EXHIBIT A
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT
BY AND AMONG
ADVANCED PHOTONIX, INC.
AS PURCHASER
AND
THE STOCKHOLDERS OF
TEXAS OPTOELECTRONICS, INC.
NAMED HEREIN
AS SELLERS
DATED: JANUARY 17, 2003
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.
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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
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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).
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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;
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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,
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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
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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)
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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
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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.
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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;
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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.
12
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
13
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,
14
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,
15
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.
16
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"),
17
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.
18
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.
19
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.
20
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.
21
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
22
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.
23
(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.
24
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.
25
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
26
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,
27
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
28
SELLERS
XXXXX, MAYBORN CO., LTD.,
a Texas limited partnership
By: /s/ Xxxxx X. Xxxxx
----------------------------------------
Xxxxx X. Xxxxx, Managing General Partner
29
SELLERS (CONTINUED)
/s/ Xxxxx X. Xxxxx
-------------------------------------
Xxxxx X. Xxxxx
30
SELLERS (CONTINUED)
/s/ Xxxxx X. Xxxxx
------------------------------------
Xxxxx X. Xxxxx
31
SELLERS (CONTINUED)
/s/ Xxx Xxxxxx
------------------------------------
Xxx Xxxxxx
32
SELLERS (CONTINUED)
/s/ Xxxxx Xxxxxx
------------------------------------
Xxxxx Xxxxxx
33
SELLERS (CONTINUED)
/s/ Xxxxxx X. Major, Jr.
------------------------------------
Xxxxxx X. Major, Jr.
34
SELLERS (CONTINUED)
/s/ Xxxxx Major
------------------------------------
Xxxxx Major
35
SELLERS (CONTINUED)
/s/ Xxxx Xxxx
------------------------------------
Xxxx Xxxx
36
SELLERS (CONTINUED)
/s/ Xxx Xxxxxxx
------------------------------------
Xxx Xxxxxxx
37
SELLERS (CONTINUED)
/s/ Xxxxx Xxxxxxx
------------------------------------
Xxxxx Xxxxxxx
38
SELLERS (CONTINUED)
/s/ Xxxxxxx Xxxxxxx
------------------------------------
Xxxxxxx Xxxxxxx
39
SELLERS (CONTINUED)
/s/ Xxxxxx Xxxxxxx
------------------------------------
Xxxxxx Xxxxxxx
40
TABLE OF CONTENTS
-i-
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.
-2-
"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. Section 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. Sections 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. Sections 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. Sections 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"
-3-
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.
-4-
"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.
-5-
SCHEDULE 2.2(A)
COMPUTATION OF THE COMPANY'S NET WORKING CAPITAL AT AUGUST 31, 2002
Balances are from the unaudited Financial Statements provided to the
Purchaser.
Total Current Assets $ 1,090,146
Less Deferred Income Taxes (170,198)
------------
Net Current Assets $ 919,948
Total Current Liabilities $ 494,836
------------
Net Working Capital $ 425,112
------------
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.
SCHEDULE 3.1.1
FOREIGN QUALIFICATION OF THE COMPANY
NONE
SCHEDULE 3.1.2
OFFICERS AND DIRECTORS OF THE COMPANY
This schedule below 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.
TEXAS OPTOELECTRONICS, INC.
COMPENSATION OF OFFICERS AND HIGHLY PAID EMPLOYEES
OFFICERS SCAL 2002 PROJECTED COMP.
-------- -------------------------
Xxxxx X. Xxxxx Chairman $ -0-
Xxx Xxxxxx President, CEO and CFO $ 183,000
Les Major Executive Vice President $ 90,682
Xxxx Xxxx Vice President $ 76,260
Xx Xxxxx Xx. Vice President $ 60,620
Xxxxx Xxxxx Vice President $ 56,233
Xxxxx Xxxxxx V. P./Controller $ 50,900
Xxx Xxxxxx Corp. Secretary $ 28,718
Employees with Annual Salaries Greater Than $50,000
Xxx Xxxxxxx $ 60,500
SCHEDULE 3.3
STOCKHOLDERS OF THE COMPANY
Stockholders of Texas Optoelectronics, Inc. and respective Ownership
Interests:
Number of Shares Percentage of Number of Shares
---------------- ------------- ----------------
of Company's Total of Purchaser's
-- --------------- --------------
Common Stock Outstanding Stock delivered at
------------ ----------- ------------------
Owned Common Stock Closing
----- ------------ -------
Xxxxx, Mayborn Co., Ltd. 6,224,382 43.34% 433,400*
Xxxxx, Mayborn Co., Ltd. 3,605,715 25.10% 251,000*
Xxxxx, Mayborn Co., Ltd. 1,337,441 9.31% 93,100*
---------- ------ ----------
Total Xxxxx, Mayborn Co., 11,167,538 77.75% 777,500
Ltd.
