Exhibit 2.7
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "AGREEMENT") is made and entered
into effective as of August 31, 2001 (the "EFFECTIVE DATE"), by and among
Telenetics Corporation, a California corporation ("SELLER"), ▇▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇, an individual ("▇▇▇▇▇▇▇"), and GDI Communications, LLC, a Nevada
limited liability company that is wholly owned by ▇▇▇▇▇▇▇ ("PURCHASER").
R E C I T A L S
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A. Seller operates GDI, a division that engages in the business of
manufacturing communications equipment for the traffic control and
transportation industries (the "BUSINESS" or "GDI") and desires to sell to
Purchaser all of the assets of Seller used in the Business.
B. Purchaser desires to purchase all of the assets of Seller used in
the Business and to assume certain enumerated liabilities of Seller.
A G R E E M E N T
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In consideration of the foregoing recitals and the respective
covenants, agreements, representations and warranties contained herein, the
parties hereto agree as follows:
ARTICLE 1
PURCHASE AND SALE OF ASSETS
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1.1 PURCHASE AND SALE OF ASSETS. Subject to the terms and conditions of
this Agreement, at the Closing (as defined in SECTION 5.1) Seller shall sell,
transfer, assign and deliver to Purchaser, and Purchaser shall purchase from
Seller all of Seller's right, title and interest in and to all of the assets,
properties, rights or claims of every type and nature and wherever situated,
personal, tangible, intangible or contingent (including all refunds, deposits,
rights, claims or payments, whether now existing or ascertainable, or existing
or ascertainable after the Closing Date (as defined in SECTION 5.1)) owned by
Seller or in which Seller has any interest of any type or nature, or which
Seller is presently using or the use of which is necessary or related to or used
directly or indirectly in the operation of the Business (collectively, the
"PURCHASED ASSETS"), including without limitation:
(a) The accounts and notes receivable specified on SCHEDULE
1.1 (a) ("ACCOUNTS RECEIVABLE");
(b) The furniture, fixtures, machinery, equipment and other
goods specified on SCHEDULE 1.1(b);
(c) Seller's interests, claims and rights under certain
leases, as specified on SCHEDULE 1.1(c);
(d) The inventory, including but not limited to, supplies,
materials, work in process, finished goods and goods on consignment,
forms and supplies as specified on SCHEDULE 1.1(d) ("INVENTORY");
(e) All title, claims and rights under contracts, notes,
evidences of indebtedness, and purchase and sales orders, as specified
on SCHEDULE 1.1(e), including, without limitation, Seller's beneficial
interest in all customer contracts, purchase orders and commitments
("CONTRACTS"); provided, however, that with respect to each customer
contract which is not or may not be assignable without the consent of
another party, this Agreement shall not constitute an assignment or
attempted assignment if any assignment or attempted assignment would
constitute a breach of such customer contract unless and until such
assignment is obtained;
(f) All copyrights, service marks, trademarks, trademark and
service ▇▇▇▇ applications, trade names, trade secrets, patents, patent
applications, licenses, permits, royalty rights, deposits and rights
and claims to refunds and adjustments of any kind, as specified on
SCHEDULE 1.1(f);
(g) The computer software programs and systems, know how,
formulae and designs and all documentation relating to all of the
foregoing, as specified on SCHEDULE 1.1(g);
(h) The securities, notes, bank accounts, certificates of
deposit and bonds, as specified on SCHEDULE 1.1(h) (including the name
of each bank in which Seller has an account or safe deposit box, the
amount in each account and the names of all persons authorized to draw
thereon or to have access thereto);
(i) All prepaid items, including but not limited to,
insurance, including any cash surrender value thereof, prepaid taxes,
prepaid expenses and prepaid rent, as specified on SCHEDULE 1.1(i);
(j) The books, records and accounting systems, including, but
not limited to, computer hardware and related software, as specified on
SCHEDULE 1.1(j). Notwithstanding the foregoing, Seller shall have the
right at its expense after the Closing Date to make copies of any books
and records which shall be reasonably required for Seller's activities
after the Closing Date;
(k) Any additional items of tangible property used or owned by
Seller which are not included above, as specified on SCHEDULE 1.1(k);
(l) All catalogs, price lists, product brochures and related
sales materials utilized by Seller in the Business; and
(m) The names "GDI", "General Devices and Instruments" and
"Sunnyvale General Devices and Instruments."
1.2 PURCHASED ASSETS FREE OF LIENS. Except as otherwise specifically
provided in this Agreement or as set forth on SCHEDULE 1.2, all of the Purchased
Assets shall be transferred by Seller to Purchaser free and clear of all liens,
claims and encumbrances of every kind and description, including, without
limitation, tax liens. Notwithstanding anything to the contrary in the
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foregoing, if the interest of Seller in any of the Purchased Assets shall in
fact be other than an interest as an owner, then Seller shall be deemed to have
transferred to Purchaser all of Seller's right, title and interest in and to
such Purchased Assets, provided that Seller shall not be thereby released from
any liability it may otherwise have to Purchaser for breach of any
representation or warranty with respect to ownership of the Purchased Assets as
set forth in this Agreement.
1.3 LIABILITIES.
1.3.1 ASSUMED LIABILITIES. Purchaser shall, on and as of the
Closing Date, expressly assume, perform or otherwise discharge as the
same shall become due in accordance with their respective terms, the
following liabilities, which are referred to hereinafter as the
"ASSUMED LIABILITIES":
(a) The contractual liabilities of Seller as
represented by the contracts identified on SCHEDULE 2.15;
(b) Those trade liabilities of Seller described on
SCHEDULE 1.3.1(b), including the following liabilities:
(i) Thirty Eight Thousand Nine Hundred
Thirty and Ninety-One Hundredths Dollars ($38,930.91)
of accrued and unpaid vacation pay relating to
employees of the GDI division for the period from and
including June 1, 1999 through August 31, 2001;
(ii) Seventy Three Thousand Six Hundred
Forty Two Dollars ($73,642) relating to tax
liabilities to be assumed pursuant to SECTION 4.13;
(iii) Four Thousand Six Hundred Fifty Four
and Twelve Hundredths Dollars ($4,654.12) relating to
liabilities in connection with reimbursable business
expenses incurred by employees of Seller's GDI
division which remain unpaid as of the Closing Date;
and
(iv) Seventy One Thousand Two Hundred Fifty
Eight and Seventy Hundredths ($71,258.70) relating to
liabilities in connection with balances due to
independent contractors which remain unpaid as of the
Closing Date.
(c) All other tax liabilities not set forth in SECTION
1.3.1(b)(ii) above and to be assumed pursuant to SECTION 4.13;
(d) The accrued but unpaid liabilities for vacation pay for
the employees of Seller's GDI division incurred prior to June 1, 1999
and after August 31, 2001 through the Closing Date;
(e) The Lancaster (▇▇▇▇▇▇) litigation, Los Angeles County
Superior Court case number MC011609 (the "LANCASTER LITIGATION"),
including all liability, cost and expense therefor and any and all
damages, judgments and awards thereunder (including any settlement
thereof; Purchaser shall also assume any and all liability, cost and
expense and all damages and awards in any other settlement, judgment,
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action or proceeding arising from or relating to the facts and
circumstances alleged to be the basis for the Lancaster Litigation. The
provisions of this SECTION 1.3.1(f) shall apply regardless of Seller's
conduct in the Lancaster Litigation including, without limitation,
Seller's abandonment of the defense of the Lancaster Litigation or
Seller's failure to prevail on the merits. Any liabilities assumed
under this SECTION 1.3.1(f) shall be paid directly by Purchaser when
due or, at Seller's option, shall be paid directly to Seller when due
if Seller is to directly make payments therefor; and
(f) The obligations contained in the termination provisions
under the employment contract effective as of June 1, 1999 between
▇▇▇▇▇▇▇ and Seller, other than the four (4) payments from Seller to
▇▇▇▇▇▇▇ pursuant to such agreement, each in the amount of Five Thousand
Dollars ($5,000), due on October 16, 2001, November 1, 2001, November
16, 2001 and December 1, 2001.
1.3.2 CALCULATION OF TRADE LIABILITIES. The liabilities set
forth on SCHEDULE 1.3.1(b) pursuant to SECTION 1.3.1(b) above shall be
in an amount no less nor greater than Seven Hundred Thousand Dollars
($700,000) before deducting or adding, as applicable, the following
amounts:
(a) Deduct Sixty Four Thousand Two Hundred Fifty and
Eighteen Hundredths Dollars ($64,250.18) owed to ▇▇▇▇▇▇▇ by
Seller for Seller's promissory note in the amount of One
Hundred Thousand Dollars ($100,000) net of Thirty Five
Thousand Seven Hundred Forty Nine and Eighty Two Hundredths
Dollars ($35,749.82) owed to Seller by ▇▇▇▇▇▇▇ for stock
subscriptions relating to the exercise by ▇▇▇▇▇▇▇ of Seller's
options and warrants, all of which debts are hereby cancelled;
(b) Deduct Twenty Thousand Dollars ($20,000) for
actual and/or potential costs and expenses related to
settlement, damages or awards associated with the Lancaster
Litigation, for which Seller shall have no other liability;
(c) Deduct Sixty Three Thousand Dollars ($63,000)
relating to the obligations from and after December 1, 2001
contained in the termination provisions under the employment
contract effective as of June 1, 1999 between ▇▇▇▇▇▇▇ and
Seller, for which Seller shall have no other liability except
as otherwise set forth herein;
(d) Add Twenty Seven Thousand Five Hundred Seventeen
and Thirty-Nine Hundredths Dollars ($27,517.39) paid by Seller
as payroll for the GDI division for the semi-monthly period
ended September 30, 2001; and
(e) Add Seven Thousand Six Hundred Twenty Five and
Thirty Eight Hundredths Dollars ($7,625.38) for products
delivered by Seller for use by the GDI division.
The resulting assumed liabilities set forth on SCHEDULE 1.3.1(b), after
deducting and adding the foregoing amounts, shall be in an amount no
less nor greater than Five Hundred Eighty Seven Thousand Eight Hundred
Ninety Two and Fifty-Nine Hundredths Dollars ($587,892.59).
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1.3.3 EXCLUDED LIABILITIES. Except for the Assumed
Liabilities, Purchaser shall not assume any liabilities or obligations
of Seller. Such liabilities and obligations ("EXCLUDED LIABILITIES")
shall remain the liabilities and obligations of Seller.
1.4 PAYMENT OF CONSIDERATION FOR PURCHASED ASSETS. Subject to the terms
hereof, the consideration ("PURCHASE PRICE") for the sale, transfer, assignment
and delivery of the Purchased Assets shall consist of the assumption by
Purchaser of the Assumed Liabilities as set forth in SECTION 1.3. Except with
respect to the indemnification obligations under SECTION 6.3, (i) no cash shall
be required to be delivered by Purchaser and ▇▇▇▇▇▇▇ to Seller in connection
with the Purchased Assets and the Business, and (ii) Purchaser and ▇▇▇▇▇▇▇ shall
not be required to reimburse or to otherwise pay any funds to Seller for
liabilities or expenses of the GDI division paid by Seller since the Effective
Date.
1.5 ALLOCATION OF CONSIDERATION FOR PURCHASED ASSETS. The parties agree
to allocate the Purchase Price among such Purchased Assets in a manner
consistent with the requirements set forth in Section 1060 of the Internal
Revenue Code of 1986, as amended, and the Treasury regulations promulgated
thereunder. The parties agree to prepare and timely file all applicable Internal
Revenue Service forms, including Form 8594 (Asset Acquisition Statement), and
other governmental forms, to cooperate with each other in the preparation of
such forms and to furnish each other with a copy of such forms prepared in
draft, within a reasonable period prior to the filing due date thereof. The
parties agree that the fair market value of the consideration set forth in
SECTION 1.4 is $___________________.
