ASSET PURCHASE AGREEMENT
BETWEEN
FREEDOM SURF, INC
AND
XXXX XXXXXX
May 12, 2000
TABLE OF CONTENTS
1. Definitions
2. Basic Transaction
(a) Purchase and Sale of Assets
(b) Assumption of Liabilities
(c) Purchase Price
(d) The Transfer Date
(e) Deliveries at the Transfer
(f) Allocation
3. Representations and Warranties of the Target
(a) Organization of the Target
(b) Authorization of Transaction
(c) Noncontravention
(d) Brokers' Fees
(e) Title to Assets
(f) Subsidiaries
(g) Financial Statements
(h) Events Subsequent to Most Recent Fiscal Year End
(i) Undisclosed Liabilities
(j) Legal Compliance
(k) Tax Matters
(l) Real Property
(m) Intellectual Property
(n) Tangible Assets
(o) Inventory
(p) Contracts
(q) Notes and Accounts Receivable
(r) Powers of Attorney
(s) Insurance
(t) Litigation
(u) Product Warranty
(v) Product Liability
(w) Employees
(x) Employee Benefits
(y) Guaranties
(z) Environment, Health, and Safety
(aa) Certain Business Relationships with the Target and Its
Sub-sidiaries
(bb) Disclosure
(cc) Investment
4. Representations and Warranties of the Buyer
(a) Organization of the Buyer
(b) Authorization of Transaction
(c) Noncontravention
(d) Brokers' Fees
5. Pre-Transfer Covenants
(a) General
(b) Notices and Consents
(c) Operation of Business
(d) Preservation of Business
(e) Full Access
(f) Notice of Developments
(g) Exclusivity
(h) Title Insurance
(i) Surveys
6. Conditions to Obligation to Transfer
(a) Conditions to Obligation of the Buyer
(b) Conditions to Obligation of the Target
7. Termination
(a) Termination of Agreement
(b) Effect of Termination
8. Post Transfer Obligations
9. Miscellaneous
(a) Survival of Representations and Warranties
(b) Press Releases and Public Announcements
(c) No Third-Party Beneficiaries
(d) Entire Agreement
(e) Succession and Assignment
(f) Counterparts
(g) Headings
(h) Notices
(i) Governing Law
(j) Amendments and Waivers
(k) Severability
(l) Expenses
(m) Construction
(n) Incorporation of Exhibits and Schedules
(o) Specific Performance
(p) Submission to Jurisdiction
(q) Tax Matters
(r) Employee Benefits Matters
(s) Bulk Transfer Laws
Exhibit A-- Indemnity Agreement with Sewcal's Stockholders Exhibit B-List of
Assets Exhibit C--Forms of Assignments Exhibit D--Form of Assumption Exhibit
E--Allocation Schedule Exhibit F--Historical Financial Statements Exhibit
G-Management Stock Bonus Plan and Agreement Exhibit H- Employment Agreement
Exhibit I- Due Diligence Request Checklist Disclosure Schedule--Exceptions to
Representations and Warranties
(This area left intentionally blank)
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ASSET PURCHASE AGREEMENT
THIS ASSET-PURCHASE-AGREEMENT (the "Agreement") is entered into as of
this 26th day of April 2000, by and between Freedom Surf, Inc., a Nevada
corporation, or Assignee (the "BUYER"), and Xx. Xxxx Xxxxxx (the "Seller"), sole
shareholder of Southern California Logo, Inc. ("Sewcal") , a California
Corporation. The Buyer and the Seller are referred to collectively herein as the
"PARTIES."
This Agreement contemplates a transaction in which the Buyer will
exchange cash and shares in Freedom Surf, Inc. in exchange for all issued and
outstanding shares in Sewcal thus assuming all the assets and post-transaction
liabilities of Sewcal.
Now, therefore, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows.
1. DEFINITIONS.
"ACCREDITED INVESTOR" has the meaning set forth in Regulation D
promulgated under the Securities Act.
"ACQUIRED ASSETS" means all of the issued and outstanding shares of
Sewcal and all of the inherent rights that come with such ownership under
California Law.
"AFFILIATE" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"AFFILIATED GROUP" means any affiliated group within the meaning of
Internal Revenue Code ss.1504(a) [or any similar group defined under a similar
provision of state, local, or foreign law].
"AGREEMENT WITH SEWCAL STOCKHOLDERS" means the Agreement with Sewcal
Stockholders entered into concurrently herewith and attached hereto as Exhibit
A.
"ASSUMED LIABILITIES" means (a) all Liabilities of Sewcal set forth on
the face of the Balance Sheet from Most Recent Fiscal Month End in the Ordinary
Course of Business nearest to the Transfer Date, that lien the hard assets being
acquired,(b) all Liabilities of Sewcal which exist or came into existence after
the Most Recent Fiscal Month End in the Ordinary Course of Business on said
assets (other than any Liability resulting from, arising out of, relating to, in
the nature of, or caused by any breach of contract, breach of warranty, tort,
infringement, or violation of law), (c) all obligations of Sewcal under the
agreements, contracts, leases, licenses, and other arrangements referred to in
the definition of Acquired Assets and (d) all other Liabilities and obligations
of Sewcal set forth in an appendix to the Disclosure Schedule under an express
statement (that the Buyer has initialed) to the effect that the definition of
Assumed Liabilities will include the Liabilities and obligations so disclosed.
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"BASIS" means any past or present fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction that forms or could form the basis for
any specified consequence.
"BUYER" has the meaning set forth in the preface above.
"CASH" means cash and cash equivalents (including marketable securities
and short term investments) calculated in accordance with GAAP applied on a
basis consistent with the preparation of the Financial Statements.
"CLOSING" means the signing of this agreement by both parties and the
delivery of the non-refundable "good faith" deposit as defined herein..
"CLOSING DATE" is May 5, 2000.
"CODE" means the Internal Revenue Code of 1986, as amended.
"CONTROLLED GROUP OF CORPORATIONS" has the meaning set forth in Code
ss.1563.
"DEFERRED INTERCOMPANY TRANSACTION" has the meaning set forth in
Reg.ss.1.1502-13.
"DISCLOSURE SCHEDULE" has the meaning set forth in ss.3 below.
"EFFECTIVE DATE" means January 4, 2000.
"EMPLOYEE BENEFIT PLAN" means any (a) nonqualified deferred
compensation or retirement plan or arrangement which is an Employee Pension
Benefit Plan, (b) qualified defined contribution retirement plan or arrangement
which is an Employee Pension Benefit Plan, (c) qualified defined benefit
retirement plan or arrangement which is an Employee Pension Benefit Plan
(including any Multiemployer Plan), or (d) Employee Welfare Benefit Plan or
material fringe benefit plan or program.
"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in ERISA
ss.3(2).
"EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in ERISA
ss.3(1).
"ENVIRONMENTAL, HEALTH, AND SAFETY LAWS" means the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the Resource
Conservation and Recovery Act of 1976, and the Occupational Safety and Health
Act of 1970, each as amended, together with all other laws (including rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and
charges thereunder) of federal, state, local, and foreign governments (and all
agencies thereof) concerning pollution or protection of the environment, public
health and safety, or employee health and safety, including laws relating to
emissions, discharges, releases, or threatened releases of pollutants,
contaminants, or chemical, industrial, hazardous, or toxic materials or wastes
into ambient air, surface water, ground water, or lands or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants, or chemical, industrial,
hazardous, or toxic materials or wastes.
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"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"EXCESS LOSS ACCOUNT" has the meaning set forth in Reg.ss.1.1502-19.
"EXTREMELY HAZARDOUS SUBSTANCE" has the meaning set forth in ss.302 of
the Emergency Planning and Community Right-to-Know Act of 1986, as amended.
"FIDUCIARY" has the meaning set forth in ERISA ss.3(21).
"FINANCIAL STATEMENT" has the meaning set forth in ss.3(g) below.
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"XXXX-XXXXX-XXXXXX ACT" means the Xxxx-Xxxxx-Xxxxxx Antitrust
Improvements Act of 1976, as amended.
