EXHIBIT 2.1
================================================================================
Stock Purchase Agreement
among
Synetic, Inc.
and
▇▇▇▇▇ ▇. ▇▇▇▇
and
▇▇▇▇▇ ▇. ▇▇▇▇
Dated January 13, 1999
================================================================================
TABLE OF CONTENTS
Page
----
ARTICLE I - THE ACQUISITION ..................................................... 2
SECTION 1.01. Sale of Company Shares ......................................... 2
SECTION 1.02. Aggregate Purchase Price ....................................... 2
SECTION 1.03. Acquisition Taxes .............................................. 6
SECTION 1.04. The Closing .................................................... 6
SECTION 1.05. Closing Financial Statements ................................... 6
ARTICLE II - DISPOSITION OF THE SHARES AND EARNOUT SHARES AND ADDITIONAL
OBLIGATIONS OF THE PURCHASER AND SELLERS ........................................ 9
SECTION 2.01. Registration Statement ......................................... 9
SECTION 2.02. Purchaser Control of the Sale of Shares ........................ 10
SECTION 2.03. Shortfall Payment .............................................. 13
SECTION 2.04. Required Loans ................................................. 14
SECTION 2.05. Letters of Credits ............................................. 15
SECTION 2.06. Earnout Registration Statement ................................. 15
SECTION 2.07. Purchaser Control of the Sale of Earnout Shares ................ 17
SECTION 2.08. Earnout Shortfall Payment ...................................... 18
SECTION 2.09. Earnout Loans .................................................. 19
SECTION 2.10. Sellers' Non-Shortfall Election ................................ 20
SECTION 2.11. Escrow Arrangements ............................................ 21
SECTION 2.12. Interpretation ................................................. 21
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE SELLERS ....................... 22
SECTION 3.01. Organization, Authority and Qualification of the Company;
Articles of Incorporation and By-laws ......................................... 22
SECTION 3.02. Capitalization ................................................. 23
SECTION 3.03. No Conflict; Required Filings and Consents ..................... 24
SECTION 3.04. Compliance with Laws ........................................... 24
SECTION 3.05. Financial Information; Books and Records ....................... 24
SECTION 3.06. No Undisclosed Liabilities ..................................... 25
SECTION 3.07. Absence of Certain Changes, Events and Conditions .............. 25
SECTION 3.08. Employee Benefit Plans; Labor Matters; Consultants ............. 25
SECTION 3.09. Litigation ..................................................... 26
SECTION 3.10. Material Contracts ............................................. 27
SECTION 3.11. Intellectual Property .......................................... 28
SECTION 3.12. Real Property .................................................. 29
SECTION 3.13. Assets ......................................................... 31
SECTION 3.14. Debt ........................................................... 31
SECTION 3.15. Taxes .......................................................... 32
SECTION 3.16. Certain Interests .............................................. 33
SECTION 3.17. Environmental and Other Permits and Licenses; Related Matters... 34
SECTION 3.18. Customers; Suppliers ........................................... 35
SECTION 3.19. Brokers ........................................................ 36
SECTION 3.20. Insurance Policies ............................................. 36
i
SECTION 3.21. Receivables .................................................. 36
SECTION 3.22. Full Disclosure .............................................. 36
SECTION 3.23. Holdings of the Sellers; Capacity of the Sellers; No Conflict;
Litigation .................................................................. 37
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF THE PURCHASER .................. 38
SECTION 4.01. Corporate Organization and Authority ......................... 38
SECTION 4.02. No Conflict; Required Filings and Consents ................... 38
SECTION 4.03. SEC Filings; Financial Statements ............................ 39
SECTION 4.04. Common Stock ................................................. 39
SECTION 4.05. Full Disclosure .............................................. 39
SECTION 4.06. Funds ........................................................ 39
SECTION 4.07. Brokers ...................................................... 40
SECTION 4.08. Absence of Certain Changes, Events and Conditions ............ 40
SECTION 4.09. Litigation; Investment Intent ................................ 40
SECTION 4.10. Pledge Agreement ............................................. 40
ARTICLE V - ADDITIONAL AGREEMENTS ............................................. 40
SECTION 5.01. Conduct of Business by the Company Pending the Closing ....... 40
SECTION 5.02. Further Action; Access; Public Announcements ................. 42
SECTION 5.03. Ownership of Company Shares .................................. 43
SECTION 5.04. No Solicitation or Negotiation ............................... 43
SECTION 5.05. Financial Statements ......................................... 44
SECTION 5.06. Indemnification of Directors and Officers .................... 44
SECTION 5.07. Tax Matters .................................................. 46
SECTION 5.08. Real Estate .................................................. 47
SECTION 5.09. Confidentiality .............................................. 47
SECTION 5.10. Restrictions on Solicitation ................................. 48
SECTION 5.11. Restrictions on Competition .................................. 49
SECTION 5.12. Additional Covenant .......................................... 50
SECTION 5.13. Intellectual Property ........................................ 50
SECTION 5.14. Restrictions on Purchaser's Impugning Sellers ................ 50
SECTION 5.15. Stock Transfer Restriction Agreement ......................... 50
SECTION 5.16. Corporate Governance ......................................... 50
SECTION 5.17. Material Inducement .......................................... 51
SECTION 5.18. ▇▇▇▇▇▇▇▇ Fees ................................................ 51
SECTION 5.19. Additional Obligations of Purchaser .......................... 51
ARTICLE VI - CONDITIONS TO THE CLOSING ........................................ 51
SECTION 6.01 Conditions to Obligations of the Purchaser ..................... 51
SECTION 6.02. Conditions to Obligations of the Sellers ..................... 53
ARTICLE VII - INDEMNIFICATION ................................................. 55
SECTION 7.01. Survival of Representations and Warranties ................... 55
SECTION 7.02. Indemnification by the Sellers and the Purchaser ............. 55
SECTION 7.03. Limitation of Remedies ....................................... 57
ii
SECTION 7.04. Limits on Indemnification .................................... 59
ARTICLE VIII - DEFINED TERMS .................................................. 59
SECTION 8.01. Certain Defined Terms ........................................ 59
ARTICLE IX - TERMINATION, AMENDMENT AND WAIVER;
MISCELLANEOUS ................................................................. 63
SECTION 9.01. Termination .................................................. 63
SECTION 9.02. Effect of Termination ........................................ 63
SECTION 9.03. Expenses; Return of Documents ................................ 64
SECTION 9.03. Amendment .................................................... 64
SECTION 9.04. Waiver ....................................................... 64
SECTION 9.05. Miscellaneous ................................................ 64
iii
EXHIBITS
Exhibit A Form of Power of Attorney and Custody Agreement
Exhibit B Form of Non-Recourse Secured Promissory Note
Exhibit C Form of Pledge Agreement
Exhibit D Form of Letters of Credit
Exhibit 5.08 Form of 930 ▇▇▇▇▇▇▇▇▇ Lease
Exhibit 5.16(d) Form of Earnout Option
Exhibit 6.01(a) Form of Seller's Certificate
Exhibit 6.01(d)(i) Form of Opinion of Sellers' Counsel
Exhibit 6.02(a) Form of Purchaser's Officer's Certificate
Exhibit 6.02(d) Form of Opinion of Purchaser's Counsel
Exhibit 6.02(g)(i) Form of Stock Option Agreements
Exhibit 6.02(g)(ii) Form of Stock Option Agreements ("cliff options")
SCHEDULES
Schedule 1.05(a) December 31, 1997 Audit Adjustments
Schedule 5.16(a) Phantom Stock Awards
Schedule 5.16(b) Supplemental Bonus Plan
Schedule 5.16(c) Special Bonuses
Schedule 5.16(d) Option Grants
Schedule 6.01(g) Guarantees of the Company
Schedule 6.02(j) Modifications of Company Debt
iv
STOCK PURCHASE AGREEMENT, dated January 13, 1999 (this "Agreement"),
among SYNETIC, INC., a Delaware corporation (the "Purchaser"), and ▇▇▇▇▇ ▇. ▇▇▇▇
and ▇▇▇▇▇ ▇. ▇▇▇▇ (individually, a "Seller" and, together, the "Sellers").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, The KippGroup, a California corporation (the "Company"), is
engaged on a worldwide basis in the business of manufacturing custom injection
molds, providing contract injection molding services and designing,
manufacturing and distributing medical devices, as further defined herein;
WHEREAS, each Seller owns fifty percent (50%) of the outstanding
shares of capital stock of the Company (the "Company Shares");
WHEREAS, Purchaser, upon the terms and subject to the conditions of
this Agreement, desires to purchase all of the Company Shares owned by Sellers,
and Sellers, upon the terms and subject to the conditions of this Agreement,
desire to sell to Purchaser all of the Company Shares owned by Sellers (the
"Acquisition");
WHEREAS, in connection with the Acquisition, the Sellers shall cause
the Company to make an election, and the Purchaser has agreed to make an
election, pursuant to Section 338(h)(10) of the Internal Revenue Code of 1986,
as amended (the "Code");
WHEREAS, in order to retain the services of Sellers and as an
inducement to each party hereto to consummate the Acquisition, concurrently with
the execution and delivery hereof, each Seller is entering into an employment
agreement with the Company, which employment agreements shall become effective
upon the Closing (as defined in Section 1.04);
WHEREAS, in order to retain the services of Sellers and as an
inducement to Sellers to consummate the Acquisition, Purchaser shall grant at
Closing to each Seller certain options to purchase shares of Purchaser Common
Stock (as defined in Section 1.02(a)) pursuant to certain Stock Option
Agreements (as defined in Section 6.02(g));
WHEREAS, the Board of Directors of the Purchaser has determined that
the Acquisition is in the best interests of the Purchaser and its stockholders
and has approved and adopted this Agreement and the transactions contemplated
hereby; and
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements hereinafter set forth, the parties hereto agree as
follows:
ARTICLE I
THE ACQUISITION
SECTION 1.01. Sale of Company Shares. Upon the terms and subject to
the conditions of this Agreement, each Seller hereby agrees to sell, transfer,
assign, convey and deliver to Purchaser, and Purchaser hereby agrees to purchase
and acquire from each Seller, on the Closing Date (as defined in Section 1.04),
all right, title and interest of such Seller, legal or equitable, in and to all
of the issued and outstanding Company Shares.
SECTION 1.02. Aggregate Purchase Price.
(a) The aggregate purchase price for the Company Shares (as may be
adjusted pursuant to Sections 1.02(b) through 1.02(h) and 1.05 hereof, the
"Aggregate Purchase Price") shall be Fifty Two Million Eighty Five Thousand
Dollars ($52,085,000), which amount shall be payable as follows: (i) Thirty
Seven Thousand Five Hundred Dollars ($37,500) in cash (the "Cash Portion")
payable to each Seller in immediately available funds by wire transfer at the
Closing to an account designated by each Seller, (ii) Twenty Four Million Three
Hundred Thirty Eight Thousand Three Hundred Thirty Three Dollars ($24,338,333)
(the "Purchaser Common Stock Portion") payable to each Seller by delivery of
newly issued shares (the "Non-Escrowed Shares") of common stock of the
Purchaser, par value $0.01 per share (the "Purchaser Common Stock"), such Non-
Escrowed Shares to be delivered to the Custodian (as defined in Section 2.02(d))
on behalf of each Seller on the Closing Date, and (iii) Three Million Three
Hundred Thirty Three Thousand Three Hundred Thirty Three Dollars ($3,333,333)
(the "Escrowed Purchaser Common Stock Portion") payable by delivery of newly
issued shares of Purchaser Common Stock (the "Escrowed Shares" and, together
with the Non-Escrowed Shares, the "Shares") to the Escrow Agent (as defined in
Section 2.11(a)) on the Closing Date. The number of Non-Escrowed Shares and
Escrowed Shares that will be deemed equivalent to the value of the Purchaser
Common Stock Portion and Escrowed Purchaser Common Stock Portion, respectively,
shall be determined by dividing the Purchaser Common Stock Portion and the
Escrowed Purchaser Common Stock Portion, respectively, by the average closing
price of Purchaser Common Stock for the ten (10) trading day period ending on
the trading day immediately prior to the Closing Date, such average price being
referred to hereinafter as the "Determination Price". At the Closing, the
Sellers shall deliver to the Purchaser all stock certificates evidencing the
Company Shares duly endorsed in blank, or accompanied by stock powers duly
endorsed in blank, in form satisfactory to the Purchaser and with all required
stock transfer stamps affixed, together with such other customary documents as
may reasonably be required by the Purchaser. The Escrowed Shares shall be held
by the Escrow Agent on behalf of the Sellers and Sellers shall be entitled to
receive the Escrowed Shares, or the proceeds thereof as contemplated hereby,
subject to the satisfaction of the conditions set forth herein and in the Escrow
Agreement (as defined in Section 2.11).
(b) As soon as practicable after the Determination Period (as defined
below), but in no event later than October 9, 2000, the Purchaser shall prepare
and deliver to the Sellers an audited balance sheet for the Company as of June
30, 2000 (the "Determination Time") and related statements of income, changes in
shareholder's equity and cash flows of the Company (collectively, the
"Determination Financial Statements") for the twelve month period ending
2
June 30, 2000 (the "Determination Period"). The date of delivery of the
Determination Financial Statements by Purchaser to Sellers in accordance with
the immediately preceding sentence is hereinafter referred to as the "Earnout
Payment Date." The Determination Financial Statements shall be accompanied by
the report thereon of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP (the "Purchaser's Accountants")
stating that the Determination Financial Statements fairly present the financial
position and results of operations of the Company as of such date and for the
year then ended in accordance with U.S. generally accepted accounting principles
("GAAP") applied on a basis consistent with the preparation of the 1997
Financial Statements (as defined in Section 8.01) and, to the extent not
inconsistent with the 1997 Financial Statements, consistent with the past
practices of the Company. During the period of any dispute provided for in
Section 1.02(d), the Purchaser shall provide the Sellers and Singer Lewak
▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, LLP ("SLGG"), or such other accountants as the Sellers
may from time to time designate in writing to the Purchaser (the "Sellers'
Accountants"), reasonable access during normal business hours to the books,
records, facilities and employees of (a) the Company, (b) any Additional
Acquired Company (as defined in Section 1.02(g)) which may be relevant to the
calculation of the Determination Period EBIT (as defined in Section 8.01), and
(c) any Affiliate (as defined in Section 8.01) which obtains revenues from the
Company, as described in the last sentence of Section 1.02(g), and the Purchaser
shall cooperate fully with the Sellers and the Sellers' Accountants in order to
investigate the basis for any such dispute. The Sellers and their
representatives shall be given reasonable access to the books, records,
facilities and employees of the Company, including all supporting documents and
auditor's work papers used in the preparation of the Determination Financial
Statements, as necessary for the Sellers and their representatives to review the
Determination Financial Statements. The Sellers shall be provided with monthly
internal interim financial statements of the Company and any Additional Acquired
Company with respect to which any Incremental Pre-Tax Income (as defined in
Section 1.02(g)) would be included pursuant to Section 1.02(g) promptly after
the preparation thereof (but not later than 30 days after the last day of each
month) solely for informational purposes; provided, however, that it is
understood by the parties that the delivery and the contents thereof shall not,
under any circumstances, be binding upon the Purchaser or the Company or be in
any way applicable to the calculation of Determination Period EBIT, and that
such monthly internal interim financial statements shall be subject to change at
any time in the sole discretion of Purchaser; provided, further, however, that
each Seller's right to receive such monthly financial statements shall terminate
on June 30, 2000. Such monthly interim financial statements and all other
information obtained by Sellers or their representatives pursuant to this
Section 1.02(b) shall be deemed to be Proprietary Information of the Company as
defined in, and subject to, the provisions of Section 5.09 hereof. All Earnout
Payments shall be treated and reported as an adjustment of the Aggregate
Purchase Price.
(c) On the Earnout Payment Date, Purchaser shall pay to each Seller,
as additional purchase price for the Company Shares, an amount (the "Preliminary
Earnout Payment") equal to one-half of (i) the product of (A) the sum of (I)
Thirteen Million Dollars ($13,000,000) plus (II) provided that Sellers shall not
have made a Non-Shortfall Election (as defined in Section 2.10 hereof), the
amount, if positive, determined by subtracting (x) the aggregate amount received
by the Sellers from the sale of the Shares together with any Shortfall Payment
(as defined in Section 2.03) (whether such amounts are actually paid to Sellers
or paid directly to Purchaser to repay Loans (as defined in Section 2.04(b))
contemplated hereby) from (y) Fifty Two Million Ten Thousand Dollars
($52,010,000), multiplied by (B) a fraction, the
3
numerator of which shall be the amount, if any, of the Company's Determination
Period EBIT (as determined from the Determination Financial Statements and
adjusted pursuant to Sections 1.02(g) and 1.02(h), if applicable) that is
greater than Five Million Five Hundred Thousand Dollars ($5,500,000) and less
than or equal to Seven Million Five Hundred Thousand Dollars ($7,500,000) and
the denominator of which shall be Two Million Dollars ($2,000,000); provided,
however, that in no event shall the numerator exceed Two Million Dollars
($2,000,000); less (ii) ten percent (10%) of the amount determined pursuant to
the immediately preceding clause (i), but in no event shall the amount
subtracted pursuant to this clause (ii) exceed One Million Three Hundred
Thousand Dollars ($1,300,000). If the Determination Period EBIT shall be less
than or equal to Five Million Five Hundred Thousand Dollars ($5,500,000), then
the Preliminary Earnout Payment shall be zero. At the option of Purchaser, the
Preliminary Earnout Payment may be made (A) in cash, payable in immediately
available funds by wire transfer on the Earnout Payment Date to an account
designated by each Seller or (B) in newly issued shares (the "Earnout Shares")
of Purchaser Common Stock, such shares to be issued and delivered to the Sellers
on the Earnout Payment Date and the per share value of which (the "Per Earnout
Share Value") shall be the average closing price of Purchaser Common Stock for
the ten (10) trading day period ending on the trading day immediately prior to
the Earnout Payment Date. Notwithstanding anything to the contrary herein, if
the Preliminary Earnout Payment is made in immediately available funds, the
provisions of Sections 2.06, 2.07, 2.08, 2.09 and 2.10 hereof shall be of no
further force or effect.
(d) If not disputed by the Sellers in accordance with this Section
1.02(d), the Determination Financial Statements delivered by the Purchaser to
the Sellers shall be final, binding and conclusive on the parties hereto, the
Preliminary Earnout Payment shall be the final earnout payment (the final
earnout payment being referred to herein as the "Earnout Payment"). The Sellers
may dispute any amount reflected on the Determination Financial Statements but
only on the basis that it affects the Determination Period EBIT; provided,
however, that the Sellers shall notify the Purchaser and the Purchaser's
Accountants in writing of each disputed item, specifying the amount thereof in
dispute and setting forth, in reasonable detail, the basis for such dispute,
within forty-five (45) Business Days of the Sellers' receipt of the
Determination Financial Statements. In the event of such a dispute, the Sellers
and the Purchaser shall negotiate in good faith to resolve such dispute. If
such dispute has not been resolved within ten (10) Business Days after the
notice referred to in the preceding sentence has been given, the Purchaser's
Accountants and the Sellers' Accountants shall attempt to resolve such dispute,
and any resolution by them as to any disputed amounts shall be final, binding
and conclusive on the parties hereto. If the Purchaser's Accountants and the
Sellers' Accountants are unable to reach a resolution within ten (10) Business
Days, the Purchaser's Accountants and the Sellers' Accountants promptly shall
submit the items remaining in dispute for resolution to such independent
accounting firm of national standing as may be mutually acceptable to the
Sellers and the Purchaser (the "Independent Accounting Firm"), which shall,
within thirty (30) Business Days of such submission, determine and report in
writing to the Sellers and the Purchaser upon such remaining disputed items, and
such report (the "Independent Accountants Report") shall have the legal effect
of an arbitral award and shall be final, binding and conclusive on the Sellers
and the Purchaser, to the extent of the scope of such proceeding as described in
the last sentence of this Section 1.02(d), and shall be enforceable as a
judgment in any court of competent jurisdiction. The fees and disbursements of
the Independent Accounting Firm shall be allocated between the Sellers and the
Purchaser in the same proportion that the aggregate amount
4
of the disputed items submitted to the Independent Accounting Firm that is
unsuccessfully disputed by each such party (as finally determined by the
Independent Accounting Firm) bears to the total amount of disputed items so
submitted. The Earnout Payment and the Earnout Amount shall not be less than the
Preliminary Earnout Payment and the Preliminary Earnout Amount, respectively.
Notwithstanding anything herein to the contrary, the dispute resolution process
set forth in this Section 1.02(d) is only intended to apply to matters
customarily addressed by certified public accountants pursuant to the rules of
the American Institute of Certified Public Accountants.
(e) In acting under this Agreement, the Sellers' Accountants, the
Purchaser's Accountants and the Independent Accounting Firm shall be entitled to
the privileges and immunities of arbitrators.
(f) On the tenth (10th) Business Day after delivery of the Independent
Accountants Report (the "Final Earnout Payment Date"), if the Earnout Payment,
as determined according to the same formula as the Preliminary Earnout Payment
but determined based on the Determination Financial Statements as modified by
the Independent Accountants Report, is greater than the Preliminary Earnout
Payment, then the Purchaser shall pay such difference pro rata to each Seller in
the same form as the Preliminary Earnout Payment and any shares of Purchaser
Common Stock delivered (the "Additional Earnout Shares") shall have a per share
value equal to the Per Earnout Share Value.
(g) If, during the period from the Closing through June 30, 2000 (the
"Pre-Earnout Period"), Purchaser acquires a company that is in a Competitive
Business (as defined in Section 5.11(a)) on the date of such acquisition (an
"Additional Acquired Company") and (x) Purchaser requests in writing that the
Sellers assume a position of management authority for such Additional Acquired
Company and (y) the Sellers agree in writing to assume such position of
management authority, the Incremental Pre-Tax Income (as defined below) of the
Additional Acquired Company for the portion of the Determination Period during
which the Additional Acquired Company is owned by Purchaser will be added to the
Determination Period EBIT. "Incremental Pre-Tax Income" shall mean the pre-tax
income, but not loss, of the Additional Acquired Company for the relevant
portion of the Determination Period determined in accordance with GAAP,
including (i) a charge of 9% of the purchase price of the Additional Acquired
Company representing the cost of capital and (ii) the amortization of goodwill
relating to, or resulting from the purchase of, the Additional Acquired Company
calculated in accordance with GAAP. If, during the Pre-Earnout Period,
Purchaser acquires an Additional Acquired Company with respect to which Sellers
do not assume a position of management authority and as a consequence of
Purchaser's control of such Additional Acquired Company such Additional Acquired
Company obtains revenues during the Determination Period that would, but for
such control, have accrued to the Company, then the net income, excluding (i)
interest income, (ii) income tax expense and (iii) extraordinary items, if any,
associated with such revenues shall be added to the Determination Period EBIT.
(h) During the Pre-Earnout Period Purchaser shall cause the Company to
be operated as a separate entity and to be accounted for as a separate entity,
except as expressly provided below. Purchaser shall manage and operate the
Company in accordance with the business principles and practices employed in the
management and operation of the Purchaser,
5
Point Plastics, Inc., a California corporation and a subsidiary of Purchaser,
and Porex Technologies Corp., a Delaware corporation and a subsidiary of
Purchaser ("Porex"), with a view to the achievement of reasonable growth in
earnings. Purchaser agrees that, during the Pre-Earnout Period, transactions
between Purchaser's Affiliates and the Company shall be conducted on an arm's-
length basis and the Determination Period EBIT shall be adjusted for any
transfer of customer sales during the Determination Period from the Company to
Purchaser or its Affiliates. Purchaser shall not have any liability with respect
to the operation or management of the affairs of the Company, except where
Purchaser shall have acted in bad faith to reduce or not to increase the amount
of Determination Period EBIT; provided, however, that if the Company disposes of
any material portion of its assets, other than in the ordinary course of
business after the Closing Date and on or prior to the Determination Time, the
Determination Period EBIT shall be adjusted on the basis of what such assets
would have contributed to the Determination Period EBIT, if positive and if, in
the opinion of Purchaser's Accountants or the Independent Accounting Firm, as
the case may be, the amount of such contribution is measurable, at the same
average per diem rate as such assets contributed from the Closing Date to the
--------
date of the disposition thereof; provided, further, however, that the
Determination Period EBIT shall be deemed to be $7,500,000 if any of the
following events shall occur: (A) prior to June 30, 2000, any person or group of
persons, other than an Affiliate or Affiliates of Purchaser immediately prior to
any such acquisition, acquires a majority of the assets of the Company or
acquires, by merger, exchange, transfer of stock or otherwise, a majority of the
voting stock of the Company; (B) prior to June 30, 2000, there shall be a Change
of Control of Purchaser (as defined in Section 8.1); or (C) the Purchaser shall
have failed to (i) deliver the Determination Financial Statements by October 9,
2000, or (ii) deliver the Preliminary Earnout Payment by October 9, 2000, or
(iii) make the Earnout Shortfall Payment when due in accordance with this
Agreement and, in any such case, shall have failed to cure such failure
described in clause (i), (ii) or (iii) above within ten (10) Business Days after
receipt of written notice thereof from Sellers.
