Initial Public Offering (IPO): Registration Statement (General Form) — Form S-1
Filing Table of Contents
Document/Exhibit Description Pages Size
1: S-1 Registration Statement (General Form) 117 564K
10: EX-10.10 Amendment #1 Stock Option Plan 4 23K
11: EX-10.11 Amendment #2 Stock Option Plan 1 9K
12: EX-10.12 Amendment #3 Stock Option Plan 2 13K
13: EX-10.13 Loan Agreement 22 71K
14: EX-10.14 Amendment #1 Loan Agreement 2 13K
15: EX-10.15 Amendment #2 Loan Agreement 2 14K
16: EX-10.16 Credit Agreement 141 486K
17: EX-10.17 Amendment #1 Credit Agreement 21 35K
18: EX-10.18 Amendment #2 Credit Agreement 4 17K
2: EX-10.2 Stock Purchase Agreement 45 213K
19: EX-10.20 Saturn Membership Regulations 38 131K
20: EX-10.21 Amendment #1 Membership Regulations 1 10K
21: EX-10.22 Amendment #2 Membership Regulations 4 21K
22: EX-10.23 Amendment #3 Membership Regulations 1 10K
23: EX-10.24 Amendment #4 Membership Regulations 1 11K
24: EX-10.25 Sublease 8 35K
25: EX-10.26 Amendment to Sublease 1 12K
3: EX-10.3 Methuen Division 21 100K
4: EX-10.4 Stock Purchase Agreement 6 31K
5: EX-10.5 Agreement and Plan of Merger 44 222K
6: EX-10.6 Split Dollar Agreement 12 40K
7: EX-10.7 Independent Contractor 6 26K
8: EX-10.8 Amendment to Independent Contractor 1 11K
9: EX-10.9 Saturn Stock Option Plan 12 46K
26: EX-23.1 Consent Pricewaterhousecoopers LLP 1 9K
27: EX-23.2 Consent Ernst & Young 1 9K
28: EX-27.1 Financial Data Schedule 1 11K
EXHIBIT 10.2
STOCK PURCHASE AGREEMENT
dated as of
October 7, 1998
by and among
LOGICAL SERVICES INCORPORATED,
the Shareholders of
LOGICAL SERVICES INCORPORATED
and
SMARTFLEX SYSTEMS, INC.
STOCK PURCHASE AGREEMENT
------------------------
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is entered into as of
October 7, 1998, by and among SMARTFLEX SYSTEMS, INC., a Delaware corporation
("Buyer"), LOGICAL SERVICES INCORPORATED, a California corporation (the
"Company"), and the shareholders of the Company listed on Schedule I attached
hereto (such Shareholders are sometimes referred to herein collectively as the
"Shareholders" and individually as a "Shareholder").
R E C I T A L S:
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A. The Company is engaged in the business of, among others, providing
engineering driven, turn-key services (the "Business").
B. The Shareholders own, beneficially and of record, one hundred
percent (100%) of the issued and outstanding capital stock of the Company
(collectively the "Shares") consisting of an aggregate of 1,479,250 shares of
the Company's Common Stock, $.10 par value (the "Common Stock").
C. Buyer desires to acquire from the Shareholders, and the
Shareholders desire to sell to Buyer, the Shares upon the terms and subject to
the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the terms, covenants, and
conditions hereinafter set forth, the parties hereto agree as follows:
1 . Purchase and Sale of Shares.
Upon the terms and subject to the conditions set forth in this
Agreement, at the Closing (as defined in Section 11 hereof) on the Closing Date
(as defined in Section 11 hereof), the Shareholders agree to sell, convey,
assign, transfer, set over and deliver to Buyer, the number of the Shares set
forth opposite the name of each Shareholder on Schedule 1 attached hereto, in
each case free and clear of all liens, claims, encumbrances, rights of first
refusal, security interests, pledges, equities, options, charges, conditional
sale contracts, restrictions and other adverse interests and defects in title of
any nature whatsoever (collectively, the "Liens"), and Buyer agrees to purchase
and accept such Shares from the Shareholders.
2. Purchase Price and Terms of Payment.
2.1 Purchase Price. As consideration for the sale hereunder to
Buyer of the Shares, Buyer shall pay to each Shareholder, in the manner set
forth in Section 2.2 and Section 3 below, his proportionate share, based on the
number of Shares owned of record by such Shareholder at the time of Closing
(such Shareholder's "Prorata Share"), of an aggregate purchase price (the
"Purchase Price") of Two Million Three Hundred Thousand Dollars ($2,300,000),
which (i) shall be subject to adjustment as provided in Section 2.3 below and
(ii) shall consist of Two Million Seventy Thousand Dollars ($2,070,000) to be
Paid at the Closing (the "Closing Date Payment") and Two Hundred Thirty Thousand
Dollars ($230,000) to be withheld by the Buyer in accordance with Section 3
(the "Holdback Amount").
2.2 Payment of Purchase Price. The Purchase Price shall be paid
to the Shareholders as follows:
(a) the Closing Date Payment shall be paid to the Shareholders at the
Closing by delivery of a bank cashier's check or wire transfer of funds to each
Shareholder in the amount of such Shareholder's Prorata Share of the Purchase
Price as set forth on Schedule 1; and
(b) the Holdback Amount shall be paid to, or for the account of, the
Shareholders as provided in Section 3 below.
2.3 Adjustment to Purchase Price. On the date hereof, the Company shall
deliver to the Buyer a balance sheet as of August 31, 1998, which has been
prepared by the Company and attached hereto as Schedule 2.3 (the "Balance
Sheet"). Within ninety (90) days following the Closing Date, Ernst & Young LLP
("E&Y") shall deliver to the Buyer and to the Shareholder Representative (as
defined in Section 4 below) an audited balance sheet as of the Closing Date (the
"Closing Balance Sheet") showing the Company's Net Asset Value (as defined
herein) as of the close of business on the day prior to the Closing Date (the
"Closing Balance Sheet Net Asset Value"). The Closing Balance Sheet shall be
prepared in accordance with generally accepted accounting principles ("GAAP")
consistently applied using the same methodology as was used in the preparation
of the Financial Statements (as defined in Section 6.5 hereof) and the Balance
Sheet. In the event that the Closing Balance Sheet Net Asset Value is less than
the Net Asset Value as shown on the Balance Sheet (the "Target Net Asset
Value"), the Purchase Price shall be reduced by one dollar for each dollar that
the Closing Balance Sheet Net Asset Value is less than the Target Net Asset
Value. In the event that the amount of the Closing Balance Sheet Net Asset Value
is more than the Target Net Asset Value, the Purchase Price shall be increased
by one dollar for each dollar that the Closing Balance Sheet Net Asset Value is
more than the Target Net Asset Value (collectively, the "Purchase Price
Adjustment"). The Shareholder Representative and the Buyer shall be entitled to
review the Closing Balance Sheet for a period of thirty (30) days after delivery
by E&Y. In the event that before the end of such thirty (30) day period, either
of such persons notifies the other in writing that they dispute the Closing
Balance Sheet Net Asset Value shown on the Closing Balance Sheet, then the
Closing Balance Sheet Shareholders' Equity shall be determined by
PricewaterhouseCoopers LLP, or other Big 5 accounting firm mutually agreed to by
Buyer and the Shareholder Representative ("Second Auditor"), which determination
shall be made within thirty (30) days of the date such firm is retained and when
delivered shall be final and binding on the parties. If the Closing Balance
Sheet Net Asset Value as determined by the Second Auditor varies in favor of the
requesting party, the cost of the Second Auditor shall be paid by the
non-requesting party. If the Closing Balance Sheet Net Asset Value as determined
by the Second Auditor does not vary in favor of the requesting party, the cost
of the Second Auditor shall be paid by the requesting party. If neither the
Shareholder Representative nor the Buyer notifies the other that it is
contesting the Closing Balance Sheet within the above specified time period, the
Closing Balance Sheet provided by E&Y shall be final and binding on all parties
for purposes of making the above specified Purchase Price Adjustment. When the
Purchase Price Adjustment has been finally determined, if a Purchase Price
reduction results, the Buyer shall reduce the Holdback Amount by the amount of
the Purchase Price Adjustment; provided, that, if the Purchase Price Adjustment
is greater than the Holdback Amount, then each of the Shareholders shall refund
such Shareholder's Prorata Share of the amount by which the Purchase Price
Adjustment exceeds the Holdback Amount in cash (or by immediately available
funds transfer) to the Buyer within five (5) days of the date that the Purchase
Price Adjustment is finally determined. If the Purchase Price Adjustment results
in a Purchase Price increase, the amount of such increase shall be added to the
Holdback Amount and shall be paid as provided in Section 3 below. For purposes
hereof, "Net Asset Value" shall mean the tangible assets of the Business less
the liabilities of the Business.
3. Purchase Price Holdback.
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(a) The Buyer shall withhold the Holdback Amount as collateral to
secure the Shareholders' obligations described in Section 3(b) below, during the
period commencing on the Closing Date and terminating on the date that is one
(1) year from the Closing Date. On the date that is one (1) year from the
Closing Date (or if such date is not a business day, on the next business day
thereafter), the Holdback Amount, less the amount of any reductions thereto, as
provided in Section 3(b) below, if a positive amount, shall be distributed to
the Shareholders, without interest, in accordance with such Shareholder's
Prorata Share. The Buyer shall not be required to segregate or set aside the
Holdback Amount. The Buyer may, without obligation, file a UCC-1 or other
appropriate instruments with the California Secretary of State evidencing
Buyer's security interest in the Holdback Amount, and the Shareholder
Representative is authorized to execute and deliver such UCC-1 or other
appropriate instruments, and each Shareholder shall be fully bound thereby.
(b) The Holdback Amount is subject to reduction and retention by Buyer
as follows:
(i) In the event that there is a Purchase Price reduction
pursuant to the terms of Section 2.3 above; and
(ii) In satisfaction of any claim for Damages by the Buyer
against the Shareholders pursuant to the provisions of Section 14, below.
(c) Without limiting the foregoing, in the event that reductions to
the Holdback Amount made by the Buyer pursuant to this Section 3 exceed the
amount of the Holdback Amount, then, in addition to any other remedies available
to the Buyer, the Buyer shall be able to recover any excess amounts directly
from the Shareholders, on a joint and several basis.
(d) Under no circumstances will the Shareholders, without the prior
written consent of the Buyer, assign, transfer or grant any security interest in
the Holdback Amount to any party other than (i) the Buyer pursuant to Section
3(a) above, or (ii) an existing Shareholder who shall accept such assignment,
transfer or security interest subject to the prior rights of the Buyer
hereunder.
4. Shareholder Representative. Each of the Shareholders (and their
successors and assigns) hereby irrevocably consents to the appointment of, and
does hereby appoint and empower, Robert W. Ulrickson (and Robert W. Ulrickson
does hereby accept such appointment), as the sole and exclusive representative
of the Shareholders (the "Shareholder Representative"), until replaced by the
Shareholders, as evidenced in a writing delivered to the Buyer which is executed
by the Shareholders holding a majority of the Shares immediately prior to the
Closing Date. All decisions of the Shareholder Representative shall be final and
binding on all of the Shareholders, and the Buyer shall be entitled to rely
upon, without independent investigation, any decision of the Shareholder
Representative and shall be jointly and severally indemnified by the
Shareholders and held harmless by each Shareholder for any action or inaction
taken or omitted to be taken by Buyer in reliance thereon.
5. Several Representations and Warranties of the Shareholders.
Except as disclosed in the disclosure schedules delivered to Buyer
concurrently herewith (the "Disclosure Schedules") by reference to the specific
section or subsections to which a disclosure pertains, each Shareholder,
severally but not jointly, represents and warrants to Buyer as follows:
5.1 Authority. Such Shareholder has the full legal right, capacity,
power and authority to execute and deliver, and to perform such Shareholder's
obligations under this Agreement. This
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Agreement has been duly executed and delivered by such Shareholder, constitutes
the valid and binding obligation of such Shareholder, and is enforceable
against such Shareholder in accordance with its terms, except as such
enforceability may be limited by (i) bankruptcy, insolvency, moratorium or other
similar laws affecting creditors' rights and (ii) general principles of equity
relating to the availability of equitable remedies (regardless of whether such
Agreement is sought to be enforced in a proceeding at law or in equity). Any
Employment Agreement required to be executed by such Shareholder pursuant to
Section 9.11 below, when executed and delivered by such Shareholder, will be the
valid and binding obligation of such Shareholder, and will be enforceable
against such Shareholder in accordance with its terms except, in each case, as
such enforceability may be limited by (i) bankruptcy, insolvency, moratorium or
other similar laws affecting creditors' rights and (ii) general principles of
equity relating to the availability of equitable remedies (regardless of whether
any such agreements are sought to be enforced in a proceeding at law or in
equity).
5.2 Title to Shares. Such Shareholder is the owner, beneficially and
of record, of the number of Shares set forth opposite such Shareholder's name on
Schedule 1 attached hereto and at the Closing shall transfer, convey and vest
in Buyer, legal and beneficial ownership of (including, but not limited to, the
right to vote), and good, valid and marketable title to, such Shares free and
clear of all Liens other than restrictions imposed by federal and applicable
state securities laws which do not constitute an impediment to the sale and
transfer of the Shares contemplated by this Agreement. Neither such Shareholder
nor any Shares owned by such Shareholder are or will be a party or subject to
any agreement or commitment, written or oral, granting any rights or options in
or to such Shares or any interest therein or imposing any restrictions thereon.
5.3 No Shareholder Conflicts. Except as set forth in Schedule 5.3
attached hereto, neither the execution and delivery of this Agreement by such
Shareholder, the performance by such Shareholder of such Shareholder's
obligations hereunder, nor the consummation of the transactions contemplated
hereby, including, but not limited to, the execution by such Shareholder of an
Employment Agreement pursuant to Section 9.11 hereto, will result in any of the
following: (a) a default or an event that, with notice or lapse of time, or
both, would constitute a default, breach or violation of (i) any of the terms,
conditions or provisions of any lease, license, franchise, promissory note,
contract, agreement, commitment, indenture, mortgage, deed of trust, or other
instrument, document or arrangement to which such Shareholder is a party or by
which his properties or assets may be bound and which is material to the
Shareholder (a "Material Shareholder Contract"); (b) the creation or imposition
of any Lien on any of the assets or properties of such Shareholder; (c) the
termination of any Material Shareholder Contract or the acceleration of the
maturity of any indebtedness or other material obligation of such Shareholder;
or (d) a violation or breach of any order, writ, injunction, decree, law,
statute or regulation of any court or governmental authority applicable to such
Shareholder or any of such Shareholder's properties or assets.
5.4 No Third Party Consents. Except as set forth in Schedule 5.4
attached hereto, no consent, approval, order or authorization of, or
registration, declaration or filing with, any person or entity or any court,
administrative agency or commission or other governmental authority or
instrumentality is required by or with respect to such Shareholder in connection
with the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby.
