EXHIBIT 2.6
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STOCK PURCHASE AGREEMENT
BY AND AMONG
ARMOR HOLDINGS, INC.,
A DELAWARE CORPORATION
SAFARI LAND LTD., INC.,
A CALIFORNIA CORPORATION
AND
XXXX AND XXXXXXX X. XXXXX REVOCABLE TRUST
DATED DECEMBER 22, 1998,
R & J HATCH SURVIVOR'S A-TRUST U/D/T DATED MAY 6, 1998,
XXXXXXX X. XXXXX,
XXXXXX X. XXXXX,
XXXX XXXXX-XXXXXX AND
XXXXX XXXXXX
WITH RESPECT TO THE PURCHASE AND SALE OF ALL OF THE
OUTSTANDING CAPITAL STOCK OF
HATCH IMPORTS, INC.,
A CALIFORNIA CORPORATION
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DATED AS OF DECEMBER 16, 2003
TABLE OF CONTENTS
ARTICLE I: DEFINITIONS .......................................................1
1.1 Definitions .........................................................1
1.2 Interpretation ......................................................9
ARTICLE II : PURCHASE OF SECURITIES; CONSIDERATION ...........................9
2.1 Purchase of Securities ..............................................9
2.2 Consideration .......................................................9
2.3 Certain Closing Adjustments and Covenants ..........................11
ARTICLE III: REPRESENTATIONS AND WARRANTIES OF THE SELLERS ..................13
3.1 Organization .......................................................13
3.2 Capacity; Enforceability ...........................................14
3.3 No Violation or Conflict ...........................................14
3.4 Consents of Governmental Authorities and Others ....................15
3.5 Conduct of Business ................................................15
3.6 Litigation; Disputes ...............................................16
3.7 Brokers ............................................................16
3.8 Compliance .........................................................16
3.9 Charter, Bylaws, Corporate Records, and Business Records ...........16
3.10 Capitalization of the Company ......................................17
3.11 Rights, Warrants, Options ..........................................17
3.12 Financial Statements ...............................................18
3.13 Absence of Undisclosed Liabilities .................................18
3.14 Title to Securities ................................................18
3.15 Title to and Condition of Personal Property ........................18
3.16 Real Property ......................................................19
3.17 Insurance ..........................................................20
3.18 Governmental Authorizations ........................................21
3.19 Intellectual Property Rights .......................................21
3.20 Major Customers and Suppliers; Supplies ............................24
3.21 Related Parties ....................................................24
3.22 List of Accounts and Proxies .......................................25
3.23 Employees and Agents; Employee Policies, Manuals, etc ..............25
3.24 Labor Relations ....................................................25
3.25 Employment Agreements and Employee Benefit Plans ...................26
3.26 Tax Matters ........................................................28
3.27 Material Agreements ................................................29
3.28 Guaranties .........................................................31
3.29 Products ...........................................................31
3.30 Environmental and Safety Matters ...................................32
3.31 Accounts Receivable and Notes Receivable ...........................33
3.32 Accounts and Notes Payable .........................................33
3.33 Inventory Valuation ................................................34
3.34 No Material Adverse Change .........................................34
3.35 Absence of Certain Business Practices ..............................34
3.36 Insolvency .........................................................34
3.37 FIRPTA .............................................................35
3.38 Disclosure .........................................................35
ARTICLE IV: REPRESENTATIONS AND WARRANTIES OF AHI AND THE PURCHASER .........35
4.1 Organization; Standing and Power ...................................35
4.2 Authorization; Enforceability ......................................35
4.3 No Violation or Conflict ...........................................35
4.4 Brokers ............................................................36
4.5 Investment Intent ..................................................36
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ARTICLE V: ADDITIONAL AGREEMENTS ............................................36
5.1 Survival of Representations and Warranties .........................36
5.2 Investigation ......................................................36
5.3 Indemnification ....................................................36
5.4 Taxes ..............................................................43
5.5 Accounts Receivable ................................................46
5.6 Distribution of Excluded Assets; Termination of Certain
Liabilities ......................................................47
5.7 Lease Termination; Post-Closing Use of Facility ....................47
ARTICLE VI CLOSING; CLOSING DELIVERIES ......................................48
6.1 Closing; Effective Date ............................................48
6.2 Closing Date Deliveries by the Sellers and the Company .............48
6.3 Closing Date Deliveries by AHI and/or the Purchaser ................50
ARTICLE VII ADDITIONAL COVENANTS ............................................50
7.1 General Confidentiality ............................................50
7.2 Non-competition, Non-disparagement, and Non-interference ...........51
7.3 Continuing Obligations; Equitable Remedies .........................52
7.4 Notification .......................................................53
ARTICLE VIII MISCELLANEOUS ..................................................53
8.1 Notices ............................................................53
8.2 Entire Agreement ...................................................54
8.3 Binding Effect .....................................................54
8.4 Knowledge of the Parties ...........................................54
8.5 Assignment .........................................................54
8.6 Waiver and Amendment ...............................................54
8.7 No Third Party Beneficiary .........................................54
8.8 Severability .......................................................55
8.9 Expenses ...........................................................55
8.10 Headings ...........................................................55
8.11 Counterparts .......................................................55
8.12 Time of the Essence ................................................55
8.13 Injunctive Relief ..................................................55
8.14 Remedies Cumulative ................................................55
8.15 Governing Law ......................................................56
8.16 Jurisdiction and Venue .............................................56
8.17 Participation of Parties ...........................................56
8.18 Further Assurances .................................................56
8.19 Publicity ..........................................................56
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EXHIBITS
Exhibit Description
------- -----------
Exhibit A Estimated Closing Date Balance Sheet
Exhibit B Legal Opinion of Counsel for Seller
Exhibit C Xxxx Xxxxx-Xxxxxx Employment Agreement
Exhibit D Xxxxxxx Xxxxx Employment Agreement
Exhibit E Xxxxxx Xxxxx Consulting Agreement
Exhibits F(i)-(vi) Seller Releases
Exhibit G Lease Termination Agreement
Exhibit H New Facility Lease
Exhibit I (i)-(iv) Spousal Consents
Exhibit J Pension Plan Waiver
SCHEDULES
Schedule Description
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1.1(a) Detail of Assets and Liabilities of Excluded Business
1.1(b) Prerequisite for Release of Holdback Amount
2.2(a)(i) Payment of Closing Date Payoff Amount
2.2(a)(ii) Payment of Post Closing Payoff Amount
2.2(b) Payment of Initial Cash Consideration
2.2(c) Payment of Holdback Amount
3.1 Organization; Investments
3.5 Conduct of Business
3.6 Litigation and Disputes
3.10 Outstanding Company Capital Stock
3.12 Certain Liabilities
3.13 Undisclosed Liabilities
3.14 Title to Securities
3.15(a) Company Personal Property
3.15(c) Third Party Assets
3.15(d) Location of Assets
3.16 Leased Property
3.17 Insurance
3.18 Governmental Authorizations
3.19 Intellectual Property
3.20 Major Customers & Suppliers
3.21 Related Parties
3.22 List of Accounts and Proxies
3.23(a) Employee and Agent Information
3.23(b) Employee Policies, Manuals, Etc.
3.24 Labor Relations
3.25 Employment Agreements and Plans
3.27 Material Agreements
3.28 Guaranties
3.31 Accounts and Notes Receivable
3.34 Material Adverse Change
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5.3(a)(ix) Indemnification of Certain Intellectual Property Matters
5.5 Certain Accounts Receivable
5.6(a) Excluded Liabilities
ATTACHMENTS
Attachment Description
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3.6 Xxxxxx Settlement Agreement
3.8 Reports of Inspections
3.12 Financial Statements
3.15(d) Location of Company Tangible Property
3.16 Oxnard Lease
3.23(b) Employee Handbook
3.27(a) Form of Vendor Manufacturing Services Agreement
3.27(b) Terms of Company Invoice
3.27(c) Form of Employee Non-Disclosure Agreement
3.31(a) Accounts and Notes Receivable - Trade
3.31(b) Accounts and Notes Receivable - Other
3.31(c) Accounts and Notes Receivable -- Excluded Business
3.32(a) Accounts and Notes Payable- Trade
3.32(b) Accounts and Notes Payable- Excluded Business
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STOCK PURCHASE AGREEMENT dated as of December 16, 2003, by and among ARMOR
HOLDINGS, INC., a Delaware corporation ("AHI"); SAFARI LAND LTD., INC., a
California corporation and a wholly-owned indirect subsidiary of AHI (the
"Purchaser"); XXXX AND XXXXXXX X. XXXXX REVOCABLE TRUST DATED DECEMBER 22, 1998
(the "Xxxxxxx Xxxxx Trust"), R & J HATCH SURVIVOR'S A-TRUST U/D/T DATED MAY 6,
1998 (the "Xxxxxx Xxxxx Trust"), XXXX XXXXX-XXXXXX, XXXXX XXXXXX (collectively
the "Shareholders"); AND XXXXXX X. XXXXX AND XXXXXXX XXXXX (collectively the
"Executives"). The Executives and the Shareholders are collectively referred to
herein as the "Sellers".
PREAMBLE
WHEREAS, the Sellers collectively own and/or control all of the outstanding
capital stock of Hatch Imports, Inc., a California corporation (the "Company");
WHEREAS, the Sellers desire to sell to the Purchaser, and the Purchaser
desires to acquire, on the terms and subject to the conditions set forth in this
Agreement, all of the issued and outstanding capital stock of the Company;
WHEREAS, the Executives will directly and indirectly benefit from the
transactions contemplated hereby;
NOW, THEREFORE, in consideration of the premises and the mutual covenants,
representations and warranties herein contained, the parties hereto hereby agree
as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. In addition to terms defined elsewhere in this Agreement,
the following terms when used in this Agreement shall have the meanings
indicated below and shall be applicable to both the singular and the plural
versions thereof:
"Accountant's Report" shall have the meaning set forth in Section 2.3(c).
"Affiliate" shall mean with respect to a specified Person, any other Person
which directly or indirectly, whether through one or more intermediaries,
controls, is controlled by, or is under common control with such Person.
"Agreement" shall mean this Stock Purchase Agreement together with all
exhibits, attachments and schedules referred to herein.
"AHI" shall have the meaning set forth in the first paragraph of this
Agreement.
"AHI Companies" shall have the meaning set forth in Section 7.1.
"Applicable Law" shall mean, with respect to any Person, any international,
national, regional, state or local treaty, statute, law, ordinance, rule,
administrative action, regulation, order, writ, injunction, judgment, decree or
other requirement of any Governmental Authority and any requirements imposed by
common law or case law, applicable to such Person or any of its properties,
assets, officers, directors, employees, consultants or agents (in connection
with their activities on behalf of such Person or any of its Affiliates).
Applicable Law includes, without limitation, Environmental and Safety
Requirements, and state and local zoning and building laws.
"AR Deadline" shall have the meaning set forth in Section 5.5(a).
"CERCLA" shall have the meaning set forth in Section 3.30(d).
"Closing" shall have the meaning set forth in Section 6.1.
"Closing Date" shall mean the date that the Closing takes place.
"Closing Date Balance Sheet" shall have the meaning set forth in Section
2.3(a).
"Closing Date Payoff Amount" shall have the meaning set forth in Section
2.2(a).
"Closing Date Receivables" shall have the meaning set forth in Section
5.5(a).
"Code" shall mean the Internal Revenue Code of 1986, as amended, or any
successor law.
"Company" shall have the meaning set forth in the first paragraph of this
Agreement.
"Company Capital Stock" shall have the meaning set forth in Section 3.10.
"Company Intellectual Property" shall have the meaning set forth in Section
3.19(a).
"Company Tangible Property" shall have the meaning set forth in Section
3.15(a).
"Competitive Business" means (i) the development, manufacture, marketing,
sale and distribution of equipment and products intended for government, law
enforcement, correctional, military, security, safety, hunting, shooting, and
first responder use, including, without limitation, concealable and tactical
body armor, hard armor, duty gear, less-lethal munitions, anti-riot products,
police batons, emergency lighting products, forensic products, firearms
accessories and weapon maintenance products, and future applications of such
equipment and products; (ii) the development, manufacture, marketing, sale and
distribution of equipment and products described in (i) above for recreational
and sporting use; and (iii) the development, manufacture, marketing, sale and
distribution of gloves, hand apparel, protective gear, gear bags, goggles and
the other products and equipment that the Company currently develops,
manufactures, markets, sells, and distributes except for products relating to
the Excluded Business.
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"Consulting Agreement" shall have the meaning set forth in Section 6.2(d).
"Employee Benefit Plan" shall have the meaning ascribed to such term in
Section 3(3) of ERISA.
"Employment Agreements" shall have the meaning set forth in Section 6.2(c).
"Encumbrance" shall mean any claim, lien, charge, security interest,
pledge, mortgage, or any other encumbrance of any kind or nature.
"Environmental Lien" shall have the meaning set forth in Section 3.30(a).
"Environmental and Safety Requirements" shall have the meaning set forth in
Section 3.30(a).
"ERISA" shall mean the Employee Retirement Income Security Act of 1973, as
amended.
"Estimated Closing Date Balance Sheet" shall have the meaning set forth in
Section 2.3(a).
"Excluded Business" shall mean all assets and liabilities associated with
the business (present and historic) of the Company relating to the import, sale
and distribution of hardware products including, without limitation, nuts,
bolts, washers and electrical tape, together with all associated assets and
liabilities including, but not limited to, accounts receivable, fixed assets,
accounts payable and indebtedness (including the Nissan Motor Agreement),
together with all automobiles, whether leased or owned, of the Company, all as
set forth on Schedule 1.1(a) hereto.
"Excluded Liabilities" shall have the meaning set forth in Section 5.6(a).
"Excluded Net Worth" shall mean balances on the books of the Company for
the Excluded Business, Intangibles, Investments, inter-company receivables,
accounts receivable from employees, stockholders and Affiliates of the Company,
and prepaid expenses to the extent not for the benefit of the Purchaser.
"Executives" shall have the meaning set forth in the first paragraph of
this Agreement.
"Facility" shall mean the property and plant leased by the Company that is
located at 0000 Xxxxxxx Xxxxxx, Xxxxxx, XX 00000.
"Final Determination" shall have the meaning set forth in Section
5.3(c)(iv).
"Financial Statements" shall mean (a) the balance sheets of the Company as
of September 30, 2003, 2002 and 2001, together with the related statements of
income and cash
3
flows for the years then ended, as reviewed by Xxxxxxx, XxXxxxxx & Xxxxxxx, LLP
or, in the case of the balance sheet dated September 30, 2003, and related
statements of income and cash flow for the years then ended, as reviewed by
Xxxxxxx, Block and Diamond, LLP; and (b) the balance sheets of the Company as of
October 31, 2003, and November 30, 2003, together with the related statements of
income and cash flows for the months then ended.
"GAAP" shall mean United States generally accepted accounting principles
consistently applied with prior periods.
"Governmental Authority" shall mean any domestic, international, foreign,
national, multinational, territorial, regional, state or local governmental
authority, quasi-governmental authority, instrumentality, court, commission or
tribunal or any regulatory, administrative or other agency, or any political or
other subdivision, department or branch of any of the foregoing or any
arbitrator or mediator.
"Governmental Contracts" shall have the meaning set forth in Section 3.27.
"Governmental Authorizations" shall have the meaning given such term in
Section 3.18.
"Guaranty" shall mean, as to any Person, all liabilities or obligations of
such Person with respect to any indebtedness or other obligations of any other
Person that have been guaranteed, directly or indirectly, in any manner by such
Person, through an agreement, contingent or otherwise, to purchase such
indebtedness or obligation, or to purchase or sell property or services,
primarily for the purpose of enabling the debtor to make payment of such
indebtedness or obligation or to guarantee the payment to the owner of such
indebtedness or obligation against loss, or to supply funds to or in any manner
invest in the debtor, or otherwise.
"Holdback Amount" shall have the meaning set forth in Section 2.2(a)(iii).
"Holdback Release Date" shall be the later to occur of (i) April 30, 2005
and (ii) the date that the conditions set forth on Schedule 1.1(b) have been
satisfied.
"Indemnified Party" shall have the meaning set forth in Section 5.3(c).
"Indemnifying Party" shall have the meaning set forth in Section 5.3(c).
"Initial Cash Consideration" shall have the meaning set forth in Section
2.2(a)(i).
"Insurance Organizations" shall have the meaning set forth in Section
3.16(d).
"Intangibles" shall mean all intangible assets of the Company as determined
in accordance with GAAP, consistently applied, including without limitation all
goodwill, Patents, Trademarks, Copyrights and other applicable Intellectual
Property of the Company.
"Intellectual Property" shall mean any United States, foreign,
international and state patents and patent applications, and continuations,
reissues, divisions, or disclosures relating
4
thereto, industrial design registrations, inventions, certificates of invention
and utility models (collectively, "Patents"); trademarks, service marks, and
trademark or service xxxx registrations and applications (collectively,
"Trademarks"), trade names, trade dress, fictitious names, assumed names, logos,
slogans, and general intangibles of like nature, together with all goodwill
related to the foregoing; Internet domain names; copyrights, copyright
registrations, renewals and applications for copyright registrations, and mask
works (collectively, "Copyrights"); Software, technology, trade secrets and
other confidential information, know-how, proprietary processes, formulae,
algorithms, models and methodologies (collectively, "Trade Secrets"); rights of
privacy and publicity, including but not limited to, the names, likenesses,
voices and biographical information of real persons (but excluding (i) the name
"Hatch" to the extent not set forth on Schedule 3.19, and (ii) the likenesses,
voices and biographical information of Sellers (a) to the extent not set forth
on Schedule 3.19 and (b) to the extent that they are not embodied in materials,
whether written, electronic or otherwise, existing on the date hereof to the
extent that the Company has rights in such materials, and (iii) all license
agreements and other agreements granting rights relating to any of the
foregoing).
"Investments" shall mean, with respect to any Person, all advances, loans
or extensions of credit to any other Person (other than trade credit in the
ordinary course of business), all purchases or commitments to purchase any
stock, bonds, notes, debentures or other securities of any other Person, and any
other investment in any other Person (whether by capital contribution or
otherwise) or other similar arrangement (whether written or oral) with any
Person, including, but not limited to, arrangements in which (i) the Person
shares profits and losses or (ii) the Person may be wholly or partially liable
for the debts or obligations of such partnership, joint venture or other
arrangement described hereby; provided, that no commission paid by the Company
in the ordinary course of business to its distributors or sales representatives
shall be deemed to be an Investment solely as a result of such payment being
made.
"knowledge", whether capitalized or lower case, when used with respect to
the Company or the Sellers, shall mean the knowledge of any of the Sellers,
after due inquiry including, without limitation, due inquiry of Xxxxxxx Xxxxx,
Xxxxxxx Xxxxx and Xxxx Xxxxxx with respect to the representations and warranties
set forth in Sections 3.1, 3.3, 3.4, 3.5, 3.6, 3.8, 3.12 (solely with respect to
the review of the balance sheets of the Company as of November 30, 2003,
together with the related statements of income and cash flows for the month then
ended as set forth on Attachment 3.12 hereto), 3.13, 3.15, 3.16, 3.17, 3.18,
3.19, 3.20, 3.21, 3.24, 3.27, 3.28, 3.29, 3.30, 3.31, 3.32, 3.33, 3.34, and
3.35.
"Leased Property" shall have the meaning set forth in Section 3.16(a).
"Lease" shall have the meaning set forth in Section 3.16(a).
"Lease Termination Agreement" shall have the meaning set forth in Section
6.2(h).
"Legal Opinion" shall mean an opinion letter from Spolin, Silverman, Xxxxx
& Xxxxxxxx LLP, counsel to the Sellers, addressed to the Purchaser and AHI, in
substantially the form attached hereto as Exhibit B.
5
"Liabilities" shall have the meaning set forth in Section 3.13.
"Litigation" shall have the meaning set forth in Section 3.6.
"Losses" shall have the meaning set forth in Section 5.3(a).
"Material Agreements" shall have the meaning set forth in Section 3.27.