"INTELLECTUAL PROPERTY" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith, (c) all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith, (d) all mask works and all
applications, registrations, and renewals in connection therewith, (e) all trade
secrets and confidential business information (including ideas, research and
development, know-how, formulas, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings, specifications,
customer and supplier lists, pricing and cost information, and business and
marketing plans and proposals), (f) all computer software (including data and
related documentation), (g) all other proprietary rights, and (h) all copies and
tangible embodiments thereof (in whatever form or medium).
"KNOWLEDGE" means actual knowledge obtained through reasonable
investigation.
"LIABILITY" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"MOST RECENT BALANCE SHEET" means the balance sheet contained within
the Most Recent Financial Statements, including any notes thereto.
"MOST RECENT FINANCIAL STATEMENTS" has the meaning set forth in ss.3(g)
below.
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"MOST RECENT FISCAL MONTH END" has the meaning set forth in ss.3(g)
below.
"MOST RECENT FISCAL YEAR END" has the meaning set forth in ss.3(g)
below.
"MULTIEMPLOYER PLAN" has the meaning set forth in ERISA ss.3(37).
"ORDINARY COURSE OF BUSINESS" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"PARTY" has the meaning set forth in the preface above.
"PBGC" means the Pension Benefit Guaranty Corporation.
"PERSON" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, or a governmental entity (or any department, agency, or political
subdivision thereof).
"POST CLOSING OBLIGATIONS" has the meaning set forth in ss.8 below.
"PROCESS AGENT" has the meaning set forth in ss.9(p) below.
"PROHIBITED TRANSACTION" has the meaning set forth in ERISA ss.406 and
Code ss.4975.
"PURCHASE PRICE" has the meaning set forth in ss.2(c) below.
"REPORTABLE EVENT" has the meaning set forth in ERISA ss.4043.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"SECURITY INTEREST" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest, OTHER THAN (a) mechanic's, materialmen's,
and similar liens, (b) liens for Taxes not yet due and payable [or for Taxes
that the taxpayer is contesting in good faith through appropriate proceedings],
(c) purchase money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
"SUBSIDIARY" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or has the
power to vote or direct the voting of sufficient securities to elect a majority
of the directors.
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"SURVEY" has the meaning set forth in ss.5(i) below.
"SELLER" has the meaning set forth in the preface above.
"SEWCAL SHARE" means any share of the Common Stock, no stated par
value, of Sewcal.
" SEWCAL STOCKHOLDER" means any person who or which holds any Sewcal
Shares.
"TAX" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code ss.59A),
customs duties, capital stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
"TAX RETURN" means any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"TRANSFER" means the transfer of shares and cash between the parties of
this agreement and the transfer of control of the business and assets as
detailed in ss.2(g) below.
"TRANSFER DATE" means the date the Sewcal shares and the Freedom Surf,
Inc shares and cash payment are physically transferred to the respective Buyer
and Seller according to the terms and conditions of this agreement.
2. PRINCIPAL AGREEMENT.
(a) PURCHASE AND SALE OF ASSETS. On and subject to the terms and
conditions of this Agreement, the Buyer agrees to purchase from the Seller, and
the Seller agrees to sell, transfer, convey, and deliver to the Buyer, all of
the Acquired Assets at the Closing for the consideration specified below in this
ss.2.
(b) ASSUMPTION OF LIABILITIES. On and subject to the terms and
conditions of this Agreement, the Buyer agrees to assume and become responsible
for all of the Assumed Liabilities at the TRANSFER DATE. The Buyer will not
assume or have any responsibility, however, with respect to any other obligation
or Liability of Sewcal not included within the definition of Assumed
Liabilities, except that the Buyer will be responsible for any sales tax and/or
transfer tax due as a result of the transfer of assets pursuant to this
Agreement. Additionally, Buyer will cancel or assume the $500,000.00 line of
credit as indicated in the attached Exhibit D on or before the Transaction Date.
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(c) Purchase Price. On or before August 15, 2000 Buyer agrees to pay to
Seller $800,000 (eight hundred thousand and 00/100) evidenced by a promissory
note due and payable on or before August 15, 2000, and $1,950,030 in Freedom
Surf Inc., rule 144 common stock, to be issued as follows: 250,000 shares as a
non-refundable good faith deposit on or before May 15, 2000 and 600,000 shares
at the time promissory note is paid (Transfer Date). Once the promissory note
has been paid in full said shares will be physically issued to Seller upon
receipt by Seller of written instructions from Buyer directing Freedom Surf
Inc., to issue the shares. The value of the shares issued shall be $2.1667 per
share.
(d) TRANSFER DATE. The Transfer Date shall occur at 11:00 A.M., on or
before August 15, 2000, at such location as agreed to between Buyer and Seller,
and shall be contingent only upon Seller delivering Exhibit "F" and the
assignments attached hereto as Exhibits C and D and Buyer delivering $800,000.00
in U.S. currency and the authorization to issue Freedom Surf Inc., stock
specified in ss.2 (c). The Transfer date may be extended by mutual agreement of
both parties.
(e) DELIVERIES AT THE TRANSFER. At the Transfer, (i) the Seller will
deliver to the Buyer the various certificates, instruments, and documents
referred to in ss.6(a) below; (ii) the Buyer will deliver to the Seller the
various certificates, instruments, and documents referred to in ss.6(b) below;
(iii) the Seller will execute, acknowledge (if appropriate), and deliver to the
Buyer (A) assignments (including real property and Intellectual Property
transfer documents) in the forms attached hereto marked collectively Exhibit C
and (B) such other instruments of sale, transfer, conveyance, and assignment as
the Buyer and its counsel reasonably may request; (iv) the Buyer will execute,
acknowledge (if appropriate), and deliver to the Seller (A) an assumption in the
form attached hereto as Exhibit D and (B) such other instruments of assumption
as the Seller and its counsel reasonably may request; and (v) the Buyer will
deliver to Seller, or on Seller's behalf, $800,000 in U.S. currency plus 650,000
shares in Freedom Surf, Inc., as well as an executed copy of Exhibit H. The
Buyer will also provide proof that the line of credit at South Bay Bank in favor
of Sewcal has been either paid off and closed or the guarantee thereof
transferred into the name of the Buyer.
(f) ALLOCATION. The Parties agree to allocate the Purchase Price (and
all other capitalizable costs) among the Acquired Assets for all purposes
(including financial accounting and tax purposes) in accordance with the
allocation schedule attached hereto as Exhibit E.
(g) CONTROL OVER ASSETS UP UNTIL TRANSFER. The Parties agree that,
until such time as the promissory note is paid in full, and the full 900,000
shares in Freedom Surf, Inc., are physically issued to the Seller, the acquired
assets and business of Sewcal shall remain under the strict management and
control of the Seller under the terms and conditions of this agreement so as not
to disturb the continuity of the business prior to payment being received in
full for the assets. Should the Buyer default on either the payment of the
promissory note or the issuance of the 900,000 shares in Freedom Surf, Inc., by
the Transfer Date, the ownership of the assets automatically revert to the
Seller without penalty to either party except that the Seller will retain the
non-refundable 250,000 shares in Freedom Surf. Other than the retention of the
non-refundable 250,000 shares in Freedom Surf, termination of this agreement
will be according to the terms and conditions contained in section 7 -
Termination.
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3. REPRESENTATIONS AND WARRANTIES OF THE SELLER. The Seller, to the
best of Seller's knowledge, represents and warrants to the Buyer that the
statements contained in this ss.3 are correct and complete as of the date of
this Agreement and will be correct and complete as of the Closing Date (as
though made then and as though the Closing Date were substituted for the date of
this Agreement throughout this ss.3), except as set forth in the disclosure
schedule accompanying this Agreement and initialed by the Parties (the
"DISCLOSURE SCHEDULE"). The Disclosure Schedule will be arranged in paragraphs
corresponding to the lettered and numbered paragraphs contained in this ss.3.
(a) ORGANIZATION OF SEWCAL. Sewcal is a California Corporation duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation.
