Exhibit 2.1
STOCK PURCHASE AGREEMENT
by and between
KEYSTONE TECHNOLOGIES, L.L.C.
XXXXXXX X. XXXXX,
XXXXXXX X. XXXXXXXXX,
XXXXXXX XXXXXX,
and
XXXXXXX XXXXX
as Sellers
and
OPTICAL SECURITY GROUP, INC.
as Buyer
September 15, 1999
TABLE OF CONTENTS
1. PURCHASE AND SALE OF STOCK AND INTERESTS................................. 1
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2. PURCHASE PRICE AMOUNT.................................................... 1
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2.1 Net Embossed Holography Revenues.................................. 2
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2.2 Ordinary Course of Business Revenues.............................. 2
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2.3 Audit Period...................................................... 2
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2.4 Calculation of Net Embossed Holography Revenues................... 2
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2.5 Final Calculations................................................ 2
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3. PAYMENT OF PURCHASE PRICE................................................ 2
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3.1 Cash.............................................................. 2
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3.2 Note.............................................................. 2
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3.3 Note Adjustment................................................... 3
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3.4 OpSec Stock....................................................... 3
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3.5 OpSec Stock Value................................................. 3
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3.6 Sellers' Put Option............................................... 3
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3.7 Bridgestone Debt.................................................. 4
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3.8 [Intentionally Omitted.].......................................... 5
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3.9 Purchase Price Adjustment......................................... 5
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3.10 Allocation of Purchase Price Among Sellers........................ 5
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4. SELLERS' GENERAL REPRESENTATIONS, AND WARRANTIES......................... 5
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4.1 Bridgestone Organization; Standing................................ 5
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4.2 Label Systems, LLC Organization; Standing......................... 5
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4.3 Label Systems, Inc. Organization; Standing........................ 6
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4.4 Capitalization.................................................... 6
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4.5 Shares and Interests.............................................. 7
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4.6 Authority; Binding Obligation..................................... 7
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4.7 No Violation...................................................... 7
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4.8 Licenses, Permits, and Authorizations............................. 7
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4.9 Financial Statements.............................................. 8
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4.10 Condition and Sufficiency of Assets............................... 8
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4.11 Tangible Personal Property........................................ 9
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4.12 Leased Property................................................... 9
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4.13 Inventory......................................................... 9
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4.14 Bank Accounts and Powers of Attorney.............................. 9
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4.15 Records........................................................... 10
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4.16 Absence of Certain Changes........................................ 10
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4.17 Employees and Consultants......................................... 10
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i
4.18 Litigation....................................................... 11
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4.19 Contracts........................................................ 11
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4.20 No Bankruptcy.................................................... 13
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4.21 Tax Returns...................................................... 13
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4.22 Environmental Liability.......................................... 14
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4.23 Compliance With Zoning and Planning Regulations.................. 16
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4.24 Employment and Employment Practices.............................. 16
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4.25 Accounts Receivable.............................................. 16
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4.26 Liabilities...................................................... 16
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4.27 Intellectual Property............................................ 17
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4.28 Insurance........................................................ 17
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4.29 Employee Benefit Plans........................................... 18
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4.30 Warranty Claims.................................................. 18
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4.31 Computer Programs................................................ 18
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4.32 No Finder's Fee.................................................. 19
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4.33 Illegal Payments................................................. 19
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4.34 Shareholder Notes................................................ 19
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4.35 Full Disclosure.................................................. 19
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5. REPRESENTATIONS AND WARRANTIES OF SELLERS WITH RESPECT TO THE
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ACQUISITION OF THE SHARES................................................ 19
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5.1 Sophistication; Investment Intent................................ 19
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5.2 Availability of Public Documents................................. 20
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5.3 Unregistered Shares.............................................. 20
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5.4 Restrictive Legend............................................... 20
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5.5 Opportunity to Discuss Terms..................................... 20
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6. REPRESENTATIONS AND WARRANTIES OF BUYER.................................. 20
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6.1 Good Standing; Organization...................................... 20
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6.2 Authority; Binding Obligation.................................... 20
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6.3 Governmental Consents............................................ 21
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6.4 Capitalization................................................... 21
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6.5 No Violation..................................................... 21
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6.6 Litigation....................................................... 21
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6.7 No Bankruptcy.................................................... 21
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6.8 No Finder's Fee.................................................. 21
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6.9 Investment Intent................................................ 22
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7. COVENANTS OF SELLERS..................................................... 22
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7.1 Access to Information............................................ 22
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7.2 Conduct of Business.............................................. 22
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7.3 Acquisition Proposals............................................ 23
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7.4 Third Party Consents............................................. 23
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8. ADDITIONAL AGREEMENTS AND COVENANTS..................................... 23
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8.1 Reasonable Best Efforts......................................... 23
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8.2 Performances.................................................... 24
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8.3 Confidentiality................................................. 24
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8.4 Amendment of Schedules.......................................... 24
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8.6 Transition Services Agreement................................... 25
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8.7 Non-Competition, Confidentiality and Cross-Marketing
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Agreements...................................................... 25
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8.8 Options to Purchase Imaging, LLC and Label Systems, LLC......... 25
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8.9 Xxxxxx Employment Agreement..................................... 25
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8.10 Xxxxxxxxx and Felis Employment Agreements....................... 25
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8.11 Board Representation............................................ 25
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8.12 Bridgestone Premises Leases..................................... 25
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8.13 Certain Bridgestone Obligations................................. 26
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8.14 Closing Balance Sheet of Bridgestone............................ 26
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8.15 Inventory Count................................................. 26
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8.16 Receivables Schedule............................................ 26
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8.17 Customer Purchase Orders........................................ 27
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8.18 Bridgestone Purchase Orders..................................... 27
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8.19 Transfer of Assets of Photo Polymer Business.................... 27
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8.20 Releases........................................................ 27
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9. CONDITIONS PRECEDENT TO BUYER'S PERFORMANCE............................. 27
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9.1 Representations and Warranties True............................. 27
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9.2 Covenants and Agreements Performed.............................. 27
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9.3 Opinion of Counsel to Sellers................................... 28
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9.4 Approval of Counsel to Buyer.................................... 28
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9.5 Due Diligence................................................... 28
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9.6 Other Documents................................................. 28
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9.7 Legal Proceedings............................................... 28
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9.8 Consents........................................................ 28
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10. CONDITIONS PRECEDENT TO SELLERS' PERFORMANCE............................ 28
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10.1 Representations and Warranties True............................. 28
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10.2 Covenants and Agreements Performed.............................. 28
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10.3 Approval of Counsel to Sellers.................................. 28
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10.4 Opinion of Counsel to Buyer..................................... 29
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10.5 Other Documents................................................. 29
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10.6 Legal Proceedings............................................... 29
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11. CLOSING............................................................... 29
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11.1 General........................................................ 29
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11.2 Closing Transactions........................................... 29
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12. EXPENSES OF SALE...................................................... 30
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13. BRIDGESTONE TAX MATTERS............................................... 30
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13.1 Liability for Taxes............................................ 30
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13.2 Preparation and Filing of Tax Returns.......................... 31
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13.3 Cooperation, Records........................................... 31
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14. TERMINATION........................................................... 32
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14.1 Termination.................................................... 32
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14.2 Effect of Termination.......................................... 33
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15. SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION.......................... 33
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15.1 Survival....................................................... 33
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15.2 Indemnification by Sellers..................................... 33
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15.3 Indemnification by Sellers-Environmental Matters............... 34
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15.4 Limitation on Damages.......................................... 34
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15.5 Indemnification by Buyer....................................... 34
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16. MISCELLANEOUS......................................................... 35
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16.1 Notices........................................................ 35
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16.2 Governing Law.................................................. 36
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16.3 Succession..................................................... 36
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16.4 Entireties..................................................... 36
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16.5 Severability................................................... 36
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16.6 Cooperation.................................................... 37
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16.7 Paragraph Headings............................................. 37
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16.8 Amendment...................................................... 37
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16.9 Press Releases and Public Announcements........................ 37
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16.10 Gender......................................................... 37
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16.11 [Intentionally Omitted......................................... 37
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16.12 Counterparts; Facsimile Signatures............................. 37
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16.13 Remedies Not Exclusive......................................... 37
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16.14 Attorneys' Fees................................................ 37
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16.15 Waiver......................................................... 38
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16.16 Time........................................................... 38
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Exhibits:
A. Note
B. Escrow Agreement
C. Registration Rights Agreement
D. Financial Statements
E. Motorola Supply Agreement
F. Transitional Services Agreement
G-1. Non-Competition, Confidentiality and Cross-Marketing Agreement
G-2. Confidentiality and Non-Solicitation Agreement
H-1. Label Systems Option Agreement
H-2. Imaging Option Agreement
X. Xxxxxx Employment Agreement
J. Release
K. Xxxxxxxx Xxxxx & Deutsch LLP Opinion
X. Xxxx, Xxxxxxx & Xxxxxx, P.C. Opinion
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Schedules:
2.1-1 Embossed Holography Customers
2.1-2 Embossed Holography Prospective Customers
3.10 Allocation of Purchase Price Among Sellers
4.5 Shares and Interests
4.7 No Violation
4.8 Licenses, Permits, and Authorizations
4.10 Condition and Sufficiency of Assets
4.11 Tangible Personal Property
4.12 Leased Property
4.13 Inventory
4.14 Bank Accounts and Powers of Attorney
4.17 Employees and Consultants
4.18 Litigation
4.19 Contracts
4.21 Tax Returns
4.22 Environmental Liability
4.23 Intellectual Property
4.26 Liabilities
4.28 Insurance
4.29 Employee Benefit Plans
4.30 Warranty Claims
4.34 Shareholder Notes
8.19 Photo Polymer Business
15.2 Indemnification by Sellers
15.4 Limitation on Damages
vi
This Stock Purchase Agreement (the "Agreement") is made and entered this
15th day of September, 1999, by and between KEYSTONE TECHNOLOGIES, L.L.C., a
Delaware limited liability company, XXXXXXX X. XXXXX, XXXXXXX X. XXXXXXXXX,
XXXXXXX XXXXXX, and XXXXXXX XXXXX (individually referred to by last name and
collectively as "Sellers"), OPTICAL SECURITY GROUP, INC. a Colorado corporation
("Buyer"), and concerning the stock of BRIDGESTONE TECHNOLOGIES, INC., a
Delaware corporation ("Bridgestone"), the membership interests of LABEL SYSTEMS
ACQUISITION LLC, a Connecticut limited liability company ("Label Systems, LLC")
and the membership interests of KEYSTONE IMAGING TECHNOLOGIES, L.L.C., a
Delaware limited liability company ("Imaging, LLC"). Label Systems, LLC and
Imaging, LLC are sometimes referred to herein collectively as the "LLCs."
R E C I T A L S:
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A. Sellers own 100% of the issued and outstanding common stock of Bridgestone
and 100% of the membership interests of Label Systems, LLC and Imaging, LLC.
Label Systems, LLC owns 100% of the issued and outstanding common stock of Label
Systems, Inc., a Connecticut corporation ("Label Systems, Inc.").
X. Xxxxxxx wish to sell to Buyer, and Buyer wishes to purchase from Sellers,
all of the issued and outstanding common stock of Bridgestone (the "Bridgestone
Stock") and 19.9% of the membership interests of each of Label Systems, LLC and
Imaging, LLC (the "LLC Interests") subject to the conditions of this Agreement.
X. Xxxxxxx also wish to sell to Buyer and Buyer also wishes to purchase from
Sellers certain notes (the "Shareholder Notes"), which notes evidence
indebtedness owed by Bridgestone to the Sellers in the amounts set forth
opposite their names on Schedule 4.34.
NOW THEREFORE, in consideration of the Recitals, the mutual promises,
covenants, agreements, representations, and warranties contained in this
Agreement, and the monetary consideration described below, the receipt and
sufficiency of which are acknowledged, the parties, intending to be bound, agree
as follows:
1. PURCHASE AND SALE OF STOCK AND INTERESTS. On the Closing Date (as
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defined below), Sellers shall sell, assign, convey and deliver to Buyer the
Bridgestone Stock, the LLC Interests, and the Shareholder Notes, and Buyer shall
purchase and acquire from Sellers the Bridgestone Stock, the LLC Interests, and
the Shareholder Notes, free and clear of all liens, pledges, or other
encumbrances.
2. PURCHASE PRICE AMOUNT. Buyer shall purchase the Bridgestone Stock,
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the LLC Interests, and the Shareholder Notes for a purchase price (the "Purchase
Price") equal to two times Net Embossed Holography Revenues (as defined below)
of up to $9 million, plus 1.6 times Net Embossed Holography Revenues (as defined
below) in excess of $9 million, all as calculated during the Audit Period (as
defined below). The Purchase Price is subject to the adjustment
1
described in Section 3.9, but, in no event, shall the Purchase Price be less
than the consideration set forth in Sections 3.1, 3.4 (as adjusted pursuant to
Section 3.9) and 3.7.
2.1 Net Embossed Holography Revenues. "Net Embossed Holography
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Revenues" means all Ordinary Course of Business Revenues arising from the
sale of embossed holography products, excluding sales to affiliates,
subsidiaries and sister companies, and entities under common control
("Intercompany Sales"), returns, claims, offsets, allowances and freight,
arising from Bridgestone's existing embossed holography business and
received from existing customers identified on Schedule 2.1-1 (and from
prospective customers identified on Schedule 2.1-2), and as calculated
pursuant to Section 2.4, below.
2.2 Ordinary Course of Business Revenues. Unless otherwise approved
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mutually by Buyer and Sellers, "Ordinary Course of Business Revenues" means
(a) revenues generated in the ordinary course of Bridgestone's business
from the customers listed on Schedule 2.1-1, which Buyer hereby approves,
and (b) other revenues, from prospective customers listed on Schedule 2.1-
2, from whom Bridgestone has not previously received material revenue,
based upon the customer pricing listed on Schedule 2.1-2, which Buyer
hereby approves.