"Material Adverse Change" or "Material Adverse Effect" shall mean any
change, event or condition of any character which has had or could reasonably be
expected to have a material adverse effect on the condition (financial or
otherwise), results of operations, assets, liabilities, properties, business or
prospects of the Company, taken as a whole.
"New Facility Lease" shall mean the lease dated as of even date herewith
for the property and plant leased by the Company that is located at 0000 Xxxxxxx
Xxxxxx, Xxxxxx, XX 00000, a copy of which is attached hereto as Exhibit H.
"Pension Plan Deficit Amount" shall mean the aggregate amount of
Liabilities of the Pension Plan as set forth on the most recent Pension Plan
Liability Statement less the aggregate amount of assets of the Pension Plan as
set forth on the most recent Pension Plan Asset Statement. If the Pension Plan
Termination Date shall occur on or prior to the Holdback Release Date, the
Pension Plan Deficit Amount shall equal zero.
"Pension Plan" shall mean the pension plan of the Company known as the
"Hatch Imports, Inc. Defined Benefit Pension Plan and Trust" or any successor
plan, trust or account.
"Pension Plan Asset Statement" shall mean the last monthly statement
detailing the assets of the Pension Plan from the professional investment
advisor of the Pension Plan (which shall in no event be dated more than thirty
prior to the Holdback Release Date) in form reasonably acceptable to AHI.
"Pension Plan Liability Statement" shall mean the liabilities of the
Pension Plan as set forth on the annual report of the actuaries for the most
recently ended fiscal year of the Pension Plan in form reasonably acceptable to
AHI.
"Pension Plan Termination Date" shall mean two business days after AHI has
received either (a) a copy of a favorable letter from the Internal Revenue
Service as to the termination of the Plan indicating that there is no unfunded
pension plan liabilities, or (b) such other written evidence of the termination
of the Pension Plan (and all Liabilities thereunder) that AHI shall determine to
be sufficient in its sole discretion.
"Person" whether or not capitalized, shall mean any natural person,
corporation, unincorporated organization, partnership, limited liability
company, association, joint stock company, joint venture, trust or government,
or any agency or political subdivision of any government or any other entity.
6
"Post-Closing Consideration" shall have the meaning set forth in Section
2.2(a)(ii).
"Post-Closing Settlement" shall have the meaning set forth in Section
2.3(e).
"Product" shall have the meaning set forth in Section 3.29(a).
"Product Liability Indemnification" shall have the meaning set forth in
Section 5.3(d)(ii).
"Purchaser Ancillary Documents" shall mean the Consulting Agreement, the
Employment Agreements, the New Facility Lease, and each other agreement and
document contemplated hereby to be executed by the Purchaser or AHI.
"Purchaser Indemnified Parties" shall have the meaning set forth in Section
5.3(a).
"Purchaser Indemnification Threshold" shall have the meaning set forth in
Section 5.3(d).
"Purchase Price" shall have the meaning set forth in Section 2.2(a) hereof.
"Purchaser" shall have the meaning set forth in the first paragraph of this
Agreement.
"Receivables" shall have the meaning set forth in Section 3.31.
"Related Costs" shall have the meaning set forth in Section 5.4(a).
"Related Party" shall have the meaning set forth in Section 3.21.
"Release" shall have the meaning set forth in Section 3.30(a).
"Retained Holdback Amount" shall mean the lesser of (a) the Tax Holdback
Amount plus the Pension Plan Deficit Amount and (b) $2,000,000 less any amounts
that are set-off against the Holdback Amount by Purchaser on or prior to the
Holdback Release Date pursuant to the terms of this Agreement.
"Retained Holdback Balance Amount" shall mean the Retained Holdback Amount
less the Tax Holdback Amount less any amounts that are set-off against the
Retained Holdback Amount on or prior to the Pension Plan Termination Date
pursuant to the terms of this Agreement.
"Right of Set-Off" shall have the meaning set forth in Section 2.2(c).
"Xxxxxx Xxxxx Trust Agreement" shall have the meaning set forth in Section
3.2(b).
"Securities" shall mean the Company Capital Stock.
"Seller Ancillary Documents" shall mean the Consulting Agreement, the
Employment Agreements, the Lease Termination Agreement, the New Facility Lease,
the
7
Seller Releases, the Seller Spousal Consents, the Pension Plan Waivers and each
other agreement and document contemplated hereby to be executed by any of the
Sellers or Persons under their control.
"Seller Indemnification Threshold" shall have the meaning set forth in
Section 5.3(d)(v).
"Sellers" shall have the meaning set forth in the first paragraph of this
Agreement.
"Seller Releases" shall have the meaning set forth in Section 6.2(e).
"Seller Indemnified Parties" shall have the meaning set forth in Section
5.3(b).
"Shareholders" shall have the meaning set forth in the first paragraph of
this Agreement.
"Software" shall mean any and all (i) computer programs, including any and
all software implementations of algorithms, models and methodologies, whether in
source code or object code form, (ii) databases, compilations, and any other
electronic data files, including any and all collections of data, whether
machine readable or otherwise, (iii) descriptions, flow-charts, technical and
functional specifications, and other work product used to design, plan,
organize, develop, test, troubleshoot and maintain any of the foregoing, (iv)
without limitation to the foregoing, the software technology supporting any
functionality contained on the Internet site(s), of the Company, (v) all
computer-aided design software, including the underlying data, and (vi) all
documentation, including technical, end-user, training and troubleshooting
manuals and materials, relating to any of the foregoing.
"Straddle Returns" shall have the meaning set forth in Section 5.4(d).
"Subsidiary" of any Person shall mean any Person, whether or not
capitalized, in which such Person owns, directly or indirectly, an equity
interest of at least fifty percent (50%), or which is controlled, directly or
indirectly, by such Person.
"Tangible Net Worth" shall mean the book value, determined in accordance
with GAAP, of the total assets of the Company excluding the Excluded Business
and the Excluded Net Worth.
"Tax Group" shall have the meaning set forth in Section 3.26.
"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 Section 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.
8
"Tax Holdback Amount" means an amount equal to $100,000 less any amounts
that are set-off against the Tax Holdback Amount by Purchaser on or prior to the
Tax Holdback Release Date pursuant to the terms of this Agreement.
"Tax Holdback Release Date" shall be the later of (i) June 16, 2006, or
(ii) three years and two business days after the later of (a) the date on which
the Company filed its U.S. federal income tax return for its fiscal year ending
September 30, 2002 or (b) any amendment thereto.
"USRPHC" shall have the meaning set forth in Section 3.26(f).
"Xxxxxxx Xxxxx Trust Agreement" shall have the meaning set forth in Section
3.2(b).
1.2 Interpretation. For purposes of this Agreement, (i) the words
"include," "includes" and "including" shall be deemed to be followed by the
words "without limitation", (ii) the words "herein", "hereof", "hereby",
"hereto" and "hereunder" refer to this Agreement as a whole, including the
exhibits, schedules and attachments referred to herein or attached hereto, (iii)
the use of any gender shall be construed to include all other genders, unless
the context clearly indicates that less than all the genders is intended; and
(iv) the use of the singular or of the plural shall be construed to include both
the singular and the plural unless the context clearly indicates that only the
singular or only the plural is intended. References herein to Articles,
Sections, Exhibits, Schedules and Attachments mean the Articles and Sections of,
and the Exhibits, Schedules and Attachments attached to, this Agreement.
ARTICLE II
PURCHASE OF SECURITIES; CONSIDERATION
2.1 Purchase of Securities. Subject to the terms and conditions set forth
herein, on the Closing Date, the Sellers shall sell to the Purchaser, and the
Purchaser shall purchase from the Sellers, all of Sellers' right, title and
interest in and to the Securities, which shall constitute one hundred percent
(100%) of the issued and outstanding capital stock of the Company. At the
Closing, the Sellers shall deliver to Purchaser all of the certificates
representing all of the outstanding Securities together with stock powers
separate from the certificates duly executed by the Sellers in blank and
sufficient to convey to Purchaser good and marketable title to all of the
outstanding Securities free and clear of any and all Encumbrances of any nature
whatsoever together with all accrued benefits and rights attaching thereto.
2.2 Consideration. (a) Subject to adjustment as set forth in Sections 2.3,
the aggregate purchase price (the "Purchase Price") for all of the outstanding
Securities is an amount equal to (x) $9,950,000 less (y) the aggregate amount of
liabilities and indebtedness owing to those creditors of the Company set forth
on Schedule 2.2(a)(i) hereto (the "Closing Date Payoff Amount") less (z) the
aggregate amount of liabilities and indebtedness owing to those creditors of the
Company set forth on Schedule 2.2(a)(ii) hereto (the "Post Closing Payoff
Amount"). The Closing Date Payoff Amount shall be paid in full at Closing by
Purchaser pursuant to wire transfer in the amounts and to the creditors and
accounts set forth on Schedule 2.2(a)(i). The
9
Post Closing Payoff Amount shall be paid in full one day after Closing by
Purchaser pursuant to wire transfer in the amount and to the creditor and
account set forth on Schedule 2.2(a)(ii). The Purchase Price shall be payable by
Purchaser to or on behalf of the Shareholders as follows:
(i) subject to reduction pursuant to Section 2.3 hereof, an amount
equal to the difference between the Purchase Price and an amount
equal to $2,000,000, payable in cash and delivered at the Closing
pursuant to wire transfers in the amounts and to the parties and
accounts set forth on Schedule 2.2(b) hereto (the "Initial Cash
Consideration"); and
(ii) subject to (a) the Right of Set-Off, (b) the other terms of this
Agreement and (c) either (I) receipt by Purchaser and AHI from the
Sellers of both the Pension Plan Asset Statement and the Pension
Plan Liability Statement or (II) the occurrence of the Pension Plan
Termination Date, an amount equal to $2,000,000 (the "Holdback
Amount") less the Retained Holdback Amount, payable in cash and
delivered on the Holdback Release Date; and
(iii) subject to the Right of Set-Off and the other terms of this
Agreement, that portion of the Retained Holdback Amount
representing the lesser of (a) the Pension Plan Deficit Amount and
(b) the Retained Holdback Balance Amount, payable in cash on the
Pension Plan Termination Date; and
(iv) subject to the Right of Set-Off and the other terms of this
Agreement, that portion of the Retained Holdback Amount
representing the Tax Holdback Amount, payable in cash on the Tax
Holdback Release Date.
(b) All amounts to be paid to Sellers pursuant to Sections 2.2(a)(ii),
2.2(a)(iii) and 2.2(a)(iv) shall be paid in each instance in such percentages as
set forth on Schedule 2.2(c) hereto pursuant to written wire transfer
instructions to be provided by the Sellers to Purchaser at least two (2)
business days prior to the Holdback Release Date, the Pension Plan Termination
Date, or the Tax Holdback Release Date, as the case may be; provided, that at
the joint written direction of all of the Sellers on or prior to the Holdback
Release Date, the Pension Plan Termination Date, or the Tax Holdback Release
Date, as the case may be, the Sellers may reallocate the percentages set forth
on Schedule 2.2(c) with respect to any such payments to be made so long as one
hundred percent of such amount payable is paid to or on behalf of the Sellers at
the time of each such payment.
(c) In order to secure the obligations of the Sellers hereunder,
including, without limitation, the obligations of the Sellers regarding the
Tangible Net Worth of the Company and its representations, warranties,
agreements and covenants, the Purchaser shall retain and hold the Holdback
Amount until the Holdback Release Date, without interest. The Holdback Amount
less the Retained Holdback Amount, will be released to the Sellers, net of any
and all set-offs taken by the Purchaser in accordance with Section 5.3(e) hereof
(the "Right of Set-off"), on the Holdback Release Date. Commencing on the
Holdback Release Date (a) in order to secure the obligations of the Sellers
pursuant to Section 5.3(a)(v) hereof, AHI shall retain the Tax Holdback Amount
until the Tax Holdback Release Date and the Tax Holdback
10
Amount will be released to the Sellers, net of any and all set-offs taken by the
Purchaser in accordance with the Right of Set-off, on the Tax Holdback Release
Date, and (b) in order to secure the obligations of the Sellers pursuant to
Section 5.3(a)(vi) hereof, AHI shall retain the greater of (I) the Pension Plan
Deficit Amount and (II) the Retained Holdback Balance Amount until the Pension
Plan Termination Date, and the Retained Holdback Balance Amount shall be
released to the Sellers, net of any and all set-offs taken by the Purchaser in
accordance with the Right of Set-off, on the Pension Plan Termination Date.
(d) The Post Closing Consideration, the Holdback Amount, the Retained
Holdback Amount, the Tax Holdback Amount and the Retained Holdback Balance
Amount shall each be a general unsecured liability of the Purchaser and shall
not constitute a lien upon any particular funds or other assets of the Purchaser
or AHI.
2.3 Certain Closing Adjustments and Covenants.
(a) Sellers are providing herewith an unaudited balance sheet of the
Company as of the Closing Date, prepared in accordance with GAAP, consistent
with the Financial Statements, as reasonably estimated in good faith by the
Sellers through the Closing Date adjusted to account for all activity in the
ordinary course of business (the "Estimated Closing Date Balance Sheet"), a copy
of which is attached as Exhibit A. Within ten (10) business days after the
Closing the Sellers shall provide AHI with a final unaudited balance sheet dated
as of the Closing Date (the "Closing Date Balance Sheet") setting forth the
actual financial position of the Company as of such date, prepared in accordance
with GAAP consistent with the Estimated Closing Date Balance Sheet and the
Financial Statements. The Estimated Closing Date Balance Sheet and the Closing
Date Balance Sheet shall not reflect the assets or liabilities of the Excluded
Business. Within ten (10) business days after the Closing, and in connection
with the preparation of the Closing Date Balance Sheet, the Sellers shall (a)
conduct a physical count of the Company's inventory and other physical assets as
of the Closing Date, which shall be attended by the Purchaser and/or its
representatives, and the Purchaser and its accountants and other representatives
shall be afforded access to the work papers and other records of the Sellers and
their accountants, and (b) for all inventory and assets of the Company not
located at the Facility (including, without limitation, suppliers and shippers,
in Pakistan, Taiwan, Hong Kong, or Korea), or at any other location other than
the Leased Property, cause such third parties to provide written confirmation of
the amount and type of such inventory in form reasonably acceptable to Purchaser
and Seller and/or their respective representatives. Sellers shall maintain and
keep records, and cause the suppliers of the Company to maintain and keep
records, of all inventory transferred, sold or otherwise disposed of during the
period between the Closing Date and the completion of the counts to be taken,
and the receipt of each of the third party confirmations to be delivered,
pursuant to this Section 2.3(a). The results of such count and third party
confirmations shall be used in connection with determining the value of such
assets as of the Closing Date for use in calculating the Tangible Net Worth on
the Closing Date Balance Sheet. If the Tangible Net Worth as set forth on (i)
the Estimated Closing Date Balance Sheet, or (ii) the Closing Date Balance
Sheet, is less than $3,750,000, then the Purchase Price shall be reduced
dollar-for-dollar by the amount of such deficiency, and the Purchaser shall
set-off such deficiency against the Initial Cash Consideration (in the case of a
deficiency
11
set forth in the Estimated Closing Date Balance Sheet) and/or the Holdback
Amount (in the case of a deficiency set forth in the Closing Date Balance
Sheet). If the Tangible Net Worth is in excess of $3,750,000, no adjustment in
favor of the Sellers shall be made. If the Closing Date Balance Sheet shows less
deficiency in Tangible Net Worth than that set forth on the Estimated Closing
Date Balance Sheet, Purchaser shall return to Sellers in such percentages as set
forth on Schedule 2.2(c) that portion of the amount of cash set-off from the
Initial Cash Consideration equaling the amount of such difference in deficiency
in Tangible Net Worth.
(b) Included in the Tangible Net Worth shall be no less than Two
Hundred Fifty Thousand Dollars ($250,000) in unrestricted cash available for
immediate withdrawal in the operating account(s) of the Company at Closing. If
the operating account of the Company has less than Two Hundred Fifty Thousand
Dollars ($250,000) in unrestricted cash available for immediate withdrawal on
the Closing Date, then the Purchase Price shall be reduced dollar-for-dollar by
the amount of such deficiency, and the Purchaser shall set-off such deficiency
against the Initial Cash Consideration; provided, that in such event, the
Tangible Net Worth requirement set forth in Section 2.3(a) shall be reduced
dollar-for-dollar by the amount of any such set-off.
(c) Subsequent to the Closing, but in no event later than ninety (90)
days thereafter, Purchaser may have Purchaser's independent auditors or
Purchaser's internal auditing staff conduct an audit of the Closing Date Balance
Sheet and shall deliver to the Purchaser and Sellers a report (the "Accountant's
Report") with respect thereto, which shall (i) include either a revised Closing
Date Balance Sheet and/or otherwise set forth in reasonable detail such
objections to the Closing Date Balance Sheet provided by Sellers and (ii) set
forth the Tangible Net Worth as of the Closing Date. The Purchaser and the
Sellers and their representatives shall be provided access to the work papers
and all other appropriate records used to prepare the Accountant's Report. The
Purchaser and Seller shall each accept or reject the Accountant's Report by
written notice to the other within ten (10) business days thereafter. If either
party disputes the Accountant's Report, the parties will attempt to resolve
their differences jointly and shall provide reasonable access to each other's
appropriate records, including, but not limited to, their respective work
papers, but if no resolution is reached within five (5) business days, then the
parties agree to submit the disputed items for arbitration to Ernst & Young
("Arbitrator"), with whom each party represents it has not, within the last two
years, had a material relationship, within ten (10) business days thereafter for
determination by the Arbitrator within thirty (30) days after the dispute has
been submitted. Any submission to the Arbitrator shall fully set forth the
nature of the dispute. The Arbitrator may hold hearings, take testimony and
receive evidence in such manner and to such extent as it may determine. The
determination of the Arbitrator (the "Arbitrator's Determination") with respect
to the Tangible Net Worth and the Closing Date Balance Sheet shall be
conclusive, final, and binding upon all parties for the purposes of this
Agreement. The cost of such mutually agreed Arbitrator's Determination shall be
borne equally by the parties.
(d) If the Accuntant's Report, or Arbitrator's Determination if there
is one, shows the Tangible Net Worth is an amount less than $3,750,000, such
difference (the "Determined TNW Shortfall"), to the extent greater that the
amount of the set-off, if any, previously made pursuant to Section 2.3(a) hereof
relating to such shortfall, shall be set-off dollar-for-dollar against the
Holdback Amount. If the Determined TNW Shortfall is less than the amount of the
set-off, if any, made pursuant to Section 2.3(a) hereof relating to such
shortfall, the
12
difference shall be paid to Sellers to the extent the Initial Cash Consideration
was reduced pursuant to Section 2.3(a) in connection with such shortfall, and
shall be credited to the Holdback Amount to the extent the Holdback Amount was
reduced pursuant to Section 2.3(a) in connection with such shortfall. If the
Accountant's Report, or Arbitrator's Determination if there is one, shows the
Tangible Net Worth to be in excess of $3,750,000, any previous set-off to the
Holdback Amount made pursuant to Section 2.3(a) shall be paid to Sellers to the
extent the Initial Cash Consideration was reduced pursuant to Section 2.3(a) and
shall be credited to the Holdback Amount to the extent the Holdback Amount was
reduced pursuant to Section 2.3(a) and no adjustment in favor of the Sellers
shall be made.
(e) If any post-closing adjustment is required or permitted to be made
pursuant hereto, the settlement thereof (a "Post-Closing Settlement") shall take
place on the fifth business day following (i) the submission of the Closing Date
Balance Sheet, and (ii) in the event of an audit, the submission of the
Accountant's Report or Arbitrator's Determination if there is one, as
applicable. Any Post-Closing Settlement shall be a liability of the Sellers to
Purchaser and shall be paid, at the election of the Purchaser in its absolute
discretion, by the Purchaser taking a set-off against the Holdback Amount.
(f) Each of the Sellers, the Purchaser and AHI may reflect any
adjustment made pursuant to this Section 2.3 as an adjustment to the Purchase
Price for tax reporting purposes.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
In order to induce AHI and the Purchaser to enter into this Agreement and
the Purchaser Ancillary Documents and to consummate the transactions
contemplated hereby and thereby, each of the Sellers jointly and severally make
the representations and warranties set forth below to AHI and the Purchaser.
