STOCK PURCHASE AGREEMENT
dated as of
August 29, 1997,
by and among
TSMD ACQUISITION CORP.,
▇▇▇▇▇▇▇-▇▇▇▇▇▇▇ COMPANY
and
▇-▇ TSMD INC.
TABLE OF CONTENTS
Page No.
--------
ARTICLE I
DEFINITIONS/PURCHASE & SALE/CLOSING.................. 2
1.1 Definitions................................................. 2
1.2 Sale of the Stock by Seller.................................12
1.3 Purchase of the Stock by Buyer; Total Purchase Price........13
1.4 The Closing.................................................13
1.6 Purchase Price Adjustment...................................14
1.7 Retention Plan Escrow.......................................17
1.8 Deposit; Deposit Escrow.....................................17
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER.................19
2.1 Organization and Related Matters............................19
2.2 Equity Securities...........................................19
2.3 Financial Statements; Changes; Contingencies................20
2.4 Tax and Other Returns and Reports...........................21
2.5 Material Contracts..........................................22
2.6 Real and Personal Property; Government-
Furnished and Government-Owned Property
or Equipment................................................23
2.7 Intangible Property.........................................25
2.8 Authorization; No Conflicts.................................26
2.9 Legal Proceedings and Certain Labor Matters.................27
2.10 Minute Books................................................28
2.11 Accounting Records; Internal Controls.......................28
2.12 Insurance...................................................28
2.13 Permits.....................................................29
2.14 Compliance with Law.........................................29
2.15 Dividends and Other Distributions...........................29
2.16 Employee Benefits...........................................30
2.17 Certain Interests...........................................32
2.18 Intercompany Transactions...................................33
2.19 No Brokers or Finders.......................................33
2.20 Inventory...................................................33
2.21 Customers and Suppliers.....................................34
2.22 Environmental Compliance....................................34
2.23 Government Contracts........................................35
2.24 Backlog.....................................................37
2.25 Clearances..................................................37
i
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER..................37
3.1 Organization and Related Matters............................37
3.2 Authorization...............................................38
3.3 No Conflicts................................................38
3.4 No Brokers or Finders.......................................38
3.5 Legal Proceedings...........................................38
3.6 Investment Representation...................................39
ARTICLE IV
COVENANTS WITH RESPECT TO CONDUCT OF COMPANY
PRIOR TO CLOSING..............................39
4.1 Access......................................................39
4.2 Material Adverse Changes; Reports; Financial Statements.....40
4.3 Conduct of Business.........................................40
4.4 Notification of Certain Matters.............................42
4.5 Permits and Approvals.......................................43
4.6 Preservation of Business Prior to Closing Date..............43
4.7 Government Filings..........................................43
4.8 Elimination of Intercompany and Affiliate Liabilities.......44
4.9 Inconsistent Agreements.....................................44
4.10 Contribution................................................45
4.11 Provisions Respecting Government Contracts..................45
4.12 Certain Material Contracts..................................46
4.13 Customers and Suppliers.....................................47
4.14 Backlog.....................................................47
ARTICLE V
ADDITIONAL CONTINUING COVENANTS......................47
5.1 Noncompetition..............................................47
5.2 Nondisclosure of Proprietary Data...........................49
5.3 Certain Tax Matters.........................................50
5.4 Corporate Name Change; Trademark License Agreement..........51
5.5 Post-Closing Cooperation Generally..........................51
5.6 Refund Claims and Warranty Claims...........................51
5.7 Warranty Work...............................................52
5.8 Change Orders...............................................52
5.9 Cooperation re: Refund Claims and Warranty Claims...........53
5.10 Prorations; Cooperation re: Collection of Receivables.......53
5.11 Post-Closing Status of Company..............................54
5.12 Employment of Employees of the Business.....................54
ii
ARTICLE VI
CONDITIONS OF PURCHASE...........................56
6.1 General Conditions..........................................56
6.2 Conditions to Obligations of Buyer..........................56
6.3 Conditions to Obligations of Seller.........................58
ARTICLE VII
TERMINATION OF OBLIGATIONS; SURVIVAL...................59
7.1 Termination of Agreement....................................59
7.2 Effect of Termination.......................................61
7.3 Survival of Representations and Warranties..................61
7.4 Limitation on Obligations of Company........................62
ARTICLE VIII
INDEMNIFICATION...............................62
8.1 Obligations of Seller.......................................62
8.2 Obligations of Buyer........................................63
8.3 Certain Tax Matters.........................................63
8.4 Procedure...................................................65
8.5 Limitations on Indemnification..............................66
8.6 Tax Adjustments.............................................66
ARTICLE IX
GENERAL...................................67
9.1 Amendments; Waivers.........................................67
9.2 Schedules; Exhibits; Integration............................67
9.3 Best Efforts; Further Assurances............................67
9.4 Governing Law...............................................68
9.5 Assignment..................................................68
9.6 Headings....................................................68
9.7 Counterparts................................................69
9.8 Publicity and Reports.......................................69
9.9 Parties in Interest.........................................69
9.10 Performance by Subsidiaries.................................69
9.11 Notices.....................................................70
9.12 Expenses....................................................71
9.13 Remedies; Waiver............................................71
9.14 Attorney's Fees.............................................71
9.15 Knowledge Convention........................................71
9.16 Representation By Counsel; Interpretation...................72
9.17 Specific Performance........................................72
9.18 Severability................................................72
9.19 Confidentiality.............................................72
9.20 Schedules...................................................75
iii
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "Agreement") dated as of
August 29, 1997 by and among TSMD ACQUISITION CORP., a Delaware corporation
("Buyer"), ▇▇▇▇▇▇▇-▇▇▇▇▇▇▇ COMPANY, a California corporation ("Seller"), and ▇-▇
TSMD INC., a California corporation and a wholly-owned subsidiary of Seller
("Company").
B A C K G R O U N D
A. Seller is, and, upon completion of the Contribution,
Company will be, engaged in the design, development, manufacture and sale of
modular subsystems, microwave devices and electronic equipment that are used in
defense and space applications and serve, among others, the following markets:
(i) guided munitions, including subsystems used by the USAF Advanced
Medium-Range Air-to-Air Missile and the USN SM-2/Block IV shipboard missile;
(ii) certain intelligence applications, including modular subsystems used in the
USAF Joint Airborne Surveillance Architecture (other than intelligence systems
that are manufactured by Seller's Telecommunications Group in Gaithersburg,
Maryland and are designed to monitor or intercept communication signals); (iii)
electronic warfare and radar, including the USAF ALQ-131 electronic
countermeasures system and the USN Aegis SPY missile protection radar system;
(iv) space applications, including for military and commercial satellites such
as Motorola's Iridium satellite system and (v) commercial equipment, including
test instruments built by Marconi in the United Kingdom. Seller operates the
Business from a site located in Palo Alto, California.
B. Buyer, Seller and Company desire that Buyer purchase the
Business on the terms and conditions set forth in this Agreement. They intend to
accomplish that by having Seller and Company consummate the Contribution and
Buyer purchase all the outstanding stock of Company from Seller pursuant to this
Agreement.
C. After such stock sale, Seller will continue to design,
develop, manufacture and sell semiconductor and telecommunications products,
including microwave products (collectively the "Retained Businesses") at the
Palo Alto site and elsewhere. Several special steps will be necessary to
accommodate the separation of the Business and the Retained Businesses after the
stock sale. For example, under the Sublease Agreements, Seller will sublease
facilities to Company at the Palo Alto Site to enable Company to continue to
conduct the Business at that site. In addition, Seller operates a gallium
arsenide
semiconductor wafer processing facility, a thin-film production substrate
facility and a metal injection molding facility (the "MIM Facility") at the Palo
Alto site. Those facilities provide (or in the future are expected to provide)
essential items to the Business and certain of the Retained Businesses. Seller
will retain the gallium arsenide semiconductor wafer processing facility and the
thin-film production substrate facility (except, in the case of the latter, for
the Intangible Property relating thereto). Seller will enter into supply
agreements with Company under which, after the stock sale, Seller will furnish
Company with the items needed by the Business that are produced at those
facilities. As regards the metal injection molding facility, Seller will
contribute that facility to Company prior to the Closing as part of the
Contribution. Company will enter into a supply agreement with Seller under
which, after the stock sale, Company will furnish Seller with the items needed
by the Retained Businesses that are produced at that facility. In addition,
because Seller will continue to use technology and other know-how in certain of
the Retained Businesses that are also used in the Business, Seller and Company
will share the use of that "common" technology pursuant to the License
Agreement.
D. The purpose of this Agreement is to memorialize the terms
and conditions under which Buyer will purchase the Stock and Buyer, Seller and
Company will effect the other arrangements described above.
NOW THEREFORE, in consideration of the promises and covenants
contained herein and intending to be legally bound, Buyer, Seller and Company do
hereby agree as follows:
ARTICLE I
DEFINITIONS/PURCHASE & SALE/CLOSING
1.1 Definitions.
For all purposes of this Agreement, except as otherwise
expressly provided:
(a) the terms defined in this Article I have the meanings
assigned to them in this Article I and include the plural as well as the
singular;
(b) all accounting terms not otherwise defined herein have the
meanings assigned under generally accepted accounting principles;
2
(c) all references in this Agreement to designated "Articles,"
"Sections" and other subdivisions are to the designated Articles, Sections and
other subdivisions of the body of this Agreement;
(d) pronouns of either gender or neuter shall include, as
appropriate, the other pronoun forms; and
(e) the words "herein," "hereof" and "hereunder" and other
words of similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision.
As used in this Agreement and the Exhibits and Schedules
delivered pursuant to this Agreement, the following definitions shall apply:
"Accounting Report" is defined in Section 1.6(a).
"Action" means any action, complaint, petition, investigation,
suit or other proceeding, whether civil or criminal, in law or in equity, or
before any arbitrator or Governmental Entity.
"Additional Accounting Firm" is defined in Section 1.6(c).
"Additional Accounting Report" is defined in Section 1.6(c).
"Adjustment Amount" means the excess of March 31 Net Asset
Value over Closing Date Net Asset Value. In the event that March 31 Net Asset
Value is less than Closing Date Net Asset Value, the Adjustment Amount shall be
zero.
"Affiliate" means a Person that directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with, a specified Person.
"Agreed Adjustments" is defined in Section 1.6(b).
"Agreed Rate" means, as of the date of any payment of interest
to be made by reference thereto, the interest rate established on such date by
Citibank, N.A. as its "prime" rate, or, if that rate is no longer established or
published, a comparable interest rate.
"Agreement" means this Agreement by and among Buyer, Seller
and Company as amended or supplemented together with all Exhibits and Schedules
attached or incorporated by reference.
3
"Ancillary Agreements" means the Calibration Group Supply
Agreement, the GaAs/Thin Film Agreement, the License Agreement, the Marketing
Agreement, the MIM Supply Agreement, the Sublease Agreements and the Trademark
License Agreement.
"Approval" means any approval, authorization, consent,
qualification or registration, or any waiver of any of the foregoing, required
to be obtained from, or any notice, statement or other communication required to
be filed with or delivered to, any Governmental Entity or any other Person.
"Associate" of a Person means
(i) a corporation or organization (other than Company or a
party to this Agreement) of which such person is an officer or partner or is,
directly or indirectly, the beneficial owner of 10% or more of any class of
equity securities;
(ii) any trust or other estate in which such person has a
substantial beneficial interest or as to which such person serves as trustee or
in a similar capacity; and
(iii) any relative or spouse of such person or any relative of
such spouse.
"Assumed Obligations" means only those liabilities and
obligations of Seller or Company that are (i) liabilities and obligations of the
Business on the Closing Date for Accrued PTO and Holidays, Advance Billing,
Provision for Losses on Contracts, Accrual for "Sick Leave Bank" and Deferred
Compensation (to the extent relating to Messrs. ▇▇▇▇▇▇ and ▇▇▇▇▇▇▇), (ii)
executory obligations to perform under Contracts that are Purchased Assets and
(iii) liabilities or obligations under the Retention Plan.
"Audited Adjustment Amount" is defined in Section 1.6(a).
"Auditors" means Deloitte & Touche, independent public
accountants to Seller and Company.
"Base Purchase Price" is defined in Section 1.3.
"Business" means the Tactical Subsystems Sector and the
Microwave Devices Sector businesses conducted by Seller and by Company,
including, but not limited to, the design, development, manufacture and sale of
modular subsystems, microwave devices and electronic equipment that are used in
defense and space applications and serve, among others, the following markets:
(i) guided munitions,
4
including subsystems used by the USAF Advanced Medium-Range Air-to-Air Missile
and the USN SM-2/Block IV shipboard missile, (ii) certain intelligence
applications, including modular subsystems used in the USAF Joint Airborne
Surveillance Architecture, (iii) electronic warfare and radar, including the
USAF ALQ-131 electronic countermeasures system and the USN Aegis SPY missile
protection radar system, (iv) space applications, including for military and
commercial satellites such as Motorola's Iridium satellite system and (v)
commercial equipment, including test instruments built by Marconi in the United
Kingdom, and shall be deemed to include any of the following incidents of such
businesses: income, cash flow, operations, condition (financial or other),
assets, liabilities, Products, properties and, to the extent contemplated by
Seller's or Company's business plans or projections as of the date hereof,
prospects; provided, however, that "Business" shall not include intelligence
systems that are manufactured by Seller's Telecommunications Group in
Gaithersburg, Maryland and are designed to monitor or intercept communication
signals.
"Buyer's Accountants" is defined in Section 1.6(a).
"Calibration Group Supply Agreement" means a Calibration Group
Supply Agreement by and among Buyer, Seller and Company on terms reasonably
satisfactory to the parties thereto.
"Closing" means the consummation of the purchase and sale of
the Stock under this Agreement.
"Closing Date" means the date of the Closing.
"Closing Date Net Asset Value" means the book value of the
Purchased Assets (excluding any value attributed to intangibles that were not on
the balance sheet for the Business as of March 31, 1997 referred to in Section
2.3) minus the book value of the Assumed Obligations (not including any
liabilities or obligations under the Retention Plan), in each case as carried on
Seller's books of account in accordance with GAAP consistently applied (provided
that in the event of any conflict between those principles required under GAAP
and those principles required for consistency, the principles required under
GAAP shall control) as of the Closing Date.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" is defined in the preamble hereto.
5
"Contract" means any binding agreement, arrangement, bond,
commitment, franchise, indemnity, indenture, instrument, lease, license or
understanding.
"Contribution" means the transfer by Seller to Company of
those Purchased Assets and Assumed Obligations not owned or held by Company as
of the date hereof, such transfer to be evidenced by all necessary and
appropriate documentation and filings with Governmental Entities including, but
not limited to, all necessary filings with Governmental Entities with respect to
the transfer of the Intangible Property listed on Schedule 2.7 from Seller to
Company.
"Customer Contracts" means all Contracts providing for
obligations to deliver Products, the rights to be paid for those Products and
the obligations and rights that are ancillary to those obligations and rights.
