EXHIBIT 2.3
STOCK PURCHASE AGREEMENT
by and among
RICHTON INTERNATIONAL CORPORATION,
HT ACQUISITION CORPORATION
and
J. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Dated as of February 24, 1999
TABLE OF CONTENTS
Page
----
I. DEFINITIONS.................................................................1
II. PURCHASE AND SALE..........................................................6
Section 2.1 Purchase and Sale of Shares........................6
Section 2.2 Closing............................................7
Section 2.3 Deliveries.........................................8
III. CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER..........................8
Section 3.1 Representations and Warranties Accurate............8
Section 3.2 Performance by Seller..............................9
Section 3.3 Opinion of Counsel for Seller and
the Company......................................9
Section 3.4 Legal Prohibition..................................9
Section 3.5 Consents, Permits, Licenses, Etc...................9
Section 3.6 No Material Adverse Change.........................9
Section 3.7 Pre-Closing Certificate............................9
IV. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER.............................10
Section 4.1 Representations and Warranties Accurate...........10
Section 4.2 Performance by Parent and Purchaser...............10
Section 4.3 Legal Prohibition.................................10
Section 4.4 Closing Matters...................................10
V. INDEMNIFICATION............................................................10
Section 5.1 Survival of Representations and Warranties........10
Section 5.2 Seller's Indemnity................................11
Section 5.3 Parent and Purchaser's Indemnity..................11
Section 5.4 Release...........................................11
Section 5.5 Notice and Defense of Claims......................12
Section 5.6 Reimbursement.....................................12
Section 5.7 Limitations.......................................13
Section 5.8 Insurance Recoveries; Tax Benefits................13
Section 5.9 Tax Gross-Up......................................14
Section 5.10 Exclusivity.......................................14
VI. REPRESENTATIONS AND WARRANTIES OF SELLER..................................14
Section 6.1 Organization and Qualification....................14
Section 6.2 No Subsidiaries...................................14
Section 6.3 Due Authorization.................................14
-i-
Page
----
Section 6.4 No Conflict.......................................14
Section 6.5 Capitalization....................................15
Section 6.6 Ownership of Shares...............................15
Section 6.7 Title to and Condition of Assets..................15
Section 6.8 Environmental Matters.............................16
Section 6.9 Financial Information.............................17
Section 6.10 Taxes.............................................19
Section 6.11 Events Subsequent to the Interim
Balance Sheet Date..............................21
Section 6.12 Contracts, Obligations and Commitments. .........22
Section 6.13 Litigation........................................24
Section 6.14 Compliance with Law...............................24
Section 6.15 Licenses; Registrations; Permits; Etc.............24
Section 6.16 Brokers...........................................24
Section 6.17 Intellectual Property.............................24
Section 6.18 Insurance.........................................25
Section 6.19 Plans and Agreements Relating to Employees........25
Section 6.20 No Illegal or Improper Transactions...............28
Section 6.21 Related Transactions..............................28
Section 6.22 No Product Liabilities; Product Warranties........28
Section 6.23 Suppliers and Customers...........................29
Section 6.24 Powers of Attorney................................29
Section 6.25 Year 2000 Compliance. ...........................29
Section 6.26 Availability of Documents.........................30
Section 6.27 Disclosure........................................30
VII. REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER...................30
Section 7.1 Organization......................................30
Section 7.2 Due Authorization.................................30
Section 7.3 No Conflict.......................................31
Section 7.4 Brokers...........................................31
Section 7.5 Securities Act Matters............................31
Section 7.6 Parent Financial Information......................32
Section 7.7 No Material Adverse Change........................32
Section 7.8 Disclosure........................................32
VIII. CERTAIN ACTIONS AFTER THE CLOSING.......................................32
Section 8.1 Maintenance of Books and Records..................32
Section 8.2 Salaries and Benefits.............................33
Section 8.3 Tax Matters.......................................33
Section 8.4 Assignment of Accounts Receivable.................34
Section 8.5 Further Assurances................................34
-ii-
Page
----
IX. MISCELLANEOUS.............................................................35
Section 9.1 Expenses..........................................35
Section 9.2 Amendments and Waivers............................35
Section 9.3 Entire Agreement..................................35
Section 9.4 Headings..........................................35
Section 9.5 Notices...........................................35
Section 9.6 Severability......................................36
Section 9.7 Assignment. .....................................37
Section 9.8 Counterparts......................................37
Section 9.9 Governing Law.....................................37
Section 9.10 Third Parties.....................................37
Section 9.11 Construction......................................37
-iii-
Page
----
-iv-
EXHIBITS
--------
Exhibit 1.1 Form of Accounts Receivable Note
Exhibit 2.3(b) Form of Release
Exhibit 2.3(c) Form of Employment Agreement
Exhibit 2.3(d) Form of Non-Competition Agreement
Exhibit 3.3 Form of Opinion of Counsel for Seller and the Company
SCHEDULES
---------
Schedule 6.4 Conflicts
Schedule 6.7(a) Liens
Schedule 6.7(b) Vehicles
Schedule 6.7(c) Equipment
Schedule 6.7(e) Leased Real Property
Schedule 6.9(g) Bank Accounts
Schedule 6.10 Taxes
Schedule 6.11 Certain Events
Schedule 6.12 Contracts
Schedule 6.13 Litigation
Schedule 6.15 Permits
Schedule 6.17 Intellectual Property
Schedule 6.18 Insurance
Schedule 6.19(a) Employee Plans
Schedule 6.19(i) Certain Officers, Employees, Independent Contractors and
Consultants
Schedule 6.19(j) Employees
Schedule 6.21 Related Transactions
Schedule 6.22 Warranties and Guarantees
Schedule 6.23 Suppliers and Customers
-v-
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of February 24, 1999, by and among
Richton International Corporation, a Delaware corporation ("Parent"), HT
Acquisition Corporation, a Delaware corporation and a wholly-owned subsidiary of
Richton Holding Corporation (a Delaware corporation and a wholly-owned
subsidiary of Parent) ("Purchaser"), and J. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, an individual
("Seller").
WHEREAS, Seller owns all of the outstanding capital stock of Creative
Business Concepts, Inc., a California corporation (the "Company");
WHEREAS, Purchaser desires to purchase, and Seller desires to sell, such
shares, upon the terms and subject to the conditions hereinafter set forth;
NOW, THEREFORE, in reliance upon the covenants and agreements set forth
herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. DEFINITIONS
The following terms shall have the following respective meanings for all
purposes of this Agreement:
"Accounts Receivable Note" means the promissory note of Purchaser,
substantially in the form of Exhibit 1.1 hereto, in a principal amount equal to
the amount of the Past Due Accounts Receivable.
"Affiliate" or "affiliate" means, with respect to any Person, any other
Person that, directly or indirectly, controls or is controlled by or is under
common control with such Person. As used in this definition of "Affiliate," the
term "control" and any derivatives thereof mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a Person, whether through ownership of voting securities, by
contract, or otherwise.
"Affiliated Group" means any affiliated group within the meaning of
Section 1504 of the Code or any similar group defined under a similar provision
of state, local or foreign law, including, but not limited to, any combined,
consolidated or unitary group.
-1-
"Agreement" means this Stock Purchase Agreement, as it may be from time to
time amended, including the Schedules and Exhibits hereto.
"Business" means the business conducted by the Company relating to network
integration.
"Closing" means the completion of the purchase and sale of the Shares
pursuant to this Agreement.
"Closing Date" means the date on which the Closing takes place.
"Closing Payment" means an aggregate of $2,200,000, less the amount of the
Past Due Accounts Receivable.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" means the common stock, no par value, of the Company.
"Company" means Creative Business Concepts, Inc., a California
corporation.
"Contaminated Site List" means any list, registry or other compilation
established by any governmental entity of sites that require or potentially
require investigation, removal actions, remedial actions or any other response
under any Environmental Laws or treaty covering environmental matters.
"Contracts" has the meaning set forth in Section 6.12.
"Earn-out" means the amount, if any, determined pursuant to Section 2.1(b)
and paid to Seller as partial payment for the Shares.
"Employee Plan" has the meaning set forth in Section 6.19(a).
"Environmental Conditions" means any pollution, contamination,
degradation, damage or injury caused by, related to or arising from or in
connection with the generation, handling, use, treatment, storage,
transportation, disposal, discharge, release or emission of any Hazardous
Materials.
"Environmental Laws" means all laws, rules, regulations, statutes,
ordinances, decrees or orders of any federal, state, local or foreign
governmental entity or any agency or division thereof relating to (a) the
control of any potential pollutant or protection of the air, water or land, (b)
solid, gaseous or liquid waste generation, handling, treatment, storage,
disposal or transportation, or (c)
-2-
exposure to hazardous, toxic or other substances alleged to be harmful, and
includes without limitation final and binding requirements related to the
foregoing imposed by (i) the terms and conditions of any license, permit,
approval or other authorization by any governmental entity, and (ii) applicable
judicial, administrative or other regulatory decrees, judgments and orders of
any such governmental entity. The term "Environmental Laws" shall include, but
not be limited to, the following statutes and the regulations promulgated
thereunder, as currently in effect or as subsequently amended: the Clean Air
Act, 42 U.S.C. ss. 7401 et seq.; the Clean Water Act, 33 U.S.C. ss. 1251 et
seq.; the Resource Conservation Recovery Act, 42 U.S.C. ss. 6901 et seq.; the
Superfund Amendments and Reauthorization Act, 42 U.S.C. ss. 11011 et seq.; the
Toxic Substances Control Act, 15 U.S.C. ss. 2601 et seq.; the Water Pollution
Control Act, 33 U.S.C. ss. 1251, et seq.; the Safe Drinking Water Act, 42 U.S.C.
ss. 300f et seq.; the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. ss. 9601 et seq.; and any similar state, federal,
foreign or local statute or ordinance.
"Environmental Remediation Costs" means all costs and expenses of actions
or activities to (a) clean up or remove Hazardous Materials from the
environment, (b) prevent or minimize the movement, leaching or migration of
Hazardous Materials into the environment, (c) prevent, minimize or mitigate the
Release or threatened Release of Hazardous Materials into the environment, or
injury or damage from such Release, or (d) comply with the requirements of any
Environmental Laws. Environmental Remediation Costs include, without limitation,
costs and expenses payable in connection with the foregoing for reasonable
legal, engineering or other consultant services, for investigation, testing,
sampling and monitoring, for boring, excavation and construction, for removal,
modification or replacement of equipment or facilities, for labor and material,
and for proper storage, treatment and disposal of Hazardous Materials.
"ERISA" means the Employee Retirement Income Security Act of 1974, as it
now exists and may hereafter be amended.
"ERISA Affiliate" means any person, firm or entity (whether or not
incorporated) which, by reason of its relationship with the Company, is required
to be aggregated with the Company under Sections 414(b), 414(c) or 414(m) of the
Code, or which, together with the Company, is a member of a controlled group
within the meaning of Section 4001(a) of ERISA.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"Financial Statements" has the meaning set forth in Section 6.9(a).
"Hazardous Materials" means any (a) toxic or hazardous materials or
substances; (b) solid wastes, including asbestos, buried contaminants,
chemicals, flammable or explosive materials; (c) radioactive materials; (d)
petroleum wastes and spills or Releases of petroleum products; and (e) any
-3-
other chemical, pollutant, contaminant, substance or waste that is regulated by
any governmental entity under any Environmental Law.
"Indemnified Party" has the meaning set forth in Section 5.5.
"Indemnifying Party" has the meaning set forth in Section 5.5.
"Indemnity Claim" has the meaning set forth in Section 5.6
"Intellectual Property" means all intellectual property rights, including
without limitation (a) all inventions (whether patentable or unpatentable and
whether or not reduced to practice), all improvements thereto, and all patents,
patent applications, and patent disclosures, together with all reissuances,
continuations, continuations-in-part, revisions, extensions, and reexaminations
thereof, (b) all trademarks, service marks, trade dress, logos, trade names, and
corporate names, together with all translations, adaptations, derivations, and
combinations thereof and including all goodwill associated therewith, and all
applications, registrations, and renewals in connection therewith, (c) all
copyrightable works, all copyrights, and all applications, registrations, and
renewals in connection therewith, (d) all mask works and all applications,
registrations, and renewals in connection therewith, (e) all trade secrets and
confidential business information (including ideas, research and development,
know-how, formulas, compositions, manufacturing and production processes,
technologies and techniques, technical data, designs, drawings, specifications,
customer and supplier lists, pricing and cost information, and business and
marketing plans, strategies and proposals), (f) all computer software (including
data and related documentation and all source codes and object codes), (g) all
other proprietary rights, and (h) all copies and tangible embodiments thereof
(in whatever form or medium).