3.1 Organization.
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of California. The Company is duly
qualified to transact business as a foreign corporation in all jurisdictions
where the ownership or leasing of its properties or the conduct of its business
requires such qualification except where the failure to be so qualified would
not have a Material Adverse Effect. Each jurisdiction in which the Company is so
qualified is listed on Schedule 3.1 hereto. The Company has the requisite right,
power, and authority to (i) own or lease and operate its properties and (ii)
conduct its business as presently conducted.
(b) The Company does not, directly or indirectly, (i) own, of record or
beneficially, any outstanding voting securities or other equity or ownership
interests in any corporation, partnership, limited liability company, joint
venture or other entity, (ii) control any
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corporation, partnership, limited liability company, joint venture or other
entity, or (iii) have any Investments.
3.2 Capacity; Enforceability.
(a) Each of the Sellers has all requisite capacity to execute, deliver,
and perform this Agreement and the Seller Ancillary Documents and to consummate
each of the transactions contemplated hereby and thereby. This Agreement and the
Seller Ancillary Documents have been and will be duly executed and delivered and
constitute the legal, valid and binding obligations of each of the Sellers,
enforceable in accordance with their respective terms, except to the extent that
their enforcement is limited by bankruptcy, insolvency or other laws relating to
or affecting the enforcement of creditors' rights generally and by general
principles of equity.
(b) The Xxxxxxx Xxxxx Trust was formed pursuant to the Xxxx and Xxxxxxx
X. Xxxxx Revocable Trust dated December 22, 1998 ( the "Xxxxxxx Xxxxx Trust
Agreement"). The Xxxxxx Xxxxx Trust was formed pursuant to the R & J Hatch
Survivor's A-Trust u/d/t dated May 6, 1998 (the "Xxxxxx Xxxxx Trust Agreement").
As of the date hereof, the Xxxxxxx Xxxxx Trust Agreement and the Xxxxxx Xxxxx
Trust Agreement are in effect and have not been rescinded or revoked, and the
Xxxxxxx Xxxxx Trust and the Xxxxxx Xxxxx Trust respectively created thereby are
duly organized and validly existing.
(c) Xxxxxxx Xxxxx has full power and capacity to execute, deliver and
perform this Agreement, and each of the Seller Ancillary Documents to which it
is a party, as trustee on behalf of the Xxxxxxx Xxxxx Trust. No material
approval, authorization or other action by, or filing with, any other Person,
entity or agency is required at or prior to the closing of the transactions
contemplated by this Agreement in connection with the execution, delivery and
performance by Xxxxxxx Xxxxx of each document to which the Xxxxxxx Xxxxx Trust
is a party.
(d) Xxxxxx Xxxxx has full power and capacity to execute, deliver and
perform this Agreement, and each of the Seller Ancillary Documents to which it
is a party, as trustee on behalf of the Xxxxxx Xxxxx Trust. No material
approval, authorization or other action by, or filing with, any other Person,
entity or agency is required at or prior to the closing of the transactions
contemplated by this Agreement in connection with the execution, delivery and
performance by Xxxxxx Xxxxx of each document to which the Xxxxxx Xxxxx Trust is
a party.
3.3 No Violation or Conflict. The execution, delivery and performance of
this Agreement and the Seller Ancillary Documents and the consummation by each
of the Sellers of the transactions contemplated hereby and thereby (a) do not
violate or conflict with any Applicable Law (except where such violation or
conflict would not have a Material Adverse Effect) or any provision of the
certificate of incorporation or bylaws of the Company; and (b) do not, with or
without the passage of time or the giving of notice, result in the breach of, or
constitute a default, give rise to a right of termination, cancellation, or
acceleration of performance or loss of benefit or require any consent or waiver
under, or result in the creation of any Encumbrance upon any of the property or
assets of, or in any way affect the continuation, validity, or effectiveness of,
any agreement, understanding, or instrument to which the Company or any of the
Sellers is a party or by which any of the Sellers or the Company or any of their
14
respective properties and assets may be bound or affected., other than
instruments or agreements as to which a written consent or waiver shall have
been obtained at or prior to the Closing.
3.4 Consents of Governmental Authorities and Others. No consent,
approval or authorization of, or registration, qualification or filing with any
Governmental Authority or any other Person is required to be made by any of the
Sellers or the Company in connection with the execution, delivery or performance
of this Agreement or the Seller Ancillary Documents or the consummation by each
of the Sellers of the transactions contemplated hereby and thereby.
3.5 Conduct of Business. Except as disclosed on Schedule 3.5 hereto,
since October 1, 2002, the Company has conducted its businesses in the ordinary
and usual course consistent with past practices. Without limiting the generality
of the foregoing, except as disclosed on Schedule 3.5, since October 1, 2002,
the Company has not: (a) amended its certificate of incorporation or bylaws; (b)
issued, sold or authorized for issuance or sale, shares of any class of its
securities (including, but not limited to, by way of stock split or dividend) or
any subscriptions, options, warrants, rights or convertible securities or
entered into any agreements or commitments of any character obligating it to
issue, sell, redeem, purchase, or register any such securities; (c) redeemed,
purchased or otherwise acquired, directly or indirectly, any shares of its
capital stock or any option, warrant or other right to purchase or acquire any
such shares; (d) declared or paid any dividend or other distribution (whether in
cash, stock or other property) with respect to its capital stock; (e) sustained
any operating loss or reduction in Tangible Net Worth in any quarter; (f)
suffered any damage, destruction or loss, whether or not covered by insurance,
which has had or could reasonably be expected to have a Material Adverse Effect;
(g) sold, leased, or disposed of any of its material assets or property other
than in the ordinary course of business; (h) granted or made any mortgage or
pledge or subjected itself or any of its properties or assets to any lien,
charge or Encumbrance of any kind, except liens for Taxes not currently due; (i)
made or committed to make any capital expenditures which, individually or in the
aggregate, exceed $10,000; (j) become subject to any Guaranty; (k) materially
changed any accounting method used by the Company; (l) granted any increase in
the rate of compensation payable or to become payable, whether immediately or on
a deferred or contingent basis, to directors, officers, employees, consultants,
agents, dealers, or distributors (including, without limitation, any such
increase pursuant to any bonus, pension, profit-sharing or other plan or
commitment or any right to payment based on retention, change of control or
severance) other than routine increases in compensation paid to non-officer
employees; (m) entered into any agreement which would be a Material Agreement,
or amended or terminated any existing Material Agreement or received written
notice, or to the knowledge of Sellers oral notice, of any such amendment or
termination; (n) experienced any strike, work stoppage or slowdown; (o) except
as may occur in the ordinary and usual course of business of the Company,
received written notice, or to the knowledge of Sellers oral notice, of any
adverse change in its relationship with any financial institution, or material
customer or supplier with which it currently does business, nor are any of the
Sellers or the Company aware of any circumstance other than the consummation of
this Agreement that could reasonably lead to such a change; (p) cancelled,
amended, delayed or postponed (beyond its normal practice) the payments of
accounts payable and other Liabilities; (q) cancelled, compromised, waived or
released any right or claim (or series of rights or claims), including, without
limitation, any account receivable, involving more than $10,000 in the
aggregate; (r) transferred, directly or indirectly, in any way, any cash,
15
cash equivalents, securities, or other assets to any of the Sellers, or for the
benefit of any of the Sellers, including, but not limited to, by way of loan,
repayment of indebtedness, payment of fees, or other distribution or transfer;
(s) experienced any material interruptions in deliveries from its suppliers; or
(t) entered into any agreement to do any of the foregoing.
3.6 Litigation; Disputes. Except as set forth on Schedule 3.6, there are no
actions, suits, investigations, arbitrations claims or proceedings
("Litigation") pending or, to the knowledge of the Sellers or the Company,
threatened before any Governmental Authority (a) against (whether as plaintiff,
defendant or otherwise) or affecting the Company or (b) against any of the
Sellers relating to the Securities or the transactions contemplated by this
Agreement, and to the knowledge of Sellers there exist no facts or circumstances
creating any reasonable basis for the institution of any such action, suit,
investigation, claim or proceeding. Schedule 3.6 sets forth a complete and
accurate list, description and outcome of any Litigation against (whether as
plaintiff, defendant or otherwise) or affecting the Company during the last five
(5) years. To the knowledge of Sellers, no dispute or claim exists between the
Company and any of its customers, suppliers, or distributors that could
reasonably be expected to have a Material Adverse Effect.
3.7 Brokers. Neither the Sellers nor the Company has employed any financial
advisor, broker or finder, and neither of them has incurred or will incur any
other broker's, finder's, investment banking or similar fees, commissions or
expenses in connection with the transactions contemplated by this Agreement.
3.8 Compliance. The Company is in material compliance with all Applicable
Law, including, but not limited to, those relating to (a) the development,
manufacture, distribution, marketing and sale of products and services, (b)
employment, safety and health, (c) building, zoning and land use, (d)
Environmental and Safety Requirements, and (e) the bidding for contracts by, and
the conduct of business by, federal and state contractors. The Company is not
subject to any judicial, governmental or administrative order specifically
applicable to the Company or any judgment or decree. Attached hereto as
Attachment 3.8 are true and correct copies of all reports of inspections of the
Company's businesses and properties received from third parties during the past
three (3) years through the date hereof, under all applicable federal, state,
foreign and local laws and regulations. None of the Sellers nor the Company has
received written notice or, to the knowledge of Sellers oral notice, of any
violation (or any investigation, inspection, audit, or other proceeding by any
Governmental Authority involving an allegation of any violation) of any
Applicable Law, and to the knowledge of the Sellers and the Company, no
investigation, inspection, audit, or other proceeding by any Governmental
Authority involving an allegation of violation of any Applicable Law is
threatened or contemplated. The Company has conducted its business in a manner
that complies with the U.S. Foreign Corrupt Practices Act, whether or not
applicable to such Company.
3.9 Charter, Bylaws, Corporate Records, and Business Records.
(a) A true, correct and complete copy of (i) the certificate of
incorporation of the Company, as amended and in effect on the date hereof, (ii)
the bylaws of the Company, as amended and in effect on the date hereof, and
(iii) the stock ledgers, stock transfer records and minute book(s) of the
Company have previously been provided to the Purchaser. The minute
16
book(s) contain complete and accurate records of all meetings and other
corporate actions of the board of directors, committees of the board of
directors, incorporators and stockholders of the Company from the date of its
incorporation through the date hereof. All such meetings were duly called and
held, and a quorum was present and acting throughout each such meeting. The
stock ledgers and stock transfer records of the Company reflect all issuances
and registrations of transfer of all shares of capital stock of the Company, and
certificates representing all canceled shares of capital stock have been
returned to the Company and duly canceled, except where the Company has received
a lost certificate affidavit from the registered owner (or their lawful
representative) of the shares evidenced thereby.
(b) All books and records of the Company with respect to the conduct of
the business of the Company are located at the offices of the Company. The books
and records of the Company are correct and complete in all material respects,
have been maintained in a manner sufficient to (i) record all financial and
other business transactions of the Company, (ii) prepare financial statements of
the Company in accordance with GAAP and (iii) to enforce all of the rights of
the Company with respect to other Persons. The Company has not discarded any
records with respect to any transaction or series of transactions in violation
of Applicable Law.
3.10 Capitalization of the Company. The authorized capital stock of
the Company consists of two thousand five hundred (2,500) shares of common
stock, no par value per share (the "Company Capital Stock"), of which two
thousand five hundred (2,500) shares are issued and outstanding and collectively
owned by the Sellers in their own names and amounts as set forth on Schedule
3.10 hereto. Except as set forth on Schedule 3.10, the Company has not since its
incorporation authorized or issued any class of common or preferred stock other
than the Company Capital Stock. All shares of the Company Capital Stock have
been duly authorized, are validly issued and outstanding, and are fully paid and
non-assessable. No securities issued by Company from the date of its
incorporation to the date hereof were issued in violation of any statutory or
common law preemptive rights. There are no dividends which have accrued or been
declared but are unpaid on the Company Capital Stock. All Taxes required to be
paid in connection with the issuance and any transfers of the Company Capital
Stock have been paid. All permits or authorizations required to be obtained from
or registrations required to be effected with any Person in connection with any
and all issuances of securities of the Company from the date of its
incorporation though the date hereof have been obtained or effected, and all
securities of the Company have been issued and are held in accordance with the
provisions of all applicable federal and state securities or other laws.
3.11 Rights, Warrants, Options. There are no outstanding (a) securities or
instruments convertible into or exercisable for any of the capital stock or
other equity interests of the Company; (b) options, warrants, subscriptions or
other rights to acquire capital stock or other equity interests of the Company;
or (c) commitments, agreements or understandings of any kind, including employee
benefit arrangements, relating to the issuance or repurchase by the Company of
any capital stock or other equity interests of the Company, or any instruments
convertible or exercisable for such securities or any options, warrants or
rights to acquire such securities.
17
3.12 Financial Statements. Attached hereto as Attachment 3.12 are true and
complete copies of the Financial Statements. The Financial Statements and the
Estimated Closing Date Balance Sheet (a) are correct and complete in all
material respects and have been prepared in accordance with the books of account
and records of the Company; and (b) fairly present, and are true, correct and
complete statements in all material respects of, the Company's financial
condition and the results of its operations and cash flows at the dates and for
the periods specified in such statements. The Estimated Closing Date Balance
Sheet has been prepared in accordance with GAAP. Except as set forth on Schedule
3.12, the Liabilities of the Company were incurred only in the ordinary course
of business. The Company does not have any long term lease obligations other
than the Lease, which will be terminated at closing pursuant to the Lease
Termination Agreement.
3.13 Absence of Undisclosed Liabilities. The Company does not have any
direct or indirect indebtedness, claim, loss, damage, deficiency, obligation,
responsibility or other liability, known or unknown, fixed or unfixed, xxxxxx or
inchoate, liquidated or unliquidated, secured or unsecured, accrued, absolute,
contingent or otherwise, including, without limitation, liabilities on account
of Taxes, other governmental charges or lawsuits brought ("Liabilities"), except
for Liabilities (a) adequately reflected in the Estimated Closing Date Balance
Sheet or (b) that would not have been required under GAAP to be reflected in the
Estimated Closing Date Balance Sheet. To the knowledge of Sellers, except as set
forth on Schedule 3.13, there are no circumstances, conditions, events or
arrangements which could reasonably be expected to hereafter give rise to any
Liabilities of the Company except in the ordinary course of business.
3.14 Title to Securities. Collectively, the Shareholders are the record and
beneficial owners of, and have good and marketable title to, the Securities and,
except as set forth on Schedule 3.14, such Securities are owned free and clear
of any Encumbrances and any claims or rights under any voting trust agreements,
stockholder agreements or other agreements. The Securities constitute all of the
issued and outstanding capital stock of the Company. At the Closing, each of the
Sellers will transfer and convey, and Purchaser will acquire, good and
marketable title to the Securities, free and clear of all Encumbrances. Upon the
transfer of the Securities to Purchaser, the Company will possess ownership of
the entire business (excluding only the Excluded Business) necessary to operate
the Company as a going concern, including as such business is presently being
conducted.
3.15 Title to and Condition of Personal Property.
(a) Schedule 3.15(a) sets forth all interests owned or claimed by the
Company (including, without limitation, options) in or to the plant, machinery,
equipment, furniture, leasehold improvements, fixtures, vehicles, structures,
any related capitalized items and other tangible property used in the business
of the Company, in each case which (i) have been capitalized in the Company's
financial statements or (ii) should be capitalized in accordance with GAAP (the
"Company Tangible Property"). Except as set forth on Schedule 3.15(a), the
Company has good and marketable title to, or in the case of leased property, has
a valid leasehold interest in, each item of Company Tangible Property free and
clear of all Encumbrances, other than Encumbrances that will terminate at or
prior to Closing, statutory liens of bailees and warehousemen, or Taxes for
amounts not yet due and payable.
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(b) Except as reserved against on the Estimated Closing Date Balance
Sheet, all Company Tangible Property owned or used by the Company on the date
hereof (including the Facility) in the operation of its business is in good
operating condition and in a good state of maintenance and repair (normal wear
and tear excepted), is adequate for the business conducted and proposed to be
conducted by the Company, and is inspected, maintained, and operated in
conformity with all Applicable Law.
(c) Except for the Leased Property, those assets set forth on Schedule
3.19(o), the assets of the Excluded Business, and those assets set forth on
Schedule 3.15(c), there are no properties or assets of the Company owned or
claimed to be owned by any third party (whether as lessor, licensor or
otherwise) which are used in the operation of the business of the Company, as
presently conducted or proposed to be conducted.
(d) Except as set forth on Schedule 3.15(d), all Company Tangible
Property is located at the Facility.
3.16 Real Property.
(a) The Company does not own any fee simple interest in real property.
The Company does not lease or sublease (as lessor, sublessor, lessee or
sublessee) any real property other than as set forth on Schedule 3.16. Schedule
3.16 sets forth the street address of each parcel of real property leased or
subleased (as lessor, lessee, sublessor or sublessee) by the Company (the
"Leased Property"). Attached hereto as Attachment 3.16 are true and complete
copies of all lease and sublease agreements other than the New Facility Lease
and all other instruments granting such leasehold interests, rights, options, or
other interests, as amended to date (the "Lease") relating to the Leased
Property. Without giving effect to the Lease Termination Agreement, on the date
hereof, the Lease is valid, binding and in full force and effect. All rent and
other amounts and charges payable under the Lease are current, no notice of
default or termination under the Lease is outstanding, no termination event or
condition or uncured default on the part of the Company or on the part of the
lessor, sublessor, lessee or sublessee, as the case may be, thereunder, exists
under the Leases, and no event has occurred and no condition exists which, with
the giving of notice or the lapse of time or both, would constitute such a
default or termination event or condition. Except as set forth on Schedule 3.16,
there are no subleases, licenses or other agreements granting to any Person
other than the Company any right to the possession, use, occupancy or enjoyment
of the premises demised by the Leases. All of the premises comprising the Leased
Property are used only in the conduct of the Company's business.
(b) Without giving effect to the Lease Termination Agreement, the
Company has good and marketable leasehold title to the Leased Property and to
all plants, buildings, and improvements thereon, free and clear of any
Encumbrances other than the Lease. The Company enjoys peaceful and undisturbed
possession of the Leased Property. No Person other than the Company has any
right to use or occupy any part of the Leased Property.
(c) All improvements located on the Leased Property are in a state of
good maintenance and repair and in a condition adequate and suitable for the
effective conduct therein
19
of the business conducted and proposed to be conducted by the Company. The
heating, ventilation, air conditioning, plumbing and electrical systems at the
Leased Property are in good working order and repair as of the Closing Date. The
Company has not experienced any material interruption in such services provided
to any of the premises located on the Leased Property within the last year. No
landlord under the Leases has any plans to make any material alterations to any
of the Leased Property, the construction of which would interfere with the use
of any portion of the Leased Property. No landlord under the Leases has any
plans to make any material alterations to any of the buildings in which Leased
Property is located, the costs of which alterations would be borne in any part
by a tenant under the applicable Lease.
(d) All permits, licenses, franchises, approvals and authorizations
(collectively, the "Leased Property Permits") of (i) all Governmental
Authorities having jurisdiction over each Leased Property and (ii) all insurance
companies and fire rating and other similar boards and organizations
(collectively, the "Insurance Organizations"), that are required by Applicable
Law or the Company's Insurance Organizations are set forth on Schedule 3.16 and
(A) have been lawfully issued to the Company or the landlord under the Lease to
enable the Leased Property to be lawfully occupied and used for all of the
purposes for which it is currently occupied and used and (B) are, as of the date
hereof, in full force and effect. None of the Sellers or the Company has
received or been informed by a third party of the receipt by it of any written
notice, or to the knowledge of Sellers, oral notice, from any Insurance
Organization or Governmental Authority having jurisdiction over any Leased
Property threatening a suspension, revocation, modification or cancellation of
any Leased Property Permit or of any insurance policies, and to the knowledge of
Sellers, there is no basis for the issuance of any such notice or the taking of
any such action. There is no action required by any of the Sellers or the
Company in order for all Leased Property Permits and liability and casualty
insurance policies required under any of the Leases to remain in full force and
effect upon the transfer of the Securities to the Purchaser.
