Exhibit 2.1
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STOCK PURCHASE AGREEMENT
BY AND AMONG
Modern Technologies Corp.
MTC Technologies, Inc.
and
the Shareholders of
AMCOMP Corporation
DATED: October 17, 2002
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STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement") is entered into as of
October 17, 2002, by and among Modern Technologies Corp., an Ohio corporation
(the "Buyer"), MTC Technologies, Inc. ("Parent") and the parties identified on
the signature page as the Sellers (collectively, the "Sellers").
RECITALS
A. The Sellers are the record and beneficial owners of all of the issued
and outstanding equity securities of AMCOMP Corporation, a California
corporation (the "Company").
B. The Buyer, a wholly-owned subsidiary of Parent, wishes to acquire the
Company (the "Acquisition") by purchasing all of the issued and
outstanding common stock, par value $.50 per share, of the Company
(the "Shares") from the Sellers, and the Sellers desire to sell to the
Buyer, the Shares pursuant to the terms of this Agreement.
C. The parties hereto desire to set forth certain representations,
warranties and covenants made by each to the other as an inducement to
the consummation of the Acquisition.
AGREEMENT
NOW, THEREFORE, in and for the consideration and mutual covenants set
forth herein, the parties agree as follows:
1. Sale and Purchase of the Shares.
1.1 Sale and Purchase of the Shares.
(a) Subject to the terms and conditions of this Agreement, at
the Closing, the Sellers shall sell, transfer, assign and deliver to the Buyer
the number of Shares listed in Exhibit 1.1(a), which constitutes all of the
issued and outstanding shares of the common stock, par value $.50 per share, of
the Company; and the Buyer shall purchase, and thereafter hold, such the Shares,
free from all options, liens, claims, charges and encumbrances of whatever
nature.
(b) The Buyer shall not be obliged to complete the purchase of
any of the Shares hereunder unless the sale of all of the Shares is completed
simultaneously.
1.2. Purchase Price. As consideration for the sale to the Buyer of
all of the Shares by the Shareholders, the Buyer shall pay to the Sellers the
following, subject to adjustment as set forth in Section 1.4 (collectively, the
"Purchase Price"):
(a) At the Closing, the Buyer shall pay the amount of Seven
Million Two Hundred Thousand Dollars ($7,200,000) by wire transfer of
immediately available funds to an account designated by the Sellers;
and
(b) Additionally, the Sellers will be entitled to receive an
earn out payment calculated in accordance with the formula detailed in
Exhibit 1.2(b) for the years ending December 31, 2002, December 31,
2003 and December 31, 2004. Any such payments shall be made on or
before April 15, of the year immediately following the earn-out
calculation year. The computation of any such payment to be made to
the Sellers shall be made by Buyer's independent accounting firm,
Deloitte & Touche, and Sellers shall have the right to audit
(including access to any records of Company that were used in the
computation) such computation during the 45 day period following
receipt of the computation from Buyer
(c) Immediately prior to the Closing Date, the Sellers shall
cause the Company to declare and pay a dividend to the Sellers in an
amount equal to the lesser of (i) the amount of cash on hand in the
Company as of October 11, 2002, the "Effective Date", reduced by the
Company's accruals for transaction related expenses, including
Brokerage, Attorney and Accounting Fees, (the "Accruals") or (ii) the
Company's estimated retained earnings as of the Effective Date, which
shall also have been reduced by the Accruals. To the extent such
dividend exceeds the actual retained earnings (less the Accruals) as
of the Effective Date, as determined in accordance with Section 1.3,
such excess shall be deemed a loan to Sellers at 5% interest and
Sellers shall immediately repay such loan with interest upon being
notified by Buyer of such excess. Notwithstanding the foregoing,
interest shall not begin on any such loan until 30 days after the
Closing Date.
1.3 Effective Date Financial Statements. Promptly following the
Closing, the Buyer, with the assistance and cooperation of the Sellers, will
prepare a balance sheet showing the assets and liabilities of the Company as of
the Effective Date and the related statement of income for the period then ended
(the "Effective Date Financial Statements"). The Effective Date Financial
Statements will be prepared in accordance with generally accepted accounting
principles, consistently applied. Buyer's accounting firm shall complete an
audit of the Effective Date Financial Statements within 45 days of the Closing
Date. Sellers shall have the right to audit (including access to any accounting
records of Company) such Effective Date Financial Statements during the 45 day
period following receipt of the audited Effective Date Financial Statements from
Buyer.
1.4 Purchase Price Adjustment. If the audit of the Effective Date
Financial Statements yields a different dividend than the dividend calculated in
1.2 (c), then an adjusting payment shall be made, immediately upon notification
thereof, from Buyer to Seller or from Seller to Buyer, as the case may be.
1.5 Revenues and Expenses for October. The Buyer shall be entitled
to the benefit of revenues received by the Company from the Effective Date
through the Closing Date, net of related expenses, provided that such expenses
were incurred in the ordinary course of business consistent with past practices.
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2. Closing Matters.
2.1 The Closing. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of the Company,
located at 00000 Xxxxxxxxx Xxxx, Xxxxx 000, Xxxxxxxx, Xxxxxxxxxx 00000, on
October 18, 2002, or at such other date and time as the Buyer and the Sellers
shall agree. The date of the Closing is hereinafter referred to as the "Closing
Date".
2.2 Procedures at Closing. The following shall take place at the
Closing:
(a) The Sellers shall deliver to the Buyer the certificates
representing the Shares with appropriate stock power attached and
indorsed in blank.
(b) The Buyer shall pay the Purchase Price to the Sellers by wire
transfer of funds to the bank account designated in writing by the
Sellers.
(c) Each party shall deliver to the other party an executed copy of
this Agreement, the Transaction Documents and all consents, approvals,
authorizations and other such documents required hereunder.
"Transaction Documents" shall mean all documents, agreements and
consents required to be delivered by each party hereunder.
3. Representations and Warranties of the Sellers. Except as otherwise
set forth in the disclosure schedules attached hereto, the Sellers jointly and
severally represent and warrant to the Buyer as of the Closing Date the items as
set forth in this Section 3. No fact or circumstance disclosed to the Buyer
shall constitute an exception to the representations and warranties set forth in
this Section 3, unless such fact or circumstance is fairly and accurately
disclosed in this Agreement or the disclosure schedules attached hereto.
3.1 Organization. The Company (i) is duly organized, validly
existing and in good standing under the laws of the State of California, (ii)
has all necessary power and authority to own its assets and to conduct its
business as it is currently being conducted; and (iii) is duly qualified or
licensed to do business and is in good standing in every jurisdiction (both
domestic and foreign) where such qualification or licensing is required.
Schedule 3.1 contains a true and complete listing of the locations of all sales
offices, manufacturing facilities, and any other offices or facilities owned or
occupied by the Company, and a list of all states where the Company is qualified
to do business.
3.2 Capitalization.
(a) The authorized capital of the Company consists of: 100,000
shares of common stock, par value $.50 per share of which 10,000 shares are
issued and outstanding. The Company does not have any other class or series of
capital stock authorized, issued or outstanding.
(b) All of the outstanding Shares have been duly authorized and
validly issued, are fully paid and non-assessable, and when sold by the Company
were issued in compliance with all applicable laws and regulations concerning
the issuance of securities. Except as set forth on Schedule 3.2, none of the
outstanding Shares were issued in consideration
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in whole or in part for any contribution, transfer or assignment of the Company
Products (as defined below) or any proprietary rights incorporated therein or
otherwise related thereto. There are no other shares of the Company's capital
stock issued or outstanding, and there are no other options, warrants,
conversion privileges or other rights presently outstanding to purchase or
otherwise acquire any authorized but unissued shares of capital stock or other
securities of the Company. As used herein, "Company Products" shall mean all
versions and implementations of any product which has been or is being
manufactured, sold, licensed, distributed or marketed by the Company or
currently is under development, and all patents and patent applications, if any,
design rights, trade secrets, copyrights, trademarks, trade names, domain names,
and other proprietary rights related thereto, as well as any services provided
by the Company.
3.3 Power, Authority and Validity.
(a) Neither the Sellers nor the Company is subject to or
obligated under any charter, article of incorporation, bylaw or contract
provision or any license, franchise or permit, or subject to any order or
decree, which would be breached or violated by or in conflict with the execution
and carrying out of this Agreement and the transactions contemplated hereunder
and under the Transaction Documents. No consent of any person who is a party to
a contract to which the Company is a party, nor consent of any governmental or
regulatory authority, is required to be obtained on the part of the Company nor
the Sellers to permit the transactions contemplated herein.
(b) The Sellers are, and will at the Closing be, the lawful
owners and registered holders of the number of shares of the Shares listed in
Exhibit 1.1(a), which constitute all of the outstanding Company stock, free and
clear of all liens, encumbrances, restrictions and claims of every kind. The
Sellers have, and will at Closing have, full and legal right, power, authority
and capacity to sell, assign, transfer and convey the Shares so owned by the
Sellers pursuant to this Agreement, and the delivery to the Buyer of such Shares
held by the Sellers pursuant to the provisions of this Agreement will transfer
to the Buyer valid title thereto, free and clear of all liens, encumbrances,
restrictions and claims of every kind.
(c) The Sellers have full and legal right, power, authority and
capacity to execute and deliver this Agreement and the Transaction Documents and
to carry out the sale of the Shares held by the Sellers and carry out the other
transactions contemplated hereby without the need to obtain the consent or
approval of any other party. Following the execution of this Agreement, this
Agreement and each of the Transaction Documents will constitute the legal, valid
and binding obligations of the Sellers, enforceable against the Sellers in
accordance with its terms.
(d) The Sellers own one hundred percent (100%) of the
outstanding stock of the Company and, after the Acquisition, the Buyer will own
such stock free and clear of any liens, claims or encumbrances.
3.4 Financial Statements
(a) The Company has delivered to the Buyer, as of the
Closing Date, the Company's (i) unaudited balance sheets as of December 31, 2000
and December 31, 2001 and the related income statements for the periods ending
December 31, 2000 and December 31,
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2001 and (ii) the Company's unaudited balance sheet as of August 2, 2002 and the
related income statement for the period ending August 2, 2002 (collectively, the
"Financial Statements"). The Financial Statements are attached hereto as
Schedule 3.4 and are complete and correct in all respects and have been prepared
in accordance with the law and generally accepted accounting principles
consistently applied. The Financial Statements present fairly the financial
condition, operating results and cash flows of the Company as of the dates and
during the periods indicated therein. Except to the extent reflected or reserved
against or disclosed in the Financial Statements, or as listed on Schedule 3.4,
the Company has no liabilities or obligations of any kind, known or unknown,
whether accrued, absolute, contingent or otherwise, other than those incurred in
the ordinary course from August 2, 2002, through the Closing Date, and the
Accruals.
