EXHIBIT 10.2
AGREEMENT FOR
SALE OF STOCK
BETWEEN
▇▇▇▇▇ ACQUISITION, L.L.C.
AND
DSI ACQUISITION, INC.
(A WHOLLY OWNED SUBSIDIARY OF ▇▇▇▇▇ ACQUISITION, L.L.C.)
AND
DIVERSIFIED SPECIALISTS, INC.
AND
▇▇▇▇▇ ▇▇▇▇
December 11, 1995
AGREEMENT FOR
SALE OF STOCK
THIS AGREEMENT, dated as of December 11, 1995 (this "Agreement"), is by
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and among ▇▇▇▇▇ Acquisition, L.L.C., a Texas limited liability company
("Buyer"), DSI Acquisition, Inc., a Texas corporation and a wholly owned
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subsidiary of Buyer ("▇▇▇▇▇ Subsidiary"), and ▇▇▇▇▇ ▇▇▇▇, an individual residing
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in Houston, ▇▇▇▇▇▇ County, Texas ("▇▇▇▇") and Diversified Specialists, Inc., a
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Texas corporation ("DSI"). The Buyer, ▇▇▇▇▇ Subsidiary, ▇▇▇▇ and DSI are
sometimes together referred to herein as the "Parties".
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RECITALS
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▇▇▇▇ owns 1,000 shares of the common stock, $1.00 par value ("Common
Stock") of DSI. The shares of Common Stock owned by ▇▇▇▇ are hereinafter
referred to as the "▇▇▇▇ Shares".
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The ▇▇▇▇ Shares consist of one hundred percent (100%) of the issued and
outstanding capital stock of DSI.
▇▇▇▇ is the Chief Executive Officer of DSI.
▇▇▇▇ desires to sell a portion of the ▇▇▇▇ Shares and ▇▇▇▇▇ Subsidiary
desires to purchase a portion of the ▇▇▇▇ Shares pursuant to the terms of this
Agreement.
DSI desires to sell 2,715,500 new, original issue shares of Common Stock in
DSI ("New Shares") to Buyer, and the Buyer desires to buy such New Shares from
the DSI subject to and in accordance with the terms of this Agreement.
▇▇▇▇, Buyer and ▇▇▇▇▇ Subsidiary desire to reorganize and recapitalize DSI
by merging ▇▇▇▇▇ Subsidiary into DSI in accordance with this Agreement.
AGREEMENT
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NOW, THEREFORE, in consideration of the foregoing premises, the
representations, warranties and agreements herein contained and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and subject to the conditions set forth herein, the Parties agree
as follows:
ARTICLE 1
1.1 Agreement to Sell and Purchase New Shares. Subject to the terms and
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conditions hereinafter set forth, DSI agrees to sell to the Buyer the New Shares
free and clear of all liens, claims, pledges and encumbrances of every kind,
character and description, and the Buyer agrees to purchase the New Shares at
the Closing (as defined in Section 1.3 hereof). The purchase price for the New
Shares shall be Three Million Eight Hundred Thousand Dollars ($3,800,000).
("New Shares Purchase Price").
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1.2 Agreement to Sell Shares. Subject to the terms and conditions
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hereinafter set forth, immediately after the issue of the New Shares pursuant to
Paragraph 1.1 above, ▇▇▇▇ agrees to sell to ▇▇▇▇▇ Subsidiary 2,795,500 ▇▇▇▇
Shares (the "Transferred Shares") free and clear of all liens, claims, pledges
and encumbrances of every kind, character and description and ▇▇▇▇▇ Subsidiary
agrees to pay ▇▇▇▇ the following consideration:
(a) Fourteen Million Four Hundred Thousand Dollars ($14,400,000) as
evidenced by promissory note attached hereto as Exhibit "A-1" and
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incorporated herein for all purposes, such note being secured by a standby
letter of credit issued by Bank One, Texas, N.A., in a form as set forth in
Exhibit "A-1-A" attached hereto and incorporated herein for all purposes,
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(ii) Six Million Dollars ($6,000,000) as evidenced by promissory note
attached hereto as Exhibit "A-2" and incorporated herein for all purposes,
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(iii) One Million Three Hundred Thousand Dollars ($1,300,000) as evidenced
by promissory note attached hereto as Exhibit "A-3" and incorporated herein
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for all purposes and (iv) immediately following Closing, two tracts of land
known as the Fallstone Tract and Enchanted Valley Tract to be conveyed by
Special Warranty Deed attached hereto as Exhibit "D" and incorporated
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herein for all purposes. Buyer and ▇▇▇▇▇ Subsidiary agree immediately
following Closing and the merger of ▇▇▇▇▇ Subsidiary into DSI to cause DSI,
and DSI agrees, to convey the Fallstone Tract and Enchanted Valley Tract to
▇▇▇▇ to satisfy this obligation. All of 1.2(a)(i), (ii), (iii) and (iv),
collectively referred to as the "Transferred Shares Purchase Price".
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1.3 Closing. The closing of the transactions described hereunder (the
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"Closing") shall take place on a mutually agreeable date which the Parties
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anticipate to be on or before December _____, 1995 (the "Closing Date"). The
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Closing shall be held at the offices of Chamberlain, Hrdlicka, White, ▇▇▇▇▇▇▇▇ &
▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇ or other location
agreeable to ▇▇▇▇ and designated by Buyer in writing at least two (2) business
days before the scheduled Closing. In the event Buyer wishes to extend the
Closing Date for any reason, beyond December _____, 1995, ▇▇▇▇ and DSI must
consent to such extension in writing in their sole discretion.
1.4 Payment of New Shares Purchase Price and Transferred Shares Purchase
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Price. The New Shares Purchase Price and Transferred Shares Purchase Price all
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collectively referred to as the "Purchase Price" shall be paid as follows:
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(a) upon execution of this Agreement, Buyer shall pay to ▇▇▇▇ the sum
of $200,000 (the "Initial Amount") which Initial Amount shall be dealt with in
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accordance with Section 1.6 below;
(b) on the Closing Date, the Buyer will deliver to DSI $3,800,000 as
consideration for the New Shares in immediately available funds or via wire
transfer as determined by DSI; and
(c) immediately upon Buyer having purchased the New Shares, ▇▇▇▇▇
Subsidiary shall deliver to ▇▇▇▇ as consideration for the Transferred Shares
$21,700,000 as evidenced by the fully executed promissory notes described in
Exhibit "A-1", Exhibit "A-2" and
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Exhibit "A-3" hereof and secured by the Loan and Security Agreement attached
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hereto as Exhibit "B" and incorporated herein for all purposes and the Guaranty
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Agreement and other agreements from Buyer attached hereto as Exhibit "C" and
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incorporated herein for all purposes and as additional consideration, title to
the Fallstone Tract and Enchanted Valley Tract by delivery of a fully executed
and acknowledged Special Warranty Deed attached hereto as Exhibit "D" and
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incorporated herein for all purposes from ▇▇▇▇▇ Subsidiary to ▇▇▇▇ conveying
good and indefeasible title to the Fallstone Tract and the Enchanted Valley
Tract.
1.5 Delivery of Certificates.
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(a) Subject to all of the conditions to the obligations of DSI to
issue the New Shares to Buyer as set out in Section 6.3 having been satisfied or
waived by DSI and all of the conditions to the obligations of ▇▇▇▇ as set out in
Section 6.2 having been satisfied or waived by ▇▇▇▇, DSI shall deliver to the
Buyer at the Closing the certificate(s) representing the New Shares duly issued
to Buyer to evidence the sale and purchase of the New Shares hereunder.
(b) Subject to all of the conditions to the obligations of ▇▇▇▇ to
transfer the Transferred Shares to ▇▇▇▇▇ Subsidiary as set out in Section 6.2
having been satisfied or waived by ▇▇▇▇ and all of the conditions to the
obligations of DSI as set forth in Section 6.3 having been satisfied or waived
by DSI, ▇▇▇▇ shall deliver to ▇▇▇▇▇ Subsidiary at the Closing the certificate(s)
representing the Transferred Shares duly endorsed to ▇▇▇▇▇ Subsidiary and
accompanied by appropriate stock certificate powers as reasonably requested by
▇▇▇▇▇ Subsidiary to evidence purchase of the Transferred Shares hereunder.
1.6 Initial Amount. Upon execution of this Agreement, the Buyer shall pay
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the Initial Amount to ▇▇▇▇. Upon completion of the Closing, the Initial Amount
shall be returned to Buyer by ▇▇▇▇. In the event that Buyer fails to pay or
cause to be paid the New Shares Purchase Price set forth in Section 1.1 or ▇▇▇▇▇
Subsidiary fails to purchase the Transferred Shares and pay the Transferred
Shares Purchase Price set forth in Section 1.2 or either Buyer or ▇▇▇▇▇
Subsidiary otherwise fail to perform their obligations set forth in this
Agreement, including Buyer's obligation to purchase the New Shares from DSI or
▇▇▇▇▇ Subsidiary's obligation to purchase the Transferred Shares from ▇▇▇▇ by
the Closing Date, for any reason other than (a) DSI's or ▇▇▇▇' Material Adverse
Breach (as hereinafter defined) of a representation, warranty or covenant
contained in Articles 3 or 4 hereof which breach is not cured or the Disclosure
Statement amended as contemplated in Section 7.1 hereof, or (b) failure of one
or more of the conditions described in Section 6.1 hereof to be materially
satisfied prior to the Closing, other than those of subsections 6.1(e) and
6.1(n), and Buyer shall not have waived such condition, ▇▇▇▇ shall be entitled
to keep and retain the Initial Amount. The conditions in Section 1.6 (a) or (b)
above are hereinafter referred to as the "Conditions". In the event that Buyer
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does not purchase the New Shares from DSI or ▇▇▇▇▇ Subsidiary fails to purchase
the Transferred Shares and pay the Purchase Price set forth in Section 1.2 or
either Buyer or ▇▇▇▇▇ Subsidiary fails to perform their respective obligations
hereunder by the Closing Date, subject to Buyer's and ▇▇▇▇▇ Subsidiary's rights
under Section 8.12 hereof, this Agreement shall terminate without further
obligation or liability of any Party to the other Parties, except if such event
occurs because of the occurrence of any of the Conditions, then Buyer shall be
entitled immediately to be paid the Initial Amount and ▇▇▇▇ shall promptly pay
the Initial Amount over to Buyer upon request from Buyer.
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ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF BUYER AND ▇▇▇▇▇ SUBSIDIARY
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Buyer and ▇▇▇▇▇ Subsidiary hereby represent and warrant to DSI and ▇▇▇▇ as
follows:
2.1 Organization and Qualification. ▇▇▇▇▇ Acquisition, Inc. was a
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corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. Buyer is a limited liability company duly organized,
validly existing and in good standing under the laws of the State of Texas
organized on November 30, 1995, and ▇▇▇▇▇ Acquisition, Inc., a Delaware
corporation was merged into Buyer on December ____, 1995. ▇▇▇▇▇ Subsidiary is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Texas. Each of Buyer and ▇▇▇▇▇ Subsidiary is duly qualified to
do business in each jurisdiction where such qualification is required and each
is in good standing in each jurisdiction required by applicable law. Each of
Buyer and ▇▇▇▇▇ Subsidiary has full authority and all authorizations, licenses
and permits necessary to carry on the business in which it is engaged in or in
which it proposes presently to engage and to own and use the properties owned
and used by it. Each of Buyer ▇▇▇▇▇ Acquisition, Inc. and ▇▇▇▇▇ Subsidiary has
delivered to DSI and ▇▇▇▇ true, accurate and complete copies of Articles of
Organization or its Articles of Incorporation, as applicable, or other charter
documents and bylaws which reflect all amendments made thereto at any time prior
to the date of this Agreement and the Articles of Merger of ▇▇▇▇▇ Acquisition,
Inc. into Buyer. The minute book containing the records of meetings of the
shareholders and the Board of Directors of ▇▇▇▇▇ Subsidiary, and the stock
certificate book of ▇▇▇▇▇ Subsidiary is complete and correct in all material
respects. The member list of Buyer attached hereto as Exhibit "E" and
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incorporated herein for all purposes is complete and correct in all respects and
accurately reflect the record ownership and beneficial ownership of all of the
outstanding interest of Buyer. All material actions taken by Buyer and ▇▇▇▇▇
Subsidiary since their respective organization or incorporation, as applicable,
other than in the Ordinary Course of Business have been duly authorized and/or
subsequently ratified. As used in the Agreement, the term "Ordinary Course of
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Business" means the usual and ordinary course of business consistent with past
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custom and practices (including with respect to quantity and frequency).
Neither Buyer nor ▇▇▇▇▇ Subsidiary is in default under or in violation of any
provision of its respective Articles of Organization or Articles of
Incorporation, as applicable, or other charter documents, bylaws, or
regulations.
2.2 Capitalization. Buyer's capitalization consists of 699,000 Class A
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membership units and 2,070,000 Class B membership units which represents all of
the membership units in Buyer. All of the Class A membership units are issued
and outstanding and _____ of the Class B units are issued and outstanding. All
the Membership Units of Buyer as of the Closing Date will be duly authorized and
will be validly issued. ▇▇▇▇▇ Subsidiary's entire authorized capital stock
consists of 1,000,000 shares of common stock, 1,000 shares of $0.01 par value
Common Stock, all of which are issued and outstanding and held beneficially and
of record by Buyer. The record beneficial stock ownership and capitalization of
▇▇▇▇▇ Subsidiary will not change prior to the Closing Date. All of the issued
and outstanding shares of ▇▇▇▇▇ Subsidiary's common stock have been and, as of
the Closing Date, will be duly authorized and/or as of the Closing Date, will be
validly issued, fully paid and non-assessable and have not been and, as of the
Closing Date, will not be issued in violation of any preemptive rights. Other
than those matters disclosed to ▇▇▇▇ in writing and those transactions
contemplated and provided for in this
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Agreement, there are no outstanding or authorized options, rights, warrants,
calls, convertible securities (debt or equity), rights to subscribe, conversion
rights or other agreements or commitments to which the Buyer or ▇▇▇▇▇ Subsidiary
is a party or which are binding upon Buyer or ▇▇▇▇▇ Subsidiary providing for the
issuance or transfer by Buyer or ▇▇▇▇▇ Subsidiary of any additional membership
interest or additional shares of their respective capital stock, as applicable,
and ▇▇▇▇▇ Subsidiary has not reserved any shares of its capital stock for
issuance, nor are there any outstanding stock option rights, phantom equity or
similar rights, contracts, arrangements or commitments based upon the book
value, income or other attribute of ▇▇▇▇▇ Subsidiary. Other than disclosed to
▇▇▇▇ in writing, there are no trust or other agreements or understandings with
respect to the voting of Buyer's membership interest or ▇▇▇▇▇ Subsidiary's
capital stock.
2.3 Authority Relative to this Agreement. Buyer and ▇▇▇▇▇ Subsidiary each
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have the requisite corporate power and authority to enter into this Agreement
and to carry out its obligations hereunder. The execution and delivery of this
Agreement by Buyer and ▇▇▇▇▇ Subsidiary and the consummation by Buyer and ▇▇▇▇▇
Subsidiary of the transactions contemplated hereby have been duly authorized by
Buyer and ▇▇▇▇▇ Subsidiary, and, no other proceedings on the part of Buyer or
▇▇▇▇▇ Subsidiary are necessary to authorize the execution, delivery and
performance of this Agreement and the transactions contemplated hereby. This
Agreement has been duly executed and delivered by Buyer and ▇▇▇▇▇ Subsidiary and
constitutes the valid and binding obligation of Buyer and ▇▇▇▇▇ Subsidiary,
enforceable against Buyer and ▇▇▇▇▇ Subsidiary in accordance with its terms,
except as such enforcement may be limited by bankruptcy, insolvency or other
similar laws affecting the enforcement of creditors' rights generally or by
general principles of equity. Assuming compliance with the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇
Antitrust Improvements Act (the "▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act"), neither the execution
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or delivery of this Agreement by Buyer and ▇▇▇▇▇ Subsidiary, the performance by
Buyer and ▇▇▇▇▇ Subsidiary of their respective obligations hereunder, nor the
consummation of the transactions contemplated hereby will require any consent,
approval or notice under, or violate, breach, be in conflict with, or constitute
a default (or an event that, with notice or lapse of time, or both, would
constitute a default) under, or permit the termination of, or result in the
creation or imposition of any lien upon any properties, assets or business of
Buyer or ▇▇▇▇▇ Subsidiary under any note, bond, indenture, mortgage, deed of
trust, lease, franchise, permit, authorization, license, contract, instrument or
other agreement or commitment or any order, judgment or decree to which Buyer or
▇▇▇▇▇ Subsidiary is a party or by which Buyer or ▇▇▇▇▇ Subsidiary or any of
their respective assets or properties is bound or encumbered. No authorization,
consent or approval of, or filing with, any public body, court or authority is
necessary on the part of Buyer or ▇▇▇▇▇ Subsidiary for the consummation by Buyer
or ▇▇▇▇▇ Subsidiary of the transactions contemplated by this Agreement, except
for such authorizations, consents, approvals and filings as to which the failure
to obtain or make would not, individually or in the aggregate, have a material
adverse effect on the financial condition, results of operations or business of
Buyer or ▇▇▇▇▇ Subsidiary or prevent Buyer or ▇▇▇▇▇ Subsidiary from performing
under this Agreement. No other approval will be necessary to authorize the
execution, delivery and performance of this Agreement and the transactions
contemplated hereby.
