[EXHIBIT 2.1]
STOCK PURCHASE AGREEMENT
BY AND AMONG ADVANCED PHOTONIX, INC.
AND TEXAS OPTOELECTRONICS, INC.
STOCK PURCHASE AGREEMENT (the "Agreement") dated January 17, 2003 by and
among ADVANCED PHOTONIX, INC., a Delaware corporation (hereinafter referred to
as the "Purchaser") with its principal offices at 0000 Xxxxxxx Xxxxx, Xxxxxxxxx,
Xxxxxxxxxx 00000, and the STOCKHOLDERS (as set forth on Schedule 3.3, and
hereinafter collectively referred to as the "Sellers") of TEXAS OPTOELECTRONICS,
INC., a Texas corporation with its principal offices located at 000 Xxxxxxxx
Xxxxx, Xxxxxxx Xxxxx 00000 (the "Company").
R E C I T A L S:
A. The Company is in the business of the development, manufacture and
distribution of LEDs, displays, high resistivity quadrant detectors and
assemblies for the military, medical, communications, telecom and computer
markets.
B. The Sellers desire to sell their Ownership Interests (as hereinafter
defined) in the Company to Purchaser in a transaction intended to be a tax-free
reorganization under Code Section 368(a)(1)(B) and Purchaser desires to purchase
Sellers' Ownership Interests from the Sellers on the terms and conditions herein
set forth.
Therefore, in consideration of the provisions and mutual covenants
contained herein, the Parties hereto hereby agree as follows:
1 DEFINITIONS.
1.1 Defined Terms. As used in this Agreement, the following terms have the
meanings set forth in Schedule 1.1.
1.2 Other Definitional Provisions; Interpretation.
1.2.1 Unless otherwise specified therein, all terms defined in this
Agreement shall have the defined meanings when used in any certificate or
other agreement, instrument or document made or delivered pursuant hereto.
1.2.2 The words "hereof", "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as
a whole and not to any particular provision of this Agreement, and Section
and Schedule references are to this Agreement unless otherwise specified.
1.2.3 The headings in this Agreement are included for convenience of
reference only and shall not in any way affect the meaning or
interpretation of this Agreement.
1.2.4 The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
2 PURCHASE AND SALE OF THE STOCK.
2.1 Purchase and Sale. The Sellers hereby this day (the "Closing Date")
sell, assign, transfer and convey their Ownership Interests in the Company to
Purchaser or its assigns. In consideration therefore, Purchaser has this day
delivered shares of Purchaser's Stock to the Sellers, in the amounts and to the
Sellers as set forth on Schedule 3.3 such that a total amount of 1,000,000
shares of Purchaser's Stock is delivered to the Sellers collectively (the
"Purchase Price").
At Closing, Sellers agree to deliver to the Escrow Agent, to hold in
escrow pursuant to Section 3 hereof, the following:
(i) Fifty Thousand Dollars ($50,000) representing the cash
portion of the Escrow Fund payable by check or wire transfer; and
(ii) 250,000 shares of the Purchaser's Stock representing the stock
portion of the Escrow Fund.
2.2 Adjustment of the Purchase Price. The Purchase Price shall be subject
to adjustment by the amount (the "Adjustment Amount"), if any, that the Net
Working Capital of the Company increases or decreases between August 31, 2002
and the Closing Date. Promptly after the Closing Date, Purchaser's Independent
Auditors shall perform a review of the financial statements of the Company for
the period beginning December 1, 2002 and ended the Closing Date, including a
balance sheet (the "Closing Balance Sheet"). The Closing Balance Sheet shall be
delivered to Sellers and Purchaser within 45 days after the Closing Date. Upon
such delivery of the Closing Balance Sheet, the Purchase Price will be increased
or decreased by the Adjustment Amount. The Adjustment Amount shall be computed
by subtracting $425,112 (which the parties agree is the Net Working Capital of
the Company as at August 31, 2002 computed as set forth on Schedule 2.2(A)
hereof) from the Net Working Capital of the Company at Closing as shown on the
Closing Balance Sheet. In the event the Adjustment Amount is positive, the
Purchase Price shall be increased by the amount of the Adjustment Amount, and
Purchaser will within five (5) days deliver additional shares of Purchaser's
Stock having a value equal to the Adjustment Amount. For all purposes of this
Section 2.2, the value of the Purchaser's Stock shall be deemed to be equal to
$0.92 per share (the "Agreed Value"). In the event the Adjustment Amount is
negative, the Purchase Price shall be reduced by such amount and Escrow Agent
shall within five (5) days pay to Purchaser such Adjustment Amount out of the
Escrow Fund. Payment shall be made first out of the cash portion of the Escrow
Fund and second out of the stock portion of the Escrow Fund valued for this
purpose at the Agreed Value. After the adjustment of the Purchase Price is
complete, any remaining cash in the Escrow Fund will be returned to Sellers in
accordance with the terms of the Escrow Agreement. Any adjustments required in
this Section will be subject to the dispute resolution procedures set forth in
Schedule 2.2(B) hereof.
3 REPRESENTATIONS AND WARRANTIES OF SELLERS.
In order to induce Purchaser to enter into this Agreement and to consummate
the transactions contemplated herein, the Sellers jointly and severally make
each of the representations and warranties set forth in this Article 3 as
follows, provided however Xxx Xxxxxxx, Xxxxx Xxxxxxx, Xxxxxxx Xxxxxxx and Xxxxxx
Xxxxxxx, only make those representations and warranties set forth in Sections
3.3 and 3.20 below:
3.1 Corporate Organization of the Company.
3.1.1 The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Texas and has full
power and authority to carry on its business as it is now being conducted
and to own the properties and assets it now owns; the Company has qualified
as a foreign corporation in all jurisdictions in which the Company's
ownership or leasing of property or the conduct of its business requires
qualification as a foreign corporation as set forth on Schedule 3.1.1. The
copies of the Certificate of Incorporation and Bylaws of the Company
heretofore delivered to Purchaser are complete and correct copies of such
instruments as presently in effect.
3.1.2 Schedule 3.1.2 hereto sets forth the name, position and total
compensation of each officer and director of the Company, and the name,
position and total compensation for each other employee of or consultant to
the Company whose total compensation in the fiscal year ended December 31,
2002 was, or in the current fiscal year is expected to be, in excess of
$50,000.
3.2 Subsidiaries. The Company has no Subsidiaries.
3.3 Capitalization of Company. The authorized and outstanding capital of
the Company consists solely of the shares of Common Stock (the "Shares") listed
on Schedule 3.3 hereof and the persons (the "Stockholders") set forth on
Schedule 3.3 (the "Stockholders") hereof are the owners of the Shares in the
Company in the percentages set forth after their respective names on Schedule
3.3 (the "Ownership Interests") and, except as disclosed on Schedule 3.3, each
has good, valid and marketable title to the Shares free and clear of all liens,
encumbrances, security interests or claims, whatsoever, with full power and
authority to transfer and convey the same. No other person has any record or
beneficial equity interest in the Company of any kind. All of the outstanding
Shares in the Company are validly issued, fully paid and nonassessable. There
are no outstanding (i) securities convertible into or exchangeable for any
equity interests in the Company; (ii) options, warrants, calls or other rights
(including conversion rights, preemptive rights or appreciation rights) with
respect to the issued and outstanding equity interests in the Company, or to
purchase or subscribe to any of the equity interests in the Company or
securities convertible into or exchangeable for equity interests in the Company;
or (iii) contracts, commitments, agreements, understandings or arrangements of
any kind relating to the issuance, sale, transfer, and/or assignment of any
equity interests in the Company, any convertible or exchangeable securities or
any such options, warrants or rights.
3.4 Business Assets. All of the tangible assets used in the Business,
including, without limitation, all machinery, office and other equipment,
furniture, computers and related equipment, network and customer support
systems, business machines, telephone systems, parts and accessories, telephone
and facsimile numbers, Web sites, e-mail addresses and Internet domain addresses
presently utilized by the Company in the Business, shall be referred to herein
collectively as the "Tangible Assets". Attached hereto as Schedule 3.4 is a true
and correct list or description of the Tangible Assets used in the Business. The
Tangible Assets include all of the hardware, software (other than off-the-shelf
software licensed by the Company or the Subsidiary) and other equipment used to
support, maintain and service the customers of the Company. As of the Closing
Date, each of the Tangible Assets is in good and operable condition, normal wear
and tear excepted. Inventory items of Seller are disclosed on the detail
descriptive listing at Schedule 3.4, and that all inventory listed on the
Schedule will be of a quality and quantity that is usable or salable in the
ordinary course of business, consistent with past practice and not obsolete
except as is consistent with past practice. Tangible Assets and Inventory
(together the "Business Assets") listed on Schedule 3.4 is divided into
Categories A, B and C. Prior to the date hereof, Seller has disposed all of the
Business Assets in Category C.
3.5 No Violation. Neither the execution, delivery or performance of this
Agreement nor the consummation of the transactions contemplated hereby will
violate any provision of the Certificate of Incorporation or Bylaws or similar
documents of the Company or will (a) violate, or be in conflict with, or
constitute a breach or default (or an event which, with the giving of notice or
lapse of time or both, would constitute a default) under, or result in the
termination of, or acceleration of the performance required by, or cause the
acceleration of the maturity of any debt or obligation pursuant to, or result in
the creation or imposition of any security interest, lien or other encumbrance
upon any property or assets of the Company under any Contractual Obligation to
which the Company or any of the Sellers is a party or by which the Company or
any of the Sellers is bound, or to which the property of the Company is subject;
or (b) violate any statute or law or any judgment, decree, order, regulation or
rule of any court or Governmental Authority to which the Company is subject.