5.5 Absence of Claims. Except as set forth in Schedule 5.5 attached
hereto, such Shareholder does not, and at the Closing will not, have any claim,
demand or cause of action against the Company, or its officers, directors,
employees, agents or representatives and knows of no fact, event or circumstance
which could reasonably be expected to result in any such claim.
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5.6 Delegation of Authority to Shareholder Representative. The
delegation of authority by each of the Shareholders to the Shareholder
Representative pursuant to this Agreement, is a valid and enforceable delegation
and each Shareholder has the full power and authority to make such delegation.
6. Representations and Warranties of the Company and Shareholders.
Except as disclosed in the Disclosure Schedules by reference to the
specific section or subsections to which a disclosure pertains, the Company and
each of the Shareholders, jointly and severally, represent and warrant to Buyer
as follows:
6.1 Organization and Good Standing: Corporate Matters. The Company is
a corporation duly organized, validly existing and in good standing under the
laws of the State of California, and is duly authorized or qualified to do
business as a foreign corporation in each jurisdiction in which the character of
the properties owned by it or the nature of the Business makes such
authorization or qualification necessary and where the failure to be so
authorized or qualified would have a Material Adverse Effect (as hereinafter
defined) on the Company. As used in this Agreement, unless otherwise indicated,
the term "Material Adverse Effect" when used in connection with the Company,
means any event, circumstance, change or effect that is, or could reasonably be
expected to be, materially adverse to the condition (financial or otherwise),
properties, assets, liabilities, businesses, operations, results of operations
or prospects of the Company either prior to or following the Closing, other than
Material Adverse Effects set forth or described in the Disclosure Schedules.
The Company does not own or control, directly or indirectly, any interest or
investment (whether equity or debt) in any corporation, partnership, limited
liability company, joint venture, association, business organization, trust or
entity. The Company has all necessary corporate power and authority to conduct
the Business as it is now, and has since its organization been, conducted and to
own, lease and/or operate the properties and assets which it now owns, leases or
operates. The Company has delivered to Buyer true and correct copies of (a) the
Articles of Incorporation of the Company and all amendments thereto, certified
by the Secretary of State of the State of California, (b) the Bylaws of the
Company and all amendments thereto, duly certified by its corporate secretary,
(c) the minute and stock books of the Company and (d) any agreements,
commitments or understandings restricting the transfer of or otherwise relating
to the Shares or any other securities of the Company to which the Company or any
Shareholder is a party. Such Articles of Incorporation and Bylaws are in full
force and effect and the Company is not in violation of its Articles of
Incorporation or Bylaws. The minute and stock books of the Company are complete
and accurate in all material respects.
6.2 Capital Structure of the Company. The authorized capital stock of
the Company consists solely of 5,000,000 shares of Common Stock, par value $0.10
of which 1,479.250 shares are issued and outstanding. There are no
outstanding subscriptions, options, calls, warrants, convertible or exchangeable
debt or securities, agreements, arrangements, commitments, understandings or
other rights, oral or written, obligating the Company to offer, sell or issue
any additional shares of its capital stock of any class or any outstanding
shares of capital stock of the Company. Except as set forth in Schedule 6.2,
none of the Shareholders is a party to any voting trust agreement or any other
contract, agreement, commitment, plan or understanding restricting or otherwise
relating to voting or dividend rights or privileges with respect to, or which
either provide for or restrict the sale, transfer or assignment of, the Shares.
All of the outstanding shares of capital stock of the Company are validly
issued, fully paid, nonassessable, and were not issued in violation or
contravention of any federal or applicable state securities laws or regulations,
any preemptive rights (contractual or other) of any person or entity, or any
agreement to which the Company or any shareholder of the Company is or was a
party. Except as set forth in Schedule 6.2, there are no obligations, contingent
or otherwise, of the Company to repurchase, redeem or
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otherwise acquire any currently outstanding, or make any payments in respect of
any currently or previously outstanding, shares of capital stock of the Company.
Except as disclosed in Schedule 6.2 or in the Financial Statements (as
hereinafter defined), the Company has not repurchased, redeemed or otherwise
acquired any shares of its capital stock or declared, paid or set aside funds
for the payment of any dividend or other distribution on its shares of capital
stock, or effected any recapitalization, reclassification, combination, stock
split or other transaction affecting its authorized or outstanding shares of
capital stock. Each repurchase, redemption or other acquisition of shares of
capital stock, and each dividend or other distribution and each
recapitalization, reclassification, combination, stock split or other
transaction disclosed in Schedule 6.2 was made in accordance with all applicable
provisions of California Law and without violation of any Material Contract (as
hereinafter defined).
6.3 No Conflicts. Except as set forth in Schedule 6.3 attached hereto,
neither the execution and delivery of this Agreement by the Company or any
Shareholder, the performance by the Company or any Shareholder of its
obligations hereunder, the execution and delivery by the Company or any
Shareholder of any agreement required to be entered into pursuant to this
Agreement, nor the consummation of the transactions contemplated hereby, will
result in any of the following: (a) a default or an event that, with notice or
lapse of time, or both, would constitute a default, breach or violation of (i)
any provision of the Articles of Incorporation or Bylaws of the Company, or (ii)
any of the terms, conditions or provisions of any lease, license, franchise,
promissory note, contract, agreement, commitment, indenture, mortgage, deed of
trust, or other instrument, document or arrangement to which the Company is a
party or by which it or any of its respective properties or assets may be bound
and which is material to the Company (a "Material Contract"); (b) the creation
or imposition of any Lien on any of the assets or properties of the Company; (c)
the termination of any Material Contract or the acceleration of the maturity of
any indebtedness or other material obligation of the Company; (d) a violation or
breach of any order, writ, injunction, decree, law, statute or regulation of any
court or governmental authority applicable to the Company or any of its
respective properties or assets; (e) the cessation or termination of any other
business relationship or arrangement between the Company and any third party the
cessation or termination of which would have a Material Adverse Effect; (f) any
adverse effect on the Intangible Personal Property (as defined in Section
6.7(b) below) or on the Company's rights or ability to use the Intangible
Personal Property or on the Company's rights or privileges under the license
agreements or other arrangements, if any, listed on Schedule 6.7(b).
6.4 Consents and Approvals. Except as set forth in Schedule 6.4, no
consent, approval, order or authorization of, or registration, declaration or
filing with, any person or entity or any court, administrative agency or
commission or other governmental authority or instrumentality is required by or
with respect to the Company in connection with the execution and delivery of
this Agreement or the consummation of the transactions contemplated hereby.
6.5 Financial Statements. The Shareholders have delivered or caused
the Company to deliver to Buyer true and correct copies of the unaudited
consolidated financial statements of the Company for the period from January 1,
1998 to August 31, 1998 and for each of the years in the two (2) year period
ended December 31, 1997, consisting of balance sheets and statements of income
(collectively, the "Financial Statements"), true and correct copies of which
Financial Statements are also attached hereto as Schedule 6.5. The Financial
Statements (i) were prepared in accordance with GAAP consistently applied; (ii)
present fairly, in all material respects, the financial position, results of
operations of the Company as at the relevant dates thereof and for the
respective periods covered thereby; and (iii) reflect that the Company has
calculated and set aside reserves or allowances for doubtful accounts, warranty
claims, obsolete, excessive or slow moving inventory and other contingencies and
claims in amounts which are adequate in relation to potential write-downs or
write-offs of assets and potential liabilities or losses that may arise out
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of any pending or threatened claims or other contingencies to which the Company
or its Business are subject, determined in accordance with GAAP consistently
applied. Other than as expressly set forth in Schedule 6.5 or in the (August
31, 1998) Balance Sheet included in the Financial Statements or the notes
thereto, the Company has no debts, liabilities, obligations or commitments
of any nature, secured or unsecured and whether due or to become due, absolute,
contingent or otherwise, which, in accordance with GAAP consistently applied,
either would be required to be shown on a balance sheet of the Company prepared
accordance with GAAP or, although it is not required to be shown on the
Company's balance sheet, are individually or in the aggregate material in
amount, except for liabilities that have been incurred by the Company after
August 31, 1998, in the ordinary course of business and consistent with
past practice, that are not material in amount and have not had, and are not
reasonably expected to have, a Material Adverse Effect on the Company.
6.6 Absence of Certain Changes. Except as set forth in Schedule 6.6
attached hereto, since January 1, 1995, the Company has conducted the Business
in the ordinary course, and there has not been or occurred with respect to the
Company: (i) any change in or amendment to its Articles of Incorporation or
Bylaws or any recapitalization or reclassification of its authorized or
outstanding capital stock; (ii) any damage, destruction or loss, whether or not
covered by insurance, which has had or may have a Material Adverse Effect on the
Company or its ability to operate the Business in the ordinary course and
consistent with past practices; (iii) any amendment, modification or
termination of any Material Contract or the termination, cessation or loss of
or any material change in the pricing or other material terms of any product
supply or other business arrangement or relationship which would or could
reasonably be expected to have a Material Adverse Effect; (iv) other than
immaterial increases in regular salaries or wages made in the ordinary course
of business and consistent with past practices, any increase in, or commitment
to increase, the direct or indirect compensation or benefits payable or to
become payable to any of the Company's officers, directors, employees, agents,
or independent contractors, or the payment or awarding, or the making of any
commitment to pay, any severance, bonus, incentive or special or deferred
compensation to or similar arrangements with any of such officers, directors,
employees, agents or independent contractors or the adoption of any new, or any
material amendment or modification of any existing, Employee Plan (as
hereinafter defined); (v) any sale or issuance of, or grant of options, warrants
or other rights to acquire, any shares of capital stock or other securities
(whether currently outstanding or authorized or available for issuance); (vi)
any declaration, setting aside or payment of a dividend or other distribution in
respect of its capital stock, or any direct or indirect redemption, repurchase
or other acquisition of any shares of its capital stock or other securities, or
any issuance or the creation of any commitment or obligation to issue any shares
of capital stock or any rights or securities convertible, exchangeable or
exercisable into shares of capital stock, or any transfer, sale, pledge,
assignment or other disposition of, any of the Shares, or any interest in or
right to acquire any of the Shares; (vii) any waiver or release of any material
right or claim of the Company; (viii) except for sales of inventory made,
and Permitted Liens (as defined in Subsection 6.7(d) below) incurred in the
ordinary course of business and consistent with past practices, any sale,
transfer, mortgage, pledge or subjection to Lien of or affecting any of its
properties or assets other than sales of assets that are not material to and are
no longer needed in the Business; (ix) the incurrence of any indebtedness for
borrowed money or capitalized lease obligations or any guaranty of indebtedness
of any other person or entity; (x) any capital expenditures or any commitment
involving more than [$25,000] individually or [$50,000] in the aggregate;
(xi) any material alteration in the manner of keeping the books, accounts or
records of the Company or in the manner of preparing financial statements, or
any change in the accounting principles, practices, policies or procedures of
the Company (except as may have been required by any modification or change in
GAAP); (xii) any material alteration in the operating or employment policies
and procedures of the Company; (xiii) any other event or condition of any
character that has had or could reasonably be expected to result in a Material
Adverse Effect on the
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Company or the Business; or (xiv) any agreement or commitment by the Company or
any Shareholder to do any of the things described in the preceding clauses (i)
through (xiii).
6.7 Property of the Company. Except as set forth in Schedule 6.7,
the Company owns or otherwise has the right to use (free of any burdensome
conditions or restrictions) all of the property and assets, real, personal or
mixed, tangible or intangible, now used in the operation of the Business, or
the use of which is necessary for the performance of any Material Contract or
the conduct of the Business as now conducted and as presently contemplated to be
conducted.
(a) Tangible Personal Property. Except as set forth in Schedule
6.7(a), the Company has furnished to Buyer a true and correct listing of all
machinery, implements, supplies, equipment, computers, furniture, fixtures,
vehicles, tools, and all other similar assets or tangible personal property
owned, leased or used by the Company other than any of such items that are not
necessary for the conduct of the Business as currently conducted. The assets
contained on such listing constitute all the tangible personal property
reasonably necessary for the conduct by the Company of the Business, and such
assets are in good operating condition and repair, ordinary wear and tear
excepted, and have been properly maintained. Except as disclosed in Schedule
6.7(a), no personal property used by the Company in connection with the Business
is held under any lease, security agreement, conditional sales contract, or
other title retention or security agreement, or is located other than in the
possession of the Company.
(b) Intangible Personal Property. Schedule 6.7(b) attached
hereto contains a true and correct list of all patents and patent applications,
copyrights and applications therefor, trademarks, trade names and service marks,
whether or not registered, and whether owned or licensed for use by the Company,
and any applications therefor, designs, drawings, processes, inventions,
products, computer software, firmware or hardware and other trade secrets and
know-how (the "Intangible Personal Property") owned by the Company or used in
or necessary to the conduct of the Business. Schedule 6.7(b) also contains a
list of all license agreements and other arrangements under which the Company
uses, or licenses to any third party, any patents, trademarks or other
intellectual property, true and complete copies of which have been provided to
Buyer. The Company owns or is licensed, or otherwise has the full right and
authority to use, all Intangible Personal Property required for the conduct of
the Business in the manner presently conducted, and such use does not conflict
with, infringe upon or violate any trademark, trade name, copyright, patent
rights or trade secret rights of any other person or entity. Neither the Company
nor any of its products or advertising or marketing materials, (i) has
infringed, or is now infringing, any patent, trade name, trademark, service
mark, copyright, trade secret, technology, know-how or process belonging to any
other person, firm or corporation, which infringement would have a Material
Adverse Effect on the Company or (ii) has breached or violated or is in breach
or violation of any license agreement governing the use of any intellectual
property by the Company which, in either case, would have a Material Adverse
Effect on the Company. Except as disclosed in Schedule 6.7(b), neither the
Company nor any Shareholder has received any written notice or other indication
of any such claim of infringement or violation.
(c) Real Property. Schedule 6.7(c) attached hereto contains a
correct list of the addresses of each parcel of real property owned by, leased
to or used in any way by the Company (the "Real Properties"), together with a
brief description of the structures thereon and the uses being made thereof, and
a list of all leases under which the Company possesses or uses real property
(the "Real Property Leases"). True and correct copies of the Real Property
Leases, and any and all amendments thereto, have been delivered to Buyer. The
Real Properties constitute all of the real properties and structures and
improvements necessary for the Company to conduct the Business. Each of the Real
Property Leases is valid, binding and enforceable in accordance with its
terms, and is in full force and effect. The Company is not in material
default, and no event has occurred which, with the giving of notice
-9-
or lapse of time or both, would constitute a material default under, or which
would entitle the lessor to terminate, any of such Real Property Leases. The
Company has also delivered to Buyer true and correct copies of any and all title
insurance policies or commitments and environmental studies or reports in the
possession or control of the Company or any Shareholder with respect to any of
the Real Properties. The zoning of each parcel of Real Property permits the
presently existing improvements and structures and the continuation of the
Business presently conducted thereon. To the best knowledge of the Shareholders,
no changes in such zoning are pending or threatened, and no condemnation or
similar proceedings are pending against any such parcel of real property.