1.6 TAXES. Except insofar as and to the extent that they constitute
Assumed Liabilities, Seller shall pay all sales and use taxes arising out of the
transfer of the Purchased Assets and shall pay its portion, prorated as of the
Closing Date, of state and local real and personal property taxes. Except
insofar as and to the extent that they constitute Assumed Liabilities, Purchaser
shall not be responsible for any payroll, excise, income, business, occupation,
withholding, or similar tax, or any taxes of any kind related to any period
before the Closing Date.
1.7 TRANSFER FEES. Seller shall pay any and all transfer and assumption
fees and expenses relating to the sale of the Purchased Assets.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF SELLER
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Seller hereby represents and warrants to Purchaser and ▇▇▇▇▇▇▇, and
Purchaser and ▇▇▇▇▇▇▇, in agreeing to consummate the transactions contemplated
by this Agreement, have relied upon such representations and warranties with
respect to the operations, Business and assets of GDI, the following:
2.1 ORGANIZATION AND EXISTENCE. Seller is a corporation duly organized,
validly existing, and in good standing under the laws of the State of California
with all requisite corporate power to carry on its business as now conducted.
Seller is qualified to do business as a foreign corporation in each jurisdiction
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in which the conduct of its business or the ownership or leasing of properties
makes such qualification necessary, such jurisdictions being limited to Nevada,
California, Georgia and North Carolina. Seller has full corporate power and
authority to own its property and to carry on the Business as now owned and
operated.
2.2 AUTHORITY OF SELLER. The execution, delivery and performance by
Seller of this Agreement has been duly authorized by the Board of Directors of
Seller and no further corporate action is necessary on the part of Seller to
make this Agreement valid and binding upon Seller in accordance with its terms,
and Purchaser has received certified copies of all resolutions pertaining to
such authorizations.
2.3 FINANCIAL STATEMENTS AND OTHER INFORMATION; FINANCIAL CONDITION.
Seller has heretofore furnished to Purchaser copies of: (i) the unaudited
balance sheets of the Business at December 31, 2000, and the related statements
of income and changes in financial position for the period then ended, and (ii)
the unaudited balance sheet of the Business at August 31, 2001 ("BALANCE SHEET
DATE"), and the related statement of income and cash flow for the period then
ended, together with the related notes thereto. To the best of Seller's
knowledge, all financial statements referred to in this SECTION 2.3 ("FINANCIAL
STATEMENTS") are complete and correct, have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the respective periods, and fairly present the financial condition of the
Business as at the respective dates thereof and the results of operations of the
Business for the respective periods covered by the statements of income
contained therein. To the best of Seller's knowledge, Seller does not have any
material obligations or liabilities, contingent or otherwise, not fully
disclosed by the Financial Statements related to the Business.
2.4 INVENTORIES. The inventories of the Business shown on the Financial
Statements or thereafter acquired by the Business consist of items of a quality
and quantity usable and saleable in the normal course of the Business. The value
of obsolete material and of materials of below standard quality has been written
down to realizable market value or adequate reserves have been provided
therefore.
2.5 TITLE TO PURCHASED ASSETS. Seller either owns or holds under leases
all of the material properties used by it in the Business. Seller has good,
indefeasible and marketable title to all of the Purchased Assets owned by it,
and to its leased interests in all leased assets used by it, including, but not
limited to, the Purchased Assets reflected on the August 31, 2001 Balance Sheet,
free and clear of all security interests, liens and encumbrances, except as set
forth in SCHEDULE 2.5. Title to the Purchased Assets shall be transferred by
Seller to Purchaser free and clear of all security interests, liens and
encumbrances, except for the items set forth in SCHEDULE 2.5. Seller enjoys
peaceful and undisturbed possession of all of the Purchased Assets, including
those assets used by it pursuant to leases.
2.6 PERSONAL PROPERTY LEASES. To the best of Seller's knowledge, all
leases under which Seller leases from others any personal property that is used
in the Business are in good standing, valid and effective and there is not under
any of such leases any existing default by Seller or event or condition which
after notice or lapse of time or both would constitute a default. All such
leases are identified on SCHEDULE 2.6.
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2.7 VIOLATION OF APPLICABLE LAW. Seller is not in violation of any
applicable law, ordinance, rule or regulation relating to the operation of the
Business or affecting any of the Purchased Assets that would result in a
material adverse effect on the Business. Seller's operation of the Business is
in substantial compliance with all zoning laws, and the machinery, equipment and
motor vehicles, and their operation by Seller, substantially comply with all
applicable rules and regulations of the Occupational Safety and Health Agency,
Environmental Protection Agency and any other state or local authority having
jurisdiction over occupational health and safety, environmental quality or
emission control. Seller has not received any notice from any governmental
authority or other person claiming any violation of any law, ordinance, rule or
regulation, or requiring or calling attention to the need for any work, repairs,
construction, alteration or installation related to the Business.
2.8 CUSTOMER CONTRACTS; ANCILLARY AGREEMENTS. As of the Balance Sheet
Date, Seller had no outstanding contracts related to the Business with customers
requiring payments in excess of Ten Thousand Dollars ($10,000) on an annualized
basis, except for those listed on SCHEDULE 2.8, and had no outstanding contracts
with suppliers or vendors requiring payments in excess of Ten Thousand Dollars
($10,000) on an annualized basis, except for those listed on SCHEDULE 2.8. Since
the Balance Sheet Date, Seller has not entered into any contracts with
customers, suppliers or vendors related to the Business other than those set
forth on such Schedules, except only in the ordinary course of business. No
consent is required to the assignment of any contract with customers, suppliers
or vendors. True and complete copies of all contracts with customers, suppliers
or vendors, or any other agreement listed in any Schedule hereto, including all
amendments, modifications, renewals or extensions thereof, have been previously
furnished to Purchaser.
2.9 NO MATERIALLY ADVERSE CHANGE. Since the Balance Sheet Date, there
have been no changes in the condition, financial or otherwise, of the Business,
or in its prospects, earnings or properties, whether or not arising from
transactions in the ordinary course of business, that, individually or in the
aggregate, have been materially adverse to the prospects, earnings, properties
or condition, financial or otherwise, of Seller.
2.10 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed on
SCHEDULE 2.10, since the Balance Sheet Date, there has not been any:
(a) Transaction by Seller related to the Business
except in the ordinary course of business as conducted on that
date;
(b) Destruction, damage to, or loss of any material
asset used in the Business (whether or not covered by
insurance);
(c) Labor dispute or other event or condition of any
character materially and adversely affecting the prospects,
earnings, properties or condition, financial or otherwise, of
the Business;
(d) Change in accounting methods or practices
(including, without limitation, any change in depreciation or
amortization policies or rates) by Seller;
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(e) Increase in the salary or other compensation
payable or to become payable by Seller to any of the officers,
directors or employees of GDI, or the declaration, payment, or
commitment or obligation of any kind for the payment, by
Seller or GDI, of a bonus or other additional salary or
compensation to any such person;
(f) Amendment or termination of any contract,
agreement or license to which Seller is a party, or by which
it or any of its assets or properties are subject, related to
the Business except in the ordinary course of business;
(g) Waiver or release of any right or claim of Seller
related to the Business;
(h) Declaration of or agreement to declare or make,
any payment or distribution of any assets of the Business of
any kind whatsoever;
(i) Citation or notice of threatened citation
received for any violations of any act, law, rule or
regulation of any governmental entity or agency related to the
Business;
(j) Claim incurred for damages or alleged damages for
actual or alleged negligence or other tort or breach of
contract (whether or not fully covered by insurance) related
to the Business;
(k) Sales, transfers, disposals of or agreements to
sell, transfer or otherwise dispose of any of the assets,
properties or rights of Seller related to the Business, except
in the ordinary course of business consistent with the past
practices of Seller;
(l) Agreements entered into granting any preferential
rights to purchase any of the assets, properties, or rights
(including management and control thereof) of the Business, or
requiring the consent of any party to the transfer or
assignment of any such assets, properties or rights (including
management and control thereof); or
(m) Agreement by Seller to do any of the things
described in paragraphs (a) through (l), above.
2.11 LICENSES AND PERMITS. Seller holds free from materially burdensome
restrictions all franchises, permits, licenses, rights-of-way, easements,
municipal and other consents, and other rights from governmental, regulatory or
administrative agencies that are sufficient for the lawful and efficient
operation of the Business as presently conducted and as presently proposed to be
conducted. Attached hereto as SCHEDULE 2.11 is a list of all such franchises,
permits, licenses, rights-of-way, easements, municipal and other consents and
rights, true and complete copies of which have been furnished to Purchaser.
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2.12 PATENTS, TRADEMARKS, ETC. Seller does not own or possess any
patents, patent applications, registered trademarks, registered service marks,
trademark or service ▇▇▇▇ applications, registered trade names or registered
copyrights used in the Business.
2.13 INDEBTEDNESS. Attached hereto as SCHEDULE 2.13 is a list of all
liabilities, obligations, or indebtedness (including but not limited to
unsecured trade accounts payable arising in the ordinary course of business)
whether accrued, absolute, contingent, invoiced, or otherwise, of Seller as of
the date hereof related to the Business and the Purchased Assets. Additionally,
Seller will provide to Purchaser at the Closing a list of all such liabilities,
obligations or indebtedness of Seller at the Closing Date.
2.14 COMPLIANCE WITH CONTRACTUAL OBLIGATIONS. Except as would not have
a material adverse effect on the Business, Seller is not in default and there is
no event that, with the passage of time or the giving of notice, would
constitute an event of default in the performance, observance or fulfillment of
any of the obligations, covenants or conditions contained in (i) any evidence of
indebtedness, or any agreement or instrument under or pursuant to which any
evidence of indebtedness has been issued related to the Business or the
Purchased Assets, or (ii) any other agreement or instrument related to the
Business to which Seller is a party or by which the Business is affected, nor
has any third party raised any claim, dispute or controversy with respect to any
such evidence of indebtedness, agreement or instrument. The execution, delivery
or performance of this Agreement does not (y) conflict with or result in a
breach of any of the terms, conditions or provisions of, or constitute a default
under, any evidence of indebtedness or other agreement or instrument referred to
in this SECTION 2.14, or (z) require the consent of or other action by any
trustee or any creditor of, or investor in, Seller. All of such evidences of
indebtedness, instruments and agreements are valid, binding and in full force
and effect and are assignable to Purchaser in accordance with their respective
terms.
2.15 NO MATERIALLY ADVERSE CONTRACTS, ETC. Seller is not a party to and
none of its properties is bound or affected by, any agreement or instrument, or
is subject to any order, writ, injunction, judgment, rule, regulation, decree,
or other action of any court or other governmental or public authority or
agency, or the award of any arbitrator or any contractual restriction, that
materially adversely affects the prospects, earnings, properties or condition,
financial or otherwise, of the Business. Except only as to contracts, agreements
and other documents listed on SCHEDULE 2.15 ("CONTRACTS"), Seller is not a party
to or bound by any written or oral:
(a) Contract related to the Business not made in the
ordinary course of business;
(b) Employment or independent contractor agreement
related to the Business;
(c) Contract with any labor union or association
related to the Business;
(d) Bonus, pension, profit sharing, retirement, stock
purchase, hospitalization, medical reimbursement, insurance or
other plan providing employee benefits related to the
Business;
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(e) Lease with respect to any property, real or
personal, whether as lessor or lessee, used in the Business;
(f) Continuing contract for the future purchase of
materials, supplies or equipment used in the Business;
(g) Contract or commitment for capital expenditures
used in or intended for the Business;
(h) Contract relating to the Business continuing over
a period of more than thirty (30) days from its date;
(i) Contract for the lease, operation or maintenance
of any machinery or equipment used in the Business;
(j) Contract or agreement for the joint performance
of work or services related to the Business, and all other
joint venture, partnership or similar agreement;
(k) Contract or agreement containing non-competition
covenants applicable to the Business;
(l) Licenses related to the Business required in
Seller's business from any federal, state, local or foreign
governmental agency;
(m) Contract or agreement related to the Business to
pay any royalties or fees with respect to any sales of Seller;
or
(n) Contract, understanding, or agreement related to
the Business for which Seller or Purchaser may be held liable.