(b) AUTHORIZATION OF TRANSACTION. The Seller has full power and
authority (including full corporate power and authority) to execute and deliver
this Agreement and to perform its obligations hereunder. Without limiting the
generality of the foregoing, the board of directors of Sewcal and the Sewcal
Stockholders have duly authorized the execution, delivery, and performance of
this Agreement by the Seller. This Agreement constitutes the valid and legally
binding obligation of the Seller, enforceable in accordance with its terms and
conditions.
(c) NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby
(including the assignments and assumptions referred to in ss.2 above), will to
Sellers knowledge (i) violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which Seller is subject or any
provision of the charter or bylaws of Seller or (ii) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument, or other
arrangement to which Seller is a party or by which it is bound or to which any
of its assets is subject (or result in the imposition of any Security Interest
upon any of its assets). To the best of Sellers knowledge Seller is not required
to give any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency in order for the
Parties to consummate the transactions contemplated by this Agreement (including
the assignments and assumptions referred to in ss.2 above).
(d) BROKERS' FEES. To the best of Sellers knowledge the Seller has no
Liability or obligation to pay any fees or commissions to any broker, finder, or
agent with respect to the transactions contemplated by this Agreement for which
the Buyer could become liable or obligated. Seller has no Liability or
obligation to pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement. Buyer is obligate to
pay a fee to American Auditors under a separate written agreement.
(e) TITLE TO ASSETS. The Seller has good and marketable title to, or a
valid leasehold interest in, the properties and assets used by them, located on
their premises, or shown on the Most Recent Balance Sheet or acquired after the
date thereof, free and clear of all Security Interests, except as disclosed on
the Most Recent Balance Sheet and except for properties and assets disposed of
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in the Ordinary Course of Business since the date of the Most Recent Balance
Sheet. Without limiting the generality of the foregoing, the Seller has good and
marketable title to all of the Acquired Assets, free and clear of any Security
Interest or restriction on transfer, except for such security interest as set
forth on the Most Recent Balance Sheet.
(f) TAX RETURNS AND FINANCIAL STATEMENTS. Attached hereto as Exhibit F
are copies of the federal tax returns of Sewcal for fiscal years 1999, 1998 and
1997 and the unaudited balance sheet and statement of income, and cash flow
statement as of and for fiscal year 1999, 1998 and 1997 and the three months
ended February 29, 2000 and November 30, 1999. The Tax Returns and Financial
Statements (including the notes thereto) present fairly the financial condition
of Sewcal as of such dates and the results of operations of Sewcal for such
periods, are correct and complete, and are consistent with the books and records
of Sewcal (which books and records are correct and complete); PROVIDED, HOWEVER,
that the Most Recent Financial Statements are subject to normal year-end
adjustments (which will not be material individually or in the aggregate) and
lack footnotes and other presentation items.
(g) EVENTS SUBSEQUENT TO MOST RECENT FISCAL YEAR END. Since the Most
Recent Fiscal Year End and except as described herein and in the attached
exhibits, there has not been any material adverse change in the business,
financial condition, operations, results of operations, or future prospects of
Sewcal. Without limiting the generality of the foregoing, since that date:
(i) Sewcal has not sold, leased, transferred, or assigned any
of its assets, tangible or intangible, other than for a fair
consideration in the Ordinary Course of Business;
(ii) Sewcal has note entered into any agreement, contract,
lease, or license (or series of related agreements, contracts, leases,
and licenses) involving more than $10,000.00 outside the Ordinary
Course of Business;
(iii) Sewcal has not accelerated, terminated, modified, or
canceled any agreement, contract, lease, or license (or series of
related agreements, contracts, leases, and licenses) involving more
than $10,000.00 to which Sewcal is a party.
(iv) Sewcal has not imposed any Security Interest upon any of
its assets, tangible or intangible;
(v) Sewcal has not made any capital expenditure (or series of
related capital expenditures) either involving more than $5,000.00
outside the Ordinary Course of Business;
(vi) Sewcal has not made any capital investment in, any loan
to, or any acquisition of the securities or assets of, any other Person
(or series of related capital investments, loans, and acquisitions)
either involving more than $5,000.00 outside the Ordinary Course of
Business;
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(vii) Sewcal has not issued any note, bond, or other debt
security or created, incurred, assumed, or guaranteed any indebtedness
for borrowed money or capitalized lease obligation either involving
more than $2,500.00 singly or $5,000.00 in the aggregate.
(viii) Sewcal has not delayed or postponed the payment of
accounts payable and other Liabilities outside the Ordinary Course of
Business;
(ix) Sewcal has not canceled, compromised, waived, or released
any right or claim (or series of related rights and claims) involving
more than $2,500.00 outside the Ordinary Course of Business;
(x) Sewcal has not granted any license or sublicense of any
rights under or with respect to any Intellectual Property;
(xi) Sewcal has not made or authorized any change in its
articles of incorporation or bylaws of any of Sewcal or its
Subsidiaries;
(xii) Sewcal has not issued, sold, or otherwise disposed of
any of its capital stock, or granted any options, warrants, or other
rights to purchase or obtain (including upon conversion, exchange, or
exercise) any of its capital stock;
(xiii) Sewcal has not declared, set aside, or paid any
dividend or made any distribution with respect to its capital stock
(whether in cash or in kind) or redeemed, purchased, or otherwise
acquired any of its capital stock;
(xiv) Sewcal has not experienced any damage, destruction, or
loss (whether or not covered by insurance) to its property outside the
ordinary course of business;
(xv) Sewcal has not made any loan to, or entered into any
other transaction with, any of its directors, officers, and employees
outside the Ordinary Course of Business;
(xvi) Sewcal has not entered into any collective bargaining
agreements, written or oral, or modified the terms of any existing such
contract or agreement;
(xvii) Sewcal has not granted any increase in the base
compensation of any of its directors, officers, and employees outside
the Ordinary Course of Business;
(xviii) Sewcal has not adopted, amended, modified, or
terminated any bonus, profit-sharing, incentive, severance, or other
plan, contract, or commitment for the benefit of any of its directors,
officers, and employees (or taken any such action with respect to any
other Employee Benefit Plan);
(xix) Sewcal has not made any other change in employment terms
for any of its directors, officers, and employees outside the Ordinary
Course of Business;
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(xx) Sewcal has not made or pledged to make any charitable or
other capital contribution outside the Ordinary Course of Business;
(xxi) (removed)
(xxii) There has not been any other material occurrence,
event, incident, action, failure to act, or transaction outside the
Ordinary Course of Business involving Sewcal and/or its Subsidiaries;
and
(h) UNDISCLOSED LIABILITIES. Sewcal has no Liability (and to the best
of Sellers knowledge there is no Basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand against
Sewcal giving rise to any Liability), except for (i) Liabilities set forth on
the face of the Most Recent Balance Sheet (rather than in any notes thereto) and
(ii) Liabilities which have arisen after the Most Recent Fiscal Month End in the
Ordinary Course of Business (none of which results from, arises out of, relates
to, is in the nature of, or was caused by any breach of contract, breach of
warranty, tort, infringement, or violation of law); (iii) the Liabilities set
forth in Exhibit D.
(i) LEGAL COMPLIANCE. Sewcal and its respective predecessors and
Affiliates has complied with all applicable laws (including rules, regulations,
codes, plans, injunctions, judgments, orders, decrees, rulings, and charges
thereunder) of federal, state, local, and foreign governments (and all agencies
thereof), and no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, demand, or notice has been filed or commenced against any of
them alleging any failure so to comply.
(j) TAX MATTERS.
(i) Sewcal filed all Tax Returns that it was required to file.
All such Tax Returns were correct and complete in all respects. All
Taxes owed by Sewcal (whether or not shown on any Tax Return) have been
paid. Sewcal is not currently the beneficiary of any extension of time
within which to file any Tax Return. No claim has ever been made by an
authority in a jurisdiction where Sewcal does not file Tax Returns that
it is or may be subject to taxation by that jurisdiction. There are no
Security Interests on any of the assets of Sewcal that arose in
connection with any failure (or alleged failure) to pay any Tax.
(ii) Sewcal withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder, or other third
party.
