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EXHIBIT 1
AGREEMENT OF PURCHASE
AND SALE
DATED AS OF OCTOBER 1, 1998
BY AND BETWEEN
▇▇▇▇ INDUSTRIES, INC.
AND
ARROW ELECTRONICS, INC.
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TABLE OF CONTENTS
Page
1. Purchase and Sale of the Business.....................................1
(a) Assets Transferred...........................................1
(b) Excluded Assets..............................................4
(c) Assumed Liabilities..........................................5
(d) Retained Liabilities.........................................7
2. Purchase Price........................................................9
(a) Calculation of Purchase Price................................9
(b) Closing Payments.............................................9
(c) Allocation...................................................9
(d) Distribution of Payments....................................10
3. Audited Balance Sheet; Adjustment to the Estimated Purchase Price....11
4. Closing..............................................................12
5. Obligations of Seller and Purchaser at Closing; Further Assurances...12
6. Representations and Warranties of Seller.............................13
(a) Organization, Standing and Qualification....................13
(b) The Electronics Components Distribution Business............14
(c) Execution, Delivery and Performance of Agreement;
Authority.................................................14
(d) Ownership and Capitalization................................15
(e) Financial Statements........................................15
(f) Absence of Undisclosed Liabilities..........................16
(g) Absence of Changes or Events................................17
(h) Litigation..................................................18
(i) Compliance with Laws and Other Instruments..................18
(j) Title to Properties.........................................19
(k) Contracts...................................................20
(l) Patents, etc................................................21
(m) Employee Benefit Plans......................................21
(n) Taxes.......................................................22
(o) Proxy Statement.............................................23
(p) Affiliate Transactions......................................24
(q) Inventory; Accounts Receivable..............................24
(r) Rights of Return............................................25
(s) Insurance...................................................25
(t) Environmental Matters.......................................25
(u) Determination of Taxability.................................27
(v) Vote Required...............................................27
(w) Article SEVEN of Seller's Articles of Incorporation Not
Applicable................................................27
(x) Subsidiary Ownership of Real Property.......................28
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(y) Proxies.....................................................28
(z) Labor Matters...............................................28
(aa) Supplier Audits.............................................28
(bb) Trading Practices; Ethical Standards........................28
(cc) Value-Added Business........................................28
7. Purchaser's Representations and Warranties...........................29
(a) Organization and Standing...................................29
(b) Execution, Delivery and Performance of Agreement............29
(c) Information to be Included in the Definitive Proxy
Statement.................................................29
(d) Litigation..................................................29
(e) Ownership of Seller Common Stock............................30
8. Certain Agreements...................................................30
(a) Observance of Operations of the Business....................30
(b) Maintain Business...........................................30
(c) Approval of Shareholders; Proxy Statement...................31
(d) Insurance...................................................32
(e) Hiring of Employees.........................................33
(f) Tax Matters.................................................33
(g) Option Agreement............................................34
(h) Transition Services.........................................34
9. Certain Covenants of Seller..........................................35
(a) Obtain Consents.............................................35
(b) Accomplish Sale.............................................35
(c) Cooperate with Purchaser....................................35
(d) No Solicitation.............................................35
(e) Access to Information.......................................36
(f) Employee Benefits Plan......................................36
(g) ▇▇▇▇-▇▇▇▇▇ Compliance.......................................36
(h) Elimination of Intercompany Indebtedness....................37
(i) Delivery of Documents.......................................37
(j) Resignations of Directors...................................37
(k) Real Property...............................................37
(l) Canadian Antitrust Compliance...............................38
(m) Security Deposits...........................................38
(n) Delivery of Books and Records, etc.; Removal of Property....38
(o) Noncompetition..............................................38
(p) Takeover Statutes...........................................39
(q) Declaration of Distribution.................................39
(r) Use of Name.................................................40
10. Certain Covenants of Purchaser.......................................40
(a) Obtain Consents.............................................40
(b) Accomplish Sale.............................................40
(c) Cooperate with Seller.......................................40
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(d) ▇▇▇▇-▇▇▇▇▇ Compliance.......................................40
(e) Employee Benefits and Employee Benefit Plans................40
(f) Required Documents..........................................41
(g) Canadian Antitrust Compliance...............................41
(h) License of ▇▇▇▇ Name........................................41
11. Conditions Precedent to Purchaser's Obligations......................41
12. Conditions Precedent to Seller's Obligations.........................43
13. Indemnification......................................................43
(a) Indemnification and Reimbursement of Purchaser..............43
(b) Indemnification and Reimbursement of Seller.................44
(c) Defense of Claims by Third Parties..........................44
(d) Notice of Other Claims; Non-Waiver..........................45
(e) Threshold...................................................45
(f) Exclusive Remedy............................................45
14. Commission and Finder's Fees.........................................45
15. Survival of Representations and Warranties...........................45
16. Expenses.............................................................46
17. Termination..........................................................46
18. Notices..............................................................47
19. Entire Agreement, Amendments and Certain Other Matters...............47
20. Assignment...........................................................48
21. Counterparts.........................................................48
22. Effectiveness........................................................48
23. Consent to Jurisdiction and Governing Law............................48
24. Severability.........................................................48
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LIST OF EXHIBITS AND SCHEDULES
Exhibit A Valuation Principles
Exhibit B General Assignment and ▇▇▇▇ of Sale
Exhibit C Assumption Agreement
Exhibit D Trademark License Agreement
Exhibit E Certificate of Non-Foreign Status
Exhibit F Opinion of Counsel to Seller
Exhibit G Opinion of Counsel to Purchaser
Exhibit H Stock Option Agreement
Schedule 1(a)(i) Real Property
Schedule 1(a)(ii)(A) Real Property Leases (Seller as Lessor or Sublessor)
Schedule 1(a)(ii)(B) Real Property Leases (Seller as Lessee or Sublessee)
Schedule 1(a)(v) Tangible Personal Property
Schedule 1(a)(vi)(A) Personal Property Leases (Seller as Lessor or Sublessor)
Schedule 1(a)(vi)(B) Personal Property Leases (Seller as Lessee or Sublessee)
Schedule 1(a)(viii) Prepaid Expenses
Schedule 1(a)(ix) Intangible Personal Property
Schedule 1(a)(x) Business Licenses
Schedule 1(a)(xi) Vehicles
Schedule 1(a)(xiv) Business Litigation
Schedule 1(a)(xv) Acquired Subsidiaries
Schedule 1(b)(vii) Excluded Contracts and Inventory
Schedule 1(b)(viii) Excluded Real Estate
Schedule 1(b)(ix) Remaining Businesses
Schedule 1(c)(ii) Accounts Payable
Schedule 1(c)(v) Accrued Expenses
Schedule 1(c)(x) Ontario Warehouse Agreements
Schedule 1(c)(xii) Employment Agreements
Schedule 1(d)(i) Certain Indebtedness
Schedule 1(d)(vi) Retained Litigation Liabilities
Schedule 3(d) Terminated Lines
Schedule 6(b) Shared Facilities or Services
Schedule 6(c)(i) Conflicting Contracts - Seller
Schedule 6(c)(ii) Merger/Consolidation Conflicts
Schedule 6(d)(ii) Capitalization of Subsidiaries
Schedule 6(e)(ii) Exceptions to Financial Statements
Schedule 6(f) Certain Liabilities
Schedule 6(g) Material Changes Since June Balance Sheet
Schedule 6(g)(vi) Contractual Commitments to Employees
Schedule 6(h) Litigation
Schedule 6(j)(i) Exceptions to Good Title (Tangible Personal Property)
Schedule 6(j)(ii)(B) Exceptions to Good Title (Real Property)
Schedule 6(j)(ii)(C) Defaults under Real Property Lease
Schedule 6(j)(ii)(E) Tenant's Purchase Rights
Schedule 6(j)(ii)(F) Exceptions to Condition of Improvements
Schedule 6(k) Contracts and Material Defaults
Schedule 6(l) Exceptions to Patents
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Schedule 6(n) Tax Filing Exceptions
Schedule 6(p) Affiliate Agreements
Schedule 6(q)(i) Inventory Exceptions
Schedule 6(q)(ii) Accounts Receivable Exceptions
Schedule 6(r) Inventory - Subject to a Right of Return
Schedule 6(s) Seller's Insurance Policies
Schedule 6(t) Environmental Matters
Schedule 6(y) Proxies
Schedule 6(z) Labor Matters
Schedule 6(aa) Supplier Audits
Schedule 7(b) Conflicting Contracts - Purchaser
Schedule 10(e)(i) Exceptions to Employees
Schedule 11(i) Ontario Warehouse Consents
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AGREEMENT OF PURCHASE AND SALE
AGREEMENT dated as of October 1, 1998 (the "Agreement") by and
between ▇▇▇▇ INDUSTRIES, INC., a California corporation having its principal
office at ▇▇▇▇ ▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
("Seller") and ARROW ELECTRONICS, INC., a New York corporation having its
principal office at ▇▇ ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ("Purchaser").
RECITALS
Seller is engaged, among other things, in the distribution of
electronic components, including primarily semiconductors, passive components,
connectors and power supplies and board-level products, and the provision of
value-added services, including primarily kitting, turnkey, SMART (automated
replenishment system), assembly of custom cables, harnesses and connectors,
contract purchasing and direct programming of chips (collectively, the
"Business"). Purchaser wishes to purchase and acquire from Seller the Business
(but specifically excluding the other businesses conducted by Seller). Seller
will sell, transfer and assign to Purchaser, and Purchaser will purchase and
acquire from Seller, the assets, and assume the liabilities of the Business for
the consideration and on the terms and conditions hereinafter set forth.
Simultaneously with the execution and delivery of this Agreement, Seller and
Purchaser have entered into a stock option agreement in the form of Exhibit H
(the "Option Agreement").
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, the parties hereby agree as follows:
1. Purchase and Sale of the Business.
(a) Assets Transferred. On the terms and subject to the
conditions set forth in this Agreement, Seller will, or will cause its
subsidiaries to, sell, transfer, convey, assign and deliver to Purchaser, and
Purchaser will purchase and pay for, at the Closing, all of Seller's, or its
applicable subsidiary's, right, title and interest in, to and under the
following Assets and Properties of Seller (or its subsidiaries) used or held for
use in connection with the Business (except as otherwise provided in Section
1(a)(xvi)), as the same shall exist on the Closing Date (the "Assets"):
(i) Real Property. The real property set forth on
Schedule 1(a)(i), and all of the rights arising out of the ownership
thereof or appurtenant thereto (the "Real Property"), together with all
buildings, structures, facilities, fixtures and other improvements
thereto (the "Improvements");
(ii) Real Property Leases. Subject to Section 5(c),
(A) the leases and subleases of real property set forth on Schedule
1(a)(ii)(A) as to which Seller (and its applicable subsidiaries) is the
lessor or sublessor and (B) the leases and subleases of real property
set forth on Schedule 1(a)(ii)(B) as to which Seller (and its
applicable subsidiaries) is the lessee or sublessee, other than such
leases and subleases involving annual rental payments of less than
$75,000 individually or $500,000 in the aggregate (which shall be
included in the updated Schedule 1(a)(ii)(B) to be redelivered to
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Purchaser within thirty (30) days after the date hereof), together with
any options to purchase the underlying property and leasehold
improvements thereon, and in each case all other rights, subleases,
licenses, permits, deposits and profits appurtenant to or related to
such leases and subleases (the leases and subleases described in
subclauses (A) and (B), the "Real Property Leases");
(iii) Inventory. All inventories of raw materials,
work-in-process, finished goods, products under research and
development, demonstration equipment, office and other supplies, parts,
packaging materials and other accessories related thereto which are
held at, or are in transit from or to, the locations at which the
Business is conducted, or located at customers' premises on consignment
or at the premises of third party processors, in each case, which are
used or held for use by Seller (or its applicable subsidiaries) in the
conduct of the Business, including any of the foregoing purchased
subject to any conditional sales or title retention agreement in favor
of any other Person, together with all rights of Seller (or its
applicable subsidiaries) against suppliers of such inventories (the
"Inventory");
(iv) Accounts Receivable. All trade accounts
receivable and all notes, bonds and other evidences of indebtedness of
and rights to receive payments arising out of sales occurring in the
conduct of the Business, and any security arrangements and collateral
securing the repayment or other satisfaction thereof or related
thereto, including any rights of Seller (or its applicable
subsidiaries) with respect to any third party collection procedures or
any other actions, suits, proceedings, arbitrations, or Governmental
Entity investigation or audit which have been commenced in connection
therewith (the "Accounts Receivable");
(v) Tangible Personal Property. All furniture,
fixtures, equipment, machinery and other tangible personal property
(other than Inventory and Vehicles) used or held for use in the conduct
of the Business at the locations at which the Business is conducted or
at customers' premises on consignment, or otherwise used or held for
use by Seller (or its applicable subsidiaries) in the conduct of the
Business (including but not limited to the items set forth on Schedule
1(a)(v), including any of the foregoing purchased subject to any
conditional sales or title retention agreement in favor of any other
Person (the "Tangible Personal Property"));
(vi) Personal Property Leases. Subject to Section
5(c), (A) the leases or subleases of Tangible Personal Property
including but not limited to the items set forth on Schedule
1(a)(vi)(A) as to which Seller (or any of its applicable subsidiaries)
is the lessor or sublessor (which Schedule shall be updated and
redelivered to Purchaser within five (5) days prior to the Closing
Date) and (B) the leases of Tangible Personal Property including but
not limited to the items set forth on Schedule 1(a)(vi)(B) as to which
Seller (or its applicable subsidiaries) is the lessee or sublessee
(which Schedule shall be updated and redelivered to Purchaser within
five (5) days prior to the Closing Date), together with any options to
purchase the underlying property (the leases and subleases described in
subclauses (A) and (B), the "Personal Property Leases");
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(vii) Business Contracts. Subject to Section 5(c),
all contracts (other than the Real Property Leases, the Personal
Property Leases and the Accounts Receivable) to which Seller (or any of
its applicable subsidiaries) is a party and which are utilized in the
conduct of the Business, including without limitation, contracts
relating to suppliers, sales representatives, distributors, purchase
orders, marketing arrangements and manufacturing arrangements (the
"Business Contracts");
(viii) Prepaid Expenses. All prepaid expenses to the
extent relating to the Business, including but not limited to the items
set forth on Schedule 1(a)(viii) (the "Prepaid Expenses"); provided,
however, that the extent to which any such Asset relates to the
Remaining Businesses (as defined in Section 1(b)(ix)) shall be
expressly noted on such Schedule and if not so noted shall be an Asset;
(ix) Intangible Personal Property. All Intellectual
Property to the extent used or held for use in the conduct of the
Business (including Seller's or its applicable subsidiaries, goodwill
therein) and all rights, privileges, claims, causes of action and
options relating or pertaining to the Business or the Assets, including
but not limited to the items set forth on Schedule 1(a)(ix) (the
"Intangible Personal Property"); provided, however, that the extent to
which any such Asset relates to the Remaining Businesses shall be
expressly noted on such Schedule and if not so noted shall be an Asset;
(x) Licenses. To the extent their transfer is
permitted under applicable laws, rules and regulations and subject to
Section 5(c), all licenses (including applications therefor) to the
extent utilized in the conduct of the Business, including but not
limited to the licenses set forth on Schedule 1(a)(x) (the "Business
Licenses") (which Schedule shall be updated and redelivered to
Purchaser within thirty (30) days after the date hereof); provided,
however, that the extent to which any such Asset relates to the
Remaining Businesses shall be expressly noted on such Schedule and if
not so noted shall be an Asset;
(xi) Vehicles. All motor vehicles owned or leased by
Seller (or its applicable subsidiaries) and used or held for use in the
conduct of the Business, including but not limited to the vehicles set
forth on Schedule 1(a)(xi) (the "Vehicles");
(xii) Security Deposits. All security deposits
deposited by or on behalf of Seller (or its applicable subsidiaries) as
lessee or sublessee under the Real Property Leases (the "Tenant
Security Deposits");
(xiii) Books and Records. All Books and Records used
or held for use in the conduct of the Business or otherwise relating to
the Assets, other than the Excluded Books and Records (the "Business
Books and Records");
(xiv) Litigation Claims. Any rights (including
indemnification) and claims and recoveries under litigation of Seller
(or its applicable subsidiaries) against third parties arising out of
or relating to the Business set forth on Schedule 1(a)(xiv) (the
"Business Litigation");
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(xv) Subsidiary Stock. All of the right, title and
interest of Seller in, to and under the issued and outstanding shares
of capital stock (the "Acquired Shares") of the subsidiaries of Seller
set forth on Schedule 1(a)(xv) (the "Subsidiaries");
(xvi) Tradenames and Logos. All of Seller's right,
title and interest in, to and under the names "▇▇▇▇ Industries",
"▇▇▇▇", "BI" and "Milgray Electronics" and all derivatives thereof and
all logos and typestyles used or registered by Seller, and all goodwill
associated therewith, whether or not used or held for use in connection
with the Business (the "Acquired Names"); and
(xvii) Other Assets and Properties. All other Assets
and Properties of Seller (or its applicable subsidiaries) used or held
for use in connection with the Business except as otherwise provided in
Section 1(b) (the "Other Assets").