2.16 CERTAIN REAL PROPERTY MATTERS.
2.16.1 OWNERSHIP. Seller owns no real property used in
connection with the Business.
2.16.2 REAL PROPERTY LEASES. Attached hereto as SCHEDULE
2.16.2 is a list describing and specifying the location of all real
property leased by, or on behalf of, Seller related to the Business
(collectively, the "LEASED PREMISES"). The lease agreements described
on SCHEDULE 2.16.2 are in full force and effect and there is no
existing default by Seller and there is no event that, with the passage
of time, would constitute an event of default under any of such lease
agreements on the part of the lessee or, to Seller's knowledge, the
lessor thereunder. Such lease agreements consist only of the documents
described on SCHEDULE 2.16.2, true and complete copies of which have
been made available to Purchaser.
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2.16.3 ENVIRONMENTAL COMPLIANCE.
(a) As of the Closing, no Hazardous Material (as
defined in paragraph (iv) below), underground storage tanks,
pipes or sumps are present on the Leased Premises, and to the
best of Seller's knowledge, no reasonable likelihood exists
that any Hazardous Material present on other property will
come to be present on the Leased Premises. Seller has
conducted no Hazardous Materials Activity in connection with
the Business or at the Leased Premises.
(b) Seller has obtained no Environmental Permits (as
defined in paragraph (d) below) in connection with the conduct
of the Business, and none are required.
(c) Seller has delivered to Purchaser all records
concerning activities of Seller and all environmental audits
and environmental assessments of the Leased Premises conducted
at the request of, or otherwise possessed by, Seller. Seller
has complied with all environmental disclosure obligations
imposed upon it with respect to the Business or the
transactions contemplated herein under any applicable law.
(d) For purposes of this SECTION 2.16.3, the
following capitalized terms shall have the following meanings:
(i) "ENVIRONMENTAL LAWS" shall mean all
laws, rules, regulations, orders, treaties, statutes
and codes of any federal, state, or local
governmental authority relating to human health,
safety, or the environment.
(ii) "ENVIRONMENTAL PERMIT" shall mean any
approval, permit, license, clearance or consent
required to be obtained from any private person or
any governmental authority pursuant to any
Environmental Law.
(iii) "HAZARDOUS MATERIAL" shall mean any
material or substance that is prohibited or regulated
by any Environmental Law or that has been designated
by any governmental authority to be radioactive,
toxic, hazardous or otherwise a danger to health,
reproduction or the environment.
(iv) "HAZARDOUS MATERIALS ACTIVITY" shall
mean the transportation, transfer, recycling,
storage, use, treatment, manufacture, investigation,
removal, remediation, release, exposure of others to,
sale, handling, or distribution of any Hazardous
Material or any product containing a Hazardous
Material.
2.16.4 USE OF THE LEASED PREMISES. No portion of the Leased
Premises is now being or has ever been used by Seller or any of its
predecessors in interest for any of the following:
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(a) In a manner requiring the issuance of a permit
covering the discharge or disposal of a pollutant or waste
into any waters, groundwaters or aquifer of the States of
Nevada, California, Georgia and North Carolina or waters of
the United States pursuant to applicable federal, state or
local laws;
(b) For the treatment, collection, storage or
disposal of any refuse or objectionable waste or material in a
manner inconsistent with, or so as to require a permit or
approval pursuant to, applicable federal, state or local laws;
(c) For the generation, transport, treatment, storage
or disposal of any hazardous waste subject to federal or state
regulation;
(d) For the manufacture, processing, distribution in
commerce, use or disposal of any toxic substance subject to
federal or state regulation;
(e) For storage, handling or processing in any
underground storage tank system subject to federal, state or
local regulation;
(f) For any injection well, dry well or any similar
facility subject to federal, state or local regulation; or
(g) As a sanitary landfill, open dump or other waste
storage, treatment, disposal, transfer or handling facility
subject to federal, state or local regulation.
2.16.5 SUPERFUND LIABILITY. There is no current and there has
been no past release or substantial threat of a release of a hazardous
substance, pollutant or contaminant from or onto the Leased Premises or
the environment adjacent to the Leased Premises that are or may be
subject to the Comprehensive Environmental Response, Compensation and
Liability Act (42 USC `9601 et seq.) or the California Hazardous
Substance Account Act (California Health and Safety Code `25300 et
seq.), or for which Purchaser may be liable under any other statute or
under any contract, or in tort, equity or other legal theory.
2.17 PENDING LITIGATION. There is no pending or, to the best of
Seller's knowledge, threatened, action at law, suit, proceeding or
investigation, at law or in equity or otherwise, in, for or by any court or
governmental board, commission, agency, department or office arising from or
relating to any of the properties related to the Business, including the Leased
Premises (whether or not purportedly on behalf of Seller) or to the past,
present or proposed operations of the Business. Seller is not subject to, nor
does any basis exist for, any order, judgment, decree or governmental
restriction that does or could adversely affect the prospects, earnings,
properties or condition, financial or otherwise, of the Business. There is no
plan, study, litigation, action, proceeding or effort by any governmental
authority or private party that in any way challenges, affects, or would
challenge or affect, the prospects, earnings, properties or condition, financial
or otherwise, of the Business. The representations and warranties contained in
this Section are based entirely upon information provided by ▇▇▇▇▇▇▇ in his
capacity as general manager of the GDI division and are enforceable against
Seller if and only to the extent that Seller has actual knowledge contrary to
such information apart from the knowledge of ▇▇▇▇▇▇▇ and the employees of the
GDI division.
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2.18 TAXES.
(a) All federal, state and other tax returns of
Seller required by law to be filed have been duly filed on a
timely basis. All tax returns filed or to be filed with
respect to all fiscal periods through and including the fiscal
year ended December 31, 2000 by Seller are true, correct and
complete in all material respects and no taxes, assessments,
fees or other governmental charges upon Seller or any of its
properties or assets (other than those already paid or
reserved for with respect to such tax returns) are or will be
required to be paid. There are no liens on any properties or
assets of Seller imposed or arising as a result of the
delinquent payment or non-payment of any such tax, assessment,
fee, or other governmental charge except liens for current
taxes not yet due.
(b) As used in this Agreement, "TAX" and "TAXES" are
defined to include all taxes, charges, fees, levies or other
assessments imposed by and required to be paid to any federal,
state, local, or foreign taxing authority, including, without
limitation, income, excise, property, sales, transfer, ad
valorem, payroll, and franchise taxes (including any interest,
penalties or additions attributable to or imposed on or with
respect to any such assessment) and any estimated payments or
estimated taxes.
(c) As used in this Agreement, "TAX RETURN" is
defined as any return, report, information return or other
document (including any related or supporting information)
filed or required to be filed with any federal, state, local
or foreign governmental entity or other authority in
connection with the determination, assessment or collection of
any tax (whether or not such tax is imposed on Seller) or the
administration of any laws, regulations or administrative
requirements relating to any tax.
(d) There are no applicable taxes, fees, or other
governmental charges payable in connection with the execution
and delivery of this Agreement. Seller is not a party to any
pending action or proceeding, nor, to the best of Seller's
knowledge, is any such action or proceeding threatened by any
governmental authority, for the assessment or collection of
taxes, interest, penalties, assessments or deficiencies, and
no claim for assessment or collection of taxes, interest or
penalties, assessments or deficiencies has been asserted
against Seller nor is there any basis for any such action,
proceeding or claim.
2.19 OTHER PROPERTY. Attached hereto as SCHEDULE 2.19 is a list
describing and specifying the location of all furniture, fixtures and equipment
owned or leased by, in the possession of, or used by Seller in connection with
the Business, and such list constitutes all tangible personal property necessary
for the conduct of the Business as now conducted and as presently proposed to be
conducted, and such property is in good working order, normal wear and tear
excepted. Seller is the owner, beneficially and of record, of all of such assets
free and clear of all liens, encumbrances, security agreements, equities,
options, claims and charges, except as described on SCHEDULE 2.19. The lease
agreements described on SCHEDULE 2.19 are in full force and effect and there is
no existing default under any of such lease agreements on the part of the lessor
or lessee thereunder.
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2.20 ACCOUNTS RECEIVABLE. Attached hereto as SCHEDULE 2.20 is a true
and complete list of all Accounts Receivable owed to Seller related to the
Business at the Balance Sheet Date. Except to the extent collected since the
Balance Sheet Date, all Accounts Receivable are reflected on the Financial
Statements and SCHEDULE 2.20 are, and all Accounts Receivable of Seller accruing
or created between the Balance Sheet Date and the Closing Date are and will be,
(a) valid bona fide claims against debtors for sales or other charges, and (b)
subject to no defenses, set-offs, or counterclaims. No loss reserves are
required with respect to such notes and accounts receivable. Seller has no
reason to believe that the Accounts Receivable are not collectible in accordance
with their terms. Seller will provide to Purchaser at the Closing a list of all
Accounts Receivable owed to Seller at the Closing Date.
2.21 EMPLOYEES. Attached hereto as SCHEDULE 2.21 is a list of the
names, current annual rates of salary, bonus, employee benefits, accrued
vacation times, sick pay and other compensation of all the present employees and
agents of GDI whose current annual cash compensation from Seller (salary and
bonus) is expected to equal or exceed Fifteen Thousand Dollars ($15,000). There
are no employment or consulting contracts or arrangements, including pensions,
bonus or profit sharing plans, or other severance or termination contracts or
arrangements which constitute contractual obligations of Seller not terminable
on thirty (30) days' notice, except as listed on SCHEDULE 2.21. There are no
collective bargaining agreements with any union or other bargaining group for
any of GDI's employees.
2.22 BOOKS, RECORDS AND FINANCIAL CONTROLS. The books and records of
account of GDI are complete and correct in all respects and reflect a true
record of the financial condition of the Business through the date hereof.
2.23 WARRANTIES. Seller has not given or made any express warranties to
third parties with respect to any properties sold or services performed by GDI.
Seller has no knowledge of any state of facts or the occurrence of any event
forming the basis of any present claim against Seller for liability due to any
express or implied warranty related to the Business.
2.24 LABOR MATTERS. Seller is in substantial compliance with all
federal and state laws respecting employment and employment practices, terms and
conditions of employment, and wages and hours, and is not engaged in any unfair
labor practices.
2.25 INSURANCE. Seller maintains, with financially sound insurers and
insurance associations of nationally recognized stature and responsibility,
insurance with respect to its properties and the Business of such a nature, with
such terms and in such amounts as a prudent person would maintain with respect
to similar properties and a similar business and maintains insurance on all of
its properties of a character usually insured by persons engaged in the same or
similar business similarly situated against loss or damage or the kinds and in
the amounts customarily insured against, and carries, with such insurers and
customary amounts, such other insurance, including public liability insurance,
as is usually carried by persons engaged in the same or a similar business
similarly situated. Attached as SCHEDULE 2.25 is a true and complete list of all
insurance policies maintained by Seller that relate to the Business.