2.4 Subsidiaries. Except for Buyer's investment in the shares of the
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▇▇▇▇▇ Subsidiary common stock, Buyer does not own and other than Buyer's
obligations in this Agreement, Buyer is not obligated to purchase any equity
interest in, or any other interest convertible into or
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exchangeable for any equity interest in any entity. ▇▇▇▇▇ Subsidiary does not
own and other than ▇▇▇▇▇ Subsidiary's obligations in this Agreement, ▇▇▇▇▇
Subsidiary is not obligated to purchase any equity interest in or any other
interest convertible into or exchangeable for any equity interest in any entity.
2.5 Guarantees. Neither Buyer nor ▇▇▇▇▇ Subsidiary is a guarantor or
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otherwise liable for any indebtedness or other obligations of any other person,
firm or corporation or other endorsements for collection in the Ordinary Course
of Business other than as contemplated or provided for in this Agreement.
2.6 Legal Compliance. To the knowledge of Buyer and ▇▇▇▇▇ Subsidiary,
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each of the respective directors, officers, employees and any other individuals
acting on behalf of Buyer and ▇▇▇▇▇ Subsidiary including but not limited to M.
D. ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇, ▇. ▇. ▇▇▇▇▇▇▇, and ▇▇▇▇ ▇▇▇▇▇▇ (acting only in their
capacities as representatives of Buyer or ▇▇▇▇▇ Subsidiary as applicable) have
complied with all applicable laws and regulations of foreign, federal, state and
local governments and all agencies thereof, and no claim has been filed or
stated against Buyer or ▇▇▇▇▇ Subsidiary alleging a violation of any such laws
or regulations. To the knowledge of Buyer and ▇▇▇▇▇ Subsidiary, each of Buyer
and ▇▇▇▇▇ Subsidiary holds all of the permits, licenses, certificates or other
authorizations of foreign, federal, state or local government agencies required
for the conduct of the business as presently conducted or proposed to be
conducted.
2.7 Disclosure. The representations, warranties and statements of fact
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made by Buyer and ▇▇▇▇▇ Subsidiary in this Agreement, and in the certificates
and other written statements or agreements delivered or to be delivered pursuant
to this Agreement in connection with the transactions contemplated herein are
accurate, correct and complete and will, except as contemplated hereby, be
accurate, correct and complete at the Closing Date, and will not contain any
untrue statement of material fact or omit to state any material fact necessary
in order to make the statements and information contained therein not
misleading. Any information actually to the knowledge of ▇▇▇▇ with regard to
representations and warranties and statements of fact made by Buyer or ▇▇▇▇▇
Subsidiary in this Agreement shall be deemed to have been disclosed by Buyer and
▇▇▇▇▇ Subsidiary whether Buyer or ▇▇▇▇▇ Subsidiary actually made such
disclosure.
2.8 Consulting and Advisory Fees. Neither Buyer nor ▇▇▇▇▇ Subsidiary has
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any obligation to pay any fees or commissions to any broker, finder or agent
with respect to the transaction contemplated by this Agreement other than an
obligation to pay those amounts set forth on Exhibit "F" attached hereto and
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incorporated herein for all purposes.
2.9 Knowledge. Neither Buyer nor ▇▇▇▇▇ Subsidiary has any actual
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knowledge that any of the representations and warranties of DSI or ▇▇▇▇ set out
in Article 3 are not true and correct, except as set forth in the Disclosure
Schedule, as such term is defined in Article 3 hereof.
2.10 Conduct of Business. Neither Buyer nor ▇▇▇▇▇ Subsidiary have
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conducted any material business or incurred any material debts or obligations
since their respective dates of organization or incorporation, as applicable,
other than related to their efforts to acquire DSI as
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contemplated or provided for in this Agreement. At Closing all conditions of
Sections 6.2 and 6.3 hereof will have been met.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF DSI AND ▇▇▇▇
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Except as set forth in the correspondingly numbered section of the
disclosure schedules attached hereto as Exhibit "G" as amended and supplemented
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from time to time or other numbered sections specifically relating to the same
subject matter and incorporated herein by this reference (the "Disclosure
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Schedule"), DSI and ▇▇▇▇, jointly and severally, hereby make the following
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representations and warranties to Buyer and ▇▇▇▇▇ Subsidiary; provided, however,
▇▇▇▇ shall not be responsible for any breach or misrepresentation of any
representation or warranty of DSI which is substantiated solely by the post
closing acknowledgment of DSI in the absence of other documentation independent
of actions by DSI conclusively showing or evidencing such breach or
misrepresentation.
3.1 Organization, Qualification and Corporate Power. DSI is a corporation
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duly organized, validly existing and in good standing under the laws of the
State of Texas. DSI (HK) Limited and Magnifair Holdings Limited (collectively,
the "Subsidiaries") are both corporations duly organized, validly existing and
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in good standing under the laws of Companies Ordinance of Hong Kong. Each of DSI
and each of the Subsidiaries is duly qualified to do business as a foreign
corporation and each is in good standing in the jurisdictions specified in
Section 3.1 of the Disclosure Schedule, which are all the jurisdictions in which
the ownership of their respective properties, the employment of their respective
personnel or the conduct of their respective businesses requires that they be so
qualified except where a failure to be so qualified or licensed would not have a
material adverse effect on their respective financial condition, results of
operations or business. In the event of a breach of this representation and
warranty ▇▇▇▇ shall not be liable either directly or indirectly for any costs
or registration fees for such qualification but DSI and ▇▇▇▇ shall be liable for
any other losses or damages incurred by Buyer as a result of such breach to the
extent, if any, hereinafter provided. Each of DSI and its Subsidiaries has full
corporate power and authority and all authorizations, licenses and permits
necessary to carry on the business in which it is engaged or in which it
proposes presently to engage and to own and use the properties owned and used by
it. Each of DSI and its Subsidiaries has delivered to Buyer true, accurate and
complete copies of its articles of incorporation or other charter document and
bylaws which reflect all amendments made thereto at any time prior to the date
of this Agreement. The minute books containing the records of meetings of the
shareholders and Board of Directors of DSI and its Subsidiaries, and the stock
certificate books of DSI and its Subsidiaries are complete and correct in all
material respects. The stock record books of DSI and its Subsidiaries and the
shareholder lists of DSI and its Subsidiaries which have previously furnished to
Buyer are complete and correct in all respects and accurately reflect the record
ownership and the beneficial ownership of all the outstanding shares of DSI's
capital stock and all other outstanding securities issued by DSI or its
Subsidiaries. All material corporate actions taken by DSI or the Subsidiaries
since their respective incorporation other than in the Ordinary Course of
Business have been duly authorized and/or subsequently ratified as necessary;
provided, however, in the event DSI subsequently determines additional corporate
actions are necessary, ▇▇▇▇ shall not be liable for any legal fees incurred by
DSI in documenting such
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corporate actions, but DSI and ▇▇▇▇ shall be liable for any other losses as
damages incurred by Buyer as a result of DSI's and ▇▇▇▇' breach of this
representation and warranty to the extent, if any, hereinafter required. As used
in this Agreement, the term "Ordinary Course of Business" means the usual and
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ordinary course of business consistent with past custom and practice (including
with respect to quantity and frequency). Neither DSI nor any of the Subsidiaries
is in default under or in violation of any provision of its respective articles
of incorporation or other charter document or bylaws.
3.2 Capitalization. DSI's entire authorized capital stock consists of
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703,503,500 shares consisting of $0.0001 par value shares of Common Stock, of
which 3,500,000 shares are issued and outstanding on the date of this Agreement
and 3,500,000 shares will be issued and outstanding immediately prior to the
Closing Date, of which 3,500,000 shares are and will be held beneficially and of
record by ▇▇▇▇. DSI (HK) Limited's entire authorized capital consists of 20,000
shares of common stock par value $1.00 (U.S.) per share, 10,000 of which are
issued and outstanding and held beneficially and of record by DSI except one
share and except as set out in Section 3.2 of the Disclosure Schedule.
Magnifair Holdings Limited's entire authorized capital consists of 10,000 shares
of common stock, par value $1.00 (H.K.) per share, 10,000 of which are issued
and outstanding and held beneficially and of record by DSI (HK) Limited except
one share. The record and beneficial stock ownership and capitalization of the
Subsidiaries will not change prior to the Closing Date, and except as set out in
Section 3.2 of the Disclosure Schedule, all of the issued and outstanding shares
of DSI Common Stock have been and, as of the Closing Date, will be duly
authorized and are and, as of the Closing Date, will be validly issued, fully
paid and nonassessable and have not been and, as of the Closing Date, will not
be issued in violation of any preemptive rights except as set forth in 3.2 of
the Disclosure Schedule. There are no outstanding or authorized options, rights,
warrants, calls, convertible securities (debt or equity), rights to subscribe,
conversion rights or other agreements or commitments to which DSI or the
Subsidiaries is a party or which are binding upon DSI or the Subsidiaries
providing for the issuance or transfer by DSI or the Subsidiaries of additional
shares of their respective capital stock and neither DSI nor the Subsidiaries
has reserved any shares of their respective capital stock for issuance, nor are
there any outstanding stock option rights, phantom equity or similar rights,
contracts, arrangements or commitments based upon the book value, income or
other attribute of DSI or the Subsidiaries. There are no trusts or any other
agreements or understandings with respect to the voting of DSI's or the
Subsidiaries' capital stock. Upon sale of the New Shares, to Buyer, sale of the
Transferred Shares to ▇▇▇▇▇ Subsidiary, and the merger of ▇▇▇▇▇ Subsidiary into
DSI all as contemplated herein, Buyer will own 79.97% of the issued and
outstanding shares of Common Stock in DSI; DSI and the individual or entity
designated by Buyer with respect to one share of each Subsidiary will own the
entire equity interest in the Subsidiaries; and neither DSI nor the Subsidiaries
will have outstanding any stock or securities convertible or exchangeable for
any shares of their respective capital stock, nor will any of these companies
have outstanding any rights, warrants, options, agreements or arrangements to
subscribe for or to purchase their respective capital stock or any stock or
securities (whether debt or equity) convertible into or exchangeable for their
respective capital stock other than the warrants to be issued to Hibernia
Corporation or to ▇▇▇▇ at Closing. All capital stock, options, warrants and
other securities issued by DSI were issued in compliance, in all respects, with
all applicable federal and state securities laws.
8
3.3 Authorization of Transaction. DSI and ▇▇▇▇ each have the requisite
----------------------------
power and authority to enter into this Agreement and perform their obligations
hereunder. No other approval will be necessary to authorize the execution,
delivery and performance of this Agreement and the transactions contemplated
hereby except as set out in Section 3.2 of the Disclosure Schedule. This
Agreement has been duly executed and delivered by DSI and ▇▇▇▇ and constitutes
the legal, valid and binding obligation of each of DSI and ▇▇▇▇, enforceable
against each in accordance with its terms, except as such enforcement may be
limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights generally or by general principles of equity.
Assuming compliance with the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act and except as set out in
Section 3.3 of the Disclosure Schedule, neither the execution or delivery of
this Agreement by DSI and ▇▇▇▇, the performance by DSI and ▇▇▇▇ of their
respective obligations hereunder or the consummation of the transactions
contemplated hereby will require any consent, approval or notice under, or
violate, breach, be in conflict with or constitute a default (or an event that,
with notice or lapse of time or both, would constitute a default) under, or
permit the termination of, or result in the creation or imposition of any lien
upon any properties, assets or business of DSI or any of the Subsidiaries under
any note, bond, indenture, mortgage, deed of trust, lease, franchise, permit,
authorization, license, contract, instrument or other agreement or commitment or
any order, judgment or decree to which DSI or any of the Subsidiaries is a party
or by which DSI or any of the Subsidiaries or any of their respective assets or
properties is bound or encumbered, except those that have already been given,
obtained or filed, all as set forth in Section 3.3 of the Disclosure Schedule.
No notice to, filing with or authorization, consent or approval of any public
body or authority is necessary by DSI or its Subsidiaries for the consummation
of the transactions contemplated by this Agreement except as may be required on
behalf of Buyer.
3.4 Subsidiaries. Except for DSI's investment in the shares of the
------------
Subsidiaries' common stock, DSI does not own and is not obligated to purchase
any equity interest in or any other interest convertible into or exchangeable
for an equity interest in any entity. The Subsidiaries do not own and are not
obligated to purchase any equity interest in or any other interest convertible
into or exchangeable for an equity interest in any entity other than ownership
of a Subsidiary.
3.5 Financial Statements. Buyer and ▇▇▇▇▇ Subsidiary have been delivered
--------------------
(a) DSI's audited consolidated balance sheets as of January 31, 1995, 1994, 1993
and 1992, (b) DSI's audited consolidated statements of operations and statements
of cash flows as of the end of and for each of the years in the four-year period
ended January 31, 1995, (c) prior to Closing, DSI's unaudited consolidated
balance sheet as of September 30, 1995, (d) prior to Closing, DSI's unaudited
consolidated statements of operations and statements of cash flows for the
eight-month period ended September 30, 1995 and for the comparable period ended
September 30, 1994, as restated if appropriate to be consistent with generally
accepted accounting principles consistently applied throughout the periods
covered thereby (collectively, the "Financial Statements"). The Financial
--------------------
Statements have been prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods covered thereby and
present fairly the consolidated financial condition of DSI and its Subsidiaries
as of such dates and the results of its operations and changes in financial
position for such periods (and for presentation subject, in the case of the
unaudited Financial Statements, to normal, recurring year-end audit
adjustments). Since January 31, 1995, there have been no changes in DSI's
9
method of accounting for tax purposes or financial accounting purposes, if any,
unless approved or required by Price Waterhouse & Company and disclosed to Buyer
in writing or other items disclosed to Buyer in writing. Based on prior
experience of DSI and to the knowledge and belief of ▇▇▇▇, the Financial
Statements reflect adequate reserves and allowances for product liability and
warranty claims for the periods indicated.