(d) Title. Except as set forth in the Financial Statements or
in Schedule 6.7(d) attached hereto, the Company has good, valid and marketable
title to, or a valid leasehold interest in, all of the assets and properties
(personal, real, mixed, tangible or intangible) which it purports to own or
lease, free and clear of any and all Liens other than Permitted Liens. As used
in this Agreement, the term "Permitted Liens" shall mean (i) mechanics',
carriers', workmen's, repairmen's or other similar Liens arising or incurred
in the ordinary course of business in respect of obligations which are not
overdue, or which are being contested in good faith; (ii) such Liens and minor
imperfections of title, if any, as are not material in amount, do not materially
detract from the value or impair the use of any material assets subject thereto
or the operations of the Business by the Company and have arisen only in the
ordinary course of business; and (iii) Liens for current Taxes (as hereinafter
defined) not yet due or for Taxes being contested in good faith by appropriate
proceedings and for which adequate reserves have been set aside.
(e) Accounts Receivable. The Company has delivered to Buyer a
complete and current aging of all accounts receivable of the Company as of
August 31, 1998, as set forth on Schedule 6.7(e) attached hereto. All such
accounts receivable represent, and all accounts receivable arising from the
operation of the business of the Company between the date hereof and the
Closing (collectively, the "Accounts Receivable") will represent, amounts due
the Company for bona fide sales of products actually made or services actually
performed on or prior to the date such Accounts Receivable were or will be
recorded on the books of the Company, in the ordinary course of the Business
and consistent with past practices, and are, or on or prior to the Closing Date
will be, valid and collectible in full in the ordinary course of business. No
reserves for invalid or uncollectible receivables have been made, and, in the
opinion of the Shareholders, no such reserves are necessary. There is no
contest, claim or right of set-off contained in any oral or written agreement
with any account debtor relating to the amount or validity of any Account
Receivable.
(f) Inventories. The Company has furnished to Buyer a complete,
current and correct list of all inventories, including packaging materials,
components, supplies, raw materials, work-in-process and finished goods, of the
Company as of August 31, 1998 (the "Inventories"), as set forth in Schedule
6.7(f) attached hereto. The Inventories are, and as of the Closing Date will be,
of a quality and quantity usable and salable in the ordinary course of
business, except for items of obsolete, damaged or slow moving materials and
materials of below standard quality, all of which have been written off or
written down to net realizable value and, in the aggregate, are not material in
amount.
6.8 Contracts and Agreements. Except as described in Schedules
6.7, 6.8 or 6.9 attached hereto, the Company is not a party to, and none of its
assets and properties are subject to: (a) any employment contract with any
officer, consultant, director or employee or any affiliate of the foregoing; (b)
any lease of real or personal property; (c) any agreement or understanding,
written or oral, that provides for or relates to the purchase, sale or other
disposition of any property, materials, equipment or supplies (except purchase
or sales orders from or to individual customers or individual suppliers
incurred in the ordinary course of business); (d) any instrument creating or
providing for the creation of any Lien on any
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of the assets or properties of the Company or evidencing or relating to
indebtedness constituting notes payable or long-term debt; or (e) any other
Material Contract, which shall include, without limitation, any contracts or
agreements relating to, or entered into by the Company in connection with, the
purchase or sale of any business or product line. There has been delivered to
Buyer (i) true and correct copies of each written contract or agreement listed
on Schedules 6.7, 6.8 or 6.9, and any and all amendments thereto, and (ii) an
accurate written summary of the terms of any oral agreement or understanding
that the Company may have with any other person or entity that is material to
the Company or the Business, which shall include, without limitation, any oral
agreement or understanding that the Company may have with any of the customers
or suppliers listed on Schedule 6.10, and any amendments thereto. Except as
otherwise set forth on Schedule 6.8, each of such contracts, agreements,
licenses and instruments so listed, or required to be so listed, or described or
required to be described in a written summary required to be delivered pursuant
hereto, is a valid and binding obligation of the Company and, to the knowledge
of the Shareholders, also of the other parties thereto, and is enforceable in
accordance with its terms, except as enforceability may be affected by
bankruptcy, insolvency, moratorium or similar laws affecting creditors' rights
generally and general principles of equity relating to the availability of
equitable remedies. Except as otherwise set forth in Schedule 6.8 hereto, there
have not been any defaults by the Company or, to the knowledge of the
Shareholders, any defaults or claims of default or of non-enforceability by the
other party, or parties to such contracts, agreements, licenses and instruments
which, individually or in the aggregate, would have a Material Adverse Effect on
the Company or the Business and, to the knowledge of the Shareholders, there are
no facts, events or conditions that have occurred which, through the passage of
time or the giving of notice, or both, would constitute a default by the Company
or by the other party or parties under any of such contracts, agreements,
licenses and instruments that could reasonably be expected to have a Material
Adverse Effect on the Company or the Business or that would create or result in
the imposition of a Lien on any material assets or properties of the Company.
6.9 Employees; Labor Matters and Employee Plans.
(a) Schedule 6.9 attached hereto contains complete, current and
correct lists of each director and officer of the Company and of all employees
of the Company, which lists include the job position(s) of and compensation and
benefits payable to each of such individuals as a result of his or her
employment by or association with the Company. Schedule 6.9 also contains a list
of consultants and any other independent contractors that have provided
professional or other services to the Company and have received or are expected
to receive fees or other compensation from the Company. The Company has
furnished to Buyer a true and correct copy of its employee handbook (if one
exists) and a written description of all material employment or personnel
policies of the Company not set forth therein.
(b) Except as set forth in Schedule 6.9, the Company is not a
party to or otherwise bound by or subject to any collective bargaining or other
labor, employment, deferred compensation, bonus, retainer, consulting, or
incentive agreement, plan or contract. Except as disclosed in Schedule 6.9,
there has been no strike or other work stoppage by nor to the knowledge of any
of the Shareholders, has there been any union organizing activity among any of
the employees of the Company. The Company is in compliance, in all material
respects, with all applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and hours, and is not
engaged in any unfair labor practice. Except as set forth in Schedule 6.9, there
is no unfair labor practice complaint pending or, to the best knowledge of any
of the Shareholders, threatened against the Company, nor, to the best knowledge
of any of the Shareholders, is there any factual basis for any such complaint.
(c) Schedule 6.9 also contains a complete, current and correct
list of all Employee Plans (as hereinafter defined) of the Company (true,
correct and complete copies of which have
-11-
been delivered to Buyer). For purposes of this Agreement, the term "Employee
Plan" includes all present plans, programs, agreements or any other arrangements
(including all amendments to and components of same, such as a trust with
respect to a plan) providing any remuneration or benefits, other than current
cash compensation, to any current or former employee of the Company or to any
other person who provides, or at any time since January 1, 1995 provided,
services to the Company, whether or not such plans, programs, agreements or any
such other arrangements, are subject to the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), or are qualified under the Internal Revenue
Code of 1986, (as amended, the "Code"). By way of example, but without limiting
the generality of the foregoing, the term Employee Plan includes, but is not
limited to, employee benefit plans (as defined in Section 3(3) of ERISA),
pension, retirement, profit sharing, stock option, stock bonus, and
non-qualified deferred compensation plans, any multiemployer plan (as defined in
Section 3(37) of ERISA), disability, medical, dental, health insurance, life
insurance,'incentive compensation, vacation benefit, and fringe benefit plans,
programs or arrangements. Any and all tax returns, reports, forms or other
documents required to be filed by the Company under applicable federal, state or
local law with respect to the Employee Plans have been timely filed and are
correct and complete in all material respects; and any and all amounts due by
the Company to any governmental agency or entity with respect to the Employee
Plans have been timely and fully paid. Except as disclosed in Schedule 6.9, the
Company has not terminated any Employee Plan.
(d) Except as set forth in Schedule 6.9, all Employee Plans are
now, and have always been, established, maintained and operated in accordance,
in all material respects, with all applicable laws (including, but not limited
to, ERISA and the Code) and all regulations and interpretations thereunder and
in accordance with their plan documents. All communications with respect to each
Employee Plan by any members of any plan committee, plan fiduciaries, plan
administrators, the Company or its Boards of Directors or employees, accurately
reflect the documents and operations of each such Employee Plan in all material
respects. The Internal Revenue Service has issued one or more determination
letters with respect to each funded Employee Plan stating that, from the
inception of each such Employee Plan, such Employee Plan has been and is
qualified under Section 401 of the Code and each trust maintained in connection
with each such Employee Plan has been and is exempt under Section 501 of the
Code. No Employee Plan is a multiemployer plan within the meaning of the Code or
ERISA, a defined benefit plan within the meaning of Section 3(35) of ERISA, a
plan subject to Section 302 of ERISA or Section 412 of the Code, or funded
through a welfare benefit fund (as defined in Section 419 of the Code). The
Company has not participated in, maintained, contributed to or been required to
contribute to any employee benefit plan subject to Title IV of ERISA or any
retiree medical or retiree life insurance benefit plan. All contributions
required to be made to or with respect to each Employee Plan and all costs of
administering each Employee Plan have been completely and timely paid. All
reports, forms and other documents required to be filed with any governmental
entity with respect to any Employee Plan have been timely filed and are
accurate. There is and there has been no actual or, to the knowledge of the
Shareholders, no threatened or expected litigation or arbitration concerning or
involving any Employee Plan. No complaints to or by any government entity have
been filed or, to the knowledge of the Shareholders, have been threatened or are
expected with respect to any Employee Plan. No Employee Plan or any other person
has any liability to any plan participant, beneficiary or other person under any
provision of ERISA, the Code or any other applicable law by reason of any action
or failure to act in connection with any Employee Plan. There has been no breach
of fiduciary duty or prohibited transaction as described in Section 406 of ERISA
and Section 4975 of the Code with respect to any Employee Plan. No Employee Plan
provides medical benefits to one or more former employees (including retirees),
other than benefits required to be provided under Section 4980B of the Code or
Sections 601 to 608 of ERISA. Each welfare benefit plan (as defined in Section
3(2) of ERISA) is, and has been, in material compliance with the requirements of
Code Section 4980B and Section 601 to 608 of ERISA. There is no contract,
-12-
agreement or benefit arrangement covering any employee of the Company which
individually or collectively would constitute an "excess parachute payment"
under Section 280G of the Code.
(e) Except as set forth in Schedule 6.9, the consummation of the
transactions contemplated by this Agreement will not (i) entitle any individual
to severance pay, or (ii) accelerate the time of payment or vesting, or
increase the amount, of compensation that, but for such transactions, would be
due to any individual. The Company has delivered to the Buyer true, correct and
complete copies of each plan, agreement or arrangement relating to the
foregoing, including all amendments thereto.
(f) With respect to any insurance policy providing funding for
benefits under any Employee Plan, (i) there is no material liability of the
Company in the nature of a retroactive or retrospective rate adjustment, loss
sharing arrangement, or other actual or contingent liability, nor would there
be any such material liability if such insurance policy was terminated on the
date hereof, and (ii) to the knowledge of the Shareholders, no insurance
company issuing any such policy is in receivership, conservatorship,
liquidation or similar proceeding and, neither the Company nor any of the
Shareholders has received any notice that any such proceeding with respect to
any such insurance company is pending or imminent.
6.10 Customers and Suppliers. Except as set forth on Schedule 6.10,
Schedule 6.10 attached hereto contains correct and current lists of (a)all
customers or clients of the Company, including original equipment manufacturers
("OEMs"), who accounted for more than five percent (5%) of the consolidated
sales of the Company in either of the two most recent fiscal years, showing the
approximate aggregate dollar amount of sales to each such customer during each
of such fiscal years; and (b) the ten (10) largest suppliers of the Company in
terms of purchases during each of the two most recent fiscal years, showing the
approximate aggregate dollar amounts of purchases by the Company from each such
supplier during each of such fiscal years. Except as set forth on Schedule 6.10,
there has been no change in the business relationship of the Company with any
customer or supplier named in Schedule 6.10 which has had or could reasonably be
expected to have a Material Adverse Effect on the Company or the Business.
Except as set forth on Schedule 6.10, no Shareholder has any present information
or is aware that, due to any events or circumstances that have occurred prior to
the date of this Agreement, any of the customers or Suppliers listed in Schedule
6.10 intends to cease doing business with the Company, or alter materially the
amount of the business that any of them is presently doing with the Company, or
will require, as a condition of continuing to purchase products from or to sell
raw materials or components to the Company, a change in the prices at or in any
other material terms under which it has been doing business with the Company.
6.11 Product Warranties and Liabilities. Schedule 6.11 attached hereto
sets forth the product return policies (the "Return Policies") of, and all
Warranties (as hereinafter defined) given or made by, the Company. "Warranties"
shall mean all service, repair, replacement and other obligations based upon or
arising out of express and implied warranties made or deemed made in connection
with the sale of goods or the performance of services by the Company. The
Company has not extended or granted any return rights or given or made any
Warranties with respect to any products sold or services performed by it, except
for those set forth in Schedule 6.11. None of the customers of the Company has
claimed to the Company or, to the best knowledge of any of the Shareholders, to
the Company's suppliers, that the Company's products are defective. Neither the
Company nor any of the Shareholders nor, to the best knowledge of any of the
Shareholders, any of the employees of the Company, has any particular knowledge
of any products which have been shipped by the Company in a condition that such
products might reasonably be expected to be returned by the customer, or of any
intention on the part of any customer to return any of the Company's products,
except returns by customers in the ordinary course of business and
-13-
consistent with the Return Policies and which, in any event, are not expected to
be material in amount. Except as otherwise set forth in Schedule 6.11, no
Shareholder has any knowledge of any fact or of the occurrence of any event
forming the basis of any present or future claim against the Company, whether or
not fully covered by insurance, for liability on account of negligence or
product liability or on account of any Warranties which would have, individually
or in the aggregate, a Material Adverse Effect on the Company or the Business,
and adequate reserves have been set aside in the Financial Statements for
Warranty claims and product returns.
6.12 Licenses and Permits: Compliance With Laws. Schedule 6.12 contains
a true and correct list of all governmental licenses, permits, franchises,
authorizations, certificates, rights, privileges and registrations held by or
issued to the Company which are required for the lawful conduct of its business
and which the failure to maintain would have a Material Adverse Effect (the
"Material License and Permits"). Each of the Material Licenses and Permits is
in full force and effect, and there are no pending or, to the knowledge of the
Shareholders, threatened claims or proceedings challenging the validity of, or
seeking to revoke or discontinue, any of the Material Licenses and Permits.
