Dynamic Materials Corporation
Asset Purchase Agreement
among
Dynamic Materials Corporation,
Spin Forge, LLC,
▇▇▇ ▇▇▇▇▇▇▇
and
▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇
Dated
March 18, 1998
TABLE OF CONTENTS
Page
1. Transfer of Assets, Payment, and Related Matters.......................1
1.1 Transfer of Assets...............................................1
1.2 Retained Assets..................................................1
1.3 Certain Assumption of Obligations and Liabilities................2
1.4 Consideration....................................................3
1.5 Escrow Arrangements..............................................5
1.6 Payment of Liabilities; Release of Liens.........................5
1.7 Allocation of Consideration......................................6
1.8 Sales and Use Taxes..............................................6
1.9 Instruments of Conveyance, Transfer and Assumption...............6
1.10 Consents and Approvals...........................................6
1.11 Seller Loan......................................................7
2. Closing................................................................7
3. Representations and Warranties by Seller and Members...................8
3.1 Organization and Standing........................................8
3.2 Corporate Power; Authorization...................................8
3.3 No Breach, Etc...................................................8
3.4 Financial Statements.............................................8
3.5 Title to Properties: Liens: Condition of Properties..............9
3.6 Taxes............................................................9
3.7 No Liabilities..................................................10
3.8 Litigation, Etc.................................................10
3.9 Patents, Trade Names and Trademarks.............................10
3.10 Compliance with Laws............................................11
3.11 Environmental Matters...........................................11
3.12 Governmental Permits............................................12
3.13 Disclosure of Material Information..............................13
3.14 Insurance.......................................................13
3.15 Inventory.......................................................14
3.16 Major Customers.................................................14
3.17 Existing Employment Contracts...................................14
3.18 Employee Benefits...............................................15
3.19 Required Consents and Approvals.................................16
3.20 Absence of Certain Changes......................................17
3.21 Product Warranty and Product Liability..........................18
3.22 Member List.....................................................18
3.23 Assets Necessary to Business....................................18
3.24 Contracts and Commitments.......................................18
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4. Representations and Warranties of Purchaser...........................20
4.1 Organization and Standing.......................................20
4.2 Corporate Power; Authorization..................................20
4.3 No Breach, Etc..................................................21
4.4 Purchase Stock..................................................21
4.5 Disclosure of Material Information..............................21
5. Closing...............................................................21
5.1 Time and Place..................................................21
5.2 Actions at Closing..............................................21
6. Post-Closing Matters..................................................24
6.1 Use of Seller's Name............................................24
6.2 Sales Tax Matters...............................................24
6.3 Finders Fees; Payments..........................................24
6.4 SEC Filings.....................................................25
6.5 Bulk Transfer Law...............................................25
7. Indemnification.......................................................25
7.1 Indemnification of Purchaser....................................25
7.2 Indemnification of Seller.......................................25
8. Indemnification Procedures............................................26
8.1 Notice..........................................................26
8.2 Third Party Claims..............................................26
8.3 Other Claims....................................................27
8.4 Calculation of Losses...........................................27
8.5 Nonexclusivity of Indemnification Remedies......................27
8.6 Minimum Damages.................................................27
9. Maximum Damages.......................................................27
10. Survival of Representations and Warranties............................28
11. Confidentiality Provisions............................................28
11.1 Obligation......................................................28
11.2 Exclusions......................................................28
11.3 Remedies........................................................28
12. Entire Agreement and Amendments; Section Headings.....................29
13. Counterparts..........................................................29
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14. Successors and Assigns................................................29
15. Applicable Law........................................................29
16. Expenses..............................................................29
17. Equitable Relief......................................................29
18. "Knowledge" Definition................................................30
19. Further Assurances....................................................30
20. Notices...............................................................30
21. Severability and Waiver...............................................31
22. Public Announcements..................................................31
23. Third Party Beneficiaries.............................................31
24. Pronouns..............................................................31
25. Attorneys' Fees.......................................................31
EXHIBITS
Exhibit A Assets
Exhibit B Assumed Liabilities
Exhibit C ▇▇▇▇ of Sale
Exhibit D Disclosure Schedule
Exhibit E1 Non-Competition Agreement (Spin Forge, LLC)
Exhibit E2 Non-Competition Agreement (Arroyo, Gomez, Strum)
Exhibit F Personal Services Agreement
Exhibit G Operating Lease
Exhibit H Option Agreement
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Exhibit I Loan Agreement
Exhibit J Legal Description of Real Property
Exhibit K Stock Agreement
Exhibit L Stock Pledge
Exhibit M Escrow Agreement
Exhibit N Opinion of ▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP
Exhibit O Master Promissory Note
Exhibit P Adjustment Statement
Exhibit Q-1 Proprietary Information Agreement -- Key Employees
Exhibit Q-2 Proprietary Information Agreement -- All Other Employees
Exhibit R Opinion of Wolf, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇
Exhibit S Personal Guaranty
Exhibit T Non-Competition Agreement (▇▇▇▇▇▇▇)
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ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT ("AGREEMENT") is entered into as of the 18th
day of March, 1998 (the "EFFECTIVE DATE") among Dynamic Materials Corporation, a
Delaware corporation ("PURCHASER"), having a principal place of business at ▇▇▇
▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, Spin Forge, LLC, a California limited
liability company ("SELLER"), having a principal place of business at ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ and ▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇ (each a "MEMBER"), having a principal place of business at ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇.
RECITALS
A. Seller owns a metal fabrication business located at ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, and owns certain tangible and intangible
assets related to such business. That business, as Seller currently conducts it,
is referred to as the "BUSINESS."
B. Seller desires to sell such business and assets and Purchaser desires
to purchase such business and assets.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants and conditions set forth below, and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties to this
Agreement hereby agree as follows:
TERMS
1. TRANSFER OF ASSETS, PAYMENT, AND RELATED MATTERS.
1.1 TRANSFER OF ASSETS. In consideration of the payment to Seller by
Purchaser pursuant to Section 1.4 below, and subject to the terms and conditions
of this Agreement, Seller hereby assigns, conveys, transfers and sells to
Purchaser as of the closing provided for in Section 2 below (the "CLOSING"), all
right, title and interest in and to all of the assets of Seller relating to the
Business, including without limitation, those tangible, intangible and contract
assets, rights and personal properties, all subject to Section 1.2 below, as
more particularly described in EXHIBIT A attached hereto and incorporated herein
by reference (collectively, the "ASSETS").
1.2 RETAINED ASSETS. The foregoing notwithstanding, Seller shall retain
and the Assets shall not include the following (collectively, the "RETAINED
ASSETS"):
a. Seller's limited liability company franchise, limited liability
company record books containing minutes of meetings of members, and such other
records as have to do exclusively with Seller's organization or capitalization
(provided, however, that Purchaser and its representatives
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shall have access to such documents at reasonable times and on reasonable notice
for the purpose of inspecting and making copies of them);
b. real property consisting of land and buildings located in Los
Angeles County, California, with a street address of ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, as is more particularly described in EXHIBIT J
attached hereto and by this reference incorporated herein, at which the Business
operates (collectively the "REAL PROPERTY") and which is subject to an Operating
Lease and an Option Agreement substantially in the form of EXHIBITS G and H
hereto, respectively;
c. any Materials of Environmental concern (as defined in Section
3.11(b) hereof);
d. all trade accounts receivable of Seller as of the Closing Date;
e. Seller's insurance policies;
f. that certain License Agreement, dated as of October 20, 1997, by
and between Seller and Southern California Edison Company, a California
corporation;
g. cash; and
h. Schedule 1.2.
1.3 CERTAIN ASSUMPTION OF OBLIGATIONS AND LIABILITIES. Purchaser shall not
undertake, assume or agree to perform, pay or discharge, and expressly
disclaims: (a) any and all liabilities associated with the Assets or the
Business, including liabilities associated with the Retained Assets, and (b) any
and all other liabilities, obligations or the like of or related to Seller,
except for the liabilities described on EXHIBIT B attached hereto and
incorporated herein by reference (the "ASSUMED LIABILITIES"). In addition,
except for the Assumed Liabilities, Seller shall remain fully responsible for
all liabilities or obligations arising from activities conducted on and all
conditions (including, without limitation, any environmental contamination) of
the site where the Assets are located, and all adjacent sites, including the
Real Property, and for all activities conducted off the site which relate to the
Assets or the operations in which the Assets were previously employed, but only
to the extent such liabilities or obligations arise from activities or
conditions taking place or existing prior to the Closing. Seller's
responsibility (as described in the preceding sentence) shall include, without
limitation, the responsibility to perform any and all response activities
required under any federal, state, or local law, regulation or requirement
relating to any environmental condition or circumstance, but only to the extent
such activities are required due to environmental conditions or circumstances
taking place or existing prior to the Closing.
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1.4 CONSIDERATION.
a. Subject to the terms and conditions of this Agreement, as
consideration for the Assets transferred to Purchaser hereunder, Purchaser shall
pay to Seller at the Closing the sum of Three Million Eight Hundred Sixty
Thousand Four Hundred Eleven Dollars ($3,860,411) (the "PURCHASE PRICE"). The
Purchase Price includes an estimated value of the Inventory (as defined in
Exhibit A) of $1,015,919 which estimated value is derived from the February
Balance Sheet (as defined in Subparagraph d(4) below).
b. Purchaser shall pay the Purchase Price as follows:
(1) At the Closing, the Purchase Price, less the sum of (a)
$449,800 (the "STOCK CONSIDERATION"), (b) the estimated amount of the Trade
Payables (as defined in Exhibit B) on the Closing Date as derived from the
February Balance Sheet, (c) the estimated amount of the Customer Deposits on the
Closing Date as derived from the February Balance Sheet, (d) the estimated
amount of the Accrued Liabilities (as defined in EXHIBIT B) on the Closing Date
as derived from the February Balance Sheet, (e) the Foothill Payoff, and (f) the
▇▇▇▇▇▇ Payoff. The result of the foregoing calculation is referred to as the
"CASH DELIVERY." The Cash Delivery is subject to adjustment as provided in
Subparagraph c. below. The Cash Delivery shall be reduced by the Escrow Amount,
which shall be paid on the Closing Date in cash by wire transfer or certified
funds by Purchaser to the Escrow Agent as provided in Section 1.5.
(2) At the Closing, Purchaser shall deliver to Seller 50,000
shares of Purchaser Common Stock, par value $.05 per share (the "PURCHASE
STOCK"), which number of shares is subject to adjustment as provided in
Subparagraph e below. The parties agree that the "STOCK CONSIDERATION" was
determined by valuing the Purchase Stock at the closing price on the Nasdaq
National Market averaged over the 45 day period ending on the day before the
Closing; SUBJECT, HOWEVER, to a "floor" value of $400,000 and a "cap" on the
value of $600,000. The Purchase Stock shall be subject to certain restrictions
as set forth in the Stock Agreement in the form attached hereto as EXHIBIT K and
in the Stock Pledge in the form attached hereto as EXHIBIT L.