To the extent any of the Business Books and Records are items
susceptible to duplication and are either (x) used in connection with any of
Seller's businesses other than the Business or (y) are required by any law, rule
or regulation to be retained by Seller, Seller may deliver photostatic copies or
other reproductions from which, in the case of Business Books and Records
referred to in clause (x), information solely concerning Seller's businesses
other than the Business has been deleted. To the extent any of the Business
Books and Records relates to the Remaining Businesses, Purchaser will afford the
other party, its counsel and its accountants, during normal business hours,
reasonable access to such Business Books and Records and the right to make
copies and extracts therefrom. Further, Purchaser agrees for a period extending
six (6) years after the Closing Date not to destroy or otherwise dispose of any
such Business Books and Records unless Purchaser shall first offer in writing to
surrender such Business Books and Records to Seller and Seller shall not agree
in writing to take possession thereof during the ten (10) day period after such
offer is made.
(b) Excluded Assets. Notwithstanding anything in this
Agreement to the contrary, the following Assets and Properties of Seller and its
applicable subsidiaries used or held for use in connection with the Business
shall be excluded from and shall not constitute Assets (the "Excluded Assets"):
(i) Cash. Cash (including checks received prior to
the close of business on the Closing Date, whether or not deposited or
cleared prior to the close of business on the Closing Date), commercial
paper, certificates of deposit and other bank deposits, treasury bills
and other cash equivalents;
(ii) Insurance. Life insurance policies of officers
and other employees of Seller and all other insurance policies relating
to the operation of the Business;
(iii) Employee Benefit Plans. All assets owned or
held by any Employee Benefit Plans (as defined in Section 6(m));
(iv) Tax Refunds. All refunds or credits, if any, of
Taxes due to or from Seller;
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(v) Excluded Books and Records. The minute books,
stock transfer books and corporate seal of Seller and its subsidiaries
other than the Subsidiaries and any other Books and Records relating
primarily to the Excluded Assets or the Retained Liabilities (the
"Excluded Books and Records");
(vi) Litigation Claims. Any rights (including
indemnification) and claims and recoveries under litigation of Seller
against third parties arising out of or relating to the Business,
except the Business Litigation set forth on Schedule 1(a)(xiv);
(vii) Excluded Contracts and Inventory. The rights of
Seller in, to and under all of the contracts and inventory set forth on
Schedule 1(b)(vii);
(viii) Excluded Real Estate. The real property set
forth on Schedule 1(b)(viii), together with all buildings, structures,
facilities, fixtures and the improvements thereto;
(ix) Other Business. All of Seller's Assets and
Properties that are not used or held for use in connection with the
Business, including, without limitation, those businesses set forth on
Schedule 1(b)(ix) (the "Remaining Businesses") and the shares of any
direct or indirect subsidiaries of Seller other than the Subsidiaries;
(x) Claims Against Third Parties. Claims against
third parties for damages suffered in connection with Excluded Assets
and Retained Liabilities; and
(xi) Agreements. Seller's rights under this
Agreement, the Option Agreement and any other agreements, instruments
or documents executed by Seller pursuant to or in connection with this
Agreement and the transactions contemplated hereby.
To the extent any Excluded Books and Records relate to the
Business, Seller will afford the other party, its counsel and its accountants,
during normal business hours, reasonable access to such Excluded Books and
Records and the right to make copies and extracts therefrom. Further, Seller
agrees for a period extending six (6) years after the Closing Date not to
destroy or otherwise dispose of any such Excluded Books and Records unless
Seller shall first offer in writing to surrender such Excluded Books and
Records to Purchaser and Purchaser shall not agree in writing to take
possession thereof during the ten (10) day period after such offer is made.
(c) Assumed Liabilities. In connection with the sale,
transfer, conveyance, assignment and delivery of the Assets pursuant to this
Agreement, on the terms and subject to the conditions set forth in this
Agreement, at the Closing, Purchaser will assume and agree to pay, perform and
discharge when due all of the obligations of Seller (or its applicable
subsidiaries) relating exclusively to the Business and arising in connection
with the ordinary course of operation of the Business other than the Retained
Liabilities (the "Assumed Liabilities"), including but not limited to the
following:
(i) Real Property Lease Obligations. All obligations
of Seller (or its applicable subsidiaries) under the Real Property
Leases;
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(ii) Accounts Payable. All obligations of Seller (or
its applicable subsidiaries) with respect to accounts payable reflected
or reserved against in the June Balance Sheet (as defined in Section
6(e)(i)) or those arising in the ordinary course of business since June
30, 1998, including but not limited to the items set forth on Schedule
1(c)(ii) (the "Accounts Payable");
(iii) Personal Property Lease Obligations. All
obligations of Seller (or its applicable subsidiaries) under the
Personal Property Leases;
(iv) Obligations under Contracts and Licenses. All
obligations of Seller (or its applicable subsidiaries) under the
Business Contracts and Business Licenses;
(v) Accrued Expenses. All obligations of Seller (or
its applicable subsidiaries) with respect to accrued expenses reflected
or reserved against in the June Balance Sheet or those incurred in the
ordinary course of business since June 30, 1998, including without
limitation the items set forth on Schedule 1(c)(v) (the "Accrued
Expenses");
(vi) Returned Goods. All obligations with respect to
the Business of Seller (or its applicable subsidiaries) for replacement
of, or refund for, damaged, defective or returned goods, except
Retained Returned Goods (as defined in Section 1(d)(x));
(vii) Product Liabilities. All liabilities with
respect to the Business arising out of claims of third parties for
damage or injury suffered as the result of defective products sold by
Seller (or its applicable subsidiaries) prior to the Closing Date,
except the Retained Product Liabilities (as defined in Section
1(d)(xi));
(viii) Security Deposits. All obligations of Seller
(or its applicable subsidiaries) with respect to any security deposit
held as lessor or sublessor under the Real Property Leases (the
"Landlord Security Deposits");
(ix) Sales Tax Liabilities. All sales and use Taxes
collected from customers with respect to the Business and held by
Seller on the Closing Date, except the Retained Sales Tax Liabilities
(as defined in Section 1(d)(viii)) (the "Assumed Sales Tax
Liabilities");
(x) Ontario Warehouse Agreements. All obligations of
Seller (or its applicable subsidiaries) under the agreements set forth
on Schedule 1(c)(x);
(xi) Litigation Claims. All obligations and
liabilities of Seller and its applicable subsidiaries arising from
litigation of third parties against Seller or its applicable
subsidiaries arising out of the activities of the Business, except the
Retained Litigation (as defined in Section 1(d)(vi));
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(xii) Employment Agreements. All obligations of
Seller under the employment agreements and severance agreements set
forth on Schedule 1(c)(xii) (the "Assumed Employment Agreements"); and
(xiii) Other Liabilities. All other liabilities
reserved or reflected on the Audited Balance Sheet.
(d) Retained Liabilities. Notwithstanding anything in this
Agreement to the contrary, Purchaser shall not assume by virtue of this
Agreement or the transactions contemplated hereby, and shall have no liability
for, any of the following liabilities of Seller or any of its subsidiaries (the
"Retained Liabilities"):
(i) Certain Indebtedness. All obligations of Seller
and its subsidiaries for indebtedness set forth on Schedule 1(d)(i);
(ii) Tax Liabilities. All obligations of Seller and
its subsidiaries for Taxes other than the Assumed Sales Tax
Liabilities;
(iii) Liabilities under this Agreement. Seller's
liabilities under this Agreement, the Option Agreement and any other
agreements, instruments or documents executed by Seller pursuant to or
in connection with this Agreement and the transactions contemplated
hereby;
(iv) Employee Benefit Plan Liabilities. All
liabilities and obligations under each of the Employee Benefit Plans
(as defined in Section 6(m)(i)) or any employee benefit plan, agreement
or other arrangement, program or policy maintained or sponsored by
Seller or any of its subsidiaries;
(v) Post-Retirement Medical Plan Liabilities. All
obligations of Seller and its subsidiaries under any post-retirement
medical benefits plan;
(vi) Litigation Claims. All liabilities of Seller and
its subsidiaries arising from claims and recoveries under litigation of
third parties against Seller or its subsidiaries set forth on Schedule
1(d)(vi) (the "Retained Litigation");
(vii) Excluded Assets. All obligations of Seller and
its subsidiaries arising in connection with the Excluded Assets;
(viii) Retained Sales Tax Liabilities. All sales, use
or other Taxes collected from customers by Seller for delivery to a
taxing authority, except those Taxes reflected as liabilities on the
Audited Balance Sheet (the "Retained Sales Tax Liabilities");
(ix) Other Businesses. All obligations of Seller
related to the Remaining Businesses;
(x) Retained Returned Goods. All obligations of
Seller (or its applicable subsidiaries) for replacement of, or refund
for, damaged, defective or returned
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goods to the extent that (A) such goods are not subject to full return
privileges from the supplier thereof or (B) such goods are not
non-franchised products sold in the ordinary course of Seller's
value-added business (the "Retained Returned Goods");
(xi) Retained Product Liabilities. All liabilities
arising out of claims of third parties for damages or injury suffered
as the result of defective products sold by Seller (or its applicable
subsidiaries) that (A) were not sold under customary authorized
distributor agreements, (B) were not sold in the ordinary course under
Seller's value-added business or (C) arise out of the negligent acts or
willful misconduct of Seller, its subsidiaries or its employees or
agents (the "Retained Product Liabilities"); and
(xii) Retained Employment Agreements. All obligations
of Seller under employment agreements and severance agreements, except
the Assumed Employment Agreements.
Seller shall discharge, or shall cause the discharge, in a timely manner or
shall make adequate provision for all of the Retained Liabilities, provided that
Seller shall have the ability to contest, in good faith, any such claim of
liability asserted in respect thereof by any Person other than Purchaser and its
affiliates.
For purposes of this Agreement:
"Assets and Properties" of any Person means all assets and
properties of every kind, nature, character and description (whether
real, personal or mixed, whether tangible or intangible, whether
absolute, accrued, contingent, fixed or otherwise and wherever
situated), including the goodwill related thereto, operated, owned or
leased by such Person, including without limitation cash, cash
equivalents, investment assets, accounts and notes receivable, chattel
paper, documents, instruments, general intangibles, real estate,
equipment, inventory, goods and Intellectual Property.
"Books and Records" of any Person means all files, documents,
instruments, papers, books and records relating to the business,
operations, condition of (financial or other), results of operations
and Assets and Properties of such Person, including without limitation
financial statements, Returns and related work papers and letters from
accountants, budgets, pricing guidelines, ledgers, journals, deeds,
title policies, minute books, stock certificates and books, stock
transfer ledgers, contracts, licenses, customer lists, computer files
and programs, retrieval programs, operating data and plans and
environmental studies and plans.
"Governmental Entity" means any nation or government, any
state or other political subdivision thereof, including any
municipality, town, village, and subdivision thereof, and any entity
exercising executive, legislative, judicial, regulatory, or
administrative functions of, or pertaining to, governance.
"Intellectual Property" means all patents and patent rights,
trademarks and trademark rights, trade names and trade name rights,
service marks and service ▇▇▇▇ rights, service names and service name
rights, brand names, inventions, processes, formulae, copyrights and
copyright rights, trade dress, business and product names,
▇▇
-▇-
▇▇▇▇▇, ▇▇▇▇▇▇▇, trade secrets, industrial models, processes, designs,
methodologies, computer programs (including all source codes) and
related documentation, technical information, manufacturing,
engineering and technical drawings, know-how and all pending
applications for and registrations of patents, trademarks, service
marks and copyrights.
"Person" means any individual, partnership, corporation
(including a business trust), joint stock company, trust,
unincorporated association, joint venture or other entity, or a
Governmental Entity.
2. Purchase Price.
(a) Calculation of Purchase Price. The purchase price (the
"Purchase Price") to be paid by Purchaser hereunder shall be $187,600,000, as
adjusted pursuant to Section 3.
(b) Closing Payments. Subject to the terms and conditions
hereof, Purchaser shall, subject to the adjustments, if any, contemplated under
Section 3, pay to Seller an amount (the "Closing Cash Payment") equal to (A)
$187,600,000 less the Estimated Balance Sheet Adjustment (as defined below), if
any (the "Estimated Purchase Price") less (B) $20,000,000. Seller shall prepare
and deliver to Purchaser an estimated consolidated balance sheet (the "Estimated
Balance Sheet") of the Business as of the last day of the month immediately
prior to the Closing Date (the "Preceding Month"), or in the event the Closing
Date shall be within the first ten (10) days of any calendar month, as of the
last day of the month immediately prior to the Preceding Month. Such Estimated
Balance Sheet shall be prepared on the same terms and basis as specified in the
second sentence of Section 3(a) with respect to the Preliminary Audited Balance
Sheet (as defined in Section 3). If the net investment shown on the Estimated
Balance Sheet is at least $155 million, then there shall be no Estimated Balance
Sheet Adjustment. If the net investment shown on the Estimated Balance Sheet is
less than $135 million, Purchaser may at its option (1) terminate this Agreement
or (2) proceed with the transactions contemplated herein, including the
determination of the Closing Cash Payment as reduced by the Estimated Balance
Sheet Adjustment described in the following sentence. If the net investment
shown on the Estimated Balance Sheet is less than $155 million (the difference
between the net investment and $155 million is hereinafter referred to as the
"Estimated Shortfall"), then the Closing Cash Payment shall be reduced on a
dollar-for-dollar basis by the amount of the Estimated Shortfall (such reduction
being referred to as the "Estimated Balance Sheet Adjustment").
(c) Allocation. (i) As promptly as practicable after the
Audited Balance Sheet Date (as defined in Sections 3(b)), Purchaser and
Seller shall use their best efforts to agree on the allocation of the
Purchase Price among the Assets. As promptly as practicable and in any
event not later than fifteen (15) days following the Audited Balance
Sheet Date, Purchaser shall deliver to Seller an initial schedule
allocating the Purchase Price among the Assets (the "Initial
Allocation"). The Initial Allocation shall be final and binding upon
Seller and Purchaser unless within ten (10) days of receipt thereof
Seller gives written notice to Purchaser that it does not agree with
the Initial Allocation. If Seller so notifies Purchaser within the
ten-day period, Purchaser and Seller will use good faith efforts to
resolve any disagreements within seven (7) days after Purchaser's
receipt of Seller's written notice. If Seller and Purchaser cannot
reach
16
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agreement during such seven-day period, their disagreements shall be
promptly submitted to an independent public accounting firm jointly
selected by Purchaser and Seller (the "Independent Accountant"), which
will conduct such review as it deems necessary to resolve their
disagreements regarding the Initial Allocation. The allocation of the
Purchase Price among the Assets determined under this Section 2(c)(i)
is referred to the "Final Allocation".
(ii) The review of the Independent Accountant will be
restricted as to scope to address only those matters as to which Seller
and Purchaser have not reached agreement pursuant to Section 2(c)(i).
The Independent Accountant's decision resolving any disagreements will
be binding on Seller and Purchaser and will be provided in writing to
the parties as promptly as practicable and in any event not later than
thirty (30) days after the disagreements are submitted to the
Independent Accountant pursuant to Section 2(c)(i). The fees and
expenses incurred by the Independent Accountant in connection with
resolving any disagreements pursuant to Sections 2(c)(i) will be shared
equally by Seller and Purchaser.
(iii) Each of Seller and Purchaser agrees: (A) that
the Final Allocation will be consistent with the requirements of Code
Section 1060, (B) to complete jointly and to file separately Form 8594
with its federal income Tax Return consistent with the Final Allocation
for the tax year in which the Closing Date occurs and (C) that no party
will take a position on any federal, state or local Tax Return, before
any Governmental Entity charged with the collection of any tax or in
any action or proceeding that is in any manner inconsistent with the
terms of the Final Allocation without the consent of the other party.
(d) Distribution of Payments. Following the receipt by Seller
of the Closing Cash Payment due under Section 2(b), Seller shall, subject to
applicable fraudulent conveyance laws and to the provisions of Section 500 et
seq. of the California Corporations Code (the "CCC"): (i) first apply the
Closing Cash Payment to the repayment of the outstanding principal under the
Credit Agreement dated as of January 7, 1997, as amended from time to time, by
and among Seller, ▇▇▇▇ Ontario Holding, Inc., the lenders thereunder and Union
Bank of California N.A., as agent (as amended, the "Credit Agreement") as may be
necessary to obtain the release of any mortgage, pledge, lien, charge, security
interest, encumbrance, lease, license or claim ("Encumbrance") on the Assets
securing indebtedness under the Credit Agreement except as otherwise provided in
this Agreement; and (ii) except as otherwise provided in Section 9(q) of this
Agreement, prior to the Audited Balance Sheet Date, make no payments, dividends
or distributions to its shareholders (including the adoption by its Board of
Directors of a resolution declaring a dividend or distribution or declaring a
record date with respect thereto).