None of the transactions contemplated by this Agreement will affect the
validity of or cause the revocation or discontinuation of any of the Material
Licenses and Permits. Except as otherwise set forth in Schedule 6.12, the
Business is being, and has been, conducted in compliance with all applicable
federal, state, local and international laws, statutes, ordinances, rules,
regulations, orders, decrees and other requirements of all governmental
authorities and other political subdivisions and agencies thereof having
jurisdiction over the Company, including, without limitation, all such laws,
regulations, ordinances and requirements relating to environmental matters,
antitrust, consumer protection, labor and employment, zoning and land use,
immigration, health and occupational safety matters, except where any instances
of noncompliance, either individually or in the aggregate, have not had, and
could not be reasonably expected to have, any Material Adverse Effect on the
Company of the Business.
6.13 Environmental and Safety Matters. Except as set forth in Schedule
6.13, the Company and the use of its respective properties and assets and the
operation of the Business have complied and are in compliance in all material
respects with all federal, state, local and regional statutes, laws,
ordinances, rules, regulations and orders relating to the protection of human
health and safety, natural resources or the environment, including, but not
limited to, air pollution, water pollution, noise control, on-site or off-site
hazardous substance discharge, disposal or recovery, toxic or hazardous
substances,or employee safety, and no notice of violation of any such statutes,
laws, ordinances, rules, regulations and orders with respect thereto and no
notice of the violation, cancellation or revocation of any permit, license or
other authorization relating thereto, has been received, nor is any such notice
pending or, to the best knowledge of any of the Shareholders, threatened.
Except as set forth in Schedule 6.13, no underground or above-ground storage
tanks or surface impoundments are located on any of the Real Properties. Except
as set forth on Schedule 6.13 and in compliance with applicable statutes, laws,
ordinances, rules, regulations, orders, licenses and permits, there has been no
generation, use, treatment, storage, transfer, disposal, release or threatened
release, in, at, under, or on any of the Real Properties of toxic or hazardous
substances during the ownership or occupancy thereof by the Company, or, to the
knowledge of any of the Shareholders, except for the existence of toxic or
hazardous substances or any generation, use, treatment, storage, transfer,
disposal, or release thereof that set forth in Schedule 6.13, prior to such
ownership or occupancy; and, except as otherwise set forth in Schedule 6.13,
there are not now, and at Closing there will not be, any toxic or hazardous
substances on, in or under any of the Real Properties except in compliance with
all applicable laws, regulations, ordinances and permits relating to
environmental protection or the protection of health and safety. Except as
otherwise set forth on Schedule 6.13, (i) none of the Company or any of the
Shareholders has received any notice or claim to the effect, and none of the
Shareholders knows or is
-14-
aware, that the Company is or may be or become liable to any governmental
authority or private party as a result of the release, or threatened release, of
any toxic or hazardous substances in connection with the operations of the
Company, or any of the predecessors of the Company; and (ii) to the best
knowledge of any of the Shareholders, none of such operations is the subject of
any federal, state or local investigation evaluating whether any remedial
action is needed to respond to a release or a threatened release of any toxic
or hazardous substances at any of the Real Properties or any other real
properties that have been owned, used or leased by the Company or predecessors
thereof. For the purposes of this Section 6.13, "toxic or hazardous substances"
shall include any material, substance or waste that, because of its quantity,
concentration or physical or chemical characteristics, is at any time deemed
under any federal, state, local or regional statute, law, ordinance, regulation
or order, or by any governmental agency pursuant thereto, to pose a present or
potential hazard to human health or safety or the environment, including, but
not limited to, (i) any material, waste or substance which is defined as a
"hazardous substance" pursuant to the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980 (42 U.S.C. 9601 et seq.), as amended
from time to time ("CERCLA"), and its related state and local counterparts;
(ii) asbestos and asbestos containing materials and polychlorinated biphenyls;
and (iii) any petroleum hydrocarbon, including oil, gasoline (refined and
unrefined) and their respective constituents and any wastes associated
therewith.
6.14 Insurance Coverage. Schedule 6.14 attached hereto contains a list
and description of each policy of fire, general liability, product liability,
worker's compensation and other forms of insurance maintained by the Company.
True and correct copies of each such policy have been delivered to Buyer. All
such policies are, and since January 1, 1995, such policies (or policies
substantially equivalent thereto) have been, continuously in full force and
effect and without any gaps in coverage, all premiums with respect thereto
covering all periods up to and including the date hereof have been paid, and no
notice of cancellation, termination or denial of coverage has been received
with respect to any such policy. Such policies (i) are valid, outstanding and
enforceable policies, (ii) to the best knowledge of the Shareholders, provide
adequate insurance coverage for the properties, assets and operations of the
Company as presently conducted, and (iii) will remain in full force and effect
through the respective dates set forth on Schedule 6.14 attached hereto,
without the payment of additional premiums, and (iv) will not in any way be
affected by, or terminate or lapse by reason or, the transactions contemplated
by this Agreement. There has also been furnished to Buyer a schedule that
describes all claims of the Company which are pending under such insurance
policies or have been paid to or on behalf of the Company since January 1,
1995. Since January 1, 1995, the Company has not been refused any insurance
with respect to its properties, assets or operations, nor has its coverage been
limited, by any insurance carrier to which it has applied for any such
insurance or with which is has carried insurance.
6.15 Litigation. Except as set forth in Schedule 6.15 attached hereto,
there is no pending, or to the best knowledge of any of the Shareholders is
there any threatened, action, suit, arbitration proceeding, charge, complaint,
allegation, investigation, inquiry or other proceeding or claim before any
court or governmental or administrative body or agency or other entity against,
relating to or affecting the Company or any director, shareholder, officer,
agent or employee of the Company in its, his or her capacity as such, or the
assets, properties or Business of the Company or the transactions contemplated
by this Agreement, nor is any Shareholder aware of any facts or circumstances
which could reasonably lead to or provide the basis for any such action, suit,
arbitration proceeding, investigation or inquiry that, if brought or adversely
determined against the Company, could reasonably be expected to have a Material
Adverse Effect. Except as set forth in Schedule 6.15, there is not in effect
any order, judgment or decree of any court or governmental or administrative
body or agency enjoining, barring, suspending, prohibiting or otherwise
limiting any of Shareholders, the Company, or any officer, director, employee
or agent of the Company, in its capacity as such, from conducting or engaging
in any aspect of the Business, or requiring
-15-
such Shareholder, the Company, or any officer, director, employee or agent of
the Company to take or refrain from taking any action with respect to any aspect
of the Business which could reasonably be anticipated to have a Material Adverse
Effect on the Company or the Business.
6.16 Taxes and Tax Returns.
(a) Except as set forth on Schedule 6.16: (i) the Company has duly
and timely filed all Tax Returns (as hereinafter defined) which are required by
law to be filed by it and has duly and timely paid all Taxes (as hereafter
defined) due or claimed to be due from it (whether or not shown on any Tax
Return), and there are no assessments or claims for payment of Taxes now pending
or, to the best knowledge of any of the Shareholders, threatened, or any audit
of the records of the Company being made or threatened by, any taxing authority;
(ii) each Tax Return previously filed is, or to be filed in the future relating
to any period up to the Closing Date shall be, correct and complete in all
respects; and (iii) the Company is not currently the beneficiary of any
extension of time within which to file any Tax Return. The amounts set up as
provisions for Taxes, if any, on the December 31, 1997 and August 31, 1998
balance sheets of the Company included in the Financial Statements are
sufficient for the payment of all unpaid Taxes accrued for or applicable to the
periods ended on such dates and all years and periods prior thereto and for
which the Company, at those dates, may have been liable. Except as disclosed in
Schedule 6.16, the Company has properly withheld and paid, or accrued for
payment, when due, to appropriate state and/or federal authorities, all sales
and use taxes, if any, and all amounts required to be withheld from payments
made to its employees, independent contractors, creditors, Shareholders, or
other third parties and has also paid all employment taxes as required under
applicable laws. The Company has not agreed to or is required to make any
adjustment under Code Section 481(a) by reason of a change in accounting method.
There is no income reportable by the Company for a period ending after the
Closing Date attributable to a transaction or other event (e.g., an installment
sale) occurring prior to the Closing Date involving in excess of $25,000. The
Company is not (nor has been) a "reporting corporation" subject to the
information reporting and record maintenance requirements of Code Section 6038A
and the regulations thereunder. The Company does not own any interest in real
property located in any state or local taxing jurisdiction that imposes a tax on
the transfer of such an interest that could apply with respect to the
transactions contemplated by this Agreement.
(b) Except as set forth in Schedule 6.16, the Company has not
waived any statute of limitation in respect of any taxes or assessments by any
federal, state, county, local, foreign or other taxing jurisdiction or agreed to
any extension of time with respect to an assessment or deficiency in any Tax,
and has not been audited by any taxing authority. The Company has not filed a
consent under Section 341(f) of the Code concerning collapsible corporations.
(c) Except as set forth in Schedule 6.16, the Company has not made
any payments, nor is the Company a party to any agreement that under any
circumstances could obligate it to make any payments, that would not be
deductible under Section 280G of the Code. The Company has not been a United
States real property holding corporation within the meaning of Section 897(c)(2)
of the Code during the applicable period specified in Section 897(c)(1)(A)(ii)
of the Code. The Company is not a party to any tax allocation or tax sharing
agreement or has any obligations under any such agreement to which it may, in
the past, have been a party.
(d) Except as set forth in Schedule 6.16, the Company (i) is not
nor ever has been required to file a consolidated or combined state or federal
income Tax Return with any other person or entity, and (ii) is not liable for
the Taxes of any person under Treas. Reg. 1.1502-6 (or any similar provision of
state, local, or foreign law), as a transferee or successor, by contract or
otherwise.
-16-
(e) For purposes of this Agreement, the term "Tax" or "Taxes"
means any federal, state, local, or foreign income, gross receipts, license,
payroll, employment, excise, severance, stamp, occupation, premium, windfall
profits, environmental (including taxes under Code Section 59A), customs duties,
capital stock, franchise, profits, withholding, social security, unemployment,
disability, real property, personal property, sales, use, transfer,
registration, value added, alternative or add-on minimum, estimated, or other
tax of any kind whatsoever, including any interest, penalty, or addition
thereto, whether disputed or not.
(f) For purposes of this Agreement, the term "Tax Return" means
any return, declaration, report, claim for refund, or information return or
statement (including, but not limited to, information returns or reports related
to back-up withholding and any payments to third parties) relating to Taxes,
including any schedule or attachment thereto, and including any amendment
thereof.
(g) The Company has furnished to Buyer true and complete copies of
(A) relevant portions of income tax audit reports, statements of deficiencies,
closing or other agreements received by or on behalf of the Company relating to
Taxes for all open years, and (B) all federal, state, local and foreign tax
returns for all open years.
(h) The Company has disclosed on its federal and state income tax
returns all positions taken therein that could give rise to a substantial
understatement penalty within the meaning of Code Section 6662 or corresponding
provisions of state tax law. There are no requests for rulings with respect to
any Tax or potential Tax of the Company pending before any taxing authority.
6.17 Related Party Transactions. Except as described on Schedule 6.17,
no officer, director, shareholder or employee of the Company, and none of their
relatives or affiliates, owns any interest in any competitor, lessor, lessee or
customer or supplier of the Company; and the Company is not a party to any
transaction or arrangement with any of its respective officers, directors,
shareholders or employees, or any relative or affiliate of any of them, which
relates to or affects the ownership, lease or use or disposition of any assets,
properties or the operations of the Company or the sale, lease or use of goods
or services, or the loan of money or any extension of credit or guaranty, by or
to the Company, other than the payment of wages, salaries and bonuses to
employees of the Company for services performed in the ordinary course of
business. Except as disclosed in the Financial Statements or described on
Schedule 6.17, none of the assets or properties of the Company include any
receivables or contract rights from, or notes payable or evidences of
indebtedness of, any of the officers, directors, shareholders or employees of
the Company or any relative or affiliate of any of them.
6.18 Certain Payments. To the best knowledge of the Shareholders,
neither the Company nor any shareholder, officer, director, employee of the
Company or any agent or other representative who has been retained by the
Company to act on its behalf, has made, directly or indirectly, any political
contributions with corporate funds, payments from corporate funds not fully and
accurately recorded on its books and records, payments from corporate funds to
governmental officials in their individual capacities or to obtain or retain
business either within the United States of America or abroad. The Company has
not engaged and is not engaging in any course of conduct and has not been and is
not a party to any agreements or involved in any transactions which would give
rise to a violation of the applicable provisions of the Foreign Corrupt
Practices Act of 1977 (U.S. Public Law No. 95-213).
6.19 Bank Accounts. Schedule 6.19 attached hereto contains a true and
complete list showing the name of each person who holds a power of attorney
authorizing such person to act in the name or on behalf of the Company, the
name and address of each bank, savings and loan or other financial
-17-
institution in which the Company maintains any account or safe deposit box, the
title and number of each such account, and the names of all persons authorized
to draw thereon or effect transactions in connection with such accounts or to
have access to such safe deposit boxes.
6.20 Brokers and Finders. Neither the Company nor any Shareholder has
engaged or authorized any broker, finder, investment banker or other third party
to act on behalf of the Company or the Shareholders, directly or indirectly, as
a broker, finder, investment banker or in any other like capacity in connection
with this Agreement or the transactions contemplated hereby, or has consented to
or acquiesced in anyone so acting, and none of the Company or any of the
Shareholders knows of any claim for compensation from any such broker, finder,
investment banker or other third party for so acting or of any basis for such a
claim.
6.21 Disclosure. None of the representations or warranties of the
Company or the Shareholders contained in this Agreement or the Schedules and
Exhibits hereto, or in any certificate furnished or to be furnished pursuant
hereto, contains any statement of a material fact that was untrue when made or
omits to state any material fact necessary to make the statements of fact
contained herein or therein not misleading in any material respect.
6.22 Knowledge. For purposes of determining under this Section 6
whether the Shareholders know of any facts, events, conditions or circumstances
relating to the subject matter of the representations and warranties contained
in this Section 6, each Shareholder shall be deemed to have knowledge of the
facts, events, conditions and circumstances actually known on or before the date
hereof by any of the persons listed on Schedule 6.22.
7. Representations and Warranties of Buyer.
Buyer hereby represents and warrants to the Shareholders as follows:
7.1 Organization and Good Standing. Buyer is a corporation duly
organized, validly, existing and in good standing under the laws of the State of
Delaware. Buyer is duly qualified to do business and is in good standing as a
foreign corporation in each jurisdiction where such qualification is necessary
under applicable law as a result of the conduct of its business and where the
failure to be so qualified would have a material adverse effect on Buyer. Buyer
has the requisite corporate power and authority to carry on its business as now
being conducted and to execute and deliver and perform its obligations under
this Agreement and the Employment Agreements.