(iii) No director or officer (or employee responsible for Tax
matters) of Sewcal expects any authority to assess any additional Taxes
for any period for which Tax Returns have been filed. There is no
dispute or claim concerning any Tax Liability of the Sewcal either (A)
claimed or raised by any authority in writing or (B) as to which any of
the directors and officers (and employees responsible for Tax matters)
of the Sewcal has Knowledge based upon personal contact with any agent
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of such authority. ss.3(k) of the Disclosure Schedule lists all
federal, state, local, and foreign income Tax Returns filed with
respect to Sewcal for taxable periods ended on or after January 1,
1995, indicates those Tax Returns that have been audited, and indicates
those Tax Returns that currently are the subject of audit. The Sewcal
has delivered to the Buyer correct and complete copies of all federal
income Tax Returns, examination reports, and statements of deficiencies
assessed against or agreed to by Sewcal since January 1, 1995.
(iv) Sewcal has not waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to a
Tax assessment or deficiency.
(v) The Seller agrees to hold the Buyer harmless from any tax
claims made by any Federal or State tax authority based on tax returns
filed on behalf of Sewcal prior to the Transfer Date.
(k) [BLANK]
(l) REAL PROPERTY.
(i) ss.3(l)(i) of the Disclosure Schedule lists and describes
briefly all real property leased to Sewcal. Sewcal has delivered to the
Buyer correct and complete copies of the leases and subleases listed in
ss.3(l)(ii) of the Disclosure Schedule (as amended to date). With
respect to each lease and sublease listed in ss.3(l)(ii) of the
Disclosure Schedule to the best of Sellers knowledge:
(A) the lease or sublease is legal, valid, binding,
enforceable, and in full force and effect;
(B) the lease or sublease will continue to be legal,
valid, binding, enforceable, and in full force and effect on
identical terms following the consummation of the transactions
contemplated hereby (including the assignments and assumptions
referred to in ss.2 above);
(C) no party to the lease or sublease is in breach or
default, and no event has occurred which, with notice or lapse
of time, would constitute a breach or default or permit
termination, modification, or acceleration thereunder;
(D) no party to the lease or sublease has repudiated
any provision thereof;
(E) there are no disputes, oral agreements, or
forbearance programs in effect as to the lease or sublease;
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(F) with respect to each sublease, the
representations and warranties set forth in subsections (A)
through (E) above are true and correct with respect to the
underlying lease;
(G) Sewcal has not assigned, transferred, conveyed,
mortgaged, deeded in trust, or encumbered any interest in the
leasehold or subleasehold;
(H) all facilities leased or subleased thereunder
have received all approvals of governmental authorities
(including licenses and permits) required in connection with
the operation thereof and have been operated and maintained in
accordance with applicable laws, rules, and regulations;
(I) all facilities leased or subleased thereunder are
supplied with utilities and other services necessary for the
operation of said facilities; and
(m) INTELLECTUAL PROPERTY.
(i) Sewcal owns or has the right to use pursuant to license,
sublicense, agreement, or permission all Intellectual Property
necessary or desirable for the operation of the businesses of Sewcal as
presently conducted and as presently proposed to be conducted. Each
item of Intellectual Property owned or used by Sewcal immediately prior
to the Closing hereunder will be owned or available for use by the
Buyer on identical terms and conditions immediately subsequent to the
Closing hereunder. Sewcal has taken all necessary action to maintain
and protect each item of Intellectual Property that it owns or uses.
(ii) To the best of Sellers knowledge Sewcal has not
interfered with, infringed upon, misappropriated, or otherwise come
into conflict with any Intellectual Property rights of third parties,
and the directors and officers (and employees with responsibility for
Intellectual Property matters) of Sewcal have not received any charge,
complaint, claim, demand, or notice alleging any such interference,
infringement, misappropriation, or violation (including any claim that
Sewcal and/or its Subsidiaries must license or refrain from using any
Intellectual Property rights of any third party). To the best knowledge
of Sewcal and its directors and officers (and employees with
responsibility for Intellectual Property matters), no third party has
interfered with, infringed upon, misappropriated, or otherwise come
into conflict with any Intellectual Property rights of Sewcal.
(iii) ss.3(m)(iii) of the Disclosure Schedule identifies each
patent, wordmark or trademark registration which has been issued to
Sewcal with respect to its Intellectual Property, identifies each
pending patent application or application for registration that Sewcal
has made with respect to any of its Intellectual Property, and
identifies each license, agreement, or other permission which Sewcal
has granted to any third party with respect to any of its Intellectual
Property (together with any exceptions). Sewcal has delivered to the
Buyer correct and complete copies of all such patents, registrations,
applications, licenses, agreements, and permissions (as amended to
date) [and has made available to the Buyer correct and complete copies
of all other written documentation evidencing ownership and prosecution
(if applicable) of each such item]. ss.3(l)(iii) of the Disclosure
Schedule also identifies each trade name or unregistered trademark used
by Sewcal and/or its Subsidiaries in connection with any of its
businesses. With respect to each item of Intellectual Property required
to be identified in ss.3(m)(iii) of the Disclosure Schedule, to the
best of Sellers knowledge:
14
(A) Sewcal and its Subsidiaries possess all right,
title, and interest in and to the item, free and clear of any
Security Interest, license, or other restriction;
(B) the item is not subject to any outstanding
injunction, judgment, order, decree, ruling, or charge;
(C) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending
or is threatened which challenges the legality, validity,
enforceability, use, or ownership of the item; and
(D) Sewcal has not agreed to indemnify any Person for
or against any interference, infringement, misappropriation,
or other conflict with respect to the item.
(iv) ss.3(m)(iv) of the Disclosure Schedule identifies each
item of Intellectual Property that any third party owns and that Sewcal
and/or its Subsidiaries uses pursuant to license, sublicense,
agreement, or permission. The Seller has delivered to the Buyer correct
and complete copies of all such licenses, sublicenses, agreements, and
permissions (as amended to date). With respect to each item of
Intellectual Property required to be identified in ss.3(m)(iv) of the
Disclosure Schedule, to the best of Sellers knowledge:
(A) the license, sublicense, agreement, or permission
covering the item is legal, valid, binding, enforceable, and
in full force and effect;
(B) the license, sublicense, agreement, or permission
will continue to be legal, valid, binding, enforceable, and in
full force and effect on identical terms following the
consummation of the transactions contemplated hereby
(including the assignments and assumptions referred to in ss.2
above);
(C) no party to the license, sublicense, agreement,
or permission is in breach or default, and no event has
occurred which with notice or lapse of time would constitute a
breach or default or permit termination, modification, or
acceleration thereunder;
(D) no party to the license, sublicense, agreement,
or permission has repudiated any provision thereof;
(E) with respect to each sublicense, the
representations and warranties set forth in subsections (A)
through (D) above are true and correct with respect to the
underlying license;
15
(F) the underlying item of Intellectual Property is
not subject to any outstanding injunction, judgment, order,
decree, ruling, or charge;
(G) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending
or is threatened which challenges the legality, validity, or
enforceability of the underlying item of Intellectual
Property; and
(H) Sewcal has not granted any sublicense or similar
right with respect to the license, sublicense, agreement, or
permission.
(v) To the best knowledge of the Seller, Sewcal will not
interfere with, infringe upon, misappropriate, or otherwise come into
conflict with, any Intellectual Property rights of third parties as a
result of the continued operation of its businesses as presently
conducted and as presently proposed to be conducted.
(vi) To the best knowledge of Sewcal and its directors and
officers (and employees with responsibility for Intellectual Property
matters) are not aware of any new products, inventions, procedures, or
methods of manufacturing or processing that any competitors or other
third parties have developed which reasonably could be expected to
supersede or make obsolete any product or process of Sewcal and its
Subsidiaries.]
(n) TANGIBLE ASSETS. Sewcal and its Subsidiaries own or lease all
buildings, machinery, equipment, and other tangible assets necessary for the
conduct of their businesses as presently conducted and as presently proposed to
be conducted. To the best of Sellers knowledge, each such tangible asset is free
from defects (patent and latent), has been maintained in accordance with normal
industry practice, is in good operating condition and repair (subject to normal
wear and tear), and is suitable for the purposes for which it presently is used
and presently is proposed to be used.