3. Audited Balance Sheet; Adjustment to the Estimated
Purchase Price.
(a) After the Closing, Purchaser shall prepare or cause to be
prepared, and shall cause Ernst & Young LLP, independent accountants (the
"Accountants"), to prepare a certification of an audited consolidated balance
sheet as of the Closing Date for the Business (the "Preliminary Audited Balance
Sheet"). The Preliminary Audited Balance Sheet shall (i) be prepared from the
books and records of the Business in accordance with generally accepted
17
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accounting principles, applied on a basis consistent with the Financial
Statements, (ii) be prepared in accordance with Seller's valuation principles
attached as Exhibit A, and (iii) reflect no write-up of any individual asset of
the Business which was included in the Financial Statements and is included in
the Preliminary Audited Balance Sheet to a book value greater than its book
value in the Financial Statements. As a part of the preparation of the
Preliminary Audited Balance Sheet, Purchaser and its employees shall conduct a
complete physical inventory of the Business as of the Closing Date, and the
results of such inventory shall be reflected in the Preliminary Audited Balance
Sheet. Purchaser shall deliver the Preliminary Audited Balance Sheet, and shall
use its reasonable efforts to cause the Accountants to deliver the form of the
Accountants' report thereon, to Seller as promptly as practicable and, in any
event, not later than ninety (90) days after the Closing Date.
(b) Employees of Seller and PricewaterhouseCoopers LLP ("PWC
Representatives") shall have the right, at Seller's expense, to observe and
reasonably review and comment to the Accountants upon the preparation of the
Preliminary Audited Balance Sheet. In addition, Seller and PWC Representatives
shall have the right to observe the taking of the physical inventory and to
comment to the Accountants with respect thereto. In the event that Seller shall
object to any matter relating to the Preliminary Audited Balance Sheet (which
objections shall be solely on the basis that such balance sheet has not been
prepared in accordance with the second sentence of Section 3(a) above or is
derived from obvious mathematical errors), Seller shall, as promptly as
practicable but in any event within thirty (30) days after receipt of the
Preliminary Audited Balance Sheet, notify Purchaser of such objections in
writing. The parties shall use their best efforts to resolve any such objections
as promptly as practicable. If the parties are unable to resolve any such
objections within twenty (20) days after the date that Seller receives the
certified Preliminary Audited Balance Sheet, then a nationally recognized
independent public accounting firm as shall be mutually agreed by the parties
shall be appointed as arbitrator to resolve the dispute in accordance with
Section 3(a) above as soon as practicable and its determination with respect to
such dispute shall be final and binding upon both parties hereto. The costs of
such accounting firm in connection with its acting as such arbitrator shall be
borne 50% by Seller and 50% by Purchaser. The final audited balance sheet,
reflecting the results of any resolution of objections or arbitrated settlement,
accompanied by the Accountants' report thereon, shall be the "Audited Balance
Sheet" and the date of delivery thereof to Purchaser and Seller shall be the
"Audited Balance Sheet Date".
(c) If the net investment shown on the Audited Balance Sheet
is greater than $155 million, then the Purchase Price shall be increased on a
dollar-for-dollar basis by the amount equal to the lesser of (i) the difference
between such net investment and $155 million and (ii) $10 million. If the net
investment shown on the Audited Balance Sheet is $155 million or less (the
difference between such net investment and $155 million is hereinafter referred
to as the "Audited Shortfall"), then the Purchase Price shall be reduced on a
dollar-for-dollar basis by the amount of the Audited Shortfall.
(d) The Purchase Price shall also be reduced by the amount, if
any, of the Terminated Lines Reduction. The "Terminated Lines Reduction" shall
be the sum of (i) the inventory related to terminated lines described on
Schedule 3(d) which has not been returned for full credit to the applicable
manufacturer prior to the Closing Date and for which value has been given on the
Audited Balance Sheet and (ii) to the extent reflected as an asset on the
Audited
18
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Balance Sheet, the pending debits related to terminated lines described on
Schedule 3(d) which have not been honored by the applicable manufacturer prior
to the Closing Date.
(e) Within five (5) business days after the Audited Balance
Sheet Date: (i) in the event that the Purchase Price is greater than the Closing
Cash Payment, Purchaser shall promptly pay to Seller such difference with
interest thereon (accruing from the Closing Date until such payment is made) at
the Interest Rate (as defined below); and (ii) in the event that the Purchase
Price is less than the Closing Cash Payment, Seller shall promptly pay to
Purchaser such difference with interest thereon (accruing from the Closing Date
until such payment is made) at the Interest Rate. For purposes of this
Agreement, "Interest Rate" means 6% per annum (based on a year of 360 days). The
payments required pursuant to this Section 3(e) shall not be subject to any
right of setoff, counterclaim or recoupment.
4. Closing. The Closing (the "Closing") shall take place at
10:00 A.M., local time, on the earliest practicable date after all of the
conditions set forth in Sections 11 and 12 shall have been satisfied or waived
but in any event not later than three (3) business days after such date (the
"Closing Date"), at the offices of Milbank, Tweed, ▇▇▇▇▇▇ & ▇▇▇▇▇▇, 1 ▇▇▇▇▇
Manhattan Plaza, New York, New York, or such other time and place as the parties
may agree.
5. Obligations of Seller and Purchaser at Closing;
Further Assurances.
(a) At the Closing:
(i) Seller will assign and transfer to Purchaser all
of its right, title and interest in and to the Assets (free and clear
of all Encumbrances) by delivery of (A) a General Assignment and ▇▇▇▇
of Sale substantially in the form of Exhibit B, duly executed by
Seller, (B) an assignment of the Intellectual Property in form and
substance reasonably satisfactory to Purchaser, (C) general warranty
deeds in proper statutory form for recording and otherwise in form and
substance reasonably satisfactory to Purchaser conveying title to the
Real Property, (D) such other good and sufficient instruments of
conveyance, assignment and transfer, in form and substance reasonably
acceptable to Purchaser's counsel, as shall be effective to vest in
Purchaser good title to the Assets;
(ii) Seller will deliver the other documents,
certificates and opinions specified in Section 9;
(iii) Purchaser will pay to Seller, by wire transfer
of immediately available funds to the account previously designated by
Seller to Purchaser, an amount equal to the Closing Cash Payment;
(iv) Purchaser will assume from Seller the due
payment, performance and discharge of the Assumed Liabilities by
delivery of (A) an Assumption Agreement substantially in the form of
Exhibit C duly executed by Purchaser, (B) such other good and
sufficient instruments of assumption, in form and substance reasonably
acceptable to Seller's counsel, as shall be effective to cause
Purchaser to assume the Assumed Liabilities as and to the extent
provided in Section 1(c); and
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(v) Purchaser will deliver the other documents,
certificates and opinions specified in Section 10.
(b) At any time and from time to time after the Closing, at
Purchaser's request and without further consideration, Seller will take all
action necessary to execute and deliver such other instruments of sale,
transfer, conveyance, assignment and confirmation and take such action as
Purchaser may reasonably deem necessary or desirable in order to more
effectively transfer, convey and assign to Purchaser the Business.
(c) To the extent that any Real Property Lease, Personal
Property Lease, Business Contract or Business License is not assignable without
the consent of another party, this Agreement shall not constitute an assignment
or an attempted assignment thereof if such assignment or attempted assignment
would constitute a breach thereof or a default thereunder. Seller and Purchaser
shall use commercially reasonable efforts to obtain the consent of such other
party to the assignment of any such Real Property Lease, Personal Property
Lease, Business Contract or Business License to Purchaser in all cases in which
such consent is or may be required for such assignment. If any such consent
shall not be obtained, Seller shall cooperate with Purchaser in any reasonable
arrangement designed to provide for Purchaser the benefits intended to be
assigned to Purchaser under the relevant Real Property Lease, Personal Property
Lease, Business Contract or Business License, including enforcement at the cost
and for the account of Purchaser of any and all rights of Seller against the
other party thereto arising out of the breach or cancellation thereof by such
other party or otherwise. If and to the extent that such arrangement cannot be
made, Purchaser shall have no obligation pursuant to Section 1(c) or otherwise
with respect to any such Real Property Lease, Personal Property Lease, Business
Contract or Business License. The provisions of this Section 5(c) shall not
affect the right of Purchaser not to consummate the transactions contemplated by
this Agreement if the condition to its obligations hereunder contained in
Section 11(i) has not been fulfilled.
6. Representations and Warranties of Seller. Seller represents
and warrants to Purchaser, as of the date of this Agreement as follows:
(a) Organization, Standing and Qualification. Each of Seller
and the Subsidiaries is a corporation duly organized, validly existing and in
good standing under the laws of its respective jurisdiction of incorporation,
and has the corporate power and authority to carry on its business as now being
conducted and to own, lease or operate its properties; and each of Seller and
the Subsidiaries is duly qualified or licensed and in good standing as a foreign
corporation authorized to do business in all of the jurisdictions where the
nature of the activities conducted by it or the character of the properties
owned, leased or operated by it requires such qualification or licensing, except
where the failure to be so qualified or licensed would not result in loss,
liability, cost, expense (including but not limited to attorneys fees and
expenses), damage or decline in value to the business, condition or properties
of the Business, taken as a whole, or to Purchaser (collectively, "Losses") in
excess of $25,000 individually or $100,000 in the aggregate. Seller has
delivered to Purchaser true and complete copies (initialed by the Secretary of
Seller) of the certificates of incorporation (and all amendments thereto) and
the by-laws as presently in effect of Seller and each of the Subsidiaries.
20
-14-
(b) The Electronics Components Distribution Business. The
Business is conducted solely through Seller's Electronic Distribution Group
(excluding any Remaining Businesses) and the Subsidiaries. The sale of the
Assets by Seller to Purchaser pursuant to this Agreement will convey to
Purchaser the entire Business and all of the tangible and intangible property
used by Seller (whether owned, leased or held under license by Seller, by any of
Seller's affiliates or by others) in connection with the conduct of the Business
as heretofore conducted by Seller (except for the Excluded Assets) including,
without limitation, all Assets and Properties of Seller and its subsidiaries
reflected in the June Balance Sheet (as defined in Section 6(e)) included in the
Financial Statements and Assets and Properties acquired since June 30, 1998 used
or held for use in connection with the Business, other than the Excluded Assets
and Assets and Properties disposed of since such date, consistent with Section
6(g)(iii). Except as set forth on Schedule 6(b),with respect to the Assets or
the Business, there are no shared facilities or services which are used in
connection with any business or other operations of Seller or any of Seller's
affiliates other than the Business.
(c) Execution, Delivery and Performance of Agreement;
Authority. The execution, delivery and performance of the Agreement in
accordance with its terms by Seller will not, with or without the giving of
notice or the passage of time, or both, conflict with, result in a violation of,
result in a default, right to accelerate or loss of rights under, or result in
the creation of any Encumbrance pursuant to, any provision of the articles of
incorporation (or certificate of incorporation, as the case may be) or by-laws
(and all amendments thereto), of Seller or any of the Subsidiaries, or any
mortgage, deed of trust, lease, license, agreement (including any debt
instrument), law, rule, regulation, order or judgment or decree to which Seller,
or any of the Subsidiaries, is a party or by which any of them may be bound or
affected, except (i) as set forth on Schedule 6(c)(i) or as specifically noted
on Schedule 1(a)(ii)(B), (ii) those which would not result in Losses in excess
of $25,000 individually or $100,000 in the aggregate and (iii) any agreements
pursuant to which Seller or any of the Subsidiaries purchases inventory from the
manufacturers thereof ("Franchise Agreements"). Except as set forth on Schedule
6(c)(ii), the merger, consolidation, combination or amalgamation of any or all
of the Subsidiaries with or into Purchaser or its affiliates or, the transfer of
any or all of the Assets or any of the Subsidiaries to Purchaser or its
affiliates will not, with or without the giving of notice or the passage of time
or both, conflict with, result in a default, right to accelerate or loss of
rights under, or result in the creation of any Encumbrance, under any provision
of any mortgage, deed of trust, lease, license, material agreement (including
any debt instrument) to which Seller, any of its subsidiaries is a party or by
which any of them may be bound or affected that would have a materially adverse
effect on the business, financial condition, results of operations or properties
of Purchaser or of the Business taken as a whole. Seller has the full power and
authority to enter into this Agreement and the full power and authority to carry
out the transactions contemplated hereby. The Board of Directors of Seller has,
subject to approval by Seller's shareholders, approved the entering into by
Seller of this Agreement, and there are no other corporate proceedings required
to be taken by Seller, except for such shareholders' approval, to authorize the
execution, delivery and performance by Seller of this Agreement and the
consummation of the transactions contemplated hereby. This Agreement constitutes
a valid and binding obligation of Seller, enforceable against Seller in
accordance with its terms, except as limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other laws affecting the enforcement
of creditors' rights generally and subject to usual equity principles.
21
-15-
(d) Ownership and Capitalization. (i) Seller is the lawful
record and beneficial owner of all of the issued and outstanding shares
of capital stock of the Subsidiaries, free and clear of all
Encumbrances, except those created pursuant to the Credit Agreement.
Upon completion of the transactions contemplated by this Agreement,
Purchaser will acquire as of the Closing Date good and valid title to
the Acquired Shares, free and clear of all Encumbrances.
(ii) The capitalization of the Subsidiaries consists
of the number of authorized shares of capital stock at the stated par
values, the number of issued and outstanding shares and the number of
treasury shares, if any, set forth on Schedule 6(d)(ii). All of the
Acquired Shares have been validly issued and are fully paid and
non-assessable. Except for the rights created pursuant to this
Agreement and the Option Agreement, there are no outstanding options,
warrants or other rights of any kind to acquire any additional shares
of capital stock of the Subsidiaries or securities convertible or
exchangeable for, or which otherwise confer on the holder thereof any
right to acquire, any such additional shares, nor is Seller or any of
the Subsidiaries committed to issue any such option, warrant, right or
security.
(e) Financial Statements. (i) Seller has delivered to
Purchaser copies (initialed by the chief financial officer of Seller
and identified with a reference to this section of this Agreement) of
the following financial statements (the financial statements set forth
in clauses (A), (B) and (C) are hereinafter collectively called the
"Financial Statements"): (A) audited consolidated balance sheets of
Seller as of December 31, 1997, December 31, 1996 and December 31, 1995
and the related statements of income, shareholders' equity and cash
flows for the years then ended, and the unaudited consolidated balance
sheet of Seller as of June 30, 1998 and the related statement of
income, shareholders' equity and cash flows for the period then ended;
(B) unaudited combined balance sheets of the Business as of December
31, 1997, December 31, 1996 and December 31, 1995 and the related
statements of income for the years then ended, including Milgray
Electronics, Inc. ("Milgray") from the date of Seller's acquisition
thereof, and the unaudited combined balance sheet of the Business as of
June 30, 1998 ("June Balance Sheet") and the related statement of
income for the period then ended; and (C) the management accounts for
the period ending August 31, 1998 for the Business (the "Management
Accounts").
(ii) The Financial Statements set forth in clause (A)
of Section 6(e)(i) and, except as set forth on Schedule 6(e)(ii), the
Financial Statements set forth in clauses (B) and (C) of Section
6(e)(i) have been prepared from the Books and Records of Seller and its
subsidiaries in accordance with generally accepted accounting
principles, consistently applied and maintained throughout the periods
indicated (except as disclosed therein), and present fairly the
consolidated financial condition of Seller (with respect to the
Financial Statements set forth in clause (A) of Section 6(e)(i)) and
the Business (with respect to the Financial Statements set forth in
clauses (B) and (C) of Section 6(e)(i) as at their respective dates and
the results of their operations for the periods covered thereby in
accordance with generally accepted accounting principles. With respect
to the statements of income contained in the Financial Statements set
forth in clauses (B) and (C) of Section 6(e)(i), such statements of
earnings do not contain any items of extraordinary or
22
-16-
non-recurring income or any other income not earned in the ordinary
course of business which in the aggregate for any period presented do
not exceed $100,000, except as set forth therein.
(iii) The Management Accounts are the only management
accounts relating to the Business prepared by Seller with respect to
the period covered thereby and have been prepared in the ordinary
course of business.
(iv) Seller has delivered to Purchaser copies
(initialed by the chief financial officer of Seller and identified with
a reference to this section of this Agreement) of the following
financial statements of Milgray (collectively, the "Milgray Financial
Statements"): audited consolidated balance sheets of Milgray as of
September 30, 1996 and September 30, 1995, and the related statements
of income, shareholders' equity and cash flows for the years then
ended. The Milgray Financial Statements have been prepared from the
Books and Records of Milgray and its subsidiaries in accordance with
generally accepted accounting principles, consistently applied and
maintained throughout the periods indicated (except as disclosed
therein), and present fairly the consolidated financial condition of
Milgray as at their respective dates and the results of their
operations for the periods covered thereby in accordance with generally
accepted accounting principles.