Xxxxx X. Xxxxx 665,000 4.63% 46,300**
Xxx Xxxxxx 2,155,916 15.00% 150,000
Xxxxxx X. Major, Jr. 246,494 1.72% 17,200
Xxxx Xxxx 114,068 0.79% 7,900
Xxx Xxxxxxx 5,000 0.04% 400
Xxxxxxx Xxxxxxx 9,379 0.07% 700
---------- ---- ---------
Total 14,363,395 100% 1,000,000
========== === =========
SCHEDULE 3.4
BUSINESS ASSETS AND INVENTORY
Filed under cover of a Memorandum of even date herewith.
SCHEDULE 3.7
OBLIGATIONS NOT DISCLOSED ON UNAUDITED BALANCE SHEET
In November, at the auditor's request, the Company grossed up Prepaid
Insurance and broke out a premium note payable. At August 31, 2002,
this note was netted into prepaids.
There are no other obligations other than those incurred in the normal
course of business.
SCHEDULE 3.8
CERTAIN CHANGES
This Schedule identifies any organizational or operational changes in
the Company's business since the August 31, 2002 Balance Sheet.
NONE
SCHEDULE 3.10
LEASES
A. Real Property
1. Lease Agreement dated 12-04-01 between the Company and
Eminent International Enterprises, Inc. for premises located
at 000 Xxxxxxxx Xxxxx, Xxxxxxx, Xxxxx.
B. Personal Property
2. Lease Agreement dated 1-19-01 between Texas
Optoelectronics, Inc. and Xxxxx Business Finance for an Opto
Series Test Set.
3. Lease Agreement dated 1-19-01 between Texas
Optoelectronics, Inc. and Xxxxx Business Finance for a Marley
Cooling Aquatower system and a Helium Leak Detector.
4. Lease Agreement dated 5-12-00 between Texas
Optoelectronics, Inc. and BSB Leasing for 2 Dell Laptop
Computers and a Helium Leak Detector.
5. Lease Agreement dated 6-17-99 between Texas
Optoelectronics, Inc. and GE Capital for Mercury
Communications Services.
6. Lease Agreement dated 8-16-99 between Texas
Optoelectronics, Inc. and Textron Financial for an Alacros
Citrix Fileserver with modem and software.
7. Lease Agreement dated 1-12-99 between Texas
Optoelectronics, Inc. and Textron Financial for Infisy
Software, 15 Dell Computers, Compaq Presario Laptop, and
related computer hardware and software.
8. Lease Agreement dated 1-12-99 between Texas
Optoelectronics, Inc. and Textron Financial for Groupwise
Software Startup Services.
9. Lease Agreement dated 7-21-98 between Texas
Optoelectronics, Inc. and GE Capital Finance for Dell
PowerEdge Backup Tape Drive, Server and related computer
hardware and software.
10. Lease Agreement dated 12-15-97 between Texas
Optoelectronics, Inc. and Textron Financial for seven (7) SBC
Computers, Branson Welder and a MKS Controller/Sensor with
Cable.
11. Lease Agreement dated 1-1-99 between Texas
Optoelectronics, Inc. and Datamax Leasing for a Canon Copier.
SCHEDULE 3.11
CUSTOMERS AND SUPPLIERS
This Schedule contains a complete list of all customers of the
Company's business who, during the past 27 months, have purchased goods from the
Company (in aggregate amounts of at least $5,000 per twelve month period), and a
complete list of all suppliers of the Company's business in any one of the 27
months.
- Listing of customers during the past 27 months -- attached.
The only customers making up more than 10% of total sales for the
period are:
K-40 Electronics
Raytheon (All Divisions Combined)
Kaiser
L-3 Communications
- Listing of supplier during fiscal 2001 and 2002 -- attached.
The only customer giving written notice that they are terminating their
Manufacturing Agreement is Clopay who sold their Atlas Door Division.
SCHEDULE 3.12
INTELLECTUAL PROPERTY
This Schedule contains an accurate and complete description of all
patents, trademarks, trade names, service marks, copyrights and applications
owned or licensed by the Company.