(e) None of the Sellers nor the Company have received any notice nor
have they any knowledge of any pending, threatened or contemplated condemnation
or eminent domain proceeding with respect to or affecting any Leased Property or
any part thereof.
3.17 Insurance. Schedule 3.17 sets forth a true and complete list of all
insurance policies obtained by the Company providing insurance coverage of any
nature to the Company. The Company has previously provided the Purchaser with
true and complete copies of all of such insurance policies, as amended to the
date hereof. Such policies provide customary coverage for the business in which
the Company is engaged and are sufficient for compliance by the Company with all
requirements of law and all material agreements to which the Company is a party
or by which any of the assets of the Company are bound. All of such policies are
in full force and effect and are valid and enforceable in accordance with their
terms, except to the extent that their enforcement is limited by bankruptcy,
insolvency, reorganization or other laws relating to or affecting the
enforcement of creditors' rights generally and by general principles of equity,
and the Company has complied with all terms and conditions of such policies,
including premium payments. None of the insurance carriers has indicated in
writing or, to the knowledge of Sellers, orally, to any of the Sellers or the
Company an intention to cancel or not renew, or alter the coverage under, any
such policy (other than standard increases in premiums). Except as
20
set forth on Schedule 3.17, the Company has no claim pending against any of the
insurance carriers under any of such policies, and there has been no actual or
alleged occurrence of any kind which may give rise to any such claim, and the
Company has not made any claims under any policy at any time since January 1,
1998, except as set forth on Schedule 3.17 in each instance. All applications
for the policies set forth on Schedule 3.17 are accurate in all material
respects. All of the policies set forth on Schedule 3.17 can be terminated upon
or less than thirty (30) days prior written notice without penalty and, pursuant
to the terms of such policies, with the giving of such written notice the
prepaid premiums thereunder would be refunded on a pro rated basis.
3.18 Governmental Authorizations. Schedule 3.18 lists all material
authorizations, consents, approvals, franchises, licenses and permits required
under Applicable Law for the operation of the business of the Company as
presently operated (the "Governmental Authorizations"). All Governmental
Authorizations have been duly issued or obtained and are in full force and
effect, and each of the Sellers and the Company are in compliance with the terms
and conditions of all Governmental Authorizations. To the knowledge of the
Sellers, no fact, condition, or violation exists which could reasonably be
expected to cause the Governmental Authorizations not to be renewed by the
appropriate Governmental Authorities in the ordinary course or which could
reasonably be expected to cause the revocation, termination, suspension, or
impairment of any Governmental Authorization. Neither the execution, delivery
nor performance of this Agreement shall adversely affect the status of any of
the Governmental Authorizations. The execution, delivery or performance by each
of the Sellers of this Agreement and the Seller Ancillary Documents shall not
adversely affect the status of any of the Governmental Authorizations.
3.19 Intellectual Property Rights.
(a) Except as set forth on Schedule 3.19, the Company owns, or has the
valid right to use pursuant to license agreements (the "License Agreements"),
all Intellectual Property currently used in connection with the business of the
Company as currently conducted (such Intellectual Property, together with the
License Agreements, being referred to herein as the "Company Intellectual
Property").
(b) Schedule 3.19 sets forth a complete and accurate list (showing,
where applicable in each case the registered owner, title, xxxx or name,
applicable jurisdiction, application number, registration number and date of
filing or registration, if any) of all United States, international and state
(i) Patents and patent applications, (ii) Trademark registrations and
applications and all material Trademarks, trade names and assumed or fictitious
names under which Company is conducting business or has in the last five (5)
years conducted business, (iii) Internet domain names, and (iv) Copyright
registrations and applications and all material unregistered copyrights,
including websites owned by the Company or used in the business of the Company
as currently conducted, indicating the applicable jurisdiction, registration
number (or application number), date issued (or date filed) and descriptions of
such property.
(c) Schedule 3.19 sets forth a complete and accurate list and
description of all agreements, licenses, contracts or sublicenses pursuant to
which the Company uses or grants
21
others the right to use any Copyrights, Trademarks, trade names, assumed names,
domain names, Patents, inventions, trade secrets or other Intellectual Property
other than Software.
(d) Schedule 3.19 sets forth a complete and accurate list of all
Software owned by, licensed to or used by the Company (excluding mass market
software licensed to Company that is available in consumer retail stores or
otherwise commercially available and subject to "shrink-wrap" or "click-through"
license agreements).
(e) Except as set forth on Schedule 3.19, the Intellectual Property set
forth on Schedule 3.19 is solely and exclusively owned by the Company free and
clear of all Encumbrances, and, as for all registered Intellectual Property, the
Company is listed in the records of the appropriate United States, state or
foreign agency as the sole owner of the record for each registration and
application for any Patent, Trademark, Internet domain name and Copyright.
Except as set forth on Schedule 3.19, all of the Intellectual Property
registrations and applications and common law trademarks set forth on Schedule
3.19, and the trademark rights underlying any trademark registrations,
applications and common law marks set forth on Schedule 3.19, are valid and
subsisting, in full force and effect, and have not been canceled, expired, or
abandoned. The Company has not received any written, or, to the knowledge of the
Sellers, oral notification of any pending or threatened opposition, interference
or cancellation proceeding before any court or registration authority in any
jurisdiction against the items set forth on Schedule 3.19 or any other Company
Intellectual Property, directly or indirectly, owned by the Company or against
any Company Intellectual Property not owned by the Company.
(f) There are no settlements, injunctions, forbearances to xxx,
consents, judgments, or orders or similar obligations to which the Company is a
party or, to the knowledge of the Sellers, is otherwise bound, which (i)
restrict the Company's rights to use any Company Intellectual Property, (ii)
restrict the business of the Company in order to accommodate a third party's
Intellectual Property rights or (iii) permit third parties to use any
Intellectual Property which would otherwise infringe any Company Intellectual
Property. The Company has not licensed or sublicensed its rights in any
Intellectual Property other than as set forth on Schedule 3.19 and no royalties,
honoraria or other fees are payable by the Company for the use of or right to
use any Intellectual Property in connection with the Company's business as
currently conducted, except pursuant to the License Agreements set forth on
Schedule 3.19.
(g) The license agreements, permits and other agreements under which
the Company has rights to the Company Intellectual Property are valid and
binding obligations of the Company and, to the knowledge of the Sellers, all
other parties thereto, enforceable in accordance with their terms, except to the
extent that their enforcement is limited by bankruptcy, insolvency,
reorganization or other laws relating to or affecting the enforcement of
creditors' rights generally and by general principles of equity, and there
exists no event or condition, which will result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default by
the Company under, any such license agreement or other agreement relating to the
Company Intellectual Property.
(h) The Company takes reasonable measures to protect the
confidentiality of its Trade Secrets. Except as set forth on Schedule 3.19, to
the knowledge of the Sellers, no Trade
22
Secret of the Company has been improperly disclosed or authorized to be
disclosed to any third party in a manner which could reasonably be expected to
result in a forfeiture of such Trade Secret, except where such forfeiture would
not have a Material Adverse Effect.
(i) Except as set forth on Schedule 3.19, to the knowledge of the
Sellers, the conduct of the business of the Company as currently conducted does
not infringe, misappropriate, violate or dilute any Intellectual Property rights
owned or controlled by any third party (either directly or indirectly such as
through contributory infringement or inducement to infringe) and is not
defamatory, violative in any way of any publicity, privacy, or other rights or
obscene. Except as set forth on Schedule 3.19, the Company has not received any
written notice or, to the knowledge of the Sellers, oral notification of any
pending or threatened claims or suits (i) alleging that the Company's activities
or the conduct of its business infringes or constitutes the unauthorized use of
the Intellectual Property rights of any third party, violates the rights of
publicity or privacy of any third party or is defamatory or otherwise violates a
personal right, or (ii) challenging the ownership, use, validity or
enforceability of any Company Intellectual Property.
(j) To the knowledge of Sellers, no third party is (i)
misappropriating, infringing, diluting, or otherwise violating any of the
Company Intellectual Property or rights of publicity or privacy or (ii) taking
or has taken any action that is defamatory of the Company, and no such claims
are pending against a third party by the Company.
(k) The consummation of the transactions contemplated by this Agreement
or the Seller Ancillary Documents will not result in the loss or impairment of
the Company's right to own or use any of the Company Intellectual Property or
require the consent of any Governmental Authority or third party in respect of
any Company Intellectual Property.
(l) Except as set forth on Schedule 3.19, after the deliveries provided
for in this Agreement have occurred, neither the Sellers nor any current or
former officer, director or employee of the Company will retain any rights of
ownership or use with respect to the Company Intellectual Property. All Company
Intellectual Property was either (i) developed by an employee of the Company
within the scope of employment of the employee and pursuant to a binding
invention assignment agreement, (ii) developed by a third-party under a binding
work for hire and assignment agreement, or (iii) developed by a third party and
transferred and assigned to the Company under a binding transfer and assignment
agreement.
(m) The Company Intellectual Property identified on Schedule 3.19 is
not subject to any transfer, assignment, change of control, site, equipment or
other operational limitations.
(n) The Company owns or has the right to use all Software used in its
business. No unlicensed copies of any Software that is available in consumer
retail stores or otherwise commercially available and subject to "shrink-wrap"
or "click-through" license agreements are installed on any of the Company's
computers or computer systems.
23
(o) Except as set forth on Schedule 3.19, there is no Intellectual
Property that is owned or claimed to be owned by any third party (whether as
licensor or otherwise) which is used in connection with the business of the
Company, as presently conducted or proposed to be conducted.
3.20 Major Customers and Suppliers; Supplies.
(a) Schedule 3.20 sets forth a list of the twenty (20) largest
customers (measured by dollar volume) of the Company for the twelve month period
ended September 30, 2003, and all suppliers of significant goods or services to
the Company for the nine month period ended September 30, 2003.
(b) Except as set forth on Schedule 3.20, alternative sources of supply
and services necessary for the conduct of the business of the Company, as
presently conducted, are commercially available; the Sellers believe that such
items may be obtained on terms and conditions comparable to those presently
available to the Company. No facts, circumstances or conditions are known to the
Sellers which create a reasonable basis for believing that the Company will be
unable to continue to procure the supplies and services necessary to conduct its
business on substantially the same terms and conditions, and with substantially
the same delivery schedules, as such supplies and services are currently
procured.
(c) To the knowledge of the Sellers, and except as set forth on
Schedule 3.20, there has not been and will not be any Material Adverse Change in
the relations of the Company with any of its major customers, suppliers,
contractors, licensors and lessors, as a result of the announcement or
consummation of the transactions contemplated by this Agreement and none of the
Sellers have knowledge that any of the major customers or suppliers of the
Company has terminated or is contemplating terminating its relationship with the
Company.
(d) Except as set forth on Schedule 3.20, to the knowledge of the
Sellers, no major customer or supplier has experienced any type of work stoppage
or other material adverse circumstances or conditions that may jeopardize or
adversely affect the Company's future relationship with any major customer or
supplier.
(e) Except as set forth on Schedule 3.20, there are no pending disputes
or controversies between the Company and any significant customer or supplier of
the Company where the amount in controversy exceeds or could reasonably be
expected to exceed $5,000 in Losses to the Company, nor are there any facts
which in the future would materially impair the relationship of the Company with
its significant customers or suppliers.
3.21 Related Parties. Except as set forth on Schedule 3.21, neither the
Company, nor any current or former (within the past five (5) years) director,
officer, or, to the knowledge of Sellers, employee of the Company, nor the
Sellers or any of their respective family members (individually a "Related
Party" and collectively the "Related Parties"), nor any Affiliate of any of the
Sellers or the Company (a) owns, directly or indirectly, any interest in any
person which is a competitor of the Company, or of a supplier or customer of the
Company; (b) owns, directly or indirectly, in whole or in part, any property,
asset or right, real, personal or mixed, tangible or intangible (including, but
not limited to, any of the intangible property) which is utilized in the
24
operation of the business of the Company; (c) has an interest in or is, directly
or indirectly, a party to any contract, agreement, lease or arrangement
pertaining or relating to the Company; or (d) has any cause of action or other
claim whatsoever against, or owes any amount to, the Company.
3.22 List of Accounts and Proxies. Set forth on Schedule 3.22 is (a) the
name and address of each bank or other institution in which the Company
maintains an account (cash, securities or other) or safe deposit box; (b) the
name and phone number of each contact person of the Company at such bank or
institution; (c) the account number of the relevant account and a description of
the type of account; (d) the name of each person authorized by the Company to
effect transactions therewith or to have access to any safe deposit box or
vault; and (e) all proxies, powers of attorney or other like instruments to act
on behalf of the Company in matters concerning its business or affairs.
3.23 Employees and Agents; Employee Policies, Manuals, etc. Schedule
3.23(a) contains a true and correct statement of the names, relationship with
the Company, job description, present rates of compensation (delineated by
annual salary, bonuses, commissions, benefits, or other supplemental
compensation now or hereafter payable), and aggregate compensation for the
fiscal year ended September 30, 2003 of (i) each current director, officer,
consultant or other employee of the Company and (ii) all current sales agents,
dealers, or distributors of the Company. Schedule 3.23(b) sets forth a list of
all employee policies, employee manuals or other written statements of rules or
policies as to working conditions, vacation and sick leave applicable to such
persons, complete and current copies of which have been previously provided to
the Purchaser.
3.24 Labor Relations.
(a) There is no strike, sympathy strike, sit-down, slow-down, stay-in,
sick-out, walk-out, picketing, work stoppage, retarding of work, boycott or any
other interference with the business or the operation or conduct of the business
of the Company (all of the foregoing referred to as "work interference"), and
the Sellers have no knowledge of any pending or threatened work interference. To
the knowledge of the Sellers, there are no facts or circumstances that could
reasonably be expected to give rise to any work interference. The Company is not
a party to any collective bargaining agreements. The Company is not in breach of
any court, arbitration, administrative decision or order which could reasonably
be expected to result in any work interference or give rise to a claim that a
work interference is protected by, or does not violate, any law or provision of
any collective bargaining agreement and there are no facts or circumstances
which could reasonably be expected to result in the foregoing.
(b) Except as set forth on Schedule 3.24, there are no unfair labor
practices, representation or other proceedings claimed, pending or, to the
knowledge of Sellers, threatened before any Governmental Authority, and neither
the Sellers nor the Company knows of any facts or circumstances which could
reasonably be expected to give rise to such unfair labor practice,
representation or other proceeding.
25
(c) There are no filed, pending or threatened injunctions against the
Company which would have the effect of constituting a work interference and no
facts or circumstances exist which could reasonably be expected to give rise to
any such injunction and no such claim has been made or is pending.
3.25 Employment Agreements and Employee Benefit Plans.
(a) Except as set forth on Schedule 3.25, the Company does not now have
and has never had any defined contribution plan or defined benefit pension plan
and is not now and has never been part of a controlled group contributing to any
defined contribution plan or defined benefit pension plan. Except as set forth
on Schedule 3.25, the Company does not and has never been obligated to
contribute to any pension, profit-sharing, option, other incentive plan, or any
other type of Employee Benefit Plan, or have any obligation to or customary
arrangement with employees for bonuses, incentive compensation, vacations,
severance pay, insurance, or other benefits, and the Company is not part of a
controlled group with regard to any of the foregoing. The Company has furnished
to the Purchaser true and correct copies of all documents evidencing plans,
obligations, or arrangements referred to on Schedule 3.25 and true and correct
copies of all documents evidencing trusts relating to any such plans.
(b) Except as set forth on Schedule 3.25, no Employee Benefit Plan of
the Company or of any plan of any controlled group relating to the Company is,
or during the last three years was, subject to Title IV of ERISA.
(c) There has been no violation of the reporting and disclosure
requirements imposed either under ERISA or the Code for which a penalty has been
or may be imposed with respect to any such Employee Benefit Plan. There is no
investigation, litigation, arbitration, claim, governmental or other proceeding
(formal or informal), pending and, to the knowledge of the Seller, there is no
litigation, arbitration, claim, governmental or other proceeding (formal or
informal), or investigation threatened with respect to any such Employee Benefit
Plan or related trust or with respect to any fiduciary, administrator, or
sponsor (in its capacity as such) of any such Employee Benefit Plan. No event
has occurred or, to the knowledge of the Sellers, is threatened which would
constitute a non-exempt prohibited transaction under Section 306 of ERISA.
(d) Except as set forth on Schedule 3.25, the Company does not have any
Employee Pension Benefit Plans (as defined in Section 3(2) of ERISA) and is not
part of any controlled group that has any Employee Pension Benefit Plan.
(e) The Company does not contribute or has no obligation to contribute
to any multi-employer Pension Plan within the meaning of Section 3(37) of ERISA
and is not part of any controlled group that contributes, or has an obligation
to contribute, to any multi-employer Pension Plan.
(f) The Company is in full and complete compliance with all present and
past collective bargaining agreements, memoranda of agreement, side letters,
court, administrative, arbitration, ADR, or mediation decisions or awards, wage
or benefit schedules and all other
26
documents which reflect or pertain to understandings or practices communicated
or agreed upon between such Company and any union representatives.
(g) There are no claims or grievances filed, pending or threatened
pertaining to present or past collective bargaining agreements, memoranda of
agreement, side letters, court, administration, arbitration, ADR or mediation
decisions or awards or other documents.
(h) Except as set forth on Schedule 3.6, there are no complaints,
charges, claims, allegations or grievances pending or, to the knowledge of the
Sellers or the Company, threatened which reflect or pertain to (i) any federal,
state or local labor, employment, wage or hour, workers compensation, disability
or unemployment law, regulation or ordinance; (ii) any claim for wrongful
discharge, breach of employment contract or employment related tort; or (iii)
any employment agreement, restrictive covenant, non-competitive agreement or
employee confidentiality agreement.
(i) The Company is in full and complete compliance with all past and
present profit sharing plans, money purchase plans, target benefit plans,
ESOP's, stock bonus plans, defined benefit plans or any other tax qualified
employee benefit plan, whether terminated or not, and any amendments thereto.
(j) The Company is in full and complete compliance with all past and
present welfare benefit plans, (i.e., health, dental, vision, long term
disability, short term disability, life insurance), child care, tuition
reimbursement, prepaid legal services, severance plans, programs or
arrangements.
(k) The Company is in full and complete compliance with all past and
present supplemental benefit plans, deferred compensation plans, executive
compensation agreements, bonus agreements, consulting agreements or any other
non-qualified employee benefit plans.
(l) The Company is in full and complete compliance with all past and
present trusts, group annuity contracts, Voluntary Employees' Beneficiary
Association, cafeteria plans and any Multiple Employer Welfare Arrangements as
described in Section 3(1) of ERISA.
(m) The Company is not engaged in any prohibited transaction and is not
a fiduciary or a party in interest to any employee benefit plan governed by
ERISA.
(n) The Company is not a federal contractor.
(o) In connection with subparagraphs (i) through (n) above, there are
no complaints, charges, claims, litigation, audits, investigations or
administrative proceedings filed, or to the knowledge of the Sellers or the
Company, pending or threatened.
3.26 Tax Matters.
(a) The Company has previously delivered to the Purchaser true, correct
and complete copies of each of the federal, state, local, and other income tax
returns filed by the
27
Company for the past five fiscal years which were due, without regard to any
extensions granted, on or before the date hereof. All tax returns and tax
reports required to be filed with respect to the income, operations, business or
assets of the Company or each affiliated, combined or unitary group ("Tax
Group") of which the Company has been a member have been timely filed with the
appropriate governmental agencies in all jurisdictions in which such returns and
reports are required to be filed. All of the foregoing as filed are true,
correct and complete and, in all respects, reflect accurately all liability for
Taxes of the Company for the periods to which such returns relate, and all
amounts shown as owing thereon have been paid. All income, profits, franchise,
sales, use, value added, occupancy, property, excise, payroll, transfer,
withholding, FICA, FUTA and other Taxes (including interest and penalties), if
any, collectible or payable by the Company or relating to or chargeable against
any of its assets, revenues or income or payable by the Company and relating to
any employee, independent contractor, creditor, stockholder or other third party
through and including the Closing Date were fully collected and paid by such
date or provided for by adequate reserves in the Financial Statements and the
Estimated Closing Date Balance Sheet, and all similar items due through and
including the Closing Date will have been fully paid by that date or provided
for by adequate reserves, whether or not any such Taxes were reported or
reflected in any tax returns or filings.