3.6 Financial Statements. The Company has heretofore delivered to
Purchaser: (a) the Unaudited Balance Sheet, and the statements of income for the
eight month period ended August 31, 2002 and (b) a balance sheet of the Company
as at November 30, 2002 together with statements of income and cash flow for the
eleven month period then ended as audited by Xxxxxx & Xxxx. Such balance sheets
and notes thereto are true, complete and accurate in all respects and fairly
present in accordance with GAAP the assets, liabilities and financial condition
of the Company as at the respective dates thereof and for the periods covered
thereby, and all such statements of income and statements of cash flow and the
notes thereto are true, complete and accurate in all respects and fairly present
in accordance with GAAP the results of operations for the periods therein
referred to. All of the foregoing financial statements were prepared in
accordance with GAAP consistently applied throughout the periods involved
(except in the case of the Unaudited Balance Sheet to the extent subject to
normal year end adjustments).
3.7 No Undisclosed Liabilities; Etc. Except as set forth on Schedule 3.7,
the Company has no liabilities or obligations of any nature (absolute, accrued,
contingent or otherwise) which were not properly reflected or adequately
reserved against in accordance with GAAP on the Unaudited Balance Sheet, except
for liabilities and obligations incurred in the ordinary course of business and
consistent with past practice since the date thereof and except as set forth in
this Agreement. The reserves reflected on the Unaudited Balance Sheet are
adequate, appropriate and reasonable in light of historical practices.
3.8 Absence of Certain Changes. Except as and to the extent set forth on
Schedule 3.8, from the Balance Sheet Date through the date hereof, the Company
has not (except as contemplated by, or disclosed in, this Agreement):
3.8.1 conducted its business in other than the ordinary course
consistent with past practice;
3.8.2 instituted any new methods of purchase, sale, lease, management,
accounting or operation or engage in any transaction or activity, entered
into any agreement or made any commitment or amended any existing
agreement, except in the ordinary course of business and consistent with
past practice;
3.8.3 entered into or amended any employment agreement, entered into
any agreement with any labor union or association representing any employee
or entered into or amended any Plan or amended any certificate;
3.8.4 incurred any liabilities or obligations (absolute, accrued,
contingent or otherwise) except items incurred in the ordinary course of
business, or increased, or experienced any change in any assumptions
underlying or methods of calculating, any bad debt, contingency or other
reserves not in accordance with GAAP or entered into any lease or sublease
of real property or exercised any purchase options or rights of first
refusal contained in any of the Leases (as hereinafter defined) except in
the ordinary course of business and consistent with past practice;
3.8.5 paid, discharged or satisfied any claims, liabilities or
obligations (absolute, accrued, contingent or otherwise) other than the
payment, discharge or satisfaction in the ordinary course of business and
consistent with past practice of liabilities and obligations reflected on
or reserved against on the Unaudited Balance Sheet or incurred in the
ordinary course of business and consistent with past practice since the
Balance Sheet Date;
3.8.6 permitted or allowed any property demised under the Leases or
assets (real, personal or mixed, tangible or intangible) to be subjected to
any mortgage, pledge, lien, security interest, encumbrance, assignment,
restriction or charge of any kind, except for liens for current taxes not
yet due;
3.8.7 entered into or consent to any amendment of, or sublease with
respect to the properties demised under the Leases except in the ordinary
course of business and consistent with past practice.
3.8.8 written down the value of any inventory (including write-downs
by reason of shrinkage or xxxx-down) or written off as uncollectible any
notes or accounts receivable, except for immaterial write-downs and
write-offs in the ordinary course of business and consistent with past
practice;
3.8.9 canceled any debts or waived any claims or rights involving more
than $1,000;
3.8.10 sold, transferred, abandoned or otherwise disposed of any
properties or assets (real, personal or mixed, tangible or intangible, or
entered into any lease (as lessor or lessee)) except as required by Section
3.4 or in the ordinary course of business and consistent with past
practice;
3.8.11 disposed of or permitted to lapse (except by its own terms) any
rights to the use of any existing patent, trademark, trade name or
copyright, or disposed of or disclosed (except as necessary in the conduct
of its business) to any person, other than representatives of Purchaser,
any trade secret, formula, process or know-how not theretofore a matter of
public knowledge;
3.8.12 granted or committed to grant any general increase in the
compensation of officers, directors or employees (including any such
increase pursuant to any bonus, pension, profit sharing or other plan or
commitment) or any increases in the compensation payable or to become
payable to any officer, director or employee, including payments or
commitments to pay severance or termination pay, except for the Bonus Plan
contemplated by Section 6.1.9 and increases granted in the ordinary course
of business consistent with past practices or pursuant to existing
agreements;
3.8.13 made any single capital expenditure or commitment in excess of
$5,000 for additions to property, plant, equipment or intangible capital
assets or made aggregate capital expenditures and commitments in excess of
$10,000 since the Balance Sheet Date for additions to property, plant,
equipment or intangible capital assets;
3.8.14 declared, paid or set aside for payment any dividend or other
distribution in respect of its equity securities or redeemed, purchased or
otherwise acquired, directly or indirectly, any equity security of the
Company;
3.8.15 made any change in any method of accounting or accounting
practice except as required by GAAP;
3.8.16 paid, distributed, loaned or advanced any amount to, or sold,
transferred or leased any properties or assets (real, personal or mixed,
tangible or intangible) to, or entered into any agreement or arrangement
with any Affiliates, officers or directors of the Company, or any Affiliate
or associate of any officers or directors of the Company except for
directors' fees, and compensation to officers at rates not exceeding the
rates of compensation in effect during the period ended on the Balance
Sheet Date;
3.8.17 entered into or amended any written contract or other agreement
pursuant to which it agrees to indemnify any party or to refrain from
competing with any party;
3.8.18 except for inventory, supplies or equipment acquired in the
ordinary course of business, made any acquisition of all or any part of the
assets, properties, capital stock or business of any other entity;
3.8.19 entered into any transaction other than in the ordinary course
of business;
3.8.20 terminated, surrendered, canceled or assigned any of its
properties demised under the Leases, or any part thereof, except in the
ordinary course of business consistent with past practice;
3.8.21 the Company has not terminated any Plan or withdrawn from any
Multiemployer Plan or failed to notify the Purchaser of any "prohibited
transaction", as such term is defined in Section 4975 of the Internal
Revenue Code; or
3.8.22 agreed, whether in writing or otherwise, to take any action
described in this Section.
3.9 Title to Properties; Encumbrances. The Company owns no real property.
3.10 Leases.
3.10.1 Schedule 3.10 hereto is an accurate and complete list of all
leases or rights of occupancy pursuant to which the Company leases or
subleases any real property or interest therein or personal property (the
"Leases"). A true and correct copy of each Lease has been delivered to
Purchaser together with all amendments and modifications thereto, and all
subordination, non-disturbance and/or attornment agreements related
thereto, and no changes have been made thereto since the date of delivery.
Each Lease is valid and in full force and effect. There are no existing
defaults under any provision of any Lease, and no event has occurred which
(with or without notice, lapse of time or both) would constitute a default
thereunder.
3.10.2 The Company is in actual possession of the properties demised
under the Leases and, except as shown on Schedule 3.10, has good and
indefeasible title to the leasehold estates conveyed under the Leases free
and clear of all title defects or objections, mortgages, liens, claims,
charges, security interests or other encumbrances of any nature whatsoever,
and are not, in the case of the properties demised under the Leases, to the
knowledge of Seller, subject to any rights of way, building use
restrictions, exceptions, variances, reservations or limitations of any
nature whatsoever except, (i) liens shown on the Unaudited Balance Sheet as
securing specific liabilities or obligations or other matters with respect
to which no default exists, and (ii) liens for taxes not yet due and
payable. No portion of any of the improvements erected by and under the
direction of the Company on the properties demised under the Leases
encroach on adjoining property or public streets and, to the knowledge of
the Company, no portion of any of the properties demised under the Leases
are, or have been, subjected to a special ad valorem tax valuation such
that a change in ownership or use (whether now existing or in the future)
has caused or will cause additional ad valorem taxes to be imposed upon the
properties demised under the Leases.
3.10.3 The basic rent and all additional rent payable under the Leases
have been paid to date. To the knowledge of Seller, except as set forth on
Schedule 3.10, all work required to be performed under the Leases by the
landlord thereunder or by the Company has been performed and to the extent
that the Company is responsible for payment of such work, has been fully
paid for, whether directly to the contractor performing such work or to
such landlord as reimbursement therefor except for items which the Company
is disputing in good faith.
3.10.4 There have been no casualties which could result in the
termination of any Lease or the application of any buy-out provisions
contained in any Lease relative to damage by casualty.
3.11 Customer and Supplier Relations.
3.11.1 Schedule 3.11 contains a complete list of all customers of the
Company's business who, during the past 27 months, have purchased goods
from the Company, including a separate notation of all customers that
accounted for more than ten percent of the Company's sales in the next
previous or current fiscal years; provided, however, customers whose
purchases from the Company in a twelve-month period were less than $5,000
in the aggregate shall not be included on Schedule 3.11. Except as shown on
Schedule 3.11, during the past 12 months none of those customers has given
written notice or, to the knowledge of any of the Sellers, oral notice of
intention to terminate their relationship with the Company or, to decrease
or delay, in any significant respect, its purchases or usage of the
Company's products. The Company is not required to be approved or certified
as a supplier for any of its customers resulting from any formal
application for an approval or certification process required by a customer
as a condition to conducting business with it.