3.6 Events Subsequent to Financial Statements. Since January 31, 1995
-----------------------------------------
there has not been:
(a) any material adverse change in the consolidated financial
condition, results of operations, business or prospective sales (meaning the
aggregate current, open purchase orders) of DSI and its Subsidiaries;
(b) any sale, lease, conveyance, license or assignment of any material
assets, tangible or intangible, of DSI or its Subsidiaries, other than sales of
inventory in the Ordinary Course of Business;
(c) any damage, destruction or property loss in excess of $50,000.00,
individually or in the aggregate, in each instance not covered by insurance,
affecting adversely the properties or business of DSI or its Subsidiaries;
(d) any declaration or setting aside or payment of any dividend or
distribution with respect to the shares of capital stock of DSI or its
Subsidiaries or any redemption, purchase or other acquisition of any such shares
other than consummating the transactions contemplated and provided for in this
Agreement;
(e) except as set out in Section 3.6 of the Disclosure Schedule, any
mortgage or pledge of, or subjection to any lien, charge, security interest or
encumbrance of any kind on any of the assets, tangible or intangible, of DSI or
its Subsidiaries (other than liens arising by operation of law which secure
obligations which are not yet due and payable), nor any incurrence of
indebtedness or liability or assumption of obligations by DSI or its
Subsidiaries other than (i) those incurred in the Ordinary Course of Business,
which would include any working capital loans pursuant to DSI's credit line with
State Street Bank and Bank One Texas, N.A., (ii) those which do not exceed
$50,000.00 in the aggregate; and (iii) those incurred in the course of
negotiating, documenting and consummating the transactions contemplated and
provided for in this Agreement;
(f) except as set out in Section 3.6 of the Disclosure Schedule, any
cancellation or satisfaction by DSI or its Subsidiaries of any debt or claim or
advance, except for adjustments made in the Ordinary Course of Business, which
in the aggregate, are not material other than a cancellation of an obligation of
▇▇▇▇ to DSI in the approximate amount of $2,000,000.00 and other than
consummating the transactions contemplated or provided for in this Agreement;
(g) any waiver or release other than the cancellation of open purchase
orders by customers, by DSI or its Subsidiaries of any right of any material
value in excess of $50,000.00;
10
(h) any sale, assignment, transfer or grant by DSI or its Subsidiaries
of any material rights under any concessions, leases, licenses, agreements,
patents, inventions, trademarks, trade names or copyrights other than sales or
gifts of products or advertising or other rights or releases thereof in the
Ordinary Course of Business;
(i) any arrangement, agreement or undertaking entered into by DSI or
its Subsidiaries not terminable on thirty (30) days or less notice without cost
or liability (including, without limitation, any payment of or promise to pay
any bonus or special compensation or any increase in compensation) with
employees or any increase in compensation or benefits to officers or directors
of DSI or its Subsidiaries, other than in the Ordinary Course of Business or
consummating the transactions contemplated or provided for in this Agreement;
(j) any change made or authorized in the articles of incorporation or
other charter document or bylaws of DSI or its Subsidiaries other than those
contemplated or provided for in this Agreement other than to amend the Articles
of Incorporation to provide for officer and director indemnity, provision for
additional stock, preemptive rights, cumulative voting, cancellation of all
Treasury or other stock of DSI held by DSI, super majority approval of 85% of
shareholders and stock split of 3,500 to 1;
(k) any issuance, sale or other disposition by DSI or its Subsidiaries
of any shares of their respective capital stock or other equity securities, or
any grant of any options, warrants or other rights to purchase or obtain
(including upon conversion or exercise) shares of their respective capital stock
or other equity securities other than assignments of capital stock of a
Subsidiary by another Subsidiary to DSI and other than those contemplated and
provided for in this Agreement;
(l) except as set forth in Section 3.6 of the Disclosure Schedule, any
loan to or other transaction with any officer, director or shareholder of DSI or
its Subsidiaries giving rise to any claim or right of DSI or its Subsidiaries
against any such person or of such person against DSI or its Subsidiaries other
than normal recurring travel and expense advances and expense accounts made in
the Ordinary Course of Business;
(m) any acceleration, termination, modification or cancellation or
threat thereof by any party of any contract, lease or other agreement or
instrument other than the cancellation or modification of open purchase orders
by customers or vendors of DSI, individually or in the aggregate in excess of
$100,000 to which DSI or its Subsidiaries is a party or by which it is bound so
as to affect, materially and adversely, the properties or business of DSI or its
Subsidiaries;
(n) any pledge or gift of any charitable or other capital contribution
outside the Ordinary Course of Business;
(o) except as disclosed in Section 3.6 of the Disclosure Schedule, any
other transaction or commitment in excess of $100,000 or transactions or
commitments other than the modifications or cancellation of open purchase orders
by customers or vendors of DSI, in the aggregate in excess of $100,000 entered
into by DSI or its Subsidiaries which would materially
11
adversely affect the properties or business of DSI or its Subsidiaries, or other
than those contemplated or provided for in this Agreement; or
(p) termination, modification or cancellation of any booked open
purchase orders by customers of DSI in excess of $200,000 for any individual
order or $500,000 in the aggregate.
3.7 Undisclosed Liabilities. To ▇▇▇▇' knowledge there are no material
-----------------------
undisclosed liabilities or obligations of DSI or its Subsidiaries, either
accrued, absolute, or with the passage of time will become absolute except to
the extent provided for in the Financial Statements which have been delivered to
Buyer on the date hereof or on the Closing Date as applicable, or incurred in
the course of negotiating, documenting and consummating the transactions
contemplated and provided for in this Agreement.
3.8 Tax Returns and Audits. The taxable year of DSI and its Subsidiaries
----------------------
ends January 31. DSI has duly and timely filed or caused to be filed all tax
returns for the past six (6) years (collectively the "Tax Returns") required to
-----------
be filed on behalf of DSI and its Subsidiaries and has paid in full or fully
reserved against in the Financial Statements all taxes, interest, penalties,
assessments and deficiencies shown to be due or claimed in such tax returns to
be due on behalf of DSI and its Subsidiaries to foreign, federal, state or local
taxing authorities (including taxes on properties, income, franchises, licenses,
sales, use and payrolls). The Tax Returns are to ▇▇▇▇' knowledge correct based
on current tax law, and neither DSI nor its Subsidiaries are required to pay any
other taxes except as shown in such Tax Returns. The income tax returns filed by
DSI or its Subsidiaries have not been, and are not being, audited by the
Internal Revenue Service or other applicable taxing authorities for any period.
All taxes or estimates thereof that are shown to be due, or are claimed or
asserted by any taxing authority to be due, have been timely and appropriately
paid or contested. Except for amounts not yet due and payable, all tax
liabilities to which the properties of DSI or its Subsidiaries are known by ▇▇▇▇
to be subject have been paid and discharged or contested. The provisions for
income and other taxes payable reflected in the Financial Statements make
adequate provision for all then accrued and unpaid taxes of DSI and its
Subsidiaries. There are no tax liens to ▇▇▇▇' knowledge (other than liens for
taxes which are not yet due and payable) on any of the property of DSI or its
Subsidiaries, nor are there any pending or, to ▇▇▇▇' knowledge, threatened
examinations or tax claims. DSI has not granted any extensions of limitation
periods applicable to tax claims or filed a consent under Section 341(f) of the
Code relating to collapsible corporations. Except jurisdictions in which DSI and
its Subsidiaries voluntarily file tax returns, no claim has been made by a
taxing authority that either DSI or its Subsidiaries is or may be subject to
taxation by that jurisdiction. True and complete copies of all federal, foreign,
state and local income and other tax returns, of DSI or its Subsidiaries since
January 31, 1993 that are in DSI's or its Subsidiaries' possession, have been
delivered to Buyer, and the same are listed in Section 3.8 of the Disclosure
Schedule. Nether DSI nor its Subsidiaries is a party to, or bound by, any tax
indemnity, tax sharing or tax allocation agreement. Neither DSI nor its
Subsidiaries is a party to any agreement that has resulted or would result, in
the payment of any "excess parachute payments" within the meaning of Section
280G of the Code. Neither DSI nor its Subsidiaries has ever been a member of an
"affiliated group," as defined in Section 1504(a) of the Code. All positions
taken on federal Tax Returns that could give rise to a penalty for substantial
understatement pursuant to Section 6662(d) of the Code are believed to have been
disclosed on
12
such Tax Returns. Neither DSI nor its Subsidiaries is a partner of any
partnership. No consent to the application of Section 341(f)(2) of the Code (or
any predecessor thereof) has been made or filed by or with respect to any of DSI
or its Subsidiaries or any of their assets and properties. Neither DSI nor its
Subsidiaries has agreed to or is presently required to make any adjustment
pursuant to Section 481(a) of the Code (or any predecessor provision) by reason
of any change in any accounting method of DSI or its Subsidiaries; neither DSI
or its Subsidiaries has any application pending with any taxing authority
requesting permission for any changes in any accounting method of DSI or its
Subsidiaries, and the I.R.S. has not proposed any such adjustment or change in
accounting method therefor. Neither DSI nor its Subsidiaries has been or is in
violation (or with notice or lapse of time or both, would be in violation) of
any applicable law relating to the payment of withholding of taxes. DSI and its
Subsidiaries have duly and timely withheld from salaries, wages and other
compensation and paid over to the appropriate taxing authorities all amounts
required to be so withheld and paid over for all periods under all applicable
laws.
3.9 Indebtedness. Set forth in Section 3.9 of the Disclosure Schedule is
------------
a complete and accurate list and a brief description of all outstanding
indebtedness for money borrowed by DSI or its Subsidiaries (as evidenced by
money funded by a third party to DSI or its Subsidiaries) in an amount in excess
of $10,000.00 for any one item or $25,000 in the aggregate. Except with respect
to the indebtedness described in Section 3.9 of the Disclosure Schedule, there
is no other outstanding indebtedness for money borrowed to any third parties, or
any actual or contingent liabilities under the terms of any loan agreement,
credit facility, note or other agreement for borrowed money by DSI or its
Subsidiaries.
3.10 Real Property. Set forth in Section 3.10 of the Disclosure Schedule
-------------
is a complete and accurate list and a brief description of all real property
owned or leased by DSI or its Subsidiaries. With respect to each lease so set
forth, except as contemplated by this Agreement: (a) the lease has been validly
executed and delivered by DSI or its Subsidiaries, as applicable, and, to the
knowledge of ▇▇▇▇, by the other party or parties thereto, and is in full force
and effect; (b) neither DSI or its Subsidiaries, as applicable, nor to the
knowledge of ▇▇▇▇, any other party to the lease, is in material breach or
default, and no event has occurred on the part of DSI or its Subsidiaries, as
applicable or, to the knowledge of ▇▇▇▇, on the part of any other party, which,
with notice or lapse of time, would constitute such a breach or default or
permit termination, modification or acceleration under the lease; (c) the lease
will continue to be binding in accordance with its terms following the Closing
and sale of the New Shares to Buyer, sale of the Transferred Shares to ▇▇▇▇▇
Subsidiary and the merger of ▇▇▇▇▇ Subsidiary with DSI; (d) neither DSI nor its
Subsidiaries has repudiated and, to the knowledge of ▇▇▇▇, no other party to the
lease has repudiated, any provision thereof; (e) there are no written notices of
disputes, oral agreements or delayed payment programs in effect as to the lease;
and (f) to the knowledge of ▇▇▇▇ all facilities leased thereunder have been
approved by all necessary governmental authorities, and are in good condition,
working order and repair.
3.11 Tangible Property. Each of DSI and its Subsidiaries has good and
-----------------
legal title to, or a valid leasehold interest in, each item of tangible
property, whether real, personal or mixed, reflected on its books and records as
owned or used by it, subject to no encumbrances, loans, security interests,
mortgages or pledges except those which arise by matter of law or in the
Ordinary Course of Business, which are inventory sold subsequent to the date of
entry on the
13
books and which sales are not entered in the books of DSI or its Subsidiaries on
the date of this Agreement or the Closing Date, or which are set forth in
Section 3.11 of the Disclosure Schedule.
3.12 Intellectual Property. As used in this Section 3.12, the term
---------------------
"Intellectual Property" means all inventions, improvements thereto, all patents,
----------------------
patent applications, patent disclosures, trademarks, service marks, trade dress,
logos, trade names, and corporate names together with all translations thereof,
all copyrights, all mask works and all applications and registrations in
connection therewith. To ▇▇▇▇' knowledge, DSI and its Subsidiaries own or have
the right to use all Intellectual Property and all copies and tangible
embodiments thereof used in the operation of their respective businesses.
(a) Owned. Section 3.12(a) of the Disclosure Schedule sets forth a
-----
list of Intellectual Property owned by each of DSI and its Subsidiaries. Each
item of Intellectual Property used or owned by DSI or any of the Subsidiaries
immediately prior to Closing will be owned or available for use by DSI or the
Subsidiary on identical terms and conditions immediately subsequent to the
Closing. With respect to each such item of Intellectual Property:
(i) DSI or one of its Subsidiaries is the sole and exclusive owner
of registrations for each such item of Intellectual Property and, to ▇▇▇▇'
knowledge, DSI or its Subsidiaries have the sole and exclusive right to use such
item in the conduct of its business within the territory registered and for the
goods registered, excluding patent and trademark applications, corporate names,
unregistered marks and trade dress;
(ii) no proceedings have been instituted, are pending or to ▇▇▇▇'
knowledge are threatened which challenge the validity, enforceability, use or
ownership of such item of Intellectual Property except for the prosecution of
patent and trademark applications for Intellectual Property;
(iii) the item (A) to the extent it could do so, to ▇▇▇▇' knowledge,
does not infringe upon or otherwise violate the rights of others, (B) to ▇▇▇▇'
knowledge, is not being infringed upon by others and (C) is not subject to any
outstanding order, decree, judgment, stipulation or charge;
(iv) no license, sublicense or agreement pertaining to the item has
been granted by DSI or its Subsidiaries other than in the Ordinary Course of
Business;
(v) neither DSI, its Subsidiaries, nor ▇▇▇▇ has received in
writing any charge of interference or infringement with respect to the item;
(vi) the transactions contemplated by this Agreement will have no
material adverse effect on the right, title and interest of DSI or its
Subsidiaries in the item;
(vii) DSI has taken steps to protect the rights set forth in Section
3.12(a) of the Disclosure Schedule and will continue to use such efforts, and to
the extent the exercise of such rights apply to employees of DSI, DSI will
enforce those rights within the limits and to the extent such rights are
enforceable against such employees; and
14
(viii) DSI has supplied Buyer with true and complete copies, to
the extent such information exists, of written documentation evidencing its
ownership or its Subsidiaries' ownership of the item and of all licenses and
other contracts related thereto.
(b) Used. Section 3.12(b) of the Disclosure Schedule sets forth a
----
list describing all patents, trademarks, trade names, and service marks of
others which DSI or its Subsidiaries uses that are material to the respective
businesses of DSI or its Subsidiaries. With respect to each such item of
intellectual property:
(i) any license agreement covering the item is a valid and binding
agreement on behalf of DSI or its Subsidiaries, has been validly executed and
delivered by DSI or its Subsidiaries and, to ▇▇▇▇' knowledge, by the other
parties thereto and is in full force and effect as to DSI or its Subsidiaries;
(ii) no event has occurred which constitutes a breach of such
license agreement on the part of DSI or its Subsidiaries, neither DSI nor its
Subsidiaries has repudiated and, to ▇▇▇▇' knowledge, no other party thereto has
repudiated any provision thereof, and there are no disputes in writing, oral
arrangements or delayed payment programs in effect as to any such license
agreement;
(iii) DSI has supplied Buyer with a true and complete copy of the
license agreement;
(iv) the transactions contemplated by this Agreement will have no
material adverse effect on the ability of DSI or its Subsidiaries to continue to
use each such item in accordance with their past practices; and
(v) to ▇▇▇▇' knowledge no claim has been made or asserted against
DSI or its Subsidiaries that the exercise of the rights granted to DSI and/or
its Subsidiaries with respect to such item infringes upon the intellectual
property rights of any third party.
(c) Business Activity. To the knowledge of ▇▇▇▇ Parties, neither DSI
-----------------
nor its Subsidiaries has infringed, misappropriated or otherwise violated any
intellectual property rights of any third parties, nor are ▇▇▇▇ aware of any
infringement, misappropriation or violation which will occur as a result of the
continued operation of the business of DSI or its Subsidiaries as now conducted
or as presently proposed to be conducted.
(d) Security. DSI and its Subsidiaries have each taken some security
--------
measures to protect the security, confidentiality and value of some of the
Intellectual Property owned by them.
3.13 Contracts. Section 3.13 of the Disclosure Schedule lists the
---------
following contracts and written arrangements, true and complete copies of which
have been delivered to Buyer and ▇▇▇▇▇ Subsidiary, to which DSI or the
Subsidiaries are a party:
(a) any contract for the lease of personal property from or to third
parties providing for lease payments in excess of $25,000.00 per annum;
15
(b) any contract for the purchase or sale of raw materials,
commodities, supplies, products manufactured by DSI or its Subsidiaries or other
personal property or for the furnishing or receipt of services which contract
calls for performance over a period of more than one year and which involves
more than the sum of $25,000.00;
(c) any partnership or foreign joint venture agreement;
(d) any agreement or instrument under which DSI or its Subsidiaries is
or may become indebted for borrowed money in an amount individually or in the
aggregate in excess of $50,000;
(e) any non-competition agreement;
(f) any other contract or arrangement entered into other than the
Ordinary Course of Business in which the consequences of a default or
termination would have a materially adverse effect on the financial condition of
DSI or its Subsidiaries or on the prospects or the conduct of the business of
DSI or its Subsidiaries;
Except as otherwise described in Section 3.13 of the Disclosure Schedule, all
material contracts and arrangements listed in Section 3.13 of the Disclosure
Schedule are valid and binding agreements and are in full force and effect as to
DSI and its Subsidiaries. Neither DSI nor its Subsidiaries is and, to ▇▇▇▇'
knowledge, no other party is in material breach or default, and no event has
occurred on the part of DSI or its Subsidiaries or, to ▇▇▇▇' knowledge, on the
part of any other party to any such contract or arrangement which with notice or
lapse of time would constitute a material breach or default or permit
termination under any such contract or arrangement, provided, however, that
sales of products that result in shortages of products, late shipments of
products, warranty claims on products sold or price changes on products and
supplies shall not be deemed a breach of or default under such contracts or
permit termination thereunder for purposes of this Section 3.13. Except as set
forth in Section 3.13 of the Disclosure Schedule, none of such contracts or
arrangements will be terminated or modified by the purchase of the New Shares by
Buyer, transfer of the Transferred Shares to ▇▇▇▇▇ Subsidiary or the merger of
▇▇▇▇▇ Subsidiary into DSI and Closing of this Agreement. Neither DSI nor its
Subsidiaries is a party to any verbal contract or arrangement which, if reduced
to written form, would be required to be listed in Section 3.13 of the
Disclosure Schedule under the terms of this Section 3.13 other than with its
representatives and vendors which are set out in the Disclosure Schedule.