(b) No taxation authority has sought to audit, and none of the Sellers
nor the Company has received written notice, or to the knowledge of Sellers oral
notice, of an audit of the records of the Company for the purpose of verifying
or disputing any tax returns, reports or related information and disclosures
provided to such taxation authority, or for the alleged failure of the Company
to provide any such tax returns, reports or related information and disclosure.
No claims, deficiencies, or assessments have been asserted against or inquiries
raised with any of the Sellers or the Company with respect to any Taxes or other
governmental charges or levies which have not been paid or otherwise satisfied,
including claims that, or inquiries whether, the Company has not filed a tax
return that it was required to file, and there exists no reasonable basis for
the making of any such claims or inquiries. Neither the Sellers nor the Company
have waived any restrictions on assessment or collection of Taxes or consented
to the extension of any statute of limitations relating to taxation.
(c) Neither the Sellers nor the Company have filed a consent under
Section 341(f) of the Code concerning collapsible corporations.
(d) No claim has been made, nor do the Sellers or the Company know of
any claim that is pending, by an authority in any jurisdiction where the Company
does not file tax returns alleging that the Company is or may be subject to
taxation in that jurisdiction.
(e) Except for (i) unpaid Taxes not yet due for which an adequate
reserve has been established on the Estimated Closing Date Balance Sheet and
(ii) property taxes that are not delinquent, there is no Tax lien imposed by any
taxing authority outstanding against any of the assets or properties of the
Sellers or the Company.
(f) The Company is not a United States Real Property Holding
Corporation (a "USRPHC") within the meaning of Section 897 of the Code, and the
Company was not a
28
USRPHC on any "determination date" (as defined in ss. 1.897-2(c) of the Treasury
Regulations) at any time during the five-year period preceding the Closing Date.
(g) Neither the Sellers nor the Company have executed any "closing
agreement" or similar agreement with any taxing authority, domestic or
international.
(h) Neither the Sellers nor the Company has agreed or is required to
make any adjustments pursuant to Section 481(a) of the Code or any similar
provision of other tax law, domestic or foreign, by reason of a change in
accounting method initiated by it or any other relevant party, and neither the
Sellers nor the Company has any knowledge that any taxing authority has proposed
any such adjustment or change in accounting method. Neither the Sellers nor the
Company has any application pending with any taxing authority anywhere in the
world requesting permission for any changes in accounting methods.
(i) The Company has not made any payments, is not obligated to make any
payments, and has not become a party to any agreement that under certain
circumstances could obligate it to make payments, that are not or will not be,
as the case may be, deductible under Section 280G or 162(m) of the Code.
(j) The Company is not a member of a Tax Group that has filed an
election pursuant to Rev. Proc. 95-11, 1995-1 C.B. 505 or under Treasury
Regulation Section 1.1502-75(c) or any similar provision of national, foreign,
state or local law.
(k) The Company has not reported on its income tax returns or taken any
positions therein that could give rise to a substantial understatement of
federal or other income tax within the meaning of Section 6662 of the Code or
similar statute.
(l) The Company has not entered into any "reportable transactions" as
defined by Treas. Reg. Section 1.6011.4.
3.27 Material Agreements.
(a) Schedule 3.27 sets forth a list and a brief description of each
material written and oral contract or agreement relating to the Company (except
with respect to (x) the Lease, which is set forth on Attachment 3.16, and (y)
the insurance policies set forth on Schedule 3.17, both of which are hereby
incorporated by reference into Schedule 3.27 and made a part thereof), including
without limitation any: (i) order placed by customers, purchase orders placed by
the Company, binding bid, binding proposal, or binding quotation resulting in a
commitment or potential commitment for expenditure or other obligation or
potential obligation, or which provides for the receipt or potential receipt, in
each case involving in excess of Ten Thousand Dollars ($10,000.00) in any
instance, or series of related contracts that in the aggregate give rise to
rights or obligations exceeding such amount; other than Governmental Contracts
as defined in clause (ii) hereof; (ii) order placed by customers, agreement,
binding bid, binding proposal, or binding quotation with a Governmental
Authority resulting in a commitment or potential commitment for expenditure or
other obligation or potential obligation, or which provides for the receipt or
potential receipt, in each case involving in excess of Ten Thousand Dollars
($10,000.00) in any instance, or series of related contracts that in the
aggregate give rise to rights
29
or obligations exceeding such amount (all of the foregoing in this clause (ii)
being "Governmental Contracts"); (iii) indenture, mortgage, promissory note,
loan agreement, Guaranty or other agreement or commitment for the borrowing or
lending of money or creating an Encumbrance against any asset of the Company;
(iv) agreement which restricts the Company from engaging in any line of business
or from competing with any other Person; (v) contractual warranties made with
respect to products manufactured, packaged, distributed or sold by the Company;
(vi) partnership, stockholder, joint venture, or similar agreement or
arrangement to which the Company is a party or which otherwise governs any
portion of the capital stock of the Company; and (vii) other contract,
agreement, instrument, arrangement or commitment involving the receipt or
expenditure of more than $10,000 or which is otherwise material to the condition
(financial or otherwise), results of operation, assets, properties, liabilities,
business or prospects of the Company (collectively, and together with all other
agreements required to be disclosed on any schedule to this Agreement, the
"Material Agreements"). The Company has previously furnished to Purchaser true,
complete and correct copies of all written agreements, as amended, required to
be listed on or incorporated by reference into Schedule 3.27.
(b) None of the Material Agreements was entered into outside the
ordinary course of business of the Company, is reasonably likely to be performed
at a material loss, or contains any provisions that could reasonably be expected
to materially impair or adversely effect in any material way the operations of
the Company.
(c) Each Material Agreement is in full force and effect and is the
valid and legally binding obligation of the Company and the other parties
thereto, enforceable in accordance with their respective terms, subject only to
bankruptcy, insolvency or similar laws affecting the rights of creditors
generally and to general equitable principles. None of the Sellers nor the
Company has received written notice, or to the knowledge of Sellers, oral notice
of default by the Company under any of the Material Agreements, including any
contract or agreement relating to borrowed money to which the Company is a party
or by which it or its assets are bound or subject and no event has occurred
which, with the passage of time or the giving of notice or both, would
constitute a default by the Company thereunder. Neither the Company nor, to the
knowledge of Sellers, any of the other parties to any of the Material Agreements
is in default thereunder, nor, to the knowledge of Sellers, has an event
occurred which, with the passage of time or the giving of notice or both would
constitute a default by such other party thereunder. None of the Sellers nor the
Company has received written notice, or to the knowledge of Sellers, oral notice
of the pending or threatened cancellation, revocation or termination of any of
the Material Agreements, including, without limitation, any agreements relating
to borrowed money to which the Company is a party or by or to which it or its
assets are bound or subject, nor are any of the Sellers or the Company aware of
any facts or circumstances which could reasonably be expected to lead to any
such cancellation, revocation or termination.
(d) The consummation of the transactions contemplated by this Agreement
and the Seller Ancillary Documents will not cause a breach or a default under,
accelerate any obligations under, give rise to any right of termination, loss of
benefit or other adverse action under, or in any way affect the continuation,
validity, enforceability or effectiveness of, any of the Material Agreements.
All Material Agreements will be in full force and effect and will be
30
valid and binding, subject only to bankruptcy, insolvency or similar laws
affecting the rights of creditors generally and to general equitable principles,
immediately after the Closing.
(e) With respect to Governmental Contracts, the Company and, if
necessary, each of the Sellers, have (i) complied in all respects with all
certifications and representations that they have executed, acknowledged or set
forth with respect to each such Governmental Contract (true copies of which have
been furnished to the Purchaser); (ii) complied in all respects with all
clauses, provisions and requirements incorporated, by reference or by operation
of law, into each such Governmental Contract; and (iii) submitted certifications
and representations with respect to each Governmental Contract that were in all
material respects accurate, current and complete when submitted, and were
properly updated to the extent required by law, regulation or the applicable
Governmental Contract
(f) None of the Sellers nor the Company have, with respect to any
Governmental Contract: (i) received written notice, or to the knowledge of
Sellers or the Company, oral notice that the Company has breached or violated
any law, regulation, statute, certification, representation, clause, provision,
or requirement with respect to any such Governmental Contract, (ii) received any
show cause notice or cure notice with respect to any Governmental Contract,
(iii) received any formal or informal determination that costs incurred under
any such Government Contract have been questioned or disallowed, (iv) received
any adverse decision from a contracting officer relating to any such
Governmental Contract, (v) received any written, or to the knowledge of Seller
oral notice, that monies due under any Governmental Contract are or may be
subject to withholding or setoff.
(g) There are no pending claims against any Governmental Authority or,
to the knowledge of the Sellers, threatened claims against any prime contractor,
subcontractor or vendor arising out of or relating to any such Governmental
Contract, except for routine demands in the ordinary course of business.
3.28 Guaranties. Except as set forth on Schedule 3.28, the Company is not a
party to any Guaranty, and no Person is a party to any Guaranty for the benefit
of the Company.
3.29 Products.
(a) To the knowledge of Sellers, there exists no set of facts (i) which
could reasonably be expected to furnish a basis for the recall, withdrawal or
suspension of any product, Governmental Authorization, approval or consent of
any Governmental Authority with respect to any product distributed or sold by
the Company (a "Product"), (ii) which could reasonably be expected to furnish a
basis for the recall, withdrawal or suspension by order of any state, federal or
foreign court of law of any Product, or (iii) which could reasonably be expected
to have an adverse effect on the continued operation of any facility of the
Company or which could reasonably be expected to otherwise cause the Company to
recall, withdraw or suspend any such Product from the market or to change the
marketing classification of any such Product. There are no defects in the
designs, specifications, or process with respect to any Product sold or
otherwise distributed that will give rise to any Losses or that will cause such
Products to not be useable as intended or marketed.
31
(b) There is no material correspondence (other than routine
correspondence with U.S. Customs Authorities and filings with the Internal
Revenue Service) received or sent by or on behalf of the Company during the past
five (5) years from or to any Governmental Authority.
3.30 Environmental and Safety Matters.
(a) For purposes of this Agreement, the term "Environmental and Safety
Requirements" shall mean all federal, state, local and foreign statutes,
regulations, ordinances and other provisions having the force or effect of law,
all judicial and administrative orders and determinations, all contractual
obligations and all common law, in each case concerning public health and
safety, worker health and safety and pollution or protection of the environment
(including, without limitation, all those relating to the presence, use,
production, generation, handling, transport, treatment, storage, disposal,
distribution, labeling, testing, processing, discharge, Release, threatened
Release, control or cleanup of any hazardous or otherwise regulated materials,
substances or wastes, chemical substances or mixtures, pesticides, pollutants,
contaminants, toxic chemicals, petroleum products or byproducts, asbestos,
polychlorinated biphenyls, noise or radiation); "Release" shall have the meaning
set forth in CERCLA (as defined below); and "Environmental Lien" shall mean any
lien, whether recorded or unrecorded, in favor of any Governmental Authority,
relating to any liability of the Company, or the Sellers with respect to the
Company, arising under any Environmental and Safety Requirements.
(b) Each of the Sellers and the Company have complied with and are
currently in compliance with all Environmental and Safety Requirements, and
neither the Sellers nor the Company has received any oral or written notice,
report or information regarding any Liabilities or any corrective, investigatory
or remedial obligations arising under Environmental and Safety Requirements
which relate to the Company or any of their respective properties or facilities.
Without limiting the generality of the foregoing, the Company has obtained and
complied with, and is currently in compliance with, all permits, licenses and
other authorizations that may be required pursuant to any Environmental and
Safety Requirements for the occupancy of its properties or facilities or the
operation of its business as presently being conducted, as it has been conducted
in the past and as it is proposed to be conducted in the future. A list of all
such permits, licenses and other authorizations of the Company is set forth on
Schedule 3.30 attached hereto.
(c) Neither this Agreement nor the consummation of the transactions
contemplated by this Agreement or the Seller Ancillary Documents shall impose
any obligations on the Company or otherwise for site investigation or cleanup,
or notification to or consent of any Governmental Authority or third parties
under any Environmental and Safety Requirements (including, without limitation,
any so called "transaction-triggered" or "responsible property transfer" laws
and regulations).
(d) None of the Sellers nor the Company has treated, stored, disposed
of, arranged for or permitted the disposal of, transported, handled or Released
any substance
32
(including, without limitation, any hazardous substance), or owned, occupied or
operated any facility or property, so as to give rise to Liabilities of the
Company for response costs, natural resource damages or attorneys fees pursuant
to the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA"), or any other Environmental and Safety Requirements.
Without limiting the generality of the foregoing, no facts, events or conditions
relating to the past or present properties, facilities or operations of the
Company, prevent, hinder or limit continued compliance with Environmental and
Safety Requirements, give rise to any corrective, investigatory or remedial
obligations pursuant to Environmental and Safety Requirements or give rise to
any other Liabilities (whether accrued, absolute, contingent, unliquidated or
otherwise) pursuant to Environmental and Safety Requirements (including, without
limitation, those Liabilities relating to onsite or offsite Releases or
threatened Releases or hazardous materials, substances or wastes, personal
injury, property damage or natural resources damage).
(e) Neither the Company, nor any of the Sellers on behalf of the
Company, have either expressly or by operation of law, assumed or undertaken any
liability or corrective, investigatory or remedial obligation of any other
Person relating to any Environmental and Safety Requirements.
(f) No Environmental Lien has attached to any property leased or
operated by the Company or any of the Sellers on behalf of the Company.
3.31 Accounts Receivable and Notes Receivable. Except as set forth on
Schedule 3.31, all accounts and notes receivable other than those related to the
Excluded Business (the "Receivables") have arisen in the ordinary course of
business, represent valid obligations owed to the Company for sales made,
services performed or other charges, are not subject to claims or set-off or
other defenses or counter-claims, and, subject only to consistently recorded
reserves for bad debts (which have been recorded on the Financial Statements and
books and records of the Company), have been collected or are collectible in the
aggregate recorded amounts thereof in accordance with their terms, subject only
to return rights in the ordinary course of business. All items which are
required by GAAP to be reflected as Receivables on the Financial Statements and
on the books and records of the Company are so reflected. Attachment 3.31(a) is
a true and complete aged list of all of the Receivables as of the Closing Date,
and except as set forth on Attachment 3.31(a), none of the Receivables included
in the Financial Statements are owed by the Sellers or relate to the Sellers or
any employee, stockholder or affiliate of the Company. Attachment 3.31(b)
separately sets forth, without giving effect to the transactions contemplated
hereby, a list of any and all Receivables from the Sellers, employees,
stockholders and Affiliates of the Company including, without limitation, all
notes, loans, advances or other monies owed to the Company by any past or
present employee. Schedule 3.31(c) separately sets forth a list of any and all
Receivables relating to the Excluded Business on the date of its transfer.
3.32 Accounts and Notes Payable. Attachment 3.32(a) sets forth a true and
correct aged list of all accounts and notes payable of the Company as of the
Closing Date, except for those relating to the Excluded Business. All such
accounts and notes payable have arisen in the ordinary course of business and
represent valid indebtedness of the Company for the exclusive
33
benefit of the Company. All items which are required by GAAP to be reflected as
accounts and notes payable on the Financial Statements and on the books and
records of the Company are so reflected. Attachment 3.32(b) sets forth a true
and correct aged list of all accounts and notes payable of the Company relating
to the Excluded Business.
3.33 Inventory Valuation. The raw materials, work in process, spare parts,
and other inventory of the Company as set forth on the Financial Statements and
on the Estimated Closing Date Balance Sheet are, and the raw materials, work in
process, spare parts, and other inventory of the Company currently are, in
usable or salable condition in the ordinary course of business at the respective
amounts carried, net of reserves, on the Financial Statements and on the books
and records of the Company. The raw materials, work in process, spare parts, and
other inventory are (a) not obsolete or excessive and are of at least the
standard quality for such items; (b) of standard quality suitable for the
manufacture and distribution for such products; and (c) not in excess of the
normal purchasing patterns of the Company. All items which are required by GAAP
to be reflected as inventory on the Estimated Closing date Balance Sheet and on
the books and records of the Company are so reflected.
3.34 No Material Adverse Change. Except as set forth on Schedule 3.34,
since October 1, 2002, there has been no Material Adverse Change with respect to
the Company, whether or not covered by insurance.
3.35 Absence of Certain Business Practices. None of the Sellers, the
Company, the Related Parties nor their Affiliates or any other Person acting on
behalf of or associated with the foregoing parties, acting alone or together,
has with respect to the business or activities of the Company (a) received,
directly or indirectly, any rebates, payments, commissions, promotional
allowances or any other economic benefits, regardless of their nature or type,
from any customer, supplier, trading company, shipping company, governmental
employee or other Person with whom the Company has done business directly or
indirectly; or (b) except in connection with entertainment, promotional,
advertising and marketing disbursements lawfully made in the ordinary course of
business, directly or indirectly, given or agreed to give any gift or similar
benefit to any customer, supplier, trading company, shipping company or other
Person (other than to or for a governmental entity or employee) who is or may be
in a position to help or hinder the business of the Company (or assist the
Company in connection with any actual or proposed transaction) which (i) may
subject the Company to any damage or any penalty in any civil, criminal or
governmental litigation or proceeding, (ii) if not given in the past, may have
had a Material Adverse Effect on the assets, business or, operations of the
Company as reflected in the Financial Statements or (iii) if not continued in
the future, may result in a Materially Adverse Effect or subject the Company to
suit or penalty in any private or governmental litigation or proceeding. The
Company has not made any unlawful payments to foreign or domestic government
officials or employees or to foreign or domestic political parties or campaigns
or violated any provision of the Foreign Corrupt Practices Act of 1977.
34
3.36 Insolvency. Each of the Sellers and the Company are able to pay their
respective debts as they mature, and the transfer of the Securities by the
Sellers to the Purchaser in accordance with the terms of this Agreement shall
not constitute a voidable preference or transfer in fraud of any creditor under
applicable federal or state insolvency law.
3.37 FIRPTA. None of the Sellers nor the Company is a "foreign person"
within the meaning of Section 1335 of the Code.
3.38 Disclosure. The representations and warranties of the Sellers set
forth in this Agreement, the Seller Ancillary Documents or any certificate
furnished by or on behalf of the Sellers or the Company to AHI and/or the
Purchaser or its agents pursuant hereto or thereto or in connection with the
transactions contemplated hereby or thereby do not or will not contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements contained herein or therein, in the
circumstances in which made, not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF AHI AND THE PURCHASER
In order to induce each of the Sellers to enter into this Agreement and the
Seller Ancillary Documents and to consummate the transactions contemplated
hereby and thereby, AHI and the Purchaser, jointly and severally, make the
representations and warranties set forth below to each of the Sellers.
4.1 Organization; Standing and Power. AHI is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
Purchaser is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware.
4.2 Authorization; Enforceability. Each of AHI and the Purchaser has all
requisite right, corporate power, and corporate authority to execute, deliver,
and perform this Agreement and the Purchaser Ancillary Documents and to
consummate the transactions contemplated hereby and thereby. This Agreement and
the Purchaser Ancillary Documents to which AHI or the Purchaser is a party have
been duly authorized by their respective Board of Directors, do not require any
further authorization or consent and have been duly executed and delivered by
AHI and the Purchaser, as the case may be, and constitute the legal, valid and
binding obligations of AHI and Purchaser, as the case may be, enforceable in
accordance with their terms, except to the extent that their enforcement is
limited by bankruptcy, insolvency, reorganization or other laws relating to or
affecting the enforcement of creditors' rights generally and by general
principles of equity.