(o) INVENTORY. To the best of Sellers knowledge the inventory of Sewcal
consists of raw materials and supplies, manufactured and purchased parts, goods
in process, and finished goods, all of which is merchantable and fit for the
purpose for which it was procured or manufactured, and none of which is
slow-moving, obsolete, damaged, or defective, subject only to the reserve for
inventory writedown set forth on the face of the Most Recent Balance Sheet as
adjusted for the passage of time through the Transfer Date in accordance with
the past custom and practice of Sewcal and its Subsidiaries.
(p) CONTRACTS.ss.3(p) of the Disclosure Schedule lists the following
contracts and agreements to which Sewcal is a party:
(i) any agreement (or group of related agreements) for the
lease of personal property to or from any Person providing for lease
payments in excess of $1,000.00 per annum;
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(ii) any agreement (or group of related agreements) for the
purchase or sale of raw materials, commodities, supplies, products, or
other personal property, or for the furnishing or receipt of services,
the performance of which will extend over a period of more than one
year, result in a material loss to Sewcal, or involve consideration in
excess of $5,000.00;
(iii) any agreement concerning a partnership or joint venture;
(iv) any agreement (or group of related agreements) under
which it has created, incurred, assumed, or guaranteed any indebtedness
for borrowed money, or any capitalized lease obligation, in excess of
$5,000.00 or under which it has imposed a Security Interest on any of
its assets, tangible or intangible;
(v) any agreement concerning confidentiality or
noncompetition;
(vi) any agreements between Sewcal and its shareholders,
officers and directors;
(vii) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other material plan
or arrangement for the benefit of its current or former directors,
officers, and employees;
(viii) any collective bargaining agreement;
(ix) any agreement for the employment of any individual on a
full-time, part-time, consulting, or other basis providing annual
compensation in excess of $20,000.00 or providing severance benefits;
(x) any agreement under which it has advanced or loaned any
amount to any of its directors, officers, and employees outside the
Ordinary Course of Business;
(xi) any agreement under which the consequences of a default
or termination could have a material adverse effect on the business,
financial condition, operations, results of operations, or future
prospects of Sewcal; or
(xii) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of $5,000.00.
The Seller has delivered to the Buyer a correct and complete copy of each
written agreement listed in ss.3(p) of the Disclosure Schedule (as amended to
date) and a written summary setting forth the terms and conditions of each oral
agreement referred to in ss.3(p) of the Disclosure Schedule. With respect to
each such agreement, to the best of Sellers knowledge: (A) the agreement is
legal, valid, binding, enforceable, and in full force and effect; (B) the
agreement will continue to be legal, valid, binding, enforceable, and in full
force and effect on identical terms following the consummation of the
transactions contemplated hereby (including the assignments and assumptions
referred to in ss.2 above); (C) no party is in breach or default, and no event
has occurred which with notice or lapse of time would constitute a breach or
default, or permit termination, modification, or acceleration, under the
agreement; and (D) no party has repudiated any provision of the agreement.
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(q) NOTES AND ACCOUNTS RECEIVABLE. To the best of Sellers knowledge,
all notes and accounts receivable of Sewcal are reflected properly on its books
and records, are valid receivables subject to no setoffs or counterclaims, are
current and collectible, and will be collected in accordance with their terms at
their recorded amounts, subject only to the reserve for bad debts set forth on
the face of the Most Recent Balance Sheet (rather than in any notes thereto) as
adjusted for the passage of time through the Transfer Date in accordance with
the past custom and practice of Sewcal and its Subsidiaries.
(r) POWERS OF ATTORNEY. There are no outstanding powers of attorney
executed on behalf of Sewcal;
(s) INSURANCE. ss.3(s) of the Disclosure Schedule sets forth the
following information with respect to each insurance policy (including policies
providing property, casualty, liability, and workers' compensation coverage and
bond and surety arrangements) to which Sewcal has been a party, a named insured,
or otherwise the beneficiary of coverage at any time within the past 5 years:
(i) the name, address, and telephone number of the agent;
(ii) the name of the insurer, the name of the policyholder,
and the name of each covered insured;
(iii) the policy number and the period of coverage;
(iv) the scope (including an indication of whether the
coverage was on a claims made, occurrence, or other basis) and amount
(including a description of how deductibles and ceilings are calculated
and operate) of coverage; and
(v) a description of any retroactive premium adjustments or
other loss-sharing arrangements.
With respect to each such insurance policy, to the best of Sellers knowledge:
(A) the policy is legal, valid, binding, enforceable, and in full force and
effect; (B) neither Sewcal nor its Subsidiaries nor any other party to the
policy is in breach or default (including with respect to the payment of
premiums or the giving of notices), and no event has occurred which, with notice
or the lapse of time, would constitute such a breach or default, or permit
termination, modification, or acceleration, under the policy; and (C) no party
to the policy has repudiated any provision thereof. Sewcal has been covered
during the past five years by insurance in scope and amount customary and
reasonable for the businesses in which it has engaged during the aforementioned
period. ss.3(s) of the Disclosure Schedule describes any self-insurance
arrangements affecting Sewcal.
18
(t) LITIGATION. ss.3(t) of the Disclosure Schedule sets forth each
instance in which Sewcal (i) is subject to any outstanding injunction, judgment,
order, decree, ruling, or charge or (ii) is a party or is threatened to be made
a party to any action, suit, proceeding, hearing, or investigation of, in, or
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator. None of the
actions, suits, proceedings, hearings, and investigations set forth in ss.3(t)
of the Disclosure Schedule could result in any material adverse change in the
business, financial condition, operations, results of operations, or future
prospects of Sewcal. Sewcal and its directors and officers (and employees with
responsibility for litigation matters) have no reason to believe that any such
action, suit, proceeding, hearing, or investigation may be brought or threatened
against Sewcal.
(u) PRODUCT WARRANTY. Each product manufactured, sold, leased, or
delivered by Sewcal has been in conformity with all applicable contractual
commitments and all express and implied warranties, and to the best of Sellers
knowledge, Sewcal has no Liability (and there is no Basis for any present or
future action, suit, proceeding, hearing, investigation, charge, complaint,
claim, or demand against any of them giving rise to any Liability) for
replacement or repair thereof or other damages in connection therewith, subject
only to the reserve for product warranty claims set forth on the face of the
Most Recent Balance Sheet (rather than in any notes thereto) as adjusted for the
passage of time through the Transfer Date in accordance with the past custom and
practice of Sewcal. No product manufactured, sold, leased, or delivered by
Sewcal is subject to any guaranty, warranty, or other indemnity beyond the
applicable standard terms and conditions of sale or lease. ss.3(u) of the
Disclosure Schedule includes copies of the standard terms and conditions of sale
or lease for Sewcal's products (containing applicable guaranty, warranty, and
indemnity provisions).
(v) PRODUCT LIABILITY. To the best of Sellers knowledge Sewcal has no
Liability (and there is no Basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand against
any of them giving rise to any Liability) arising out of any injury to
individuals or property as a result of the ownership, possession, or use of any
product manufactured, sold, leased, or delivered by Sewcal.
(w) EMPLOYEES. To the best knowledge of the Seller, no executive, key
employee, or group of employees has any plans to terminate employment with
Sewcal. Sewcal is not a party to or bound by any collective bargaining
agreement, nor has any of them experienced any strikes, grievances, claims of
unfair labor practices, or other collective bargaining disputes. To the best
knowledge of Seller Sewcal has not committed any unfair labor practice. Sewcal
and its directors and officers (and employees with responsibility for employment
matters) has no Knowledge of any organizational effort presently being made or
threatened by or on behalf of any labor union with respect to employees of
Sewcal.
(x) EMPLOYEE BENEFITS.
(i) ss.3(x) of the Disclosure Schedule lists each Employee
Benefit Plan that Sewcal maintains or to which Sewcal contributes.
(A) Each such Employee Benefit Plan (and each related
trust, insurance contract, or fund) complies in form and in
operation in all respects with the applicable requirements of
ERISA, the Code, and other applicable laws.
19
(B) All required reports and descriptions (including
Form 5500 Annual Reports, Summary Annual Reports, PBGC-1's,
and Summary Plan Descriptions) have been filed or distributed
appropriately with respect to each such Employee Benefit Plan.