2.3 Audit Period. "Audit Period" means the 13 month period
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commencing on the Effective Date.
2.4 Calculation of Net Embossed Holography Revenues. "Net Embossed
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Holography Revenues" shall be equal to the sum of such revenues for the 11
month period commencing on the Effective Date, plus the arithmetic average
of such revenues for the 11/th/, 12/th/ and 13/th/ months following the
"Effective Date," as defined in Section 11.1, below.
2.5 Final Calculations. The final calculations of Net Embossed
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Holography Revenues must be confirmed by Ernst & Young LLP. The cost of the
accounting efforts will be borne by the Buyer.
3. PAYMENT OF PURCHASE PRICE. Buyer shall pay the Purchase Price as
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follows:
3.1 Cash. Buyer shall pay to Sellers $8 million in cash or other
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good funds at Closing.
3.2 Note. Buyer shall execute and deliver to Sellers its promissory
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note (the "Note") in the initial principal amount of $1.5 million. The Note
shall be due and payable 27 months after the Effective Date, shall bear no
interest for the first 12 months, shall accrue interest on the principal
amount as adjusted pursuant to Section 3.3, at the Citibank N.A. Base Rate
thereafter, and shall be in the form prescribed by Exhibit A, attached
hereto and incorporated herein by reference, and shall be subject to
adjustment, as provided in Section 3.3, on the date which is 90 days after
the first anniversary of the Effective Date (the
2
"Adjustment Date"). Buyer shall also pay to Sellers an amount equal to the
difference, if any, between Seller's federal and state income tax liability
for imputed interest over the first 12 months of the term of the Note, and
Sellers' federal and state tax liability if such imputed interest had been
taxed at capital gains rates.
3.3 Note Adjustment. The initial principal due on the Note shall be
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adjusted, but not below zero, on the Adjustment Date, retroactively to the
Effective Date, to an amount equal to the Purchase Price Amount minus the
consideration, as adjusted, paid by the Buyer pursuant to Sections 3.1
(Cash), 3.4 (OpSec Stock), and 3.7 (Bridgestone Debt). If adequate
information to calculate the adjustment is not available to all parties on
the Adjustment Date, the parties will negotiate in good faith to extend the
Adjustment Date and provide sufficient information to calculate the
adjustment.
3.4 OpSec Stock. Buyer shall deliver to a mutually acceptable
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escrow agent at Closing 333,333 shares of fully paid and non-assessable
restricted Buyer common stock (the "OpSec Stock"), to be disbursed to
Sellers on the date 15 months after Closing, on the express condition that
Net Embossed Holography Revenues for the Audit Period exceed $1 million,
which amount is to be determined by the accounting firm of Xxxxxx Xxxxxxx &
Co.. If this condition is not satisfied, the escrow agent shall return the
OpSec Stock to Buyer upon Buyer's written request to do so. The parties
shall execute an escrow agreement at Closing (the "Escrow Agreement") to
effectuate the purposes of this Section 3.4, in the form of Exhibit B
attached hereto and incorporated herein by reference. The OpSec Stock shall
be entitled to certain piggyback registration rights and tag along rights
in the event of a sale of all or substantially all of the assets or stock
of Buyer to a third party, or a merger in which Buyer participates but is
not the surviving entity. The registration and tag along rights are as
specified in the Registration Rights Agreement attached hereto as Exhibit C
and incorporated herein by reference.
3.5 OpSec Stock Value. Buyer guarantees that the OpSec Stock held
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by Sellers will have a Current Market Value of at least $2 million, i.e.,
$6.00 per share, on the date 27 months after the Effective Date (the "Value
Date") adjusted as provided in Section 3.9 (the "OpSec Stock Value").
"Current Market Value" means the arithmetic average closing price of OpSec
Stock on the relevant NASDAQ Stock Market for 30 trading days prior to the
Value Date. In the event the Current Market Value on the Value Date is less
than the OpSec Stock Value, Buyer shall deliver a sufficient additional
number of shares of OpSec Stock to satisfy the difference unless Sellers
have exercised the option described in Section 3.6.
3.6 Sellers' Put Option. No sooner than 12 months after Closing and
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no later than 90 days prior to the Value Date, one or more of the Sellers
(the "Electing Sellers") may exercise the option to require Buyer to
repurchase 50% or more of each Electing Seller's OpSec Stock by providing
written notice to Buyer. The Electing Sellers' exercise of this option
shall relieve Buyer of the obligations set forth in Section 3.5 as to each
Electing Seller. The repurchase price for the OpSec Stock shall be 85% of
the OpSec Stock Value per share, payable by Buyer, no later than 30 days
following the determination of the value
3
of the LLC Interests as provided in Section 3.6.3 (the date of such payment
referred to as the "Put Closing Date"), at Buyer's sole discretion, either
3.6.1 In cash or other good funds, or
3.6.2 By re-transferring all or a portion of the LLC Interests
to the Electing Sellers up to their percentages set forth in Schedule
3.10, valued as provided in Section 3.6.3, and paying any deficiency
between the OpSec Stock Value and such value in cash or other good
funds.
3.6.3 The value of the LLC Interests shall be equal to the
total of the following:
(A) The percentage of membership interests of Imaging,
LLC being re-transferred to the Sellers multiplied by the sum
of two times (i) the Net Photo Polymer Revenues, as defined in
the Imaging, LLC Option Agreement, less Imaging, LLC's existing
debt (excluding accounts payable incurred in the ordinary
course of business which are not past due) on the Put Closing
Date and (ii) the Contingent Revenues, as defined in the
Imaging, LLC Option Agreement, if any. If Buyer does not give
the Preliminary Exercise Notice required under the Imaging, LLC
Option Agreement, in order to calculate the Contingent
Revenues, Sellers shall provide Buyer with a list of the
Prospective Customers, as defined in the Imaging, LLC Option
Agreement, no later than the Second Anniversary of the
Effective Date.
(B) The percentage of membership interests of Label
Systems, LLC being re-transferred to the Sellers multiplied by
the sum of (i) the Net Revenues, as defined in the Label
Systems, LLC Option Agreement, less Label Systems, LLC's
existing debt on the Put Closing Date and (ii) the Contingent
Revenues, as defined in the Label Systems, LLC Option
Agreement, if any. If Buyer does not give the Preliminary
Exercise Notice required under the Label Systems, LLC Option
Agreement, in order to calculate the Contingent Revenues,
Sellers shall provide Buyer with a list of the Prospective
Customers, as defined in the Label Systems, LLC Option
Agreement, no later than the Second Anniversary of the
Effective Date .
3.7 Bridgestone Debt. At Closing, Buyer shall accept Bridgestone
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with its obligations under the Shareholder Notes, obligations incurred in
the ordinary course of business, and no more than $1 million owed to Fleet
Bank. This $1 million debt to Fleet Bank shall be considered part of the
Purchase Price.
4
3.8 [Intentionally Omitted.]
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3.9 Purchase Price Adjustment. The Purchase Price Amount described
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in Section 2, shall be reduced dollar for dollar to the extent the Final
Closing Balance Sheet, required by Section 8.14, does not reflect at least
$850,000 in Net Tangible Assets or increased dollar for dollar to the
extent the Final Closing Balance Sheet, required by Section 8.14, reflects
Net Tangible Assets over $1,050,000 (the "Purchase Price Adjustment"). The
Purchase Price Adjustment shall reduce or increase the OpSec Stock portion
of the Purchase Price described in Section 3.4. "Net Tangible Assets" means
the book value on the Effective Date, calculated using generally accepted
accounting principles consistently applied, of all of Bridgestone's
inventory, accounts receivable, cash, cash equivalents, and equipment,
minus all of Bridgestone's debts, accrued liabilities and other
obligations; provided that for purposes of this Section 3.9, Net Tangible
Assets shall be increased by the margin on customer orders not yet
recognized by Bridgestone for all Bridgestone's work in progress and
finished goods (whether or not shipped) which have not been invoiced prior
to Closing.
3.10 Allocation of Purchase Price Among Sellers. All payments made
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as part of the Purchase Price shall be allocated and/or paid to Sellers in the
proportions set forth on Schedule 3.10.
4. SELLERS' GENERAL REPRESENTATIONS, AND WARRANTIES. Sellers jointly,
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severally, and individually, represent, and warrant to Buyer as follows:
4.1 Bridgestone Organization; Standing. Bridgestone is a
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corporation duly organized and in good standing under the laws of the state
of Delaware and (a) has all requisite corporate power and authority to
carry on its business as now conducted, (b) has all governmental and other
authorizations, licenses, or permits necessary to carry on its business as
now conducted, (c) has no subsidiaries and owns no security or similar
interests in any corporation or other entity, (d) has delivered to Buyer
complete and correct copies of its articles or certificate of
incorporation, and Bylaws as currently in effect.
4.2 Label Systems, LLC Organization; Standing. Label Systems, LLC
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is a limited liability company duly organized and in good standing under the
laws of the state of Connecticut and (a) has all requisite power and authority
to carry on its business as now conducted; (b) has all governmental and other
authorizations, licenses, or permits necessary to carry on its business as now
conducted, except where the failure to be so qualified or licensed and in good
standing would not have a Material Adverse Effect, as defined below; (c) has no
subsidiaries, other than Label Systems, Inc., and owns no security or similar
interests in any corporation or other entity; (d) has delivered to Buyer
complete and correct copies of its articles of organization, operating agreement
and bylaws as currently in effect. For purposes of this Agreement, the term
Material Adverse Effect shall refer to any events, individually or in
combination with other events, which would have a material adverse effect on the
financial condition, business, earnings, assets, or condition of Bridgestone,
Label Systems, LLC, or Label Systems, Inc.
5
4.3 Label Systems, Inc. Organization; Standing. Label Systems,
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Inc. is a corporation duly organized and in good standing under the laws of
the state of Connecticut and (a) has all requisite corporate power and
authority to carry on its business as now conducted, (b) has all
governmental and other authorizations, licenses, or permits necessary to
carry on its business as now conducted, except where the failure to be so
qualified or licensed and in good standing would not have a Material
Adverse Effect, (c) has no subsidiaries and owns no security or similar
interests in any corporation or other entity, (d) has delivered to Buyer
complete and correct copies of its articles or certificate of
incorporation, and Bylaws as currently in effect.
4.3(a) Imaging, LLC Organization; Standing. Imaging, LLC is a
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limited liability company duly organized and in good standing under the
laws of the state of Connecticut and (a) has all requisite power and
authority to carry on its business as now conducted, (b) has all
governmental and other authorizations, licenses, or permits necessary to
carry on its business as now conducted, except where the failure to be so
qualified or licensed and in good standing would not have a Material
Adverse Effect, (c) has no subsidiaries and owns no security or similar
interests in any corporation or other entity, (d) has delivered to Buyer
complete and correct copies of its articles of organization, operating
agreement and bylaws as currently in effect.
4.4 Capitalization. The authorized capital stock of Bridgestone
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consists of 1,000 shares of common stock, no par value per share, of which
400 shares are issued and outstanding and no shares are held in
Bridgestone's treasury. The LLC Interests are described by owner,
percentage and capital account balances on Schedule 4.4. The authorized
capital stock of Label Systems, Inc. consists of 500 shares of common
stock, par value $100 per share, of which 100 shares are issued and
outstanding and no shares are held in Label Systems Inc.'s treasury. All
outstanding shares of the capital stock of Bridgestone and Label Systems,
Inc. and all the LLCs' membership interests have been validly issued and
are fully paid and nonassessable, and no shares of capital stock of
Bridgestone or Label Systems Inc. or membership interests of the LLCs are
subject to, nor have any been issued in violation of, pre-emptive or
similar rights. All issuances, sales, and repurchases of Bridgestone or
Label Systems Inc.'s capital stock and of the LLCs' membership interests
have been effected in compliance with applicable federal, state, and local
law including federal and state securities laws. Except as set forth in
this section, there are outstanding (a) no voting securities or other
shares of capital stock of Bridgestone or Label Systems Inc. or membership
or economic interests of the LLCs, (b) no securities of Bridgestone, the
LLCs or Label Systems, Inc. convertible into or exchangeable for voting
securities or other shares of capital stock of Bridgestone, Label Systems,
Inc. or interests in the LLCs, (c) no options or other rights to acquire
from Sellers, Bridgestone, the LLCs or Label Systems, Inc., and no
obligation of Sellers, Bridgestone, the LLCs or Label Systems, Inc. to
issue or sell, any voting securities or other shares of capital stock of
Bridgestone or Label Systems, Inc., or interests in the LLCs, or any
securities of Bridgestone, the LLCs or Label Systems, Inc. convertible into
or exchangeable for voting securities or capital stock, or interests, and
(d) no equity equivalents, interests in the ownership or earnings, or other
similar rights of or with respect to Bridgestone, the LLCs or Label
Systems, Inc. Except for the agreements
6
identified on Schedule 4.4, no Seller is a party to, and none of them is
aware of, any buy-sell or voting agreement, voting trust, or similar
agreement or arrangement relating to the capital stock or interests of
Bridgestone, the LLCs or Label Systems, Inc.
4.5 Shares and Interests. Sellers are the only record and
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beneficial owners of the capital stock of Bridgestone and Label Systems,
Inc. and the interests in the LLCs. Each of the Sellers own the number of
shares of capital stock of Bridgestone and interests in the LLCs set forth
opposite his or its name on Schedule 4.5. Upon consummation of the
transactions contemplated hereby, Buyer will acquire good and marketable
title to the Bridgestone Stock and the LLC Interests, free and clear of any
charge, claim, community property interest, condition, equitable interest,
lien, option, pledge, security interest, restrictions, or other
encumbrances of every type and description, whether imposed by law,
agreement, understanding, or otherwise.