4.3 No Violation or Conflict. The execution, delivery and performance of
this Agreement and the Purchaser Ancillary Documents and the consummation by AHI
and the Purchaser of the transactions contemplated hereby and thereby (a) do not
violate or conflict with any Applicable Law, except where such violation or
conflict would not have a Material Adverse Effect, (ii) do not violate or
conflict with any provision of the certificate of incorporation or bylaws of AHI
or the Purchaser; and (iii) do not, with or without the passage of time or the
35
giving of notice, (x) result in the breach of, constitute a default, or give
rise to a right of termination, cancellation, or acceleration of performance or
loss of benefit or require any consent or waiver under, or in any way affect the
continuation, validity, or effectiveness of any agreement, understanding or
instrument to which AHI or the Purchaser is a party or by which AHI or the
Purchaser or their respective properties may be bound or affected or (y) result
in the creation of any Encumbrance upon any property or assets of AHI or the
Purchaser pursuant to any agreement, understanding, or instrument to which AHI
or the Purchaser is a party or by which AHI or the Purchaser or their respective
properties may be bound or affected, other than instruments or agreements as to
which a written consent or waiver shall have been obtained at or prior to the
Closing.
4.4 Brokers. AHI and Purchaser have not employed any financial advisor,
broker or finder and have not incurred and will not incur any broker's,
finder's, investment banking or similar fees, commissions or expenses, in
connection with the transactions contemplated by this Agreement or the other
agreements or documents contemplated hereby to be executed by them.
4.5 Investment Intent. Purchaser acknowledges that the Securities are not
registered under the Securities Act and represents that the Securities will be
acquired by Purchaser for investment and not for resale or with a view to the
distribution thereof. The Purchaser represents that it is a sophisticated and
knowledgeable investor and has such experience in financial and business matters
as to be able to adequately assess the business of the Company and the
transaction contemplated herein.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Survival of Representations and Warranties. No claim may be made or
suit instituted seeking indemnification pursuant to this Agreement for any
failure of any representation or warranty to be true and correct unless a
written notice describing such failure is provided to the Indemnifying Party
prior to (a) the expiration of the applicable statute of limitations with
respect to the representations and warranties set forth in Sections 3.1, 3.2,
3.10, 3.11, 3.14, 3.25, 3.26, 3.30 and 3.35 hereof, or (b) April 30, 2006 with
respect to each of the other representations and warranties set forth in this
Agreement.
5.2 Investigation.The representations, warranties, covenants and agreements
set forth in this Agreement shall not be affected or diminished in any way by
any investigation (or failure to investigate) at any time by or on behalf of the
party for whose benefit such representations, warranties, covenants and
agreements were made. All statements contained herein or in any schedule,
certificate, exhibit, attachment, list or other document delivered pursuant
hereto, shall be deemed to be representations and warranties for purposes of
this Agreement.
5.3 Indemnification.
(a) By the Sellers. Each of the Sellers agree to be jointly and
severally responsible for, pay, indemnify and hold harmless the Purchaser and
AHI and their respective directors, officers, employees, agents, successors and
assigns (the "Purchaser Indemnified Parties") from, against and in respect of,
the full amount of any and all Liabilities, damages,
36
claims, deficiencies, fines, assessments, losses, Taxes, penalties, interest,
costs and expenses, including, without limitation, reasonable fees and
disbursements of counsel (collectively, "Losses") arising from, in connection
with, or incident to:
(i) subject to the provisions of Section 5.1 hereof, any breach, or
inaccuracy of any of the representations or warranties of the
Sellers contained in this Agreement or any of the Seller Ancillary
Documents;
(ii) any breach by the Sellers of any covenants or agreements contained
in this Agreement or any of the Seller Ancillary Documents;
(iii) any failure by the Sellers to perform any obligation contained in
this Agreement or any of the Seller Ancillary Documents;
(iv) any Liability resulting from any litigation with respect to acts,
omissions, facts or circumstances arising prior to the Closing Date
involving the Company, regardless of whether or not such litigation
was disclosed by the Sellers on Schedule 3.6, provided that a
written notice describing such pending, threatened or existing
litigation is provided to the Sellers on or prior to April 30,
2006;
(v) any and all Taxes and related penalties, interest or other charges
for any unaccrued or unreported Tax Liabilities with respect to the
Sellers or the Company for all periods prior to or including the
Closing Date, including without limitation any Liability for Taxes
on account of the transfer by the Company of the Excluded Business
at or immediately prior to the Closing;
(vi) any and all Liabilities arising out of, relating to, resulting from
or caused (whether in whole or in part) by the termination of the
Pension Plan;
(vii) any and all Liabilities arising out of, relating to, resulting from
or caused (whether in whole or in part) by any claim arising out of
any transaction, event, condition, occurrence or situation in any
way relating to the Securities, the Company or the conduct of the
business of the Company arising or occurring on or prior to the
Closing Date without regard to whether such claim exists on the
Closing Date or arises at any time thereafter, provided that a
written notice describing any such Liability is provided to the
Sellers on or prior to April 30, 2006; provided, further, the
Purchaser Indemnified Parties shall not be entitled to Losses
pursuant to this Section 5.3(a)(vii) that are Liabilities (a)
reflected on the Closing Date Balance Sheet (to the extent of the
dollar amount of the liability reflected) or (b) incurred within
thirty days prior to Closing in the ordinary course of the
Company's business consistent with past practice and not required
by GAAP to be set forth on the Closing Date Balance Sheet.
(viii) any and all Liabilities arising in connection with compliance with
any reallocation of the percentages set forth on Schedule 2.2(c)
pursuant to Section 2.2(c); and
37
(ix) any Losses relating to those matters set forth on Schedule
5.3(a)(ix).
(b) By AHI and the Purchaser. AHI and the Purchaser agree to be
responsible for, pay, indemnify and hold harmless the Sellers and their
respective heirs, distributees and other lawful successors ("Seller Indemnified
Parties") from, against and in respect of, the full amount of any and all Losses
arising from, in connection with, or incident to:
(i) subject to the provisions of Section 5.1 hereof, any breach or
inaccuracy of any of the representations or warranties of AHI or
the Purchaser contained in this Agreement or any of the Purchaser
Ancillary Documents;
(ii) any breach by AHI or the Purchaser of any covenants or agreements
contained in this Agreement or any of the Purchaser Ancillary
Documents;
(iii) any failure by AHI or the Purchaser to perform any obligations
contained in this Agreement or any of the Purchaser Ancillary
Documents; and
(iv) any and all Liabilities arising out of, relating to, resulting
from, or caused (whether in whole or in part) by any claim arising
out of any transaction, event, condition, occurrence, or situation
to the extent relating to the conduct of the business of the
Company arising or occurring after the Closing Date to the extent
that such Liabilities are not caused (whether in whole or in part)
from the willful misconduct or negligence of any of the Sellers or
otherwise arise out of any breach by the Sellers of this Agreement.
(c) Indemnity Procedure. A party or parties hereto agreeing to be
responsible for or to indemnify against any matter pursuant to this Agreement is
referred to herein as the "Indemnifying Party" and the other party or parties
claiming indemnity is referred to as the "Indemnified Party".
(i) An Indemnified Party under this Agreement shall (a) with
respect to claims for Losses asserted against such party by any third
party, give written notice to the Indemnifying Party of any Liability
or other circumstance which might give rise to a claim for indemnity
under this Agreement, as soon as reasonably possible, but not later
than twenty (20) days prior to the date any answer or responsive
pleading is due (or if not practicable under the circumstances, the
earliest date practicable) and (b) with respect to other matters for
which the Indemnified Party may seek indemnification, the Indemnified
Party shall give prompt written notice to the Indemnifying Party of any
Liability which might give rise to a claim for indemnity; provided,
however, that any failure to give such notice will not waive any rights
of the Indemnified Party, except to the extent the rights of the
Indemnifying Party are materially prejudiced. Notwithstanding the
foregoing, AHI and the Purchaser shall have no obligation hereunder to
give notice to the Sellers for any claims relating to any Losses
arising from any matter described on any Schedule or Attachment
attached hereto.
38
(ii) Subject to Section 5.3(c)(iii), the Indemnified Party
shall have the right to conduct and control, through counsel of its
choosing (provided that such counsel shall be reasonably acceptable to
the Indemnifying Party), the defense, compromise or settlement of any
third Person claim, action or suit against such Indemnified Party as to
which indemnification will be sought by any Indemnified Party from any
Indemnifying Party hereunder, and in any such case the Indemnifying
Party shall cooperate in connection therewith and shall furnish such
records, information and testimony and attend such conferences,
discovery proceedings, hearings, trials and appeals as may be
reasonably requested by the Indemnified Party in connection therewith;
provided, that the Indemnifying Party may participate, through counsel
chosen by it and at its own expense, in the defense of any such claim,
action or suit as to which the Indemnified Party has so elected to
conduct and control the defense thereof; and provided, further, that
the Indemnified Party shall not, without the written consent of the
Indemnifying Party (which written consent shall not be unreasonably
withheld), pay, compromise or settle any such claim, action or suit,
except that no such consent shall be required if, following a written
request from the Indemnified Party, the Indemnifying Party shall fail,
within ten (10) business days after the making of such request, to
acknowledge and agree in writing that, if such claim, action or suit
shall be adversely determined, such Indemnifying Party has an
obligation to provide indemnification hereunder to such Indemnified
Party. Notwithstanding the foregoing, the Indemnified Party shall have
the right to pay, settle or compromise any such claim, action or suit
without such consent, provided that in such event the Indemnified Party
shall waive any right to indemnity therefor hereunder unless such
consent is unreasonably withheld.
(iii) If any third Person claim, action or suit against any
Indemnified Party is (A) both (x) solely for money damages of an amount
less than $150,000 (except that such amount shall be $250,000 during
the period prior to the Holdback Release Date) and (y) if the Sellers
are the Indemnifying Party and such claim, action, or suit, if
determined adversely to the Indemnified Party, could not reasonably be
expected to have a Material Adverse Effect (it being agreed solely for
purposes of this section that a claim solely for money damages of an
amount less than $150,000 (or $250,000 during the period prior to the
Holdback Release Date) would not result in a Material Adverse Effect),
or (B) is in connection with Losses resulting from Item 1 set forth on
Schedule 5.3(a)(ix), then with respect to each such claim, action or
suit the Indemnifying Party shall have the right to conduct and
control, through counsel of its choosing, the defense, compromise or
settlement of any such third Person claim, action or suit against such
Indemnified Party as to which indemnification will be sought by any
Indemnified Party from any Indemnifying Party hereunder; provided that
the Indemnifying Party has acknowledged and agreed in writing that, if
the same is adversely determined, the Indemnifying Party has an
obligation to provide indemnification to the Indemnified Party in
respect thereof, and for only so long as the Indemnifying Party is
diligently pursuing the defense of such claim, action or suit and
provided further that in any such case the Indemnified Party shall
cooperate in connection therewith and shall furnish such records,
information and testimony and attend such conferences, discovery
proceedings, hearings, trials and appeals as may be reasonably
requested by the Indemnifying Party in connection therewith.
Notwithstanding the foregoing, the Indemnified Party may participate,
39
through counsel chosen by it and at its own expense, in the defense of
any such claim, action or suit as to which the Indemnifying Party has
so elected to conduct and control the defense thereof. So long as the
Indemnifying Party is diligently contesting any such claim in good
faith, the Indemnified Party may pay, settle, or compromise such claim
only at its own expense and the Indemnifying Party will not be
responsible for the fees of separate legal counsel to the Indemnified
Party, unless the named parties to any proceeding include both parties
and representation of both parties by the same counsel would be a an
actual conflict of interest for such counsel in the opinion of such
counsel. If the Indemnifying Party does not make such election, or
having made such election does not, in the good faith reasonable
opinion of the Indemnified Party, proceed diligently to defend such
claim, then the Indemnified Party may (after written notice to the
Indemnifying Party), at the expense of the Indemnifying Party, elect to
take over the defense of and proceed to handle such claim in its
discretion and the Indemnifying Party shall be bound by any defense or
settlement that the Indemnified Party may make in good faith with
respect to such claim. In connection therewith, the Indemnifying Party
will fully cooperate with the Indemnified Party should the Indemnified
Party elect to take over the defense of any such claim. Notwithstanding
the foregoing, the Indemnified Party shall have the right to pay,
settle or compromise any such claim, action or suit, provided that in
such event the Indemnified Party shall waive any right to indemnity
therefor hereunder unless the Indemnified Party shall have sought the
consent of the Indemnifying Party to such payment, settlement or
compromise and such consent was unreasonably withheld, in which event
no claim for indemnity therefor hereunder shall be waived. The parties
acknowledge that Sellers shall be entitled to control the defense of
any litigation scheduled on Schedule 3.6 pursuant to this Section
5.3(c)(iii) provided it diligently continues to defend such claim with
counsel acceptable to Purchaser.
(iv) With regard to any and all claims for which
indemnification is payable hereunder, such indemnification shall be
paid by the Indemnifying Party upon the earliest to occur of (i) the
entry of a judgment against the Indemnified Party and the expiration of
any applicable appeal period, or if earlier, five business (5) days
prior to the date that the judgment creditor has the right to execute
the judgment; (ii) the entry of an unappealable judgment or final
appellate decision against the Indemnified Party; or (iii) a settlement
of the claim. The earlier to occur of (i), (ii) or (iii) above being
referred to herein as a "Final Determination". Notwithstanding the
foregoing, provided that there is no good faith dispute as to the
applicability of indemnification, the reasonable legal fees and
expenses of counsel to the Indemnified Party shall be reimbursed on a
current basis by the Indemnifying Party if such legal fees and expenses
are a liability of the Indemnifying Party. With regard to other claims
for which indemnification is payable hereunder, such indemnification
shall be paid promptly by the Indemnifying Party upon demand by the
Indemnified Party.
(d) Limitations on Indemnification.
(i) Anything in this Agreement to the contrary
notwithstanding, no indemnification payment shall be made to the
Purchaser Indemnified Parties until the amounts which the Purchaser
Indemnified Parties would otherwise be entitled to receive
40
as indemnification under this Agreement aggregate at least $100,000
(the "Purchaser Indemnification Threshold"), at which time the
Purchaser Indemnified Parties shall, subject to Section 5.3(d)(ii), be
indemnified dollar-for-dollar for the full amount of such
indemnification, without any deduction for the Purchaser
Indemnification Threshold; provided, that the limitations set forth in
this Section 5.3(d)(i) shall not apply to indemnification claims made
with respect to Sections 5.3(a)(i) (solely with respect to a breach of
Sections 3.1, 3.2, 3.10, 3.11, 3.14, 3.25, 3.26, 3.30 or 3.35),
5.3(a)(ii), 5.3(a)(iii), 5.3(a)(v), 5.3(a)(vi), 5.3(a)(viii),
5.3(a)(ix), 5.5, 5.6(b), 7.1 or 7.2 or claims based upon fraud and the
Purchaser Indemnified Parties shall be indemnified dollar-for-dollar to
the extent of any Losses with respect to any such matters.
(ii) Except as set forth in Section 5.3(d)(iii), anything in
this Agreement to the contrary notwithstanding, no indemnification
payment shall be required to be made to the Purchaser Indemnified
Parties in excess of $7,000,000 with respect to (a) section 5.3(a)(i)
with respect to a breach by Sellers of any representation or warranty
set forth herein, or (b) Section 5.3(a)(iv) with respect to any Losses
that arise solely from a products liability claim by a customer
asserting damages arising out of a defect in a product sold by the
Company; provided, however, that the foregoing limitation shall be
$5,000,000 for the indemnification provisions set forth in (I) Section
5.3(a)(i) with respect to a breach of Section 3.29, unless such matter
was required to be disclosed on Schedule 3.29 hereof and was not so
disclosed, and (II) Section 5.3(a)(iv) with respect to any Losses that
arise solely from a products liability claim by a customer asserting
damages arising out of a defect in a product sold by the Company,
provided that such claim was not required to be disclosed on Schedule
3.6 or constitutes a breach of Section 3.29 on the date hereof (each of
(I) and (II) being a "Product Liability Indemnification"), if, in the
case of either (I) or (II), the Company is actually being insured
against such Losses (in whole or in part) under the insurance policies
insuring the Company with respect to such matter.
(iii) The limitations set forth in Section 5.3(d)(ii) shall
not apply to indemnification claims made with respect to Section
5.3(a)(i) (solely with respect to a breach of Sections 3.1, 3.2, 3.10,
3.11, 3.14, 3.25, 3.26, 3.30, or 3.35) or claims based upon fraud and
the Purchaser Indemnified Parties shall be indemnified
dollar-for-dollar to the extent of any Losses with respect to any such
matters.
(iv) Anything in this Agreement to the contrary
notwithstanding, any indemnification payment required to be made to the
Purchaser Indemnified Parties for Losses for any breach of a
representation or warranty hereof shall be reduced by an amount up to
and including $300,000 in the aggregate to the extent that the Losses
attributable to such breach have already been reflected in an
adjustment of Purchase Price pursuant to Section 2.3(a) or, 2.3(b) or
2.3(d) hereof. For the avoidance of doubt, any and all Losses shall
count and be applied towards the Purchaser Indemnification Threshold
and the Purchaser Indemnification Threshold shall not apply to any
Losses exceeding $100,000 hereunder notwithstanding that the amount of
indemnification available in respect of such Losses is reduced pursuant
to this Section 5.3(d)(iv) or that such Losses impact Tangible Net
Worth. By way of example, if there is an adjustment of Purchase Price
pursuant to Section 2.3(a) or, 2.3(b) or 2.3(d) hereof in the amount of
41
$80,000 and Losses of $120,000 relating to the circumstances creating
such adjustment as a result of a breach of one or more of the
representations and warranties set forth herein, Purchaser would be
entitled to payment of $40,000 in Losses notwithstanding the Purchaser
Indemnification Threshold.
(v) Anything in this Agreement to the contrary
notwithstanding, no indemnification payment shall be made to the Seller
Indemnified Parties until the amounts which the Seller Indemnified
Parties would otherwise be entitled to receive as indemnification under
this Agreement aggregate at least $100,000 (the "Seller Indemnification
Threshold"), at which time the Seller Indemnified Parties shall be
indemnified dollar-for-dollar for the full amount of such
indemnification, without any deduction for the Seller Indemnification
Threshold; provided, that the limitations set forth in this Section
5.3(d)(v) shall not apply to indemnification claims made with respect
to Sections 5.3(b)(ii), 5.3(b)(iii), or a claim based upon fraud and
the Purchaser Indemnified Parties shall be indemnified
dollar-for-dollar to the extent any Losses with respect to such matters
exist.
(vi) Anything in this Agreement to the contrary
notwithstanding, no indemnification payment shall be required to be
made to the Seller Indemnified Parties in excess of $5,000,000 with
respect to (a) Section 5.3(b)(i) with respect to a breach by Sellers of
any representation or warranty set forth herein, or (b) Section
5.3(b)(iv) with respect to any Losses that arise solely from a products
liability claim by a customer asserting damages arising out of a defect
in a product sold by the Company; provided, that such limitation shall
not apply on a claim based upon fraud and the Seller Indemnified
Parties shall be indemnified dollar-for-dollar to the extent any Losses
with respect to such matters exist.
(vii) The extent to which any Indemnified Party shall be
entitled to indemnification hereunder shall be reduced by the amount of
any insurance proceeds received by the Indemnified Party on account of
the claim that the Indemnified Party is seeking to be indemnified for,
irrespective of the identity of the party that paid for such insurance.
(viii) The Purchaser and AHI shall seek coverage from their
and the Company's respective insurance companies for matters that may
give rise to Losses resulting from a Product Liability Indemnification.
To the extent that proceeds from insurance coverage are provided to the
Purchaser, the Company or AHI for matters that give rise to Losses
resulting from a Product Liability Indemnification, AHI and the
Purchaser shall use such proceeds as reimbursement for such Losses and
Sellers shall not be liable for such Losses to the extent such Losses
are recovered thereby and shall remain liable only for any policy
deductibles and any Losses exceeding the amounts recovered.
(ix) Anything in this Agreement to the contrary
notwithstanding, the liability of Xxxxx Xxxxxx for Losses under Section
5.3 shall be limited to 0.4 percent of the aggregate amount of such
Losses, provided that he shall be solely liable for one hundred percent
(100%) of Losses arising out of a breach of the representations and
warranties set
42
forth in Sections 3.2 or 3.14(b), to the extent they arise out of or
relate to the Securities that were owned by him.