"Deposit" is defined in Section 1.8(a).
"Disclosure Schedule" means the Disclosure Schedule of even
date herewith delivered by Seller to Buyer. The Sections of the Disclosure
Schedule shall be numbered to correspond to the applicable Sections of this
Agreement and the matters disclosed in particular Sections of the Disclosure
Schedule shall be deemed to qualify only the corresponding particular Section of
this Agreement except where the nature of the disclosure is such that its
applicability to other Sections of the Agreement is apparent.
"Encumbrance" means any claim, charge, easement, encumbrance,
lease, covenant, security interest, lien, option, pledge, rights of others, or
restriction (whether on voting, sale, transfer, disposition or otherwise),
whether imposed by agreement, understanding, law, equity or otherwise, except
for any restrictions on transfer generally arising under any applicable federal
or state securities law.
"Escrow Agent" is defined in Section 1.8(a).
"Escrow Agreement" means the Escrow Agreement by and among
Buyer, Seller and Escrow Agent on terms reasonably satisfactory to the parties
thereto regarding the holding and release of the Deposit.
"ESOP" is defined in Section 2.16(b).
"Equity Securities" means any capital stock or other equity
interest or any securities convertible into or
6
exchangeable for capital stock or any other rights, warrants or options to
acquire any of the foregoing securities.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and the related regulations and published interpretations.
"ERISA Affiliate" has the meaning set forth in Section
2.16(c).
"Estimated Adjustment Amount" is defined in Section 1.5.
"Estimated Purchase Price" is defined in Section 1.5.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Excluded Assets" means those assets specifically identified
on Schedule 1.1 which shall include, but not be limited to, assets of the
Business on the Closing Date comprising Accounts Receivable, Deferred Tax Assets
and Other Current Assets - Prepaids.
"Excluded Liabilities" means any and all liabilities of
Seller, Company or the Business of any kind or nature, whether known or unknown,
accrued, absolute, contingent or otherwise (other than the Assumed Obligations)
including, but not limited to, Accounts Payable, Accrued Salaries and Profit
Sharing, Government Accruals and Accrued Expenses - Other, and any and all
liabilities with respect to any of the plans, agreements or arrangements listed
(or required by Section 2.16(a) to be listed) in Schedule 2.16.
"Final Audited Adjustment Amount" is defined in Section
1.6(c).
"GAAP" means generally accepted accounting principles in the
United States, as in effect from time to time.
"GaAs/Thin Film Agreement" means the GaAs/Thin Film Agreement
by and among Buyer, Seller and Company on the principal terms set forth in
Exhibit A hereto and such other terms as are reasonably satisfactory to the
parties thereto.
"Government Bid" is defined in Section 2.23(a).
"Government Contract" means any prime contract, subcontract,
teaming agreement or arrangement, joint venture, basic ordering agreement,
letter contract, purchase order, delivery order, Government Bid, change order,
or
7
other contractual commitment of any kind relating to the Business including, but
not limited to, any Customer Contract or Supplier Contract, in each instance
between Seller or Company and (i) any Governmental Entity, (ii) any prime
contractor of any Governmental Entity, or (iii) any subcontractor with respect
to any contract described in clauses (i) or (ii) above.
"Government Contract Novation" means, with respect to any
Government Contract, an instrument reasonably satisfactory in form and substance
to Buyer and Seller pursuant to which all of Seller's rights, claims, benefits
and liabilities thereunder shall have been validly conveyed, transferred,
assigned and novated to Buyer by all parties thereto.
"Governmental Entity" means any government or any agency,
bureau, board, commission, court, department, official, political subdivision,
tribunal or other instrumentality of any government, whether federal, state or
local, domestic or foreign.
"Government-Furnished Items" is defined in Section 2.6(d).
"▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act" means the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust
Improvements Act of 1976, as amended, and the related regulations and published
interpretations.
"Hazardous Substance" means (but shall not be limited to)
substances that are defined or listed in, or otherwise classified pursuant to,
any applicable Laws as "hazardous substances," "hazardous materials," "hazardous
wastes" or "toxic substances," or any other formulation intended to define, list
or classify substances by reason of deleterious properties such as ignitibility,
corrosivity, reactivity, radioactivity, carcinogenicity, reproductive toxicity
or "EP toxicity," and petroleum and drilling fluids, produced waters and other
wastes associated with the exploration, development, or production of crude oil,
natural gas or geothermal energy.
"Indemnifiable Claim" means any Loss for or against which any
party is entitled to indemnification under this Agreement; "Indemnified Party"
means the party entitled to indemnity hereunder; and "Indemnifying Party" means
the party obligated to provide indemnification hereunder.
"Intangible Property" means any Intellectual Property Rights,
marketing rights, contractual rights, licenses and all related agreements and
documentation.
8
"Intellectual Property Rights" means all industrial and
intellectual property rights, including, without limitation, patents, patent
applications (pending or otherwise), patent rights, copyrights, computer
firmware and software (existing in any form), Know-How, Trade Secrets, Marks,
proprietary processes, inventions and formulae.
"Inventory" means all finished products, work in progress,
parts, components and raw materials.
"Investment Plan" is defined in Section 2.16(b).
"IRS" means the Internal Revenue Service or any successor
entity.
"Know-How" means any information, including, but not limited
to, invention records, research and development findings, records and reports,
experimental and engineering reports, pilot designs, production designs,
production specifications, raw material specifications, quality control reports
and specifications, drawings, photographs, models, tools, parts, algorithms,
processes, methods, market and competitive analysis, or other information,
whether or not considered proprietary or a Trade Secret.
"Law" means any constitutional provision, statute or other
law, rule, regulation, or interpretation of any Governmental Entity and any
Order.
"License Agreement" means the Cross License Agreement by and
among Buyer, Seller and Company substantially in the form of Exhibit B hereto.
"Loss" means any action, cost, damage, disbursement, expense,
liability, loss, deficiency, obligation, penalty or settlement of any kind or
nature, whether foreseeable or unforeseeable, including but not limited to,
interest or other carrying costs, penalties, legal, accounting and other
professional fees and expenses incurred in the investigation, collection,
prosecution and defense of claims and amounts paid in settlement, that may be
imposed on or otherwise incurred or suffered by the specified person.
"March 31 Net Asset Value" means $34.6 million.
"▇▇▇▇" means any brand name, copyright, patent, service ▇▇▇▇,
trademark, tradename, and all registrations or application for registration of
any of the foregoing.
"Marketing Agreement" means the Marketing Agreement by and
among Buyer, Seller and Company on the
9
principal terms set forth in Exhibit C hereto and such other terms as are
reasonably satisfactory to the parties thereto.
"Material Contract" is defined in Section 2.5.
"MIM Facility" is defined in the Background hereto.
"MIM Supply Agreement" means an MIM Supply Agreement by and
among Buyer, Seller and Company on the principal terms set forth in Exhibit D
hereto and such other terms as are reasonably satisfactory to the parties
thereto.
"Net Tax Benefit" is defined in Section 8.6.
"Order" means any decree, injunction, judgment, order, ruling,
assessment or writ.
"Palo Alto Site" means the real property currently leased by
Seller in Palo Alto, California that is commonly referred to as ▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇.
"Permit" means any license, permit, franchise, certificate of
authority, or order, or any waiver of the foregoing, required to be issued by
any Governmental Entity.
"Person" means an association, a corporation, an individual, a
partnership, a trust or any other entity or organization, including a
Governmental Entity.
"Post-Closing Partial Period" means any period beginning
before the Closing Date and ending after the Closing Date, but only with respect
to the portion of such period beginning the day after the Closing Date.
"Pre-Closing Partial Period" means any period beginning before
the Closing Date and ending after the Closing Date, but only with respect to the
portion of such period up to and including the Closing Date.
"Prime Government Contract" means any Government Contract
between Seller or Company, on the one hand, and the government of the United
States of America on the other hand.
"Products" means products, technology and services
manufactured, sold, licensed, under development or otherwise exploited by Seller
or Company in connection with the Business, or proposed in Seller's or Company's
business plans or projections to be exploited in connection with the Business,
including replacement parts or components sold by Seller or Company for other
products.
10
"Projected Retention Payments" is defined in Section 1.7(a).
"Purchased Assets" means each and every asset or property used
in the conduct of, connected with or comprising the Business including, but not
limited to, all assets and properties listed on Schedules 2.6(a) (which Schedule
shall include, among other things, assets of the Business on the Closing Date
comprising Unbilled Receivables, Inventory, PPE, Intangibles and $85,000 in
loans to employees of the Business) and 2.7, except for the Excluded Assets.
"Refund Claim" is defined in Section 5.6.
"Retained Businesses" is defined in the Background hereto.
"Retention Plan" means Seller's Retention Bonus Plan.
"Retention Plan Adjustment" is defined in Section 1.7.
"SEC" means the Securities and Exchange Commission or any
successor entity.
"Section 338(h)(10) Election" is defined in Section 5.11.
"Securities Act" means the Securities Act of 1933, as amended.
"Seller's Post-Closing Balance Sheet" is defined in Section
1.6(a).
"Seller's Incomplete Schedules" is defined in Section 9.20.
"Sublease Agreements" means the Sublease Agreements by and
among Buyer, Seller and Company on the principal terms set forth in Exhibit E
hereto and such other terms as are reasonably satisfactory to the parties
thereto.
"Stock" means all of the outstanding capital stock of Company.
"Subsidiary" means any Person in which Company has a direct or
indirect equity or ownership interest in excess of 10%.
"Supplier Contracts" means all Contracts providing for the
purchase goods and services consumed by the Business
11
or directly used to support the Business, the obligations to pay for those goods
and services, and the obligations and rights that are ancillary to those
obligations and rights.
"Tax" means any foreign, federal, state, county or local
income, sales and use, excise, franchise, real and personal property, transfer,
gross receipt, capital stock, production, business and occupation, disability,
employment, payroll, severance or withholding tax or charge imposed by any
Governmental Entity, any interest and penalties (civil or criminal) related
thereto or to the nonpayment thereof, and, except as specifically provided
herein, any Loss in connection with the determination, settlement or litigation
of any Tax liability.
"Tax Reimbursement Amount" is defined in Section 8.6.
"Tax Return" means a report, return or other in formation
required to be supplied to a Governmental Entity with respect to Taxes
including, where permitted or required, combined or consolidated returns for any
group of entities that includes Seller or Company.
"Title IV Plan" is defined in Section 2.16(c).
"Total Purchase Price" is defined in Section 1.3.
"Trademark License Agreement" means the Trademark License
Agreement by and among Buyer, Seller and Company substantially in the form of
Exhibit F hereto.
"Trade Secrets" means any formula, pattern, device or
compilation of information which gives an opportunity to obtain an advantage
over competitors who do not know or use it, including, but not limited to,
formulas for chemical compounds, a process of manufacturing, treating or
preserving materials, a pattern for a machine or any forms, plans, drawings,
specifications, customer lists, marketing and competition analysis and project
management, inventory and cost control systems and techniques.
"Warranty Claim" is defined in Section 5.6.
"Warranty Work" is defined in Section 5.7.
1.2 Sale of the Stock by Seller.
Subject to the terms and conditions of this Agreement, Seller
agrees to sell the Stock and deliver the certificate evidencing the Stock to
Buyer at the Closing. The certificate will be properly endorsed for transfer to
or accompanied by a duly executed stock power in favor of Buyer
12
or its nominee as Buyer may have directed prior to the Closing Date and
otherwise in a form acceptable for transfer on the books of Company.
1.3 Purchase of the Stock by Buyer; Total Purchase Price.
Subject to the terms and conditions of this Agreement, Buyer
agrees to purchase the Stock from Seller and to pay to Seller the Total Purchase
Price. The "Total Purchase Price" shall consist of $103,000,000 (the "Base
Purchase Price"), minus the Adjustment Amount, if any, minus the Retention Plan
Adjustment.
1.4 The Closing.
The Closing will take place at the offices of O'Melveny &
▇▇▇▇▇, Embarcadero Center West, ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇-▇▇▇▇ on the last Friday of the first month during which all of the
conditions specified in Article VI have been satisfied (provided, however, that
if such conditions are not satisfied before the close of business on the fifth
business day prior to such day, the Closing will take place on the last Friday
of the next succeeding month), or at such other place or on such other day as
Seller and Buyer may agree in writing.
1.5 Payment of Purchase Price.
Not later than 5 days prior to the Closing Date, Seller shall
prepare and deliver to Buyer an estimated balance sheet for the Business as of
the Closing Date, which balance sheet shall have been prepared in conformity
with GAAP applied on a basis consistent with the balance sheet for the Business
as of March 31, 1997 referred to in Section 2.3 (provided that in the event of
any conflict between those principles required under GAAP and those principles
required for consistency, the principles required under GAAP shall control)
which shall not reflect the results of or otherwise give effect to Buyer's
purchase of the Stock and the accounting treatment thereof and a notice setting
forth Seller's good faith estimate of the Adjustment Amount (the "Estimated
Adjustment Amount") together with a schedule setting forth in detail the
calculations supporting Seller's computation thereof. Buyer shall pay the
Estimated Purchase Price to Seller at the Closing by wire transfer of funds
immediately available in the City of New York to an account specified by Seller
not later than 5 days prior to the Closing Date. The "Estimated Purchase Price"
shall be the sum of (a) the Base Purchase Price net of the Retention Plan
Adjustment, and (b) the Estimated Adjustment Amount. Promptly, but in any event
not later than 5 days, after the final determination of the Adjustment Amount
pursuant to
13
Section 1.6, (i) in the event that the Total Purchase Price exceeds the
Estimated Purchase Price, Buyer shall pay to Seller by wire transfer of funds
immediately available in the City of New York an amount equal to such excess
plus interest thereon from the Closing Date to the date of payment thereof at
the Agreed Rate, or (ii) in the event the Estimated Purchase Price exceeds the
Total Purchase Price, Seller shall pay to Buyer by wire transfer of funds
immediately available in the City of New York an amount equal to such excess
plus interest thereon from the Closing Date to the date of payment thereof at
the Agreed Rate.
1.6 Purchase Price Adjustment.
(a) Physical Inventory; Closing of Books; Audit of
Seller's Post-Closing Balance Sheet.