(3) At the Closing, $371,391.66 (the "FOOTHILL PAYOFF") shall
be paid to Foothill Capital Corporation ("FOOTHILL") in cash by wire transfer or
certified funds pursuant to written instructions provided to Purchaser by
Foothill at least two business days prior to Closing, all in accordance with the
terms of Section 1.6.
(4) At the Closing, $825,000 (the "▇▇▇▇▇▇ PAYOFF") shall be
paid to ▇▇▇▇▇▇ Group, Inc. ("▇▇▇▇▇▇") in cash by wire transfer or certified
funds pursuant to written instructions provided to Purchaser by ▇▇▇▇▇▇ at least
two business days prior to Closing, all in accordance with the terms of Section
1.6.
(5) At the Closing, $100,000 (the "ESCROW AMOUNT") shall be
paid to the Escrow Agent, as defined in Section 1.5, in cash by wire transfer of
funds to be held in escrow in accordance with the terms of Section 1.5.
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c. ADJUSTMENT PROCEDURE.
(1) At the Closing, Seller shall deliver to Purchaser the
February Balance Sheet. The Cash Delivery paid at the Closing shall be derived
from the estimated values of the Inventory, Trade Payables, Customer Deposits
and Accrued Liabilities as reflected in the February Balance Sheet. Within 15
days after the Closing, Seller shall deliver to Purchaser the Closing Balance
Sheet. Seller shall determine the amounts of the difference between the February
Balance Sheet and the Closing Balance Sheet with respect to the Inventory, Trade
Payables, Customer Deposits and Accrued Liabilities, if any, and the resulting
adjustment to be made to the Cash Delivery, and shall deliver a statement of
that adjustment in substantially the form attached hereto as EXHIBIT P (the
"ADJUSTMENT STATEMENT") within that 15 day period. Purchaser shall have 45
business days after it receives the Adjustment Statement to object to any
calculation contained in the Adjustment Statement. If Purchaser does not make
any objection within that period, the Adjustment Statement and Closing Balance
Sheet shall be deemed final and conclusive with respect to the determination of
any adjustment to be made to the Cash Delivery, and shall be binding on the
parties to this Agreement.
(2) If Purchaser objects to any calculation on the Adjustment
Statement, the parties shall, within 10 business days, mutually determine the
correct calculation. If the parties cannot resolve the objection within that
time, they shall refer the dispute to the Independent Accountant (as defined
below).
(3) The Independent Accountant shall review the calculation to
which Purchaser objected, and shall resolve all objections as soon as
practicable, but no later than 10 business days after the Independent Accountant
receives all information from Seller and Purchaser that the Independent
Accountant may reasonably request regarding the objection. The Adjustment
Statement as the Independent Accountant may modify or approve shall be deemed
final and conclusive with respect to the determination of any adjustment to be
made to the Purchase Price, and shall be binding on the parties to this
Agreement. Seller and Purchaser shall each pay one-half of the Independent
Accountant's fees and expenses in resolving any such objection.
(4) ADJUSTMENT TO CASH DELIVERY. The actual amount of the Cash
Delivery shall be based on the final determination of the Adjustment Statement,
whether by Seller and Purchaser or the Independent Accountant. If that final
amount is greater than the Cash Delivery that Purchaser made at the Closing,
then Purchaser shall immediately deliver to Seller, in cash by wire transfer or
certified funds, the additional amount of the Cash Delivery due to Seller and
any interest accrued thereon from the date of the Closing. If that final amount
is less than the Cash Delivery that Purchaser made at the Closing, then
Purchaser shall submit the Adjustment Statement, signed by Purchaser and Seller,
to the Escrow Agent. Upon receipt of the Adjustment Statement, the Escrow Agent
shall immediately refund to Purchaser in cash, by wire transfer or certified
funds, the additional amount of the Cash Delivery due to Purchaser and any
interest accrued thereon from the date of the Closing. Interest shall accrue at
the rate in effect with respect to the Escrow Amount pursuant to the Escrow
Agreement.
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d. CERTAIN DEFINITIONS. For purposes of this Agreement, the
following terms shall have the following meanings:
(1) "CLOSING BALANCE SHEET" means Seller's unaudited balance
sheet dated as of the Closing Date.
(2) "FEBRUARY BALANCE SHEET" means Seller's unaudited balance
sheet dated as of February 28, 1998.
(3) "INDEPENDENT ACCOUNTANT" means an accounting firm mutually
selected by Seller and Purchaser. If Seller and Purchaser are unable to agree on
the Independent Accountant within 5 business days after Purchaser delivers to
Seller any objection to the Adjustment statement within the time provided above,
then the Independent Accountant shall be ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, LLP.
e. ADJUSTMENTS TO PURCHASE STOCK. If the closing price per share for
the Purchase Stock on the Nasdaq National Market averaged over the 45 day period
ending the day before the Closing (the "BENCHMARK PRICE") is greater than $12.00
per share, then the number of shares of Purchase Stock shall be reduced by an
amount equal to (i) the number of shares of Purchase Stock multiplied by (ii) a
fraction, the numerator of which shall be the amount by which the Benchmark
Price exceeds $12.00 per share, and the denominator of which is the Benchmark
Price. If the Benchmark Price is less than $8.00 per share, then the number of
shares of Purchase Stock shall be increased by an amount equal to (i) the number
of shares of Purchase Stock multiplied by (ii) a fraction, the numerator of
which shall be the amount by which $8.00 per share exceeds the Benchmark Price,
and the denominator of which is the Benchmark Price.
1.5 ESCROW ARRANGEMENTS. Pursuant to an Escrow Agreement to be entered
into among Purchaser, Seller, Member and ▇▇▇▇▇ ▇. ▇▇▇▇ (the "ESCROW AGENT") in
substantially the form attached hereto as Exhibit M (the "ESCROW AGREEMENT"),
$100,000 of the Purchase Price shall be delivered to the Escrow Agent at the
Closing. Such monies, together with all interest accrued thereon, are
hereinafter referred to as the "ESCROW AMOUNT." Upon such time as the parties
have settled and made payment for any adjustment as required under subparagraph
1.4(c) hereof, such portion of the Escrow Amount not previously claimed by or
paid to Purchaser as part of the adjustments contemplated by Section 1.4(c)
shall be disbursed to Seller in accordance with the terms of the Escrow
Agreement. Seller, Member and Purchaser agree that each will execute and deliver
such instruments and documents as are furnished by any other party to enable
such furnishing party to receive those portions of the Escrow Amount to which
the furnishing party is entitled under the provisions of the Escrow Agreement
and this Agreement. Seller and Purchaser shall each pay one-half of the Escrow
Agent's fees and expenses.
1.6 PAYMENT OF LIABILITIES; RELEASE OF LIENS. On or before the Closing,
Seller shall have provided to Purchaser letters from Foothill and ▇▇▇▇▇▇, in a
form satisfactory to Purchaser in its sole discretion, which sets forth the
amount necessary to repay in full the obligations owed to Foothill
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and ▇▇▇▇▇▇, respectively, as of the Closing Date (the "PAY-OFF LETTERS"), along
with written wire transfer instructions.
1.7 ALLOCATION OF CONSIDERATION. The allocation of consideration paid by
Purchaser for the Assets shall be allocated as determined by Purchaser promptly
after Closing and approved by Seller, which approval shall not be unreasonably
withheld or delayed. Purchaser and Seller hereby affirm that they shall each
adhere to any such allocation for the purposes of all tax returns filed by them
subsequent to such date, including the determination by Seller of taxable gain
or loss on the sale of the Assets and the determination by Purchaser of the tax
basis of the Assets, for the purposes of all financial statements and in all
other circumstances.
1.8 SALES AND USE TAXES. Seller shall bear sole responsibility for and
shall pay all sales, use and other transfer taxes (collectively, "TRANSFER
TAXES") arising by reason of the transfer of the Assets according to the terms
of this Agreement. The foregoing notwithstanding, Purchaser shall provide Seller
with reasonable assistance in obtaining relevant exemptions from applicable
sales and use taxes, which assistance shall include, without limitation,
reasonable efforts to obtain necessary exemption certificates from the
applicable taxing authorities (for example, certificates required by the State
Board of Equalization).
1.9 INSTRUMENTS OF CONVEYANCE, TRANSFER AND ASSUMPTION. Seller agrees to
deliver or cause to be delivered to Purchaser at the Closing full possession of
all of the Assets at the place or places where the Assets are located as of the
Effective Date, together with (i) a ▇▇▇▇ of sale attached as EXHIBIT C hereto
(the "▇▇▇▇ OF SALE"); (ii) such other instruments of conveyance and transfer as
shall be effective to vest in Purchaser all right, title and interest in and to
the Assets free and clear of all liens, charges, easements, mortgages, pledges,
claims and other encumbrances in favor of any third party, except as disclosed
in the Disclosure Schedule (as defined below); and (iii) any and all tangible
manifestations of the Assets including. without limitation, all notes, records,
files, prints, drawings, schematics diagrams, specifications and tangible items
of any sort in Seller's possession or under Seller's control relating to the
Assets, and including original trademarks and related registrations, copyrights
and related registrations, and certificates of letters patent, and applications
and disclosures therefor, if any. Such delivery shall include all present
versions and, to the extent in Seller's possession or control, predecessor
versions.
1.10 CONSENTS AND APPROVALS. Seller shall use its best efforts to obtain
all consents (including, without limiting the generality of the foregoing,
consents or approvals of any government or governmental agency) necessary to the
assignment and transfer to Purchaser to effect the sale, delivery, transfer and
conveyance of the Assets contemplated by Section 1.1. From time to time after
the Closing, at Purchaser's request and without further consideration, Seller
agrees to execute and deliver such other instruments of conveyance and transfer
and take such other action as Purchaser reasonably may require more effectively
to convey, transfer to and vest in Purchaser, and to put Purchaser in possession
of, any property to be sold, conveyed, transferred and delivered hereunder. All
consents, waivers or approvals required with respect to all of the Contracts or
other rights as listed on Section 3.19 of the Disclosure Schedule have been
obtained, other than the consents, waivers or approvals for the Contracts or
rights as listed on Schedule 1.10 attached hereto
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(the "EXCLUDED CONTRACTS"). Until a required consent, waiver or approval is
obtained with respect to a particular Excluded Contract, Seller shall provide
Purchaser with all of the benefits of such Excluded Contract (except benefits
that accrued to Seller prior to the Closing), including, without limitation, the
right to any payments due to Seller under the Excluded Contracts, provided,
however, that in the event a required consent, waiver or approval is not
obtained with respect to an Excluded Contract within 180 days of the Closing,
Purchaser shall be entitled to indemnification for such contract pursuant to
Section 7 hereof. Notwithstanding anything to the contrary herein, neither this
Agreement nor any of the instruments or documents executed or delivered in
connection with this Agreement shall constitute an assignment or assumption of
an Excluded Contract without a required waiver, consent or approval for such
contract.