SECTION 1.03. Acquisition Taxes. Each Seller shall be responsible
for any transfer and similar taxes imposed on such Seller by the State of
California by reason of the sale of the Company Shares to the Purchaser, and
shall file such applications and documents as shall permit any such tax to be
assessed and paid when due. Purchaser shall be responsible for any transfer and
similar taxes imposed on Sellers by the State of New Jersey by reason of the
sale of the Company Shares to the Purchaser, and shall file such applications
and documents as shall permit such tax to be assessed and paid when due. Each
party shall execute and deliver all instruments and certificates necessary to
enable the parties to perform their obligations pursuant to this Section 1.03.
SECTION 1.04. The Closing. The closing of the transactions
contemplated herein (the "Closing") shall be held at the offices of Stroock &
Stroock & ▇▇▇▇▇ LLP, ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ (or such other place as the parties may agree). The Closing shall take
place as soon as practicable after such date as all of the conditions set forth
in Sections 6.01 and 6.02 have been satisfied or waived by the party entitled to
waive any such condition pursuant to Section 9.05 hereof. The date on which the
Closing shall occur is referred to herein as the "Closing Date."
SECTION 1.05. Closing Financial Statements.
6
(a) As soon as practicable (but in no event later than one hundred
twenty (120) calendar days) following the Closing Date, the Purchaser shall
prepare and deliver to the Sellers an audited balance sheet for the Company (the
"Closing Balance Sheet") as of the Closing Date and related statements of
income, changes in shareholders' equity and cash flows of the Company for the
period from January 1, 1998 through the Closing Date (collectively with the
Closing Balance Sheet, the "Closing Financial Statements"). The Closing
Financial Statements shall be accompanied by the report thereon of Purchaser's
Accountants stating that the Closing Financial Statements fairly present the
financial position and results of operations of the Company as of such date and
for the period then ended in accordance with GAAP applied on a basis consistent
with the preparation of the 1997 Financial Statements and, to the extent not
inconsistent with the 1997 Financial Statements, consistent with the past
practices of the Company. During the period of any dispute provided for in
Section 1.05(c), the Purchaser shall provide the Sellers and the Sellers'
Accountants reasonable access during normal business hours to the books,
records, facilities and employees of the Company, and the Purchaser shall
cooperate fully with the Sellers and the Sellers' Accountants in order to
investigate the basis for any such dispute. Purchaser shall reimburse Sellers
for the reasonable, actual fees, costs and expenses of Sellers' Accountants in
connection with the matters set forth in this Section 1.05(a), but in no event
shall such reimbursement obligation exceed $7,500.00. The Sellers and their
representatives shall be given reasonable access during normal business hours to
the books, records, facilities and employees of the Company, including all
supporting documents and auditor's work papers used in the preparation of the
Closing Balance Sheet as necessary for the Sellers and their representatives to
review the Closing Balance Sheet. Together with the Closing Balance Sheet,
Purchaser shall deliver to the Sellers a statement (the "Closing Net Worth
Statement") of net worth, derived by subtracting the total liabilities reflected
on the Closing Balance Sheet from the total assets reflected on the Closing
Balance Sheet ("Closing Net Worth"). Purchaser and Sellers hereby agree that,
notwithstanding the Closing Balance Sheet, in no event shall the Closing Net
Worth Statement reflect (i) a reserve for warranty claims in excess of $120,000
or (ii) December 31, 1997 net audit adjustments in excess of $10,000. Purchaser
and Sellers hereby represent to each other that ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP has not
notified any of them of any December 31, 1997 audit adjustments except as set
forth on Schedule 1.05(a) hereto.
(b) Within ten (10) Business Days after the date on which the Closing
Financial Statements become final, binding and conclusive pursuant to Section
1.05(c), if the amount of the Closing Net Worth set forth on the Closing Net
Worth Statement is less than Eight Million Five Hundred Eighty Two Thousand
Dollars ($8,582,000) (the "Asset Threshold"), then Sellers shall pay to
Purchaser, as an adjustment to the Aggregate Purchase Price, in immediately
available funds, an amount equal to such shortfall (the "Asset Deficiency
Amount").
(c) If not disputed by the Sellers in accordance with this Section
1.05(c), the Closing Financial Statements delivered by the Purchaser to the
Sellers shall be final, binding and conclusive on the parties hereto. The
Sellers may dispute any amounts reflected on the Closing Financial Statements
but only on the basis that the amounts reflected on the Closing Financial
Statements were not arrived at in accordance with GAAP applied on a basis
consistent with the preparation of the 1997 Financial Statements and, to the
extent not inconsistent with the 1997 Financial Statements, consistent with past
practices of the Company; provided, however, that the Sellers shall notify the
Purchaser and the Purchaser's Accountants in writing of each disputed item,
specifying the amount thereof in dispute and setting forth, in reasonable
detail, the basis for
7
such dispute, within thirty (30) Business Days of the Sellers' receipt of the
Closing Financial Statements. In the event of such a dispute, the Sellers and
the Purchaser shall negotiate in good faith to resolve such dispute. If such
dispute has not been resolved within ten (10) Business Days after the notice
referred to above has been given, the Purchaser's Accountants and the Sellers'
Accountants shall attempt to resolve such dispute, and any resolution by them as
to any disputed amounts shall be final, binding and conclusive on the parties
hereto. If the Purchaser's Accountants and the Sellers' Accountants are unable
to reach a resolution within such ten (10) Business Days, the Purchaser's
Accountants and the Sellers' Accountants promptly shall submit the items
remaining in dispute for resolution to the Independent Accounting Firm, which
shall, within thirty (30) Business Days of such submission, determine and report
to the Sellers and the Purchaser upon such remaining disputed items, and such
report shall have the legal effect of an arbitral award and shall be final,
binding and conclusive on the Sellers and the Purchaser and shall be enforceable
as a judgment in any court of competent jurisdiction. The fees and disbursements
of the Independent Accounting Firm shall be allocated between the Sellers and
the Purchaser in the same proportion that the aggregate amount of such remaining
disputed items submitted to the Independent Accounting Firm that is
unsuccessfully disputed by each such party (as finally determined by the
Independent Accounting Firm) bears to the total amount of disputed items so
submitted.
8
ARTICLE II
DISPOSITION OF THE SHARES AND EARNOUT
SHARES AND ADDITIONAL OBLIGATIONS OF
THE PURCHASER AND SELLERS
SECTION 2.01 Registration Statement.
(a) As promptly as practicable (but in no event more than sixty (60)
days) after the execution of this Agreement, the Purchaser shall prepare and
file with the U.S. Securities and Exchange Commission (the "SEC") a registration
statement on Form S-3 (together with all amendments thereto, the "Registration
Statement") in connection with the registration under the Securities Act of
1933, as amended (the "Securities Act"), of the Shares for sale by or on behalf
of Sellers. At its sole option and discretion, Purchaser may register
additional shares of Purchaser Common Stock for sale by Purchaser pursuant to
the Registration Statement, the proceeds of which sales shall be applied to any
Shortfall Payment that Purchaser is required to make pursuant hereto, which
additional shares may only be sold if all of Sellers' Shares are sold and the
Total Proceeds are less than the Sales Commission Threshold Amount (as defined
in Section 2.01(c)). The Purchaser will use its reasonable best efforts to
cause the Registration Statement to become effective as promptly as practicable
after the Closing Date (but in no event later than May 1, 1999 (it being
understood that Purchaser is only required to use its reasonable best efforts to
cause the Registration Statement to become effective by such date)), and, prior
to the effective date of the Registration Statement (the "Registration Statement
Effective Date"), the Purchaser shall use its reasonable best efforts to take
all or any action required under any applicable federal or state securities laws
to permit the sale of the Shares pursuant to the Registration Statement
including, without limitation, all action required to include such Shares for
trading on the National Association of Securities Dealers, Inc. National Market
System (the "NASDAQ National Market System"). The Sellers shall cooperate, and
shall cause the Company and the Escrow Agent to cooperate, with the Purchaser in
causing such Registration Statement to become effective, including, without
limitation, by furnishing (or causing to be furnished) all information
concerning the Sellers, the Company and the Escrow Agent as the Purchaser may
reasonably request in connection with the preparation of the Registration
Statement and the other actions described above, including, without limitation,
any interim financial statements. The Company's financial statements required
to be filed with the SEC by Purchaser shall be audited by Purchaser's
Accountants at Purchaser's cost and expense. The Purchaser will advise the
Sellers, promptly after it receives notice thereof, of the Registration
Statement Effective Time, the time when any post-effective amendment thereto is
declared effective, the issuance of any stop order, the suspension of the
qualification of the Shares for offering or sale in any jurisdiction, the
receipt of any request by the SEC for amendment of the Registration Statement,
issuance by the SEC of any comments thereon and receipt of any requests by the
SEC for additional information with respect thereto.
(b) The following expenses incident to the performance of or
compliance with Purchaser's and Sellers' obligations under Article II of this
Agreement, including all registration and filings fees, including with respect
to filings required to be made with the National Association of Securities
Dealers, Inc., fees and expenses of compliance with securities or blue sky laws
(including reasonable fees and disbursements of counsel for the underwriters, if
any, in
9
connection with blue sky qualifications of the Shares and determination of their
eligibility for investment under the laws of such jurisdictions as the managing
underwriters, if any, may designate), printing expenses, messenger, telephone
and delivery expenses, and the fees and disbursements of all independent
certified public accountants (including the expenses of the "cold comfort"
letters required by or incident to such performance), the fees and expenses
incurred, if any, in connection with the listing of the Shares to be registered
on each securities exchange on which similar securities issued by Purchaser are
then listed (all such expenses being herein called "Sales Expenses") will be
borne by Purchaser. All other expenses, including without limitation, the
expense of counsel for each or both Sellers and Purchaser, shall be borne by the
party incurring such expense; provided, however, that in connection with the
sale of any Earnout Shares all such expenses shall be borne by Purchaser.
(c) If the aggregate proceeds, whether payable to the Seller or Escrow
Agent, from any and all sales of Shares by or on behalf of the Sellers (such sum
being herein referred to as the "Total Proceeds") exceeds Forty Six Million
Eight Hundred Nine Thousand Dollars ($46,809,000) (the "Sales Commission
Threshold Amount"), then Sellers shall be liable for the payment of any
discounts, commissions, or fees of underwriters, selling brokers, dealer
managers or similar industry professionals relating to the distribution of the
Shares ("Sales Commissions"); provided, however, that the amount of Sales
Commissions Sellers shall be liable to pay shall be limited to the lesser of (x)
the amount of such excess over the Sales Commission Threshold Amount and (y) 3%
of the Total Proceeds. If the Total Proceeds are less than or equal to the
Sales Commission Threshold Amount, then Purchaser shall be liable for the
payment of any Sales Commissions.
(d) Purchaser covenants that the information supplied by the Purchaser
for inclusion in the Registration Statement shall not, at the Registration
Statement Effective Date or during the effectiveness thereof, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading. If, at any time, any event or circumstance relating to the
Purchaser or any of its subsidiaries, or their respective officers or directors,
should be discovered by the Purchaser which should be set forth in an amendment
or a supplement to the Registration Statement, the Purchaser shall promptly
inform the Sellers. All documents that the Purchaser is responsible for filing
with the SEC in connection with the transactions contemplated herein will comply
as to form and substance in all material respects with the applicable
requirements of the Securities Act and the rules and regulations thereunder and
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
rules and regulations thereunder.
(e) Sellers covenant that the information supplied by the Company and
each Seller for inclusion in the Registration Statement shall not, at the time
the Registration Statement is declared effective or during the effectiveness
thereof, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein not misleading. If, at any time, any event or circumstance
relating to the Company or either Seller should be discovered by either Seller
or the Company which should be set forth in an amendment or a supplement to the
Registration Statement, the Sellers shall promptly inform the Purchaser.
SECTION 2.02. Purchaser Control of the Sale of Shares.
10
(a) From the Registration Statement Effective Date through the later
of (x) the sale of all of the Shares or (y) the Marketing Termination Date (as
defined in Section 2.03) (such period of time being referred to herein as the
"Purchaser Marketing Period"), the timing, method and pricing with respect to
the sale of the Shares pursuant to the Registration Statement shall be
determined by Purchaser in its sole discretion; provided, however, that upon
delivery of a Non-Shortfall Election by Sellers to Purchaser, the Purchaser
Marketing Period shall terminate. Notwithstanding anything to the contrary
herein, in making a determination, during the Purchaser Marketing Period, as to
whether to sell the Shares, Purchaser shall consult with one or more companies,
the choice of which shall be at Purchaser's sole discretion, that make a market
in shares of Purchaser Common Stock and if such market maker or a majority of
such market makers advise Purchaser in writing that it is likely that the
proceeds of the sales of the Shares will exceed the Sales Commission Threshold
Amount, then Purchaser will use its reasonable best efforts to arrange to sell
all of such Shares on behalf of the Sellers. If Purchaser determines that it
will arrange to sell the Shares on behalf of the Sellers, then Purchaser will
take such action as in its judgment will result in (i) all of the Shares being
sold at the best possible prices, taking into account all of the facts and
circumstances, and (ii) sales commissions relating to sales of the Shares being
minimized, consistent with sales commissions that are customary based on the
number of shares available for sale and the manner and timing of sale as
determined by Purchaser; provided, however, that the parties agree that as
between the goals stated in clauses (i) and (ii), clause (i) shall take
precedence. The Chairman of the Board of Purchaser will be available to
participate in marketing presentations with respect to the sale of the Shares
for up to four days during the Purchaser Marketing Period. Notwithstanding
anything to the contrary herein, each Seller hereby acknowledges that market
prices of publicly traded securities, including the Purchaser Common Stock,
trade in a broad range and are subject to volatility based on many factors,
including general economic and financial conditions; and each Seller, therefore,
hereby agrees that Purchaser shall not be liable to Sellers with respect to the
manner and timing of the sale or sales of the Shares and the Earnout Shares, as
the case may be, and the price or prices at which any such shares are sold, to
the extent Purchaser takes or omits taking action in its good faith judgment.
(b) In furtherance of the foregoing, and not in limitation thereof,
Purchaser shall have the right to (i) select the investment banker or bankers,
if any, and manager or managers, if any, to administer the sale of the Shares
pursuant to the Registration Statement and (ii) determine the timing and the
method of sale of such Shares, including by means of a block trade or firm
commitment underwriting or other method recommended by the investment banking
firm through whom the offering may be made. Sellers agree to cooperate fully
with Purchaser in the preparation and filing of the Registration Statement and
any amendments and supplements thereto and in complying with any SEC comments
and to execute all documents and instruments and take such actions as may
reasonably be requested by Purchaser to accomplish the registration and sale of
the Shares.
(c) Sellers hereby agree that when the Registration Statement becomes
effective and Purchaser has made all reasonably necessary arrangements for the
Shares to be sold in the manner determined by Purchaser, Sellers shall sell, and
if required under the Escrow Agreement the Escrow Agent shall sell, such Shares
to such buyer or buyers at the price or prices as shall be specified by
Purchaser, and Purchaser and Sellers shall execute, and, if required under the
Escrow Agreement, the Escrow Agent shall execute, all documents and instruments
and take
11
such actions as may be reasonably necessary or requested by Purchaser to
accomplish the sale of such Shares, including, without limitation, the delivery
of certificates representing such Shares, in form for transfer, to such buyer or
buyers. Purchaser, Sellers and, if required under the Escrow Agreement, the
Escrow Agent shall (A) enter into such agreements (including an underwriting
agreement) and take all such other actions in connection therewith as the
managing underwriters, if any, reasonably request in order to expedite or
facilitate the disposition of the Shares, whether or not an underwriting
agreement is entered into and whether or not any disposition of Shares is
pursuant to an underwritten offering, (B) make such representations and
warranties and agree to such indemnities to the underwriters, if any, or
managing underwriters, if any, as they shall reasonably request, such
representation, warranties and indemnities to be in form, substance and scope as
are customarily made and agreed to by selling shareholders to underwriters in
underwritten offerings, and confirm the accuracy of the same if and when
requested, (C) obtain opinions of their respective legal counsel and updates
thereof addressed to the underwriters, if any, covering the matters customary in
underwritten offerings by selling shareholders and such other matters as may be
reasonably requested by the underwriters, if any, and (D) deliver such documents
and certificates as may be reasonably requested by the managing underwriters, if
any, to evidence compliance with clause (B) above and with any customary
conditions contained in the underwriting agreement or other agreement entered
into by Purchasers, Sellers and, if required, the Escrow Agent. If Shares are
sold pursuant to this Article II, the Escrowed Shares shall be the first to be
sold and no Non-Escrowed Shares shall be sold until all Escrowed Shares are
sold.
(d) In order to facilitate compliance with the selling mechanisms set
forth herein, Sellers, Purchaser and two officers of Purchaser shall, at
Closing, execute a power of attorney and custody agreement substantially in the
form of Exhibit A hereto (the "Custody Agreement") pursuant to which Purchaser
---------
shall act as custodian (the "Custodian") for Sellers with respect to the Non-
Escrowed Shares and such officers of Purchaser shall be appointed attorneys-in-
fact for Sellers with respect to the Shares. Purchaser and Sellers hereby
covenant and agree that they will comply with all of the terms of the Custody
Agreement.
12
SECTION 2.03. Shortfall Payment.
(a) Unless Sellers have made a Non-Shortfall Election (as defined in
Section 2.10), at the close of business on the Marketing Termination Date (which
shall be the twentieth (20th) Business Day (or, in the event Sellers exercise
their Delay Election (as defined below) on the fortieth (40th) Business Day)
after the later of (x) the Registration Statement Effective Date and (y) the
Closing Date), if each Seller has not received an aggregate of at least one-half
of the Minimum Realized Proceeds Amount (as defined below) from that portion of
the Total Proceeds attributable to the Non-Escrowed Shares, then on the third
(3rd) Business Day after the Marketing Termination Date, Purchaser will pay to
each such Seller an amount equal to such shortfall payable in immediately
available funds by wire transfer to an account designated by each Seller (such
payments being herein referred to as the "Shortfall Payments" and the day such
Shortfall Payments are due shall be referred to herein as the "Settlement
Date"); provided, however, that if, on the Settlement Date, there are any
previously executed trades of Shares for which settlement is then pending, the
Settlement Date shall be postponed for up to three (3) Business Days to permit
settlement thereof. On the Settlement Date, each Seller who receives a
Shortfall Payment shall, as a condition precedent to Purchaser's obligation to
make the Shortfall Payment to such Seller, deliver to Purchaser in consideration
therefor, and Purchaser shall acquire ownership of, all unsold Non-Escrowed
Shares of such Seller. Any amounts owed by such Seller under a Loan or the
related Pledge Agreement (as defined in Section 2.04(b)) outstanding on the
Settlement Date shall be set off against the amount of the Shortfall Payments
and such Seller's obligations thereunder shall be deemed to be satisfied in full
and such Loan or Loans shall be canceled. At the sole option of the Sellers,
the Sellers may delay the Marketing Termination Date by twenty (20) Business
Days (a "Delay Election") by delivering to Purchaser, on or before the second
(2nd) Business Day after the date on which Sellers receive written notice from
Purchaser that the Registration Statement Effective Time has occurred, a writing
executed by both Sellers stating that the Sellers thereby make a Delay Election
pursuant to the terms of this Section 2.03. If it does not occur sooner under
the terms hereof, then the Settlement Date shall be on September 30, 1999. The
"Minimum Realized Proceeds Amount" shall be Forty Three Million Eight Hundred
Nine Thousand Dollars ($43,809,000). If either Seller is unable to deliver to
Purchaser all or any portion of his unsold Non-Escrowed Shares on the Settlement
Date free and clear of any liens, claims or encumbrances (other than liens,
claims or encumbrances arising to secure an obligation of, or arising by way of
any claims against, Purchaser or arising pursuant to the applicable Pledge
Agreement), then, at the request of such Seller, delivered on or before the
Settlement Date, Purchaser shall delay the Settlement Date with respect to such
Seller until (A) such Seller is able to fully comply with each requirement of
this Section 2.03(a), (B) Seller notifies Purchaser in writing that he will not
be able to fully comply with each requirement of Sellers in this Section 2.03(a)
and expressly waives any rights pursuant to Section 2.03(a) or (C) a final
opinion of a court of competent jurisdiction, not subject to appeal, holds that
a party other than such Seller has title to such Non-Escrowed Shares and that
Seller has no claim to such Non-Escrowed Shares and may not tender them pursuant
hereto.
(b) At the close of business on the Marketing Termination Date
(determined pursuant to Section 2.03(a)), if the Escrow Agent has not received
an aggregate of at least Three Million Dollars ($3,000,000) from that portion of
the Total Proceeds attributable to the Escrowed Shares, then on the Settlement
Date, Purchaser will pay to the Escrow Agent an amount equal to such shortfall
payable in immediately available funds by wire transfer to the account
designated
13
in the Escrow Agreement (such payment being herein referred to as the "Escrow
Shortfall Payment"). Escrow Agent shall deliver to Purchaser in consideration
therefor, and Purchaser shall acquire ownership of, all unsold Escrowed Shares.
At the close of business on the Marketing Termination Date (determined pursuant
to Section 2.03(a)), if the Escrow Agent has received in excess of Three Million
Dollars ($3,000,000) from that portion of the Total Proceeds attributable to the
Escrowed Shares, then, upon the taking of all action required to be taken as of
the Settlement Date, the Escrow Agent shall distribute one-half (1/2) of such
excess to each Seller. Purchaser and Sellers covenant and agree that the
exercise or failure to exercise the Non-Shortfall Election shall have no effect
on the Escrow Agent or the Escrowed Shares.
SECTION 2.04. Required Loans.
(a) At the Closing, Purchaser shall make an interest-free, non-
recourse loan (the "First Loan") to each Seller in the amount of Seven Million
Five Hundred Thousand Dollars ($7,500,000) payable in immediately available
funds by wire transfer to an account designated by each Seller which First Loan
shall be due on the Settlement Date. As a condition precedent to Purchaser's
obligation to make the First Loan each Seller shall agree to pledge upon
issuance a number of Shares equal to (x) Seven Million Five Hundred Thousand
Dollars ($7,500,000) divided by (y) the Determination Price (the "Initial Pledge
Shares") as security for the First Loan and shall deliver certificates
representing such Initial Pledge Shares, in form for transfer, and shall deliver
a note in the principal amount of Seven Million Five Hundred Thousand Dollars
($7,500,000), which note shall be substantially in the form of Exhibit B hereto,
---------
and a pledge agreement with respect to the Initial Pledge Shares, which pledge
agreement shall be substantially in the form of Exhibit C hereto.