(f) Absence of Undisclosed Liabilities. (i) All of the
liabilities reflected or reserved against on the June Balance Sheet
were incurred in bona fide transactions incurred in the ordinary course
of business, except for any such liabilities that were incurred outside
the ordinary course of business and would not result in Losses in
excess of $25,000 individually or $100,000 in the aggregate. There are
no liabilities, contingent or otherwise, of Seller or any of the
Subsidiaries which are, in accordance with generally accepted
accounting principles, required to be reserved against or disclosed on
the June Balance Sheet which are not so reserved or disclosed.
(ii) Except as set forth on Schedule 6(f), neither
Seller nor any of the Subsidiaries has any liabilities (contingent or
otherwise) with respect to the Business under any guarantee, indemnity,
bond, reimbursement agreement or pledge agreement with respect to any
obligation of third parties or under any joint or joint and several
contractual obligation of Seller or any of the Subsidiaries with any
other person that are not reflected in or reserved against on the June
Balance Sheet or the notes thereto.
(g) Absence of Changes or Events. Except as set forth on
Schedule 6(g) or otherwise contemplated under this Agreement, since the date of
the June Balance Sheet, each of Seller and its subsidiaries has conducted the
Business only in the ordinary course and consistent with its prior practice and,
with respect to the Business each of Seller and its subsidiaries has not:
(i) incurred any obligation or liability, absolute,
accrued, contingent or otherwise, whether due or to become due, except
liabilities or obligations incurred in the ordinary course of business
and consistent with its prior practice;
23
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(ii) mortgaged, pledged or subjected to any other
Encumbrance, or restriction any of its property, business or assets,
tangible or intangible except pursuant to the Credit Agreement or in
the ordinary course of business, consistent with past practice;
(iii) sold, transferred, leased to others or
otherwise disposed of any of its assets, except for inventory sold to
customers or returned to vendors in the ordinary course of business and
consistent with its prior practice; or canceled or compromised any debt
or claim, or waived or released any right of substantial value, except
(y) in the ordinary course of business and consistent with its prior
practice and (z) outside the ordinary course of business debts, claims
or rights having a value less than $25,000 individually or $100,000 in
the aggregate;
(iv) suffered any damage, destruction or casualty or
theft loss of assets that is not covered by insurance, except for
damage, destruction or loss that is less than $25,000 individually or
$100,000 in the aggregate;
(v) encountered any labor union organizing activity
or had any actual or threatened employee strikes, work stoppages,
slow-downs or lock-outs;
(vi) made any change in the rate of compensation,
commission, bonus or other direct or indirect remuneration payable, or
paid or agreed or orally promised to pay, conditionally or otherwise,
any bonus, extra compensation, pension or severance or vacation pay, to
any employee, except (A) in the ordinary course of business and
consistent with its practice prior to the date hereof, (B) with respect
to any payments of pension, severance or vacation after the date
hereof, in accordance with the existing policies of Seller or the
relevant subsidiary, as the case may be, (C) promises and commitments
made jointly with, or with the consent of Purchaser to secure the
services of Seller's employees pending and following the Closing or (D)
as to which there is a contractual commitment entered into before the
signing of this Agreement; provided, however that any such prior
contractual commitment to any employee having total compensation in
excess of $100,000 or to a category of employees having more than five
persons shall be set forth on Schedule 6(g)(vi);
(vii) made any capital expenditures or capital
additions or betterments in excess of $250,000;
(viii) suffered any change, event or condition which
has materially and adversely affected the business, financial
condition, results of operations or properties of the Business taken as
a whole, except for such as may result from the announcement or
disclosure of the transactions contemplated hereby or actions by
Purchaser;
(ix) issued or sold any shares of capital stock, or
issued or sold any options, warrants to purchase or rights to subscribe
for, or issued any debt instrument or security convertible into, or
entered into any arrangement or contract with respect to, any shares of
capital stock or any of the Subsidiaries or made any other changes in
its capital structure;
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(x) made any material change in (A) any pricing,
investment, accounting, financial reporting, inventory, credit,
allowance or tax practice or policy of the Business or (B) any method
of calculating any bad debt, contingency or other reserve of the
Business for accounting, financial reporting or tax purposes;
(xi) entered into any amendment, modification,
termination (partial or complete) or granted a waiver under or given
any consent with respect to (A) any contract which is required (or had
it been in effect on the date hereof would have been required) to be
set forth on Schedule 6(k) pursuant to Section 6(k) or (B) any Business
License;
(xii) entered into any transaction with any officer,
director or affiliate or Seller or any of its subsidiaries; or
(xiii) entered into a contract to do or engage in any
of the foregoing after the date hereof.
(h) Litigation. Except as set forth on Schedule 6(h), no
action, suit, litigation, arbitration, dispute, proceeding, governmental
investigation or governmental audit is pending against, or to the knowledge (as
defined at the end of this Section 6) of Seller threatened against, the Business
or the Assets. None of such action, suit, litigation, arbitration, dispute,
proceeding, governmental investigation or governmental audit is reasonably
likely to have a material adverse effect on Seller's ability to consummate the
transactions contemplated by this Agreement. To Seller's knowledge, there is no
set of facts or circumstances which could result in any action, suit,
litigation, arbitration, dispute, proceeding, governmental investigation or
governmental audit which could reasonably be expected to result in Losses in
excess of $25,000 individually or $100,000 in the aggregate. Except as set forth
on Schedule 6(h), there are no orders, judgments or decrees of any court or
governmental agency in which Seller or any of its subsidiaries is named and
which apply specifically to the Business or the Assets and which involve Losses
in excess of $25,000 individually or $100,000 in the aggregate.
(i) Compliance with Laws and Other Instruments. Except with
respect to environmental matters (which are covered by Section 6(t)), Seller and
each of its subsidiaries has complied in all material respects with all laws,
rules, regulations, ordinances, orders, judgments and decrees applicable to the
Business or the Assets. Except with respect to environmental matters (which are
covered by Section 6(t)), neither the ownership by Seller or any of its
subsidiaries, nor the use by Seller or any of its subsidiaries, of the Assets
nor the conduct of the Business by Seller or any of its subsidiaries conflicts
with the rights of any other Person or violates, in any material respect, any
law, ordinance, rule or regulation, or any order, judgment or decree to which
Seller or any of its subsidiaries is a party or by which it may be bound or
affected. Except with respect to environmental matters (which are covered by
Section 6(t)), neither Seller nor any of its subsidiaries has violated or
defaulted under any terms or provisions of its articles of incorporation or
by-laws, as presently in effect, or any lien, mortgage, lease, agreement or
instrument relating to the Business, except for (i) defaults under leases set
forth on Schedule 6(c)(i) as requiring consent to this transaction by the
landlord thereunder where such consent is not obtained; or (ii) violations or
defaults which will not hereafter result in Losses in excess of $25,000
individually or $100,000 in the aggregate. Except with respect to
25
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environmental matters (which are covered by Section 6(t)), Seller and each of
its subsidiaries has all approvals, authorizations, consents, licenses, orders,
and other permits from all governmental agencies, whether federal or local
("Approvals"), required to permit the operation of the Business as presently
conducted other than any Approvals the absence of which will not result in
Losses in excess of $25,000 individually or $100,000 in the aggregate.
(j) Title to Properties. (i) Except as set forth on Schedule
6(j)(i), (A) Seller and its subsidiaries have good title to all of the Tangible
Personal Property and (B) none of the Tangible Personal Property is subject to
any Encumbrance of any nature whatsoever, direct or indirect, whether accrued,
absolute, contingent or otherwise, except such as are created pursuant to the
Credit Agreement.
(ii) (A) Other than the Real Property set forth
on Schedule 1(b)(viii), Schedule 1(a)(i) contains a true and correct
list of each parcel of real property owned by Seller or its
subsidiaries and used or held for use in connection with the Business,
and Schedules 1(a)(ii)(A) and 1(a)(ii)(B) contain true and correct
lists of each parcel of real property leased by Seller or its
subsidiaries (as lessor and lessee, respectively) and used or held for
use in connection with the Business.
(B) Seller or its subsidiaries has good and
marketable fee simple title to the Real Property, free and
clear of all Encumbrances other than: (1) the exceptions to
title, if any, set forth on Schedule 6(j)(ii)(B) or as set
forth in any applicable title policies or reports attached to
such Schedule, (2) Encumbrances for real estate taxes and
assessments not yet delinquent, and (3) zoning ordinances and
governmental regulations (which have not been violated by the
existing improvements or the use thereof), covenants,
conditions, limitations, declarations, easements,
restrictions, matters of record (other than mortgages and
other Encumbrances) and minor irregularities of title, which
do not individually or in the aggregate materially detract
from the value or materially interfere with the use of any of
the Real Property or Real Property Leases (the items set forth
in clauses (1), (2) and (3) above are collectively called the
"Real Estate Encumbrances"). Either Seller or one of its
subsidiaries is in possession of the Real Property. Either
Seller or one of its subsidiaries has adequate rights of
ingress and egress with respect to the Real Property and the
Improvements. None of the Real Property or the Improvements,
or the use thereof, contravenes or violates any building,
zoning, administrative, occupational safety and health or
other applicable law in any material respect (whether or not
permitted on the basis of prior nonconforming use, waiver or
variance).
(C) Either Seller or one of its subsidiaries
has a valid and subsisting leasehold estate in and the right
to quiet enjoyment of the real properties subject to the Real
Property Leases set forth on Schedule 1(a)(ii)(B) for the full
term thereof. Each Real Property Lease is a legal, valid and
binding agreement, enforceable in accordance with its terms,
of Seller or its subsidiaries and of each other Person that is
a party thereto, and except as set forth on Schedule
6(j)(ii)(C), there is no, nor has Seller or its subsidiaries
received any notice of any, default (or any condition or event
which, after notice or lapse of
26
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time or both, would constitute a default) thereunder. Neither
Seller nor any of its subsidiaries owes any brokerage
commissions with respect to any such leased space.
(D) Seller has delivered to Purchaser prior
to the execution of this Agreement true and complete copies of
(i) all deeds, leases, mortgages, deeds of trust, certificates
of occupancy, title insurance policies, title reports, surveys
and similar documents, and all amendments thereof, with
respect to the Real Property, and (ii) all Real Property
Leases (including any amendments and renewal letters) and, to
the extent reasonably available, all other documents referred
to in clause (i) of this paragraph (D) with respect to the
real property subject to the Real Property Leases set forth on
Schedule 1(a)(ii)(B).
(E) Except as set forth on Schedule
6(j)(ii)(E), no tenant or other party in possession of any of
the real properties subject to the Real Property Leases set
forth on Schedule 1(a)(ii)(A) has any right to purchase, or
holds any right of first refusal to purchase, such properties.
(F) Except as set forth on Schedule
6(j)(ii)(F), the Improvements are in good operating condition
and in a state of good maintenance and repair, ordinary wear
and tear excepted, are adequate and suitable for the purposes
for which they are presently being used and, to the knowledge
of Seller, there are no condemnation or appropriation
proceedings pending or threatened against any of the Real
Property or the Improvements.
(k) Contracts. All of the contracts, leases and other
agreements of Seller and its subsidiaries and relating to the Business were
entered into in bona fide transactions in the ordinary course of business.
Schedule 6(k) sets forth a complete and correct list of all contracts and other
agreements to which Seller or any of its subsidiaries is a party and relating to
the Business. Notwithstanding the foregoing, Schedule 6(k) need not disclose (i)
contracts involving obligations not exceeding $250,000 individually or
$1,000,000 for any one kind of related contract in the aggregate, (ii) the
leases set forth on Schedules 1(a)(ii)(A) and 1(a)(ii)(B), (iii) purchase orders
with Seller's customers or suppliers in the ordinary course of business
consistent with past practice, (iv) value-added contracts in the ordinary course
of business consistent with past practice and (v) contracts that are no longer
in effect. Except as set forth on Schedule 6(k), to the knowledge of Seller,
there is not under any such contract any existing default by Seller or any of
its subsidiaries, or any event or circumstance which, after notice or lapse of
time or both, would constitute a default by Seller or any of its subsidiaries,
or to the knowledge of Seller, by the other party, or result in a right to
accelerate or loss of rights as against Seller or any of its subsidiaries which
would in each such case result in Losses in excess of $25,000 individually or
$100,000 in the aggregate for all kinds of contracts. There are no contracts,
leases or agreements which are required under generally accepted accounting
principles to be disclosed in the Financial Statements which have not been so
disclosed.
(l) Patents, etc. Except as set forth on Schedule 6(l), each
of Seller and each of the Subsidiaries owns, or has the right to use or possess,
all Intellectual Property used in the Business as it is presently operated,
including, without limitation, the names ▇▇▇▇, ▇▇▇▇ Industries,
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▇▇▇▇ Electronics, Milgray and Milgray Electronics and variants thereof. Except
to the extent that no Losses in excess of $25,000 individually or $100,000 in
the aggregate would result, neither Seller nor any of the Subsidiaries is
infringing upon or otherwise acting adversely to any copyrights, trademarks,
trademark rights, service marks, service names, trade names, patents, patent
rights, licenses or trade secrets owned by any person or persons, and there is
no claim or action pending, or to the knowledge of Seller threatened, with
respect thereto.
(m) Employee Benefit Plans. There are no Encumbrances against
the Assets under Section 412(n) of the Internal Revenue Code of 1986, as amended
(the "Code"), or Sections 302(f) or 4068 of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"). Neither Seller nor any corporation,
trade, business or other entity under common control with Seller, within the
meaning of Sections 414(b), (c), (m) or (o) of the Code, or under Section 4001
of ERISA (an "ERISA Affiliate") is or was obligated to contribute to any
multiemployer plan within the meaning of Section 3(37) of ERISA or any plan
subject to Title IV of ERISA. As of and after the Closing Date, Purchaser will
have no obligation to contribute to, or any liability in respect of, (i) any
employee benefit plan within the meaning of Section 3(3) of ERISA, or (ii) any
employment, severance or other agreement, arrangement, policy or plan (whether
written or oral) providing for insurance coverage (including without limitation
self-insured arrangements), workers' compensation, disability benefits,
supplemental unemployment benefits, vacation benefits or retirement benefits, or
for profit sharing, deferred compensation, bonuses, stock options, stock
appreciation or other forms of incentive compensation or post-retirement
insurance, or any other forms of compensation or benefits (an "Employee Benefit
Plan"), sponsored or maintained by Seller or any ERISA Affiliate, or to which
Seller or any ERISA Affiliate is or was obligated to contribute, except for the
agreements set forth on Schedule 1(c)(xii). Each Employee Benefit Plan of Seller
which has been required to comply with the provisions of Section 4980B of the
Code and Sections 601 through 608 of ERISA has complied in all material
respects. Seller does not maintain any plans, arrangements, contracts or other
programs outside the United States for the purpose of providing or otherwise
making available retirement or other benefits to employees of the Business. The
▇▇▇▇ Industries Savings and Profit Sharing Plan has received a favorable
determination letter regarding its qualification under Section 401(a) of the
Code, and nothing has occurred, to the knowledge of Seller, since the date of
such determination which would cause the loss of such qualification. Neither
Seller nor any ERISA Affiliate maintains or participates in any voluntary
employees' beneficiary association governed by Section 501(c)(9) of the Code.
There are no actions, suits or claims (other than routine claims for benefits in
the ordinary course) rising in connection with the Employee Benefit Plans of
Seller pending or, to the knowledge of Seller, threatened, and to the knowledge
of Seller, there are no facts which could give rise to any such actions, suits
or claims (other than routine claims for benefits in the ordinary course) for
which Purchaser could be liable. Neither Seller nor any ERISA Affiliate nor any
other "disqualified person" or "party-in-interest" (as defined in Section 3 of
ERISA and Section 4975 of the Code, respectively) has, with respect to any such
plan, engaged in a prohibited transaction, as such term is defined in Section
4975 of the Code or Section 406 of ERISA, which would subject Purchaser to any
Taxes, penalties or other liabilities resulting from prohibited transactions
under Section 4975 of the Code or under Sections 409 or 502(i) or ERISA.
(n) Taxes. (i) For purposes of this Agreement, (A) "Tax" or
"Taxes" shall mean any federal, state, local, foreign or other taxes
(including, without limitation,
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income (net or gross), gross receipts, profits, alternative or add-on
minimum, franchise, license, capital, capital stock, intangible,
services, premium, mining, transfer, gains, sales, use, ad valorem,
payroll, wage, severance, employment, occupation, property (real or
personal), windfall profits, import, excise, custom, stamp, withholding
or estimated taxes), fees, duties, assessments, withholdings or
governmental charges of any kind whatsoever (including interest,
penalties, additions to tax or additional amounts with respect to such
items) and (B) "Returns" shall mean all returns, declarations, reports,
estimates, information returns and statements of any nature regarding
Taxes required to be filed by Seller, any of its subsidiaries, or any
affiliate of Seller or any of its subsidiaries.