1.11 SELLER LOAN. Purchaser shall lend to Seller at Closing the amount of
Two Hundred Eighty Thousand Dollars ($280,000) (the "SELLER LOAN AMOUNT") in
accordance with the terms of the loan agreement (the "LOAN AGREEMENT") attached
hereto as EXHIBIT I. As further provided in Loan Agreement, Purchaser shall make
additional advances to Seller, the amount of which shall be added to and shall
become part of the Seller Loan Amount subject to repayment according to the
terms of the Loan Agreement. The obligations of the Seller under the Loan
Agreement shall be secured by a pledge of the Purchase Stock and personal
guaranties by Member and ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇.
1.12 DISCLAIMER OF WARRANTIES. EXCEPT AS EXPRESSLY SET FORTH IN THIS
AGREEMENT, SELLER MAKES NO REPRESENTATION OR WARRANTY OF ANY KIND OR NATURE
WHATSOEVER REGARDING THE ASSETS, EXPRESS OR IMPLIED, INCLUDING, WITHOUT
LIMITATION, ANY REPRESENTATION OR WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE.
1.13 EMPLOYEES. Effective upon the Closing, Seller will terminate the
employment of all its employees. Effective as of the Closing, Purchaser shall
offer to employ each of Seller's employees on substantially the same terms and
conditions as such employees are employed by Seller prior to the Closing.
Purchaser shall continue or reinstate Seller's employee identified on Schedule
1.13(A) attached hereto who is currently on leave and whose employment is
required to be continued or reinstated by Seller under applicable state or
federal law. Purchaser shall also assume vacation leave accrued prior to the
Closing by employees who are employed by Purchaser immediately after the Closing
all as identified in Schedule 1.13(B) attached hereto. Purchaser's obligations
as set forth under this Section 1.13 are referred to as the "EMPLOYEE
OBLIGATIONS." Seller shall provide reasonable assistance to Purchaser after the
Closing to obtain signed copies of Purchaser's standard Proprietary Information
Agreement in the forms attached hereto as Exhibits Q-1 and Q-2 from all
employees who are employed by Purchaser immediately after the Closing.
2. CLOSING. The closing of the transactions provided for in Section 1 above
shall take place at the offices of Wolf, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, LLP, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, at 10:00 a.m. on March
18, 1998 (the "CLOSING DATE"), or such other place, time and date as the parties
may agree.
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3. REPRESENTATIONS AND WARRANTIES BY SELLER AND MEMBERS. Except as set forth in
the Disclosure Schedule in EXHIBIT D attached hereto and incorporated by
reference (the "DISCLOSURE SCHEDULE"), Seller and Members each hereby, jointly
and severally, represent and warrant to Purchaser as follows:
3.1 ORGANIZATION AND STANDING. Seller is a limited liability company duly
organized, validly existing and in good standing under the laws of the State of
California. Seller has all requisite power under the ▇▇▇▇▇▇▇-▇▇▇▇▇▇ Limited
Liability Company Act (the "LLC ACT"), its Articles of Organization and its
Operating Agreement to own and operate its properties and assets, and to carry
on its business as conducted and possesses all licenses, franchises, rights and
privileges necessary for the conduct of its business. Seller is qualified to do
business in all jurisdictions in which such qualification is required, except
where the failure to qualify does not have a material adverse effect on Seller
or the Business. Seller does not own any interest in any corporation,
partnership or other entity.
3.2 CORPORATE POWER; AUTHORIZATION. Seller has all requisite power and
authority to enter into this Agreement and the Exhibits attached hereto, to sell
and transfer the Assets, and to carry out and perform all of its obligations
under the terms of this Agreement and the Exhibits. All action on the part of
Seller and Seller's officers, managers, members, assignees and other holders of
voting control of or beneficial interests in the Seller that is necessary for
the authorization, execution and delivery of this Agreement and the Exhibits by
Seller and for the performance of Seller's obligations hereunder and thereunder
for the sale and transfer of the Assets has been taken in accordance with the
LLC Act, Seller's Articles of Organization and its Operating Agreement. This
Agreement and the Exhibits, when executed and delivered, shall constitute the
legal and binding obligations of Seller, enforceable against Seller in
accordance with their terms, except as limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
relating to or affecting enforcement of creditors' rights and by rules of law
governing specific performance, injunctive relief or other equitable remedies.
3.3 NO BREACH, ETC. The execution and delivery of this Agreement by Seller
and Members of all documents to be executed by Seller and Members in connection
with the transactions contemplated hereby do not, and the performance and
consummation by Seller and Members of the transactions contemplated by this
Agreement and the Exhibits will not, result in any conflict with, breach or
violation of or default, termination, forfeiture or lien under (or upon the
failure to give notice or the lapse of time, or both, result in any conflict
with, breach or violation of or default, termination, forfeiture or lien under)
any terms or provisions of Seller's Articles of Organization or Operating
Agreement or similar charter documents, each as amended, or any statute, rule,
regulation, judicial or governmental decree, order or judgment, or any
agreement, lease or other instrument, to which either Seller or either Member is
a party or to which either of them or the Assets are subject.
3.4 FINANCIAL STATEMENTS. Seller has previously delivered to Purchaser
unaudited balance sheets and statements of operations of Seller as of and for
the fiscal years ended December 31, 1995, 1996 and 1997 (the "FINANCIAL
STATEMENTS"). Seller has also previously delivered certain additional items of
financial data as of and for the fiscal years ended December 31, 1995, 1996 and
1997,
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which data includes the following: (i) earnings and revenue data; (ii) cost of
goods sold; (iii) selling, general and administrative expenses; (iv) physical
distribution; (v) earnings before interest and taxes; (vi) data concerning
plant, property and equipment; (vii) data concerning accounts receivable; (viii)
data concerning inventories; and (ix) data concerning intellectual properties
(the "FINANCIAL DATA"). The Financial Statements and Financial Data as of
December 31, 1995, and 1996, are to Seller's knowledge, complete and accurate in
all material respects. The Financial Statements and Financial Data as of
December 31, 1997 have been certified as correct, complete and accurate in all
material respects by ▇▇▇ ▇▇▇▇▇▇▇. All of the Financial Statements have been
prepared in accordance with generally accepted accounting principles (except for
the exclusion of manufacturing overhead from inventory valuations, the notes to
such statements and year-end adjustments, in no case having an adverse material
effect upon results presented in such financial statements) applied consistently
during the periods covered thereby and present fairly the financial condition of
Seller at the dates of such statements and the results of its operations for the
periods covered thereby.
3.5 TITLE TO PROPERTIES: LIENS: CONDITION OF PROPERTIES.
a. Seller has good and marketable title to all of the Assets. No
default by Seller or either of the Members exists under or with respect to any
of such Assets and none of the Assets is subject to any mortgage, pledge, lien,
conditional sale agreement, security interest, encumbrance or other charge.
b. As of the Closing Date, each item of machinery and equipment
owned or leased by Seller and included in the Assets is in good working order,
subject to normal wear and tear, and all such buildings, machinery, and
equipment have been well maintained and are in a condition suitable for Seller's
operation of the Business. The Assets conform with all material applicable
ordinances, regulations and zoning or other laws and do not encroach on the
property of others.
c. As of the date of this Agreement there is to Seller's knowledge
no pending or threatened change in any such ordinance regulation or zoning or
other law, and there is to Seller's knowledge no pending or threatened
condemnation of any or all such buildings, machinery and equipment.
d. The Assets shall include all rights, properties, interest in
properties and assets necessary to permit Purchaser to conduct the Business
after the Closing substantially as it has been conducted prior to the Closing.
3.6 TAXES. With respect to the Business and the Assets, Seller and each of
the Members have accurately prepared and timely filed all income tax returns and
other tax returns or other reports which are required to be filed, and has paid,
or made provision for the payment of, all federal, state and local taxes,
including, but not limited to, income, property, franchise, excise, and sales
and use taxes, which have or may have become due pursuant to said returns or
reports or pursuant to any notice of deficiency or any assessment which has been
received by it. Neither Seller nor either Member is a party to any pending
action or proceeding, nor, to the best knowledge of Seller, is any
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such action or proceeding threatened by any governmental authority for the
assessment or collection of taxes, interest, penalties, assessments or
deficiencies, and no claim for assessment or collection of taxes, interest,
penalties, assessments or deficiencies has been asserted against Seller or
either of the Members with respect to the Business or the Assets.
3.7 NO LIABILITIES. As of the date of this Agreement, neither Seller nor
either Member has, nor has any had, (i) any liabilities or obligations (absolute
or contingent) of any nature, except as set forth in Section 3.7 of the
Disclosure Schedule, or (ii) any change in the nature of the business, results
of operations, prospects, financial condition, method of accounting or
accounting practice or manner of conducting the Business, other than changes in
the ordinary course of such business, none of which has had, or may reasonably
be expected to have, a material adverse effect on the Assets or the Business, or
the results of operations, prospects, financial condition or manner of operating
the Assets or conducting the Business taken as a whole.
3.8 LITIGATION, ETC. With respect to the Business and the Assets, no
action, suit, proceeding or investigation of any nature, including any claims
alleging infringement of the intellectual property rights of others, is pending
or, to either Member's or Seller's knowledge, threatened against Seller or
either Member, nor, to the best knowledge of Seller, is there any basis
therefor. The foregoing includes, without limitation: any action, suit,
proceeding or investigation, pending or threatened, which questions the validity
of this Agreement or the Exhibits or the right of Seller or either Member to
enter into this Agreement or the Exhibits or to sell and transfer the Assets, or
which might result, either individually or in the aggregate, in any material
adverse change in the Assets, condition, affairs or prospects of the Business or
of Seller or either Member, financial or otherwise; any litigation pending or to
Seller's knowledge threatened which might affect the ability of Purchaser to
operate the Business or to use the Assets; and any litigation pending or, to
Seller's or either Member's knowledge, threatened against Seller or either
Member by reason of the past employment relationship of any employee, officer or
consultant of Seller or either Member, the activities of Seller or either
Member, or negotiations by Seller or either Member with possible purchasers of,
or investors in, Seller, all with respect to the Business or the Assets. There
is no judgment, decree, injunction, rule or order of any court, governmental
department, commission agency, instrumentality or arbitrator or other similar
ruling outstanding against Seller or either Member affecting the Business or the
Assets. No action, suit, proceeding or investigation is pending or threatened by
Seller or either Member affecting the Business or the Assets.