(b) No part of any debt or other amount shown or reflected in
the Financial Statements as being due to the Company has been written off,
written down, waived or released for an amount less than the book value by the
Company.
(c) Since December 31, 2001, the Company's business has not
been materially affected by the loss of any customer, or of any source of supply
or by the cancellation or loss of any order or contract nor, to the Sellers'
knowledge, are there any circumstances likely to lead thereto.
(d) The Company's books and records for each and every
government contract are maintained in full compliance with the requirements and
standards of the Defense Contract Auditing Agency and all other applicable
government or agency laws, rules, regulations and requirements.
(e) The principal executive officer and the principal financial
officer of the Company (collectively, the "Officers") are responsible for
establishing and maintaining disclosure controls and procedures for the Company
and have designed such disclosure controls and procedures to ensure that
material information is made known to the Officers.
(f) To the best of their knowledge, the Officers have disclosed
to the Buyer (i) all significant deficiencies in the design or operation of
internal controls which could adversely affect the Company's ability to record,
process, summarize and report financial data and have identified for the Buyer
any material weaknesses in internal controls, and (ii) any fraud, whether or not
material, that involves management or other employees who have a significant
role in the Company's disclosure controls and procedures.
(g) The Officers have disclosed to the Buyer any significant
changes in internal controls or in other factors that could significantly affect
internal controls during or subsequent to any of the periods covered by the
Financial Statements, including any corrective actions taken with regard to
significant deficiencies and material weaknesses. However, Sellers have informed
Buyer that their financial statements have not been audited for any period since
the period ended December 31, 1997.
3.5 Tax Matters.
(a) The Company has timely filed all Tax Returns required to be
filed by it. All such Returns are true and correct and were prepared and filed
in the manner required
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by applicable law. All Taxes due from the Company have been paid. There are no
pending audits, assessments, or claims for additional Taxes that have not been
paid. All the provisions for Taxes, if any, reflected on the Financial
Statements are true and correct and there are no tax liens on any property or
assets of the Company other than liens for Taxes not yet due and payable. During
the five (5) year period ending on the date hereof, there have been no audits or
to the best of the Sellers' knowledge, examinations of any Tax Returns by any
applicable governmental agency. To the best of the Sellers' knowledge, for the
six (6) year period immediately preceding the Closing, no state of facts exists
which would constitute grounds for the assessment of any penalty or of any
further Tax liability beyond that shown on the Tax Returns that have been filed
or shall be filed for the period ending with the Closing Date, except as
indicated in the Financial Statements. There are no outstanding agreements or
waivers extending the statutory period of limitation applicable to any Tax
Return for any period. As used herein, "Tax" or "Taxes" shall mean any federal,
state, local, foreign or other taxes, including, without limitation, income (net
or gross), gross receipts, profits, alternative or add-on minimum, franchise,
license, capital, capital stock, intangible, services, premium, mining,
transfer, sales, use, ad valorem, payroll, wage, severance, employment,
occupation, property (real or personal), windfall profits, import, excise,
custom, stamp, withholding or estimated taxes, fees, duties, assessments,
withholdings or governmental charges of any kind whatsoever (including interest,
penalties, additions to tax or amounts with respect to such items). As used
herein, "Returns" shall mean all returns, declarations, reports, estimates,
information returns and statements of any nature regarding Taxes for any tax
period ending on or before the Closing Date and, with respect to any Tax period
that includes, but does not end on the Closing Date, the portion of such period
that ends on and includes the Closing Date, required to be filed by any person
and relating to the income, properties or operations of the Company.
(b) All Taxes that the Company has been required to collect or
withhold have been duly withheld or collected and, to the extent required, have
been paid to the proper taxing authority.
(c) The Company is not a party to any tax-sharing agreement or
similar arrangement with any other party.
(d) The Company is not currently under any contractual, or
legal obligation to pay any Tax obligations of, or with respect to any
transaction relating to, any other person or to indemnify any other person with
respect to any Tax.
(e) S Status and Election. The Company has had in effect at all
times valid elections under all applicable Federal and State Tax laws (where
required or allowed) to be taxed as an "S" corporation under the Internal
Revenue Code, for all its tax years and the Company has taken no action to
disqualify it as an "S" corporation under applicable Federal and State laws. The
Company is on an accrual basis for both book and tax purposes.
3.6 Absence of Certain Changes or Events. Since December 31, 2001,
except as set forth on Schedule 5.12, the Company has not:
(a) Suffered any adverse change in its financial condition or
in the operations of its business or suffered any inadequacy of working capital;
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(b) Suffered any damage, destruction or loss in excess of
$10,000, whether covered by insurance or not, affecting its properties or
business;
(c) Granted or agreed to make any increase in the compensation
or benefits payable or to become payable by the Company to its officers or
employees, except those occurring in the ordinary course of business;
(d) Declared, or paid any dividend or made any other
distribution on or in respect of its shares or redeemed or purchased any of such
shares, other than those contemplated herein;
(e) Issued any shares or any warrants, rights, options or
entered into any commitment relating to the shares of the Company;
(f) Made any change in the accounting methods, principles or
practices it follows, whether for financial reporting or tax purposes, including
any changes in depreciation or amortization policies or rates adopted therein;
(g) Sold, leased or otherwise disposed of any real property or
machinery, equipment or other operating property other than in the ordinary
course of business;
(h) Sold, assigned, transferred, licensed or otherwise disposed
of any patent, trademark, trade name, brand name, copyright, design right (or
pending application for any patent, trademark, design right or copyright)
invention, work of authorship, process, know-how, formula or trade secret or
interest thereunder or other intangible asset except in the ordinary course of
its business;
(i) Engaged in any material activity or entered into any
material commitment or transaction (including without limitation any borrowing
or capital expenditure) other than in the ordinary course of business;
(j) Incurred any liabilities except in the ordinary course of
business that would be required to be disclosed in financial statements prepared
in accordance with generally accepted accounting principles;
(k) Charged or otherwise encumbered any of its property or
assets;
(l) Made any capital expenditure or commitment for additions to
property, plant or equipment individually in excess of $10,000, or in the
aggregate, in excess of $25,000, except in the ordinary course of business;
(m) Except in the ordinary course of business, paid, loaned or
advanced any amount to, or sold, transferred or leased any properties or assets
to, or entered into any agreement or arrangement with any of its affiliates,
officers, directors or shareholders or any affiliate or associate of any of the
foregoing;
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(n) Agreed to take any action described in this Section 3 or
outside of its ordinary course of business or, to the Sellers' knowledge, that
would constitute a breach of any of the representations and warranties contained
herein;
(o) No order has been made nor has any resolution been passed for
the winding up of the Company and, nor is there outstanding any petition for the
administration or the winding up of the Company or any receivership of the whole
or any part of the assets of the Company. There are no circumstances that would
entitle any person to present a petition for the administration or the winding
up of the Company or to appoint a receiver or administrator of the whole or any
part of its assets. The Company is not insolvent, and the Company has not
entered into any scheme of arrangement with respect to insolvency with any of
its creditors, including without limitation, a voluntary or involuntary petition
for bankruptcy protection.
Since August 1, 2002, the Company has complied with all of the provisions
of Section 7.6 (a) through (g), except those provisions in Section 7.6 (g) that
refer to future performance.
3.7 Title and Related Matters.
(a) Other than in relation to leased assets, each asset included
in the Financial Statements and each material asset acquired by the Company
since the dates of the Financial Statements is legally and beneficially owned by
the Company, free from any charges or encumbrances, and is, where capable of
possession, in the possession or under the control of the Company. Such assets
constitute all of the assets necessary to conduct the business of the Company.
(b) All real or personal property leases to which the Company is
a party are valid, binding, enforceable and effective in accordance with their
respective terms. There is not under any of such leases any existing default of
the Company, any default of the other parties to such leases, of which Sellers
are aware, or any other event of default or event that, with notice or lapse of
time or both, would constitute a default.
(c) Schedule 3.7 contains a description of all real property
leased or owned by the Company, describing (i) its interest in said property,
(ii) the remaining term, (iii) monthly and total payment terms, and with respect
to the leasehold property, (iv) a description of each parcel and a summary
description of the buildings, structures and improvements thereon. True and
correct copies of the Company's leases have been provided to the Buyer or its
representatives. The Company has good, indefeasible, record and marketable
leasehold title to each of the leased properties shown on Schedule 3.7, free and
clear of all claims, tenants and occupants. The Company is the lawful owner of
all improvements and fixtures located on such leased properties, free and clear
of all claims. Each lease or other agreement relating to such leased properties
is a valid and subsisting agreement, without any default of the Company
thereunder and, to the Sellers' knowledge, without any default thereunder of the
other party thereto, and such leases and agreements give Company the right to
use or occupy, as the case may be, all real properties as are sufficient and
adequate to operate the Company's business.
3.8 Intellectual Proprietary Rights.
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(a) The Company owns all right, title and interest in and to, or
valid licenses for use of, all patents, patent applications, copyrights, design
rights, technology, software, software tools, hardware, know-how, processes,
trade secrets, trademarks, service marks, trade names, domain names, and other
proprietary and intellectual property rights in the United States used in the
conduct of its business as conducted on the date hereof and the Closing Date and
as proposed to be conducted including, without limitation, the technology and
all proprietary and intellectual property rights developed or discovered or used
in connection with or contained in the Company Products, free and clear of all
liens, encumbrances (including without limitation distribution rights) or claims
(all of which are referred to as "Proprietary Rights"). The Company has no
Proprietary Rights outside of the United States. The foregoing representation as
it relates to Third Party Technology (as hereinafter defined) is limited to the
Company's interest pursuant to the Third Party Licenses (as hereinafter
defined), all of which are valid and enforceable and in full force and effect
and which grant the Company such rights to Third Party Technology as are
employed in the business of the Company as conducted to the date of this
Agreement. Schedule 3.8 contains an accurate description of (i) all patents,
trademarks (with separate listings of registered and unregistered trademarks),
trade names, domain names, and copyrights in or related to the Company Products,
all applications and registration statements therefor, and a list of all
licenses and other agreements relating thereto, and (ii) a list of all licenses
and other agreements with third parties (the "Third Party Licenses") relating to
any hardware, software, inventions, technology, know-how, or processes and all
intellectual property rights in respect thereof (a) that the Company has
licensed or otherwise authorized by such third parties to use, market,
distribute or incorporate into the Company Products (such software, inventions,
technology, know-how and processes and all intellectual property rights in
respect thereof are collectively referred to as the "Third Party Technology")
and (b) that third parties are licensed or otherwise authorized by the Company
to use, market, distribute or incorporate into products distributed by those
third parties. All of the Company's issued patents and its trademark, trade name
or domain name registrations related to the Company Products or the Company, and
all of the Company's copyrights in any of the Company Products are valid and in
full force and effect, and the consummation of the transactions contemplated
hereby will not alter or impair any such rights.