---------
(b) If the Settlement Date has not occurred on or before March 31,
1999 (the "Second Loan Date"), then Purchaser shall make an interest-free non-
recourse loan (the "Second Loan" and, together with the First Loan the "Loans")
to each such Seller in the amount of Fourteen Million Four Hundred Four Thousand
Five Hundred Dollars ($14,404,500) less the proceeds from any sales of Non-
Escrowed Shares received by such Seller (excluding any proceeds used to repay
the First Loan) which Second Loan shall be due on the Settlement Date. The
proceeds of the Second Loan shall be payable in immediately available funds by
wire transfer to an account designated by each Seller. As a condition precedent
to the Purchaser's obligation to make the Second Loan to each Seller, such
Seller shall pledge all then unsold Non-Escrowed Shares belonging to such Seller
that are not Initial Pledge Shares (the "Second Loan Pledge Shares") as security
for the Second Loan and Custodian shall deliver certificates representing such
Second Loan Pledge Shares in form for transfer, and Seller shall deliver a note
in the principal amount of the Second Loan Amount, which note shall be
substantially in the form of Exhibit B hereto, and a pledge agreement with
---------
respect to the Second Loan Pledge Shares, which pledge agreement shall be
substantially in the form of Exhibit C hereto. If either Seller is unable to
---------
deliver to Purchaser all or any portion of his Second Loan Pledge Shares on the
Second Loan Date free and clear of any liens, claims or encumbrances (other than
(x) liens, claims or encumbrances arising to secure an obligation of, or arising
by way of any claims against, Purchaser or arising pursuant to the applicable
Pledge Agreements and (y) any Junior Lien), then, at the request of such Seller,
delivered on or before the Second Loan Date, Purchaser shall delay the Second
Loan Date with respect to such Seller until (A) such Seller is able to fully
comply with each requirement of this Section 2.04(b), (B) such Seller notifies
Purchaser in
14
writing that he will not be able to fully comply with each requirement of
Sellers in this Section 2.04(b) and expressly waives any rights pursuant to
Section 2.04(b) or (C) a final opinion of a court of competent jurisdiction, not
subject to appeal, holds that a party other than such Seller has title to such
Second Loan Pledge Shares and that Seller has no claim to such Second Loan
Pledge Shares and may not tender them pursuant hereto. For purposes hereof,
"Junior Lien" shall mean any lien, claim or encumbrance on the Shares that has
been determined by a court of competent jurisdiction to be junior to a first
priority perfected lien in favor of Purchaser and that the Purchaser may
exercise all of its rights under any Pledge Agreement executed pursuant hereto
without regard to such lien, claim or encumbrance. Any pledge agreement executed
and delivered pursuant to this Section 2.04(b) or pursuant to Section 2.09(a)
hereof is hereinafter referred to as a "Pledge Agreement").
(c) Notwithstanding anything herein to the contrary, at any time there
is an outstanding balance due Purchaser under any of the Loans, proceeds of the
sale of any Non-Escrowed Shares, including any Shortfall Payments, will be paid
to Purchaser on behalf of the Sellers. The proceeds from the sale of a Seller's
Non-Escrowed Shares in excess of any then outstanding balance due Purchaser
under any of the Loans shall be paid to such Seller in immediately available
funds by wire transfer to the accounts designated in the Custody Agreement.
SECTION 2.05. Letters of Credits. Purchaser's obligations pursuant
to Sections 2.03(a) and 2.04(b) hereof shall be secured with respect to each
Seller by an irrevocable letter of credit issued by U.S. Trust Company ("UST")
or another similarly situated U.S. bank in the form of Exhibit D (the "Letters
---------
of Credit"). Sellers hereby agree that they shall not draw upon the Letters of
Credit delivered pursuant to this Agreement unless Purchaser shall have failed
to make any payment required by Section 2.03(a) or 2.04(b) hereof and that any
such draw shall be made only to the extent of such non-payment by Purchaser.
Each Seller shall deliver his original executed Letters of Credit to Purchaser
for cancellation upon payment in full by Purchaser to such Seller of all amounts
secured thereby or upon Seller's delivery to Purchaser of a written notice that
they have made a Non-Shortfall Election. If the Settlement Date on the Second
Loan Date is delayed pursuant to Section 2.03(a) or 2.04(b) respectively, then
Purchaser shall extend or replace the respective Letter of Credit so that a
Letter of Credit is in effect until 30 days after the Settlement Date or the
Second Loan Date, as the case may be.
SECTION 2.06. Earnout Registration Statement..
(a) As promptly as practicable and in no event more than sixty (60)
days after the Earnout Payment Date, the Purchaser shall prepare and file with
the SEC a registration statement (together with all amendments thereto, the
"Earnout Registration Statement") in connection with the registration under the
Securities Act of the Earnout Shares for sale by Sellers. At its sole option
and discretion, Purchaser may register additional shares of Purchaser Common
Stock for sale by Purchaser pursuant to the Earnout Registration Statement, the
proceeds of which sales shall be applied to any Earnout Shortfall Payment (as
defined in Section 2.08) that Purchaser is required to make pursuant hereto.
The Purchaser will use its reasonable best efforts to cause the Earnout
Registration Statement to become effective as promptly as practicable after the
Earnout Payment Date (but in no event later than the date which is 150 days
after the Earnout Payment Date (it being understood that Purchaser is only
required
15
to use its reasonable best efforts to cause the Earnout Registration Statement
to become effective by such date)), and, prior to the effective date of the
Earnout Registration Statement (the "Earnout Registration Statement Effective
Date"), the Purchaser shall use its reasonable best efforts to take all or any
action required under any applicable federal or state securities laws to permit
the sale by Sellers of the Earnout Shares pursuant to the Earnout Registration
Statement including, without limitation, all action required to include such
Earnout Shares for trading on the NASDAQ National Market System. The Sellers
shall cooperate with the Purchaser in causing such Earnout Registration
Statement to become effective, including, without limitation, furnishing (or
causing to be furnished) all information concerning the Sellers as the Purchaser
may reasonably request in connection with the preparation of the Earnout
Registration Statement and the other actions described above. The Purchaser will
advise the Sellers, promptly after it receives notice thereof, of the Earnout
Registration Statement Effective Time, the time when any post-effective
amendment thereto is declared effective, the issuance of any stop order, the
suspension of the qualification of the Earnout Shares for offering or sale in
any jurisdiction, the receipt of any request by the SEC for amendment of the
Earnout Registration Statement, the issuance by the SEC of any comments thereon
and receipt of any responses thereto or requests by the SEC for additional
information with respect thereto.
(b) If the aggregate proceeds from any sales of Earnout Shares (the
"Total Earnout Proceeds") exceed the amount of the Earnout Payment, then Sellers
shall be liable for the payment of any discounts, commissions, or fees of
underwriters, selling brokers, dealer managers or similar industry professionals
relating to the distribution of the Earnout Shares ("Earnout Sales
Commissions"); provided, however, that the amount of Earnout Sales Commissions
Sellers shall be liable to pay shall be limited to the lesser of (x) the amount
of such excess over the Earnout Payment and (y) 3% of the Total Earnout
Proceeds. If the Total Earnout Proceeds are less than or equal to the amount of
the Earnout Payment, then Purchaser shall be liable for the payment of any
Earnout Sales Commissions.
(c) Purchaser covenants that the information supplied by the Purchaser
for inclusion in the Earnout Registration Statement shall not, at the Earnout
Registration Statement Effective Date or during the effectiveness thereof,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein not misleading. If, at any time, any event or circumstance relating to
the Purchaser or any of its subsidiaries, or their respective officers or
directors, should be discovered by the Purchaser which should be set forth in an
amendment or a supplement to the Earnout Registration Statement, the Purchaser
shall promptly inform the Sellers. All documents that the Purchaser is
responsible for filing with the SEC in connection with the transactions
contemplated herein will comply as to form and substance in all material
respects with the applicable requirements of the Securities Act and the rules
and regulations thereunder and the Exchange Act and the rules and regulations
thereunder.
(d) Sellers covenant that the information supplied by each Seller for
inclusion in the Earnout Registration Statement shall not, at the Earnout
Registration Statement Effective Date or during the effectiveness thereof,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein not misleading. If, at any time, any event or circumstance relating to
either Seller should be discovered by either Seller which should be set forth in
an amendment or a
16
supplement to the Earnout Registration Statement, the Sellers shall promptly
inform the Purchaser.
SECTION 2.07. Purchaser Control of the Sale of Earnout Shares.
(a) From the Earnout Registration Statement Effective Date through the
later to occur of (x) the sale of all of the Earnout Shares or (y) the Final
Settlement Date (as defined in Section 2.08) (such period of time being referred
to herein as the "Purchaser Earnout Marketing Period"), the timing, method and
pricing with respect to the sale of the Earnout Shares pursuant to the Earnout
Registration Statement shall be determined by Purchaser in its sole discretion.
Notwithstanding anything to the contrary herein, in making a determination,
during the Purchaser Earnout Marketing Period, as to whether to sell the Earnout
Shares, Purchaser shall consult with one or more companies, the choice of which
shall be at Purchaser's sole discretion, that make a market in shares of
Purchaser Common Stock and if such market maker or a majority of such market
makers advise Purchaser in writing that it is likely that the proceeds of the
sale of the Earnout Shares will exceed the Earnout Payment, then Purchaser will
use its reasonable best efforts to arrange to sell all of such Earnout Shares on
behalf of Sellers. If Purchaser determines that it will arrange to sell the
Earnout Shares on behalf of Sellers, then Purchaser will take such action as in
its judgment will result in (i) all of the Earnout Shares being sold at the best
possible prices, taking into account all of the facts and circumstances, and
(ii) sales commissions relating to sales of the Earnout Shares being minimized,
consistent with customary sales commissions based on the number of Earnout
Shares available for sale and the manner and timing of sale determined by
Purchaser; provided, however, that the parties agree that as between the goals
stated in clauses (i) and (ii), clause (i) shall take precedence.
(b) In furtherance of the foregoing, and not in limitation thereof,
Purchaser shall have the right to (i) select the investment banker or bankers,
if any, and manager or managers, if any, to administer the sale of the Earnout
Shares pursuant to the Earnout Registration Statement and (ii) determine the
timing and the method of sale of such Earnout Shares, including by means of a
block trade or firm commitment underwriting or other method recommended by the
investment banking firm through whom the offering may be made. Sellers agree to
cooperate fully with Purchaser in the preparation and filing of the Earnout
Registration Statement and any amendments and supplements thereto and in
complying with any SEC comments and to execute all documents and instruments and
take such actions as may reasonably be requested by Purchaser to accomplish the
registration of the Earnout Shares.
(c) Sellers hereby agree that when the Earnout Registration Statement
becomes effective and Purchaser has made all reasonably necessary arrangements
for the Earnout Shares to be sold in the manner determined by Purchaser, Sellers
shall sell such Earnout Shares to such buyer or buyers at the price or prices as
shall be specified by Purchaser, and Purchaser and Sellers shall execute all
documents and instruments and take such actions as may be reasonably necessary
or requested by Purchaser to accomplish the sale of such Earnout Shares,
including, without limitation, the delivery of certificates representing such
Earnout Shares, in form for transfer, to such buyer or buyers. Purchaser and
Sellers shall (A) enter into such agreements (including an underwriting
agreement) and take all such other actions in connection therewith as the
managing underwriters, if any, reasonably request in order to expedite or
facilitate the disposition of the Earnout Shares, whether or not an underwriting
agreement is
17
entered into and whether or not any disposition of Earnout Shares is pursuant to
an underwritten offering, (B) make such representations and warranties and agree
to such indemnities to the underwriters, if any, or managing underwriters, if
any, as they shall reasonably request, such representation, warranties and
indemnities to be in form, substance and scope as are customarily made and
agreed to by selling shareholders to underwriters in underwritten offerings, and
confirm the accuracy of the same if and when requested, (C) obtain opinions of
their respective legal counsel and updates thereof addressed to the
underwriters, if any, covering the matters customary in underwritten offerings
by selling shareholders and such other matters as may be reasonably requested by
the underwriters, if any, and (D) deliver such documents and certificates as may
be reasonably requested by the managing underwriters, if any, to evidence
compliance with clause (B) above and with any customary conditions contained in
the underwriting agreement or other agreement entered into by Purchasers and
Sellers.
(d) In order to facilitate compliance with the selling mechanisms set
forth herein, Sellers, Purchaser and two officers of Purchaser shall, on the
Earnout Payment Date, execute a power of attorney and custody agreement
substantially in the form of Exhibit A hereto (the "Earnout Custody Agreement")
---------
pursuant to which Purchaser shall act as Custodian for Sellers and such officers
of Purchasers shall be appointed attorneys-in-fact for Sellers with respect to
the Earnout Shares. Purchasers and Sellers hereby covenant and agree that they
will comply with all of the terms of the Earnout Custody Agreement.
SECTION 2.08. Earnout Shortfall Payment.. At the close of business
on April 9, 2001 (the "Final Settlement Date"), if each Seller has not received
an amount equal to the Earnout Payment from the Total Earnout Proceeds, then
Purchaser will pay to each such Seller an amount equal to such shortfall payable
in immediately available funds by wire transfer to an account designated by each
Seller ( the "Earnout Shortfall Payments"); provided, however, that if each
Seller has not received at least an amount equal to the Earnout Payment from the
Total Earnout Proceeds by the Final Settlement Date but each Seller is expected
to receive at least such amount based on trades which have occurred on or prior
to the Final Settlement Date as to which settlement is then pending, then the
Final Settlement Date shall be postponed for up to three (3) Business Days to
permit settlement thereof. On the Final Settlement Date, each Seller who
receives an Earnout Shortfall Payment shall, as a condition precedent to
Purchaser's obligation to make the Earnout Shortfall Payment to such Seller,
deliver to Purchaser in consideration therefor, and Purchaser shall acquire
ownership of, all unsold Earnout Shares of such Seller. Any amounts owed by
such Seller under an Earnout Loan or the related Pledge Agreement outstanding on
the Final Settlement Date shall be set off against the amount of the Earnout
Shortfall Payment and such Seller's obligations thereunder shall be deemed to be
satisfied in full and such Earnout Loan shall be canceled. If the amount of the
Earnout Payment has not been finally established on the Final Settlement Date
then the Preliminary Earnout Amount shall be used to calculate the Earnout
Shortfall Payment. Notwithstanding anything to the contrary herein, within ten
(10) Business Days of the delivery of the Independent Accounting Report any
payments required pursuant to Section 1.02(f) hereof shall be made in
immediately available funds. If either Seller is unable to deliver to Purchaser
all or any portion of his unsold Earnout Shares on the Final Settlement Date
free and clear of any liens, claims or encumbrances (other than liens, claims or
encumbrances arising to secure an obligation of, or arising by way of any claims
against, Purchaser or arising pursuant to the applicable Pledge Agreements),
then, at the request of such Seller, delivered on or before the Final Settlement
Date, Purchaser shall delay the
18
Final Settlement Date with respect to such Seller until (A) such Seller is able
to fully comply with each requirement of this Section 2.08, (B) such Seller
notifies Purchaser in writing that he will not be able to fully comply with each
requirement of Sellers in this Section 2.08 and expressly waives any rights
pursuant to this Section 2.08 or (C) a final opinion of a court of competent
jurisdiction, not subject to appeal, holds that a party other than such Seller
has title to such Earnout Shares and that Seller has no claim to such Earnout
Shares and may not tender them pursuant hereto.
SECTION 2.09. Earnout Loans.
(a) If, on November 8, 2000 (the "Earnout Loan Date"), each Seller has
not received Total Earnout Proceeds equal to the Earnout Payment (or the
Preliminary Earnout Payment if the amount of the Earnout Payment is still under
dispute pursuant to the terms of Section 1.02(d) hereof), then Purchaser shall
make an interest-free, non recourse loan to each Seller (the "Earnout Loan") in
the amount of the Earnout Payment (or Preliminary Earnout Payment, as the case
may be) less the proceeds received by Sellers of any sale of Earnout Shares,
which Earnout Loan shall be due on the Final Settlement Date. The proceeds of
the Earnout Loan shall be payable in immediately available funds by wire
transfer to an account designated by each Seller. As a condition precedent to
Purchaser's obligation to make the Earnout Loan to each Seller, such Seller
shall agree to pledge all Earnout Shares then owned by such Seller (the "Earnout
Pledge Shares") as security for the Earnout Loan and shall deliver certificates
representing such Earnout Pledge Shares, in form for transfer, and shall deliver
a note in the principal amount of the Earnout Loan which note shall be
substantially in the form of Exhibit A hereto, and a pledge agreement with
---------
respect to the Earnout Pledge Shares, which pledge agreement shall be
substantially in the form of Exhibit B hereto. If either Seller is unable to
---------
deliver to Purchaser all or any portion of his Earnout Pledge Shares on the
Earnout Loan Date free and clear of any liens, claims or encumbrances (other
than (x) liens, claims or encumbrances arising to secure an obligation of, or
arising by way of any claims against, Purchaser or arising pursuant to the
applicable Pledge Agreements and (y) any Junior Lien), then, at the request of
such Seller, delivered on or before the Earnout Loan Date, Purchaser shall delay
the Earnout Loan Date with respect to such Seller until (A) such Seller is able
to fully comply with each requirement of this Section 2.09(a), (B) such Seller
notifies Purchaser in writing that he will not be able to fully comply with each
requirement of Sellers in this Section 2.09(a) and expressly waives any rights
pursuant to this Section 2.09(a) or (C) a final opinion of a court of competent
jurisdiction, not subject to appeal, holds that a party other than such Seller
has title to such Earnout Pledge Shares and that Seller has no claim to such
Earnout Pledge Shares and may not tender them pursuant hereto.
(b) Notwithstanding anything herein to the contrary, at any time there
is an outstanding balance due Purchaser under the Earnout Loans, the proceeds of
the sale of any Earnout Shares, including any Earnout Shortfall Payments, will
be paid to Purchaser on behalf of the Sellers. The proceeds from the sale of a
Seller's Earnout Shares in excess of any then outstanding balance due Purchaser
under the Earnout Loan shall be paid to such Seller in immediately available
funds by wire transfer to the accounts designated in the Custody Agreement.
19
SECTION 2.10. Sellers' Non-Shortfall Election. The Sellers may, by
delivery to the Purchaser of a written notice executed by both Sellers (which
written notice shall only be effective if it is delivered to Purchaser either on
the Marketing Termination Date or the first Business Day thereafter), elect to
irrevocably waive in whole, but not in part, the Purchaser's obligation to pay
to both Sellers, but only to both Sellers, the Shortfall Payments required by
Section 2.03(a) hereof, which election is referred to herein as a "Non-Shortfall
Election." If Sellers make a Non-Shortfall Election, then, on the Settlement
Date: (i) notwithstanding Section 2.03(a) hereof, Purchaser shall not be
required to make the Shortfall Payments on the Settlement Date or otherwise and
Sellers shall not be required to deliver to Purchaser any unsold Non-Escrowed
Shares owned by Sellers on the Settlement Date; (ii) each Seller shall be
required to repay to Purchaser in full in cash on the Settlement Date all
amounts then outstanding pursuant to any Loan or Loans to such Seller, against
the deliveries by Purchaser described in the following clause (iii); and (iii)
subject to receipt by Purchaser of all outstanding amounts then due and owing
from both Sellers pursuant to any Loan or Loans then outstanding pursuant to the
preceding clause (ii) and the Letters of Credit contemplated by the following
clause (iv), Purchaser shall deliver to Sellers certificates representing all of
the Initial Pledge Shares and the Second Loan Pledge Shares then held by
Purchaser pursuant to any Pledge Agreements and any certificates representing
any other unsold Non-Escrowed Shares then still held pursuant to any Custody
Agreement, registered in the name of each Seller and free and clear of any liens
or encumbrances in favor of Purchaser, and shall return to Sellers any and all
Notes previously executed and delivered by Sellers to Purchaser pursuant to
Sections 2.04(a) and (b) hereof, which Notes shall be voided; and (iv) Sellers
shall deliver to Purchaser on the Settlement Date, against the deliveries by
Purchaser described in the preceding clause (iii), the original execution copy
of any and all Letters of Credit issued by UST to Sellers pursuant to Section
2.05 hereof and not previously drawn upon by Sellers strictly in accordance with
the terms thereof. If Sellers shall make a Non-Shortfall Election and shall
otherwise comply with the requirements of clauses (ii) and (iv) of the
immediately preceding sentence, Purchaser hereby agrees to use its reasonable
best efforts to cause the Registration Statement to remain effective for sixty
(60) trading days following the Settlement Date (the "Post-Election Period") but
only with respect to the Non-Escrowed Shares, provided that Sections 2.01(c) and
2.02 hereof shall cease to be of any further force or effect. Purchaser's
obligation to keep the Registration Statement effective during the Post-Election
Period shall terminate prior to the expiration of the Post-Election Period upon
the sale of all of the Non-Escrowed Shares covered thereby by Sellers. During
the Post-Election Period, Purchaser shall have the right, upon written notice to
Sellers, to suspend the use of the Registration Statement by Sellers if
Purchaser shall determine that the existence of any fact or the happening of any
event (including, without limitation, pending negotiations relating to, or the
consummation of, a transaction or the occurrence of any event that would require
additional disclosure of material non-public information by Purchaser in the
Registration Statement as to which the Purchaser, in its sole discretion, has a
reasonable business purpose for preserving confidentiality or that renders the
Purchaser unable to comply with SEC requirements) that makes untrue any
statement of a material fact made in the Registration Statement, the prospectus
constituting a part thereof or any amendment or supplement thereto or any
document incorporated by reference therein, or that requires the making of
additions to or changes in the Registration Statement or such prospectus in
order to make the Statements therein not misleading. Upon receipt of such
suspension notice, Sellers hereby agree to (i) keep the fact of such notice
confidential and (ii) forthwith discontinue disposition of Non-Escrowed Shares
20
pursuant to the Registration Statement until Sellers receive a further written
notice from Purchaser that the use of the Registration Statement may be resumed.
In the event Purchaser shall suspend the use of the Registration Statement, the
Post-Election Period shall be extended by the number of trading days during the
period of suspension. If Sellers make a Non-Shortfall Election pursuant to this
Section 2.10, then Sellers shall pay all Sales Commissions in connection with
the sales of the Shares.
SECTION 2.11. Escrow Arrangements. Notwithstanding any provisions of
this Agreement to the contrary:
(a) At the Closing, Purchaser and Sellers shall establish an escrow
account with UST or another similarly situated U.S. bank, as escrow agent (the
"Escrow Agent"), pursuant to an escrow agreement to be in a form reasonably
satisfactory to Purchaser, Sellers and Escrow Agent (the "Escrow Agreement").
The Escrow Agent shall hold any and all property and invest any and all funds
deposited with it as provided in the Escrow Agreement. The Escrowed Shares
deposited by Purchaser on behalf of Sellers pursuant to Section 1.02(a) shall be
held by the Escrow Agent pursuant to the Escrow Agreement. The proceeds of
sales of the Escrowed Shares in accordance with this Article II, including, but
not limited to, the Escrow Shortfall Payment, are referred to herein as the
"Escrow Funds."
(b) If, pursuant to either the Determination Financial Statements or
the Independent Accounts Report, the Determination EBIT is greater than Five
Million Five Hundred Thousand Dollars ($5,500,000), then, on the Earnout Payment
Date or the Final Earnout Payment Date, as the case may be, each Seller shall be
entitled to receive, in immediately available funds wired to an account
designated by each Seller, one-half of the Escrow Funds together with one-half
of any interest earned thereon less the fees and expenses of the Escrow Agent.
If the Sellers are not entitled to receive the Escrow Funds pursuant to the
preceding sentence, then the Escrow Funds, together with any and all interest
earned thereon less the fees and expenses of the Escrow Agent, shall, on the
date that a determination that Sellers are not so entitled is made pursuant to
the terms hereof, become the property of Purchaser and neither Seller shall have
any claim with respect thereto.
SECTION 2.12. Interpretation. To the extent of any inconsistency
between this Agreement and the terms and provisions of any of the Custody
Agreement, the Notes or the Pledge Agreements, this Agreement shall control,
such other agreements not being intended to diminish or expand the rights or
liabilities of Sellers or Purchaser set forth in this Agreement; rather it is
the intention of the parties that such documents be interpreted to enable the
Purchaser to enforce and preserve its rights hereunder and thereunder against
any person seeking to challenge such rights. Nothing contained or implied in
any of the Custody Agreement, the Notes or the Pledge Agreement shall diminish
any obligation of Sellers or Purchaser set forth in this Agreement.
21
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
The Sellers may amend the disclosure schedule dated as of the date
hereof and annexed hereto (the "Disclosure Schedule") after the signing of this
Agreement and prior to the Closing only with respect to either (i) information
not known to Sellers on the date hereof which becomes known to Sellers after the
date hereof provided that the Sellers would have known thereof but for the fact
that the parties' desire to maintain confidentiality limited Sellers' ability to
make due inquiry of all necessary employees, agents and representatives of the
Company or (ii) an event that occurs after the second Business Day prior to the
signing hereof and only by providing written notice (an "Amendment Notice") to
Purchaser pursuant to the terms of Section 9.06 hereof within 48 hours of either
Seller becoming aware of such event. Notwithstanding anything to the contrary
herein, Purchaser may, in its sole and absolute discretion, terminate this
Agreement (a "Disclosure Amendment Termination") without any liability or
further obligation hereunder by providing written notice to Sellers within five
Business Days after receiving any Amendment Notice. Each representation and
warranty herein, is made by each Seller individually and both Sellers jointly
and severally. Each Seller represents and warrants to the Purchaser that,
except as set forth in the Disclosure Schedule (each section of which qualifies
the correspondingly numbered representation and warranty or covenant herein to
the extent specified in such section of the Disclosure Schedule):
SECTION 3.01. Organization, Authority and Qualification of the
Company; Articles of Incorporation and By-laws.