On the day after the Closing Date, Buyer shall direct its
independent certified public accountants ("Buyer's Accountants") to conduct a
physical inventory (consistent with year-end closing practices) of all of the
Inventory of the Business (including, but not limited to, all "offshore"
inventory), such physical inventory to be completed as promptly as practicable
but in any event not later than 10 days after the Closing Date. Seller shall
cooperate with Buyer and Buyer's Accountants to afford all access and provide
all information necessary to facilitate such physical inventory. On the day
after the Closing Date, Seller shall initiate and shall take all actions
necessary to effect a closing (effective as of the Closing Date) of Seller's
(with respect to the Business) and Company's books of account (including, but
not limited to, the closing of all variance accounts (i.e., all unfavorable
variances on open projects shall be written off)). As promptly as practicable
but in any event not later than 30 days after the Closing Date, Seller shall
prepare and deliver to Buyer a balance sheet for the Business as of the Closing
Date, which balance sheet shall have been prepared in conformity with GAAP
applied on a basis consistent with the balance sheet for the Business as of
March 31, 1997 referred to in Section 2.3 (provided that in the event of any
conflict between those principles required under GAAP and those principles
required for consistency, the principles required under GAAP shall control)
which shall not reflect the results of or otherwise give effect to Buyer's
purchase of the Stock and the accounting treatment thereof, which shall reflect
the closing of all variance accounts as required above (such balance sheet, as
so prepared, being "Seller's Post-Closing Balance Sheet") and a notice setting
forth Seller's good faith calculation of the Adjustment Amount (the "Revised
Adjustment Amount") together with a schedule setting forth in detail the
calculations supporting Seller's computation thereof. At Buyer's election,
promptly
14
following Buyer's receipt thereof, Buyer may direct Buyer's Accountants to
conduct an audit in accordance with the standards of the American Institute of
Certified Public Accountants, such audit to be completed as promptly as
practicable but in any event not later than 30 days after the receipt by Buyer
of Seller's Post-Closing Date Balance Sheet and the Revised Adjustment Amount,
of Seller's Post-Closing Balance Sheet and the Revised Adjustment Amount.
Buyer's Accountants shall, if so requested by Seller, permit the Auditors to
observe the processes applied by Buyer's Accountants in conducting the audit of
Seller's Post-Closing Balance Sheet referred to above. In the event Buyer elects
not to direct Buyer's Accountants to conduct such an audit, Buyer shall so
advise Seller not later than 30 days after the receipt by Buyer of Seller's
Post-Closing Date Balance Sheet and the Revised Adjustment Amount, upon which
advice the Revised Adjustment Amount shall be final and binding as the
Adjustment Amount under this Agreement. In the event Buyer elects to direct
Buyer's Accountants to conduct such an audit, upon completion thereof Buyer's
Accountants shall deliver to Buyer a written notice (the "Accounting Report")
setting forth a schedule of all adjustments, if any, to Seller's Post-Closing
Balance Sheet and the Revised Adjustment Amount determined by Buyer's
Accountants to be required to generate a balance sheet for the Business as of
the Closing Date and calculate the Adjustment Amount hereunder (the Adjustment
Amount, after giving effect to such adjustments, being the "Audited Adjustment
Amount"). At Buyer's election, promptly following Buyer's receipt thereof, Buyer
may deliver the Accounting Report to Seller. In the event Buyer elects not to
deliver the Accounting Report to Seller, Buyer shall so advise Seller not later
than 5 days after the receipt by Buyer of the Accounting Report, upon which
advice the Revised Adjustment Amount shall be final and binding as the
Adjustment Amount under this Agreement.
(b) Review by Seller. In the event that Buyer shall deliver
the Accounting Report to Seller, promptly following receipt of the Accounting
Report Seller shall review the same and, as promptly as practicable, but in any
event not later than 30 days thereafter, shall deliver to Buyer either (i) a
written notice stating that the Accounting Report and the Audited Adjustment
Amount are accepted by Seller, or (ii) a certificate signed by Seller's chief
financial officer setting forth Seller's objections to the Accounting Report
together with a summary of the reasons therefor and calculations supporting such
adjustments that, in its view, are necessary to eliminate such objections. In
the event Seller delivers to Buyer such a written notice stating that the
Accounting Report and the Audited Adjustment Amount are accepted by Seller or
does not deliver such a certificate of objection within such 30-day period,
15
the Audited Adjustment Amount set forth in the Accounting Report shall, upon the
earlier of such delivery or the end of such 30-day period be final and binding
as the Adjustment Amount under this Agreement. In the event Seller so objects
within such 30-day period, Buyer and Seller shall endeavor to resolve by written
agreement (the "Agreed Adjustments") any differences as to the Adjustment Amount
and, in the event Buyer and Seller so resolve any such differences, the Audited
Adjustment Amount set forth in the Accounting Report, as adjusted by the Agreed
Adjustments, shall be final and binding as the Adjustment Amount under this
Agreement.
(c) Audit by Additional Accounting Firm. In the event any
objections lodged by Seller in accordance with Section 1.6(b) above are not
resolved by Agreed Adjustments within the 30-day period next following the
30-day period referred to in Section 1.6(b) above, then Buyer and Seller shall
jointly select a national accounting firm acceptable to both Buyer and Seller
(or, if they cannot agree on such selection, they shall select a national
(big-six) accounting firm by lot after eliminating Buyer's Accountants and the
Auditors) and shall direct the firm so selected (the "Additional Accounting
Firm") to conduct, as promptly as practicable, but in any event not later than
30 days after such direction, such audit of the Audited Adjustment Amount (as
determined by Buyer's Accountants as set forth in the Accounting Report) as they
believe to be necessary to resolve the objections (it being understood that
under no circumstances shall they be charged with reconsidering or conducting an
audit of any elements of the Audited Adjustment Amount as to which no objection
has been lodged by Seller and which do not bear directly on the matters or
conclusions objected to by Seller), and to deliver a written notice (the
"Additional Accounting Report") to each of Buyer and Seller setting forth what
adjustments, if any, to the Audited Adjustment Amount the Additional Accounting
Firm believes to be required under GAAP and this Agreement to resolve such
objections, and the amount of the Adjustment Amount after giving effect to such
adjustments (such Audited Adjustment Amount if and as so adjusted being the
"Final Audited Adjustment Amount"). In such event, the Final Audited Adjustment
Amount shall be final and binding as the Adjustment Amount under this Agreement.
(d) Access to Information; Fees and Expenses. The parties
hereto shall make available to Buyer, Seller, the Auditors, Buyer's Accountants
and, if applicable, the Additional Accounting Firm, such books, records and
other information (including all work papers, summary memoranda and summary
conclusions of the Auditors and Buyer's Accountants) as any of them may
reasonably request to audit Seller's Post-Closing Balance Sheet and prepare and
review
16
the Accounting Report or the Additional Accounting Report in accordance with the
terms of this Section 1.6. The fees and expenses of the Additional Accounting
Firm, if any, shall be paid 50% by Buyer and 50% by Seller.
1.7 Retention Plan Escrow.
(a) Not later than 5 days prior to the Closing Date, Seller
shall deliver to Buyer an estimate (the "Retention Payment Adjustment") prepared
in good faith by Seller in consultation with Buyer's Accountants of all amounts
projected to become due and payable to employees of the Business (the "Projected
Retention Payments") (and all Taxes payable in connection therewith) under the
terms of the Retention Plan together with a schedule setting forth in detail the
calculations supporting their computation thereof.
(b) Upon the Closing, Buyer shall deposit into an escrow an
amount equal to the Projected Retention Payments. All interest or other amounts
earned on all amounts held in such escrow shall be for the benefit of Buyer.
(c) Company shall be responsible for the payment of all
amounts payable under the Retention Plan. Such payments shall be made from
amounts held pursuant to the escrow referred to in Section 1.7(b). Seller shall
indemnify and hold harmless Buyer and Company from and against any and all
Losses (including, but not limited to, any Taxes) resulting from any excess of
amounts payable under the Retention Plan in excess of the Retention Plan
Adjustment. Upon the final determination of all amounts that may be or become
due and payable under the Retention Plan, Buyer shall pay over to Seller any
excess of the Retention Plan Adjustment over the aggregate of all amounts due
and payable under the Retention Plan.
1.8 Deposit; Deposit Escrow.
(a) Not later than 3 business days after the date hereof
(September 4, 1997), Buyer shall deposit into an escrow with an escrow agent
("Escrow Agent") an ▇▇▇▇▇▇▇ money deposit consisting of an irrevocable standby
letter of credit for the benefit of Escrow Agent in the amount of $2 million
(together with any additional amounts deposited pursuant to Section 1.8(b), if
any, the "Deposit") and Buyer, Seller and Escrow Agent shall execute and deliver
the Escrow Agreement.
(b) Upon the later to occur of (i) September 26, 1997 and (ii)
the satisfaction of the conditions set forth in Sections 6.1(b), 6.2(d) and
6.2(i) and the completion of negotiations between Buyer and Seller of the final
forms of
17
each of the Ancillary Agreements and the final form of all documentation
evidencing or effecting the Contribution (each of which shall be in form
reasonably satisfactory to Buyer and its counsel), Buyer shall either (x)
deposit into escrow a supplemental ▇▇▇▇▇▇▇ money deposit in cash or an
irrevocable standby letter of credit for the benefit of Escrow Agent, in either
case in the amount of $1 million or (y) deliver to Seller a copy of a commitment
letter from a third-party lender evidencing such lender's commitment to provide
financing sufficient for Buyer to pay the Total Purchase Price; provided,
however, that such supplemental deposit or commitment letter shall be required
only if the conditions set forth in Sections 6.1(a), 6.2(a) and (b) are
satisfied as of the date of such requirement. If under such circumstances Buyer
does not make a supplemental deposit or deliver such commitment letter, then
either Seller or Buyer may terminate this Agreement for a period of five (5)
business days thereafter, in which case the Deposit plus all interest accrued
thereon shall be paid to Seller.
(c) In the event the purchase and sale of the Stock is not
consummated or this Agreement is terminated because of the failure of any
condition to the obligations of Buyer under Sections 6.1 or 6.2 to effect the
Closing hereunder or any other reason except for a default hereunder solely on
the part of Buyer or because of the failure of the condition to the obligations
of Seller under Section 6.3(b) to effect the Closing hereunder, the Deposit plus
all interest accrued thereon shall be immediately refunded to Buyer. In the
event the purchase and sale of the Stock is not consummated because of a default
hereunder solely on the part of Buyer or because of the failure of the condition
to the obligations of Seller under Section 6.3(b) to effect the Closing
hereunder, the Deposit and all interest accrued thereon shall be paid to and
retained by Seller. On the Closing Date and only upon, or concurrently with, the
consummation of the Closing, Escrow Agent shall cause to be refunded to Buyer
the Deposit plus all interest accrued thereon.
(d) In the event that the Deposit is paid to Seller pursuant
to the provisions of Section 1.8(c) and the Escrow Agreement, Seller's receipt
of such payment shall constitute liquidated damages ("Seller's Liquidated
Damages Amount") and Seller shall have no other remedy, whether at law or in
equity, for any breach hereof by Buyer, including, but not limited to, any
failure by Buyer to effect the Closing. Buyer, Seller and Company expressly
agree and acknowledge that actual damages in the event of a breach of this
Agreement by Buyer would be extremely difficult or impracticable to ascertain
and that Seller's Liquidated Damages Amount represents the parties'
approximation of such damages and that such amount is not a penalty.
18
(e) The provisions of this Section 1.8 shall survive any
termination of this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER
Except as otherwise specified on the Disclosure Schedule,
Seller and Company, jointly and severally, represent, warrant and agree for the
benefit of Buyer as follows:
2.1 Organization and Related Matters.
(a) Seller and Company are corporations duly organized,
validly existing and in good standing under the respective laws of the
jurisdiction of their incorporation or organization. Seller and Company have all
necessary corporate power and authority to execute, deliver and perform this
Agreement and any related agreements to which they are a party. Company has no
Subsidiaries, and Company owns no Equity Securities of any entity that is not a
Subsidiary. Schedule 2.1 correctly lists the current directors and executive
officers of Company. True, correct and complete copies of the charter documents
of Company as in effect on the date hereof have been delivered to Buyer. Company
is not a registered or reporting company under the Exchange Act.
(b) Each of Seller and Company have, and Company after the
consummation of the Contribution will have, all necessary corporate power and
authority to own its properties and assets and to carry on the Business and each
of them is and Company will be duly qualified or licensed to do business as a
foreign corporation in good standing in all jurisdictions in which the character
or the location of the assets owned or leased by it or the nature of the
Business require licensing or qualification, except where the failure to be so
qualified or licensed is not material to the Business.
2.2 Equity Securities.
Seller owns all of the outstanding Equity Securities of
Company beneficially and of record. All of such Equity Securities are owned free
and clear of any Encumbrances. At the Closing, Buyer will acquire good and
marketable title to and complete ownership of the Stock, free and clear of any
Encumbrances. The authorized capital stock of Company consists of 1,000 shares
of common stock, no par value, of which no shares are issued and no shares are
outstanding as of the date hereof, and of which 1,000 shares will be issued and
1,000 shares will be outstanding
19
as of the Closing. There are no outstanding Contracts or other rights to
subscribe for or purchase, or Contracts or other obligations to issue or grant
any rights to acquire, any Equity Securities of Company or to restructure or
recapitalize Company. There are no outstanding Contracts of Seller or Company to
repurchase, redeem or otherwise acquire any Equity Securities of Company. All
Equity Securities of Company are duly authorized, validly issued and outstanding
and are fully paid and nonassessable and were issued in conformity with
applicable Laws. There are no preemptive rights in respect of any Equity
Securities of Company.
2.3 Financial Statements; Changes; Contingencies.
(a) Audited Financial Statements. Seller has delivered to
Buyer balance sheets for the Business at December 31, 1996 and 1995 and the
related statements of operations and changes in cash flow for the periods then
ended. All such financial statements have been examined by the Auditors whose
reports thereon are included with such financial statements. All such financial
statements have been prepared in conformity with GAAP applied on a consistent
basis. Such statements of operations and cash flow present fairly the results of
operations and cash flows of the Business for the respective periods covered,
and such balance sheets present fairly the financial condition of the Business
as of their respective dates. Seller has made available to Buyer copies of each
management letter delivered to or by Seller or Company to or by the Auditors in
connection with such financial statements or relating to any review by Auditors
of the internal controls of Seller or Company during the two-year period ended
December 31, 1996 or thereafter, and has made available for inspection all
reports and working papers produced or developed by Auditors or management in
connection with the Auditors' examination of such financial statements, as well
as all such reports and working papers for prior periods for which any tax
liability of the Business has not been finally determined or barred by
applicable statutes of limitation.
(b) Unaudited Interim Financial Statements. Seller has
delivered to Buyer an unaudited balance sheet for the Business at March 31, 1997
and the related statement of operations for the three-month period then ended,
an unaudited balance sheet for the Business at June 27, 1997 and the related
statement of operations for the six-month period then ended, an unaudited
statement of operations for the three-month period ended March 31, 1997 and an
unaudited statement of operations for the six-month period ended June 27, 1997.
All such financial statements have been prepared in conformity with GAAP applied
on a consistent basis. Such statements of operations present fairly the results
of operations of the Business for the respective periods
20
covered, and such balance sheets present fairly the financial condition of the
Business as of their respective dates. Seller has made available to Buyer copies
of all material reports and working papers produced or developed by management
in connection with their preparation of such financial statements. Since June
27, 1997, there has been no change in any of the accounting policies, practices
or procedures of Seller or Company.