4.6 Authority; Binding Obligation. This Agreement, and each
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document executed by Sellers in connection herewith, constitute the valid
and binding obligations of Sellers, enforceable in accordance with its
terms, subject only to applicable bankruptcy, insolvency, and other laws
affecting the rights of creditors generally, and the discretion of the
courts in granting equitable remedies.
4.7 No Violation. Except as set forth on Schedule 4.7, the
------------
execution, delivery, and performance of this Agreement and the consummation
of the transactions contemplated hereby by Sellers will not conflict with
or result in a breach of any provision of or default under, or give rise to
any right of termination, cancellation, or acceleration under the terms of,
as the case may be (a) Bridgestone's, Label Systems Inc.'s or the LLCs's
charter, Bylaws, or other governing instruments of Bridgestone, Label
Systems, Inc. or the LLCs; (b) any bond, mortgage, lien, lease, note,
agreement, contract, commitment, license, permit or other instrument to
which Sellers, Bridgestone, Label Systems, Inc. or the LLCs are parties;
(c) any law, rule or regulation; or (d) any judgment, order, writ,
injunction or decree of any court, administrative agency or governmental
body, domestic or foreign, nor are Sellers aware of any violation of the
above.
4.8 Licenses, Permits, and Authorizations. Bridgestone, the LLCs
-------------------------------------
and Label Systems, Inc. have the licenses, permits, and authorizations
shown on Schedule 4.8 and, to the best of Sellers' knowledge, all
governmental licenses, permits, and authorizations (federal, state and
local) necessary to conduct their businesses, including all state
authorizations to transact business as a foreign corporation, and such
licenses or permits are in full force and effect, no violations are or have
been recorded in respect of any of such licenses or permits, and no
proceeding is pending or, to the best of each Seller's knowledge,
threatened looking toward the revocation or limitation of any of such
licenses or permits, and Bridgestone, the LLCs and Label Systems, Inc. each
have complied in all material respects with the antitrust laws as they
relate to the purchase, distribution and sale of its products and services,
and with all other material laws, rules, regulations and orders applicable
to their business.
7
4.9 Financial Statements. Sellers have delivered to Buyer accurate
--------------------
and complete copies of audited balance sheets of Bridgestone and Label
Systems, Inc. as of December 31/st/, for each of the years 1996, 1997, and
1998, and for Bridgestone the related audited statements of income, changes
in shareholders equity, and cash flows for each of the fiscal years then
ended, and for Label Systems, Inc.'s statements of income, changes in
shareholders' equity, and cash flows unaudited for fiscal years 1996 and
1997 and audited for fiscal year 1998, together thereon with the report of
Xxxxxx, Xxxxxxx & Co., independent certified public accountants (the
"Historical Financial Statements") and Bridgestone's, the LLCs', and Label
Systems, Inc.'s unaudited balance sheets as of July 31, 1999, or for
Imaging, LLC, as of its date of organization (the "Latest Balance Sheets")
and the related unaudited statements of income, stockholder equity and cash
flows for the 7-month period then ended (the "Latest Financial
Statements"), certified by Bridgestone's, the LLCs', and Label Systems,
Inc.'s chief financial officer or manager, (collectively, the "Financial
Statements") copies of which are attached hereto as Exhibit D. The
Financial Statements (a) have been prepared from the books and records of
Bridgestone, the LLCs or Label Systems, Inc., as the case may be, in
conformity with generally accepted accounting principles applicable in the
United States, and (b) accurately and fairly present, in all material
respects, the financial position of Bridgestone, the LLCs, and Label
Systems, Inc., as of the respective dates thereof and the results of
operations and cash flows for the periods referenced in such Financial
Statements, subject to year-end adjustments, which will not be material in
the aggregate. The statements of income included in the Financial
Statements do not contain any items of special or nonrecurring income or
any other income not earned in the ordinary course of business except as
expressly specified therein, and include all adjustments, which consist
only of normal recurring accruals, necessary for such fair presentation.
All financial projections, forecasts, and other forward looking information
("Projections") provided by Sellers to Buyer were, as of their respective
dates, prepared in good faith and on the basis that Sellers believed to be
reasonable. Sellers have based these Projections on their current
expectations and projections about future events and undertake no
obligation to update or revise any Projections after Closing, whether as a
result of new information, future events or otherwise. In light of these
risks, uncertainties and assumptions, the Projections may not occur.
4.10 Condition and Sufficiency of Assets. Except as set forth on
-----------------------------------
Schedule 4.10, the properties owned, leased, or used by Bridgestone, the
LLCs or Label Systems, Inc., as the case may be, are (i) in the case of
tangible assets and properties, in good operating condition and repair
(ordinary wear and tear excepted) and have been maintained in accordance
with standard industry practice, (ii) suitable for the purposes used, and
(iii) adequate and sufficient for the normal operation of the business, as
presently conducted. Bridgestone, the LLCs or Label Systems, Inc. owns or
has a valid leasehold interest in all such properties. Such properties and
their uses conform to all applicable federal, state and local laws, except
for such minor variations as do not impair or interfere with the use of
such properties for the purposes for which they are employed by
Bridgestone, the LLCs or Label Systems, Inc., as the case may be. All such
tangible properties are in Bridgestone's, the LLCs' or Label Systems,
Inc.'s possession or under their control.
8
4.11 Tangible Personal Property. Set forth on Schedule 4.11,
--------------------------
separated by company, is a list, as of the most recent practical date, of
all items of furniture, equipment, machinery, computer hardware, materials,
motor vehicles, rolling stock, apparatus, tools, implements, appliances,
and other tangible personal property (other than spare parts, supplies, and
inventories) owned or leased by Bridgestone, the LLCs and Label Systems,
Inc. and used or held for use in connection with the operation of their
businesses and with a value in excess of $500.00 per item.
4.12 Leased Property. Set forth on Schedule 4.12, separated by
---------------
company, is a list of all leases under which Bridgestone, the LLCs or Label
Systems, Inc. is the lessee of real or personal property. Each of
Bridgestone, the LLCs or Label Systems, Inc., as the case may be, has good
and valid leasehold interest in all properties held by them under lease.
Bridgestone, the LLCs, and Label Systems, Inc. each have been in peaceable
possession (or remedied any claims relating thereto) of the property
covered by each lease to which they are a party since the commencement of
the original term of such lease. No waiver, indulgence, or postponement of
Bridgestone's, the LLCs' or Label Systems, Inc.'s obligations under any
lease to which they are a party has been granted by the lessee or the
lessor's obligations thereunder by Bridgestone, the LLCs or Label Systems,
Inc.. Neither Bridgestone, the LLCs nor Label Systems, Inc. is in breach or
in default under, nor has any event occurred which (with or without the
giving of notice or the passage of time or both) would constitute a default
by Bridgestone, the LLCs, or Label Systems, Inc., as the case may be under,
any lease to which it is a party and neither Bridgestone, the LLCs nor
Label Systems, Inc. has received any notice from, or given any notice to,
any lessor indicating that it or such lessor is in breach of or in default
under any lease to which it is a party. To the best knowledge of Sellers,
none of the lessors under any such lease is in breach thereof or in default
thereunder. Bridgestone, the LLCs, or Label Systems, Inc., as the case may
be, has full right and power to occupy or possess, as the case may be, all
the property covered by each lease to which it is a party.
4.13 Inventory. Except as set forth on Schedule 4.13, all inventory
---------
and related supplies attributed any value on the Latest Balance Sheets, or
thereafter acquired and not disposed of in the ordinary course of business,
are in good condition and are merchantable for sale in the ordinary course
of business of Bridgestone, the LLCs, or Label Systems, Inc., as the case
may be, as first quality goods at normal markups, subject to any reserves
on the Latest Balance Sheets. None of such inventory is obsolete,
discontinued, returned, damaged, excess or of below standard quality or
merchantability, except for items consistent with past practice, that have
been written down to realizable market value or for which an adequate
reserve has been established. Each item of inventory is valued at the lower
of cost or market on a first in first out basis. The quantities of each
item of inventory are not excessive and are sufficient to serve adequately
the customers of Bridgestone, the LLCs, or Label Systems, Inc., as the case
may be, in the ordinary course.
4.14 Bank Accounts and Powers of Attorney. Set forth on Schedule
------------------------------------
4.14, separated by company, are (a) the name and address of each bank or
other financial institution with which Bridgestone, the LLCs or Label
Systems, Inc. has an account or safe
9
deposit box or vault, the account safe deposit box and vault numbers
thereof, and the purpose of each therefore, and the names of all persons
authorized to draw thereon or to have access thereto, (b) the names of all
persons authorized to borrow funds on behalf of Bridgestone, the LLCs or
Label Systems, Inc., and the names and addresses of all entities from which
they are authorized to borrow funds, and (c) the names of all persons, if
any, holding proxies, powers of attorney, or other like instruments from
Bridgestone, the LLCs or Label Systems, Inc. No such proxies, powers of
attorney, or other like instruments are irrevocable.
4.15 Records. All books of accounts, minute books, stock record
-------
books, ledgers, financial and other records of any kind ("Records") of
Bridgestone, the LLCs, and Label Systems, Inc. have been fully, properly
and accurately maintained to a standard appropriate for such Records, are
in the possession of Bridgestone, the LLCs, and Label Systems, Inc.; do not
contain or reflect any material inaccuracies or discrepancies; and provide
a fair and accurate representation of Bridgestone, the LLCs, and Label
Systems, Inc.
4.16 Absence of Certain Changes. Since the date of the Latest
--------------------------
Financial Statements, there has not been (a) any sale, purchase, transfer,
or distribution of any material asset, or any other transaction, except in
the regular course of business, (b) any material increase in the
compensation payable or to become payable by Bridgestone, the LLCs, or
Label Systems, Inc. to any of its officers, managers, employees, or agents
or any bonus payment or arrangement made to or with any officers, managers,
employees, or agents, (c) any mortgage, pledge, or other voluntary
encumbrance of any asset of Bridgestone, the LLCs, or Label Systems, Inc.,
(d) any cancellation of debt or waiver or release of any right or claim of
Bridgestone, the LLCs, or Label Systems, Inc., except in the ordinary
course of business, (e) any labor dispute, or any event or condition of any
character, materially and adversely affecting the business or prospects for
the business, (f) any obligation or liability incurred by Bridgestone, the
LLCs, or Label Systems, Inc., except in the ordinary course of business, or
(g) any damage, destruction or loss, whether or not covered by insurance,
materially affecting Bridgestone's, the LLCs's, or Label Systems, Inc.'s
financial condition, assets, or business prospects. To the best of each
Seller's knowledge after investigation and diligent inquiry, the Sellers
have disclosed to Buyer all other events or conditions of any character
that has or might have a Material Adverse Effect on Bridgestone, the LLCs,
or Label Systems, Inc.'s condition, business, assets, or prospects.
4.17 Employees and Consultants. Attached as Schedule 4.17 is a true
-------------------------
and complete list of Bridgestone's, the LLCs', and Label Systems, Inc.'s
current directors, managers, officers, employees, agents, and consultants,
including their names, addresses, telephone numbers, job descriptions, and
compensation arrangements and vacation or other benefits accrued. Any
employees employed, or agents or consultants retained, pursuant to a
written contract, covered by any collective bargaining agreement or who are
members of any labor union or are represented by any collective bargaining
agent are identified on Schedule 4.17 and copies of the current contracts
or bargaining agreements have been furnished to Buyer.
10
4.18 Litigation. Except as set forth on Schedule 4.18, there is no:
----------
(a) action, suit, claim, proceeding, or investigation pending of which any
Seller, Bridgestone, the LLCs, or Label Systems, Inc. has received notice, or
threatened against or affecting Bridgestone, the LLCs, or Label Systems, Inc. or
that otherwise relates to or may affect the business of, or any of the assets
owned or used by them, or before any governmental department, commission, board,
bureau, agency, or instrumentality, domestic or foreign, or (b) governmental
investigation or inquiry pending or threatened against or affecting Bridgestone,
the LLCs, or Label Systems, Inc., and to the best of each Seller's knowledge,
there is no basis for any of the foregoing which could reasonably be expected to
give rise thereto. Except as set forth on Schedule 4.18, and except for any
such claim or other proceeding set forth in (a) and (b) above which would not
have a Material Adverse Effect, each of the claims, actions, suits, proceedings
and investigations listed on Schedule 4.18 has been reported to the proper
insurance carrier in accordance with the applicable insurance policy, if any,
and as necessary to secure coverage thereof.
4.19 Contracts.
---------
4.19.1 Schedule 4.19 contains a list, separated by company, of
all of the following leases, contracts, agreements, arrangements, and
understanding, whether written or oral, formal or informal, each of
which is material (the "Contracts"), to which Bridgestone, the LLCs,
or Label Systems, Inc. is a party or by which the business or any of
the assets owned or used by Bridgestone, the LLCs or Label Systems,
Inc. is bound:
4.19.1.1 Collective bargaining agreements, labor union
contracts, and similar agreements with employees as a group.
4.19.1.2 Employee benefit agreements, trusts, plans, funds,
or other arrangements of any nature.
4.19.1.3 Agreements with any current or former owner,
director, officer, manager, employee, consultant, or advisor, or
any of such persons affiliates.
4.19.1.4 Agreements between or among Bridgestone, the LLCs
or Label Systems, Inc., as the case may be, and any of their
affiliates.
4.19.1.5 Indentures, mortgages, security agreements, notes,
loan or credit agreements, or other agreements relating to the
borrowing of money by Bridgestone, the LLCs or Label Systems,
Inc., the direct or indirect guarantee or assumption by
Bridgestone, the LLCs or Label Systems, Inc. of any obligations
of others, or the direct or indirect guarantee or assumption by
any party of any obligation of Bridgestone, the LLCs or Label
Systems, Inc., including any agreement that has economic effect,
although not the legal form of any of the foregoing.
11
4.19.1.6 Agreements relating to the acquisition or
disposition of assets, other than in the ordinary course of
business.