U. S. Patent No. 5,465,033
Issued: November 7, 1995
Abandoned: May 7, 1999
SCHEDULE 3.14
TAXES, ASSESSMENTS AND DEFICIENCIES
This Schedule sets forth any tax assessments or deficiency that has
been made or proposed against the Company, or any notice that has been given of
any actual or proposed assessment or deficiency.
NONE
SCHEDULE 3.15
TRANSACTIONS WITH AFFILIATES
This Schedule sets forth any affiliate, officer, director or employee
of the Company that 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.
The Company has Notes payable totaling $1,190,000 payable to Xxxxx,
Mayborn Co., Ltd., the Company's majority shareholder. The Notes bear
interest at 12% per annum and are secured by liens on all of the
Company's assets.
SCHEDULE 3.16
CONTRACTS AND COMMITMENTS
This Schedule contains a complete, current and correct list of all
material contracts, commitments, obligations or agreements of the Company (other
than the Lease) whether written or oral.
1. Leases -- Schedule 3.10 is incorporated herein by reference.
2. Rep Contracts
Apollo Technical Sales
Innovative Supply, Ltd.
Oerfect Trade Promoters
Xxxxxxx Associates, Inc.
Ramsgate Technical Sales
Rep' France
STG International
3. Strategic Alliances
EMS Technology, Inc.
NPD Technology
OEM Technology
Photonic Detectors, Inc.
4. Non-Disclosure Agreements
X. X. Xxxxxxx Mfg. Co., Inc.
Xxxx and Xxxxxx Associates
Polytronics, Inc.
Raytheon
5. Others
Xxx Xxxxxxxxx has been working as a Marketing Consultant since
September 2001. Xxx has been assisting with developing a marketing plan
for optocouplers, identifying and training representatives, and making
sales calls. Xxx is compensated for his time and travel expenses when
he travels for TOI.
Xxx Xxxxx is the President of Chips and Wafers. Chips and Wafers is
TOI's source of optocouplers as well as a source of specialty LED and
detector chips. Chips and Wafers have several strategic relationships
with companies in the Far East and have quoted several programs where
volumes require low-cost, high volume assembly.
Xxx Xxxxxxx has agreed that since he doesn't require all of the space
available in the 714 building, we can store some of our equipment in
the unused portion of the building.
SCHEDULE 3.18.1
INSURANCE POLICIES
This Schedule contains an accurate and complete description of all
policies of fire, business interruption, liability, worker's compensation and
other forms of insurance owned or held by the Company.
SEE ATTACHED DESCRIPTIONS
SCHEDULE 3.18.2
GROUP INSURANCE POLICIES
This Schedule sets forth a true and complete list of all group
insurance programs in effect for employees of the Company.
- Employee Health Insurance: Healthmarket Insurance
- Employee Dental Insurance: Metlife Dental Insurance
- Employee Life Insurance: Sunlife of Canada
SCHEDULE 3.19
LABOR MATTERS
This Schedule will set forth any exception to the Company's compliance
with all applicable federal, state and local laws respecting employment and
employment practices.
NONE
SCHEDULE 3.21
LITIGATION
This Schedule lists any claim, action, suit or arbitration proceeding,
judgment or decree of any court now pending relating to or affecting the
Company.
NONE
SCHEDULE 3.24
ENVIRONMENTAL MATTERS
NONE
The Purchaser has been provided a copy of the Limited Phase II
Environmental Site Assessment covering the property located at 000
Xxxxxxxx Xxxxx, Xxxxxxx Xxxxx.
SCHEDULE
3.25
EMPLOYEE BENEFIT PLANS
This Schedule contains a complete list of employee benefit and pension
plans of the Company.
- The Retention Bonus Plan attached as Exhibit 6.1.9.
SCHEDULE 3.27
BROKERS AND FINDERS
This Schedule sets forth 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.
NONE
SCHEDULE 4.5
PURCHASER'S EXCHANGE ACT DOCUMENTS
This Schedule lists any documents filed by the Purchaser under the
Exchange Act and delivered to the Company.
10QSB for the quarterly period ended September 29, 2002.
10QSB for the quarterly period ended June 30, 2002.
10KSB for the year ended March 31, 2002.
Definitive Proxy Statement for the year ended March 31, 2002.
SCHEDULE 6.1.2
REQUIRED CONSENTS
This Schedule sets forth any terms of this Agreement in respect of the
Company that require the consent, approval, filing with, registration or release
of any governmental authority or any other person.
NONE