(c) No Material Adverse Changes. Since December 31, 1996,
whether or not in the ordinary course of business, there has not been, occurred
or arisen:
(i) any change in or event affecting the Business or the Stock
that has had or may reasonably be expected to have a material adverse effect on
the Business or the Stock;
(ii) any agreement, condition, action or omission which would
be proscribed by (or require consent under) Section 4.3 had it existed, occurred
or arisen after the date of this Agreement;
(iii) any strike or other labor dispute; or
(iv) any casualty, loss, damage or destruction (whether or not
covered by insurance) of any material property of Company.
(d) No Other Liabilities or Contingencies.
There are no material liabilities of Company, the Business or
Seller (with respect to the Business) of any kind or nature, whether known or
unknown, accrued, absolute, contingent or otherwise, and whether due or to
become due, probable of assertion or not, except liabilities that (A) are
reflected or disclosed in the most recent of the financial statements referred
to in subsection (a) above, (B) were incurred after June 27, 1997 in the
ordinary course of business and do not exceed $50,000 individually or $300,000
in the aggregate or (C) are executory obligations to perform under Contracts.
2.4 Tax and Other Returns and Reports.
(a) Seller and Company have timely filed (or, where permitted
or required, its respective direct or indirect parents have timely filed) all
required Tax Returns with respect to which Company may have any liability for
Taxes and have, except as set forth on Schedule 2.4, paid all Taxes due for all
periods ending on or before the date hereof with respect to which Company may
have any liability. Adequate provision has been made in the books and records of
21
Seller and Company and in the financial statements referred to in Section 2.3
for all Taxes whether or not due and payable and whether or not disputed.
Neither Seller nor Company has elected to be treated as a consenting corporation
under Section 341(f) of the Code. Schedule 2.4 lists the date or dates through
which the IRS has examined the United States federal income tax returns of
Seller. All required Tax Returns, including amendments to date, have been
prepared in good faith and are complete and accurate in all material respects.
Except as set forth in Schedule 2.4, no Governmental Entity has, during the past
three years, examined or is in the process of examining any Tax Returns of
Seller or Company. Except as set forth on Schedule 2.4, no Governmental Entity
has proposed (tentatively or definitively), asserted or assessed or, to the best
knowledge of Seller, threatened to propose or assert, any deficiency, assessment
or claim for Taxes against (1) Seller with respect to which Company may have any
liability, or (2) Company.
(b) Neither Seller nor Company has made any payments, is
obligated to make any payments, or is a party to any agreement that under
certain circumstances could obligate it to make any payments that will not be
deductible under Code ss.280G.
(c) Neither Seller nor Company has been a member of an
Affiliated Group filing a consolidated federal income Tax Return (other than a
group the common parent of which was Seller and the only other member of which
was Company) under Sections 1502 and 1504 of the Code and the Treasury
Regulations thereunder (or any similar provision of state, local, or foreign
law). Company does not have any liability for the Taxes of any Person other than
Company as a transferee or successor or by contract.
2.5 Material Contracts.
Schedule 2.5 lists each Contract to which Seller (with respect
to the Business) or Company is a party or to which Seller or Company or any of
their properties is subject or by which Seller or Company is bound that (a) is a
Customer Contract that provides for payments to or performance by Seller or
Company in excess of $250,000 in the aggregate, (b) is a Supplier Contract that
provides for payments by Seller or Company in excess of $250,000 in the
aggregate, (c) is a Government Contract, (d) after June 27, 1997 obligates
Seller or Company to pay an amount of $250,000 or more in the aggregate, (e) has
an unexpired term as of the date hereof in excess of three years, (f) represents
a Contract upon which the Business is substantially dependent or the absence of
which would have a material adverse effect on the Business, (g) provides for an
22
extension of credit other than consistent with normal credit terms, (h) limits
or restricts the ability of Seller (with respect to the Business) or Company to
compete or otherwise to conduct its business in any manner or place, (i)
provides for a guaranty or indemnity by Seller (with respect to the Business) or
Company, (j) grants a power of attorney, agency or similar authority to another
person or entity, (k) contains a right of first refusal, (l) contains a right or
obligation of any Affiliate, officer or director or any Associate, of Seller or
Company to Seller or Company, (m) requires Seller or Company to buy or sell
goods or services with respect to which there will be material losses or will be
costs and expenses materially in excess of expected receipts (other than as
provided for or otherwise reserved against on the most recent of the balance
sheets referred to in Section 2.3), (n) is an offshore production contract or
(o) was not made in the ordinary course of business (each of which, together
with each Contracts relating to any of the Intangible Property listed on
Schedule 2.7, being a "Material Contract"). True copies of each Material
Contract, including all amendments and supplements thereto, have been made
available to Buyer. Each Material Contract is valid and subsisting; Seller or
Company, as applicable, has duly performed in all material respects all of its
obligations thereunder to the extent that such obligations to perform have
accrued; and no material breach or default, alleged material breach or default,
or event which would (with the passage of time, notice or both) constitute a
material breach or default thereunder by Seller or Company or, to the best
knowledge of Seller and Company, any other party or obligor with respect
thereto, has occurred or as a result of this Agreement or performance thereof
will occur. The consummation of the transactions contemplated by this Agreement
will not (and will not give any person a right to) terminate or modify any
rights of, or accelerate or augment any obligation of, Seller or Company under
any Material Contract.
2.6 Real and Personal Property; Government-Furnished and
Government-Owned Property or Equipment.
(a) Schedule 2.6(a) lists all tangible property, whether real
or personal of Seller or Company that is material to the Business, properly
identifies each of such properties as an interest in real property or personal
property and designates any leasehold interests therein. Neither Seller (with
respect to the Business) nor Company owns fee title to any real property. Seller
(with respect to the Business) or Company has good and marketable title to, free
and clear of any Encumbrances, all items of real property and such other assets
and properties including, but not limited to, all assets that it purports to own
or have
23
the right to use at June 27, 1997 or that were thereafter acquired, except for
(i) Encumbrances consisting of liens for Taxes not yet due, and (ii) assets and
properties not material to the Business that were disposed of since such date in
the ordinary course of business consistent with past practice. All material
leasehold properties held by Seller (with respect to the Business) and Company
as lessee are held under valid, binding and enforceable leases, subject only to
such exceptions as are not, individually or in the aggregate, material to the
Business. There is no pending or, to the best knowledge of Seller, threatened
Action that would materially interfere with the quiet enjoyment of any such
leasehold by Seller (with respect to the Business) or Company.
(b) All material tangible properties of Seller (with respect
to the Business) and Company are in a good state of maintenance and repair
(except for ordinary wear and tear) and are adequate for the operation of the
Business.
(c) Company was incorporated on June 27, 1997. Company has had
no operations since its inception. Upon consummation of the Contribution,
Company will own and have good and marketable title to, free and clear of any
Encumbrances, each and every Purchased Asset including, but not limited to, all
assets and properties listed on Schedules 2.6(a) and 2.7, and will acquire
rights to use each and every asset or property used in the conduct of, connected
with or comprising the Business that is not a Purchased Asset pursuant to and on
the terms set forth in the Ancillary Agreements. Company does not have and upon
the Closing will not have any liabilities other than the Assumed Obligations.
(d) Schedule 2.6(d) sets forth a listing by description or
inventory number of all personal property, equipment and fixtures loaned, bailed
or otherwise furnished to Seller or Company by or on behalf of any Governmental
Entity that (i) relate to the Business, (ii) are or were used in the conduct of
the Business and (iii) are or should be in the possession of Seller or Company
("Government-Furnished Items") and identifies each Government Contract to which
each such Government-Furnished Item relates. All Government-Furnished Items
currently used in the Business and, to the best knowledge of Seller and Company,
all other Government-Furnished Items are in a good state of maintenance and
repair (except for ordinary wear and tear), have been regularly and
appropriately maintained and repaired in accordance with all contractual, legal
and regulatory requirements and shall be in the possession of Company on the
Closing Date. Seller and Company have complied with all of their obligations
relating to the
24
Government-Furnished Items, and upon the return thereof to the applicable
Governmental Entity in the condition thereof on the date hereof, Seller and
Company would have no liability to such Governmental Entity with respect
thereto.
2.7 Intangible Property.
(a) Schedule 2.7 lists all of the Intangible Property in which
Seller (with respect to the Business) or Company has an interest. Such assets
include all Permits or other rights with respect to any of the foregoing. Except
as shown on Schedule 2.7, Seller (with respect to the Business) and Company do
not use any Intangible Property by consent of any other Person, and are not
required to and do not make any payments to others with respect thereto, and
such Intangible Property is owned by Seller or Company and is assignable free
and clear of any Encumbrances. Seller and Company have in all material respects
performed all obligations required to be performed by them, and are not in
default in any material respect under any Contract relating to any of the
foregoing. Neither Seller (with respect to the Business) nor Company has
received any notice to the effect (and is not otherwise aware) that any such
Intangible Property or its use by Seller or Company conflicts with any rights of
any Person.
(b) Except as otherwise set forth on Schedule 2.7:
(i) Seller or Company owns, has the exclusive right
to use, sell, license or dispose of, has exclusive right to bring
actions for the infringement of Intellectual Property Rights related
to, and has taken all appropriate actions and made all applicable
applications and filings pursuant to applicable Laws to perfect or
protect its interest in the Products as in existence on the date
hereof;
(ii) Seller or Company owns, has the exclusive right
to use, sell, license or dispose of, has the exclusive right to bring
actions for the infringement of, and has taken all appropriate actions
and made all applicable applications and filings pursuant to applicable
Laws to perfect or protect its interest in, all Intangible Property,
necessary or required for the conduct of the Business;
(iii) the execution, delivery and performance of this
Agreement and the consummation of the other transactions contemplated
hereby will not breach, violate or conflict with any Intangible
Property, will not cause the forfeiture or termination or give rise to
a right of forfeiture or termination of, or in any way
25
impair the right of Seller or Company to use, sell, license or dispose
of or to bring any action for the infringement of, any Intangible
Property;
(iv) there are no royalties, honoraria, fees or other
payments payable by Seller or Company to any Person by reason of the
ownership, use, license, sale or disposition of the Products or any
Intangible Property necessary or required for the conduct of the
Business;
(v) the manufacture, marketing, license, sale or use
of any Product by Seller or Company will not violate any license or
agreement with any third party; there is no pending or, to the best
knowledge of Seller and Company, threatened Action, nor is Seller or
Company aware of a basis for any such Action, contesting the validity,
ownership or right to use, sell, license or dispose of any of the
Products, nor has Seller or Company received any notice asserting that
any of the Products or the proposed use, sale, license or disposition
thereof conflicts or will conflict with the rights of any other party;
(vi) Seller and Company have taken all steps
necessary (including, without limitation, entering into appropriate
confidentiality, non-disclosure and non-competition agreements with all
officers, directors and employees of Seller and Company with access to
or knowledge of the Intangible Property and the Products) to safeguard
and maintain the secrecy and confidentiality of, and its proprietary
rights in, all such property and rights;
(vii) employees of Seller and Company have taken all
actions necessary to irrevocably assign or otherwise transfer to Seller
or Company all of their respective right, title and interest in and to
any Intangible Property which are necessary or required for the conduct
of the Business; and
(viii) the Products perform the functions and
operations, have the technical capabilities and meet or exceed the
specifications appearing in Seller's and Company's published and
internal technical documentation and marketing literature.
2.8 Authorization; No Conflicts.
The execution, delivery and performance of this Agreement and
any related agreements by Seller and Company has been duly and validly
authorized by the Board of Directors of Seller and Company and by all other
necessary
26
corporate action on the part of Seller and Company. This Agreement and any
related agreements constitute the legally valid and binding obligation of Seller
and Company, enforceable against each of them in accordance with its terms
except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws and equitable principles
relating to or limiting creditors rights generally. The execution, delivery and
performance of this Agreement by Seller and Company and the execution, delivery
and performance of any related agreements or contemplated transactions by Seller
and Company will not violate or constitute a breach or default (whether upon
lapse of time and/or the occurrence of any act or event or otherwise) under the
charter documents or by-laws of any of such entities or violate or constitute a
material breach or default (whether upon lapse of time and/or the occurrence of
any act or event or otherwise) under any Material Contract, result in the
imposition of any material Encumbrance against any material asset or properties
of Seller (with respect to the Purchased Assets or any asset or property that
Company or Buyer will acquire rights to use pursuant to the Ancillary
Agreements) or Company, or violate any Law. Schedule 2.8 lists all Approvals and
Permits required to be obtained by Seller or Company to consummate the
transactions contemplated by this Agreement. Except for matters identified in
Schedule 2.8 as requiring that certain actions be taken by or with respect to a
third party or Governmental Entity, the execution and delivery of this Agreement
by Seller and the performance of this Agreement and any related or contemplated
transactions by Seller or Company will not require filing or registration with,
or the issuance of any Permit by, any other third party or Governmental Entity.
2.9 Legal Proceedings and Certain Labor Matters.
There is no Order or Action pending, or, to the best knowledge
of Seller and Company, threatened, against or affecting Seller, Company or any
of their Affiliates, properties or assets that individually or when aggregated
with one or more other Orders or Actions has or might reasonably be expected to
have a material adverse effect on Seller, Company, the Business, on Seller's
ability to perform this Agreement, or on any aspect of the transactions
contemplated by this Agreement. There is no organized labor strike, dispute,
slowdown or stoppage, collective bargaining or unfair labor practice claim or
union representation question (collectively, "Labor Matters"), pending or to the
best knowledge of Seller threatened, against or affecting Seller (with respect
to the Business), Company or the Business. Schedule 2.9 lists each Order, Action
and Labor Matter that involves a claim or potential claim of aggregate liability
in excess of $50,000 against, or that enjoins or
27
compels or seeks to enjoin or to compel any activity by Company or Seller (with
respect to the Business). There is no matter as to which Seller (with respect to
the Business) or Company has received any notice, claim or assertion, or, to the
best knowledge of Seller and Company, which otherwise has been threatened or is
reasonably expected to be threatened or initiated, against or affecting any
director, officer, employee, agent or representative of Seller or Company or any
other Person, nor to the best knowledge of Seller and Company is there any
reasonable basis therefor, in connection with which any such Person has or may
reasonably be expected to have any right to be indemnified by Seller or Company.
2.10 Minute Books.
The minute books of Company accurately reflect all actions and
proceedings taken to date by the respective shareholders, boards of directors
and committees of Company, and such minute books contain true and complete
copies of the charter documents of Company and all related amendments. The stock
record books of Company reflect accurately all transactions in its capital stock
of all classes.
2.11 Accounting Records; Internal Controls.
Each of Seller (with respect to the Business) and Company has
records that accurately and validly reflect its respective transactions, and
accounting controls sufficient to insure that such transactions are (i) executed
in accordance with management's general or specific authorization and (ii)
recorded in conformity with GAAP so as to maintain accountability for assets.
Such accounting records, to the extent they contain important information that
is not easily and readily available elsewhere, have been duplicated, and such
duplicates are stored safely and securely pursuant to procedures and techniques
utilized by companies of comparable size in similar lines of business. The data
processing equipment, data transmission equipment, related peripheral equipment
and software used by Seller and Company in the operation of the Business
(including any disaster recovery facility) to generate and retrieve such records
are comparable in performance, condition and capacity with those utilized by
companies of comparable size in similar lines of business.