The requirements of Part 6 of Subtitle B of Title I of ERISA
and of Code ss.4980B have been met with respect to each such
Employee Benefit Plan which is an Employee Welfare Benefit
Plan.
(C) All contributions (including all employer
contributions and employee salary reduction contributions)
which are due have been paid to each such Employee Benefit
Plan which is an Employee Pension Benefit Plan and all
contributions for any period ending on or before the Transfer
Date which are not yet due have been paid to each such
Employee Pension Benefit Plan or accrued in accordance with
the past custom and practice of Sewcal. All premiums or other
payments for all periods ending on or before the Transfer Date
have been paid with respect to each such Employee Benefit
Plan, which is an Employee Welfare Benefit Plan.
(D) Each such Employee Benefit Plan which is an
Employee Pension Benefit Plan meets the requirements of a
"qualified plan" under Code ss.401(a) and has received, within
the last two years, a favorable determination letter from the
Internal Revenue Service.
(E) The market value of assets under each such
Employee Benefit Plan which is an Employee Pension Benefit
Plan (other than any Multiemployer Plan) equals or exceeds the
present value of all vested and nonvested Liabilities
thereunder determined in accordance with PBGC methods,
factors, and assumptions applicable to an Employee Pension
Benefit Plan terminating on the date for determination.
(F) Sewcal has delivered to the Buyer correct and
complete copies of the plan documents and summary plan
descriptions, the most recent determination letter received
from the Internal Revenue Service, the most recent Form 5500
Annual Report, and all related trust agreements, insurance
contracts, and other funding agreements which implement each
such Employee Benefit Plan.
(ii) With respect to each Employee Benefit Plan that Sewcal
maintains or ever has maintained or to which it contributes, ever has
contributed, or ever has been required to contribute:
(A) No such Employee Benefit Plan which is an
Employee Pension Benefit Plan (other than any Multiemployer
Plan) has been completely or partially terminated or been the
subject of a Reportable Event as to which notices would be
required to be filed with the PBGC. No proceeding by the PBGC
to terminate any such Employee Pension Benefit Plan (other
than any Multiemployer Plan) has been instituted or
threatened.
20
(B) There have been no Prohibited Transactions with
respect to any such Employee Benefit Plan. No Fiduciary has
any Liability for breach of fiduciary duty or any other
failure to act or comply in connection with the administration
or investment of the assets of any such Employee Benefit Plan.
No action, suit, proceeding, hearing, or investigation with
respect to the administration or the investment of the assets
of any such Employee Benefit Plan (other than routine claims
for benefits) is pending or threatened. Sewcal and its
directors and officers (and employees with responsibility for
employee benefits matters) possess no Knowledge of any Basis
for any such action, suit, proceeding, hearing, or
investigation.
(C) To the best knowledge of Seller, Sewcal has not
incurred, and neither Sewcal nor its directors and officers
(and employees with responsibility for employee benefits
matters) have any reason to expect that Sewcal will incur any
Liability to the PBGC (other than PBGC premium payments) or
otherwise under Title IV of ERISA (including any withdrawal
Liability) or under the Code with respect to any such Employee
Benefit Plan which is an Employee Pension Benefit Plan.
(iii) To the best knowledge of the Seller, Sewcal has never
contributed to, or ever has been required to contribute to any
Multiemployer Plan or has any Liability (including withdrawal
Liability) under any Multiemployer Plan.
(iv) To the best knowledge of the Seller, Sewcal has never
maintained or contributes, ever has contributed, or ever has been
required to contribute to any Employee Welfare Benefit Plan providing
medical, health, or life insurance or other welfare-type benefits for
current or future retired or terminated employees, their spouses, or
their dependents (other than in accordance with Code ss.4980B).
(y) GUARANTIES. To the best knowledge of the Seller, Sewcal is not a
guarantor or otherwise is liable for any Liability or obligation (including
indebtedness) of any other Person.
(z) ENVIRONMENT, HEALTH, AND SAFETY.
(i) To the best knowledge of the Seller, Sewcal and its
predecessors and Affiliates has complied with all Environmental,
Health, and Safety Laws, and no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, demand, or notice has been
filed or commenced against any of them alleging any failure so to
comply. Without limiting the generality of the preceding sentence,
Sewcal, and its predecessors and Affiliates has obtained and been in
compliance with all of the terms and conditions of all permits,
licenses, and other authorizations which are required under, and has
complied with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules, and
timetables which are contained in, all Environmental, Health, and
Safety Laws.
21
(ii) To the best knowledge of the Seller, Sewcal has no
Liability (and Sewcal and its predecessors and Affiliates has not
handled or disposed of any substance, arranged for the disposal of any
substance, exposed any employee or other individual to any substance or
condition, or owned or operated any property or facility in any manner
that could form the Basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand
against Sewcal giving rise to any Liability) for damage to any site,
location, or body of water (surface or subsurface), for any illness of
or personal injury to any employee or other individual, or for any
reason under any Environmental, Health, and Safety Law.
(iii) All properties and equipment used in the business of
Sewcal and its respective predecessors and Affiliates have been free of
asbestos, PCB's, methylene chloride, trichloroethylene,
1,2-trans-dichloroethylene, dioxins, dibenzofurans, and Extremely
Hazardous Substances.
(aa) INDEMNITY AGREEMENT. Sewcal Stockholders have executed the
Indemnity Agreement attached hereto, marked Exhibit "A" and incorporated by
reference.
(bb) DISCLOSURE. The representations and warranties contained in this
ss.3 do not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements and information
contained in this ss.3 not misleading.
4. REPRESENTATIONS AND WARRANTIES OF THE BUYER. The Buyer represents
and warrants to the Seller that the statements contained in this ss.4 are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Transfer Date (as though made then and as though the Transfer
Date were substituted for the date of this Agreement throughout this ss.4),
except as set forth in the Disclosure Schedule. The Disclosure Schedule will be
arranged in paragraphs corresponding to the lettered and numbered paragraphs
contained in this ss.4.
(a) ORGANIZATION OF THE BUYER. The Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation.
(b) AUTHORIZATION OF TRANSACTION. The Buyer has full power and
authority (including full corporate power and authority) to execute and deliver
this Agreement and to perform its obligations hereunder. This Agreement
constitutes the valid and legally binding obligation of the Buyer, enforceable
in accordance with its terms and conditions.
(c) NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby
(including the assignments and assumptions referred to in ss.2 above), will (i)
violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Buyer is subject or any provision of
its charter or bylaws or (ii) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
22
agreement, contract, lease, license, instrument, or other arrangement to which
the Buyer is a party or by which it is bound or to which any of its assets is
subject. The Buyer does not need to give any notice to, make any filing with, or
obtain any authorization, consent, or approval of any government or governmental
agency in order for the Parties to consummate the transactions contemplated by
this Agreement (including the assignments and assumptions referred to in ss.2
above).
(d) BROKERS' FEES. Seller has no Liability or obligation to pay any
fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Buyer may become
liable or obligated.
5. PRE-TRANSFER COVENANTS. The Parties agree as follows with respect to
the period between the execution of this Agreement and the Transfer Date:
(a) GENERAL. Each of the Parties will use its reasonable best efforts
to take all action and to do all things necessary, proper, or advisable in order
to consummate and make effective the transactions contemplated by this Agreement
(including satisfaction, but not waiver, of the transfer conditions set forth in
ss.6 below).
(b) NOTICES AND CONSENTS. The Seller will give any notices to third
parties that the Buyer reasonably may request in connection with the matters
referred to in ss.3(c) above. Each of the Parties will give any notices to, make
any filings with, and use its reasonable best efforts to obtain any
authorizations, consents, and approvals of governments and governmental agencies
in connection with the matters referred to in ss.3(c) and ss.4(c) above.
(c) OPERATION OF BUSINESS. Sewcal will not engage in any practice, take
any action, or enter into any transaction outside the Ordinary Course of
Business.
(d) PRESERVATION OF BUSINESS. The Seller will use its best efforts to
keep Sewcals business and properties substantially intact, including its present
operations, physical facilities, working conditions, and relationships with
lessors, licensors, suppliers, customers, and employees.