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2.26 ENVIRONMENTAL PROTECTION. Except with respect to environmental
matters which are addressed in SECTION 2.16, Seller has obtained all material
permits, licenses and other authorizations which are required under federal,
state and local laws relating to pollution or protection of the environment,
including laws relating to emissions, discharges, releases or threatened
releases of pollutants, contaminants or hazardous or toxic materials or wastes
into ambient air, surface water, ground water, or land, or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants or hazardous or toxic
materials or wastes that are needed in the operation of the Business. Seller is
in compliance with all terms and conditions of the required permits, licenses
and authorizations, except when the failure to comply will not, in the aggregate
with all other failures, have a material adverse effect on Seller. Seller is in
substantial compliance with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in those laws or contained in any regulation, code, plan, order,
decree, judgment, notice or demand letter issued, entered, promulgated or
approved thereunder all as in effect on the date hereof, except when the failure
to comply will not, in the aggregate with all other failures, have a material
adverse effect on the Business. There are no past or present events, conditions,
circumstances, activities, practices, incidents, actions or plans which may
interfere with or prevent continued compliance, or which may give rise to any
common law or legal liability of Seller with respect to the Business, or
otherwise form the basis of any claim, action, suit, proceeding, hearing or
investigation, against or involving Seller with respect to the Business based on
or related to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling, or the emission, discharge, release or
threatened release into the environment, of any pollutant, contaminant, or
hazardous or toxic material or waste. The representations and warranties
contained in this Section are based entirely upon information provided by
▇▇▇▇▇▇▇ in his capacity as general manager of the GDI division and are
enforceable against Seller if and only to the extent that Seller has actual
knowledge contrary to such information apart from the knowledge of ▇▇▇▇▇▇▇ and
the employees of the GDI division.
2.27 NO CONFLICT. Except as would not have a material adverse effect on
the Business, the execution and delivery of this Agreement by Seller, and the
performance of its obligations hereunder, (i) are not in violation or breach of,
and will not conflict with or constitute a default under any of the terms of the
charter documents or bylaws of Seller or, any note, debt instruments, security
agreement or other contract, agreement or commitment binding upon Seller or any
of its respective assets or properties; (ii) will not result in the creation or
imposition of any lien or encumbrance in favor of any third party upon any of
the assets of Seller; and (iii) will not conflict with or violate any applicable
law, rule, regulation, judgment, order or decree of any government, governmental
instrumentality or court having jurisdiction over Seller or any of its assets or
properties. Except as set forth on SCHEDULE 2.27, no consents, waivers or
approvals of third parties are required to be obtained by Seller in connection
with the execution and delivery of this Agreement by Seller and the performance
of its obligations hereunder.
2.28 DISTRIBUTORS AND REPRESENTATIVES. SCHEDULE 2.28 sets forth a
complete and accurate list of all distributors, wholesalers and sales
representatives of GDI as of August 31, 2001. Since August 31, 2001, there has
been no termination of any distributor, wholesaler or sales representative of
the products of GDI that materially affects the operations of the Business, nor
has any present distributor, wholesaler or sales representative indicated any
present or future intention to terminate that relationship or materially change
15
its terms. The representations and warranties contained in this Section are
based entirely upon information provided by ▇▇▇▇▇▇▇ in his capacity as general
manager of the GDI division and are enforceable against Seller if and only to
the extent that Seller has actual knowledge contrary to such information apart
from the knowledge of ▇▇▇▇▇▇▇ and the employees of the GDI division.
2.29 SUPPLIERS. SCHEDULE 2.29 sets forth a complete and accurate list
of suppliers of products to GDI. Since August 31, 2001, there has been no
supplier of products to Seller with respect to the Business who has declined to
continue to supply such products and except as set forth on SCHEDULE 2.29, no
present supplier has indicated any present or future intention to cease to
provide such products to Seller with respect to the Business or materially
change the terms under which it has provided such products. The representations
and warranties contained in this Section are based entirely upon information
provided by ▇▇▇▇▇▇▇ in his capacity as general manager of the GDI division and
are enforceable against Seller if and only to the extent that Seller has actual
knowledge contrary to such information apart from the knowledge of ▇▇▇▇▇▇▇ and
the employees of the GDI division.
2.30 PREPAYMENT OF LIABILITIES. All liabilities and obligations of
Seller related to the Business may be prepaid by Purchaser or Seller without any
material prepayment fee, penalty, premium or any other similar amount, or any
other exception or condition.
2.31 PURCHASE AND SALE OR LEASE COMMITMENTS. The outstanding purchase
commitments of Seller are not materially adversely in excess of the normal,
ordinary and usual requirements of the Business; and the contract prices to
which Seller has agreed in any outstanding purchase commitment are not
materially adversely excessive when compared to current market prices for the
relevant materials, products, commodities or services. No outstanding sales or
lease commitment by Seller with respect to the Business obligates or purports to
obligate Seller to sell or lease any products or services at a price which would
result, individually or in the aggregate with all other such sales and lease
commitments, in a material adverse effect on Seller.
2.32 ADEQUACY AND SUFFICIENCY OF PURCHASED ASSETS. The Purchased Assets
are adequate and sufficient for the lawful and efficient operation of the
Business as presently conducted and as presently proposed to be conducted.
2.33 YEAR 2000 COMPLIANCE. To the best of Seller's knowledge, GDI's
information technology is Year 2000 Compliant. "YEAR 2000 COMPLIANT" means, with
respect to a company's information technology, the information technology is
designed to be used prior to, during and after the calendar year 2000 A.D., and
the information technology used during each such time period will accurately
receive, provide and process date/time data (including calculating, comparing
and sequencing) from, into and between the 20th and 21st centuries, including
the years 1999 and 2000, and leap-year calculations and will not malfunction,
cease to function, or provide invalid or incorrect results as a result of
date/time data, to the extent that other information technology, used in
combination with GDI's information technology, properly exchanges date/time data
with it. For purposes of this SECTION 2.33, GDI's information technology shall
include computer software, computer firmware, computer hardware (whether general
or specific purpose), equipment including embedded programmable microchips or
controllers and other similar or related items of automated, computerized, or
software systems that are used or relied on by Seller in the conduct of the
Business.
16
2.34 FULL DISCLOSURE. No representation, warranty or other statement or
information of or from Seller contained in this Agreement or in the Schedules or
any other document, certificate or written statement furnished or to be
furnished to Purchaser in connection with the transactions contemplated by this
Agreement contains or will contain any untrue statement of a material fact or
omits or will omit to state a material fact required to be stated herein or
therein necessary to make the statements and facts contained herein or therein,
in light of the circumstances in which they are made, not false or misleading.
Copies of all documents heretofore or hereafter delivered or made available to
Purchaser pursuant to this Agreement were or will be complete and accurate
records of such documents. There is no fact known to Seller which has or could
have a material adverse effect on the prospects, earnings, properties or
condition, financial or otherwise, of the Business that has not been disclosed
herein or in such other documents, certificates and statements furnished to
Purchaser for use in connection with the transactions contemplated hereby.
2.35 NO BROKER. No broker, agent or other person acting pursuant to
Seller's authority is entitled to any commission or finder's fee in connection
with the transactions contemplated by this Agreement, and Seller shall indemnify
and hold Purchaser harmless from any commission or fee payable to any such
broker or agent or other person by reason of his or her retention by Seller.
2.36 ORIGINAL PURCHASE AGREEMENT. With respect to the transactions
contemplated by the Original Purchase Agreement (as defined below), Seller has
taken all necessary corporate action to duly authorize those transactions
contemplated therein as embodied in the terms thereof and Seller has not taken
any corporate action to authorize any of its agents or representatives to
materially deviate, on behalf of Seller, from the transactions contemplated by
the Original Purchase Agreement as embodied in the terms thereof.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF PURCHASER AND ▇▇▇▇▇▇▇
-------------------------------------------------------
Purchaser and ▇▇▇▇▇▇▇ hereby represent and warrant to Seller:
3.1 ORGANIZATION AND EXISTENCE OF PURCHASER. Purchaser is a limited
liability company duly organized, validly existing, and in good standing under
the laws of the State of Nevada, and has all requisite company power to enter
into and perform this Agreement and the transactions contemplated hereby.
3.2 AUTHORITY OF PURCHASER. The managing member of the Purchaser has
duly authorized the execution, delivery, and performance by Purchaser of this
Agreement and no further company action is necessary on the part of Purchaser to
make this Agreement valid and binding upon Purchaser in accordance with its
terms, and Seller has received certified copies of all resolutions pertaining to
such authorization.
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3.3 NO BROKER. No broker, agent or other person acting pursuant to the
Purchaser's authority is entitled to any commission or finder's fee in
connection with the transactions contemplated by this Agreement, and Purchaser
and ▇▇▇▇▇▇▇ shall indemnify and hold Seller harmless from any commission or fee
payable to any such broker or agent or other person by reason of his or her
retention by Purchaser or ▇▇▇▇▇▇▇.
3.4 ARTICLE 2 REPRESENTATIONS AND WARRANTIES. ▇▇▇▇▇▇▇, as general
manager of the GDI division and after reasonable investigation and inquiry by
▇▇▇▇▇▇▇, has no reasonable basis for belief that any of the representations and
warranties contained in the following sections of ARTICLE 2 are incomplete or
inaccurate in any respects: 2.4; 2.5 insofar as such representations and
warranties relate to the GDI division or the scope of ▇▇▇▇▇▇▇'▇ authority with
respect thereto; 2.6-2.9; 2.10(a)-(c); 2.10(e)-(g); 2.10(i)-(l); 2.10(m) to the
extent of the foregoing paragraphs of SECTION 2.10; 2.11-2.17; 2.19-2.24; 2.26;
2.27 to the extent of the last sentence thereof and only with respect to
consents, waivers or approvals of third parties insofar as such third parties
have had business dealings with the GDI division; and 2.28-2.33.
ARTICLE 4
COVENANTS
---------
Seller, ▇▇▇▇▇▇▇ and Purchaser covenant as follows:
4.1 ASSIGNMENT OF NAME. At the Closing, Seller shall assign and
transfer to Purchaser all of Seller's right, title and interest in and to the
names Sunnyvale General Devices and Instruments, Inc. and the term "GDI." Seller
shall at no time after the Closing utilize in its corporate name or business
operations (by assumed name or otherwise) the names Sunnyvale General Devices
and Instruments, Inc. or GDI or any variant thereof.
4.2 CONFIDENTIALITY. Seller, Purchaser and ▇▇▇▇▇▇▇ and, as applicable,
its or his employees, officers, directors and other representatives will hold in
strict confidence, and will not use to the detriment of the other parties
hereto, any information or data obtained in connection with this Agreement; and
if the transaction contemplated by this Agreement is not consummated, each party
hereto will return to each other party all such information and data as such
other party may reasonably request, including, but not limited to, worksheets,
test reports, manuals, lists, memoranda and other documents prepared or made
available to the parties hereto in connection with this transaction.
4.3 FULFILLMENT OF CONDITIONS AND COVENANTS. Seller shall not take any
course of action inconsistent with satisfaction of the requirements or
conditions applicable to it set forth in this Agreement. Seller shall promptly
do all acts and take all measures as may be appropriate to enable it to perform
as early as possible the obligations herein provided to be performed by it.
