[CUSIP NO. 000000000] SCHEDULE 13D
EXHIBIT 2
ASSET PURCHASE AGREEMENT, DATED NOVEMBER 19, 1998,
BY AND AMONG BEST IC LABS, XXXX XXXXXX AND ISSUER
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement ("Agreement") made as of the 19th day of
November, 1998, by and among RELIABILITY INCORPORATED, a Texas corporation
(the "Purchaser"), BASIC ENGINEERING SERVICES AND TECHNOLOGY LABS, INC., a
California corporation (the "Seller"), and XXXX XXXXXX, majority stockholder
of the Seller ("Shareholder").
W I T N E S S E T H:
WHEREAS, the parties hereto desire to enter into an agreement whereby
Seller will transfer to Purchaser, and Purchaser will acquire from Seller
certain assets;
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants herein set forth, the parties hereto agree as follows:
1. CERTAIN DEFINITIONS. For purposes of this Agreement, the following
terms shall have the following meanings:
(a) "Backlog" shall mean all Devices at the Locations on a
specified date held for Processing and any received thereafter and all orders
for burn-in boards and other products to be manufactured by Seller at a
Location.
(b) "Closing" shall mean consummation of the transactions provided
for herein.
(c) "Closing Date" shall have the meaning set out in Section 5.
(d) "Contracts" shall mean those contracts, agreements,
undertakings, commitments and leases listed on Schedule 10(j).
(e) "Costs" shall have the meaning set out in Section 16.
(f) "Customer Property" has the meaning set out in Section 2.
(g) "Devices" shall mean integrated circuits.
(h) "Disclosure Package" is the information package to be
delivered by Seller pursuant to Section 6 within five business days after the
execution hereof, containing all of the Schedules required of Seller and
referred to herein.
NOVEMBER 19, 1998
(i) "Effective Date" shall mean December 1, 1998.
(j) "Equipment" means all equipment, machinery, tools, office and
other furniture, fixtures, leasehold improvements, burn-in boards, and
vehicles, located at or used in connection with the business conducted at the
Locations.
(k) "Inventory" shall mean all merchandise held for resale by the
Seller on the Closing Date at the Locations, including but not limited to
burn-in boards and other products, and all materials, raw products and
supplies used in the manufacture of burn-in boards and other products for
Seller's customers at the Locations.
(l) "Locations" shall mean both of, and "Location" shall mean
either of, the Seller's test laboratories in Austin, Texas (the "Austin
Location") and Singapore (the "Singapore Location").
(m) "Note" shall mean the note given in partial payment of the
purchase price, as described in Section 4(c).
(n) "Processing" or "Processed" shall mean burn-in, test,
processing and any other services specified by a customer performed on a
customer's Device.
(o) "Proprietary Rights" shall mean all those trade secrets,
copyrights (and applications therefor), patents (and applications therefor),
technical documentation, programs and software, computer programs, plans,
designs, drawings and other instructions to conduct the Processing,
specifications, inspection reports and intellectual property rights listed on
Schedule 10(s) and all proprietary rights and intellectual property rights
necessary to operate the business at the Locations.
(p) "Purchaser's Designee" shall mean Reliability Singapore Pte Ltd.
(q) "RI Shares" shall mean the shares of Purchaser's Common Stock,
no par value, to be issued hereunder.
(r) "SEC" shall mean the Securities and Exchange Commission.
(s) "Work-in-Progress" means all Devices being Processed at the
Locations at a specified time and all burn-in boards and other products being
manufactured for Seller's customers at the Locations.
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2. SALE AND PURCHASE OF ASSETS. Subject to the terms and conditions
herein set forth, Seller agrees to sell, convey, assign, transfer and deliver
to Purchaser, the following assets (collectively, the "Assets"):
(a) all of the Equipment;
(b) all of the Inventory;
(c) all of the Seller's interest in those licenses and permits
listed on Schedule 10(k);
(d) all of the Contracts specified on Exhibit 2(d);
(e) all of the Seller's books and records with respect to the
Locations relating to:
(i) customer and supplier lists, records and correspondence;
(ii) purchase orders representing orders for merchandise
purchased or sold by the Seller and for services to be provided by
Seller;
(iii) all documents relating to Backlog and all Work-in
Progress as of the Effective Date;
(iv) all books of account, copies of invoices and back-up
data for the accounts receivable; and
(v) employees;
(f) all of the Seller's interest in the telephone numbers and
telephones used by the Seller;
(g) all office and maintenance supplies at the Locations;
(h) all Proprietary Rights;
(i) the prepaid expenses, deposits and other assets described on
Schedule 2(j) hereto, and all contracts or agreements with respect thereto;
and
(j) Seller's customer lists and goodwill associated with the
business operated at the Locations.
All of the Assets shall be delivered free and clear of any liens,
claims, pledges, security interests, mortgages or encumbrances of any kind.
Purchaser is not purchasing the cash, bank accounts, or insurance of the
Seller.
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In addition, at Closing Seller will deliver possession of:
(a) All Backlog as of the Closing Date;
(b) All Work-in-Progress as of the Closing Date; and
(c) All customer equipment, software, burn-in boards and property
as identified on Schedule 10(d) and all customer Devices (collectively
"Customer Property").
3. CONSIDERATION. Purchaser agrees that, subject to the terms and
conditions of this Agreement, and in full consideration for and against
delivery of appropriate bills of sale, assignments and other necessary
transfer documents, Purchaser shall pay to Seller $1,790,000 in cash plus
475,000 RI Shares, valued as provided in Section 6 (the "Purchase Price"),
paid as set out in Section 4. The Purchase Price will be allocated among the
Assets as set out on Exhibit 3, which will be prepared by Seller and Purchaser
pursuant to Section 6, in a manner such that the amount allocated to Class I,
II and III Assets as described in IRS Form 8594 will be Seller's federal
income tax basis of approximately US$2,770,000 in such Assets and the amount
in excess of such basis shall be allocated to Class IV Assets as described
in that Form, with $50,000 of such Class IV Asset allocation allocated to the
covenant not to compete described in Section 17. Seller and Purchaser agree
that the allocation on Exhibit 3 shall be binding on the parties for all
applicable federal, state, local and foreign tax purposes. Seller and
Purchaser agree to file all information reports, including, but not limited
to, IRS Form 8594, and to report gain or loss, as the case may be, in a
manner consistent with Exhibit 3 on all tax returns filed by either of them
subsequent to Closing, and not to voluntarily take any inconsistent approach
therewith in any administrative or judicial proceedings relating to such
returns.
4. PAYMENT OF PURCHASE PRICE. The Purchase Price shall be paid as
follows:
(a) At Closing, Purchaser shall deliver to Seller a cashier's
check for $1,000,000, or will wire transfer such amount to Seller's account.
(b) At Closing, Purchaser shall deliver to Seller a certificate or
certificates representing the RI Shares.
(c) At Closing, Purchaser will deliver its non-interest bearing
promissory note ("Note") for $790,000, such note to be due six months after
Closing and to be in
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substantially the form of Exhibit 4 hereto. Purchaser may offset against the
Note any amounts due to Purchaser under Sections 7(b), 7(c), 9, and 16 hereof.
5. CLOSING. The Closing shall take place at the offices of Xxxxxx &
Xxxxxx, L.L.P., Houston, Texas at 10:00 a.m. on December 1, 1998 (the
"Closing Date"), or at such other place or on such other date as the parties
may mutually agree upon. Anything herein contained notwithstanding, if
Closing has not occurred by December 21, 1998, either Purchaser or Seller may
terminate this Agreement, provided however, that if a party's failure to
comply with any provision of this Agreement shall be the reason that Closing
has not occurred, such party shall not have the right to terminate this
Agreement. At the Closing, the parties hereto will deliver such instruments
as are described in Section 20 and possession of the Assets, the Backlog,
Work-in-Progress and Customer Property.