2.12 Insurance.
Seller (with respect to the Business) and Company are, and at
all times during the past two years have been, insured with reputable insurers
against all risks normally insured against by companies in similar lines of
business, and all of the insurance policies and bonds maintained by
28
them are in full force and effect. Schedule 2.12 lists all insurance policies
and bonds that are material to the Business. Neither Seller nor Company is in
default under any such policy or bond. Seller and Company have timely filed
claims with insurers with respect to all material matters and occurrences for
which they have coverage. All insurance policies maintained by Seller (with
respect to the Business) and Company will remain in full force and effect and to
the best knowledge of Seller and Company may reasonably be expected to be
renewed on comparable terms following consummation of the transactions
contemplated by this Agreement (subject to such entities' continuing compliance
with the applicable terms thereof and any right of insurers to terminate without
cause), and neither Seller nor Company has received any notice or other
indication from any insurer or agent of any intent to cancel or not so renew any
of such insurance policies. Seller and Company have complied with and
implemented in all material respects all outstanding (i) requirements of and
recommendations of any insurance company that has issued a policy with respect
to any of the material properties and assets of Seller (with respect to the
Business) and Company and (ii) requirements and recommendations of the Board of
Fire Underwriters or other body exercising similar functions or any Governmental
Entity with respect to any such insurance policy.
2.13 Permits.
Seller and Company hold all material Permits that are required
by any Governmental Entity to permit them to conduct the Business, all such
material Permits are valid and in full force and effect and Company will hold
all such material Permits upon consummation of the transactions contemplated by
this Agreement. To the best knowledge of Seller and Company, no suspension,
cancellation or termination of any of such material Permits is threatened or
imminent.
2.14 Compliance with Law.
Seller (with respect to the Business) and Company are
organized and have conducted the Business in all material respects in accordance
with applicable Laws, and the forms, procedures and practices of Seller (with
respect to the Business) and Company are in compliance in all material respects
with all such Laws, to the extent applicable.
2.15 Dividends and Other Distributions.
There has been no dividend or other distribution of assets or
securities whether consisting of money, property or any other thing of value,
declared, issued or
29
paid by Company subsequent to the date of the most recent financial statements
referred to in Section 2.3.
2.16 Employee Benefits.
(a) Employee Benefit Plans, Collective Bargaining and
Employee Agreements, and Similar Arrangements.
(1) Schedule 2.16 lists all employee benefit plans
and collective bargaining agreements or other similar arrangements to which each
of Seller and Company is or ever has been a party or by which it is or ever has
been bound, and all employment and severance agreements to which each of Seller
and Company is currently bound (provided that the obligation to list employment
and severance agreements may be satisfied with respect to any form of employment
or severance agreement by including in Schedule 2.16 a copy of such form and a
description of the classes or groups of employees to which such form is
applicable), legally or otherwise, including, without limitation, (a) any
profit-sharing, deferred compensation, bonus, stock option, stock purchase,
pension, retainer, consulting, retirement, severance, welfare or incentive plan,
agreement or arrangement, (b) any plan, agreement or arrangement providing for
"fringe benefits" or perquisites to employees, officers, directors or agents,
including but not limited to benefits relating to company automobiles, clubs,
vacation, child care, parenting, sabbatical, sick leave, medical, dental,
hospitalization, life insurance and other types of insurance, (c) any employment
agreement, or (d) any other "employee benefit plan" (within the meaning of
Section 3(3) of ERISA).
(2) Seller has made available to Buyer true and
complete copies of all documents and summary plan descriptions with respect to
such plans, agreements and arrangements, or summary descriptions of any such
plans, agreements or arrangements not otherwise in writing.
(3) There are no negotiations, demands or proposals
made or endorsed by Seller or Company that are pending or have been made which
concern matters now covered, or that would be covered, by plans, agreements or
arrangements of the type described in Section 2.16(a)(1)(a) other than routine
offers of employment made in the ordinary course.
(4) Each of Seller and Company is in full compliance
with the applicable provisions of ERISA (as amended through the date of this
Agreement), the regulations and published authorities thereunder, and is in
material compliance with all other Laws applicable with respect to all such
employee benefit plans, agreements and arrangements. Each of Seller and Company
is in material compliance with all of its obligations under all such plans,
agreements and
30
arrangements. To the best knowledge of Seller and Company, there are no Actions
(other than routine claims for benefits) pending or threatened against such
plans or their assets, or arising out of such plans, agreements or arrangements,
and all such plans, agreements and arrangements have been operated in compliance
with their terms. To the best knowledge of Seller and Company, no facts exist
which could give rise to any such Actions.
(5) Except for those listed on Schedule 2.16, each of
the plans, agreements or arrangements listed on Schedule 2.16 can be terminated
by Company within a period of 30 days following the Closing Date without payment
of any additional compensation or amount or the additional vesting or
acceleration of any such benefits.
(6) All obligations of Company under each such plan,
agreement and arrangement (x) that are due prior to the Closing Date have been
paid or will be paid prior to that date, and (y) that have accrued prior to the
Closing Date have been or will be paid or properly accrued on the financial
statements of Company as of the Closing Date.
(b) Qualified Plans
(1) None of the "employee pension benefit plans"
(within the meaning of Section 3(2) of ERISA) in Schedule 2.16 is a stock bonus,
pension or profit-sharing plans within the meaning of Section 401(a) of the
Code, except for the ▇▇▇▇▇▇▇-▇▇▇▇▇▇▇ Employees' Investment Plan (the "Investment
Plan") and the ▇▇▇▇▇▇▇-▇▇▇▇▇▇▇ Employee Stock Ownership Plan (the "ESOP").
(2) The IRS has issued, with respect to each such
plan a determination letter stating that such plan is qualified in form under
Section 401(a) of the Code and each trust under each such plan is exempt from
tax under Section 501(a) of the Code. No non-exempt prohibited transaction
(within the meaning of Section 4975 of the Code) or non-exempt party-in-interest
transaction (within the meaning of Section 406 of ERISA) has occurred with
respect to any of such plans.
(3) Seller has delivered to Buyer for each such plan
copies of the following documents: (i) the Form 5500 filed in each of the most
recent three plan years including but not limited to all schedules thereto and
financial statements with attached opinions of independent accountants, (ii) the
most recent determination letter from the IRS, (iii) the consolidated statement
of assets and liabilities of such plan as of its most recent valuation
31
date, and (iv) the statement of changes in fund balance and in financial
position or the statement of changes in net assets available for benefits under
such plan for the most recently ended plan year. The financial statements so
delivered fairly present the financial condition and the results of operations
of each of such plans as of such dates, in accordance with GAAP.
(c) Title IV Plans.
Seller does not maintain or contribute to any plan subject to
Title IV of ERISA (a "Title IV Plan"), and neither Seller nor any business
organization with respect to which Seller is an ERISA Affiliate has
contractually agreed to assume any liabilities in connection with any employee
benefit plan at any time maintained or contributed to any Title IV Plan. Seller
has not entered into any contractual obligation, indemnity agreement or similar
arrangement with any ERISA Affiliate in connection with any Title IV Plan
maintained at any time by such ERISA Affiliate. An "ERISA Affiliate" is any
trade or business (whether or not incorporated) that is a member of a group
which Company or Seller is a member and which is under common control within the
meaning of Section 414(b) and (c) of the Code.
(d) Multiemployer Plans.
No plan listed in Schedule 2.16 is a "multiemployer plan"
(within the meaning of Section 3(37) of ERISA). Company, Seller and any ERISA
Affiliate of Company and Seller have never contributed to or had an obligation
to contribute to any multiemployer plan.
(e) Health Plans. All group health plans of Company and any
ERISA Affiliate have been operated in compliance with the group health plan
continuation coverage requirements of Section 4980B of the Code to the extent
such requirements are applicable.
(f) Fines and Penalties. There has been no act or omission by
Company or any ERISA Affiliate that has given rise to or may give rise to fines,
penalties, taxes, or related charges under Section 502(c) or (k) or Section 4071
of ERISA or Chapter 43 of the Code.
2.17 Certain Interests.
No Affiliate of Seller or Company nor any officer or director
of any thereof, nor Associate of any such individual, has any material interest
in any property used in or pertaining to the Business; no such Person is
indebted or otherwise obligated to Seller or Company; and neither Seller nor
Company is not indebted or otherwise obligated to
32
any such Person, except for amounts due under normal arrangements applicable to
all employees generally as to salary or reimbursement of ordinary business
expenses not unusual in amount or significance. The consummation of the
transactions contemplated by this Agreement will not (either alone, or upon the
occurrence of any act or event, or with the lapse of time, or both) result in
any benefit or payment (severance or other) arising or becoming due from Seller
or Company or the successors or assigns of any thereof to any Person.
2.18 Intercompany Transactions.
Company has not engaged in any transaction with Seller or any
other Affiliate of Seller. Company has and, upon consummation of the
Contribution will have, no liabilities or obligations to Seller or any other
Affiliate of Seller and none of Seller or such Affiliates has or, upon
consummation of the Contribution will have, any obligations to Company. The
consummation of the transactions contemplated by this Agreement will not (either
alone, or upon the occurrence of any act or event, or with the lapse of time, or
both) result in any payment arising or becoming due from Company or its
successors or assigns to Seller or any Affiliate of Seller.
2.19 No Brokers or Finders.
No agent, broker, finder, or investment or commercial banker,
or other Person or firm engaged by or acting on behalf of Seller or Company or
any of their respective Affiliates in connection with the negotiation, execution
or performance of this Agreement or the transactions contemplated by this
Agreement, is or will be entitled to any brokerage or finder's or similar fee or
other commission as a result of this Agreement or such transactions except for
Alliant Partners and Bentley Hall ▇▇▇ ▇▇▇▇ International, as to which Seller
shall have full responsibility and neither Buyer nor Company shall have any
liability.
2.20 Inventory.
All Inventory of Seller (with respect to the Business) and
Company is of good merchantable quality, reasonably in balance, and salable (in
the case of Inventory held for sale) or usable (in the case of other Inventory)
in the ordinary course of business. The value of obsolete, damaged or excess
Inventory and of Inventory below standard quality has been written down on the
most recent balance sheet referred to in Section 2.3 or, with respect to
Inventory purchased since such balance sheet date, on the books and records of
Seller or Company, to ascertainable
33
market value, or adequate reserves described on such balance sheet have been
provided therefor, and the value at which Inventory is carried reflects the
customary Inventory valuation policy of Seller (with respect to the Business)
and Company (which fairly reflects the value of obsolete, spoiled or excess
Inventory) for stating Inventory, in accordance with GAAP consistently applied
in accordance with the valuation methodology described on Schedule 2.20.
2.21 Customers and Suppliers.
Schedule 2.21 lists the names of and describes all Contracts
with and the appropriate percentage of Business attributable to, the twenty most
significant customers and suppliers (in terms of dollar volume) of the Business
at the date of this Agreement, and any suppliers of significant goods or
services (other than electricity, gas, telephone or water) to the Business with
respect to which alternative sources of supply are not readily available on
comparable terms and conditions (including all suppliers which are the only
reasonably available source).
2.22 Environmental Compliance.
(a) Seller (with respect to the Business) and Company have
not generated, used, transported, treated, stored, released or disposed of, or
have suffered or permitted anyone else to generate, use, transport, treat,
store, release or dispose of any Hazardous Substance in violation of any Laws or
at any location which could require investigation or remediation; (b) there has
not been any generation, use, transportation, treatment, storage, release or
disposal of any Hazardous Substance in connection with the conduct of the
Business or the use of any property or facility of Seller or Company (whether
owned, generated or used by Company) or to the knowledge of Seller any nearby or
adjacent properties or facilities, which has created or might reasonably be
expected to create any liability under any Laws or which would require reporting
to or notification of any Governmental Entity or which could have an adverse
impact on the operation of any property or facility owned, operated or used by
Seller (with respect to the Business) or Company; (c) no asbestos or
polychlorinated biphenyl or underground storage tank is contained in or located
at any facility of Seller or of Company and no Hazardous Substance is present
on, under or about any property or facility owned, operated or used by Seller
(with respect to the Business) or Company which could require investigation or
remediation by any Governmental Entity; (d) any Hazardous Substance handled or
dealt with in any way in connection with the Business, whether before or during
Seller's or Company's ownership, has been and is being handled or dealt with in
all respects in compliance with applicable Laws; and
34
(e) no condition exists at any property owned, operated or used by Seller (with
respect to the Business) or Company which is in violation of any Law or for
which any Law could require that corrective action be taken.
2.23 Government Contracts.
(a) In addition to the representations and warranties in
Section 2.5, with respect to each and every Government Contract or bid which, if
accepted, would result in a Government Contract (a "Government Bid"): (i) Seller
and Company have complied with all material terms and conditions of such
Government Contract or Government Bid, including all clauses, provisions and
requirements incorporated expressly, by reference or by operation of Law
therein; (ii) Seller and Company have complied with all requirements of all
material Laws or agreements pertaining to such Government Contract or Government
Bid; (iii) all representations and certifications executed, acknowledged or set
forth in or pertaining to such Government Contract or Government Bid were
complete and correct in all material respects as of their effective date, and
Seller and Company have complied in all material respects with all such
representations and certifications; (iv) neither the U.S. Government nor any
prime contractor, subcontractor or other Person has notified Seller or Company,
either in writing or, to their knowledge, orally, that Seller or Company has
breached or violated any Law, certification, representation, clause, provision
or requirement pertaining to such Government Contract or Government Bid; (v) no
termination for convenience, termination for default, cure notice or show cause
notice is currently in effect pertaining to such Government Contract or
Government Bid; (vi) no material cost incurred by Seller or Company pertaining
to such Government Contract or Government Bid has been formally questioned or
challenged, is the subject of any investigation or has been disallowed by the
U.S. Government; and (vii) no money due to Seller or Company pertaining to such
Government Contract or Government Bid has been withheld or set off nor has any
claim been made to withhold or set off money and Seller or Company is entitled
to all progress payments received with respect thereto.
(b) With respect to the Business: (i) neither Seller nor
Company or, to their knowledge, any of their respective directors, officers,
employees, consultants or agents is (or during the last three years has been)
under administrative, civil or criminal investigation known to Seller or
Company, indictment or information by any Governmental Entity, or any audit or
investigation of Seller or Company with respect to any alleged irregularity,
misstatement or omission arising under or relating to any Government Contract or
Government Bid; and (ii) during the
35
last three years, neither Seller nor Company has conducted or initiated any
internal investigation or made a voluntary disclosure to the U.S. Government,
with respect to any alleged irregularity, misstatement or omission arising under
or relating to a Government Contract or Government Bid. There exists no
irregularity, misstatement or omission arising under or relating to any
Government Contract or Government Bid that has led to any of the consequences
set forth in Clause (i) or (ii) of the immediately preceding sentence or any
other damage, penalty assessment, recoupment of payment or disallowance of cost.