"Interim Balance Sheet" has the meaning set forth in Section 6.9(a).
"Interim Balance Sheet Date" has the meaning set forth in Section 6.9(a).
"Interim Earn-out" means the amount, if any, determined pursuant to
Section 2.1(c).
"Leased Real Property" has the meaning set forth in Section 6.7(e).
"Material Adverse Change" means an occurrence or event which has had a
material adverse effect on the business, operations, assets, liabilities,
properties or condition (financial or otherwise) of the Company, except as to
matters affecting the economy or the network integration industry generally. In
determining whether an occurrence or event has had a material adverse effect,
such occurrence or event shall be considered individually and in the aggregate
with all similar or related occurrences or events.
-4-
"Net Worth" means total assets less total liabilities of the Company, as
set forth on the Interim Balance Sheet and determined in accordance with
generally accepted accounting principles on a basis consistent with that of the
Financial Statements.
"Parent Financial Statements" has the meaning set forth in Section 7.6.
"Past Due Accounts Receivable" shall mean the accounts receivable
reflected on the Interim Balance Sheet which are more than 90 days past due as
of the Interim Balance Sheet Date, less the amount of all accounts receivable
paid to the Company between the Interim Balance Sheet Date and the date of the
Pre-Closing Certificate.
"Permits" has the meaning set forth in Section 6.15.
"Person" means an individual, partnership, corporation, joint venture,
unincorporated organization, limited liability company, cooperative or other
business organization or a governmental entity or agency thereof.
"Pre-Closing Certificate" has the meaning set forth in Section 3.7.
"Product Liability" has the meaning set forth in Section 6.22(a).
"Purchase Price" means the aggregate price to be paid for the Shares,
which shall consist of the Closing Payment, the Accounts Receivable Note, the
Earn-out and the Seller's Note Payment.
"Purchaser Indemnified Parties" has the meaning set forth in Section 5.2.
"Release" means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping or disposing into
the environment.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Seller" shall mean Mr. J. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇.
"Seller's Note" means the promissory note made by Seller in favor of the
Company in the amount of $135,477, which amount consists of $112,000 in
principal and $23,477 in interest.
"Seller's Note Payment" has the meaning set forth in Section 2.1(e).
"Shares" means the 1,000 shares of Common Stock issued and outstanding and
owned of record and beneficially by Seller.
-5-
"Tax" or "Taxes" shall mean any and all federal, state, local, foreign and
other taxes, levies, fees, imposts, duties and charges of whatever kind
(including any interest, penalties or additions to the tax imposed in connection
therewith or with respect thereto), including, without limitation, taxes imposed
on, or measured by, income, franchise, profits, or gross receipts, and also ad
valorem, value added, sales, use, service, real or personal property, capital
stock, license, payroll, withholding, employment, social security, workers'
compensation, unemployment compensation, utility, severance, production, excise,
stamp, occupation, premium, windfall profits, transfer and gains taxes and
custom duties.
"Tax Refund" has the meaning set forth in Section 2.1(e).
"Tax Return" shall mean any return, report, information statement, and
other documentation (including any additional or supporting material) filed or
maintained, or required to be filed or maintained, in connection with the
calculation, determination, assessment or collection of any Tax.
"Unassumed Liabilities" means: (a) to the extent not accrued on any of the
Financial Statements, any obligation of the Company or Seller for Taxes
(including without limitation FICA and other employee withholding Taxes relating
to employees or independent contractors) with respect to all Taxable periods
ending on or prior to the Closing Date and with respect to the portion of any
Taxable period beginning prior to but ending after the Closing Date to the
extent such Taxes are allocated to Seller pursuant to Section 8.3; (b) all
recordation, stamp, transfer, filing, documentary or similar fees or Taxes
relating to the transactions contemplated by this Agreement; (c) any and all
costs, fees and expenses incurred by Seller or the Company in connection with
the negotiation of this Agreement and the consummation of the transactions
contemplated hereby; and (d) any liability or obligation arising out of the
conduct of the Business or the ownership of the Shares on or prior to the
Closing Date except to the extent accrued or reserved for on the Interim Balance
Sheet.
"Year 2000 Compliant" with respect to any computer systems, components or
products means that such computer systems, components or products (a) are
capable of recognizing, storing, recording, processing, managing, representing,
interpreting, and manipulating correctly date related data for dates earlier and
later than January 1, 2000, including, but not limited to, calculating,
comparing, sorting, storing, tagging and sequencing, without resulting in or
causing logical or mathematical errors or inconsistencies in any user-interface
functionalities or otherwise, including data input and retrieval, data storage,
data fields, calculations, reports, processing, or any other input or output,
(b) have the ability to provide data recognition for any data element without
limitation (including, but not limited to, date-related data represented without
a century designation, date-related data whose year is represented by only two
digits and date fields assigned special values), (c) have the ability to
automatically function into and beyond the year 2000 without human intervention
and without any change in operations associated with the advent of the year
2000, (d) have the ability to correctly interpret data, dates and time into and
beyond the year 2000, (e) have the ability not to produce noncompliance in
existing information, nor otherwise corrupt such data
-6-
into and beyond the year 2000, (f) have the ability to correctly process after
January 1, 2000 data containing dates before that date, and (g) have the ability
to recognize all "leap years," including February 29, 2000.
2. PURCHASE AND SALE
Section .1 Purchase and Sale of Shares. (a) At the Closing and upon the
terms and subject to the conditions of this Agreement, Seller shall sell,
transfer and deliver to Purchaser, and Purchaser shall purchase and acquire from
Seller, all of Seller's right, title and interest in and to the Shares, free and
clear of all liens, charges, security interests, rights or claims of others,
restrictions on transfer or other encumbrances. In consideration for the Shares,
Purchaser shall, on the Closing Date (i) make the Closing Payment by wire
transfer of immediately available funds to the accounts specified by Seller at
least two (2) business days prior to the Closing Date and (ii) deliver the
Accounts Receivable Note to Seller.
(b) On or before April 15, 2001, Purchaser will pay, or will cause
the Company to pay, the Earn-out to Seller. The Earn-out shall be payable by
wire transfer of immediately available funds to the account specified by Seller.
The amount of the Earn-out shall be equal to the amount of the Company's
earnings before income taxes for the two-year period ending December 31, 2000
(which shall be calculated based upon Parent's audited financial statements for
such period), divided by two, which amount shall be (x) reduced by $440,000, (y)
multiplied by 5.5 and (z) further reduced by the aggregate amount of any Interim
Earn-out payments made by Purchaser or the Company pursuant to Section 2.1(c)
below.
(c) In the event the Company's earnings before income taxes in 1999
are in excess of $440,000, Purchaser will pay, or will cause the Company to pay,
the Interim Earn-out to Seller. The Interim Earn-out shall be payable by wire
transfer of immediately available funds to the account specified by Seller in
two (2) equal installments on June 15, 2000 and September 15, 2000. The
aggregate amount of the Interim Earn-out shall be equal to the amount of the
Company's earnings before income taxes for the one-year period ending December
31, 1999 (which shall be calculated based upon Parent's audited financial
statements for such period), which amount shall be (y) reduced by $440,000 and
(z) multiplied by 2.75. Notwithstanding the foregoing, if at the end of any
month in the year 2000 prior to September 2000, the Company's average monthly
earnings before income taxes from January 1, 1999 to date are less than $36,667,
no Interim Earn-out shall be paid (or no further Interim Earn-out shall be paid
in the event the first installment has already been paid) to Seller.
(d) In the event Seller is paid one or both installments of the
Interim Earn-out in accordance with Section 2.1(c) above, but the Company's
earnings before income taxes in 1999 and 2000 do not, in the aggregate, exceed
$880,000, Seller shall repay to Purchaser, on or before April
-7-
15, 2001, the entire amount of such paid installment(s) of the Interim Earn-out,
by certified check or wire transfer of immediately available funds to the
account specified by Purchaser.
(e) In the event the Company receives a federal and/or state tax
refund for its fiscal year ended September 30, 1998 (collectively, the "Tax
Refund"), the Company shall, within fifteen (15) days of receipt of each
component of such Tax Refund, pay to Seller, by certified check or wire transfer
of immediately available funds to the account specified by Seller, the lesser of
(i) the total amount of the Tax Refund or (ii) $190,277 (the "Seller's Note
Payment"). Immediately following receipt of the Seller's Note Payment, Seller
shall allocate such amount to the payment in full of the Seller's Note and any
taxes thereon. If the Seller's Note Payment is less than the amount of the
Seller's Note, Seller shall apply the full amount of the Seller's Note Payment
to the payment of the Seller's Note, and shall immediately pay the remainder of
the Seller's Note before the payment of any taxes thereon.
(f) In calculating the Company's earnings before income taxes for
the purposes of this Section 2.1, (i) no allocation shall be made for the
corporate overhead of Purchaser, Parent or any other Affiliate; (ii) the term
"the Company" shall include the operations of the Costa Mesa office of CBE
Technologies, Inc. and such other entities as shall be agreed upon by both
Purchaser and Seller; and (iii) the Company's earnings before income taxes shall
be determined in accordance with generally accepted accounting principles, and,
to the extent possible, consistently with the past practices of the Company.
Section .2 Closing. The Closing shall take place at the offices of
Fulbright & ▇▇▇▇▇▇▇▇ L.L.P., ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, subject to satisfaction or waiver of the conditions set forth
in Articles III and IV hereof, at the opening of business on February 24, 1999,
or at such other date, time and place as the parties may agree. Each party
hereto agrees to use its reasonable efforts to satisfy promptly the conditions
to the obligations of the respective parties hereto in order to expedite the
Closing.
Section .3 Deliveries. On the Closing Date:
(1) Seller shall deliver to Purchaser certificates representing the
Shares, accompanied by stock powers duly executed in blank.
(2) Seller shall deliver to Purchaser a release, substantially in
the form attached as Exhibit 2.3(b) hereto.
(3) Seller and Purchaser shall deliver an executed employment
agreement, executed by both Seller and Purchaser and substantially in the form
attached as Exhibit 2.3(c) hereto.
(4) Seller and Purchaser shall deliver an executed non-competition
agreement, executed by both Seller and Purchaser and substantially in the form
attached as Exhibit 2.3(d) hereto.
-8-
(5) Seller shall deliver to Purchaser resignations of each director
and officer of the Company.
(6) Each of Seller, Parent and Purchaser shall deliver all
certificates, opinions and other documents required to be delivered pursuant to
Articles III and IV hereof.
(7) Purchaser shall pay the Closing Payment to Seller by wire
transfer of immediately available funds to the accounts specified by Seller at
least two (2) business days prior to the Closing Date and shall deliver the
Accounts Receivable Note to Seller.
(8) Seller shall deliver to Purchaser the minute book, stock book
and corporate seal of the Company.
3. CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER
The obligations of Purchaser under this Agreement to consummate the
transactions contemplated hereby at the Closing shall be subject to the
satisfaction, at or prior to the Closing, of all of the following conditions, to
the reasonable satisfaction of Purchaser (any of which may be waived in whole or
in part by Purchaser):
Section 3.1 Representations and Warranties Accurate. All representations
and warranties of Seller contained in this Agreement (including the Schedules
and Exhibits hereto) shall be true and correct in all material respects on and
as of the Closing Date with the same force and effect as though such
representations and warranties were made on and as of the Closing Date.
Section 3.2 Performance by Seller. Seller shall have performed and
complied in all material respects with all agreements, covenants and conditions
required by this Agreement to be performed and complied with by him prior to or
on the Closing Date.
Section .4 Opinion of Counsel for Seller and the Company. Purchaser shall
have received from White & ▇▇▇▇▇▇▇▇▇, P.C., counsel to Seller and the Company, a
written opinion, dated the Closing Date, substantially in the form attached
hereto as Exhibit 3.3.
Section 3.3 Legal Prohibition. On the Closing Date, no injunction or order
shall be in effect prohibiting consummation of the transactions contemplated
hereby or which would make the consummation of such transactions unlawful and no
action or proceeding shall have been instituted and remain pending before a
court, governmental body or regulatory authority to restrain or prohibit the
transactions contemplated by this Agreement which constitutes, or could be
reasonably anticipated to constitute, a Material Adverse Change. On the Closing
Date, no adverse decision shall
-9-
have been made by any such court, governmental body or regulatory authority
which constitutes, or could be reasonably anticipated to constitute, a Material
Adverse Change. Between the date hereof and the Closing Date, no federal, state
or local statute, rule or regulation shall have been enacted the effect of which
would be to prohibit, restrict, impair or delay the consummation of the
transactions contemplated hereby or materially restrict or impair the ability of
Parent or Purchaser to own or conduct the Business.