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of California and has all requisite
corporate power and authority to own, lease and operate its properties and to
carry on the Business as presently conducted. The Company is duly qualified or
licensed as a foreign corporation to do business, and is in good standing, in
each jurisdiction where the character of the properties owned, leased or
operated by it or the nature of its activities makes such qualification or
licensing necessary. The Sellers have delivered to the Purchaser true, complete
and correct copies of each of the Articles of Incorporation, the By-laws and the
minutes of each meeting and each written consent of the board of directors and
shareholders of the Company.
(b) There are no corporations, partnerships, joint ventures,
associations or other entities (i) in which the Company owns, of record or
beneficially, any direct or indirect equity or other ownership interest or any
right (contingent or otherwise) to acquire the same or (ii) including
Kippartners, a California general partnership of which Sellers are the sole
partners ("Kippartners"), that are otherwise affiliated (by direct or indirect
equity or other ownership interest) with the Company or the Sellers through
which the Business is conducted. The Company is not a member of (nor is any
part of the Business conducted through) any partnership. The Company is not a
participant in any joint venture or similar arrangement.
22
SECTION 3.02. Capitalization.
(a) The authorized capital stock of the Company consists of 75,000
Company Shares, of which only 2,000 Company Shares are issued and outstanding
and all of which are owned beneficially and of record by the Sellers in equal
amounts of 1,000 shares each. No person or entity other than the Sellers owns
any Company Shares. All outstanding Company Shares are fully paid, validly
issued and nonassessable and were not issued in violation of any preemptive
rights.
(b) The stock register of the Company accurately records: (i) the name
and address of each person owning or who has owned shares of capital stock of
the Company and (ii) the certificate number of each certificate evidencing
shares of capital stock issued by the Company, the number of shares evidenced
by each such certificate, the date of issuance thereof and, in the case of
cancellation, the date of cancellation.
(c) Except with respect to the awards under the KippGroup Equity
Program set forth in Schedule 3.02(c) of the Disclosure Schedule (the "Phantom
Stock Awards"), there are no options, warrants or other rights, agreements,
arrangements or commitments of any character to which the Company or either
Seller is a party or obligating the Company or either Seller to issue or sell
any shares of capital stock of, or other equity interests in, the Company.
There are no outstanding contractual obligations of the Company to repurchase,
redeem or otherwise acquire any of the capital stock of the Company or to
provide funds to or make any investment (in the form of a loan, capital
contribution or otherwise) in any other entity. The Company is not a party to
any agreement granting registration rights to any person with respect to any
securities of the Company.
SECTION 3.03. No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by the Sellers does
not, and the performance of this Agreement by the Sellers will not, (i) conflict
with or violate the Articles of Incorporation or By-laws of the Company, (ii)
conflict with or violate any Law, rule, regulation, order, judgment or decree
applicable to the Company or either Seller or by which any of their respective
assets or properties are bound or affected, or (iii) result in any breach of or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, or result in the creation of a lien
or encumbrance on any of the properties or assets of the Company or either
Seller, respectively, pursuant to, or result in a change in any of the terms of
any note, bond, mortgage, indenture, Material Contract (as defined in Section
3.10), license, permit, insurance policy or other instrument to which the
Company or either Seller is a party, or by which the Company or either Seller or
any of their respective properties are bound or affected.
(b) The execution and delivery of this Agreement by the Sellers does
not, and the performance of this Agreement by the Sellers will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any governmental or regulatory authority, domestic or foreign, on the part
of the Company or either Seller, except for pre-
23
Acquisition notification requirements of the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust
Improvements Act of 1976, as amended and the rules and regulations thereunder
(the "HSR Act").
SECTION 3.04. Compliance with Laws. The Company is not in material
conflict with, or violation of, any federal, state, local or foreign statute,
law, rule, regulation, order, ordinance, judgment or decree ("Law") applicable
to the Company or by which the Company or any of its properties are bound or
affected.
SECTION 3.05. Financial Information; Books and Records.
(a) True and complete copies of (i) the Company Financial Statements
and (ii) the unaudited balance sheet of the Company as of November 30, 1998, and
the related statement of income and changes in Sellers' equity for the eleven
months ended November 30, 1998 of the Company (collectively referred to herein
as the "Interim Financial Statements") are attached as Section 3.05 of the
Disclosure Schedule. The Company Financial Statements and the Interim Financial
Statements (w) were prepared in accordance with the books of account and other
financial records of the Company, (x) present fairly the financial condition and
results of operations of the Company as of the dates thereof or for the periods
covered thereby, (y) have been prepared in accordance with GAAP applied on a
basis consistent with the past practices of the Company and (z) include all
adjustments (consisting only of normal recurring accruals) that are necessary
for a fair presentation of the financial condition of the Company and the
results of the operations of the Company as of the dates thereof or for the
periods covered thereby; provided, however, that the Interim Financial
Statements do not include all footnotes required by GAAP and were or are subject
to normal and recurring year-end adjustments that are not material in amount.
(b) The books of account and other financial records of the Company:
(i) reflect all items of income and expense and all assets and liabilities
required to be reflected therein in accordance with GAAP applied on a basis
consistent with the past practices of the Company, (ii) are in all material
respects complete and correct, and do not contain or reflect any inaccuracies or
discrepancies and (iii) to Sellers' knowledge, have been maintained in
accordance with good business and accounting practices.
(c) Section 3.05(c) of the Disclosure Schedule lists all dividends or
distributions, whether in cash, stock, property or otherwise, made by the
Company on or in respect of its capital stock from and after January 1, 1998 and
through and including the date hereof or to be made by the Company after the
date hereof and on or before the Closing Date.
SECTION 3.06. No Undisclosed Liabilities. There are no debts,
liabilities or obligations, whether accrued or fixed, absolute or contingent,
matured or unmatured or determined or determinable ("Liabilities") of the
Company, other than Liabilities (a) set forth on the Disclosure Schedule, (b)
reflected or reserved against on the Company Financial Statements or the Interim
Financial Statements, (c) in an aggregate amount not exceeding $100,000 incurred
in the ordinary course of business consistent with the past practice of the
Company since November 30, 1998 or (d) created under this Agreement or other
contracts listed in Section 3.10 of the Disclosure Schedule in accordance with
their terms or as required or permitted hereby. Reserves (the "Reserves") are
reflected on the Company Financial Statements or the Interim
24
Financial Statements and on the books of account and other financial records of
the Company against all liabilities of the Company in amounts that have been
established on a basis consistent with past practices of the Company and in
accordance with GAAP. Except as set forth in Section 3.06 of the Disclosure
Schedule, there are no outstanding warranty claims against the Company in excess
of the Reserves.
SECTION 3.07. Absence of Certain Changes, Events and Conditions.
Since December 31, 1997, there have not been any changes, occurrences, or
circumstances with respect to the Company which, individually or in aggregate,
have had or, are reasonably likely to have a Material Adverse Effect. Since
December 31, 1997, the Company has operated its business only in the ordinary
course, consistent with past practice, except for the transactions contemplated
by this Agreement. Since November 30, 1998, the Company has not taken any
action referred to in Section 5.01(b), except, with respect to 5.01(b)(v),
actions that are (a) set forth on the Disclosure Schedule or (b) reflected or
reserved against on the Company Financial Statements or the Interim Financial
Statements.
SECTION 3.08. Employee Benefit Plans; Labor Matters; Consultants.
(a) Section 3.08 of the Disclosure Schedule lists each benefit plan,
program, arrangement and contract (including, without limitation, any "employee
benefit plan", as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), maintained or contributed to by the
Company for or with respect to any of its current or former employees, officers,
directors or independent contractors, or with respect to which the Company could
incur liability under Section 4069, 4201 or 4212(c) of ERISA or Section 412 of
the Code (the "Company Benefit Plans").
(b) None of the Company Benefit Plans promises or provides retiree or
post-employment medical or other welfare benefits to any person. Each Company
Benefit Plan intended to be qualified under Section 401(a) of the Code has
received a favorable determination letter from the Internal Revenue Service to
the effect that it is so qualified and nothing has occurred since the date of
such letter to affect the qualified status of such plan. None of the Company
Benefit Plans in effect on the date hereof would result, separately or in the
aggregate (including, without limitation, as a result of this Agreement or the
transactions contemplated hereby), in the payment of any "excess parachute
payment" within the meaning of Section 280G of the Code. Each Company Benefit
Plan has been operated in all material respects in accordance with its terms and
the requirements of applicable Law, including without limitation ERISA, the Code
or any other applicable Law. None of the Company Benefit Plans is subject to
Title IV of ERISA, and the Company has not incurred, and does not reasonably
expect to incur, any direct or indirect liability under or by operation of Title
IV of ERISA.
(c) With respect to the Company Benefit Plans, no event has occurred
and, to the knowledge of the Company, there exists no condition or set of
circumstances, in connection with which the Company could be subject to any
material liability, individually or in the aggregate, under the terms of such
Company Benefit Plans, ERISA, the Code or any other applicable Law, other than
the payment of benefits under the terms of the Company Benefit Plans in the
ordinary course. No condition exists which would prevent the Company from
terminating any Company Benefit Plan without incurring any additional liability.
25
(d) The Company is not a party to any collective bargaining or other
labor union contracts. There is no pending or, to the knowledge of either
Seller, threatened, labor dispute, strike or work stoppage against the Company
which may interfere with the business activities of the Company as currently
conducted. Neither the Company nor, to the knowledge of either Seller, any of
its representatives or employees, has committed any unfair labor practices in
connection with the operation of the Business, and there is no pending or, to
the knowledge of either Seller, threatened charge or complaint against the
Company by the National Labor Relations Board or any comparable state or foreign
agency. To the knowledge of the Sellers, the Company's relations with its
employees are good.
(e) Set forth in Section 3.08(e) of the Disclosure Schedule is a list
of all employment agreements between the Company and any of its employees, true,
complete and correct copies of which have been made available by the Company to
the Purchaser.
(f) Set forth in Section 3.08(f) of the Disclosure Schedule is a list
of all oral or written agreements for consultants, distributors and sales
representatives currently engaged by the Company, and the Company has made
available to the Purchaser a true, complete and correct copy of each such
written agreement between the Company and any such consultant, distributor or
sales representative and a true, complete and correct written summary of each
such oral agreement.
SECTION 3.09. Litigation.
(a) Except as set forth in Section 3.09(a) of the Disclosure Schedule
(which, with respect to each action disclosed therein, sets forth: the parties,
nature of the proceeding, date and method commenced, amount of damages or other
relief sought and, if applicable, paid or granted), there is no pending or, to
the knowledge of either Seller, threatened, litigation, claim, action,
arbitration or governmental investigation or inquiry or legal, administrative or
regulatory proceeding by or against the Company (or by or against either Seller
relating to the Company or the Company Shares), or directly affecting any
properties or assets of the Company, real or intangible (including, but not
limited to, Intellectual Property). As of the date hereof, neither the Company
nor any property or asset of the Company is subject to any order, writ,
judgment, injunction, decree, determination or award. The matters listed in
Section 3.09(a) of the Disclosure Schedule, (i) have not had and would not
reasonably be expected to have, individually or in the aggregate, a Materially
Adverse Effect and (ii) do not and will not affect the legality, validity or
enforceability of this Agreement or any document to be delivered pursuant hereto
or the consummation of the transactions contemplated hereby.
(b) Neither the Company nor any property or asset of the Company is
subject to any order, writ, judgment, injunction, decree, determination, award
or other governmental order (a "Governmental Orders") nor, to the knowledge of
either Seller, are there any such Governmental Orders threatened to be imposed
by any governmental authority.
26
SECTION 3.10. Material Contracts.
(a) Section 3.10(a) of the Disclosure Schedule lists each of the
following written contracts and agreements of the Company, a true, complete and
correct copy of each of which has been made available to Purchaser (such
contracts and agreements being "Material Contracts"):
(i) each contract and agreement for the purchase or lease of
personal property having a stated value or consideration of $50,000 or more with
any supplier or for the furnishing of services to the Company or otherwise
related to the Business;
(ii) each customer contract and agreement and other contract and
agreement for the sale or lease of personal property or for the furnishing of
services by the Company, and any outstanding, binding proposals to customers or
prospective customers of the Company, in each case involving payments
aggregating $50,000 or more;
(iii) all broker, exclusive dealing or exclusivity, distributor,
dealer, manufacturer's representative, franchise, sales agency, sales promotion,
market research, marketing consulting and advertising contracts and agreements
to which the Company is a party or any other contract that compensates any
person based on any sales by the Company;
(iv) all leases and subleases of real property;
(v) all contracts and agreements relating to indebtedness, other
than trade indebtedness of the Company, including, without limitation, all
guarantees and similar obligations by the Company;
(vi) all contracts and agreements with any governmental authority
to which the Company is a party;
(vii) all contracts and agreements that limit or purport to limit
the ability of the Company or any employee of the Company to compete in any line
of business or with any person or in any geographic area or during any period of
time;
(viii) all contracts and agreements between or among the Company, on
the one hand, and either Seller or any Affiliate of either Seller, on the other
hand;
(ix) any other agreement of the Company that is terminable upon or
prohibits a change of ownership or control of the Company; and
(x) all other contracts and agreements, whether or not made in the
ordinary course of business, that are material to the Company or the conduct of
the Business or the absence of which, individually or in the aggregate, would
reasonably be expected to have a Material Adverse Effect.
27
(b) Each Material Contract:
(i) is valid and binding on the Company and, to the knowledge of
Sellers, on the other parties thereto, and is in full force and effect; and
(ii) upon consummation of the transactions contemplated by this
Agreement, shall continue in full force and effect without penalty or other
adverse consequences in accordance with its terms; and the Company is not in
material breach of, or material default under, any Material Contract and, to the
knowledge of the Sellers, no other party to any Material Contract is in material
breach thereof or material default thereunder.
(c) The Company is not a party to any oral contract involving payments
by the Company or which is not terminable by the Company without penalty upon
not more than 30 days' notice, except to the extent that (i) the outstanding
obligations of the Company under any such oral contract does not exceed $10,000
and (ii) the aggregate outstanding obligations of the Company for all of such
oral contracts does not exceed $50,000.
SECTION 3.11. Intellectual Property.
(a) Section 3.11(a) of the Disclosure Schedule sets forth a true,
complete and correct list of all: (i) issued patents and patent applications,
trademarks, trademark registrations and trademark applications, copyrights and
copyright applications owned by the Company (the "Owned Intellectual Property");
and (ii) licenses of Intellectual Property to the Company (other than
commercially available shrink-wrap software) and licenses of Intellectual
Property by the Company to third parties (the "Licensed Intellectual Property")
and the jurisdictions, within and outside the United States, in which each item
of Licensed Intellectual Property is registered or in which registration is
pending. The Intellectual Property set forth in Section 3.11(a) of the
Disclosure Schedule includes all of the Owned Intellectual Property and Licensed
Intellectual Property of the Business and the Company.
(b) The Company is the exclusive owner of all right, title and
interest in and to the Owned Intellectual Property free and clear of any
encumbrance and has the right to use all Owned Intellectual and Licensed
Intellectual Property and other Intellectual Property as is used or held for use
in the Business.
(c) To the knowledge of the Sellers, no one has asserted that the use
of the Intellectual Property set forth in Schedule 3.11(a) of the Disclosure
Schedule or the conduct of the Business conflicts with or infringes upon any
Intellectual Property owned, possessed, used or claimed by any third party, and
the use of the Intellectual Property set forth in Schedule 3.11(a) of the
Disclosure Schedule and the conduct of the Business do not conflict with or
infringe upon any such Intellectual Property. Except as set forth in Section
3.11(a) of the Disclosure Schedule, the Company has not granted any license or
other right, or obligated itself to grant licenses or other rights in or to any
of the Intellectual Property set forth in Section 3.11(a) of the Disclosure
Schedule or to any products incorporating any of the Intellectual Property. The
consummation of the transactions contemplated by this Agreement will not result
in the termination or impairment of any of the Intellectual Property set forth
in Schedule 3.11(a) of the Disclosure Schedule or, to
28
the Sellers' knowledge, any other Intellectual Property that is used or held for
use in the Business.
(d) Each license of the Licensed Intellectual Property: (i) is valid
and binding on the Company, (ii) is in full force and effect, and (iii) is valid
and binding on the other parties thereto. The Company is not in breach of, or
default under, any license of the Licensed Intellectual Property, and, to the
Sellers' knowledge, no other party to such license or sublicense is in breach
thereof or default thereunder. The transactions contemplated by this Agreement
will not constitute a breach or otherwise impair, in any material respect, the
rights of the Company under such license agreements.
(e) The Intellectual Property set forth in Section 3.11(a) of the
Disclosure Schedule and, to the Sellers' knowledge, other Intellectual Property
as is used or held for use in the Business, has not been adjudged invalid or
unenforceable in whole or part, and, is valid and enforceable. No claims or
requests for reconsideration or appeal of adjudicated or otherwise determined
claims are pending against the Company or, to the Sellers' knowledge, threatened
by any person with respect to the ownership, validity or enforceability of any
Intellectual Property set forth in Section 3.11(a) of the Disclosure Schedule
and other Intellectual Property as is used or held for use in the Business. To
the knowledge of each Seller, no person is engaging in any activity that
infringes upon the Intellectual Property set forth in Section 3.11(a) of the
Disclosure Schedule and other Intellectual Property as is used or held for use
in the Business.
(f) Each product sold by the Company which, pursuant to the Company's
sales materials, packaging or otherwise, the Company purports is entitled to the
protection of any item of the Intellectual Property (a "Protected Product") (x)
conforms to the claims and descriptions set forth in the registration of such
Intellectual Property and (y) is entitled to the protection of such Intellectual
Property. The sale or offer for sale of a product which infringes upon the
Intellectual Property underlying a Protected Product in a jurisdiction in which
such Intellectual Property is registered is actionable by the Company.
SECTION 3.12. Real Property.
(a) The Company does not own any real property.
(b) Section 3.12(b) of the Disclosure Schedule lists: (i) the street
address of each parcel of real property leased by the Company ("Leased Real
Property"), (ii) the identity of the lessor, lessee and current occupant (if
different from lessee) of each such parcel of Leased Real Property, (iii) the
term (referencing applicable renewal periods) and rental payment terms of the
leases (and any subleases) pertaining to each such parcel of Leased Real
Property and (iv) the current use of each such parcel of Leased Real Property.
(c) There is no material violation by the Company of any Law
(including, without limitation, any building, planning or zoning law) relating
to any of the Leased Real Property. With respect to each parcel of Leased Real
Property, the Sellers have made available to the Purchaser true, complete and
correct copies of the deed and all title insurance policies, title reports,
surveys, certificates of occupancy, environmental reports and audits, permits,
other title documents and other documents relating to or otherwise directly
affecting the Leased Real
29
Property, the operations of the Company thereon or any other uses thereof. The
Company is in peaceful and undisturbed possession of each parcel of Leased Real
Property and, there are no contractual or legal restrictions that preclude or
restrict the ability to use the premises for the purposes for which they are
currently being used. All existing water, sewer, electricity, telephone and
other utilities used by the Company at the Leased Real Property are adequate for
the conduct of the business of the Company as it currently is conducted. To the
knowledge of Sellers, there are no latent defects or adverse physical conditions
affecting the Leased Real Property or any of the facilities, buildings,
structures, erections, improvements, fixtures, fixed assets and personality of a
permanent nature annexed, affixed or attached to, located on or forming part of
the Leased Real Property. The Company has not leased or subleased any parcel or
any portion of any parcel of Leased Real Property to any other person, nor has
the Company assigned its interest under any lease or sublease listed in Section
3.12(b) of the Disclosure Schedule to any third party.
(d) The Sellers have, or have caused to be, delivered to the Purchaser
true, complete and correct copies of all leases and subleases listed in Section
3.12(b) of the Disclosure Schedule and have made available to Purchaser true ,
complete and correct copies of any and all ancillary documents pertaining
thereto (including, but not limited to, all amendments, consents for alterations
and documents and evidence of commencement dates and expiration dates). With
respect to each of such leases and subleases:
(i) such lease or sublease, together with all ancillary documents
referred to in to the first sentence of this Section 3.12(d) is legal, valid,
binding, and enforceable on the Company and, subject to bankruptcy laws and laws
affecting creditors rights generally, on the other parties thereto and in full
force and effect and represents the entire agreement between the respective
landlord and tenant with respect to such property;
(ii) such lease or sublease will not cease to be legal, valid,
binding, enforceable and in full force and effect on terms identical to those
currently in effect solely as a result of the consummation of the transactions
contemplated by this Agreement, nor will the consummation of the transactions
contemplated by this Agreement constitute a breach or default under such lease
or sublease or otherwise give the landlord a right to terminate such lease or
sublease; provided, however, that the lease with respect to the property located
at 930 ▇▇▇▇▇▇▇▇▇ will, at the Closing, be replaced with the 930 ▇▇▇▇▇▇▇▇▇ Lease
(as defined in Section 5.08).
(iii) with respect to each such lease or sublease: (A) the Company
has not received any notice of cancellation or termination under such lease or
sublease and no lessor has any right of termination or cancellation under such
lease or sublease except upon a breach or default by the Company thereunder, and
(B) the Company has not received any notice of a breach or default under such
lease or sublease, which breach or default has not been cured;
(iv) neither the Company nor, to the knowledge of Sellers, any
other party to such lease or sublease, is in breach or default and no event has
occurred that, with notice or lapse of time, would constitute such a breach or
default or permit termination, modification or acceleration under such lease or
sublease.
30
(e) There are no condemnation proceedings or eminent domain
proceedings of any kind pending or, to the knowledge of Sellers, threatened
against the Leased Real Property.
(f) All the Leased Real Property is occupied under a valid and current
certificate of occupancy or similar permit, the transactions contemplated by
this Agreement will not require the issuance of any new or amended certificates
of occupancy or any filings with the State of California with respect to the
Company's continued occupancy of the Leased Real Property and there are no facts
that would prevent the Leased Real Property from being occupied by the Company
after the Closing in the same manner as occupied by the Company immediately
prior to the Closing.
(g) No improvements on the Leased Real Property and none of the
current uses and conditions thereof violate any applicable recorded deed
restrictions or other applicable recorded covenants or restrictions.
(h) All improvements on any Leased Real Property are wholly within the
lot limits of such Leased Real Property and do not encroach on any adjoining
premises, and there are no encroachments on any Leased Real Property by any
improvements located on any adjoining premises.
(i) There have been no improvements by the Company of a value in
excess of $25,000 in the aggregate made to or construction on any Leased Real
Property within the applicable period for the filing of mechanics' liens.
(ii) The rental (and other pass-through costs for a "triple net"
lease) set forth or provided in each lease or sublease of the Leased Real
Property is the actual rental and costs being paid and there are no separate
agreements or understandings with respect to the same.
SECTION 3.13. Assets. The Company owns, leases or has the legal
right to use all the properties and assets, including, without limitation, real
property and personal property (other than Intellectual Property, which is
covered by Section 3.11), used or held for use in the conduct of the Business or
otherwise owned, leased or used by the Company and, with respect to contract
rights, is a party to and enjoys the right to the benefits of all contracts,
agreements and other arrangements used or held for use by the Company in or
relating to the conduct of the Business (all such properties, assets and
contract rights being the "Assets"). The Company has good and marketable title
to, or, in the case of leased or subleased Assets, valid and subsisting
leasehold interests in, or otherwise has the legal right to use, all the Assets,
free and clear of all encumbrances except mechanic liens with respect to
services performed but payment therefore is not yet due and which payment shall
be made when due if due prior to Closing and the lien for property taxes not yet
due.
SECTION 3.14. Debt. Section 3.14 of the Disclosure Schedule sets
forth every agreement and ancillary document (including, without limitation,
notes, security agreements and capital leases) relating to money currently owed
by the Company (other than trade payables incurred in the ordinary course of
business consistent with past practices) or pursuant to which the Company has
any right to borrow money or is a co-obligor, co-borrower or guarantor with
respect to the obligations of any third party and, with respect to each such
agreement, (i) the
31
amount currently owed, (ii) the current interest rate, (iii) the date by which
such amount must be repaid, (iv) whether the transactions contemplated hereby
constitute an event of default or acceleration under each such agreement, and
(v) what amount, if any, is available to be borrowed under such agreement.