3.11.2 Schedule 3.11 also contains a complete list of all suppliers of
the Company's business in any one of the past 27 months. During the past 12
months, no supplier (including any supplier who is the Company's sole
source of supply of any product or service) has given written notice or to
the knowledge of any of the Sellers, oral notice of intention to terminate
its relationship with the Company, or to decrease or delay, in any
significant respect, its sale of products to the Company.
3.12 Patents, Trademarks, Trade Names, Etc..
3.12.1 Except as set forth on Schedule 3.12, the Company neither owns
nor licenses any patents, trademarks, trade names, service marks,
copyrights and applications included in the Company's intellectual
property.
3.12.2 The Company owns or is licensed to use, in each case free and
clear of any Lien created by the Company, all patents, trademarks, trade
names, service marks, copyrights, applications for any of the foregoing,
together with all other technology, know-how, tangible or intangible
proprietary information or material and formulae that are used in the
business of the Company as currently conducted.
3.12.3 Except as disclosed in Schedule 3.12, the Company has received
no written notice of any claims by any person, (i) to the effect that the
manufacture, sale or use of any product or process as now used or offered
by the Company infringes on any patents, (ii) against the use by the
Company of any trademarks, trade names, technology, know-how or processes
used in the operation of the business of the Company as currently conducted
or presently contemplated, or (iii) challenging or questioning the validity
or effectiveness of any of the Company's intellectual property. The Company
has provided the Purchaser with a true and complete copy of each patent
that constitutes the Company's Intellectual Property and each license or
sublicense pursuant to which the Company is permitted to sell, distribute
or otherwise use the Company's Intellectual Property owned by third
parties.
3.13 Business Permits. Seller has obtained all approvals, authorizations,
consents, licenses, franchises, orders, certificates or other permits of all
governmental or regulatory agencies, whether federal, state, local or foreign
(collectively, the "Approvals") necessary to the operations of the business as
presently conducted, including, without limitation, the constructions,
alterations, operation, use and occupancy of the properties demised under the
Leases or any part thereof, or any of the improvements thereon, including, but
not limited to the certificates of occupancy or the local equivalents, if any,
and certificates relating to fire and health approval. All such Approvals are in
full force and effect and good standing, neither Sellers nor the Company is in
default under any Approval and there exists no basis for the termination,
suspension or revocation of any such Approvals.
3.14 Tax Matters.
3.14.1 The Company has (i) filed or has caused to be filed all
federal, foreign, state and local sales, use, property, ad valorem,
franchise, income, gross receipts, capital gains or other tax returns and
statements which were required to be filed prior to the date hereof (the
"Tax Returns and Statements") on a timely basis in accordance with the
laws, regulations and administrative requirements of the appropriate
Governmental Authorities, and (ii) paid within the time and in the manner
prescribed by law all amounts of Taxes (as defined in Schedule 1.1) shown
on any Tax Returns and Statements, due for all periods ending on or prior
to the date hereof. To the best of Sellers' knowledge and belief, all Tax
Returns and Statements were, when filed, and continue to be, complete and
accurate in all respects, and there exist no inaccuracies in the Tax
Returns and Statements, however, in the event there are any inaccuracies in
the Tax Returns and Statements, Sellers shall bear full responsibility for
such inaccuracies and shall indemnify Purchaser pursuant to Section 8 of
this Agreement. Except as set forth on Schedule 3.14, no tax assessments or
deficiency has been made or proposed against the Company nor has any notice
been given of any actual or proposed assessment or deficiency. Except as
set forth on Schedule 3.14, the Tax Returns and Statements are not
presently the subject of any audit or other administrative or court
proceeding by any Governmental Authority. No consents extending any
applicable statute of limitations have been filed and no Governmental
Authority has made a written request for such a consent.
3.14.2 The Company files Tax Returns and Statements with respect to
the income, capital gain, gross receipts or profits earned by it in Texas
and in no other states or localities.
3.14.3 The Company has withheld or collected and, to the extent
required, has paid to the appropriate Governmental Authority on a timely
basis, all Taxes that it was required to withhold, collect and pay,
including but not limited to Taxes pursuant to the Federal Insurance
Contribution Act, the Federal Unemployment Tax Act, and income Taxes
subject to withholding. There are no liens with respect to Taxes upon any
of the properties or assets, real or personal, tangible or intangible, of
the Company (except for Taxes not yet due).
3.14.4 No consent to the application of Section 341(f)(2) of the Code
has been filed with respect to any assets acquired by the Company.
3.14.5 No property owned by the Company is property as to which an
election was made under Section 168(f)(8) of the Internal Revenue Code of
1954, as amended and in effect immediately before the enactment of the Tax
Reform Act of 1986, or is "tax-exempt use property" within the meaning of
Section 168(h)(1) of the Code.
3.14.6 The Company: (i) has not agreed to or been required to make any
adjustment pursuant to Section 481(a) of the Code; (ii) has received no
written notice that the Internal Revenue Service has proposed any such
adjustment or change in accounting method; and (iii) does not have an
application pending with any Governmental Body requesting permission for
any change in accounting method.
3.14.7 The Company does not have in effect any tax elections under
Section 108, 168, 338, 441, 471, 1017, 1033 or 4977 of the Code, except
that the Company has elected under Section 471 of the Code to cost its
inventory at the lower of cost or market.
3.14.8 The Company is not a party (other than as an investor) to any
industrial development bond.
3.14.9 During the previous two fiscal years the Company has not
engaged in any exchange under which the gain realized on such exchange was
not recognized due to Section 1031 of the Code.
3.14.10 For the past five (5) years, no written claim has been
received from any Governmental Authority representing any jurisdiction in
which the Company does not file Tax Returns that the Company is or may be
subject to taxation by that jurisdiction.
3.14.11 The Company is not and has not been a party to any tax sharing
or similar agreement or arrangement.
3.14.12 The Company has provided Purchaser with copies of: (i) all Tax
Returns and Statements of or with respect to the Company for the five year
period prior to the Closing Date; (ii) any written notices, protests, or
closing agreements relating to issues arising in any audit, litigation or
similar proceeding with respect to the liability for Taxes of the Company;
(iii) any elections or disclosures filed by or on behalf of the Company
with any taxing authority (whether or not filed with any Tax Returns and
Statements); and (iv) any letter, rulings, determination letters or similar
documents issued by any taxing authority with respect to the Company.
3.14.13 The Company is not a U.S. Real Property Holding Corporation
within the meaning of Section 897(c)(2) of the Code.
3.15 Transactions with Affiliates. Except as set forth on Schedule 3.15
hereto, no Affiliate, officer, director or employee of the Company has any
interest, directly or indirectly, in any lease, lien, contract, license,
encumbrance, loan or other Agreement to which the Company is a party, or any
interest in any competitor, supplier or customer of the Company. Except as set
forth on Schedule 3.15 hereto, the Company is not indebted, directly or
indirectly, or to any Affiliate for any liability or obligation, whether arising
by reason of stock ownership, contract, oral or written agreement or otherwise.
3.16 Contracts and Commitments. Schedule 3.16 hereto contains a complete,
current and correct list of all material contracts, commitments, obligations or
agreements of the Company (other than the Leases) whether written or oral (the
"Contracts"). For purposes of this Section 3.16 a contract which is "material"
shall mean a single contract, whether written or oral:
3.16.1 pursuant to which any party thereto is obligated to make annual
payments aggregating more than $25,000;
3.16.2 which constitutes an employment agreement or an agreement with
any union or member organization;
3.16.3 which is not subject to cancellation by the Company on not more
than thirty (30) days notice without penalty;
3.16.4 which constitutes a purchase or sale contract or commitment
which continues for a period of more than twelve (12) months;
3.16.5 which constitutes an agreement which restricts the Company from
carrying out its business anywhere in the world or from competing with any
other person;
3.16.6 which constitutes an agreement by the Company with any
Affiliate.
True, correct and complete copies of all written contracts described
in this Section 3.16 have been delivered to Purchaser. The Company is not
in default, nor does the Company have any knowledge of any factual
circumstances which can reasonably be expected to give rise to a claim of
default under any contract.
3.17 Compliance with Contracts. To the knowledge of Seller, each of the
Contracts and Leases is valid and in full force and effect. The Company is not
in default under any the Contracts or Leases and, to the knowledge of Seller, no
act or omission has occurred which, with notice or lapse of time or both, would
constitute a breach or default under any term or provision of any such Contract
or Lease and no party is in breach or default under any of the Contracts or
Leases, and no act or omission has occurred by any party which, with notice or
lapse of time or both, would constitute such a breach or default under any term
or provision thereof.
3.18 Insurance.
3.18.1 Schedule 3.18.1 contains a complete list of all policies of
fire, business interruption, liability, worker's compensation and other
forms of insurance owned or held by the Company. All such policies are in
full force and effect, all premiums with respect thereto covering all
periods up to and including the date hereof have been paid, and no notice
of cancellation or termination has been received with respect to any such
policy. Such policies are sufficient for compliance with all requirements
of law and of all of the Contracts and Leases; provide adequate insurance
coverage for the assets and operations of the Company in light of current
industry practice; will remain in full force and effect through the
respective dates set forth on Schedule 3.18.1. The Company has not been
unable to obtain any insurance with respect to its assets or operations,
nor has its coverage been limited by any insurance carrier to which it has
applied for any such insurance or with which it has carried insurance.