Section 3.4 Consents, Permits, Licenses, Etc. All authorizations,
consents, waivers, approvals, orders, registrations, qualifications,
designations, declarations, filings or other action required with or from any
federal, state or local governmental or other regulatory authority or third
party (including without limitation all parties to each of the Contracts) in
connection with the execution, delivery and performance of this Agreement, the
consummation of the transactions contemplated hereby and the conduct of the
Business by Purchaser after the Closing Date shall have been duly obtained and
shall be reasonably satisfactory to Purchaser and its counsel, and copies
thereof shall be delivered to Purchaser at or prior to the Closing, except where
the failure to so obtain would not cause a Material Adverse Change.
Section 3.5 No Material Adverse Change. There shall have been no Material
Adverse Change from the Interim Balance Sheet Date to the Closing Date which has
not been consented to by Purchaser.
Section 3.6 Pre-Closing Certificate. On the date which is two (2) business
days prior to the Closing Date, Seller shall have delivered to Purchaser a
certificate executed by Seller (the "Pre-Closing Certificate") certifying (i)
the amount of the Company's Net Worth as reflected on the Interim Balance Sheet,
which amount shall be not less than $550,000 and (ii) the amount of the Past Due
Accounts Receivable on the date of the Pre-Closing Certificate.
Section 3.7 Closing Matters. All proceedings to be taken by Seller and the
Company in connection with the consummation of the transactions contemplated
hereby and all certificates, opinions, instruments and other documents required
to effect the transactions contemplated hereby shall be reasonably satisfactory
in form and substance to Purchaser and its counsel. Section 1.1
I. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER
The obligations of Seller under this Agreement to consummate the
transactions contemplated hereby at the Closing shall be subject to the
satisfaction, at or prior to the Closing, of all of the following conditions, to
the reasonable satisfaction of Seller (any of which may be waived in whole or in
part by Seller):
Section 3.8 Representations and Warranties Accurate. All representations
and warranties of Parent and Purchaser contained in this Agreement shall be true
and correct in all material respects
-10-
on and as of the Closing Date, with the same force and effect as though such
representations and warranties were made on and as of the Closing Date.
Section 3.9 Performance by Parent and Purchaser. Parent and Purchaser
shall have performed and complied in all material respects with all agreements,
covenants and conditions required by this Agreement to be performed and complied
with by them prior to or on the Closing Date.
Section 3.10 Legal Prohibition. On the Closing Date, no injunction or
order shall be in effect prohibiting consummation of the transactions
contemplated hereby or which would make the consummation of such transactions
unlawful and no action or proceeding shall have been instituted and remain
pending before a court, governmental body or regulatory authority to restrain or
prohibit the transactions contemplated by this Agreement.
Section 3.11 Closing Matters. All proceedings to be taken by Parent or
Purchaser in connection with the consummation of the transactions contemplated
hereby and all certificates, instruments and other documents required to effect
the transactions contemplated hereby shall be reasonably satisfactory in form
and substance to Seller and his counsel.
4. INDEMNIFICATION
Section 4.1 Survival of Representations and Warranties. All
representations and warranties contained in this Agreement and the right of
indemnification with respect to breaches thereof shall survive the Closing,
regardless of any investigation made by Purchaser or Seller or on their behalf,
and shall remain in full force and effect as follows: (a) all representations
and warranties (other than those with respect to environmental matters, labor
and ERISA matters, Taxes, brokers' fees, organization and due authorization of
any Person, capitalization of the Company and ownership of the Shares) and the
right of indemnification with respect to breaches thereof shall remain in full
force and effect until March 31, 2001; (b) all representations and warranties
and the right of indemnification with respect to breaches thereof relating to
environmental matters, labor and ERISA matters and Taxes shall remain in full
force and effect until the expiration of the applicable statute of limitations,
except as to any matters with respect to which a claim shall have been made
before such date, in which event survival shall continue (but only with respect
to, and to the extent of, such claim) until the final resolution of such claim,
including all applicable periods for appeal; and (c) all representations and
warranties and the right of indemnification with respect to breaches thereof
relating to brokers' fees, organization and due authorization of any Person,
capitalization of the Company and ownership of the Shares (including their
status as free and clear of all liens, charges, security interests, rights or
claims of others, restrictions on transfer or other encumbrances) shall survive
forever (subject to any applicable statute of limitations), except as to any
matters with respect to which a claim shall have been made before such date, in
which event survival shall continue (but only with respect to, and to the extent
of, such claim) until the final resolution of such claim, including all
applicable periods for appeal.
-11-
Section 4.2 Seller's Indemnity. Subject to the limitations of Sections 5.1
and 5.7, Seller shall indemnify and hold harmless Parent, Purchaser, the Company
and their respective directors, officers, shareholders, employees, Affiliates,
successors and assigns (collectively, the "Purchaser Indemnified Parties") at
all times after the Closing Date against and in respect of:
(1) any damage, loss, cost, expense or liability (including amounts
paid in investigation or settlement and reasonable attorneys' fees) resulting to
any of them from any breach of any representation, warranty or nonfulfillment of
any agreement, covenant or condition on the part of Seller under this Agreement;
(2) all Unassumed Liabilities; and
(3) all claims, actions, suits, proceedings, demands, assessments,
judgments, costs and expenses incident to any of the foregoing.
Section 4.3 Parent and Purchaser's Indemnity. Subject to the limitations
of Sections 5.1 and 5.7, Parent and Purchaser, jointly and severally, shall
indemnify and hold harmless Seller at all times after the Closing Date against
and in respect of:
(1) any damage, loss, cost, expense or liability (including amounts
paid in investigation or settlement and reasonable attorneys' fees) resulting to
any of them from any false, misleading or inaccurate representation, breach of
warranty or nonfulfillment of any agreement, covenant or condition on the part
of Parent or Purchaser under this Agreement; and
(2) all claims, actions, suits, proceedings, demands, assessments,
judgments, costs and expenses incident to any of the foregoing.
Section 4.4 Release. Seller hereby agrees that he will not make any claim
for indemnification against the Company or any of its Affiliates by reason of
the fact that he was a director, officer, shareholder, employee, or agent of the
Company or any of its Affiliates or was serving at the request of the Company or
any of its Affiliates as a partner, trustee, director, officer, shareholder,
employee or agent of another entity (whether such claim is for judgments,
damages, penalties, fines, costs, amounts paid in settlement, losses, expenses,
attorneys' fees or otherwise and whether such claim is pursuant to any statute,
charter document, bylaw, agreement, or otherwise) with respect to any action,
suit, proceeding, complaint, claim, or demand brought pursuant to Section 5.2
hereunder (whether such action, suit, proceeding, complaint, claim, or demand is
pursuant to this Agreement, applicable law, or otherwise).
Section 4.5 Notice and Defense of Claims. Seller and any Purchaser
Indemnified Party entitled to indemnification under this Article V (each, an
"Indemnified Party") shall give notice to each party required to provide
indemnification (each, an "Indemnifying Party") promptly after such Indemnified
Party has actual knowledge of any claim as to which indemnity may be sought, and
-12-
shall permit the Indemnifying Party, at the Indemnifying Party's expense, to
assume the defense of any such claim or any litigation resulting therefrom,
provided that counsel for the Indemnifying Party, who shall conduct the defense
of such claim or any litigation resulting therefrom, shall be approved by the
Indemnified Party (whose approval shall not unreasonably be withheld or
delayed), and the Indemnified Party may participate in such defense at such
Indemnified Party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Article V unless and only to
the extent such failure to give notice materially prejudices the Indemnifying
Party's ability to defend such claim. The Indemnifying Party, in the defense of
any such claim or litigation, shall not, except with the consent of the
Indemnified Party, consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to the Indemnified Party of a release from all liability
in respect of such claim or litigation. The Indemnified Party shall furnish such
information regarding itself or the claim in question as the Indemnifying Party
may reasonably request in writing and as shall be reasonably required in
connection with the defense of such claim and litigation resulting therefrom.
This section shall not apply to tax proceedings, which are covered by Section
8.3(d) hereof.
Section 4.6 Reimbursement. At the time that the Indemnified Party shall
suffer a loss because of a breach of any warranty, representation or covenant by
the Indemnifying Party or at the time the amount of any liability on the part of
the Indemnifying Party under this Article V is determined (which in the case of
payment to third persons shall be the earlier of (i) the date of such payment or
(ii) the date that a court of competent jurisdiction shall enter a final
judgment, order or decree (after exhaustion of appeal rights) establishing such
liability) (such loss or amount being hereinafter referred to as the "Indemnity
Claim"), the Indemnifying Party shall forthwith, upon notice from the
Indemnified Party, pay to the Indemnified Party the amount of the Indemnity
Claim. Notwithstanding anything herein to the contrary and in addition to any
other remedy Purchaser may have, Purchaser may, at its option, provided the
Indemnity Claim is not in dispute as described below, set off the amount of any
Indemnity Claim against the amount due under the Earn-out, the Accounts
Receivable Note or the Seller's Note Payment, as follows: (A) first, the amount
due to Seller shall be reduced by the amount of such Indemnity Claim and (B) if
the amount due to Seller shall be reduced to zero, then in any manner in which
Purchaser shall see fit. In the event Seller notifies Purchaser, within seven
(7) business days from the date of notice that any Indemnity Claim is due, that
Seller is disputing such Indemnity Claim, Purchaser shall not have the option to
set off the amount of such Indemnity Claim but shall instead deposit any amounts
due Seller under the Earn-out, the Accounts Receivable Note or the Seller's Note
Payment, up to the amount of such Indemnity Claim, in an interest-bearing escrow
account with a commercial bank having a combined capital, surplus and undivided
profits of at least $100,000,000, as escrow agent. Following final resolution of
such dispute, the escrow agent shall disburse all funds in the escrow account as
provided in such resolution. If the amount of any Indemnity Claim is not paid
forthwith (or, at Purchaser's option, set off), then the Indemnified Party may,
at its option, take legal action against the Indemnifying Party for
reimbursement in the amount of its Indemnity Claim. For purposes hereof the
Indemnity Claim shall include the amounts so paid, or determined to be owing, by
the Indemnified Party together with costs and reasonable attorneys' fees and
interest on the foregoing
-13-
items at the rate of seven and one-half percent (7.5%) per annum from the date
of notice that the Indemnity Claim is due from the Indemnifying Party to the
Indemnified Party as hereinabove provided, until the Indemnity Claim shall be
paid.
In addition to its other obligations under this Section 5.6, each
Indemnifying Party agrees that, as an interim measure during the pendency of any
claim, action, investigation, inquiry or other proceeding for which
indemnification may be required pursuant to this Article V, it will, if it does
not assume the defense thereof, reimburse the Indemnified Party on a monthly
basis for all reasonable legal fees or other out-of-pocket expenses reasonably
incurred in connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the
Indemnifying Party's obligation to indemnify the Indemnified Party for such
expenses and the possibility that such payments might later be held to have been
improper by a court of competent jurisdiction. To the extent that any such
interim reimbursement payment is so held to have been improper, the Indemnified
Party shall promptly return it to the Indemnifying Party, together with interest
at the rate of seven and one-half percent (7.5%) per annum. Any such interim
reimbursement payments which are not made to the Indemnified Party within 30
days of a request for reimbursement shall be subject to set-off as set forth in
the preceding paragraph and shall bear interest at the rate of seven and
one-half percent (7.5%) per annum from the date of such request.
Section 4.7 Limitations. (a) Notwithstanding anything to the contrary
contained herein, neither the Purchaser Indemnified Parties, on the one hand, or
Seller, on the other hand, shall be entitled to indemnification from the other
until the aggregate losses suffered by the Purchaser Indemnified Parties, or
Seller, as applicable, and for which indemnification is available hereunder
exceed $40,000, whereupon the Purchaser Indemnified Parties, or Seller, as
applicable, shall be entitled to claim indemnification for all losses suffered
in excess of $40,000 and for which indemnification is available hereunder;
provided, however, that the limitations of this Section 5.7 shall not apply to
(i) any claim for indemnity relating to Taxes, (ii) any misrepresentation with
respect to the amount of the Company's Net Worth (other than as a result of a
breach of another representation or warranty that affects the Company's Net
Worth) and (iii) the obligation of any party to pay any amount of the Purchase
Price.
(1) The liability of any Indemnifying Party under this Article V
shall be limited in the aggregate to the Earn-out plus $1,000,000.