(b) Neither the Company nor the Sellers has received notice of
any claim that has been asserted or threatened against the Company or against
any customer of the Company (and the Company and the Sellers are not aware of
any claims which are likely to be asserted against the Company or that have been
asserted or threatened against others related to the Company or the Company
Products) by any person alleging infringement by or challenging the Company's or
the Company's customers' use, possession, manufacture, sale or distribution of
the Company Products under any patents, trademarks, trade names, domain names,
copyrights, design rights, trade secrets, software, technology, know-how or
processes utilized by the Company (including, without limitation, the Third
Party Technology) or challenging or questioning the validity or effectiveness of
any license or agreement relating thereto (including, without limitation, the
Third Party Licenses). To the Sellers' knowledge, there is no valid basis for
any claim of the type specified in the immediately preceding sentence that is
likely in any way to interfere with the continued enhancement and exploitation
by the Company of any of the Company Proprietary Rights or the Company Products.
(c) None of the Company Products or the use or exploitation of
any patents, trademarks, trade names, copyrights, design rights, software,
hardware, technology,
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know-how or processes by the Company in its current business, infringes on the
rights of, or constitutes misappropriation of any proprietary information or
intangible property right of any third person or entity, including without
limitation any patent, trade secret, copyright, design right, trademark or trade
name of any third person. None of the Company's Proprietary Rights is being or
has been infringed by any third party.
(d) Schedule 3.8 sets forth all third parties that have been
granted the right to either manufacture, reproduce, distribute, license, market
or exploit any of the Company Products or any adaptations, translations, or
derivative works based on the Company Products or any portion thereof.
(e) All designs, drawings, specifications, methods, source code,
object code, documentation, flow charts and diagrams incorporating, embodying or
reflecting any of the Company Products at any stage of their development (the
"Company Components") were written, designed, developed and created solely and
exclusively by employees of the Company without the assistance of any third
party or entity or were created by third parties who have assigned ownership of
their rights to the Company by means of confidentiality and invention assignment
agreements or otherwise licensed the same to the Company pursuant to the Third
Party Licenses, true and correct copies of which third-party assignments and
Third-Party Licenses have been delivered to the Buyer and each of the third
party assignments and Third Party Licenses are listed on Schedule 3.8. The
Company has required all past and present employees to sign a confidentiality
and assignment of invention agreement. The Company has at all times disclosed or
otherwise dealt with trade secrets and other confidential information relating
to the Company Products in a manner that is consistent with prudent practices in
the same industry.
(f) No employee of the Company is in violation of any term of any
confidentiality and invention assignment agreement, whether written or oral, and
has not made any claim of ownership concerning any the Company Product or the
Company Components.
(g) No product liability or warranty claims have been
communicated to or asserted against the Company nor is there any specific
situation, set of facts or occurrence that provides a basis for such claim.
(h) None of the Proprietary Rights are subject to any
restrictions of use or ownership that would require consent of third parties to
the Acquisition or which would give a contractual or legal right to any third
party to alter such right as a result of the Acquisition.
(i) The Company is and will be entitled to continue to use
"AMCOMP" as part of its corporate name and otherwise.
3.9 Bank Accounts. Schedule 3.9 sets forth the names and locations of
all banks, trusts, companies, savings and loan associations, and other financial
institutions at which the Company maintains accounts of any nature and the names
of all persons authorized to draw thereon or make withdrawals therefrom. No
overdraft or other financial facilities available to or drawn by the Company are
or will at the Closing be secured by, or dependent on, any guarantee or security
provided by any Sellers or any other third party.
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3.10 Contracts.
(a) Schedule 3.10 contains a list of all agreements, contracts or
commitments that provide for the sale, licensing or distribution by the Company
of any of its products, inventions, technology, know-how, trademarks or trade
names, true and correct copies of which have been provided to the Buyer together
with all correspondence or other written communications affecting such
agreements, contracts or commitments.
(b) Schedule 3.10 contains a list of all agreements, contracts or
commitments that call for fixed and/or contingent payments or expenditures by or
to the Company of more than $10,000, true and correct copies of which have been
provided to the Buyer.
(c) The Company has no purchase agreement, contract or commitment
that calls for purchases in excess of the normal, ordinary and usual
requirements of the Company's business and which require fixed and/or contingent
payment by the Company in excess of $25,000 within a one-year period.
(d) There is no outstanding sales purchase, lease or licensing
contract, commitment or proposal of the Company that is currently expected to
result in any material loss to the Company (before allocation of overhead and
administrative costs) upon completion or performance thereof.
(e) The Company has no outstanding agreements, contracts or
commitments with officers, employees, agents, consultants, advisors, salesmen,
sales representatives, distributors, dealers or other contractors that are not
terminable by the Company at its option on notice of not longer than thirty (30)
days and without liability, penalty or premium.
(f) The Company is not a party to any collective bargaining or
other agreements, contracts, arrangements or commitments with any trade union or
employees' organization.
(g) The Company is not restricted by agreement or otherwise from
competing with any person or from carrying on its business anywhere in the
world.
(h) The Company is under no liability or obligation, and no such
outstanding claim has been threatened or made, with respect to the rejection of
or objection to services or deliverables provided by the Company to any
customer, or return to the Company of inventory or merchandise in the possession
of wholesalers, distributors, retailers, or customers. Furthermore, no third
party or customer of the Company has sought, or to Sellers' knowledge, intends
to seek, indemnification from the Company for any reason.
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(i) The Company is not liable for and has not guaranteed any
obligations of other persons or made any agreements to acquire or guarantee any
obligations of other persons.
(j) The Company has no outstanding loan or advance to any person;
nor is it party to any line of credit, standby financing, revolving credit or
other similar financing arrangement of any sort that would permit the borrowing
by the Company of, or make the Company liable for, any sum not reflected in the
Financial Statements.
(k) All material contracts to which the Company is a party are
valid, binding, in full force and effect and enforceable by the Company in
accordance with their respective terms. Except as set forth on the Schedule
3.10, no such material contract contains any liabilities for consequential
damages, including lost profits, liquidated damages, penalty or similar
provision. To the Sellers' knowledge, no party to any such material contract
intends to cancel, withdraw, modify or amend such contract. The Company is not a
party to any third party's purchase order and has not agreed to any terms and
conditions that appear on a third party's purchase order.
(l) Schedule 3.10 lists all material agreements pursuant to which
the Company has agreed to manufacture for or supply to any third party any of
the Company Products or components thereto, true and correct copies of which
have been provided to the Buyer. Schedule 3.10 lists each person who
manufactures for or supplies to the Company any material product or component
included in the Company Products or is the sole source for any product or
component included in the Company Products.
(m) The Company is not in default under or in breach or violation
of, nor is there any valid basis for any claim of default by the Company under,
or breach or violation by the Company of, any agreement, contract, commitment or
restriction to which the Company is a party or to which it was a party in the
past. To Seller's knowledge, no other party is in default under or in breach or
violation of, nor is there any valid basis for any claim of default by any other
party under or any breach or violation by any other party of, any material
contract, commitment, or restriction to which the Company is bound.
(n) No material agreements, contracts and commitments to which
the Company is a party contain provisions that would require consent of third
parties to the Acquisition or that would give a contractual or legal right to
alter the current terms thereof as a result of the Acquisition.
3.11 Orders, Commitments and Returns. All accepted and unfilled orders
entered into by the Company for the sale or license of any the Company Products,
and all agreements, contracts, or commitments for the purchase of supplies or
services by the Company, were made in the ordinary course of business. No
outstanding purchase or outstanding lease commitment of the Company is in excess
of the normal, ordinary and usual requirements of its business.
3.12 Compliance With Other Instruments and Laws. The Company is (a)
not in violation of any provisions of its Articles of Incorporation or Bylaws as
currently in effect and (b) to the Sellers' knowledge, is in compliance with all
applicable laws and regulations,
12
including without limitation, those relating to the importation or exportation
of its products. Neither the Company nor any of its employees has directly or
indirectly paid or delivered any fee, commission or other sum of money or item
of property, however characterized, to any finder, agent, government official or
other party in the United States or any other country, that was or is in
violation of any federal, state, or local statute or law or of any statute or
law of any other country having jurisdiction over the Company.
3.13 Labor Difficulties; No Discrimination.
(a) The Company is not in violation of any applicable laws
respecting employment and employment practices, terms and conditions of
employment, and wages and hours.
(b) There is no strike, labor dispute, slowdown, or stoppage
actually pending or threatened against the Company.
(c) The Company has not experienced any material labor disputes
or industrial action.
(d) There is and has been within the past two (2) years no claim
against the Company based on actual or alleged race, age, sex, disability,
harassment or discrimination, or similar tortuous conduct, nor, to the Sellers'
knowledge, is there any basis for any such claim within the applicable statutes
of limitations.
(e) There is no unfunded prior service cost with respect to any
bonus, deferred compensation, pension, profit-sharing, retirement, stock
purchase, stock option, or other employee benefit or fringe benefit plans,
whether formal or informal, maintained by the Company.
(f) To the Sellers' knowledge, no circumstances have arisen under
which the Company is likely to be required to pay damages for wrongful
dismissal, to make any statutory redundancy payment or any payment in respect of
unfair dismissal, to make any other payment or to reinstate or re-engage any
former employees. There are no pending or to the Sellers' knowledge threatened
claims of any type against the Company by any existing or former employees.
(g) Schedule 3.13 contains details of:
(i) The total number of the Company's current employees
(including any such on maternity leave or absent because of disability or other
long-term leave of absence and who have or may have a right to return to work
with the Company);
(ii) The name, date of start of employment, period of
continuous employment (if different), status of visas, salary and other benefits
of each such employee; and
(iii) The terms of the contract of each director, officer and
employee of the Company.
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(h) The Company does not have and is not proposing to
introduce a share incentive, option, profit sharing, bonus or other incentive
scheme for or any unfunded obligations accruing for the benefit of any of its
directors, officers or employees.
3.14 Trade Regulation. All of the prices charged by the Company
in connection with the marketing or sale of any products or services have been
in compliance with all applicable laws and regulations. No claims have been
communicated or, to the Sellers' knowledge, threatened against the Company with
respect to wrongful termination of any dealer, distributor or any other
marketing entity, discriminatory pricing, price fixing, unfair competition,
false advertising, or any other violation of any laws or regulations relating to
anti-competitive practices or unfair trade practices of any kind, and, to the
Sellers' knowledge, there are no specific facts likely to provide any basis for
any such claim.
3.15 Insider Transactions. No affiliate of the Company has any
interest in (i) any material equipment or other property, real or personal,
tangible or intangible, including, without limitation, any item of intellectual
property, used in connection with or pertaining to the business of the Company,
or (ii) any creditor, supplier, customer, manufacturer, agent, representative,
or distributor of products of the Company.