3.18.2 Schedule 3.18.2 sets forth a true and complete list of all
group insurance programs in effect for employees of the Company. The
Company is not in default with respect to any of its obligations with
respect to any such group insurance program.
3.19 Labor Relations. Except to the extent set forth on Schedule 3.19:
3.19.1 The Company is in compliance with all applicable federal, state
and local laws respecting employment and employment practices (including,
without limitation, the Fair Labor Standards Act and all matters related to
immigration or citizenship status), terms and conditions of employment and
wages and hours, and is not engaged in any unfair labor practice;
3.19.2 there is no unfair labor practice charge or complaint against
the Company pending before the NLRB;
3.19.3 there is no labor strike, dispute, slowdown or stoppage
actually pending or threatened against or affecting the Company;
3.19.4 no representation question is pending before the NLRB exists
respecting the employees of the Company;
3.19.5 no grievance against the Company or the conduct of its
business, nor any arbitration proceeding arising out of or under collective
bargaining agreements is pending;
3.19.6 the Company is not a party to any collective bargaining
agreement;
3.19.7 the Company has never experienced any work stoppage or other
labor difficulty; and
3.19.8 the Company has not, and prior to the Closing Date will not
have, suffered a "plant closing" or "mass layoff" within the meaning of the
US Worker Adjustment and Retraining Notification Act.
3.20 Securities Act Compliance.
3.20.1 Each of the Sellers are acquiring the shares of Purchaser's
Stock (the "Shares") for his or her own accounts.
3.20.2 Each of the Sellers understands that the offering and sale of
the Shares is intended to be exempt from registration under the Securities
Act by virtue of Section 4(2) of the Securities Act and under similar
provisions under the applicable state securities laws, and understands and
agrees that the Shares may not be sold, transferred, hypothecated or
pledged, except pursuant to an effective registration statement under the
Securities Act and under the applicable state securities laws or pursuant
to an available exemption under the registration requirements of the
Securities Act and under the applicable state securities laws, established
to the satisfaction of the Purchaser, and that the Purchaser is under no
current obligation to register the Shares or to assist the Sellers in
complying with any exemption from the registration thereof in connection
with the sale or transfer of the Shares. Any certificates representing
Purchaser's Stock delivered as the Stock Consideration will bear the usual
and customary legend noting that transferability of the Purchaser's Stock
is subject to Securities Act restriction.
3.20.3 Each of the Sellers has all documents which he or she has
requested relating to the business, payments and financial condition of the
Purchaser, including Purchaser's current filings under the Exchange Act,
and understands that, to the extent that any information set forth in
material previously presented to it is inconsistent with the provisions of
this Agreement, the provisions of this Agreement shall prevail and
supercede such prior information.
3.20.4 Each of the Sellers has been given the opportunity to obtain
such additional information as is necessary to verify the accuracy of the
information which was provided in order for him or her to evaluate the
merits and risks relating to a purchase of the Shares.
3.20.5 Each of the Sellers has such knowledge and experience in
financial and business affairs that he or she is capable of evaluating the
merits and risks of a purchase of the Shares and has not relied in
connection with such purchase upon any representations, warranties or
agreements other than those set forth in this Agreement and in the
documents filed with the SEC by Purchaser pursuant to the Exchange Act and
delivered to the Sellers.
3.20.6 Legend. Sellers understand that each stock certificate
representing shares of Purchaser's Stock to be delivered to the Sellers
pursuant to this Agreement, in addition to any other legends required,
shall bear a legend in substantially the following form until such time as
the shares represented thereby are no longer subject to the provisions
hereof:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or under
any state securities laws. Such shares have been acquired for
investment purposes only and not with a view to, or in connection
with, the sale or distribution thereof. These securities may not
be offered, sold, transferred or otherwise disposed of unless
registered under the Securities Act of 1933, as amended, and any
applicable state securities laws or an exemption from such
registration is available."
3.21 Litigation. Except as set forth on Schedule 3.21 hereto:
3.21.1 there is no claim, action, suit or arbitration proceeding,
before any federal, state, municipal, foreign or other court or
governmental or administrative body or agency, or any private arbitration
tribunal or any investigation or inquiry before any federal, state,
municipal, foreign or other court or governmental or administrative body
now pending, relating to or affecting the Company or any director, officer,
agent or employee thereof in his capacity as such, or the assets,
properties or business of the Company, or the transactions contemplated by
this Agreement, nor has the Company received written notice of any threat
to institute such a proceeding;
3.21.2 there is not in effect any order, judgment or decree of any
court or governmental or administrative body enjoining, barring,
suspending, prohibiting or otherwise limiting the Company or any officer,
director, employee or agent of the Company from conducting or engaging in
any aspect of its business, or requiring the Company or any officer,
director, employee or agent of the Company to take certain action with
respect to any aspect of the its business; and
3.21.3 The Company is not in violation of or default under any order,
judgment, writ, injunction or decree of any court or regulatory authority.
3.21.4 none of the matters identified on Schedule 3.21 have had or
could reasonably be anticipated to have a material adverse effect.
3.22 No Condemnation or Expropriation. Neither properties demised under the
Leases, or any portion thereof or any other assets of the Company is subject to
any governmental decree or order to be sold of which the Company has received
notice or is being condemned, expropriated or otherwise taken by any public
authority with or without payment of compensation therefor, nor, to the
knowledge of the Company, has any such condemnation, expropriation or taking
been proposed.
3.23 Compliance with Law. The operations of the Company have been conducted
in accordance with all applicable laws, regulations and other requirements of
all national governmental authorities, and of all states, municipalities and
other political subdivisions and agencies thereof, having jurisdiction over the
Company, including, without limitation, all such laws, regulations and
requirements relating to antitrust, consumer protection, equal opportunity,
discrimination on the basis of race, national origin, sex, age, immigration,
health, occupational safety, plant closing, pension, requirements of any Board
of Fire Underwriters or similar body, Environmental Laws or toxic waste laws.
During the past three (3) years, the Company has not received any notification
of any asserted present or past failure by the Company to comply with such laws,
rules or regulations.
3.24 Environmental Protection. Except as set forth on Schedule 3.24:
3.24.1 None of the properties demised under the Leases or real
property previously owned or leased by the Company (which shall mean the
Company, any subsidiaries of the Company and all corporation or other
business entities substantially all of the capital stock or other interest
of which, or all or substantially all of the assets of which, the Company
has acquired) has been used at any time during which the Company owned or
leased such real property, or otherwise has been in possession or control
of such real property or leased property, and, to the knowledge of the
Company, none of the properties demised under the Leases or any real
property previously owned or leased by the Company was used at any time
prior to the time such company owned, leased, possessed or controlled such
real property or leased property (i) as a site for the disposal or storage
of Hazardous Materials, or (ii) so as (x) to cause a violation or (y) to
give rise to a removal or restoration obligation or liability for the costs
of removal or restoration by others or a material for damages to others
under, any Environmental Law or under the regulations of any Governmental
Authority having jurisdiction over any of such real property. The Company
has complied and are in compliance with all applicable Environmental Laws.
3.24.2 The Company has obtained and is in compliance with all
environmental permits, licenses and other authorizations which are required
with respect to the operation of its business. As to any such permit,
license or other authorization which has or is about to expire, the Company
has timely applied for renewal thereof under Environmental Laws.
3.24.3 There is no civil, criminal or administrative action, suit,
demand, claim, hearing, notice of violation, investigation, proceeding,
notice or demand letter pending or, to the knowledge of Seller, threatened
against the Company relating in any way to the Environmental Laws or any
regulation, code, plan, order, decree, judgment, injunction, notice or
demand letter issued, entered, promulgated or approved thereunder.
3.24.4 No release, spill, seepage, leak or emission has occurred to
the knowledge of the Company on the properties demised under the Leases or
on any real property previously owned or leased by the Company during the
time of the Company's ownership or possession.
3.24.5 There are no underground storage tanks located on any of the
properties demised under the Leases, nor to the knowledge of the Company
have there been any underground storage tanks removed from any real
property owned or leased by any company during the period such real
property was owned or leased by the Company, except to the extent that such
underground storage tanks were removed in compliance with all applicable
laws or required by applicable laws, ordinances, rules and regulations,
and, to the extent such removal was performed upon notice and with the
approval of, and the inspection and confirmation of closure as to such
removal was performed by, all applicable governmental agencies having
jurisdiction.
3.24.6 The Company has delivered to Purchaser true, correct and
complete copies or results of any reports inspections, safety procedures,
logs, data, contracts, invoices, studies or tests initiated by the Company
or landlords or by any Governmental Authority which are in the possession
of the Company pertaining to Hazardous Materials, at any part of the
properties demised under the Leases or the Company with respect to the
business, any of the Company's predecessors or concerning compliance with
or liability under Environmental Laws and other environmental matters in
the operation of the business and such properties.