Section 4.8 Insurance Recoveries; Tax Benefits. The amounts for which an
Indemnifying Party shall be liable under this Article V shall be net of any tax
benefit realized or to be realized by the Indemnified Party as a result of the
facts and circumstances giving rise to the liability of the Indemnifying Party
and/or the making and receipt of an indemnity payment; and shall also be net of
any insurance proceeds actually received by the Indemnified Party in connection
with the facts giving rise to the right of indemnification.
-14-
Section I.5 Tax Gross-Up. If any indemnification payment is determined to
be taxable to the party receiving such payment by any taxing authority, the
paying party shall also indemnify the party receiving such payment for any Taxes
incurred by reason of the receipt of such payment (taking into account any
actual reduction in tax liability to the receiving party).
Section I.6 Exclusivity. Following the Closing, the provisions of this
Article V shall be the exclusive remedy for the matters covered hereby, provided
that nothing herein shall relieve any party from any liability for fraud.
5. REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Parent and Purchaser that:
Section 5.1 Organization and Qualification. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of California, with the requisite corporate power and authority to carry
on its business as presently conducted and to own, lease and operate the
properties and assets used in connection therewith. The Company is in good
standing as a foreign corporation and licensed or qualified to transact business
in each jurisdiction in which the conduct of its business or its ownership,
leasing or operation of properties and assets requires it to be so licensed or
qualified, except where the failure to be so licensed or qualified would not
cause a Material Adverse Change. The Company is not in default under or in
violation of any provision of its articles of incorporation or by-laws.
Section 5.2 No Subsidiaries. The Company has no direct or indirect
subsidiaries, whether or not consolidated, and neither the Company nor Seller
has any direct or indirect interests or investments in any other Person involved
in the Business.
Section 5.3 Due Authorization. Seller has all requisite power and
authority to execute and deliver this Agreement and the other documents required
to be executed and delivered by him hereunder, to perform fully his obligations
hereunder and thereunder and to consummate the transactions contemplated hereby
and thereby (including without limitation the sale of the Shares). This
Agreement has been duly executed and delivered by Seller. This Agreement is, and
each other agreement contemplated hereby to which Seller will be a party will
be, upon execution and delivery thereof by Seller, a legal, valid and binding
obligation of Seller, enforceable against him in accordance with its terms
(except as enforceability may be limited by any applicable bankruptcy,
insolvency or other laws affecting creditors' rights generally or by general
principles of equity, regardless of whether such enforceability is considered in
equity or at law).
Section 5.4 No Conflict. Except as set forth on Schedule 6.4 and except
for matters that would not result in a Material Adverse Change, neither the
execution and delivery of this Agreement or any of the other documents
contemplated hereby nor the consummation of the transactions contemplated hereby
or thereby by Seller will (a) conflict with, result in a breach or violation of
or
-15-
constitute (or with notice or lapse of time or both constitute) a default under
(i) the articles of incorporation or by-laws of the Company, (ii) any law,
statute, regulation, order, judgment or decree or (iii) any instrument, contract
or other agreement to which Seller or the Company is a party or by which Seller
or the Company (or any of their respective properties or assets) is subject or
bound; (b) result in the creation of, or give any party the right to create, any
lien, charge, option, security interest or other encumbrance upon the Shares or
the assets or properties of the Company; (c) terminate or modify, or give any
third party the right to terminate or modify, the provisions or terms of any
instrument, contract or other agreement to which the Company is a party or by
which the Company (or any of its properties or assets) is subject or bound; (d)
require the Company to obtain any authorization, consent, approval or waiver
from, to give any notification to, or to make any filing with, any governmental
body or authority or to obtain the approval or consent of any other Person; or
(e) result in any suspension, revocation, impairment, forfeiture or nonrenewal
of any Permit, license, qualification, authorization or approval applicable to
the Company.
Section 5.5 Capitalization. The authorized capital stock of the Company
consists of 10,000 shares of Common Stock, of which the Shares constitute the
only issued and outstanding shares. The Shares are owned, of record and
beneficially, by Seller. The Shares have been duly authorized and validly issued
and are fully paid and non-assessable. The Shares were issued in compliance with
all applicable federal and state securities laws. The Shares were not issued in
violation of any pre-emptive rights, rights of first refusal or similar rights.
There are no outstanding options, warrants, convertible securities, calls,
rights, commitments, preemptive rights, agreements, instruments or
understandings of any character to which the Company or Seller is a party or by
which the Company or Seller is bound, obligating the Company to issue, deliver
or sell, or cause to be issued, delivered or sold, contingently or otherwise,
additional shares of the Company's capital stock or any securities or
obligations convertible into or exchangeable for such shares or to grant, extend
or enter into any such option, warrant, convertible security, call, right,
commitment, preemptive right or agreement. There are no outstanding obligations,
contingent or otherwise, to which the Company or Seller is a party or by which
the Company or Seller is bound, obligating the Company to purchase, redeem or
otherwise acquire any of its capital stock. Neither the Company nor Seller is a
party to any voting trust agreement or other contract, agreement, arrangement,
commitment, plan or understanding restricting transfer or otherwise relating to
voting, dividend or other rights with respect to the capital stock of the
Company.
Section 5.6 Ownership of Shares. Seller is the legal and beneficial owner
of the Shares. Seller owns the Shares free and clear of all claims, charges,
equities, liens (including Tax liens), security interests, pledges, mortgages or
encumbrances whatsoever. Upon consummation of the transactions contemplated
hereby, assuming that Purchaser purchases the Shares in good faith without
notice of any adverse claims (as defined in Section 8-303 of the Uniform
Commercial Code as in effect in the State of California on the date hereof),
Purchaser will have acquired all the rights of Seller in the Shares free of any
adverse claim, any lien created by Seller or any restrictions on transfer.
-16-
Section 5.7 Title to and Condition of Assets. (a) The Company has good and
marketable title to, or valid and subsisting leasehold interests in or valid
licenses to use, all of its assets, free and clear of any liens, charges,
options, security interests or other encumbrances of any nature, options to
purchase or lease, easements, restrictions, covenants, conditions, or
imperfections of title, whether existing or proposed, except the lien of current
Taxes not yet due and payable and except as set forth on Schedule 6.7(a).
(b) Schedule 6.7(b) contains a true, correct and complete list of
all automobiles and vehicles owned, leased or used by the Company, indicating
whether each such automobile or vehicle is leased.
(c) Schedule 6.7(c) contains a true, correct and complete list of
all machinery, equipment, computers and computer hardware, tools, supplies,
leasehold improvements, construction in progress, furniture, fixtures, and other
tangible personal property (other than vehicles and automobiles) owned, leased
or used by the Company and, based on original asset costs less accumulated
depreciation and amortization associated with each asset, having a value of
greater than $1,000, indicating with respect to all such listed property whether
such property is leased.
(d) The Company owns no real property.
(e) Schedule 6.7(e) contains a true, correct and complete list of
all leases of real property under which the Company is a lessee (collectively,
the "Leased Real Property"). The Company enjoys peaceful and undisturbed
possession under all such leases and all such leases are valid and enforceable
in accordance with their respective terms, are in full force and effect, and
there is not under any such lease any default by the Company or, to the
knowledge of Seller and the Company, by any other party to any such lease, or
any condition, event or act which, with the giving of notice or lapse of time,
or both, would constitute such a default. The consummation of the transactions
contemplated by this Agreement will not require notification to or the consent
or approval of any lessor or any of the Leased Real Property.
Section 5.8 Environmental Matters. (a) (i) All licenses, permits, consents
or other approvals required to be obtained by the Company under Environmental
Laws that are necessary to the operations of the Business ("Environmental
Permits") have been obtained and are in full force and effect, and Seller and
the Company are unaware of any reasonable basis for revocation or suspension of
any such Environmental Permits; (ii) no Environmental Laws impose any obligation
upon Purchaser, as a result of any transaction contemplated hereby, requiring
prior notification to any governmental entity of the transfer of any
Environmental Permit; and (iii) the Business has at all times been operated in
full compliance with such Environmental Permits, and within the production
levels or emission levels specified in such Environmental Permits.
(b) The Company has at all times operated the Business in compliance
in all material respects with all applicable limitations, restrictions,
conditions, standards, prohibitions, requirements and obligations of
Environmental Laws.
-17-
(c) There are no existing, pending or, to the knowledge of Seller
and the Company, threatened actions, suits, claims, investigations, inquiries or
proceedings by or before any court or any other governmental entity directed
against the Company which pertain or relate to (i) any remedial obligations
under any applicable Environmental Law, (ii) violations of any Environmental
Law, (iii) personal injury or property damage claims relating to a Release of
chemicals or Hazardous Materials, or (iv) response, removal, or remedial costs
under any Environmental Law.
(d) No portion of the Leased Real Property is listed on any
Contaminated Site List.
(e) To the best knowledge of Seller, there has been no Release of
any Hazardous Materials on or underlying the Leased Real Property.
(f) To the best knowledge of Seller, no asbestos-containing
materials or polychlorinated biphenyls are present on or underlying the Leased
Real Property.
(g) To the best knowledge of Seller, there are no underground
storage tanks for Hazardous Materials, active or abandoned, at any of the Leased
Real Property or any real property previously owned or leased by the Company.
(h) Purchaser has been provided with all engineering, geologic,
environmental reports and other documents in the possession of the Company or
Seller relating to the Leased Real Property, including without limitation, those
relating to (i) any Environmental Conditions existing on the Leased Real
Property and (ii) any violations of any Environmental Laws.
(i) All Hazardous Materials generated, used, stored or transported
by the Company have been generated, used, stored, transported, treated and
disposed of in accordance with all applicable Environmental Laws.
(j) To the best knowledge of Seller, neither the Company nor Seller
has any current liability, nor is there any liability which may be reasonably
anticipated, for Environmental Remediation Costs.
Section 5.9 Financial Information. (a) Seller has delivered to Purchaser
(i) true, correct and complete copies, in all material respects, of the
Company's unaudited balance sheets as of September 30, 1996, 1997 and 1998 and
the related statements of operations and cash flows for each of the years in the
three year period ended September 30, 1998, together with notes to such
financial statements, and (ii) true, correct and complete copies, in all
material respects, of the Company's unaudited balance sheets as at December 31,
1998 and 1997 and the related statements of operations and cash flows for the
3-month periods then ended (collectively, the "Financial Statements"). The
-18-
unaudited balance sheet of the Company at December 31, 1998 is herein referred
to as the "Interim Balance Sheet," and December 31, 1998 is herein referred to
as the "Interim Balance Sheet Date."
(b) Except as otherwise noted, the Financial Statements are in
accordance with the books and records of the Company and have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods covered thereby. The balance sheets included in the
Financial Statements present fairly in all material respects as of their
respective dates the financial condition of the Company (subject, in the case of
the unaudited Financial Statements, to year end adjustments that may be required
upon audit, which adjustments will not have a material adverse effect on such
financial statements). All liabilities and obligations of the Company, whether
absolute, accrued, contingent or otherwise, whether direct or indirect, and
whether due or to become due, which existed at the date of such Financial
Statements have been disclosed on the balance sheets included in the Financial
Statements or in notes to the Financial Statements to the extent such
liabilities were required, under generally accepted accounting principles, to be
so disclosed. The statements of operations and cash flows included in the
Financial Statements present fairly in all material respects the results of
operations and cash flows of the Company for the periods indicated (subject, in
the case of the unaudited Financial Statements, to year end adjustments that may
be required upon audit, which adjustments will not have a material adverse
effect on such financial statements), and the notes included in the Financial
Statements present fairly the information purported to be shown thereby. The
statements of operations included in the Financial Statements do not contain any
items of special or non-recurring income material to the Company or other income
not earned in the ordinary course of business except as expressly specified
therein.
(c) The accounts receivable of the Company set forth on the Interim
Balance Sheet or arising since the date thereof are valid and genuine; have
arisen solely out of bona fide sales and deliveries of goods, performance of
services and other business transactions in the ordinary course of business
consistent with past practice; are not subject to valid defenses, set-offs or
counterclaims; and, except for the Past Due Accounts Receivable, are collectible
at the full recorded amount thereof within 90 days of the invoice date (by use
of the Company's normal collection methods without resort to litigation or
reference to a collection agency).
(d) All inventory of the Company, including without limitation raw
materials, work-in process and finished goods, reflected on the Interim Balance
Sheet or acquired since the date thereof was acquired and has been maintained in
the ordinary course of business; consists substantially of a quality, quantity
and condition usable, leasable or saleable in the ordinary course of business;
is valued at the lower of cost or market in accordance with generally accepted
accounting principles and consistent with the Financial Statements in all
material respects; and is not subject to any write-down or write-off. The
Company is not under any liability or obligation with respect to the return of
inventory in the possession of wholesalers, retailers or other customers.