3.16 Independent Contractors and Consultants. Schedule 3.16
lists and describes all currently effective agreements with independent
contractors or consultants to which the Company is a party relating to the
Company Products. True and correct copies of all such written agreements have
been provided to the Buyer.
3.17 Insurance.
(a) Schedule 3.17 is a correct and complete list of
insurance policies of any kind or nature presently applicable to or covering the
operations and property of the Company, including, without limitation, policies
of life, disability, fire, theft, casualty, product liability, xxxxxxx'x
compensation, business interruptions, employee fidelity, and other casualty and
liability insurance indicating the type of coverage, name of insured, the
issuer, the premium, the expiration date of each policy and the amount of
coverage. The operations, assets and properties of the Company are insured with
sufficient coverage with responsible insurers against the usual and normal
hazards and liabilities of the character usually insured against by companies in
the same or similar business. All such policies are in full force and effect,
and the Company has not received any notice of cancellation in respect of
insurance coverage.
(b) Schedule 3.17 lists all claims, which (including
multiple claims relating to the same incident) which in the aggregate exceed
$25,000 and which have been made by the Company in the last three years under
any workers' compensation, general liability, property, directors' and officers'
liability or other insurance policy applicable to the Company or any of its
properties. Except as set forth on Schedule 3.17, there are no pending or
threatened claims under any insurance policy. Such claim information includes
the following information with respect to each accident, loss, or other event:
(a) the identity of the claimant; (b) the nature of the claim; (c) the date of
the occurrence; (d) the status as of the report date and (e) the amounts paid or
expected to be paid or recovered.
14
3.18 Litigation. Except as set forth on Schedule 3.18 hereto,
(a) there is no action, suit, dispute, investigation, proceeding or claim
pending or, to the best knowledge of the Company, threatened against or
affecting the Company, or its properties or rights, or its business, before any
court, administrative agency, governmental body, arbitrator, mediator or other
dispute resolution body, and the Sellers are not aware of any facts or
circumstances which may give rise to any of the foregoing, (b) all of the
proceedings pending or threatened against the Company are fully covered by
insurance policies (or other indemnification agreements with third parties) and
are being defended by the insurers (or such third parties), (c) the Company is
not subject to any order, judgment, decree, injunction, stipulation, or consent
order of or with any court or other governmental agency, and (d) the Company has
not entered into any agreement to settle or compromise any proceeding pending or
threatened against it which has involved any obligation other than the payment
of money or for which the Company has any continuing obligation. To the Sellers'
knowledge, there are no pending suits, actions or proceedings, or any threatened
suits, actions or proceedings against any customer of the Company regarding the
Company Products.
3.19 Governmental Authorizations and Regulations. The Company
has all necessary licenses, franchises, permits and other governmental
authorizations, all of which are valid and sufficient for the business presently
carried on by the Company.
3.20 Subsidiaries. The Company has no subsidiaries. The Company
has never owned or controlled (directly or indirectly) any capital stock, bonds
or other securities of, and does not have any proprietary interest in, any other
corporation, general or limited partnership, firm, association, joint venture,
project group, or business organization, and the Company has never controlled
(directly or indirectly) the management or policies of any other corporation,
partnership, firm, association or business organization.
3.21 Compliance with Laws. The Company has obtained all
permits, licenses and other authorizations that are required to be obtained by
it under all applicable laws, including but not limited to, laws relating to
pollution, protection of the environment or human health, laws or provisions
relating to emissions, discharges, releases or threatened releases of
pollutants, contaminants, or hazardous or toxic materials, substances, or wastes
into air, surface water, groundwater, or land, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants or hazardous or toxic
materials, substances, or wastes. The Company is in material compliance with all
terms and conditions of such permits, licenses and authorizations. The Sellers
are not aware of, nor has the Company received written or oral notice of, any
conditions, circumstances, activities, practices, incidents, or actions that may
form the basis of any claim, action, suit, proceeding, hearing, or investigation
of, by, against or relating to the Company or any person or entity (including
without limitation any predecessor or the Company) whose liability the Company
may have retained or assumed either contractually or by operation of law, based
on or related to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport, or handling, or the emission, discharge, release
or threatened release into the environment, of any pollutant, contaminant, or
hazardous or toxic substance, material or waste. There are not, and have not
been in the past, any underground tanks or underground improvements at, on or
under any property leased or owned by the Company, including without limitation,
treatment or storage tanks, sumps, or water, gas or oil xxxxx. No
polychlorinated biphenyls (PCBs), asbestos, or formaldehyde or material
containing urea formaldehyde have been used, deposited, stored or
15
disposed of released or otherwise located at on or under any property leased or
owned by the Company. True, complete and correct copies of all environmentally
related assessments, audits, investigations, studies, analyses, tests, sampling
or monitoring results or similar reports in the possession of or available to
the Company or the Sellers and relating to any property leased or owned by the
Company have been provided to the Buyer.
3.22 Corporate Documents. The Company has furnished to the
Buyer for its examination: (i) copies of its Articles of Incorporation and
Bylaws; (ii) its minute book containing all records required to be set forth of
all proceedings, consents, actions, and meetings of the shareholders, the board
of directors and any committees thereof; (iii) all material permits, orders, and
consents issued by any regulatory agency with respect to the Company, or any
securities of the Company, and all applications for such permits, orders, and
consents; and (iv) the register of shareholders and other stock ledgers and
registers of the Company setting forth all issuances and transfers of its shares
since incorporation. All such books and registers and other corporate records of
the Company are complete and accurate in all material respects, and the
signatures appearing on all documents contained therein are the true signatures
of the persons purporting to have signed the same. All actions reflected in such
books and records were duly and validly taken in compliance with the laws of all
applicable jurisdictions.
3.23 Brokers. Except as disclosed in Schedule 3.23, neither the
Company nor any of the Sellers is obligated for the payment of fees or expenses
of any broker or finder in connection with the origin, negotiation or execution
of this Agreement or in connection with any transaction contemplated hereby or
thereby.
3.24 Employee Benefit Plans.
(a) Schedule 3.24 hereto sets forth a complete and
accurate list of each plan, program, arrangement, agreement or commitment that
is an employment, consulting or deferred compensation agreement (whether or not
funded or qualified), or an executive compensation, incentive bonus or other
bonus, employee pension, profit-sharing, savings, retirement, stock option,
stock purchase, severance pay, life, health, disability or accident insurance
plan, or vacation or other employee benefit plan, program, arrangement,
agreement or commitment ("Plans"), including, without limitation, each employee
benefit plan (as defined under Section 3(3) of "ERISA" maintained by the Company
or any trade or business (whether or not incorporated) which, together with such
persons, would be ERISA Affiliates or to which any ERISA Affiliate contributes
or has any obligation to contribute to, or has or may have any liability
(including, without limitation, a liability arising out of an indemnification,
guarantee, hold harmless or similar agreement). Each Plan is identified on
Schedule 3.24, to the extent applicable, as one or more of the following: an
"employee pension plan" (as defined in Section 3(2)(A) of ERISA), an "employee
welfare plan" (as defined in Section 3(1) of ERISA), or as a plan intended to be
qualified under Section 401 of the Internal Revenue Code. "ERISA Affiliates"
means, collectively, such persons, as would be treated as a single employer
under Title IV of ERISA or Section 414 of the Internal Revenue Code.
(b) The Company has complied, and currently is in
compliance, in all respects with all laws and regulations applicable to the
Plans, including, without limitation, ERISA, the Internal Revenue Code and the
Department of Labor.
16
(c) No ERISA Affiliate has maintained, adopted or
established, contributed to or been required to contribute to, or otherwise
participated in or been required to participate in, any employee benefit plan or
other program or arrangement subject to Title IV of ERISA (including, without
limitation, a "multi-employer plan" (as defined in Section 3(37) of ERISA), a
multiple employer plan (as defined in Section 210 of ERISA) and a defined
benefit plan (as defined in Section 3(35) of ERISA)).
(d) Except as set forth on Schedule 3.24, the Company does
not provide or may not be required to provide and no Plan, other than a Plan
that is an employee pension benefit plan (within the meaning of Section 3(2)(A)
of ERISA), provides or may be required to provide benefits, including, without
limitation, death, health or medical benefits (whether or not insured), with
respect to current or former employees of the Company beyond their retirement or
other termination of service with the Company (other than (a) coverage mandated
by applicable law, (b) deferred compensation benefits accrued as liabilities on
the books of Company, or (c) benefits the full cost of which is borne by the
current or former employee (or his or her beneficiary)). No ERISA Affiliate
maintains any Plan under which any employee or former employee of any of the
ERISA Affiliates may receive medical benefits which cannot be modified or
terminated by the ERISA Affiliates at any time without the consent of any
person, and no employees or former employees of the ERISA Affiliates will have
any claim in respect of such benefits as of the Closing Date.
(e) The transactions contemplated hereby will not result
in (a) any portion of any amount paid or payable by the Company to a
"disqualified individual" (within the meaning of Section 280G(c) of the Internal
Revenue Code and the regulations promulgated thereunder), whether paid or
payable in cash, securities of the Company or otherwise and whether considered
alone or in conjunction with any other amount paid or payable to such a
"disqualified individual," being an "excess parachute payment" within the
meaning of Section 280G(b)(1) of the Internal Revenue Code and the regulations
promulgated thereunder, (b) any employee of the Company being entitled to
severance pay, unemployment compensation, or any other payment, (c) an
acceleration of the time of payment or vesting, or an increase in the amount of
compensation due to any such employee or former employee or (d) any prohibited
transaction described in Section 406 of ERISA or Section 4975 of the Internal
Revenue Code for which an exemption is not available.
(f) No ERISA Affiliate has incurred any liability with
respect to any Plan under ERISA (including, without limitation, Title I or Title
IV thereof, other than liability for premiums due to the Pension Benefit
Guaranty Corporation), the Internal Revenue Code or other applicable law, which
has not been satisfied in full or been accrued on the Financial Statements,
pending full satisfaction, and no event has occurred, and there exists no
condition or set of circumstances, which could result in the imposition of any
liability under ERISA, the Internal Revenue Code or other applicable laws or
regulations with respect to any Plan.
(g) With respect to each Plan that is funded wholly or
partially through an insurance policy, all premiums required to have been paid
to date under the insurance policy have been paid, and, except as set forth on
Schedule 3.24, as of the Closing Date there will be no liability of any of the
ERISA Affiliates under any such insurance policy or ancillary agreement with
respect to such insurance policy in the nature of a retroactive rate adjustment,
loss sharing
17
arrangement or other actual or contingent liability arising wholly or partially
out of events occurring prior to the Closing Date.