6. DISCLOSURE PACKAGE AND EXHIBITS. On the execution hereof, none of
the Schedules referred to herein required of Seller have been delivered by
Seller. Seller agrees to deliver to Purchaser within five business days of
the execution hereof, all Schedules referred to herein except Schedule
11(d), which was prepared by Purchaser and delivered to Seller on the date
hereof. Purchaser shall have three business days after receipt of the
complete Disclosure Package to review the Schedules and determine, in its
sole discretion, whether to go forward with the transactions provided for
herein or to notify Seller that Purchaser has terminated this Agreement, in
which case none of the parties hereto shall have any further obligations to
the others. Exhibits 2(d), 2(j), 3, and 12(k) are not attached hereto,
pending receipt of the Disclosure Package. Within five business days after
receipt of the complete Disclosure Package, unless Purchaser elects to
terminate this Agreement, Purchaser shall prepare and deliver to Seller
Exhibits 2(d), 2(j), and 12(k). On or before Closing, the parties hereto will
jointly agree on the value of the 475,000 RI Shares for purposes of
determining the amount of the Purchase Price and prepare Exhibit 3. Seller
also agrees to deliver at closing any updated Schedules required by the terms
of this Agreement. At Closing, Purchaser will deliver to Seller any filings
made by Purchaser with the SEC and any press releases made by Purchaser after
the date hereof and will update Schedule 11(d).
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7. ASSUMPTION OF CERTAIN OBLIGATIONS.
(a) CONTRACTS. Purchaser agrees to assume Seller's obligations
arising from and after the Closing Date under the Contracts specified in
Exhibit 2(d); such assumption does not include any unpaid accounts payable of
the Seller or any obligations which arose prior to Closing.
(b) WORK-IN-PROGRESS. Purchaser agrees to assume and complete all
Work-in-Progress on the Closing Date and to perform all ordered Processing on
the Backlog. Purchaser agrees to respond to customer inquiries about missing,
damaged or improperly Processed Devices at the Locations, but if any customer
claim results in any Costs to Purchaser and is based on facts, events, actions
or non-actions of Seller before Closing, Seller shall reimburse Purchaser
for all Costs associated with responding to such inquiries, a re-Processing
Devices or payments to customers for missing Devices. Purchaser agrees to
give Seller notice of any such customer claim.
(c) NON-ASSUMPTION. All indebtedness, obligations, claims and
liabilities (absolute, contingent or otherwise) of whatsoever nature of the
Seller not specifically assumed by Purchaser pursuant to Sections 7(a) and
7(b) (including, but not limited to, accounts payable, contracts, leases,
environmental liabilities, accrued liabilities, debts, taxes, payroll
deposits, all obligations to employees for wages, salaries, bonuses,
vacation, time-off, or other compensation, and warranty obligations) shall be
and remain the sole obligation of the Seller, and the Seller shall indemnify,
defend and hold Purchaser harmless from any and all thereof and all Costs, as
defined in Section 16, incurred by Purchaser or Purchaser's Designee in
connection with any liability not assumed. Purchaser and/or Purchaser's
Designee will assume any accrued vacation, compensation or time-off due any
employee of Seller and the 13th month bonus due to Singapore employees, all as
of the Closing Date, and will offset against the Note all amounts assumed and
allocable to the period before the Closing Date. The Seller agrees that on
and after the Closing Date it will pay or otherwise provide for the payment
and discharge of all other obligations and liabilities not assumed by
Purchaser. Any amounts
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due to Purchaser or Purchaser's Designee under this Section 7(c) may be
offset against the Note.
8. ACCESS TO INFORMATION. PREMISES.
(a) Pending the Closing and while the audit is being prepared
pursuant to Section 9(a), Shareholder and Seller shall give to Purchaser, its
counsel, accountants, employees and other representatives, full access during
normal business hours, to all of the Seller's properties, books, contracts,
commitments and records; and Shareholder and the Seller authorize Purchaser
to talk to the Seller's customers, suppliers and employees about the Seller's
business and such employee's job and duties. Shareholder and Seller will also
use all reasonable efforts to afford to Purchaser access to the work papers
of the Seller's accountants, and Shareholder and Seller shall use all
reasonable efforts to furnish Purchaser with all such information concerning
Seller and its affairs as Purchaser may reasonably request. Pending Closing
and while the audit is being conducted, Shareholder and Seller shall cause
Seller's employees, to be reasonably available to Purchaser, its counsel,
accountants, employees and other representatives in any investigation
undertaken by Purchaser.
(b) For a period of two years following the Closing, Seller agrees
to afford the Purchaser full access during normal business hours to the books
and records of the Seller relating to the operation of the business at the
Locations for any proper purpose, including Purchaser's need to audit certain
periods for purposes of SEC Regulations S-X and S-K, and Seller agrees to use
its best efforts to preserve and maintain such records.
(c) The parties hereto agree that any information supplied to the
other shall be held in such confidence as the supplying party maintains and
agree not to use or disclose such information; provided however, that to the
extent that any of such information is (i) published by a third party from a
source other than any party hereto, (ii) a matter of public knowledge
generally or in the semi-conductor equipment or Device Processing business,
(iii) disclosed to any party hereto by a third party, not subject to a
confidentiality agreement, (iv) already known to the party to whom the
information is
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supplied, or (v) required by law to be disclosed, such information need not
be held in confidence.
9. AUDIT AND ACCOUNTING FOR INTERIM PERIOD.
(a) Purchaser shall engage Ernst & Young LLP ("EY") to perform
an audit of operations at the Locations as of October 31, 1998, such audit to
cover the period January 1, 1998 through October 31, 1998, to be prepared in
accordance with U.S. generally accepted accounting principles and to meet the
requirements of Exhibit 9(a). Such audit shall be delivered to Purchaser
within 45 days after Closing. Seller agrees to cooperate with Purchaser in
the preparation of such audit.
(b) Within 30 days after Closing, Seller shall present to
Purchaser a Statement of Operations for each Location for the period from
December 1, 1998 through the Closing Date. If Purchaser does not agree with
Seller's Statement of Operations for the period from December 1, 1998 through
the Closing Date for either Location, Seller will direct Price Waterhouse, as
it relates to Singapore, and EY, as it relates to Austin, to audit the
Statement of Operations for such Location. The final profit or loss for a
Location, if Purchaser does not accept Seller's Statement of Operations
therefor, will be the profit or loss determined by the audit by Price
Waterhouse in Singapore and EY in Austin. If Purchaser owes Seller a payment
for a loss, such payment shall be made within five business days after final
computation of the loss pursuant to this Section. Purchaser may offset
against the Note any profit resulting from operations at the Locations after
December 1, 1998, such offset to be made within five business days after the
final computation of the profit pursuant to this Section. Any payment or
offset under this Section shall be treated as an adjustment to the Purchase
Price.
10. REPRESENTATIONS AND WARRANTIES OF SELLER AND SHAREHOLDER. The
Seller and Shareholder, jointly and severally, hereby represent, warrant and
agree as follows:
(a) CORPORATE. Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of California, has
the corporate power to enter into and perform its obligations under this
Agreement and to carry on its business as
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it is now conducted. Seller is qualified or authorized to do business in Texas
and Singapore.
(b) NO SUBSIDIARIES. The operations at the Locations are
conducted by Seller, and not by a subsidiary or another entity.
(c) AUTHORIZATION. All corporate proceedings required for the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby by the Seller have been taken. Seller has
the full corporate right, power and authority to enter into this Agreement
and consummate the sale of the Assets. This Agreement, and the instruments of
transfer with respect to the Assets, constitute, or will constitute when
delivered, the legal, valid and binding obligations of Seller and
Shareholder, enforceable against Seller and Shareholder in accordance with
their respective terms. The execution, delivery and performance of this
Agreement by Seller will not violate or breach the Articles of Incorporation
or bylaws of the Seller, nor will they violate or breach, whether with the
giving of notice or the passage of time or not, the provisions of any
agreement to which the Seller or Shareholder is a party or by which either of
them or their respective properties are bound. Neither the execution and
delivery of this Agreement, nor the carrying out of the transactions
contemplated hereby, will resulted in any violation of, or be in conflict with,
any law, order, decree or regulation applicable to the Seller or Shareholder,
and, except as set out on Schedule 10(c), no consent, approval or
authorization of any lender, trustee, security holder or governmental agency
is required in connection with the execution, delivery or performance by the
Seller or Shareholder of this Agreement.