Except as set forth in Section 3.14 of the Disclosure Schedule, upon completion
of the principal and interest payments according to the terms of every
promissory note and capital lease to which the Company is a party, the Company
will be the sole owner of the property that is the subject of such note or
lease, with no obligation to make any additional "buy-out" or "buy-back"
payment, and such property will be free and clear of any liens or encumbrances
arising under such note or capital lease (exclusive of liens or encumbrances
arising after the Closing Date). None of the collateral securing any
indebtedness listed in Section 3.14 of the Disclosure Schedule is owned,
beneficially or of record, in whole or in part, by any person other than the
Company.
SECTION 3.15. Taxes. Sellers have paid, or will be responsible for
paying, all taxes assessed on or attributable to the income of the Company
(which, for purposes of this Section 3.15 and Section 5.07 hereof, shall include
any predecessor to the Company) (exclusive of California income taxes assessed
on the income of an "S" corporation) or the Business for all periods at or
before the Closing. Each Seller has, and has caused the Company to, timely file
or will, or will cause the Company to, timely file (including extensions) all
federal, state, local and foreign returns, statements, forms and reports
required to be filed by them with respect to taxes (collectively, "Returns").
The Returns have accurately reflected all liability for taxes of the Sellers and
the Company for the periods covered thereby. None of such Returns contain, or
will contain, a disclosure statement under Section 6662 of the Code (or any
predecessor statute) or any similar provision of Law. All taxes required to be
withheld, collected or paid by the Company or either Seller on or prior to the
date on which the Closing occurs have been timely withheld, collected and paid
to the proper taxing authorities. A statement delivered by the Sellers to
Purchaser on or before the Closing Date will set forth the estimated amounts to
be included on the Closing Balance Sheet in order to reflect all taxes accrued
prior to the date on which the Closing occurs without regard to any transaction
on the Closing Date or after the Closing to the extent that such taxes are not
reflected on the Company Financial Statements or the Interim Financial
Statements. The Company has not received from any government authority any
written notice of proposed adjustment, deficiency or underpayment of any taxes,
which notice has not been satisfied by payment or been withdrawn, and there are
no claims that have been asserted or threatened relating to such taxes against
the Company. There are no agreements for the extension of time for the
assessment of any taxes of the Company other than routine audit extensions
granted in the ordinary course of business. No consent under Section 341(f) of
the Code has been filed, or will be filed prior to the Closing, with respect to
the Company, and the Company has not agreed, and will not agree, to have Code
Section 341(f)(2) apply to any disposition of a subsection (f) assets (as such
term is defined in Code Section 341(f)(4)) owned by the Company. The Company is
not doing business in or engaged in a trade or business in any jurisdiction in
which it has not filed any applicable income or franchise tax return. There are
no proposed reassessments of any property owned by the Company or other
proposals for assessment or reassessment of taxes by any governmental agency
that could increase the amount of tax to which the Company would be subject.
The Company has not ever been a member of any affiliated, consolidate, combined
or unitary group with any company for tax purposes and has not filed a tax
Return on a consolidated, combined or unitary basis with any company. No power
of attorney has been granted by the Company with respect to any matter relating
to any
32
taxes or Returns of the Company which is currently in force. At all times since
April 1, 1988, the Company has had in effect (i) a valid election under Section
1362(a) of the Code (or a comparable election under any successor provision) to
be taxed as an S Corporation for federal income tax purposes (an "S Election")
(or comparable election under state or local Law), (ii) a comparable state Law
election in each state in which it conducts business and is required to file an
income tax return and to file such an election, and (iii) a comparable local Law
election in each locality in which it both conducts business and is subject to a
local income tax and to file such an election. The Company has not received and
is not aware of any proposal from the IRS or any state or local tax authority to
disallow such S Election (or comparable state or local Law election) for any
taxable year. The Company has not incurred and is not, as a result of
transactions occurring before the Closing, subject to Taxes imposed by (i)
Section 1371 of the Code, (ii) Section 1375 of the Code, or (iii) Section 1374
of the Code. The Company is not a "United States real property holding
corporation" within the meaning of Section 897(c)(2) of the Code. There are no
tax sharing, allocation, indemnification or similar agreements or arrangements
in effect as between the Company or any Affiliate thereof and any other party
(including any stockholder of the Company or any Affiliate thereof) under which
the Purchaser or the Company could be liable for any taxes or other claims of
any party. For purposes of this Agreement, "tax" or "taxes" means any and all
taxes, assessments, fees, levies, duties, tariffs, imposts and other charges of
any kind whatsoever (together with any and all interest, penalties, additions to
tax and additional amount imposed with respect thereto and whether payable
directly or by withholding and whether or not requiring the filing of a Return)
imposed by any government or taxing authority, including, without limitation:
taxes or other charges on or with respect to income, franchises, capital gains,
windfall or other profits, gross receipts, property, sales, use, occupation,
severance, capital stock, payroll, employment, social security, workers'
compensation, unemployment compensation, or net worth; taxes or other charges in
the nature of excise, withholding, ad valorem, stamp, transfer, value added or
gains taxes; license, registration and documentation fees; customs duties,
tariffs and similar charges; and all estimated taxes, deficiency assessments,
additions to tax, penalties and interest and shall include any liability for
such amounts as a result either of being a member of a combined, consolidated,
unitary or affiliated group or of a contractual obligation to indemnify any
person or other entity.
SECTION 3.16. Certain Interests.
(a) Section 3.16(a) of the Disclosure Schedule lists and contains a
brief description of the terms of all contracts, agreements and understandings
between the Company, on the one hand, and either Seller, any officer or director
of the Company or any Affiliate, immediate relative or spouse (or immediate
relative of such spouse) of either Seller or any such officer or director, on
the other hand.
(b) Except as disclosed in Schedule 3.16(b) of the Disclosure
Schedule, neither Seller (nor any of his Affiliates) nor any officer or director
of the Company (nor any Affiliate of such officer or director) nor, to the
knowledge of each Seller, any immediate relative or spouse (or immediate
relative of such spouse) who resides with, or is a dependent of, such Seller or
any such officer or director:
(i) except as disclosed in Schedule 3.16(b) of the Disclosure
Schedule, has any direct or indirect financial interest in any competitor,
supplier or customer of the
33
Company; provided, however, that the ownership of securities representing no
more than one percent of the outstanding voting power of any competitor,
supplier or customer, and which are listed on any national securities exchange
or traded actively in the national over-the-counter market, shall not be deemed
to be a "financial interest", so long as the person owning such securities has
no other connection or relationship with such competitor, supplier or customer;
(ii) owns, directly or indirectly, in whole or in part, or has any
other interest in any tangible or intangible property that the Company uses or
has used in the conduct of the Business or otherwise (except for any such
ownership or interest resulting from the ownership of securities in a public
company); or
(iii) has outstanding any indebtedness to the Company.
(c) Neither the Company nor either Seller has any liability or any
other obligation of any nature whatsoever to any officer or director of the
Company or to any Affiliate, immediate relative or spouse (or immediate relative
of such spouse) who resides with, or is a dependent of such Seller or any such
officer or director.
SECTION 3.17. Environmental and Other Permits and Licenses; Related
Matters.
(a) Section 3.17(a) of the Disclosure Schedule lists every health and
safety and other permit, license, authorization, certificate, exemption and
approval of Governmental Authorities (collectively, "Permits"), including,
without limitation, Environmental Permits held by the Company, and there are no
Permits, including, without limitation Environmental Permits, required of the
Company under applicable Law for the current use, occupancy and operation of
each Asset of the Company and the conduct of the Business, except as set forth
in Section 3.17(a) of the Disclosure Schedule.
(b) (i) During the time period that the Company has owned or operated
the Leased Real Property, Hazardous Materials have not been generated, used,
treated, handled or stored on, or transported to or from, or Released on any
Leased Real Property; or, to the knowledge of Sellers, any property adjoining
any Leased Real Property; (ii) the Company has disposed of all wastes,
including those wastes containing Hazardous Materials, in compliance with all
applicable Environmental Laws and Environmental Permits; (iii) there are no
past, pending or, to the knowledge of Sellers, threatened Environmental Claims
against the Company or any Leased Real Property of which the Company or the
Sellers has or have received written notice; (iv) no Leased Real Property or, to
the knowledge of Sellers, any property adjoining any Leased Real Property, is
listed or proposed for listing on the National Priorities List under CERCLA or
on the CERCLIS or any analogous state list of sites requiring investigation or
cleanup; and (v) the Company has not transported or arranged for the
transportation of any Hazardous Materials to any location that is listed
proposed or for listing on the National Priorities List under CERCLA or on the
CERCLIS or any analogous state list or which is the subject of any Environmental
Claim.
(c) There are no circumstances with respect to any Leased Real
Property or other Asset or the operation of the Business which could reasonably
be anticipated (i) to form the
34
basis of an Environmental Claim against the Company or any Leased Real Property
or Asset that would be reasonably likely to result in material liability, or
(ii) to cause such Leased Real Property or Asset to be subject to any
restrictions on ownership, occupancy, use or transferability under any
applicable Environmental Law in a manner that would be reasonably likely to
result in material liability.
(d) There are not now and never have been any underground storage
tanks located on or, to the knowledge of Sellers, adjoining any Leased Real
Property.
SECTION 3.18. Customers; Suppliers.
(a) Section 3.18(a) of the Disclosure Schedule sets forth for each of
KippMold, KippMolding and KippMed (each a "Division" and collectively the
"Divisions" ) a true, correct and complete list of the ten customers of such
Division from which the Company recognized the largest amount of revenue during
the ten (10) months ended October 31, 1998 (the "Material Customers") and the
respective amounts of such revenue. Section 3.18(a) of the Disclosure Schedule
sets forth a true, correct and complete list of all written agreements,
arrangements and understandings (including, without limitation, all amendments,
settlement agreements, consents, modifications, supplements and side letters)
between the Company and such customers (other than individual purchase orders in
the ordinary course of business), true, correct and complete copies of which
have been made available to the Purchaser.
(b) Section 3.18(b) of the Disclosure Schedule contains a summary of
all open purchaser orders, by customer, as of the date of this Agreement.
(c) No customer of the Company has requested that deliveries under any
sales order or services to be performed by it under any purchase order be
delayed and the Company and each Seller has not been notified of and has no
knowledge of any (i) plans of any customer to order less from the Company during
calendar year 1999 than such customer ordered during calendar year 1998 at the
same or similar prices or (ii) facts which would result in any such decrease in
orders during calendar year 1999 as compared to calendar year 1998; provided,
however, that this Section 3.18(c) does not require that Sellers make inquiry of
any customers other than the Material Customers.
(d) To the knowledge of Sellers, there are no facts or conditions
which (i) upon the giving of notice or the passage of time would constitute a
material default under any purchase or sales commitment or order, or (ii) has
had or is reasonably likely to have a Material Adverse Effect. Since January 1,
1998, there has been no change that materially adversely affects the business
relationship between the Company and any Material Customer. Neither the Company
nor either Seller has received any notice (written or oral) from any existing or
prospective customer that, upon consummation of the transactions contemplated by
this Agreement, the relationship with such customer will be materially adversely
affected; and neither the Company nor either Seller has received any notice
(written or oral) from any existing customer that said customer intends to file
a petition for relief under any provisions of the Bankruptcy Code or make an
assignment for the benefit of its creditors.
35
(e) Neither the Company nor either Seller has received any notice
(whether written or, to the knowledge of Sellers, oral) that any supplier to the
Company will not sell raw materials, supplies, merchandise and other goods to
the Company and, to the knowledge of the Sellers, no such supplier will
discontinue making such sales to the Company after the Closing, in either case
on terms and conditions similar in all material respect to those imposed on
sales to the Company during the calendar years 1997 and 1998, subject only to
general and customary price increases.
SECTION 3.19. Brokers. Except for ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇
("▇▇▇▇▇▇▇▇"), no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement, based upon arrangements made by or
on behalf of the Company or either Seller.
SECTION 3.20. Insurance Policies. Section 3.20 of the Disclosure
Schedule sets forth a true, correct and complete list and description (including
face amount of policy, name of insured, carrier, premium, expiration date and
whether it is a "claims made" or an "occurrence" policy) of all insurance
policies held by the Company. The insurance policies set forth in Section 3.20
of the Disclosure Schedule include all insurance material to the past operation
and continued operation of the Business and the Company in a manner consistent
with past practice. True, correct and complete copies of all such policies have
been made available by the Sellers to the Purchaser. All premiums due to the
date hereof on such policies have been paid. All pending claims, if any, made
against the Company which are covered by insurance are being defended by the
appropriate insurance companies and are described on the Disclosure Schedule. To
the knowledge of Sellers, the Company has not failed to give any notice or
present any claim under any such policy in a timely fashion, except where such
failure would not prejudice the Company's ability to make a claim. Such
insurance to the date hereof has (a) been maintained in full force and effect
and (b) not been canceled or changed except to extend the maturity dates
thereof.
SECTION 3.21. Receivables. All accounts receivable, notes and other
amounts receivable by the Company from third parties, including, without
limitation, customers, arising from the conduct of the Business or otherwise
before the Closing, whether or not in the ordinary course, together with all
unpaid financing charges accrued thereon (collectively, the "Receivables")
reflected on the Company Financial Statements or the Interim Financial
Statements arose from, and the Receivables existing on the Closing will have
arisen from, the rendering of services to persons that are not Affiliates of
either Seller or the Company and in the ordinary course of the business of the
Company consistent with past practice and, except as reserved against on the
Company Financial Statements or the Interim Financial Statements, constitute or
will constitute, as the case may be, only valid, undisputed claims of the
Company not subject to valid claims of set-off or other defenses or counterclaim
and have been collected or will be collectible, without resort to litigation or
extraordinary collection activity.
SECTION 3.22. Full Disclosure. To the knowledge of Sellers, no
representation or warranty of the Sellers in this Agreement, nor any statement
or certificate furnished or to be furnished by the Sellers to the Purchaser
pursuant to this Agreement, contains or will contain any untrue statement of a
material fact or omits or will omit to state a material fact necessary to make
the statements contained herein or therein not misleading.
36
SECTION 3.23. Holdings of the Sellers; Capacity of the Sellers; No
Conflict; Litigation.
(a) The Sellers are the lawful record and beneficial owner of all of
the Company Shares, free and clear of all encumbrances (other than restrictions
imposed by virtue of applicable securities laws) and no other Person holds any
equity interest in the Company (subject to community property rights). Neither
Seller is a party to any voting trust, stockholder agreement, proxy or other
agreement or understanding in effect with respect to the voting or transfer of
any of the Company Shares. Each Seller has the legal capacity to enter into
this Agreement and to consummate the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by each Seller, and
(assuming due authorization, execution and delivery by the Purchaser) this
Agreement constitutes a legal, valid and binding obligation of each Seller,
enforceable against such Seller in accordance with its terms.
(b) The execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated hereby will not, conflict with, or
result in any violation of, or default under (with or without notice or lapse of
time, or both), or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of a benefit under any material mortgage,
indenture, lease, contract or other agreement or instrument, permit, concession,
franchise, license or Law applicable to either Seller or either Seller's
properties or assets. No consent, approval, order or authorization of, or
registration, declaration or filing with, any governmental entity, is required
by or with respect to either Seller in connection with the execution and
delivery of this Agreement by such Seller or the consummation by such Seller of
the transactions contemplated hereby, except for such filings as may be required
under the HSR Act.
(c) There is no private or governmental action, suit, proceeding,
claim, arbitration or investigation pending before any agency, court or
tribunal, foreign or domestic, or, to the knowledge of Sellers, threatened
against either Seller or any of their respective Affiliates or any of their
respective properties that, individually or in the aggregate, could reasonably
be expected to have a material adverse effect on his ability to consummate the
transactions contemplated by this Agreement. There is no judgment, decree or
order against either Seller or any of their respective Affiliates or any of
their respective properties or assets that could prevent, enjoin, alter or
materially delay any of the transactions contemplated by this Agreement, or that
could reasonably be expected to have a material adverse effect on either
Seller's ability to consummate the transactions contemplated by this Agreement.
(d) Each Seller acknowledges that the shares of Purchaser Common Stock
it receives pursuant to the Acquisition will not have been registered under the
Securities Act as of the Closing Date, and that such shares may not be reoffered
or otherwise disposed of in the absence of registration thereunder or unless
such transaction is exempt from, or not subject to, such registration. Each
Seller represents that he is an "Accredited Investor" as that term is defined in
Rule 501 of Regulation D promulgated under the Securities Act. Each Seller
represents that he has sufficient knowledge and experience in financial and
business matters so as to be capable of understanding and evaluating the merits
and risks of the investment in the Shares. Each Seller acknowledges that he has
been furnished with copies of the Purchaser's Annual Report on Form 10-K for the
fiscal year ended June 30, 1998 and the Purchaser's
37
quarterly report on Form 10-Q for the fiscal quarter ended September 30, 1998
and has carefully read such Annual Report and all other documents and
information requested by or on behalf such Seller relating to the Purchaser and
the Shares. Each Seller acknowledges that he has been given the opportunity to
ask questions of, and receive answers from, management of the Purchaser
concerning the Purchaser, the Shares and other related matters and to obtain any
additional information that such Seller has deemed necessary or desirable in
order to evaluate the merits and risks of the investment in the Shares. Each
Seller is not relying on any representation or other communication (written or
oral) by the Purchaser as investment advise or as a recommendation to acquire
the Shares. Nothing in this Section 3.23(d) is intended to limit Purchaser's
obligations under this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE PURCHASER
The Purchaser represents and warrants to the Sellers that:
SECTION 4.01. Corporate Organization and Authority. The Purchaser is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as it is presently conducted. The Purchaser has all necessary corporate power
and authority to execute and deliver this Agreement and to perform its
obligations and to consummate the transactions contemplated hereunder. The
execution and delivery of this Agreement by the Purchaser and the consummation
by the Purchaser of the transactions contemplated hereby have been duly
authorized by all necessary corporate action of the Purchaser, and no other
corporate proceedings on the part of the Purchaser are necessary to authorize
this Agreement or the consummation of the transactions contemplated hereby. This
Agreement has been duly executed and delivered by the Purchaser and (assuming
the due authorization, execution and delivery by the Sellers) constitutes the
legal, valid and binding obligation of the Purchaser, enforceable against the
Purchaser in accordance with its terms.
SECTION 4.02. No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by the Purchaser do
not, and the performance of this Agreement by the Purchaser will not, (i)
conflict with or violate the certificate of incorporation or by-laws of the
Purchaser, (ii) conflict with or violate any Law applicable to the Purchaser, or
by which it or its properties are bound or affected, or (iii) result in any
breach of or constitute a default (or an event which with notice or lapse of
time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or encumbrance on any of the property or assets of the
Purchaser, pursuant to, or result in a change in any of the terms of any note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which the Purchaser is a party or
by which the Purchaser or any of its properties is bound or affected, except, in
the case of this clause (iii), for any such breaches, defaults or other
occurrences which would not, individually or in the aggregate, have a Material
38
Adverse Effect or prevent or delay the consummation of the transactions
contemplated by this Agreement.
(b) The execution and delivery of this Agreement by the Purchaser does
not, and the performance of this Agreement by the Purchaser (including, without
limitation, the consummation of the transactions hereunder) will not, require
any consent, approval, authorization or permit of, or filing with or
notification to, any governmental or regulatory authority, domestic or foreign,
except for the registration of shares of Purchaser Common Stock under the
Securities Act, state securities or "Blue Sky" laws and the pre-Acquisition
notification requirements of the HSR Act. Purchaser meets the eligibility
requirements to use Form S-3 under the Securities Act as set forth in General
Instructions I.A. and I.B.3 thereof as in effect on the date hereof.
SECTION 4.03. SEC Filings; Financial Statements. The Purchaser has
filed all forms, reports, statements and documents required to be filed with the
SEC since June 30, 1997 (the "Purchaser SEC Reports"). The Purchaser SEC
Reports (i) were each prepared in accordance with, and at the time of filing
complied in all material respects with, the requirements of the Securities Act
or the Exchange Act, as the case may be, and (ii) did not at the time they were
filed contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. The Purchaser SEC Reports constitute all the documents
required to be filed by Purchaser under Section 13 of the Exchange Act with the
SEC since June 30, 1997. None of the Purchaser's subsidiaries is required to
file any forms, reports or other documents with the SEC. The financial
statements included in the Purchaser SEC Reports (the "Purchaser Financial
Statements") (w) were prepared in accordance with the books of account and other
financial records of the Purchaser, (x) present fairly the consolidated
financial condition and results of operations of the Purchaser as of the dates
thereof or for the periods covered thereby, (y) have been prepared in accordance
with GAAP applied on a basis consistent with the past practices of the Purchaser
and (z) include all adjustments (consisting only of normal recurring accruals)
that are necessary for a fair presentation of the financial condition of the
Purchaser and the results of the operations of the Purchaser as of the dates
thereof or for the periods covered thereby.
SECTION 4.04. Common Stock. Assuming all conditions set forth in
Article VI are satisfied, all shares of Purchaser Common Stock subject to
issuance pursuant to this Agreement, shall (i) be duly authorized, validly
issued, fully paid and nonassessable and (ii) not be subject to any
encumbrances, other than restrictions imposed by applicable securities laws and
those created by this Agreement or any pledge or custody agreement contemplated
hereby.
SECTION 4.05. Full Disclosure. No representation or warranty of the
Purchaser in this Agreement, nor any statement or certificate furnished or to be
furnished to the Sellers pursuant to this Agreement contains or will contain any
untrue statement of a material fact, or omits or will omit to state a material
fact necessary to make the statements contained herein or therein not
misleading.
SECTION 4.06. Funds. The Purchaser has adequate funds to pay the
Aggregate Purchase Price and to make the Loans pursuant to Section 2.04 hereof.
39
SECTION 4.07. Brokers. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement, based upon arrangements
made by or on behalf of the Purchaser. The Purchaser shall be solely
responsible for any such fees and expenses.
SECTION 4.08. Absence of Certain Changes, Events and Conditions.
Since September 30, 1998, there have not been any changes, occurrences, or
circumstances with respect to Purchaser which, individually or in aggregate,
have had or, are reasonably likely to have a Material Adverse Effect.
SECTION 4.09. Litigation; Investment Intent.
(a) There is no private or governmental action, suit, proceeding,
claim, arbitration or investigation pending before any agency, court or
tribunal, foreign or domestic, or, to the knowledge of Purchaser, threatened
against Purchaser or any of its Subsidiaries or any of their respective
properties or any of their respective officers or directors (in their capacities
as such) that, individually or in the aggregate, could reasonably be expected to
have a material adverse effect on Purchaser's ability to consummate the
transactions contemplated by this Agreement. There is no judgment, decree or
order against Purchaser or any of its Subsidiaries or, to the knowledge of
Purchaser, any of their respective directors or officers (in their capacities as
such), that could prevent, enjoin, alter or materially delay any of the
transactions contemplated by this Agreement, or that could reasonably be
expected to have a material adverse effect on Purchaser's ability to consummate
the transactions contemplated by this Agreement.
(b) Purchaser acknowledges that the Company Shares it receives
pursuant to the Acquisition will not have been registered under the Securities
Act and that such shares are being acquired by Purchaser for its own account and
not with the view to the resale or distribution thereof and may not be reoffered
or otherwise disposed of in the absence of registration thereunder and
compliance with the requirements of applicable state securities laws or unless
such transaction is exempt from, or not subject to, such registration or
requirements. Purchaser represents that it is an "Accredited Investor" as that
term is defined in Rule 501 of Regulation D promulgated under the Securities
Act. Purchaser represents that it has sufficient knowledge and experience in
financial and business matters so as to be capable of understanding and
evaluating the merits and risks of the investment in the Company Shares.
Nothing in this Section 4.09(b) is intended to limit Sellers' obligations under
this Agreement.
SECTION 4.10. Pledge Agreement. To the knowledge of Purchaser, the
Pledge Agreements will be effective to confer upon Purchaser a valid first
priority security interest in the Pledged Securities (as defined in the Pledge
Agreements).
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01. Conduct of Business by the Company Pending the Closing.