3.9 PATENTS, TRADE NAMES AND TRADEMARKS. All patents, patent applications,
registered copyrights, trade names, registered trademarks and trademark
applications which are owned by or licensed to Seller and are associated with
the Business or are included in the Assets are listed in Section 3.9 of the
Disclosure Schedule, which section indicates with respect to each the nature of
Seller's interest therein and the expiration date thereof or the date on which
Seller's interest therein terminates. All such patents, patent applications,
registered trademarks and trademark applications have been duly registered in,
filed in or issued by the United States Patent and Trademark Office, and all
such registered copyrights have been duly registered in, filed in or issued by
the United States Copyright Office, or, in each case, the corresponding offices
of other countries identified on Section 3.9 of the Disclosure Schedule, and
have been properly maintained and renewed in
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accordance with all applicable provisions of law and administrative regulations
in the United States and each such country. Seller's use of said patents, patent
applications, registered copyrights, other copyrights, trade names, registered
trademarks, trademark applications and other trademarks, and trade secrets
(collectively, the "INTELLECTUAL PROPERTY") does not require the consent of any
other person and the same are freely transferable (except as otherwise provided
by law) and are owned exclusively by Seller, free and clear of any licenses,
charges, attachments, liens, encumbrances or adverse claims. Except as set forth
in Section 3.9 of the Disclosure Schedule: (a) no other person has an interest
in or right or license to use, or the right to license others to use, any of the
Intellectual Property, (b) there are no claims or demands of any other person
pertaining thereto and no proceedings have been instituted, or are pending or
threatened, which challenge Seller's rights in respect thereof, (c) none of the
Intellectual Property is subject to any outstanding order, decree, judgment or
stipulation, or, to the best knowledge of Seller, is being infringed by others,
(d) no claim has been made and no proceeding has been filed or is threatened to
be filed charging Seller with infringement of any adversely held patent, trade
name, trademark or copyright, and (e) there does not exist (i) any unexpired
patent with claims which are or would be infringed by products of Seller or by
apparatus, methods or designs employed by Seller in manufacturing such products
or (ii) any patent or application therefor or invention which would materially
adversely affect Seller's ability to manufacture, use or sell any such product,
apparatus, method or design. There are no royalties, fees or other payments
payable by Seller to any person by reason of the ownership, use, license, sale
or disposition of any instrument or agreement governing any of the Intellectual
Property.
3.10 COMPLIANCE WITH LAWS. Seller is not in violation of any laws and
regulations which apply to the conduct of the Business, including, without
limitation, laws and regulations relating to employment, occupational safety and
environmental matters that would have a material adverse affect on the Business
or the Assets. Seller has not received notice of, and to Seller's knowledge,
there has never been, any citation, fine or penalty imposed upon or asserted
against Seller under any federal, state or local law or regulation relating to
employment, occupational safety, zoning or environmental matters relating to the
Business or the Assets.
3.11 ENVIRONMENTAL MATTERS.
a. Seller has materially complied with, and is in material
compliance with, all applicable Environmental Laws (as defined below). Seller
possesses, and has provided to Purchaser true and accurate copies of, all
permits, approvals, registrations, licenses or other authorizations required by
any governmental authority pursuant to any Environmental Law applicable to the
Business or the Assets, the absence of which would have a material adverse
effect on the Business or the Assets. There is no pending or, to Seller's
knowledge, threatened civil or criminal litigation, written notice of violation,
formal administration proceeding, or investigation, inquiry or information
request by any governmental authority, relating to any Environmental Law to
which Seller is a party or to Seller's knowledge is threatened to be made a
party. For purposes of this Agreement, "ENVIRONMENTAL LAW" means any federal,
state or local law, statute, rule or regulation or the common law relating to
the environment or occupational health and safety, including without limitation
any statute, regulation or order pertaining to (i) treatment, storage, disposal,
generation and transportation of industrial, toxic or hazardous substances or
solid or hazardous waste; (ii) air,
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water and noise pollution; (iii) groundwater and solid contamination; (iv) the
release or threatened release into the environment of industrial, toxic or
hazardous substances, or solid or hazardous waste, including without limitation
emissions, discharges, injections, spills, escapes or dumping of pollutants,
contaminants or chemicals; (v) the protection of wild life, marine sanctuaries
and wetlands, including without limitation all endangered and threatened
species; (vi) storage tanks, vessels and containers; (vii) underground and other
storage tanks or vessels, abandoned, disposed or discarded barrels, containers
and other closed receptacles; (viii) health and safety of employees and other
persons; and (ix) manufacture, processing, use, distribution, treatment,
storage, disposal, transportation or handling of pollutants, contaminants,
chemicals or industrial, toxic or hazardous substances or oil or petroleum
products or solid or hazardous waste. As used herein, the terms "release" and
"environment" shall have the meaning set forth in the federal Comprehensive
Environmental Compensation, Liability and Response Act of 1980 ("CERCLA").
b. Except as set forth in Section 3.11 of the Disclosure Schedule,
since the date on which Seller began operating the Business, there have been no
releases of any Materials of Environmental Concern (as defined below) into the
environment at any parcel of real property or any facility presently or formerly
owned, operated or controlled by Seller. Except as set forth in Section 3.11 of
the Disclosure Schedule, to Seller's knowledge, prior to the date on which
Seller began operating the Business, there have been no such releases of any
Materials of Environmental Concern. With respect to any releases of Materials of
Environmental Concern, Seller has given all required notices to government
authorities, copies of which have been provided to Purchaser. Seller is not
aware of any releases into the environment of Materials of Environmental Concern
at parcels of real property or facilities presently or formerly owned, operated
or controlled by Seller that could reasonably be expected to have an impact on
the real property or facilities owned, operated or controlled by Seller. For
purposes of this Agreement, "MATERIALS OF ENVIRONMENTAL CONCERN" means any
chemicals, pollutants or contaminants, hazardous substances (as such term is
defined under CERCLA), solid wastes and hazardous wastes (as such terms are
defined under Federal Resources Conservation and Recovery Act), toxic materials,
oil or petroleum and petroleum products.
c. Set forth in Section 3.11(c) of the Disclosure Schedule is a list
of all environmental reports, investigations and audits in the possession of
Seller with respect to the operations of, or real property owned or leased by
Seller (whether conducted by or on behalf of Seller or a third party and whether
done at the initiative of Seller or directed by a governmental authority or
other third party). Complete and accurate copies of each such report, or the
results of each such investigation or audit, have been provided to Purchaser.
d. Seller is not aware of any material environmental liability
arising out of the utilization by Seller of any solid and hazardous waste
transporter or treatment, storage and disposal facility.
3.12 GOVERNMENTAL PERMITS. Seller owns, holds or possesses all federal,
state or local governmental permits, certificates, licenses, franchises,
privileges, immunities, approvals and other authorizations which are necessary
to entitle it to own or lease, operate and use the Assets and to
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carry on and conduct the Business (herein collectively called "GOVERNMENTAL
PERMITS"), except for such Governmental Permits that can now or hereafter be
obtained without delay and at nominal cost and as to which the failure to so
own, hold or possess would not have a material adverse effect on the Assets or
the Business. In connection with the Assets and the Business, Seller has
fulfilled and performed its obligations under each of the Governmental Permits
owned, held or possessed by it, and no event has occurred or exists which
constitutes a breach or default under any such Governmental Permit or which
permits, or after notice or lapse of time or both, would permit revocation or
termination of any such Governmental Permit or which may adversely affect in any
material respect the rights of Seller thereunder.
3.13 DISCLOSURE OF MATERIAL INFORMATION. With respect to the Business and
the Assets, neither this Agreement nor any Exhibit or Schedule hereto contains
any untrue statement of a material fact, or omits to state a material fact
necessary to make the statements herein or therein not misleading. No
representation or warranty by Seller or either Member in this Agreement, nor any
statement, certificate, schedule or exhibit hereto furnished or to be furnished
by or on behalf of Seller or either Member pursuant to this Agreement, nor any
document or certificate delivered to Purchaser pursuant to this Agreement or in
connection with transactions contemplated hereby, contains or shall contain any
untrue statement of material fact or omits or shall omit a material fact
necessary to make the statements contained therein not misleading. All
statements and information contained in any certificate, instrument, Disclosure
Schedule or document delivered by or on behalf of Seller or either Member shall
be deemed representations and warranties by the Seller and Members. There is no
fact (other than factors affecting the Business' industry generally) known to
Seller or either Member which materially adversely affects or may in the future
materially adversely affect the operations, properties or condition (financial
or otherwise) of the Business or the Assets.
3.14 INSURANCE. Set forth in Section 3.14 of the Disclosure Schedule is a
complete and accurate list and summary description of all policies of fire,
casualty, general liability, product liability, workers compensation, health and
other forms of insurance presently in effect with respect to the business and
properties of Seller, true and correct copies of which have heretofore been
delivered to Purchaser. Section 3.14 of the Disclosure Schedule includes,
without limitation, the carrier, the description of coverage, the limits of
coverage, retention or deductible amounts, amount of annual premiums, date of
expiration and the date through which premiums have been paid with respect to
each such policy, and any pending claims in excess of $50,000. All such policies
are valid, outstanding and enforceable policies and provide insurance coverage
for the properties, assets and operations of Seller, of the kinds, in the
amounts and against the risks customarily maintained by organizations similarly
situated; and no such policy (nor any previous policy) provides for or is
subject to any currently enforceable retroactive rate or premium adjustment,
loss sharing arrangement or other actual or contingent liability arising wholly
or partially out of events arising prior to the date hereof. Section 3.14 of the
Disclosure Schedule indicates each policy as to which (a) the coverage limit has
been reached or (b) the total incurred losses to date equal 75 % or more of the
coverage limit. No notice of cancellation or termination has been received with
respect to any such policy, and Seller has no knowledge of any act or omission
of Seller which could result in cancellation of any such policy prior to its
scheduled expiration date (except any cancellations resulting from the
consummation of the transactions contemplated by this Agreement). Seller has
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not been refused any insurance with respect to any aspect of the operations of
the Business nor has its coverage been limited by any insurance carrier to which
it has applied for insurance or with which it has carried insurance during the
last three years. Seller duly and timely made all claims that, to Seller's
knowledge, it has been entitled to make under each policy of insurance. Since
Seller's inception, all products liability and general liability policies
maintained by or for the benefit of Seller have been "occurrence" policies and
not "claims made" policies. There is no claim by Seller pending under any such
policies as to which coverage has been questioned, denied or disputed by the
underwriters of such policies, and Seller does not have knowledge of any basis
for denial of any claim under any such policy. Seller has not received any
written notice from or on behalf of any insurance carrier issuing any such
policy that insurance rates therefor will hereafter be substantially increased
(except to the extent that insurance rates may be increased for all similarly
situated risks) or that there will hereafter be a cancellation or an increase in
a deductible (or an increase in premiums in order to maintain an existing
deductible) or nonrenewal of any such policy. Such policies are sufficient in
all material respects for compliance by Seller with all requirements of law and
with requirements of all contracts to which Seller is a party.
3.15 INVENTORY. All inventories of raw materials, work-in-process, tooling
and finished goods (including all such in transit) of Seller, together with all
related packaging materials, reflected on Seller's February Balance Sheet
consists of a quality and quantity usable and saleable in the ordinary course of
business, have commercial values at least equal to the value shown on the
February Balance Sheet and is valued, at the lower of cost or market, in
accordance with Seller's internal accounting procedures which exclude an
allocation of manufacturing overhead costs to inventory but includes
Seller-owned tooling and an offset for customer prepayments for materials
included in work-in-process. All Inventory purchased since the date of the
February Balance Sheet consists of a quality and quantity usable and saleable in
the ordinary course of business. Except as set forth in Section 3.15 of the
Disclosure Schedule, all Inventory is located on premises owned or leased by
Seller as reflected in this Agreement. All work-in-process contained in
Inventory constitutes items in process of production pursuant to contracts or
open orders taken in the ordinary course of business, from regular customers of
Seller with no recent history of credit problems with respect to Seller; neither
Seller nor any such customer is in material breach of the terms of any
obligation to the other. All work-in-process is of a quality ordinarily produced
in accordance with the requirements of the orders to which such work-in-process
is identified, and will require no rework with respect to work performed prior
to Closing.