4.4 CONDITION TO TRANSFER OF CERTAIN CONTRACTS. Seller has used its
best efforts to obtain the necessary consents to the assignment of each Contract
which by its terms requires the consent of any of the other contracting parties
thereto to an assignment to Purchaser. It is a condition to the obligations of
each party hereto to close the transactions contemplated hereby that all
required consents be obtained for each of the Contracts listed in SCHEDULE 4.4.
Notwithstanding anything herein to the contrary, the parties acknowledge and
agree that at the Closing Seller will not assign to Purchaser any Contract which
by its terms requires the consent of any other contracting party thereto unless
each consent has been obtained prior to the Closing Date. With respect to each
such unassigned Contract after the Closing Date Seller shall continue to deal
18
with the other contracting party(ies) to that Contract as the prime contracting
party and shall use its best efforts to obtain the consent of all required
parties to the assignment of such Contract, but Purchaser shall be entitled to
the benefits of such Contract accruing after the Closing Date to the extent that
Seller may provide Purchaser with such benefits without violating the terms of
such Contract. Purchaser agrees to perform at its sole expense all of the
obligations of Seller to be performed under such Contract the benefits of which
Purchaser is receiving after the Closing Date.
4.5 REGULATORY APPROVALS; REASONABLE EFFORTS. Seller shall take, as
promptly as possible, or cause to be taken, all action and to do, or cause to be
done, all things necessary, proper or advisable to consummate and make effective
the transactions contemplated by this Agreement and Seller will use its best
efforts to obtain all waivers, permits, consents, approvals, authorizations and
clearances and to effect all registrations, filings and notices with or to third
parties or governmental, regulatory or public bodies or authorities which are in
the reasonable and good faith opinion of Purchaser necessary or desirable in
connection with the transactions contemplated by this Agreement, including
without limitation, all waivers, permits, consents, approvals, authorizations
and clearances required from any governmental, regulatory or public bodies or
authorities and all waivers, permits, consents, approvals, authorizations and
clearances required under any contracts, agreements, leases, licenses or other
documents to which Seller is a party.
4.6 BULK TRANSFER PROVISIONS. Purchaser acknowledges that the
California Uniform Commercial Code is applicable to this transaction, but that
it will be impractical to comply with such provisions. Accordingly, Seller
covenants to indemnify and hold Purchaser harmless from any claims or demands of
Seller's creditors arising out of or related to the failure to comply with the
bulk transfer provisions, subject to and in accordance with the procedures set
forth in SECTION 6.3.
4.7 SELLER'S AND ▇▇▇▇▇▇▇'▇ COOPERATION. Seller agrees that it will
cooperate fully with Purchaser in effecting an orderly transition of ownership
of the Purchased Assets and the providing of service to GDI's customers in a
manner and scope not less than that in effect prior to the date of this
Agreement. Seller further agrees that it will cooperate fully with Purchaser in
order to enable Purchaser to assume the defense of the Lancaster Litigation
pursuant to Section SECTION 1.3.1(e); provided, that this obligation shall in no
way alter the provisions of SECTION 1.3.1(e). ▇▇▇▇▇▇▇ agrees that, as general
manager of the GDI division, he will cooperate fully with Seller in order to
produce the Schedules required to be delivered pursuant to SECTION 5.2(i).
4.8 EMPLOYEES. Seller acknowledges that Purchaser intends to hire all
of GDI's current employees, as Purchaser's employees. Seller will cooperate
fully in providing the necessary information or to perform any other duties as
may be reasonably requested by Purchaser to accomplish this result. Any current
employee of GDI who is hired by Purchaser shall be terminated by Seller prior to
the Closing Date and deemed a "new hire" by Purchaser as of the Effective Date
and Purchaser shall have no liability whatsoever on account of such hired
employee's previous employment by Seller, nor shall Purchaser assume or
otherwise be responsible for any past or future obligation of Seller to such
employees. Seller acknowledges that, except as otherwise provided herein, it
shall be solely responsible for discharging any such liability to such employees
19
including, but not limited to, any payment, compensation or benefit under any
severance, vacation, sick pay, employee benefit, worker's compensation, medical,
insurance, bonus or similar plan or arrangement and shall indemnify and hold
harmless Purchaser with regard to such liabilities, subject to and in accordance
with the procedures set forth in SECTION 6.3.
4.9 FURTHER ASSURANCES. From and after the date of this Agreement,
Seller shall perform all acts, execute all documents and do all things
reasonably requested by Purchaser in order to perfect Purchaser's ownership of
the Purchased Assets. If Seller is unable to or refuses to do so, Seller
irrevocably appoints Purchaser as its attorney-in-fact to do so on behalf of
Seller.
4.10 CANCELLATION OF INDEBTEDNESS. Seller and ▇▇▇▇▇▇▇ shall cancel the
indebtedness owed the other as contemplated by SECTION 1.3.2(A), at the Closing.
4.11 PROVISION OF CERTAIN EQUIPMENT. Following the Closing, Seller
shall provide Purchaser or a company designated by Purchaser with Seller's
microwave products, 202T modems and Flash Poll 9.6 (collectively, the "SELLER
PRODUCTS") only for use in the Business on the best available terms and delivery
schedules made available by Seller to its other customers. ▇▇▇▇▇▇▇ desires to
obtain a license to manufacture the Seller Products and Seller agrees to
negotiate in good faith with Purchaser or ▇▇▇▇▇▇▇ for a license to manufacture
the Seller Products.
4.12 RIGHT OF FIRST REFUSAL. In the event that the Seller seeks or
receives an offer or proposal (an "OFFER") from any third party regarding a
proposed acquisition of the business or assets comprising the Seller's
Telenetics Microwave division, or any portion thereof (the "MICROWAVE ASSETS"),
the Seller shall, prior to accepting such Offer or entering into any definitive
agreement with respect to the Offer, notify Purchaser in writing of: (i) all of
the terms and conditions of such Offer; (ii) the Seller's bona fide intention of
accepting the Offer on such terms and conditions; and (iii) the Seller's
agreement to enter into a proposed sale with Purchaser on terms and conditions
substantially similar to those set forth in the Offer (a "NOTICE OF OFFER").
Purchaser will have thirty (30) days from the receipt of such Notice of Offer
(the "EXCLUSIVITY PERIOD") to deliver written notice to the Seller of
Purchaser's acceptance of the Seller's offer to enter into an agreement with the
Seller providing for a purchase of the Microwave Assets on terms and conditions
substantially similar to those set forth in the Notice of Offer (a "NOTICE OF
ACCEPTANCE"); provided, however, that to the extent that the consideration being
offered to the Seller in the Offer consists of property other than cash or
securities, then Purchaser's acceptance shall, in lieu of such non-cash property
or securities, provide for the payment of other consideration to the Seller of
substantially equivalent fair market value. During the Exclusivity Period, the
Seller shall use reasonable efforts to promptly make available on a confidential
basis to Purchaser, its attorneys, accountants and other professional advisors,
such due diligence materials (including, without limitations, the Seller's
financial books and records, customer information, business plans, technology,
software source code, agreements and employee information) as Purchaser shall
reasonably request, which due diligence materials shall, at a minimum, include
all materials made available by the Seller to the third party or parties who
made the Offer. All such materials shall be subject to the confidentiality
provisions of SECTION 4.3. The Seller agrees that it will not accept any Offer,
enter into any definitive agreement providing for, or otherwise consummate any
sale of the Microwave Assets with any third party other than Purchaser until the
expiration of the Exclusivity Period unless, after receipt of the Notice of
20
Offer, Purchaser declines in writing to pursue its rights under this SECTION
4.12 with respect to such Offer. If Purchaser delivers a Notice of Acceptance to
the Seller prior to the expiration of the Exclusivity Period, then Purchaser and
the Seller shall use their respective best efforts to, within forty five (45)
days following receipt of the Notice of Acceptance, enter into an agreement, on
final terms and conditions to be negotiated in good faith between them,
providing for the sale of the Microwave Assets on the terms and conditions
provided for in the Notice of Offer and Notice of Acceptance.
4.13 CERTAIN TAX LIABILITIES. Purchaser and ▇▇▇▇▇▇▇ shall assume any
and all liability of Seller for income or other taxes, including interest and
penalties related thereto, of Sunnyvale General Devices and Instruments, Inc.
and/or ▇▇▇▇▇▇▇ under that certain Asset Purchase Agreement between Sunnyvale
General Devices and Instruments, Inc., ▇▇▇▇▇▇▇ and Seller dated June 1, 1999
(the "ORIGINAL PURCHASE AGREEMENT") or otherwise. Seller shall, in consideration
for Purchaser's and ▇▇▇▇▇▇▇'▇ assumption of such tax liabilities (i) pay to
▇▇▇▇▇▇▇ One Hundred Sixty Six Thousand Three Hundred Fifty Eight Dollars
($166,358) in six (6) equal semi-monthly installments commencing on October 11,
2001 and October 25, 2001 and continuing on the same days (or, if not a business
day, the next business day thereafter) of each of the two (2) months thereafter,
and (ii) reduce by Seventy Three Thousand Six Hundred Forty Two Dollars
($73,642) the liabilities that Purchase and ▇▇▇▇▇▇▇ are to assume as provided in
SECTION 1.3.1(B)(II). Notwithstanding anything to the contrary contained in this
Agreement, if any claims or assessments for federal, state, local or foreign
taxes are made against Seller with respect to the Original Purchase Agreement or
Sunnyvale General Devices and Instruments, Inc. for any period prior to June 1,
1999 or after the Closing Date, Purchaser and ▇▇▇▇▇▇▇ shall jointly and
severally indemnify and hold Seller harmless from and against any such damage,
liability, loss, cost or deficiency (including interest and penalties) in
connection with such claims or assessments, subject to and in accordance with
the procedures set forth in SECTION 6.3.
4.14 MUTUAL RELEASE OF CLAIMS.
4.14.1 RELEASE BY SELLER. Effective as of the date of Closing,
Seller agrees that with no further action of the parties hereto, each
of ▇▇▇▇▇▇▇, Purchaser and Purchaser's respective predecessors and
successors, affiliates, and past and present officers, directors,
members, employees, agents and attorneys (collectively, "Purchaser
Representatives") are hereby released by Seller from any and all
claims, arising now or in the future and relating to conduct of
▇▇▇▇▇▇▇, Purchaser or Purchaser Representatives occurring prior to the
Closing Date, that Seller has or may have against ▇▇▇▇▇▇▇, Purchaser or
Purchaser Representatives, except for (i) claims relating to this
Agreement and the transactions contemplated by this Agreement; and (ii)
claims relating to the Original Purchase Agreement but only to the
extent of the representations and warranties contained in ARTICLE 2
thereof.
4.14.2 RELEASE BY ▇▇▇▇▇▇▇ AND PURCHASER. Effective as of the
date of Closing, ▇▇▇▇▇▇▇ and Purchaser agree that with no further
action of the parties hereto, each of Seller and Seller's respective
predecessors and successors, affiliates, and past and present officers,
directors, members, employees, agents and attorneys (collectively,
"Seller Representatives"), to the extent such Seller Representatives
acted within the scope of their authority, are hereby released by
Purchaser and ▇▇▇▇▇▇▇ from any and all claims, arising now or in the
future and relating to conduct of Seller or Seller Representatives
occurring prior to the Closing Date, that ▇▇▇▇▇▇▇ and/or Purchaser has
21
or may have against Seller or Seller Representatives, except for (i)
claims relating to this Agreement and the transactions contemplated by
this Agreement, (ii) claims relating to the Original Purchase Agreement
but only to the extent of the representations and warranties contained
in ARTICLE 3 thereof, and (iii) claims that ▇▇▇▇▇▇▇ or Purchaser may
have against ▇▇▇▇▇▇▇ Armani ("ARMANI") which may have arisen from any
promises and/or guarantees made by Armani to ▇▇▇▇▇▇▇ in connection with
the acquisition by Seller of the assets of Sunnyvale General Devices
and Instruments, Inc. or otherwise and that were made outside the scope
of Armani's authority as a Seller Representative; provided, that any
claims against Armani are released to the extent that such claims
relate to actions or conduct by Armani within the scope of Armani's
authority as a Seller Representative.