(e) Right of Set-Off. The Purchaser and AHI shall have the right, at
any time, to set-off against any payments or obligations otherwise owing to any
of the Sellers, including, without limitation, the Holdback Amount, the Retained
Holdback Amount, the Tax Holdback Amount the Retained Holdback Balance Amount,
and payments owing pursuant to Section 5.5(a) hereof (but excluding any earnings
of any of the Sellers under the Employment Agreements or the Consulting
Agreement), any amount owed by the Sellers to the Purchaser Indemnified Parties
as indemnification; provided, however, that after the Holdback Release Date, the
Purchaser and AHI may (i) only set-off against the Tax Holdback Amount such
amounts owing to the Purchaser Indemnified Parties by Sellers as a result of an
indemnification claim under Section 5.3(a)(v) hereof, and (ii) only set-off
against the Retained Holdback Balance Amount such amounts owing to the Purchaser
Indemnified Parties by the Sellers as a result of an indemnification claim under
Section 5.3(a)(vi) hereof. The foregoing rights of set-off are in addition to
and not in lieu of any right of the Purchaser to any payment from the Holdback
Amount, and the Purchaser shall not be required to proceed against or exhaust
any other source of security.
(f) Each of Sellers and Purchaser shall be entitled to treat any
indemnification payment made hereunder as an adjustment to Purchase Price for
purposes of their respective federal and state income tax returns.
5.4 Taxes.
(a) The Sellers shall be responsible for, and shall pay or cause to be
paid, and shall indemnify and hold the Company, AHI, the Purchaser, and their
respective Affiliates and successors harmless from and against any and all Taxes
that may be imposed on or assessed against them on account of Taxes imposed upon
the Company or its assets (i) with respect to all taxable periods ended on or
prior to the Closing Date, if and to the extent, but only to the extent, that
the Liability for such Taxes exceeds the Liabilities or accruals taken into
account in the preparation of the Closing Date Balance Sheet for Taxes relating
to such periods; (ii) with respect to any Person other than the Company arising
under Reg. Section 1.1502-6 (or any similar provision or state, local, or
foreign law), or as a transferee or successor or by contract or otherwise; (iii)
with respect to any and all Taxes allocated to any of the Sellers pursuant to
Section 5.4(c) hereof; (iv) with respect to any Taxes incurred by or imposed
upon the Company, the Purchaser or AHI in connection with the transactions
contemplated hereby; (v) with respect to Tax Liabilities of the Sellers arising
after the Closing Date, or (vi) arising from any misrepresentation or breach of
warranty contained in Section 3.26 hereof. The Sellers shall also pay or cause
to be paid and shall indemnify and hold harmless the Company, AHI, the
Purchaser, and their Affiliates and successors from and against all losses,
damages and reasonable third party costs and expenses (including reasonable
attorney, accountant and expert witness fees and disbursements) ("Related
Costs") incurred in connection with the Taxes for which the Sellers indemnify
the Company, AHI, the Purchaser, and their Affiliates and successors pursuant to
this Section 5.4(a) (or any asserted deficiency, claim demand or assessment,
including the defense or settlement thereof) or the enforcement of this Section
5.4(a). Any payment required to made by
43
the Sellers pursuant to this Section 5.4(a) shall be made within 30 days after
written notice from the Purchaser.
(b) The Purchaser shall be responsible for, and shall pay or cause to
be paid, and shall indemnify and hold the Sellers harmless from and against, any
and all Taxes that may be imposed on or assessed against the Sellers on account
of Taxes imposed on the Company or its assets (i) with respect to taxable
periods of the Company beginning after the Closing Date, and (ii) any and all
Taxes allocated to the Purchaser pursuant to Section 5.4(c) hereof. The
Purchaser shall also pay or cause to be paid and shall indemnify and hold
harmless the Sellers from and against all Related Costs of the Sellers incurred
in connection with the Taxes for which the Purchaser indemnifies the Sellers
pursuant to this Section 5.4(b) (or any asserted deficiency, claim, demand or
assessment, including the defense or settlement thereof) or the enforcement of
this Section 5.4(b). Any payment required to be made by the Purchaser pursuant
to this Section 5.4(b) shall be made within 30 days of written notice from the
Seller.
(c) The Company and the Purchaser shall close the taxable period of the
Company on the Closing Date, unless such action is prohibited by law. In any
case where Applicable Law prohibits any Company from closing its taxable year on
the Closing Date, then Taxes, if any, attributable to the taxable period of such
Company or Company Subsidiary beginning before and ending after the Closing Date
shall be allocated (i) to the Sellers for the period up to and including the
Closing Date, and (ii) to Purchaser for the period subsequent to the Closing
Date. Notwithstanding the above, any payment made with respect to the first item
on Schedule 2.2(a)(i) on the Closing Date shall be allocated to the period
preceeding the Closing Date and any payment made with respect to payments made
pursuant to Schedule 2.2(a)(ii) made after the Closing Date shall be allocated
to the period subsequent to the Closing Date. For purposes of this Section
5.4(c), Taxes for the period up to and including the Closing Date shall be
determined on the basis of an interim closing of the books as of the end of the
Closing Date; provided, however, that in the case of any Tax not based on income
or receipts, such Taxes payable by Sellers shall be equal to the amount of such
Tax for the taxable year multiplied by a fraction, the numerator of which shall
be the number of days from the beginning of the taxable year through the Closing
Date, and the denominator of which shall be the number of days in the taxable
year. Notwithstanding the foregoing, the expense related to the payment of
obligations of the Company to be made on the Closing Date from the Purchase
Price for the Securities shall be deemed to be an expense incurred during the
period ending on the Closing Date regardless of when such payments are made.
(d) The Sellers shall be responsible for filing or causing to be filed
all tax returns required to be filed by or on behalf of the Company for periods
ending on or before the Closing Date, which tax returns shall be filed within 75
days after the Closing Date. The Sellers shall provide to the Purchaser, for
review and approval, a copy of each such tax return at least three (3) weeks
prior to anticipated filing and in no event later than least three (3) weeks
prior to the end of such 75 day period. The Purchaser's approval shall not be
unreasonably withheld, and in no event shall this section operate to cause any
such return to be filed after the due date (including any extension thereof) for
the filing of such return. Purchaser shall be responsible for filing or causing
to be filed all tax returns required to be filed by or on behalf of the Company
for periods ending after the Closing Date (other than tax returns for periods
ending on or before the
44
Closing Date but not due until after the Closing Date). With respect to returns,
if any, for periods that begin before but end after the Closing Date ("Straddle
Returns"), the Purchaser shall pay or cause to be paid all Taxes to which such
returns relate for all periods covered by such returns; provided, however, that
the Sellers shall pay to the Purchaser the amount determined pursuant to Section
5.4(c) hereof, but only to the extent the Sellers have an obligation to
indemnify the Purchaser for such amounts pursuant to Section 5.4(a) hereof, not
later than fifteen days before the due date for payment of Taxes with respect to
such tax returns. To the extent any Taxes shown due on Straddle Returns are
indemnifiable by the Sellers, Straddle Returns shall be prepared in a manner
consistent with prior practice, unless otherwise required by Applicable Law, as
solely determined by the Purchaser upon written notice to the Sellers. The
Purchaser shall provide the Sellers with a statement setting forth in reasonable
detail the amount, if any, payable pursuant to this Section 5.4(d).
(e) Each of the Sellers and the Purchaser shall cooperate fully with
each other and make available to each other in a timely fashion such Tax data
and other information and personnel as may be reasonably required for the
payment of any estimated Taxes and the preparation of any tax returns required
to be prepared hereunder. Each of the Sellers and the Purchaser shall make
available to the other, as reasonably requested, all information, records or
documents in their possession relating to Tax Liabilities of the Company and the
Company Subsidiaries for all taxable periods thereof ending on, before or
including the Closing Date and shall preserve all such information, records and
documents until the expiration of any applicable Tax statute of limitations or
extensions thereof; provided, however, that if a proceeding has been instituted
for which the information, records or documents are required prior to the
expiration of the applicable statute of limitations, then such information,
records or documents shall be retained until there is a Final Determination with
respect to such proceeding.
(f) The Purchaser and the Sellers shall promptly notify each other in
writing upon receipt by the Purchaser or the Sellers, as the case may be, of any
notice of any tax audits of or assessments against the Company for taxable
periods ending on or before the Closing Date. The failure of one party promptly
to notify the other party of any such audit or assessment shall not forfeit the
right to indemnity except to the extent that a party is materially prejudiced as
a result. The Purchaser shall have the sole right to represent the Company's
interests in any tax proceeding relating to such tax audits or assessments and
to employ counsel of its choice at its expense. The Purchaser and the Sellers
each agree to cooperate fully with the other and its or their respective counsel
in the defense against or compromise of any claim in any tax proceeding.
(g) The Sellers and the Purchaser agree that any payments made
hereunder (whether made directly to a party or to another indemnitee) may be
treated by either party as an adjustment to the aggregate Purchase Price for the
Securities for tax reporting purposes.
(h) All obligations under this Section 5.4 shall survive the Closing
hereunder and continue until 10 days following the expiration of the statute of
limitations on assessment of the relevant Tax. Notwithstanding the foregoing,
any claim for indemnification hereunder shall survive such termination date if,
prior to the termination date, the party making the claim shall have advised the
other party in writing of facts that may constitute or give rise to an alleged
claim for indemnification, specifying in reasonable detail the basis under this
Agreement for
45
such claim. In the event of an audit of the Company for any period ending on or
prior to the Closing Date, the Company shall, at the expense of the Sellers
which shall be paid as such expenses are incurred, reasonably cooperate with the
Sellers with respect to such audit.
5.5 Accounts Receivable.
(a) The Sellers hereby jointly and severally guarantee the collection
of 100% of the Company's accounts receivable, net of any reserves, included in
the calculation of the Tangible Net Worth of the Company (the "Closing Date
Receivables"). If any amount of the Closing Date Receivables is not collected on
or prior to (90) days after the Closing Date (the "AR Deadline"), the Purchaser
may thereafter, from time to time, give written notice thereof to the Sellers
requesting reimbursement for some or all of the uncollected Closing Date
Receivables and the Sellers shall, within ten (10) business days thereafter,
reimburse the Purchaser for the amount thereof. The Closing Date Receivables
shall be collected after the Closing Date in a commercially reasonable manner
consistent with the manner in which the Company collects other accounts
receivable arising after the Closing Date. The Sellers agree that, from and
after the Closing Date, the Company shall have the right and authority to
collect for its own account the Closing Date Receivables in accordance with the
procedures and policies of the Purchaser applicable under the circumstances, but
the Company shall have no obligation to resort to legal action or other third
party collection methods.
(b) Any amounts received from the account debtor of a Closing Date
Receivable shall be applied to the oldest invoice, except insofar as a customer
has indicated otherwise.
(c) To the extent that any Closing Date Receivable remains outstanding
upon expiration of the AR Deadline, the Company may, at the Purchaser's
discretion, continue to attempt to collect such Closing Date Receivable, or may
give written notice of the non-collectability of such Closing Date Receivable to
the Sellers, and the Sellers shall have the opportunity, during the ten-day
period following the date of such written notice, to consult with and advise the
Purchaser and the Company with respect to the manner in which such Closing Date
Receivable may be collected, it being understood by the parties hereto that the
Purchaser and the Company shall have the sole right, but not the obligation, to
implement any such collection methods and that the Sellers shall not contact any
account debtors in respect of such collection without the express written
consent of the Purchaser in each instance.
(d) Upon the expiration of such ten-day period, the Purchaser shall
have the right, in its sole discretion, to either (A) exercise the Purchaser's
rights under Section 5.3, including the Right of Set-Off, to the extent of the
amount of such uncollected Closing Date Receivable, or (B) to continue to pursue
collection thereof; provided, however, that the Purchaser may at any time
thereafter exercise its rights under Section 5.3, including its Right of Set-Off
under Section 5.3(e).
(e) Upon set-off by the Purchaser, Purchaser shall cause the Company to
assign to the Sellers, as a group, such uncollected Closing Date Receivables,
and the Sellers shall have the right to pursue the collection of such
outstanding Closing Date Receivables for their
46
own account; provided, that the Sellers shall confer with the Purchaser at least
10 days prior to taking legal action and, during such 10 day period or any time
thereafter, the Purchaser, in its sole discretion, may elect to cause the
Company to take back any outstanding Closing Date Receivable assigned to the
Sellers pursuant to this subsection (e), and the Sellers shall assign such
outstanding Closing Date Receivable to the Purchaser. If the Purchaser elects to
cause the Sellers to take back any such uncollected Closing Date Receivable, the
Purchaser shall repay 100 percent of any amounts collected on account thereof
pursuant to Section 5.3.
(f) The Sellers agree that in their efforts to collect any Closing Date
Receivables, they shall use commercially reasonable efforts not to injure any
customer relationships of the Company, the Purchaser or AHI in collecting the
Closing Date Receivables.
(g) Notwithstanding any other provision of this Section 5.5, Purchaser
shall attempt to collect receivables from those accounts listed on Schedule 5.5
hereto for at least 120 days following the invoice date before seeking payment
in respect of such Closing Date Receivables.
5.6 Distribution of Excluded Assets; Termination of Certain Liabilities.
(a) At or prior to the Closing, the Sellers shall cause the Company to
pay, discharge and satisfy in full the Liabilities set forth on Schedule 5.6(a)
(the "Excluded Liabilities"). At the Closing, the Sellers shall deliver to the
Company and the Purchaser evidence satisfactory to the Purchaser of the complete
satisfaction or discharge of the Excluded Liabilities, and the release of the
Company and its assets, as the case may be, from such Liabilities.
(b) Prior to or at the Closing, the Sellers shall cause the Company to
transfer to the Sellers or their designees all of the properties and Liabilities
of the Excluded Business set forth on Schedule 1.1(a), which comprise all of the
properties and Liabilities of the Excluded Business owned by the Company. The
Sellers hereby warrant and represent that such distribution shall not give rise
to any Liability to the Company, including any Liability for Taxes, or alter the
basis of any of the remaining assets of the Company. The Sellers shall furnish
to the Purchaser at Closing proof of the disposition of all of the properties
and Liabilities of the Excluded Business as the Purchaser shall require. After
the Closing, the Company shall provide reasonable access to information
regarding the Excluded Business that remains in the possession of the Company or
its agents.
5.7 Lease Termination; Post-Closing Use of Facility. Prior to or at
Closing, the Sellers and the Company shall terminate the current lease of the
Facility pursuant to the Lease Termination Agreement and the Company shall enter
into the New Facility Lease.
47
ARTICLE VI
CLOSING; CLOSING DELIVERIES
6.1 Closing; Effective Date. Subject to the terms and conditions set forth
herein, the closing of the transactions contemplated by this Agreement (the
"Closing") shall take place at the offices of Xxxx Xxxxxxx, P.C., 0000 Xxxxxx xx
xxx Xxxxxxxx, Xxx Xxxx, Xxx Xxxx 00000, on the date hereof. Each of the Sellers
and Sellers' legal counsel shall be present in person at the Closing. All
proceedings to be taken and all documents to be executed at the Closing shall be
deemed to have been taken, delivered and executed simultaneously, and no
proceeding shall be deemed taken nor documents deemed executed or delivered
until all have been taken, delivered and executed.
6.2 Closing Date Deliveries by the Sellers and the Company. At the Closing,
the Sellers shall deliver the following documents to Purchaser:
(a) the certificates representing the Securities, together with stock
powers duly executed in blank;
(b) the Estimated Closing Date Balance Sheet and all completed Schedules
hereto;
(c) the employment agreements dated as of the date hereof and annexed
hereto as Exhibit C and Exhibit D (the "Employment Agreements"), as
respectively executed by Xxxx Xxxxx-Xxxxxx and Xxxxxxx Xxxxx and;
(d) the consulting agreement dated as of the date hereof and annexed
hereto as Exhibit E (the "Consulting Agreement"), as
executed by Xxxxxx Xxxxx;
(e) an executed release from each of the Sellers in the forms annexed
hereto as Exhibit F(i)-(vi) (the "Seller Releases");
(f) evidence satisfactory to the Purchaser of the discharge of the
Excluded Liabilities pursuant to Section 5.6(a) hereof;
(g) evidence satisfactory to the Purchaser of the disposition of all of
the properties and release of all of the Liabilities of the Excluded
Business pursuant to Section 5.6(b) hereof;
(h) a fully executed lease termination agreement in the form annexed
hereto as Exhibit G (the "Lease Termination Agreement")
(i) an executed counterpart of a lease for the Facility of the Company
between Xxxxxx Partners and the Company in the form annexed hereto as
Exhibit H (the "New Facility Lease");
(j) an executed consent from the spouse of each of the Sellers that are
married in the forms annexed hereto as Exhibit I(i)-(iv) (the "Spousal
Consents");
48
(k) the written resignations of each of the directors and officers of the
Company, effective upon Closing;
(l) the Legal Opinion;
(m) a certificate, dated the Closing Date, of the Sellers and an officer
of the Company reasonably acceptable to Purchaser and its counsel
certifying (i) the authorizing resolutions adopted by the Board of
Directors of the Company with respect to the transactions contemplated
hereby, (ii) the current Certificate of Incorporation of the Company,
together with all amendments thereto, as filed with the Secretary of
State of California, (iii) the Bylaws of the Company, and (iv) that
all of the minutes of the Company from the date of incorporation
through the Closing Date are set forth in the minute book of the
Company as delivered to Purchaser on the Closing Date;
(n) a certificate, dated the Closing Date, of the Sellers and an officer
of the Company reasonably acceptable to Purchaser and its counsel
certifying the amount of unrestricted cash available for immediate
withdrawal remaining in the operating account(s) of the Company;
(o) the minute books of the Company, including corporate seals, unissued
stock certificates, stock registers, certificates of incorporation,
bylaws and corporate minutes, and other formation and organizational
documents;
(p) certificates, dated within thirty days of the Closing Date, issued by
the Secretary of State or other similar appropriate governmental
department, (i) as to the good standing of the Company in its
jurisdiction of incorporation and (ii) certifying its certificate of
incorporation, as amended to date;
(q) the consents required of any other third party required in connection
with the consummation of the transactions contemplated hereby,
including, but not limited to, parties to the Material Agreements;
(r) evidence reasonably satisfactory to Purchaser that (i) the Company has
resigned as sponsor of the Pension Plan, and (ii) Hatch Worldwide
Imports, Inc. has succeeded the Company as sponsor of the Pension
Plan;
(s) a fully executed Pension Plan Waiver in the form annexed hereto as
Exhibit J (the "Pension Plan Waiver") from each of the Sellers that
are participants under the Pension Plan; and
(t) such other documents and instruments as the Purchaser may reasonably
request.
49
6.3 Closing Date Deliveries by AHI and/or the Purchaser. At Closing, AHI
and/or the Purchaser shall deliver the following documents and funds to the
Seller:
(a) a wire transfer of funds (provided that the Sellers shall, at least
three business days prior to Closing, shall have furnished appropriate
wire instructions) to or on behalf of the Sellers in the aggregate
amount of the Initial Cash Consideration to the parties, accounts and
for the amounts as set forth on Schedule 2.2(a) hereto;
(b) a certificate of the Secretary of State of the state of organization
for each of AHI and Purchaser as to the good standing of such party,
and a certificate of the Secretary of State of the state of
organization for each of AHI and Purchaser certifying their respective
certificates of incorporation;
(c) a certificate, dated the Closing Date, of the Secretary of Purchaser,
setting forth the authorizing resolutions adopted by the Board of
Directors of the Purchaser with respect to the transactions
contemplated hereby;
(d) a certificate, dated the Closing Date, of the Secretary of AHI,
setting forth the authorizing resolutions adopted by the Board of
Directors of AHI with respect to the transactions contemplated hereby;
(e) counterparts of the Employment Agreements, the Consulting Agreement
and the New Facility Lease as executed by the Company; and
(f) such other documents and instruments as the Sellers may reasonably
request.