3.14 Suppliers and Customers. Section 3.14 of the Disclosure Schedule is a
-----------------------
true and complete list of all suppliers of DSI or the Subsidiaries to whom DSI
or its Subsidiaries made payments during the fiscal year ended January 31, 1995,
in excess of five percent (5%) of DSI and the Subsidiaries' consolidated cost of
goods sold as reflected in the Financial Statements for such year and all
customers of DSI or the Subsidiaries that paid DSI or the Subsidiaries, during
the fiscal year ended January 31, 1995, more than five percent (5%) of the
consolidated revenues of DSI and the Subsidiaries as reflected in the Financial
Statements for such year. Since January 31, 1995 and until ten (10) days prior
to the Closing Date, to the knowledge of ▇▇▇▇ no such supplier of DSI or the
Subsidiaries has, or has indicated that it will, stop, or decrease materially
the rate of, supplying materials, products or services to DSI or the
Subsidiaries, and no such customer of DSI or the Subsidiaries has materially
decreased or ceased the business with
16
DSI or the Subsidiaries or has indicated that it will materially decrease or
cease doing business with DSI or the Subsidiaries.
3.15 Notes; Accounts Receivable. As of the date of this Agreement there
--------------------------
are and as of the Closing Date to the extent included in the Disclosure Schedule
there will be, properly reflected on their respective books and records, all
notes receivable and accounts receivable of DSI and the Subsidiaries, each of
which are and will be valid receivables subject to no known setoffs or
counterclaims other than normal and routine credits and exchanges of products
and warranty claims. No representation is made as to the collectibility of any
specific receivable but this disclaimer shall not in any way limit the
representations contained in Paragraph 3.5 hereof. Section 3.15 of the
Disclosure Schedule is a complete list of all notes receivable and accounts
receivable (other than intercompany receivables) of DSI as of October 31, 1995.
3.16 Powers of Attorney. Other than for patent applications, trademark
------------------
applications and customs brokerage agreements and in security agreements for
current loans of DSI and its Subsidiaries, there are no outstanding powers of
attorney or similar instruments executed by DSI or the Subsidiaries.
3.17 Condition of Property. Each building, fixture, machine and piece
---------------------
of equipment (having a net book value of $25,000.00 or more) owned or used by
DSI or its Subsidiaries is listed on Section 3.17 of the Disclosure Schedule,
and to ▇▇▇▇' knowledge is in good operating condition and repair, subject to
normal wear and tear and except as otherwise rendered not to be in good
operating condition and repair in the Ordinary Course of Business, and in
compliance with all zoning, building and fire codes. DSI or its Subsidiaries
owns and has good and legal title to, or leases under leases which ▇▇▇▇ believes
to be valid and not currently in default, all buildings, machinery, equipment
and other tangible assets used in the conduct of DSI's or its Subsidiaries'
business as presently conducted, reflected in the most recent Financial
Statements, free and clear of all liens, claims and encumbrances known to ▇▇▇▇
except (i) rental liens of which ▇▇▇▇ has no knowledge, (ii) possessory or
statutory liens on equipment located in countries other than the United States
of America of which ▇▇▇▇ has no knowledge without any diligent inquiry, and
(iii) as disclosed on Section 3.17 of the Disclosure Schedule.
3.18 Insurance. DSI and its Subsidiaries are insured under the policies
---------
listed in Section 3.18 of the Disclosure Schedule. Since January 31, 1995, DSI
and each of its Subsidiaries have been insured with reputable insurers in
respect of its properties, assets and businesses and all such policies are in
full force and effect.
3.19 Litigation. Section 3.19 of the Disclosure Schedule sets forth any
----------
instances in which (a) ▇▇▇▇, DSI or its Subsidiaries are subject to any judgment
or order (other than orders of general applicability) of any court or quasi-
judicial or administrative agency of any jurisdiction, domestic or foreign, or
where there is any charge, complaint, demand, lawsuit or governmental
investigation pending or threatened in writing against ▇▇▇▇, DSI or its
Subsidiaries; or (b) DSI or its Subsidiaries is a plaintiff in any action,
domestic or foreign, judicial or administrative, or any such action exists in
which a counterclaim against DSI or its Subsidiaries is pending or might be
brought. Except as shown in Section 3.19 of the Disclosure Schedule, none of the
actions, suits, proceedings or investigations set forth in Section 3.19 of the
Disclosure Schedule could result in any adverse change in the condition,
financial or
17
otherwise, of DSI or its Subsidiaries, the same being fully reserved against in
the Financial Statements. There are no unsatisfied judgments, orders (other than
orders of general applicability), or decrees affecting DSI or its Subsidiaries
or to which DSI or its Subsidiaries is a party excluding any default judgments,
orders or decrees of which ▇▇▇▇ has no knowledge. Other than set forth in
Section 3.19 of the Disclosure Schedule, there are no known unasserted claims or
any reason to believe that any such action, suit, proceeding or investigation
may be brought or, to ▇▇▇▇' knowledge, threatened against DSI or its
Subsidiaries. To ▇▇▇▇' knowledge, DSI and its Subsidiaries have each complied
with all applicable laws (including rules, regulations, and codes) of federal,
state and foreign governments (and all agencies thereof).
3.20 Employees. DSI and ▇▇▇▇ have listed in Section 3.20 of the Disclosure
---------
Schedule and have furnished to Buyer true and complete copies of: (a) any
written employment agreements with officers and directors of DSI or its
Subsidiaries; and (b) any written employment agreements with DSI or its
Subsidiaries' employees which by their terms may not be terminated by DSI or its
Subsidiaries, as applicable, at will or which ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ payments. Neither
DSI nor its Subsidiaries has entered into any similar oral employment agreements
which are not terminable at will or which ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ payments, except for
one (1) month termination or payment in lieu thereof that are required in Hong
Kong. To ▇▇▇▇' knowledge, no key employee or group of employees has any plans to
terminate employment with DSI or its Subsidiaries. Neither DSI nor its
Subsidiaries is a party to or bound by any collective bargaining agreement, nor
has either experienced any strikes, material grievances, claims of unfair labor
practices or other collective bargaining disputes. There are no loans or other
obligations payable or owing by DSI or its Subsidiaries to any shareholder,
officer, director or employee of DSI or its Subsidiaries (except salaries, wages
and expense accounts incurred and accrued in the Ordinary Course of Business),
nor other than to ▇▇▇▇ are there any loans or debts payable or owing by any of
such persons to DSI or its Subsidiaries (except expense account advances) or any
guarantees by DSI or its Subsidiaries of any loan or obligation of any nature to
which any such person is a party. To the knowledge of ▇▇▇▇, DSI and its
Subsidiaries have complied with all laws and regulations which relate to the
employment of labor, employee civil rights or equal employment opportunities.
There is no organizational effort presently being made or threatened by or on
behalf of any labor union with respect to employees of DSI or its Subsidiaries,
to the knowledge of ▇▇▇▇.
3.21 Employee Benefit Plans. DSI and ▇▇▇▇ have listed in Section 3.21 of
----------------------
the Disclosure Schedule and have furnished to Buyer for the past fiscal year
true and complete copies of any of DSI's or its Subsidiaries' (a) non-qualified
deferred or incentive compensation or retirement plans or arrangements, (b)
qualified retirement plans or arrangements, (c) other employee compensation,
severance or termination pay or welfare benefit plans or programs, and (d)
related trusts, insurance contracts or other funding arrangements maintained,
established or contributed to by DSI or its Subsidiaries or to which DSI or its
Subsidiaries is a party or otherwise is bound. Except as required by law,
neither DSI nor its Subsidiaries maintains or contributes or has ever in the
past five (5) years maintained or contributed to any funded or unfunded medical,
health or life insurance plan or arrangement for retirees or terminated
employees. Neither DSI nor its Subsidiaries contributes or has any obligation to
make and has never contributed or had any obligation to make in the past five
(5) years any payment or contribution to a "Multi-Employer Plan," as that term
is defined in Section 3(37) of the
18
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and DSI
-----
does not have any actual or potential liability under Section 4201 of ERISA for
any complete or partial withdrawal from a multi-employer plan. Neither DSI nor
its Subsidiaries maintains, contributes to or has any liability or has ever
maintained, contributed or had any liability in the past five (5) years with
respect to any employee pension benefit plan (as defined in Section 3(2) of
ERISA) which is intended to meet the requirements of a qualified plan under
Section 401(a) of the Code. Neither DSI nor its Subsidiaries maintains,
contributes to or has any liability or has ever maintained, contributed to or
had any liability in the past five (5) years with respect to a plan which is
subject to Title IV of ERISA or Section 412 of the Code. With respect to the
employee benefit plans listed in Section 3.21 of the Disclosure Schedule, DSI
has furnished to Buyer true and complete copies of (i) any summary plan
description or other employee communication materials, (ii) the latest financial
statements and annual reports and (iii) all documents filed with the Internal
Revenue Service or the Department of Labor since January 31, 1993. All qualified
employee benefit plans and related trusts listed in Section 3.21 of the
Disclosure Schedule and maintained or contributed to by DSI or its Subsidiaries,
or with respect to which DSI or its Subsidiaries now has or has ever had in the
past five (5) years any liability or potential liability, comply in form and in
operation with all requirements of ERISA and the Code. All required reports with
respect to such plans required by applicable law have been filed and all
contributions or payments presently anticipated hereunder have been made or
properly accrued. No applications for rulings, determination letters, advisory
opinions or prohibited transaction exemptions are currently pending before the
Internal Revenue Service, the Department of Labor or the Pension Benefit
Guaranty Corporation with respect to any such employee benefit plans or
arrangements or any related trusts. None of such employee benefit plans or
arrangements, any related trusts, the trustees of any related trusts or the
directors, officers and employees of DSI or its Subsidiaries is the subject of
any lawsuit, arbitration or other proceeding concerning any benefit claim or
other benefit-related matter (other than routine claims in the Ordinary Course
of Business), and there have been no prohibited transactions as described in
Section 406 of ERISA or as defined in Section 4975 of the Code with respect to
any such plan. Neither DSI its Subsidiaries, its directors, officers and
employees nor any other fiduciary, as such term is defined in Section 3 of
ERISA, has committed any breach of fiduciary responsibility imposed by ERISA or
any other applicable law which would subject DSI or its Subsidiaries, or their
respective directors, officers and employees to liability under ERISA or any
applicable law.
3.22 Guarantees. Neither DSI nor its Subsidiaries is a guarantor or
----------
otherwise liable for any indebtedness of any other person, firm or corporation
other than endorsements for collection in the Ordinary Course of Business and
DSI for its Subsidiaries.
3.23 Legal Compliance. To the knowledge of ▇▇▇▇ and subject to the
----------------
limitations of Section 3.1, for the past five (5) years DSI and its Subsidiaries
and each of their respective directors, officers and employees (the individuals
only in their capacities as representatives of DSI or its Subsidiaries, as
applicable) have complied with all applicable laws and regulations of foreign,
federal, state and local governments and all agencies thereof, and no claim has
been filed against DSI or its Subsidiaries alleging a violation of any such laws
or regulations. To the knowledge of ▇▇▇▇, and subject to the limitations of
Section 3.1, each of DSI and its Subsidiaries holds all of the permits,
licenses, certificates or other authorizations of foreign,
19
federal, state or local governmental agencies required for the conduct of its
business as presently conducted or proposed to be conducted.
3.24 Certain Business Relationships. None of the present or former
------------------------------
shareholders, directors, officers or employees of DSI or its Subsidiaries owns,
directly or indirectly, any interest in any business, corporation or other
entity (other than investments in publicly held companies) which, on the date
hereof or within the past 12 months, has been involved in any manner in any
material business arrangement or relationship with DSI or its Subsidiaries, and
none of the foregoing persons owns any property or rights, tangible or
intangible, which are used in the business of DSI or its Subsidiaries.
3.25 Disclosure. The representations and warranties and statements of fact
----------
that are material and are made by DSI and ▇▇▇▇ in this Agreement, in the
Disclosure Schedule, and in certificates and other written statements or
agreements delivered or to be delivered pursuant to this Agreement or in
connection with the transactions contemplated herein are accurate, correct and
complete and will except as contemplated hereby, be accurate, correct and
complete at the Closing Date, and will not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements and information contained herein or therein not misleading. Any
information actually to the knowledge of Buyer with regard to the
representations and warranties and statements of fact made by DSI or ▇▇▇▇ in
this Agreement, including the Disclosure Schedules, shall be deemed to have been
disclosed by DSI and ▇▇▇▇ regardless of whether DSI or ▇▇▇▇ actually made such
disclosure or identified such disclosure within the representations, warranties
or statements of fact, and regardless of whether such representations,
warranties or statements of fact, expressly or impliedly excluded or included
such knowledge of the party making such statements of fact, representations or
warranties including, but not limited to, other parts of the Disclosure
Schedule.
3.26 Documents. DSI and ▇▇▇▇ have delivered or made available to Buyer all
---------
of the documents listed in Section 3.26 to the Disclosure Schedule hereto, and
DSI and ▇▇▇▇ have given Buyer and ▇▇▇▇▇ Subsidiary an opportunity to examine all
such documents and Buyer and ▇▇▇▇▇ Subsidiary are believed to have examined all
such documents.
3.27 Consulting and Attorneys Fees. Except as described in Section 3.27 of
-----------------------------
the Disclosure Schedule, neither ▇▇▇▇ nor DSI has any obligation to pay any
costs or fees with respect to the transactions contemplated by this Agreement.
3.28 Inventory. The inventory of DSI and its Subsidiaries as of the date
---------
of this Agreement and as of the Closing Date does and will consist of goods
which are merchantable and fit for the purposes for which they were procured,
and the allowance for slow-moving, obsolete, damaged or defective inventory
reflected in the Financial Statements as of January 31, 1995 and September 30,
1995, is adequate to the best of ▇▇▇▇' knowledge. A listing of the inventory is
set out in Section 3.28 of the Disclosure Schedule and will be updated for
Closing as of the most current date available but not prior to October 31, 1995.
This listing will not be based on a physical current inventory but is an
operating or running inventory.
3.29 Questionable Payments. DSI and its Subsidiaries have not directly or
---------------------
indirectly (i) used corporate funds for unlawful contributions, gifts,
entertainment, or for other unlawful
20
expenses relating to political activity, (ii) made any unlawful payment to
foreign or domestic government officials or employees or to foreign or domestic
political parties or campaigns from corporate funds, (iii) violated or are in
violation of any provision of the Foreign Corrupt Practices Act of 1977
applicable to the conduct of their business, or (iv) established or maintained
any unlawful or unrecorded fund of corporate monies or other assets.