(h) None of the ERISA Affiliates has made any contribution to any
Plan that may be subject to any excise tax under Section 4972 of the Internal
Revenue Code.
(i) Any and all Plans which are pension plans within the meaning
of Section 3(2) of ERISA ("Pension Plans") and which are intended to be
qualified plans under Sections 401 and 501 of the Code, have remained qualified
under the Code since inception and have been determined by the IRS to be so
qualified, and the IRS has taken no action to revoke such determination or
qualification.
(j) Except as set forth in Schedule 3.24, all reports and
disclosures relating to the Plans required to be filed with or furnished to
governmental agencies, plan participants or plan beneficiaries have been or will
be filed or furnished in accordance with applicable law in a timely manner;
(k) There are no actions, suits or claims (other than routine
claims for benefits) pending, or, to the best of the Sellers' knowledge,
threatened against any Plan or against the assets funding any Plan;
(l) Other than applications for determination, no action is
pending with respect to the Plans before the IRS, the Department of Labor or
before any state or local governmental agency;
(m) No act or omission constituting a breach of fiduciary duties
has occurred with respect to the Plans or the assets thereof which could subject
the Company, Buyer or their assets, either directly or indirectly, to any
liability;
(n) None of the Plans of the Company constitute a "defined
benefit plan" as defined in Section 3(35) of ERISA; and
(o) The Sellers will deliver to the Buyer prior to the Closing
Date true and complete copies of: (a) all documents governing the Plans,
including, without limitation, all amendments thereto which will become
effective at a later date; (b) the latest IRS determination letter obtained with
respect to each of the Pension Plans; (c) Form 5500 for the most recent
completed plan year for each of the Plans, together with all schedules forming a
part thereof; (d) annuity contracts funding obligations of any Plan; (e) all
employment manuals; and (f) insurance policies or contracts with respect to the
Plans.
3.25 Company Transactions. The Company has entered into all
transactions with the Sellers under fair and reasonable terms and conditions.
3.26 Accounts Receivable and Advances. Schedule 3.26 contains a true
and accurate schedule of all accounts receivable and all loans and advances
received by or made to third parties by ("Advances") of the Company. Except as
disclosed on Schedule 3.26, (i) each account receivable of the Company
(collectively, the "Accounts Receivable") represents a sale made in the ordinary
course of business to non-affiliates and which arose pursuant to an
18
enforceable written contract for a bona fide sale of goods or for services
performed, and the Company has performed all of its obligations to perform the
services to which such Account Receivable relates, (ii) no Accounts Receivable
or Advance, in each case in excess of $1,000, is subject to any claim for
reduction, counterclaim, set-off, recoupment or other claim for credit,
allowances or adjustments by the obligor thereof, and (iii) except as reserved
against in the Financial Statements, all Accounts Receivable and Advances are
collectible in full within 90 days of their origination.
3.27 Accuracy of Statements. Neither the information supplied by the
Company or the Sellers to the Buyer nor this Agreement or any schedule, exhibit,
statement, list, document, certificate or other information furnished or to be
furnished by or on behalf of the Company or the Sellers to the Buyer in
connection with this Agreement or of the transactions contemplated hereby
contains or will contain any material untrue statement of a fact or omits or
will omit to state a material fact necessary to make the statements contained
herein, in light of the circumstances in which they are made, not misleading.
Copies of any documents furnished or to be furnished by the Company or the
Sellers or any of its representatives to the Buyer or any of its representatives
hereunder are and will be true, correct and complete copies. There is no
material fact which adversely affects and there is no material fact existing on
or prior to the Closing Date which, under current circumstances, is likely in
the future to adversely affect, the Company, its operations or its properties in
any respect which has not been set forth or referred to in this Agreement.
4. Representations and Warranties of the Buyer. The Buyer represents and
warrants to the Sellers at the date hereof as set forth below:
4.1 Power, Authorization and Validity. The Buyer has the right, power,
legal capacity and authority to enter into and perform its obligations under
this Agreement and the other Transaction Documents to which it is a party, and
no law, ordinance, judicial decree, order or regulation prohibits the Buyer from
executing this Agreement or performing any of its obligations hereunder. The
execution and delivery of this Agreement and the other Transaction Documents
have been, or will have been prior to the Closing, duly and validly approved and
authorized by the board of directors of the Buyer. No authorization or approval,
governmental or otherwise, is necessary in order to enable the Buyer to enter
into and to perform the terms of this Agreement or the other Transaction
Documents on its part to be performed. This Agreement is, and the other
Transaction Documents when executed and delivered by the Buyer shall be, the
valid and binding obligations of the Buyer enforceable in accordance with their
respective terms.
4.2 No Violation, Consents, Etc Neither the execution and delivery of
this Agreement by the Buyer, nor the consummation of the transactions
contemplated hereby by the Buyer, nor the fulfillment by the Buyer of all of its
obligations hereunder, will constitute or, with the giving of notice or passage
of time or both, would constitute a violation of or a default under, or conflict
with, any of the terms, conditions or provisions of any material contract,
agreement or instrument to which the Buyer is a party, or by which the Buyer or
its property or assets are or may be bound, or, to the best of Buyer's
knowledge, constitute a violation of any statute, law or ordinance or any rule,
regulation, decree or order of any governing entity or require the consent,
waiver, authorization or approval of, or any notice to or registration with, any
governing entity, lending institution or third party, or result in a material
breach or violation of any provision of the Buyer's Articles of Incorporation or
its Code of Regulations as currently in effect.
19
4.3 Securities Act. The Buyer acknowledges that the Shares has not
been registered under the Securities Act and are being acquired by it in a
transaction exempt from the registration requirements thereof. The Buyer is
acquiring the Shares for its own account for the purpose of investment and not
with a view to any distribution, or participation in any distribution, of the
Shares. The Buyer will not offer, sell, transfer or otherwise dispose of any
Shares or any interest therein except in accordance with the Securities Act.
4.4 Binding Agreement: This Agreement, and each of the other
instruments and agreements executed, or to be executed, by the Buyer and to be
delivered to the Sellers pursuant hereto constitutes when so executed, or will
constitute, the legal, valid and binding obligation of the Buyer, enforceable
against it in accordance with its terms, except as limited by bankruptcy,
insolvency or other laws or equitable principles affecting generally the
enforcement of creditor's rights and equitable principles limiting the right to
obtain specific performance or other remedies of an equitable nature.
5. Buyer's Conditions to Closing. The Buyer's obligations under this
Agreement are subject to the fulfillment or waiver as of the Closing of the
following conditions:
5.1 Representations and Warranties Correct. The representations and
warranties made by the Sellers in Section 3 hereof shall be true and correct in
all material respects when made, and shall be true and correct in all material
respects on the date hereof and on the Closing Date with the same force and
effect as if they had been made on and as of said dates.
5.2 Board Approval. The board of directors of the Buyer shall have
approved this Agreement and the Transaction Documents.
5.3 No Adverse Change. There shall not have occurred any material
adverse change in the financial condition, properties, assets (including the
Company Products and any other intangible assets), liabilities, business,
operations, or results of operations or prospects of the Company after the date
hereof.
5.4 No Litigation. There shall not be pending any legal proceeding:
(a) challenging or seeking to restrain or prohibit the consummation of the
Acquisition or any of the other transactions contemplated by this Agreement or
the Transaction Documents; (b) relating to the Acquisition and seeking to obtain
from the Buyer or the Company any damages or other relief that would be material
to the Buyer or the Company; (c) seeking to prohibit or limit in any respect the
Buyer's ability to vote, receive dividends with respect to or otherwise exercise
ownership rights with respect to the Shares; or (d) which would affect adversely
the right of the Buyer or the Company to own the assets, the Company Products
(including any intangible assets), or operate the business of the Company.
5.5 Third Party Consents. All consents or approvals required to be
obtained in connection with the Acquisition and the other transactions
contemplated by this Agreement shall have been obtained and shall be in full
force and effect.
20
5.6 Performance of Obligations. The Sellers shall have performed and
complied in all respects with all covenants, obligations and conditions of this
Agreement required to be performed and complied with by them as of the Closing.
5.7 Certificate of Sellers. The Buyer shall have received a
certificate executed on behalf of the Company by the Sellers and the officers of
the Company certifying that the conditions set forth in this Section 5 and
Section 7 have been satisfied.
5.8 Employment Agreement. Xxxx X. Xxxxxxxx shall execute an Employment
Agreement in substantially the form attached hereto as Exhibit 5.8.
5.9 Intentionally Omitted.
5.10 Sellers' Authority. The Sellers shall have full legal authority
to sell the Shares to the Buyer and to consummate the transactions under this
Agreement and under the Transaction Documents.
5.11 Regulatory Approvals. The Company, the Sellers and the Buyer, as
required, shall have obtained all regulatory approvals necessary to the
consummation of the Acquisition.
5.12 Dividends and Bonuses. During the period beginning August 2, 2002
and ending on the Closing Date, the Company shall not have (a) declared or
distributed cash dividends to the holders of the Shares and (b) paid bonuses to
its employees except as disclosed in the Schedule 5.12 or as contemplated in
Section 1.2 (c).
5.13 Opinion. The Buyer shall have received an opinion from counsel
for the Company and the Sellers, satisfactory to the Buyer, as to matters set
forth in Schedule 5.13.
5.14 Intentionally Omitted.
5.15 Securities Laws. All the transactions contemplated under this
Agreement and the Transaction Documents shall comply with applicable federal and
state securities laws.
5.16 Lease Agreement. The Sellers shall have executed the Extension of
Commercial Lease Agreement attached hereto as Exhibit 5.16 whereby the Company
or, at the Buyer's sole discretion, an affiliate or subsidiary of the Buyer will
lease from the Sellers space currently occupied by the Company at 00000
Xxxxxxxxx Xxxx, Xxxxx 000, Xxxxxxxx, Xxxxxxxxxx 00000-0000, effective as of the
Closing Date.
6. Sellers' Conditions to Closing.
The Sellers' obligations under this Agreement are subject to the
fulfillment or waiver as of the Closing of the following conditions:
6.1 Representations and Warranties Correct. The representations and
warranties made by the Buyer in Section 4 hereof shall be true and correct in
all material respects
21
when made, and shall be true and correct in all material respects on the Closing
Date with the same force and effect as if they had been made on and as of said
date.
6.2 Employment Agreement. The Company shall execute an Employment
Agreement with Xxxx X. Xxxxxxxx in substantially the form attached hereto as
Exhibit 5.8.
6.3 Lease Agreement. The Company or, at the Buyer's sole discretion, an
affiliate or subsidiary of the Buyer shall have executed the Extension of
Commercial Lease Agreement attached hereto as Exhibit 5.16.
6.4 Certificate of Officers. The Sellers shall have received a
certificate executed on behalf of the Buyer by its president certifying that the
conditions set forth in this Section 6 and Section 7 have been satisfied.
