have provided a
timely Notice of Default.
(d) Allocation of Amounts Paid to Sellers. The Purchase Price shall be
-------------------------------------
allocated among the Sellers in proportion to their respective holdings of the
Company Stock as set forth in (S)4(b) of the Disclosure Schedule.
(e) Employment Agreement. As further consideration for and as a condition
--------------------
to the Buyer's payment of the Purchase Price, Xxxx Xxxx (one of the Sellers)
shall enter into the Employment Agreement with the Buyer in the form of Exhibit
A attached hereto.
(f) The Closing. The closing of the transactions contemplated by this
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Agreement (the "Closing") shall take place at the offices of Xxxxxxx, Xxxxxxxxxx
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& Xxxxx, U.S. Bank Centre, Suite 3400, 0000 Xxxxx Xxxxxx, Xxxxxxx, Xxxxxxxxxx
00000 on December __, 1998 (the "Closing Date").
(g) Deliveries at the Closing. At the Closing, (i) each of the Sellers
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will deliver to the Buyer stock certificates representing all of his Company
Stock, endorsed in blank or accompanied by duly executed assignment documents;
(ii) the Company and the Sellers will deliver to the Buyer all of the various
certificates, instruments, documents and consents necessary to effect the
transactions contemplated hereby; and (iii) the Buyer will deliver to the
Sellers the Cash Payment specified in (S)2(b)(i) above by wire transfer or the
delivery of other immediately available funds.
3. Representations and Warranties Concerning the Transaction.
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(a) Representations and Warranties of the Sellers. Each of the Sellers
---------------------------------------------
represents and warrants, jointly and severally, to the Buyer that the statements
contained in this (S)3(a) are correct and complete as of the Effective Date.
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(i) Authorization of Transaction. The Seller has full power and
----------------------------
authority to execute and deliver this Agreement and to perform his
obligations hereunder. This Agreement constitutes the valid and legally
binding obligation of the Seller, enforceable in accordance with its terms
and conditions. The Seller need not give any notice to, make any filing
with, or obtain any authorization, consent, or approval of any government
or governmental agency in order to consummate the transactions contemplated
by this Agreement.
(ii) Noncontravention. Neither the execution and the delivery of this
----------------
Agreement, nor the consummation of the transactions contemplated hereby,
will (A) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which the Seller is subject or
(B) conflict with, result in a breach of, constitute a default under,
result in the acceleration of, create in any party the right to accelerate,
terminate, modify, or cancel, or require any notice under any agreement,
contract, lease, license, instrument, or other arrangement to which the
Seller is a party or by which he or it is bound or to which any of his or
its assets is subject.
(iii) Brokers' Fees. The Seller has no Liability or obligation to pay
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any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Buyer could
become liable or obligated.
(iv) Company Shares. The Seller holds of record and owns beneficially
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the number of Shares of Company Stock set forth next to his name in (S)4(b)
of the Disclosure Schedule, free and clear of any restrictions on transfer
(other than any restrictions under the Securities Act and state securities
laws), Taxes, Security Interests, options, warrants, purchase rights,
contracts, commitments, equities, claims, and demands. The Seller is not a
party to any option, warrant, purchase right, or other contract or
commitment that could require the Seller to sell, transfer, or otherwise
dispose of any capital stock of the Company (other than this Agreement).
The Seller is not a party to any voting trust, proxy, or other agreement or
understanding with respect to the voting of any capital stock of the
Company.
(b) Representations and Warranties of the Buyer. The Buyer represents and
-------------------------------------------
warrants to the Sellers that the statements contained in this (S)3(b) are
correct and complete as of the Effective Date.
(i) Organization and Corporate Power of Buyer. The Buyer is a
-----------------------------------------
corporation duly organized, validly existing, and in good standing under
the laws of the state of Delaware. The Buyer is duly authorized to conduct
business and is in good standing under the laws of each jurisdiction where
such qualification is required. The Buyer has full corporate power and
authority to carry on the businesses in which it is engaged.
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(ii) Authorization of Transaction. The Buyer's board of directors has
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authorized and approved of the transactions contemplated by this Agreement.
The Buyer has full power and authority (including full corporate power and
authority) and no further corporate actions by Buyer or actions by any
third party are necessary for the Buyer to execute and deliver this
Agreement and to perform its obligations hereunder. This Agreement
constitutes the valid and legally binding obligation of the Buyer,
enforceable in accordance with its terms and conditions. The Buyer need not
give any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency in order to
consummate the transactions contemplated by this Agreement.
(iii) Noncontravention. Neither the execution and the delivery of this
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Agreement, nor the consummation of the transactions contemplated hereby,
will (A) conflict with or violate the articles or bylaws of the Buyer, (B)
violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Buyer is subject or any
provision of its articles or bylaws or (C) conflict with, result in a
breach of, constitute a default under, result in the acceleration of,
create in any party the right to accelerate, terminate, modify, or cancel,
or require any notice under any agreement, contract, lease, license,
instrument, or other arrangement to which the Buyer is a party or by which
it is bound or to which any of its assets is subject.
(iv) Brokers' Fees. The Buyer has no Liability or obligation to pay
-------------
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which any Seller could
become liable or obligated.
(v) Investment. The Buyer (i) understands that the Company Stock has
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not been registered under the Securities Act, or under any state securities
laws, and is being offered and sold in reliance upon federal and state
exemptions for transactions not involving any public offering; (ii) is
acquiring the Company Stock for its own account for investment purposes,
and not with a view to the distribution thereof; (iii) is an investor with
knowledge and experience in business and financial matters; (iv) has
received certain information concerning the Company, has access to the
officers, employees, assets, operations, books, records and files of the
Company and has had the opportunity to obtain additional information as
desired in order to evaluate the merits and the risks inherent in acquiring
the Company Stock; (v) is relying solely on the basis of its own
independent investigation of the Company and upon the express
representations, warranties and covenants in this Agreement; (vi) is able
to bear the economic risk in holding the Company Stock; and (vii) is an
Accredited Investor.
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4. Representations and Warranties Concerning the Company and Its
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Subsidiaries. Each of the Sellers and the Company represent and warrant,
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jointly and severally, to the Buyer that the statements contained in this (S)4
are correct and complete as of the Closing Date except as set forth in the
disclosure schedule delivered by the Sellers to the Buyer and initialed by the
Parties (the "Disclosure Schedule"). The Disclosure Schedule will be arranged in
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paragraphs corresponding to the lettered and numbered paragraphs contained in
this (S)4.
(a) Organization, Qualification, and Corporate Power. The Company is a
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corporation duly organized, validly existing, and in good standing under the
laws of the state of Washington. The Company is duly authorized to conduct
business and is in good standing under the laws of each jurisdiction where such
qualification is required. The Company has full corporate power and authority to
carry on the businesses in which it is engaged and to own and use the properties
owned and used by it and, to the Sellers' Knowledge has all necessary licenses,
permits, and authorizations. (S)4(a) of the Disclosure Schedule lists the
directors and officers of the Company. The Sellers have delivered to the Buyer
correct and complete copies of the articles and bylaws of the Company (as
amended to date). The minute books (containing the records of meetings of the
stockholders, the board of directors, and any committees of the board of
directors), the stock certificate books, and the stock record books of the
Company are correct and complete. The Company is not in default under or in
violation of any provision of its articles or bylaws.
(b) Capitalization. The entire authorized capital stock of the Company
--------------
consists of 50,000 shares of Company Stock, of which 45,000 shares are issued
and outstanding and no shares are held in treasury. All of the issued and
outstanding shares of Company Stock have been duly authorized, are validly
issued, fully paid, and nonassessable, and are held of record by the respective
Sellers as set forth in (S)4(b) of the Disclosure Schedule. There are no
outstanding or authorized options, warrants, purchase rights, subscription
rights, conversion rights, exchange rights, or other contracts or commitments
that could require the Company to issue, sell, or otherwise cause to become
outstanding any of its capital stock. There are no outstanding or authorized
stock appreciation, phantom stock, or similar rights with respect to the
Company. There are no voting trusts, proxies, or other agreements or
understandings with respect to the voting of the capital stock of the Company.