ARTICLE VII
ADDITIONAL COVENANTS
7.1 General Confidentiality. Each of the Sellers acknowledge that the
intangible property and all other confidential or proprietary information with
respect to the business and operations of AHI and its Affiliates (together with
the Company, the "AHI Companies") are valuable, special and unique assets of the
AHI Companies. Each of the Sellers shall not, at any time after the Closing
Date, disclose, directly or indirectly, to any Person, or use or purport to
authorize any Person to use any confidential or proprietary information of or
with respect to the AHI Companies, whether or not for such Seller's own benefit
(except, with respect to Xxxxxxx Xxxxx, Xxxx Xxxxx Xxxxxx and Xxxxxx Xxxxx as
may be permitted pursuant to their respective Employment Agreement or the
Consulting Agreement, as the case may be and except as may be required by legal
process in connection with any dispute arising out of this Agreement or by
Applicable Law, provided that AHI shall in such event be entitled to have a
reasonable amount of time prior to such disclosure to seek protective orders),
without the prior written consent of AHI or unless required by law, including
without limitation, (i) trade secrets, designs, formulae, drawings, intangible
property, diagrams, techniques, research and development, specifications, data,
know-how, formats, marketing plans, business plans, budgets, strategies,
forecasts and client data; (ii) information relating to the products developed,
(iii) the names of customers and
50
contacts, marketing strategies, the names of the vendors and suppliers, the cost
of materials and labor, the prices obtained for services sold (including the
methods used in price determination, manufacturing and sales costs), lists or
other written records used in the business of any of the AHI Companies,
compensation paid to employees and consultants and other terms of employment,
production operation techniques or any other confidential information of, about
or pertaining to the business of any of the AHI Companies, and any other
information and material relating to any customer, vendor, licensor, licensee,
or other party transacting business with any of the AHI Companies, (iv) all
tangible material that embodies any confidential and proprietary information as
well as all records, files, memoranda, reports, price lists, drawings, plans,
sketches and other written and graphic records, documents, equipment, and the
like, relating to the business of any of the AHI Companies, and (vi) any other
confidential information or trade secrets relating to the business or affairs of
any of the AHI Companies which the Sellers may acquire or develop in connection
with or as a result of the performance of his or its performance of the terms
and conditions of this Agreement, excepting only such information as is already
known to the public or which may become known to the public without any fault of
the Sellers or in violation of any confidentiality restrictions. The Sellers
acknowledge that AHI and Purchaser would not enter into this Agreement without
the assurance that all such confidential and proprietary information will be
used for the exclusive benefit of the AHI Companies. Notwithstanding the
foregoing, any party to this Agreement may disclose to any and all Persons,
without limitation of any kind, the tax treatment and tax structure of the
transactions contemplated hereby and all materials of any kind (including
opinions or other tax analyses) that are provided to the parties relating to the
tax treatment and tax structure of such transactions.
7.2 Non-competition, Non-disparagement, and Non-interference.
(a) Each of the Sellers acknowledge that in order to assure Purchaser
and AHI that Purchaser and AHI will retain the value of the Company as a "going
concern," each of the Sellers, on the terms set forth in this Section 7.2, agree
not to utilize their respective special knowledge of the business of the Company
and its relationships with customers, prospective customers, suppliers and
others or otherwise to compete with the AHI Companies in any Competitive
Business subject to the terms hereafter set forth. For a period of five (5)
years beginning on the Closing Date each of the Sellers and their respective
Affiliates shall not (except (I) as an owner of two percent (2%) or less of the
stock or debt of any company listed on a national securities exchange or traded
in the over-the-counter market and (II) with respect to Xxxxxxx Xxxxx, Xxxx
Xxxxx Xxxxxx and Xxxxxx Xxxxx as may be permitted pursuant to their respective
Employment Agreement or the Consulting Agreement, as the case may be) engage or
have an interest, anywhere in the United States of America or any other
geographic area where any of the AHI Companies do business or in which their
respective products are marketed, alone or in association with others, as
principal, officer, agent, employee, director, partner or stockholder, or
through the investment of capital, lending of money or property, rendering of
services or capital, or otherwise, in any business that is directly or
indirectly engaged in Competitive Business. During the same period, each of the
Sellers and their respective Affiliates shall not, and shall not permit any of
their respective employees, agents or others then under their control to,
directly or indirectly, whether or not on behalf of such Seller, his or her
Affiliates, or any other Person (except (I) as an owner of two percent (2%) or
less of the stock or debt of any company listed on a national securities
exchange or traded in the over-the-counter market and
51
(II) with respect to Xxxxxxx Xxxxx, Xxxx Xxxxx Xxxxxx and Xxxxxx Xxxxx as may be
permitted pursuant to their respective Employment Agreement or the Consulting
Agreement, as the case may be), (i) call upon, accept Competitive Business from,
or solicit the Competitive Business of, any Person who is, or who had been at
any time during the preceding five (5) years, a customer of any of the AHI
Companies, known prospective customer of any of the AHI Companies, or supplier
of any of the AHI Companies or any successor to any business of any of the AHI
Companies, or (ii) recruit or otherwise solicit or induce any person who is an
employee or consultant of, or otherwise engaged by the Purchaser, to terminate
his or her employment or other relationship with any of the AHI Companies or
hire any person who has left the employ of any of the AHI Companies during the
preceding five (5) years.
(b) Each Seller and his or her respective Affiliates shall not at any
time, directly or indirectly, knowingly use or purport to authorize any Person
to use any name, xxxx, copyright, logo, trade dress or other identifying words
or images which are the same as or similar to those used currently or in the
past by any of the AHI Companies in connection with any product or service,
whether or not such use would be in a business competitive with that of any of
the AHI Companies; provided, that the Seller's shall be entitled to use the name
"Hatch" in connection with business activities that do not directly or
indirectly relate to or involve Competitive Business.
(c) Each Seller agrees not to make or cause to be made, directly or
indirectly, any disparaging or derogatory statements concerning any of the AHI
Companies or their respective businesses, services, reputations, or prospects,
or their respective past or present officers, directors, employees, attorneys,
and agents. Each of the Sellers further agree not to (i) request, suggest,
influence or cause any Person, directly or indirectly, to cease doing business
with or to reduce its business with any of the AHI Companies and (ii) do or say
anything to damage any of the business, supplier, or customer relationships of
any of the AHI Companies. Each Seller further agrees not to in any way, directly
or indirectly, assist any Person in inducing or otherwise counseling, advising,
encouraging, or soliciting any customer of any of the AHI Companies to terminate
or in any way diminish its customer relationship with any of the AHI Companies.
(d) Each of the Sellers acknowledge that compliance with the
restrictions set forth in this Section 7.2 will not prevent him or her from
earning a livelihood.
7.3 Continuing Obligations; Equitable Remedies. The restrictions set forth
in Sections 7.1 and 7.2 are considered by the parties to be reasonable for the
purposes of protecting the value of the business and goodwill of the Company,
the Purchaser and AHI. AHI, Purchaser and each of the Sellers acknowledge that
Purchaser and AHI would be irreparably harmed and that monetary damages would
not provide an adequate remedy to Purchaser and AHI in the event that the
covenants contained in Sections 7.1 and 7.2 were not complied with in accordance
with their terms. Accordingly, the Sellers agree that any breach or threatened
breach by any of them of any provision of Sections 7.1 and 7.2 shall entitle
Purchaser to injunctive and other equitable relief to secure the enforcement of
these provisions, in addition to any other remedies (including damages) which
may be available to Purchaser. If the Sellers breach the covenant set forth in
Section 7.2, the running of the five (5) year non-compete period described
therein shall be tolled
52
for so long as such breach continues. It is the desire and intent of the parties
that the provisions of Sections 7.1 and 7.2 be enforced to the fullest extent
permissible under the laws and public policies of each jurisdiction in which
enforcement is sought. If any provisions of Sections 7.1 and 7.2 relating to the
time period, scope of activities or geographic area of restrictions is declared
by a court of competent jurisdiction to exceed the maximum permissible time
period, scope of activities or geographic area, as the case may be, the time
period, scope of activities or geographic area shall be reduced to the maximum
extent that such court deems enforceable. If any provisions of Sections 7.1 or
7.2 other than those described in the preceding sentence are adjudicated to be
invalid or unenforceable, the invalid or unenforceable provisions shall be
deemed amended (with respect only to the jurisdiction in which such adjudication
is made) in such manner as to render them enforceable and to effectuate as
nearly as possible the original intentions and agreement of the parties. In
addition, if any party brings an action to enforce Sections 7.1 or 7.2 hereof or
to obtain damages for a breach thereof, the prevailing party in such action
shall be entitled to recover from the non-prevailing party all attorney's fees
and expenses incurred by the prevailing party in such action.
7.4 Notification.
(a) Each party to this Agreement shall promptly notify the other party
in writing of the occurrence, or pending or threatened occurrence, of any event
that would constitute a breach or violation of this Agreement by any party or
that would cause any representation or warranty made by the notifying party in
this Agreement to be false or misleading in any respect (including without
limitation, any event or circumstance which would have been required to be
disclosed on any schedule to this Agreement as of the Closing Date). Any such
notification shall not limit or alter any of the representations, warranties or
covenants of the parties set forth in this Agreement nor any rights or remedies
a party may have with respect to a breach of any representation, warranty or
covenant.
(b) After the Closing Date, each of the Sellers shall promptly notify
the Purchaser of its receipt of (i) notice (written or oral) of any lawsuits,
claims, proceedings or investigations which are threatened or commenced against
the Company or against any officer, director, employee, consultant, agent or
stockholder with respect to or affecting the affairs of the Company, (ii) any
written notice or other communication from any Person alleging that the consent
of such Person is or was required in connection with the transactions
contemplated by this Agreement, and (iii) any written notice or other
communication from any governmental or regulatory agency or authority in
connection with the transactions contemplated by this Agreement that may affect
the business or financial condition of the Company.
ARTICLE VIII
MISCELLANEOUS
8.1 Notices. Any notice, demand, claim or other communication under this
Agreement shall be in writing and shall be deemed to have been given upon the
delivery, mailing or transmission thereof, as the case may be, if delivered
personally or sent by certified mail, return receipt requested, postage prepaid,
or prepaid overnight courier to the parties at the
53
addresses set forth below their names on the signature pages of this Agreement
(or at such other addresses as shall be specified by the parties by like
notice). A copy of any notices delivered to Purchaser or AHI shall also be sent
to (i) Xxxx Xxxxxxx, P.C., 0000 Xxxxxx xx xxx Xxxxxxx, Xxx Xxxx, Xxx Xxxx 00000,
Attention: Xxxxxx X. Xxxxxxxx, Esq., Fax No. (000) 000-0000. A copy of any
notices delivered to the Sellers shall also be sent Spolin, Silverman, Xxxxx &
Xxxxxxxx LLP, 0000 00xx Xxxxxx, Xxxxx 0000X, Xxxxx Xxxxxx, XX 00000, Attention:
Xxxxxx X. Xxxxxxxx, Esq., Fax No. (000) 000-0000.
8.2 Entire Agreement. This Agreement contains every obligation and
understanding between the parties relating to the subject matter hereof and
merges all prior discussions, negotiations and agreements, if any, between them,
and none of the parties shall be bound by any conditions, definitions,
understandings, warranties or representations other than as expressly provided
or referred to herein.
8.3 Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors, heirs, personal
representatives, legal representatives, and permitted assigns.
8.4 Knowledge of the Parties. Where any representation or warranty
contained in this Agreement is expressly qualified by reference to the best
knowledge or to the knowledge of any of the parties hereto, each of the parties
hereto acknowledges and confirms that it has made due and diligent inquiry as to
the matters that are the subject of such representations and warranties.
8.5 Assignment. This Agreement may not be assigned by any party without the
written consent of the other party; provided, that AHI and the Purchaser may
assign this Agreement to a corporation, partnership, or limited liability
company of which either AHI or the Purchaser maintains majority control.
8.6 Waiver and Amendment. Any representation, warranty, covenant, term or
condition of this Agreement which may legally be waived, may be waived, or the
time of performance thereof extended, at any time by the party hereto entitled
to the benefit thereof, and any term, condition or covenant hereof (including,
without limitation, the period during which any condition is to be satisfied or
any obligation performed) may be amended by the parties thereto at any time. Any
such waiver, extension or amendment shall be evidenced by an instrument in
writing executed on behalf of the appropriate party by its President or any Vice
President or other person, who has been authorized by its Board of Directors to
execute waivers, extensions or amendments on its behalf. No waiver by any party
hereto, whether express or implied, of its rights under any provision of this
Agreement shall constitute a waiver of such party's rights under such provisions
at any other time or a waiver of such party's rights under any other provision
of this Agreement. No failure by any party thereof to take any action against
any breach of this Agreement or default by another party shall constitute a
waiver of the former party's right to enforce any provision of this Agreement or
to take action against such breach or default or any subsequent breach or
default by such other party.
8.7 No Third Party Beneficiary. Nothing expressed or implied in this
Agreement is intended, or shall be construed, to confer upon or give any Person
other than the parties hereto
54
and their respective heirs, personal representatives, legal representatives,
successors and permitted assigns, any rights or remedies under or by reason of
this Agreement.
8.8 Severability. In the event that any one or more of the provisions
contained in this Agreement shall be declared invalid, void or unenforceable,
the remainder of the provisions of this Agreement shall remain in full force and
effect, and such invalid, void or unenforceable provision shall be interpreted
as closely as possible to the manner in which it was written. It is the desire
and intent of the parties that the provisions of this Agreement be enforced to
the fullest extent permissible under the laws and public policies of each
jurisdiction in which enforcement is sought. If any provision of this Agreement
relating to a time period or scope of activities is declared by a court of
competent jurisdiction to exceed the maximum permissible time period or scope of
activities, as the case may be, the time period or scope of activities shall be
reduced to the maximum which such court deems enforceable.
8.9 Expenses. Each of Purchaser and the Sellers agree to pay, without right
of reimbursement from the other party, the costs incurred by it incident to the
performance of its obligations under this Agreement and the consummation of the
transactions contemplated hereby, including, without limitation, costs incident
to the preparation of this Agreement, and the fees and disbursements of counsel,
accountants and consultants employed by such party in connection herewith. No
expenses of the Sellers relating to the transactions contemplated hereby shall
be paid by the Company and all such fees shall be paid by the Sellers at or
prior to Closing.
8.10 Headings. The section and other headings contained in this Agreement
are for reference purposes only and shall not affect the meaning or
interpretation of any provisions of this Agreement.
8.11 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
8.12 Time of the Essence. Wherever time is specified for the doing or
performance of any act or the payment of any funds, time shall be considered of
the essence.
8.13 Injunctive Relief. It is possible that remedies at law may be
inadequate and, therefore, the parties hereto shall be entitled to equitable
relief including, without limitation, injunctive relief, specific performance or
other equitable remedies in addition to all other remedies provided hereunder or
available to the parties hereto at law or in equity.
8.14 Remedies Cumulative. No remedy made available by any of the provisions
of this Agreement is intended to be exclusive of any other remedy, and each and
every remedy shall be cumulative and shall be in addition to every other remedy
given hereunder or now or hereafter existing at law or in equity.
55
8.15 Governing Law. This Agreement has been entered into and shall be
construed and enforced in accordance with the laws of the State of New York
without reference to the choice of law principles thereof.
8.16 Jurisdiction and Venue. This Agreement shall be subject to the
exclusive jurisdiction of the courts of New York County, New York. The parties
to this Agreement agree that any breach of any term or condition of this
Agreement shall be deemed to be a breach occurring in the State of New York by
virtue of a failure to perform an act required to be performed in the State of
New York and irrevocably and expressly agree to submit to the jurisdiction of
the courts of the State of New York for the purpose of resolving any disputes
among the parties relating to this Agreement or the transactions contemplated
hereby. The parties irrevocably waive, to the fullest extent permitted by law,
any objection which they may now or hereafter have to the laying of venue of any
suit, action or proceeding arising out of or relating to this Agreement, or any
judgment entered by any court in respect hereof brought in New York County, New
York, and further irrevocably waive any claim that any suit, action or
proceeding brought in New York County, New York has been brought in an
inconvenient forum. The parties hereto agree to service of process by certified
or registered United States mail, postage prepaid, addressed to the party in
question.
8.17 Participation of Parties. The parties hereto acknowledge that this
Agreement and all matters contemplated herein, have been negotiated among all
parties hereto and their respective legal counsel and that all such parties have
participated in the drafting and preparation of this Agreement from the
commencement of negotiations at all times through the execution hereof.
8.18 Further Assurances. The parties hereto shall deliver any and all other
instruments or documents required to be delivered pursuant to, or necessary or
proper in order to give effect to, all of the terms and provisions of this
Agreement including, without limitation, all necessary stock powers and such
other instruments of transfer as may be necessary or desirable to transfer
ownership of the Securities.
8.19 Publicity. No public announcement or other publicity regarding this
the Agreement or the transactions contemplated hereby shall be made prior to or
after the date hereof without the prior written consent of the AHI and the
Sellers as to form, content, timing and manner of distribution. Notwithstanding
the foregoing, nothing in this Agreement shall preclude any party or its
affiliates from making any public announcement or filing pursuant to any federal
or state securities laws or stock exchange rules.
[SIGNATURE PAGES FOLLOW]
56
IN WITNESS WHEREOF, the parties hereto have each executed and delivered
this Agreement as of the day and year first above written.
ARMOR HOLDINGS, INC. XXXX AND XXXXXXX X. XXXXX REVOCABLE
TRUST DATED DECEMBER 22, 1998
By: /s/ Xxxxxxx Xxxxx
--------------------------------
By: /s/ Xxxxxx. X. Xxxxxxxx Name: Xxxxxxx Xxxxx
------------------------------------- Title: Trustee
Name: Xxxxxx X. Xxxxxxxx
Title: Chief Operating Officer and
Chief Financial Officer
By: /s/ Xxxx Xxxxx
--------------------------------
Name: Xxxx Xxxxx
Address for Notices: Title: Trustee
--------------------
Armor Holdings, Inc.
0000 Xxxxx Xxxxxxx Xxxxxxx, Xxxxx 000
Xxxxxxxxxxxx, XX x00000 Address for Notices:
Attention: Xxxxxx X. Xxxxxxxx --------------------
c/o Xxxxxxx Xxxxx, Trustee
0000 X. Xxx Xxxxxxx
Xxxx, XX 00000
SAFARI LAND LTD., INC. R & J HATCH SURVIVOR'S A-TRUST U/D/T
DATED MAY 6, 1998
By: /s/ Xxxxxxx X. Xxxxxxxx By: /s/ Xxxxxx X. Xxxxx
-------------------------------------- --------------------------------
Name: Xxxxxxx X. Xxxxxxxx Name: Xxxxxx X. Xxxxx
Title: President Title: Trustee
Address for Notices: Address for Notices:
-------------------- --------------------
Armor Holdings, Inc. c/o Xxxxxx X. Xxxxx, Trustee
0000 Xxxxx Xxxxxxx Xxxxxxx, Xxxxx 000 332 Roosevelt
Xxxxxxxxxxxx, XX 00000 Xxxxxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxxx
[STOCK PURCHASE AGREEMENT SIGNATURE PAGE 1 OF 2]
/s/ Xxxxxxx Xxxxx
------------------------------------
XXXXXXX XXXXX
Address for Notices:
--------------------
0000 X. Xxx Xxxxxxx
Xxxx, XX 00000
/s/ Xxxxxx X. Xxxxx
------------------------------------
XXXXXX X. XXXXX
Address for Notices:
--------------------
Xxxxxx X. Xxxxx
000 Xxxxxxxxx
Xxxxxxx, XX 00000
/s/ Xxxx Xxxxx-Xxxxxx
------------------------------------
XXXX XXXXX-XXXXXX
Address for Notices:
--------------------
0000 Xxxxxx Xxx
Xxxxx Xxxxxxx, XX 00000
/s/ Xxxxx Xxxxxx
------------------------------------
XXXXX XXXXXX
Address for Notices:
--------------------
0000 Xxxxxx Xxx
Xxxxx Xxxxxxx, XX 00000
[STOCK PURCHASE AGREEMENT SIGNATURE PAGE 2 OF 2]