4.19.1.7 Agreements relating to the acquisition or
disposition of any interests in any business enterprise.
4.19.1.8 Agreements concerning the management or operation
of any real property (other than routine maintenance contracts).
4.19.1.9 Long term supply agreements and purchase
commitments.
4.19.1.10 Broker, distributor, dealer, sales, agency, and
research and development agreements.
4.19.1.11 Sales promotion, advertising, market research,
marketing, consulting, maintenance, service, and repair
agreements (except any such agreements that can be terminated by
the company without penalty on 30 days notice).
4.19.1.12 Partnership, joint venture, and profit sharing
agreements.
4.19.1.13 Agreements with any federal, state or local
government entity.
4.19.1.14 Agreements relating to the release or disposal of
hazardous material.
4.19.1.15 Agreements that involve the performance of
services or delivery of goods or materials by Bridgestone, the
LLCs, or Label Systems, Inc. of an amount or value in excess of
$500.00.
4.19.1.16 Agreements in the nature of a settlement or
conciliation arising out of any claim asserted by any other
person.
4.19.1.17 Agreements containing any covenant limiting the
freedom of the company to engage in any line of business or to
compete with any other person in any geographic area or during
any period of time.
4.19.1.18 Licensing agreements, or other contracts with
respect to patents, trademarks, copyrights, or other Intellectual
Property (as defined in Section 4.26), including agreements with
current or former employees,
12
consultants, or contractors regarding the appropriation or the
non-disclosure of any Intellectual Property.
4.19.1.19 Other agreements, whether or not made in the
ordinary course of business, that are material to the business,
assets, results of operations, condition (financial or
otherwise), or prospects of Bridgestone, the LLCs or Label
Systems, Inc.
4.19.2 Correct and complete copies of the Contracts have been
furnished to Buyer. Each such Contract is a valid and binding
agreement of Bridgestone, the LLCs, or Label Systems, Inc., as the
case may be, enforceable in accordance with its terms. Neither
Bridgestone, the LLCs, nor Label Systems, Inc. is in breach of or in
default under, nor has any event occurred which (with or without the
giving of notice or the passage of time or both) would constitute a
default by Bridgestone, the LLCs or Label Systems, Inc., as the case
may be, under, any material provision of any of the Contracts, and
neither Bridgestone, the LLCs, nor Label Systems, Inc. has received
any notice from, or given any notice to, any other party indicating
that Bridgestone, the LLCs or Label Systems, Inc., as the case may be,
is in breach of or in default under any such provision of any such
Contracts. To the best of each Seller's knowledge, no other party to
any of such Contracts is in breach of or in default under such
agreements, nor has any assertion been made by Sellers, Bridgestone,
the LLCs or Label Systems, Inc. of any such breach or default.
4.19.3 Neither Sellers, Bridgestone, the LLCs nor Label Systems,
Inc., as the case may be, has received notice of any plan or intention
of any other party to any Contracts to exercise any right of offset
with respect to, or any right to cancel or terminate any Contract, and
Sellers do not know of any fact or circumstance that would justify the
exercise by any such other party of such a right other than automatic
termination of such Contract in accordance with its terms. Neither
Sellers, Bridgestone, the LLCs nor Label Systems, Inc., as the case
may be, currently contemplates, or has reason to believe any other
person currently contemplates, any amendment or change to any
Contract.
4.20 No Bankruptcy. Neither Bridgestone, the LLCs, nor Label System,
-------------
Inc. has filed for any form of relief under the United States Bankruptcy Code or
analogous state laws, is insolvent, or has made a general assignment or
composition with respect to creditors. No order, execution, or other process
has been levied against Bridgestone, the LLCs or Label Systems, Inc. in any
action taken to repossess goods in any material amount. No steps have been
taken for the appointment of a receiver of any part of Bridgestone's, the LLCs'
or Label Systems, Inc.'s property.
4.21 Tax Returns. Except as set forth on Schedule 4.21, Bridgestone,
-----------
the LLCs and Label Systems, Inc. have each timely filed all tax returns,
information returns, and reports, required to be filed by them with all taxing
authorities to which they are subject. Imaging, LLC is newly formed and has not
yet been required to file tax returns and reports.
13
Except for accruals for payroll taxes payable, income taxes payable, and
deferred taxes as set forth in the Latest Balance Sheets (collectively, the
"Accrued Taxes"), Bridgestone, the LLCs and Label Systems, Inc. has paid in
full all taxes (including taxes withheld from employees' salaries and other
withholding taxes and obligations), interest, penalties, assessments and
deficiencies owed by Bridgestone, the LLCs or Label Systems, Inc. to all
taxing authorities. Complete and correct copies of (a) the income tax
returns of Bridgestone, the LLCs and Label Systems, Inc. since ________,
19___, as filed by Bridgestone, the LLCs or Label Systems, Inc., as the
case may be, with the Internal Revenue Service (the "IRS"), and all state
taxing authorities (collectively, the "Returns"), (b) all audit reports
received by Bridgestone, the LLCs or Label Systems, Inc. during the last
five years and issued by the IRS or any state taxing authorities, and (c)
all consents and agreements entered into by Bridgestone, the LLCs or Label
Systems, Inc. during the last five years with the IRS or any state taxing
authorities (collectively, the "Tax Agreements") have been furnished to the
Buyer. All information reported on the Returns is true, accurate, and
complete. All claims by the IRS or any state taxing authority for taxes due
and payable by Bridgestone, the LLCs or Label Systems, Inc. have been paid
by Bridgestone, the LLCs or Label Systems, Inc. The provisions for the
accrued taxes are adequate for the payment of all of Bridgestone, the LLCs
or Label Systems, Inc., as the case may be, liabilities for unpaid taxes
(whether or not disputed). All federal income tax returns required to be
filed by Bridgestone, the LLCs or Label Systems, Inc. have either been
examined by the IRS, or the period during which any assessments may be made
by the IRS has expired without waiver or extension for all years through
Bridgestone's fiscal year ended ________, 19___, the LLCs's fiscal year
ended __________, 19___, and Label Systems, Inc.'s fiscal year ended
________, 19___, and any deficiencies or assessments claimed or made have
been paid, settled, or fully provided for in the Latest Financial
Statements. Sellers are not aware of any action, pending or contemplated,
by any taxing authority to collect any outstanding taxes due.
4.22 Environmental Liability.
-----------------------
4.22.1 Except as disclosed on Schedule 4.22, and except as such
would not have a Material Adverse Effect:
4.22.1.1 The properties, operations, and activities of
Bridgestone, the LLCs and Label Systems, Inc. comply with all
Applicable Environmental Laws (as defined below).
4.22.1.2 Bridgestone, the LLCs and Label Systems, Inc.
and their properties, operations, and activities are not subject
to any existing, pending, or, to the best of each Seller's
knowledge, threatened proceeding, action, or investigation under,
or to any remedial obligations under, any Applicable
Environmental Laws.
4.22.1.3 All permits, if any, required to be obtained by
Bridgestone, the LLCs or Label Systems, Inc. under any Applicable
Environmental Laws in connection with any aspect of Bridgestone,
the LLCs or Label Systems, Inc. business, including without
limitation those relating
14
to the treatment, storage, disposal, or release of a hazardous
material (as defined below), have been duly obtained and are in
full force and effect, and Bridgestone, the LLCs, and Label
Systems, Inc. are in compliance with the terms and conditions of
all such permits.
4.22.1.4 Bridgestone, the LLCs and Label Systems, Inc. have
each satisfied and is currently in compliance with all Applicable
Environmental Laws, and neither Bridgestone, the LLCs nor Label
Systems, Inc. has received any notice of noncompliance with an
Applicable Environmental Laws.
4.22.1.5 There are no physical or environmental conditions
existing on any property owned or leased by Bridgestone, the LLCs
or Label Systems, Inc. or resulting from their operations or
activities, past or present, at any location, that would give
rise to any on-site or off-site remedial obligations under any
Applicable Environmental laws.
4.22.1.6 Since the effective date of the relative
requirements of Applicable Environmental Laws, all hazardous
materials generated by Bridgestone, the LLCs or Label Systems,
Inc. or used in connection with their properties, operations, or
activities have been transported only by carriers authorized
under Applicable Environmental Laws to treat, store, or dispose
of such materials, and, to the best of each Seller's knowledge,
such carriers and facilities have been and are operating in
compliance with such authorizations and are not the subject of
any existing, pending, or threatened proceeding, action, or
investigation in connection with any Applicable Environmental
Laws.
4.22.1.7 There has been no exposure of any person or
property to hazardous materials, nor has there been any release
of hazardous materials into the environment, by Bridgestone, the
LLCs or Label Systems, Inc. or in connection with their
properties, operations, or activities that could reasonably be
expected to give rise to any claim for damages or compensation.
4.22.1.8 Bridgestone, the LLCs and Label Systems, Inc. have
each made available to Buyer all internal and external
environmental audits and studies and all correspondence on
substantial environmental matters in the possession of
Bridgestone, the LLCs or Label Systems, Inc. relating to any of
their current or former properties, operations, or activities.
4.22.2 For purposes of this Agreement, "Applicable Environmental
Laws" mean any and all laws pertaining to health, safety, or the
environment in effect in any and all jurisdictions in which
Bridgestone, the LLCs or Label Systems, Inc. has conducted operations
or activities or owned or leased property, including, without
15
limitation, the Clear Air Act, as amended, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as
amended, the Rivers and Harbors Act of 1899, as amended, the Federal
Water Pollution Control Act, as amended, the Occupational Safety and
Health Act of 1970, as amended, the Resource Conservation and Recovery
Act of 1976, as amended, the Safe Drinking Water Act, as amended, the
Toxic Substances Control Act, as amended, the Superfund Amendments and
Reauthorization Act of 1986, as amended, the Hazardous Materials
Transportation Act, as amended, any state law and other environmental
conservation or protection laws.
4.23 Compliance With Zoning and Planning Regulations. The use of all
-----------------------------------------------
of the material properties in or on which Bridgestone, the LLCs or Label
Systems, Inc. conducts their businesses, and all material machinery and
equipment therein and the conduct of any business therein complies in all
respects with all applicable zoning and planning statutes, regulations and
rules.
4.24 Employment and Employment Practices. Bridgestone, the LLCs and
-----------------------------------
Label Systems, Inc. each is in full compliance, except for any such non-
compliance which would not have a Material Adverse Effect, with all applicable
laws respecting employment and employment practices, terms and conditions of
employment, wages and hours, and nondiscrimination in employment and is not
engaged in any prohibited unfair labor practice. There is no labor strike,
dispute, slowdown, or work stoppage actually pending or threatened against or
involving Bridgestone, the LLCs or Label Systems, Inc., nor has Bridgestone, the
LLCs or Label Systems, Inc. experienced any work stoppage or any other labor
dispute during the last three years, except for any of the above which would not
have a Material Adverse Effect.
4.25 Accounts Receivable. All accounts receivable of Bridgestone,
-------------------
the LLCs and Label Systems, Inc. are set forth on Schedule 4.25. Except to the
extent reflected or reserved against in the Latest Balance Sheets, each of the
accounts receivable reflected on Bridgestone's, the LLCs's or Label Systems,
Inc.'s books and records (i) will have arisen out of sales in the ordinary
course of business made by Bridgestone, the LLCs or Label Systems, Inc. in
compliance with all applicable laws, rules and regulations, (ii) will be a valid
obligation owing by the respective account debtor thereunder to Bridgestone, the
LLCs or Label Systems, Inc., (iii) will not be subject to any valid defense,
offset or counterclaim, and (iv) will be collectible in full in the ordinary
course of business in an amount equal to not less than the face amount thereof
without referral to an attorney or collection agency. Sellers have not
received any notice or threat that any items previously shipped by Bridgestone,
the LLCs or Label Systems, Inc., for which payment has not yet been received are
to be returned for any reason, other than returns made in the ordinary course of
business or reserved against in the Latest Balance Sheets, and Sellers have no
reason to believe that unusual returns of any such items will occur subsequent
to the Closing Date.
4.26 Liabilities. Schedule 4.26 sets forth a true and complete list
-----------
for Bridgestone, the LLCs and Label Systems, Inc. of all of their respective
outstanding or accrued obligations
16
for or under (a) accounts payable, (b) taxes of any and all types, (c) interest,
(d) capital leases, and (e) other liabilities.
4.27 Intellectual Property. Except as set forth on Schedule 4.27,
---------------------
neither Bridgestone, the LLCs nor Label Systems, Inc. has any material patents,
patent rights, patent applications, licenses of intellectual property as
licensee, trademarks, trademark rights, trade names, trade name rights, service
xxxx rights, copyrights, unpatented discoveries, processes, or inventions or
similar rights (collectively the "Intellectual Property"), nor requires any such
rights in order to conduct their businesses. Unless otherwise indicated on
Schedule 4.27, Bridgestone, the LLCs or Label Systems, Inc. owns the entire
right, title, and interest in and to the Intellectual Property and technology
used in their businesses (including, without limitation, the exclusive right to
use and license same) and each item constituting part of the Intellectual
Property which is owned by Bridgestone, the LLCs or Label Systems, Inc., has
been, to the extent indicated on Schedule 4.27, duly registered with, filed in
or issued by the trademark or patent office or such other governmental entity,
domestic or foreign, as are indicated on Schedule 4.27, and such registrations,
filings and issuances remain in full force and effect, except where the failure
to be so registered, filed or issued and in full force and effect, would not
have a Material Adverse Effect. Except as stated on Schedule 4.27, or as would
not have a Material Adverse Effect, there are no pending or threatened
proceedings or litigation or other adverse claims affecting or with respect to
the Intellectual Property. To the best of each Seller's knowledge, each of
Bridgestone's, the LLCs' or Label Systems, Inc.'s rights to its proprietary
software is free and clear of any claims of any employees, consultants, or
outside programmers. Schedule 4.27 lists all notices of or claims received by
Sellers, Bridgestone, the LLCs or Label Systems, Inc., during the past two years
that claim infringement, contributory infringement, inducement to infringe,
misappropriation or breach by Bridgestone, the LLCs or Label Systems, Inc. of
any domestic or foreign patent, patent application, patent, software or know-how
license, trade name, trademark, copyright, service xxxx, trademark registration
or application, service xxxx registration or application, copyright registration
or application, trade secret or other confidential proprietary information.