4.14.3 CALIFORNIA CIVIL CODE. With respect to the claims
released by Seller, ▇▇▇▇▇▇▇ and Purchaser under SECTION 4.14, each of
the Parties hereto waives and relinquishes any and all rights which any
of them may have under the provisions of Section 1542 of the Civil Code
of the State of California, which Section reads as follows:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE
CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE
TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE
MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR."
ARTICLE 5
THE CLOSING
-----------
5.1 CLOSING. The closing of the sale and purchase of the Purchased
Assets (the "CLOSING" or "CLOSING DATE") shall take place at the offices of
▇▇▇▇▇ & ▇▇▇▇▇▇, LLP, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇, at 10:00 a.m. local time on November 15, 2001, or at such other time and
date as may be mutually agreed to by the parties.
5.2 SELLER'S OBLIGATIONS. At the Closing, Seller shall deliver to
Purchaser the following:
(a) ▇▇▇▇ of Sale and Assignment and Assumption in the
form of EXHIBIT 5.2(a) and such other instruments of transfer
which may be reasonably necessary to transfer to Purchaser all
of Seller's rights, title and interest in and to the Purchased
Assets, all in form and substance satisfactory to Purchaser;
(b) All books, records and other data relating to the
Business (other than its corporate records);
(c) Assignments of all leaseholds, properly executed
and acknowledged by Seller, and accompanied by all consents of
lessors required by this Agreement and the leases being
assigned;
22
(d) Executed counterparts of all novation agreements
with the United States Government, its agencies and
instrumentalities, and any other persons requiring them;
(e) Properly executed and acknowledged titles and
other instruments of transfer to every motor vehicle
constituting a Purchased Asset; (
(f) The updates required by SECTION 2.13
(Indebtedness) and SECTION 2.20 (Accounts Receivable);
(g) The payment of the amounts due by the Closing
Date, if any, as specified in SECTION 4.13 (Certain Tax
Liabilities);
(h) Evidence of the cancellation of the indebtedness
contemplated by SECTION 4.10 in form and substance reasonably
satisfactory to Purchaser;
(i) The Schedules contemplated by this Agreement in
form and substance reasonably satisfactory to Seller,
Purchaser and ▇▇▇▇▇▇▇; and
(j) Certificates issued by an officer of Seller
certifying, effective as of the Closing Date, the accuracy of
the representations and warranties contained in ARTICLE 2.
Seller, at any time before or after the Closing, will execute,
acknowledge and deliver any further deeds, assignments, conveyances and other
assurances, documents and instruments of transfer, reasonably requested by
Purchaser, and will take any other action consistent with the terms of this
Agreement that may reasonably be requested by Purchaser, for the purpose of
assigning, transferring, granting, conveying and confirming to Purchaser, or
reducing to possession, any or all property to be conveyed and transferred by
this Agreement. If requested by Purchaser, Seller further agrees to prosecute or
otherwise enforce in its own name for the benefit of Purchaser, any claims,
rights or benefits that are transferred to Purchaser by this Agreement and that
require prosecution or enforcement in Seller's name. Any prosecution or
enforcement of claims, rights or benefits under this Section shall be solely at
Purchaser's expense, unless the prosecution or enforcement is made necessary by
a breach of this Agreement by Seller.
5.3 PURCHASER'S AND ▇▇▇▇▇▇▇'▇ OBLIGATIONS. At the Closing, Purchase
shall deliver to Seller the following:
(a) ▇▇▇▇ of Sale and Assignment and Assumption in the
form of EXHIBIT 5.2(a);
(b) Evidence of the cancellation of the indebtedness
contemplated by SECTION 4.10 in form and substance reasonably
satisfactory to Seller; and
(c) Certificates issued by each of Purchaser and
▇▇▇▇▇▇▇ certifying, effective as of the Closing Date, the
accuracy of the representations and warranties contained in
ARTICLE 3.
23
ARTICLE 6
POST CLOSING
------------
6.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Regardless of any
investigation at any time made by or on behalf of any party, or of any
information any party may have in respect thereof, all covenants, agreements,
representations and warranties made hereunder or pursuant hereto or in
connection with the transactions contemplated hereby shall survive the Closing
subject to the limitations provided in SECTION 6.3.
6.2 EXPENSES. Seller, ▇▇▇▇▇▇▇ and Purchaser each (i) represents and
warrants that it has not taken and will not take any action that would cause the
other party to have any obligation or liability to any person for a finder's or
broker's fee, and (ii) agrees to indemnify the other party for breach of the
foregoing representation and warranty, whether or not the Closing occurs. Each
of the parties hereto shall pay all costs and expenses incurred by it or on its
behalf in connection with this Agreement and the transactions contemplated
hereby, including, without limiting the generality of the foregoing, fees and
expenses of its own financial consultants, accountants and counsel; provided,
however, that Seller shall reimburse Purchaser for the reasonable costs of
preparation of this Agreement and ancillary documentation by Purchaser's
counsel, which costs shall not exceed Ten Thousand Dollars ($10,000).
6.3 INDEMNIFICATION. The following SECTIONS 6.3.1 THROUGH 6.3.6 provide
for the payment of certain other indemnities by the parties hereto.
6.3.1 INDEMNIFICATION BY SELLER. Seller shall indemnify and
hold Purchaser and ▇▇▇▇▇▇▇ harmless in respect of any and all claims,
losses, damages, liabilities and expenses including, without
limitation, settlement costs and any legal, accounting and other
expenses for investigating or defending any actions or threatened
actions (collectively, "LOSSES") reasonably incurred by Purchaser, in
connection with each and all of the following:
(a) Any breach of any representation or warranty made
by Seller in this Agreement;
(b) The breach of any covenant, agreement or
obligation of Seller contained in this Agreement or any other
instrument contemplated by this Agreement;
(c) Any misrepresentation contained in any statement
or certificate furnished by Seller pursuant to this Agreement
or in connection with the transactions contemplated by this
Agreement;
(d) Any claims against, or liabilities or obligations
of, Seller not specifically assumed by Purchaser pursuant to
this Agreement including, among other things, any claims,
liabilities or obligations of Seller relating to Seller's or
GDI's employees; and
24
(e) The failure of Purchaser or ▇▇▇▇▇▇▇ to obtain the
protections afforded by compliance with the notification
requirements of the Bulk Sales Laws in force in the
jurisdictions in which such laws may be applicable either to
Seller or to the transactions contemplated by this Agreement.
6.3.2 INDEMNIFICATION BY PURCHASER AND ▇▇▇▇▇▇▇. Purchaser and
▇▇▇▇▇▇▇ shall jointly and severally indemnify and hold Seller harmless
in respect of any and all Losses reasonably incurred by Seller, in
connection with each and all of the following:
(a) Any breach of any representation or warranty made
by Purchaser or ▇▇▇▇▇▇▇ in this Agreement;
(b) The breach of any covenant, agreement or
obligation of Purchaser or ▇▇▇▇▇▇▇ contained in this Agreement
or any other instrument contemplated by this Agreement; and
(c) Any misrepresentation contained in any statement
or certificate furnished by Purchaser or ▇▇▇▇▇▇▇ pursuant to
this Agreement or in connection with the transactions
contemplated by this Agreement; provided, that with respect to
each representation and warranty of SECTION 3.4, this SECTION
6.3.2 shall apply only to the extent that Purchaser or ▇▇▇▇▇▇▇
is pursuing a claim under this Agreement against Seller for
breach of the same or similar representation and warranty in
ARTICLE 2.
6.3.3 CLAIMS FOR INDEMNIFICATION. Whenever any claim arises
for indemnification hereunder, the party entitled to indemnification
("INDEMNIFIED PARTY") shall promptly notify the other party
("INDEMNIFYING PARTY") of the claim and, when known, the facts
constituting the basis for such claim. In the event of any claim for
indemnification hereunder resulting from or in connection with any
claim or legal proceedings by a third party, the notice to the
indemnifying party shall specify, if known, the amount or an estimate
of the amount of the liability arising therefrom. The indemnified party
shall not settle or compromise any claim by a third party for which it
is entitled to indemnification hereunder, without the prior written
consent of the indemnifying party (which shall not be unreasonably
withheld) unless suit shall have been instituted against it and the
indemnifying party shall not have taken control of such suit after
notification thereof as provided in SECTION 6.3.4.
6.3.4 DEFENSE BY INDEMNIFYING PARTY. In connection with any
claim giving rise to indemnity hereunder resulting from or arising out
of any claim or legal proceeding by a person who is not a party to this
Agreement, the indemnifying party at its sole cost and expense may,
upon written notice to the indemnified party, assume the defense of any
such claim or legal proceeding if it acknowledges to the indemnified
party in writing its obligations to indemnify the indemnified party
with respect to all elements of such claim. The indemnified party shall
be entitled to participate in (but not control) the defense of any such
action, with its counsel and at its own expense. If the indemnifying
party does not assume the defense of any such claim or litigation
resulting therefrom, (i) the indemnified party may defend against such
claim or litigation, in such manner as it may deem appropriate,
including, but not limited to, settling such claim or litigation, after
giving notice of the same to the indemnifying party, on such terms as
the indemnified party may deem appropriate, and (ii) the indemnifying
party shall be entitled to participate in (but not control) the defense
of such action, with its counsel and at its own expense. If the
indemnifying party thereafter seeks to question the manner in which the
indemnified party defended such third party claim or the amount or
nature of any such settlement, the indemnifying party shall have the
burden to prove by a preponderance of the evidence that the indemnified
party did not defend or settle such third party claim in a reasonably
prudent manner.
25
6.3.5 MANNER OF INDEMNIFICATION. All indemnification by
Purchaser, Seller or ▇▇▇▇▇▇▇ shall be effected by payment of cash or
delivery of a bank cashier's check in the amount of the indemnification
liability.
6.3.6 LIMITATIONS ON INDEMNIFICATION. All representations and
warranties made by the parties herein or in any instrument or document
furnished in connection herewith shall survive the Closing and any
investigation at any time made by or on behalf of the parties hereto
and shall expire on the second (2nd) anniversary of the Closing Date,
except (i) as to any matter as to which a claim is submitted in writing
to the indemnifying party prior to such second (2nd) anniversary and
identified as a claim for indemnification pursuant to this Agreement,
(ii) as to any matter which is based upon willful fraud by the
indemnifying party, with respect to which representations and
warranties shall expire only upon expiration of the applicable statute
of limitations, (iii) as to any matter which is based upon the
representations and warranties contained in SECTION 2.18 (Taxes), with
respect to which representations and warranties shall expire only upon
expiration of the applicable statutes of limitation and (iv) as to any
matter which is based upon the representations and warranties contained
in SECTION 2.16.3 (Environmental Compliance), SECTION 2.16.4 (Use of
the Leased Premises) and SECTION 2.16.5 (Superfund Liability), with
respect to which representations and warranties shall not expire. No
claim or action for indemnity pursuant to SECTION 6.3.1 or SECTION
6.3.2 for breach of any representation or warranty shall be asserted or
maintained by any party hereto after the expiration of such
representation or warranty pursuant to the preceding sentence except
for claims made in writing prior to such expiration and actions
(whether instituted before or after such expiration) based on any claim
made in writing prior to such expiration.