ARTICLE 4
CONDUCT OF BUSINESS PENDING CLOSING
-----------------------------------
4.1 Conduct of Business by DSI and its Subsidiaries Pending the Closing.
-------------------------------------------------------------------
DSI and ▇▇▇▇ covenant and agree that upon the execution hereof and until the
Closing Date or termination of this Agreement whichever is earlier, unless Buyer
and ▇▇▇▇▇ Subsidiary shall otherwise agree in writing or as otherwise expressly
contemplated or permitted by this Agreement or caused directly by Buyer and
▇▇▇▇▇ Subsidiary:
(a) Each of DSI and its Subsidiaries shall conduct its business and
operations, including its cash management practices, the collection of
receivables, inventory control maintenance of equipment and facilities and
payment of payables, only in the Ordinary Course of Business;
(b) Other than to consummate the transactions contemplated as provided
for in this Agreement after disclosure to Buyer, neither DSI nor its
Subsidiaries shall directly or indirectly do any of the following: (i) except as
set out in Section 4.1 of the Disclosure Schedule, sell, pledge, dispose of or
encumber any of their respective assets, except in the Ordinary Course of
Business; (ii) amend their respective articles of incorporation or other charter
documents or bylaws; (iii) split, combine or reclassify any outstanding shares
of their respective capital stock, or declare, set aside or pay any dividend or
other distribution payable in cash, stock, property or otherwise with respect to
shares of their respective capital stock; (iv) redeem, purchase or acquire or
offer to acquire any shares of their respective capital stock or other
securities except as necessary to vest eighty percent (80%) of the issued and
outstanding shares of Common Stock in DSI in Buyer; (v) create any additional
subsidiaries; or (vi) except as set out in Section 4.1 of the Disclosure
Schedule, enter into or modify any contract, agreement, commitment or
arrangement with respect to any of the matters set forth in this Section 4.1(b);
(c) Other than to consummate the transactions contemplated as provided
for in this Agreement after disclosure to Buyer, neither DSI nor its
Subsidiaries shall (i) issue, sell, pledge or dispose of, or agree to issue,
sell, pledge or dispose of, any additional shares of, or any options, warrants,
conversion privileges or rights of any kind to acquire any shares of, their
respective capital except as necessary to vest 79.97% of the issued and
outstanding shares of Common Stock in DSI in Buyer and except as set out in
Section 4.1 of the Disclosure Schedule; (ii) except the merger of ▇▇▇▇▇
Subsidiary into DSI as contemplated herein, acquire (by merger, consolidation,
acquisition of stock or assets or otherwise) any corporation, partnership or
other business organization or division or material assets thereof; (iii) incur
any indebtedness for borrowed money other than in Ordinary Course of Business;
or (iv) and except as set out in
21
Section 4.1 of the Disclosure Schedule, enter into or modify any contract,
agreement, commitment or arrangement with respect to any of the matters set
forth in this Section 4.1(c);
(d) Other than to consummate the transactions contemplated as provided
for in this Agreement after disclosure to Buyer, neither DSI nor its
Subsidiaries shall (i) enter into or modify any employment, severance or similar
agreements or arrangements with, or grant any bonus, salary increase, severance
or termination pay to, any officers or directors except to the individuals and
in the amounts as described in the Employee Payment Disclosure letter from DSI
to Buyer which is attached as Exhibit "H"; or (ii) in the case of employees who
-----------
are not officers or directors, take any action other than in the Ordinary Course
of Business with respect to the grant of any bonuses, salary increases,
severance or termination pay or with respect to any increase of benefits payable
in effect on January 31, 1995, except to the individuals and in the amounts as
described in the Employee Payment Disclosure letter from DSI to Buyer;
(e) Except as required by law, neither DSI nor its Subsidiaries shall
adopt or amend any bonus, profit-sharing, compensation, stock option, pension,
retirement, deferred compensation, employment or other employee benefit plan,
agreement, trust, fund or arrangement for the benefit or welfare of any
employee;
(f) Except as otherwise required by their respective articles of
incorporation, bylaws or appropriate charter documents, by this Agreement or by
applicable law, neither DSI nor its Subsidiaries shall call any meeting of their
respective shareholders to vote upon any proposal for the sale of all or
substantially all of the assets of DSI or the merger of DSI with any other
entity;
(g) DSI shall use its best efforts to cause its and its Subsidiaries'
current insurance (or reinsurance) policies (not including employee health
insurance) not to be canceled or terminated or any of the coverage thereunder to
lapse, unless simultaneously with such termination, cancellation or lapse,
replacement policies underwritten by insurance and reinsurance companies of
nationally recognized standing providing coverage equal to or greater than the
coverage under the canceled, terminated or lapsed policies for substantially
similar premiums are in full force and effect;
(h) Each of DSI and its Subsidiaries shall (i) use their respective
best efforts to preserve intact their respective business organization and
goodwill, keep in full force and effect all material rights, licenses, permits
and franchises relating to their respective business, keep available the
services of their respective officers and employees as a group and maintain
satisfactory relationships with suppliers, distributors, customers and others
having business relationships with it; (ii) report at least once a week at
reasonable times, to Buyer's representative, M. D. ▇▇▇▇▇, regarding operational
matters and the general status of ongoing operations; (iii) use its best efforts
not to take any action which would render, or which reasonably may be expected
to render, any representation or warranty made by it in this Agreement to be
untrue at any time made unless amended or supplemented by the Disclosure
Schedule provided to Buyer; and (iv) notify Buyer of any emergency in the
operation of their respective properties and of any tax audits, tax claims,
governmental or third party complaints (not including day to day customer
complaints or returns), investigations or hearings (or communications indicating
that the same may be contemplated) if such emergency, change,
22
audit, claim, complaint, investigation or hearing would be material,
individually or in the aggregate, to the financial condition, results of
operations or business of DSI or its Subsidiaries, or to the ability of ▇▇▇▇ or
Buyer to consummate the transactions contemplated by this Agreement;
(i) DSI and ▇▇▇▇ shall deliver to Buyer promptly (but in any event
within five (5) business days) after the discovery or receipt of notice of any
default under any material agreement to which DSI or its Subsidiaries is a party
or any other material adverse event or circumstance affecting DSI or its
Subsidiaries (including the filing of any material litigation against DSI or its
Subsidiaries or the existence of any dispute with any person or entity which
involves a reasonable likelihood of such litigation being commenced), a
certificate of the Chief Executive Officer of DSI specifying the nature and
period of the existence thereof and what actions DSI has taken and proposes to
take with respect thereto;
(j) Each of DSI and its Subsidiaries shall maintain their respective
assets in customary repair, order and condition consistent with past customs and
practices, replace as appropriate in accordance with past customs and practices
their respective worn out or obsolete assets with assets of quality at least
comparable to the original quality of the assets being replaced and except for
notice to Buyer maintain their respective books, accounts and records in
accordance with past custom and practice as used in the preparation of the
Financial Statements;
(k) Each of DSI and its Subsidiaries shall use reasonable efforts to
maintain in full force and effect the existence of all material patents,
inventions, trademarks, service marks, trade dress, trade names, corporate
names, copyrights, mask works, trade secrets, licenses, computer software data
and other proprietary rights, which it uses or owns, except for those which
expire by their own terms or are discontinued in the Ordinary Course of
Business; and
(l) Each of DSI and its Subsidiaries shall use reasonable efforts to
comply with all legal requirements and contractual obligations applicable to
their respective operations and business and pay all applicable taxes at or
prior to when such taxes would be delinquent.
4.2 Lines of Business and Capital Expenditures. Unless disclosed in
------------------------------------------
writing to Buyer, DSI and ▇▇▇▇ covenant upon the execution of this Agreement and
until the Closing Date or termination of this Agreement, whichever is earlier,
that DSI and its Subsidiaries will not (a) enter into any new material line of
business outside their traditional toy business; (b) change their respective
investment, liability management and other material policies in any material
respect; or (c) incur or commit to any material capital expenditures,
obligations or liabilities in connection therewith other than in the Ordinary
Course of Business.
4.3 Accounting Methods. Except as previously disclosed in writing to
------------------
Buyer prior to the date hereof, ▇▇▇▇ covenants upon the execution of this
Agreement and until the Closing Date or termination of this Agreement, whichever
is earlier, that ▇▇▇▇ will not allow DSI or its Subsidiaries to change their
methods of accounting in effect at January 31, 1995, except as required by
changes in generally accepted accounting principles as concurred in by Price,
23
Waterhouse, DSI's independent accountants, if such change has a material adverse
effect on the reporting of DSI or its Subsidiaries and ▇▇▇▇ will notify Buyer of
such changes.
4.4 Other Actions. Unless disclosed to Buyer in the Disclosure Schedule,
-------------
DSI and ▇▇▇▇ Parties covenant upon the execution of this Agreement and until
the Closing Date or termination of this Agreement, whichever is earlier, that
neither DSI nor its Subsidiaries shall take any action that would or might
reasonably be expected to result in any of the representations and warranties of
DSI and ▇▇▇▇ set forth in this Agreement becoming untrue after the date hereof
or any of the conditions to Closing set forth in Article 6 of this Agreement not
being satisfied, except in the event that the Disclosure Schedule is amended or
supplemented in accordance with Section 5.11 such that even if the
representations and warranties in Article 3 made in the previous Disclosure
Schedule are not true, such representations and warranties shall be true as
amended and supplemented by such Disclosure Schedule. Unless disclosed to ▇▇▇▇,
Buyer and ▇▇▇▇▇ Subsidiary covenant upon execution of this Agreement and until
the Closing Date or termination of this Agreement, whichever is earlier, that
neither Buyer nor ▇▇▇▇▇ Subsidiary shall take any action that would or might
reasonably be expected to result in any of the representations or warranties of
Buyer and ▇▇▇▇▇ Subsidiary set forth in the Agreement becoming untrue after the
date hereof or any of the conditions to Closing set forth in Article 6 of this
Agreement not being satisfied unless such matters are disclosed in writing to
▇▇▇▇. ▇▇▇▇ shall inform the Buyer in writing within five (5) days of any change,
or prior to the Closing Date if less than five (5) days prior to Closing, which
occurs or is threatened (or any development occurs or is threatened involving a
prospective change) in the financial condition, results of operations, business,
or prospective sales to ▇▇▇▇' knowledge that is or may reasonably be expected to
have a material adverse effect ($200,000) on the financial condition, results of
operations, business or prospective sales of DSI; provided, however, that should
▇▇▇▇ fail to give notice of such changes to Buyer within the period set out but
▇▇▇▇ shall before or after such period and prior to the Closing Date update the
Disclosure Schedule to reflect such notice such update shall cure any failure to
give earlier notice but shall not effect Buyer's rights under Section 6.1(j).
Buyer shall inform ▇▇▇▇ in writing within five (5) days of any change, or prior
to the Closing Date if less than five (5) days prior to Closing, which occurs or
is threatened (or any development occurs or is threatened involving a
prospective change) in the financial condition, results of operations or
business of Buyer; provided, however, that should Buyer fail to give such notice
to ▇▇▇▇ within the period set out, but Buyer shall before or after such period
and prior to the Closing Date, disclose such information to ▇▇▇▇, such notice
shall cure any failure to give earlier notice, but if ▇▇▇▇ does not approve such
change, whether or not timely made, ▇▇▇▇ shall be entitled to terminate this
Agreement.
ARTICLE 5
ADDITIONAL AGREEMENTS
---------------------
5.1 Expenses. Except with respect to certain bonuses or commissions
--------
payable to employees of DSI which are described in Section 6.2(l) and fees and
commissions referenced in Section 5.14 and all costs and expenses associated
with compliance with the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act and any other costs agreed to by
the parties hereto which shall be paid by Buyer or DSI, Buyer or ▇▇▇▇,
respectively, shall each pay all costs and expenses, including the fees and
24
commissions of any broker, incurred by them in connection with this Agreement
and all other agreements contemplated hereby and the transactions contemplated
hereby and thereby. ▇▇▇▇' costs and expenses relating to this Agreement or any
of the transactions contemplated hereby solely for the benefit of ▇▇▇▇ shall not
be borne by DSI or its Subsidiaries. ▇▇▇▇ and Buyer agree, subject to Buyer's
reasonable review and approval, that DSI shall be allocated certain legal and
accounting costs for services that were for the benefit of DSI even though they
were incidental to this transaction.
5.2 Notification of Certain Matters. Each Party shall give prompt notice
-------------------------------
to the others of (a) the occurrence or failure to occur of any event, which
occurrence or failure would constitute or believe to constitute a Material
Adverse Breach of any representation or warranty on its part contained in this
Agreement at any time from the date hereof to the Closing Date to the Party's
knowledge, and (b) any failure of such Party, or any officer, director, employee
or agent thereof, to materially comply with or satisfy any covenant, condition
or agreement to be complied with or satisfied hereunder to the Party's
knowledge. Notwithstanding this provision, DSI and ▇▇▇▇ shall be required to
update all Disclosure Schedules and to disclose any breach of, inaccuracy or
untruthfulness in the representations and warranties as required by the specific
representations and warranties of Article 3, prior to Closing, which notice
shall cure any failure to give earlier notice by such update of the Disclosure
Schedule.
5.3 Access to Information. From the date hereof to the Closing Date, DSI
---------------------
and ▇▇▇▇ shall cause DSI and its Subsidiaries and their respective officers,
directors, employees and agents to afford the officers, employees, agents and
representatives of the Buyer and ▇▇▇▇▇ Subsidiary complete access at all
reasonable times to such officers, employees and agents and their properties,
books and records (all such access to be arranged through the respective
officers of DSI and its Subsidiaries so as not to be unreasonably disruptive to
any of the DSI personnel), and shall furnish Buyer all financial, operating,
personnel compensation, tax and other data and information as Buyer, and ▇▇▇▇▇
Subsidiary and their respective officers, employees, agents or representatives,
may request, except such information the disclosure of which would constitute a
waiver of the attorney-client privilege by ▇▇▇▇, DSI or its Subsidiaries. DSI
and ▇▇▇▇ expressly grant Buyer and ▇▇▇▇▇ Subsidiary permission during the period
prior to Closing, but not more than ten (10) business days, to contact DSI's
customers and suppliers and to discuss with them the nature and existence of
their relationship and to disclose to them the fact that Buyer, ▇▇▇▇▇
Subsidiary, DSI and ▇▇▇▇ have entered into an agreement for the sale of the New
Shares to Buyer and sale of the Transferred Shares to ▇▇▇▇▇ Subsidiary.
5.4 Shareholder Claims. ▇▇▇▇ shall not agree to, cause or permit DSI to
------------------
settle or compromise any claim brought by any present, former or purported
holder of any securities of DSI prior to the Closing without prior written
consent of Buyer and ▇▇▇▇▇ Subsidiary.
5.5 Taking of Necessary Action. Subject to the termination of this
--------------------------
Agreement and the terms and conditions of this Agreement, each of the Parties
agrees, subject to applicable laws, to use all reasonable efforts promptly to
take or cause to be taken all action and promptly to do or cause to be done all
things necessary, proper or advisable under applicable laws and regulations to
consummate the Closing and to make effective the transactions contemplated by
this Agreement. Without limiting the foregoing, Buyer, ▇▇▇▇▇ Subsidiary, DSI and
▇▇▇▇ shall use their respective best efforts to maintain and make any filings
with and obtain any consents,
25
approvals, and/or assurances from third parties and appropriate governmental
agencies and authorities necessary or, in the opinion of Buyer or ▇▇▇▇,
advisable for the consummation of the transactions contemplated by this
Agreement. Specifically, if any filings are required to comply with the ▇▇▇▇-
▇▇▇▇▇-▇▇▇▇▇▇ Act in connection with the transactions contemplated hereby, each
party shall as soon as possible, but in no event later than 15 days after the
need for such filings is established by counsel to Buyer and ▇▇▇▇▇ Subsidiary or
▇▇▇▇, prepare and file with the United States Department of Justice all
documents as are required to comply with the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act and shall
promptly furnish all materials thereafter requested by any of the regulatory
agencies having jurisdiction over such filings. Each party shall cooperate with
the other in good faith to help the others satisfy its obligations in this
Section 5.5. Notwithstanding the foregoing, none of the Parties shall be
required to take the action under this Section 5.5 if the cost of such action
would be in excess of $10,000 to such Party other than the costs associated with
a ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ filing..
5.6 Notice of Changes. ▇▇▇▇ shall inform the Buyer in writing within five
-----------------
(5) days of any change, or prior to the Closing Date if less than five (5) days
prior to Closing, which occurs or is threatened (or any development occurs or is
threatened involving a prospective change) in the financial condition, results
of operations, business, or prospective sales to ▇▇▇▇' knowledge that is or may
reasonably be expected to have a material adverse effect ($200,000) on the
financial condition, results of operations, business or prospective sales of
DSI; provided, however, that should ▇▇▇▇ fail to give notice of such changes to
Buyer within the period set out but ▇▇▇▇ shall before or after such period and
prior to the Closing Date update the Disclosure Schedule to reflect such notice
such update shall cure any failure to give earlier notice but shall not effect
Buyer's rights under Section 6.1(j). Buyer shall inform ▇▇▇▇ in writing within
five (5) days of any change, or prior to the Closing Date if less than five (5)
days prior to Closing, which occurs or is threatened (or any development occurs
or is threatened involving a prospective change) in the financial condition,
results of operations or business of Buyer; provided, however, that should Buyer
fail to give such notice to ▇▇▇▇ within the period set out, but Buyer shall
before or after such period and prior to the Closing Date, disclose such
information to ▇▇▇▇, such notice shall cure any failure to give earlier notice,
but if ▇▇▇▇ does not approve such change, whether or not timely made, ▇▇▇▇ shall
be entitled to terminate this Agreement and return the Initial Amount to Buyer.
5.7 Press Releases. Prior to Closing Date there shall not be any press
--------------
releases relating to the negotiations, agreements, discussions, status or plans
of the Parties with respect to the transactions contemplated hereby without the
written agreement of the Parties, and following the Closing Date, Buyer and ▇▇▇▇
shall consult with each other as to the form and substance of any press release
or other public disclosure of matters related to this Agreement or any of the
transactions contemplated hereby, other than disclosures made in connection with
lawsuits or arbitration.
5.8 ▇▇▇▇ Election as Director. Following the Closing, the Buyer agrees
-------------------------
▇▇▇▇ shall continue to be a member of the Board of Directors of DSI if ▇▇▇▇ so
desires as indicated in writing to DSI. If ▇▇▇▇ so desires, Buyer will use its
best efforts to cause ▇▇▇▇ to continue as a director of DSI for three (3) years
following the Closing or until any indebtedness to ▇▇▇▇ is paid in full
whichever occurs later.
26
5.9 Consulting and Other Agreement with ▇▇▇▇. On or prior to Closing, DSI
----------------------------------------
and ▇▇▇▇ will enter into a Consulting Agreement (the "▇▇▇▇ Consulting
---------------
Agreement") attached hereto as Exhibit "I" providing for compensation of $25,000
--------- -----------
per month to ▇▇▇▇ for a period of three (3) years, which shall include payment
of reasonable out-of-pocket expenses incurred by ▇▇▇▇ in connection with work
requested by DSI. ▇▇▇▇ shall be entitled to participate at the same cost as
employees of DSI in health, dental, and PCS insurance, disability and group life
insurance plans currently sponsored by DSI until ▇▇▇▇ reaches the age where he
is eligible for Medicare. If benefits under Medicare are less than those
available to ▇▇▇▇ under the current DSI health insurance program, then DSI will
provide supplemental insurance to ▇▇▇▇ for the remainder of his life to insure
additional benefits to the Medicare benefits so that ▇▇▇▇ shall receive benefits
equal to the current DSI health insurance program. If ▇▇▇▇ is or becomes
ineligible for any such plan, DSI shall provide ▇▇▇▇ with comparable benefits
for the remainder of his life (for example, DSI shall pay the cost of comparable
health insurance if ▇▇▇▇ is ineligible to participate in DSI's health insurance
plan). During the term of ▇▇▇▇' Consulting Agreement, DSI shall permit ▇▇▇▇'
dependents (who would be qualified for coverage under DSI's insurance) to be
covered by DSI's health insurance plan at the same cost to ▇▇▇▇ as paid by
employees of DSI.