(e) The Company has no material liabilities of any kind whatsoever,
whether or not accrued and whether or not contingent or absolute, determined or
determinable or otherwise,
-19-
including without limitation documentary or standby letters of credit, bid or
performance bonds, or customer or third party guarantees, and no existing
condition, situation or set of circumstances that could reasonably result in
such a liability, other than liabilities set forth on the Interim Balance Sheet
or on the Schedules hereto.
(f) The books, records and accounts of the Company accurately and
fairly reflect the transactions undertaken by and the assets and liabilities of
the Company.
(g) Schedule 6.9(g) lists the name and address of every bank and
other financial institution in which the Company maintains an account (whether
checking, savings or otherwise), lock box or safe deposit box, and the account
numbers and names of persons having signing authority or other access thereto.
(h) Since the Interim Balance Sheet Date there has been no Material
Adverse Change, whether as a result of any legislative or regulatory change,
revocation of any license or right to do business, fire, explosion, accident,
casualty, labor trouble, flood, drought, riot, storm, condemnation or act of God
or otherwise; and, to the best knowledge of Seller and the Company, no fact or
condition exists or is contemplated or threatened which could reasonably be
anticipated to cause such a change in the future.
Section 5.10 Taxes. (a) Except as set forth on Schedule 6.10:
(a) All Tax Returns required to be filed by or on behalf of the
Company and any Affiliated Group of which the Company was a member have been
properly prepared and duly and timely filed with the appropriate taxing
authorities in all jurisdictions in which such Tax Returns are required to be
filed (after giving effect to any valid extensions of time in which to make such
filings), and all such Tax Returns were true, complete and correct in all
material respects.
(b) All Taxes payable by or on behalf of the Company and any
Affiliated Group of which the Company was a member, or in respect of their
income, assets or operations (including interest and penalties) have been fully
and timely paid, and adequate reserves or accruals for Taxes have been provided
in the Financial Statements with respect to any period for which Tax Returns
have not yet been filed or for which Taxes are not yet due and owing. The
Company has made all required estimated tax payments for its 1997 and 1998 Tax
years to avoid any underpayment penalty.
(c) The Company has not executed or filed with any taxing authority
any agreement, waiver or other document or arrangement extending or having the
effect of extending the period for assessment or collection of Taxes (including,
but not limited to, any applicable statute of limitation), and no power of
attorney with respect to any Tax matter is currently in force.
(d) The Company has complied in all material respects with all
applicable laws, rules and regulations relating to the payment and withholding
of Taxes and has duly and timely withheld from employee salaries, wages and
other compensation and has paid over to the appropriate
-20-
taxing authorities all amounts required to be so withheld and paid over for all
periods under all applicable laws.
(e) Parent has received complete copies of (i) all U.S. federal and
foreign income or franchise Tax Returns of the Company relating to the taxable
periods since September 30, 1994 and (ii) any audit report issued within the
last three years relating to Taxes due from or with respect to the Company or
its income, assets or operations. All income and franchise Tax Returns filed by
or on behalf of the Company for the taxable years ended on the respective dates
set forth on Schedule 6.10 have been examined by the relevant taxing authority
or the statute of limitations with respect to such Tax Returns have expired.
(f) Schedule 6.10 lists all material types of Taxes paid and
material types of Tax Returns filed by or on behalf of the Company and indicates
those Taxes with respect to which the Company is or has been a member of an
Affiliated Group for any Tax purpose. No claim has been made by a taxing
authority in a jurisdiction where the Company does not file Tax Returns such
that it is or may be subject to taxation by that jurisdiction.
(g) All deficiencies asserted or assessments made as a result of
examinations by any taxing authority of the Tax Returns of or covering or
including the Company have been fully paid, and there are no other audits or
investigations by any taxing authority or proceedings in progress, nor has
Seller or the Company received any notice from any taxing authority that it
intends to conduct such an audit or investigation. No issue has been raised by a
U.S. federal, state, local or foreign taxing authority in any current or prior
examination which, by application of the same or similar principles, could
reasonably be expected to result in a proposed deficiency for any subsequent
taxable period. The results of any settlement and the necessary adjustments
resulting therefrom are properly reflected in the Financial Statements.
(h) Neither the Company nor any other Person (including Seller) on
behalf of the Company has (i) filed a consent pursuant to Section 341(f) of the
Code or agreed to have Section 341(f)(2) of the Code apply to any disposition of
a subsection (f) asset (as such term is defined in Section 341(f)(4) of the
Code) owned by the Company, (ii) agreed to or is required to make any
adjustments pursuant to Section 481(a) of the Code or any similar provision of
state, local or foreign law by reason of a change in accounting method initiated
by the Company or has any knowledge that the Internal Revenue Service has
proposed any such adjustment or change in accounting method, or has any
application pending with any taxing authority requesting permission for any
changes in accounting methods that relate to the business or operations of the
Company, or has otherwise taken any action that would have the effect of
deferring any liability for Taxes from any taxable period ending on or before
the Closing to any taxable period ending thereafter, (iii) executed or entered
into closing agreement pursuant to Section 7121 of the Code or any predecessor
provision thereof or any similar provision of state, local or foreign law with
respect to the Company, or (iv) requested any extension of time within which to
file any Tax Return, which Tax Return has since not been filed.
-21-
(i) No property owned by the Company (i) is property required to be
treated as being owned by another Person pursuant to the provisions of Section
168(f)(8) of the Internal Revenue Code of 1954, as amended and in effect
immediately prior to the enactment of the Tax Reform Act of 1986, (ii)
constitutes "tax-exempt use property" within the meaning of Section 168(h)(1) of
the Code or (iii) is "tax-exempt bond financed property" within the meaning of
Section 168(g) of the Code.
(j) The Company is not a party to any tax sharing or similar
agreement or arrangement (whether or not written) pursuant to which it will have
any obligation to make any payments after the Closing.
(k) There is no contract, agreement, plan or arrangement covering
any person that, individually or collectively, could give rise to the payment of
any amount that would not be deductible by Parent or any of its Affiliates by
reason of Section 280G of the Code, or would constitute compensation in excess
of the limitation set forth in Section 162(m) of the Code.
(l) The Company has substantial authority for the treatment of or
has disclosed (in accordance with Section 6662(d)(2)(B)(ii) of the Code) on its
federal income Tax Returns all positions taken therein that could give rise to a
substantial understatement of federal income tax within the meaning of Section
6662(d) of the Code.
(m) The Company is not subject to any private letter ruling of the
Internal Revenue Service or comparable rulings of other taxing authorities.
(n) There are no liens as a result of any unpaid Taxes upon any of
the assets of the Company.
(o) All material Tax elections of the Company are clearly set forth
in the Tax Returns described in Section 6.10(e). The Company does not have
elections in effect for U.S. federal income tax purposes under Sections 108,
168, 338, 441, 463, 472, 1017, 1033 or 4977 of the Code.
(p) The Company has never been a member of any Affiliated Group of
corporations for any Tax purposes. The Company has no liability for Taxes of any
person (other than the Company) under section 1.1502-6 of the Treasury
regulations under the Code (or any similar provision of state, local or foreign
law), as a transferee or successor or otherwise. The Company does not own any
interest in any entity that is treated as a partnership for U.S. federal income
tax purposes or would be treated as a pass-through or transparent entity for any
tax purpose.
(q) Seller is not a foreign person within the meaning of Section
1445 of the Code.
-22-
(r) The Company has not filed an election pursuant to Revenue
Procedure 95-11, 1995-1 C.B. 505 or under Treasury regulation Section
1.1502-75(c) or any similar provision of foreign, national, international, state
or local law.
Section 5.11 Events Subsequent to the Interim Balance Sheet Date. Except
as set forth on Schedule 6.11 and except for events that would not result in a
Material Adverse Change, since the Interim Balance Sheet Date, the Company has
not (a) borrowed any amount or incurred or become subject to any liability
(absolute, accrued or contingent), except current liabilities, liabilities under
contracts entered into, borrowings under banking facilities disclosed in the
Schedules hereto and liabilities in respect of letters of credit issued under
such banking facilities, all of which were in the ordinary course of business;
(b) discharged or satisfied any lien or paid any obligation or liability
(absolute, accrued or contingent) other than current liabilities shown on the
Interim Balance Sheet (including without limitation regularly scheduled payments
(but not prepayments) of long-term debt) and current liabilities incurred since
the Interim Balance Sheet Date in the ordinary course of business; (c) failed to
pay or discharge when due its liabilities or obligations in accordance with past
practices; (d) other than liens pursuant to purchase money security interests in
an aggregate amount of less than $20,000, mortgaged, pledged or subjected to
lien any of its assets, tangible or intangible, other than liens of current real
property Taxes not yet due and payable; (e) sold, assigned or transferred any of
its tangible assets except for the sale of inventory in the ordinary course of
business, canceled any debt or claim, or waived any right of substantial value
whether or not in the ordinary course of business; (f) sold, assigned,
transferred or granted any license with respect to any Intellectual Property;
(g) suffered any damage or destruction, whether or not covered by insurance; (h)
made commitments or agreements for capital expenditures or capital additions or
betterments exceeding in the aggregate $20,000; (i) received notice or had
knowledge of any actual or threatened labor trouble, strike or other occurrence,
event or condition of any similar character which has had or could reasonably be
expected to have an adverse effect on its business, operations, assets,
properties, prospects or condition (financial or otherwise); (j) suffered any
material adverse change in its relations with, or any loss or threatened loss
of, any of its suppliers or customers disclosed pursuant to Section 6.23; (k)
(1) granted any severance or termination pay to any of its directors, officers,
employees, independent contractors or consultants, (2) entered into any
employment, deferred compensation or other similar agreement (or any amendment
to any such existing agreement) or arrangement with any of its directors,
officers, employees, independent contractors or consultants, (3) increased any
benefits payable under any existing severance or termination pay policies or
agreements with directors, officers, employees, independent contractors or
consultants, (4) increased the compensation, bonus or other benefits payable to
any of its directors, officers, employees, independent contractors or
consultants except in the ordinary course of business, or (5) made any loan to,
or entered into any other transaction with, any of its directors, officers,
employees, independent contractors or consultants except in the ordinary course
of business; (l) made any material change in the manner of its business or
operations; (m) made any material change in any method of accounting or
accounting practice; (n) declared, set aside or paid any dividend or made any
distribution on any shares of its capital stock (whether in cash or in kind), or
redeemed, purchased, or otherwise acquired any shares of its capital stock; (o)
entered into any transaction
-23-
except in the ordinary course of business or as otherwise contemplated hereby;
or (p) entered into any commitment (contingent or otherwise) to do any of the
foregoing.
Section 5.12 Contracts, Obligations and Commitments. The Company does not
have any existing contract, obligation or commitment (written or oral) of any
nature (other than obligations involving annual payments of less than $25,000
individually or $50,000 in the aggregate), including without limitation the
following, except as set forth on Schedule 6.12:
(a) Employment, bonus, severance, independent contractor or
consulting agreements, retirement, stock bonus, stock option, or similar plans;
(b) Loan or other agreements, notes, indentures or instruments
relating to or evidencing indebtedness for borrowed money or mortgaging,
pledging, granting or creating a lien or security interest or other encumbrance
on any of its assets or any agreement or instrument evidencing any guaranty of
payment or performance by any other Person;
(c) Agreements with any labor union or collective bargaining
organization or other labor agreements;
(d) Any contract or series of contracts with the same Person for the
furnishing or purchase of equipment, goods or services;
(e) Any joint venture contract or arrangement or other agreement
involving a sharing of profits or expenses;
(f) Agreements which would, after the Closing Date limit the freedom
of the Company or Purchaser to compete in any line of business or in any
geographic area or with any Person;
(g) Agreements providing for the disposition of any material amount
of its properties or assets or any shares of its capital stock;
(h) Any distribution, dealer, representative or sales agency
agreement, contract or commitment;
(i) Any commitment or agreement for capital expenditures or
leasehold improvements;
(j) Any license, franchise, distributorship or other agreement which
relates in whole or in part to any Intellectual Property, with the exception of
any non-material confidentiality agreement designed to protect the Company's
confidential information;
(k) Any contract, commitment or arrangement not made in the ordinary
course of business; or
-24-
(l) Agreements with the federal government or any state or local
government or any agency thereof.