(c) With respect to the Business, there exist (i) no
outstanding material claims against Seller or Company, either by the U.S.
Government or by any prime contractor, subcontractor, vendor or other third
party, arising under or relating to any Government Contract or Government Bid;
and (ii) no material disputes between Seller or Company and the U.S. Government
under the Contract Disputes Act or any other Federal statute or between Seller
or Company and any prime contractor, subcontractor or vendor arising under or
relating to any Government Contract or Government Bid. Neither Seller nor
Company has any interest in any pending or potential claim against the U.S.
Government or any prime contractor, subcontractor or vendor arising under or
relating to any Government Contract or Government Bid. Schedule 2.23(c)
identifies each Government Contract which is currently under audit by the U.S.
Government or any other Person that is a party to such Government Contract.
(d) The Business has not been debarred or suspended from
participation in the award of contracts with the United States Department of
Defense or any other Governmental Entity (excluding for this purpose
ineligibility to bid on certain contracts due to generally applicable bidding
requirements). To the knowledge of Seller and Company, there exist no facts or
circumstances that would warrant the institution of suspension or debarment
proceedings or the finding of nonresponsibility or ineligibility on the part of
Seller (with respect to the Business), Company or any director or officer of
Seller or Company in respect of the Business. With respect to the evaluation of
any Government Bid made by Seller or Company, or by a prime contractor of Seller
or Company, during the past three years, there has been no adverse finding made
by any Governmental Entity concerning Seller's or Company's past performance on
a Government Contract. No payment has been made by Seller or Company (or, to the
extent that the same might result in any liability on the part of Seller or
Company, by any person on behalf of Seller or Company) in connection with any
Government Contract in violation of applicable procurement laws or regulations
or in violation of, or requiring disclosure pursuant to, the Foreign Corrupt
36
Practices Act. Seller's and Company's cost accounting and procurement systems
and the associated entries reflected in Seller's and Company's financial
statements with respect to the Government Contracts are in compliance in all
material respects with all Laws.
(e) All material test and inspection results provided by
Seller or Company to the U.S. Government pursuant to any Government Contract or
to any other Person pursuant to a Government Contract or as a part of the
delivery to the U.S. Government or to any other Person pursuant to a Government
Contract of any article designed, engineered or manufactured in the Business
were complete and correct in all material respects as of the date so provided.
Seller or Company has provided all material test and inspection results to the
U.S. Government or to any other Person pursuant to a Government Contract as
required by Law and the terms of the Government Contracts.
2.24 Backlog.
Schedule 2.24 sets forth a list and brief summaries of
Contracts constituting the customer backlog of the Business as of June 27, 1997.
Buyer understands and acknowledges that such Contracts may be cancelled at the
option of the applicable customer.
2.25 Clearances.
Except to the extent disclosure is prohibited by the
Industrial Security Manual, Schedule 2.25 sets forth listings (including an
indication of the type of clearance) of all facility security clearances held by
Seller (with respect to the Business) and Company and all personnel security
clearances held by any officer, director, employee, consultant or agent of
Seller (with respect to the Business) or Company.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents, warrants and agrees as follows:
3.1 Organization and Related Matters.
Buyer is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Buyer has all necessary
corporate power and authority to execute, deliver and perform this Agreement and
any related agreements to which it is a party.
37
3.2 Authorization.
The execution, delivery and performance of this Agreement and
any related agreements by Buyer has been duly and validly authorized by the
Board of Directors of Buyer and by all other necessary corporate action on the
part of Buyer. This Agreement and any related agreements constitute the legally
valid and binding obligation of Buyer, enforceable against Buyer in accordance
with its terms except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium and other similar laws and equitable
principles relating to or limiting creditors' rights generally.
3.3 No Conflicts.
The execution, delivery and performance of this Agreement and
any related agreements by Buyer will not violate or constitute a breach or
default (whether upon lapse of time and/or the occurrence of any act or event or
otherwise) under the charter documents or bylaws of Buyer, violate or constitute
a material breach or default (whether upon lapse of time and/or the occurrence
of any act or event or otherwise) under any Contract to which Buyer is a party
that is material to the financial condition, results of operations or conduct of
the business of Buyer or violate any Law. Except for matters identified in
Schedule 3.3 as requiring that certain actions be taken by or with respect to a
third party or Governmental Entity, the execution and delivery of this Agreement
by Buyer and the performance of this Agreement and any related or contemplated
transactions by Buyer will not require filing or registration with, or the
issuance of any Permit by, any other third party or Governmental Entity.
3.4 No Brokers or Finders.
No agent, broker, finder, or investment or commercial banker,
or other Person or firm engaged by or acting on behalf of Buyer or any of its
Affiliates in connection with the negotiation, execution or performance of this
Agreement or the transactions contemplated by this Agreement, is or will be
entitled to any brokerage or finder's or similar fee or other commission as a
result of this Agreement or such transactions.
3.5 Legal Proceedings.
There is no Order or Action pending or, to the best knowledge
of Buyer, threatened against or affecting Buyer, its Affiliates or any of their
properties or assets that individually or when aggregated with one or more other
Actions has or might reasonably be expected to have a
38
material adverse effect on Buyer's ability to perform this Agreement, or on any
aspect of the transactions contemplated by this Agreement.
3.6 Investment Representation.
Buyer is acquiring the Stock from Seller for Buyer's own
account, for investment purposes only and not with a view to or for sale in
connection with any distribution thereof.
ARTICLE IV
COVENANTS WITH RESPECT TO CONDUCT OF COMPANY
PRIOR TO CLOSING
4.1 Access.
Subject to specific restrictions imposed upon Seller and
Company by Law or Contract to which either of them is a party and to the
execution and delivery by each of the representatives of Buyer referred to below
of a confidentiality agreement on substantially the same terms as set forth in
that certain Confidentiality Agreement dated April 30, 1997 by and between Buyer
and Seller, Seller and Company shall authorize and permit Buyer and its
representatives (which term shall be deemed to include its independent
accountants and counsel and representatives of prospective financing
institutions of Buyer) to have reasonable access during normal business hours,
upon reasonable notice and in such manner as will not unreasonably interfere
with the conduct of their respective businesses, to all of their respective
properties, books, records, operating instructions and procedures, Tax Returns,
and all other information with respect to the Business as Buyer may from time to
time request, and to make such reasonable numbers of copies of such books,
records and other documents and to discuss their respective businesses with such
other Persons, including, without limitation, the directors, officers,
employees, accountants, counsel, suppliers, customers, and creditors of Seller
(with respect to the Business) and Company, as are reasonably necessary or
appropriate for the purposes of familiarizing them with the Business and
obtaining any necessary Approvals of or Permits for the transactions
contemplated by this Agreement. Without limiting the generality of the
foregoing, Buyer shall be entitled to (a) conduct or cause to be conducted
without the consent of Seller or Company, an environmental compliance audit of
the Business and, respect to any interest in real property held by Seller (with
respect to the Business) or Company, a non-invasive environmental audit
consisting of a "phase 1" environmental study, (b) conduct or cause to be
conducted subject to the prior written
39
consent of Seller or Company (which consent shall not be unreasonably withheld)
with respect to any interest in real property held by Seller (with respect to
the Business) or Company such other environmental investigations or studies as
Buyer may desire and (c) review, as soon as available, copies of all reports,
renewals, filings, certificates, statements and other documents received by
Seller (with respect to the Business) or Company from any Governmental Entity.
4.2 Material Adverse Changes; Reports; Financial Statements.
Seller will promptly notify Buyer of any event of which Seller
obtains knowledge which has had or might reasonably be expected to have a
material adverse effect on the Business or which if known as of the date hereof
would have been required to be disclosed to Buyer.
4.3 Conduct of Business.
Seller and Company agree with and for the benefit of Buyer
that none of (i) Seller, as to matters relating to Taxes or Tax Returns, to the
extent that the activities of Seller with respect to the Business are not
severable from Seller's other activities, (ii) Seller (other than with respect
to matters relating to Taxes or Tax Returns) with respect to the Business and
(iii) Company shall, without the prior written consent of Buyer:
(a) conduct the Business in any manner except in the ordinary
course consistent with past practice;
(b) amend, terminate, fail to renew or renegotiate any
Material Contract or default (or take or omit to take any action that,
with or without the giving of notice or passage of time, would
constitute a default) in any of its obligations under any Material
Contract or enter into any new Material Contract or take any action
that would jeopardize the continuance of its material supplier or
customer relationships;
(c) terminate, amend or fail to renew any existing insurance
coverage under which the Business is or the Products are insured;
(d) terminate or fail to renew or preserve any Permits used in
or necessary for the operation of the Business;
(e) incur or agree to incur any obligation or liability
(absolute or contingent) that is an Assumed Liability and that
individually calls for payment by
40
Seller or Company of more than $250,000 in the aggregate;
(f) make any loan, guaranty or other extension of credit, or
enter into any commitment to make any loan, guaranty or other extension
of credit, to or for the benefit of any director, officer, employee or
stockholder of Company or Seller or any of their respective Associates
or Affiliates;
(g) grant any general or uniform increase in the rates of pay
or benefits to officers, directors or employees (or a class thereof) or
any material increase in salary or benefits of any officer, director,
employee or agent of the Business or, other than pursuant to the
Retention Plan, pay any bonuses in excess of $5,000 in the aggregate to
any individual employee of the Business, or enter into any new
employment, collective bargaining or severance agreement in which
employees of the Business participate;
(h) sell, transfer, mortgage, encumber or otherwise dispose of
any assets or any liabilities, except for dispositions of property not
material in amount;
(i) issue, sell, redeem or acquire for value, or agree to do
so, any debt obligations or Equity Securities of Company;
(j) declare, issue, make or pay any dividend or other
distribution of assets, whether consisting of money, other personal
property, real property or other thing of value, to its shareholders,
or split, combine, dividend, distribute or reclassify any shares of its
Equity Securities;
(k) change or amend its charter documents or bylaws;
(l) make any capital expenditures or commitments with respect
thereto in excess of $200,000 individually or $500,000 in the
aggregate;
(m) make special or extraordinary payments to any person;
(n) make any material investment, by purchase, contributions
to capital, property transfers, or otherwise, in any other Person;
41
(o) dispose of or permit to lapse any rights to the use of any
Intangible Property or dispose of or disclose any Intangible Property
not a matter of public knowledge;
(p) directly or indirectly terminate or reduce or commit to
terminate or reduce any bank line of credit or the availability of any
funds under any other agreement or understanding, other than through
the use thereof in the ordinary course;
(q) compromise or otherwise settle any claims, or adjust any
assertion or claim of a deficiency in Taxes (or interest thereon or
penalties in connection therewith), or file any appeal from an asserted
deficiency, except in a form previously approved by Buyer in writing,
or file or amend any Tax Return, in any case before furnishing a copy
to Buyer and affording Buyer an opportunity to consult with respect
thereto;
(r) make any Tax election or make any change in any method or
period of accounting or in any accounting policy, practice or
procedure;
(s) introduce any new method of management or operation in
respect of the Business;
(t) deviate from past practice in the ordinary course with
respect to maintenance of Inventory; or
(u) agree to or make any commitment to take any actions
prohibited by this Section 4.3.
4.4 Notification of Certain Matters.
Seller shall give prompt notice to Buyer, and Buyer shall give
prompt notice to Seller, of (i) the occurrence, or failure to occur, of any
event that would be likely to cause any representation or warranty contained in
this Agreement to be untrue or inaccurate in any material respect at any time
from the date of this Agreement to the Closing Date and (ii) any failure of
Buyer or Seller, as the case may be, to comply with or satisfy, in any material
respect, any covenant, condition or agreement to be complied with or satisfied
by it under this Agreement. No such notification shall affect the
representations or warranties of the parties or the conditions to their
respective obligations hereunder.
42
4.5 Permits and Approvals.
(a) Seller and Buyer each agree to cooperate and use their
best efforts to obtain (and will immediately prepare all registrations, filings
and applications, requests and notices preliminary to all) Approvals and Permits
that may be necessary or which may be reasonably requested by Buyer to
consummate the transactions contemplated by this Agreement.
(b) To the extent that the Approval of a third party with
respect to any Material Contract is required in connection with the transactions
contemplated by this Agreement, Seller shall use its best efforts to obtain such
Approval prior to the Closing Date and in the event that any such Approval is
not obtained (but without limitation on Buyer's rights under Section 6.2(d)),
Seller shall cooperate with Buyer to ensure that Buyer obtains the benefits of
each such Material Contract. In addition, Seller shall indemnify and hold
harmless Buyer and Company for and against any and all Losses as a result,
directly or indirectly, of the failure to obtain any such Approval except for
any Losses resulting from the failure to obtain any Government Contract Novation
that is not obtained solely because of the nature, character or actions of Buyer
or any of its Affiliates. Seller agrees to pay and be responsible for any cost
or expense that may be required in order to assign to Company or permit Company
following the Closing to use Seller's Oracle product database, including, but
not limited to, any cost or expense incurred in connection with obtaining any
necessary Approval and/or any additional license fees.
4.6 Preservation of Business Prior to Closing Date.
During the period beginning on the date hereof and ending on
the Closing Date, (a) Seller will use its best efforts to preserve the Business
and to preserve the goodwill of customers, suppliers and others having business
relations with Seller (with respect to the Business) and Company and (b) Seller
and Buyer will consult with each other concerning, and Seller will cooperate
with Buyer and use Seller's best efforts to keep available to Buyer the services
of the officers and employees of Seller (with respect to the Business) and
Company that Buyer may wish to have Company retain. Nothing in this Section 4.6
shall obligate Buyer or Company after the Closing to retain or offer employment
to any officer or employee of Company.
4.7 Government Filings.
Each of Seller and its Affiliates and Buyer and its Affiliates
will make any and all filings required in
43
connection with the consummation of the transactions contemplated hereby under
the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act not later than 5 business days after the date hereof.
Each of Seller and its Affiliates and Buyer and its Affiliates will make any and
all filings required in connection with the consummation of the transactions
contemplated hereby under any and all other applicable Laws. Seller and Buyer
shall furnish each other such necessary information and reasonable assistance as
the other may reasonably request in connection with its preparation of necessary
filings or submissions under the provisions of such Laws. Seller and Buyer will
supply to each other copies of all correspondence, filings or communications,
including file memoranda evidencing telephonic conferences, by such party or its
affiliates with any Governmental Entity or members of its staff, with respect to
the transactions contemplated by this Agreement and any related or contemplated
or inconsistent transactions, except for documents filed pursuant to Item 4(c)
of the ▇▇▇▇-▇▇▇▇▇ ▇▇▇▇▇▇ Notification and Report Form or communications
regarding the same.