5.10 ▇▇▇▇ Personal Assets. ▇▇▇▇ owns certain personal property located at
--------------------
DSI's Houston offices which is listed and described on Exhibit "J" hereof. ▇▇▇▇
-----------
and Buyer agree that ▇▇▇▇ may, in his sole discretion, permit DSI to use such
personal property for such time as determined by ▇▇▇▇ in his sole discretion by
not removing it from DSI's Houston office upon the Closing and that ▇▇▇▇ shall
be solely responsible for all risks associated therewith, except DSI will
maintain insurance for such property so long as DSI has the use and benefit of
such furniture. In addition, ▇▇▇▇ sold certain personal property to DSI prior to
the Closing which property shall remain the property of DSI.
5.11 Update Disclosure Schedule. Notwithstanding any other provision of
--------------------------
this Agreement to the contrary, DSI and ▇▇▇▇ may amend or supplement the
Disclosure Schedule at any time prior to the Closing Date, subject to Buyer's
and ▇▇▇▇▇ Subsidiary's termination rights under Section 7.1(c). Such Disclosure
Schedule as properly amended or supplemented from time to time shall constitute
the Disclosure Schedule for purposes of this Agreement. For purposes of this
Agreement, business day shall mean any day except Sunday, Saturday or other day
on which commercial banks in Houston, Texas are required or authorized by law to
be closed.
5.12 Split Dollar Insurance. Until the death of ▇▇▇▇ and his wife, Jo ▇▇▇▇
----------------------
▇▇▇▇, Buyer shall and shall cause DSI to perform pursuant to, and to otherwise
comply in all respects with, the Split Dollar Agreements to which DSI is now a
party and attached hereto as Exhibit "K" covering life insurance on the lives of
-----------
▇▇▇▇▇ ▇▇▇▇ or his wife, Jo ▇▇▇▇ ▇▇▇▇, or on their joint lives, including the
premium payments on the life insurance policies described in the Disclosure
Schedule as set out below. It is expressly understood and agreed that the Split
Dollar Agreements referred to in the preceding sentence have been or are in the
process of being amended in a manner so that (a) the annual net amount DSI shall
be required to pay as premiums on the policy or policies now subject to the
Split Dollar Agreements and/or on additional policies that subsequently become
subject to the Split Dollar Agreements shall not be more nor less than the net
amount DSI was required to pay pursuant to the Split Dollar Agreements during
the
27
period of March 1, 1994 through February 28, 1995, and DSI shall continue to
have to pay such annual net amount as premiums on such policies until the death
of the last to die of ▇▇▇▇▇ ▇▇▇▇ and Jo ▇▇▇▇ ▇▇▇▇, (b) DSI's right to be repaid
for its prior and subsequent premium payments pursuant to the Split Dollar
Agreements shall be subject to forfeiture, at the option of the trusts that own
the policy or policies that are now or that subsequently become subject to such
Split Dollar Agreements if DSI fails for any reason to timely make the payments
it is required to make under the Split Dollar Agreements, (c) the trusts that
own the policy or policies that are now subject to the Split Dollar Agreements
will have the right to obtain additional policies on the lives of ▇▇▇▇▇ ▇▇▇▇ or
Jo ▇▇▇▇ ▇▇▇▇, or on their joint lives, in exchange for or with the cash values
of the policy or policies that are now subject to the Split Dollar Agreements,
provided such additional policy or policies are subject to the Split Dollar
Agreements and, coupled with the remaining policies subject thereto, are
adequate to assure that DSI will be able to be repaid the amounts it pays as
premiums plus accrued interest to that date on all such policies (net of
payments it receives pursuant to the Split Dollar Agreements from ▇▇▇▇▇ ▇▇▇▇
and/or the trusts that own the policy or policies that are now or subsequently
become subject to the Split Dollar Agreements) upon the death of the insured
under such policy or policies, (d) that the ▇▇▇▇ Insurance Trust, or at the
election of ▇▇▇▇, ▇▇▇▇ or his estate will pay interest on all premiums advanced
by DSI pursuant to the Split Dollar Agreements at the rate of seven (7%) percent
per annum simple which shall accrue and be paid at the time the death benefits
of such policy are paid, if not previously paid by ▇▇▇▇ or his estate; and (e)
in other respects that do not increase the obligations of DSI under the Split
Dollar Agreements. The obligations of Buyer and DSI as to the Split Dollar
Agreements pursuant to the first sentence shall mean the obligations thereunder
as the Split Dollar Agreements have been or are so amended. Subject to Buyer's
approval, ▇▇▇▇ shall have the right to attach such amended agreements hereto as
a revised and replaced Exhibit "K" at any time prior to Closing Date if such
-----------
amendments are not included in the Split Dollar Agreements originally attached
hereto as Exhibit "K". In no event shall Buyer or DSI be required to pay in the
-----------
aggregate more than $350,000 per year for all its obligations under this Section
5.12.
5.13 Insurance Maintenance. Buyer and DSI agree upon purchase of the New
---------------------
Shares, transfer of the Transferred Shares to ▇▇▇▇▇ Subsidiary and the merger of
▇▇▇▇▇ Subsidiary into DSI as contemplated herein to maintain or cause DSI to
maintain in effect DSI's current policies of general liability (CGL), product
liability, long term disability, health, dental, PCS and life insurance or to
acquire and maintain similar insurance with comparable coverage for a period of
three (3) years from Closing Date or until any indebtedness to ▇▇▇▇ has been
paid in full which ever occurs later.
5.14 Transaction Costs. Buyer or DSI shall pay those costs and fees with
-----------------
respect to the transactions contemplated by this Agreement and as set forth on
Exhibit "L" attached hereto and incorporated herein.
-----------
5.15 Communication. Buyer and ▇▇▇▇▇ Subsidiary shall supply DSI and ▇▇▇▇
-------------
in a timely manner with information requested by ▇▇▇▇ concerning the
transactions contemplated herein and ▇▇▇▇ shall have the right to examine the
books of records and accounts of Buyer and ▇▇▇▇▇ Subsidiary and discuss the
affairs, finances and accounts of Buyer and ▇▇▇▇▇ Subsidiary with their
officers, accountants and creditors from the Effective Date hereof to the
Closing Date.
28
5.16 Merger of ▇▇▇▇▇ Subsidiary with DSI. Immediately following the sale
-----------------------------------
of the New Shares to Buyer pursuant to Section 1.1 hereof, and sale of the
Transferred Shares to ▇▇▇▇▇ Subsidiary pursuant to Section 1.2 hereof, ▇▇▇▇▇
Subsidiary and DSI shall execute a Plan and Articles of Merger attached hereto
as Exhibit "M" and incorporated herein for all purposes and such other
-----------
documents, certificates, resolutions as necessary to merge ▇▇▇▇▇ Subsidiary into
DSI in such a manner that DSI is the surviving corporate entity and all of the
assets and liabilities of ▇▇▇▇▇ Subsidiary shall become assets and liabilities
of DSI and specifically providing that the Transferred Shares acquired by ▇▇▇▇▇
Subsidiary are cancelled on the books of DSI. Upon completion of the merger of
▇▇▇▇▇ Subsidiary into DSI it is the understanding and agreement of Buyer, ▇▇▇▇
and DSI that Buyer will be vested with 79.97% of the outstanding shares of DSI
Common Stock and ▇▇▇▇ will be vested with 20.03% of the outstanding shares of
DSI Common Stock. Such action as necessary will be taken to insure that (i)
▇▇▇▇' interest in DSI is not diluted prior to the initial public offering
contemplated in Section 5.19 or (ii) payment is made by DSI of the ▇▇▇▇
indebtedness pursuant to its terms. Any action by ▇▇▇▇ pursuant to the Loan and
Security Agreement attached hereto as Exhibit "B" as a result of a default in
-----------
the ▇▇▇▇ loan or the ▇▇▇▇ loan documents whether by foreclosure of ▇▇▇▇'
security interest in the New Shares or ▇▇▇▇ exercising other remedies available
to him as set forth in the ▇▇▇▇ loan documents shall act as a termination of the
outstanding warrants and options issued by DSI pursuant to the transactions
contemplated under this Agreement, except the warrants to ▇▇▇▇ pursuant to the
Warrant Agreement, attached hereto as Exhibit "N" and incorporated herein for
-----------
all purposes.
5.17 Guaranty of Buyer. Buyer acknowledges and agrees that it will
-----------------
guarantee all of the obligations of DSI as evidenced by the promissory notes in
Exhibit "A-1", "A-2" and "A-3" attached hereto in the Loan and Security
Agreement attached hereto as Exhibit "B" and as set forth in Section 5.9 and
-----------
5.12 hereof. Such Guaranty attached hereto as Exhibit "C" and incorporated
-----------
herein for all purposes. The obligations of Buyer pursuant to this paragraph
shall survive Closing.
5.18 Operations of DSI after Closing. DSI, Buyer and ▇▇▇▇▇ Subsidiary
-------------------------------
acknowledge and agree that at Closing ▇▇▇▇▇ Subsidiary shall execute those
certain promissory notes more particularly described in Exhibit "A-1", "A-2" and
"A-3" attached hereto and that as a part of the transactions contemplated
herein, those obligations will become obligations of DSI as a result of the
merger of ▇▇▇▇▇ Subsidiary into DSI. Buyer agrees as a majority shareholder of
DSI after completion of the transactions contemplated and provided for in this
Agreement, to take such action as necessary to insure that DSI does not and DSI
agrees that it will not (i) transfer or convey any assets other than in the
Ordinary Course of Business, (ii) will not make a "338" election as provided in
Section 338 of the Internal Revenue Code of 1986, as amended, (iii) will comply
with the terms and conditions of that certain Loan and Security Agreement
attached hereto as Exhibit "B" and incorporated herein for all purposes
-----------
specifically including, but not limited to, all of the representations,
warranties, covenants and obligations of DSI as set forth in such agreement as
well as comply with the terms and conditions of all loan documents associated
with the Bank One, Texas, N.A. loans, the Hibernia Corporation loan or the ▇▇▇▇
loan; and (iv) incur any additional indebtedness other than in the Ordinary
Course of Business or to pay the obligations of DSI as they become due and
payable.
29
5.19 Public Offering of DSI Stock. Buyer acknowledges that it is its
----------------------------
intention after Closing and completion of the transactions contemplated herein,
to initiate action to undertake and to complete an initial public offering of
the stock of DSI and agrees to use its best efforts to do so. DSI and ▇▇▇▇
acknowledge that final determination of the terms and conditions of such public
offering, if any, will be made by shareholders and Board of Directors of DSI as
they determine in their reasonable opinion and belief are appropriate, prudent
and in the best interest of DSI and its shareholders. ▇▇▇▇ acknowledges that
Buyer has made no guaranty of undertaking a public offering of DSI stock or the
successful completion of a public offering; but rather this is a representation
of Buyer's present intentions.
5.20 Release of ▇▇▇▇. Closing, Buyer, ▇▇▇▇▇ Subsidiary and Members
---------------
of Buyer set forth on Exhibit "O" attached hereto and incorporated herein for
-----------
all purposes will execute a consent and release of ▇▇▇▇ as described in Exhibit
-------
"P" attached hereto and incorporated herein for all purposes. Such release
---
shall contain an indemnification of ▇▇▇▇ by Buyer, ▇▇▇▇▇ Subsidiary and DSI (but
not the Members set forth on Exhibit "O") indemnifying ▇▇▇▇ from and against any
-----------
liability for consequential damages as a result of the initial public offering
not being successful except such indemnity shall exclude liability to ▇▇▇▇ as
the result of ▇▇▇▇' willful or grossly negligent acts.
5.21 Bonus Plan. For the fiscal year ending January 31, 1996, DSI
----------
shall pay a bonus to eligible employees out of an accrued bonus pool which is
comprised of five percent (5%) of EBIT (after DSI (HK) Ltd. bonus but before any
DSI executive, director, officer or management bonus). The bonus shall be paid
to eligible employees on a pro-rata basis utilizing a formula whereby the
numerator is the employee's 2-1-95 through 1-31-96 gross wages minus the
employees FYE 1-31-95 bonus and the denominator is the 2-1-95 through 1-31-96
gross wages of all eligible employees minus the FYE 1-31-95 bonus paid to all
eligible employees. An eligible employee is defined as any employee who is
employed by DSI on 1-31-96 or any employee who was employed by DSI for three
hundred calendar days during the period from 2-1-95 through 1-31-96; however,
for the purposes of this provision neither ▇▇▇▇▇ ▇▇▇▇ nor ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ will
be considered to be an eligible employee. Historically, the bonus paid to DSI
employees has been a discretionary bonus determined at the discretion of ▇▇▇▇▇
▇▇▇▇. The bonus to be paid for the fiscal year ending January 31, 1996 is NOT a
discretionary bonus, nor is it contingent on any factor other than the accrued
5% of EBIT and the outline pro-rata calculations but rather shall be paid as set
forth hereinabove. This bonus shall be due on January 31, 1996 and shall be
paid on or before April 1, 1996.
5.22 Post Closing Obligation. Neither Buyer nor ▇▇▇▇▇ Subsidiary will
-----------------------
incur any Debt as such term is defined in the Loan and Security Agreement
attached hereto as Exhibit "B" except as authorized or permitted in the Loan and
-----------
Security Agreement attached hereto as Exhibit "B" or as permitted under the loan
-----------
documents of BankOne, Texas, N.A. and Hibernia Corporation which are attached
hereto as Exhibit "DD" and incorporated herein for all purposes.
------------
5.23 Registration Rights Agreement. Buyer, ▇▇▇▇▇ Subsidiary, and DSI will
-----------------------------
perform all of their respective obligations under their Registration Rights
Agreement between DSI and ▇▇▇▇ pursuant to the terms of the Registration Rights
Agreement attached hereto as Exhibit "Z".
-----------
30
5.24 Actions of Buyer. Buyer acknowledges and agrees that neither Buyer
----------------
nor ▇▇▇▇▇ Subsidiary will, prior to the successful completion of the initial
public offering as contemplated in Section 5.19 hereof, allow a change of
control of Buyer or will initiate any public offering of securities by Buyer
other than the Private Placement Memorandum previously initiated by Buyer and
part of the transactions contemplated under this Agreement. For purposes of
this provision, change of control shall mean a change in excess of 51% of the
Class A Membership Units in Buyer.