(c) Noncontravention. Neither the execution and the delivery of this
----------------
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) conflict with or violate the articles or bylaws of the Company, (ii) violate
any constitution, statute, regulation, rule, injunction, judgment, order,
decree, ruling, charge, or other restriction of any government, governmental
agency, or court to which the Company is subject or any provision of the
articles or bylaws of the Company or (iii) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify, or cancel, or require any notice or
consent under any agreement, contract, lease, license, instrument, or other
arrangement to which the Company is a party or by which it is
10
bound or to which any of its assets is subject (or result in the imposition of
any Security Interest upon any of its assets). The Company does not need to give
any notice to, make any filing with, or obtain any authorization, consent, or
approval of any government, governmental agency or other third party in order
for the Parties to consummate the transactions contemplated by this Agreement,
except as set forth in the Disclosure Schedule and the attachments thereto.
(d) Brokers' Fees. The Company does not have any Liability or obligation
-------------
to pay any fees or commissions to any broker, finder, or agent with respect to
the transactions contemplated by this Agreement.
(e) Title to Assets. The Company has good and marketable title to, or a
---------------
valid leasehold interest in, the properties and assets used by it, located on
its premises, or shown on the Most Recent Balance Sheet or acquired after the
date thereof, free and clear of all Security Interests.
(f) Subsidiaries. The Company has no subsidiaries, either direct or
------------
indirect, whatsoever.
(g) Financial Statements. Buyer has received the following financial
--------------------
statements (collectively the "Financial Statements"): (i) balance sheets and
--------------------
statements of income and cash flow as of and for the fiscal years ended December
31, 1995, December 31, 1996 and December 31, 1997 (the "Most Recent Fiscal Year
-----------------------
End") for the Company; and (ii) balance sheets and statements of income and cash
---
flow (the "Most Recent Financial Statements") as of and for the nine (9) months
--------------------------------
ended September 30, 1998 (the "Most Recent Fiscal Month End") for the Company.
----------------------------
The Financial Statements (including the notes thereto) have been prepared in
accordance with GAAP applied on a consistent basis throughout the periods
covered thereby, contain and reflect in all respects all necessary adjustments
and present fairly the financial condition of the Company as of such dates and
the results of operations of the Company for such periods, are correct and
complete, and are consistent with the books and records of the Company (which
books and records are correct and complete).
(h) Events Subsequent to Most Recent Financial Statements. Since the Most
-----------------------------------------------------
Recent Financial Statements, there has not been any adverse change in the
business, financial condition, operations, results of operations, or future
prospects of the Company. Without limiting the generality of the foregoing,
since that date:
(i) the Company has not sold, leased, transferred, or assigned any of
its assets, tangible or intangible, other than for a fair consideration in
the Ordinary Course of Business;
11
(ii) the Company has not entered into any agreement, contract,
lease, or license (or series of related agreements, contracts, leases, and
licenses outside the Ordinary Course of Business;
(iii) no party (including the Company ) has accelerated,
terminated, modified, or canceled any agreement, contract, lease, or
license (or series of related agreements, contracts, leases, and licenses)
to which the Company is a party or by which any of them is bound;
(iv) the Company has not imposed any Security Interest upon any of
its assets, tangible or intangible;
(v) the Company has not made any capital expenditure (or series
of related capital expenditures) outside the Ordinary Course of Business;
(vi) the Company has not made any capital investment in, any loan
to, or any acquisition of the securities or assets of, any other Person (or
series of related capital investments, loans, and acquisitions) either
involving more than $5,000 or outside the Ordinary Course of Business;
(vii) the Company has not issued any note, bond, or other debt
security or created, incurred, assumed, or guaranteed any indebtedness for
borrowed money or capitalized lease;
(viii) the Company has not failed to pay any of its obligations when
due or delayed or postponed the payment of accounts payable and other
Liabilities outside the Ordinary Course of Business;
(ix) the Company has not canceled, compromised, waived, or
released any right or claim (or series of related rights and claims)
involving more than $5,000 or outside the Ordinary Course of Business;
(x) the Company has not granted any license or sublicense of any
rights under or with respect to any Intellectual Property;
(xi) there has been no change made or authorized in the articles
or bylaws of the Company;
(xii) the Company has not issued, sold, or otherwise disposed of
any of its capital stock, or granted any options, warrants, or other rights
to purchase or obtain (including upon conversion, exchange, or exercise)
any of its capital stock;
12
(xiii) the Company has not declared, set aside, or paid any dividend
or made any distribution with respect to its capital stock (whether in cash
or in kind) or redeemed, purchased, or otherwise acquired any of its
capital stock;
(xiv) the Company has not experienced any damage, destruction, or
loss (whether or not covered by insurance) to its property;
(xv) the Company has not made any loan to, or entered into any
other transaction with, any of its directors, officers, and employees
outside the Ordinary Course of Business;
(xvi) the Company has not entered into any employment contract or
collective bargaining agreement, written or oral, or modified the terms of
any existing such contract or agreement;
(xvii) the Company has not granted any (a) increase in the
compensation or (b) bonuses, incentive compensation or other benefits,
contingent or otherwise, of or for the benefit of any of its directors,
officers, and employees outside the Ordinary Course of Business;
(xviii) the Company has not adopted, amended, modified, or terminated
any bonus, profit-sharing, incentive, severance, or other plan, contract,
or commitment for the benefit of any of its directors, officers, and
employees (or taken any such action with respect to any other Employee
Benefit Plan);
(xix) the Company has not made any other change in employment terms
for any of its directors, officers, and employees outside the Ordinary
Course of Business;
(xx) the Company has not made or pledged to make any charitable or
other capital contribution outside the Ordinary Course of Business;
(xxi) to the Sellers' Knowledge there has not been any other
occurrence, event, incident, action, failure to act, or transaction outside
the Ordinary Course of Business involving the Company ; and
(xxii) the Company has not committed to any of the foregoing.
(i) Undisclosed Liabilities. The Company has no Liability (and to the
-----------------------
Sellers' Knowledge there is no Basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand against
any of them giving rise to any Liability), except for (x) Liabilities set forth
on the face of the Most Recent Balance Sheet and (y) Liabilities which have
arisen after the Most Recent Fiscal Month End in the Ordinary
13
Course of Business (none of which results from, arises out of, relates to, is in
the nature of, or was caused by any breach of contract, breach of warranty,
tort, infringement, or violation of law).
(j) Legal Compliance. The Company has, to Sellers' Knowledge, complied
----------------
with all applicable laws (including rules, regulations, codes, plans,
injunctions, judgments, orders, decrees, rulings, and charges thereunder) of
federal, state, local, and foreign governments (and all agencies thereof), and
no action, suit, proceeding, hearing, investigation, charge, complaint, claim,
demand, or notice has been filed or commenced against any of them alleging any
failure so to comply.
(k) Tax Matters.
-----------
(i) The Company has filed all Tax Returns that it was required to
file. All such Tax Returns were correct and complete in all respects. All
Taxes owed by the Company (whether or not shown on any Tax Return) have
been paid. Except as expressly set forth above, the Company is not
currently the beneficiary of any extension of time within which to file any
Tax Return. No claim has ever been made by an authority in a jurisdiction
where the Company does not file Tax Returns that it is or may be subject to
taxation by that jurisdiction. There are no Security Interests on any of
the assets of the Company that arose in connection with any failure (or
alleged failure) to pay any Tax.
(ii) The Company has withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder, or other third
party.
(iii) No Seller or director or officer (or employee responsible for
Tax matters) of the Company expects any authority to assess any additional
Taxes for any period for which Tax Returns have been filed. There is no
dispute or claim concerning any Tax Liability of the Company either (A)
claimed or raised by any authority in writing or (B) as to which any of the
Sellers and the directors and officers (and employees responsible for Tax
matters) of the Company has Knowledge based upon personal contact with any
agent of such authority. (S)4(k) of the Disclosure Schedule lists all
federal, state, local, and foreign income Tax Returns filed with respect to
the Company for taxable periods ended on or after December 31, 1995,
indicates those Tax Returns that have been audited, and indicates those Tax
Returns that currently are the subject of audit. The Company has delivered
to the Buyer correct and complete copies of all federal income Tax Returns,
examination reports, and statements of deficiencies assessed against or
agreed to by the Company since December 31, 1995.