6.5 Board Approval. The board of directors of the Buyer shall have
approved this Agreement and the Transaction Documents.
6.6 No Litigation. There shall not be pending any legal proceeding: (a)
challenging or seeking to restrain or prohibit the consummation of the
Acquisition or any of the other transactions contemplated by this Agreement or
the Transaction Documents or (b) relating to the Acquisition and seeking to
obtain from the Sellers any damages or other relief that would be material to
the Sellers.
6.7 Third Party Consents. All consents or approvals required to be
obtained in connection with the Acquisition and the other transactions
contemplated by this Agreement shall have been obtained and shall be in full
force and effect.
6.8 Performance of Obligations. The Buyer shall have performed and
complied in all respects with all covenants, obligations and conditions of this
Agreement required to be performed and complied with by it as of the Closing.
6.9 Regulatory Approvals. The Company, the Sellers and the Buyer, as
required, shall have obtained all regulatory approvals necessary to the
consummation of the Acquisition.
7. Mutual Covenants.
7.1 Confidentiality. The parties agree that the terms and conditions of
the Confidentiality Agreement dated June 3, 2002 between the parties, a copy of
which is attached as Exhibit 7.1, will remain in full force and effect. Should
there be any conflicts between the Confidentiality Agreement and this Agreement,
this Agreement shall rule.
7.2 Public Announcement. The parties shall make no public announcement
concerning this Agreement prior to Closing, except those required by law,
without the prior written consent of the other party. A party may make
disclosure if required or, in the reasonable judgment of such party or its
counsel, advisable under applicable law or regulation or any applicable rules
and regulations of a national securities exchange.
22
7.3 Tax Returns. After the Closing Date, the Buyer shall have the
exclusive authority to prepare and file, or cause to be prepared and filed, all
Tax Returns previously unfiled by the Company. The Buyer may amend any
previously filed returns upon the Sellers' prior written consent. From the date
of this Agreement and prior to the Closing, neither the Sellers nor the Company
nor any person acting on its or their behalf shall file or cause to be filed any
amended Return without the prior written consent of the Buyer, which consent
shall not be unreasonably withheld.
7.4 Further Assurances. Following the Closing, each party agrees to
cooperate fully with the other parties and to execute such further instruments,
documents and agreements and to give such further written assurances, as may be
reasonably requested by any other party at that other party's cost to give
effect to the transactions described herein and contemplated hereby. Sellers
will use best efforts to reasonably cooperate with the Buyer and to discuss the
Financial Statements, the internal controls of the Company and the disclosure
controls and procedures of the Company in connection with the Buyer's efforts to
comply with applicable laws, rules and regulations.
7.5 Covenant Not to Compete. The Sellers covenant and agree for a period
of two (2) years after the Closing Date, the Sellers shall not participate or
compete, without the express written consent of the Company, directly or
indirectly, in any form, fashion, or manner whatsoever, as a partner, officer,
director, stockholder, advisor, consultant, financier, employee or in any form
or capacity in any other business which sells, markets or otherwise provides
products that are competitive with or similar to the Company Products. The
Sellers acknowledge that breach of this covenant would cause irreparable damage,
such that money damages would be an inadequate remedy. Accordingly, in the event
of any breach of this Section 7.5, in addition to all other claims for damages
and remedies which may be available under this Agreement, the Company shall be
entitled to a preliminary injunction and a permanent injunction restraining the
Sellers from any such breach, without any showing of actual money damages.
7.6 Conduct of the Company's Business. The Sellers covenant and agree
that from August 2, 2002 through the Closing Date and, unless the Buyer shall
otherwise consent in writing or as otherwise expressly contemplated by this
Agreement:
(a) The business of the Company shall be conducted only in, and the
Company shall not take any action except in, the ordinary course of business
consistent with past practice and the Company shall use its best efforts to
preserve intact its present business organization, keep available the services
of its current officers and employees, maintain its assets (other than those
permitted to be disposed of hereunder) in good repair and condition, maintain
its books of account and records in the usual, regular and ordinary manner and
preserve its goodwill and ongoing business;
(b) The Company shall not directly or indirectly do any of the
following: (i) issue, sell, pledge, dispose of or encumber (a) any capital stock
of the Company, or (b) any property or assets of the Company except inventory
and immaterial assets in the ordinary course of business consistent with past
practice; (ii) amend or propose to amend its Articles of Incorporation or
By-laws; (iii) split, combine or reclassify any outstanding shares of its
capital stock, or declare, set aside or pay any dividend payable in cash, stock,
property or otherwise with
23
respect to such shares except with the written consent of the Buyer; (iv)
redeem, purchase, acquire or offer to acquire any shares of its capital stock;
or (v) enter into any contract, agreement, commitment or arrangement with
respect to any of the matters set forth in this paragraph (b);
(c) The Company shall not (i) issue, sell, pledge or dispose of, or
agree to issue, sell, pledge or dispose of, any additional shares of, or
securities convertible or exchangeable for, or any options, warrants or rights
of any kind to acquire any shares of, its capital stock of any class or other
property or assets; (ii) acquire (by merger, consolidation or acquisition of
stock or assets) any corporation, partnership or other business organization or
division thereof or any amount of assets; (iii) incur or guarantee any
indebtedness for borrowed money or refinance any such indebtedness or issue or
sell any debt securities; (iv) enter into or modify any contract, lease,
agreement or commitment, or permit or perform any act that would cause a breach
of any such contract, lease, agreement or commitment; (v) terminate, modify,
assign, waive, release or relinquish any contract rights or amend any rights or
claims; (vi) discharge or satisfy any claim or settle or compromise any claim,
action, suit or proceeding pending or threatened against the Company, or, if the
Company may be liable or obligated to provide indemnification, against the
Company's directors or officers, before any court, governmental agency or
arbitrator; (vii) make any loans, advances or capital contributions to or
investments in, any other person, (viii) alter through merger, liquidation,
reorganization, restructuring or in any other manner the corporate structure or
ownership of the Company; or (ix) violate or fail to perform, in any respect,
any obligation imposed upon the Company by any applicable laws, orders or
decrees, ordinances, government rules or regulations or conciliation agreements;
(d) The Company shall not grant any increase in the salary or other
compensation of its directors, officers or employees, except reasonable salary
increases, in the case of employees who are not directors or executive officers
of Company, in the ordinary course of business consistent with past practice, or
grant any bonus to any employee or enter into any employment agreement or make
any loan to or enter into any transaction of any other nature with any employee
of the Company;
(e) The Company shall not take any action to institute any new
severance or termination pay practices with respect to any directors, officers
or employees of the Company or to increase the benefits payable under its
severance or termination pay practices;
(f) The Company shall not adopt or amend, in any respect except as
disclosed in writing to Buyer, any Plan; and
(g) The Company shall use its best efforts, to the extent not
prohibited by the foregoing provisions of this Section 7.6, to maintain its
relationships with its suppliers and customers or clients and others having
business dealings with it, and if and as requested by the Buyer, (i) the Company
shall use its best efforts to make reasonable arrangements for representatives
of the Buyer to meet with customers and suppliers of the Company and (ii) the
Company shall schedule, and the management of the Company shall participate in,
meetings of representatives of the Buyer with employees of the Company.
24
7.7 Exclusivity. The parties agree that the terms and conditions of
the letter agreement dated August 9, 2002, a copy of which is attached as
Exhibit 7.7, shall remain in full force and effect. Should there be a conflict
between the Exclusivity Agreement and this Agreement, this Agreement shall rule.
7.8 Section 338(h)(10).
(a) Buyer and Sellers agree, with respect to the acquisition of
the Shares pursuant to this Agreement, to prepare and file the election provided
by Section 338(h)(10) of the Code and any comparable election under state,
county, or local law (collectively and separately the "Election"). Each party
shall provide to the other all information necessary to permit the making of the
Election. Buyer and Sellers shall, no later than thirty (60) days after the
Closing Date, execute and file Internal Revenue Service Form 8023 and all other
forms, returns, elections, schedules and documents as may be required to effect
and preserve a timely Election.
(b) In connection with the Election and no later than thirty (30)
days prior to the last date for filing a timely Election, Buyer and Sellers
shall act together in good faith to (i) determine and agree upon the amount of
the "adjusted grossed-up basis" of the Company's assets, and (ii) agree upon the
proper allocation of the adjusted grossed-up basis among the Company's assets in
accordance with the Code and the treasury regulations promulgated thereunder
(the "Allocation"). The Allocation shall be determined based upon a formal
appraisal to be performed at Buyer's expense. The Sellers shall calculate the
gain or loss, if any, resulting from the Election in a manner consistent with
the Allocation and will not take any position inconsistent with the Election,
the Allocation or the amount of the adjusted grossed-up basis in any tax return
or otherwise.
(c) Upon making the Election, Buyer shall pay to Sellers as
additional consideration for the Shares, and shall indemnify and hold the
Sellers harmless from liabilities resulting from the Election, including without
limitation, from the amount of (i) the Sellers' additional tax liability
attributable to the making of the Election (i.e. the excess, if any, of each
Seller's tax liability resulting from the application of Section 338(h)(10) over
the Seller's tax liability that would have resulted from the sale of the
Seller's Shares in the absence of the Election, plus (ii) each Seller's
additional tax liability (net of any tax benefit to the Seller as a result
thereof, including any federal tax deductions for state and local taxes)
resulting from all payments made to such Seller under this Section 7.8(c).
Notwithstanding the foregoing, Buyer will not indemnify Sellers from additional
taxes or other damages resulting from: (i) Sellers' breach of Sellers'
representations and warranties of this Agreement; and/or (ii) Sellers' failure
to comply with the covenants of this Agreement.
7.9 Confidentiality. Buyer and Sellers agree that, unless and until
the Closing has been consummated, except for mutually agreeable press releases
and required governmental announcements and filings, Sellers, Buyer and its
officers, directors, and other representatives will hold in strict confidence,
and will not use to the detriment of each other all data and information about
the business of the Company obtained in connection with this transaction, this
Agreement, or otherwise. If the transactions contemplated by this Agreement are
not consummated, Buyer will return to Seller all that data and information that
Seller may
25
reasonably request, including worksheets, test reports, manuals, lists,
memoranda, and other documents made available to Buyer in connection with this
transaction.