40
(a) Except as contemplated by this Agreement, each Seller covenants
and agrees that, during the period between the date of this Agreement and
through and including the date on which the Closing occurs, unless the Purchaser
shall otherwise agree in writing, the Business shall be conducted only in, and
the Company shall not take any action except in, the ordinary course of business
and in a manner consistent with past practice. Each Seller will not take, and
each Seller will not permit the Company to take, any action that either Seller
knows or should know would cause any representation or warranty made by either
Seller in this Agreement to become untrue in any material respect.
(b) By way of amplification and not limitation, except as contemplated
by this Agreement or as set forth on Schedule 5.01(b) of the Disclosure
Schedule, the Company shall not, between the date of this Agreement and the date
on which the Closing occurs, directly or indirectly do, or propose to do, any of
the following without the prior written consent of the Purchaser:
(i) amend or otherwise change its Articles of Incorporation or
By-laws;
(ii) issue, sell, pledge, dispose of, grant, encumber, or authorize
the issuance, sale, pledge, disposition, grant or encumbrance of, (1) any shares
of capital stock of any class of the Company, or any options, warrants,
convertible securities or other rights of any kind to acquire any shares of such
capital stock, or any other ownership interest (including, without limitation,
any phantom interest), of the Company, or (2) any assets of the Company, except
for sales in the ordinary course of business and in a manner consistent with
past practice;
(iii) declare, set aside, make or pay any dividend of other
distribution, payable in cash, stock, property or otherwise, with respect to any
of its capital stock;
(iv) reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock;
(v) (1) acquire (including, without limitation, by acquisition,
consolidation, or acquisition of stock or assets) any corporation, partnership,
other business organization or any division thereof or any material amount of
assets; (2) incur any indebtedness for borrowed money including, without
limitation, request an advance or draw down on any existing debt facility, or
issue any debt securities or assume, guarantee or endorse, or as an
accommodation or otherwise become responsible for, the obligations of any
person, or make any loans or advances, except in the ordinary course of business
and consistent with past practice; (3) enter into any contract or agreement
other than in the ordinary course of business, consistent with past practice;
(4) authorize any single capital expenditure of which is in excess of $50,000 or
capital expenditures for the Company which exceed $150,000 in the aggregate; or
(5) enter into or amend any contract, agreement, commitment or arrangement with
respect to any matter set forth in this Section 5.01(b)(v);
(vi) subject to Section 5.01(b)(iii) above, increase the
compensation payable or to become payable or the commission structure applicable
to its officers or employees, or grant any severance or termination pay to, or
enter into any employment or
41
severance agreement with any director, officer or other employee of the Company,
or establish, adopt, enter into or amend any employee stock ownership plan, any
collective bargaining, bonus, profit sharing, thrift, compensation, stock
option, restricted stock, pension, retirement, deferred compensation,
employment, termination, severance or other plan, agreement, trust, fund, policy
or arrangement for the benefit of any director, officer or employee; provided,
however, that this Section 5.01(b)(vi) shall not prohibit the Company from, in
the ordinary course of business and consistent with the Company's personnel
policies and past practices in effect on the date hereof, increasing the
compensation payable to existing employees (other than any employee specifically
named on Schedules 5.16(b) or 5.16(c) hereof and other than Sellers).
(vii) make or otherwise pay any contributions to the Company 401(k)
Plan (except to the extent required by such Plan, ERISA, the Code or any other
applicable Law);
(viii) take any action, other than reasonable and usual actions in
the ordinary course of business and consistent with past practice, with respect
to accounting policies or procedures (including, without limitation, procedures
with respect to the payment of accounts payable and collection of accounts
receivable);
(ix) make any tax election or settle or compromise any material
federal, state, local or foreign income tax liability;
(x) grant any license or compromise or settle any claims with
respect to the Intellectual Property;
(xi) pay, discharge or satisfy any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction, in the ordinary course of business and
consistent with past practice, of liabilities reflected or reserved against in
the Interim Financial Statements or subsequently incurred in the ordinary course
of business and consistent with past practice; or
(xii) enter into any agreement to do any of the foregoing.
SECTION 5.02. Further Action; Access; Public Announcements. Upon the
terms and subject to the conditions hereof, each of the parties hereto shall use
all reasonable efforts to take, or cause to be taken, all appropriate action,
and to do or cause to be done all things necessary, proper or advisable under
applicable Laws and regulations to consummate and make effective the
transactions contemplated hereunder. From the date hereof until the Closing,
upon reasonable notice to the Sellers, the Sellers shall cause the Company to
cause its officers, directors, employees, agents, representatives, accountants
and counsel to (i) afford the officers, employees and authorized agents,
accountants, counsel and representatives of the Purchaser full access, during
normal business hours, to the offices, properties, plants, other facilities,
books and records of the Company and to those officers, directors, employees,
agents, accountants and counsel of the Company who have any knowledge relating
to the Company, the Business or the Intellectual Property and (ii) furnish to
the officers, employees and authorized agents, accountants, counsel and
representatives of the Purchaser such additional financial and operating data
and other information regarding the assets, properties and goodwill of the
Company, the Business (or legible copies thereof) as the Purchaser may from time
to time
42
request. In addition, each Seller and the Purchaser will provide each other with
such cooperation and information as any of them reasonably may request of the
other and the Sellers shall retain any and all Returns and documents in
connection with or relating to tax matters of the Company for each taxable
period first ending upon the Closing and for all prior taxable periods until the
later of (1) the expiration of the statute of limitations of the taxable periods
to which such Returns and other documents relate, without regard to extensions
except to the extent notified by the other party in writing of such extensions
for the respective tax periods, or (2) six years following the due date (without
extension) for such Returns. Any information relating to Taxes obtained under
this Section 5.02 shall be kept confidential except as may be otherwise
necessary in connection with a tax matter of the Company. The Purchaser shall
consult with the Company prior to issuing any press release or otherwise making
any public statements with respect to the Acquisition. Neither the Company nor
either Seller shall issue any press release with respect to the transactions
contemplated hereunder without the prior written consent of the Purchaser, which
shall not be unreasonably withheld. Neither the Company nor either Seller shall
otherwise make any public statement prior to the Closing with respect to the
transactions contemplated hereunder without the prior written consent of the
Purchaser, which shall not be unreasonably withheld. Each party hereto required
to make an HSR filing agrees to make an appropriate filing, pursuant to the HSR
Act with respect to the transactions contemplated by this Agreement as soon as
practicable after the date hereof and to supply as promptly as practicable to
the appropriate Governmental Authorities any additional information and
documentary material that may be requested pursuant to the HSR Act. Nothing in
this Section 5.02 shall require the Purchaser or the Company or any of the
Purchaser's subsidiaries to hold, manage or operate any assets separately or to
enter into any sale or divestiture of assets or to take any other action that
would impair, in any material respect, the benefit to Purchaser of the
transactions contemplated by this Agreement.
SECTION 5.03. Ownership of Company Shares. Each Seller hereby
covenants and agrees that, from the date hereof to the earlier to occur of the
termination of this Agreement or the Closing, he shall not, and shall not offer
or agree to, sell, transfer, tender, assign, hypothecate or otherwise dispose
of, or create or permit to exist any encumbrance on, or grant any proxy with
respect to, Company Shares now owned or that may hereafter be acquired by such
Sellers at any time prior to the Closing and any attempt by the Sellers to
transfer Company Shares shall be void ab initio.
-- ------
SECTION 5.04. No Solicitation or Negotiation. Each Seller agrees
that between the date of this Agreement and the earlier of (i) the Closing, or
(ii) the earlier termination of this Agreement, none of such Seller, nor any of
his respective Affiliates, officers, directors, representatives or agents will
solicit, initiate, encourage or accept any inquiries, proposals or offers from
any person with respect to an Alternative Transaction (as defined below);
participate in any discussions, conversations, negotiations or other
communications with any person with respect to an Alternative Transaction;
furnish any information to any person in connection with an Alternative
Transaction; or otherwise assist, facilitate or encourage the making of, or
cooperate in any way regarding, any proposal or offer by any person with respect
to an Alternative Transaction. Each Seller immediately shall cease and cause to
be terminated all existing discussions, conversations, negotiations and other
communications with any persons conducted heretofore with respect to any
Alternative Transaction. Each Seller shall notify the Purchaser promptly if any
such proposal or offer, or any inquiry or other contact with any person
43
with respect thereto, is made and shall, in any such notice to the Purchaser,
indicate in reasonable detail the identity of the person making such proposal,
offer, inquiry or contact and the terms and conditions of such proposal, offer,
inquiry or other contact. Each Seller agrees not to, without the prior written
consent of the Purchaser, release any person from, or waive any provision of,
any confidentiality or standstill agreement to which such Seller or the Company
is a party. Pursuant to the terms of any existing confidentiality agreement
(except the confidentiality agreement between the Company and Purchaser) to
which either Seller or the Company is a party, such Seller shall cause the
return or destruction of any confidential or proprietary information in the
possession of any third party. For purposes of this Agreement, "Alternative
Transaction" means any of the following transactions between the Company, either
Seller and any person other than Purchaser or one of its subsidiaries (x) the
acquisition or purchase of any of the capital stock of the Company or any
subsidiary of the Company or all or substantially all the assets of the Company
or any material subsidiary of the Company, (y) a business combination involving
the Company or (z) any other extraordinary business transaction involving or
otherwise relating to the Company or any material subsidiary of the Company.
SECTION 5.05. Financial Statements. The Company has delivered to the
Purchaser true and complete copies of the balance sheets of the Company as of
December 31, 1997 and 1996 and the related statements of earnings and retained
earnings and cash flows for each of the fiscal years ended December 31, 1997 and
1996, together with all related notes and schedules thereto (collectively, the
"Company Financial Statements"). From the date hereof until the Closing, the
Sellers shall use their best efforts to cause the Company's Accountants to make
available to the Purchaser, and the Purchaser's Accountants, copies of the
Company's Accountants' work papers with respect to the Company Financial
Statements on the terms set forth in the letter agreement among Sellers'
Accountants and Purchaser. Any interim financial statements of the Company
delivered to the Purchaser or the Purchaser prior to the Closing will reflect
all taxes accrued during the period covered by such statements and on the date
on which the Closing occurs, the Company's books and records will reflect all
taxes accrued on or prior to the date on which the Closing occurs. The Sellers
will cause the Company to have prepared and filed or otherwise furnished to the
appropriate party (or cause to be prepared and filed or so furnished) in a
timely manner all Returns relating to the Company that are due on or before the
date on which the Closing occurs.
SECTION 5.06. Indemnification of Directors and Officers.
(a) Following the Closing, the Company shall, to the fullest extent
permitted under applicable Law, indemnify and hold harmless, each Seller, ▇▇▇▇▇
▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇▇▇▇, and their respective heirs and personal representatives
(collectively, the "Indemnified Parties") against all costs and expenses
(including reasonable attorneys' fees), judgments, fines, losses, claims,
damages, liabilities and settlement amounts paid in connection with any claim,
action, suit, proceeding or investigation (whether arising before or after the
Closing), whether civil, administrative or investigative, arising out of or
pertaining to any action or omission in their capacity as an officer, director,
employee or agent of the Company, any predecessor corporation to the Company or
employee benefit plan of the Company in each case occurring before the Closing
(including the transactions contemplated by this Agreement). Without limiting
the foregoing, in the event of any such claim, action, suit, proceeding or
investigation, (i) the Company, shall pay the fees and expenses of counsel
selected by any
44
Indemnified Party, which counsel shall be reasonably satisfactory to the Company
promptly after statements therefor are received (unless the Company shall elect
to defend such action) and (ii) the Company shall cooperate in the defense of
any such matter.
(b) In the event the Company or any of its successors or assigns (i)
consolidates with or merges into any other person or shall not be the continuing
entity in such consolidation or acquisition or (ii) transfers all or
substantially all its properties and assets to any person, then, and in each
case, proper provision shall be made in writing so that the successors and
assigns of the Company honor the indemnification obligations set forth in this
Section 5.06.
(c) Except as otherwise provided in Section 5.06(d), the obligations
of the Company under this Section 5.06 shall not be terminated or modified in
such a manner as to adversely affect any person to whom this Section 5.06
applies without the consent of such affected person (it being expressly agreed
that each such person to whom this Section 5.06 applies shall be a third-party
beneficiary of this Section 5.06).
(d) Sellers hereby agree that in no event shall either Seller be
entitled to indemnification pursuant to this Section 5.06, pursuant to any other
agreement or instrument, pursuant to the Company's certificate of incorporation
or bylaws or otherwise with respect to any matter or state of facts or affairs
which shall constitute a breach of any representation, warranty, covenant or
agreement made by Sellers pursuant to this Agreement or the Custody Agreement,
the Notes or the Pledge Agreements.
45
SECTION 5.07. Tax Matters.
(a) The final federal and state income tax returns of the Company for
the short S corporation taxable year ending the day before the Closing in
accordance with Sections 1362(d)(2)(B) and 1362(e)(1) of the Code (the "Final S
Returns") shall be prepared by the Purchaser on behalf of the Company.
Purchaser agrees to engage Sellers' Accountants, provided it can do so on terms
consistent with past engagements by the Company, for such purpose at Purchaser's
cost and expense. Items of income, expense, deduction, loss and credit shall be
allocated between the S short year and the C short year period during the
current taxable year before the Closing in accordance with normal tax accounting
methods as required by Section 1362 of the Code based on the Closing Financial
Statements. The Final S Returns shall be prepared, and each item thereon
treated, in a manner consistent with past practices employed with respect to the
Company (except to the extent counsel for the Sellers or Purchaser determines
there is no reasonable basis in law therefor or determines that a Final S Return
cannot be so prepared and filed or an item so reported without being subject to
penalties). The Company shall provide the Sellers and Purchaser and their
authorized representatives with a copy of each completed Final S Return,
together with appropriate supporting information and schedules at least 30
Business Days prior to the due date (including any extension thereof) for the
filing of such Final S Return, and the Sellers and their authorized
representatives shall have the right to review and comment on such Final S
Return prior to the filing of such Final S Return. The Sellers shall pay when
due and payable all taxes with respect to the Company for any period ending
before the Closing Date. The Purchaser shall cause to be prepared and filed on
behalf of the Company all tax returns required to be filed by the Company after
the Closing, including such returns relating to periods ending on or before the
Closing but which were not required to be filed on or before the Closing (other
than Final S returns). With respect to any return required to be filed by the
Company and as to which an amount of tax (net of tax credits) is attributable to
a taxable period ending on or before the Closing Date, the Purchaser shall
provide the Sellers with a complete and accurate statement representing and
certifying the amount of tax payable by the Company shown on such return that is
attributable to such taxable period and is not reserved on the Closing Balance
Sheet, and the Sellers shall pay to the Purchaser within five Business Days of
receipt of such statement such portions of such amount as constitutes taxes
assessed on or attributable to the income of the Company (exclusive of
California income taxes assessed on the income of an "S" corporation).
(b) The Purchaser shall promptly notify each Seller in writing of any
written notice of a proposed assessment or claim in a tax audit or
administrative or judicial proceeding involving the Purchaser or the Company
which, if determined adversely to the taxpayer, would be grounds for
indemnification under this Agreement (a "Tax Claim"). The Purchaser shall have
the right to control the conduct of such audit or proceeding and shall keep each
Seller informed of the progress of any such audit or proceeding, and each
Seller shall have the right to participate in the conduct of such audit or
proceeding. The Purchaser shall not enter into any compromise or agree to
settle any Tax Claim without the written consent of each Seller, which consent
may not be unreasonably withheld.
(c) Sellers shall promptly, but in any event not later than 60 days
before the last date an Election (as defined below) would be permitted to be
filed (i) cooperate with Purchaser in the preparation of an election under
Section 338(h)(10) of the Code (the "Election")
46
with respect to the purchase of the Shares hereunder and (ii) unless Purchaser
thereafter shall notify Sellers in writing, prior to the last date on which the
Election may be made, that the Election not be made, jointly file such Election
with Purchaser on a timely basis and comply with the rules and regulations
applicable to such Election. These principles also shall apply to any similar
election as may be available under applicable state or local Laws and specified
by the Purchaser.
(d) For purposes of making such Election, Purchaser and Sellers by
mutual agreement shall determine the value of the tangible and intangible assets
of the Company and shall timely provide Sellers with an allocation of
Purchaser's adjusted grossed-up basis in the Shares (within the meaning of the
Treasury Regulations under Section 338 of the Code) to such assets, which shall
be binding upon Purchaser and Sellers for purposes of allocating the deemed
selling price (within the meaning of the Treasury Regulations) among the assets
of the Company. The Sellers agree that they will be solely responsible for, and
shall timely pay, any and all Taxes which arise as a result of the filing of the
Election and any similar state or local election.
SECTION 5.08. Real Estate. At the Closing, the Company and
Kippartners shall enter into a five-year triple-net lease agreement ("930
▇▇▇▇▇▇▇▇▇ Lease") for the building located at 930 ▇▇▇▇▇▇▇▇▇, in the County of
San Bernardino, California, at a base rent of $25,000 per month, subject to an
annual adjustment reflecting any annual increase in the consumer price index
commencing on the first anniversary and each anniversary thereafter during the
term of the 930 ▇▇▇▇▇▇▇▇▇ Lease, and with the Purchaser having the option to
renew for a second five-year term, which 930 ▇▇▇▇▇▇▇▇▇ Lease shall be
substantially in the form of Exhibit 5.08 hereto.
------------
SECTION 5.09. Confidentiality. Each Seller acknowledges that the
Company is engaged in the Business. Each Seller understands and acknowledges
that financial information and information concerning the operation and
methodology of the Company and its Affiliates, including, without limitation,
business, manufacturing and research plans, financial information, information
concerning the identity and source of supply of raw materials and equipment and
machinery, manufacturing methods, processes and techniques, specifications and
tolerances of products, research and development, Intellectual Property, quality
control, test instructions, field testing data, performance and reliability
data, product design, protocols, manuals, scientific data, computer source
codes, programs, software, prices and pricing formulae, know-how and
specifications, copyrights, trade secrets, market information, data and customer
and sales and marketing information (collectively, "Proprietary Information")
are proprietary to the Company or such Affiliates and of great value to the
Company and the Purchaser. Each Seller agrees that, at all times before or
after the Closing, he will keep confidential and will not disclose, directly or
indirectly, any such Proprietary Information to any third party (except as
required pursuant to the duties of his employment with the Company or to his
attorneys who have professional duties to hold such Proprietary Information in
confidence or other professional advisors who have agreed in writing to be bound
by the terms hereof, in either case on a need-to-know basis solely for purposes
of enforcement or interpretation of any term or provision of the Acquisition,
including legal action arising therefrom) and will not misuse, misappropriate or
exploit such Proprietary Information in any way; provided, however, that the
obligations of this Section 5.09 shall not apply in the event of any termination
of this Agreement prior to the Closing). The restrictions contained herein
shall not apply to any information that (i) is or becomes available to the
public
47
or generally to the trade or industry otherwise than by (A) a breach by either
Seller of this Section 5.09, (B) a breach by either Seller of any other
confidentiality agreement between such Seller and Purchaser or any of its
Affiliates, or (C) fault of either Seller, (ii) was required to be disclosed by
an applicable Law or judicial process, provided that in the event such
disclosure is required by a judicial process, the appropriate Seller will
attempt to delay such disclosure in order to allow Purchaser an opportunity to
either appeal the requirement for such disclosure or seek a protective order
with respect thereto, or (iii) is independently developed by such Seller after
the Restricted Period or by a third party (other than a third party acting at
the direction of, with the assistance of, in cooperation with or otherwise in
any manner in concert with either Seller) otherwise than by (A) a breach by
either Seller of this Section 5.09 or (B) a breach by either Seller of any other
confidentiality agreement between such Seller and Purchaser or any of its
Affiliates. In the event that any third party shall unlawfully, and without
either Seller's consent or assistance, obtain any Proprietary Information from
the Sellers, and Sellers become aware thereof, then Sellers shall notify
Purchaser thereof and shall use their reasonable best efforts to cooperate with
Purchaser in any efforts Purchaser determines to undertake to prevent such third
party from directly or indirectly disclosing, using, misusing, appropriating or
exploiting such Proprietary Information.
SECTION 5.10. Restrictions on Solicitation. During the period
beginning on the Closing and ending on fifth anniversary of the Closing (the
"Restricted Period"), each Seller agrees that he shall not, directly or
indirectly, without the prior written approval of the Purchaser, solicit or
contact any customer or any prospective customer of the Company for any
commercial pursuit that could be reasonably construed to be in competition with
the Business or induce, or attempt to induce, any employees, agents or
consultants of or to the Company to do anything from which such Seller is
restricted by reason of this Agreement nor shall such Seller, directly or
indirectly, offer or aid others to offer employment to, or interfere or attempt
to interfere with any employment, consulting or agency relationship with, any
employees, agents or consultants of the Company or any individuals who were,
within twelve (12) months prior to an offer of employment by Seller, employees,
agents or consultants of the Company. In no event shall the publication of a
"help wanted" advertisement constitute solicitation prohibited by this Section
5.10, provided that such advertisement is in no way specifically targeted to
persons covered hereby and no such persons are in fact hired.
48
SECTION 5.11. Restrictions on Competition.
(a) During the Restricted Period, each Seller agrees that he shall not
(as principal, agent, employee, consultant or otherwise), directly or
indirectly, without the prior written approval of the Purchaser, directly or
indirectly, own, manage, operate, control or participate in the ownership,
management, operation or control of, or be connected as a director, officer,
employee, partner, lender, consultant or otherwise with any firm or business in
any county within the State of California, or in any city, county or area
outside the State of California within the Territory (as defined below) which
business is (i) engaged in direct or indirect competition with the Business, or
(ii) developing products or services competitive with those of (or under
development by) the Business (each of the firms and businesses in clauses (i)
and (ii) collectively (a "Competitive Business"), in any such, city, county, or
area, so long as the Purchaser carries on such business in such city, county or
area. For purposes of this Agreement, "Territory" shall mean the United States,
Canada, Europe, Asia and Latin America. Notwithstanding the foregoing, each
Seller may have an interest consisting of publicly traded securities
constituting less than two percent of any class of publicly traded securities in
any public company engaged in a Competitive Business (a "Competing Company") so
long as he is not employed by and does not consult with, or become a director of
or otherwise engage in any activities for, such Competing Company.
Notwithstanding anything to the contrary herein, the parties agree that it is
anticipated that after the Closing the Business will include the manufacturing
and distribution of injection molded laboratory disposables (the "Laboratory
Business"), which business is currently part of the business of the Purchaser
and each Seller therefore agrees that for purposes of this Section 5.11 but not
Section 1.02(g) hereof, the Laboratory Business will be deemed to be a
Competitive Business.
(b) For purposes of the covenant not to compete set forth in paragraph
(a) of this Section 5.11, each Seller acknowledges that the Company presently
conducts the Business within each county in the State of California and in areas
outside California that are located throughout the United States and the world.
Each Seller agrees that the Restricted Period and the geographical areas
encompassed by such covenant are necessary and reasonable in order to protect
the Company in the conduct of the Business. The parties intend that the
covenant contained in this Section 5.11(b) of each Seller shall be construed as
a series of separate covenants, one for each geographic areas specified. Except
for geographic coverage, each such separate covenant shall be deemed identical
in terms to the provisions of Section 5.11(a).
(c) Each Seller agrees that at any time during the Restricted Period,
such Seller shall not make, or cause or encourage any Affiliate of such Seller
or encourage any other person to make, any statements or other communications to
any third party that impugns or attacks, or is otherwise critical of, the
reputation, products, services or character of the Company, its Affiliates or
any of their respective officers, directors or employees; provided, however,
that nothing contained in this Section 5.11(c) shall affect Sellers' rights to
dispute the calculation of the Earnout Payment provided herein or to enforce or
interpret this Agreement or the agreements contemplated hereby by appropriate
judicial process.
(d) To the extent that any provision of this Section 5.12 shall be
deemed illegal or unenforceable by a court or other tribunal of competent
jurisdiction with respect to (i) any geographic area, (ii) any part of the time
period covered by such covenant, (iii) any
49
activity or capacity covered by such covenant or (iv) any other term or
provision of such covenant, such determination shall not affect such covenant
with respect to any other geographic area, time period, activity or other term
or provision covered by or included in such covenant. The covenants contained in
this Section 5.12 are independent of, and in addition to, any covenants
contained in any employment agreement entered into by and between the Purchaser
or a subsidiary thereof and either Seller.
SECTION 5.12. Additional Covenant. Each Seller agrees that during
the Restricted Period he will not intentionally take any action to cause the
Company to lose any material customers or sales or that would otherwise be
materially adverse to the Company's business or prospects.