(d) ASSETS. Schedule 10(d) hereto is a list of all of the Assets,
including for each, description, date of purchase, original cost, accumulated
depreciation through September 30, 1998, and net (depreciated) book value at
September 30, 1998; such schedule identifies the Assets by Location, and was
prepared in accordance with U.S. generally accepted accounting principles
consistently applied. In addition to the Assets, Seller uses the Customer
Property identified on Schedule 10(d) in its business at the Locations. Such
Schedule 10(d) shows the owner of such equipment and other property.
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(e) BOOKS AND RECORDS. The books and records of the Seller set
forth all of the transactions to which the Seller is a party or by which its
properties are bound, and such books and records are accurate and complete.
The books and records transferred to Purchaser at Closing constitute all of
the records necessary to continue the business at the Locations after Closing.
(f) CAPITAL STOCK OF THE SELLER. The authorized capital stock of
the Seller consists solely of 20,000,000 shares of common stock, of which
10,000,000 shares are duly authorized, validly issued and outstanding, fully
paid and non-assessable. All of the outstanding shares of capital stock of
the Seller are owned by Shareholder (as Trustee of the Xxxxxx Family Trust)
and Xxxxx Xxxxx Xxxxxxx.
(g) FINANCIAL INFORMATION. Schedule 10(g) contains (i) the
Seller's unaudited financial statements as at October 31, 1998, and for the
ten months then ended, and for the year ended December 31, 1997 (the
"Financial Statements"), each containing a consolidated and consolidating
balance sheet and consolidated and consolidating statement of operations,
prepared in accordance with generally accepted accounting principles,
consistently applied, and (ii) a balance sheet and statement of operations
for the Singapore Location and a statement of operations for the Austin
Location, all at October 31, 1998, and for the ten months then ended. The
Financial Statements fairly present the assets, liabilities, financial
condition and results of operations for the periods indicated. Except as set
out on Schedule 10(g), since November 1, 1998, there has not been and from the
date hereof through the Closing Date there will not be, a material adverse
change in the business, properties, prospects, financial condition or operating
results of the Locations.
(h) LIABILITIES. Purchaser will not assume or be subject to any
liabilities or obligations of Seller, except those specifically assumed by
Purchaser, as a result of the purchase of Assets and the consummation of the
transactions provided for herein.
(i) TITLE TO ASSETS. Seller is the owner of and has good
marketable title to all of the assets of the Seller reflected in the October
31, 1998 Financial Statements, the Contracts and any other Assets transferred
hereunder. The Assets are subject to the liens
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set out on Schedule 10(i). All Assets transferred hereunder will be free and
clear of any and all claims, liens, encumbrances, mortgages, security
interests, conditional sales agreements, charges, leases, equities or
restrictions of every kind and nature whatsoever at Closing. At Closing,
Seller will deliver release(s) of any and all liens, claims, encumbrances,
mortgages, security interests, charges, equities, conditional sales
agreement, leases and restrictions on the Assets. Except for the Assets and
those items listed on Schedule 10(d) as Customer Property, none of the
assets, property, vehicles, plant, equipment or fixtures used by Seller in its
business at the Locations is owned by any party (including Shareholder) other
than Seller, and Seller owns or has the right to use all assets, property,
plant, equipment, fixtures and intellectual property necessary to conduct its
business at the Locations as now conducted. Neither Shareholder, any other
stockholder of Seller, any officer or director of Seller, nor any affiliate
of any of them has any claim or interest in any property or asset used by or
in the possession of the Seller with respect to the business at the Locations
or any claim against the Seller with respect to the Assets or the operation
of business at the Locations.
(j) CONTRACTS. Schedule 10(j) is a list of all contracts,
undertakings, agreements, leases, understandings and commitments to which
Seller is a party or under which the Seller has rights or obligations (the
"Contracts") as of the date hereof relating to the Locations, including
contracts or leases for equipment, offices, equipment maintenance and repair,
trash pickup, janitorial services, burglar alarms, and other services
provided to Seller at the Locations or otherwise used or necessary to the
business conducted at the Locations. Such Schedule will be updated at
Closing. To the best knowledge of Seller or Shareholder, all of the Contracts
are and will be on the Closing Date in full force and effect, and are and
will be on the Closing Date, valid and enforceable; no default has occurred
thereunder, nor has any event occurred which, with written notice or the
passage of time, will constitute a default, and Seller has not received any
notice of cancellation or non-renewal, and, to the best knowledge of
Shareholder, there is no basis for cancellation. No party has given notice of
termination of any Contract or notice of intent not to renew any renewable
Contract. Except as set out on
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Schedule 10(j) hereto, Seller is not a party to any contract, agreement or
understanding (whether written or oral) with any officer, stockholder, former
employee, former stockholder, employee, agent or consultant that affects any
of the Assets or Customer Property. Each of the Contracts was executed in
the ordinary course of business, is not with any related or affiliated party
of Shareholder, and contains terms no less favorable to Seller than are
generally available for the services to be performed. If services are to be
provided to Seller under any of the Contracts, such services have been and
are being performed satisfactorily and timely, in accordance with the terms of
the Contract. With respect to the Lease for the Austin Location, Seller has
paid all required tenant expense escrows, and no additional amounts will be
owing for the period up to the Closing Date when 1998 actual expenses are
computed and allocated to tenants. True, accurate and complete copies of all
of the Contracts have been delivered to Purchaser. Except as identified on
Schedule 10(j), no consent of any party to a Contract is required in
connection with the continued validity, or to avoid a breach, of any Contract
as a result of the transfer thereof to Purchaser. The Manufacturing Services
Agreement with Motorola, dated November __, 1996, which has not been
signed by Motorola, governs the relationship between Seller, operating at the
Austin Location, and Motorola, and each of the parties thereto have complied
with the contract, whether executed or not. All consents to assign the
Contracts to be assumed by Purchaser under Section 7(a) will be obtained by
Closing.
(k) COMPLIANCE WITH LAWS. Schedule 10(k) lists all permits, orders,
authorizations or licenses held by Seller to conduct its business at the
Locations, and no other permits, licenses, authorizations or orders are
required in connection with the operation of the business at the Locations.
Except as set out on Schedule 10(k), the Seller has been and is currently
conducting its business at the Locations in conformity with all applicable
laws, including, without limitation, zoning ordinances, building codes, fire
codes, environmental laws, rules and regulations, and all laws and
regulations relating to employment, equal employment opportunity,
nondiscrimination, immigration, wages, hours, benefits, collective
bargaining, the payment of social security and similar taxes,
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occupational safety and health, and plant closings, the violation of any of
which would have a material adverse effect on the Assets or the business
conducted at the Locations. Seller is not liable for the payment of fines,
penalties, damages or other amounts, however designated, for failure to
comply with any law, rule or regulation. Since January 1, 1993, neither
Seller nor Shareholder has received any notice of any alleged violation of
any law, rule or regulation which have not been remedied. Seller is, and at
all times in the past has been, in compliance with all environmental
statutes, rules and regulations, and there are no environmental conditions at
any Location which are in violation of any environmental law, rule or
regulation, including without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act, the Resource Conservation and
Recovery Act, the Clean Air Act, the Clean Water Act and any other state,
local or federal law, ordinance, regulation, order or requirement concerning
the air, water, soil or handling, storage, treatment or disposal of materials,
the violation of any of which would have a material adverse effect on the
Assets or the business conducted at the Locations. To the best knowledge of
Seller or Shareholder, no landlord at either Location has violated any
environmental law, rule or regulation, and the real property and improvements
at each Location are in compliance with all applicable laws, rules and
regulations including the Americans with Disabilities Act. As used in this
Section 10(k) and only this Section 10(k), "material adverse effect" means
that Purchaser would incur Costs aggregating $25,000 or more for either
Location for fines, penalties and/or corrective actions required by
non-compliance with any applicable law, rule or regulation.