6.4 COOPERATION IN LITIGATION. Each party will fully cooperate with the
others in the defense or prosecution of any litigation or proceeding already
instituted or which may be instituted hereafter against or by such party
relating to or arising out of the conduct of the Business prior to or after the
Closing Date (other than litigation arising out of the transactions contemplated
by this Agreement). The party requesting such cooperation shall pay the
out-of-pocket expenses (including legal fees and disbursements) of the party
providing such cooperation and of its officers, directors, employees and agents
reasonably incurred in connection with providing such cooperation, but shall not
be responsible to reimburse the party providing such cooperation for such
party's time spent in such cooperation or the salaries or costs of fringe
benefits or other similar expenses paid by the party providing such cooperation
to its officers, directors, employees and agents while assisting in the defense
or prosecution of any such litigation or proceeding.
26
6.5 WARRANTY OBLIGATIONS.
(a) Except as hereinafter provided in this SECTION
6.5, at the Closing, Purchaser shall assume and thereafter
discharge all responsibilities of Seller to those in direct
contractual relationship with Seller or Purchaser, as the case
may be, for breach (a "BREACH OF WARRANTY") of any express or
implied warranty (including, without limitation, the implied
warranties of merchantability and fitness for a particular
purpose) granted by Seller or Purchaser, as the case may be,
in connection with sales of (i) products manufactured and sold
by Seller at any time within the two (2) year period
immediately preceding the Closing Date in connection with
Seller's conduct of the Business, and (ii) finished goods
comprising any part of the Inventory existing on the Closing
Date which may be sold by Purchaser at any time after the
Closing Date; provided, however, that if the aggregate amount
of all losses, damages, liabilities and expenses (including,
without limitation, settlement costs and any legal, accounting
and other expenses for investigating or defending any actions
or threatened actions) reasonably incurred by Purchaser in
connection with all Breaches of Warranty exceeds Fifty
Thousand Dollars ($50,000), Seller shall indemnify and hold
harmless (as provided in SECTION 6.3) Purchaser and ▇▇▇▇▇▇▇ in
respect of the amount by which such aggregate losses, damages,
liabilities and expenses (including as aforesaid) exceeds
Fifty Thousand Dollars ($50,000).
(b) Notwithstanding the terms of paragraph (a) above,
Purchaser shall not assume any of Seller's responsibilities
for, and Seller hereby agrees to indemnify and hold harmless
(as provided in SECTION 6.3) Purchaser and ▇▇▇▇▇▇▇ with
respect to, all losses, damages, liabilities and expenses
(including as aforesaid) incurred in connection with:
(i) Any claim for Breach of Warranty based
upon facts known by Seller on or at any time prior to
the Closing Date, including, without limitation, all
claims for Breaches of Warranty disclosed in SCHEDULE
6.5; and
(ii) Any claim, demand or cause of action
asserted or brought by any person (including those in
direct contractual relationship with Seller or
Purchaser or ▇▇▇▇▇▇▇) for physical injury to or death
of or property damage suffered by such person or any
other person which was proximately caused by any
products manufactured and sold by Seller at any time
prior to the Closing Date or which comprised any part
of the finished goods in the Inventory existing on
the Closing Date.
(c) Except as otherwise provided in paragraph (a)
above with respect to finished goods in the Inventory on the
Closing Date, Purchaser shall assume all responsibilities for,
and shall indemnify and hold harmless (as provided in SECTION
6.3) Seller in respect of, any and all claims, losses,
damages, liabilities and expenses (including as aforesaid)
incurred in connection with:
27
(i) Breaches of Warranty in connection with
sales of products sold by Purchaser after the Closing
Date (including, without limitation, products
manufactured in whole or in part out of any work in
process comprising any part of the Inventory existing
on the Closing Date); and
(ii) Any claim, demand or cause of action
asserted or brought by any person for physical injury
to or death of or property damage suffered by such
person or any other person which was proximately
caused by goods of a type described in clause (i) of
this paragraph.
(d) Notwithstanding anything to the contrary herein
contained, neither ▇▇▇▇▇▇▇ nor Purchaser shall have or pursue
any claim against Seller under this SECTION 6.5 or any other
Section of this Agreement relating to the Lancaster Litigation
or arising out of the factual circumstances alleged to be the
basis of the Lancaster Litigation.
(e) Purchaser and ▇▇▇▇▇▇▇ shall have the exclusive
right in its sole discretion to defend, settle and compromise
any claim of a type covered by the indemnification provisions
of paragraphs (a) and (c) above;
(f) Seller shall have the exclusive right in its sole
discretion to defend, settle and compromise any claims of a
type covered by the indemnification provisions of paragraph
(b) above.
6.6 COBRA REQUIREMENTS. Seller shall be responsible for satisfying the
requirements of Section 4980B of the Code and Sections 601 through 609 of ERISA
("COBRA REQUIREMENTS") with respect to any employee of the Business who had a
qualifying event prior to the Closing or for any employee of the Business not
otherwise employed by Purchaser after the Closing, to the extent required under
the COBRA requirements. Purchaser shall be responsible for satisfying the COBRA
requirements for any employee of the Business employed by Purchaser after the
Closing, to the extent required under the COBRA requirements.
ARTICLE 7
CERTAIN COVENANTS
-----------------
7.1 COVENANT NOT TO COMPETE.
(a) Subject to the Closing having occurred, and
except for any business engaged in by Seller prior to June 1,
1999, without the prior written consent of Purchaser, Seller
will not, directly or indirectly, engage in any business
competitive with the Business in any county or any other
political subdivision of any state of the United States of
America or of any other country in the world where Seller
conducted the Business at any time during the two (2) year
period preceding the Closing Date, including those counties in
California set forth on EXHIBIT 7.1(a) for a period of three
(3) years after the Closing Date.
28
(b) Seller acknowledges that it intends that Seller
shall fully and effectively convey to Purchaser all
intellectual property rights to be transferred to Purchaser
pursuant to SECTION 1.1(f) AND 1.1(g), including, without
limitation, each process, invention, trade secret, formula and
other item of know-how relating to the Business. Accordingly,
notwithstanding the expiration of the covenant not to compete
set forth in this SECTION 7.1 on the third (3rd) anniversary
of the Closing Date, at all times thereafter Seller shall keep
confidential and shall not disclose to others any of those
intellectual property rights and shall not use or permit to be
used any of these intellectual property rights.
(c) The parties hereto agree that the duration and
area for which the covenant not to compete set forth in this
SECTION 7.1 is to be effective are reasonable. If any court
determines that the time period or the area, or both of them,
are unreasonable and that such covenant is to that extent
unenforceable, the parties hereto agree that the covenant
shall remain in full force and effect for the greatest time
period and in the greatest area that would not render it
unenforceable. The parties intend that this covenant shall be
deemed to be a series of separate covenants, one for each and
every county of each and every state of the United States of
America and each and every political subdivision of each and
every country outside the United States of America where this
covenant is intended to be effective.
(d) The parties hereto acknowledge that the covenant
not to compete set forth in this SECTION 7.1 has not been
bargained for separate and apart from the consideration to be
paid for the Purchased Assets and that no part of such
consideration is allocable to such covenant not to compete.
7.2 COVENANT NOT TO SOLICIT. During the period of the covenant set
forth in SECTION 7.1, Seller covenants and agrees that it shall not, directly or
indirectly, (i) induce or attempt to induce any employee of Purchaser to leave
the employ of Purchaser and become employed by any other business entity, (ii)
hire or retain any such employee, or (iii) contact or attempt to contact any
customer of Seller for the twelve (12) month period immediately preceding the
Closing Date for the purpose of soliciting from any such customer business that
is similar to the Business previously conducted between Seller and such
customer.
7.3 CONFIDENTIALITY. During the period of the covenant set forth in
SECTION 7.1, Seller covenants and agrees that it shall hold confidential all
knowledge and information which he or it may acquire with respect to the plans,
processes, formulae, machinery, products, customers and business of Seller or
Purchaser and that each shall keep the same knowledge or information or any part
thereof strictly confidential and shall not disclose the same to any third party
or use in any manner inconsistent with the intent of this SECTION 7.3.
7.4 INJUNCTIVE RELIEF. Seller hereby acknowledges and agrees that any
violations of the provisions of this ARTICLE 7 will cause damage to Purchaser in
an amount or amounts difficult to ascertain. Accordingly, in addition to any
other relief to which Purchaser may be entitled at law or in equity, Purchaser
shall be entitled to temporary and/or permanent injunctive relief from any
breach or threatened breach by Seller of the provisions of this ARTICLE 7,
without proof of actual damages that have been or may be caused to Purchaser by
such breach or threatened breach.
29
ARTICLE 8
MISCELLANEOUS PROVISIONS
------------------------
8.1 ENTIRE AGREEMENT. This Agreement sets forth the entire agreement
between the parties with regard to the subject matter of this Agreement. All
agreements, covenants, representations and warranties, express or implied, oral
and written, of the parties with regard to the subject matter of this Agreement
(including, without limitation, the letter of intent between the parties dated
June 4, 2001 (Revised June 28, 2001)) are contained in this Agreement, in the
Schedules and Exhibits to this Agreement, and the documents referred to or
implementing the provision of this Agreement. No other agreements, covenants,
representations or warranties, express or implied, oral or written, have been
made by either party to the other with respect to the subject matter of this
Agreement. All prior and contemporaneous conversations, negotiations, covenants
and warranties with respect to the subject matter of this Agreement are waived,
merged in this Agreement and superseded by this Agreement. This is an integrated
agreement.
8.2 ASSIGNMENT. Except as specifically provided otherwise in this
Agreement, neither this Agreement nor any interest herein shall be assignable by
any party hereto (voluntarily, involuntarily, by judicial process, operation of
law or otherwise), in whole or in part, without the prior written consent of all
other parties hereto. Any attempt at such an assignment without such consent
shall be void and, at the option of the non-consenting party, shall be an
incurable breach of this Agreement resulting in the termination of this
Agreement.
8.3 SUCCESSORS AND ASSIGNS. Each of the terms, provisions and
obligations of this Agreement shall be binding upon, shall inure to the benefit
of, and shall be enforceable by the parties and their respective legal
representatives, successors and assigns.
8.4 WAIVER AND AMENDMENT. This Agreement may be amended, supplemented,
modified and/or rescinded only through an express written instrument signed by
all parties or their respective successors and permitted assigns. Any party may
specifically and expressly waive in writing any portion of this Agreement or any
breach hereof, but no such waiver shall constitute a further or continuing
waiver of any preceding or succeeding breach of the same or any other provision.
The consent by one party to any act for which such consent was required shall
not be deemed to imply consent or waiver of the necessity of obtaining such
consent for the same or similar acts in the future.
8.5 CUMULATIVE REMEDIES. No remedy made available hereunder by any of
the provisions of this Agreement is intended to be exclusive of any other
remedy, and each and every remedy shall be cumulative and shall be in addition
to every other remedy given hereunder or now or hereafter existing at law or in
equity or by statute or otherwise.
8.6 SEVERABILITY. Each provision of this Agreement is intended to be
severable. If any covenant, condition or other provision contained in this
Agreement is held to be invalid, void or illegal by any court of competent
jurisdiction, such provision shall be deemed severable from the remainder of
this Agreement and shall in no way affect, impair or invalidate any other
covenant, condition or other provision contained in this Agreement. If such
condition, covenant or other provision shall be deemed invalid due to its scope
or breadth, such covenant, condition or other provision shall be deemed valid to
the extent of the scope or breadth permitted by law.