Each contract, agreement, arrangement, plan, lease, license or similar
instrument to which the Company is a party, whether or not set forth on the
Schedules hereto (collectively, the "Contracts"), is a valid and binding
obligation of the Company, and, to the best of Seller's and the Company's
knowledge, the other parties thereto, enforceable in accordance with its terms
(except as the enforceability thereof may be limited by any applicable
bankruptcy, insolvency or other laws affecting creditors' rights generally or by
general principles of equity, regardless of whether such enforceability is
considered in equity or at law), and is in full force and effect, and neither
the Company nor, to the best of Seller's and the Company's knowledge, any other
party thereto has breached any material provision of, nor is in default in any
material respect under the terms of (and, to the best of Seller's and the
Company's knowledge, no condition exists which, with the passage of time, the
giving of notice, or both, would result in a default under the terms of), any of
the Contracts. To the best of Seller's and the Company's knowledge, no Contract
contains any contractual business requirement with which there is a reasonable
likelihood that the Company will be unable to comply, except where any failure
to so comply would not result in a Material Adverse Change. Each Contract (other
than those which expire in accordance with the terms thereof) will continue to
be legal, valid, binding, enforceable and in full force and effect on identical
terms immediately following the consummation of the transactions contemplated
hereby.
Section 5.13 Litigation. Except as set forth on Schedule 6.13, neither the
Company nor any Affiliate of the Company, nor any of their respective directors,
officers, employees or agents (in their capacity as such) is a party to any
pending or, to Seller's and the Company's best knowledge, threatened action,
suit, proceeding or investigation, at law or in equity or otherwise in, before
or by any court or governmental board, commission, agency, department or office,
or private arbitration tribunal, nor does Seller or the Company know, after due
inquiry, of any basis therefor, (a) arising in connection with the conduct of
business by the Company, (b) to restrain, prohibit or invalidate, or to obtain
damages or other relief from the Company or any of its Affiliates, or any of
their respective directors or officers, or equitable or other relief in respect
of this Agreement or the transactions contemplated hereby, (c) which arises out
of any contract, agreement, letter of intent or arrangement alleged to have been
entered into or agreed to by Seller or the Company and which conflicts with this
Agreement or the transactions contemplated hereby, or gives rise to a claim or
right of any kind of any Person as a result of the execution of this Agreement
or the consummation of the transactions contemplated hereby, (d) which, if
successful, could adversely affect the right of Purchaser after the Closing Date
to own the Company or to conduct the Business, or (e) to suspend, revoke, annul,
limit, terminate, amend or modify any Permit. Neither the Company nor Seller is
a party or is subject to any order, ruling, judgment, decree or stipulation
which affects the Business or which would prevent the transactions contemplated
by this Agreement.
Section 5.14 Compliance with Law. Except where the failure to so comply
would not result in a Material Adverse Change, the Company has been and is in
compliance with all applicable
-25-
laws, rules, regulations and court or administrative orders and processes
(including, without limitation, any that relate to transportation, zoning,
communications, environmental regulation, consumer protection, health and
safety, products and services, proprietary rights, anti-competitive practices,
collective bargaining, ERISA, equal opportunity, and improper payments). The
Company has not received any written notice from any governmental authority, and
to the best of Seller's and the Company's knowledge, no oral notice has been
given and no notice of any kind is threatened, alleging that the Company has
violated, or not complied with, any of the above.
Section 5.15 Licenses; Registrations; Permits; Etc. The Company and each
of its officers, directors, employees and independent contractors possess all
governmental registrations, licenses, permits, authorizations and approvals
(collectively referred to herein as "Permits") necessary to operate the Business
as currently conducted, which necessary Permits are set forth on Schedule 6.15.
All such Permits are in full force and effect and no such party is in default
under any of such Permits and no event has occurred and no condition exists
which, with the giving of notice, the passage of time, or both, would constitute
a default thereunder.
Section 5.16 Brokers. Except for a broker's fee to ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ &
Co., the payment of which is the responsibility of Seller pursuant to Section
9.1, neither Seller, the Company nor any of the Company's Affiliates has paid or
become obligated to pay any fee or commission to any broker, finder, investment
banker or other intermediary in connection with the transactions contemplated by
this Agreement.
Section 5.17 Intellectual Property. Schedule 6.17 contains a true and
complete list of all patents, trademarks and servicemarks (either registered,
common law or registration applied for), trade names, copyrights and third party
licenses which are owned, used, registered in the name of or licensed by the
Company, or in which the Company otherwise has an interest, together with a
brief statement as to any filing, registration or issuance thereof, as to any
licenses, sublicenses, covenants or agreements entered into or granted by or to
the Company with respect thereto and as to any pending or threatened disputes or
adverse claims with respect thereto. The Company owns or is licensed or
otherwise has the right to use all the Intellectual Property necessary to carry
on the Business as currently conducted. All licenses, if any, of the Company to
use Intellectual Property necessary to carry on the Business as currently
conducted are in full force and effect and neither the Company nor, to the best
of Seller's and the Company's knowledge, any of the other parties to such
licenses is in material breach of any provision of, or in material default under
any of the terms of, such licenses. The Company has not granted any Person any
exclusive license or other right to use any of the Intellectual Property
necessary to carry on the Business as currently conducted, whether requiring the
payment of royalties or not. The Company does not infringe upon or unlawfully or
wrongfully use any Intellectual Property owned or claimed by another, and to the
best of Seller's and the Company's knowledge, no Person is infringing upon, or
is in violation of, any Intellectual Property or rights thereto of the Company.
Subsequent to the Closing, no current or former director, officer, stockholder
or employee of the Company shall own, have an interest in or have the right to
use any Intellectual Property which is being, or was at any time since January
1, 1994, utilized in the Business. There is no pending or, to the best of
Seller's and the Company's knowledge,
-26-
threatened claim or litigation against the Company contesting its right to use
Intellectual Property, asserting the misappropriation or misuse of any
Intellectual Property or asserting that the Company has violated or infringed
the Intellectual Property of another party. This Agreement and the consummation
of the transactions contemplated hereby will not in any manner affect the
Company's rights after the Closing with respect to, or their ability to use, the
Intellectual Property necessary to carry on the Business as currently conducted
immediately subsequent to the Closing. Since January 1, 1994, the Company has
not conducted business under any corporate, trade or fictitious name other than
the names listed on Schedule 6.17.
Section 5.18 Insurance. Schedule 6.18 sets forth all insurance agreements
and policies maintained by the Company or under which the Company is listed as a
beneficiary or additional insured (including any self-insurance arrangements)
and the type and amounts of coverage thereunder, which coverage reflects all
insurance which is required by Law to be maintained by the Company. During the
past three years, the Company has not been refused insurance, nor has its
coverage been limited, nor has any claim in excess of $25,000 individually or
$50,000 in the aggregate been made in respect of any such insurance. All of such
policies, agreements and arrangements are in full force and effect, the Company
is not delinquent with respect to any premium payments thereon, no notice of
cancellation has been received, and there is no existing default or event which,
with the giving of notice or lapse of time or both, would constitute a default
thereunder. The Company maintains the type and amount of insurance which is
adequate to protect it and its financial condition against the risks involved in
the conduct of the Business. The Company has no performance bonds or letters of
credit which are required by law or any agreement, contract or commitment,
including the Contracts, to be maintained or entered into by the Company.
Section 5.19 Plans and Agreements Relating to Employees. (a) Schedule
6.19(a) lists each of the following plans, contracts, policies and arrangements
which is or, within six years prior to the Closing Date, was sponsored,
maintained or contributed to by, or otherwise binding upon the Company or, in
the case of an "employee pension plan" (as defined in Section 3(2) of ERISA), an
ERISA Affiliate for the benefit of any current or former employee, director or
other personnel (including any such plan, contract, policy or arrangement
approved or adopted before, but effective on or after, the date of this
Agreement): (i) any "employee benefit plan," as such term is defined in Section
3(3) of ERISA, whether or not subject to the provisions of ERISA, (ii) any
written personnel policy, and (iii) any other employment, consulting, collective
bargaining, stock option, stock bonus, stock purchase, phantom stock, incentive,
bonus, deferred compensation, retirement, severance, vacation, dependent care,
employee assistance, fringe benefit, medical, dental, sick leave, death benefit,
golden parachute or other compensatory plan, contract, policy or arrangement
which is not an employee benefit plan as defined in Section 3(3) of ERISA (each
such plan, contract, policy and arrangement described in (i), (ii) or (iii)
above being herein referred to as an "Employee Plan").
(b) With respect to each Employee Plan, Seller has delivered to
Purchaser true and complete copies of (1) each contract, plan document, policy
statement, summary plan description and other written material governing or
describing the Employee Plan and/or any related funding arrangements (including,
without limitation, any related trust agreement or insurance
-27-
company contract) or, if there are no such written materials, a summary
description of the Employee Plan; and (2), where applicable, (A) the last two
annual reports (5500 series) filed with the Internal Revenue Service or the
Department of Labor; (B) the most recent balance sheet and financial statement;
(C) the most recent actuarial report or valuation statement; and (D) the most
recent determination letter issued by the Internal Revenue Service, as well as
any other determination letter, private letter ruling, opinion letter or
prohibited transaction exemption issued by the Internal Revenue Service or the
Department of Labor within the last six years and any application therefor which
is currently pending.
(c) Each Employee Plan has been maintained and administered in
accordance with its terms and in compliance with the provisions of applicable
law, including, without limitation, applicable disclosure, reporting, funding
and fiduciary requirements imposed by ERISA and/or the Code. All contributions,
insurance premiums, benefits and other payments required to be made to or under
each Employee Plan have been made timely and in accordance with the governing
documents and applicable law. With respect to each Employee Plan, (1) no
application, proceeding or other matter is pending before the Internal Revenue
Service, the Department of Labor or any other governmental agency; (2) no
action, suit, proceeding or claim (other than routine claims for benefits) is
pending or threatened; and (3) to the knowledge of Seller and the Company, no
facts exist which could give rise to an action, suit, proceeding or claim which,
if asserted, could result in a material liability or expense to the Company or
the plan assets.
(d) With respect to each Employee Plan which is an "employee benefit
plan" within the meaning of Section 3(3) of ERISA or which is a "plan" within
the meaning of Section 4975(e) of the Code, there has occurred no transaction
which is prohibited by Section 406 of ERISA or which constitutes a "prohibited
transaction" under Section 4975(c) of the Code and with respect to which a
prohibited transaction exemption has not been granted and is not currently in
effect.
(e) With respect to each funded Employee Plan which is an employee
pension plan within the meaning of Section 3(2) of ERISA, (1) the Employee Plan
is a qualified plan under Section 401(a) of the Code, and its related trust is
exempt from federal income taxation under Section 501(a) of the Code; (2) a
favorable IRS determination letter is currently in effect and, since the date of
the last determination letter, the Employee Plan has not been amended or
operated in a manner which would adversely affect its qualified status and no
event has occurred which has caused or could cause the loss of such status; and
(3) there has been no termination or partial termination within the meaning of
Section 411(d)(3) of the Code.
(f) No Employee Plan is or was a multiemployer plan within the
meaning of Section 3(37) of ERISA, a plan covered by Section 302(a)(2) of ERISA
or Section 412 of the Code, or a plan covered by Title IV of ERISA. Neither the
Company nor any ERISA Affiliate has incurred or expects to incur any withdrawal
liability under Title IV of ERISA (either as a contributing employer or as part
of a controlled group which includes a contributing employer) in connection with
a complete or partial withdrawal from a multiemployer plan, and no ERISA
Affiliate has received notice from any such multiemployer plan that the plan is
in reorganization or insolvency pursuant
-28-
to Sections 4241 or 4245 or ERISA or that the plan is intended to terminate or
has terminated under Sections 4041A or 4042 of ERISA.
(g) The Company and its ERISA Affiliates have complied in all
respects with the provisions of Section 4980B of the Code with respect to any
Employee Plan which is a group health plan within the meaning of Section
5001(b)(1) of the Code. The Company does not maintain, contribute to, and is not
obligated under any plan, contract, policy or arrangement providing health or
death benefits (whether or not insured) to current or former employees or other
personnel beyond the termination of their employment or other services. Except
as set forth on Schedule 6.19(a), each Employee Plan may be unilaterally
terminated and/or amended by the Company at any time.
(h) The consummation of the transactions contemplated by this
Agreement will not (either alone or in conjunction with another event, such as a
termination of employment or other services) entitle any employee or other
person to receive severance or other compensation which would not otherwise be
payable absent the consummation of the transactions contemplated by this
Agreement or cause the acceleration of the time of payment or vesting of any
award or entitlement under any Employee Plan.