Except as disclosed on Schedule 4.27, or as would not have a Material Adverse
Effect, to the best of each Seller's knowledge after due investigation and
inquiry, neither Bridgestone, the LLCs nor Label Systems, Inc. is infringing, or
otherwise acting adversely to, the right of any person under or in respect to
any patent, license, trademark, trade name, service xxxx, copyright, or similar
intangible right.
4.28 Insurance. Schedule 4.28 lists all of the insurance policies of
---------
Bridgestone, the LLCs and Label Systems, Inc., (except health insurance and
disability insurance policies), setting forth with respect to each policy, the
name of the insurer, a description of the policy, the dollar amount of
coverages, the amount of premium, the date through which all premiums have been
paid, and the expiration date. Copies of all such insurance policies have been
furnished to Buyer. Each insurance policy relating to the insurance listed on
Schedule 4.28, is in full force and effect, is valid and enforceable, and
Bridgestone, the LLCs or Label Systems, Inc., as the case may be, is not in
breach or in default under any such policy. Sellers, Bridgestone, the LLCs or
Label Systems, Inc., has or have not received any notice of or any reason to
believe that there is or has been any actual, threatened, or
17
contemplated termination or cancellation of any insurance policy listed on
Schedule 4.28. Except as listed on Schedule 4.28, no claims have been made under
any such insurance policy. Neither Bridgestone, the LLCs nor Label Systems, Inc.
has or have failed to give any notice or to present any claim under any
insurance policy in a due and timely fashion.
4.29 Employee Benefit Plans. Except as listed on Schedule 4.29,
----------------------
Bridgestone, the LLCs or Label Systems, Inc. has or have not adopted any
retirement, profit sharing, deferred compensation, stock option, bonus, group or
individual medical, dental, health, life insurance, survival benefit, or similar
plan or arrangement covering all or any of their employees. Copies of such
plans, identified on Schedule 4.29, have been furnished to Buyer. Each of the
arrangements set forth on Schedule 4.29 is referred to as an "Employee Benefit
Plan." Each Employee Benefit Plan is and has been maintained and operated in
compliance in all material respects with the terms of the respective plans and
with the requirements imposed by applicable law. Except as set forth on
Schedule 4.29, there is no pending or threatened legal action, proceeding, or
investigation, other than routine claims for benefits, concerning any Employee
Benefit Plan or any fiduciary or service provider and to the best of each
Seller's knowledge, there is no basis for any such legal action or proceeding.
Except as set forth on Schedule 4.29, there is no liability, contingent or
otherwise, for any Employee Benefit Plan other than insurance premiums satisfied
in due course. Each Employee Benefit Plan for which a separate fund is or is
required to be maintained, has been fully funded as required by the terms of the
Plan as of the end of the most recently completed plan year. The execution of
this Agreement and the consummation of the transactions contemplated will not
result in (a) any payment (whether severance pay or otherwise) becoming due from
any Employee Benefit Plan, or result in the vesting, acceleration of payment, or
increases in the amount of benefit, or (b) the employees, officers, and/or
directors of Buyer, as the owner of the Bridgestone Stock or the LLC Interests,
becoming eligible to receive benefits under such Employee Benefit Plans pursuant
to the terms of such Plans or under applicable law.
4.30 Warranty Claims. Except as listed on Schedule 4.30, there are
---------------
no material unresolved claims or claims asserted or threatened by Bridgestone's,
the LLCs' or Label Systems, Inc.'s customers for breach of express or implied
warranty, misrepresentation, or any other claims based on a defect in or failure
of services or products sold or leased by Bridgestone, the LLCs or Label
Systems, Inc.
4.31 Computer Programs. To the best knowledge of the Sellers, all
-----------------
computer or computer related hardware or software of Bridgestone, the LLCs and
Label Systems, Inc. (the "Computer System") is millennium compliant. For
purposes of this section "millennium compliant" means that the Computer System
(a) allows for the input of all dates in a four-digit format; (b) provides date
output in a four-digit format; (c) accommodates same-century and multi-century
date related formulas and calculations (including leap year calculations); (d)
function accurately and without interruption before, during, and after January
1, 2000, and (e) responds to two-digit date input in a way that resolves any
ambiguity as to century.
18
4.32 No Finder's Fee. No finder, broker, agent, or other intermediary
---------------
has acted for or on behalf of any Seller in connection with the negotiation or
consummation of the transactions contemplated hereby.
4.33 Illegal Payments. To the best knowledge of Sellers, none of
----------------
Sellers, Bridgestone, the LLCs, Label Systems, Inc., or any director, officer,
manager, employee, or agent of Sellers, Bridgestone, the LLCs or Label Systems,
Inc., has, directly or indirectly, paid or delivered any fee, commission, or
other sum of money or item of property however characterized to any broker,
finder, agent, government official, or other person, in the United States or any
other country, in any manner related to the business or operations of
Bridgestone, the LLCs or Label Systems, Inc., which Sellers, Bridgestone, the
LLCs or Label Systems, Inc., or any such director, officer, employees, or agent
knows or has reasons to believe to have been illegal under any foreign, federal,
state or local law.
4.34 Shareholder Notes. Some or all of the Sellers are holders of
-----------------
promissory notes issued by Bridgestone in their favor; with the principal
amounts and accrued interest due thereunder as set forth in Schedule 4.34.
Copies of the Shareholder Notes have been delivered to Buyer. The Shareholder
Notes were duly authorized and constitute the valid and binding agreements of
Bridgestone. Upon consummation of the transactions contemplated hereby, Buyer
will acquire from Sellers all of Sellers' right, title, and interest in the
Shareholder Notes, free and clear of all liens, pledges, security interests, or
other encumbrances.
4.35 Full Disclosure. Sellers have provided Buyer with full access to
---------------
all books, accounts, records, and documents of or relating to Bridgestone, the
LLCs and Label Systems, Inc., their businesses and assets and have accurately
represented to Buyer the state of the business of each of Bridgestone, the LLCs
and Label Systems, Inc. and the state and quality of the customer relationships
of each Bridgestone, the LLCs and Label Systems, Inc. No representation or
warranty of Sellers contained in this Agreement contains any untrue statement of
a material fact or omits any material fact necessary to make the statements
contained herein or therein not false or misleading. There is no fact presently
known to Sellers that materially or adversely affects or in the future may
materially or adversely affect the business, assets, or operations of
Bridgestone, the LLCs or Label Systems, Inc. that has not been set forth in this
Agreement. This representation is subject to unforeseen future events not in
Sellers' reasonable control.
5. REPRESENTATIONS AND WARRANTIES OF SELLERS WITH RESPECT TO THE
-------------------------------------------------------------
ACQUISITION OF THE SHARES. In connection with the Sellers' acquisition of OpSec
-------------------------
Stock, and any additional acquisition of OpSec Stock as provided in Section 3.5
(collectively, the "Shares"), each Seller represents and warrants as follows:
5.1 Sophistication; Investment Intent. Seller possesses the
---------------------------------
experience and sophistication as an investor which are adequate for the
evaluation of the merits and risks of the investment in the Shares. Seller has
determined that the acquisition of the Shares is
19
appropriate for Seller. Seller is acquiring the Shares for his own account, for
investment, and not as a distributor of securities.
5.2 Availability of Public Documents. Seller acknowledges that Buyer
--------------------------------
has made available to Seller copies of Buyer's annual report on Form 10-KSB for
the year ended March 31, 1999, and any current reports on Form 8-K filed to date
(collectively, the "Public Documents"). Except as set forth in the Public
Documents, no representations, assurances, or warranties have been made to the
Seller, by Buyer, or by any of its officers, directors, agents, employees, or
affiliates, nor anyone else on its behalf, concerning, among other things,
future profitability of Buyer, or the tax consequences of the Seller's ownership
of the Shares, and in acquiring the Shares, the Buyer is not relying upon any
information, other than that contained in the Public Documents, and the results
of his own independent investigation.
5.3 Unregistered Shares. Seller is aware that the Shares have not
-------------------
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), or any state securities laws or regulations in reliance upon exemptions
under the Securities Act and under exemptions under state law. The Seller
understands that he may not sell the Shares unless they are registered or if an
exemption from registration under the Securities Act, such as by reason of Rule
144 thereunder, and any applicable state securities laws or regulations, is
available; the availability of which must be established to the satisfaction of
Buyer.
5.4 Restrictive Legend. Seller agrees that a legend may be placed on
------------------
any certificate or certificates evidencing the Shares, stating the Shares have
not been registered under the Securities Act and setting forth or referring to
the restrictions on transfers on sales thereof; and Buyer may place stop
transfer instructions against the Shares and the certificates evidencing the
Shares to restrict their transfer, except as prescribed by the Securities Act.
5.5 Opportunity to Discuss Terms. Sellers have been provided the
----------------------------
opportunity to discuss the terms and conditions of the Shares and the business
of Buyer and with members of Buyer's management and to review all relevant
financial information, books, records, and other information concerning Buyer
and the Shares, including the Public Documents, such that the Seller is
familiar with the business, finances, and general prospects for the future of
the Buyer which they may consider significant for the purposes of making an
investment in the Shares.
6. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and
---------------------------------------
warrants to Sellers as follows:
6.1 Good Standing; Organization. Buyer is a corporation duly
---------------------------
organized, validly existing, and in good standing under the laws of the state of
Colorado, and has the power and authority to execute and perform this Agreement.
6.2 Authority; Binding Obligation. Buyer has, by all necessary
-----------------------------
corporate actions, duly authorized the execution and performance of this
Agreement. This Agreement and each document executed by Buyer in connection
herewith constitute the valid and binding
20
obligation of Buyer, enforceable in accordance with its terms, subject to
applicable bankruptcy, insolvency and other laws affecting the rights of
creditors generally, and the discretion of the courts in granting equitable
remedies. Buyer's execution of this Agreement will not conflict with, result in
a breach of any provision of, or default under any contractual or other
obligation to which Buyer is a party or by which Buyer is bound, and will not
conflict with any provision of Buyer's Articles of Incorporation or Bylaws.
6.3 Governmental Consents. No consent, approval or authorization of,
---------------------
or registration, designation, or filing with any governmental authority, federal
or other, on the part of Buyer, is required in connection with the consummation
of the transactions contemplated by this Agreement.
6.4 Capitalization. The authorized capital stock of Buyer consists
--------------
of 17,500,000 shares, 15,000,000 of which are designated common stock, par value
$.005 per share, and 2,500,000 of which are designated preferred stock, par
value $.01 per share, 15,000 of which are designated Series B 8% Cumulative
Convertible Exchangeable Preferred Voting Stock. All outstanding shares of the
capital stock of Buyer have been validly issued and are fully paid and
nonassessable, and no shares of capital stock of Buyer have been issued in
violation of any pre-emptive or similar rights.
6.5 No Violation. The execution, delivery, and performance of this
------------
Agreement and the consummation of the transactions contemplated hereby by Buyer
will not conflict with or result in a breach of any provision of or default
under, or give rise to any right of termination, cancellation, or acceleration
under the terms of (a) Buyer's charter, Bylaws, or other governing instruments;
(b) any bond, mortgage, lien, lease, note, agreement, contract, commitment,
license, permit or other instrument to which Buyer is a party; (c) any law,
rule or regulation; or (d) any judgment, order, writ, injunction or decree of
any court, administrative agency or governmental body, domestic or foreign,
except for such consents or waivers which have already been obtained and are in
full force and effect.
6.6 Litigation. Except as set forth in the Public Documents, there
----------
are no material legal proceedings pending to which the Buyer is a party or to
which any of its properties are subject.
6.7 No Bankruptcy. Buyer has not filed for any form of relief under
-------------
the United States Bankruptcy Code or analogous state laws. Buyer is not
insolvent, nor has it made a general assignment or composition with respect to
creditors. No order, execution, or other process has been levied against Buyer
in any action taken to repossess goods in any material amount. No steps have
been taken for the appointment of a receiver of any part of Buyer's property.
6.8 No Finder's Fee. Except for the Nassau Group, for whose fees, if
---------------
any, Buyer shall be responsible, no finder, broker, agent or other intermediary
has acted for or on behalf of Buyer in connection with the negotiation or
consummation of the transactions contemplated hereby.
21
6.9 Investment Intent. Buyer is acquiring the Bridgestone Stock and
-----------------
the LLC Interests for its own account, for investment, and not as a distributor
of securities. Buyer is aware that the Bridgestone Stock and the LLC Interests
have not been registered under the Securities Act, or any state securities laws
and that such shares cannot be resold or otherwise disposed of, except in
compliance with applicable federal and state securities laws.
7. COVENANTS OF SELLERS.
--------------------
7.1 Access to Information. Between the date of this Agreement and
---------------------
the Closing, Sellers shall (i) give Buyer and its authorized representatives
reasonable access to all employees, all plants, offices, warehouses, and other
facilities, and all books and records, of Bridgestone, the LLCs and Label
Systems, Inc.; (ii) permit Buyer and its authorized representatives to make such
inspections as they may reasonably require; (iii) permit Buyer and its
authorized representatives to speak directly to customers of Bridgestone, the
LLCs and Label Systems, Inc.; and (iv) cause Bridgestone's and the LLCs'
managers, and Label Systems, Inc.'s officers to furnish Buyer and its authorized
representatives with such financial and operating data and other information
with respect to Bridgestone, the LLCs and Label Systems, Inc. as Buyer may from
time to time reasonably request; provided, however, that neither any
investigation conducted by Buyer pursuant to this section nor the results
thereof shall affect any representation or warranty of Sellers contained in this
Agreement or in any agreement, instrument, or document delivered pursuant hereto
or in connection herewith or Buyer's ability to rely thereon; and provided
further that Sellers shall have the right to have a representative present at
all times of any such inspections, interviews, and examinations conducted at or
on the offices or other facilities or properties of Bridgestone, the LLCs or
Label Systems, Inc.