14
(iv) The Company has not waived any statute of limitations in respect
of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
(v) The Company has not filed a consent under Code (S)341(f)
concerning collapsible corporations. The Company has not made any payments,
is obligated to make any payments, or is a party to any agreement that
under certain circumstances could obligate it to make any payments that
will not be deductible under Code (S)280G. The Company has not been a
United States real property holding corporation within the meaning of Code
(S)897(c)(2) during the applicable period specified in Code
(S)897(c)(1)(A)(ii). The Company has disclosed on its federal income Tax
Returns all positions taken therein that could give rise to a substantial
understatement of federal income Tax within the meaning of Code (S)6662.
The Company is not a party to any Tax allocation or sharing agreement. The
Company (A) has not been a member of an Affiliated Group filing a
consolidated federal income Tax Return (other than a group the common
parent of which was the Company) or (B) has no Liability for the Taxes of
any Person (other than the Company ) under Reg. (S)1.1502-6 (or any similar
provision of state, local, or foreign law), as a transferee or successor,
by contract, or otherwise.
(vi) The unpaid Taxes of the Company (A) did not, as of the Most
Recent Fiscal Month End, exceed the reserve for Tax Liability (rather than
any reserve for deferred Taxes established to reflect timing differences
between book and Tax income) set forth on the face of the Most Recent
Balance Sheet (rather than in any notes thereto) and (B) do not exceed that
reserve as adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of the Company in filing its
Tax Returns.
(l) Real Property.
-------------
(i) The Company does not own any real property whatsoever.
(ii) (S)4(l)(ii) of the Disclosure Schedule lists and describes
briefly all real property leased or subleased to the Company or to the
Sellers for use by the Company and, with respect to each lease or sublease,
states the term, annual rent, renewal options and square footage. The
Company and the Sellers have delivered to the Buyer correct and complete
copies of the leases and subleases listed in (S)4(l)(ii) of the Disclosure
Schedule (as amended to date). With respect to each lease and sublease
listed in (S)4(l)(ii) of the Disclosure Schedule:
(A) the lease or sublease is legal, valid, binding,
enforceable, and in full force and effect;
15
(B) the lease or sublease will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms
following the consummation of the transactions contemplated hereby;
(C) no party to the lease or sublease is in breach or default,
and no event has occurred which, with notice or lapse of time, would
constitute a breach or default or permit termination, modification, or
acceleration thereunder;
(D) no party to the lease or sublease has repudiated any
provision thereof;
(E) there are no disputes, oral agreements, or forbearance
programs in effect as to the lease or sublease;
(F) with respect to each sublease, the representations and
warranties set forth in subsections (A) through (E) above are true and
correct with respect to the underlying lease;
(G) neither the Company nor the Sellers has assigned,
transferred, conveyed, mortgaged, deeded in trust, or encumbered any
interest in the leasehold or subleasehold;
(H) all facilities leased or subleased thereunder have received
all approvals of governmental authorities (including licenses and
permits) required in connection with the operation thereof and have
been operated and maintained in accordance with applicable laws,
rules, and regulations;
(I) all facilities leased or subleased thereunder are supplied
with utilities and other services necessary for the operation of said
facilities; and
(J) the owner of the facility leased or subleased has good and
marketable title to the parcel of real property, free and clear of any
Security Interest, easement, covenant, or other restriction, except
for installments of special easements not yet delinquent and recorded
easements, covenants, and other restrictions which do not impair the
current use, occupancy, or value, or the marketability of title, of
the property subject thereto.
(m) Intellectual Property.
---------------------
(i) The Company owns or has the right to use pursuant to license,
sublicense, agreement, or permission all Intellectual Property necessary or
desirable for the
16
operation of its businesses as presently conducted and as presently
proposed to be conducted. Each item of Intellectual Property owned or used
by the Company immediately prior to the Closing hereunder will be owned or
available for use by the Buyer on identical terms and conditions
immediately subsequent to the Closing hereunder. The Company has taken all
necessary action to maintain and protect each item of Intellectual Property
that it owns or uses.
(ii) To Sellers' Knowledge, the Company has not interfered with,
infringed upon, misappropriated, or otherwise come into conflict with any
Intellectual Property rights of third parties, and neither the Company nor
any directors and officers (and employees with responsibility for
Intellectual Property matters) of the Company has ever received any charge,
complaint, claim, demand, or notice alleging any such interference,
infringement, misappropriation, or violation (including any claim that the
Company must license or refrain from using any Intellectual Property rights
of any third party). To the Knowledge of any of the Company and the
directors and officers (and employees with responsibility for Intellectual
Property matters) of the Company, no third party has interfered with,
infringed upon, misappropriated, or otherwise come into conflict with any
Intellectual Property rights of the Company.
(iii) (S)4(m)(iii) of the Disclosure Schedule identifies each patent
or registration which has been issued to the Company with respect to any of
the Company's Intellectual Property, identifies each pending patent
application or application for registration which the Company has made with
respect to any of the Company's Intellectual Property, and identifies each
license, agreement, or other permission which the Company has granted to
any third party with respect to any of the Company's Intellectual Property
(together with any exceptions). The Company has made available to the Buyer
correct and complete copies of all such patents, registrations,
applications, licenses, agreements, and permissions (as amended to date)
and all other written documentation evidencing ownership and prosecution
(if applicable) of each such item. (S)4(m)(iii) of the Disclosure Schedule
also identifies each trade name or unregistered trademark used by the
Company in connection with any of the Company's businesses. With respect to
each item of Intellectual Property required to be identified in
(S)4(m)(iii) of the Disclosure Schedule:
(A) the Company possesses all right, title, and interest in and
to the item, free and clear of any Security Interest, license, or
other restriction;
(B) the item is not subject to any outstanding injunction,
judgment, order, decree, ruling, or charge;
17
(C) no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand is pending or is threatened which
challenges the legality, validity, enforceability, use, or ownership
of the item; and
(D) the Company has not agreed to indemnify any Person for or
against any interference, infringement, misappropriation, or other
conflict with respect to the item.
(iv) (S)4(m)(iv) of the Disclosure Schedule identifies each item of
Intellectual Property that any third party owns and that the Company uses
pursuant to license, sublicense, agreement, or permission. The Company has
made available to the Buyer correct and complete copies of all such
licenses, sublicenses, agreements, and permissions (as amended to date).
With respect to each item of Intellectual Property required to be
identified in (S)4(m)(iv) of the Disclosure Schedule:
(A) the license, sublicense, agreement, or permission covering
the item is legal, valid, binding, enforceable, and in full force and
effect;
(B) the license, sublicense, agreement, or permission will
continue to be legal, valid, binding, enforceable, and in full force
and effect on identical terms following the consummation of the
transactions contemplated hereby (including the assignments and
assumptions referred to in (S)2 above);
(C) no party to the license, sublicense, agreement, or
permission is in breach or default, and no event has occurred which
with notice or lapse of time would constitute a breach or default or
permit termination, modification, or acceleration thereunder;
(D) no party to the license, sublicense, agreement, or
permission has repudiated any provision thereof;
(E) with respect to each sublicense, the representations and
warranties set forth in subsections (A) through (D) above are true and
correct with respect to the underlying license;
(F) the underlying item of Intellectual Property is not subject
to any outstanding injunction, judgment, order, decree, ruling, or
charge;
(G) no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand is pending or, to the Knowledge of
the Company, and the directors and officers (and employees with
responsibility for Intellectual
18
Property matters) of the Company, is threatened which challenges the
legality, validity, or enforceability of the underlying item of
Intellectual Property; and
(H) the Company has not granted any sublicense or similar right
with respect to the license, sublicense, agreement, or permission.
(v) To the Knowledge of the Company and the directors and officers
(and employees with responsibility for Intellectual Property matters) of
the Company, the Company will not interfere with, infringe upon,
misappropriate, or otherwise come into conflict with, any Intellectual
Property rights of third parties as a result of the continued operation of
the Company's businesses as presently conducted and as presently proposed
to be conducted.
(n) Tangible Assets. The Company owns or leases all machinery, equipment,
---------------
and other tangible assets necessary for the conduct of their businesses as
presently conducted. Each such tangible asset is, to Sellers' Knowledge, free
from defects, has been maintained in accordance with normal industry practice,
is in good operating condition and repair (subject to normal wear and tear), is
suitable for the purposes for which it presently is used and, to the Sellers'
Knowledge, is in conformity in all material respects with all applicable laws,
ordinances, orders, regulations and other requirements (including applicable
zoning, environmental, motor vehicle safety or standards, occupational health
and safety laws and regulations) relating thereto currently in effect.