(i) Schedule 6.19(i) sets forth a complete and accurate list showing
the names, the rate of compensation (and the portions thereof attributable to
salary and bonuses, respectively) and location of all current officers,
employees and independent contractors of and consultants to the Company that
received total compensation in excess of $75,000 for the year ended December 31,
1998, or are expected to receive a salary in excess of $75,000 for the year
ending December 31, 1999. There are no covenants, agreements or restrictions to
which the Company is a party or bound, including but not limited to employee
non-compete agreements, prohibiting, limiting or in any way restricting any
officer or employee listed on Schedule 6.19(i) from engaging in any type of
business activity in any location. To the best knowledge of Seller and the
Company, no officer or employee listed on Schedule 6.19(i), has any plans to
terminate their employment. There has not been, and Seller does not anticipate,
any adverse change in relations with employees as a result of the announcement
of the transactions contemplated by this Agreement. The Company has not
instituted any "freeze" of, or delayed or deferred the grant of, any
cost-of-living or other salary adjustments for any of its employees, independent
contractors or consultants.
(j) Schedule 6.19(j) sets forth by number and employment
classification the approximate numbers of employees, independent contractors and
consultants of the Company as of the date of this Agreement, and, except as set
forth therein, none of said individuals are subject to union or collective
bargaining agreements. There have been no audits of the equal employment
opportunity practices of the Company and, to the best knowledge of Seller and
the Company, no basis for such an audit exists. There is no unfair labor
practice charge or complaint against the Company pending before the National
Labor Relations Board and none has occurred since January 1, 1994. No
representation question exists respecting the employees of the Company, nor is
any grievance procedure or arbitration proceeding pending under any collective
bargaining agreement and no claim therefor has been asserted. The Company has
not received notice from any union or
-29-
employees setting forth demands for representation, elections or for present or
future changes in wages, terms of employment or working conditions.
Section 5.20 No Illegal or Improper Transactions. Neither the Company nor
any officer, director, employee, agent or Affiliate of any of them has offered,
paid or agreed to pay to any Person (including any governmental official) or
solicited, received or agreed to receive from any Person, directly or
indirectly, any money or thing of value for the purpose or with the intent of
(a) obtaining or maintaining business for the Company, (b) facilitating the
purchase or sale of any product or service, or (c) avoiding the imposition of
any fine or penalty, in any such case in any manner which is in violation of any
applicable ordinance, regulation or law; and there have been no false or
fictitious entries made in the books or records of the Company.
Section 5.21 Related Transactions. Except as set forth on Schedule 6.21,
no current or former director, officer, employee, independent contractor,
consultant or Affiliate of the Company or any relative of Seller is presently,
or during the last three fiscal years has been, (a) a party to any material
transaction with the Company (including, but not limited to, any contract,
agreement or other arrangement providing for the furnishing of services by, or
rental of real or personal property from, or otherwise requiring payments to,
any such director, officer, employee, independent contractor, consultant,
Affiliate or relative), or (b) to the best knowledge of Seller, the direct or
indirect owner of an interest in any corporation, firm, association or business
organization which is a present (or potential) competitor, supplier or customer
of the Company, except for less than one percent (1%) holdings for investment
purposes in securities of publicly held and traded companies.
Section 5.22 No Product Liabilities; Product Warranties. (a) The Company
has not, since January 1, 1995, incurred, nor does Seller or the Company know of
or have any reason to believe there is any reasonable basis for alleging, any
liability, damage, loss, cost or expense as a result of any defect or other
deficiency (whether of design, materials, workmanship, labeling, instructions or
otherwise) ("Product Liability") with respect to any product sold or service
rendered by the Company, whether such Product Liability is incurred by reason of
any express or implied warranty (including, without limitation, any warranty of
merchantability or fitness), any doctrine of common law (tort, contract or
other), any statutory provision or otherwise and irrespective of whether such
Product Liability is covered by insurance. Section 1.1
(b) Seller has furnished Purchaser with all forms of warranties or
guarantees of products and services that are in effect or proposed to be used by
the Company. There are no pending or, to the best knowledge of Seller and the
Company, threatened claims against the Company under any warranty or guaranty.
Schedule 6.22 lists all payments or settlements made in respect of any such
warranty or guaranty since January 1, 1996, indicating the name of each
customer, the amount of each payment and a brief description of the facts
relating thereto.
Section 5.23 Suppliers and Customers. (a) Schedule 6.23 lists (i) all
suppliers to which the Company made payments during the year ended September 30,
1998, or expect to make payments during the year ending December 31, 1999, in
excess of five percent (5%) of the cost of
-30-
sales as reflected on the Company's statement of operations for the year ended
September 30, 1998 and (ii) all customers that paid the Company during the year
ended September 30, 1998 or that Seller expects will pay to the Company during
the year ending December 31, 1999, more than five percent (5%) of the Company's
sales revenues as reflected on its statement of operations for the year ended
September 30, 1998.
(b) Seller and the Company have no information which might
reasonably indicate that any of the customers or suppliers listed on Schedule
6.23 intend to cease purchasing from, selling to, or dealing with, the Company,
nor has any information been brought to their attention which might reasonably
lead them to believe any such customer or supplier intends to alter in any
material respect the amount of such purchases, sales or the extent of dealings
with the Company or would alter in any material respect such purchases, sales or
dealings in the event of the consummation of the transactions contemplated by
this Agreement. Seller and the Company have no information which might
reasonably indicate, nor has any information been brought to their attention
which might reasonably lead them to believe that, (i) any supplier will not be
able to fulfill outstanding or currently anticipated purchase orders placed by
the Company, or (ii) any customer will cancel outstanding or currently
anticipated purchase orders placed with the Company.
Section I.7 Powers of Attorney. There are no outstanding powers of
attorney executed on behalf of the Company.
Section I.8 Year 2000 Compliance. Except for non-customized, commercially
available software, the computer systems of the Company (including without
limitation all software, hardware, workstations and related components,
semiconductor chips, microprocessors, embedded microcontrollers, automated
devices, embedded chips and other date sensitive equipment such as security
systems, alarms, elevators and HVAC systems) and all computer systems,
components or products used or installed by the Company in connection with the
Business (i) are Year 2000 Compliant and (ii) have the ability to properly
interface and will continue to properly interface with internal and external
applications and systems of third parties with whom the Company exchanges data
electronically (including without limitation customers, clients, suppliers,
service providers, subcontractors, processors, converters, shippers,
warehousemen, outsources, data processors, regulatory agencies and banks)
whether or not the applications and systems of such third parties are Year 2000
Compliant. The Company has inquired of all such third parties, and all such
third parties have represented that their respective computer systems are Year
2000 Compliant.
Section 5.24 Availability of Documents. Seller has made available to
Purchaser copies of all documents, including without limitation all agreements,
Contracts, commitments, insurance policies, leases, plans, instruments,
undertakings, authorizations, Permits and Intellectual Property listed in the
Schedules hereto or referred to herein. Such copies are true and complete and
include all amendments, supplements and modifications thereto or waivers
currently in effect thereunder.
Section 5.25 Disclosure. No information furnished by or on behalf of
Seller to Parent or Purchaser contains any untrue statement of a material fact
or omits to state a material fact necessary
-31-
to make such information, in the light of the circumstances under which it was
furnished, not misleading.
6. REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
Parent and Purchaser, jointly and severally, hereby represent and warrant
to Seller that:
Section 6.1 Organization. Parent and Purchaser are corporations duly
organized, validly existing and in good standing under the laws of the State of
Delaware, with the requisite corporate power and authority to carry on their
respective businesses as presently conducted and to own, lease and operate the
properties and assets used in connection therewith. Parent and Purchaser are in
good standing as foreign corporations and licensed or qualified to transact
business in each jurisdiction in which the conduct of their respective business
or their ownership, leasing or operation of properties and assets requires them
to be so licensed or qualified, except where the failure to be so licensed or
qualified would not have a material adverse effect on the business of Parent and
its subsidiaries taken as a whole. Neither Parent nor Purchaser is in default
under or in violation of any provisions of its certificate of incorporation or
by-laws.
Section 6.2 Due Authorization. Each of Parent and Purchaser has all
requisite corporate power and authority to execute and deliver this Agreement
and the other documents required to be executed and delivered by it hereunder,
to perform fully its obligations hereunder and thereunder and to consummate the
transactions contemplated hereby and thereby. The execution and delivery by
Parent and Purchaser of this Agreement and the other documents required to be
executed and delivered by each of them hereunder, the performance by each of
them of their respective obligations hereunder and thereunder, and the
consummation by each of them of the transactions contemplated hereby and thereby
have been duly and validly authorized by all necessary corporate action on the
part of Parent and Purchaser. This Agreement has been duly executed by each of
Parent and Purchaser. This Agreement is, and each other agreement contemplated
hereby to which Parent or Purchaser will be a party will be, upon execution and
delivery by Parent and/or Purchaser, as applicable, a legal, valid and binding
obligation of Parent or Purchaser, as applicable, enforceable against such party
in accordance with its terms (except as enforceability may be limited by any
applicable bankruptcy, insolvency or other laws affecting creditors' rights
generally or by general principles of equity, regardless of whether such
enforceability is considered in equity or at law).
Section I.9 No Conflict. Except for matters that would not have a material
adverse effect on the business of Parent and its subsidiaries taken as a whole,
neither the execution and delivery by Parent and Purchaser of this Agreement or
any of the other documents contemplated hereby nor the consummation of the
transactions contemplated hereby or thereby by Parent or Purchaser will (a)
conflict with, result in a breach or violation of or constitute (or with notice
or lapse of time or both constitute) a default under, (i) the certificate of
incorporation or by-laws of Parent or Purchaser, (ii) any law, statute,
regulation, order, judgment or decree or (iii) any instrument, contract or other
-32-
agreement to which Parent or Purchaser is a party or by which either of them (or
any of their respective properties or assets) is subject or bound; (b) result in
the creation of, or give any party the right to create, any lien, charge,
option, security interest or other encumbrance upon the assets or properties of
Parent or Purchaser; (c) terminate or modify, or give any third party the right
to terminate or modify, the provisions or terms of any agreement or commitment
to which Parent or Purchaser is a party or by which either of them (or any of
their respective properties or assets) is subject or bound; (d) except as
required by the Exchange Act, require Parent or Purchaser to obtain any
authorization, consent, approval or waiver from, to give any notification to, or
to make any filing with, any governmental body or authority or to obtain the
approval or consent of any other Person; or (e) result in any suspension,
revocation, impairment, forfeiture or nonrenewal of any permit, license,
qualification, authorization or approval applicable to Parent or Purchaser
Section 6.3 Brokers. Neither Parent, Purchaser nor any of Parent's
Affiliates has paid or become obligated to pay any fee or commission to any
broker, finder, investment banker or other intermediary in connection with the
transactions contemplated by this Agreement.
Section 6.4 Securities Act Matters. (a) Purchaser acknowledges that its
representations and warranties contained in this Section 7.5 are being relied
upon by Seller as a basis for the exemption of the transfer of the Shares
hereunder from the registration requirements of the Securities Act and any
applicable state securities laws.
(b) Purchaser understands that (i) the Shares have not been
registered under the Securities Act or any state securities laws and (ii) the
Shares must be held indefinitely unless a subsequent disposition thereof is
registered under the Securities Act and applicable state securities laws or is
exempt from such registration.
(c) Purchaser is acquiring the Shares for its own account and not
with a view to, or for sale in connection with, directly or indirectly, any
distribution thereof that would require registration under the Securities Act or
applicable state securities laws or would otherwise violate the Securities Act
or such state securities laws.
(d) Purchaser and its attorneys, accountants, investment and
financial advisors, if any, have had the opportunity to review the books and
records of the Company and have been provided with access to such information as
it or its advisors, if any, have requested.
(e) Purchaser is an "accredited investor" pursuant to Rule 501 under
the Securities Act.
Section I.10 Parent Financial Information. (a) Parent has delivered to
Seller (i) true, correct and complete copies, in all material respects, of the
Company's consolidated audited balance sheets as of December 31, 1996 and 1997
and the related statements of operations and cash flows (together with the
auditors' reports thereon) for each of the years in the two-year period ended
December 31, 1997, together with notes to such financial statements, and (ii)
true, correct and
-33-
complete copies, in all material respects, of the Company's unaudited balance
sheets as at September 30, 1998 and 1997 and the related statements of
operations and cash flows for the 3-month periods then ended (collectively, the
"Parent Financial Statements").