7.2 Conduct of Business. During the period from the date of this
-------------------
Agreement to the Closing Date, or the date, if any, on which this Agreement is
earlier terminated, and except as otherwise authorized by the Buyer,
Bridgestone, the LLCs and Label Systems, Inc. shall operate their businesses in
the normal course and in a manner consistent with prudent business practice.
Sellers shall use their best efforts to maintain satisfactory relationships
with licensors, suppliers, distributors, lessors, customers, and others having
business relationships with Bridgestone, the LLCs or Label Systems, Inc. Except
as may be first approved by Buyer, or as is otherwise permitted or required by
this Agreement, Sellers will cause Bridgestone, the LLCs and Label Systems, Inc.
to refrain from making any pension, retirement or insurance payment or
arrangement, and from agreeing to pay any bonus to accrue after the date of this
Agreement to or with any such persons except those that may have already been
accrued; and refrain from entering into any contract or commitment, or buy,
sell, or transfer inventory or equipment, except in the ordinary course of
business. During the period from the date of this Agreement to the Closing Date,
Buyer and Sellers shall confer on a regular and frequent basis to report
material operational matters and to report the general status of ongoing
operations. Sellers shall notify Buyer of any unexpected emergency. Sellers
shall not change the normal course of the business of Bridgestone, the LLCs
and Label Systems, Inc. or the operation of their properties without the prior
consent
22
of the Buyer. Sellers shall notify Buyer promptly of any governmental
complaints, investigations, or hearings (or communications indicating that the
same may be contemplated), adjudicatory proceedings, budget meetings, or
submissions involving any material property of Bridgestone, the LLCs and Label
Systems, Inc., keep Buyer fully informed of and allow Buyer to participate in
such events, and provide Buyer's representatives prompt access to all materials
prepared in connection therewith.
7.3 Acquisition Proposals. From and after the date of this Agreement
---------------------
until the earlier of the Closing or the termination of this Agreement, neither
the Sellers nor any affiliate, director, officer, manager, employee, or
representative of Bridgestone, the LLCs or Label Systems, Inc. shall, directly
or indirectly, (i) solicit, initiate, or knowingly encourage any Acquisition
Proposal (as hereinafter defined) or (ii) engage in discussions or negotiations
with, or disclose any nonpublic information relating to Bridgestone, the LLCs or
Label Systems, Inc., to any person that is considering making or has made an
Acquisition Proposal. Sellers, shall, and shall cause Bridgestone, the LLCs and
Label Systems, Inc., to immediately cease and cause to be terminated any
existing activities, discussions, or negotiations with any persons conducted
heretofore with respect to any Acquisition Proposal and shall promptly request
each such person who has previously entered into a confidentiality agreement in
connection with an Acquisition Proposal to return to Sellers all confidential
information previously furnished to such person by or on behalf of Sellers,
Bridgestone, the LLCs or Label Systems, Inc. If Sellers, Bridgestone, the LLCs
or Label Systems, Inc., shall hereafter receive any Acquisition Proposal, Seller
shall immediately communicate the terms of such proposal to Buyer. The term
"Acquisition Proposal", as used in this Section 7.3 means any offer or proposal
for or any indication of interest in, a merger or other business combination
involving Bridgestone, the LLCs or Label Systems, Inc. or the acquisition of any
equity interest in, or substantial portion of the assets of Bridgestone, the
LLCs or Label Systems, Inc. other than the transactions contemplated by this
Agreement.
7.4 Third Party Consents. Sellers shall, and shall cause
--------------------
Bridgestone, the LLCs and Label Systems, Inc. to, use their reasonable best
efforts to obtain all consents, approvals, orders, authorizations, and waivers
of, and to effect all declarations, filings, and registrations with all third
parties (including all governmental entities) that are necessary, required, or
deemed by Buyer to be desirable to enable Sellers to transfer the Bridgestone
Stock and the LLC Interests to Buyer and to complete the transactions
contemplated hereby. All costs and expenses of obtaining or effecting any and
all of the consents, approvals, orders, authorizations, waivers, declarations,
filings, and registrations referred to in this Section 7.4 shall be borne by
Sellers.
8. ADDITIONAL AGREEMENTS AND COVENANTS.
-----------------------------------
8.1 Reasonable Best Efforts. Each party agrees that it will not
-----------------------
voluntarily undertake any course of action inconsistent with the provisions or
intent of this Agreement and will use its or his reasonable best efforts to
take, or cause to be taken all action and to do, or cause to be done, all things
reasonably necessary, proper, or advisable under applicable law to consummate
the transactions contemplated by this Agreement, including,
23
without limitation, (i) cooperation in determining whether any consents,
approvals, orders, authorizations, waivers, declarations, filings, or
registrations of or with any governmental entity or third party are required in
connection with the consummation of the transactions contemplated hereby; (ii)
reasonable best efforts to defend, and cooperation in defending, all lawsuits or
other legal proceedings challenging this Agreement or the consummation of the
transactions contemplated hereby; (iii) reasonable best efforts to cause to be
lifted or rescinded any injunction or restraining order or other order adversely
affecting the ability of the parties to consummate the transactions contemplated
hereby; and (iv) the execution of any additional instruments necessary to
consummate the transactions contemplated hereby. Each Seller shall cooperate
with and assist Buyer and its authorized representatives in order to provide an
efficient and orderly transfer of the Bridgestone Stock and the LLC Interests
and to avoid any undue interruption in the activities and operations of the
business of Bridgestone, the LLCs or Label Systems, Inc. following the Closing.
8.2 Performances. As of the date of this Agreement, Buyer represents
------------
that, to its present knowledge, there is nothing that would prevent it from
satisfying its contractual obligations hereunder during the period from the
Effective Date to the date which is 27 months after the Effective Date, or the
date, if any, on which this Agreement is earlier terminated, subject to
unforeseen circumstances and events not within Buyer's reasonable control.
Buyer covenants that it has (or will have subsequent to the Effective Date) the
skills, expertise, know-how, and other resources to perform its obligations
hereunder and manufacture those products contemplated hereby such that
Bridgestone is able to adequately service those existing clients and prospective
clients listed on Schedules 2.1-1 and 2.1-2, subject to unforeseen circumstances
and events not within Buyer's reasonable control.
8.3 Confidentiality. Between the date of this Agreement and the
---------------
Closing, each party shall hold in confidence all information obtained in the
course of such party's investigation and due diligence review in connection with
this Agreement, on the terms and subject to the conditions contained in the
Confidentiality Agreement between the Buyer and Bridgestone dated October 23,
1998, as amended thereafter.
8.4 Amendment of Schedules. Each party agrees that, with respect to
----------------------
the representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until the Closing to supplement
or amend promptly the Schedules hereto with respect to any matter hereafter
arising or discovered which, if existing or known at the date of this Agreement,
would have been required to be set forth or described in the Schedules. For all
purposes of this Agreement, including without limitation for purposes of
determining whether the conditions set forth in Section 9.1 and 10.1 have been
fulfilled, the Schedules hereby shall be deemed to include only that information
contained therein on the date of this Agreement and shall be deemed to exclude
all information contained in any supplement or amendment thereto; provided,
however, that if the Closing shall occur, then for purposes of Section 15.2, no
right of indemnification exists for Buyer for any matter which was corrected
pursuant to any such supplement or amendment at or prior to Closing.
24
8.5 Motorola Supply Agreement. At or before Closing, Buyer and Label
-------------------------
Systems, Inc. intend to enter into a supply agreement pursuant to which Buyer
will supply all of Label Systems, Inc.'s requirements for embossed holographic
materials for use in servicing the Label Systems, Inc. Motorola account (the
"Motorola Supply Agreement"). The Motorola Supply Agreement will be
substantially in the form attached hereto as Exhibit E.
8.6 Transition Services Agreement. At Closing, the parties will
-----------------------------
execute an agreement under which Sellers will provide Bridgestone with
transitional services (the "Transitional Services Agreement"). The Transitional
Services Agreement will be substantially in the form attached hereto as Exhibit
F.
8.7 Non-Competition, Confidentiality and Cross-Marketing Agreements.
---------------------------------------------------------------
At Closing, the parties will execute a non-competition, confidentiality and
cross-marketing agreement (the "Non-Competition Agreements") concerning
holographic and photo polymer products of the type manufactured and supplied by
Sellers as of Closing. The Non-Competition Agreements will be substantially in
the form attached hereto as Exhibits G-1 and G-2.
8.8 Options to Purchase Imaging, LLC and Label Systems, LLC. The
-------------------------------------------------------
parties will execute option agreements (the "Option Agreements") at Closing
pursuant to which Buyer will be entitled to purchase all of the membership
interests of Imaging, LLC and Label Systems, LLC, to the extent not owned
directly or indirectly by Buyer. The Option Agreements will be substantially in
the form attached hereto as Exhibits H-1 and H-2 respectively.
8.9 Xxxxxx Employment Agreement. At Closing, Bridgestone and Xxxxxx
---------------------------
will enter into an employment agreement for a period of at least one year after
the Closing Date, pursuant to which Xxxxxx will provide customer support
services. The Xxxxxx employment agreement will be substantially in the form
attached hereto as Exhibit I.
8.10 Xxxxxxxxx and Felis Employment Agreements. Label Systems, Inc.
-----------------------------------------
will enter into employment agreements with Xxxxxxxxx and Felis in form and
content satisfactory to Buyer. Compensation for each of Xxxxxxxxx and Felis
shall be at $200,000 per year.
8.11 Board Representation. From and after the Effective Date, Buyer
--------------------
shall be entitled to board representation on the Label Systems, Inc.'s board of
directors and the LLCs' governing bodies equal to the greater of one seat, or
the number of seats which represents Buyer's pro rata ownership interest in each
of the LLCs. One such seat in each entity shall be occupied by Xxxxxxx X. Xxxx.
Sellers will, and will cause Label Systems, Inc. and the LLCs to execute
agreements satisfactory to Buyer to confirm and evidence Buyer's right to the
board representation required by this Section 8.13.
8.12 Bridgestone Premises Leases. On or before Closing, Sellers shall
---------------------------
or shall cause Bridgestone to terminate any and all of its real property leases
effective as of the
25
Closing. Sellers shall be responsible for and shall indemnify and hold Buyer
harmless from any and all termination fees or other amounts payable by
Bridgestone or Sellers in connection with the termination of such leases. To the
extent Buyer occupies any space leased or controlled by Sellers for more than 30
days after Closing, Buyer will pay Sellers the reasonable cost of such space.
8.13 Certain Bridgestone Obligations. On or before Closing, Sellers
-------------------------------
shall or shall cause Bridgestone to pay and collect in full any and all
intercompany debt or shareholder loans other than the Shareholder Notes.
8.14 Closing Balance Sheet of Bridgestone. Sellers shall deliver to
------------------------------------
Buyers a pro forma closing balance sheet of Bridgestone dated as of the
Effective Date (the "Pro Forma Closing Balance Sheet") at least seven business
days prior to the Closing. Within 60 days after Closing, Sellers shall make all
adjustments necessary to the Pro Forma Closing Balance Sheet and shall submit a
final unaudited balance sheet of Bridgestone as of the Effective Date, prepared
in accordance with generally accepted accounting principles (the "Final Closing
Balance Sheet"). The Pro Forma Closing Balance Sheet and the Final Closing
Balance Sheet shall not reflect any selling costs related to this Agreement
which are an obligation of the Sellers under Article 12 of this Agreement. The
Final Closing Balance Sheet shall be reviewed by Buyer's independent public
accountants and shall be deemed accepted by Buyer unless Buyer notifies the
Sellers in writing that it objects to the Final Closing Balance Sheet within 30
business days of receipt of the Final Closing Balance Sheet. If Buyer objects,
and the parties do not resolve the objection within 15 days, the objection will
be resolved by mandatory arbitration no later than 60 days after receipt of
Buyer's objections.
8.15 Inventory Count. For purposes of preparing the Final Closing
---------------
Balance Sheet, a physical count of the inventory owned by Bridgestone will be
conducted by Bridgestone as of the Effective Date and a schedule thereof (an
"Inventory Schedule") will be prepared by Bridgestone and verified by
representatives of the Buyer. The Inventory Schedule will be delivered to Buyer
with the Final Closing Balance Sheet. In making such physical count, the
following items of inventory shall be excluded: (a) all items which are damaged
or otherwise defective; (b) all items which are unsellable, discontinued, or
obsolete; (c) all items which are missing any components; (d) all items which
are not owned by Bridgestone but instead, are held in consignment from third
parties; and (e) all items which any third party has any security or other
interest that is not released other than any security interest relating to debt
assumed by Buyer hereunder at or prior to closing.
8.16 Receivables Schedule. Bridgestone shall deliver to Buyer with
--------------------
the Final Closing Balance Sheet, a schedule of its accounts receivable as of the
Effective Date, each of which shall be separately identified and properly
accrued on the books of Bridgestone as of the Effective Date. Each receivable
shall be reduced by (i) the total amount of customer credits reflected on
Bridgestone's books for the customers owing such receivable, and (ii) the amount
of uncollected service charges reflected on Bridgestone's books as owing by the
customer owing such receivable. Such schedule is referred to herein as the
"Receivables
26
Schedule." The Receivables Schedule shall set forth the respective dates as of
which each of the receivables identified thereon was accrued on the books of
Bridgestone the total amount and number of each the invoices to which such
receivable relates, the total amount paid through the date of the Receivables
Schedule with respect to each such invoice, the total amounts remaining to be
paid under each such invoices, and the total amount of customer credits and
uncollected service charges existing with respect to the customer owing such
receivable. On or before delivery to Buyer of the Receivables Schedule,
Bridgestone shall have invoiced each of the customers owing a receivable for the
respective amounts owing by such customers as of the date of the Receivables
Schedule.