SECTION 5.13. Intellectual Property. At or prior to Closing, each
Seller will assign to the Company all of such Seller's interests in the
following, the effectiveness of such assignments to be reasonably satisfactory
to Purchaser: (i) U.S. Patent Number 5,730,418; (ii) U.S. Patent Applications
08/834,090 and 09/154,939; (iii) U.S. Patent Number 5,782,816; (iv) U.S. Patent
Number 5,620,427; (v) any foreign patents or patent applications relating to any
of the foregoing; (vi) the rights of each Seller with respect to any other U.S.
or foreign patent or trademark or patent or trademark applications with respect
to Intellectual Property.
SECTION 5.14. Restrictions on Purchaser's Impugning Sellers'.
Purchaser agrees that at any time during the Restricted Period, Purchaser shall
not make, or cause or encourage any Affiliate of Purchaser or encourage any
other person to make, any statements or other communications to any third party
that impugns or attacks, or is otherwise critical of, the reputation or
character of either of the Sellers; provided, however, that nothing contained in
this Section 5.14 shall affect Purchaser's rights to dispute the Sellers' or the
Sellers' Accountants' calculation of the Earnout Payment provided herein or to
enforce or interpret this Agreement or the agreements contemplated hereby by
appropriate judicial process.
SECTION 5.15. Stock Transfer Restriction Agreement. The Sellers and
the Company will terminate that certain Stock Transfer Restriction Agreement
dated as of January 9, 1994 on or prior to the Closing Date, and, on or prior to
such date, all parties thereto will have waived any rights thereunder resulting
from the execution, delivery and consummation of this Agreement.
SECTION 5.16. Corporate Governance.
(a) Prior to the Closing Date, the Sellers shall cause the Company to:
(i) enter into settlement and release agreement (the "Release Agreement") with
each of R.W. ("Skip") ▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, as the holders of outstanding
Phantom Stock Awards (the "Award Holders"), which Release Agreements shall
provide as set forth on Schedule 5.16(a) hereto and shall be reasonably
satisfactory to Purchaser; and (ii) pay to the Award Holders the amounts set
forth on Schedule 5.16(a) hereto.
(b) Promptly following the Closing Date, the Purchaser shall cause the
Company to adopt the bonus plan (the "Supplemental Bonus Plan") described in
Schedule 5.16(b) hereto.
50
(c) Prior to the Closing Date, Sellers shall cause the Company to pay
special cash bonuses to the employees listed on Schedule 5.16(c) hereto, such
bonuses to be in the amounts specified therein (the "Pre-Closing Bonuses"). The
aggregate amount of Pre-Closing Bonuses actually paid by the Company prior to
the Closing Date is referred to herein as the "Pre-Closing Bonus Amount."
(d) On the Closing Date, Purchaser shall grant options to purchase
shares of Purchaser Common Stock in the amounts and to the persons listed on
Schedule 5.16(d) hereto.
(e) Nothing contained in this Section 5.16 or in any plan or agreement
executed pursuant hereto and in accordance herewith shall create any obligation
on the part of the Company or Purchaser or any of their respective Affiliates to
continue to employ any person identified herein or in Schedules 5.16(a),
5.16(b), 5.16(c) or 5.16(d) as the intended recipient of any award or payment.
SECTION 5.17. Material Inducement. The parties hereby acknowledge and
agree that the covenants set forth in Sections 5.09, 5.10 and 5.11 hereof and in
Sections 5.1, 5.2 and 5.3 of the Employment Agreements constitute material
inducements to Purchaser in entering into the Agreement and the agreements
contemplated hereby and in consummating the transactions contemplated hereby and
thereby.
SECTION 5.18. ▇▇▇▇▇▇▇▇ Fees. The Sellers hereby agree that they
shall be solely responsible for all fees and expenses described in Section 3.19
hereof, including, without limitation, the fees and expenses of ▇▇▇▇▇▇▇▇, except
as set forth in Schedule 5.18 of the Disclosure Schedule.
SECTION 5.19. Additional Obligations of Purchaser. Purchaser shall
credit, as payment by Sellers under the Notes and Pledge Agreements, all amounts
of Total Proceeds (without reduction for Sales Commissions as to which Purchaser
is responsible pursuant to Section 2.01(c)) received by or in any account of
Purchaser, in any capacity, or by Purchaser's agents (other than the Escrow
Agent) or representatives, or by the attorneys-in-fact of Sellers appointed
under the Custody Agreement, in accordance with Article II of this Agreement.
Purchaser shall indemnify and hold harmless Sellers from any misappropriation of
such funds or other breach of the terms or provisions of this Agreement by any
of the foregoing persons.
ARTICLE VI
CONDITIONS TO THE CLOSING
SECTION 6.01 Conditions to Obligations of the Purchaser. The
obligations of the Purchaser to effect the Closing shall be subject to the prior
fulfillment of each of the following conditions:
(a) Representations and Warranties; Agreements and Covenants. (i) The
representations and warranties of each Seller contained in this Agreement (as
qualified by the Disclosure Schedule to the extent provided herein and
amendments thereto as permitted by Article III hereof) shall be true and correct
on and as of the Closing Date with the same force and effect as if made as of
the Closing Date, (ii) all the agreements contained in this Agreement to be
51
performed or complied with by the Company and the Sellers at or before the
Closing shall have been performed or complied with and (iii) the Purchaser shall
have received a certificate from each Seller substantially in the form of
Exhibit 6.01(a) hereto.
---------------
(b) Consents and Approvals. All waivers, licenses, agreements,
permits, consents, approvals or authorizations of third parties or governmental
agencies or any modifications or amendments to existing agreements with third
parties required to be obtained in connection with this Agreement shall have
been obtained and shall be in full force and effect and without conditions or
limitations which unreasonably restrict the ability of the parties hereto to
carry out the transactions contemplated hereby.
(c) Litigation. There shall have been no order or preliminary or
permanent injunction entered in any action or proceeding before any federal,
state or foreign court or governmental, administrative or regulatory authority
or agency by any federal, state or foreign legislative body, court, government
or governmental, administrative or regulatory authority or agency that shall
have remained in effect and that shall have had the effect of making illegal the
consummation of any of the transactions hereunder.
(d) Opinion. The Purchaser shall have received an opinion from
Stradling, Yocca, ▇▇▇▇▇▇▇ and ▇▇▇▇▇ substantially in the form attached hereto as
Exhibit 6.01(d).
---------------
(e) HSR Act. The applicable waiting period, together with any
extensions thereof, under the HSR Act shall have expired or been terminated.
(f) Employee Arrangements. The Employment Agreements dated the date
hereof between the Company and each Seller shall remain in full force and effect
(the "Employment Agreements").
(g) Release From Certain Indebtedness and Guarantees; Termination of
Certain Agreements. The Company shall have been released, pursuant to documents
reasonably satisfactory to Purchaser, as of the Closing, from all of its
obligations pursuant to indebtedness and/or guarantees set forth on Schedule
6.01(g). Sellers shall have paid any fees in connection with such releases.
Purchaser shall have received legally binding documentation reasonably
satisfactory to Purchaser evidencing the termination without liability to the
Purchaser or the Company of all agreements arrangements and transactions between
or among each Seller or any of his Affiliates (other than the Company), on the
one hand, and the Company on the other hand, other than agreements entered into
pursuant to the provisions of this Agreement.
(h) No Material Adverse Change. There shall have occurred no material
adverse change in the business, prospects, financial condition or results of
operations of the Company or of Purchaser.
(i) The Leases. The 930 ▇▇▇▇▇▇▇▇▇ Lease shall have been executed by
Kippartners. The Company shall have obtained an estoppel certificate from and
the consent of the lender to Kippartners with respect to the property subject to
the 930 ▇▇▇▇▇▇▇▇▇ Lease. The Company shall have obtained a title insurance
policy reasonably satisfactory to Purchaser with respect to the Company's right
to possession of the Property subject to the 930 ▇▇▇▇▇▇▇▇▇ Lease. The Company
shall have obtained consents and estoppel certificates satisfactory to
52
Purchaser with respect to the Acquisition from the lessors of the properties at
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ and 950 South ▇▇▇▇▇▇▇▇▇.
(j) 1997 Financial Statements. Purchaser's Accountants shall have
delivered the 1997 Financial Statements in form and content satisfactory to
Purchaser with an unqualified opinion thereon.
(k) Debt of the Company. Except as contemplated by Section 6.01(g),
all indebtedness of the Company outstanding on the date hereof shall remain in
full force and effect, with only those modifications as shall be approved by
Purchaser in writing and Sellers shall have obtained from the respective lenders
their written consent, if required, to the consummation of the Acquisition as
contemplated by this Agreement, so as to permit such indebtedness to remain
outstanding after the Closing.
(l) Release from ▇▇▇▇▇▇▇▇ Obligations. The Company shall have been
released from, and the Sellers shall have assumed any and all obligations of the
Company to ▇▇▇▇▇▇▇▇ in excess of $25,000.
(m) Certificates. Sellers shall have delivered to Buyer such
certificates of Sellers or of officers of the Company to evidence compliance
with the conditions set forth in this Section 6.01 as may reasonably be
requested by Purchaser.
SECTION 6.02. Conditions to Obligations of the Sellers. The
obligations of the Sellers to effect the Closing shall be subject to the prior
fulfillment of each of the following conditions:
(a) Representations and Warranties; Agreements and Covenants. (i)
The representations and warranties of the Purchaser contained in this Agreement
shall be true and correct on and as of the Closing, with the same force and
effect as if made as of the Closing, (ii) all the agreements contained in this
Agreement and in any certificates or agreements of the Purchaser delivered
pursuant hereto to be performed or complied with by the Purchaser, at or before
the Closing, shall have been performed or complied with and (iii) the Company
and the Sellers shall have received a certificate of the Purchaser, signed by a
duly authorized officer thereof, substantially in the form of Exhibit 6.02(a)
---------------
hereof.
(b) Consents and Approvals. All waivers, licenses, agreements,
permits, consents, approvals or as of third parties or governmental agencies or
any modification or amendments to existing agreements with third parties
required to be obtained in connection with this Agreement shall have been
obtained and shall be in full force and effect and without conditions or
limitations which unreasonably restrict the ability of the parties hereto to
carry out the transactions contemplated hereby.
(c) Litigation. There shall have been no order or preliminary or
permanent injunction entered in any action or proceeding before any federal,
state or foreign court or governmental, administrative or regulatory authority
or agency by any federal, state or foreign legislative body, court, government
or governmental, administrative or regulatory authority or agency that shall
have remained in effect and that shall have had the effect of making illegal the
consummation of any of the transactions hereunder.
53
(d) Opinion. The Sellers shall have received an opinion from Stroock
& Stroock & ▇▇▇▇▇ LLP substantially in the form attached hereto as Exhibit
-------
6.02(d).
-------
(e) HSR Act. The applicable waiting period, together with any
extensions thereof, under the HSR Act shall have expired or been terminated.
(f) Employee Arrangements. The Employment Agreements shall remain in
full force and effect.
(g) Stock Option Agreement. Stock Option Agreements between the
Purchaser and each Seller substantially in the form of Exhibits 6.02(g)(i) and
-------------------
6.02(g)(ii) hereto (the "Stock Option Agreements") shall have been executed by
-----------
the Purchaser.
(h) The Lease. The 930 ▇▇▇▇▇▇▇▇▇ Lease shall have been executed by
the Purchaser.
(i) The Letters of Credit. A Letter of Credit shall have been
delivered to each Seller.
(j) Release of Guarantees and Termination of Certain Agreements.
Kippartners shall have been released, pursuant to documents reasonably
satisfactory to Sellers, as of the Closing from all of its obligations pursuant
to the indebtedness and/or guarantees set forth on Exhibit 6.02(j) hereto.
---------------
Purchaser shall have paid any fees in connection with such releases.
(k) No Material Adverse Change. There shall have occurred no material
adverse change in the business, prospects, financial condition or results of
operations of the Purchaser (it being understood that a change or changes in the
price of Purchaser Common Stock shall in no circumstance be deemed to constitute
such a material adverse change) or the Company.
(l) Debt of the Company. Except as contemplated by Section 6.01(g),
all indebtedness of the Company outstanding on the date hereof shall remain in
full force and effect, with only those modifications as shall be approved by
Purchaser in writing and Sellers shall have obtained from the respective lenders
their written consent, if required, to the consummation of the Acquisition as
contemplated by this Agreement, so as to permit such indebtedness to remain
outstanding after the Closing.
(m) Certificates. Purchaser shall have delivered to Sellers such
certificates of Purchaser or of officers of Purchaser to evidence compliance
with the conditions set forth in this Section 6.02 as may reasonably be
requested by Sellers.
(n) 1997 Financial Statements. Purchaser's Accountants shall have
delivered the 1997 Financial Statements in form and content satisfactory to
Sellers with an unqualified opinion thereon.
54
ARTICLE VII
INDEMNIFICATION
SECTION 7.01. Survival of Representations and Warranties. The
representations and warranties contained in this Agreement shall survive the
Closing until March 31, 2000 provided, however, that (i) the representations and
warranties contained in Sections 3.01(a), 3.02, 3.19, 3.23(a), 4.01 and 4.04
shall survive indefinitely, (ii) the representations and warranties contained in
Sections 3.08 and 3.15 shall survive until the close of business on the 120th
day following the termination of all liabilities arising from the subject matter
thereof pursuant to all applicable statutes of limitation (giving effect to any
waiver, mitigation or extension thereof), and (iii) the representations and
warranties contained in Section 3.17 shall survive the Closing until the fifth
anniversary thereof. Neither the period of survival nor the liability of each
Seller with respect to his representations and warranties shall be reduced by
any investigation made at any time by or on behalf of the Purchaser, and neither
the period of survival nor the liability of the Purchaser with respect to the
representations and warranties of the Purchaser shall be reduced by any
investigation made at any time by or on behalf of either Seller. If written
notice of a claim has been given in accordance with Section 7.02(c) prior to the
expiration of the applicable representations and warranties, then the relevant
representations and warranties shall survive as to such claim, until such claim
has been finally resolved.
SECTION 7.02. Indemnification by the Sellers and the Purchaser.
(a) After the Closing, the Purchaser and its Affiliates (including,
after the Closing, the Company), officers, directors, employees, agents,
successors and assigns (collectively, the "Purchaser Indemnified Parties") shall
be indemnified and held harmless by the Sellers, jointly and severally, for any
and all liabilities, losses, damages, claims, costs and expenses, interest,
awards, judgments and penalties (including, without limitation, reasonable
attorneys' fees and expenses) actually suffered or incurred by them (including,
without limitation, in connection with any action brought or otherwise initiated
by any of them) (a "Loss"), arising out of or resulting from the breach of any
representation or warranty made by each Seller in this Agreement or from any
wrongful drawing against any Letter of Credit. To the extent that the
undertakings set forth in this Section 7.02(a) may be unenforceable, each Seller
shall, subject to the other provisions of this Article VII, contribute the
maximum amount that he is permitted to contribute under applicable Law to the
payment and satisfaction of all Losses incurred by the parties entitled to
indemnification hereunder.
(b) After the Closing, each Seller and the respective Affiliates,
officers, director, employees, agents, successors and assigns of the Company
shall be indemnified and held harmless by the Purchaser for any and all Losses
actually suffered or incurred by them arising out of or resulting from the
breach of any representation or warranty made by the Purchaser in this
Agreement, the Custody Agreement or any Pledge Agreement or any wrongful
dishonor of any Letter of Credit. To the extent that the Purchaser's
undertakings set forth in this Section 7.02(b) may be unenforceable, the
Purchaser shall contribute the maximum amount that it is permitted to contribute
under applicable Law to the payment and satisfaction of all Losses incurred by
the parties entitled to indemnification hereunder.
55
(c) Any party seeking indemnification under this Article VII (an
"Indemnified Party") shall give each person from whom indemnification is being
sought (each, an "Indemnifying Party") notice of any matter which such
Indemnified Party has determined has given or could give rise to a right of
indemnification under this Agreement, within 60 days of such determination and,
in any event, prior to the expiration of the applicable representations and
warranties as set forth in Section 7.01 hereof, stating the amount of the Loss,
if known, and method of computation thereof, and containing a reference to the
provisions of this Agreement in respect of which such right of indemnification
is claimed or arises; provided, however, that the failure to provide such notice
shall not release any Indemnifying Party from any of its obligations under this
Article VII except to the extend such Indemnifying Party is materially
prejudiced by such failure. The obligations and liabilities of an Indemnifying
Party under this Article VII with respect to Losses arising from claims of any
third party that are subject to the indemnification provided for in this Article
VII ("Third Party Claims") shall be governed by and contingent upon the
following additional terms and conditions: if an Indemnified Party shall
receive notice of any Third Party Claim, the Indemnified Party shall give each
Indemnifying Party notice of such Third Party Claim within 30 days of the
receipt by the Indemnified Party of such notice; provided, however, that the
failure to provide such notice shall not release any Indemnifying Party from any
of its obligations under this Article VII except to the extent such Indemnifying
Party is materially prejudiced by such failure. If the Indemnifying Party or
Parties acknowledge in writing its or their obligation to indemnify the
Indemnified Party hereunder against any Losses that may result from such Third
Party Claim (subject to the limitations set forth in Sections 7.03 and 7.04
hereof), then the Indemnifying Party or Parties shall be entitled to assume and
control the defense of such Third Party Claim at its or their expense and
through counsel of its or their choice if it or they give notice of its or their
intention to do so to the Indemnified Party within ten days of the receipt of
such notice from the Indemnified Party; provided, however, that if there exists
or is reasonably likely to exist a conflict of interest that would make it
inappropriate in the judgment of the Indemnified Party for the same counsel to
represent both the Indemnified Party and the Indemnifying Party or Parties, then
the Indemnified Party shall be entitled to retain its own counsel, at the
expense of the Indemnifying Party or Parties (which expenses shall be
reasonable). In the event the Indemnifying Party or Parties exercise the right
to undertake any such defense against any such Third Party Claim as provided
above, the Indemnified Party shall cooperate with the Indemnifying Party or
Parties in such defense and make available to the Indemnifying Party or Parties,
at the Indemnifying Party or Parties' expense, all witnesses, pertinent records,
materials and information in the Indemnified Party's possession or under the
Indemnified Party's control relating thereto as is reasonably required by the
Indemnifying Parties. Similarly, in the event the Indemnified Party is,
directly or indirectly, conducting the defense against any such Third Party
Claim, the Indemnifying Party or Parties shall cooperate with the Indemnified
Party in such defense and make available to the Indemnified Party, at the
Indemnifying Party or Parties' expense, all such witnesses, records, materials
and information in the Indemnifying Party or Parties' possession or under the
Indemnifying Party or Parties' control relating thereto as is reasonably
required by the Indemnified Party. No such Third Party Claim may be settled by
the Indemnifying Party or Parties without the prior written consent of the
Indemnified Party, which consent shall not be unreasonably withheld. The
Purchaser shall use its best efforts to defend in a commercially reasonable
manner any Third Party Claim alleging that the conduct of the Company's business
infringes any Intellectual Property of such third
56
party. Notwithstanding anything in this Section 7.02(c) to the contrary, Section
5.08(b) shall govern with respect to any Tax Claim.
(d) Each Seller and the Purchaser agree to treat all payments made
either by, to or for the benefit of the other (including any payments to the
Company) under the indemnity provisions of this Agreement and for any
misrepresentations or breach of warranties or covenants as adjustments to the
purchase price or as capital contributions for tax purposes and that such
treatment shall govern for purposes hereof; provided, however, that if, in the
opinion of tax counsel to the Indemnified Party, which tax counsel shall be
reasonably satisfactory to the Indemnifying Party and which opinion shall be
also addressed to the Indemnifying Party, relevant applicable authority requires
otherwise, then such payments shall be made in an amount sufficient to indemnify
the relevant party on an after-tax basis with respect to the applicable
jurisdiction. The provisions of this Section 7.02(d) shall in no way increase
the limitation set forth in Section 7.04(a)(ii).
SECTION 7.03. Limitation of Remedies.
(a) The parties hereby agree that as a material inducement to each of
them to enter into, and as condition for, this Agreement, the indemnification
provided by this Article VII, subject to the limitations set forth herein, shall
be the sole and exclusive post-Closing remedy available to the parties hereto
for any breach of any representation or warranty contained in this Agreement,
the Custody Agreement or any Pledge Agreement. The parties hereto acknowledge
that no party hereto has made any representation or warranty to any other party
hereto other than as set forth in this Agreement, the Custody Agreement and the
Pledge Agreements.
(b) In no event shall any party hereto be entitled to rescission of
this Agreement as a result of any breach of any representation, warranty,
covenant or agreement contained herein or in the Custody Agreement or any Pledge
Agreement.
(c) The amount of any recovery to which any Indemnified Party shall be
entitled pursuant to Section 7.02 shall be net of (i.e., after deducting) any
insurance proceeds inuring to such Indemnified Party as a result of the facts
which entitle such Indemnified Party to indemnification pursuant to Section
7.02. The amount of any recovery to which any Indemnified Party shall be
entitled pursuant to Section 7.02 shall be net of (i.e. after deducting) any
amounts recovered by such Indemnified Party from any third party with respect to
the facts which entitle such Indemnified Party to indemnification pursuant to
Section 7.02; provided, however, that such Indemnified Party shall have no
obligation to seek to recover any such amounts from any such third party but
only to notify the Indemnifying Party of such potential right of recovery on a
reasonably prompt basis and to cooperate with the Indemnifying Party to the
extent described below; provided further, that to the extent an Indemnifying
Party actually indemnifies an Indemnified Party, such Indemnifying Party shall
be subrogated with respect to the rights, if any, of the Indemnified Party to
seek a recovery from such third party and the Indemnified Party shall reasonably
cooperate with the Indemnifying Party, at the sole cost and expense of the
Indemnifying Party but without charge for reasonable time spent by the
Indemnified Party or the Indemnified Party's regular employees in rendering such
cooperation.
57
(d) The parties shall have all remedies available at law or in equity
with respect to any claims based on (i) specific allegations of any fraud which
is knowing or intentional as provided by applicable statute or the common law
(provided such claims are not made in bad faith) or (ii) for breach of any
covenant or agreement that is not a representation or warranty contained in this
Agreement (including, without limitation, the agreements set forth in Section
5.07 hereof); provided, however, that with respect to any claim based on a
breach of a covenant or agreement contained in Article III, Section 5.02 or
Section 5.05, if such breach is determined to have occurred other than with the
prior knowledge of Sellers, then the Purchaser's remedy with respect to such
claim shall be limited by the provisions of Section 7.04(a) as if such claim was
a Loss governed thereby. No claim may be brought against Sellers under or
pursuant to the Notes or the Pledge Agreements that would be prohibited by the
non-recourse provisions thereof.
(e) No claim for indemnification may be made hereunder for breach of
any representation or warranty after the end of any survival period set forth in
Section 7.01.
(f) Any liability of Sellers for breach of the covenants contained in
Sections 5.09 through 5.12 hereof shall be several and not joint, and neither
Seller shall have responsibility for the other Seller with respect thereto.
(g) If, on the Earnout Payment Date or the Final Earnout Payment Date,
Sellers are entitled to an earnout payment pursuant to Article II and Sellers
have agreed in writing to Sellers' obligation to pay an amount relating to an
outstanding indemnification obligation under this Article VII, Purchaser shall
withhold from any such earnout payments an amount equal to such outstanding
indemnification obligations.
(h) Notwithstanding anything to the contrary herein, after the Closing
Purchaser shall be deemed to have accepted the 1997 Financial Statements and may
not seek indemnification for a breach of Sections 3.05, 3.06, 3.14, 3.21 or 3.22
based on differences between the 1997 Financial Statements and the Company
Financial Statements or on proposed adjustments set forth in writing by
Purchaser's Accountants that were not made.
(i) Notwithstanding anything to the contrary herein, if Sellers shall
pay to Purchaser an Asset Deficiency Amount pursuant to Section 1.05 and if the
facts and circumstances giving rise to such Asset Deficiency Amount also
constitute a breach of a representation or warranty in Article III hereof, then
Purchaser may not seek indemnification from Sellers pursuant to Section 7.02
except to the extent the Loss resulting from such breach exceeds the Asset
Deficiency Amount (without regard to Section 7.04(a)(i) hereto).
58
SECTION 7.04. Limits on Indemnification.