(b) Except as otherwise noted, the Parent Financial Statements are
in accordance with the books and records of the Company and have been prepared
in accordance with generally accepted accounting principles consistently applied
throughout the periods covered thereby. The balance sheets included in the
Parent Financial Statements present fairly in all material respects as of their
respective dates the financial condition of the Company (subject, in the case of
the unaudited Parent Financial Statements, to year end adjustments that may be
required upon audit, which adjustments will not have a material adverse effect
on such financial statements).
Section I.11 No Material Adverse Change. Between September 30, 1998 and
the date of this Agreement, there has been no material adverse change affecting
the business or operations of Parent or Purchaser which has not been consented
to by Seller.
Section I.12 Disclosure. No information furnished by or on behalf of
Parent or Purchaser to Seller contains any untrue statement of a material fact
or omits to state a material fact necessary to make such information, in the
light of the circumstances under which it was furnished, not misleading.
7. CERTAIN ACTIONS AFTER THE CLOSING
Section 7.1 Maintenance of Books and Records. Each party hereto shall
preserve until the seventh anniversary of the Closing Date all records possessed
or to be possessed by such party relating to any of the assets, liabilities or
business of the Company prior to the Closing Date. After the Closing Date, where
there is a legitimate purpose, such party shall provide any other party with
access, upon prior reasonable written request specifying the need therefor,
during regular business hours, to (i) the officers and employees of such party
and (ii) the books of account and records of such party, but, in each case, only
to the extent relating to the assets, liabilities or business of the Company
prior to the Closing Date, and the other party and its representatives shall
have the right to make copies of such books and records; provided, however, that
the foregoing right of access shall not be exercisable in such a manner as to
interfere unreasonably with the normal operations and business of such party;
and further, provided, that, as to so much of such information as constitutes
trade secrets or confidential business information of such party, the requesting
party and its officers, directors and representatives will use due care not to
disclose such information except (1) as required by law, (2) with the prior
written consent of such party, or (3) where such information becomes available
to the public generally, or becomes generally known to competitors of such
party, through sources other than the requesting party, its Affiliates or its
officers, directors or representatives.
Section I.13 Salaries and Benefits. Between the Closing Date and December
31, 2000, Purchaser will not cause the salaries or benefits of the Company's
employees to be decreased, or terminate any of the Company's employees, without
the consent of Seller.
-34-
Section 7.2 Tax Matters. The following provisions shall govern the
allocation of responsibility as between Purchaser and Seller for certain tax
matters following the Closing Date:
(a) Tax Periods Ending on or Before the Closing Date. Purchaser
shall prepare or cause to be prepared and file or cause to be filed all Tax
Returns for the Company for all periods ending on or prior to the Closing Date
which are filed after the Closing Date. Purchaser shall permit Seller to review
and comment on each such Tax Return prior to filing. To the extent not accrued
or reserved for on the Interim Balance Sheet, Seller shall pay Purchaser for
Taxes of the Company with respect to such periods no later than fifteen (15)
days prior to the date payment for such Taxes is due.
(b) Tax Periods Beginning Before and Ending After the Closing Date.
Purchaser shall prepare or cause to be prepared and file or cause to be filed
any Tax Returns of the Company for Tax periods which begin before the Closing
Date and end after the Closing Date. To the extent not accrued or reserved for
on the Interim Balance Sheet, Seller shall pay to Purchaser no later than
fifteen (15) days prior to the date on which payment for such Taxes is due an
amount equal to the portion of such Taxes which relates to the portion of such
Taxable period ending on the Closing Date. For purposes of this Section, in the
case of any Taxes that are imposed on a periodic basis and are payable for a
Taxable period that includes (but does not end on) the Closing Date, the portion
of such Tax which relates to the portion of such Taxable period ending on the
Closing Date shall (x) in the case of any Taxes other than Taxes based upon or
related to income or receipts, be deemed to be the amount of such Tax for the
entire Taxable period multiplied by a fraction the numerator of which is the
number of days in the Taxable period ending on the Closing Date and the
denominator of which is the number of days in the entire Taxable period, and (y)
in the case of any Tax based upon or related to income or receipts be deemed
equal to the amount which would be payable if the relevant Taxable period ended
on the Closing Date. Any credits relating to a Taxable period that begins before
and ends after the Closing Date shall be taken into account as though the
relevant Taxable period ended on the Closing Date. All determinations necessary
to give effect to the foregoing allocations shall be made in a manner consistent
with prior practice of the Company.
(c) Cooperation on Tax Matters.
-35-
(1) Each party hereto shall cooperate fully, as and to the extent
reasonably requested by any other party, in connection with the filing of
Tax Returns pursuant to this Section and any audit, litigation or other
proceeding with respect to Taxes. Such cooperation shall include the
retention and (upon any other party's request) the provision of records
and information which are reasonably relevant to any such audit,
litigation or other proceeding and making employees available on a
mutually convenient basis to provide additional information and
explanation of any material provided hereunder. Seller agrees to cause the
Company (A) to retain all books and records with respect to Tax matters
pertinent to the Company relating to any Taxable period beginning before
the Closing Date until the expiration of the statute of limitations (and,
to the extent notified by Purchaser, any extensions thereof) of the
respective Taxable periods, and to abide by all record retention
agreements entered into with any Taxing authority, and (B) to give
Purchaser reasonable written notice prior to transferring, destroying or
discarding any such books and records and, if Purchaser so requests,
Seller shall allow Purchaser to take possession of such books and records.
(2) Seller further agrees, upon request, to use his best efforts to
obtain any certificate or other document from any governmental authority
or any other Person as may be necessary to mitigate, reduce or eliminate
any Tax that could be imposed (including, but not limited to, with respect
to the transactions contemplated hereby).
(3) Seller further agrees, upon request, to provide Purchaser with
all information that either party may be required to report pursuant to
Section 6043 of the Code and all Treasury Department regulations
promulgated thereunder.
(d) Tax Audits. Notwithstanding Section 5.5 hereof, Seller and
Purchaser shall promptly notify each other in writing upon receipt by Seller,
Parent or Purchaser, as the case may be, of any notice of any tax audits,
assessments or administrative or court proceedings (a "tax proceeding") against
the Company for taxable periods of such Person ending on or before, or
including, the Closing Date. The failure of one party promptly to notify the
other party of any such tax proceeding shall not relieve either party of its
indemnification obligations under Article V, except and only to the extent that
such failure prejudices the defense of such tax proceeding. Seller shall have
the sole right to represent the Company's interests in any tax proceeding
relating to taxable periods of the Company ended on or prior to the Closing Date
and to employ counsel of his choice at his own expense; provided, however, that
Purchaser shall have the right to consult with Seller regarding such tax
proceedings and that any settlement or other disposition of any such tax
proceeding may only be made with the consent of Purchaser, which consent shall
not be unreasonably withheld. Purchaser shall have the sole right to represent
the Company's interests in any tax proceeding relating to taxable periods ending
after the Closing Date and to employ counsel of its choice at its expense.
Purchaser shall keep Seller informed of all material developments and events
relating to such tax proceeding. Seller and Purchaser each agree to cooperate
fully with the
-36-
other and its or their respective counsel in the defense against or compromise
of any claim in any tax proceeding
Section I.14 Assignment of Accounts Receivable. Immediately following the
June 15, 1999 payment to Seller pursuant to the Accounts Receivable Note,
Purchaser shall assign to Seller all Past Due Accounts Receivable that have not
been collected by the Company as of June 1, 1999. On the date of any Indemnity
Claim relating to Section 6.9(c) of this Agreement, Purchaser shall assign to
Seller all accounts receivable comprising such Indemnity Claim.
Section 7.3 Further Assurances. Seller from time to time after the
Closing, at Purchaser's request, will execute, acknowledge and deliver to
Purchaser such other instruments of conveyance and transfer and will take such
other actions and execute and deliver such other documents, certifications and
further assurances as Purchaser may reasonably require in order to vest more
effectively in Purchaser, or to put Purchaser more fully in possession of, the
Shares or any of the assets or properties of the Company. Each of the parties
hereto will cooperate with each other party hereto and execute and deliver to
each other party hereto such other instruments and documents and take such other
actions as may be reasonably requested from time to time by such other party as
necessary to carry out, evidence and confirm the intended purposes of this
Agreement.
8. MISCELLANEOUS
Section I.1 Expenses. Parent and Purchaser, on the one hand, and Seller,
on the other, shall pay all accounting, consulting, finders, investment banking,
legal and similar fees and expenses incurred by them relating to this Agreement,
the negotiations leading up to this Agreement and the consummation of the
transactions contemplated hereby. Seller shall pay all such fees and expenses
incurred by the Company.
Section 8.1 Amendments and Waivers. This Agreement shall not be amended or
modified except by a writing duly executed by Parent and Seller. Waiver of any
term or condition of this Agreement by any party shall only be effective if in
writing. No waiver by any party of any default, misrepresentation, or breach of
warranty or covenant hereunder, whether intentional or not, shall be deemed to
extend to any prior or subsequent default, misrepresentation, or breach of
warranty or covenant hereunder or affect in any way any rights arising by virtue
of any prior or subsequent occurrence.
Section 8.2 Entire Agreement. This Agreement, including the Exhibits and
Schedules hereto and the other instruments, agreements and documents delivered
at the Closing in connection with the transactions contemplated by this
Agreement, contains all of the terms, conditions and representations and
warranties agreed upon by the parties relating to the subject matter of this
Agreement and supersedes all prior agreements, negotiations, correspondence,
undertakings and communications of the parties, oral or written, respecting such
subject matter, including without limitation that certain letter of intent,
dated as of January 12, 1999, by and between Parent and Seller.
-37-
No party shall be deemed to make any representation, warranty or covenant to any
other party with respect to this Agreement or the transactions contemplated
hereby except for the representations, warranties and covenants contained herein
(including the Schedules and Exhibits hereto and any documents delivered
pursuant hereto).
Section 8.3 Headings. The headings contained in this Agreement are
intended solely for convenience and shall not affect the rights of the parties
to this Agreement.
Section 8.4 Notices. All notices, requests, demands and other
communications made in connection with this Agreement shall be in writing and
shall be deemed to have been duly given (a) on the date of delivery, if
delivered to the persons identified below, (b) seven calendar days after mailing
if mailed, with proper postage, by certified or registered first-class mail,
postage prepaid, return receipt requested, addressed as follows:
If to Seller: Mr. J. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Creative Business Concepts, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: White & ▇▇▇▇▇▇▇▇▇, P.C.
▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇, Esq.
If to Parent or Richton International Corporation
Purchaser: ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇,
Chief Financial Officer
and
HT Acquisition Corporation
[address]
Telecopy:
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇,
Chief Financial Officer
-38-
With a copy to: Fulbright & ▇▇▇▇▇▇▇▇ L.L.P.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇, Esq.
(c) on the date of receipt if sent by telecopy, and confirmed in writing in the
manner set forth in (b) on or before the next day after the sending of the
telecopy or (d) one business day after delivery to a nationally recognized
overnight courier service marked for overnight delivery. Such addresses and
numbers may be changed, from time to time, by means of a notice given in the
manner provided in this Section.
Section I.2 Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
Section I.3 Assignment. This Agreement may not be assigned by any party
without the prior written consent of the other parties.
Section I.4 Counterparts. This Agreement may be signed in two or more
counterparts with the same effect as if the signatures to each counterpart were
upon a single instrument, and all such counterparts together shall be deemed an
original of this Agreement. For purposes of this Agreement, a facsimile copy of
a party's signature shall be sufficient to bind such party.
Section 8.5 Governing Law. This Agreement shall be governed by and
construed in accordance with the law of the State of New York, without regard to
the conflicts of laws principles thereof.
Section 8.6 Third Parties. Except as specifically set forth or referred to
herein, nothing herein expressed or implied is intended or shall be construed to
confer upon or give to any person other than the parties hereto and their
successors or assigns any rights or remedies under or by reason of this
Agreement.
Section 8.7 Construction. The parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law
-39-
shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context requires otherwise. The word "including" shall
mean "including without limitation." The parties intend that each
representation, warranty, and covenant contained herein shall have independent
significance. If any party has breached any representation, warranty, or
covenant contained herein in any respect, the fact that there exists another
representation, warranty, or covenant relating to the same subject matter
(regardless of the relative levels of specificity) which the party has not
breached shall not detract from or mitigate the fact that the party is in breach
of the first representation, warranty, or covenant. Section 1.1
-40-
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as
of the date set forth above.
RICHTON INTERNATIONAL CORPORATION
By:_________________________________________
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Chairman and Chief Executive Officer
HT ACQUISITION CORPORATION
By:_________________________________________
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Chairman and Chief Executive Officer
SELLER
____________________________________________
J. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
-41-