(ii) Except as set forth on Schedule 6(n), (A) all
Returns have been or will be timely filed when due in accordance with
all applicable laws; (B) all Taxes shown on such Returns have been or
will be timely paid when due; (C) such Returns completely, accurately
and correctly in all material respects reflected or will reflect the
facts regarding the income, properties, operations and status of any
entity required to be shown thereon; (D) the charges, accruals, and
reserves for Taxes due, or accrued but not yet due, relating to the
income, properties or operations of Seller or any of its subsidiaries
as reflected on their books are and will be adequate to cover such
Taxes; (E) there are no agreements or consents currently in effect for
the extension or waiver of the time (1) to file any Return or (2) for
assessment or collection of any Taxes relating to the income,
properties or operations of Seller or any of its subsidiaries, and none
of Seller, its subsidiaries, or any affiliate of Seller or any of its
subsidiaries, has been requested in writing to enter into any such
agreement or consent; (F) all federal income tax Returns with respect
to taxable years ended on or prior to June 30, 1994 have been examined
and closed, or are Returns with respect to which the applicable statute
of limitations, after giving effect to any extensions and waivers, has
expired; (G) all Taxes which Seller or any of its subsidiaries is
required by law to withhold or collect have been duly withheld or
collected, and have been timely paid over to the appropriate
governmental authorities to the extent due and payable; (H) there is no
action, suit, proceeding, investigation, audit or claim currently
pending, or to the knowledge of Seller, threatened, regarding any Taxes
relating to the income, properties or operations of Seller or any of
its subsidiaries or any group of which any of the Subsidiaries is now
or was formerly a member; (I) all Tax deficiencies which have been
claimed, proposed or asserted in writing against Seller or any of its
subsidiaries or any group of which any of the Subsidiaries is now or
was formerly a member, have been fully paid, finally settled or are
being contested in good faith by appropriate proceedings; (J) none of
Seller, its subsidiaries, or any affiliate of Seller or its
subsidiaries has executed or entered into a closing agreement pursuant
to Code Section 7121 (or any comparable provision of state, local or
foreign law) that is currently in force and determines the Tax
liabilities of any of the Subsidiaries; (K) there is no, and will not
be any, agreement or consent made under Code Section 341(f) (or any
comparable provision of state, local or foreign law) affecting either
of the Subsidiaries; (L) none of the Subsidiaries (1) is required to
treat any asset as owned by another person pursuant to the "safe
harbor" leasing provisions of the Code or as "tax-exempt use property"
within the meaning of Code Section 168(h) or (2) is required to apply
any of the foregoing rules under any comparable foreign, state or local
Tax provision; (M) none of the Subsidiaries is a party to any
agreement, contract, arrangement or plan that would
29
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result, separately or in the aggregate, in the payment of any "excess
parachute payments" within the meaning of Code Section 280G (or any
comparable provision of state, local or foreign law); (N) none of the
Subsidiaries has agreed, or is required, to make any adjustment under
Code Section 481(a) (or any comparable provision of state, local or
foreign law) by reason of a change in accounting method or otherwise;
(O) none of the Subsidiaries has been or is included in any
consolidated, affiliated, combined, unitary or other similar Returns
that include Seller or any affiliate of Seller; (P) no power of
attorney is currently in effect, and no Tax ruling has been requested
of any governmental authority, with respect to any Tax matter relating
to the income, properties or operations of any of the Subsidiaries; (Q)
there are no liens for Taxes upon any of the Assets and, to the
knowledge of Seller, no event has occurred which with the passage of
time or the giving of notice, or both, could reasonably be expected to
result in a lien for Taxes on any of the Assets; and (R) Seller is not
a United States real property holding corporation (as defined in Code
Section 897(c)(2)) and has not been a United States real property
holding corporation during any period specified in Code
Section 897(c)(1)(A)(ii).
(o) Proxy Statement. The proxy statement relating to the
Seller's Shareholders Meeting (as defined in Section 8(c)), as amended or
supplemented from time to time (as so amended and supplemented, the "Proxy
Statement"), and any other documents to be filed by Seller with the Securities
and Exchange Commission (the "SEC") or any other Governmental Entity in
connection with the transactions contemplated hereby will not, on the date of
its filing or, in the case of the Proxy Statement, at the date it is mailed to
shareholders of Seller and at the date of Seller's Shareholders Meeting, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading, except that no representation is made by Seller with respect to
information supplied in writing by or on behalf of Purchaser expressly for
inclusion therein. The Proxy Statement and any such other documents filed by
Seller with the SEC under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), will comply as to form in all material respects with the
requirements of the Exchange Act.
(p) Affiliate Transactions. Each contract, agreement or
arrangement between any of Seller or any affiliate of Seller, existing as of the
date of this Agreement and relating to the Business ("Affiliate Agreements") is
described as set forth on Schedule 6(p) annexed hereto, and all such Affiliate
Agreements will be terminated effective as of the close of business on the
Closing Date except as set forth on Schedule 6(p).
(q) Inventory; Accounts Receivable. (i) Except (A) as set
forth on Schedule 6(q)(i), (B) for inventory having an aggregate book value not
greater than $500,000 and (C) for inventory purchased for use in kitting, none
of the items of the Business' inventory was purchased from a source other than
the manufacturer thereof or a distributor duly licensed or franchised to
distribute such items by such manufacturer and, except for inventory purchased
for customer specific requirements (so long as subject to a contract for the
purchase thereof by such customer), all such items of inventory meet the
requirements for return to the manufacturer under the applicable Franchise
Agreement other than as a result of quantity limitations with respect to such
return rights. Except as set forth on Schedule 6(q)(i), to the extent that any
items of inventory intended to be sold to the military are, in order to meet
military or similar
30
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specifications, required to be accompanied by (or the seller thereof is required
to maintain) traceability, testing or other documentation, all such
documentation has been so maintained and is in the possession of Seller or its
subsidiaries at one of their respective offices.
(ii) Except as set forth on Schedule 6(q)(ii), the Accounts
Receivable (A) arose from bona fide sales transactions in the ordinary course of
business of the Business and are payable consistent with past practice, (B) are
legal, valid and binding obligations of the respective debtors enforceable in
accordance with their terms, (C) are not subject to any valid set-off or
counterclaim except as may be required by law, (D) do not represent obligations
for goods sold on consignment, on approval or on a sale-or-return basis or
subject to any other repurchase or return arrangement, (E) are collectible in
the ordinary course of business consistent with past practice of the Business in
the aggregate recorded amounts thereof, net of any applicable reserve reflected
in the balance sheet included in the Financial Statements, and (F) are not the
subject of any action, suit or proceeding brought by or on behalf of Seller.
Schedule (6)(q)(ii) sets forth a description of any security arrangements and
collateral securing the repayment or other satisfaction of the Accounts
Receivable. All steps necessary to render all such security arrangements set
forth on Schedule 6(q)(ii) legal, valid, binding and enforceable, and to give
and maintain for Seller a perfected security interest in the related collateral,
have been taken.
(r) Rights of Return. Except as set forth on Schedule 6(r),
none of Seller and its subsidiaries has sold any inventory of the Business which
the purchaser thereof has the right to return to Seller or any subsidiary or
cause the seller thereof to repurchase for any reason except (i) pursuant to the
customary express warranties of Seller or the relevant subsidiary, as the case
may be, for product quality or mistake in shipment or implied warranties at law
for title and against infringement, (ii) to the extent the same will be
reflected in reserves on the Audited Balance Sheet or (iii) for inventory having
a value not exceeding $50,000 individually or $250,000 in the aggregate.
(s) Insurance. Schedule 6(s) sets forth a complete and
accurate list of all of Seller's Insurance Policies (as defined in Section
8(d)). Each of Seller's Insurance Policies is in full force and effect, and, to
the knowledge of Seller, there is not under any of Seller's Insurance Policies,
any existing default by Seller or any of the Subsidiaries, or any event which,
after notice or lapse of time or both, would constitute a default by Seller or
any of the Subsidiaries.
(t) Environmental Matters. Except as set forth on
Schedule 6(t) hereto:
(i) The operations of the Business and, to the
knowledge of Seller, the respective tenants of Seller and its
subsidiaries are in compliance with all Environmental Laws, except for
noncompliance which may result in Environmental Liabilities and Costs
which individually or in the aggregate could not have a material
adverse effect on the Business;
(ii) With respect to any currently or previously
owned or leased property of Seller and its subsidiaries utilized in the
current or previous operation of the Business, none of Seller, its
subsidiaries, and (to the knowledge of Seller) their respective tenants
is or are subject to any outstanding or threatened order or notice from
or
31
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agreement with any Governmental Entity or other Person or is subject to
any judicial or docketed administrative proceeding with respect to (A)
failure to comply with Environmental Laws, (B) Remedial Action under
Environmental Laws, (C) any Environmental Liabilities and Costs, or (D)
any Release or threatened Release of Contaminants, except (I) as set
forth on Schedule 6(h) or (II) for orders, notices, agreements, or
proceedings which may result in Environmental Liabilities and Costs
which individually or in the aggregate could not have a material
adverse effect on the Business;
(iii) There are no conditions or events associated
with the currently or previously owned or leased properties of Seller
or any of its subsidiaries or current or previous operations of the
Seller and its subsidiaries or, to the knowledge of Seller, their
respective tenants, that may result in any Environmental Liabilities
and Costs which individually or in the aggregate could have a material
adverse effect on the Business;
(iv) Neither the facilities utilized in the current
or previous operations of the Business of Seller or any of its
subsidiaries nor, to the knowledge of Seller, such facilities of their
respective tenants, is a treatment, storage or disposal facility
requiring a permit under the Resource Conservation and Recovery Act, 42
U.S.C. Section 6901 et seq. ("RCRA"), the regulations promulgated
thereunder, or any analogous provision of state law;
(v) None of Seller, its subsidiaries and to the
knowledge of Seller, their respective tenants, has caused or allowed
any Release of Contaminants, relating to any property owned or leased
or previously owned or leased by the Seller or any of its subsidiaries
that may result in Environmental Liabilities and Costs which
individually or in the aggregate could have a material adverse effect
on the Business;
(vi) With respect to any currently or previously
owned or leased property of Seller and its subsidiaries utilized in the
current or previous operation of the Business, none of Seller and any
of its subsidiaries has entered into any agreement that may require any
of them to pay to, reimburse, guarantee, pledge to, defend, indemnify,
or hold harmless any Person for or against Environmental Liabilities
and Costs;
(vii) With respect to any currently or previously
owned or leased property of Seller and its subsidiaries utilized in the
current or previous operation of the Business, none of Seller and its
subsidiaries has ever directly or indirectly disposed of any Hazardous
Material (as defined below) at any site or location that is listed on
any estate or federal list of sites requiring Remedial Action.
For the purposes of this Agreement:
"Contaminant" means any substance regulated or forming the
basis of liability under any Environmental Law, including, without
limitation, any waste, pollutant, hazardous substance, toxic substance,
hazardous waste, special waste, petroleum or petroleum-derived
substance or waste, or any material of which such substance or waste is
a constituent.
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"Environmental Laws" means all federal, state, and local laws,
statutes, ordinances and regulations in effect as of the date hereof,
and any judicial or administrative interpretation thereof, including,
without limitation, any judicial or administrative order, consent
decree or judgment relating to the regulation and protection of human
health, safety, the environment and natural resources (including,
without limitation, ambient air, surface water, groundwater, wetlands,
land surface or subsurface strata, wildlife, aquatic species and
vegetation). Environmental Laws include but are not limited to the
Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, as amended (42 U.S.C. Section 9601 et seq.) ("CERCLA"); the
Hazardous Material Transportation Act, as amended (49 U.S.C. Section
5101 et seq.); the Federal Insecticide, Fungicide, and Rodenticide Act,
as amended (7 U.S.C. Section 136 et. seq.); RCRA; the Toxic Substances
Control Act, as amended (15 U.S.C. Section 2601 et seq.); the Clean Air
Act, as amended (42 U.S.C. Section 7401 et seq.); the Federal Water
Pollution Control Act, as amended (33 U.S.C. Section 1251 et seq.); and
the Safe Drinking Water Act, as amended (42 U.S.C. Section 300f and
their foreign, state and local counterparts or equivalents, and any
transfer or ownership notification or approval statutes such as the New
Jersey Industrial Site Recovery Act (N.J. Stat. ▇▇▇. Section 13:1K-6 et
seq.).
"Environmental Liabilities and Costs" means as to any Person,
all liabilities, obligations, responsibilities, Remedial Actions,
losses, damages, treble damages, costs and expenses (including, without
limitation, all fees, disbursements and expenses of counsel, experts
and consultants, and costs of investigation and feasibility studies),
fines, penalties, sanctions and interest incurred as a result of any
claim or demand by any other Person, whether based on contract, tort,
implied or express warranty, strict liability, criminal or civil
statute, including, without limitation, any thereof arising under any
Environmental Law, license, permit, order or agreement with any
Governmental Entity or other Person, and which relate to any
environmental, health or safety condition, or a Release or threatened
Release.
"Release" means, as to any Person, any release, spill,
emission, leading, pumping, injection, deposit, disposal, discharge,
dispersal, leaching or migration of Contaminants into the indoor or
outdoor environment or into, onto or from any property owned or leased
by such Person, including, without limitation, the movement of
Contaminants through or in the air, soil, surface water, groundwater or
property.
"Remedial Action" means all actions required to (i) clean up,
remove, treat or in any other way address Contaminants in the indoor or
outdoor environment, (ii) prevent the Release or threat of Release or
minimize the further Release of Contaminants so they do not migrate or
endanger or threaten to endanger public health or welfare or the indoor
or outdoor environment, or (iii) perform preremedial studies and
investigations and post-remedial monitoring and care.
(u) Determination of Taxability. No event or circumstance
exists which could reasonably be expected to have an adverse effect on the
exemption of interest on the Ontario Industrial Development Authority,
Adjustable Tender Industrial Development Revenue Bonds (▇.▇. ▇▇▇▇▇▇▇▇ & Co. -
West Coast Project) Series 1985 from federal income taxation.
33
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(v) Vote Required. Assuming the accuracy of the representation
and warranty contained in Section 7(e), the approval by the affirmative vote of
a majority of the outstanding shares of the common stock of Seller ("Seller
Common Stock") entitled to vote is the only vote of the holders of any class or
series of the capital stock of Seller required to approve the transactions
contemplated by this Agreement and the Option Agreement.
(w) Article SEVEN of Seller's Articles of Incorporation Not
Applicable. Seller has taken all necessary actions so that the provisions of
Article SEVEN of Seller's Articles of Incorporation will not, before the
termination of this Agreement, apply to this Agreement or the transactions
contemplated by this Agreement and the Option Agreement.
(x) Subsidiary Ownership of Real Property. None of the
Subsidiaries has now, or has had at any time, any rights arising out of or
appurtenant to the ownership or leasing of real property.
(y) Proxies. Each of the directors and officers of Seller
named on Schedule 6(y) has on the date hereof granted to Purchaser an
irrevocable proxy to vote the shares of Seller Common Stock beneficially owned
by such person to approve this Agreement and the transactions contemplated by
this Agreement.
(z) Labor Matters. Except as set forth on Schedule 6(z),
neither Seller nor any of its subsidiaries is a party to any collective
bargaining agreement with any labor union, confederation or association and
there are no discussions, negotiations, demands or proposals that are pending or
have been conducted or made with or by any labor union, confederation or
association. To Seller's knowledge, there are not pending or threatened against
Seller or any of its subsidiaries any general labor disputes, strikes or work
stoppages. There is no present or former employee, manager or director of Seller
or any of its subsidiary who has made any claim since January 1, 1998 against
Seller or any of its subsidiaries (whether under law, any employment agreement
or otherwise) on account of or for: (i) overtime pay, other than overtime pay
for the current payroll period; (ii) wages or salaries, other than wages or
salaries for the current payroll period; (iii) vacations, sick leave, time off
or pay in lieu of vacation, sick leave or time off, other than vacation, sick
leave or time off (or pay in lieu thereof) earned in the twelve-month period
immediately preceding the date of this Agreement; or (iv) termination of
employment, and to Seller's knowledge, there is no basis for any such claim.
(aa) Supplier Audits. Schedule 6(aa) sets forth the dates of
each audit conducted since January 1, 1995 by each material supplier to the
Business and its subsidiaries.
(bb) Trading Practices; Ethical Standards. The directors,
employees and independent commission agents of Seller and its subsidiaries are
in compliance with ethical standards and other trading practices mandated by
applicable laws and contractual arrangements and have not made payments to any
third parties other than in the ordinary course of business or pursuant to
contracts.