ARTICLE 6
CONDITIONS TO CLOSING
---------------------
6.1 Conditions to Buyer's and ▇▇▇▇▇ Subsidiary's Obligations. The
--------------------------------------------------------
obligations of Buyer to purchase the New Shares and pay the New Shares Purchase
Price as set forth in Section 1.1 hereof and ▇▇▇▇▇ Subsidiary to purchase the
Transferred Shares and pay the Transferred Shares Purchase Price as set forth in
Section 1.2 hereof at Closing are subject to the satisfaction of the following
conditions on or before the Closing Date:
(a) Except for breaches which do not constitute a Material Adverse
Breach (as defined in Section 8.6 of this Agreement) by DSI or ▇▇▇▇, the
representations and warranties set forth in Article 3 of this Agreement
(including any amendments or supplements of the Disclosure Schedule made by DSI
and ▇▇▇▇ pursuant to Section 5.11) will be true and correct as of the Closing
Date, as though then made and as though the Closing Date were substituted for
the date of this Agreement throughout such representations and warranties and
with appropriate modifications of tense with respect to representations and
warranties made as of a specified date except as expressly noted in Article 3;
(b) DSI and ▇▇▇▇ shall have performed, in all material respects, each
obligation and agreement and complied with each covenant to be performed and
complied with by them under this Agreement prior to the Closing Date, including,
without limitation, all of their agreements contained in Article 5 of this
Agreement;
(c) Except as otherwise disclosed on the Disclosure Schedule, all
consents by governmental or regulatory agencies or otherwise that are required
for the consummation of the transactions contemplated hereby or that are
required for Buyer to own, operate or control DSI or any portion of the assets
of DSI or to prevent a breach of or a default under or a termination of any
agreement material to DSI to which DSI is a party or to which any material
portion of the assets of DSI is subject, other than consent to transfer licenses
and real property leases will have been obtained;
(d) No action or proceeding before any court or governmental body will
be pending or threatened wherein a judgment, decree or order would prevent any
of the transactions contemplated hereby or cause such transactions to be
declared unlawful or to be rescinded or which might adversely affect the right
of Buyer to own, operate or control DSI or any material portion of the assets of
DSI or the value of the assets of DSI as of the Closing Date;
31
(e) Prior to or at the Closing, ▇▇▇▇ shall have entered into the ▇▇▇▇
Consulting Agreement as described in Section 5.9 hereof and each of ▇▇▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇ and ▇▇▇ ▇▇▇▇ ▇▇▇▇ (▇▇▇▇▇ ▇▇▇) (hereinafter
collectively referred to as "Key Employees") shall have agreed upon and entered
into employment agreements with DSI for a period of at least one (1) year
following the Closing Date each containing a non-competition and non-
solicitation covenant which shall remain in force for the term of employment
plus one (1) year following any termination of employment and the employment
contracts of ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇ shall contain a provision for six
months severance pay after the end of the employment term such employment
contracts attached hereto as Exhibit "Q" and incorporated herein for all
-----------
purposes;
(f) Buyer and ▇▇▇▇▇ Subsidiary will have received from Chamberlain,
Hrdlicka, White, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, counsel to DSI and ▇▇▇▇ Parties, an opinion
addressed to Buyer, dated the Closing Date and containing the opinions set out
in Exhibit "R" attached hereto;
-----------
(g) At the Closing, DSI or ▇▇▇▇, as applicable, will have delivered
the following:
To Buyer and ▇▇▇▇▇ Subsidiary:
(i) a certificate executed on behalf of DSI by its Chief Executive
Officer stating that the conditions set forth in Sections 6.1(a) through 6.1(d)
of this Agreement have been satisfied;
(ii) to the extent such certificates are normally issued by the
applicable jurisdiction, existence and good standing certificates for DSI and
its Subsidiaries from the Secretary of State of the State of Texas, and from the
appropriate governmental authority in Hong Kong and from every jurisdiction
where a failure to be qualified or licensed would have a material adverse effect
on the consolidated financial condition, results of operations or business of
DSI dated not earlier than September 30, 1995, other than the Hong Kong
certificate which shall be dated April 15, 1995;
(iii) a copy of DSI's articles of incorporation certified by the
Secretary of State of the State of Texas, and a copy of both DSI (HK) Limited
and Magnifair Holdings Limited Corporate charter documents, certified by the
appropriate governmental authorities of Hong Kong;
(iv) such other documents as Buyer or ▇▇▇▇▇ Subsidiary may
reasonably request in connection with the transactions contemplated hereby;
(v) a certificate from DSI and ▇▇▇▇ certifying that DSI has not
entered into any arrangement, agreement or undertaking as described in Section
4.1(d)(i) without Buyer's and Subsidiary's prior written consent;
To Buyer:
32
(vi) stock certificate(s) in DSI representing the New Shares of
Common Stock;
(vii) stock certificate, or safekeeping receipt for the stock
certificate, or other evidence of ownership reasonably satisfactory to Buyer
representing one share of DSI (HK) not owned by DSI together with a fully
executed stock power and other corporate documentation necessary to convey such
one share of DSI (HK) to an individual or entity designated by Buyer;
(viii) stock certificate, or safekeeping receipt for the stock
certificate, or other evidence of ownership reasonably satisfactory to Buyer
representing one share of Magnifair Holdings Limited not owned by DSI together
with a fully executed stock power and other corporate documentation necessary to
convey such one share of Magnifair Holdings Limited to an individual or entity
designated by Buyer;
To ▇▇▇▇▇ Subsidiary:
(ix) stock certificate(s) in DSI representing the Transferred
Shares together with a fully executed stock power and other documentation
necessary to convey the Transferred Shares to ▇▇▇▇▇ Subsidiary.
(h) ▇▇▇▇ shall have entered into an indemnity agreement ("Indemnity
---------
Agreement") pursuant to which ▇▇▇▇ shall indemnify DSI and Buyer from loss or
---------
damage relating to any Material Adverse Breach (as defined in Section 8.6
hereof) of ▇▇▇▇' representations, warranties and covenants contained in this
Agreement and certain other matters described therein, substantially in the form
attached hereto as Exhibit "S";
-----------
(i) All actions to be taken by DSI and ▇▇▇▇ in connection with the
consummation of this Agreement at the Closing, the issuance of the New Shares
and transfer of the Transferred Shares and the other transactions contemplated
hereby and all documents required to be delivered by DSI and ▇▇▇▇ in connection
with the transactions contemplated hereby will be reasonably satisfactory in
form to Buyer and ▇▇▇▇▇ Subsidiary;
(j) Buyer and ▇▇▇▇▇ Subsidiary shall not have disapproved in writing
any submitted amended or supplemented Disclosure Schedule pursuant to Section
5.11 hereof within five (5) business days of receipt thereof or prior to
Closing, whichever is earlier;
(k) DSI and ▇▇▇▇ shall have obtained the landlord's written approval
as evidenced by the Consent attached hereto as Exhibit "T" and incorporated
-----------
herein with regard to the change in ownership of DSI as contemplated herein in
connection with that certain Lease Agreement ("Lease") between ▇▇▇▇ and DSI
-----
dated June 1, 1992 relating to the DSI Houston Office;
(l) ▇▇▇▇ shall enter into that certain Non-Competition Agreement with
Buyer in the form attached hereto as Exhibit "U";
-----------
(m) This Agreement has not been terminated by any party hereto in
accordance with Section 7.1 prior to the Closing Date;
33
(n) The waiting period under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act, if applicable
to the consummation of the Closing, shall have expired and there shall not be
outstanding any order of a court restraining the transactions contemplated
hereby;
(o) Collateral assignment executed by the appropriate owner of the
policy in favor of DSI for each insurance policy covered by the Split Dollar
Agreements attached hereto as Exhibit "K" shall be delivered to Buyer, if
-----------
required by the Split Dollar Agreements, as amended;
(p) Buyer, ▇▇▇▇▇ Subsidiary, DSI and ▇▇▇▇ shall have taken all action
and executed all documents necessary to consummate the merger of ▇▇▇▇▇
Subsidiary into DSI.
6.2 Conditions to ▇▇▇▇' Obligations. The obligations of ▇▇▇▇ to transfer
-------------------------------
the Transferred Shares to ▇▇▇▇▇ Subsidiary under this Agreement are subject to
the satisfaction of the following conditions on or before the Closing Date:
(a) Except for breaches which do not constitute a Material Adverse
Breach (as defined in Section 8.6 of this Agreement) by Buyer or ▇▇▇▇▇
Subsidiary, the representations and warranties set forth in Article 2 of this
Agreement will be true and correct as of the date hereof and at and as of the
Closing Date, as though then made and as though the Closing Date were
substituted for the date of this Agreement throughout such representations and
warranties and with appropriate modifications of tense with respect to
representations and warranties made as of a specified date;
(b) Buyer and ▇▇▇▇▇ Subsidiary shall have performed, in all material
respects, each obligation and agreement and complied with each covenant required
to be performed and complied with by it under this Agreement prior to the
Closing Date, including, without limitation, all of its agreements contained in
Article 5 of this Agreement;
(c) No action or proceeding before any court or government body will
be pending or threatened wherein a judgment, decree or order would prevent any
of the transactions contemplated hereby or cause such transactions to be
declared unlawful or to be rescinded or which might adversely affect the right
of Buyer to own, operate or control DSI;
(d) On the Closing Date, Buyer will have delivered to ▇▇▇▇ or DSI as
applicable the following:
(i) a certificate executed on behalf of Buyer by its President or
any Vice President stating that the conditions set forth in Sections 6.2(a)
through (d) of this Agreement have been satisfied;
(ii) certified copies of the resolutions duly adopted by Buyer's
Board of Directors and a majority in interest of Buyer's Members including the
consents to the transactions contemplated and provided for in this Agreement.
34
(iii) existence and good standing certificates for the Buyer from
the Secretary of State of the State of Texas dated not earlier than fifteen (15)
days prior to the Closing Date;
(iv) a copy of the Buyer's certificate of existence certified by
the Secretary of State of the State of Texas;
(v) the New Share Purchase Price as set forth in Section 1.1,
without offset, via wire transfer or as otherwise provided herein;
(vi) such other documents as ▇▇▇▇ may reasonably request in
connection with consummating the transactions contemplated hereby, including but
not limited to a certificate attached hereto as Exhibit "V" and incorporated
-----------
herein for all purposes from Buyer that no business other than actions related
to the acquisition of DSI as contemplated or provided for herein has been
consummated by Buyer;
(vii) Buyer, ▇▇▇▇▇ Subsidiary and those individuals listed in
Exhibit "E" attached hereto shall execute the release attached hereto as Exhibit
----------- -------
"W" and incorporated herein for all purposes releasing ▇▇▇▇ from any liability
---
for securities laws violations or claims of investors of Buyer related to the
Private Placement Memorandum issued by Buyer;
(e) on the Closing Date, ▇▇▇▇▇ Subsidiary will have delivered to ▇▇▇▇
or DSI as applicable the following:
(i) a certificate executed on behalf of ▇▇▇▇▇ Subsidiary by its
President or any Vice President stating that the conditions set forth in
Sections 6.2(a) through (d) of this Agreement have been satisfied;
(ii) certified copies of the resolutions duly adopted by ▇▇▇▇▇
Subsidiary's Board of Directors;
(iii) existence and good standing certificates for the ▇▇▇▇▇
Subsidiary from the Secretary of State of the State of Texas dated not earlier
than fifteen (15) days prior to the Closing Date;
(iv) a copy of the ▇▇▇▇▇ Subsidiary's certificate of incorporation
certified by the Secretary of State of the State of Texas;
(v) the Transferred Shares Purchase Price as set forth in Section
1.2;
(vi) such other documents as ▇▇▇▇ may reasonably request in
connection with the transactions contemplated hereby, including but not limited
to signed originals of all Exhibits attached hereto and incorporated herein and
a certificate from ▇▇▇▇▇ Subsidiary that no business other than actions to
consummate the transactions contemplated or provided for herein has been
consummated by ▇▇▇▇▇ Subsidiary;
(f) All actions to be taken by Buyer or ▇▇▇▇▇ Subsidiary in connection
with the consummation of this Agreement as of the Closing Date, and all
documents required to be
35
delivered by ▇▇▇▇▇ Subsidiary or Buyer in connection with the transactions
contemplated hereby will be reasonably satisfactory in form to ▇▇▇▇;
(g) The ▇▇▇▇ Consulting Agreement will have been executed and
delivered by DSI to ▇▇▇▇ by the Closing Date;
(h) Buyer with DSI's cooperation as to document execution shall have
caused ▇▇▇▇ to be released from his personal guarantee under the $5,000,000.00
acceptance line of credit with State Street Bank, the $6,000,000 line of credit
with Bank One and the guarantee for ▇▇▇▇▇ for commercials, and such other
personal guarantees or co-makings of DSI indebtedness as requested in writing
from ▇▇▇▇ to Buyer;
(i) This Agreement is not properly terminated by any Party in
accordance with Section 7.1 hereto prior to the Closing Date;
(j) Neither Buyer nor Subsidiary shall have disapproved during the
permitted time in writing of any submitted Disclosure Schedule, pursuant to
Section 5.11 hereof, as amended or supplemented prior to the Closing Date;
(k) DSI shall at the Closing pay to ▇▇▇▇ ▇▇▇▇▇ a bonus of $1,050,000;
(l) The waiting period under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act, if applicable
to the consummation of the Closing, shall have expired and there shall not be
outstanding any order of a court restraining the transactions contemplated
hereby.
(m) At Closing, Buyer shall co-sign the Lease attached hereto as
Exhibit "X" and incorporated herein for all purposes for the Houston office and
-----------
warehouse facility.
(n) Prior to or at the Closing, each of ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇ and ▇▇▇ ▇▇▇▇ ▇▇▇▇ (▇▇▇▇▇ ▇▇▇) (hereinafter collectively
referred to as "Key Employees") shall have agreed upon and entered into
employment agreements with DSI for a period of at least one (1) year following
the Closing Date each containing a non-competition and non-solicitation covenant
which shall remain in force for the term of employment plus one (1) year
following any termination of employment such employment contracts attached
hereto as Exhibit "Q" and incorporated herein for all purposes;
-----------
(o) ▇▇▇▇ will have received from ▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇▇, P.L.L.C., counsel
to Buyer and ▇▇▇▇▇ Subsidiary, an opinion addressed to ▇▇▇▇, dated the Closing
Date and containing the opinions set out in Exhibit "Y" attached hereto.
-----------
(p) DSI has entered into a registration agreement attached hereto as
Exhibit "Z" and incorporated herein for all purposes with ▇▇▇▇ with regard to
-----------
his shares of Common Stock in DSI.
(q) ▇▇▇▇, Buyer and DSI will have received a fully executed release in
the form attached hereto as Exhibit "AA" and incorporate herein for all
------------
purposes, whereby WXY Consulting Corporation, Hardy & Company and ▇▇▇▇ ▇▇▇▇▇,
and other entities set forth on
36
Exhibit "L" attached hereto release ▇▇▇▇, Buyer and DSI any liability for any
-----------
fees or commission associated with this transaction.
(r) ▇▇▇▇ shall receive a fully executed consent in the form attached
hereto as Exhibit "BB" and incorporated herein for all purposes, whereby Bank
------------
One Texas, N.A., State Street Bank and Hibernia consent to the transactions as
contemplated and provided for in this Agreement.
6.3 Conditions to DSI's Obligations. The obligations of DSI to issue the
-------------------------------
New Shares to Buyer and to acquire ▇▇▇▇▇ Subsidiary through merger pursuant to
this Agreement are subject to satisfaction of the following conditions on or
before the Closing Date:
(a) Except for breaches which do not constitute a Material Adverse
Breach (as defined in Section 8.6 of this Agreement) by Buyer or ▇▇▇▇▇
Subsidiary, the representations and warranties set forth in Article 2 will be
true and correct as of the date hereof and at and as of the Closing Date, as
though then made as though the Closing Date were substituted for the date of the
Agreement throughout such representations and warranties and with appropriate
modifications of the tense with respect to representations and warranties made
as of the specified date;
(b) Buyer and ▇▇▇▇▇ Subsidiary shall have performed in all material
respects, each obligation and agreement and complied with each covenant required
to be performed and complied with by it under this Agreement prior to the
Closing Date, including, without limitation, all of this agreement contained in
Article 5 of this Agreement;
(c) No action or proceeding before any court or body will be pending
or threatened wherein a judgment, decree or order would prevent any of the
transactions contemplated hereby would cause such a transaction to be declared
unlawful are to be rescinded or which might adversely effect the right of Buyer
to own the New Shares and ▇▇▇▇ to transfer the Transferred Shares to ▇▇▇▇▇
Subsidiary;
(d) On the Closing Date, Buyer will have delivered to DSI the
following:
(i) a certified executed on behalf of Buyer by its President, or
any Vice President stating that the conditions set forth in Section 6.2(a)
through (d) of this Agreement have been satisfied;
(ii) certified copies of the resolutions duly adopted by a
majority in interest of Buyer's members and Buyer, ▇▇▇▇▇ Subsidiary and those
individuals listed on Exhibit "E" attached hereto shall execute the release
-----------
attached hereto as Exhibit "W" and incorporated herein for all purposes
-----------
releasing ▇▇▇▇ from any liability for securities laws violations or claims to
investors of Buyer related to the Private Placement Memorandum issued by
Buyer;
(iii) existence and good standing certificates for Buyer from the
Secretary of State from the State of Delaware dated not earlier then fifteen
(15) days prior to the Closing Date;
37
(iv) a copy of Buyer's Certificate of Incorporation certified
by the Secretary of State of the State of Delaware;
(v) the New Shares Purchase Price as set forth in Section 1.1,
without offset via wire transfer;
(vi) such other documents as DSI may reasonably request in
connection with the transaction as contemplated hereby including but not
limited to signed originals of all Exhibits attached hereto and incorporated
herein and a certificate from Buyer that no business other than actions to
consummate the transactions contemplated or provided for herein has been
consummated by Buyer;
(e) On Closing Date, ▇▇▇▇▇ Subsidiary will have delivered to DSI the
following:
(i) a certified executed on behalf of ▇▇▇▇▇ Subsidiary by its
President, or any Vice President stating that the conditions set forth in
Section 6.2(a) through (d) of this Agreement have been satisfied;
(ii) certified copies of the resolutions duly adopted by ▇▇▇▇▇
Subsidiary's Board of Directors and a majority in interest of ▇▇▇▇▇
Subsidiary's shareholders and Buyer, ▇▇▇▇▇ Subsidiary and those individuals
listed on Exhibit "E" attached hereto shall execute the release attached
-----------
hereto as Exhibit "W" and incorporated herein for all purposes releasing ▇▇▇▇
-----------
from any liability for securities laws violations or claims to investors of
Buyer related to the Private Placement Memorandum issued by Buyer;
(iii) existence and good standing certificates for ▇▇▇▇▇
Subsidiary from the Secretary of State from the State of Texas dated not
earlier then fifteen (15) days prior to the Closing Date;
(iv) a copy of ▇▇▇▇▇ Subsidiary's Certificate of Incorporation
certified by the Secretary of State of the State of Texas;
(v) evidence that the Transferred Shares Purchase Price as set
forth in Section 1.2 has been paid to ▇▇▇▇;
(vi) such other documents as DSI may reasonably request in
connection with the transaction as contemplated hereby including but not
limited to signed originals of all Exhibits attached hereto and incorporated
herein and a certificate from ▇▇▇▇▇ Subsidiary that no business other than
actions to consummate the transactions contemplated or provided for herein has
been consummated by ▇▇▇▇▇ Subsidiary;
(f) On the Closing Date, ▇▇▇▇ will have delivered to DSI the
following:
38
(i) a certificate executed by ▇▇▇▇ stating the conditions set forth
in Section 6.2 (a) through (n) of this Agreement have been satisfied;
(ii) such other documents as DSI may reasonably request in
connection with the transaction contemplated hereby;
(iii) all actions to be taken by ▇▇▇▇ in connection with the
consummation of this Agreement at the Closing, the transfer of the Transferred
Shares to ▇▇▇▇▇ Subsidiary and other transaction contemplated hereby and all
documents required to be delivered by ▇▇▇▇ in connection with the transaction
contemplated hereby will be in reasonably satisfactory form to DSI.