7.2 Necessary Actions: Binding Effect. Buyer has taken all corporate
action necessary to authorize its execution and delivery of, and the performance
of its obligations under, this Agreement. This Agreement constitutes, and upon
execution and delivery the Employment Agreements will constitute, valid
obligations of Buyer that are legally binding on and enforceable against Buyer
in accordance with their respective terms, except as such enforceability may be
limited by (i) bankruptcy, insolvency, moratorium or other similar laws
affecting creditors' rights, and (ii) general principles of equity relating to
the availability of equitable remedies (regardless of whether such Agreements
are sought to be enforced in a proceeding at law or in equity).
7.3 No Conflicts. Except as set forth on Schedule 7.3, neither the
execution and delivery of this Agreement by Buyer or the performance by Buyer of
its obligations hereunder nor the consummation of the transactions contemplated
hereby, will result in any of the following: (a) a default or an event that,
with notice or lapse of time, or both, would constitute a default, breach or
violation of (i) any
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provision of the Certificate of Incorporation or Bylaws of Buyer, or (ii) any
lease, license, franchise, promissory note, contract, agreement, commitment,
indenture, mortgage, deed of trust, security or pledge agreement, or other
agreement, instrument or arrangement to which Buyer is a party and which is
material to Buyer, considered together with all of Buyer's subsidiaries as a
whole (a "Material Buyer Contract"); (b) the termination of any Material Buyer
Contract or the acceleration of the maturity of any indebtedness or other
monetary obligation of Buyer that is material in amount when considered in
relation to Buyer and its subsidiaries taken as a whole; or (c) a violation or
breach of any writ, injunction or decree of any court or governmental
instrumentality to which the Buyer is a party or by which any of its properties
is bound or any laws or regulations applicable to Buyer, where the violation
would have a material adverse effect on Buyer considered together with all of
its subsidiaries, as a whole.
7.4 Brokers and Finders. Except as set forth on Schedule 7.4, Buyer has
not engaged or authorized any broker, finder, investment banker or other third
party to act on behalf of Buyer, directly or indirectly, as a broker, finder,
investment banker or in any other like capacity in connection with this
Agreement or the transactions contemplated hereby, or has consented to or
acquiesced in anyone so acting, and the Buyer does not know of any claim for
compensation from any such broker, finder, investment banker or other third
party for so acting or of any basis for such a claim.
7.5 Disclosure. None of the representations or warranties of Buyer
contained herein or the Schedules and Exhibits hereto, or in any certificate
furnished or to be furnished pursuant hereto, contains any statement of a
material fact that was untrue when made or omits to state any material fact
necessary to make the statements of fact contained herein or therein not
misleading in any material respect.
7.6 Consents and Approvals. Except as set forth in Schedule 7.6, no
consent, approval, order or authorization of, or registration, declaration or
filing with, any person or entity or any court, administrative agency or
commission or other governmental authority or instrumentality is required by or
with respect to the Buyer in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby.
7.7 Litigation. Except as set forth in Schedule 7.7 attached hereto,
there is no pending or, to the best knowledge of the Buyer, threatened action,
suit, arbitration proceeding, charge, compliant, allegation, investigation,
inquiry or other proceeding or claim before any court or governmental or
administrative body or agency or other entity against, relating to or affecting
the Buyer or any director, shareholder, officer, agent or employee of the Buyer
in its, his or her capacity as such, or the assets, properties or business of
the Buyer or the transactions contemplated by this Agreement.
8. Obligations Pending and Following the Closing.
8.1 Full Access. The Shareholders shall afford, and shall cause the
Company to afford, to Buyer, its counsel, accountants, investment bankers and
lenders (and their respective accounting and legal and other authorized
representatives), full access during normal business hours to all properties,
personnel and information of the Company, including, without limitation,
financial statements, books and records, leases and agreements and tax returns,
to enable Buyer to determine that the transactions contemplated hereby can be
consummated in accordance with applicable statutes and regulations, to verify
the accuracy of the representations and warranties made herein and to fully
investigate the affairs of the Company as fully as Buyer may desire; provided,
that such investigation shall be conducted in a manner which does not
unreasonably interfere with the operation of the Business. Without limiting the
generality of the foregoing, the Company and the Shareholders shall furnish or
cause to be furnished to Buyer and its representatives such information, data
and reports concerning the ownership of the Shares, the capital
-19-
structure of the Company and the assets and properties and businesses, financial
condition and operating results of the Company as Buyer or any such
representatives shall reasonably request. No information or knowledge obtained
in any investigation pursuant to this Section 8.1 shall affect or be deemed to
modify any representation or warranty contained in this Agreement or in any
certificates delivered by the Company or the Shareholders at the closing.
8.2 Conduct of Business. Unless Buyer gives its prior written consent
for actions to be taken to the contrary, from the date hereof and until the
Closing or termination of this Agreement, whichever first occurs, the
Shareholders shall cause the Company to operate and conduct the Business
diligently and only in the ordinary course of business consistent with past
practices. Without limiting the generality of the foregoing, the Shareholders
shall cause the Company to:
(a) Organization and Relationships. Preserve intact its
properties, assets and business organizations and use its reasonable best
efforts to keep available the services of its officers, directors and employees
and to maintain satisfactory relationships with all vendors, suppliers,
distributors, sales representatives, customers, agents, consultants and others
having commercially beneficial relationships with it, commensurate with the
requirements of the Business;
(b) Indebtedness. Not increase the amount due and owing to any
lender for borrowed money, incur any capitalized lease obligations, or guaranty
or otherwise become obligated in respect of the obligations of any other person
or entity.
(c) Insurance. Maintain insurance coverage consistent with past
practices and, unless comparable insurance is substituted therefor or is not
generally available to businesses of the type conducted by the Company not take
any action to terminate or modify, nor permit the lapse or termination of, the
present insurance policies and coverages of the Company;
(d) Compensation and Benefits. Not increase the compensation or
benefits of any employee, independent contractor or agent; not adopt or amend
any commission plan or arrangement or any Employee Plan of any type; not make,
pay, award or grant any bonus or incentive or deferred compensation; and not
lend or advance any sum or extend credit to any employee, director, shareholder
or any affiliate; except that, without obtaining Buyer's prior written consent,
the Company may be permitted to increase the regular salaries or wages of
non-management employees in the ordinary course of business and consistent with
past practices, provided that such increases do not average more than 4%.
(e) Lawsuits and Claims. Promptly notify Buyer of all lawsuits,
claims, proceedings or investigations that are, or which any officers of the
Company or any of the Shareholders has reason to believe may be, threatened,
brought, asserted or commenced against the Company or any of its officers or
directors, and which could have a Material Adverse Effect on the Company or the
Business or which relates or could affect in any way the Shares or the
transactions contemplated hereby, and not release, settle, compromise or
relinquish any claims, causes of action or rights involving more than $25,000
individually or $50,000 in the aggregate which the Company may have against any
other person or entity;
(f) Sales of or Liens on Assets. Not sell or otherwise dispose, or
enter into any agreement for the sale or other disposition, of any of its assets
or properties, except for sales of inventory and obsolete equipment in the
ordinary course of business and consistent with past practices, and not permit
or allow, or enter into any agreements providing for or permitting, any of its
assets or properties to be subjected to any Lien other than Permitted Liens;
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(g) Condition of Assets. Maintain in good working order and
condition, ordinary wear and tear excepted, all items of tangible personal
property, wherever located, that are used, leased or owned by it;
(h) Agreements and Transactions. Observe and perform all terms,
conditions, covenants and obligations contained in, and take all actions
necessary or appropriate to preserve the rights of the Company under, all
existing agreements, written or oral, between the Company and any third parties
the violation or loss of which would have, individually or in the aggregate, a
Material Adverse Effect on the Company or the Business; and, except as required
by any existing agreements, not enter into any new agreements or transactions,
or incur any expenditures, liabilities or obligations, involving more than
$50,000 individually or $100,000 in the aggregate (except for purchase from
customers or sales orders to suppliers incurred in the ordinary course of
business and consistent with past practice), or renew, extend, amend or modify
any existing agreement (written or oral) involving any commitments, obligations,
liabilities or requiring any expenditures that would exceed $50,000 individually
or $100,000 in the aggregate or which would govern the pricing or any other of
the material terms of sales to be made to any customers or purchases of raw
materials or components from any suppliers that are expected to account for more
than 5% of the Company's product sales or purchases of supplies during the next
12 months; not take any action which would cause a breach or violation of or
default under any Materia1 Contract and promptly notify Buyer in writing of the
occurrence of any such breach or default; and not enter into any transaction
with any shareholder, director or officer or any person or entity related to or
affiliated with any such person other than to continue those transactions that
are described on Schedule 6.17 hereto;
(i) Consents; Compliance with Laws. Use its best efforts to obtain
and maintain all consents, assignments or approvals of third parties,
governmental and other, in form and substance reasonably satisfactory to Buyer,
the absence or loss of which would have a Material Adverse Effect on the Company
or the Business; and not take any action which would result in a violation of or
the noncompliance with any Material Contract or any laws or regulations
applicable to or any permits or licenses or contractual rights held by the
Company where such violation or non-compliance would or is reasonably likely to
have a Material Adverse Effect on the Company or the Business, or result in the
incurrence of any material liability by the Company or in the revocation,
modification or loss of any license, permit or contractual right needed for the
operation of the Business as presently conducted by the Company, or which would
adversely affect the obtaining of third-party consents or approvals for or
otherwise adversely affect the ability of the parties to consummate the
transactions contemplated by this Agreement; and cooperate with Buyer and render
to Buyer such assistance as Buyer may reasonably request in obtaining such
consents and approvals;
(j) Taxes. Pay, when due, and prior to the imposition or
assessment of any interest, penalties or Liens by reason of the non-payment
of, all Taxes assessed against the Company;
(k) Dividends; Significant Transactions. Not: (i) declare or pay
any dividends or make any distributions with respect to, or redeem or otherwise
acquire any shares of, the capital stock of the Company; (ii) accelerate the
maturity or payment of or prepay any indebtedness or other obligations of the
Company; (iii) approve or effect any reclassification or recapitalization of the
Company or its authorized or outstanding shares of capital stock; (iv) merge or
consolidate the Company with or into a third party or reorganize the Company;
(v) approve or commence any proceedings for the dissolution or liquidation of
the Company; or (vi) enter into any agreement or commitment to do any of the
foregoing;
-21-
(l) Corporate Matters. Not: (i) amend in any manner the Articles
of Incorporation or Bylaws of the Company; (ii) authorize or issue any shares of
capital stock of any class or series; or (iii) create or issue any warrants,
obligations, subscriptions, options, convertible securities or other commitments
under which any additional shares of the capital stock of any class or other
equity securities of the Company may be directly or indirectly authorized,
issued or transferred; or (iv) agree to do any of the foregoing;
(m) Liabilities and Expenses. Not create or incur (whether as
principal, surety or otherwise) any material liabilities, secured or unsecured,
or fixed, absolute or contingent, other than liabilities and expenses incurred
in the ordinary course of business consistent with past practices;
(n) Tax Matters. Prepare and timely file any Tax Returns required
to be filed by the Company on or before the Closing Date and not make or change
any election, change any annual accounting period, adopt or change any
accounting method, file any amended Return, enter into any closing agreement,
settle any Tax claim or assessment, surrender any right to claim refund of
Taxes, consent to any extension or waiver of the limitation period applicable to
any Tax claim or assessment relating to the Company, take any other action or
omit to take any action, if any such election, adoption, change, amendment,
agreement, settlement, surrender, consent or other action or omission would have
the effect of causing or increasing a Tax liability of the Company or the Buyer;
or
(o) Other. Not enter into any agreement or commitment to take any
action that would violate any of the covenants set forth in this Section 8.2.
8.3 Shareholder Indebtedness. On or prior to the Closing Date, each
Shareholder shall satisfy any indebtedness of such Shareholder to the Company,
which indebtedness is reflected on Schedule 6.17.
8.4 Further Assurances. Each party hereto shall execute and deliver,
both before and after the Closing, such instruments and take such other actions
as the other party or parties, as the case may be, may reasonably request in
order to carry out the intent of this Agreement or to better evidence or
effectuate the transactions contemplated herein, provided that, with respect to
any such request, the requesting party bears the reasonable costs of preparing,
executing and delivering such instruments or the taking of such actions, unless
the other party is obligated, under any other terms or provisions of this
Agreement, to execute and deliver such documents or to take any such action.
8.5 Transfer of Property Rights. The Shareholders shall each have
entered into an agreement in a form reasonably acceptable to the Buyer with the
Company (in the form of an employment agreement, assignment, transfer, release
or otherwise) whereby each Shareholder (i) acknowledges and agrees that all
rights, title and interests in and to the property of the Company (the
"Property"), including without limitation the property and assets referenced,
referred to or contemplated by Section 6.7 hereof, and all parts of such
Property, including all copyrights, patents, trade secrets, and trademarks
therein, in whatever media or form, shall be and remain the exclusive property
of the Company; (ii) unconditionally and irrevocably transfers, conveys and
assigns to the Company all of the Shareholder's current and hereafter acquired
rights, title and interests in and to such Products, and all parts thereof,
including, without limitation, rights in copyright, patent, trade secret and
trademark; and (iii) agrees to take all actions and execute all documents, as
the Company may reasonably request, to effectuate the acknowledgement of
ownership and the vesting of complete and exclusive ownership of the Products
in the Company.
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8.6 Notice of Breach. Each party to this Agreement will immediately
give notice to the other parties of the occurrence of any event, or the failure
of any event to occur, that results in or constitutes a breach by it of any
representation or warranty or a failure by it to comply with or fulfill any
covenant, condition or agreement contained herein.
8.7 Employment Agreements. At the Closing, each of Rocky R. Arnold,
Robert W. Ulrickson and Baxter R. Watkins shall execute and deliver an
employment agreement with the Company in the form attached hereto as Exhibit A
(the "Employment Agreements").
8.8 Releases. At the Closing, each of the Shareholders shall have
executed a release in favor of the Company, in the form attached hereto as
Exhibit B (the "Releases").