(cc) Value-Added Business. The products assembled and sold by
or on behalf of Seller under Seller's value-added business (i) are first quality
merchandise, useable and saleable in the ordinary course of business within a
period of not more than twelve (12) months,
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(ii) were assembled in conformity in all material respects with applicable
specifications and quality control standards and in conformity with all
applicable laws, rules and regulations and (iii) are not obsolete, damaged,
defective or shopworn.
For purposes of this Agreement, "knowledge" of Seller shall
mean and be limited to the actual knowledge of any director of Seller or ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇, ▇.▇. ▇▇▇▇▇ or ▇▇▇▇▇ ▇▇▇▇▇▇▇, in each case,
at the date hereof.
7. Purchaser's Representations and Warranties. Purchaser
represents and warrants to Seller, as of the date of this Agreement, as follows:
(a) Organization and Standing. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State of
New York.
(b) Execution, Delivery and Performance of Agreement. The
execution, delivery and performance of this Agreement by Purchaser will not,
with or without the giving of notice or the passage of time, or both, conflict
with, result in violation of, result in a default, right to accelerate or loss
of rights under, or result in the creation of any Encumbrance pursuant to, any
provision of Purchaser's certificate of incorporation or bylaws or any mortgage,
deed of trust, lease, license, material agreement (including any debt
instrument), law, rule, regulation, order or judgment or decree to which
Purchaser is a party or by which it may be bound or affected, except as set
forth on Schedule 7(b) or as could not be reasonably expected to have a material
adverse effect on Purchaser's ability to consummate the transactions
contemplated by this Agreement. Purchaser has the full corporate power and
authority to enter into this Agreement and to carry out the transactions
contemplated hereby. The Board of Directors of Purchaser has approved the
entering into by Purchaser of this Agreement. There are no other corporate
proceedings required to be taken by Purchaser to authorize the execution,
delivery and performance by Purchaser of this Agreement and the consummation of
the transactions contemplated hereby. This Agreement constitutes a valid and
binding obligation of Purchaser, enforceable against Purchaser in accordance
with its terms, except as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws affecting the enforcement of
creditor's rights generally and subject to usual equity principles.
(c) Information to be Included in the Definitive Proxy
Statement. Neither the information supplied or to be supplied in writing by or
on behalf of Purchaser for inclusion in the Proxy Statement in connection with
the transactions contemplated hereby will, at the date it is mailed to
shareholders of Seller and at the date of the Seller's Shareholders Meeting,
contain any untrue statement of a material fact or omit to state any, material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading.
(d) Litigation. No action, suit, litigation, arbitration,
dispute, proceeding or governmental investigation or governmental audit is
pending against, or to the knowledge (as defined at the end of this Section 7)
of Purchaser, threatened against, Purchaser or any of its properties, assets or
businesses, or any direct or indirect shareholder of Purchaser in its or his
capacity as such, which individually or in the aggregate is reasonably likely to
have a material adverse effect on Purchaser's ability to consummate the
transactions contemplated by this
35
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Agreement. There are no orders, judgments or decrees of any court or
governmental agency in which the Purchaser is named and which apply specifically
to the Purchaser or any of its properties, assets or businesses and which
individually or in the aggregate is reasonably likely to have a material adverse
effect on Purchaser's ability to consummate the transactions contemplated by
this Agreement.
(e) Ownership of Seller Common Stock. Neither Purchaser nor
any of its subsidiaries beneficially owns more than 100 shares of Seller Common
Stock.
8. Certain Agreements.
(a) Observance of Operations of the Business. From the date
hereof until the Closing Date, Purchaser may, at its election, have a reasonable
number of representatives (which shall be employees of Purchaser or existing
consultants of Purchaser who are acting as such in connection with this
Agreement) at the facilities of Seller and its subsidiaries to observe and
consult with representatives of Seller and its subsidiaries with respect to the
management of the operations of the Business, except as otherwise provided in
Section 8(b). Notwithstanding anything in this Agreement to the contrary, all
rights of Purchaser or its representatives to access to or inspection of the
Business or to obtain information with respect to the Business pursuant to
Sections 8(a), 8(b), 9(c) and 9(e) shall be effected solely through ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇ or such other persons as may be mutually agreed by the
parties hereto and shall be subject to the right of a representative of Seller
to accompany Purchaser or its representative in connection therewith.
(b) Maintain Business. From the date hereof to the Closing,
except as otherwise provided in this Section 8(b), Seller shall, and shall cause
each of its subsidiaries to, conduct the Business only in the ordinary course
and consistent with its prior practice (including with respect to the
collections of Accounts Receivable and replenishment of Inventory), maintain,
keep and preserve the Assets and the assets and properties of the Subsidiaries
in good condition and repair and shall use its best efforts to maintain
insurance thereon in accordance with present practices, and Seller shall, except
as provided in this Section 8(b), use its best efforts to act in such manner to
preserve the business and organization of the Business intact, to use its best
efforts, at current compensation levels, to keep available to Purchaser the
services of present employees of the Business and to use its best efforts to
preserve for the benefit of Purchaser the goodwill of suppliers and customers
and others having business relations with the Business. Without limiting the
generality of the foregoing, unless Purchaser shall have otherwise consented in
writing, Seller shall:
(i) permit Purchaser's representatives to
communicate, orally, in writing or by other media, with the employees
of Seller and of the Subsidiaries in connection with matters other than
integration planning, due diligence and purchase price determination,
as long as such communications are made jointly with designated
representatives of Seller and are reviewed and approved in advance by
Seller;
(ii) not, and cause each of the Subsidiaries not to,
conduct the Business in a manner such that the provisions of Section
6(g) will not remain true and correct in all material respects without
the consent of Purchaser;
36
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(iii) not cause any of the Subsidiaries to change its
charter or by-laws in any manner or merge or consolidate or obligate
themselves to do so with or into any other entity;
(iv) cause those employees of Seller as shall be
designated by ▇▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇ and as may be mutually
agreed by the parties hereto to assist Purchaser in the human resource
planning and the planning of the integration of the Business with and
into the businesses of Purchaser (it being agreed that such plans shall
not be implemented prior to the Closing without the consent of Seller);
(v) not modify or change any existing Franchise
Agreement or contract required to be set forth on Schedule 6(k) or
renew or extend any existing Real Property Lease (unless such renewal
or extension is for no more than six (6) months and is otherwise on
terms substantially similar to such renewed or extended lease);
(vi) not open any new facility in respect of the
Business;
(vii) not fail to pay all Taxes as they become due
and payable, except in cases where the payment of such Taxes is being
disputed in good faith by Seller with appropriate reserves reflected or
to be reflected in the Audited Balance Sheet;
(viii) with respect to any employee of the Business
having total compensation in excess of $100,000 annually, not hire,
promote or fire any such employee other than for cause;
(ix) not make any capital expenditures or capital
additions or betterment in excess of $250,000 in the aggregate in
respect of the Business;
(x) not make any payment, loan, or other transfer of
any assets to, or assume any obligations or liabilities of, Seller or
any affiliates of Seller except in the ordinary course of business
consistent with past practice of the Business; and
(xi) consult with and advise Purchaser with respect
to (A) any inventory purchases out of the ordinary course of business
or inconsistent with past practice and (B) inventory management.
(c) Approval of Shareholders; Proxy Statement. (i) Seller
shall cause a meeting of its shareholders (the "Seller's Shareholders
Meeting") to be duly called and held as soon as reasonably practicable
for the purpose of voting to approve the transactions contemplated by
this Agreement (the "Seller Shareholders' Approval"). The Board of
Directors of Seller shall recommend to its shareholders the approval of
all such matters and shall use all reasonable efforts to obtain the
approval of such shareholders; provided, however, that nothing herein
shall require the Board of Directors of Seller to act, or refrain from
acting, in any manner that it may determine, after consultation with
its outside counsel, to be necessary to the proper discharge of the
directors' fiduciary duties to its shareholders. In the event that the
Seller Shareholders' Approval is not obtained on the date on which the
Seller's Shareholders Meeting is initially convened, the Board of
Directors of Seller agrees to adjourn such Seller's Shareholders
Meeting at least twice for
37
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the purpose of obtaining the Seller Shareholders' Approval and to use
its best efforts during any such adjournments to obtain the Seller
Shareholders' Approval, unless failure to obtain the Shareholders'
Approval is caused by the holders of a majority of outstanding shares
of Seller Common Stock voting against the approval of the transactions
contemplated by this Agreement.
(ii) In connection with Seller's Shareholders
Meeting, Seller shall prepare and file a preliminary proxy statement
relating to the transactions contemplated hereby (the "Preliminary
Proxy Statement") with the SEC, and Seller shall use its best efforts
to respond to the comments of the SEC and to cause a definitive proxy
statement (the "Definitive Proxy Statement") to be mailed to its
shareholders, all as soon as reasonably practicable. Seller shall
notify Purchaser as soon as reasonably practicable of the receipt of
any comments from the SEC and of any requests by the SEC for amendments
or supplements to the Preliminary Proxy Statement or the Definitive
Proxy Statement or for additional information, and shall as soon as
reasonably practicable supply to Purchaser copies of all correspondence
between it or its representatives and the SEC or members of its staff
with respect to the Preliminary Proxy Statement or the Definitive Proxy
Statement. If at any time prior to Seller's Shareholders Meeting, any
event should occur relating to Seller, any of the Subsidiaries,
Purchaser, their respective officers or directors or otherwise, which
should be set forth in an amendment of, or a supplement to, the
Definitive Proxy Statement, the first party learning of such event
shall promptly notify the other, and Seller, with Purchaser's
reasonable cooperation, shall thereupon promptly prepare and mail such
amendment or supplement. Anything to the contrary contained herein
notwithstanding, Seller shall not (except to the extent required by
law) include in its Preliminary Proxy Statement or Definitive Proxy
Statement any information with respect to Purchaser, or any of its
officers, directors, affiliates or associates, or Purchaser's plans or
intentions, the form and content of which shall not have been approved
by Purchaser prior to such inclusion, such approval not to be
unreasonably withheld.
(d) Insurance. (i) To the extent that (A) there are
third-party insurance policies maintained by Seller and its affiliates
covering any loss, liability, damage or expense relating to the Assets,
operations, conduct, products and employees (including former
employees) of the Business ("Seller's Insurance Policies") (all such
losses, liabilities, claims, damages or expenses regardless of the
availability of insurance coverage, are herein referred to collectively
as the "Business Liabilities") and relating to or arising out of
occurrences prior to the Closing, and (B) Seller's Insurance Policies
continue after the Closing to permit claims ("Claims") to be made with
respect to such Business Liabilities relating to or arising out of
occurrences prior to the Closing, Seller agrees to cooperate and cause
its affiliates to cooperate with Purchaser in submitting Claims on
behalf of Purchaser or the Subsidiaries under Seller's Insurance
Policies with respect to such Business Liabilities relating to
occurrences prior to the Closing, except for Claims relating to
Retained Liabilities.
(ii) Seller shall maintain each of Seller's Insurance
Policies in full force and effect until the Closing.
38
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(e) Hiring of Employees. Seller and Purchaser agree that
pending the Closing, and in the event of termination of this Agreement, until
six months after such termination, (i) Purchaser will not hire, employ, solicit,
or offer employment to any present employee of Seller or any of its
subsidiaries, whether or not such employee remains in the employ of Seller or
any of its subsidiaries, after the date hereof, without Seller's written
consent, except for discussions prior to the termination of this Agreement in
accordance with Section 8(b)(i) with employees relating to their employment by
Purchaser after the consummation of the transactions contemplated herein, and
(ii) Seller will not, and will cause each of its subsidiaries not to, hire,
employ, solicit or offer employment to any present employee of Purchaser,
whether or not such employee remains in the employ of Purchaser after the date
hereof, without Purchaser's written consent. The foregoing mutual covenants
shall survive any breach or alleged breach of this Agreement or the termination
of this Agreement for any reason.
(f) Tax Matters. (i) Any and all existing Tax sharing,
allocation, compensation or like agreements or arrangements, whether or
not written, that include any of the Subsidiaries, including without
limitation any arrangement by which any of the Subsidiaries makes
compensating payments to each other or any other member of any
affiliated, consolidated, combined, unitary or other similar Tax group
for the use of certain tax attributes, shall be terminated as to the
Subsidiaries on or prior to the Closing Date (pursuant to a writing
executed on or before the Closing Date by all parties concerned) and
shall have no further force or effect as to the Subsidiaries. Any and
all powers of attorney relating to Tax matters concerning any of the
Subsidiaries shall be terminated as to that Subsidiary on or prior to
the Closing Date and shall have no further force or effect.
(ii) After the Closing Date, Purchaser and Seller
shall provide each other, and Purchaser shall cause the Subsidiaries to
provide Seller, with such cooperation and information relating to the
Subsidiaries as either party reasonably may request in (A) filing any
Tax return, amended return or claim for refund, (B) determining any Tax
liability or a right to refund of Taxes, (C) conducting or defending
any audit or other proceeding in respect of Taxes or (D) effectuating
the terms of this Agreement. The parties shall retain, and Purchaser
shall cause the Subsidiaries to retain, all returns, schedules and work
papers, and all material records (including accounting records) and
other documents relating thereto, until the expiration of the statute
of limitation (and, to the extent notified by any party, any extensions
thereof) of the taxable years to which such returns and other documents
relate and, unless such returns and other documents are offered and
delivered to Seller or Purchaser, as applicable, until the final
determination of any Tax in respect of such years. Any information
obtained under this Section 8(f)(ii) shall be kept confidential, except
as may be otherwise necessary in connection with filing any Tax return,
amended return, or claim for refund, determining any Tax liability or
right to refund of Taxes, or in conducting or defending any audit or
other proceeding in respect of Taxes. Notwithstanding the foregoing,
neither Seller nor Purchaser, nor any of their affiliates, shall be
required unreasonably to prepare any document, or determine any
information not then in its possession, in response to a request under
this Section 8(f)(ii).
(iii) Purchaser shall have received, on or before the
Closing Date, an affidavit in the form of Exhibit E that ▇▇▇▇ Ontario
Holding, Inc. is not a "foreign person"
39
-33-
within the meaning of Code Section 1445. If, on or before the Closing
Date, Purchaser shall not have received such affidavit, Purchaser may
withhold from the Purchase Price payable at Closing to the Seller
pursuant hereto such sums as are required to be withheld therefrom
under Code Section 1445.
(iv) Seller shall pay when due, any transfer, gains,
documentary, sales, use, registration, stamp, value added or other
similar Taxes payable by reason of the transactions contemplated by
this Agreement or attributable to the sale, transfer or delivery of the
Acquired Shares hereunder, and Purchaser shall reimburse Seller
one-half of any such payment, provided that the amount of reimbursement
by Purchaser shall not exceed $500,000. Seller shall, at its own
expense, file all necessary Tax Returns and other documentation with
respect to all such Taxes.
(g) Option Agreement. Seller and Purchaser will perform fully
their respective obligations under the Option Agreement.
(h) Transition Services. At Purchaser's request, Seller agrees
to provide to Purchaser and the Business data processing and other computer
services, data-induced communications, accounting services, human resources and
other administrative support to the extent used by the Business prior to the
Closing Date, and the facilities and services set forth on Schedule 6(b) and the
facility set forth on Schedule 1(b)(viii) (collectively, the "Transition
Services") for up to twelve (12) months from the Closing Date. Purchaser shall
reimburse Seller for all out-of-pocket costs incurred in providing the
Transition Services, including any reasonable payments deemed necessary by
Seller (and consented to in advance by Purchaser, which consent shall not be
unreasonably withheld) to ensure continuing services of the personnel performing
such services during such period.
9. Certain Covenants of Seller.
(a) Obtain Consents. Seller will, and will cause each of its
subsidiaries to, upon the request of Purchaser, use its reasonable efforts to
obtain the consents necessary in connection with the transactions contemplated
hereby with respect to each (i) of the items set forth on Schedule 6(c)(i), (ii)
lease set forth on Schedules 1(a)(ii)(A) and 1(a)(ii)(B) and (iii) Franchise
Agreement, and deliver to Purchaser evidence thereof, it being understood
however that (A) neither Seller nor any of its subsidiaries shall be required to
pay any consideration or relinquish valuable rights to obtain such consents and
(B) Purchaser shall cooperate with Seller in obtaining such consents.
(b) Accomplish Sale. Seller will, and will cause each of its
subsidiaries to, enter into no transaction and make no agreement or commitment
which would prevent or unreasonably delay the Closing, and will, and will cause
each of its subsidiaries to, act in such manner to consummate the transactions
contemplated by this Agreement and will, and will cause each of its subsidiaries
to, use its reasonable efforts not to permit any event to occur which would
result in any of its representations, warranties or covenants contained in this
Agreement or delivered in connection herewith not being true and correct at and
as of the time immediately after the occurrence of such transaction or event
except to the extent Purchaser has (y) consented thereto or (z) requested Seller
to take or omit to take an action (and Seller has complied with
40
-34-
such request), in each case where such consent or request has resulted in such
representation and warranty not being true and correct, it being agreed that
Purchaser shall notify Seller of any breach of this provision of which it has
actual knowledge and provide Seller with a reasonable opportunity to cure such
breach.