(g) This Agreement is not properly terminated by any Party in
accordance with Section 7.1 hereto prior to the Closing Date;
(h) Neither Buyer nor ▇▇▇▇▇ Subsidiary shall have disapproved in
writing of any of the submitted Disclosure Schedules pursuant to Section 5.11
hereof, as amended or supplemented prior to the Closing Date;
(i) The waiting period under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act, applicable to
the consummation of the Closing, shall have expired and there shall not be
outstanding any order of a court restraining the transactions contemplated
hereby.
(j) Bank One Texas, N.A., Hibernia Corporation and ▇▇▇▇ loans have
been finalized and the Intercreditor Agreement agreed to and such lenders are
prepared to fund such loans on the terms and conditions as agreed to by DSI,
Buyer and Banks, such bank loan documents and Intercreditor Agreement attached
hereto as Exhibit "CC".
------------
(k) Resignation of all current Officers and Directors of DSI have been
tendered to DSI. It is contemplated that simultaneously with the transaction a
new Board of Directors for DSI and a new slate of officers will be elected as
more particularly set forth on Exhibit "DD" attached hereto and incorporated
------------
herein for all purposes.
ARTICLE 7
TERMINATION, AMENDMENT AND WAIVER
---------------------------------
7.1 Termination. This Agreement may be terminated at any time prior to
-----------
the Closing Date only as follows: (a) by mutual consent of the Buyer and ▇▇▇▇;
(b) except for actions set out in Subsections (c) - (f) below, by any of the
Parties upon written notice to the others that another Party has failed to take
actions required of it hereunder or has taken an action not permitted to be
taken or done hereunder and such Party does not cure same within five (5) days,
or prior to the Closing Date if less than five (5) days, of receipt of notice of
such default; (c) by Buyer upon notice to DSI and ▇▇▇▇ of such termination
because of Buyer's or ▇▇▇▇▇ Subsidiary's refusal to approve a proposed amendment
to the Disclosure Schedule so long as such notice is made within five (5) days
of Buyer's and ▇▇▇▇▇ Subsidiary's receipt of such proposed amendment to the
Disclosure Schedule, or prior to the Closing Date if less than five
39
(5) days; (d) by Buyer upon notice to DSI and ▇▇▇▇ that there has been a
misrepresentation or breach of a representation or warranty or a failure to
perform a covenant on the part of ▇▇▇▇ with respect to his representations,
warranties and covenants set forth in this Agreement which breach or failure
constitutes a Material Adverse Breach, and ▇▇▇▇ fails to cure same within thirty
(30) days of such notice or prior to Closing Date if less than thirty (30) days;
and (e) by ▇▇▇▇ upon notice to DSI and Buyer that there has been a
misrepresentation or a breach of a representation or warranty or a failure to
perform a covenant on the part of Buyer or ▇▇▇▇▇ Subsidiary with respect to its
representations, warranties and covenants set forth in this Agreement which
breach or failure constitutes a Material Adverse Breach, and Buyer or ▇▇▇▇▇
Subsidiary fail to cure same within thirty (30) days of such notice or prior to
the Closing Date if less than thirty (30) days. Additionally, this Agreement
shall automatically terminate if there is no Closing on or before the Closing
Date as extended as provided herein.
7.2 Amendment. This Agreement and the exhibits attached hereto may not be
---------
amended, supplemented or modified except by a written instrument signed by each
of the Parties.
7.3 Waiver. At any time prior to the Closing Date, (a) Buyer and ▇▇▇▇▇
------
Subsidiary may (i) extend the time for the performance of any of the obligations
or other acts of the DSI or ▇▇▇▇ or (ii) waive compliance with any of the
agreements of DSI or ▇▇▇▇ or with any conditions to Buyer's or ▇▇▇▇▇
Subsidiary's own obligations, and (b) DSI and ▇▇▇▇ may (i) extend the time for
the performance of any of the obligations or other acts of Buyer, or (ii) waive
compliance with any of the agreements of Buyer and ▇▇▇▇▇ Subsidiary or with any
conditions to ▇▇▇▇' own obligations, in each case only to the extent such
obligations, agreements and conditions are intended for their respective
benefit, provided, such extension of time cannot be beyond the Closing Date
without consent of the other party. No such waiver shall be effective unless
made in writing and signed by the party making such waiver.
7.4 Effect of Termination. If this Agreement is terminated as provided in
---------------------
Section 7.1, this Agreement shall become void and neither Party shall have any
further obligations hereunder, except as specifically provided herein. There
shall be no liability or further obligation on the part of any Party hereto or
any of the respective shareholders, officers, or directors of Buyer or ▇▇▇▇▇
Subsidiary, DSI or ▇▇▇▇ except for specific performance under Section 8.11 and
the termination pursuant hereto will relieve any Party from liability of any
breach of this Agreement except the return of the Initial Amount by ▇▇▇▇ should
such return be required under Section 1.6 of this Agreement.
7.5 Indemnification. Upon Closing, ▇▇▇▇ shall have agreed to indemnify
---------------
and hold harmless Buyer, ▇▇▇▇▇ Subsidiary and DSI from certain liabilities,
costs, loss, damage, demand and other expenses, including attorney's fees
(liabilities) pursuant to the Indemnity Agreement attached as Exhibit "S"
-----------
hereto. Buyer and DSI shall have agreed to indemnify and hold harmless ▇▇▇▇ from
certain liabilities, costs, loss, damage, demand and other expenses, including
attorneys' fees ("Liabilities") pursuant to the Indemnity Agreement attached
hereto as Exhibit "S" and incorporated herein for all purposes.
-----------
40
ARTICLE 8
GENERAL PROVISIONS
------------------
8.1 Survival of Representations and Warranties. The representations,
------------------------------------------
warranties and covenants contained herein and in the Loan and Security Agreement
attached hereto as Exhibit "B" set forth in this Agreement shall survive the
-----------
consummation of this Agreement for a period of three (3) years or until the
indebtedness to ▇▇▇▇ is paid whichever is longer. Any litigation arising out of
or attributable to a breach of any representation, warranty or covenant
contained herein must be commenced within such period. If not commenced within
such period, any such claim will thereafter conclusively be deemed to be waived
regardless of when such claim is or should have been discovered.
8.2 Notices. Except as otherwise provided in this Agreement, all notices
-------
and other communications hereunder shall be in writing and shall be deemed to
have been duly given if delivered personally, sent by telex, telecopy, facsimile
(in the instance of facsimile, also confirmed in writing) or overnight courier,
or mailed by registered or certified mail (postage prepaid and return receipt
requested), to the party to whom the same is so delivered, sent or mailed at the
following addresses (or at such other address for a party as shall be specified
by like notice):
(a) if to Buyer or ▇▇▇▇▇ Subsidiary:
▇▇▇▇▇ Acquisition, L.L.C.
c/o Sinex & ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: M. D. ▇▇▇▇▇
with a copy to:
▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇, ▇▇.
(b) if to ▇▇▇▇:
▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
41
with a copy to:
Chamberlain, Hrdlicka, White, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Notices delivered personally or by telex, telecopy or facsimile shall be deemed
delivered as of actual receipt, mailed notices shall be deemed delivered three
(3) days after mailing and overnight courier notices shall be deemed delivered
one day after the date of sending. For purposes of this Agreement notice to
Buyer of any fact or information shall be deemed to be notice to ▇▇▇▇▇
Subsidiary hereunder and notice to ▇▇▇▇ of any fact or information shall be
deemed to be notice to DSI.
8.3 Interpretation. The headings contained in this agreement are for
--------------
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. References to Sections and Articles refer to
sections and articles of this Agreement unless otherwise stated. For purposes of
this Agreement, the phrase "to ▇▇▇▇' knowledge" and any other phrases generally
------------------
referring to the knowledge of ▇▇▇▇, shall mean (i) the actual knowledge of ▇▇▇▇,
or (ii) knowledge that would or should normally and customarily be known by an
individual after making reasonable inquiry in a similar position of authority or
responsibility as any of the Key Employees. For purposes of this Agreement, the
phrase "to the Buyer's knowledge" and any other phrases generally referring to
------------------------
the knowledge of Buyer or ▇▇▇▇▇ Subsidiary shall mean (i) the actual knowledge
of Buyer or ▇▇▇▇▇ Subsidiary or (ii) knowledge that would or should normally and
customarily be known by an individual after making reasonably inquiry in a
position of authority and responsibility as the officers and directors of Buyer
and ▇▇▇▇▇ Subsidiary.
8.4 Severability. If any term, provision, covenant or agreement is held
------------
by a court of competent jurisdiction to be invalid, void or unenforceable, the
remainder of the terms, provisions, covenants, and restrictions of this
Agreement shall remain in full force and effect and shall in no way be affected,
impaired or invalidated and the Parties shall negotiate in good faith to modify
the Agreement to preserve each Party's anticipated benefits under the Agreement.
8.5 Miscellaneous. This Agreement (together with all other documents and
-------------
instruments referred to herein): (a) constitutes the entire agreement and
supersedes all other prior agreements and undertaking both written and oral
among the Parties with respect to the subject matter hereof, (b) except as
expressly set forth herein, is not intended to confer upon any other person any
rights or remedies hereunder; (c) shall be governed in all respects, including
validity, interpretation and effect, by the internal laws of the State of Texas,
without giving effect to the principles of conflict of laws thereof, and will to
the maximum extent practicable, be deemed to call for performance in ▇▇▇▇▇▇
County, Texas; and (d) shall not be assigned by operation of law or otherwise
except as expressly provided in this Agreement. Courts within the State of Texas
will have jurisdiction over any and all disputes between the Parties, whether in
law or equity, arising out of or relating to this Agreement. The Parties consent
to and agree to submit to the jurisdiction of such courts. Venue in any such
dispute whether in federal or state court
42
will be laid in ▇▇▇▇▇▇ County, Texas. This Agreement may be executed in two or
more counterparts which together shall constitute a single agreement.
8.6 Material Adverse Breach. Breaches of representations, warranties and
-----------------------
covenants by either party hereto which (a) individually results in damages to
the other party in excess of $200,000 or (b) in the aggregate result in damages
to the other party in excess of $200,000, shall constitute, for purposes of this
Agreement, a "Material Adverse Breach," provided, however, that any breaches of
-----------------------
representations, warranties and covenants that individually result in damages
less than $1,000.00 shall not be counted for purposes of clause (b) above.
8.7 Limitation of Liability. Neither Buyer, ▇▇▇▇▇ Subsidiary, DSI nor
-----------------------
▇▇▇▇ shall have any liability for breach of the representations, warranties and
covenants made by them and contained in this Agreement unless such breach is a
Material Adverse Breach.
8.8 Confidentiality. If the transaction proposed by this Agreement is not
---------------
consummated for any reason whatsoever, Buyer, ▇▇▇▇▇ Subsidiary and ▇▇▇▇ shall
keep confidential any information (unless required to be disclosed by
governmental authorities or ascertainable from published information or trade
sources) obtained from the other party or any of their vendors, customers,
shareholders, or manufacturers concerning DSI's, or its Subsidiaries, or Buyer's
or ▇▇▇▇▇ Subsidiary's operations or business and deliver and destroy such
written information provided by each other party upon the respective party's
written request. This agreement will survive termination of this Agreement.
8.9 Arbitration. Upon the request of any Party, whether made before or
-----------
after the institution of any legal proceedings, any and all legal proceedings,
action, dispute, controversies or claims of any kind arising out of, pertaining
to, or in connection with, or relating to this Agreement, or any related
agreement, document or instrument referred to in this Agreement, or the breach
thereof now existing or arising hereafter between the Parties shall be
determined solely and exclusively by binding arbitration in accordance with the
Rules of, and shall be administered by, the American Arbitration Association
under the Federal Arbitration Act, and judgment upon the award rendered by the
arbitrators may be entered in any court having jurisdiction thereof. Any Party
to this Agreement may, by any proceeding, bring an action in court to compel
such arbitration. Each Party shall select one arbitrator, and the two so
designated shall select a third arbitrator. If any Party shall fail to designate
an arbitrator within ten (10) days after arbitration is requested, or if the two
(2) arbitrators shall fail to select a third arbitrator within fourteen (14)
days after arbitration is requested, then an arbitrator shall be selected by the
American Arbitration Association under its rules upon application of either
party. Arbitration proceedings shall be conducted in accordance with the
Commercial Arbitration Rules then prevailing of the American Arbitration
Association, or the closest appropriate rules determined by the American
Arbitration Association. Any award rendered by a majority of the arbitrators
shall be binding, and, notwithstanding the provisions of the following sentence,
judgment thereon may be entered in any court of competent jurisdiction. All
arbitration hearings conducted hereunder shall be held in ▇▇▇▇▇▇ County, Texas.
All costs of such arbitration, other than attorneys' fees, shall be borne
equally by the Parties. All statutes of limitation that would otherwise be
applicable shall apply to any arbitration proceedings.
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8.10 No Third Party Beneficiaries. This Agreement shall not confer any
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rights or remedies upon any person or entity other than the Parties and their
respective successors and permitted assigns.
8.11 Specific Performance. Each of the Parties acknowledges and agrees
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that no other remedies are available to Buyer and ▇▇▇▇▇ Subsidiary and Buyer and
▇▇▇▇▇ Subsidiary would be irreparably harmed in the event DSI or ▇▇▇▇ fail to
consummate the transaction contemplated herein. Accordingly, provided Buyer and
▇▇▇▇▇ Subsidiary have fulfilled its obligations as set forth in Section 6.2 and
6.3 hereof, Buyer or ▇▇▇▇▇ Subsidiary are not in breach or default of any other
provision of this Agreement, the Agreement has not been previously terminated
pursuant to the terms hereof and Buyer and ▇▇▇▇▇ Subsidiary are prepared to
perform all of their respective post closing obligations and tenders such
performance to DSI or ▇▇▇▇ ("Purchase Conditions"), then Buyer and ▇▇▇▇▇
Subsidiary shall be entitled to enforce specifically this Agreement and the
terms and provisions hereof upon waiving any default by DSI or ▇▇▇▇ of their
obligations herein other than any default which is the result of an intentional
and willful action or inaction on the part of DSI or ▇▇▇▇ for the primary
purpose of causing Buyer and ▇▇▇▇▇ Subsidiary not to complete the transaction,
in which event Buyer and ▇▇▇▇▇ Subsidiary shall be entitled to force DSI or ▇▇▇▇
to cure such intentional and willful default or breach and specifically enforce
Buyer's and ▇▇▇▇▇ Subsidiary's rights under this Agreement so long as such
Purchase Conditions remain satisfied.
8.12 Assignment by ▇▇▇▇. ▇▇▇▇ shall be entitled to assign all or any
------------------
portion of its rights under this agreement without Buyer's consent; provided,
however, such assignment shall not in any way limit or modify ▇▇▇▇' obligations
under this Agreement.
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STOCK PURCHASE AGREEMENT
Signature Page
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IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
on the date first written above.
▇▇▇▇▇ ACQUISITION, L.L.C.
By: /s/ M. D. ▇▇▇▇▇
------------------------------
M. D. ▇▇▇▇▇, President
DSI ACQUISITION, INC.
By: /s/ M. D. ▇▇▇▇▇
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M. D. ▇▇▇▇▇, President
/s/ ▇▇▇▇▇ ▇▇▇▇
---------------------------------
▇▇▇▇▇ ▇▇▇▇
DIVERSIFIED SPECIALISTS, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
----------------------------
President
45