(l) BACKLOG AND WORK-IN PROGRESS. At Closing, Seller will deliver a
list of all Backlog and Work-in-Progress as of such date. All Backlog and
Work-in-Progress is governed by purchase orders containing the terms and
conditions described on Schedule 10(j) as to time of performance, warranty,
payment, and shipment. Each of such purchase orders for Backlog and
Work-in-Progress has been or will be executed in the ordinary course of
business, with third parties not related to, or affiliated with, the Seller
and will contain terms, conditions and pricing substantially the same as
contained in current Backlog and Work-in-Progress orders. Except as set out
in Schedule 10(l), all of the
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purchase orders for Backlog and Work-in-Progress can be assigned without
consent of any third party, or if consent is required, Seller shall have
obtained a consent to the assignment to Purchaser and shall deliver such
consents at Closing. The plans, programs, specifications, designs,
drawings, and similar materials delivered at Closing will be sufficient to
complete the Backlog and Work-in-Progress. The Seller has not and will not
accept, and no customer has or will have a prepayment or credit for any
Backlog and Work-in-Progress as of the Closing Date, and all amounts owing
under the purchase orders for such Backlog and Work-in-Progress will be due
from customers, subject to completion of the services ordered.
(m) SERVICES PERFORMED. All Work-in-Progress at December 1, 1998 and
at the Closing Date, and all testing done between December 1, 1998 and the
Closing Date, was, is or shall be performed in compliance with the relevant
customer order, performed according to specifications in a good and
workmanlike manner, fit for the purpose intended and merchantable, and
billable upon completion. Seller's fees for services at the Locations as of
November 1 are described on Schedule 10(m) and have not been changed since
then except as described in Schedule 10(m).
(n) COMPLETENESS OF ASSETS. The Assets, including the technology
covered by the Proprietary Rights and the Customer Property, constitute all
of the personal property and intangible rights necessary or used to operate
the Seller's business at the Locations.
(o) CONDEMNATION. Seller has not been served with or received notice
of any condemnation proceeding or similar action affecting the Locations, nor
is there any proceeding or similar action pending or threatened. Except as
disclosed on Schedule 10(o), there is no current construction or change in
access to the Locations which would affect the conduct of business at the
Locations.
(p) YEAR 2000 COMPLIANT. Except as disclosed on Schedule 10(p), to
the best knowledge of Seller or Shareholder, all of the Assets, including the
Proprietary Rights and Equipment, and all Customer Property is Year 2000
Compliant. Such schedule shows the status of compliance, what needs to be
completed for full compliance, Seller's
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estimated completion date, and the estimated cost of completion. Schedule
10(p) also shows what Seller has done with respect to third party Year 2000
compliance as it relates to the Locations, including customers and suppliers.
"Year 2000 Compliant" means that the Assets and Customer Property (a) will
function accurately and without interruption before, during, and after
January 1, 2000, without any change in operations associated with the advent
of the new century; (b) will accurately process date/time data (including, but
not limited to, calculating, comparing, and sequencing) from into and between
the twentieth and twenty-first centuries, and the years 1999 and 2000; (c)
will accurately perform leap year calculations; (d) responds to two-digit
year-date input in a way that resolves the ambiguity as to century in a
disclosed, defined, and predetermined manner; (e) stores and provides output
of date information in ways that are unambiguous to century; and (f) will not
cause any other Assets or Customer Property to fail or generate errors
related to such dates.
(q) LITIGATION. There is no litigation, proceeding or investigation
at law or in equity pending, or to the best knowledge of Seller or
Shareholder threatened, against the Seller or Shareholder in any foreign,
federal or state court or governmental commission, department or agency, nor
is there any basis for any litigation, proceeding or investigation against
Seller or relating to the business of Seller which if decided adversely,
would (i) affect the title of Seller or Purchaser, after Closing, to the
Assets, (ii) adversely impair or affect in any way the use and enjoyment of
the Assets, (iii) which questions, directly or indirectly, Seller's methods
of doing business at the Locations, or (iv) which questions the validity of
any action to be taken pursuant to or in connection with this Agreement.
Except as listed on Schedule 10(q), Seller has not, since January 1, 1993,
been a party to any suit for, or received any written claim for, breach of
warranty, product liability or of a similar nature relating to or arising out
of the types of merchandise sold by or service provided by Seller. There are
no judgments, consent decrees, orders, injunctions, or other judicial or
administrative orders outstanding against the Seller.
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(r) TAXES AND TAX RETURNS. Seller has filed all tax reports and
returns required to be filed by it for the period through the Closing, and if
not timely filed, paid all penalties and interest for late filing, including
all U.S. federal returns, sales tax returns, ad valorem tax returns, Texas
franchise tax returns, California income and franchise tax returns and tax
returns for all applicable taxes in Singapore. All taxes, interest,
penalties, assessments or deficiencies, if any, payable by Seller to all
applicable federal, Singapore, state, county, municipal or local tax
authorities have been duly paid or will be paid by Seller when due. Seller
has paid, or will pay when due, all taxes related to operations through the
Closing Date; all taxes that Seller is or was required by law to withhold or
collect have been duly withheld or collected, and, to the extent required,
have been paid to the proper authority. Seller will pay all ad valorem taxes
due for 1998 with respect to the Assets. No Singapore, federal or state
income or other tax liability for periods prior to the Closing Date will
accrue to Purchaser as a result of the transactions contemplated by this
Agreement.
(s) PROPRIETARY RIGHTS. Schedule 10(s) lists all of the Proprietary
Rights. The Seller owns or has a valid, prepaid license to use the entire
right, title and interest in and to the Proprietary Rights. The Seller has
not granted any licenses to third parties with respect to any of the
Proprietary Rights. There is no pending or, to the best knowledge of Seller
or Shareholder, threatened, challenge to the use of any of the Proprietary
Rights. Use of the Proprietary Rights does not infringe on the right, title
or interest of any third party. Seller has valid and transferable licenses to
use the licensed Proprietary Rights identified on Schedule 10(s), and no
consent of any party is required to transfer such licenses. Seller uses the
customer programs and other instructions identified on Schedule 10(s) and has
the right to transfer use of such programs and instructions to Purchaser.
(t) EMPLOYEE MATTERS. None of the Seller's employees at either
Location is represented by a union, and no union organization activities are
in progress at either Location. The Seller is not a party to, and there is not
in effect, any union contracts or collective bargaining agreements. Schedule
10(t) lists all of the Seller's employees at the Locations, their job titles,
service dates, accrued vacation and time-off, accrued bonuses
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(including Singapore 13th month), rates of pay and all benefits (including
insurance); such schedule will be updated at Closing as to accrued but unpaid
compensation and benefits. Except as set out on Schedule 10(t), there are no
open claims for workers' compensation or similar benefits by any employee at
either Location.
(u) ACCURATE COPIES. All copies of Contracts, Financial Statements,
the Disclosure Package and updated Schedules and any other document or
instrument required to be delivered to Purchaser pursuant to the terms of
this Agreement are and will be true, correct and complete copies of the
document or instrument represented thereby.
(v) BROKERS. Neither the Seller or Shareholder nor any party acting
on their behalf has agreed to pay any party a commission, finder's fee or
similar payment in regard to this Agreement or any matter related thereto nor
has taken any action on which a claim for any such payment could be based.