3.25 Employee Benefit Plans.
3.25.1 Schedule 3.25 hereto contains a complete list of "Plans" of the
Company consisting of each:
(1) "multiemployer pension plan," as defined in Section 3(37) of
ERISA, to which the Company (or any entity that is treated as a single
employer with the Company under Section 414(b), (c), (m) or (o) of the
Code ("Common Control Entity") contributes or is required to
contribute, or with respect to which any of the Company or a Common
Control Entity has any liability (the foregoing plans and any
additional multiemployer pension plan to which the Company or any
Common Control Entity has previously contributed or been required to
contribute at any time after September 25, 1980 (the "Multiemployer
Plans");
(2) "employee welfare benefit plan," as defined in Section 3(l)
of ERISA, sponsored or maintained by the Company or any Common Control
Entity, or to which the Company or any Common Control Entity
contributes or is required to contribute, including each multiemployer
welfare plan ("Welfare Plan");
(3) "employee pension benefit plan," as defined in Section 3(2)
of ERISA (other than a Multiemployer Plan), sponsored or maintained by
the Company or any Common Control Entity or to which the Company or
any Common Control Entity contributes or is required to contribute
("Pension Plan"); and
(4) any other bonus, deferred or incentive compensation, pension,
profit-sharing, retirement, stock purchase, stock grant, stock option,
disability, sick pay, salary continuation, cafeteria, flexible
spending account, dependent care assistance, or any other fringe
benefit plan, arrangement or practices, other than normal payroll
practices and policies concerning holidays and vacations, sponsored or
maintained by the Company, whether formal or informal (collectively,
"Employment Plans").
3.25.2 There are no "accumulated funding deficiencies," as defined in
Section 302(a)(2) of ERISA and Section 412 of the Code, whether or not
waived, with respect to any of the Pension Plans.
3.25.3 The Unaudited Balance Sheet reflects, to the extent required by
GAAP as consistently applied by the Company, an accrual of all accrued but
unpaid contributions to any Pension Plan, a Multiemployer Plan, and an
accrual of all amounts accrued but unpaid under the Welfare Plans and the
Employment Plans, all as of the Balance Sheet Date.
3.25.4 Each Pension Plan and each related trust agreement, annuity
contract, or other funding instrument, is qualified and tax exempt under
the provisions of Sections 401(a) (or 403(a) as appropriate) and 501(a) of
the Internal Revenue Code ("Code"), and a determination letter has been
received from the Internal Revenue Service as to such qualified status.
3.25.5 Each Pension Plan, Welfare Plan and Employment Plan complies in
all respects with all applicable laws (including to the extent applicable,
without limitation, the Code and ERISA) and is operated in accordance with
its terms.
3.25.6 Each of the Company and any Common Control Entity has paid all
premiums (and interest charges and penalties for late payment, if
applicable), due heretofore to the PBGC with respect to each Pension Plan.
Except as described on Schedule 3.25, there has been no "reportable event",
as defined in Section 4043(b) of ERISA and the PBGC regulations under that
Section, with respect to any Pension Plan as to which notice has not been
waived under applicable PBGC under PBGC regulations. No liability to the
PBGC has been incurred by the Company or any Common Control Entity, on
account of the termination of any Pension Plan. The PBGC has not instituted
proceedings to terminate any Pension Plan and to the knowledge of Seller,
there exists no condition or set of circumstances which could reasonably be
expected to present a significant risk of the termination of any Pension
Plan by the PBGC.
3.25.7 Except as set forth on Schedule 3.25, none of the Company nor
any Common Control Entity has withdrawn from a Multiemployer Plan in a
"complete withdrawal" or a "partial withdrawal" as defined in Sections 4203
and 4205 of ERISA, respectively.
3.25.8 True and complete copies of each of the following documents
have been delivered by the Company to the Purchaser: (i) each Welfare Plan,
each Pension Plan and each Multiemployer Plan, related trust agreements,
annuity contracts, or other funding instruments; (ii) each Employment Plan
and complete descriptions of any such plans that are not in writing; (iii)
the most recent determination letter issued by the Internal Revenue Service
with respect to each Pension Plan; (iv) Annual Reports on Form 5500 Series
required to be filed with any governmental agency for each Welfare Plan and
each Pension Plan for the two most recent plan years; and (v) all actuarial
reports prepared for the last two available plan years for each Pension
Plan.
3.25.9 Except as described on Schedule 3.25, neither the Company nor
any Welfare Plan or Employment Plan is obligated to make any payment of
post-retirement life, accidental death, medical or disability insurance
benefits of any type, excluding, for this purpose, the provisions of any
such benefit as a result of an individual's exercise of his or her health
care continuation rights under the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended, to or with respect to any former
employee of the Company.
3.26 Brokers and Finders. Except as set forth on Schedule 3.26, the Company
is not a party to any agreement with any person that would obligate the
Purchaser to pay any brokerage fee, commission, finder's fees or investment
banking fee in connection with the transactions contemplated by this Agreement.
3.27 Consents. Except as set forth in this Agreement, the consummation of
the transactions contemplated hereby in respect to the Company and the
fulfillment of the terms of this Agreement in respect of the Company do not
require the consent, approval, filing with, registration or release of any
governmental authority or any other Person including, without limitation, any
Person who is a party to a contract or a lease.
3.28 Books and Records. Seller has maintained complete and correct copies
of: (a) the Certificate of Incorporation and Bylaws and all amendments thereto;
and (b) the equity ownership records of the Company. Minutes or other records of
the meetings and other proceedings of the members and directors of the Company
have not been maintained except to the extent heretofore delivered to Purchaser.
4 REPRESENTATIONS AND WARRANTIES OF PURCHASER.
In order to induce Seller to enter into this Agreement and to consummate
the transactions contemplated herein, the Purchaser represents and warrants to
the Company as follows:
4.1 Corporate Organizations; Etc. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware.
4.2 Authorization, Etc.. This Agreement and each agreement, document and
instrument required to be delivered by Purchaser at the Closing have been duly
and validly authorized by all necessary corporate action of Purchaser full
corporate power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The issuance of the Shares of Purchaser's
Stock constituting the Stock Consideration has been duly and validly authorized
by all necessary corporate action of Purchaser. This Agreement is the valid and
binding agreement of Purchaser enforceable against Purchaser in accordance with
its terms.
4.3 No Violation. Neither the execution, delivery or performance of this
Agreement nor the consummation of the transactions contemplated hereby will
violate any provision of the Certificate of Incorporation or By-Laws or similar
corporate documents of Purchaser or will (a) violate, or be in conflict with, or
constitute a breach or default (or an event which, with the giving of notice or
lapse of time or both, would constitute a default) under, or result in the
termination of, or acceleration of the performance required by, or cause the
acceleration of the maturity of any debt or obligation pursuant to, or result in
the creation or imposition of any security interest, lien or other encumbrance
upon any property or assets of Purchaser or any subsidiary of Purchaser under
any Contractual Obligation to which Purchaser or any subsidiary of Purchaser is
a party or by which Purchaser or any subsidiary of Purchaser is bound, or to
which the property of Purchaser or any subsidiary of Purchaser is subject; or
(b) violate any statute or law or any judgment, decree, order, regulation or
rule of any court or Governmental Authority to which Purchaser is subjects.
4.4 Approvals of Governmental Authorities. No action, consent, approval or
authorization of or declaration, filing or registration with any person or
entity, including without limitation, any Governmental Authority is required to
be obtained or made by or on behalf of Purchaser or the Purchaser in connection
with the execution, delivery and performance by the Purchaser of this Agreement
or the consummation of the transactions contemplated hereby in respect of the
Purchaser.
4.5 True and Complete. None of the documents filed by the Purchaser under
the Exchange Act and delivered to the Company (which are listed on Schedule 4.5)
contained any untrue statement of a material fact or omits to state a material
fact necessary to make the statements contained therein no misleading.
4.6 The Purchaser's Stock. The Shares of Purchaser's Stock, if any, to be
issued as the Stock Consideration hereunder, when issued and delivered in
accordance with the provisions of this Agreement, will be duly authorized,
validly issued shares of Purchaser's Stock and will be fully paid and
non-accessible.
4.7 Brokers and Finders. The Purchaser is not a party to any agreement with
any person or entity which would obligate the Company to pay any commission,
finder's fee, investment banking fee, or brokerage fee in connection with the
transactions contemplated by this Agreement.
5 NON-SOLICITATION AND NON-DISPARAGEMENT.
5.1 The Sellers for a period of three (3) years from the Closing Date shall
not, directly or indirectly cause, induce or attempt to cause or induce any
customer, supplier, licensee, licensor, employee, consultant or other business
relation of the Company to cease doing business with the Company, to deal with
any competitor of the Company or in any way interfere with its relationship with
the Company.
5.2 The Sellers shall not disparage the Company or any of the Company's
partners, shareholders, directors, officers, employees, agents or affiliates.
5.3 If a final judgment of a court or tribunal of competent jurisdiction
determines that any term or provision contained in this Article 5 is invalid or
unenforceable, then the parties agree that the court or tribunal will have the
power to reduce the scope, duration or geographic area of the term or provision,
to delete specific words or phrases or to replace any invalid or unenforceable
term or provision that is valid and enforceable that comes closest to expressing
the intention of the invalid or unenforceable term or provision. This Article 5
will be enforceable as so modified after the expiration of the time within which
the judgment may be appealed. This Article 5 is reasonable and necessary to
protect and preserve the Company's legitimate business interests and the value
of the Company and to prevent any unfair advantage conferred on Seller.