8.9 Certain Covenants of the Shareholders: No Solicitation. Except
for the sale of the Shares to Buyer, from and after the date hereof and
continuing until the termination of this Agreement or the consummation of the
sale of the Shares to Buyer hereunder, whichever first occurs, none of the
Shareholders shall sell, transfer, pledge, hypothecate or otherwise dispose of
any of the Shares now outstanding and none of the Shareholders shall grant any
options or rights to purchase, or enter into any agreements which would obligate
any of the Shareholders to sell, or entitle any person or entity to acquire, any
of such Shares, or any interest therein or rights thereunder, whether absolute
or contingent. Each Shareholder agrees that such Shareholder will not, and the
Shareholders shall cause the Company to not, directly or indirectly through any
of its respective officers, directors, employees, representatives or agents, (i)
solicit, initiate or encourage any inquiries or proposals (from any person or
entity other than Buyer) that constitute, or could reasonably be expected to
lead to, or accept, any proposal or offer for a merger, consolidation,
reorganization, business combination, sale of substantial assets, sale of shares
of capital stock (including, without limitation, by way of a tender offer), or
the issuance of any new securities of the Company or any other transaction or
series of transactions which could cause or result in a change of control of or
any material change in the Company or the Business, or which could interfere in
any manner, directly or indirectly, with the consummation of the transactions
contemplated by this Agreement (any of the foregoing inquiries or proposals
being referred to in this Agreement as an "Acquisition Proposal"), (ii) engage
in negotiations or discussions concerning, or provide any non-public information
to any person or entity relating to or which could lead to or facilitate the
making of, any Acquisition Proposal by any person or entity other than Buyer, or
(iii) agree to, approve or recommend any Acquisition Proposal. The Shareholders
shall notify the Buyer immediately (and no later than 24 hours) after receipt by
the Company or such Shareholder (or by any of their advisors) of any written
bona fide Acquisition Proposal or any written request for nonpublic information
or for access to the properties, books or records of the Company. Such notice to
Buyer shall be made orally and in writing and shall indicate in reasonable
detail the identity of the person or entity making such Proposal or request and
the terms and conditions of such proposal, inquiry or contact.
8.10 Furnishing of Certain Information. If requested by Buyer, the
Shareholders shall cause the Company to (i) permit Buyer's independent public
accountants to have access to the books and records of the Company so that, if
required by Buyer, any unaudited historical financial statements and other
financial information of the Company can be reviewed or audited by Buyer's
independent public accountants; and (ii) permit such financial statements and
other information of or concerning the Company or its businesses to be
disclosed in any public filing by Buyer under or pursuant to the Securities Act
of 1933, as amended (the "Securities Act"), or the documents filed by the Buyer
with the Securities and Exchange Commission (the "Securities Filings"). In
addition, each Shareholder shall cause the Company's independent public
accountants to provide such information (including, without limitation, such
accountants' workpapers) and assistance, including the execution and delivery
of opinions and consents,
-23-
with respect to the Company's historical consolidated financial statements, as
may be required by Buyer in connection with the preparation of financial
statements for, and their inclusion in, any such Securities Filings. The
Shareholders also shall cause the Company to provide to Buyer such assistance
and other information, including, without limitation, information concerning the
Company and the Business of the type and nature that would be required to be
included in a Registration Statement that the Company would be required by the
Securities Act to file on Form S-1 for a public offering of its equity
securities, for inclusion in any Securities Filing. Disclosure of such financial
statements and information furnished hereunder in any Securities Filing shall
not constitute a breach or violation of the confidentiality provisions of
Section 15 of this Agreement. The reasonable out-of-pocket expenses of the
Company's accountants and other professionals retained by the Company to prepare
any documents or information and accounting services specifically requested of
the Company by Buyer or its accountants shall be paid by Buyer, provided the
incurring of such expenses has been approved in advance and in writing by
Buyer.
8.11 Monthly Financial Statements. As soon as practicable, and in any
event within 30 days following the end of each month ending on or after the date
of this Agreement, true and correct copies of the consolidated financial
statements of the Company, consisting of a balance sheet and statements of
income, and cash flows, as of and for the month then ended, shall be furnished
to Buyer, together with a copy of any compliance certificates furnished to the
Company's bank lenders.
8.12 Employee Benefits. In addition to the Buyer's obligations under
Section 8.14 below, Buyer shall, with respect to all full-time employees
employed by the Company, cause the Company to provide employee benefit plans,
programs and arrangements having benefits that in all material respects, are
comparable to the employee benefit plans, programs and arrangements provided by
Buyer for its own employees of a similar position; provided, that the foregoing
shall not require Buyer to maintain any specific type of employee benefit plan;
provided, however, that, notwithstanding the foregoing, no full time employees
employed by the Company shall be entitled to any credit for accrued vacation to
the extent such accrued vacation exceeds the number of vacation days that
employees of Buyer are entitled to accrue.
8.13 Environmental Assessments. Buyer shall have the right to obtain,
at Buyer's expense and from environmental consultants selected by Buyer,
environmental assessments of any of the Real Properties (the "Environmental
Assessments") for the purpose of determining whether there exists any toxic or
hazardous substances (as such terms are defined in Section 6.13 above) on, about
or underneath the Real Properties, or migrating or threatening to migrate from
any of the Real Properties, or any condition, circumstance or activity which
constitutes a violation of or noncompliance with any Environmental Law (as
defined below) which, in the reasonable judgment of Buyer, based on the results
of or any recommendations from its environmental consultants, is required to be
remedied or corrected (a "Hazardous Condition") and which is attributable to the
operations of the Company on or after, or to any Hazardous Condition on, about
or underneath or migrating from any such Real Property which neither existed nor
was originated prior to, inception. For purposes of this Section 8.11,
"Environmental Law" shall mean any federal, state or local law, order, rule or
regulation relating to the discharge, remediation, removal, manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of toxic or hazardous substances.
8.14 Executive Bonus Plan. Without limiting the provisions of Section
8.12 above, on the Closing Date, the Buyer shall cause the Company to establish
a bonus plan in the form attached hereto as Exhibit C (the "Bonus Plan"), to
incentivize the senior executives of the Company named therein to increase sales
revenue derived from the Company's and the Buyer's engineering and manufacturing
businesses. The Company, the Buyer and the Shareholders each hereby acknowledge
that (i) any payments made under the Bonus Plan to the senior executives of the
Company are in consideration for services
-24-
rendered by such senior executives, and/or are incentives for continued
employment by such senior executives with the Company and (ii) in no event
shall any such payments have any correlation or relation to the number of
Shares being sold to the Buyer by any of such senior executives, or the
transactions contemplated in this Agreement.
8.15 Sable Technologies Matter. In the exercise of its fiduciary
obligations, the Board of Directors of the Company will confer from time to time
with Robert W. Ulrickson concerning the current arbitration with Sable
Technologies Incorporated ("Sable"), and will cause its responsible officer or
officers to consult with, and utilize, to the extent deemed reasonably
appropriate, the service and leadership of Robert W. Ulrickson in the
prosecution and resolution of such arbitration. In the event that the Company
receives any amounts (the "Recovery Amount") from Sable, then the Company will
pay the Shareholders, in proportion to each Shareholder's Prorata Share, the
difference between (i) the Recovery Amount and (ii) the sum of (A) all of the
Company's costs and expenses incurred in connection with the current
arbitration with Sable, except to the extent such expenses are reflected as
liabilities reducing the Net Asset Value in the Closing Balance Sheet and (B)
any amounts paid by Sable which are reflected as assets increasing the Net Asset
Value in the Closing Balance Sheet. Such amounts shall be paid by the Company
within thirty (30) days after the Company receives such amounts, by delivery of
a check to each Shareholder at their address as set forth on Schedule I attached
hereto.
9. Conditions to Buyer's Obligations.
The obligations of Buyer to consummate the transactions
contemplated herein shall be subject to the satisfaction or waiver, on or before
the Closing Date, of each of the following conditions:
9.1 Accuracy of Representations and Warranties. All of the
representations and warranties of the Company and the Shareholders contained
herein shall be true and correct as of the date when made and shall be true and
correct as of the Closing Date with the same force and effect as though such
representations and warranties were made at and as of the Closing Date.
9.2 Due Diligence. The Buyer, its officers, directors,
employees, accountants, attorneys, representatives, advisors and/or agents shall
have completed to their satisfaction, a due diligence review of the Company's
business and financial condition pursuant to Section 8.1, and specifically,
Buyer's independent public accountants shall have completed their review of the
Financial Statements of the Company to their satisfaction, and Buyer deems such
Financial Statements to have been prepared in accordance with, and in
satisfaction of GAAP.
9.3 Performance. The Company and each of the Shareholders
shall have performed and complied with all agreements, obligations and
conditions required by this Agreement to be performed or complied with by them
on or prior to the Closing Date, and all actions which the Shareholders have
been required to cause to be taken by the Company at or prior to the Closing, as
provided in this Agreement, shall have been taken by them in accordance with the
terms of this Agreement.
9.4 Adverse Changes. From August 31, 1998, no material
adverse change shall have occurred and no event shall have taken place that
would, or could have a Material Adverse Effect on the Company or the Business
and Buyer shall have received a letter, in form and substance reasonably
requested by Buyer updating the Balance Sheet.
9.5 No Governmental Proceeding or Litigation. No suit,
action, investigation, inquiry or and administrative or other proceeding by any
governmental body or other person or entity shall have been
-25-
instituted or threatened which questions the validity or legality of the
transactions contemplated hereby. There shall be no pending or threatened
litigation, or asserted or unasserted claims, assessments, or other loss
contingencies, which could have a Material Adverse Effect on the Company other
than as disclosed in the Disclosure Schedules delivered pursuant hereto as of
the date of this Agreement.
9.6 Certificates. Buyer shall have received the following:
(a) Good Standing Certificate, dated as of a recent date, with
respect to the Company from (i) the Secretary of State of the State of
California and (ii) the Secretaries of State or other appropriate state agencies
of each other jurisdiction in which the Company is engaged in business
activities that would require qualification under the laws of such state; and
(b) Certificate signed by the President of the Company and by
the Shareholder Representative, dated as of the Closing Date, certifying that
(i) all representations and warranties of the Shareholders were true and
correct when made and remain true and correct in all material respects as of the
Closing Date; (ii) all of the respective covenants, agreements, obligations and
conditions of the Shareholders, and the actions of the Company required to have
been performed or complied with under or pursuant to this Agreement as of or
prior to the Closing have been fully performed or complied with; unless waived
in writing by Buyer; and (iii) all of the conditions to the obligations of Buyer
under this Agreement required to be satisfied by any of the Shareholders or the
Company by the Closing Date have been satisfied and fulfilled or have been
waived in writing by Buyer.
9.7 Consents. All consents, authorizations, permits or approvals
from third parties, governmental and other, required to permit the parties to
consummate the transactions contemplated hereby shall have been obtained,
without the imposition of any burdensome conditions on the Company or Buyer, and
shall not have been revoked or withdrawn.
9.8 Employment Obligations. All employment agreements and
commitments of the Company, including, without limitation, any commitments for
parachute payments or other amounts payable as a result of the transactions
contemplated hereunder, will be terminated as of the Closing Date without
liability to, or will have been paid or otherwise fully discharged by the
Shareholders other than from funds or assets of the Company.
9.9 Shareholder Indebtedness. Each Shareholder shall have paid,
in full, all amounts owing to the Company by such Shareholder, as provided in
Section 8.3 above.
9.10 Opinion of Counsel. Buyer shall have received an opinion, dated
the Closing Date, of The Corporate Law Group, substantially in the form of
Exhibit D hereto.
9.11 Employment Agreement. Each of Rocky R. Arnold, Robert W.
Ulrickson and Baxter R. Watkins shall have executed and delivered their
respective Employment Agreements to Company.
9.12 Releases. Each of the Shareholders shall have executed and
delivered the Releases to the Buyer.
9.13 Resignation. Buyer shall have received written resignation
letters from each director and executive officer of the Company designated in
writing by Buyer on or before the Closing Date.
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9.14 Additional Instruments. Buyer shall have received such other or
additional instruments, consents, endorsements and documents as Buyer reasonably
deems to be necessary to enable the transactions contemplated by this Agreement
to be consummated as provided in this Agreement. All other proceedings in
connection with this Agreement and the transactions contemplated hereby, and all
documents and instruments incident to such transactions, shall be reasonably
satisfactory in form and substance to Buyer and its counsel.
9.15 Results of Environmental Assessments. Buyer shall be reasonably
satisfied with the results of the Environmental Assessments conducted pursuant
to Section 8.11 relating to the presence on, about or underneath the Real
Properties of Hazardous Substances that were not present at such Real Properties
prior to, and the Company's compliance with Environmental Laws since, inception.
10. Conditions to the Shareholder's Obligations.
The obligations of the Shareholders to consummate the
transactions contemplated herein shall be subject to the satisfaction or waiver,
on or before the Closing Date, of each of the following conditions:
10.1 Accuracy of Representations and Warranties. All of the
representations and warranties of Buyer contained herein shall be true and
correct as of the date when made and shall be true and correct as of the Closing
Date with the same force and effect as though such representations and
warranties were made at and as of the Closing.
10.2 Performance. Buyer shall have performed and complied with all
agreements, obligations and conditions required by this Agreement to be
performed by or complied with on or prior to the Closing Date.
10.3 No Governmental Proceeding or Litigation. No suit, action,
investigation, inquiry or administrative or other proceeding by any
governmental body or other person or entity shall have been instituted or
threatened which questions the validity or legality of the transactions
contemplated hereby.
10.4 Employment Agreements. Company shall have executed and delivered
Employment Agreements to Rocky R. Arnold. Robert W. Ulrickson and Baxter R.
Watkins in substantially the respective forms attached in Exhibit A hereto;
provided that any of such individuals shall, with the prior consent of the
Buyer, be entitled to waive such condition with respect to his Employment
Agreement.
10.5 Certificates. The Shareholders shall have received the
following:
(a) A Good Standing Certificate of Buyer as of a recent date
from the Secretary of State of the State of Delaware; and
(b) A certificate signed by the Chief Executive Officer and
Chief Financial Officer of Buyer, dated as of the Closing Date, certifying
that (1) all representations and warranties of Buyer were true and correct when
made and remain, in all material respects, true and correct as of the Closing;
(ii) all of the covenants, agreements, obligations and conditions of Buyer
required to have been fully performed or complied performed or complied with
Buyer as of or prior to the Closing, have been fully performed or complied with,
unless waived in writing by the Company and the Shareholders; and (iii) all of
the conditions to the Shareholders' obligations under this Agreement required to
be satisfied by the Closing Date by Buyer have been satisfied and fulfilled or
waived in writing by the Company and the Shareholders.
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10.6 Consents. All consents, authorizations, permits or approvals
from third parties. governmental and other, required to permit the parties to
consummate the transactions contemplated hereby shall have been obtained,
without the imposition of any burdensome conditions on the Company or Buyer, and
shall not have been revoked or withdrawn.
10.7 Opinion of Counsel. The Shareholders shall have received an
opinion, dated the Closing Date, of Stradling Yocca Carlson & Rauth,
substantially in the form of Exhibit E hereto.
10.8 Additional Instruments. The Shareholders shall have received
certified copies of resolutions duly adopted by the Board of Directors of Buyer
approving this Agreement and authorizing the transactions contemplated hereby,
and such other or additional instruments, consents, endorsements and documents
as the Shareholders reasonably deem to be necessary to enable the transactions
contemplated by this Agreement to be consummated as provided in this Agreement.