8.17 Customer Purchase Orders. Sellers covenant and agree that they
------------------------
shall furnish to Buyer, on or before the Closing, a schedule and copies of all
outstanding customer purchase orders received by Bridgestone through the close
of business on the Closing Date. Sellers covenant and agree that they shall
cause Bridgestone not to accept any customer purchase order after the date
hereof outside the ordinary course of business or involving an amount in excess
of $25,000.00 unless such acceptance has been approved by the Buyer.
8.18 Bridgestone Purchase Orders. Bridgestone shall provide to Buyer
---------------------------
on or before the closing a true and correct list of outstanding purchase orders
of Bridgestone to its suppliers. Sellers covenant and agree that they shall
cause Bridgestone not to place any purchase orders after the date hereof outside
the ordinary course of business or involving an amount in excess of $25,000.00,
unless such purchase orders have been approved by Buyer.
8.19 Transfer of Assets of Photo Polymer Business. No later than the
--------------------------------------------
Effective Date, Sellers shall cause all of the assets of the photo polymer
business conducted or proposed to be conducted by Bridgestone, the LLCs or Label
Systems, Inc. and described on Schedule 8.19 (the "Photo Polymer Business") to
be transferred to Imaging, LLC. The assets to be transferred under this section
are set forth on Schedule 8.19. The transfer shall be accomplished in a manner
acceptable to Buyer, in its sole discretion.
8.20 Releases. Sellers shall execute releases substantially in the
--------
form attached as Exhibit J.
9. CONDITIONS PRECEDENT TO BUYER'S PERFORMANCE. The obligation of Buyer
-------------------------------------------
to close this Agreement is subject to the satisfaction of the following
conditions at or before Closing except to the extent waived in writing by Buyer
at Closing:
9.1 Representations and Warranties True. Except as otherwise
-----------------------------------
permitted by this Agreement, all representations and warranties of Sellers
contained herein shall be correct on and as of the Effective Date and the
Closing Date as though made at that time.
9.2 Covenants and Agreements Performed. Sellers shall perform or
----------------------------------
cause to be performed, satisfy, and comply with all covenants, agreements, and
conditions required by this Agreement to be performed or complied with by them
on or before Closing.
27
9.3 Opinion of Counsel to Sellers. Buyer shall have received an
-----------------------------
opinion of Xxxxxxxx Xxxxx & Deutsch LLP, legal counsel to Sellers, dated the
Effective Date, in the form of Exhibit K.
9.4 Approval of Counsel to Buyer. All legal matters in connection
----------------------------
with the consummation of the transactions contemplated hereby and all
agreements, instruments, and documents delivered in connection therewith shall
be reasonably satisfactory in form and substance to Xxxx, Shaiman & Xxxxxx,
P.C., legal counsel to Buyer.
9.5 Due Diligence. The due diligence review relating to any customer
-------------
meetings or business strategy discussions to be conducted by Buyer subsequent to
the date hereof and prior to Closing with respect to Bridgestone, the LLCs, and
Label Systems, Inc. shall have been completed and the results thereof shall be
reasonably satisfactory to Buyer and its counsel. The representations and
warranties of Sellers shall remain binding and enforceable, notwithstanding
Buyer's satisfaction with its due diligence review, and shall be unaffected by
any information actually or allegedly discovered, or able to be discovered,
during such review.
9.6 Other Documents. Each document required to be delivered pursuant
---------------
to Section 8 on or before Closing must have been delivered.
9.7 Legal Proceedings. No proceeding shall, on the Effective Date,
-----------------
be pending or threatened seeking to restrain, prohibit, or obtain damages or
other relief in connection with this Agreement or the consummation of the
transactions contemplated hereby.
9.8 Consents. Buyer shall have obtained all necessary approvals from
--------
its directors, shareholders, lenders, and state, municipal, and other
governmental authorities.
10. CONDITIONS PRECEDENT TO SELLERS' PERFORMANCE. The obligation of
--------------------------------------------
Sellers to close this Agreement is subject to the satisfaction of the following
conditions at or before Closing except to the extent waived in writing by
Sellers at Closing:
10.1 Representations and Warranties True. Except as otherwise
-----------------------------------
permitted by this Agreement, all representations and warranties of Buyer
contained herein shall be correct on and as of the Effective Date as though made
at that time.
10.2 Covenants and Agreements Performed. Buyer shall perform or cause
----------------------------------
to be performed, satisfy, and comply with all covenants, agreements, and
conditions required by this Agreement to be performed or complied with by it on
or before Closing.
10.3 Approval of Counsel to Sellers. All legal matters in connection
------------------------------
with the consummation of the transactions contemplated hereby and all
agreements, instruments, and documents delivered in connection therewith shall
be reasonably satisfactory in form and substance to Xxxxxxxx Xxxxx & Deutsch
LLP, legal counsel to Sellers.
28
10.4 Opinion of Counsel to Buyer. Sellers shall have received an
---------------------------
opinion of Xxxx, Xxxxxxx & Xxxxxx, P.C., legal counsel to Buyer, dated the
Effective Date, in the form of Exhibit L.
10.5 Other Documents. Each document required to be delivered pursuant
---------------
to Section 8 on or before Closing must have been delivered.
10.6 Legal Proceedings. No proceeding shall, on the Effective Date,
-----------------
be pending or threatened seeking to restrain, prohibit, or obtain damages or
other relief in connection with this Agreement or the consummation of the
transactions contemplated hereby.
11. CLOSING.
-------
11.1 General. Closing of the transactions contemplated hereby shall
-------
take place at the offices of Xxxx, Shaiman & Xxxxxx, P.C., 000 Xxxxx Xxxxxx
Xxxxxx, Xxxxx 000, Xxxxxx, Xxxxxxxx 00000, or such other place as the parties
determine, on or before October 15, 1999, unless extended by written agreement
of the parties (the "Closing"; the date of such Closing, the "Closing Date").
All actions taken at Closing shall be considered effective as of September 30,
1999 (the "Effective Date"). All actions taken at Closing also has be deemed to
be taken simultaneously and no document, agreement or instrument shall be
considered to be delivered until all items which are to be delivered have been
delivered.
11.2 Closing Transactions. At Closing, the following will occur:
--------------------
11.2.1 Sellers will execute and deliver a certificate, dated the
Closing Date, certifying that (i) all of their warranties and
representations are true, correct and enforceable as of the Closing
Date, (ii) Sellers, Bridgestone, the LLCs or Label Systems, Inc., as
the case may be, have performed and complied with all covenants and
agreements required by this Agreement to be performed or complied with
by them or it on or prior to the Closing Date.
11.2.2 Buyer will deliver to Sellers, an opinion of Buyer's
legal counsel.
11.2.3 Label Systems, Inc. and Buyer will execute and deliver
the Motorola Supply Agreement.
11.2.4 Sellers and Buyer will execute and deliver the Non-
Competition Agreements.
11.2.5 Buyer and Xxxxxx will execute and deliver the Employment
Agreement.
11.2.6 Sellers and Buyer will execute and deliver the Option
Agreements.
29
11.2.7 Buyer will pay the purchase price to the extent due at
Closing as provided in Section 3.
11.2.8 Buyer will execute and deliver to Sellers the
Registration Rights Agreement.
11.2.9 Sellers will deliver to Buyer, an opinion of Sellers'
legal counsel.
11.2.10 Buyer shall have received the certificates, instruments,
and other documents listed below:
11.2.10.1 The certificates in Sellers' names representing
the Bridgestone Stock and the LLC Interests, duly endorsed for
transfer to Buyer and accompanied by appropriate stock powers.
11.2.10.2 The minute books, stock records, and corporate
seal of Bridgestone, certified as complete and correct as of the
Effective Date by the secretary or an assistant secretary of
Bridgestone.
11.2.10.3 The written resignation from the board of
directors of Bridgestone of each member of the board, such
resignation to be effective concurrently with the Closing on the
Effective Date.
11.2.10.4 The written resignation as an officer of
Bridgestone, of each officer of Bridgestone, such resignation to
be effective concurrently with the Closing on the Effective Date.
11.2.10.5 Releases executed by the Sellers.
11.2.11 The parties will execute and deliver such other documents
as may reasonably be required to carry out the intent of the
transaction contemplated by this Agreement.
12. EXPENSES OF SALE. Except as otherwise expressly provided in this
----------------
Agreement, each party shall be responsible for its or his own legal and
accounting fees and other expenses incident to the preparation, execution, and
performance of this Agreement and the transactions contemplated thereby.
13. BRIDGESTONE TAX MATTERS.
-----------------------
13.1 Liability for Taxes.
-------------------
13.1.1 Taxable Periods Ending on or Before the Effective Date.
------------------------------------------------------
Sellers shall be solely liable for, and shall indemnify and hold
harmless Buyer, and Bridgestone against, all Taxes (as defined below)
of Bridgestone due for all taxable years and
30
periods ending on or before the Effective Date and for the portion of
any Straddle Period (as defined below) ending on the Effective Date;
provided, however, that Sellers shall not be liable for Taxes to the
extent such Taxes are specifically and fully reserved on the Closing
Balance Sheet. "Taxes" means any income taxes or similar assessments
or any sales, excise, occupation, use, ad valorem, property,
production, severance, transportation, employment, payroll, franchise,
or other tax imposed by any United States federal, state, or local, or
any foreign or provincial taxing authority, including any interest,
penalties, or additions attributable thereto.
13.1.2 Taxable Periods Commencing After the Effective Date.
---------------------------------------------------
Bridgestone shall be solely liable for all Taxes of Bridgestone for
all Taxable years and periods commencing after the Effective Date.
Bridgestone shall indemnify and hold harmless Sellers against any and
all Taxes for any taxable year or taxable period commencing after the
Effective Date due or payable by Bridgestone.
13.1.3 Taxable Periods Commencing Before and Ending After the
------------------------------------------------------
Effective Date. Buyer shall cause Bridgestone to pay all Taxes due
--------------
for any taxable year or taxable period commencing before and ending
after the Effective Date (the "Straddle Period"). Sellers shall pay
to Bridgestone an amount equal to the excess, if any, of (i) the Taxes
that would have been due if the Straddle Period had ended on the
Effective Date (using an interim-closing-of-the-books method except
that exemptions, allowances, and deductions that are otherwise
calculated on any annual basis (such as deductions for real estate
Taxes, depreciation, and depletion) shall be apportioned on a per diem
basis) over (ii) the sum of (a) the Taxes for the Straddle Period paid
prior to the Effective Date by Bridgestone or by Sellers with respect
to Bridgestone and (b) the Taxes reserved on the Final Closing Balance
Sheet.
13.2 Preparation and Filing of Tax Returns.
-------------------------------------
13.2.1 Taxable Periods Ending On or Before the Effective Date.
------------------------------------------------------
Sellers shall prepare and file all Tax Returns required to be filed
with respect to Bridgestone for all taxable periods ending on or
before the Effective Date.
13.2.2 Taxable Periods Ending After the Effective Date. Buyer
-----------------------------------------------
shall cause to be prepared and duly filed all tax returns of
Bridgestone for taxable periods ending after the Effective Date. Buyer
shall pay or cause to be paid all Taxes shown on such tax returns for
all periods covered by such tax returns, except that to the extent any
additional Taxes are due by Sellers for the Straddle Period, payment
shall be made in accordance with Section 13.1.3.
13.3 Cooperation, Records. Buyer and Sellers shall furnish or cause
--------------------
to be furnished to each other, upon request, as promptly as practicable, such
information (including access to books and other records) and assistance as is
reasonably necessary for the filing of any return, amended return or claim for
refund, for the preparation for or conduct of any audit, and for the prosecution
or defense of any claim, suit, or proceeding relating to
31
any proposed Tax adjustment. Buyer and Sellers shall cooperate with each other
in good faith in the preparation of all tax returns and in the conduct of any
audit or other similar proceedings and each shall execute and deliver such
powers of attorney and other documents as are necessary to carry out this
intent. Each party shall provide the other with copies of all tax returns
described in Sections 13.2.1 and 13.2.3 at least 10 days prior to the due date
for filing such returns. The other party shall have the right to review such
returns. Sellers and Buyer agree to consult and resolve in good faith any issues
arising as a result of the review of such returns.
14. TERMINATION.
-----------
14. Termination. This Agreement may be terminated and the
-----------
transactions contemplated hereby abandoned at any time prior to the Closing in
the following manner:
14.1.1 By mutual written consent of Sellers and Buyer.
14.1.2 By either Sellers, as a group, or Buyer, if (a) the
Closing shall not have occurred on or before October 15, 1999; unless
such failure to close shall be due to a breach of this Agreement by
the party seeking to terminate this Agreement pursuant to this clause;
or (b) there shall be any statute, rule, or regulation that makes
consummation of the transactions contemplated hereby illegal or
otherwise prohibited or a governmental entity shall have issued an
order, decree, or ruling or taken any other action permanently
restraining, enjoining, or otherwise prohibiting the consummation of
the transactions contemplated hereby, and such order, decree, ruling,
or other action shall have become final and nonappealable.
14.1.3 By Sellers, if (i) any of the representations and
warranties of Buyer contained in this Agreement shall not be true and
correct when made or at any time prior to the Closing as if made at
and as of such time, or (ii) Buyer shall have failed to fulfill any of
its obligations under this Agreement, and, in the case of each of
clauses (i) and (ii), such misrepresentation, breach of warranty, or
failure (provided it can be cured) has not been cured within 30 days
of actual knowledge thereof by Buyer, and such misrepresentation,
breach of warranty, or failure has or may have a Material Adverse
Effect.