6 DOCUMENTS DELIVERED AT CLOSING.
6.1 The Sellers Obligations. On the date hereof, Seller has delivered to
Purchaser or to Purchaser's designee:
6.1.1 The Company's Books and Records including: (i) its minute books
containing all records required to be set forth of all proceedings,
consents, actions and meetings of the shareholders and Board of Directors;
(ii) all permits, orders, and consents issued by any governmental authority
with respect to the Company, and all applications for such permits, orders,
and consents; and (iii) its transfer books setting forth all transfers of
any shares of stock;
6.1.2 the duly executed consents and approvals from all third parties,
including, without limitation, the Landlord consents (which consents shall
not be conditioned on any increased rental, other payment, reduced term, or
other change of Lease terms and shall be in form and substance reasonably
satisfactory to the Purchaser) and customary estoppel certificates, all as
enumerated on Schedule 6.1.2 hereof;
6.1.3 the Employment Agreement between Xxxx Xxxx and the Purchaser, in
substantially the form annexed as Exhibit 6.1.3 hereto;
6.1.4 the Employment Agreement of Xxxxxx X. Major, Jr., substantially
in the form of Exhibit 6.1.4, duly executed by Mr. Major;
6.1.5 stock certificates representing all of the shares of Stock of
the Company owned by Sellers with duly executed stock powers attached;
6.1.6 the Escrow Agreement in the form attached hereto as Exhibit
6.1.6;
6.1.7 a payoff letter of Xxxxx, Mayborn Co., Ltd. (the "Lender") as to
the outstanding balance, as of the Closing Date, of the Company's
indebtedness to Lender in such form as Purchaser's Counsel may reasonably
approve (a copy of which was delivered to Purchaser prior to Closing),
appropriate evidence of satisfaction of indebtedness in form satisfactory
to Purchaser and a statement by Lender authorizing Purchaser to file the
Termination Statement on Form UCC-3;
6.1.8 the Escrow Fund will be delivered to the Escrow Agent.
6.1.9 duly executed consents and approvals of the Company adopting the
Retention Bonus Plan in the form attached hereto as Exhibit 6.1.9.
6.2 Obligations of the Purchaser. At the Closing, and against delivery of
each of the items required to be delivered by the Company under Section 6.1
above, Purchaser shall deliver the following.
6.2.1 payment of $1,200,000 to the Lender by check or wire transfer in
full satisfaction of all of the Company's obligations to the Lender;
6.2.2 the Purchase Price;
6.2.3 the Employment Agreements in substantially the form annexed as
Exhibits 6.1.3 and 6.1.4;
6.2.4 the Registration Rights Agreement substantially in the form
attached hereto as Exhibit 6.2.4; and
6.2.5 the Escrow Agreement in the form attached hereto as Exhibit
6.1.6.
7 POST CLOSING OBLIGATIONS.
7.1 Cooperation in Post-Closing Review. The Company and the Sellers will
provide all cooperation reasonably requested to assist Purchaser's Independent
Auditor in completing its post-closing Review of the Company's financial
statements.
7.2 Further Cooperation. Each of the Company and the Purchaser will, at any
time and from time to time after the Closing Date, execute and deliver such
further instruments of conveyance, transfer and license, and take such
additional actions as the Purchaser or the Company or their respective
successors and/or assigns may reasonably request, to effect, consummate, confirm
or evidence the sale of the Ownership Interests and the other transactions
contemplated by this Agreement.
7.3 Notification. The Company will reasonably cooperate with the Purchaser
in notifying its customers that its business has been sold to the Purchaser,
including, without limitation, executing any additional notices which the
Purchaser may reasonably request. The Company will not, directly or indirectly,
take any action which is designed or intended to have the effect of discouraging
customers, suppliers or vendors and other business associates of its business
from maintaining the same business relationship with the Purchaser or its
respective successors and/or assigns after the Closing Dates as were maintained
with the Company with respect to such business prior to the Closing Date.
8 INDEMNIFICATION.
8.1 Indemnification. The Sellers excluding Xxx Xxxxxxx, Xxxxx Xxxxxxx,
Xxxxxxx Xxxxxxx and Xxxxxx Xxxxxxx and the Company, jointly and severally, shall
defend, indemnify and hold Purchaser, the Purchaser and their respective
directors, officers, employees and agents (the "Indemnified Buyers") harmless
from and against any and all claims, demands, damages, liabilities, losses,
costs and expenses (including attorneys' fees and expenses and costs of
investigation, including, without limitation, fees and disbursements of counsel
incurred by the Indemnified Buyers (as such term is hereinafter defined) in any
action or proceeding between Indemnified Buyers and any third party) of any kind
or nature whatsoever (collectively, the "Losses") that may be asserted by anyone
against the any Indemnified Buyer, or sustained or suffered by any Indemnified
Buyer based upon or related to a breach of any representation, warranty,
covenant or Agreement made by the Sellers or the Company in this Agreement or in
any exhibit, schedule, or certificate delivered thereunder. The obligations of
the Sellers and the Company under this Section 8.1 shall survive the Closing for
one (1) year following the Closing Date except that the obligation to indemnify
against losses incurred by reason of a misrepresentation of the representations
contained in Sections 3.1 (relating to the corporate organization of the
Company), 3.3 (relating to the Seller's sole ownership of all equity interests
in the Company) shall survive in perpetuity and 3.14 (Tax Matters) shall survive
until any action by the respective taxing authorities is barred by the relevant
statute of limitations, and 3.24 (relating to environmental matters) shall
survive for a period of five (5) years following the Closing Date.
8.2 Procedures.
8.2.1 Claims. A party entitled to indemnification hereunder (together
with its affiliates, designees, nominees, successors and assigns, an
"Indemnified Party") shall notify the indemnifying party ("Indemnitor") and
the Escrow Agent of any claim of such Indemnified Party for indemnification
under this Agreement within thirty (30) days of the date on which an
executive officer of such Indemnified Party first becomes aware of the
existence of such claim. Such notice shall specify the nature of such claim
in reasonable detail and the Indemnitor shall be given reasonable access to
any documents or properties within the control of the Indemnified Party as
may be useful in the investigation of the basis for the claim.
8.2.2 Third Party Claims.
(1) In the event any Indemnified Party is entitled to
indemnification hereunder based upon a claim asserted by a third
party, the Indemnitor shall be given prompt notice thereof, in
reasonable detail. The Indemnitor shall have the right (without
prejudice to the right of any Indemnified Party to participate at its
expense through counsel of its own choosing) undertake, conduct,
control, at its expense and through counsel of its own choosing
(subject to the consent of the Indemnified Party, which consent shall
not be unreasonably withheld) the settlement or defense of such claim
by giving written notice of its intention to do so not later than
twenty (20) days following notice of such claim by the Indemnified
Party, or such shorter time period as required so that the interests
of the Indemnified Party would not be materially prejudiced as a
result of its failure to have received such notice; provided, however,
that if the defendants in any action shall include both an Indemnitor
and an Indemnified Party, the Indemnified Party shall have the right
to select separate counsel to participate in the defense of such
action on its behalf, at the expense of the Indemnitor.
(2) The Indemnified Party shall be entitled to recover from the
Indemnitor, on a monthly basis, all reasonable attorney's fees and
other costs and expenses incurred in the defense of such claim and the
Indemnified Party shall have the right to contest, settle or
compromise any claims in the exercise of its sole discretion at the
expense of the Indemnitor. The Indemnified Party shall, however,
notify the Indemnitor in writing of any settlement or compromise of
such claim.
(3) If the Indemnitor assumes the defense of any such claim, the
Indemnitor will promptly reimburse the Indemnified Party for the full
amount of any loss resulting from such claim incurred by the
Indemnified Party by delivering shares of Purchasers Stock to the
Indemnified Party. For purposes of this Article 8, the value of
Purchaser's Stock shall be calculated based on the average closing
price of the Purchaser's Class A Shares of Common Stock on the
American Stock Exchange for the ten (10) trading days preceding the
date on which payment for the Claim is made. So long as the Indemnitor
is reasonably contesting any such claim in good faith, the Indemnified
Party shall not pay or settle any such claim provided that in the
event of any such payment of settlement, the Indemnified Party shall
waive any right to indemnity by the Indemnitor.
8.3 Cooperation. The Indemnitor and Indemnified Party shall cooperate in
furnishing evidence and testimony and in any other manner which the other may
reasonably request, and shall in all other respects have an obligation of good
faith dealing, one to the other, so as not to unreasonably expose the other to
an undue risk of loss. The Indemnified Party shall be entitled to reimbursement
for out-of-pocket expenses reasonably incurred by it in connection with such
cooperation. Except for fees and expenses for which indemnification is provided
pursuant to Article 8.2.2 hereof, as the case may be, and as provided in the
preceding sentence, each party shall bear its own fees and expenses incurred
pursuant to this Section 8.3.
8.4 Limitation on Liability. Any provision of this Section 8 to the
contrary notwithstanding, in no event shall the total obligation under this
Section 8 of the Sellers exceed 500,000 Shares of the Purchaser's Stock. No
claims for indemnification under Sections 8.1 and 8.2 shall be made until the
aggregate amount of all claims made under Sections 8.1 and 8.2 exceeds $25,000,
whereupon all claims, or portions thereof, in excess of such amount may be made.