(a) Notwithstanding anything to the contrary contained in this
Agreement except as set forth in Section 7.04(b), (i) the Purchaser Indemnified
Parties shall not be entitled to indemnification for any Losses pursuant to
Section 7.02 until such Losses aggregate $200,000 and (ii) the maximum amount of
indemnifiable Losses which may be recovered from the Sellers arising out of or
resulting from the causes enumerated in Section 7.02 shall be an amount equal to
twenty-five percent (25%) of the Total Consideration.
(b) The limit on indemnification contained in Section 7.04(a)(ii)
shall be equal to the Total Consideration with respect to Losses arising out of
or resulting from a breach of the representations and warranties contained in
Sections 3.01(a), 3.02, 3.15, 3.19 and 3.23(a).
ARTICLE VIII
DEFINED TERMS
SECTION 8.01. Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings:
"Affiliate" shall mean, when used with respect to a specified person,
another person that, either directly or indirectly, through one or more
intermediaries, controls or is controlled by or is under common control with the
person specified and, in the case of a natural person, includes Associates of
the person specified.
"Associates" shall have the meaning such term is given in Rule 14a-1
promulgated under the Exchange Act as in effect on the date hereof.
"Business" means the business of the Company as it exists on the
Closing Date and through the end of the later of (i) Sellers' employment
agreements, or any extensions or renewals thereof, with Porex or (ii) the
Determination Period, which includes, but is not limited to: (i) manufacturing
custom injection molds; (ii) providing contract injection molding services; and
(iii) designing, manufacturing and distributing injection molded plastic
products.
"Business Day" means any day that is not a Saturday, a Sunday or other
day on which banks are required or authorized by law to be closed in the City of
New York.
"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended through the date hereof.
"Change of Control of Purchaser" shall be deemed to have occurred at
such time as any person (excluding ▇▇▇▇▇▇ ▇. Wygod and/or his Affiliates),
together with such person's Affiliates or Associates (collectively, an
"Acquiring Person" ), is or becomes the "beneficial owner" (as such term is
defined in Rule 13d-3 under the Exchange Act, as in effect on the date of this
Agreement) as a result of a purchase, merger, acquisition, transfer or similar
transaction (an "acquisition"), of shares of capital stock of Purchaser
entitling the Acquiring Person to exercise more than 50% of the total voting
power of all shares of capital stock then outstanding and entitled to vote in
elections of directors; provided, however, that a "Change of Control" shall
59
be deemed not to have occurred with respect to an acquisition (including, but
not limited to, an acquisition by Purchaser or a subsidiary of Purchaser of a
business for consideration consisting of or including shares of Purchaser Common
Stock and/or securities convertible into or exercisable or exchangeable for
shares of Purchaser Common Stock) if, in the case of such acquisition, the terms
of such acquisition provide that from and after such acquisition and until at
least the Earnout Payment Date, inclusive, either (i) the Acquiring Person shall
cause ▇▇▇▇▇▇ ▇. Wygod to hold the position of Chairman of the Board and/or Chief
Executive Officer and/or President and/or any similar title of Purchaser or (ii)
the Acquiring Person shall cause ▇▇▇▇▇▇ ▇. Wygod to be to be the final arbiter
on behalf of Purchaser with full authority with respect to the matters provided
for in Sections 1.02(b), 1.02(c), 1.02(d), 1.02(f), 1.02(g), 1.02(h), 2.06,
2.07, 2.08 and 2.09 hereof.
"CERCLIS" means the Comprehensive Environmental Response, Compensation
and Liability Information System, as updated through the date hereof.
"Determination Period EBIT" means net income of the Company for the
Determination Period, excluding (i) interest income and expense, (ii) income tax
expense and (iii) extraordinary items, if any, of income or expense, determined
in accordance with GAAP, and except that in determining Determination Period
EBIT: (i) there shall be excluded from the calculation: (A) any expenses, costs
or losses of the Company for which the Sellers are required to provide
indemnification under Article VII of this Agreement to the extent and only to
the extent that Sellers have actually reimbursed the Company for such expenses,
costs or losses or have actually agreed in writing to an offset thereof against
the Earnout Payment or notwithstanding that such amounts are below the threshold
in Section 7.04(i); (B) allocations by Purchaser and its Affiliates of corporate
overhead to the Company other than reasonable intercompany charges for services
provided or costs incurred by Purchaser or one of its Affiliates on behalf of
the Company (e.g., Umbrella Coverage) where the same are utilized by the Company
and the rate charged to the Company is no higher than would be charged to the
Company by an unaffiliated third party, provided that intercompany charges for
employee benefits for Company employees, which may be provided by Purchaser and
the cost of which benefits may be charged to the Company on a basis generally
consistent with how employee benefits are charged to other subsidiaries of
Synetic) or (C) any costs or expenses of management employees added to the
Company other than (I) replacement employees for positions in existence on the
Closing Date to the extent their compensation is comparable and (II) positions
budgeted to be hired as set forth on Schedule 8.01 hereto; (D) any losses
resulting from the sale of capital assets of the Company; (E) any Earnout
Payment or Preliminary Earnout Payment; (F) deduction for the amortization of
any portion of the Aggregate Purchase Price or for any transaction expenses paid
or assumed by the Company or additional depreciation as a result of asset write-
ups; (G) stock option or phantom stock compensation expense; (H) non-recurring
one-time charges or expenses or income, including, but not limited to, start-up
costs for new plants or facilities; (I) adjustments in accordance with GAAP that
relate to periods ending prior to the Determination Period.
"Environment" means surface water, groundwater, soil, subsurface
strata and ambient air.
60
"Environmental Claims" means any and all administrative, regulatory or
judicial actions, suits, demands, demand letters, claims, liens, notices of non-
compliance or violation, investigations, proceedings, consent orders or consent
agreements relating in any way to any Environmental Law or any Environmental
Permit (hereafter "Claims"), including, without limitation, (a) any and all
Claims by Governmental Authorities for enforcement, cleanup, removal, response,
remedial or other actions or damages pursuant to any applicable Environmental
Law and (b) any and all Claims by any person seeking damages, contribution,
indemnification, cost recovery, compensation or injunctive relief resulting from
Hazardous Materials or arising from alleged injury or threat of injury to
health, safety or the Environment.
"Environmental Condition" means a condition relating to or arising or
resulting from a failure to comply with any applicable Environmental Law or
Environmental Permit or a Release of Hazardous Materials into the Environment.
"Environmental Laws" means any Law, now or hereafter in effect and as
amended, and any judicial or administrative interpretation thereof, including
any judicial or administrative order, consent decree or judgment, relating to
the environment, health, safety or Hazardous Materials, including, without
limitation, the CERCLA; the Resource Conservation and Recovery Act, 42 U.S.C.
(S) 6901 et seq.; the Hazardous Materials Transportation Act, 49 U.S.C. (S) 6901
et seq.; the Clean Water Act, 33 U.S.C. (S) 1251 et seq.; the Toxic Substances
Control Act, 15 U.S.C. (S) 2601 et seq.; the Clean Air Act, 42 U.S.C. (S) 7401
et seq.; the Safe Drinking Water Act, 42 U.S.C. (S) 300f et seq.; the Atomic
Energy Act, 42 U.S.C. (S) 2011 et seq.; the Federal Insecticide, Fungicide and
Rodenticide Act, 7 U.S.C. (S) 136 et seq.; and the Federal Food, Drug and
Cosmetic Act, 21 U.S.C. (S) 301 et seq.
"Environmental Permits" means all permits, approvals, identification
numbers, licenses and other authorizations required under any applicable
Environmental Law.
"Governmental Authority" means (i) any United States federal, state or
local or any foreign government, governmental, regulatory or administrative
authority, agency or commission or any court, tribunal or judicial body or (ii)
any arbitral or other non-governmental dispute resolution body.
"Hazardous Materials" means (a) petroleum and petroleum products,
radioactive materials, asbestos in any form that is or could become friable,
urea formaldehyde foam insulation, transformers or other equipment that contain
polychlorinated biphenyls, and radon gas, (b) any other chemicals, materials or
substances defined as or included in the definition of "hazardous substances",
"hazardous wastes", "hazardous materials", "extremely hazardous wastes",
"restricted hazardous wastes", "toxic substances", "toxic pollutants",
"contaminants" or "pollutants", or words of similar import, under any applicable
Environmental Law, and (c) any other chemical, material or substance exposure to
which is regulated by any Governmental Authority.
"Intellectual Property" means (i) trademarks, service marks, trade
dress, logos, trade names and corporate names, whether or not registered,
including all common law rights, and registrations and applications for
registration thereof, including, but not limited to, all marks registered in the
United States Patent and Trademark Office, the Trademark Offices of the States
61
and Territories of the United States of America, and the Trademark Offices of
other nations throughout the world, and all rights therein provided by
multinational treaties or conventions, (ii) copyrights (registered or otherwise)
and registrations and applications for registration thereof, and all rights
therein provided by multinational treaties or conventions, (iii) computer
software, including, without limitation, source code, operating systems and
specifications, data, data bases, files, documentation and other materials
related thereto, data and documentation, (iv) trade secrets and confidential,
technical or business information (including the Company's manufacturing
processes), and all ideas, formulas, compositions, inventions and conceptions of
inventions whether patentable or unpatentable and whether or not reduced to
practice), (v) technology (including know-how and show-how), manufacturing and
production processes and techniques, research and development information,
drawings, specifications, designs, plans, proposals, technical data,
copyrightable works, financial, marketing and business data, pricing and cost
information, business and marketing plans and customer and supplier lists and
information, (vi) copies and tangible embodiments of all the foregoing, in
whatever form or medium, (vii) issued patents and patent applications, (viii)
all rights to obtain and rights to apply for patents, and to register trademarks
and copyrights, (ix) licenses or sublicenses to the Company, or by the Company
to any third party, in connection with any of the foregoing, and (x) all rights
to ▇▇▇ and recover and retain damages and costs and attorneys' fees for past,
present and future infringement or breach of any of the Intellectual Property
rights hereinabove set forth. As used herein, the term "Intellectual Property"
shall be deemed to include "Owned Intellectual Property" and "Licensed
Intellectual Property."
"Knowledge of the Sellers" and "Sellers' Knowledge" and "knowledge of
each Seller" and words of similar import shall mean actual knowledge of each
Seller after due inquiry and the actual knowledge of R.W. ("Skip") ▇▇▇▇▇▇, ▇▇▇▇
Werschmidt and ▇▇▇▇▇ ▇▇▇▇ after due inquiry, with the actual knowledge after due
inquiry of any of such persons being deemed to be known by the other such
persons.
"Material Adverse Effect" means with respect to Purchaser or the
Company, any circumstance, change, event, transaction, loss, failure, effect or
other occurrence that is materially adverse to the business, operations,
prospects, properties (including intangible properties), condition (financial or
otherwise), assets, liabilities or results of operations of the Company or
Purchaser, as the case may be, and in either case taken as a whole.
"1997 Financial Statements" means a balance sheet and related
statements of income, changes in shareholder's equity and cash flows of the
Company as of and for the year ended December 31, 1997, together with the
unqualified report thereon of the Purchaser's Accountants, delivered to
Purchaser pursuant to Section 6.01(j).
"Total Consideration" means the aggregate of (i) the Total Proceeds
plus (ii) the aggregate amounts received by Sellers, whether from the proceeds
of the sale of shares of Purchaser Common Stock or as cash, from the Earnout
Payment or the Earnout Shortfall Payment net proceeds to Sellers from the sales
of the Earnout Shares, if any, and the Additional Earnout Shares, if any, plus
(iii) the Shortfall Payments, if any, plus (iv) the Earnout Shortfall Payment
minus (v) solely for purposes of Section 7.04(b) hereof, any amounts paid by
Sellers pursuant to Section 7.04(a) hereof.
62
"Transaction Documents" means the Custody Agreement, the Notes, the
Pledge Agreements, the Letters of Credit, the Escrow Agreement and the 930
▇▇▇▇▇▇▇▇▇ Lease.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER; MISCELLANEOUS
SECTION 9.01. Termination. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time prior to the
Closing: (i) by mutual written consent of the Sellers and the Purchaser; (ii)
either by the Sellers or by the Purchaser if for any reason, without regard to
fault of any party, the Closing has not occurred on or before February 28, 1999
or such later date as the parties may agree in writing; (iii) either by the
Sellers or by the Purchaser if there has been a material breach of any
representation, warranty, covenant or agreement on the part of the other parties
which would cause the conditions to closing to fail to be satisfied and which is
incapable of being cured prior to February 28, 1999 or such later date as the
parties may agree in writing, provided that a party terminating pursuant to this
subsection (iii) shall refer to this subsection (iii) and describe the nature of
the breach in its notice of termination; or (iv) by the Purchaser, pursuant to a
Disclosure Amendment Termination.
SECTION 9.02. Effect of Termination. In the event of the termination
of this Agreement pursuant to Section 9.01, this Agreement shall forthwith
become void and have no effect and there shall be no liability on the part of
any party hereto or its Affiliates, directors, officers or shareholders, such
termination being the sole remedy; provided, however, that if, within twelve
(12) months after the date of termination of this Agreement by the Purchaser
pursuant to Section 9.01(iii) hereof, either Seller(s) or the Company shall
enter into a binding written agreement that culminates in a Transaction or enter
into a Transaction, then nothing herein shall relieve either Seller from
liability for any willful breach hereof prior to such termination. For purposes
hereof, "Transaction" shall mean any merger, consolidation, business
combination, sale of a substantial amount of assets other than in the ordinary
course of business, sale of shares of capital stock, tender or exchange offer or
similar transaction involving the Company or the shares of capital stock thereof
owned by Sellers (other than a Transaction between the Company or a Seller and
an Affiliate thereof that was such an Affiliate prior to such Transaction).
63
SECTION 9.03. Expenses; Return of Documents. All costs and expenses,
including, without limitation, fees and disbursements of counsel, financial
advisors and accountants, incurred by the Sellers or the Purchaser in connection
with this Agreement and the transactions contemplated hereby shall be paid by
the person incurring such expense whether or not the Closing shall have
occurred, except (i) that the Company shall pay 75% and the Purchaser shall pay
25% of the filing fees payable by Sellers in connection with any filings
pursuant to the HSR Act and (ii) as otherwise expressly provided herein. In
furtherance of the foregoing, the Sellers and not the Company shall pay the fees
and expenses of their counsel with respect to the Acquisition, except (i) as
provided in Section 2.01(b) hereof and (ii) that the Company shall pay the fees
and expenses of the Sellers' Accountants related to the preparation of the
Company Financial Statements and its tax returns. For the purpose of this
Section 9.03, Acquisition expenses begin to accrue upon execution of the first
exclusivity agreement among the parties hereto. In the event of termination of
this Agreement as provided in Section 9.01 hereof, each party, if so requested
by the other party, will (i) return promptly every document (other than publicly
available documents) furnished to it by the other party (or any subsidiary,
division, Associate or Affiliate of such other party) in connection with the
transactions contemplated hereby, whether so obtained before or after the
execution of this Agreement, and any copies thereof which may have been made,
and will cause its representatives and any representatives of financial
institutions and investors and others to whom such documents were furnished
promptly to return such documents and any copies thereof any of them may have
made or (ii) destroy such documents and cause its representatives and such other
representatives to destroy such documents, and such party shall deliver a
certificate executed by its president or a vice president stating to such
effect. The parties shall continue to abide by the mutual confidentiality
provisions of any other agreements entered into among them.
SECTION 9.04. Amendment. This Agreement may be amended by the
parties hereto (in the case of the Purchaser by action taken by or on behalf of
its respective Board of Directors) at any time prior to the Closing. This
Agreement may not be amended except by an instrument in writing signed by the
parties hereto.
SECTION 9.05. Waiver. At any time prior to the Closing, the
Purchaser and the Sellers may (a) extend the time for the performance of any
obligation or other act of any other party hereto, (b) waive any inaccuracy in
the others party's representations and warranties contained herein or in any
document delivered pursuant hereto and (c) waive compliance by the other party
with any agreement or condition contained herein. Any such extension or waiver
shall be valid if set forth in an instrument in writing signed by the party or
parties to be bound thereby. Unless otherwise provided therein, no such waiver
referred to in clause (b) above shall effect any party's right to seek
indemnification for a breach of such representation or warranty pursuant to
Article VII hereof.
SECTION 9.06. Miscellaneous. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any Law or
public policy, all other terms 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
materially 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
64
possible in an acceptable manner in order that the transactions contemplated
hereby are consummated as originally contemplated to the greatest extent
possible. This Agreement and the schedules and exhibits hereto and the
Transaction Documents constitute the entire agreement among the parties with
respect to the subject matter hereof and supersedes all prior agreements and
undertakings, both written and oral, among the parties with respect to the
subject matter hereof. This Agreement may not be assigned by operation of Law or
otherwise without the express written consent of the Purchaser and the Sellers;
provided, however, that the Purchaser may assign this Agreement and the
Transaction Documents to an Affiliate of the Purchaser or to a successor to the
business of Purchaser (whether by merger, consolidation, sale of assets or other
business combination) without the consent of the Sellers, but no such assignment
shall (i) relieve the Purchaser of its obligations hereunder if such assignee
does not perform such obligations or (ii) change the consideration to be
received by any Seller in the Acquisition; provided, further, however, that each
Seller may, with the prior written consent of Purchaser, which shall not be
unreasonably withheld, assign all rights, titles, and interests of such Seller
under this Agreement and the Transaction Documents to trusts established for the
members of the immediate family of such Seller, but no such assignment shall (i)
relieve such Seller of his obligations hereunder which obligations shall be
joint and several as between such Seller and such trust or (ii) change the
consideration to be received by Purchaser in the Acquisition, it being
understood, however, that Purchaser may condition its consent on the execution
of amendments to this Agreement and to the Transaction Documents satisfactory to
Purchaser. Except as set forth in Section 5.06 or Article VII hereof, this
Agreement shall be binding upon and inure solely to the benefit of each party
hereto, and nothing in this Agreement, express or implied, is intended to or
shall confer upon any other person any rights, benefits or remedies of any
nature whatsoever under or by reason of this Agreement. This Agreement shall be
governed by, and construed in accordance with, the internal Laws of the State of
California applicable to contracts executed and fully performed within the State
of California. This Agreement may be executed in one or more counterparts, and
by the different parties hereto in separate counterparts, each of which when
executed shall be deemed to be an original but all of which taken together shall
constitute one and the same agreement. The parties hereto agree that irreparable
damage would occur in the event any of the provisions of this Agreement were not
to be performed in accordance with the terms hereof and that the parties shall
be entitled to specific performance of the terms hereof, in addition (subject to
the limitations of Article VII hereof) to any other remedy at law or equity.
Until the seventh (7th) anniversary of the Closing, the Company shall maintain,
and the Purchaser shall cause the Company to maintain, all books and records
with respect to the period up to and including the Closing in an orderly and
businesslike fashion and permit the Sellers to have reasonable access to such
books, records and data in connection with the preparation of financial reports,
tax returns, tax audits, the defense or prosecution of litigation, or any other
reasonable need of the Sellers to consult such records and data in order to
satisfy his obligations herein. Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered by personal
delivery, when received if by mail, when mailed by certified or registered mail
(postage prepaid and return receipt requested); or if by overnight courier or
telecopier, when delivered to such courier or sent by telecopier (provided that
the party giving the notice has confirmation of such delivery or sending), and
in each case, addressed to the party to whom notice is to be given as set forth
below:
To the Company or the Sellers:
65
If Prior to the Closing: ▇/▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
If after the Closing:
▇▇▇▇▇ ▇. ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
and
▇▇▇▇▇ ▇. ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
copy to: ▇▇▇▇▇▇▇▇▇, Yocca, Carlson, & ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn.: ▇▇▇▇ ▇▇▇▇▇, ▇▇.
Telephone: (▇▇▇)▇▇▇-▇▇▇▇
Telecopier: (▇▇▇)▇▇▇-▇▇▇▇
To the Purchaser: Synetic, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn.: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
copy to: Stroock & Stroock & ▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn.: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
Any party may, by notice given in accordance with this Section to the other
parties, designate another address or person for receipt of notices hereunder.
IN WITNESS WHEREOF, each of the Purchaser and the Sellers has caused
this Agreement to be executed as of the date first written above by their
respective officers (in the case of the Purchaser, and the Company) thereunto
duly authorized.
SYNETIC, INC.
66
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
--------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Vice President - Corporate Development
SELLERS
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇
-----------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇
-----------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇
67
CONSENT OF SPOUSE
The undersigned is the wife of ▇▇▇▇▇ ▇. ▇▇▇▇, one of the Sellers in
the foregoing Stock Purchase Agreement (the "Agreement" ) dated January 13, 1999
among Synetic, Inc. (the "Purchaser" ) and ▇▇▇▇▇ ▇. ▇▇▇▇ and ▇▇▇▇▇ ▇. ▇▇▇▇
(individually, a "Seller" and, together, the "Sellers"). Capitalized terms used
herein but not otherwise defined herein shall have the meanings ascribed thereto
in the Agreement.
I hereby acknowledge that I have carefully reviewed the Agreement and
the related schedules and exhibits thereto. I have had an opportunity to
consult with legal counsel and have discussed the contents of the Agreement and
the related schedules and exhibits thereto with legal counsel. I understand
fully the transactions described in the Agreement and the related schedules and
exhibits thereto, and I hereby approve of and consent to all such transactions.
I am aware that by the provisions of the Agreement, my husband agrees, among
other things, to sell to Purchaser all of the outstanding shares (the "Company
Shares") of capital stock of The KippGroup, a California corporation (the
"Company"), including my community property interest therein, if any, and that
my husband agrees, among other things, to certain matters related to the control
and disposition of Shares of Purchaser Common Stock that he may receive pursuant
to the Agreement. I hereby agree, on behalf of myself and all persons who may
claim on my behalf, that upon any legal separation from or dissolution of my
marriage to my present husband, or upon my husband's death, neither I nor anyone
claiming on my behalf will seek to partition my or my husband's community
property interest in the Company Shares or the Shares and that in any such event
I shall be entitled only to the value of my interest in such Company Shares or
Shares, if any, and that I shall have no claim or right to the Company Shares or
Shares themselves.
I hereby acknowledge that my execution and delivery of this Consent to
Purchaser is a material inducement upon which Purchaser will rely in executing
the Agreement and that Purchaser would not execute the Agreement without my
execution and delivery of this Consent.
EXECUTED this ____ day of January, 1999.
______________________________
▇▇▇▇▇▇▇ ▇▇▇▇
68
CONSENT OF SPOUSE
The undersigned is the wife of ▇▇▇▇▇ ▇. ▇▇▇▇, one of the Sellers in
the foregoing Stock Purchase Agreement (the "Agreement" ) dated January 13, 1999
among Synetic, Inc. (the "Purchaser" ) and ▇▇▇▇▇ ▇. ▇▇▇▇ and ▇▇▇▇▇ ▇. ▇▇▇▇
(individually, a "Seller" and, together, the "Sellers"). Capitalized terms used
herein but not otherwise defined herein shall have the meanings ascribed thereto
in the Agreement.
I hereby acknowledge that I have carefully reviewed the Agreement and
the related schedules and exhibits thereto. I have had an opportunity to
consult with legal counsel and have discussed the contents of the Agreement and
the related schedules and exhibits thereto with legal counsel. I understand
fully the transactions described in the Agreement and the related schedules and
exhibits thereto, and I hereby approve of and consent to all such transactions.
I am aware that by the provisions of the Agreement, my husband agrees, among
other things, to sell to Purchaser all of the outstanding shares (the "Company
Shares") of capital stock of The KippGroup, a California corporation (the
"Company"), including my community property interest therein, if any, and that
my husband agrees, among other things, to certain matters related to the control
and disposition of Shares of Purchaser Common Stock that he may receive pursuant
to the Agreement. I hereby agree, on behalf of myself and all persons who may
claim on my behalf, that upon any legal separation from or dissolution of my
marriage to my present husband, or upon my husband's death, neither I nor anyone
claiming on my behalf will seek to partition my or my husband's community
property interest in the Company Shares or the Shares and that in any such event
I shall be entitled only to the value of my interest in such Company Shares or
Shares, if any, and that I shall have no claim or right to the Company Shares or
Shares themselves.
I hereby acknowledge that my execution and delivery of this Consent to
Purchaser is a material inducement upon which Purchaser will rely in executing
the Agreement and that Purchaser would not execute the Agreement without my
execution and delivery of this Consent.
EXECUTED this ___ day of January, 1999.
______________________________
▇▇▇▇▇ ▇▇▇▇
69