(w) CONDITION OF ASSETS. To the best knowledge of Seller or
Shareholder, all Assets (whether owned or leased) and all Customer Property
are in good operating condition and repair and fit for the use for which
intended, ordinary wear and tear excepted.
(x) ACCURACY OF INFORMATION. No representation or warranty of
Shareholder or Seller contained in this Agreement, including the Exhibits and
Schedules, contains, as of the date made or the date on which reaffirmed, any
untrue statement of a material fact or omits any material fact necessary in
order to make the statements contained herein or therein, not misleading or
necessary in order to provide a prospective purchaser of the Assets with full
information as to the Seller and its affairs.
(y) DAMAGED/LOST DEVICES. There are no unresolved claims by
customers for damaged or lost Devices at the Locations and neither Seller or
Shareholder knows of any basis for such claims.
(z) CUSTOMERS. Schedule 10(z) sets out the Seller's customers at the
Locations for the period January 1, 1998 through October 31, 1998 and the
amount of business done by each prior to October 31, 1998 and an estimate of
business for each for December, 1998. Except as set out on Schedule 10(z),
since January 1, 1998, no customer
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who accounted for 10% of the Seller's gross sales at the Locations in the
prior twelve months has discontinued or materially decreased, or has given
written notice to Seller that it will discontinue or materially decrease, its
rate of business done with Seller, except that Motorola has given notice that
it will be reducing the business sent to the Austin Location by 70% to 75% by
June, 1999. Neither Seller nor Shareholder has any reason to believe that any
customer or supplier will not continue to do business with Purchaser after
the purchase of the Assets.
(aa) NATURE OF SELLER'S BUSINESS. Seller's principal business is the
Processing of Devices for others and not the sale of inventory from stock.
The California Bulk Sales laws do not apply to the sale provided for herein.
(bb) SOLVENCY. On the date hereof, and the day after Closing, after
giving effect to the transactions provided for herein, Seller will be solvent
and able to pay its bills and obligations as they come due.
(cc) INVESTMENT EXPERIENCE. Seller is an "accredited investor", as
defined in Rule 501(a) of the Securities Act of 1933 ("Securities Act").
Seller acknowledges receipt of the documents listed on Schedule 11(d). Seller
is aware of Purchaser's business affairs and financial condition and has had
access to and has acquired sufficient information about Purchaser to reach an
informed and knowledgeable decision to accept the RI Shares in partial
payment for the Assets. Seller and Shareholder have such business and
financial experience as is required to give Seller the capacity to evaluate
the RI Common Stock.
(dd) INVESTMENT INTENT. Seller is accepting the RI Shares for its
own account, for investment purposes only, and not with a present view to, or
for, resale or distribution, within the meaning of the Securities Act. Seller
understands that the RI Shares have not been registered under the Securities
Act or registered or qualified under any state securities law in reliance on
specific exemptions therefrom, which exemptions may depend upon, among other
things, the bona fide nature of Seller's investment intent, as expressed
herein. Seller will not, directly or indirectly, offer, sell, pledge,
transfer or otherwise dispose of (or solicit any offers to buy, purchase or
otherwise acquire or take a
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pledge of) any of the RI Shares except in compliance with the Securities Act,
the rules and regulations thereunder and applicable state securities laws.
Seller understands that it must hold the RI Shares for at least one year and
then can sell the RI Shares in compliance with Rule 144 of the SEC, and that
certificates representing the RI Shares will be imprinted with a legend which
restricts transfer as herein stated.
(ee) NO REGISTRATION: ECONOMIC RISK. Seller understands that the RI
Shares have not been registered under the Securities Act, or any other
securities law or regulation, that the RI Shares must be held by Seller
indefinitely, unless a subsequent disposition thereof is registered under the
Securities Act or is exempt from such registration thereunder. Seller further
understands that the RI Shares have not been qualified under the General
Corporation Law of the State of California (the "California Law") by reason
of their issuance in a transaction exempt from the qualification requirements
of the California Law.
(ff) ACCESS TO PURCHASER RECORDS. During the negotiation of the
transactions contemplated herein, Seller has been afforded full access to
records, documents, and other information concerning Purchaser, and Seller
and Shareholder have been afforded an opportunity to ask such questions of
Purchaser's officers and representatives concerning Purchaser's business,
operations, financial condition, assets, liabilities and other relevant
matters as Seller and Shareholder have deemed necessary or desirable, and
Seller and Shareholder have been given all such information as has been
requested in order to evaluate the merits and risks of the prospective
investment contemplated by receipt of the RI Shares.
(gg) LEGEND. Seller understands that each certificate representing
the RI Shares to be issued in accordance with the terms of this Agreement
shall be endorsed with the following legend:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAW AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED UNLESS
THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH LAWS
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COVERING SUCH SECURITIES. THE SALE IS MADE IN ACCORDANCE WITH RULE
144 UNDER THE SECURITIES ACT, OR THE COMPANY RECEIVES AN OPINION OF
COUNSEL FOR THE HOLDER OF SUCH SECURITIES REASONABLY SATISFACTORY TO
THE COMPANY STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR
HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF THE SECURITIES ACT.
A "stop transfer" order will be placed against the RI Shares until
compliance with such legend. Purchaser will remove such legend and "stop
transfer" order when permitted under the Securities Act and applicable state
securities laws.
11. REPRESENTATIONS AND WARRANTIES BY PURCHASER. Purchaser represents and
warrants as follows:
(a) CORPORATE. Purchaser is a corporation duly organized and validly
existing, in good standing, under the laws of the State of Texas, with the
corporate power to carry on its business as now conducted and to enter into
and perform its obligations under this Agreement.
(b) AUTHORIZATION. The execution, delivery and performance by
Purchaser of this Agreement and all transactions provided for herein have
been duly and validly authorized by Purchaser. Purchaser has the full
corporate right, power and ability to enter into this Agreement and
consummate the purchase of the Assets. The execution, delivery and
performance of this Agreement by Purchaser will not violate the Articles of
Incorporation or bylaws of Purchaser. By Closing, Purchaser shall have
obtained such waivers or consents as may be necessary so that the performance
by Purchaser of its obligations hereunder will not violate the terms of any
material agreement to which Purchaser is a party or by which it or its
properties are bound. This Agreement and each document required to be
executed by Purchaser in connection herewith constitutes, or will constitute
when delivered, the legal, valid and binding obligation of Purchaser,
enforceable against Purchaser in accordance with their respective terms.
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(c) RI SHARES. The RI Shares delivered in partial payment for the
Purchase Price will be duly authorized, fully paid and non-assessable shares
of Purchaser's Common Stock.
(d) SEC MATERIAL. Since January 1, 1998, Purchaser has filed the
reports, schedules, forms, statements and other documents with the SEC listed
on Schedule 11(d) hereto (the "RI Documents"). The RI Documents, and any
additional reports, forms and documents filed by Purchaser with the SEC after
the date hereof until the Closing Date, complied, or will comply in all
material respects with the requirements of the Securities Exchange Act of
1934, as amended, as applicable, and the rules and regulations of the SEC
promulgated thereunder. The Purchaser has made no filings under the
Securities Act of 1933, as amended, since January 1, 1998. The Purchaser will
provide to Seller any report, schedule, form, statement or other document
filed with the SEC between the date hereof and the Closing Date.
(e) BROKERS. Neither Purchaser nor any party acting on its behalf
has agreed to pay any party a commission, finder's fee or other similar
payment in regard to this Agreement or any matter related hereto nor has
taken any action on which a claim for any such payment could be based.
(f) NO MATERIAL ADVERSE CHANGE. Since September 30, 1998,
Purchaser has conducted its business in the ordinary course, and there has
not occurred: (a) any material adverse change in the financial condition of
Purchaser, except as disclosed in the Form 10-Q for the quarter ended
September 30, 1998, Purchaser's press releases listed on Schedule 11(d) or as
disclosed to Shareholder; or (b) any amendment or change to the Articles of
Incorporation or bylaws of Purchaser.