3.16 MAJOR CUSTOMERS. Section 3.16 of the Disclosure Schedule contains a
list of the five (5) largest customers of Seller for the most recent fiscal year
(determined on the basis of the total dollar amount of net sales) showing the
total dollar amount of net sales to each such customer during each such year.
Seller does not have any knowledge or information of any facts indicating, nor
any other reason to believe, that any of the customers listed in Section 3.16 of
the Disclosure Schedule will not continue to be customers of Purchaser after the
Closing at substantially the same level of purchases as heretofore.
3.17 EXISTING EMPLOYMENT CONTRACTS. Section 3.17 of the Disclosure
Schedule contains a list of all employment contracts and collective bargaining
agreements, and all pension, bonus,
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profit sharing, or other agreements or arrangements providing for employee
remuneration or benefits to which Seller is a party or by which they are bound;
all of these contracts and arrangements are in full force and effect, and
neither Seller nor any other party is in default under them. There have been no
claims of defaults and, to the best of Seller's knowledge there are no facts or
conditions which if continued, or on notice, will result in a default under
these contracts or arrangements. There is no pending or, to the best of Seller's
knowledge, threatened labor dispute, strike, or work stoppage affecting the
Assets or the Business.
3.18 EMPLOYEE BENEFITS.
a. Section 3.18 of the Disclosure Schedule lists all Employee Plans
covering persons currently or formerly employed by Seller ("EMPLOYEES"). The
term "EMPLOYEE PLAN" includes any pension, retirement, savings, disability,
medical, dental, health, life (including, without limitation, any individual
life insurance policy under which any Employee is the named insured and as to
which Seller makes premium payments, whether or not Seller is the owner,
beneficiary or both of such policy), death benefit, group insurance,
profit-sharing, deferred compensation, stock option, bonus (including without
limitation, holiday, vacation, Christmas and other bonus practices to which
Seller is a party or is bound or which relate to the operation of the Business
with respect to Employees), incentive, vacation pay, severance pay, or other
employee benefit plan, trust arrangement, agreement, policy or commitment
(including, without limitation, any employee pension benefit plan as defined in
Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") ("PENSION PLAN"), and any employee welfare benefit plan as defined in
Section 3(1) of ERISA ("WELFARE PLAN")), whether or not any of the foregoing is
funded or insured and whether written or oral, which is intended to provide or
does in fact provide benefits to any or all current Employee's, and (i) to which
Seller is party or by which Seller (or any of the rights, properties or assets
of the Company) is bound, (ii) with respect to which Seller has made any
payments, contributions or commitments, or may otherwise have any liability
(whether or not Seller still maintains such plan, trust, arrangement, contract,
agreement, policy or commitment) or (iii) under which any current Member,
Employee or agent of Seller is a beneficiary as a result of his employment or
affiliation with Seller.
b. With respect to any Employee, Seller has no obligation to
contribute to (or any other liability with respect to) any funded or unfunded
Welfare Plan, whether or not terminated, which provides medical, health, life
insurance or other welfare-type benefits for current or future retirees or
current, future or former Employees (including their dependents and spouses)
except for limited continued medical benefit coverage for former Employees,
their spouses and their other dependents as required to be provided under the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"),
and Seller is in compliance in all material respects with the continued medical
and other welfare benefit coverage requirements of COBRA and all other
applicable laws.
c. With respect to any Employee, Seller does not maintain,
contribute to or have any material liability under (or with respect to) any
Pension Plan which is a tax qualified "defined benefit plan" (as defined in
Section 3(35) of ERISA) or, a tax-qualified "defined contribution plan"
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(as defined in Section 3(34) of ERISA), or a non-qualified deferred compensation
plan for certain highly compensated or management employees whether or not
terminated. All contributions (including all employer contributions and employee
salary reduction contributions) which are due have been paid to each Employee
Plan or are reflected as a liability on the books of Seller and all
contributions for any period ending on or before the Effective Date which are
not yet due have been paid to each such Employee Plan or accrued in accordance
with the past custom and practice of Seller. All premiums or other payments for
all periods ending on or before the Closing Date have been paid with respect to
each such Employee Plan which is a Welfare Plan.
d. Seller has, with respect to all current and former Employee Plans
(and all related trusts, insurance contracts and funds), at all times complied
in all material respects with the applicable requirements of ERISA, the Internal
Revenue Code of 1986, as amended (the "CODE") and all other applicable statutes,
common law, regulations and regulatory pronouncements, or has, in the exercise
of its reasonable judgment, determined that such statutes (including ERISA),
common law, regulations and regulatory pronouncements were and are not
applicable to Seller. Seller has not engaged in nor is it bound to enter into,
any transaction with respect to any Employee Plan which would subject Seller to
any material liability due to either a civil penalty assessed pursuant to
Section 502(I) of ERISA or the tax or penalty on prohibited transactions imposed
by Section 4975 of the Code. No actions, suits or claims with respect to the
assets of any Employee Plan (and all related trusts, insurance contracts and
funds), other than routine claims for benefits, are pending or to Seller's
knowledge threatened which could result in a material adverse effect on the
Business. There are not now, nor have there been, any tax-qualified retirement
plans sponsored or maintained by Seller for Employees since January 1, 1975, nor
are there any unfunded obligations with respect thereto. With respect to any
Employee, Seller has no obligation to contribute to (or any other liability with
respect to) any "multi-employer plan," as defined in the Multi-employer Pension
Plan Amendments Act of 1980, and Seller has not incurred any current or
potential withdrawal or termination liability as a result of a complete or
partial withdrawal from any multi-employer plan or the sale of the Assets. Each
Employee Plan intended to qualify under Section 401(a) of the Code has been
determined by the Internal Revenue Service to be qualified under the
requirements of section 401(a) of the Code, the Internal Revenue Service has
issued a determination letter to that effect, and such letter remains effective
and has not been revoked. No unfulfilled obligation to contribute with respect
to an Employee Plan exists with respect to any Employee Plan year ending on or
before December 31, 1997, except as shown in the Closing Balance Sheet. There is
no agreement or promise, written or oral, of Seller to the effect that any
Employee Plan may not be terminated at Seller's discretion at any time, subject
to applicable law. The Closing Balance Sheet reflects all accrued vacation and
other benefits for Seller's employees as of the date thereof.
3.19 REQUIRED CONSENTS AND APPROVALS. Except as set forth in Section 3.19
of the Disclosure Schedule, Seller and each of the Members has the right, power,
legal capacity, and authority to enter into, and perform their respective
obligations under, this Agreement, and no approvals or consents or any persons
are necessary in connection with it. The execution and delivery of this
Agreement by Seller has been duly authorized by its members in accordance with
the LLC Act and Seller's Articles of Organization and its Operating Agreement.
Except as set forth in Section 3.19 of the Disclosure Schedule, no Contract or
other right necessary to effect the sale,
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delivery, transfer and conveyance of the Assets requires the consent, waiver or
approval of any person or entity.
3.20 ABSENCE OF CERTAIN CHANGES. Except as and to the extent set forth in
Section 3.20 of the Disclosure Schedule, since February 28, 1998 thru the
Closing Date, there has not been:
a. ADVERSE CHANGE. Any adverse change in the financial condition,
assets, liabilities, business, prospects or operations of Seller;
b. DAMAGE. Any loss, damage or destruction, whether covered by
insurance or not, affecting Seller's business or properties;
c. INCREASE IN COMPENSATION. Any increase in the salaries, wages or
other remuneration or compensation, or in any benefits payable or to become
payable to any employee or agent of Seller (including, without limitation, any
increase or change pursuant to any bonus, pension, profit sharing, retirement or
other plan or commitment), or any bonus or other employee benefit granted, made
or accrued;
d. LABOR DISPUTES. Any labor dispute or disturbance;
e. COMMITMENTS. Any commitment or transaction by Seller (including,
without limitation, any borrowing or capital expenditure) other than in the
ordinary course of business consistent with past practice;
f. DISTRIBUTIONS. Any liquidating or non-liquidating distribution
made to any member or assignee with respect to a membership interest in Seller,
including any distribution made by reason of the death or retirement of a
member, or any other payment to any member or assignee of Seller as such a
member or assignee;
g. DISPOSITION OF PROPERTY. Any sale, lease or other transfer or
disposition of any properties or assets of Seller, except for the sale of
inventory items in the ordinary course of business;
h. INDEBTEDNESS. Except with respect to Purchaser's loans to Seller,
any indebtedness for borrowed money incurred, assumed or guaranteed by Seller or
either Member;
i. LIENS. Any mortgage, pledge, lien or encumbrance made on any of
the properties or assets of Seller or either Member;
j. AMENDMENT OF CONTRACTS. Any entering into, amendment or
termination by Seller of any contract, or any waiver of material rights
thereunder, other than in the ordinary course of business;
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k. LOANS AND ADVANCES. Any loan or advance (other than advances to
employees in the ordinary course of business for travel and entertainment in
accordance with past practice) to any person including, but not limited to, any
officer, manager or employee of Seller, or any member, assignee or affiliate;
l. CREDIT. Any grant of credit to any customer on terms or in
amounts more favorable than those which have been extended to such customer in
the past, any other change in the terms of any credit heretofore extended, or
any other change of Seller's policies or practices with respect to the granting
of credit; or
m. NO UNUSUAL EVENTS. Any other event or condition not in the
ordinary course of business of Seller or either Member.
3.21 PRODUCT WARRANTY AND PRODUCT LIABILITY. Section 3.21 of the
Disclosure Schedule contains a true, correct and complete copy of all of
Seller's warranties for its products and services. There have been no variations
from such warranties. There are no express warranties, commitments or
obligations with respect to Seller's products or performance of services.
Section 3.21 of the Disclosure Schedule contains a description of all product
liability claims and similar claims, actions, litigation and other proceedings
relating to Seller's products or services rendered, which are presently pending
or which to Seller's knowledge are threatened, or which have been asserted or
commenced against Seller within the last year, in which a party thereto either
requests injunctive relief (whether temporary or permanent) or alleges damages
(whether or not covered by insurance). There are no defects in Seller's products
or services which would adversely affect performance of Seller's products or
services or create an unusual risk of injury to persons or property. Seller's
products and services have been designed or performed so as to meet and comply
with all governmental standards and specifications currently in effect and have
received all governmental and customer approvals necessary to allow their
production or performance.