(e) FULL ACCESS. The Seller will permit representatives of the Buyer to
have full access at all reasonable times, and in a manner so as not to interfere
with the normal business operations of Sewcal to all premises, properties,
personnel, books, records (including Tax records), contracts, and documents of
or pertaining to Sewcal.
(f) NOTICE OF DEVELOPMENTS. Each Party will give prompt written notice
to the other Party of any material adverse development causing a breach of any
of its own representations and warranties in ss.3 and ss.4 above. No disclosure
by any Party pursuant to this ss.5(f), however, shall be deemed to amend or
supplement the Disclosure Schedule or to prevent or cure any misrepresentation,
breach of warranty, or breach of covenant.
23
(g) EXCLUSIVITY. The Seller will not (i) solicit, initiate, or
encourage the submission of any proposal or offer from any Person relating to
the acquisition of any capital stock or other voting securities in Sewcal, or
any substantial portion of the assets of Sewcal, or (ii) participate in any
discussions or negotiations regarding, furnish any information with respect to,
assist or participate in, or facilitate in any other manner any effort or
attempt by any Person to do or seek any of the foregoing. The Seller will notify
the Buyer immediately if any Person makes any proposal, offer, inquiry, or
contact with respect to any of the foregoing.
6. CONDITIONS TO OBLIGATION TO TRANSFER
(a) CONDITIONS TO OBLIGATION OF THE BUYER. The obligation of the Buyer
to consummate the transactions to be performed by it in connection with the
Transfer is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth inss.3 above
shall be true and correct in all material respects at and as of the
Transfer Date;
(ii) the Seller and Sewcal shall have performed and complied
with all of their covenants hereunder in all material respects through
the Transfer;
(iii) the Seller and Sewcal shall have procured all of the
third party consents specified in ss.5(b) above;
(iv) no action, suit, or proceeding shall be pending before
any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator wherein
an unfavorable injunction, judgment, order, decree, ruling, or charge
would (A) prevent consummation of any of the transactions contemplated
by this Agreement, (B) cause any of the transactions contemplated by
this Agreement to be rescinded following consummation, or (C) affect
adversely the right of the Buyer to own the Acquired Assets and to
operate the former businesses of the Seller;
(b) CONDITIONS TO OBLIGATION OF THE SELLER. The obligation of the
Seller to consummate the transactions to be performed by it in connection with
the Transfer is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth inss.4 above
shall be true and correct in all material respects at and as of the
Transfer Date;
(ii) the Buyer shall have performed and complied with all of
its covenants hereunder in all material respects through the Transfer;
(iii) no action, suit, or proceeding shall be pending before
any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator wherein
an unfavorable injunction, judgment, order, decree, ruling, or charge
would (A) prevent consummation of any of the transactions contemplated
by this Agreement or (B) cause any of the transactions contemplated by
this Agreement to be rescinded following consummation (and no such
injunction, judgment, order, decree, ruling, or charge shall be in
effect);
24
7. TERMINATION.
(a) TERMINATION OF AGREEMENT. Certain of the Parties may terminate this
Agreement as provided below:
(i) the Buyer and the Seller may terminate this Agreement by
mutual written consent at any time prior to the Transfer;
(ii) the Buyer may terminate this Agreement by giving written
notice to the Seller at any time prior to the Transfer Date (A) in the
event the Seller has breached any material representation, warranty, or
covenant contained in this Agreement in any material respect, the Buyer
has notified the Seller of the breach, and the breach has continued
without cure for a period of 10 days after the notice of breach or (B)
if the Transfer shall not have occurred on or before August 15, 2000 by
reason of the failure of any condition precedent under ss.6(a) hereof
(unless the failure results primarily from the Buyer itself breaching
any representation, warranty, or covenant contained in this Agreement);
and
(iii) the Seller may terminate this Agreement by giving
written notice to the Buyer at any time prior to the Transfer Date (A)
in the event the Buyer has breached any material representation,
warranty, or covenant contained in this Agreement in any material
respect, the Seller has notified the Buyer of the breach, and the
breach has continued without cure for a period of 10 days after the
notice of breach or (B) if the Transfer shall not have occurred on or
before August 15, 2000 by reason of the failure of any condition
precedent under ss.6(b) hereof (unless the failure results primarily
from the Seller itself breaching any representation, warranty, or
covenant contained in this Agreement).
(b) EFFECT OF TERMINATION. If any Party terminates this Agreement
pursuant to ss.7(a) above, all rights and obligations of the Parties hereunder
shall terminate without any Liability of any Party to any other Party (except
for any Liability of any Party then in breach).
8. POST TRANSFER OBLIGATIONS. (removed)
9. MISCELLANEOUS.
(a) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations and warranties of the Parties contained in this Agreement shall
survive the Transfer hereunder as and to the extent provided in the Agreement
with Sewcal Stockholders.
25
(b) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No Party shall issue any
press release or make any public announcement relating to the subject matter of
this Agreement prior to the Closing without the prior written approval of the
other Party; PROVIDED, HOWEVER, that any Party may make any public disclosure it
believes in good faith is required by applicable law or any listing or trading
agreement concerning its publicly-traded securities (in which case the
disclosing Party will use its reasonable best efforts to advise the other Party
prior to making the disclosure).
(c) NO THIRD-PARTY BENEFICIARIES. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
(d) ENTIRE AGREEMENT. This Agreement (including the documents referred
to herein) constitutes the entire agreement between the Parties and supersedes
any prior understandings, agreements, or representations by or between the
Parties, written or oral, to the extent they related in any way to the subject
matter hereof.
(e) SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other Party; PROVIDED, HOWEVER, that the Buyer may (i) assign any or all
of its rights and interests hereunder to one or more of its Affiliates and (ii)
designate one or more of its Affiliates to perform its obligations hereunder (in
any or all of which cases the Buyer nonetheless shall remain responsible for the
performance of all of its obligations hereunder).
(f) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(g) HEADINGS. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(h) NOTICES. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
IF TO THE SELLER OR SEWCAL: COPY TO:
--------------------------- --------
Xxxx Xxxxxx
Southern California Logo Inc,
000 X. 000xx Xx.
Xxx Xxxxxxx, XX 00000
26
IF TO THE BUYER: COPY TO:
Xxxxx Xxxxxxxxxx
Freedom Surf Inc.,
000 Xxxxxxxx
Xxxxxx Xxxxx, XX 00000
Fax (000) 000-0000
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Party
notice in the manner herein set forth.
(i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF CALIFORNIA WITHOUT GIVING
EFFECT TO ANY CHOICE OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE
OF NEVADA OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE
LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF CALIFORNIA.
(j) AMENDMENTS AND WAIVERS. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by the
Buyer and the Seller. No waiver by any Party of any default, misrepresentation,
or breach of warranty or covenant hereunder, whether intentional or not, shall
be deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence.
(k) SEVERABILITY. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(l) EXPENSES. Each of the Buyer and the Seller will bear his or its own
costs and expenses (including legal fees and expenses) incurred in connection
with this Agreement and the transactions contemplated hereby.
(m) CONSTRUCTION. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation.
(n) INCORPORATION OF EXHIBITS AND SCHEDULES. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
27
(o) SPECIFIC PERFORMANCE. Each of the Parties acknowledges and agrees
that the other Party would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of the Parties agrees that
the other Party shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in any action instituted in any
court of the United States or any state thereof having jurisdiction over the
Parties and the matter [(subject to the provisions set forth in ss.8(p) below)],
in addition to any other remedy to which it may be entitled, at law or in
equity.
(p) SUBMISSION TO JURISDICTION. Each of the Parties submits to the
jurisdiction of any state or federal court sitting in Southern California or
Orange County in any action or proceeding arising out of or relating to this
Agreement and agrees that all claims in respect of the action or proceeding may
be heard and determined in any such court.
(o) BULK TRANSFER LAWS. The Buyer acknowledges that the Seller will not
comply with the provisions of any bulk transfer laws of any jurisdiction in
connection with the transactions contemplated by this Agreement.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on
[as of] the date first above written.