4.8 Elimination of Intercompany and Affiliate Liabilities.
Prior to the Closing Date, Seller shall purchase, cause to be
repaid or (with respect to guarantees) assume liability for (i) any and all
loans or other extensions of credit made or guaranteed by Company to or for the
benefit of any director, officer, or employee of Seller or Company, or any of
their Associates (except for the $85,000 in loans to employees of the Business
that are Purchased Assets) and (ii) any and all loans, guarantees or other
extensions of credit of any amount made to or for the benefit of Seller or any
Affiliate of Seller. At the Closing Date, neither Buyer nor Company shall have
any continuing commitment, obligation or liability of any kind with respect to
the persons referred to in subsections (i) and (ii) above. Seller agrees to
indemnify Buyer and Company for any Losses with respect to any such commitment,
obligation or liability not fully assumed or discharged as contemplated.
4.9 Inconsistent Agreements.
Seller and Company will not, either directly or indirectly,
initiate, solicit or encourage and will use its best efforts to cause all of
their respective directors, officers, employees and agents not to initiate,
solicit or encourage any inquiry, offer or proposal with respect to, or furnish
any information relating to, or participate in any negotiations or discussions
concerning, or enter into any agreement contemplating or providing for, any
acquisition, merger, tender or exchange offer or other form of business
combination, or any acquisition or disposition of all or any
44
substantial part of the assets or the stock or other securities of Company or
the Business.
4.10 Contribution.
On or prior to the Closing, Seller will cause the Contribution
to be consummated without cost or obligation on the part of Company pursuant to
documentation and procedures reasonably satisfactory to Buyer and its counsel.
4.11 Provisions Respecting Government Contracts.
(a) This Section 4.11 sets forth the procedures that the
parties will use with respect to the assignment or change in control of all
Government Contracts and any claim, right or benefit arising thereunder or
resulting therefrom. Buyer, Seller and Company acknowledge and agree that
neither obtaining Government Contract Novations nor the written confirmations
referred to in Section 4.11(b) from Governmental Entities that such Government
Contract Novations are not required that are necessary to consummate the
transactions contemplated hereby (including, but not limited to, the
Contribution) will be a condition to the obligations of any of them to effect
the Closing.
(b) With respect to any Government Contract or any claim,
right and benefit arising thereunder or resulting therefrom, Seller, Company and
Buyer will use their best efforts to obtain the written consent of the other
parties to such Government Contract for the assignment or novation thereof to
Company and/or to the change in control of Company pursuant hereto, or written
confirmation from such parties reasonably satisfactory in form and substance to
Buyer that such consent is not required. As soon as practicable following the
date hereof, (i) with respect to each Prime Government Contract to which Seller
is a party, Seller shall either obtain written confirmation reasonably
satisfactory in form and substance to Buyer that novation of such Government
Contract is not required or submit to the relevant Responsible Contracting
Officer a written request that the U.S. Government enter into a Government
Contract Novation with Buyer with respect to such Prime Government Contract; and
(ii) with respect to each Government Contract that is not a Prime Government
Contract, Seller shall submit to the parties thereto documentation reasonably
satisfactory in form and substance to Buyer and Seller shall seek the written
waiver or approval of the other contracting party or parties thereto to the
transfer and assignment of all of Seller's claims, rights, benefits and
liabilities thereunder to Company at the Closing. In this regard, Seller,
Company and Buyer shall take all actions required or customary under the Federal
Acquisition Regulation (as supplemented by any individual agency regulation) and
Seller shall continue to
45
participate fully in, and cooperate fully with, such efforts following the
Closing Date. Except as provided in the immediately preceding sentence, in no
event shall Seller, Company or Buyer be obligated to pay any money to the U.S.
Government or any other Person or to offer or grant other financial or other
accommodations to the U.S. Government or any other Person in connection with
obtaining any Government Contract Novation or any such consent or waiver.
(c) If such novation, consent, waiver or confirmation is not
obtained with respect to any such Government Contract, Seller, Company and Buyer
will cooperate in an arrangement reasonably satisfactory to Buyer and Seller
under which Company or Buyer would obtain, to the extent practicable, the
claims, rights and benefits and assume the corresponding obligations thereunder
in accordance with this Agreement, including subcontracting, sub-licensing or
sub-leasing to Company, or under which Seller would enforce for the benefit of
Company, with Company assuming Seller's obligations, any and all claims, rights
and benefits of Seller against a third party thereto. Seller will promptly pay
to Company when received all monies received by Seller in connection with any
such arrangement.
(d) No instrument that any Governmental Entity requires
Seller, Company or Buyer to execute in connection with any novation or
assignment contemplated by this Section 4.11 (including, without limitation, a
novation agreement as contemplated by Federal Acquisition Regulation 42.1204)
shall alter the provisions of this Agreement concerning the allocation of assets
and liabilities between Buyer, Company and Seller. As to any liability allocated
by the provisions of this Agreement to Seller, Seller shall indemnify Company
and Buyer against, and hold Company and Buyer harmless from any claims by any
Governmental Entity against Company or Buyer for satisfaction of such
liabilities pursuant to any such novation instrument. As to any liability
allocated by the provisions of this Agreement to Company or Buyer, Company and
Buyer shall indemnify Seller against, and hold Seller harmless from, any claims
by any Governmental Entity against Seller for satisfaction of such liabilities
pursuant to such novation instrument.
4.12 Certain Material Contracts. To the extent that Seller
and Company have not made available to Buyer copies of any Material Contracts
because disclosure thereof is prohibited by the terms thereof or by Law, Seller
and Company shall, as promptly as practicable after the date hereof, seek and
use their respective best efforts to procure all such consents, authorizations
and approvals as may be necessary to obtain a waiver or amendment of such
prohibition such that copies of all such Material Contracts may be made
available to Buyer (or representatives of Buyer
46
holding necessary security clearances) for review, and shall promptly advise
Buyer upon receipt of any such consent, authorization or approval. Buyer shall
use Buyer's best efforts to review each Material Contract provided pursuant to
this Section 4.12 as promptly as practicable after the provision thereof to
Buyer.
4.13 Customers and Suppliers. Seller and Company shall, as
promptly as practicable after the date hereof, seek and use their respective
best efforts to arrange such meetings and telephone conferences with all
material customers and suppliers of the Business (including, but not limited to,
all customers and suppliers listed on Schedule 2.21) as may be necessary and
appropriate for Buyer to conduct a comprehensive review of Seller's and
Company's relations with customers and suppliers of the Business.
4.14 Backlog.
On the Closing Date, Seller shall deliver to Buyer a list of
Contracts constituting the customer backlog of the Business as of the most
recent practicable date prior to the Closing Date, which list shall be true,
correct and complete.
ARTICLE V
ADDITIONAL CONTINUING COVENANTS
5.1 Noncompetition.
(a) Restrictions on Competitive Activities. Seller agrees that
after the Closing Buyer and Company shall be entitled to the goodwill and going
concern value of the Business and to protect and preserve the same to the
maximum extent permitted by law. Seller also acknowledges that its management
contributions to the Business have been uniquely valuable and involve
proprietary information that would be competitively unfair to make available to
any competitor of Company. For these and other reasons and as an inducement to
Buyer to enter into this Agreement, Seller agrees that for a period of four
years after the date hereof neither Seller nor any of its Affiliates will,
directly or indirectly, for its own benefit or as agent for another carry on or
participate in the ownership, management or control of, or the financing of, or
be employed by, or consult for or otherwise render services to, or allow its
name or reputation to be used in or by any other present or future business
enterprise in the defense (except for (i) intelligence systems that are
manufactured by Seller's Telecommunications Group in Gaithersburg, Maryland and
are designed to monitor or intercept communication signals, (ii) products for
the telecommunications market currently
47
manufactured or in development by ▇▇▇▇▇▇▇-▇▇▇▇▇▇▇ including, but not limited to,
cellular and PCS base station subsystems, wireless local loop customer premise
equipment, repeater subsystems for point to multi-point and medium power
amplifiers and (iii) as an outside GaAs foundry for third parties) or space
industry or that otherwise competes with the Products or the Business in each
state of the United States and in each foreign jurisdiction in which the
Business is conducted or the Products are sold as of the Closing Date.
(b) Restrictions on Buyer's Competitive Activities.
Buyer recognizes that the parties will share the use of
certain Intangible Property after Closing. Buyer also recognizes that Seller has
developed proprietary designs for products for the telecommunications market
that are not included in the Contribution but which may be known to Company's
employees. For these and other reasons, and as an inducement to Seller to enter
into this Agreement, Buyer agrees that for a period of four years, Buyer and its
Affiliates shall not (i) manufacture Gallium Arsenide parts for third parties;
(ii) disclose to third parties confidential process and design rule information
related to the manufacture of Gallium Arsenide parts except as necessary for the
manufacture of parts solely for Buyer and its Affiliates; and (iii) manufacture
for the telecommunications market products that duplicate in whole or with minor
modifications the proprietary designs of products currently manufactured or in
development by ▇▇▇▇▇▇▇-▇▇▇▇▇▇▇ including, but not limited to, cellular and PCS
base station subsystems, wireless local loop customer premise equipment,
repeater subsystems for point to multi-point and medium power amplifiers.
(c) Exceptions. Nothing contained herein shall limit the right
of Buyer or Seller as an investor to hold and make investments in securities of
any corporation or limited partnership that is registered on a national
securities exchange or admitted to trading privileges thereon or actively traded
on NASDAQ or in a generally recognized over-the-counter market, provided that
Buyer's or Seller's, as the case may be, equity interest therein does not exceed
5% of the outstanding shares or interests in such corporation or partnership.
(d) Restrictions on Soliciting Employees. In addition, to
protect Buyer against any efforts by Seller to cause employees of Company to
terminate their employment, Seller agrees that for a period of four years
following the Closing Date, Seller will not directly or indirectly (i) induce
any employee of Company to leave Company or to
48
accept any other employment or position, or (ii) assist any other entity in
hiring any such employee. Buyer agrees that for a period of four years following
the Closing Date, Neither Buyer nor Company will directly or indirectly (i)
induce any employee of Seller to leave Seller or to accept any other employment
or position, or (ii) assist any other entity in hiring any such employee.
(e) Special Remedies and Enforcement. Buyer and Seller
recognize and agree that a breach by the other of them of any of the covenants
set forth in Sections 5.1(a), (b) or (d) could cause irreparable harm, that
remedies at law in the event of such breach would be inadequate, and that,
accordingly, in the event of such breach a restraining order or injunction or
both may be issued against the other party, in addition to any other rights and
remedies which are available. If either of Sections 5.1(a), (b) or (d) is more
restrictive than permitted by the Laws of the jurisdiction in which enforcement
thereof is sought, such Sections shall be limited to the extent required to
permit enforcement under such Laws. Without limiting the generality of the
foregoing, the parties intend that the covenants contained in Sections 5.1(a),
(b) and (d) shall be construed as a series of separate covenants, one for each
state or jurisdiction referred to therein. Except for geographic coverage, each
such separate covenant shall be deemed identical in terms. If, in any judicial
proceeding, a court shall refuse to enforce any of the separate covenants deemed
included in this Section 5.1, then such unenforceable covenant shall be deemed
eliminated from these provisions for the purpose of those proceedings to the
extent necessary to permit the remaining separate covenants to be enforced.
5.2 Nondisclosure of Proprietary Data.
After the Closing, neither Seller nor any of its
representatives shall, at any time, make use of, divulge or otherwise disclose,
directly or indirectly, any Intangible Property or other proprietary data
(including, but not limited to, any customer list, record or financial
information) concerning the business or policies of Company that Seller or any
representative of Seller may have learned as a shareholder, employee, officer or
director of Company. In addition, neither Seller nor any of its representatives
shall make use of, divulge or otherwise disclose, directly or indirectly, to
persons other than Buyer, any confidential information concerning the business
or policies of Company and which may have been learned in any such capacity.
49
5.3 Certain Tax Matters.
(a) Any Tax sharing agreement between Seller and Company shall
be terminated as of the Closing Date and shall have no further effect for any
taxable year (whether the current year, a future year, or a past year).
(b) Seller and Buyer will join in making an election under
Section 338(h)(10) of the Code (and any corresponding elections under state,
local, or foreign tax law) (collectively a "Section 338(h)(10) Election") with
respect to the purchase and sale of the Stock. Seller will pay any Tax
attributable to the making of the Section 338(h)(10) Election and will indemnify
Buyer, Company, and their subsidiaries against any Losses or Taxes arising out
of any failure to pay such Tax. Seller will also pay any state, local, or
foreign Tax (and indemnify Buyer, Company, and their subsidiaries against any
Losses or Taxes arising out of any failure to pay such Tax) attributable to an
election under state, local, or foreign law similar to the election under
Section 338(g) of the Code (or which results from the making of an election
under Section 338(g) of the Code) with respect to the purchase and sale of the
Stock. In connection with any such election, Buyer shall propose, and Seller
shall consent, such consent not to be unreasonably withheld, to an allocation of
the Total Purchase Price amongst the Purchased Assets, including, but not
limited to, intangibles.
(c) Any Taxes for a period including a Pre-Closing Partial
Period and a Post-Closing Partial Period shall be apportioned between such
Pre-Closing Partial Period and such Post-Closing Partial Period, based, in the
case of real and personal property Taxes, on a per diem basis and, in the case
of other Taxes, on the actual activities, taxable income or taxable loss of
Company during such Pre-Closing Partial Period and such Post-Closing Partial
Period.
(d) Seller shall include Company in the consolidated Federal
income tax return filed by Seller for the period ending on or prior to the
Closing Date. Seller shall prepare books and working papers (including a closing
of the books) which will clearly demonstrate the income and activities of
Company for the period ending on the Closing Date and any Pre-Closing Partial
Period. It is Buyer's present intention to include Company in the consolidated
Federal Income tax returns filed by Buyer with respect to the 12 month period
beginning after the Closing Date (to the extent that Company qualifies to be so
included); provided, however, that the representations and warranties set forth
in this sentence shall be deemed not to have been breached or inaccurate in the
event that Buyer shall not so include Company in its consolidated Federal Income
Tax returns
50
because of any independent business reason of Buyer therefor.
(e) After the Closing, Seller shall, and shall cause its
respective Subsidiaries, Affiliates, and agents (including the Auditors) to,
cooperate fully with Buyer and Company in the preparation of all Tax Returns
required to be filed by Buyer or Company and shall provide, or cause to be
provided at Seller's sole cost and expense, to Buyer and Company any records and
other information requested by such parties in connection therewith. Seller
shall, and shall cause its Affiliates to, cooperate fully with Buyer and Company
in connection with any Tax investigation, audit or other proceeding. Buyer
shall, at its expense, furnish or cause to be provided to Seller, upon request,
records and other information relating to Company as is reasonably necessary for
the preparation of all Tax Returns required to be filed by Seller, Tax
investigations, audits or other proceedings.
5.4 Corporate Name Change; Trademark License Agreement.
Within five days after the Closing Date, Buyer shall cause
Company to amend Company's articles of incorporation to cause Company's
corporate name to be changed to a name that does not include "▇-▇" or any other
name or abbreviation that might be confused with "▇-▇" or "▇▇▇▇▇▇▇-▇▇▇▇▇▇▇" or
reflect sponsorship or endorsement by Seller. On or prior to the Closing, Buyer,
Seller and Company shall enter into the Trademark License Agreement.