3.22 MEMBER LIST. Section 3.22 of the Disclosure Schedule sets forth a
complete list of the names of all the members, assignees or other persons who
beneficially own an economic or voting control interest in Seller, together with
the percentage interest in voting rights and in the capital, profits and losses
beneficially owned by each such member, assignee or other person. Each person so
listed that is an individual is a competent adult and is the beneficial owner of
the membership interest so listed in his or her name, with the sole right to
vote, dispose of, and receive distributions with respect to such membership
interest.
3.23 ASSETS NECESSARY TO BUSINESS. The Assets include all property and
assets, tangible and intangible, and all leases, licenses and other agreements,
which are necessary to permit Purchaser to carry on, or currently use or hold
for use in, the Business as presently conducted.
3.24 CONTRACTS AND COMMITMENTS.
a. REAL PROPERTY LEASES. Except as set forth in Section 3.25(a) of
the Disclosure Schedule, neither Seller nor Member has any leases of real
property.
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b. PERSONAL PROPERTY LEASES. Except as set forth in Section 3.25(b)
of the Disclosure Schedule, neither Seller nor Member has any leases of personal
property.
c. PURCHASE COMMITMENTS. Seller does not have any purchase
commitments for inventory items or supplies that, together with amounts on hand,
constitute in excess of three (3) months normal usage or which are at an
excessive price, except the purchase of titanium forgings where Seller has a
firm purchase order from Seller's customers in support of the purchase
commitment.
d. SALES COMMITMENTS. Except as set forth in Section 25(d) of the
Disclosure Schedule, neither Seller nor the Member has any sales contracts or
commitments to customers which aggregate in excess of $50,000 to any one
customer (or group of affiliated customers). Seller does not have any sales
contracts or commitments, except those made in the ordinary course of business,
at arm's length, and no such contract or commitment is for a sales price which
would result in a loss (determined on a gross profit margin basis) to Seller.
e. CONTRACTS WITH AFFILIATES AND CERTAIN OTHERS. Seller does not
have any agreement, understanding, contract or commitment (written or oral) with
any affiliate or any other manager, officer, employee, agent, or consultant that
is not cancelable by Seller on notice of not longer than 30 days without
liability, penalty or premium of any nature or kind whatsoever.
▇. ▇▇▇▇▇▇ OF ATTORNEY. Neither Seller nor either Member has given a
power of attorney, which is currently in effect, to any person, firm or
corporation for any purpose whatsoever.
g. COLLECTIVE BARGAINING AGREEMENTS. Seller is not a party to any
collective bargaining agreements with any unions, guilds, shop committees or
other collective bargaining groups.
h. LOAN AGREEMENTS. Except as set forth in Section 3.25(h) of the
Disclosure Schedule, neither Seller nor either Member is obligated under any
loan agreement, promissory note, letter of credit, or other evidence of
indebtedness as a signatory, guarantor or otherwise.
i. GUARANTEES. Neither Seller nor either Member has guaranteed the
payment or performance of any person, firm or corporation, agreed to indemnify
any person or act as a surety, or otherwise agreed to be contingently or
secondarily liable for the obligations of any person, except in the ordinary
course of business.
j. CONTRACTS SUBJECT TO RENEGOTIATION. Seller is not a party to any
contract with any governmental body which is subject to renegotiation.
k. BURDENSOME OR RESTRICTIVE AGREEMENTS. Except as shown on Section
3.24(k) of the Disclosure Schedule, neither Seller nor ▇▇▇ ▇▇▇▇▇▇▇ is a party to
nor is either bound by any agreement, deed, lease or other instrument which is
so burdensome as to materially affect or impair
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the operation of the Business. Without limiting the generality of the foregoing,
neither Seller nor ▇▇▇ ▇▇▇▇▇▇▇ is a party to nor is either of them bound by any
agreement requiring Seller or ▇▇▇ ▇▇▇▇▇▇▇ to assign any interest in any trade
secret or proprietary information, or prohibiting or restricting Seller or ▇▇▇
▇▇▇▇▇▇▇ from competing in any business or geographical area or soliciting
customers or otherwise restricting the Business from carrying on its business
anywhere in the world.
l. SALES REPRESENTATIVE AGREEMENTS. Section 3.24(1) of the
Disclosure Schedule contains a list of all sales representative agreements of
Seller.
m. OTHER MATERIAL CONTRACTS. Seller has previously disclosed to
Purchaser any lease, contract or commitment of any nature involving
consideration or other expenditure in excess of $50,000, or involving
performance over a period of more than three months, or which is otherwise
individually material to the operations of Seller.
n. NO DEFAULT. Neither Seller nor either Member is in default under
any lease, contract or commitment, nor has any event or omission occurred which
through the passage of time or the giving of notice, or both, would constitute a
default thereunder or cause the acceleration of any of Seller's or either
Member's obligations or result in the creation of any lien on any of the assets
owned, used or occupied by Seller or either Member. Based on Seller's best
knowledge or what Seller reasonably should know, no third party is in default
under any lease, contract or commitment to which Seller is a party, nor has any
event or omission occurred which, through the passage of time or the giving of
notice, or both, would constitute a default thereunder or give rise to an
automatic termination, or the right of discretionary termination, thereof.
4. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser hereby represents and
warrants to Seller as follows:
4.1 ORGANIZATION AND STANDING. Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
Purchaser has all requisite corporate power to own and operate its properties
and assets, and to carry on its business as conducted and possesses all
licenses, franchises, rights and privileges necessary for the conduct of its
business. Purchaser is qualified to do business in all jurisdictions in which
such qualification is required.
4.2 CORPORATE POWER; AUTHORIZATION. Purchaser has all requisite legal and
corporate power and authority to enter into this Agreement and to carry out and
perform all of its obligations under the terms of this Agreement. All corporate
action on the part of Purchaser and all action on the part of its shareholders,
officers and directors necessary for the authorization, execution and delivery
of this Agreement and the Exhibits by Purchaser and for the performance of
Purchaser's obligations hereunder has been taken, and this Agreement and the
Exhibits, when duly executed and delivered, shall constitute the legal and
binding obligations of Purchaser, enforceable against Purchaser in accordance
with their terms, except as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to or
affecting enforcement
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of creditors' rights and by rules of law governing specific performance,
injunctive relief or other equitable remedies.
4.3 NO BREACH, ETC. The execution and delivery of this Agreement by
Purchaser and all documents to be executed by Purchaser in connection with the
transactions contemplated hereby do not, and the performance and consummation by
Purchaser of the transactions contemplated by this Agreement and the Exhibits
will not, result in any conflict with, breach or violation of or default,
termination, forfeiture or lien under (or upon the failure to give notice or the
lapse of time, or both, result in any conflict with, breach or violation of or
default, termination, forfeiture or lien under) any terms or provisions of
Purchaser's Certificate of Incorporation or Bylaws or similar charter documents,
each as amended, or any statute, rule, regulation, judicial or governmental
decree, order or judgment, or any agreement, lease or other instrument, to which
Purchaser is a party or by which its assets are bound.
4.4 PURCHASE STOCK. The offer, sale and issuance of the Purchase Stock in
conformity with the terms of this Agreement are exempt from the registration
requirements of Section 5 of the Securities Act of 1933, as amended, and are
exempt from qualification under the requirements of California law, subject to
any requirement that an appropriate notice be filed pursuant to the California
Corporate Securities Law of 1968. The Purchase Stock, when issued to Seller,
will be validly issued, fully paid and non-assessable. Except for the
restrictions set forth in the Stock Agreement (as defined below) and the Stock
Pledge (as defined below), when issued to Seller, the Purchase Stock shall be
free and clear of any lien, claim, encumbrance, security interest, pledge or
other right of any third party, and no option, warrant, restriction, right or
other agreement or commitment is or shall be outstanding or existing with
respect to the Purchase Stock. There are no rights in or claims possessed by any
person or entity enforceable against Purchaser in law or at equity to compel any
of the foregoing.
4.5 DISCLOSURE OF MATERIAL INFORMATION. No representation or warranty by
Purchaser in this Agreement, nor any statement, certificate, schedule or exhibit
hereto furnished or to be furnished by or on behalf of Purchaser pursuant to
this Agreement, nor any document or certificate delivered to Seller pursuant to
this Agreement or in connection with transactions contemplated hereby, contains
or shall contain any untrue statement of material fact or omits or shall omit a
material fact necessary to make the statements contained therein not misleading.
All statements and information contained in any certificate, instrument,
Disclosure Schedule or document delivered by or on behalf of Purchaser shall be
deemed representations and warranties by the Purchaser.
5. CLOSING.
5.1 TIME AND PLACE. The Closing shall be held as contemplated by Section
2.
5.2 ACTIONS AT CLOSING. At the Closing, in order to consummate the
transactions contemplated by this Agreement, each of the following actions shall
occur:
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a. AGREEMENT EXECUTED BY BOTH PARTIES. Each party shall duly execute
and deliver to the other party this Agreement.
b. PERFORMANCE BY PURCHASER. At the Closing, Purchaser shall duly
execute (where applicable) and deliver, or cause to be executed and delivered,
to Seller the following:
(1) The Cash Delivery by wire transfer to those accounts
designated by Seller (including, without limitation, wire transfers necessary to
pay the liabilities contemplated by paragraph c.16 below);
(2) An agreement providing for Purchaser to employ ▇▇▇▇▇▇
▇▇▇▇▇▇▇ after the Closing (the "PERSONAL SERVICES AGREEMENT") in the form
attached hereto as EXHIBIT F;
(3) The Operating Lease in the form attached hereto as EXHIBIT
G;
(4) The Option Agreement in the form attached hereto as
EXHIBIT H;
(5) The Stock Agreement in the form attached hereto as EXHIBIT
K;
(6) The Stock Pledge in the form attached hereto as EXHIBIT L;
(7) The Loan Agreement in the form attached hereto as EXHIBIT
I;
(8) The Escrow Agreement in the form attached hereto as
EXHIBIT M;
(9) An opinion of ▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP, counsel to
Purchaser, in the form attached hereto as EXHIBIT N;
(10) The Purchase Stock; and
(11) Satisfactory evidence of any approval of any regulatory
authorities whose approvals to the transactions contemplated by this Agreement
are required by law.
c. PERFORMANCE BY SELLER. At the Closing, Seller and/or Member shall
duly execute and deliver, or cause to be executed and delivered, to Purchaser
the following:
(1) The ▇▇▇▇ of Sale;
(2) The Non-Competition Agreement in the form attached hereto
as EXHIBIT E-1, and Non-Competition Agreements of ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇ and
▇▇▇▇▇▇ ▇▇▇▇▇ (the "KEY EMPLOYEES") in the form attached hereto as EXHIBIT E-2;
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(3) The Personal Services Agreement and related Proprietary
Information Agreement and Non-Competition Agreement in the forms attached hereto
as Exhibits Q-1 and T, respectively;
(4) The Operating Lease;
(5) The Option Agreement;
(6) The Master Promissory Note in the form attached hereto as
Exhibit O;
(7) The Stock Agreement;
(8) The Stock Pledge;
(9) The Loan Agreement;
(10) The Escrow Agreement;
(11) The Personal Guaranty of ▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇ in the form attached hereto as EXHIBIT S;
(12) The February Balance Sheet;
(13) Seller's amended Articles of Organization and Operating
Agreement, certified by all of Seller's members, which shall provide that Seller
may not take any of the actions as set forth in Section 5 of the Loan Agreement
without Purchaser's consent, which Purchaser shall not unreasonably withhold,
and that in the event that any of such actions take place without such consent,
such action or actions shall be void and without force or effect.