8. Agreement to Indemnify.
8.1 Sellers' Indemnity. The Sellers will jointly and severally indemnify
and hold harmless the Buyer against, and reimburse the Buyer on demand for, any
liability, damage, loss, obligation, demand, judgment, fine, penalty, cost or
expense (including reasonable attorneys' fees and expenses, and the costs of
investigation incurred in defending against or settling such liability, damage,
loss, cost or expense or claim therefor and any amounts paid in settlement
thereof) imposed on or reasonably incurred by the Buyer as a result of (i) any
misrepresentation or breach of any representation or warranty of the Sellers
under this Agreement; and (ii) any breach of any agreement, obligation or
covenant set forth herein on the part of the Sellers under this Agreement, (iii)
any liabilities, deficiencies or obligations resulting from the failure of the
Company or the Sellers to pay any Taxes relating to any period prior to the
Closing, including any obligations of Buyer imposed by Section 338(h)(10) of the
Code or the treasury regulations promulgated thereunder, and (iv) any
liabilities of the Company whether accrued, absolute, contingent or otherwise
that have been incurred for any period prior to the Closing Date that are not
disclosed on the Financial Statements, provided, however, that any such
liability may be offset by amounts of such liability billed to, and collected
within ninety (90) days of such billing from, a customer (collectively, the
"Buyer's Damages"). "Buyer's Damages" as used herein is not limited to matters
asserted by third parties, but includes damages incurred or sustained by the
Buyer in the absence of claims by a third party. Buyer shall have the right to
set off any Buyer's Damages incurred against any amounts due from Buyer to
Sellers under this Agreement or otherwise.
8.2 Buyer's Indemnity. The Buyer will indemnify and hold harmless the
Sellers against, and reimburse the Sellers on demand for, any liability, damage,
loss, obligation, demand, judgment, fine, penalty, cost or expense (including
reasonable attorneys' fees and expenses, and the costs of investigation incurred
in defending against or settling such liability, damage, loss, cost or expense
or claim therefor and any amounts paid in settlement thereof) imposed on or
reasonably incurred by the Sellers because of (i) any misrepresentation or
breach of any representation or warranty on the part of the Buyer under this
Agreement and (ii) any breach of any agreement, obligation or covenant set forth
herein on the part of the Buyer under this Agreement (collectively, the
"Sellers' Damages"). "Sellers' Damages" as used herein is not limited to matters
asserted by third parties, but includes damages incurred or sustained by the
Sellers in the absence of claims by a third party.
8.3 Procedures Regarding Indemnity Party Claims. The procedures to be
followed by the Buyer and the Sellers with respect to indemnification claims
shall be as follows:
(a) Notices. Whenever any claim shall arise or any proceeding shall
be instituted by the Buyer or the Sellers pursuant to this Section 8.3, (the
"Indemnified Party") shall promptly notify the person(s) against whom such
indemnity may be sought (the "Indemnifying Party") in writing and, when known,
the facts constituting the basis for such claim or proceeding and the amount or
an estimate of the amount of the indemnified liability arising therefrom, if
known. In addition, each party hereto hereby agrees to provide to the other
party written notification and copies of communication from third parties
received or made by
26
such parties relating to any matter subject to any indemnification hereunder.
The failure by an Indemnified Party to timely furnish to the Indemnifying Party
any notice or copy required to be furnished under this Section 8.3 shall not
relieve the Indemnifying Party from any responsibility for the matters relating
to such notice or copy, unless such failure materially adversely prejudices the
ability of the Indemnifying Party to defend such matter.
(b) Defense of Claims. In connection with any claim giving rise
to indemnity hereunder arising out of any claim or legal proceeding by any
person who is not an Indemnified Party, the Indemnifying Party at its sole cost
and expense may, upon written notice to the Indemnified Party, elect to assume
the defense of any such claim or legal proceeding; provided, however, that if
the amount of the claim exceeds the Indemnifying Party's indemnification
obligations hereunder, the Indemnified Party may elect to defend such claim or
legal proceeding, in which case the Indemnifying Party may participate in but
not control the defense of such action, with its counsel and at its own expense.
If the Indemnifying Party has so elected to assume the defense of any such claim
or legal proceeding, such defense shall be conducted by counsel chosen by the
Indemnifying Party, provided that such counsel is reasonably satisfactory to the
Indemnified Party. The Indemnified Party shall be entitled to participate in
(but not control) the defense of any such action, with its counsel and at its
own expense. If the Indemnifying Party has elected to assume the defense of any
claim or legal proceeding as provided herein, the Indemnified Party shall not be
entitled to indemnification as to fees and expenses of any counsel retained by
the Indemnified Party after the time at which the Indemnifying Party has so
elected unless the Indemnifying Party consents thereto in writing.
(c) Settlement or Compromise of Indemnified Liability. The
Indemnified Party shall not settle or compromise any indemnified liability if
such settlement or compromise affects the rights of the Indemnifying Party
without the prior written consent of the Indemnifying Party, which consent shall
not be unreasonably withheld. In the event that the Indemnifying Party shall so
assume such defense, it shall not compromise or settle any such claim, action,
or suit if such settlement affects the rights or obligations of the Indemnified
Party unless:
(i) the Indemnified Party gives its prior written consent,
which shall not be unreasonably withheld; or
(ii) (1) the terms of the compromise or settlement of such
claim, action, or suit provide that the Indemnified Party shall have no
responsibility for the discharge of the settlement amount and impose no other
obligations or duties on the Indemnified Party, (2) the compromise or settlement
discharges all rights against the Indemnified Party with respect to such claim,
action, or suit, and (3) in the event of a settlement or compromise pursuant to
an agreed judgment, the Indemnified Party has not, within twenty (20) days after
having received notice of the proposed compromise or settlement from the
Indemnifying Party, given the Indemnifying Party notice that it reasonably
believes the settlement or compromise will jeopardize its ability to prevail on
issues similar to the issues that are the subject of such claim, action, or
suit.
8.4 Limitation on Claims. Nothing herein shall limit any potential
remedies and liabilities of either the Sellers or Buyer arising under applicable
state and federal laws with
27
respect to any fraudulent act committed by the other party or director, officer,
employee or agent of the other party.
8.5 Survival of Representations and Warranties. All
representations, warranties, covenants, and obligations in this Agreement, the
Schedules, and any certificates delivered pursuant to this Agreement will
survive the Closing indefinitely. The right to indemnification, payment of
damages or other remedy based on such representations, warranties, covenants,
and obligations will not be affected by any investigation conducted with respect
to, or any knowledge acquired (or capable of being acquired) at any time,
whether before or after the execution and delivery of this Agreement or the
Closing Date, with respect to the accuracy or inaccuracy of any representation
or warranty, or on the performance of or compliance with any covenant or
obligation, will not affect the right to indemnification, payment of damages, or
other remedy based on such representations, warranties, covenants, and
obligations.
9. Miscellaneous.
9.1 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California without giving
effect to any choice of law or conflict of law rules or provisions (whether of
the State of California or any other jurisdiction) that would cause the
application of the laws of any other jurisdiction.
9.2 Binding upon Successors. Subject to, and unless otherwise
provided in, this Agreement each and all of the covenants, terms, provisions and
agreements contained herein shall be binding upon, and inure to the benefit of,
the successors, executors and heirs of the parties. Except as contemplated
herein, none of the parties may assign the benefit of any of its rights under
this Agreement to any other person.
9.3 Severability. If any provision of this Agreement, or the
application thereof, shall for any reason and to any extent be invalid or
unenforceable, the remainder of this Agreement and application of such provision
to other persons or circumstances shall be interpreted so as best to reasonably
effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision which will achieve, to the extent possible, the economic,
business and other purposes of the void or unenforceable provision.
9.4 Entire Agreement. This Agreement, the exhibits hereto, the
documents referenced herein, and the exhibits thereto, constitute the entire
understanding and agreement of the parties hereto with respect to the subject
matter hereof and thereof and supersede all prior and contemporaneous agreements
or understandings, inducements or conditions, express or implied, written or
oral, between the parties with respect hereto and thereto, including but not
limited to the letter agreement set forth as Exhibit 7.7. The express terms
hereof control and supersede any course of performance or usage of the trade
inconsistent with any of the terms hereof.
9.5 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original as against any party whose
signature appears thereon and all of which together shall constitute one and the
same instrument. This Agreement shall become binding when one or more
counterparts hereof, individually or taken together, shall bear the signatures
of all of the parties reflected hereon as signatories.
28
9.6 Expenses. The parties shall each pay their own legal,
accounting, financial advisory and consulting fees and other out-of-pocket
expenses related to the negotiation, preparation and carrying out of this
Agreement and the transactions herein contemplated.
9.7 Amendment and Waivers. Any term or provision of this
Agreement may be amended, and the observance of any term of this Agreement may
be waived (either generally or in a particular instance and either retroactively
or prospectively) only by a writing signed by the parties. The waiver by a party
of any breach hereof for default in payment of any amount due hereunder or
default in the performance hereof shall not be deemed to constitute a waiver of
any other default or any succeeding breach or default.
9.8 Release by the Sellers. Following the Closing, the Sellers
agree that they shall have no claim against the Company, and hereby release the
Company from any and all current or future claims arising against the Company.
9.9 No Waiver. The failure of any party to enforce any of the
provisions hereof shall not be construed to be a waiver of the right of such
party thereafter to enforce such provisions.
9.10 Notices. Any notice provided for or permitted under this
Agreement will be treated as having been given when (a) delivered personally,
(b) sent by commercial overnight courier with written verification of receipt,
or (c) mailed postage prepaid by certified or registered mail, return receipt
requested, to the party to be notified, at the address set forth below, or at
such other place of which the other party has been notified in accordance with
the provisions of this Section 9.10.
Sellers: Xx. Xxxx X. Xxxxxxxx
0000 Xxx Xxxxxxx,
Xxxxx Xxxxxx, XX 00000
Attn: Xxxx X. Xxxxxxxx
With copy to: Xxxxxxxx X. Xxxxxx, Esq.
000 Xxxxxxx Xxxxxx Xxxxx
Xxxxxxx Xxxxx, Xxxxxxxxxx 00000
Buyer: Modern Technologies Corp.
0000 Xxxxxx Xxxxxx
Xxxxxx, Xxxx 00000-0000
Attn: Xxxxx Xxxxxxxx
With copy to: Coolidge, Wall, Xxxxxxx & Xxxxxxx
Xxxxx 000
00 Xxxx Xxxxx Xxxxxx
Xxxxxx, Xxxx 00000
Attn: Xxxxxxx X. Xxxxx, Esq.
29
Such notice will be treated as having been received upon actual receipt.
9.11 Construction of Agreement. The titles and headings herein
are for reference purposes only and shall not in any manner limit the
construction of this Agreement, which shall be considered as a whole. This
Agreement has been reviewed and negotiated by the parties and their respective
counsel, and the parties desire that this Agreement be interpreted without
reference to any principle of construction based upon conclusions regarding
responsibility for drafting.