Freedom Surf Inc., Southern California Logo, Inc.
a Nevada corporation a California Corporation
By: /S/ Xxxxx Xxxxxxxxxx By: /S/ Xxxx Xxxxxx
-------------------------------- -----------------------------
Xxxxx Xxxxxxxxxx Xxxx Xxxxxx
President President
28
EXHIBIT "A"
Indemnity Agreement with Sewcal's Stockholders
29
EXHIBIT "B"
List of Acquired Assets
All right, title, and interest in and to all of the assets of Sewcal, INCLUDING
all of its
1. Real property, leaseholds and sub-leaseholds therein,
improvements, fixtures, and fittings thereon, and easements,
rights-of-way, and other appurtenants thereto (such as
appurtenant rights in and to public streets),
(b) Tangible personal property (such as machinery, equipment,
inventories of raw materials and supplies, manufactured and
purchased parts, goods in process and finished goods,
furniture, automobiles, trucks, tractors, trailers, tools,
jigs, and dies),
2. Intellectual Property, Patents, goodwill associated therewith,
licenses and sub-licenses granted and obtained with respect
thereto, and rights thereunder, remedies against infringements
thereof, and rights to protection of interests therein under
the laws of all jurisdictions,
3. Leases, subleases, and rights thereunder,
(d) Agreements, contracts, indentures, mortgages, instruments,
Security Interests, guaranties, other similar arrangements,
and rights thereunder,
(f) Accounts, notes, and other receivables,
(g) Securities (such as the capital stock in its Subsidiaries),
(h) Claims, deposits, prepayments, refunds, causes of action,
choses in action, rights of recovery, rights of set off, and
rights of recoupment (including any such item relating to the
payment of Taxes),
(i) Franchises, approvals, permits, licenses, orders,
registrations, certificates, variances, and similar rights
obtained from governments and governmental agencies,
(j) Books, records, ledgers, files, documents, correspondence,
lists, plats, architectural plans, drawings, and
specifications, creative materials, advertising and
promotional materials, studies, reports, and other printed or
written materials,
(k) Cash, and
30
(l) Rights in and with respect to the assets associated with its
Employee Benefit Plans, the corporate charter, qualifications
to conduct business as a foreign corporation, arrangements
with registered agents relating to foreign qualifications,
taxpayer and other identification numbers, seals, minute
books, stock transfer books, blank stock certificates, and
other documents relating to the organization, maintenance, and
existence of Sewcal as a corporation and any of the rights of
Sewcal under this Agreement (or under any side agreement
between the Seller on the one hand and the Buyer on the other
hand entered into on or after the date of this Agreement).
31
EXHIBIT "C"
List and Forms of Assignments
32
EXHIBIT "D"
List of Assumed Liabilities
Form of Assumption
All Liabilities of Sewcal as set forth on the face of the Most Recent
Balance Sheet (rather than in any notes thereto),
All Liabilities of Sewcal that have arisen after the Most Recent Fiscal
Month End in the Ordinary Course of Business (other than any Liability resulting
from any violation of law)
All obligations of Sewcal under the agreements, contracts, leases,
licenses, and other arrangements referred to in the definition of Acquired
Assets either
(i) to furnish goods, services, and other non-Cash
benefits to another party after the Transfer, or
(ii) to pay for goods, services, and other non-Cash
benefits that another party will furnish to it after
the Transfer, and
All other Liabilities and obligations of the Sewcal set forth in an
appendix to the Disclosure Schedule under an express statement (that the Buyer
has initialed) to the effect that the definition of Assumed Liabilities will
include the Liabilities and obligations so disclosed; PROVIDED, HOWEVER, that
the Assumed Liabilities shall not include
(i) any Liability of Sewcal for taxes,
(ii) any Liability of Sewcal for the unpaid Taxes of any
Person (other than any of Sewcal and its
Subsidiaries) under Reg.ss.1.1502-6 (or any similar
provision of state, local, or foreign law), as a
transferee or successor, by contract, or otherwise,
(iii) any obligation of Sewcal to indemnify any Person
(including any of the Sewcal Stockholders) by reason
of the fact that such Person was a director, officer,
employee, or agent of any of Sewcal and its
Subsidiaries or was serving at the request of any
such entity as a partner, trustee, director, officer,
employee, or agent of another entity (whether such
indemnification is for judgments, damages, penalties,
fines, costs, amounts paid in settlement, losses,
expenses, or otherwise and whether such
indemnification is pursuant to any statute, charter
document, bylaw, agreement, or otherwise),
(iv) any Liability of Sewcal for costs and expenses
incurred in connection with this Agreement and the
transactions contemplated hereby, or
(v) any Liability or obligation of Sewcal under this
Agreement (or under any side agreement between the
Seller on the one hand and the Buyer on the other
hand entered into on or after the date of this
Agreement).
33
EXHIBIT "E"
Allocation Schedule
34
EXHIBIT "F"
Sewcal's Financial Statements and Tax Returns
35
EXHIBIT "H"
Employment Agreement
36
EXHIBIT "I"
Disclosure Statement
ss.3 Representations and Warranties of Seller.
Seller Disclosure Statement
Any exceptions toss.3 of Agreement listed in Disclosure Statement
(1) Organization of Sewcal
(2) Authorization of Board of Directors to Sell
(3) Noncontravention (sale will not violate corporate charter, bylaws, laws
or contract)
(4) No Commissions/Brokerage Fees
(5) Good/Marketable Title to Acquired Assets
(6) Tax Returns/Financial Statements (Exhibit F) are true and correct
(7) No material changes since date of most recent Financial Statement/Tax
Return
(8) No undisclosed liabilities or pending/threatened litigation
(9) Sewcal and its predecessors have complied with all laws - no
citations/charges
(10) Sewcal has filed all tax returns, no extensions, paid all taxes, no
assessments/liens
(11) (Blank)
(12) All real property and leases of Sewcal listed and described/ copies of
leases attached/breaches or defaults do not exist or are described.
(13) Intellectual Property - all copyrights, patents, trademarks, tradenames
or licenses for any of the foregoing are listed and identified by
registration number, etc. Sewcal warrants its right to use all
tradenames, manufacturing processes, designs, etc. . .
(14) Right to Use All Equipment on Premises - working and in good order
except for ordinary wear and tear
(15) Inventory on Premises if merchantable and fit for use in Sewcal's
operations - no obsolete, damaged or defective inventory which should
be written down or off
(16) List of Contracts to which Sewcal is a party [purchase contracts in
excess of $5,000 or that extend over a one year period of time; leases;
joint venture or partnership agreements; security agreements; loan
agreements; confidentiality & non-competition agreements Copies of all
agreements attached.
(17) Notes and Receivables and reserve for Bad Debts, properly accounted for
(i.e., not subject to claims for setoffs or counterclaims or are
uncollectible)
(18) No Powers of Attorney
(19) List of All Insurance Policies -limits, policy periods, names of
insureds, names/addresses of agents; premium information; unless
stated, all policies in force and effect, Seller knows of no breach of
false information on applications
(20) Litigation Pending, Threatened and Historical -- all types, state,
federal, administrative, arbitrations,
(21) Product Warranty information - terms of warranties
(22) Product Warranty claims -
37
(23) Employee / workforce remains intact, no threatened or pending
resignations
(24) Employee Benefit Plans Identified
(25) Guaranties (If Sewcal is a guarantor, obligation is identified,
described)
(26) Compliance with Health, Safety Regulatory Laws
(27) Indemnity Signed
(28) Representations and Warranties are true and correct
4. Buyer's Warranties
Disclosure Statement of Buyer
1) Buyer is a Nevada corporation, duly organized, validly existing, good
standing
2) Authorization to consummate transaction
3) Non-contravention
4) No Broker's Fees other than American Auditors
Freedom Surf Inc.,
a Nevada corporation
By: /S/ Xxxxx Xxxxxxxxxx
----------------------------
Xxxxx Xxxxxxxxxx
Title: President
Southern California Logo, Inc.
a California Corporation
By: /S/ Xxxx Xxxxxx
-----------------------------
Xxxx Xxxxxx
Title: President
38