(o) Inventory. The inventory of the Company consists of raw materials and
---------
supplies, manufactured and purchased parts, jobs, goods in process, and finished
goods, all of which is merchantable and fit for the purpose for which it was
procured or manufactured, and none of which is slow-moving, obsolete, damaged,
or defective, subject only to the reserve for inventory writedown set forth on
the face of the Most Recent Balance Sheet as adjusted for the passage of time
through the Closing Date in accordance with the past custom and practice of the
Company. The Buyer has reviewed Disclosure Schedule section 4(o) which lists the
Company's inventory, all of which the Buyer accepts as not slow-moving,
obsolete, damaged, or defective.
(p) Contracts. (S)4(p) of the Disclosure Schedule lists all contracts and
---------
other agreements to which the Company is a party including, but not limited to,
the following:
(i) any agreement (or group of related agreements) for the lease of
personal property to or from any Person providing for lease payments;
(ii) any agreement (or group of related agreements) for the purchase
or sale of raw materials, commodities, supplies, products, or other
personal property, or for the furnishing or receipt of services, the
performance of which will extend over a period of
19
more than one year, result in a loss to the Company, or involve
consideration in excess of $1,000;
(iii) any agreement concerning a partnership or joint venture;
(iv) any agreement (or group of related agreements) under which it
has created, incurred, assumed, or guaranteed any indebtedness for borrowed
money, or any capitalized lease obligation, or under which it has imposed a
Security Interest on any of its assets, tangible or intangible;
(v) any agreement concerning confidentiality or noncompetition;
(vi) any agreement with any of the Company and its Affiliates;
(vii) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other plan or
arrangement for the benefit of its current or former directors, officers,
and employees;
(viii) any collective bargaining agreement;
(ix) any agreement for the employment of any individual on a full-
time, part-time, consulting, or other basis providing any form of
compensation or providing severance benefits;
(x) any agreement under which it has advanced or loaned any amount
to any of its directors, officers, and employees outside the Ordinary
Course of Business;
(xi) any agreement under which the consequences of a default or
termination could have an adverse effect on the business, financial
condition, operations, results of operations, or future prospects of the
Company; or
(xii) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of $1,000.
The Company and the Sellers have delivered to the Buyer a correct and complete
copy of each written agreement listed in (S)4(p) of the Disclosure Schedule (as
amended to date) and a written summary setting forth the terms and conditions of
each oral agreement referred to in (S)4(p) of the Disclosure Schedule. With
respect to each such agreement: (A) the agreement is legal, valid, binding,
enforceable, and in full force and effect; (B) the agreement will continue to be
legal, valid, binding, enforceable, and in full force and effect on identical
terms following the consummation of the transactions contemplated hereby; (C) no
party is in breach or default, and no event has occurred which with notice or
lapse of time would constitute a breach or
20
default, or permit termination, modification, or acceleration, under the
agreement; and (D) no party has repudiated any provision of the agreement.
(q) Notes and Accounts Receivable. All notes and accounts receivable of
-----------------------------
the Company are reflected properly on their books and records, are valid
receivable subject to no setoffs or counterclaims, are collectible, and will be
collected at their recorded amounts, subject only to the reserve for bad debts
set forth on the face of the Most Recent Balance Sheet (rather than in any notes
thereto) as adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of the Company.
(r) Powers of Attorney. There are no outstanding powers of attorney
------------------
executed on behalf of the Company.
(s) Insurance. (S)4(s) of the Disclosure Schedule sets forth the
---------
following information with respect to each insurance policy (including policies
providing property, casualty, liability, and workers' compensation coverage and
bond and surety arrangements) to which the Company has been a party, a named
insured, or otherwise the beneficiary of coverage at any time within the past 5
years:
(i) the name, address, and telephone number of the agent;
(ii) the name of the insurer, the name of the policyholder, and the
name of each covered insured;
(iii) the policy number and the period of coverage;
(iv) the scope (including an indication of whether the coverage was
on a claims made, occurrence, or other basis) and amount (including a
description of how deductibles and ceilings are calculated and operate) of
coverage; and
(v) a description of any retroactive premium adjustments or other
loss-sharing arrangements.
With respect to each such insurance policy, to the Sellers' Knowledge,: (A) the
policy is legal, valid, binding, enforceable, and in full force and effect; (B)
the policy will continue to be legal, valid, binding, enforceable, and in full
force and effect on identical terms following the consummation of the
transactions contemplated hereby; (C) neither the Company nor any other party to
the policy is in breach or default (including with respect to the payment of
premiums or the giving of notices), and no event has occurred which, with notice
or the lapse of time, would constitute such a breach or default, or permit
termination, modification, or acceleration, under the policy; and (D) no party
to the policy has repudiated any provision thereof. The Company has been
covered during the past 5 years by insurance in scope and amount
21
customary and reasonable for the businesses in which it has engaged during the
aforementioned period. (S)4(s) of the Disclosure Schedule describes any self-
insurance arrangements affecting the Company.
(t) Litigation. The Company is not (i) subject to any outstanding
----------
injunction, judgment, order, decree, ruling, or charge nor (ii) to the Sellers'
Knowledge, a party or is threatened to be made a party to any action, suit,
proceeding, hearing, or investigation of, in, or before any court or quasi-
judicial or administrative agency of any federal, state, local, or foreign
jurisdiction or before any arbitrator. None of the actions, suits, proceedings,
hearings, and investigations set forth in (S)4(t) of the Disclosure Schedule
could result in any adverse change in the business, financial condition,
operations, results of operations, or future prospects of the Company.
(u) Product Warranty. To the Sellers' Knowledge, each product
----------------
manufactured, sold, leased, or delivered by the Company has been in conformity
with all applicable contractual commitments and all express and implied
warranties, and the Company has no Liability (and to the Sellers' Knowledge
there is no Basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against any of them giving
rise to any Liability) for replacement or repair thereof beyond any applicable
manufacturers' warranty or other damages in connection therewith, subject only
to the reserve for product warranty claims set forth on the face of the Most
Recent Balance Sheet as adjusted for the passage of time through the Closing
Date in accordance with the past custom and practice of the Company. No product
manufactured, sold, leased, or delivered by the Company is subject to any
guaranty, warranty, or other indemnity beyond the applicable standard terms and
conditions of sale or lease. Copies of the standard terms and conditions of sale
or lease for the Company (containing applicable guaranty, warranty, and
indemnity provisions) have been made available to the Buyer for review.
(v) Product Liability. To the Sellers' Knowledge, the Company has no
-----------------
Liability (and to the Sellers' Knowledge there is no Basis for any present or
future action, suit, proceeding, hearing, investigation, charge, complaint,
claim, or demand against any of them giving rise to any Liability) arising out
of any injury to individuals or property as a result of the ownership,
possession, or use of any product manufactured, sold, leased, or delivered by
the Company.
(w) Employees. To the Knowledge of any of the Sellers and the directors
---------
and officers (and employees with responsibility for employment matters) of the
Company, no executive, key employee, or group of employees has any plans to
terminate employment with the Company. The Company is not a party to or bound by
any collective bargaining agreement, nor has any of them experienced any
strikes, grievances, claims of unfair labor practices, or other collective
bargaining disputes. To the Sellers' Knowledge, the Company has not committed
any unfair labor practice. None of the Sellers and the directors and officers
(and
22
employees with responsibility for employment matters) of the Company has
any Knowledge of any organizational effort presently being made or threatened by
or on behalf of any labor union with respect to employees of the Company.
(x) Employee Benefits.
-----------------
(i) (S)4(x) of the Disclosure Schedule lists each Employee Benefit
Plan that the Company maintains or to which the Company contributes.
(A) Each such Employee Benefit Plan (and each related trust,
insurance contract, or fund) complies in form and in operation in all
respects with the applicable requirements of ERISA, the Code, and
other applicable laws.
(B) All required reports and descriptions (including Form 5500
Annual Reports, Summary Annual Reports, PBGC-1's, and Summary Plan
Descriptions) have been filed or distributed appropriately with
respect to each such Employee Benefit Plan. The requirements of Part 6
of Subtitle B of Title I of ERISA and of Code (S)4980B have been met
with respect to each such Employee Benefit Plan which is an Employee
Welfare Benefit Plan.