9.12 No Joint Venture. Nothing contained in this Agreement shall
be deemed or construed as creating a joint venture or partnership between any of
the parties hereto. No party is by virtue of this Agreement authorized as an
agent, employee or legal representative of any other party. No party shall have
the power to control the activities and operations of any other and their status
is, and at all times, will continue to be, that of independent contractors with
respect to each other. No party shall have any power or authority to bind or
commit any other. No party shall hold itself out as having any authority or
relationship in contravention of this Section 9.12.
9.13 Pronouns. All pronouns and any variations thereof shall be
deemed to refer to the masculine, feminine or neuter, singular or plural, as the
identity of the person, persons, entity or entities may require.
9.14 Absence of Third Party Beneficiary Rights. No provisions of
this Agreement are intended, nor shall be interpreted, to provide or create any
third party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, shareholder, partner of any party hereto or any other
person or entity unless specifically provided otherwise herein, and, except as
so provided, all provisions hereof shall be personal solely between the parties
to this Agreement.
9.15 Termination. This Agreement may be terminated at any time
prior to the Closing Date by mutual consent of the Buyer and the Company.
9.16. Arbitration. Except as otherwise provided herein, all
disputes arising under this Agreement shall be resolved by binding arbitration
by a single arbitrator selected by agreement of the parties, or if the parties
cannot agree on a single arbitrator, by the majority decision of three
arbitrators, one of whom shall be chosen by Buyer, one of whom shall be chosen
by Sellers and the third of whom shall be chosen by the other two arbitrators.
The arbitrator(s) shall be selected on the basis of their training and
experience in the matter to be decided. The Federal Rules of Evidence and the
Federal Rules of Civil Procedure shall govern any arbitration proceedings. All
arbitration proceedings shall be conducted in accordance with the rules of the
American Arbitration Association ("AAA"), except to the extent of any
inconsistencies with the Federal Rules of Evidence and the Federal Rules of
Civil Procedure. The AAA shall not be engaged to conduct the arbitration.
Arbitration proceedings shall be conducted at a location to be mutually agreed
upon by Buyer and Seller. Arbitration proceedings shall be conducted as
expeditiously as possible with due consideration to the complexity of the
dispute in question. The arbitrator(s) shall issue a written opinion within
thirty (30) business days after the hearing of final arguments by the parties.
The decision of the arbitrator(s) shall be
30
rendered in writing giving the reason for the decision. The arbitration decision
shall be final and binding on the parties, without any right of appeal, except
that an application to vacate or modify the award may be made by either party in
the event of coercion, fraud or misconduct in procuring an award. Judgment upon
an arbitration award may be entered in any court having proper jurisdiction. The
expenses of any arbitration shall be paid by the substantially non-prevailing
party. If there is no substantially prevailing party, each side shall pay their
own expenses, including one-half of the cost of arbitration.
[Signature Pages to Follow]
31
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first set forth above.
"SELLERS"
By: /s/ Xxxx X. Xxxxxxxx
-------------------------------
Xxxx X. Xxxxxxxx
By: /s/ Xxxxxx Xxxxxxxx
-------------------------------
Xxxxxx Xxxxxxxx
By: /s/ Xxxxx X. Xxxxxxxx
-------------------------------
Xxxxx X. Xxxxxxxx
By: /s/ Xxxxxx Xxxxxxxx
------------------------------
Xxxxxx Xxxxxxxx
"BUYER"
Modern Technologies Corp.
By: /s/ Xxxxx X. Xxxxxxxx
-------------------------------
Name: Xxxxx X. Xxxxxxxx
-----------------------------
Title: CFO
----------------------------
Parent hereby agrees to guarantee the performance by Buyer, of Buyer's
obligations under Section 1.2 (b), of this Agreement.
"PARENT"
MTC Technologies, Inc.
By: /s/ Xxxxx X. Xxxxxxxx
-------------------------------
Name: Xxxxx X. Xxxxxxxx
-----------------------------
Title: CFO
----------------------------
EXHIBIT 1.1(a)
LIST OF SELLERS
Xxxx Xxxxxxxx 4,000 Shares
Xxxxxx Xxxxxxxx 3,000 Shares
Xxxxx X. Xxxxxxxx 1,500 Shares
Xxxxxx Xxxxxxxx 1,500 Shares
EXHIBIT 1.2(b)
EARN-OUT FORMULA
Sellers shall be entitled to an earn-out payment calculated in accordance with
the following formulas, based upon the audited operating results of Company in
each of the years ended December 31, 2002, 2003, and 2004.
For the year ended December 31, 2002 Sellers' Earn-Out shall be equal to the
amount, if any, that Operating Profit exceeds $1.4 million, up to a maximum of
$1.1 million. For purposes of this calculation, Operating Profit shall be
calculated in the same manner used to calculate Operating Profit in the
Executive Summary of the Company's Offering Memorandum (attached hereto).
Further, should Buyer make any changes to Company's General and Administrative
and/or Fringe Benefits, Sellers shall neither be benefited or harmed by such
changes. Any such changed expenses shall be set equal to the average monthly
expense for the previous quarter for each month of the period from the Effective
Date to 12/31/02 for which such expense was changed, for purposes of the 2002
Earn-Out Calculation. Any Operating Profit in excess of $2.5 million, for the
year ended December 31, 2002, shall be added to Actual Gross Margin for the year
ended December 31, 2003, for purposes of calculating the 0000 Xxxx-xxx
For the years ended December 31, 2003 and 2004, Sellers' Earn-Out shall be based
on Company's Actual Gross Margin. Actual Gross Margin means the actual gross
margin of Company calculated on the same basis as presented in the Executive
Summary of the Company's offering memorandum (attached hereto), except for 2003,
Actual Gross Margin shall include the excess, if any, of Actual Operating Profit
in excess of $2.5 million for the year ended December 31, 2002
Minimum Gross Margin is calculated by subtracting $1.1 million from the
Projected Gross Margin for each of the year's ended December 31, 2003 and 2004,
as presented in the Executive Summary of the Company's offering memorandum.
Year End (000's) 2003 2004
Projected Gross Margin $4,845 $5,113
Minimum Gross Margin $3,745 $4,013
The earn-out for the year ended December 31, 2003 shall be equal to the amount,
if any, by which the Actual Gross Margin exceeds the Minimum Gross Margin, up to
a maximum of $1.1 million.
For the year ended December 31, 2004, the earn-out will be equal to the lesser
of:
a. the amount by which the combined Actual Gross Margin for the years
ended December 31, 2003 and 2004, (including the Operating
Earnings, if any, in excess of $2.5 million, for the year ended
December 31, 2002) exceeds the combined Minimum Gross Margin for
the same periods (i.e. $7.758 million); or
b. $3.3 million less the actual earn-outs for the years ended
December 31, 2002 and 2003
Examples for 2002 (000's):
Case 1 Case 2 Case 3 Case 4
(A) 2002 Projected Operating Profit $2,500 $2,500 $2,500 $2,500
(B) Actual Operating Profit $1,000 $1,700 $2,500 $2,750
(C) Minimum Operating Profit $1,400 $1,400 $1,400 $1,400
(D) Excess over Minimum OP (B-C) $ - $ 300 $1,100 $1,350
(E) 0000 Xxxx-xxx =
Lesser of (D) or $1,100 $ - $ 300 $1,100 $1,100
Examples for 2004 (000's):
-----------------------------------
Case 1 Case 2 Case 3
------ ------ ------
1 Cumulative Actual Gross Margin (2003-4) $ 9,758 $ 9,958 $ 10,500
2 Cumulative Minimum Gross Margin (2003-4) $ 7,758 $ 7,758 $ 7,758
3 Difference (1-2) $ 2,000 $ 2,200 $ 2,742
4 Earn-out paid for 2003 $ 0 $ 1,000 $ 1,100
5 $2,200 less 0000 Xxxx-Xxx $ 2,200 $ 1,200 $ 1,100
6 2004 Earn-Out (Lesser of 3 or 5) $ 2,000 $ 1,200 $ 1,100
SCHEDULE 5.13
FORM OF OPINION LETTER FOR THE SELLERS
(a) The Company is a corporation duly incorporated and validly
existing and in good standing under the laws of the State of California with the
corporate power and authority to own its assets and to transact its business as
now being conducted; and the Company is duly licensed or qualified to do
business as a foreign corporation and is in good standing in all jurisdictions
in which the character of the properties and assets owned or held by it or the
nature of business now conducted by it requires it to be so licensed or
qualified;
(b) he authorized and issued capital stock of the Company is as set
forth in Section 3.2 of the Stock Purchase Agreement, and all of the outstanding
shares of the Company's common stock are duly and validly issued, fully paid and
nonassessable;
(c) Each of the Sellers has full right, power, legal capacity and
authority to execute, deliver and perform the Stock Purchase Agreement and the
related agreements thereto to which he or she is a party and to consummate the
transactions contemplated thereby. The Stock Purchase Agreement and the related
agreements thereto, when duly executed and delivered by each Seller, shall
constitute legal, valid and binding obligations of the each Seller, enforceable
against such parties in accordance with their respective terms, except as such
enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting the enforcement of creditors' rights generally
and by general principles of equity (whether applied in a proceeding at law or
in equity);
(d) Except for such as have been obtained, no authorization, approval
or consent of or declaration or filing with any governmental authority or agency
is necessary or required of the Company or the Sellers in connection with the
execution and delivery of the Stock Purchase Agreement or the related agreements
thereto or the performance by the Sellers of their obligations thereunder;
(e) The execution and delivery of the Stock Purchase Agreement and
the related agreements thereto by the Sellers (if named as a party therein) and
the performance by him or her of his or her obligations thereunder will not
violate any provision of any existing law applicable to the Company or any
Seller, or of any order, judgment, award or decree of any arbitrator or
governmental authority applicable to the Company or the Sellers, the charter or
bylaws of, or any securities issued by, the Company, the violation of which will
prevent the Sellers from executing, delivering or performing the Stock Purchase
Agreement or the related agreements thereto in which any of them is a named
party;
(f) No Seller is in default under any order, judgment, award or
decree of any arbitrator or governmental authority binding upon or affecting any
of the Sellers that will prevent the Sellers from executing, delivering or
performing the Stock Purchase Agreement or the related agreements thereto in
which any of them is a named party;
(g) No litigation of or before any arbitrator, court or governmental
authority is pending or threatened against the Company or the Sellers;
(h) Immediately prior to the Closing, the Sellers have good and valid
title to the Shared listed on Exhibit 1.1(a) to the Stock Purchase Agreement,
free and clear of all liens, charges, encumbrances or adverse claims of any
nature, and have full fight, power and authority to deliver the stock
certificates evidencing all of the outstanding shares of Company's common stock
to Buyer pursuant to the Stock Purchase Agreement; and
(i) The offer and sale of the Shares to the Sellers pursuant to the
Stock Purchase Agreement are exempt from the registration and prospectus
delivery requirements of the Securities Act of 1933, as amended, and all
applicable state securities laws and regulations.