(c) Cooperate with Purchaser. Subject to Section 8(b), Seller
shall, and shall cause each of its subsidiaries and shall direct each of their
respective officers and employees to, reasonably cooperate and assist Purchaser
and Purchaser's accountants, attorneys, employees, lenders and other
representatives in consummating the transactions contemplated under this
Agreement.
(d) No Solicitation. Seller shall not, and shall direct each
of its subsidiaries and their respective officers, employees, representatives
and agents not to, directly or indirectly, induce, solicit or initiate
discussions or negotiations with, or provide any non-public information to, any
corporation, partnership, person or other entity or group concerning any merger,
sales of substantial assets, sales of shares of capital stock or similar
transactions involving Seller or any subsidiary or division of Seller if such
transaction involves the Business or any of the Assets ("Alternative Proposal")
or enter into any agreement with respect thereto; provided that, prior to the
receipt of the Seller Shareholders' Approval and upon receipt of advice of
Seller's legal counsel that such provision, discussion or negotiation is
required pursuant to fiduciary obligations under applicable law, Seller may
provide information (including non-public information, but only pursuant to a
confidentiality agreement in customary form, including customary standstill
provisions), and enter into (or induce) discussions or negotiations with, any
person who has made a bona fide unsolicited Alternative Proposal in respect of
such a transaction which the Board of Directors of Seller in good faith
determines is a better offer than the transactions contemplated by this
Agreement. Seller will promptly communicate to Purchaser the terms of any
Alternative Proposal (including the maker thereof) which it may receive in
respect of all such transactions prohibited by the foregoing and keep Purchaser
informed of the status and material information with respect to such discussions
or negotiations. Nothing in this Section 9(d) shall (x) permit Seller to
terminate this Agreement (except as specifically provided in Section 17, (y)
permit Seller to enter into any agreement with respect to an Alternative
Proposal for so long as this Agreement remains in effect (it being agreed that
for so long as this Agreement remains in effect, Seller shall not enter into any
agreement with any person or group that provides for, or in any way facilitates,
an Alternative Proposal (other than a confidentiality agreement under the
circumstances described above)), or (z) affect any other obligation of Seller
under this Agreement.
(e) Access to Information. Prior to the Closing or termination
of this Agreement in accordance with its terms, Seller will, and will cause each
of its subsidiaries to, (i) give Purchaser and its authorized representatives
reasonable access during normal business hours to all offices and other
facilities relating to the Business and to all its books and records relating to
the Business and will request that its independent accountants allow Purchaser's
independent accountants access to all of their work papers, including, but not
limited to, all plan documents, audit programs, lists of proposed adjustments
and conclusion memoranda, (ii) permit Purchaser to make such inspections as it
may reasonably require, and (iii) subject to Section 8(b), cause its officers to
furnish Purchaser with such financial and operating data and other information
with respect to the Business and their properties as Purchaser may from time to
time
41
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reasonably request, in each case to the extent that the same does not
unreasonably interfere with the operations of the Business (it being understood
that Seller shall, and shall cause its subsidiaries to, develop (with the
cooperation of Purchaser) such information as may be reasonably required in
connection with Purchaser's integration planning, provided that such development
does not unreasonably interfere with the operations of the Business or conflict
with applicable law or the provisions of any existing confidentiality agreement
and there exists sufficient underlying data to develop such information).
Purchaser will, and will direct each of its representatives to, hold all such
information and documents confidential in accordance with and subject to the
terms of the Confidentiality Agreement dated April 8, 1998 executed by Purchaser
and Seller (the "Confidentiality Agreement"); provided, however, that the terms
of the Confidentiality Agreement relating to the Assets and the Business shall
not apply to Purchaser after the Closing Date. Seller shall hold all information
relating to the Assets or the Business confidential in accordance with and
subject to the terms of the Confidentiality Agreement as if Seller were the
recipient of such information.
(f) Employee Benefits Plan. As of the Closing Date, each
employee of the Business shall become 100% vested in his or her interest in or
his or her accrued benefits under all Employee Benefit Plans.
(g) ▇▇▇▇-▇▇▇▇▇ Compliance. Seller shall promptly prepare and
file all reports and provide all additional information required under the
▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976, as amended ("▇▇▇▇-▇▇▇▇▇"),
and use its best efforts to obtain all approvals required thereunder.
(h) Elimination of Intercompany Indebtedness. Other than
intercompany indebtedness and receivables between the Subsidiaries, prior to the
Closing Date, Seller shall cause all intercompany indebtedness involving the
Business to be canceled or eliminated or contributed to the Subsidiaries and all
intercompany receivables involving the Business to be canceled or eliminated or
distributed to Seller.
(i) Delivery of Documents. Seller shall cause to be delivered
to Purchaser all documents required to be delivered to Purchaser at or prior to
the Closing.
(j) Resignations of Directors. Seller shall cause to be
delivered to Purchaser at or prior to the Closing the resignations of the boards
of directors of each of the Subsidiaries as Purchaser shall have requested.
(k) Real Property. At or prior to the Closing, the following
shall occur:
(i) Subject to Section 8(f)(iv), all real estate
transfer and gains Taxes payable by reason of the transaction
contemplated hereunder shall be paid and borne by Seller. Seller and
Purchaser shall cooperate to prepare and file all required documents
and filings with applicable authorities.
(ii) Seller shall deliver to Purchaser and its title
insurer such evidence as may be reasonably required by Purchaser or its
title insurer of the due authorization, execution and delivery of this
Agreement.
42
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(iii) In connection with Purchaser's efforts to
obtain an owner's title insurance policy or policies (the "Policies")
for any of the Real Property, Seller shall provide for the delivery of
such executed and acknowledged affidavits and/or agreements as
Purchaser's title insurer shall reasonably require in order to omit
from each of the Policies all exceptions (other than Real Estate
Encumbrances) for (A) judgments, bankruptcies or other returns against
persons or entities whose names are the same as or similar to name of
Seller or any of the Subsidiaries, (B) rights of tenants, (C)
mechanics' and materialmen's Encumbrances not reflected on the June
Balance Sheet and (D) unrecorded documents to which any of the
Subsidiaries or Seller is a party or of which any of the Subsidiaries
or Seller has knowledge.
(iv) Seller shall cause its subsidiary ▇▇▇▇ Ontario
Holding, Inc. to deliver to Purchaser the general warranty deed for the
Real Property located in the City of Ontario, County of San Bernardino,
State of California, sometimes commonly referred to as ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇.
(l) Canadian Antitrust Compliance. Seller shall promptly file
any notice and provide any information required under Investment Canada and the
Competition Act of Canada.
(m) Security Deposits. Seller will take all actions necessary
to transfer to Purchaser on the Closing Date all of Seller's or its applicable
subsidiaries' right, title and interest in and to the Tenant Security Deposits
and the Landlord Security Deposits.
(n) Delivery of Books and Records, etc.; Removal of Property.
(i) On the Closing Date, Seller will deliver or make available to
Purchaser at the locations at which the Business is conducted all of
the Business Books and Records and such other Assets as are in Seller's
or its applicable subsidiaries' possession at other locations, and if
at any time after the Closing Seller discovers in its possession or
under its control any other Business Books and Records or other Assets,
it will forthwith deliver such Business Books and Records or other
Assets to Purchaser.
(ii) Within sixty (60) days after the Closing Date,
Seller shall remove all Assets and Properties not being sold to
Purchaser hereunder from the Real Property and Improvements. Such
removal shall be at the sole cost and risk of Seller, including risk of
loss and damage to such Assets and Properties. Purchaser shall have no
liability to Seller with respect to such removal and transportation.
Seller shall be responsible for all repairs to the Real Property and
Improvements due to damage caused by Seller and its employees and
agents in connection with the removal of Seller's Assets and
Properties.
(o) Noncompetition. (i) Seller will, for a period of five (5)
years from the Closing Date, refrain from, either alone or in
conjunction with any other Person, or directly or indirectly through
its present or future affiliates;
(A) causing or attempting to cause (A) any
client, customer or supplier of the Business to terminate or
materially reduce its business with Purchaser or any of its
affiliates or (B) any officer, employee or consultant of
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Purchaser or any of its affiliates engaged in the Business to
resign or sever a relationship with Purchaser or any of its
affiliates;
(B) disclosing (unless compelled by judicial
or administrative process) or using any confidential or secret
information relating to the Business or any client, customer
or supplier of the Business; or
(C) participating or engaging in, or
otherwise lending assistance (financial or otherwise) to any
Person participating or engaged in, any of the lines of
business which comprised the Business on the Closing Date;
provided, however, that nothing in this clause (C) will be
deemed to prohibit Seller from continuing the business
conducted by its Computer Division (as set forth on Schedule
(1)(b)(ix)), namely selling computer systems and related items
and value-added services to businesses, governmental agencies
and academic institutions.
(ii) The parties hereto recognize that the laws,
rules, regulations and public policies of the various states of the
United States may differ as to the validity and enforceability of
covenants similar to those set forth in this Section 9(o). It is the
intention of the parties that the provisions of this Section 9(o) be
enforced to the fullest extent permissible under the laws and policies
of each jurisdiction in which enforcement may be sought, and that the
unenforceability (or the modification to conform to such laws, rules,
regulations or policies) of any provisions of this Section 9(o) shall
not render unenforceable, or impair, the remainder of the provisions of
this Section 9(o). Accordingly, if any provision of this Section 9(o)
shall be determined to be invalid or unenforceable, such invalidity or
unenforceability shall be deemed to apply only with respect to the
operation of such provision in the particular jurisdiction in which
such determination is made and not with respect to any other provision
or jurisdiction.
(iii) The parties hereto acknowledge and agree that
any remedy at law for any breach of the provisions of this Section 9(o)
would be inadequate, and Seller hereby consents to the granting by any
court of an injunction or other equitable relief, without the necessity
of actual monetary loss being proved, in order that the breach or
threatened breach of such provisions may be effectively restrained.
(p) Takeover Statutes. If any "fair price", "moratorium",
"control share acquisition" or other form of antitakeover statute or regulation
shall become applicable to the transactions contemplated hereby, Seller and the
members of the Board of Directors of Seller shall grant such approvals and take
such actions as are reasonably necessary so that the transactions contemplated
hereby may be consummated as promptly as practicable on the terms contemplated
hereby and thereby and otherwise act to eliminate or minimize the effects of
such statute or regulation on the transactions contemplated hereby and thereby.
(q) Declaration of Distribution. Seller shall not take any
action to declare a dividend or to make any distribution of the Purchase Price
to the holders of Seller Common Stock (including the adoption by its Board of
Directors of a resolution declaring such distribution and establishing a record
date and such distribution date), unless (i) such action occurs after the
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Audited Balance Sheet Date, (ii) such distribution would not constitute a
fraudulent conveyance under applicable bankruptcy laws and (iii) such
distribution would not violate Section 500 et seq. of the CCC.
(r) Use of Name. Following the Closing and continuing
thereafter indefinitely, Seller shall not, and shall cause its subsidiaries not
to, directly or indirectly, use or otherwise exploit the name "Milgray
Electronics" or any derivatives thereof or any other trade name, domain name,
trademark or service ▇▇▇▇ similar or confusingly similar thereto or used or held
for use in the Business. Within one (1) week after the Closing Date, Seller
shall cause each of its subsidiaries to change its name to no longer contain the
name "Milgray" or any derivatives thereof.
10. Certain Covenants of Purchaser.
(a) Obtain Consents. Purchaser will use its best efforts
to obtain and deliver to Seller all consents necessary to the transactions
contemplated hereunder.
(b) Accomplish Sale. Purchaser will enter into no transaction
and make no agreement or commitment which would prevent or unreasonably delay
the Closing and will act in such manner, and cause its officers to act in such
manner, to consummate the transactions contemplated by this Agreement and will
use its reasonable efforts not to permit any event to occur which would result
in any of its representations, warranties or covenants contained in this
Agreement or delivered in connection herewith not being true and correct at and
as of the time immediately after the occurrence of such transaction event.
(c) Cooperate with Seller. Purchaser shall, and shall direct
each of its officers and employees to, cooperate fully and assist Seller and
Seller's accountants, attorneys, employees and other representatives in
completing the transactions contemplated under this Agreement.
(d) ▇▇▇▇-▇▇▇▇▇ Compliance. Purchaser shall promptly prepare
and file all reports and provide all additional information required under
▇▇▇▇-▇▇▇▇▇, and use its best efforts to obtain all approvals required
thereunder.
(e) Employee Benefits and Employee Benefit Plans. (i)
Purchaser shall offer employment to all persons who were employed by
Seller or its subsidiaries primarily in connection with the Business on
the date immediately preceding the Closing Date, including those on
disability and vacation ("Employees"), except those Employees set forth
on Schedule 10(e)(i). Each such Employee shall be eligible to
participate in all Employee Benefit Plans maintained or sponsored by
Purchaser, or to which Purchaser contributes, and in which comparable
employees of Purchaser are entitled to participate. Each such
Employee's period of service with Seller or its subsidiaries shall be
counted in determining eligibility for participation under each
Employee Benefit Plan of Purchaser, including, without limitation,
Purchaser's ESOP and Capital Accumulation Plan, and such service shall
be counted in determining vesting of benefits under each Employee
Benefit Plan of Purchaser other than Purchaser's ESOP; provided,
however, that such service shall not be counted for benefit
contribution or accrual purposes under any Employee Benefit Plans of
Purchaser. Each such Employee shall be eligible to be covered as of his
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date of hire under any Employee Benefit Plan of Purchaser providing
health care benefits (whether or not through insurance) without regard
to any waiting period or any condition or exclusion based on any
pre-existing conditions, and shall receive full credit for any
copayments or deductible payments made before the Closing Date.
Purchaser shall use its reasonable best efforts to cause its Capital
Accumulation Plan to accept direct rollovers of eligible rollover
distributions (within the meaning of Section 402(f)(2)(A) of the Code)
received by Employees under the ▇▇▇▇ Industries Savings and Profit
Sharing Plan.
(ii) Purchaser shall be responsible for any legally
mandated continuation of health care coverage with respect to any
"group health plan" (as such term is defined in Section 607(l) of ERISA
and Section 5000(b)(1) of the Code) as may be required under Section
4980B of the Code ("COBRA Liability"), for Employees and/or their
dependents who have a loss of health care coverage under Section 4980B
of the Code due to a qualifying event (within the meaning of Section
4980B(f)(iii) of the Code) which occurs after the Closing Date
("Post-Closing COBRA Liability").
(iii) Purchaser agrees that it shall not, at any time
prior to sixty days after the Closing Date, effectuate a "plant
closing" or "mass layoff'" as those terms are defined in the Worker
Adjustment and Retraining Notification Act of 1988 ("WARN") affecting
in whole or in part any facility, site of employment, operating unit or
Employee of Seller or any of the Subsidiaries to the extent that the
requirements of WARN are applicable under the circumstances without
complying fully with the applicable requirements of WARN.
(f) Required Documents. Purchaser shall cause to be delivered
to Seller all documents required to be delivered to Seller at or prior to the
Closing.
(g) Canadian Antitrust Compliance Purchaser shall promptly
file any notice and provide any information required under Investment Canada and
the Competition Act of Canada.
(h) License of ▇▇▇▇ Name. At the Closing, Purchaser shall
grant to Seller a royalty-free, paid up, transferable, non-exclusive license, in
the form attached hereto as Exhibit D, to use the name "▇▇▇▇ Industries", "▇▇▇▇"
or any derivatives thereof.
11. Conditions Precedent to Purchaser's Obligations. All
obligations of Purchaser hereunder are subject to the fulfillment or waiver of
each of the following conditions at or prior to the Closing:
(a) All representations and warranties of Seller contained in
this Agreement shall be true and correct in all material respects when made and
shall be deemed to have been made again at and as of the date of the Closing,
and shall then be true and correct in all material respects.
(b) There shall not have been any breach in any material
respect by Seller of any of its covenants, agreements and obligations required
by the terms of this Agreement to be performed by Seller at or before the
Closing.
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(c) Since the date of this Agreement, none of the following
shall have occurred: (i) improper conduct by Seller or any of its subsidiaries
constituting fraud in connection with transactions with a significant supplier
of inventory to Seller or any of its subsidiaries and (ii) violations of
government contract laws, rules and practices committed by Seller or any of its
subsidiaries that both (A) result in a termination or suspension of performance
under a government prime or subcontract or debarment and (B) significantly
impair the ability of Seller or any of its subsidiaries to conduct business as a
government prime contractor or subcontractor.