14.1.4 By Buyer, if (i) any of the representations and
warranties of Sellers contained in this Agreement shall not be true
and correct when made or at any time prior to the Closing as if made
at and as of such time, or (ii) Sellers, Bridgestone, the LLCs, or
Label Systems, Inc. shall have failed to fulfill any of its or their
obligations under this Agreement, and, in the case of each of clauses
(i) and (ii), such misrepresentation, breach of warranty, or failure
(provided it can be cured) has not been cured within 30 days of actual
knowledge thereof by Sellers, Bridgestone, the LLCs, or Label Systems,
Inc., and such misrepresentation, breach of warranty, or failure has
or may have a Material Adverse Effect.
32
14.2 Effect of Termination. In the event of the termination of this
---------------------
Agreement pursuant to Section 14.1 by Sellers or Buyer, written notice thereof
shall forthwith be given to the other party specifying the provision hereof
pursuant to which such termination is made, and this Agreement shall become void
and have no effect, except that the agreements contained in this Section, in
Section 8.2 and in Article 12 shall survive the termination hereof. Nothing
contained in this section shall relieve any party from liability for any breach
of this Agreement.
15. SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION.
--------------------------------------------
15.1 Survival. The right to make a claim for indemnification under
--------
this Agreement, or any other claim for breach of Sellers' obligations hereunder
through and including the Effective Date, shall survive the Closing for a period
of 18 months except that a claim for indemnification under Section 13 shall
continue to survive until the expiration date of the statute of limitations
applicable to any indemnified liability thereunder. The time limitations set
forth in this Section 15.1 shall not affect Buyer's right to assert claims for
fraud or misrepresentation.
15.2 Indemnification by Sellers. Sellers severally, in the
--------------------------
proportions set forth in Schedule 15.2, shall defend, indemnify, and hold
harmless Buyer, each director, officer, employee, or agent of Buyer, its
subsidiaries, and each affiliate thereof, and their respective heirs, legal
representatives, successors, and assigns (collectively, the "Buyer Group"), and
will pay to the Buyer Group the amount of, any loss, liability, claim, damage
(including incidental and consequential damages), expense (including costs of
investigation and defense and reasonable attorneys' fees) or diminution of
value, whether or not involving a third party claim (collectively, "Damages"),
arising, directly or indirectly, from or in connection with (a) any inaccuracy
in or breach of any of the representations, warranties, covenants, or agreements
made by the Sellers, Bridgestone, the LLCs or Label Systems, Inc. contained in
this Agreement, or in any certificate, instrument, or document delivered
pursuant hereto; (b) the ownership, operation, management or use of Bridgestone,
the LLCs or Label Systems, Inc., their businesses or assets prior to the Closing
Date; (c) any products distributed or sold by Bridgestone, the LLCs or Label
Systems, Inc. in connection with their businesses on or prior to the Closing
Date; (d) the transfer to Label Systems, Inc. of any employee of Bridgestone;
and (e) any acts or omissions of Bridgestone, the LLCs or Label Systems, Inc.
prior to the Closing Date or any events or occurrences involving their assets,
the operation of their businesses, or their employees or former employees taking
place prior to the Closing Date. In the event of a claim by any creditor or
other person or entity subject to this section, Buyer shall provide Sellers with
written notice of such claim in the manner set forth in Section 16.1 below,
within ten days of Buyer's receipt of the claim. Thereafter, Sellers shall have
a period of five days within which to notify Buyer in the manner provided for in
Section 16.1, that they desire to intercede on Buyer's behalf and defend the
claim at their sole cost (including without limitation, payment of any damages
awarded or agreed to, interest, penalties, court costs, and attorneys' fees).
If Sellers fail to so notify Buyer and to defend the claim, Buyer may defend
such claim at its cost and maintain an action against Sellers to recover all
Damages. A claim for indemnification not involving a third party
33
claim, may be served by written notice from Buyer to Sellers in the manner
provided for in Section 16.1.
15.3 Indemnification by Sellers-Environmental Matters. In addition to
------------------------------------------------
the provisions of Section 16.2, Sellers severally, in the proportions set forth
in Schedule 15.2, shall defend, indemnify, and hold harmless the Buyer Group
for, and will pay to the Buyer Group the amount of, any Damages (including costs
of clean-up, containment, or other remediation) arising, directly or indirectly,
from or in connection with (a) the Sellers, Bridgestone's, the LLCs' or Label
Systems, Inc.'s ownership, or operation of any properties in which Sellers,
Bridgestone, the LLCs or Label Systems, Inc. has or had an interest on or prior
to the Closing Date, under any Applicable Environmental Laws, or (b) the
presence of hazardous materials on any property used by Sellers, Bridgestone,
the LLCs or Label Systems, Inc. or the use of any hazardous materials in
Bridgestone's, the LLCs' or Label Systems, Inc.'s business on or prior to the
Closing Date. Buyer will be entitled to control any clean-up and any related
legal proceeding or investigation with respect to which indemnity may be sought
under this Section 15.3.
15.4 Limitation on Damages. Except as otherwise provided in this
---------------------
Agreement, no amount shall be payable in indemnification under this Section 15,
or for breach of this Agreement, unless the aggregate amount of Damages in
respect of which the Sellers would be liable under this Section 15 exceed
$250,000 (the "Basket"). In the event that the Damages exceed the Basket, the
indemnified party shall be entitled to seek indemnification for only the amount
in excess of the Basket. The maximum amount of Damages for which Felis,
Zubretsky, Zucker, and Xxxxx would be liable under this Section 15 shall be an
amount equal to $2,000,000 to be shared severally in the proportions set forth
in Schedule 15.4.
15.5 Indemnification by Buyer. Buyer shall defend, indemnify, and
------------------------
hold harmless each Seller, and their respective heirs, legal representatives,
successors, and assigns, and will pay to Sellers the amount of any Damages
arising, directly or indirectly, from or in connection with (a) an inaccuracy in
or breach by Buyer of any of its representations, warranties, covenants, or
agreements contained in this Agreement or in any certificate, instrument or
document delivered pursuant hereto, and (b) any acts or omissions of Bridgestone
after the Effective Date or occurrences involving the assets, the operation of
the business, or the employees or former employees of Bridgestone taking place
after the Effective Date. In the event of claim by any creditor or other person
or entity subject to this section, Sellers shall provide Buyer with written
notice of such claim in the manner set forth in Section 16.1 below, within ten
days of its receipt of the claim. Thereafter, Buyer shall have a period of five
days within which to notify Sellers in the manner provided for in Section 16.1
that it desires to intercede on Sellers' behalf and defend the claim at its sole
cost (including without limitation, payment of any damages awarded or agreed to,
interest, penalties, court costs, and attorneys' fees). If Buyer fails to
notify Sellers and to defend the claim, Sellers may defend such claim at its
cost and maintain an action against Buyer to recover the Damages. A claim for
indemnification for any matter not involving a third party claim may be served
by written notice by Sellers to Buyer as provided in Section 16.1.
34
16. MISCELLANEOUS.
-------------
16.1 Notices. Any notices provided or required under the terms of
-------
this Agreement shall be effective immediately when provided by verified
facsimile transmission or personal delivery one business day after being
deposited with a nationally recognized overnight courier, or five days after
being sent by first class mail, and addressed as follows:
If to Sellers:
Keystone Technologies, L.L.C.
000 Xxxxxx Xxxx
Xxxxx, XX 00000
Facsimile: (000) 000-0000
Xxxxxxx X. Xxxxx
Co-Chairman
Keystone Technologies, L.L.C.
000 Xxxxxx Xxxx
Xxxxx, XX 00000
Facsimile: (000) 000-0000
Xxxxxxx X. Xxxxxxxxx
Co-Chairman
Keystone Technologies, L.L.C.
000 Xxxxxx Xxxx
Xxxxx, XX 00000
Facsimile: (000) 000-0000
Xxxxxxx Xxxxxx
c/o Bridgestone Technologies, Inc.
000 Xxxxxx Xxxxxx
Xxxxxxxxxx, XX 00000
Facsimile: (000) 000-0000
Xxxxxxx Xxxxx
c/o Bridgestone Technologies, Inc.
000 Xxxxxx Xxxxxx
Xxxxxxxxxx, XX 00000
Facsimile: (000) 000-0000
35
with a copy to:
Xxxx X. Deutsch, Esq.
Xxxxxxxx Xxxxx & Deutsch LLP
000 Xxxxx Xxxxxx, 00/xx/ Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000
If to Buyer:
Optical Security Group, Inc.
Attention: Xxxx X. Xxxxxxx, President
000 00xx Xxxxxx, Xxxxx 000
Xxxxxx, Xxxxxxxx 00000
Facsimile: (000) 000-0000
with a copy to:
Xxxxxxx X. Xxxxxx
Xxxx, Shaiman & Xxxxxx, P.C.
000 Xxxxx XxxxxxXxxxxx, Xxxxx 000
Xxxxxx, Xxxxxxxx 00000
Facsimile:(000) 000-0000
16.2 Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
-------------
WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO ITS
RULES OF CONFLICT WHICH WOULD REQUIRE APPLICATION OF THE SUBSTANTIVE LAW OF ANY
OTHER JURISDICTION). VENUE FOR ANY PROCEEDING BROUGHT TO ENFORCE THE TERMS OF
THIS AGREEMENT SHALL BE PROPER IN THE COUNTY OF NEW YORK, STATE OF NEW YORK.
16.3 Succession. This Agreement shall be binding upon and shall
----------
enure to the benefit of the parties, their successors, assigns and legal
representatives.
16.4 Entireties. This Agreement constitutes the entire agreement
----------
between the parties. No modification of this Agreement shall be binding unless
in writing and signed by both parties.
16.5 Severability. If any provision of this Agreement is found to be
------------
illegal, or unenforceable for any reason whatsoever, this Agreement shall be
interpreted and construed without reference to such provision, and the balance
of this Agreement shall remain in full force and effect.
36
16.6 Cooperation. The parties agree to execute such additional
-----------
documents and take such actions as may be required to effectuate the purposes of
this Agreement.
16.7 Paragraph Headings. The paragraph headings are inserted in
------------------
this Agreement for convenience only and are not intended to affect the terms of
this Agreement.
16.8 Amendment. This Agreement may not be amended except by an
---------
instrument in writing signed by or on behalf of all the parties hereto.
16.9 Press Releases and Public Announcements. No party shall issue
---------------------------------------
any press release or otherwise make any public announcement or disclose
information to any third party (except those agents or representatives of a
party directly involved in the transactions contemplated by this Agreement and
except as required by law), concerning this Agreement or the transactions
contemplated hereby, without the consent of the other party. Notwithstanding the
above, Buyer may disclose such information concerning this Agreement or the
transactions contemplated hereby without the Sellers' approval, if the Seller is
advised by its legal counsel that it must do so in order to comply with the
laws, rules, and regulations concerning publically traded entities. In such
case, Sellers shall be entitled to review and comment on the proposed press
release or announcement prior to its being issued.
16.10 Gender. Throughout this Agreement, where such meanings would
------
be appropriate, the masculine gender shall be deemed to include the feminine and
the neuter and singular shall be deemed to include the plural.
16.11 [Intentionally Omitted]
---------------------
16.12 Counterparts; Facsimile Signatures. This Agreement may be
----------------------------------
executed in counterparts, each of which shall be deemed an original and which
together shall constitute a single instrument. This Agreement and each
document related hereto may be executed and delivered by telecopier or other
facsimile transmission all with the same force and effect as if the same was a
fully executed and delivered original manual counterpart.
16.13 Remedies Not Exclusive. Except as otherwise provided in this
----------------------
Agreement, the rights and remedies herein provided shall be cumulative and not
exclusive of any rights or remedies provided by law. The rights and remedies of
any party based upon, arising out of, or otherwise in respect of any inaccuracy
in or breach of any representation, warranty, covenant, or agreement contained
in this Agreement shall in no way be limited by the fact that the act, omission,
occurrence, or other state of facts upon which any claim of any such inaccuracy
or breach is based may also be the subject matter of any other representation,
warranty, covenant, or agreement contained in this Agreement (or in any other
agreement between the parties) as to which there is no inaccuracy or breach.
16.14 Attorneys' Fees. If any party obtains or engages an attorney
---------------
or attorneys for the purpose of enforcing its rights under the terms of this
Agreement for negotiation, litigation, arbitration, or other alternative dispute
resolution procedure, the prevailing party
37
shall be entitled to recover their or its attorneys' fees, costs, and
disbursements in addition to any other relief sought or awarded.
16.15 Waiver. Neither the failure nor any delay by any party in
------
exercising any right, power, or privilege under this Agreement or the documents
referred to in this Agreement will operate as a waiver of such right, power, or
privilege, and no single or partial exercise of any such right, power, or
privilege will preclude any other or further exercise of such right, power, or
privilege, or the exercise of any other right, power, or privilege.
16.16 Time. Time is of the essence of this Agreement.
----
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.
SELLERS:
KEYSTONE TECHNOLOGIES, L.L.C.
By:/s/ Xxxxxxx X. Xxxxx and Xxxxxxx X. Xxxxxxxxx
---------------------------------------------
Its: Managing Members
/s/ Xxxxxxx X. Xxxxx
--------------------------------
Xxxxxxx X. Xxxxx
/s/ Xxxxxxx X. Xxxxxxxxx
--------------------------------
Xxxxxxx X. Xxxxxxxxx
/s/ Xxxxxxx Xxxxxx
--------------------------------
Xxxxxxx Xxxxxx
/s/ Xxxxxxx Xxxxx
--------------------------------
Xxxxxxx Xxxxx
38
BUYER:
OPTICAL SECURITY GROUP, INC.
By: /s/ Xxxxxxx X. Xxxx
----------------------------------
Xxxxxxx X. Xxxx, Chairman
39