(g) LITIGATION. There is no litigation, proceeding or
investigation at law or in equity pending, or to the best knowledge of
Purchaser, threatened, against Purchaser in any foreign, federal or state
court or governmental commission, department or agency, which challenges or
seeks to prevent, enjoin, alter or materially delay any of the transactions
contemplated by this Agreement.
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12. ADDITIONAL COVENANTS OF SELLER.
(a) Seller hereby agrees that pending Closing and except as
otherwise consented to or approved by Purchaser in writing:
(i) Seller shall carry on its business at the Locations
diligently, in the normal course and substantially in the same manner as
heretofore, except as otherwise provided herein.
(ii) Seller will use its best efforts to: (i) preserve
Seller's business organization at the Locations intact; and (ii) preserve
the goodwill of the Seller's suppliers, customers and others having
business relations with it.
(iii) Seller will duly comply with all provisions of the
Contracts, and comply with all applicable laws which if violated might
impair the conduct of its business or impose liability on the business
or owner of such business. Seller will not enter into any new agreement
which would have to be listed as a Contract without the consent of
Purchaser.
(iv) Seller will (i) maintain and preserve the value of the
Assets and the Customer Property and (ii) make any and all necessary
repairs to, and continue all normal servicing, replacement, maintenance
and upkeep of the Assets and Customer Property.
(v) Seller will not grant any increase in the rates of pay of
any of the employees at the Locations except for scheduled increases not
in excess of amounts typical for normal review periods, or grant or
increase any benefits provided for any of such employees, or pay any
bonuses.
(vi) Shareholder will use best efforts to cause to be
fulfilled the conditions to Closing set out in Sections 13 and 14.
(vii) The Seller and Shareholder shall use all reasonable
efforts to obtain any consents necessary with respect to the Contracts
which would be breached by the transactions provided for herein if not
consented to.
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(b) Seller authorizes Purchaser and Purchaser's Designee to discuss
employment opportunities with Seller's employees prior to Closing and to
offer employment to selected Seller's employees at the Locations.
(c) Seller agrees to obtain an estoppel certificate from the
landlord for the Austin Location in substantially the form of Exhibit 12(c).
(d) Seller agrees to obtain acknowledgments from customers with
respect to Customer Property at the Locations, such acknowledgments to be
substantially the form of Exhibit 12(d)-1, and not to accept or release any
Customer Property after the execution of any acknowledgment without obtaining
a new acknowledgment to reflect such additions or deletions. Seller will
obtain from each customer at the Locations a confirmation of Devices at each
Location as of the Closing Date and an agreement to look only to Seller with
respect to any discrepancy in the count of Devices or damage to Devices prior
to Closing, such acknowledgment to be in substantially the form or Exhibit
12(d)-2.
13. CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS. All obligations
of Purchaser under this Agreement are subject to the fulfillment of each of
the following conditions:
(a) Purchaser shall not have discovered any material error,
misstatement or omission in the representations and warranties of Seller and
Shareholder contained in this Agreement.
(b) Seller's and Shareholder's representations and warranties
contained in this Agreement shall be true at the time of Closing and all
obligations and agreements required by this Agreement to be performed by
Seller or Shareholder shall have been performed, and Seller and Shareholder
shall have delivered to Purchaser an appropriate certificate to such effect.
(c) Purchaser or Purchaser's Designee, as appropriate, shall have
obtained any licenses or permits required to operate the business at the
Locations.
(d) From the date of this Agreement to the Closing Date, no
material adverse change shall have occurred in Seller's business at the
Locations, properties,
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prospects or financial results, including any damage to the Assets, except as
disclosed herein.
(e) None of the parties hereto shall be a party to or have
received notice of any suit to enjoin or restrain any or all of the
transactions contemplated herein or to nullify or render ineffective all or
any part of such transactions if accomplished.
(f) All consents required for the consummation of the sale
provided for herein shall have been obtained.
(g) Purchaser shall have completed its financial, legal and
business review of the Assets and the business at the Locations, and be
satisfied in its sole discretion with the results thereof.
(h) Purchaser shall have received the estoppel certificate and
acknowledgments referred to in Sections 12(c) and 12(d), and shall have
obtained a letter of commitment from Jurong Town Corporation for a lease for
the Singapore Location.
(i) Purchaser shall have received an opinion of Seller's counsel
in form and consent satisfactory to Purchaser with respect to those matters
set out on Exhibit 12(j).
(j) The persons listed on Exhibit 12(k) shall have accepted
employment with Purchaser after Closing, and Purchaser shall have obtained
necessary work passes and permits for at least 50% of the foreign workers to
be hired by Purchaser at the Singapore Location.
(k) Purchaser's counsel shall have approved the form and substance
of all bills of sale, assignments and other instruments of conveyance.
If Purchaser proceeds with Closing, Purchaser shall be deemed
satisfied that all conditions to its Closing shall have been met or shall
have waived such conditions, provided however, that Closing shall not
constitute a waiver of any breached representation or warranty.
14. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER. All obligations
of Seller under this Agreement are subject to the fulfillment prior to
Closing of each of the following conditions:
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(a) Seller shall not have discovered any material error,
misstatement or omission in the representations and warranties by Purchaser
contained in this Agreement.
(b) All representations and warranties of Purchaser contained in
this Agreement shall be true as of the Closing Date and all obligations and
agreements required by this Agreement to be performed by Purchaser shall have
been performed, and Purchaser shall have delivered to Seller an appropriate
certificate to such effect.
(c) None of the parties hereto shall be a party to or have
received notice or any suit to enjoin or restrain any or all of the
transactions contemplated herein or to nullify or render ineffective all or
any part of such transactions if accomplished.
If Seller proceeds with Closing, Seller shall be deemed satisfied
that all conditions to its Closing shall have been met or shall have waived
such conditions, provided however, that Closing shall not constitute a waiver
of any breached representation or warranty.
15. DESIGNATION OF ASSIGNEE. Purchaser shall purchase and take title
to all Assets, assumed Contracts and Customer Property associated with the
Austin Location and hereby designates Reliability Singapore Pte Ltd
("Purchaser's Designee") to consummate Purchaser's rights hereunder with
respect to all Assets, assumed Contracts and Customer Property associated
with the Singapore Location. Seller agrees to accept payment from Purchaser
and Purchaser's Designee and performance from Purchaser's Designee with
respect the Singapore Location.
16. INDEMNIFICATION.
(a) From and after the Closing Date, Seller and Shareholder,
jointly and severally, agree to indemnify and hold Purchaser harmless against
any and all taxes, claims, liabilities, losses, expenses (including costs of
investigation), fees (including without limitation reasonable attorneys' fees
and accounting fees), damages, including without limitation amounts of
judgments and/or amounts paid in settlement or costs (collectively, all of
the foregoing being called "Costs") suffered or incurred by Purchaser or
Purchaser's Designee and arising out of or attributable to (i) any breach of
any representation, warranty or covenant made by Shareholder or the Seller
herein or in any
-25-
certificate or writing furnished pursuant hereto, (ii) any nonfulfillment of
any agreement hereunder or entered into in connection herewith by Seller or
Shareholder, or (iii) any claim or liability, known or unknown, arising out
of, or by virtue of, or based upon the Seller's business and operations other
than to the extent assumed by Purchaser herewith. Purchaser agrees to give
Seller prompt notice of any claim which could result in a claim for
indemnification hereunder; provided, however, that any failure on the part of
Purchaser to so notify Seller shall not limit any of the obligations of
Seller or Shareholder under this Section 16 unless the ability to defend such
claim is materially prejudiced by such failure or delay. Seller and/or
Shareholder shall have the right to assume the defense thereof, with counsel
reasonably satisfactory to Purchaser, and after notice to Purchaser that
Seller or Shareholder will assume such defense, neither Seller nor
Shareholder will be liable to Purchaser or Purchaser's Designee for any
further legal or other expenses incurred by Purchaser or Purchaser's Designee
in connection with the defense thereof, other than the reasonable costs of
investigation or assistance by Purchaser or Purchaser's Designee. Purchaser
and Purchaser's Designee may participate actively, at their expense if Seller
or Shareholder has assumed the defense, in any negotiations, lawsuit or other
resolution of such claim. If neither Seller nor Shareholder assume the
defense, Purchaser or Purchaser's Designee may defend the claim, at Seller
and Shareholder's expense, and Purchaser's and Purchaser's Designee's
reasonable expenses of defense will be reimbursed by Seller and/or
Shareholder on a monthly basis as paid by Purchaser or Purchaser's Designee.