(d) There shall have been no material adverse change since
June 30, 1998 in the Assets or the financial condition, results of operations,
prospects or business of the Business taken as a whole; provided that the
foregoing shall not include the termination of any Franchise Agreements due to
the public announcement of this Agreement or the transactions contemplated
hereby.
(e) There shall be delivered to Purchaser a certificate
executed by the chief executive officer and chief financial officer of Seller,
dated the Closing Date, certifying, in their capacities as such officers, that
the conditions set forth in paragraphs (a), (b), (c) and (d) of this Section 11
have been fulfilled.
(f) Seller shall have obtained evidence in form reasonably
satisfactory to Purchaser that any Encumbrances on the Assets pursuant to the
Credit Agreement have been or will, immediately following the Closing, be
released by the lenders thereunder.
(g) The consummation of the transactions contemplated hereby
shall not have been enjoined by any court or federal, state or foreign
governmental agency, including, without limitation, the Department of Justice,
the Federal Trade Commission or the SEC.
(h) Seller shall have filed all reports and satisfied all
requests for additional information pursuant to ▇▇▇▇-▇▇▇▇▇, and all applicable
waiting periods shall have expired.
(i) The consents set forth on Schedule 11(i) shall have been
obtained and shall be in full force and effect and not subject to any condition
that has not been satisfied or waived.
(j) Purchaser shall have received the opinion of Irell &
▇▇▇▇▇▇▇ LLP, counsel to Seller, substantially in the form of Exhibit F.
(k) There shall not be a moratorium on commercial bank lending
declared by a federal or New York State regulatory authority or other
circumstances or state of facts constituting a disruption in the financial
markets causing banks and other financial institutions not to extend credit.
12. Conditions Precedent to Seller's Obligations. All
obligations of Seller hereunder are subject to the fulfillment or waiver of each
of the following conditions at or prior to the Closing:
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(a) All representations and warranties of Purchaser contained
in this Agreement shall be true and correct in all material respects when made
and shall be deemed to have been made again at and as of the Closing, and shall
then be true and correct in all material respects.
(b) There shall not have been any breach in any material
respect by Purchaser of any of its covenants, agreements and obligations
required by the terms of this Agreement to be performed by Purchaser at or
before the Closing.
(c) There shall be delivered to Seller a certificate executed
by the chief executive officer and chief financial officer of Purchaser, dated
the Closing Date, certifying that the conditions set forth in paragraphs (a) and
(b) of this Section 12 have been fulfilled.
(d) The consummation of the transactions contemplated hereby
shall not have been enjoined by any court or federal, state or governmental
agency, including, without limitation, the Department of Justice, the Federal
Trade Commission or the SEC.
(e) Purchaser shall have filed all reports and satisfied all
requests for additional information pursuant to ▇▇▇▇-▇▇▇▇▇ and all applicable
waiting periods shall have expired.
(f) The shareholders of Seller shall have approved the
transactions contemplated hereby in accordance with applicable law and with the
articles of incorporation and by-laws of Seller.
(g) The banks under the Credit Agreement shall have consented
to the transactions contemplated hereby.
(h) Seller shall have received the opinion of Milbank, Tweed,
▇▇▇▇▇▇ & ▇▇▇▇▇▇, special counsel to Purchaser, substantially in the form of
Exhibit G.
13. Indemnification.
(a) Indemnification and Reimbursement of Purchaser. Seller
agrees to defend, indemnify and hold harmless Purchaser and its successors and
assigns, against and in respect of any and all loss, liability, cost, expense,
damage, or decline in value, including all costs and expenses incurred in
enforcing rights under this Section 13, but after deducting the benefits
actually or reasonably expected to be received (offset by any costs related to
such benefits) with respect to Taxes or insurance (collectively,
"Indemnification Losses"), resulting from, arising out of or relating to (A) (i)
any misrepresentation or breach of warranty by Seller made as a part of or
contained in this Agreement or in any certificate or document executed and
delivered in connection with this Agreement or the transactions contemplated
herein and (ii) any failure of the representations and warranties of Seller
contained in Section 6 of this Agreement to be true and correct as if made again
at and as of the Closing Date, (B) any failure by Seller to perform or otherwise
fulfill any covenant or agreement made herein or contemplated hereby and (C)
Retained Liabilities.
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(b) Indemnification and Reimbursement of Seller. Purchaser
agrees to defend, indemnify and hold harmless Seller, and its successors and
assigns, against and in respect of any and all Indemnification Losses resulting
from, arising out of or relating to (A) (i) any misrepresentation or breach of
warranty by Purchaser made as a part of or contained in this Agreement or in any
certificate or document executed and delivered in connection with this Agreement
or the transactions contemplated herein and (ii) any failure of the
representations and warranties of Purchaser contained in Section 7 of this
Agreement to be true and correct as if made again at and as of the Closing Date,
(B) any failure by Purchaser to perform or otherwise fulfill any covenant or
agreement made herein or contemplated hereby, (C) the conduct of the Business by
Purchaser after the Closing Date and (D) any Assumed Liabilities.
(c) Defense of Claims by Third Parties. Whenever a claim shall
arise for indemnification under this Section 13 (except in respect of Taxes
which shall be governed by the provisions of Section 8(g)), the party entitled
to indemnification (the "Indemnified Party") shall promptly notify the party
from whom indemnification is sought (the "Indemnifying Party") of such claim
and, when known, the facts constituting the basis for such claim; provided,
however, that in the event of any claim for indemnification hereunder resulting
from or in connection with any claim or legal proceedings by a third party, the
Indemnified Party shall give such notice thereof to the Indemnifying Party no
later than ten (10) days prior to the time any response to the asserted claim is
required, if possible. In the event of any such claim for indemnification
resulting from or in connection with a claim or legal proceeding by a third
party, the Indemnifying Party may, at its sole cost and expense, assume the
defense thereof. If an Indemnifying Party assumes the defense of any such claim
or legal proceeding, the Indemnifying Party shall be entitled to select counsel
and take all steps necessary in the defense thereof; provided, however, that, no
settlement shall be made without the prior written consent of the Indemnified
Party (except that if the Indemnified Party shall withhold its consent to any
settlement proposed by the Indemnifying Party, the Indemnifying Party shall in
no event be deemed for purposes of this Section 13 to have suffered losses,
liabilities or damages in connection with such claim or proceeding in excess of
the proposed amount of such settlement); and provided further, however, that the
Indemnified Party may, at its own expense, participate in any such proceeding
with the counsel of its choice. So long as the Indemnifying Party is in good
faith defending such claim or proceeding, the Indemnified Party shall not
compromise or settle such claim without the prior written consent of the
Indemnifying Party. If the Indemnifying Party does not assume the defense of any
such claim or litigation in accordance with the terms hereof, the Indemnified
Party may defend against such claim or litigation in such manner as it may deem
appropriate, including , but not limited to, settling such claim or litigation
(after giving notice of the same to the Indemnifying Party) on such terms as the
Indemnified Party may deem appropriate, and the Indemnifying Party will promptly
indemnify the Indemnified Party in accordance with the provisions of this
Section 13.
(d) Notice of Other Claims; Non-Waiver. Any party claiming
indemnification hereunder shall give reasonably prompt written notice to the
other as soon as practicable after it becomes aware of any condition or event
that gives rise to Indemnification Losses for which indemnification is sought
under this Section 13, except as otherwise provided in Section 13(c). Failure of
an Indemnified Party to give reasonably prompt notice of any claim or claims
shall not release, waive or otherwise affect an Indemnifying Party's obligations
with respect thereto except to the extent of actual loss or prejudice as a
result of such failure.
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(e) Threshold. No Indemnified Party shall be entitled to
indemnification pursuant to this Section 13 for any Indemnification Losses
incurred unless the aggregate amount for which indemnification is sought with
respect to the aggregate of all Indemnification Losses is in excess of
$1,000,000 (the "Threshold"). If the amount of claims for Indemnification Losses
exceeds the Threshold, then the Indemnified Party entitled to indemnification
pursuant to this Section 13 shall be entitled to indemnification for all
Indemnification Losses, including the first $1,000,000 of such losses incurred.
(f) Exclusive Remedy. The provisions of this Section 13 shall
constitute the sole and exclusive remedy of and means by which any Indemnified
Party after the Closing may obtain recompense for any damages, including
Indemnification Losses, arising out of, resulting from or incurred in connection
with this Agreement, including, without limitation, any inaccuracy and/or breach
of any representation or warranty contained in this Agreement or any other
agreement under this Agreement or any other agreement or instrument, or any
other act or omission by any party hereto.
14. Commission and Finder's Fees. Each of the parties hereto
represents and warrants to the other that no individual, firm or corporation, as
a result of any action of such party, has any right, interest or valid claim
against or upon the other party for any commission, fee or other compensation as
broker or finder or for acting in any similar capacity. The parties acknowledge
that Seller is obligated to pay a fee to Lincoln Partners LLC for rendering a
fairness opinion in connection with the transactions contemplated by this
Agreement.
15. Survival of Representations and Warranties. The
representations and warranties made by the parties hereto under this Agreement
or in connection with the transactions contemplated hereby or in any
certificate, list or other instrument delivered pursuant hereto shall survive
the Closing until after the Audited Balance Sheet Date and thereafter until the
earlier of (a) the second anniversary of the Closing Date and (b)(i) the
liquidation of Seller or (ii) the merger of Seller with, or the sale of all of
Seller's equity to, an acquiring Person and thereafter no claim for
indemnification under Section 13 may be made based upon a breach of any
representation or warranty.
16. Expenses. Whether or not the transactions contemplated
herein shall be consummated, each of the parties hereto shall bear and pay all
costs and expenses incurred by it under or in connection with such transactions,
and shall not be liable to any other party for any damages suffered due to the
failure to consummate such transactions; provided, however, that (a) if this
Agreement shall be terminated by Seller pursuant to Section 17(a)(ii) or by
Purchaser pursuant to Section 17(a)(iii), Seller shall promptly thereafter pay
to Purchaser an expenses reimbursement of $5,000,000; (b) if this Agreement
shall be terminated pursuant to Section 17(a)(i)(C), Seller shall promptly
thereafter pay to Purchaser an expenses reimbursement of $750,000, provided,
however, that if the Proxy Statement (or any amendment, supplement or
supplemental mailing by Seller to such shareholders with respect thereto) shall
disclose any Alternative Proposal and the Seller's shareholders shall fail to
approve the transactions hereunder, Seller shall pay $5,000,000 to Purchaser
under this clause (b); and (c) if the Closing shall not occur in accordance with
the terms of this Agreement and the failure to occur is based solely upon the
non-satisfaction of a condition of Closing under Section 11(b) due to a willful
breach by Seller or the non-satisfaction of a condition of Closing under Section
12(b) due to a
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willful breach by Purchaser, then the party in willful breach shall promptly pay
to the other party, as an expenses reimbursement and not as a penalty, an amount
equal to $5,000,000. The parties hereto acknowledge and agree that the amount of
liquidated damages provided hereby is reasonable in the light of the anticipated
harm caused by the breach, the difficulties of proof of loss, and the
inconvenience and infeasibility of otherwise obtaining an adequate remedy.
Neither Seller nor Purchaser shall be obligated to pay more than $5,000,000
pursuant to this Section 16.
17. Termination. (a) Anything herein to the contrary
notwithstanding, at any time before the Closing this Agreement
(i) may be terminated by either party;
(A) if the Closing has not occurred on or
before March 31, 1999;
(B) if ▇▇▇▇-▇▇▇▇▇ clearance is not obtained;
or
(C) if approval of Seller's shareholders is
not obtained;
(ii) may be terminated by Seller if it receives an
Alternative Proposal providing for terms better, in the good faith
determination of Seller's Board of Directors, than those provided by
the transactions contemplated hereunder provided that Seller shall have
complied with the provisions of Section 8(d) and shall notify Purchaser
promptly of its intention to terminate this Agreement or enter into a
definitive agreement with respect to such Alternative Proposal, but in
no event shall such notice be given less than forty-eight (48) hours
prior to the public announcement of Seller's termination of this
Agreement; provided that Seller's ability to terminate this Agreement
pursuant is conditioned upon the prior payment by Seller to Purchaser
of any amounts owed by it pursuant to Section 16;
(iii) may be terminated by Purchaser if the Board of
Directors of Seller (or any committee thereof) shall have withdrawn or
modified in a manner materially adverse to Purchaser its approval or
recommendation of this Agreement or shall have recommended an
Alternative Proposal to the shareholders of Seller;
(iv) may be terminated by Purchaser if the net
investment shown on the Estimated Balance Sheet is less than $135
million; or
(v) may be terminated by the mutual consent of Seller
and Purchaser.
(b) In the event of the termination of this Agreement pursuant
to this Section 17, all further obligations of the parties under this Agreement
shall terminate without further liability of any party to any other party or to
the shareholders, directors or officers of any party (except as set forth in
Section 17(a)(ii)), provided that the obligations of the parties contained in
Section 8(e) and in the Confidentiality Agreement shall survive any such
termination.
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18. Notices. Any notice, request, instruction or other
document to be given hereunder shall be in writing and delivered personally or
sent by certified or registered mail, postage prepaid, as follows: If to Seller,
addressed to it at ▇▇▇▇ ▇. ▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇., ▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇,
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇, with concurrent copies to Irell & ▇▇▇▇▇▇▇ LLP, ▇▇▇
▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇
Cost, Esq. and ▇▇▇ ▇▇▇▇▇▇▇▇, Esq., and if to Purchaser addressed to it at ▇▇ ▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention: President, with concurrent copies to
Purchaser's General Counsel at the same address and Milbank, Tweed, ▇▇▇▇▇▇ &
▇▇▇▇▇▇, ▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇, Esq. Any party may change the address to which notices are to be sent
by giving written notice of such change of address to the other party.
19. Entire Agreement, Amendments and Certain Other Matters.
This Agreement, including the lists, exhibits, schedules, the Confidentiality
Agreement, the Option Agreement and other agreements and attachments referred to
herein, which are a part hereof, or agreements signed and delivered
contemporaneously herewith, contains the entire understanding of the parties
hereto, and supersedes all prior agreements of the parties, with respect to the
acquisition of all or any part of the Business, the Assets or the Subsidiaries
and may be amended only by a written instrument executed by the parties hereto
or their respective successors or assigns, although any condition to a party's
obligation hereunder may be waived in writing by such party. The section and
paragraph headings contained in this Agreement are for reference purposes only
and shall not affect in any way the meaning or interpretation of this Agreement.
A failure or delay of either party to this Agreement to enforce at any time any
of the provisions of this Agreement, or to exercise any option which is herein
provided, or to require at any time performance of any of the provisions hereof,
shall in no way be construed to be a waiver of such provisions of this
Agreement. Nothing in this Agreement, expressed or implied, is intended to
confer upon any person other than the parties any rights or remedies under or by
reason of this Agreement.
20. Assignment. This Agreement is not assignable by Seller.
Purchaser may assign all or a portion of its rights in this Agreement to a
wholly-owned subsidiary of Purchaser provided that Purchaser and assignee
jointly and severally remain fully liable for payment of all monies and
performance of all obligations of Purchaser described in this Agreement.
21. Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original but all of which together shall constitute one and the same instrument.
22. Effectiveness. This Agreement will not become effective
until executed by each of the parties hereto.
23. Consent to Jurisdiction and Governing Law. This Agreement
shall be governed by and construed in accordance with the internal substantive
laws and not the choice of law rules of the State of New York. Any judicial
proceeding brought with respect to this Agreement must be brought in any federal
or state court of competent jurisdiction in any state of the United States, and,
by the execution and delivery of this Agreement, each party (i) accepts,
generally and unconditionally, the non-exclusive jurisdiction of any courts and
any related
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appellate court in the State of New York, and irrevocably agrees to be bound by
any judgment rendered by such courts in connection with this Agreement and (ii)
irrevocably waives any objection it may now or hereafter have as to the venue of
any such suit, action or proceeding brought in such a court or that such court
is an inconvenient forum. In furtherance of the preceding clause, so long as
this Agreement is in effect, Purchaser and Seller (if it is not a New York
corporation and is not qualified to do business in New York as a foreign
corporation) will at all times have an authorized agent in the City of New York,
upon whom process may be served in any legal action or proceeding in any court
of competent jurisdiction in the State of New York arising out of or in
connection with this Agreement. Seller hereby irrevocably appoints CT
Corporation System, as its agent for service of process in New York with respect
to all disputes arising out of or in connection with this Agreement.
24. Severability. In case any one or more of the provisions
contained in this Agreement should be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
contained herein shall not in any way be affected or impaired thereby.
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IN WITNESS WHEREOF, the parties hereto have duly executed and
agreed to all the terms of this Agreement including the exhibits hereto, as of
the date first above written.
▇▇▇▇ INDUSTRIES, INC.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
-----------------------
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇
Title: President & CEO
ARROW ELECTRONICS, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
--------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Executive Vice President