(14) Evidence satisfactory to Purchaser in its sole
discretion, that as of the Closing all of Seller's liabilities and accrued
obligations have been fully paid, other than those immaterial liabilities and
obligations agreed to by Purchaser at the Closing and which are set forth on the
February Balance Sheet, and that all liens, mortgages or other security
interests relating to those liabilities and obligations have been released,
which evidence shall include, without limitation, UCC termination statements and
other documentation evidencing the termination and release of the liens and
security interests held by Foothill and ▇▇▇▇▇▇; PROVIDED, HOWEVER, that the
provisions of this paragraph shall not apply to any liabilities, obligations,
liens, mortgages or other security interests owing or relating to (i) Assumed
Liabilities, (ii) the Dover Note (as defined in the Loan Agreement), including,
without limitation, any deed of trust or related document relating to the Dover
Note, (iii) Freedom Forge Corporation, a Delaware corporation, including,
without limitation, that certain Assumption and Modification of Promissory Note
made by Seller to Freedom Forge Corporation and dated as of December 11, 1996,
and any amendment thereto;
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(15) The waivers, consents and approvals contemplated by
Section 1.10 above that Seller has obtained as of the Closing;
(16) An opinion of Wolf, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, LLP, counsel to
Seller, in the form attached hereto as EXHIBIT R;
(17) Satisfactory evidence of any approval of any regulatory
authorities whose approvals are required by law;
(18) A certified copy of resolutions of Seller's members
approving the transactions contemplated by this Agreement as required by
applicable law, Seller's Articles of Organization, Operating Agreement or any
other applicable instrument;
(19) Certificate of Good Standing of Seller; and
(20) Such other evidence of the performance of all covenants
required of Seller by this Agreement at or before the Closing, as Purchaser or
its counsel may reasonably require.
d. By closing the transactions contemplated by this Agreement, each
party acknowledges that all deliveries required in this Section 5.2 have been
received; other than any deliveries permitted after the Closing, including,
without limitation, any consents, waivers or other approvals contemplated in
Section 1.10.
6. POST-CLOSING MATTERS.
6.1 USE OF SELLER'S NAME. At the Closing, Seller shall assign all its
rights and interest in the names "Spin Forge" and "Spin Forge, LLC," along with
all of Seller's other trademarks or trade names, to Purchaser. Following
Closing, neither Seller nor any affiliate shall, without the prior written
consent of Purchaser, make any use of the name "Spin Forge, LLC," "Spin Forge"
or any of Seller's other trademarks or trade names, or any other trade name or
trademark confusingly similar thereto, except as may be necessary for Seller to
pay its liabilities, prepare tax returns and other reports and exist in good
standing as a limited liability company.
6.2 SALES TAX MATTERS. Subject to Purchaser's obligations under Section
1.6 above, as soon as reasonably practicable following the Closing, Seller shall
timely file with the appropriate governmental authority all state and local
transfer, sales and use tax returns and shall make all other filings which may
be required in connection with the transactions contemplated hereby.
6.3 FINDERS FEES; PAYMENTS. Each party agrees to pay its own broker or
finders' fees in connection with any of the transactions contemplated by this
Agreement. Each party represents and warrants to the other that neither it, nor
any of its managers, officers, directors, employees, members, shareholders,
assignees or agents, have retained, employed or used any broker or other finder
in connection with the transactions contemplated by this Agreement or in
connection with the
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negotiation of this Agreement. Seller and Purchaser further agree to indemnify,
defend and hold harmless the other from against any loss, liability, damage,
cost claim, or expense, including, without limitation, reasonable attorneys'
fees, incurred by reason of any brokerage, commission, or finder's fee alleged
to be payable because of any act, omission, or statement of the indemnifying
party.
6.4 SEC FILINGS. Seller shall provide reasonable assistance to Purchaser,
at Purchaser's sole cost and expense, in furnishing reasonable financial data
relating to the Assets for inclusion in connection with a filing by the
Purchaser of Form 8-K with the Securities and Exchange Commission ("SEC"), if
required, during a period of sixty (60) days following the Closing. Such
assistance shall include furnishing financial data to Purchaser's independent
auditors.
6.5 BULK TRANSFER LAW. The parties waive compliance with the California
Uniform Commercial Code Bulk Sales law.
7. INDEMNIFICATION.
7.1 INDEMNIFICATION OF PURCHASER. Notwithstanding any investigation of the
business, financial condition, prospects or assets of Seller and Members made by
or on behalf of Purchaser prior to the Closing, Seller and Members shall,
jointly and severally, indemnify, defend and hold harmless Purchaser and its
respective officers, directors, employees, control persons, advisors and agents
from and against all damages, losses (including, without limitation, with
respect to clause (c) hereof, lost profits), expenses and liabilities (including
reasonable attorneys' fees) whether or not involving a Third Party Claim (the
foregoing are referred to collectively as "DAMAGES") relating to or arising out
of or in connection with (a) any breach of warranty or covenant or any
inaccurate, incomplete or erroneous representation of Seller or Members
contained in this Agreement or in any schedule, exhibit, agreement, certificate,
list or other instrument delivered pursuant hereto; (b) Transfer Taxes; (c) any
and all benefits (the "EXCLUDED CONTRACT BENEFITS"), including, without
limitation, prices of, revenue from and orders for products or services, to
which Seller was entitled under the Excluded Contracts as such contract was in
effect immediately prior to the Closing to the extent that Purchaser is unable
to realize such benefits due to a failure to obtain a required waiver, consent
or approval for the assignment of such contract, or (d) any liabilities of
Seller other than the Assumed Liabilities notwithstanding the waiver by
Purchaser of compliance with the provisions of the bulk sales or bulk transfer
statutes of the California Uniform Commercial Code.
7.2 INDEMNIFICATION OF SELLER. Notwithstanding any investigation of the
business, financial condition, prospects or assets of Purchaser made by or on
behalf of Seller prior to the Closing, Purchaser shall indemnify, defend and
hold harmless Seller and its respective officers, managers, employees, control
persons, advisors and agents from and against all Damages relating to or arising
out of or in connection with (a) any breach of warranty or covenant or any
inaccurate, incomplete or erroneous representation of Purchaser contained in
this Agreement or in any schedule, exhibit, agreement, certificate, list or
other instrument delivered pursuant hereto or, (b) the Assumed Liabilities.
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8. INDEMNIFICATION PROCEDURES.
8.1 NOTICE. In the event Purchaser, Seller or their respective officers,
directors, managers, employees, control persons, advisors and agents (each
individually the "INDEMNIFIED PARTY") seeks indemnification or defense under
Section 7 above, the Indemnified Party shall give the party from whom
indemnification is requested (the "INDEMNIFYING PARTY") written notice as
promptly as practicable after the Indemnified Party has received notice or
obtains knowledge of the matter that has given or could give rise to a right of
indemnification or defense under this Agreement. Such notice shall state the
amount of losses, if any, and the method of computation thereof, all with
reasonable specificity and shall contain a reference to the provisions of this
Agreement with respect to which such right of indemnification or defense is
claimed.
8.2 THIRD PARTY CLAIMS. With respect to any Damages to which the indemnity
or defense obligations of Section 7 apply and which arise from any third party
claim (a "THIRD PARTY CLAIM"), the Indemnified Party shall give the Indemnifying
Party written notice as promptly as practicable after receiving notice of any
Third Party Claim, but the failure to notify the Indemnifying Party will not
relieve the Indemnifying Party of any liability that it may have to any
Indemnified Party, except to the extent that the Indemnifying Party demonstrates
that the defense of such action is prejudiced by the Indemnifying Party's
failure to give such notice. If the Indemnifying Party acknowledges in writing
its obligation to indemnify the Indemnified Party hereunder against any losses
that may result from any Third Party Claim (subject to the limitations set forth
in this Section 7), then the Indemnifying Party shall be entitled, at its
option, to assume and control the defense of such Third Party Claim at its
expense and through counsel of its choice (subject to the consent of the
Indemnified party, not to be unreasonably withheld or delayed) upon giving
written notice of its intention to do so to the Indemnified Party. In such case,
the Indemnified Party shall be permitted, at its option, to participate in the
defense of any such Third Party Claim with counsel of its own choosing and at
its own expense; provided, however, that the Indemnified Party shall have the
right at the Indemnifying Party's expense, to, at its option, either (i) assume
the defense or (ii) have separate counsel if, in the reasonable judgment of the
Indemnified Party upon advice of outside counsel, representation of both the
Indemnified Party and the Indemnifying Party by the Indemnifying Party's counsel
would be inappropriate due to an actual or potential conflict of interest
between such parties, or if any such claim involves a matter which could have a
material adverse effect upon the Business. The parties agree to cooperate to the
fullest extent possible in connection with any claim for which indemnification
is or may be sought hereunder. If the Indemnifying Party does not elect to
assume and control the defense of such Third Party Claim, then the Indemnified
Party may, at its option, elect to assume and control such defense at the
reasonable expense of the Indemnifying Party (subject to the consent of the
Indemnifying Party, not to be unreasonably withheld or delayed) and through
counsel of the Indemnified Party's choice. If the Indemnifying Party exercises
its right to undertake the defense of any such Third Party Claim as provided
above, the Indemnified Party shall cooperate with the Indemnifying Party and
make available to the Indemnifying Party all pertinent records, materials and
information in its possession or under its control as is reasonably requested by
the Indemnifying Party. Similarly, if the Indemnified Party rightfully
undertakes the defense of any Third Party Claim, the Indemnifying Party shall
cooperate with the Indemnified Party and make available to it all such records,
materials and information in
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the Indemnifying Party's possession or under its control relating thereto as is
reasonably requested by the Indemnified Party. No Third Party Claim may be
settled by the Indemnifying Party or the Indemnified Party without the written
consent, not to be unreasonably withheld or delayed, of the other party;
provided, however, that if such settlement involves the payment of money only
and, by the payment of that money, the Indemnified Party is fully indemnified
and the Indemnified Party refuses to consent thereto, the Indemnifying Party
shall cease to be obligated with respect to such Third Party Claim. In no event
will either party conduct the defense of any Third Party Claim in a manner that
will unreasonably detract from or otherwise interfere with or disrupt the other
party's business or customers.
8.3 OTHER CLAIMS. A claim for indemnification for any matter not involving
a Third Party Claim may be asserted by notice to the party from whom
indemnification is sought.