(C) All contributions (including all employer contributions
and employee salary reduction contributions) which are due have been
paid to each such Employee Benefit Plan which is an Employee Pension
Benefit Plan and all contributions for any period ending on or before
the Closing Date which are not yet due have been paid to each such
Employee Pension Benefit Plan or accrued in accordance with the past
custom and practice of the Company. All premiums or other payments for
all periods ending on or before the Closing Date have been paid with
respect to each such Employee Benefit Plan which is an Employee
Welfare Benefit Plan.
(D) Each such Employee Benefit Plan which is an Employee
Pension Benefit Plan meets the requirements of a "qualified plan"
under Code (S)401(a) and has received, within the last two years, a
favorable determination letter from the Internal Revenue Service.
(E) The market value of assets under each such Employee
Benefit Plan which is an Employee Pension Benefit Plan (other than any
Multiemployer Plan) equals or exceeds the present value of all vested
and nonvested Liabilities thereunder determined in accordance with
PBGC methods, factors, and assumptions applicable to an Employee
Pension Benefit Plan terminating on the date for determination.
23
(F) The Company and the Sellers have delivered to the Buyer
correct and complete copies of the plan documents and summary plan
descriptions, the most recent determination letter received from the
Internal Revenue Service, the most recent Form 5500 Annual Report, and
all related trust agreements, insurance contracts, and other funding
agreements which implement each such Employee Benefit Plan.
(ii) With respect to each Employee Benefit Plan that the Company
maintains or ever has maintained or to which it contributes, ever has
contributed, or ever has been required to contribute:
(A) No such Employee Benefit Plan which is an Employee Pension
Benefit Plan (other than any Multiemployer Plan) has been completely
or partially terminated or been the subject of a Reportable Event as
to which notices would be required to be filed with the PBGC. No
proceeding by the PBGC to terminate any such Employee Pension Benefit
Plan (other than any Multiemployer Plan) has been instituted or
threatened.
(B) There have been no Prohibited Transactions with respect to
any such Employee Benefit Plan. No Fiduciary has any Liability for
breach of fiduciary duty or any other failure to act or comply in
connection with the administration or investment of the assets of any
such Employee Benefit Plan. No action, suit, proceeding, hearing, or
investigation with respect to the administration or the investment of
the assets of any such Employee Benefit Plan (other than routine
claims for benefits) is pending or threatened. None of the Sellers and
the directors and officers (and employees with responsibility for
employee benefits matters) of the Company has any Knowledge of any
Basis for any such action, suit, proceeding, hearing, or
investigation.
(C) The Company and the Sellers have not incurred, and none of
the Company, the Sellers and the directors and officers (and employees
with responsibility for employee benefits matters) of the Company has
any reason to expect that the Company will incur, any Liability to the
PBGC (other than PBGC premium payments) or otherwise under Title IV of
ERISA (including any withdrawal Liability) or under the Code with
respect to any such Employee Benefit Plan which is an Employee Pension
Benefit Plan.
(iii) The Company does not contributes to, never has contributed to,
and has never been required to contribute to any Multiemployer Plan or has
any Liability (including withdrawal Liability) under any Multiemployer
Plan.
24
(iv) The Company does not maintain, never has maintained or
contributed and has never been required to contribute to any Employee
Welfare Benefit Plan providing medical, health, or life insurance or other
welfare-type benefits for current or future retired or terminated
employees, their spouses, or their dependents (other than in accordance
with Code (S)4980B).
(y) Guaranties. The Company is not a guarantor or otherwise liable for
----------
any Liability or obligation (including indebtedness) of any other Person.
(z) Environment, Health, and Safety.
-------------------------------
(i) To the Sellers' Knowledge, the Company has complied with all
Environmental, Health, and Safety Laws, and no action, suit, proceeding,
hearing, investigation, charge, complaint, claim, demand, or notice has
been filed or commenced against it alleging any failure so to comply.
Without limiting the generality of the preceding sentence, the Company has
obtained and been in compliance with all of the terms and conditions of all
permits, licenses, and other authorizations which are required under, and
has complied with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules, and
timetables which are contained in, all Environmental, Health, and Safety
Laws.
(ii) To the Sellers' Knowledge, the Company has no Liability (and
none of the Company and its predecessors and Affiliates has handled or
disposed of any substance, arranged for the disposal of any substance,
exposed any employee or other individual to any substance or condition, or
owned or operated any property or facility in any manner that could form
the Basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against the Company
giving rise to any Liability) for damage to any site, location, or body of
water (surface or subsurface), for any illness of or personal injury to any
employee or other individual, or for any reason under any Environmental,
Health, and Safety Law.
(iii) To the Sellers' Knowledge, all properties and equipment used in
the business of the Company and its predecessors and Affiliates have been
free of asbestos, PCB's, methylene chloride, trichloroethylene, 1,2-trans-
dichloroethylene, dioxins, dibenzofurans, and Extremely Hazardous
Substances.
(aa) Certain Business Relationships with the Seller. None of the Company
----------------------------------------------
or the Sellers or any of their Affiliates has been involved in any business
arrangement or relationship with the Company within the past 12 months, and none
of the Company, the Sellers and their Affiliates owns any asset, tangible or
intangible, which is used in the business of the Company, except as disclosed in
the Disclosure Schedule section 4(aa).
25
(bb) Disclosure. The representations and warranties contained in this (S)4
----------
do not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements and information
contained in this (S)4 not misleading.
5. Post-Closing Covenants. The Parties agree as follows with respect to
----------------------
the period following the Closing.
(a) General. In case at any time after the Closing Date any further
-------
action is necessary or desirable to carry out the purposes of this Agreement,
each of the Parties will take such further action (including the execution and
delivery of such further instruments and documents) as any other Party
reasonably may request, all at the sole cost and expense of the requesting Party
(unless the requesting Party is entitled to indemnification therefor under (S)6
below). The Sellers acknowledge and agree that from and after the Effective Date
the Buyer will be entitled to possession of all documents, books, records
(including Tax records), agreements, and financial data of any sort relating to
the Company.
(b) Litigation Support. In the event and for so long as any Party
------------------
actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection with
(i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or prior
to the Effective Date involving the Company, each of the other Parties will
cooperate with him or it and his or its counsel in the contest or defense, make
available their personnel, and provide such testimony and access to their books
and records as shall be necessary in connection with the contest or defense, all
at the sole cost and expense of the contesting or defending Party (unless the
contesting or defending Party is entitled to indemnification therefor under (S)6
below).
(c) Transition. None of the Sellers will take any action that is designed
----------
or intended to have the effect of discouraging any lessor, licensor, customer,
supplier, or other business associate of the Company from maintaining the same
business relationships with the Company after the Closing as it maintained with
the Company prior to the Closing.
(d) Tax Status Letter. No later than ninety (90) days after the Closing,
------------------
the Sellers shall request from the Department of Revenue of the State of
Washington and provide to Buyer a tax status letter.
(e) Confidentiality. The Sellers will treat and hold as such all of the
---------------
Confidential Information, refrain from using any of the Confidential Information
except in connection with this Agreement, and deliver promptly to the Buyer or
destroy, at the request and option of the Buyer, all tangible embodiments (and
all copies) of the Confidential Information which are in his possession. In the
event that any of the Sellers is requested or required (by oral question or
request for information or documents in any legal proceeding, interrogatory,
subpoena, civil
26
investigative demand, or similar process) to disclose any Confidential
Information, the Seller will notify the Buyer promptly of the request or
requirement so that the Buyer may seek an appropriate protective order or waive
compliance with the provisions of this (S)5(e). If, in the absence of a
protective order or the receipt of a waiver hereunder, the Seller is, on the
advice of counsel, compelled to disclose any Confidential Information to any
tribunal or else stand liable for contempt, that Seller may disclose the
Confidential Information to the tribunal; provided, however, that the disclosing
-----------------
Seller shall use his best efforts to obtain, at the request of the Buyer, an
order or other assurance that confidential treatment will be accorded to such
portion of the Confidential Information required to be disclosed as the Buyer
shall designate. The foregoing provisions shall not apply to any Confidential
Information which is generally available to the public immediately prior to the
time of disclosure.
(f) Covenant Not to Compete.