All other proceedings in connection with this Agreement and the transactions
contemplated hereby, and all documents and instruments incident to such
transactions, shall be reasonably satisfactory in form and substance to the
Shareholders and their counsel.
11. Closing.
11.1 Closing: Closing Date. The consummation of the purchase
and sale of the Shares (the "Closing") shall take place at the offices of
Stradling Yocca Carlson & Rauth, 660 Newport Center Drive, Suite 1600, Newport
Beach, California 92660, at 10:00 A.M. on or before October 7, 1998, but in no
event later than October 7, 1998, or at such other place, date and time as Buyer
and the holders of a majority of the Company's outstanding Shares may mutually
agree (the "Closing Date").
11.2 Closing Deliveries. In connection with and at the time
of the Closing:
(a) By the Shareholders. The Shareholders shall deliver
or cause to be delivered to Buyer the following:
(i) The stock certificates evidencing all of the
Shares, accompanied by appropriate instruments of transfer duly
executed by the Shareholders;
(ii) The Employment Agreements, duly executed by
Rocky R. Arnold, Robert W. Ulrickson and Baxter R. Watkins;
(iii) The Releases, duly executed by the
Shareholders; and
(iv) Each of the certificates, documents,
instruments and evidences required to be delivered to Buyer pursuant
to Section 9 above.
(b) By the Company. The Shareholders shall cause the
Company to deliver to Buyer the following:
(i) The minute books, stock transfer books and
records, the corporate seal and other corporate records of the
Company;
(ii) All documents and instruments and records
pertaining to bank accounts and safety deposit boxes of the Company
together with such instruments as the depository
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institutions where such accounts and safety boxes are maintained may require to
change the signatories on such accounts and for such safety deposit boxes; and
(iii) Each of the certificates, documents,
instruments and evidences required to be delivered to Buyer pursuant
to Section 9 above; and
(iv) The Employment Agreements, duly executed by the
Company; and
(c) By Buyer. Buyer shall deliver to the Shareholders the
following:
(i) Bank cashiers' checks or wire transfers of
funds payable to the order of the Shareholders in an aggregate amount
equal to the Closing Date Payment; and
(ii) Each of the certificates, documents,
instruments and evidences required to be delivered by Buyer pursuant
to Section 10 above.
12. Termination and Abandonment.
12.1 Methods of Termination. This Agreement may be terminated
and the purchase and sale of the Shares herein contemplated may be abandoned at
any time but not later than the Closing Date:
(a) By mutual written consent of the Shareholders and
Buyer; or
(b) By any party, if the Closing has not occurred by
November 1, 1998;
provide, that the party so terminating is not in breach of any of its material
obligations under this Agreement.
12.2 Procedure Upon Termination. In the event of termination
and abandonment by Buyer or by the Shareholders, or both, pursuant to Section
12.1 hereof, written notice thereof shall forthwith be given to the other party
or parties. Upon termination, the purchase and sale of the Shares shall be
abandoned, without further action by Buyer or the Shareholders. If this
Agreement is terminated as provided herein:
(a) Each party will redeliver all documents, workpapers
and other material of any other party relating to the transactions contemplated
hereby, whether so obtained before or after the execution hereof, to the party
furnishing the same;
(b) The obligations of confidentiality set forth in
Section 15 hereof shall continue despite such termination; and
(c) The parties shall be relieved of any obligation to
sell or purchase the Shares, but none of the parties shall be relieved of any
liability for any material breach or default under this Agreement.
13. Survival of Covenants. Representations and Warranties.
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All of the representations and warranties set forth in this
Agreement or in any certificates delivered pursuant hereto, and all covenants
which by their terms require performance or compliance following the Closing,
shall remain in full force and effect and shall survive the Closing
indefinitely.
14. Indemnification.
14.1 Indemnification by the Shareholders.
(a) Each Shareholder shall, jointly and severally,
through the Holdback or otherwise, indemnify, hold harmless and defend Buyer
and its directors, officers, shareholders, employees, agents and successors and
assigns, and, from and after the Closing, and also the Company and those persons
who, following the Closing Date, are the Company's officers, directors, agents
and successors and assigns (collectively, all of the foregoing, the "indemnified
parties" or, individually, an indemnified party") from and against any and all
Damages" (as hereinafter defined) that arise from or are in connection with:
(i) Except as provided in Section 14.1(b) below,
any breach of, or inaccuracy in, any of the representations or
warranties of any of the Shareholders contained in this
Agreement or in any of the Disclosure Schedules or any
certificates delivered hereunder;
(ii) Except as provided in Section 14.1(b) below,
any breach or default by the Shareholders of their covenants
or agreements contained in this Agreement;
(iii) Any claim, lawsuit, action or other proceeding
that (i) is pending against the Company and/or any of the
Shareholders on the Closing Date, except only to the extent that
such claim, lawsuit, action or other proceeding is taken into
account as a reduction of the Net Asset Value in the Closing
Balance Sheet, or (ii) is brought against Buyer or the Company
as a result of or arising from any acts or omissions of or for
the Company or the Shareholders that have occurred on or before
the Closing Date or any acts or omissions of the Shareholders
that may occur after the Closing Date, and whether or not the
bringing or assertion of any such claim, lawsuit, action or
other proceeding constitutes a breach of the Shareholders'
representations or warranties contained in this Agreement or is
disclosed in Disclosure Schedules;
(iv) The failure to have paid or to pay, when due,
any Taxes or effect any withholdings that arose out of the
operations of the Company or the consummation of the
transactions contemplated by or preceding this Agreement or the
failure to have filed, when due, any Tax Returns related to any
such Taxes or any period up to the Closing Date, whether or not
such failure constitutes a breach of the representations or
warranties of Seller contained in this Agreement or is disclosed
in the Disclosure Schedules;
(v) Any claim, lawsuit, action or other proceeding
that is brought against the Company or the Buyer in connection
with any payments made to the senior executives of the Company
under the Bonus Plan;
(vi) The existence prior to the Closing Date of any
toxic or hazardous substances or materials upon, about or
beneath the Real Properties or migrating or threatening to
migrate from any of the Real Properties or the violation of
applicable environmental laws or regulations pertaining to the
Real Properties, or any real properties at which the Company
previously conducted any operations and whether or not the
existence of such toxic of hazardous
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substances or materials or the existence or occurrence of any such violations
was disclosed to Buyer.
(b) Each Shareholder, severally and not jointly, shall
indemnify, hold harmless and defend Buyer and each of the other indemnified
parties named in Section 14.1(a) above, from and against any and all Damages
that arise from or in connection with any breach or inaccuracy in any of such
Shareholder's representations or warranties contained in Section 5 or in any
Disclosure Schedules or Closing certificate relating to any such representations
or warranties of such Shareholder.
14.2 Damages. "Damages," as used in this Section 14, shall
mean: (i) demands, claims, actions, suits, investigations and legal or other
proceedings brought against any indemnified party or parties, and any judgments
or assessments, fines or penalties rendered therein or any settlements thereof,
and (ii) all liabilities, damages, losses, Taxes, assessments, costs and
expenses (including, without limitation, reasonable attorneys' and accountants'
fees and expenses) incurred by any indemnified party or parties, to the extent
not reimbursed or paid for by insurance, whether or not they have arisen from or
were incurred in or as a result of any demand, claim, action, suit, assessment
or other proceeding or any settlement or judgment.
14.3 Limitations.
(a) Time. No claim for indemnification under this Section
14 may be made after April __, 2000, except that claims for indemnification may
be made by the Buyer at any time after the Closing and prior to the expiration
of the applicable statute of limitations with respect to Damages arising from
any breach of any of the representations and warranties of the Company and the
Shareholders (and indemnification therefor) contained in Section 6.13
(Environmental and Safety Matters), and Section 6.16 (Taxes and Tax Returns).
(b) Threshold Amount. The Shareholders shall not have any
obligation to indemnify the Buyer or any of the other indemnified parties named
in Section 14.1(a) unless and until the indemnified parties have incurred or
suffered Damages in an aggregate amount in excess of Twenty-Five Thousand
Dollars ($25,000) (the "Threshold"), whereupon the Shareholders shall become
obligated to indemnify the indemnified parties for all Damages they have
incurred, including the amount of the Threshold, but subject to the
Indemnification Ceilings hereinafter set forth in Section 14.3(b); provided,
however, that the foregoing limitation shall not apply to any indemnification
obligation of the Shareholders pursuant to Section 14.1(a)(iii), 14.1(a)(iv) or
14(a)(v) above, or any reduction to the Purchase Price pursuant to Sections 2.3,
3 and 8.12 above.
(c) Ceiling Amount. The aggregate liability for
indemnification under Section 14.1 of the Shareholders shall in no event exceed
the Purchase Price (the "Indemnification Ceiling").
14.4 Notice of Claims. Whenever any claim shall arise for
indemnification hereunder, the indemnified party shall promptly notify the other
party or parties from whom indemnity may be sought therefor under this Section
14 (the "indemnifying party") of the claim and, when known, the facts
constituting the basis for such claim; provided that the indemnified party's
failure to give such notice shall not affect any rights or remedies of such
indemnified party hereunder with respect to indemnification for Damages except
to the extent that the indemnifying party is materially prejudiced thereby. In
the event that the Shareholders are collectively the indemnifying parties, the
Buyer shall only be required to deliver a Notice of Claim to the Shareholder
Representative. In the event of any claim for indemnification hereunder
-31-
resulting from or in connection with any claim or legal proceeding by a third
party, the notice to the indemnifying party shall specify, if known, the amount
or any estimate of the amount of the liability arising therefrom. Neither the
indemnified party nor any indemnifying party shall settle or compromise any
claim by a third party for which the indemnified party is entitled to
indemnification hereunder, without the prior written consent of the other party
(which shall not be unreasonably withheld), unless suit shall have been
instituted against the indemnified party and the indemnifying party shall not
have taken control of such suit after notification thereof as provided in
Section 14.6 of this Agreement
14.5 Third Party Claims. In connection with any claim giving
rise to indemnify hereunder that results or may result from or arises or may
arise out of any claim or legal proceeding by a person who is not a party to
this Agreement, the indemnifying party at its sole cost and expense may, upon
written notice to the indemnified party, assume the defense of any such claim or
legal proceeding if, within fifteen (15) days of receipt of notice of the claim
or proceeding, it elects in writing to do so, and thereafter diligently conducts
the defense thereof with counsel reasonably acceptable to the indemnified party.
If the indemnifying party has so assumed the defense of any such claim or legal
proceeding the indemnified party shall be entitled to participate in (but not
control) the defense of any such action, with its counsel and at its own
expense. If the indemnifying party does not assume or falls to conduct in a
diligent manner the defense of any such claim or litigation resulting therefrom
with counsel reasonably acceptable to the indemnified party, then (in) the
indemnified party may defend against such claim or litigation, in such manner as
it may deem appropriate, including, but not limited to, settling such claim or
litigation, after giving notice of the same to the indemnifying party, on such
terms as the indemnified party may deem appropriate, (ii) the indemnifying party
shall pay the costs and expenses (including the reasonable fees and cost of the
attorneys and accountants for the indemnified parties) incurred in the defense
of such claim or other proceeding as and when the same are incurred, and (iii)
the indemnifying party shall be entitled to participate in (but not control)
the defense of such claim or proceeding, with its counsel and at its own
expense. If the indemnifying party thereafter seeks to question the manner in
which the indemnified party defended such third-party claim or proceeding or
the amount or nature of any such settlement, the indemnifying party shall have
the burden to prove, by a preponderance of the evidence, that the indemnified
party did not defend or settle such third-party claim or proceeding in a
reasonably prudent manner. Each party agrees to cooperate fully with the
other, such cooperation to include, without limitation, attendance at
depositions and the provision of relevant documents as may be reasonably
requested by the indemnifying party; provided that the indemnifying party will
hold the indemnified party harmless from all of its expenses, including
reasonable and actual attorneys' fees, as and when incurred in connection with
such cooperation by the indemnified party.
14.6 Indemnification Procedures. Upon receipt of a notice of
claim for indemnification (a "Notice of Claim"), the indemnifying parties shall
have fifteen (15) business days to contest their indemnification obligation with
respect to such claim, or the amount thereof, by written notice to the
indemnified party (a "Contest Notice"); provided, however, that if, at the time
a Notice of Claim is submitted to the indemnifying parties the amount of the
Damages in respect thereof cannot yet be determined, such fifteen (15) day
period shall not commence until a further written notice (a "Notice of
Liability") has been sent or delivered by the indemnified party to the
indemnifying parties setting forth the amount of the Damages incurred by the
indemnified parties in respect of the indemnification claims that were the
subject of the earlier Notice of Claim. Any Contest Notice shall specify the
reasons or bases for the objection of the indemnifying party to the claim, and
if the objection relates to the amount of the Damages asserted, the amount, if
any, which indemnifying parties believe is due the indemnified party or
parties. If no such Contest Notice is given within such 15-day period, the
obligation of the indemnifying parties to pay to the indemnified parties the
amount of the Damages set forth in the Notice of Claim, or subsequent Notice of
Liability, shall be deemed established and accepted by the indemnifying parties;
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provided, however, that if the actual Damages later prove to be greater or less
than that set forth in the Notice of Claim or Notice of Liability, the
indemnifying parties shall be responsible for the actual Damages incurred. If,
on the other hand, the indemnifying parties contest a Notice of Claim or Notice
of Liability (as the case may be) within such 15-day period, the indemnified and
indemnifying parties shall thereafter attempt in good faith to resolve their
dispute by agreement. If they are unable to so resolve their dispute within the
immediately succeeding thirty (30) days, such dispute shall be resolved by
binding arbitration in Orange County, California, as provided in Section 18.8
below. The award of the arbitrator shall be final and binding on the parties and
may be enforced in any court of competent jurisdiction. Upon final determination
of the amount of the Damages that is the subject of an indemnification claim
(whether such determination is the result of indemnifying parties' acceptance
of, or failure to contest, a Notice of Claim or Notice of Liability, or as a
result of resolution of any dispute with respect thereto by agreement of the
parties or binding arbitration), such amount shall be payable, in cash, by the
indemnifying parties to the indemnified party or parties who have been
determined to be entitled thereto within five (5) days of such final
determination of the amount of the Damages due by the indemnifying parties.
Notwithstanding anything to the contrary contained elsewhere in this Section 14,
if the indemnifying parties are contesting only the amount of any Damages, then
as a condition precedent to the effectiveness of any Contest Notice, they shall
pay to the indemnified parties, concurrently with the delivery of such Contest
Notice, the portion of the Damages which they are not contesting. Any amount
that becomes due hereunder and is not paid when due shall bear interest at a
rate of eight percent (8%) per annum until paid.