8.4 CALCULATION OF LOSSES. The parties shall make appropriate adjustments
for the proceeds of any insurance coverage of, or any other form of cost
recovery obtained by, the Indemnified Party in determining the amount of Damages
for purposes of this Section 8, provided that the indemnifiable Damages shall
then be increased by any additional expense or liability associated with the
obtaining of benefits under such coverage, to the extent of and as a result of
such Damages.
8.5 NONEXCLUSIVITY OF INDEMNIFICATION REMEDIES. The indemnification
remedies and other remedies in this Section 8 shall not be deemed to be
exclusive. Accordingly, the exercise by any person of any of its rights under
this Section 8 shall not be deemed to be an election of remedies and shall not
be deemed to prejudice, or to constitute or operate as a waiver of, any other
right or remedy that such person may be entitled to exercise, whether under this
Agreement, under any other contract, under any statute, rule or other legal
requirement, at common law, in equity or otherwise.
8.6 MINIMUM DAMAGES. No party shall have any obligation or liability to
any other party under this Section 8 until the aggregate amount of all Damages
for which the Indemnified Party seeks or claims defense or indemnification
pursuant to this Section 8 (the "INDEMNIFIED DAMAGES") exceeds a threshold of
$25,000. Once an Indemnified Party's Indemnified Damages meet or exceed $25,000,
such party may seek or claim defense or indemnification for the full amount of
Indemnified Damages. However, this Section 8.5 will not apply to any breach of
any of Seller's or Member's representations and warranties of which either
Seller or Member had knowledge at any time prior to the date on which such
representation or warranty is made or any intentional breach by either Seller or
Member of any covenant or obligation, and Seller and Member will be jointly and
severally liable for all damages with respect to such breach. In addition, this
Section 8.6 will not apply to any breach of Purchaser's representations and
warranties where Purchaser had knowledge that such representation or warranty
was untrue at any time prior to the date on which such representation or
warranty is made or any intentional breach by Purchaser of any covenant or
obligation, and Purchaser will be liable for all damages with respect to such
breach.
9. MAXIMUM DAMAGES. Notwithstanding anything to the contrary in this Agreement,
but subject to the next sentence, the Members' aggregate liability under this
Agreement for Damages
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or otherwise (including, without limitation, for any breach of any covenant,
representation, warranty, indemnity, defense obligation or other obligation
under this Agreement) shall not exceed Two Million Four Hundred Thousand Dollars
($2,400,000). However, this Section 9 will not apply to (i) any breach of any of
either the Member's or Seller's representations and warranties where either of
the Members or Seller had knowledge that such representation or warranty was
untrue at any time prior to the date on which such representation and warranty
is made or any intentional breach by either Seller or either of the Members of
any covenant or obligation, and (ii) Transfer Taxes and Seller and Member will
be jointly and severally liable for all Damages with respect to such breaches.
10. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties made by Seller and Purchaser under this Agreement in connection with
the transactions contemplated hereby or in any schedule, exhibit, agreement,
certificate, list or other instrument delivered pursuant hereto shall survive
the Closing and any investigation made at any time with respect thereto and
shall terminate 24 months following the Closing Date; PROVIDED, HOWEVER, that
the representations and warranties contained in Sections 3.1, 3.2, 4.1 and 4.2
above shall terminate when the applicable statutes of limitations with respect
to such matters in question expire (after giving effect to any extension thereof
by waiver or otherwise) or 24 months following the Closing Date, whichever is
later.
11. CONFIDENTIALITY PROVISIONS.
11.1 OBLIGATION. Seller and Member agree that upon the Closing Date all of
the Assets shall be the sole and exclusive property of Purchaser and any
Confidential Information (as defined below) relating to the Assets shall
comprise a special, valuable and unique asset of Purchaser's business, and that
the confidentiality and restricted use of such Confidential Information is an
integral part of its ascribed value. Seller and Member shall use all reasonable
efforts, not less than those used to maintain the confidentiality of their own
confidential information, not to disclose or use such information after the date
of this Agreement. For purposes of this Agreement, "CONFIDENTIAL INFORMATION"
shall mean (a) any information, know-how, data, process, technique, design,
drawing, formula or test data relating to any research project, work in process,
future development, engineering, manufacturing, marketing, business plan,
servicing, financial or personnel matter relating to the Assets, the Business,
Purchaser, its present or future products, sales, suppliers, customers,
employees, investors or business, whether in oral, written, graphic or
electronic form; and (b) any information disclosed to Seller by any third party
which Seller is obligated to treat as confidential or proprietary, including all
whole or partial copies and versions thereof occurring in any form which
satisfies the terms and conditions of this Section 11.1.
11.2 EXCLUSIONS. Confidential Information shall not include and Seller
shall not be obligated to hold in confidence any information which (i) is or
becomes public knowledge without breach of this Agreement, or (ii) which is or
becomes publicly available without a confidentiality restriction and without
breach of this Agreement from a source other than Purchaser.
11.3 REMEDIES. Seller acknowledges that disclosure or use of any
Confidential Information prior to or after the Closing Date in a manner
inconsistent with this Section 10 or any
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other provision of this Agreement will cause Purchaser irreparable injury which
may not be adequately compensated by damages. Accordingly, in addition to all
other remedies that Purchaser may have hereunder Purchaser shall have the right
to equitable and injunctive relief to prevent the unauthorized use or disclosure
of any such Confidential Information and the right to such damages (including
without limitation, court costs and reasonable attorneys' fees) as are
occasioned by such unauthorized use or disclosure.
12. ENTIRE AGREEMENT AND AMENDMENTS; SECTION HEADINGS. This Agreement, including
the Exhibits and schedules referred to herein, which are incorporated herein and
made a part hereof, contains the final complete and exclusive understanding of
the parties hereto with respect to the subject matter contained herein and may
be amended or terminated only by a written instrument executed by Seller and
Purchaser or their respective successors or assigns. There are no
representations, promises, warranties, covenants or undertakings other than
those expressly set forth herein, and any of same prior to the Closing, together
with the Letter of Intent dated January 28, 1998 by and between Purchaser and
Seller, are hereby merged into this Agreement. The section and paragraph
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement.
13. COUNTERPARTS. This Agreement may be executed in counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
14. SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the provisions
hereof shall inure to the benefit of, and be binding upon, the successors and
assigns of the parties hereto; provided, however, that neither this Agreement
nor any rights or obligations accruing hereunder may be assigned or is
assignable by Seller or Purchaser, or may be delegated or is delegable, and any
attempted assignment or delegation shall be null and void.
15. APPLICABLE LAW. This Agreement shall be construed and enforced in accordance
with the laws of the State of California without regard to its choice-of or
conflict-of-laws rules and venue for any action to enforce or interpret this
Agreement shall be in a court of competent jurisdiction located in the State of
Colorado and each of the parties consents to the jurisdiction of such court in
any such action or proceeding and waives any objection to venue laid therein.
16. EXPENSES. Each party shall be responsible for its own fees and expenses,
including fees and expenses of legal counsel and/or accountants, incurred in
connection with the negotiation and preparation of this Agreement, the
associated documents and the consummation of the transactions contemplated
hereby and thereby.
17. EQUITABLE RELIEF. Seller and Member each further acknowledge that any breach
of warranty or covenant or any other provision of this Agreement will cause
Purchaser irreparable injury which may not be adequately compensated by damages.
Accordingly, in addition to all other remedies that Purchaser may have hereunder
Purchaser shall have the right to equitable and injunctive relief, including the
right to request specific performance of Seller's or Member's obligations
hereunder.
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18. "KNOWLEDGE" DEFINITION. As used herein, the expressions "knowledge," "best
of knowledge," "aware" or similar expressions include only the actual knowledge
of an individual or, in the case of Seller or Purchaser, the named individuals
listed below and the knowledge any of them should reasonably have by virtue of
his or her position, authority, responsibilities and activities, including all
such information as is in the files under the control or sued by such
individual. When such terms are used in connection with the knowledge of Seller,
such knowledge shall mean the knowledge of ▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇. When such terms are used in connection with the knowledge of Purchaser
such knowledge shall mean the knowledge of ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ Santa and ▇▇▇▇▇▇▇
▇▇▇▇.
19. FURTHER ASSURANCES. The parties shall at their own cost and expense execute
and deliver such further documents and instruments and shall take such other
actions as may be reasonably required or appropriate to carry out the intent and
purposes of this Agreement.
20. NOTICES. All notices, requests, demands and other communications under this
Agreement shall be given in writing and shall be served either personally, by
facsimile or delivered by first class mail, registered or certified, return
receipt requested, postage prepaid and properly addressed as follows:
If to the Purchaser: Dynamic Materials Corporation
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ Santa, Chief Financial Officer
Fax: 303/▇▇▇-▇▇▇▇
With a copy to: ▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP
Suite 4700
▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn.: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Fax: 303/▇▇▇-▇▇▇▇
If to Seller: Spin Forge, LLC
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn.: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
With a copy to: Wolf, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, LLP
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇▇.
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇▇
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Notice shall be deemed received upon the earliest of actual receipt,
confirmed facsimile or three (3) days following mailing pursuant to this
Section.
21. SEVERABILITY AND WAIVER. In the event that any provision of this Agreement
is held to be invalid or unenforceable, the valid or enforceable portion thereof
and the remaining provisions of this Agreement will remain in full force and
effect. Any waiver (express or implied) by either party of any default or breach
of this Agreement shall not constitute a waiver of any other or subsequent
default or breach.
22. PUBLIC ANNOUNCEMENTS. Purchaser and Seller shall consult upon the substance
of any and all press releases, publicity statements and other communications to
the public or to vendors and customers of Seller with respect to this Agreement
and the transactions contemplated hereby. However, Seller shall not at any time
make any such communication without the consent of the Purchaser.
23. THIRD PARTY BENEFICIARIES. Nothing in this Agreement shall be construed to
create any rights in any of Seller's or Purchaser's employees or in any other
person as a third party beneficiary or otherwise.
24. PRONOUNS. All pronouns used in this Agreement shall be deemed to refer to
the masculine, feminine or neuter gender, as the context requires.
25. ATTORNEYS' FEES. Should any litigation or arbitration occur between the
parties to this Agreement respecting or arising out of this Agreement, the
successful or prevailing party shall be entitled to recover its reasonable
attorneys' fees and other costs in connection therewith, including, without
limitation, any attorneys' fees incurred after a judgment has been rendered by a
court of competent jurisdiction.
IN WITNESS WHEREOF, the parties hereto have fully executed this Agreement
as of the date first written above.
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PURCHASER:
Dynamic Materials Corporation
/s/▇▇▇▇▇▇▇ Santa
-----------------------------------------
▇▇▇▇▇▇▇ Santa
Vice President, Finance and Chief
Financial Officer
SELLER:
Spin Forge, LLC
/s/▇▇▇ ▇▇▇▇▇▇▇
-----------------------------------------
▇▇▇ ▇▇▇▇▇▇▇
President and Manager
/s/▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇
-----------------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇, Vice President
MEMBERS:
/s/▇▇▇ ▇▇▇▇▇▇▇
-----------------------------------------
▇▇▇ ▇▇▇▇▇▇▇
/s/▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇
-----------------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇
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