9 MISCELLANEOUS.
9.1 Expenses. Except as otherwise provided herein, the parties hereto shall
each bear its own expenses in connection with the transactions contemplated by
this Agreement, including the fees of attorneys, accountants, advisors, brokers,
investment bankers and other representatives. The parties agree that any
transfer taxes generated as a result of this transaction are included in the
Purchase Price and are the sole responsibility of the Company.
9.2 Notices and Legal Process. All notices and other communications and
legal process shall be in writing and shall be personally delivered, transmitted
by telecopier, telex or cable, or transmitted by postage prepaid, registered or
certified mail with return receipt requested or by recognized courier service,
as elected by the party giving such notice, addressed as follows:
(a) If to the Sellers:
Xxxxx X. and Xxxxx X. Xxxxx
0000 Xxxxxxx Xxxx - Xxxxx 000
Xxxxxx, Xxxxx 00000
Fax: (000) 000-0000
Xxxxx, Mayborn Co., Ltd.
0000 Xxxxxxx Xxxx - Xxxxx 000
Xxxxxx, Xxxxx 00000
Fax: (000) 000-0000
Don and Xxxxx Xxxxxx
Xx. 0 Xxx 000
Xx. Xxxxxx, Xxxxx 00000
Fax: (000) 000-0000
Xxxxxx X. and Xxxxx Major
X.X. Xxx 000000
Xxxxxxxx, Xxxxx 00000
Xxxx Xxxx
0000 Xxxxxxx Xxxxxx
Xxxxxxx, Xxxxx 00000
Xxx and Xxxxx Xxxxxxx
000 Xxxxxxx Xxxx
Xxxxxxxxx, Xxxxx 00000
Oqullia and Xxxxxx Xxxxxxx
000 Xxxxxxxx Xxxxxx
Xxxxxxx, Xxxxx 00000
With copies to:
Xxxxxx and Xxxxx, LLP
0000 X. Xxxxx Xxxx
Xxxxx 0000
Xxxxxxxxxx, XX 00000
Attn: Xxxxx X. Xxxx, Esq.
Fax: (000) 000-0000
(b) If to the Purchaser:
Advanced Photonix, Inc.
0000 Xxxxxxx Xxxxx
Xxxxxxxxx, Xxxxxxxxxx 00000
Attention: President
Fax: (000) 000-0000
With copies to:
Xxxxxxx X. Xxxxx
Quantum Compliance Systems
0000 Xxxxxxxx Xxxx
Xxxxxxxxx, XX 00000
Fax: (000) 000-0000
E-mail: xxxxxx@xxx-xxxxx.xxx
-xxx-
Xxxxxxxx Xxxxxx Xxxxxxxxxx & Xxxxxxxxx, LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attn: Xxxxxx Xxxxxxxx, Esq.
Fax: (000) 000-0000
E-mail: xxxxxxxx@xxxxxxx.xxx
All notices and other communications hereunder shall be in writing and addressed
to as set forth above and shall be deemed to have been duly given (i) on the
date sent if delivered by hand (or the next business day if sent after 5:00 p.m.
on a business day or on a weekend or holiday), (ii) within three days of the
date mailed if sent by registered or certified mail, postage prepaid, return
receipt requested, (iii) or the next business day when given by prepaid courier
delivery services such as Federal Express, DHL or other similar services, (iv)
or when given by facsimile transmission upon receipt by sender of confirmed
answer-back. Any party hereto may change its address for purpose hereof by
notice to the other parties hereto.
9.3 Disclosure. Each party shall provide the other a reasonable opportunity
for consultation with respect to the text of any press release announcing the
execution of this Agreement or the transactions contemplated hereby.
9.4 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but such counterparts together
shall constitute one and the same instrument.
9.5 Waiver and Amendment. The parties may by written instrument extend the
time for the performance of any of the obligations or other acts of the other
hereunder and may waive (i) any inaccuracies of the other in the representations
or warranties contained in this Agreement or in any document delivered pursuant
hereto, (ii) compliance with any of the covenants, undertakings or agreements of
the other, or satisfaction of any of the conditions to its or their obligations,
contained in this Agreement or (iii) the performance (including performance to
the satisfaction of a party or its counsel) by the other of any of its or their
obligations set out herein. Any waiver, amendment or supplement hereof shall be
in writing.
9.6 Entire Agreement. Unless otherwise specifically agreed in writing, this
Agreement and the Schedules and Exhibits hereto and the other agreements
anticipated hereby represent the entire understanding of the parties with
reference to the transactions set forth herein and supersede all prior
representations, warranties, understandings and agreements heretofore made by
the parties, and neither this Agreement nor any provisions hereof may be
amended, waived, modified or discharged except by an Agreement in writing signed
by the party against whom the enforcement of any amendment, waiver, change or
discharge is sought.
9.7 Binding Agreement. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs, successors and
permitted assigns except that no party may assign or transfer its rights or
obligation xxxxxx this Agreement without the prior written consent of the other
parties to this Agreement.
9.8 Governing Law and Attorneys' Fees. The interpretation and
enforceability of this Agreement shall be governed by and construed in
accordance with the internal laws of the State of Delaware without reference to
the conflicts of laws provisions thereof. In the event of any action at law or
suit in equity in relation to this Agreement, the prevailing party in each
action or suit shall be entitled to receive its attorneys' fees and all other
costs and expenses of each suit or action.
9.9 Severability; Construction. In the event any provision hereof is
determined to be invalid or unenforceable, the remaining provisions hereof shall
be deemed severable therefrom and shall remain in full force and effect. Words
and phrases defined in the plural shall also be used in the singular and vice
versa and be construed in the plural or singular as appropriate and apparent in
the context used. Unless otherwise specifically provided herein, accounting
terms shall be given and assigned their usual meaning and effect as defined or
used in GAAP.
9.10 Counterparts. This Agreement may be signed in counterparts, each of
which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written:
PURCHASER
ADVANCED PHOTONIX, INC.
By: /s/ Xxxxxxx Xxxxx
---------------------------
Xxxxxxx Xxxxx, Chairman
SELLERS
XXXXX, MAYBORN CO., LTD.,
a Texas limited partnership
By: /s/ Xxxxx X. Xxxxx
---------------------------
Xxxxx X. Xxxxx,
Managing General Partner
/s/ Xxxxx X. Xxxxx
---------------------------
Xxxxx X. Xxxxx
/s/ Xxxxxx X. Xxxxx
---------------------------
Xxxxx X. Xxxxx
/s/ Xxx Xxxxxx
---------------------------
Xxx Xxxxxx
/s/ Xxxxx Xxxxxx
---------------------------
Xxxxx Xxxxxx
/s/ Xxxxxx X. Major, Jr.
---------------------------
Xxxxxx X. Major, Jr.
/s/ Xxxxx Major
---------------------------
Xxxxx Major
/s/ Xxxx Xxxx
---------------------------
Xxxx Xxxx
/s/ Xxx Xxxxxxx
---------------------------
Xxx Xxxxxxx
/s/ Xxxxx Xxxxxxx
---------------------------
Xxxxx Xxxxxxx
/s/ Xxxxxxx Xxxxxxx
---------------------------
Xxxxxxx Xxxxxxx
/s/ Xxxxxx Xxxxxxx
---------------------------
Xxxxxx Xxxxxxx
EXHIBIT LIST
6.1.3 Employment Agreement for Xxxx Xxxx
6.1.4 Employment Agreement for Xxxxxx X. Major, Jr.
6.1.6 Escrow Agreement
6.1.9 Retention Bonus Plan
6.2.4 Registration Rights Agreement
SCHEDULES
1.1 Definitions
2.2(A) Computation of the Company's Net Working Capital at August 31, 2002
2.2(B) Certain Matters Relating to Dispute Resolution of Adjustment Amount
3.1.1 Foreign Qualification of the Company
3.1.2 Officers and Directors of the Company
3.3 Stockholders of the Company
3.4 Business Assets and Inventory
3.7 Obligations Not Disclosed on Unaudited Balance Sheet
3.8 Certain Changes
3.10 Leases
3.11 Customers and Suppliers
3.12 Intellectual Property
3.14. Taxes, Assessments and Deficiencies
3.15 Transactions with Affiliates
3.16 Contracts and Commitments
3.18.1 Insurance Policies
3.18.2 Group Insurance Policies
3.19 Labor Matters
3.21 Litigation
3.24 Environmental Matters
3.25 Employee Benefit Plans
3.26 Brokers and Finders
6.1.2 Required Consents
SCHEDULE 1.1
DEFINED TERMS
As used in this Agreement, the following terms should have the following
meanings:
"Adjustment Amount" shall have the meaning set forth in Section 2.1 hereof.
"Affiliate" means, as to any Person, a Person controlling, controlled by or
under common control with such Person.
"Agreement" means this Agreement, as amended, supplemented or otherwise
modified from time to time.
"Anniversary" means the first anniversary of the Effective Date as set
forth in Section 2.2.2.
"Approvals" has the meaning set forth in Section 3.13.
"Balance Sheet Date" means August 31, 2002.
"Business Day" means a day of the year on which banks are not permitted or
authorized to close in New York City.
"CERCLA" means the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended.
"Closing Balance Sheet" shall mean the balance sheet of the assets and
liabilities acquired by Purchaser as anticipated hereby, as of the Closing Date,
and as reviewed by Purchaser's Independent Auditor pursuant to Section 2.1
hereof.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and the regulations and rulings issued thereunder.
"Common Control Entity" has the meaning set forth in Section 3.25.1.