If Seller or Shareholder assumes the defense of such claim or litigation,
Purchaser shall have the right to approve any settlement if it would divest
Purchaser or Purchaser's Designee of any Asset, affect operations at the
Locations or require any action or in-action by Purchaser or Purchaser's
Designee.
(b) From and after the Closing Date, Purchaser agrees to indemnify
and hold Seller and Shareholder harmless against any and all Costs suffered
or incurred by either of them and arising out of or attributable to (i) any
breach of any representation, warranty or covenant made by Purchaser herein
or in any certificate or writing furnished by it pursuant hereto, (ii) any
nonfulfillment of any agreement hereunder or entered into in
-26-
connection herewith by Purchaser, or (iii) any claim arising out of or by
virtue of the Purchaser's business and operations from and after the Closing
Date. Seller agrees to give Purchaser prompt notice of any claim which could
result in a claim for indemnification hereunder. Purchaser shall have the
right to assume the defense thereof, with counsel reasonably satisfactory to
Seller, and after notice from Purchaser that it will assume such defense,
Purchaser will not be liable to Seller or Shareholder for any further legal
or other expenses incurred by Seller or Shareholder in connection with the
defense thereof, other than the reasonable costs of investigation or
assistance required by Purchaser. Seller and Shareholder may participate
actively, at their expense if Purchaser has assumed the defense, in any
negotiations, lawsuit or other resolution of such claim. If Purchaser does
not assume the defense, Seller or Shareholder may defend the claim, at
Purchaser's expense and Seller's and/or Shareholder's reasonable expenses of
defense will be reimbursed by Purchaser on a monthly basis as paid by
Shareholder or Seller.
(c) Any indemnification provided for under this Section 16 shall be
due if any claim is successfully defended against, to the same extent it
would have been due if the claim had been successful.
(d) Any amounts due by Seller for indemnification may be offset
against the Note.
(e) Notwithstanding the foregoing, in no event shall Shareholder's
or Seller's liability for indemnification under this Section 16 exceed
$1,000,000 in the aggregate; such $1,000,000 does not include amounts payable
to Purchaser under Section 7(c) with respect to employee liabilities assumed
by Purchaser and/or Purchaser's Designee. Purchaser shall not be entitled to
be indemnified under this Section 16 unless and until Purchaser's and
Purchaser's Designee's aggregate Costs have exceeded $25,000, and then only
to the extent that such Costs exceed $25,000; provided however, that such
minimum shall not apply to a breach of the representations in Section 10(k),
nor to the payments required under Section 7(c).
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17. NON-COMPETITION AGREEMENT.
(a) Seller and Shareholder agree that for a period of two years
after the Closing Date, neither will, directly or indirectly, own, manage,
operate, control, serve as an officer, director, employee or consultant of or
be connected in any way with, or to have any interest or investment in any
corporation, partnership, proprietorship or other entity which carries on a
Device Processing business anywhere within a 75-mile radius of either
Location. In addition to the foregoing, neither Seller nor Shareholder will,
for a period of two years after Closing, solicit any employee of the
Purchaser for the purpose of inducing such employee to resign from
employment. From the date hereof to Closing, Seller shall encourage each
employee of the Seller that Purchaser wishes to employ to accept employment
with the Purchaser. Notwithstanding the foregoing, Shareholder may own up to
5% of the outstanding publicly traded stock of any company which operates a
Device Processing business and whose stock is registered with the SEC, so
long as neither Seller nor Shareholder manages, operates, serves as an
officer, director, employee or consultant to, such company and holds the
stock solely as an investment. The RI Shares are also a permitted investment
of Seller.
(b) Seller and Shareholder acknowledge that their respective
agreements not to compete with Purchaser are necessarily of a special, unique
and extraordinary nature, and that the loss arising from a breach hereof
cannot reasonably and adequately be compensated by money damages and will
cause the Purchaser to suffer irreparable harm. Accordingly, upon the failure
of Seller or Shareholder to comply with the terms of this section at any
time, Purchaser shall be entitled to injunctive or other extraordinary relief
in case of such breach, such injunctive or other extraordinary relief to be
cumulative to, but not in limitation of, any other remedies to which the
Purchaser may be entitled.
(c) Seller, Shareholder and Purchaser hereby agree that in the event
that the non-competition covenants contained herein should be held by any
court or other constituted legal authority to be effective in any particular
area or jurisdiction only if said covenants are modified to limit their
duration or scope, then the parties hereto shall consider paragraph (a) of
this Section 17 to be amended and modified with respect to that
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particular area or jurisdiction so as to comply with the order of any such
court or other constituted legal authority and, as to all other jurisdictions
or political subdivisions thereof, the non-competition covenants contained
herein shall remain in full force and effect as originally written. Seller,
Shareholder and Purchaser further agree that in the event that the
non-competition covenants contained herein should be held by any court or
other constituted legal authority to be void or otherwise unenforceable in
any particular area or jurisdiction notwithstanding the operation of this
paragraph (c), then the parties hereto shall consider this section to be
amended and modified so as to eliminate therefrom that particular area or
jurisdiction as to which such non-competition covenants are so held void or
otherwise unenforceable, and, as to all other areas and jurisdictions covered
by the non-competition covenants, the terms and provisions hereof shall
remain in full force and effect as originally written.
18. TRANSFER TAXES. All sales, use, stamp, transfer, and Singapore goods
and services taxes, owed as the result of the sale of the Assets and
assumption of the assumed Contracts, and any recording, transfer or
similar fees or charges shall be borne by Purchaser or Purchaser's Designee,
provided however, that, with respect to the Singapore goods and services tax,
if Seller can recover such tax from the Singapore authorities, Seller shall
pay such tax, and provided further, that if neither Purchaser's Designee or
Seller can recover such tax, then Purchaser's Designee shall pay one-half of
such tax and Seller shall pay one-half of such tax.
19. DAMAGE TO ASSETS. In the event of any damage to any of the Assets
before Closing by reason of Act of God, theft, vandalism, destruction,
condemnation, fire or other similar cause, the Seller shall give Purchaser
immediate written notice (a "Casualty Notice") of such event. In such notice,
the Seller shall indicate its best estimate of the extent of the damage or
taking; the amount of insurance or condemnation award available; and if
repairable, the length of time required for restoration and the cost thereof.
Purchaser shall have the option, at its sole discretion, (i) to require the
Seller to restore any damage or loss, or (ii) to require the Seller to pay
the insurance or condemnation proceeds therefor to Purchaser, or (iii) to
terminate this Agreement.
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20. CLOSING DOCUMENTS. At the Closing, Seller shall deliver to
Purchaser and/or Purchaser's Designee, as appropriate:
(a) bills of sale sufficient under applicable local law to transfer
the Assets to Purchaser and/or Purchaser's Designee;
(b) all consents to assignment required by the assigned Contracts,
including consents regarding Backlog and Work-in-Progress;
(c) keys to the Locations;
(d) an executed copy of all assigned Contracts;
(e) all updated Schedules or Exhibits required by the terms hereof;
(f) possession of the Assets;
(g) evidence of release of all liens, charges, security interests,
encumbrances, etc. per Section 10(i);
(h) the acknowledgements required by Section 12(d) and certificate
required by Section 12(c); and
(i) such certificates and other instruments as may be necessary to
consummate the transactions herein contemplated or fulfill the conditions to
Closing as herein described.