-----------------------
(i) Sellers each acknowledge and agree that they have technical
expertise associated with the business of the Company and are well known in
the visual communications and presentation industry. In addition, the
Sellers have valuable business contacts with clients and potential clients
of the Company and with professionals in the visual communications and
presentation industry. The Company's reputation and good will are an
integral part of its business success throughout the areas where it
conducts its business. If Sellers deprive Buyer of the Company's goodwill
or in any manner use their reputation and goodwill in competition with the
Company, Buyer will be deprived of the benefits it has bargained for
pursuant to this Agreement. Since Sellers have the ability to compete with
the Company in the operation of the Company's business, Buyer, therefore,
desires that the Sellers enter into this covenant not to compete. But for
Sellers' entry into this covenant not to compete, Buyer would not enter
into this Agreement. It is, therefore, understood and agreed that by the
sale of their Company Stock, the Sellers have transferred to Buyer all of
their business goodwill in the Company as contemplated by, among other
laws, California Business and Professions Code Section 16601. Sellers,
therefore, agree that for a period of five (5) years from the Closing (the
"Term"), Sellers shall not, without Buyer's prior written consent (which
may be given or withheld in Buyer's sole and absolute discretion), directly
or indirectly,
(A) own, manage, join, operate or control, or participate in the
ownership, management, operation or control of, or be connected as a
director, officer, employee, partner, consultant or otherwise with, or
permit their names to be used by or in connection with, any profit or
non-profit business or organization which sells, distributes or
markets products, goods or equipment which, directly or indirectly
compete with the Company's business, as conducted by the Company
immediately prior to the Closing and as is proposed to be conducted by
the Company after the Closing, in the Counties specified in
27
Exhibit D attached hereto of the United States, or in any other
countries in which the Company's business is conducted, except as
specifically provided in section 5(f)(ii) below;
(B) call on or solicit or divert or take away from the Company
and/or the Buyer (including without limitation by divulging to any
competitor or potential competitor of the Company and/or the Buyer)
any Person, firm or corporation or other entity who is or which at the
Closing was a customer of the Company and/or the Buyer or whose
identity is known to the Sellers at the Closing as one whom the
Company and/or the Buyer intends to solicit; or
(C) hire or offer employment to or seek to hire or offer
employment to any employee of the Company whose employment is
continued by the Company after the Closing or any employee of any
successor or affiliate of the Company, unless Buyer first terminates
the employment of such employee or gives its written consent to such
employment or offer of employment .
(ii) The foregoing notwithstanding, nothing in this section 5(f)
shall be deemed to apply to the Sellers' ownership, operation or control of
Proline Audio Visual Rentals, Inc. or any successor thereto ("PAV"), so
long as the business of PAV is limited to (x) the rental of audio, video
and audio visual equipment, (y) the sales of supplies and services
incidental to the rental of such equipment and (z) the sale of used rental
equipment.
(iii) The Parties acknowledge that the provisions of this (S)5(f) are
reasonable and necessary to protect their legitimate interests. The
Parties further acknowledge that any breach of this (S) 5(f) by any of them
will cause irreparable injury to the others, for which the available
remedies at law will not be adequate. Accordingly, in the event of any
such breach or threatened breach of any provisions of this (S)5(f), in
addition to any other remedy provided by law or in equity, the non-
breaching Parties shall be entitled to appropriate injunctive relief and/or
specific performance, in any court of competent jurisdiction, restraining
the breaching Parties from any such actual or threatened breach of this
section without posting bond or other security. Any breacing Party
stipulates to the entry against them of any temporary, preliminary or
permanent injunction and agree not to resist the non-breaching Party's
application for such equitable relief, except on the grounds that the acts
or omissions alleged do not violate any of the provisions of this section.
The Parties shall, in the event that any injunctive relief or damages shall
be granted to the non breaching Party, pay all of the non-breaching Party's
reasonable costs and expenses, including attorneys' fees, incurred in
obtaining such relief. If the final judgment of a court of competent
jurisdiction declares that any term or provision of this (S)5(f) is invalid
or unenforceable, the Parties agree that the court making the determination
of invalidity or unenforceability shall have the power to reduce the scope,
28
duration, or area of the term or provision, to delete specific words or
phrases, or to replace any invalid or unenforceable term or provision with
a term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision,
and this Agreement shall be enforceable as so modified after the expiration
of the time within which the judgment may be appealed.
6. Remedies for Breaches of This Agreement.
---------------------------------------
(a) Survival of Representations and Warranties. All of the representations
------------------------------------------
and warranties of the Buyer, the Company and the Sellers contained in this
Agreement shall survive the Closing and continue in full force and effect for a
period of three (3) years after the Closing.
(b) Indemnification Provisions for Benefit of the Buyer.
---------------------------------------------------
(i) In the event any of the Sellers breaches (or in the event any
third party alleges facts that, if true, would mean any of the Sellers has
breached) any of their representations, warranties, and covenants contained
in this Agreement and, if there is an applicable survival period pursuant
to (S)6(a) above, provided that the Buyer makes a written claim for
indemnification against any of the Sellers pursuant to (S)8(h) below within
such survival period, then each of the Sellers agrees to indemnify the
Buyer from and against the entirety of any Adverse Consequences the Buyer
may suffer through and after the date of the claim for indemnification
(including any Adverse Consequences the Buyer may suffer after the end of
any applicable survival period) resulting from, arising out of, relating
to, in the nature of, or caused by the breach (or the alleged breach).
(ii) Each of the Sellers agrees to indemnify the Buyer from and
against the entirety of any Adverse Consequences the Buyer may suffer
resulting from, arising out of, relating to, in the nature of, or caused by
any Liability of the Company (x) for any Taxes of the Company with respect
to any Tax year or portion thereof ending on or before the Closing Date (or
for any Tax year beginning before and ending after the Closing Date to the
extent allocable (determined in a manner consistent with (S)7(c)) to the
portion of such period beginning before and ending on the Closing Date), to
the extent such Taxes are not reflected in the reserve for Tax Liability
(rather than any reserve for deferred Taxes established to reflect timing
differences between book and Tax income) shown on the face of the Most
Recent Balance Sheet (rather than in any notes thereto), as such reserve is
adjusted for the passage of time through the Closing Date in accordance
with the past custom and practice of the Company in filing their Tax
Returns, and (y) for the unpaid Taxes of any Person (other than the
Company) under Reg. (S)1.1502-5 (or any similar provision of state, local,
or foreign law), as a transferee or successor, by contract, or otherwise.
29
(c) Indemnification Provisions for Benefit of the Sellers. In the event
-----------------------------------------------------
the Buyer breaches (or in the event any third party alleges facts that, if true,
would mean the Buyer has breached) any of its representations, warranties, and
covenants contained herein, and, if there is an applicable survival period
pursuant to (S)6(a) above, provided that any of the Sellers makes a written
claim for indemnification against the Buyer pursuant to (S)8(h) below within
such survival period, then the Buyer agrees to indemnify each of the Sellers
from and against the entirety of any Adverse Consequences the Seller may suffer
through and after the date of the claim for indemnification (including any
Adverse Consequences the Seller may suffer after the end of any applicable
survival period) resulting from, arising out of, relating to, in the nature of,
or caused by the breach (or the alleged breach).
(d) Matters Involving Third Parties.
-------------------------------
(i) If any third party shall notify any Party (the
"Indemnified Party") with respect to any matter (a "Third Party Claim")
------------------ -----------------
which may give rise to a claim for indemnification against any other Party
(the "Indemnifying Party") under this (S)6, then the Indemnified Party
------------------
shall promptly notify each Indemnifying Party thereof in writing; provided,
---------
however, that no delay on the part of the Indemnified Party in notifying
-------
any Indemnifying Party shall relieve the Indemnifying Party from any
obligation hereunder unless (and then solely to the extent) the
Indemnifying Party thereby is prejudiced.
(ii) Any Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of its choice
reasonably satisfactory to the Indemnified Party so long as (A) the
Indemnifying Party notifies the Indemnified Party in writing within 30 days
after the Indemnified Party has given notice of the Third Party Claim that
the Indemnifying Party will indemnify the Indemnified Party from and
against the entirety of any Adverse Consequences the Indemnified Party may
suffer resulting from, arising out of, relating to, in the nature of, or
caused by the Third Party Claim, (B) the Indemnifying Party provides the
Indemnified Party with evidence reasonably acceptable to the Indemnified
Party that the Indemnifying Party will have the financial resources to
defend against the Third Party Claim and fulfill its indemnification
obligations hereunder, (C) the Third Party Claim involves only money
damages and does not seek an injunction or other equitable relief, (D)
settlement of, or an adverse judgment with respect to, the Third Party
Claim is not, in the good faith judgment of the Indemnified Party, likely
to establish a precedential custom or practice materially adverse to the
continuing business interests of the Indemnified Party, and (E) the
Indemnifying Party conducts the defense of the Third Party Claim actively
and diligently.