"Company's Financial Statements" has the meaning set forth in Section 3.6.
"Company's Unaudited Financial Statements" has the meaning set forth in
Section 3.6.
"Company's Independent Auditor" means Xxxxxx & Xxxx, LLP.
"Contracts" has the meaning set forth in Section 3.17.
"Contractual Obligation" means as to any Person, any provision of any
agreement, instrument or other undertaking to which such Person is a party or by
which it or any of its property is bound.
"Effective Date" means the date upon which the Effective Time occurs.
"Effective Time" means the time at which the Closing is completed.
"Employment Plans" has the meaning set forth in Section 3.25.1.
"Environmental Laws" means any and all federal, state, local or municipal
laws, rules, orders, regulations, statutes, judgments, decrees, orders, consent
agreements, (including common laws), licenses, rules or regulations pertaining
to environmental protection, health or safety matters, including without
limitation those arising under the Resource Conservation and Recovery Act, as
amended, CERCLA, the Superfund Amendments and Reauthorization Act of 1986, as
amended, Water Act, as amended, the Federal Clean Air Act, as amended, the Toxic
Substances Control act, those relating to the disposition of hazardous
materials, or any state or local analogue.
"Sellers" are the record and beneficial owners of all equity interests (as
members or otherwise) in the Company as set forth on Schedule 3.3.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations and rulings issued thereunder.
"Escrow Agent" means American Escrow Company in its capacity as Escrow
agent.
"Escrow Agreement" means the Escrow Agreement, in substantially the form
annexed as Exhibit 6.1.5, to be entered into at Closing among Purchaser, the
Company and the Escrow Agent, pursuant to Section 6.1.5 hereof.
"Escrow Fund" means the $50,000 to be delivered by Seller to the Escrow
Agent at the Closing pursuant to Escrow Agreement attached hereto as Exhibit
6.1.5 and the portion of the Purchase Price equal to Two Hundred and Fifty
Thousand (250,000) shares of Purchaser's Stock to be delivered by Purchaser to
the Escrow Agent at the Closing pursuant to the Escrow Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"GAAP" means generally accepted accounting principles in the United States
of America in effect from time to time.
"Governmental Authority" means any nation, state, county, local or other
governmental authority or any political subdivision thereof and any federal,
state, county, local or foreign entity or body exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Hazardous Materials" means any (i) "hazardous substance," "waste,"
"pollutants," or "contaminant" (as defined in Sections 101(14),(33) of the
CERCLA or the regulations issued pursuant to Section 102 of CERCLA and found at
40 C.F.R. ss.302), including any element, compound, mixture, solutions, or
substance that is or may be designated pursuant to Section 102 of CERCLA; (ii)
substance that is or may be designated pursuant to Section 311(b)(2)(A) of the
Federal Water Pollution Control Act, as amended (33 U.S.C. ss.ss.1251,
1321(b)(2)(A) ("FWPCA"); (iii) hazardous waste having the characteristics
identified under or listed pursuant to Section 3001 of the Resource Conservation
and Recovery Act, as amended (42 U.S.C. xx.xx. 6901, 6921) ("RCRA"); (iv)
substance containing petroleum, as that term is defined in Section 9001(8) of
RCRA; (v) toxic pollutant that is or may be listed under Section 307(a) of
FWPCA; (vi) hazardous air pollutant that is or may be listed under Section 112
of the Clean Air Act, as amended (42 U.S.C. xx.xx. 7401, 7412); (vii) asbestos,
asbestos-containing material, or urea formaldehyde or material that contains it;
and (viii) waste oil and other petroleum products.
"IRS" means the Internal Revenue Service.
"Inventory" means all inventory owned by the Company, whether on order from
the Company's suppliers, raw materials, work-in-process, finished products or in
process of being delivered to the Company's customers (Purchaser acknowledges
that the Company has advised it does not have title to inventory being
delivered.)
"Landlords" means the parties signatory as Landlords to the Leases.
"Leases" has the meaning set forth in Section 3.10.
"Lien" means any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), or preference, priority or
other security interest or agreement or preferential arrangement of any kind or
nature whatsoever (including, without limitation, any conditional sale or other
title retention agreement, any financing lease having substantially the same
economic effect as any of the foregoing, and the filing of any financing
statement under the Uniform Commercial Code or comparable law of any
jurisdiction in respect of any of the foregoing).
"Multiemployer Plans" has the meaning set forth in Section 3.25.1.
"Net Working Capital of the Company" means on the Closing Date, the amount
by which Current Assets of the Company exceeds Current Liabilities of the
Company as at the date on which such computation is made. The terms "Current
Assets" and "Current Liabilities" shall have the meanings ascribed to them under
GAAP, as applied to the financial statements consistent with past practices
reflected in the historical financial statements of the Company, and all
computations to be made hereunder shall be made in accordance with GAAP, and
shall include a reasonable allowance for normal year-end adjustments, if any, on
a basis consistent with the historical practices of the Company, provided,
however, the Company's deferred tax asset shall be excluded from "Current
Assets."
"NLRB" means the U.S. National Labor Relations Board.
"Ownership Interests" has the meaning set forth in Section 3.3.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Pension Plan" has the meaning set forth in Section 3.25.1.
"Person" means an individual, partnership, corporation, limited liability
company, business trust, joint stock company, trust, unincorporated association,
joint venture, Governmental Authority or other entity of whatever nature.
"Plans" has the meaning set forth in Section 3.25.1.
"Purchaser's Independent Auditors" shall mean Xxxxxx & Xxxx, LLP, certified
public accountants or such other firm of certified public accountants as the
Purchaser may designate.
"Purchaser's Stock" means the Class A Common Stock of Purchaser, par value
$.001.
"Requirement of Law" means as to any Person, any law, treaty, rule or
regulation or determination of an arbitrator or a court or other Governmental
Authority, in each case applicable to or binding upon such Person or any of its
property or to which such Person or any of its property is subject.
"Rule 144" means Rule 144, promulgated under the Securities Act, as in
effect at the date hereof.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Shares" means the shares of Purchaser's Stock, if any, delivered as the
Stock Consideration.
"Subsidiary" means any Person of which shares of stock or other ownership
interests having ordinary voting power (other than stock having such power only
by reason of the happening of a contingency) to elect a majority of the board of
directors or other managers of such Person are at the time owned, or the
management of which is otherwise controlled, directly or indirectly through one
or more intermediaries.
"Tangible Property" means as to any Person, the plant, machinery,
equipment, leasehold improvements, vehicles, and structures of such Person and
related capitalized items and other tangible property used in the business of
such Person.
"Taxes" shall mean all foreign, federal, state, county, local and other
taxes, levies, impositions, deductions, charges and withholdings, including,
without limitation, income or franchise taxes or other taxes imposed on or with
respect to net income or capital gain, gross receipts, profits, sales, use,
occupation, value added, ad valorem, transfer, withholding, payroll, employment,
excise or property taxes, and shall include any interest, penalties or additions
thereto.
"Tax Returns and Statements" has the meaning set forth in Section 3.14.1.
"Trading Day" means a day on which the Purchaser's Stock is actually traded
on the American Stock Exchange.
"Unaudited Balance Sheet" means the unaudited balance sheets of the Company
as at August 31, 2002 previously delivered to Purchaser pursuant to Section 3.6.
"Welfare Plan" has the meaning set forth in Section 3.25.1.
SCHEDULE 2.2(B)
CERTAIN MATTERS RELATING TO
DISPUTE RESOLUTION OF ADJUSTMENT AMOUNT
Section 2.2 of the Agreement provides that the "Adjustment Amount" be
computed from the review by the Purchaser's Independent Auditor of the financial
statements as at the Closing Date which review shall be completed within
forty-five (45) days after the Closing, and that any payments required by said
Section 2.2, either from the Purchaser to the Company or from the Company to the
Purchaser, be made within five (5) business days after such computation is
completed.
The foregoing, notwithstanding, the Sellers shall have the right, to be
exercised by written notice to the Purchaser prior to the expiration of such
five (5) business day period, to extend such period for payment for an
additional fifteen (15) days to permit an auditor chosen by Xxxxx, Mayborn Co.,
Ltd. (the "BM Independent Auditor") to review such computation (including the
components of such audited balance sheet) to determine whether it concurs or
disagrees with the amount of the Adjustment Amount so computed.
In the event the Sellers and the BM Independent Auditor disagree with the
computation of the Adjustment Amount, they shall so notify the Purchaser, in
writing, within such fifteen (15) day period. In such case, the Sellers and the
Purchaser, and their respective Independent Auditors, shall endeavor in good
faith to reconcile or compromise their differences and agree to an Adjustment
Amount.
In the event the Purchaser and the Sellers, and their respective
Independent Auditors, fail to reach agreement on the Adjustment Amount within
such second fifteen (15) day period, a third firm of independent certified
public accountants shall be selected by agreement between the BM Independent
Auditor and Purchaser's Independent Auditor to act as arbitrator of the dispute.
Such arbitrator shall be instructed to deliver its decision within thirty (30)
days of the time the matter has been presented to it.
Each party shall bear its own costs in the foregoing procedure, including
the fees of its respective Independent Auditor; provided, however, that in the
event the arbitration provisions of the preceding paragraph are invoked, the
party losing such arbitration will be responsible for all costs of the
arbitrator, including all fees of the arbitrator and all fees and expenses of
the other party's Independent Auditor in conducting such arbitration proceeding.