At Closing, Purchaser and Shareholder will enter into a mutually
acceptable consulting agreement pursuant to Section 21.
At the Closing, Purchaser and/or Purchaser's Designee, as appropriate,
shall deliver to Seller:
(a) $1,000,000, by cashier's check or wire transfer;
(b) certificates for 475,000 shares of Purchaser's Common Stock;
(c) the Note;
(d) an assumption of the assumed Contracts; and
(e) such certificates and other instruments as may be necessary to
consummate the transactions contemplated herein or to fulfill the conditions
to Closing as herein described.
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21. CONSULTING AGREEMENT. Shareholder agrees to enter into a two year
consulting agreement with Purchaser to provide transition assistance and
sales support services to Purchaser and Purchaser's Designee. Purchaser shall
pay Shareholder $150,000 per year pursuant to the consulting agreement.
22. MAIL AFTER CLOSING. From and after Closing, Purchaser and
Purchaser's Designee may receive and open all mail addressed to Seller and
received at the Locations and deal with the contents thereof in its
discretion to the extent such mail and the contents relate to the business
formerly conducted by the Seller at the Locations and then conducted by
Purchaser, the Assets or the assumed Contracts. Purchaser agrees to cause to
be delivered to the Seller all other mail addressed to the Seller and
received by Purchaser.
23. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations and warranties contained in Section 10 shall survive Closing
for a period of eighteen months; provided, however, that if, prior to
termination of a representation and warranty, Purchaser or Purchaser's
Designee shall have received a claim against either of them from a third
party for which indemnification applies or Purchaser shall have delivered to
Seller written notice of a suspected breach of identified representations and
warranties, then, those representations and warranties as to which Purchaser
has notified Seller of a suspected breach or which relate to or are the basis
for a possible claim for indemnification based on an asserted third party
claim shall survive until the third party claim is resolved or Purchaser has
finally ascertained the existence or not of the suspected breach, and, if a
breach, has resolved its claim for such breach. All representations and
warranties contained in Section 11 shall survive Closing for eighteen months;
provided, however, that, if, prior to the termination of a representation and
warranty, Seller shall have delivered to Purchaser written notice of a
suspected breach of identified representations and warranties, such
identified representations and warranties shall survive until Seller has
finally ascertained the existence or not of such a breach, and, if a breach,
has resolved its claim for such breach.
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24. EXPENSES. Except as hereinafter provided, all fees and expenses for
lawyers, accountants or other advisors and consultants shall be the sole
responsibility of the party engaging the services of such parties. The fees
of EY to conduct the audit described in Section 9 will be paid by Purchaser.
25. PUBLICITY. None of the parties hereto or their respective affiliates
or advisors shall publicly disclose (whether by press release, discussion with
persons not party to this Agreement or filing of a report or disclosure with
any governmental authority) the matters contemplated hereby unless and until
the party proposing such publicity or other disclosure shall have supplied
the proposed text or content of such disclosure to the other parties for
review and comment at least twenty-four hours prior to release; provided,
however, that if in the good faith opinion of counsel to the releasing party,
such disclosure is required under federal or state law to be made sooner, a
copy of such disclosure shall be made available to all other parties as soon
as possible, but in any event prior to release. This section shall not limit
the right of each of the parties to discuss this transaction with their
respective lawyers, accountants and bankers and those employees who have a
need to know in order to consummate this transaction.
26. NO STOCK TRADING. Neither Seller, Shareholder, nor any stockholder
of Seller, or any officer or director of Seller will buy or sell any stock of
Purchaser until the transactions provided for herein have been closed or this
Agreement is terminated.
27. FUTURE DOCUMENTS. Seller and Purchaser agree to cooperate and
execute such additional instruments as may be needed to effectuate the sale,
transfer, assignment and conveyance provided for herein.
28. ASSIGNMENT. Except as provided in Section 15, this Agreement may not
be assigned by any party hereto.
29. AMENDMENTS. This Agreement may be amended or modified, or any
requirement contained herein waived, by and only by a written instrument
executed by Purchaser and Seller.
30. COUNTERPARTS. This Agreement may be executed simultaneously in
multiple counterparts, all of which together shall constitute one and the
same instrument.
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31. PARTIES BOUND. This Agreement shall inure to the benefit of and be
binding upon Seller, Shareholder and Purchaser and their respective
successors, heirs, legal representatives and permitted assigns.
32. NOTICES. All notices, requests and other communications hereunder
shall be in writing and shall be deemed to have been duly given if delivered
by hand or mailed, certified mail with postage prepaid:
(a) If to Seller, to Basic Engineering Services and Technology Labs,
Inc., 0000 Xxxxxxxx Xxx, Xxxxx Xxxxx, XX 00000 Attn: Xxxx Xxxxxx, with a copy
to Xxxxxxx X. Xxxxxxxxx, Xxxx Xxxx Xxxx Freidenrich LLP, 000 Xxxxxxxx Xxxxxx,
Xxxx Xxxx, Xxxxxxxxxx 00000.
(b) If to Purchaser, to Reliability Incorporated, ATTENTION: Xxxxx
Xxxxxxx, President 00000 Xxxx Xxx, Xxxxxxx, Xxxxx 00000, with a copy to Xxxx
X. XxXxxxxx at Xxxxxx & Xxxxxx, L.L.P., 0000 Xxxxxxxxx, Xxxxx 0000, Xxxxxxx,
Xxxxx 00000.
33. NO WAIVERS. Investigations or examinations made by Purchaser, its
counsel, accountants, employees or representatives and information obtained
as a result thereof shall not constitute a waiver of any representation,
warranty, obligation, covenant or agreement of Seller or Shareholder.
34. HEADINGS. The headings to the sections of this Agreement are
inserted for convenience and shall not affect the meaning or interpretation
of this Agreement.
35. TEXAS LAW. This Agreement and the rights and obligations of the
parties hereunder shall be governed by, and construed and interpreted in
accordance with, the laws of the State of Texas.
36. ENTIRE AGREEMENT. This Agreement, including the Exhibits, Schedules
and other documents referred to herein which form a part hereof, contains the
entire understanding of the parties hereto with respect to the subject matter
contained herein and therein. This Agreement supersedes all prior agreements
and understandings between the parties with respect to such subject matter.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
RELIABILITY INCORPORATED
By: /s/ Xxxxx Xxxxxxx
-----------------------------------
Xxxxx Xxxxxxx, President
BASIC ENGINEERING SERVICES
AND TECHNOLOGY LABS, INC.
By: /s/ Xxxx Xxxxxx
-----------------------------------
Xxxx Xxxxxx, President
/s/ Xxxx Xxxxxx
-----------------------------------
Xxxx Xxxxxx
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EXHIBITS
2(d) Assumed Contracts
2(j) Transferred Prepaids, Deposits
3 Purchase Price Allocation
4 Note
9(a) Audit Requirements
12(c) Estoppel Certificate
12(d)-1 Customer Property Acknowledgment Form
12(d)-2 Device Acknowledgment
12(j) Opinion Matters
12(k) Key Persons to Employ
SCHEDULES
10(c) Governmental, Lender Consents Needed*
10(d) Assets, Customer Property*
10(g) Financial Statements; Changes since November 1, 1998
10(i) Liens*
10(j) All Contracts, Consents Needed to Transfer*
10(k) Licenses, Permits, Compliance with Laws*
10(l) Work-in-Progress, Backlog, Consents Needed to Assign*
10(m) Fee Schedule
10(o) Construction, Change in Access
10(p) Y2000 Issues
10(q) Litigation*
10(s) Proprietary Rights*
10(t) Employee Matters*
10(z) Customers
11(d) Purchaser SEC documents
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