(iii) So long as the Indemnifying Party is conducting the defense of
the Third Party Claim in accordance with (S)6 (d)(ii) above, (A) the
Indemnified Party may retain
30
separate co-counsel at its sole cost and expense and participate in the
defense of the Third Party Claim, (B) the Indemnified Party will not
consent to the entry of any judgment or enter into any settlement with
respect to the Third Party Claim without the prior written consent of the
Indemnifying Party (not to be withheld unreasonably), and (C) the
Indemnifying Party will not consent to the entry of any judgment or enter
into any settlement with respect to the Third Party Claim without the prior
written consent of the Indemnified Party (not to be withheld unreasonably).
(iv) In the event any of the conditions in (S)6(d)(ii) above is or
becomes unsatisfied, however, (A) the Indemnified Party may defend against,
and consent to the entry of any judgment or enter into any settlement with
respect to, the Third Party Claim in any manner it reasonably may deem
appropriate (and the Indemnified Party need not consult with, or obtain any
consent from, any Indemnifying Party in connection therewith), (B) the
Indemnifying Parties will reimburse the Indemnified Party promptly and
periodically for the costs of defending against the Third Party Claim
(including reasonable attorneys' fees and expenses), and (C) the
Indemnifying Parties will remain responsible for any Adverse Consequences
the Indemnified Party may suffer resulting from, arising out of, relating
to, in the nature of, or caused by the Third Party Claim to the fullest
extent provided in this (S)6.
(e) Determination of Adverse Consequences. The Parties shall take into
-------------------------------------
account the time cost of money (using the Applicable Rate as the discount rate)
in determining Adverse Consequences for purposes of this (S)6. All
indemnification payments under this (S)6 shall be deemed adjustments to the
Purchase Price. In determining the amount of any loss, liability or expense for
which any party is entitled to indemnification under this Agreement, the gross
amount thereof will be reduced by any correlative insurance proceeds realized or
to be realized by such party (or, in the case of the Buyer by the Company) and
such correlative insurance benefit shall be net of any insurance premium which
becomes due as a result of such claim.
(f) Other Indemnification Provisions. The foregoing indemnification
--------------------------------
provisions are in addition to, and not in derogation of, any statutory,
equitable, or common law remedy any Party may have for breach of representation,
warranty, or covenant. Each of the Sellers hereby agrees that he or it will not
make any claim for indemnification against the Company by reason of the fact
that he or it was a director, officer, employee, or agent of any such entity or
was serving at the request of any such entity as a partner, trustee, director,
officer, employee, or agent of another entity (whether such claim is for
judgments, damages, penalties, fines, costs, amounts paid in settlement, losses,
expenses, or otherwise and whether such claim is pursuant to any statute,
articles document, bylaw, agreement, or otherwise) with respect to any action,
suit, proceeding, complaint, claim, or demand brought by the Buyer against such
Seller (whether such action, suit, proceeding, complaint, claim, or demand is
pursuant to this Agreement, applicable law, or otherwise).
31
7. Tax Matters. The following provisions shall govern the allocation of
-----------
responsibility as between Buyer and Sellers for certain tax matters following
the Closing Date:
(a) Tax Periods Ending on or Before the Closing Date. Sellers shall, at
------------------------------------------------
their sole cost and expense, prepare or cause to be prepared and file or cause
to be filed all Tax Returns for the Company for all periods ending on or prior
to the Closing Date which are filed after the Closing Date. Sellers shall permit
Company to review and comment on each such Tax Return described in the preceding
sentence prior to filing. Sellers shall reimburse Buyer for Taxes of the Company
with respect to such periods within fifteen (15) days after payment by Buyer or
the Company of such Taxes to the extent such Taxes are not reflected in the
reserve for Tax Liability (rather than any reserve for deferred Taxes
established to reflect timing differences between book and Tax income) shown on
the face of the Closing Balance Sheet. Any Tax refunds that are received by
Buyer or its Subsidiaries, and any amounts credited against Tax to which the
Buyer or its Subsidiaries become entitled, that relate to Tax periods or
portions thereof ending on or before the Closing Date and which refund or credit
is the direct result of the transactions contemplated by this Agreement shall be
for the account of Sellers, and Buyer shall pay over to Sellers any such refund
or the amount of any such credit within fifteen (15) days after receipt or
entitlement thereto. In addition, to the extent that a claim for a refund or a
proceeding results in a payment or credit against tax by a taxing authority to
the Buyer or its Subsidiaries or any amount accrued on the Closing Balance Sheet
and which refund or credit is the direct result of the transactions contemplated
by this Agreement, the Buyer shall pay such amount to Sellers within fifteen
(15) days after receipt or entitlement thereto.
(b) Tax Periods Beginning Before and Ending After the Closing Date. Buyer
--------------------------------------------------------------
shall prepare or cause to be prepared and file or cause to be filed any Tax
Returns of the Company for Tax periods which begin before the Closing Date and
end after the Closing Date. Sellers shall pay to Buyer within fifteen (15) days
after the date on which Taxes are paid with respect to such periods an amount
equal to the portion of such Taxes which relates to the portion of such Taxable
period ending on the Closing Date to the extent such Taxes are not reflected in
the reserve for Tax Liability (rather than any reserve for deferred Taxes
established to reflect timing differences between book and Tax income) shown on
the face of the Closing Balance Sheet. For purposes of this Section, in the case
of any Taxes that are imposed on a periodic basis and are payable for a Taxable
period that includes (but does not end on) the Closing Date, the portion of such
Tax which relates to the portion of such Taxable period ending on the Closing
Date shall (x) in the case of any Taxes other than Taxes based upon or related
to income or receipts, be deemed to be the amount of such Tax for the entire
Taxable period multiplied by a fraction the numerator of which is the number of
days in the Taxable period ending on the Closing Date and the denominator of
which is the number of days in the entire Taxable period, and (y) in the case of
any Tax based upon or related to income or receipts be deemed equal to the
amount which would be payable if the relevant Taxable period ended on the
Closing Date. Any credits relating to a Taxable period that begins before and
ends after the
32
Closing Date shall be taken into account as though the relevant Taxable period
ended on the Closing Date. All determinations necessary to give effect to the
foregoing allocations shall be made in a manner consistent with prior practice
of the Company.
(c) Cooperation on Tax Matters.
--------------------------
(i) Buyer, the Company and Sellers shall cooperate fully, as and to
the extent reasonably requested by the other party, in connection with the
filing of Tax Returns pursuant to this Section and any audit, litigation or
other proceeding with respect to Taxes. Such cooperation shall include the
retention and (upon the other party's request) the provision of records and
information which are reasonably relevant to any such audit, litigation or
other proceeding and making employees available on a mutually convenient
basis to provide additional information and explanation of any material
provided hereunder. The Company and Sellers agree (A) to retain all books
and records with respect to Tax matters pertinent to the Company relating
to any taxable period beginning before the Closing Date until the
expiration of the statute of limitations (and, to the extent notified by
Buyer or Sellers, any extensions thereof) of the respective taxable
periods, and to abide by all record retention agreements entered into with
any taxing authority, and (B) to give the other party reasonable written
notice prior to transferring, destroying or discarding any such books and
records and, if the other party so requests, the Company or Sellers, as the
case may be, shall allow the other party to take possession of such books
and records.
(ii) Buyer and Sellers further agree, upon request, to use their best
efforts to obtain any certificate or other document from any governmental
authority or any other Person as may be necessary to mitigate, reduce or
eliminate any Tax that could be imposed (including, but not limited to,
with respect to the transactions contemplated hereby).
(iii) Buyer and Sellers further agree, upon request, to provide the
other party with all information that either party may be required to
report pursuant to Section 6043 of the Code and all Treasury Department
Regulations promulgated thereunder.
(d) Tax Sharing Agreements. All tax sharing agreements or similar
----------------------
agreements with respect to or involving the Company shall be terminated as of
the Closing Date and, after the Closing Date, the Company shall not be bound
thereby or have any liability thereunder.