30
8.7 GOVERNING LAW AND CHOICE OF FORUM. This Agreement has been
negotiated and executed in the State of California and is to be performed in
Orange County, California. This Agreement shall be governed by and interpreted
in accordance with the laws of the State of California, including all matters of
construction, validity, performance and enforcement, without giving effect to
principles of conflict of laws. The parties hereby consent, in any dispute,
action, litigation, or other proceeding concerning this Agreement (including
arbitration) to the jurisdiction of the courts of California, with the County of
Orange being the sole venue for the bringing of the action or proceeding.
8.8 ATTORNEYS' FEES. In any action, litigation or proceeding (including
arbitration) between the parties arising out of or in relation to this
Agreement, the prevailing party in such action shall be awarded, in addition to
any damages, injunctions or other relief, and without regard to whether or not
such matter be prosecuted to final judgment, such party's costs and expenses,
including but not limited to taxable costs and reasonable attorneys',
accountants' and experts' fees incurred in bringing such action, litigation or
proceeding and/or enforcing any judgment or order granted therein, all of which
shall be deemed to have accrued upon the commencement of such action, litigation
or proceeding. Any judgment or order entered in such action, litigation or
proceeding shall contain a specific provision providing for the recovery of
attorneys' fees and costs incurred in enforcing such judgment. If the judgment
or order should fail to contain such a provision, the prevailing party shall
have the right to initiate further action to recover its attorneys' fees
incurred in enforcing such judgment or order, which right shall survive the
entry of judgment or order in the initial action, litigation or proceeding. For
the purpose of this SECTION 8.8, attorneys' fees shall include, without
limitation, fees incurred in the following: (i) post-judgment motions; (ii)
contempt proceedings; (iii) garnishment, levy, and debtor and third-party
examinations; (iv) discovery; and (v) bankruptcy litigation.
8.9 NOTICES. All notices, demands or other communications which are
required or are permitted to be given hereunder shall be in writing and shall be
deemed to have been sufficiently given upon personal delivery, facsimile
transmission or on the third business day following due deposit in the United
States mail, postage prepaid, and sent certified mail, return receipt requested,
correctly addressed to the addresses of the parties as follows:
If to Seller: Telenetics Corporation
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇,
President
With a copy to: ▇▇▇▇▇ & ▇▇▇▇▇▇, LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
If to Purchaser or ▇▇▇▇▇▇▇: GDI Communications LLC.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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With a copy to: ▇▇▇▇▇▇▇ Coie, LLP
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: S. ▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq.
Any party may give written notice of a change of address by certified
mail, return receipt requested, and after notice of such change has been
received, any notice shall be given to such party in the manner above described
at such new address.
8.10 INTERPRETATION. The language in all parts of this Agreement shall
be in all cases construed simply according to its fair meaning and not strictly
for or against any party. Whenever the context requires, all words used in the
singular will be construed to have been used in the plural, and vice versa, and
each gender will include any other gender. The captions of the Sections,
Subsections and paragraphs of this Agreement are for convenience only and shall
not affect the construction or interpretation of any of the provisions of this
Agreement. This Agreement has been negotiated between unrelated parties who are
sophisticated and knowledgeable in the matters contained in this Agreement and
who have acted in their own self interest. In addition, each party has been
represented by legal counsel. Accordingly, any rule of law, including Section
1654 of the California Civil Code, as well as any other statute, law, ordinance
or common law principles or other authority of any jurisdiction of similar
effect, or legal decision that would require interpretation of any ambiguities
in this Agreement against the party who has drafted it is not applicable and is
hereby waived. The provisions of this Agreement shall be interpreted in a
reasonable manner to effect the purpose of the parties, and this Agreement shall
not be interpreted or construed against any party to this Agreement because that
party or any attorney or representative for that party drafted this Agreement or
participated in the drafting of this Agreement. FURTHER, THE LIMITATION OF
LIABILITIES AND REMEDIES AND THE EXCLUSION OF DAMAGES AND WARRANTIES CONTAINED
HEREIN REFLECT A BARGAINED FOR ALLOCATION OF RISKS BASED ON NEGOTIATIONS AND
CONSIDERATION EXCHANGED BETWEEN THE PARTIES.
8.11 FURTHER ASSURANCES. In addition to the documents and instruments
to be delivered as provided in this Agreement, each of the parties shall, from
time to time at the request of another party, execute and deliver to another
party such other documents and shall take such other action as may be necessary
or proper to more effectively carry out the terms of this Agreement.
8.12 WARRANTY OF AUTHORITY. Each of the individuals signing this
Agreement on behalf of a party hereto warrants and represents that such
individual is duly authorized and empowered to enter into this Agreement and
bind such party hereto.
8.13 SPECIFIC PERFORMANCE. Each party's obligations under this
Agreement are unique. If any party should default in its obligations under this
Agreement, the parties each acknowledge that it would be extremely impracticable
to measure the resulting damages; accordingly, the non-defaulting party, in
addition to any other available rights or remedies, may ▇▇▇ in equity for
specific performance, and the parties each expressly waive the defense that a
remedy in damages will be adequate. Notwithstanding any breach or default by any
of the parties of any of their respective representations, warranties,
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covenants, or agreements under this Agreement, if the purchase and sale
contemplated by it shall be consummated at the Closing, each of the parties
waives any rights that it or he may have to rescind this Agreement or the
transaction consummated by it; provided, however, this waiver shall not affect
any other rights or remedies available to the parties under this Agreement or
under the law.
8.14 DISPUTE RESOLUTION. Except for matters with respect to which
injunctive relief is sought, all claims, disputes and other matters in
controversy (a "DISPUTE") arising directly or indirectly out of or related to
this Agreement, or the breach thereof, whether contractual or noncontractual,
and whether during the term or after the termination of this Agreement, shall be
resolved exclusively according to the procedures set forth in this SECTION 8.14.
8.14.1 MEDIATION. Neither party shall commence an arbitration
proceeding pursuant to the provisions of SECTION 8.14.2 unless that
party first gives a written notice (a "DISPUTE NOTICE") to the other
party setting forth the nature of the dispute. The parties shall
attempt in good faith to resolve the dispute by mediation under the
Commercial Mediation Rules of the American Arbitration Association
("AAA") in effect on the date of the Dispute Notice. If the parties
cannot agree on the selection of a mediator within 20 days after
delivery of the Dispute Notice, the mediator will be selected by the
AAA. If the dispute has not been resolved by mediation as provided
above within 60 days after delivery of the Dispute Notice, then the
dispute shall be determined by arbitration in accordance with the
provisions of SECTION 8.14.2.
8.14.2 ARBITRATION.
(a) Any dispute that is not settled through mediation
as provided in SECTION 8.14.1 above shall be resolved by
arbitration in Orange County, California, governed by the
Federal Arbitration Act, 9 U.S.C. ` 1 et seq, and administered
by the American Arbitration Association under its Commercial
Arbitration Rules in effect on the date of the Dispute Notice,
as modified by the provisions of this SECTION 8.14.2, by a
single arbitrator. Persons eligible to be selected as an
arbitrator shall be limited to lawyers with excellent academic
and professional credentials (i) who are or have been a
partner in a highly respected law firm for at least 15 years
specializing in either general commercial litigation or
general corporate and commercial matters and (ii) who have had
both training and experience as an arbitrator. Each party
shall be entitled to strike on a peremptory basis, for any
reason or no reason, any or all of the names of potential
arbitrators on the list submitted to the parties by the AAA as
being qualified in accordance with the criteria set forth
herein. If the parties cannot agree on a mutually acceptable
single arbitrator from the one or more lists submitted by the
AAA, the AAA shall designate three persons who, in its
opinion, meet the criteria set forth herein, which designees
may include persons named on any list previously submitted by
the AAA. Each party shall be entitled to strike one of such
three designees on a peremptory basis, indicating its order of
preference with respect to the remaining designees, and the
selection of the arbitrator shall be made from among such
designee(s) which have not been so stricken by either party in
accordance with their indicated order of mutual preference to
33
the extent possible. The arbitrator shall base the award on
applicable law and judicial precedent and, unless both parties
agree otherwise, shall include in such award the findings of
fact and conclusions of law upon which the award is based.
Judgment on the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof.
(b) Notwithstanding the foregoing, if the dispute is
determined by a single arbitrator as contemplated, or if the
parties agree to a panel of three arbitrators to be selected
in accordance with the applicable AAA rules, and in the event
the dispute is determined by less than the unanimous decision
of the three arbitrators, then upon the application by either
party to a court for an order confirming, modifying or
vacating the award, the court shall have the power to review
whether, as a matter of law based on the findings of fact
determined by the arbitrator, the award should be confirmed,
modified or vacated in order to correct any errors of law made
by the arbitrator. In order to effectuate judicial review
limited to issues of law, the parties agree (and shall
stipulate to the court) that the findings of fact made by the
arbitrator shall be final and binding on the parties and shall
serve as the facts to be submitted to and relied on by the
court in determining the extent to which the award should be
confirmed, modified or vacated.
8.14.3 COSTS AND ATTORNEYS' FEES. If either party fails to
proceed with mediation or arbitration as provided herein or
unsuccessfully seeks to stay such mediation or arbitration, or fails to
comply with any arbitration award, or is unsuccessful in vacating or
modifying the award pursuant to a petition or application for judicial
review, the other party shall be entitled to be awarded costs,
including reasonable attorneys' fees, paid or incurred by such other
party in successfully compelling such arbitration or defending against
the attempt to stay, vacate or modify such arbitration award and/or
successfully defending or enforcing the award.
8.15 TOLLING STATUTE OF LIMITATIONS. All applicable statutes of
limitations and defenses based upon the passage of time shall be tolled while
the procedures specified in this SECTION 8.14 are pending. The parties will take
such action, if any, required to effectuate such tolling.
8.16 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute the same instrument.
[signature page follows]
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IN WITNESS WHEREOF, each of the parties has executed this Agreement as
of the date first set forth above.
PURCHASER: SELLER:
--------- ------
GDI COMMUNICATIONS LLC TELENETICS CORPORATION
By: /S/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ By: /S/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
--------------------------------- -----------------------------
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇,
Managing Member President
▇▇▇▇▇▇▇: By: /S/ ▇▇▇▇▇ ▇▇▇▇▇
------- ------------------------------
▇▇▇▇▇ ▇▇▇▇▇, Secretary
/S/▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-----------------------------------
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
35
EXHIBIT 7.1(a)
Counties and Political Subdivisions
Subject to Covenant Not to Compete
----------------------------------
The following counties in the State of California:
Alameda Orange
Alpine Placer
▇▇▇▇▇▇ Plumas
Butte Riverside
Calaveras Sacramento
Colusa San ▇▇▇▇▇▇
Contra Costa San Bernardino
Del Norte San Francisco
El Dorado San ▇▇▇▇▇▇▇
Fresno San ▇▇▇▇ Obispo
▇▇▇▇▇ San Mateo
Humboldt Santa ▇▇▇▇▇▇▇
Imperial Santa ▇▇▇▇▇
Inyo Santa ▇▇▇▇
▇▇▇▇ Shasta
Kings San Diego
Lake Sierra
Lassen Siskiyou
Los Angeles ▇▇▇▇▇▇
▇▇▇▇▇▇ Sonoma
Marin Stanislaus
Mariposa ▇▇▇▇▇▇
Mendocino Tehama
Merced Trinity
Modoc Tulare
Mono Tuolumne
Monterey Ventura
Napa Yolo
Nevada Yuba
All counties and political subdivisions in each of the other forty-nine states
of the United States of America.
The District of Columbia.
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