14.7 Subrogation. In the event that an idemnifying party pays
all or any portion of a third party claim or demand concerning which the
indemnified party submits a claim for indemnification pursuant to this Section
14, the indemnifying party shall be subrogated to any and all defenses, claims
or other matters which the indemnified party asserted or could have asserted
against the third party making such claim or demand. The indemnified party shall
execute and deliver to the indemnifying party (and at the indemnifying party's
expense) such documents as may be reasonably necessary to establish by way of
subrogation the ability of the indemnifying party to assert such defenses,
claims or other matters against any third party making such claim or demands.
14.8 No Benefit to Third Parties. None of the limitations
contained in this Section 14 on the rights of the indemnified parties or on the
obligations or liabilities of the Shareholders is intended or shall be construed
to confer or give, nor shall they confer or give, to any person, corporation or
other entity, other than the parties hereto and their respective heirs,
executors, representatives, successors and permitted assigns, any legal or
equitable or other right, remedy or benefit, nor shall they be construed to
alter or diminish any rights of the Company or any of the obligations of any
person, corporation or other entity, under any agreement that may exist between
the Company on the one hand, and any such other person, corporation or other
entity, on the other hand, as the provisions of this Section 14 are intended to
be and shall be for the sole and exclusive benefit of the parties hereto and
their respective heirs, executors, representatives, successors and permitted
assigns, and for the benefit of no other person, corporation or other entity.
14.9 Holdback Amount. The Buyer shall be entitled to, but shall
not be obligated to, reduce the Holdback Amount by the amount of any Damages for
which the Buyer is entitled to indemnification from the Shareholders under this
Section 14.
15. Confidentiality.
Each party acknowledges that it may have access to various items
of proprietary and confidential information of the other in the course of
investigations and negotiations prior to Closing.
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Except as otherwise provided in Section 9.8 above, each party agrees that any
such confidential information received from the other party shall be kept
confidential and shall not be used for any purpose other than to facilitate the
arrangement of financing for and the consummation of the transactions
contemplated herein. The furnishing of financial statements and other
information of or relating to the Company or the Business by Buyer for purposes
of obtaining financing for the transactions contemplated hereby, or the
disclosure of such financial or other information by Buyer as provided in
Section 9.8 above, or the release of information to Buyer's insurers for risk
assessment purposes, shall not constitute a breach of this Section 15.
Confidential information shall include any business or other information which
is delivered by one party to the other, unless such information (i) is already
public knowledge or (ii) becomes public knowledge through no fault, action or
inaction of the receiving party, or (iii) was known by the receiving party, or
any of its directors, officers, employees, representatives, agents or advisors
prior to the disclosure of such information by the disclosing party to the
receiving party. No party hereto, nor its respective officers, directors,
employees, accountants, attorneys, or agents shall intentionally disclose the
existence or nature of, or any of the terms and conditions relating to, the
transaction referred to herein, to any third person, specifically including,
but not limited to, the employees of the Company; provided, however, that such
information may be disclosed (i) with the consent of the other parties hereto,
(ii) in applications or requests required to be made to obtain licenses,
permits, approvals or consents needed to consummate the transactions
contemplated herein, (iii) in Securities Filings as provided in Section 9.8
above, (iv) to the professional advisors of each party hereto, or (v) pursuant
to court order or subpoena. The restrictions contained in this Section 15 that
are applicable to Buyer shall terminate at the Closing.
16. Expenses
Each of the parties shall pay all costs and expenses incurred
or to be incurred by it in negotiating and preparing this Agreement and in
closing and carrying out the transactions contemplated by this Agreement,
including without limitation, the fees and expenses of their respective counsel,
accountants and consultants and none of the assets of the Company shall be
reduced or diminished by any such costs or expenses incurred by the
Shareholders.
17. Notices.
All notices, requests, demands, and other communications
hereunder shall be in writing and shall be deemed to have been duly served or
delivered (i) upon actual physical delivery when delivered in person, or (ii) if
sent by facsimile to the facsimile number of such party set forth hereinafter,
upon receipt of confirmation of the transmission thereof to that number,
provided that the sender thereof mails a copy of such notice, request, demand or
other communication by the business day next succeeding the date such facsimile
was transmitted, or, (iii) if mailed, seventy-two (72) hours after being
deposited in the United States Mail, provided it is sent by certified mail,
return receipt requested, postage prepaid, and addressed as follows:
(a) If to the Company:
Logical Services Incorporated
3235 Kifer Road, Suite 210
Santa Clara, California 95051
Attention: Robert Ulrickson, President and Chief Executive Officer
Facsimile No. (408) 739-6364
with copies to:
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Paul David Marotta, Esq.
The Corporate Law Group
300 Airport Blvd., Suite 120
Burlingame, CA 94010-1914
Facsimile No: (650) 373-1501
(b) If to any Shareholder, to the address set forth opposite such
Shareholder's name on Schedule 1 attached hereto.
with copies to:
the Company and to Paul David Marotta, Esq.
(c) If to Buyer, to:
Smartflex Systems, Inc.
14312 Franklin Avenue
Tustin, California 92781
Attention: William L. Healey, President and Chief Executive Officer
Facsimile No. (714) 838-8787
with copies to:
Stradling Yocca Carlson & Rauth
660 Newport Center Drive, Suite 1600
Newport Beach, California 92660-6441
Attention: Nick E. Yocca, Esq.
Facsimile No. (949)725-4100
Any party hereto may from time to time, by written notice to the other party
given in the manner hereinabove set forth, designate a different address or
different facsimile number, which shall be substituted for the one specified
above for such party.
18. Miscellaneous.
18.1 Binding Effect. Subject to the provisions of Section
18.10 below, this Agreement shall be binding upon and inure to the benefit of
the respective heirs, executors, representatives, successors and assigns of the
parties hereto.
18.2 Counterparts. This Agreement may be executed in any
number of separate counterparts, each of which shall be deemed to be an original
and all of which together shall be deemed to be one and the same instrument.
18.3 Headings. The subject headings of the sections and
subsections of this Agreement are included for purposes of convenience only and
shall not affect the construction or interpretation of any of its provisions.
18.4 Waivers. Any party to this Agreement may waive any
right it may have hereunder or any breach or default hereunder by any other
party hereto; provided that no such waiver will be effective
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against the waiving party unless it is in writing and specifically refers to
this Agreement. No waiver will be deemed to be a waiver of any subsequent or
other right, breach or default of the same or similar nature.
18.5 Entire Agreement. This Agreement, including the
Schedules and Exhibits and other documents referred to herein which form a part
hereof, embodies the entire agreement and understanding of the parties hereto
with respect to the subject matter hereof, and supersedes all prior or
contemporaneous agreements or understandings (whether written or oral) among the
parties, in respect to the subject matter contained herein. This Agreement may
not be modified, amended or terminated except by written agreement specifically
referring to this Agreement signed by the Buyer and the holders of a majority of
the outstanding Shares, provided, however, that any amendment which would reduce
the Purchase Price payable to the Shareholders for the Shares shall require the
approval, in writing, of all of the Shareholders.
18.6 Governing Law. This Agreement is deemed to have been
made in the State of California, and shall be governed by and construed in
accordance with the laws of, the State of California for contracts made and to
be performed in that State.
18.7 Public Communications. The Shareholders will cooperate
with the Buyer, if necessary, with respect to the making of a public
communications release relating to this Agreement. Except as may be required by
applicable law, neither the Shareholders nor the Company shall issue any press
releases or other public communications relating to this Agreement or the
transactions contemplated hereunder without the prior written consent of the
Buyer. In the event that any such press release or other public communication
shall be required by applicable law, the Shareholders shall first consult in
good faith with the Buyer with respect to the form and substance of such release
or communication.
18.8 Disputes: Arbitration. In lieu of litigation, all
disputes concerning this Agreement or any attachment hereto or any asserted
breach hereof shall be resolved as follows:
(a) Cooperation. The parties agree to cooperate
with each other to attempt to settle all disputes arising under this Agreement
without resort to mediation or arbitration.
(b) Mediation. If the parties are unsuccessful in
resolving a dispute within forty-five (45) days from the date the parties begin
attempting to resolve it, either parry may submit the dispute to a mediation
administered by Judicial Arbitration & Mediation Services, Inc. ("JAMS"), by
requesting in writing to JAMS and the other party that a mediation settlement
conference be scheduled. Each party shall use best efforts to complete the
mediation within forty-five (45) days after such notice pursuant to the rules of
JAMS. The mediation shall take place in Orange County, California. The parties
shall attempt in good faith to reach agreement on the appointment of a retired
judge from the JAMS panel as mediator. If they cannot agree within twenty (20)
days after such notice, JAMS will provide a list of three available retired
judges (which judges, to the extent available on a timely basis, should have
substantial experience in the area of the Dispute) and each party may strike one
name from the list. The remaining judge shall be appointed as mediator. The
parties shall each pay their own expenses of mediation, including attorney's
fees, and shall share equally the mediator's fees and expenses.
(c) Arbitration. All disputes which are not
resolved through cooperation and mediation shall be finally resolved by binding
arbitration by a single arbitrator in accordance with the Federal Arbitration
Act.9 USCA 1, et. seq. in effect at the time. Each party to this Agreement can
initiate arbitration pursuant to this Agreement by serving notice on the
other party of an intent to arbitrate. Each of the parties consents to venue
for such arbitration in Orange County, California, if proceedings are
-36-
commenced by the Buyer, and in Santa Clara County, California, if proceedings
are commenced by the Company or any Shareholder. The notice shall specify with
particularity the claims or issues that are to be arbitrated. Within ten days of
receipt of the notice by all parties, the parties shall use all reasonable
efforts to obtain a list of available arbitrators from the appropriate office of
JAMS and select a mutually acceptable arbitrator. If the parties are unable to
agree on an arbitrator within ten days, any party may petition the Presiding
Judge of the forum's Superior Court to select a single arbitrator from the JAMS
list. The parties shall have the discovery rights available under the forum's
Civil Rules, subject to the limitation that each side shall be limited to no
more than five depositions unless, upon a showing of good cause, the party can
convince the arbitrator that more depositions should be permitted. It shall be
the intention of the parties to select an arbitrator and set a schedule
according to the following: (1) all discovery must be concluded within 120 days
of the selection of an arbitrator, (2) the arbitration hearing must be concluded
within 30 days of the close of discovery and it will be conducted in accordance
with the forum's Rules of Evidence, and (3) the arbitrator's final decision
shall be rendered within ten days of the final hearing day. Judgment upon the
arbitrator's final award may be entered in any court having jurisdiction
thereof. The parties shall bear in equal shares the arbitrator's fees and costs.
In those cases where the arbitrator's judgment consists solely of monetary
damages, the prevailing party in the arbitration shall be awarded its reasonable
attorneys' fees and all costs, other than the arbitrator's fees and costs. For
the purpose of determining who is the prevailing party, each side will submit to
the other a single written offer of settlement ten days prior to the start of
the arbitration hearing and the party whose offer most closely resembles the
arbitrator's award shall be deemed the prevailing party for the purpose of
awarding attorneys' fees.
18.9 Assignment. No Shareholder may assign this Agreement,
or assign its rights or delegate its duties hereunder, without the prior written
consent of Buyer. Prior to the Closing, Buyer may not assign this Agreement, or
assign its rights or delegate its duties hereunder, without the prior written
consent of the Shareholder Representative.
18.10 Severability. Any provision of this Agreement which is
illegal, invalid or unenforceable shall be ineffective to the extent of such
illegality, invalidity or unenforceability, without affecting in any way the
remaining provisions hereof.
-37-
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the day and year above written.
BUYER: SMARTFLEX SYSTEMS, INC.,
----- a Delaware corporation
By: /s/ William L. Healey
--------------------------------------
William L. Healey, President and Chief
Executive Officer
COMPANY: LOGICAL SERVICES INCORPORATED,
------- a California corporation
By: /s/ Robert Ulrickson
--------------------------------------
Robert Ulrickson, President and Chief
Executive Officer
-38-
SHAREHOLDERS:
/s/ Rocky R. Arnold /s/ James W. Moyer
------------------------- -------------------------
Rocky R. Arnold, Ph.D. James W. Moyer, Ph.D.
/s/ Douglas L. Bish
------------------------- -------------------------
Douglas L. Bish John L. Nichols
/s/ David H. Nudelman
------------------------- -------------------------
Timothy Barry David H. Nudelman
/s/ John M. O'Keefe
------------------------- -------------------------
Anthony D. Castagna, Ph.D. John M. O'Keefe
/s/ Connie R. Praast
------------------------- -------------------------
Robert K. Chipman Connie R. Praast
/s/ Jackie M. Daemion
------------------------- -------------------------
Jackie M. Daemion Theodore D. Praast
/s/ Ronald J. Heath /s/ Tim R. Russell
------------------------- -------------------------
Ronald J. Heath Tim R. Russell
/s/ Michael R. Seliskar
------------------------- -------------------------
John N. Hendrick Michael R. Seliskar
------------------------- -------------------------
Lb W. Larson Michael Slater
/s/ David E. Smoler
------------------------- -------------------------
Richard M. Levy, Ph.D. David E. Smoler
/s/ Douglas S. Thom
------------------------- -------------------------
Douglas J. Littlejohn Douglas S. Thom
/s/ David P. Manley /s/ Robert W. Ulrickson
------------------------- -------------------------
David P. Manley Robert W. Ulrickson
-39-
Ulrickson-Weaver Charitable Trust
R. W. Ulrickson, Trustee
By: /S/ R. W. Ulrickson
-------------------------
/s/ Baxter R. Watkins
-------------------------
Baxter R. Watkins
/s/ Nancy J. Weaver
-------------------------
Nancy J. Weaver
/s/ Paul J. White
-------------------------
Paul J. White
/s/ Bruce D. Wong
-------------------------
Bruce D. Wong
/s/ Sun N. Yu
-------------------------
Sun N. Yu
-40-
EXHIBIT A
Employment Agreements
See Tabs 18-20
EXHIBIT B
Shareholder Releases
See Tab 9
EXHIBIT C
Performance Bonus Plan
See Tab 21
EXHIBIT D
Opinion of Counsel to the Company
See Tab 10
EXHIBIT E
Opinion of Counsel to the Buyer
See Tab 16
Dates Referenced Herein and Documents Incorporated by Reference
| Referenced-On Page |
|---|
| This ‘S-1’ Filing | | Date | | First | | Last | | | Other Filings |
|---|
| |  |
| Filed on: | | 3/29/00 | | | | | | | None on these Dates |
| | 11/1/98 | | 29 |
| | 10/7/98 | | 1 | | 28 |
| | 8/31/98 | | 3 | | 25 |
| | 1/1/98 | | 7 |
| | 12/31/97 | | 7 | | 16 |
| | 1/1/95 | | 8 | | 15 |
| List all Filings |
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