(e) Certain Taxes. All transfer, documentary, sales, use, stamp,
-------------
registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement (including any New York
State Gains Tax, New York City Transfer Tax and any similar tax imposed in other
states or subdivisions), shall be paid by Sellers when due, and Sellers will, at
their own expense, file all necessary Tax Returns and other documentation with
33
respect to all such transfer, documentary, sales, use, stamp, registration and
other Taxes and fees, and, if required by applicable law, Buyer will, and will
cause its affiliates to, join in the execution of any such Tax Returns and other
documentation.
8. Miscellaneous.
--------------
(a) Nature of Certain Obligations.
-----------------------------
(i) The covenants of each of the Sellers in (S)2(a) above concerning
the sale of his Company Shares to the Buyer and the representations and
warranties of each of the Sellers in (S)3(a) above concerning the
transaction are several obligations. This means that the particular Seller
making the representation, warranty, or covenant will be solely responsible
to the extent provided in (S)6 above for any Adverse Consequences the Buyer
may suffer as a result of any breach thereof.
(ii) The remainder of the representations, warranties, and covenants
in this Agreement are joint and several obligations. This means that each
Seller will be responsible to the extent provided in (S)6 above for the
entirety of any Adverse Consequences the Buyer may suffer as a result of
any breach thereof.
(b) Press Releases and Public Announcements. No Party shall issue any
---------------------------------------
press release or make any public announcement relating to the subject matter of
this Agreement prior to the Closing without the prior written approval of the
Buyer and the Requisite Sellers; provided, however, that any Party may make any
-----------------
public disclosure it believes in good faith is required by applicable law or any
listing or trading agreement concerning its publicly-traded securities (in which
case the disclosing Party will use its reasonable best efforts to advise the
other Parties prior to making the disclosure).
(c) No Third-Party Beneficiaries. This Agreement shall not confer any
----------------------------
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
(d) Entire Agreement. This Agreement (including the documents referred to
----------------
herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements, negotiations or representations by or among
the Parties or their representatives, whether written or oral, to the extent
they related in any way to the subject matter hereof.
(e) Succession and Assignment. This Agreement shall be binding upon and
-------------------------
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of his
or its rights, interests, or obligations hereunder without the prior written
approval of the Buyer and the Requisite Sellers; provided, however, that the
-----------------
Buyer may (i) assign any or all of its rights and interests hereunder to one or
34
more of its Affiliates and (ii) designate one or more of its Affiliates to
perform its obligations hereunder (in any or all of which cases the Buyer
nonetheless shall remain responsible for the performance of all of its
obligations hereunder).
(f) Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(g) Headings. The section headings contained in this Agreement are
--------
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(h) Notices. All notices, requests, demands, claims, and other
-------
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to the Sellers: Xxxx Xxxx
------------------
0000 Xxxx Xxxx Xxxxxxxxx Xxxxxxx, X.X.
Xxxxxxx, Xxxxxxxxxx 00000
Xxxxx Xxxx
00000-000xx Xxxxxx, X.X.
Xxxxxxxxxxx, Xxxxxxxxxx 00000
With a copy to: Xxxxxxx, Xxxxxxxxxx & Xxxxx, P.C.
---------------
0000 Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxxxxx 00000-0000
Attention: Xxxxxx X. Gala, Esq.
If to the Buyer: Electronic Integrated Solutions
----------------
000 Xxxx Xxxx Xxxxxx
Xxxxxxxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxx
Chairman of the Board
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With a copy to: Xxxxxx & Xxxxxxx
---------------
000 Xxxx Xxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxx X. Xxxxx, Xx., Esq.
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.
(i) Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the domestic laws of the State of Washington without giving
effect to any choice or conflict of law provision or rule (whether of the State
of Washington or any other jurisdiction) that would cause the application of the
laws of any other jurisdiction.
(j) Amendments and Waivers. No amendment of any provision of this
----------------------
Agreement shall be valid unless the same shall be in writing and signed by the
Buyer and the Requisite Sellers. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
(k) Severability. Any term or provision of this Agreement that is invalid
------------
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(l) Expenses. Each of the Parties, the Company, and the Sellers will bear
--------
his or its own costs and expenses (including legal fees and expenses) incurred
in connection with this Agreement and the transactions contemplated hereby. The
Sellers agree that the Company has not borne or will bear any of the Sellers'
costs and expenses (including any of their legal fees and expenses) in
connection with this Agreement or any of the transactions contemplated hereby.
(m) Construction. The Parties have participated jointly in the
------------
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no
36
presumption or burden of proof shall arise favoring or disfavoring any Party by
virtue of the authorship of any of the provisions of this Agreement. Any
reference to any federal, state, local, or foreign statute or law shall be
deemed also to refer to all rules and regulations promulgated thereunder, unless
the context requires otherwise. The word "including" shall mean including
without limitation. The Parties intend that each representation, warranty, and
covenant contained herein shall have independent significance.
(n) Incorporation of Exhibits, Annexes, and Schedules. The Exhibits,
-------------------------------------------------
Annexes, and Schedules identified in this Agreement are incorporated herein by
reference and made a part hereof.
(o) Specific Performance. Each of the Parties acknowledges and agrees
--------------------
that the other Parties would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of the Parties agrees that
the other Parties shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in any arbitration instituted
pursuant to Section 9, in addition to any other remedy to which they may be
entitled, at law or in equity.
9. Arbitration.
-----------
(a) Exclusive Remedy. The Parties agree that except with respect to an
----------------
action for an injunction pursuant to the provisions of section 5(f) above, all
other disputes relating to or arising out of this Agreement, including, but not
limited to, any disputes relating to the Holdback Amount or Holdback Deduction,
if any, shall be submitted to arbitration before a single arbitrator as the sole
and exclusive remedy for resolving such controversies. The arbitrator shall be a
retired state or federal court judge and shall be selected by the mutual
agreement of the parties. If the Parties are unable to agree on an arbitrator
within thirty (30) days after receiving a "Demand for Arbitration," each party
shall submit the name of one proposed arbitrator to the Presiding Judge of King
County, Washington, who shall then select one of the proposed arbitrators
pursuant to the Washington Arbitration Act. The Parties agree that any such
arbitration shall take place in King County in the State of Washington.
(b) Procedures. Any Party may initiate an arbitration proceeding by
----------
providing a written "Demand for Arbitration" to the other Party. There shall be
no pre-hearing discovery except as agreed to by the Parties or as ordered by the
arbitrator. The arbitration proceedings shall be governed by the commerical
arbitration rules of the American Arbitration Association for all purposes
except the selection of the arbitrator.
37
(c) Final and Binding. The Parties agree that the decision of the
-----------------
arbitrator shall be final and binding and that a judgment may be entered on such
arbitration award in any court of competent jurisdiction.
(d) Waiver of Right to Jury Trial. THE PARTIES ACKNOWLEDGE AND AGREE THAT
-----------------------------
BY SELECTING ARBITRATION AS THE SOLE AND EXCLUSIVE REMEDY FOR RESOLVING ALL
DISPUTES AMONG THEM (OTHER THAN THOSE SET FORTH IN SECTION 5(f)), THEY ARE
WAIVING THEIR RIGHT TO A TRIAL BY JURY TO WHICH THEY MAY BE OTHERWISE ENTITLED.
(e) Attorneys' Fees and Costs. The prevailing party in any such
-------------------------
arbitration shall be entitled to recover his or its costs and attorneys' fees
incurred in connection with the arbitration. The arbitrator shall determine who
is the prevailing party in any arbitration.
(f) Refusal to Arbitrate. If any Party refuse to arbitrate a dispute
--------------------
covered by this Section 9 and another Party brings a petition to compel
arbitration, the prevailing party in such action shall be entitled to recover
his or its costs and attorneys' fees incurred in connection with the to petition
to compel.
38
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written.
INTELLISYS GROUP, INC.
By: /s/ XXXXXX X. XXXXXX
-----------------------------
Xxxxxx X. Xxxxxx
Chairman of the Board
PROLINE INDUSTRIES, INC.
By: /s/ Xxxx Xxxx
-----------------------------
Title: President
--------------------------
SELLERS
/s/ Xxxx Xxxx
________________________________
Xxxx Xxxx
/s/ Xxxxx Xxxx
________________________________
Xxxxx Xxxx
39