5.5 Post-Closing Cooperation Generally.
The parties acknowledge and agree that the Ancillary
Agreements are intended to express their specific understandings with respect to
certain accommodations necessary to effect the orderly separation and the
successful ongoing operation of the Business and the Retained Businesses
following the Closing on mutually acceptable terms. The parties further agree
that they will in general cooperate in good faith in such other ways as may be
necessary or appropriate to effect such an orderly separation and the successful
ongoing operation of the Business and the Retained Businesses following the
Closing, including perfection and enforcement of rights relating to Intangible
Property.
5.6 Refund Claims and Warranty Claims.
Certain of the Customer Contracts grant or will grant the
customer or another Person a right to reduce the contract price or receive a
refund. Such claims by
51
customers and other Persons under Contracts that constitute or include the
Customer Contracts are referred to in this Agreement as "Refund Claims." Certain
of the Customer Contracts also confer warranty and similar rights on customers
or other Persons. Such claims under such rights are referred to in this
Agreement as "Warranty Claims." From and after the Closing, (a) Seller shall
have full responsibility for all refund, warranty, product liability and other
claims (i) under all Customer Contracts that were or are completed before the
Closing and (ii) with respect to all Products shipped by Seller or Company
before the Closing and (b) Buyer and Company shall have full responsibility for
all refund, warranty, product liability and other claims (i) under all Customer
Contracts entered into by Buyer or Company after the Closing and (ii) with
respect to all Products shipped by Buyer or Company after the Closing.
5.7 Warranty Work.
Buyer and Company shall perform (subject to Seller's consent
as described below) as Seller's contractor, all warranty work necessary to
satisfy all valid and legally-binding Warranty Claims for which Seller is
responsible pursuant to Section 5.6 ("Warranty Work"). However, before beginning
any Warranty Work, Buyer or Company shall notify Seller of the nature and scope
of the Warranty Claim and obtain Seller's prior written consent to perform the
Warranty Work. Seller's consent shall not be unreasonably withheld. If Seller
grants that consent, Buyer and Company shall perform the Warranty Work. Seller
shall bear the costs of that Warranty Work. The principles set forth on Schedule
5.7 shall be used to calculate the costs of Warranty Work. Seller shall be given
reasonable access to Buyer's and Company's relevant records and personnel to
enable Seller to verify such costs. Buyer and Company shall perform the Warranty
Work competently and in a timely manner and shall bear full responsibility for
any defects or claimed defects in any Warranty Work. Following the Closing,
Buyer and Company shall in general respond to and deal with customers bringing
any Warranty Claims for which Seller is responsible pursuant to Section 5.6 in a
manner consistent with the practices of Seller (with respect to the Business)
and Company with respect thereto prior to the Closing.
5.8 Change Orders.
Notwithstanding Sections 5.6 and 5.7, if Buyer or Company
authorizes any change orders or amendments to any Contract that affect the
obligations of Buyer, Company or Seller under that Contract, Seller shall not be
required to participate in or bear any cost respecting any Refund Claim
52
or Warranty Claim connected with that change order or amendment.
5.9 Cooperation re: Refund Claims and Warranty Claims.
Following the Closing, Seller and Company shall cooperate in
good faith in responding to and discharging all Refund Claims and Warranty
Claims.
5.10 Prorations; Cooperation re: Collection of Receivables.
(a) Seller is retaining the receivables and payables accrued
by Company or the Business before or as of the Closing. Accordingly, receivables
derived from Customer Contracts performed in part before the Closing and
performed in part after the Closing, as well as the expenses of performing those
Contracts and operating the Business, shall be prorated as of the close of
business on the Closing Date between Seller, on one hand, and Buyer and Company,
on the other hand. In the case of receivables derived from such Customer
Contracts and the direct expenses of performing those Contracts, the prorations
shall be based on the principles set forth on Schedule 5.10. The operating
expenses of the Business (for example, utilities, rent and employee costs) shall
be prorated based on the number of days elapsed during the relevant billing,
payment or other period that includes the Closing Date, unless proration on that
basis would be manifestly unfair. An example of manifest unfairness would be if
a water pipe broke on the premises to be subleased by Company under the Sublease
Agreements two days before the Closing and resulted in charges payable to the
water utility company for two million gallons of water during the period that
includes the Closing Date. Under that circumstance, Seller would pay those
incremental charges.
(b) Following the Closing, Seller and Company shall cooperate
in good faith to administer the collection of receivables of Company or the
Business, and shall each apply the same policies and procedures with respect to
the collection of receivables of Company or the Business, in each instance
whether accrued by Company or the Business prior to or subsequent to the
Closing. Seller and Company agree that to the extent that any payment is
received from a customer that is designated as being a payment in respect of any
particular invoice or shipment, such payment shall be applied to the payment or
shipment so designated by the customer. In the absence of any such designation,
any payments received from customers shall be applied against outstanding
receivables in the order originally invoiced.
53
5.11 Post-Closing Status of Company.
Buyer covenants that during the 12 months after the Closing
(a) neither Buyer nor any other entity other than Company shall conduct the
Business and (b) Company shall not be merged into Buyer or liquidated; provided,
however, that the covenant set forth in this Section 5.11 shall be deemed not to
have been breached in the event that at any time during the 12 months after the
Closing Buyer or any other entity other than Company shall conduct the Business
or Company shall be merged into Buyer or liquidated because of any compelling
business reason (which shall include, but not be limited to, a restructuring in
order to accomplish any acquisition or refinancing) of Buyer therefor.
5.12 Employment of Employees of the Business.
(a) Subject to the provisions of Section 9.9, Buyer shall,
during the period between the date hereof and the Closing Date, determine those
employees of the Business to whom Company will offer employment as of the
Closing. Notwithstanding the foregoing, Company shall not be required to hire
any employee or continue the employment of any hired employee for any length of
time following the Closing. Seller shall, on or prior to the Closing, implement
any and all amendments to Seller's severance benefit plans and arrangements as
may be necessary such that any employee hired by Company as of the Closing Date
will not be entitled to any benefits thereunder as a result of the consummation
of the transactions contemplated by this Agreement or as a result of any
termination of employment of any such employee by Company after the Closing.
(b) (i) The Investment Plan is maintained pursuant to Section
401(k) of the Code. Seller is obligated to match contributions to the Investment
Plan on a one-for-one basis with respect to the first 2% of compensation
contributed and a one-for-two basis with respect to the next 2% of compensation
contributed by an employee to the Investment Plan, with such contributions made
each pay period. All contributions to the Investment Plan due to date have been
made, and all contributions due through the Closing Date shall be made by
Seller.
(ii) Prior to the Closing, Seller and Company shall
take such actions as may be necessary or appropriate to terminate the
participation of the employees who are transferring to Company in the Investment
Plan and to cause the Investment Plan's assets attributable to such employees to
be held for or distributed to or for the benefit of such employees as soon as it
is administratively feasible after the Closing. The obligation to hold or
54
distribute the assets attributable to the employees referred to in the preceding
sentence may, if agreed to by the parties, be satisfied by a plan-to-plan
transfer from the Investment Plan to an appropriate plan covering the employees
designated by Buyer. If the parties do not agree on a plan-to-plan transfer,
then Seller shall cause such obligation shall be satisfied by causing the
Investment Plan to make available to each employee a distribution of his or her
entire account balance as soon as administratively feasible after the Closing.
(iii) The ESOP is an "employee stock ownership plan"
as defined in Section 4975(e)(7) of the Code. Seller has contributed 1% of the
compensation of each employee employed at year end to the ESOP. All
contributions to the ESOP due to date have been made, and all contributions due
through the Closing Date shall be made by Seller.
(iv) Prior to the Closing, Seller and Company shall
take such actions as may be necessary or appropriate to terminate the
participation of the employees who are transferring to Company in the ESOP and
to cause the ESOP's assets attributable to such employees to be held for or
distributed to or for the benefit of such employees as soon as it is
administratively feasible after the Closing. The obligation to hold or
distribute the assets attributable to the employees referred to in the preceding
sentence may, if agreed to by the parties, be satisfied by a plan-to-plan
transfer from the ESOP to an appropriate plan covering the employees designated
by Buyer. If the parties do not agree on a plan-to-plan transfer, then Seller
shall cause such obligation shall be satisfied by causing the ESOP to make
available to each employee a distribution of his or her entire account balance
as soon as administratively feasible after the Closing.
(v) Following Seller's satisfaction of the
obligations set forth herein with respect to the ESOP, no further contributions
will be due from Seller with respect to the ESOP or the Investment Plan.
(c) Buyer shall cause Company to provide group health plan
coverage effective as of the Closing Date to the Employees who were covered
under a group health plan of Seller immediately prior to the Closing. Neither
Buyer, Company nor any plan or plans they sponsor shall have any obligation with
respect to health plan claims of the employees incurred prior to the Closing,
even if such claims are not presented until after the Closing. Seller shall
insure that its group health plans provide coverage to pay health plan claims
incurred by Employees before the Closing according to the terms of Seller's
group health plans.
55
(d) Buyer may cause Company to provide salary reduction health
and/or dependent care flexible spending plans to the Employees effective as of
the Closing. If Buyer does so, then (1) Buyer shall credit each Employee with
any unused health and flexible spending account balance as exists for such
Employee as of the Closing Date (treating any employee with a negative account
balance as having a zero account balance), and (2) Seller shall, within five
business days of the Closing Date, pay Company the aggregate amount of such
unused flexible spending account balances (treating any employee with a negative
account balance as having a zero account balance).
(e) Seller shall remain responsible for any worker's
compensation, long term disability and short term disability claims relating to
occurrences arising before the Closing, even if such claims are not presented
until after the Closing.
ARTICLE VI
CONDITIONS OF PURCHASE
6.1 General Conditions.
The obligations of the parties to effect the Closing shall be
subject to the following conditions:
(a) No Orders; Legal Proceedings. No Law or Order shall have
been enacted, entered, issued, promulgated or enforced by any
Governmental Entity, nor shall any Action have been instituted and
remain pending by any Governmental Entity at what would otherwise be
the Closing Date, which prohibits or restricts or would (if successful)
prohibit or restrict the transactions contemplated by this Agreement or
(with respect to obligations of Buyer only) which would not permit the
Business as presently conducted to continue unimpaired following the
Closing Date.
(b) Approvals. To the extent required by applicable Law, all
Permits and Approvals required to be obtained from any Governmental
Entity (other than Government Contract Novations) shall have been
received or obtained on or prior to the Closing Date and any applicable
waiting period under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act shall have expired or
been terminated.
6.2 Conditions to Obligations of Buyer.
The obligations of Buyer to effect the Closing shall be
subject to the following conditions except to the extent waived in writing by
Buyer:
56
(a) Representations and Warranties and Covenants of Seller and
Company. The representations and warranties of Seller and Company
herein contained shall be true in all material respects (provided,
however, that where a representation or warranty is already qualified
by materiality, such materiality qualifier shall be disregarded for
purposes of this condition) at the Closing Date with the same effect as
though made at such time; Seller and Company shall have in all material
respects performed all obligations and complied with all covenants and
conditions required by this Agreement to be performed or complied with
by them at or prior to the Closing Date, and Seller and Company shall
have delivered to Buyer certificates in form and substance satisfactory
to Buyer dated the Closing Date and signed by their respective Chief
Executive Officers and Chief Financial Officers to such effect.
(b) No Material Adverse Change. There shall not have been any
material adverse change in or affecting the Business subsequent to the
date hereof.
(c) Opinion of Counsel. Buyer shall have received at the
Closing from ▇▇▇▇▇▇ ▇▇▇▇▇▇ White & ▇▇▇▇▇▇▇▇▇, counsel to Seller and
Company, a favorable opinion dated the Closing Date covering the
matters set forth in Exhibit G.
(d) Third-Party Consents. Seller and Company shall have
obtained all Approvals and Permits listed on Schedule 6.2(d), each in
form and substance reasonably satisfactory to Buyer.
(e) Resignation of Directors and Certain Officers and
Employees. Each director and those officers and employees of Company
specified by Buyer by written notice to Seller not less than 5 days
prior to the Closing Date shall have submitted their resignations in
writing to Company (such resignations of officers and directors (in
such capacity) to be effective as of the Closing and such resignations
of employees to be effective immediately prior to the Closing).
(f) Ancillary Agreements. Seller and Company shall have
executed and delivered each of the Ancillary Agreements to which each
of them is to be a party.
(g) Contribution. The Contribution (other than any Government
Contract Novations necessary in connection therewith) shall have been
consummated without cost or obligation on the part of Company pursuant
to documentation and procedures reasonably satisfactory to Buyer and
its counsel.
57
(h) Capital Markets. Trading in securities generally on the
New York or American stock exchanges or NASDAQ shall not have been
suspended, minimum or maximum prices shall not have been established on
any such exchange, a banking moratorium shall not have been declared by
New York or United States authorities, and there shall not have been an
outbreak or escalation of hostilities between the United States and any
foreign power, an outbreak or escalation of any other insurrection or
armed conflict involving the United States or any other national or
international calamity or emergency, or any material change in the
general financial markets of the United States which, in each case, in
the judgment of any lender to Buyer or any prospective underwriter of
securities to be issued by Buyer in connection with Buyer's obtaining
financing sufficient for Buyer to pay the Total Purchase Price, would
make it impractical or unadvisable to proceed with such financing.
(i) Certain Material Contracts. Buyer shall have been afforded
access to copies of each Material Contract (except for any Material
Contracts the disclosure to Buyer of which is prohibited by Law) not
provided to Buyer prior to the date hereof and shall have concluded a
review of the terms and conditions thereof, and such review shall not
have disclosed information not previously disclosed by Seller or
Company which Buyer reasonably believes has or is likely to have a
material adverse effect on the Business or is materially adversely
inconsistent with information disclosed to Buyer prior to the date
hereof.
6.3 Conditions to Obligations of Seller.
The obligations of Seller to effect the Closing shall be
subject to the following conditions, except to the extent waived in writing by
Seller:
(a) Representations and Warranties and Covenants of Buyer. The
representations and warranties of Buyer herein contained shall be true
in all material respects (provided, however, that where a
representation or warranty is already qualified by materiality, such
materiality qualifier shall be disregarded for purposes of this
condition) at the Closing Date with the same effect as though made at
such time; Buyer shall have in all material respects performed all
obligations and complied with all covenants and conditions required by
this Agreement to be performed or complied with by it at or prior to
the Closing Date, and Buyer shall have delivered to Seller certificates
of Buyer in form and
58
substance satisfactory to Seller dated the Closing Date and signed by
its Chief Executive Officer and Chief Financial Officer to such effect.
(b) Opinion of Counsel. Seller shall have received at the
Closing from O'Melveny & ▇▇▇▇▇, counsel to Buyer, a favorable opinion
dated the Closing Date covering the matters set forth in Exhibit H.
(c) Ancillary Agreements. Buyer shall have executed and
delivered each of the Ancillary Agreements to which it is to be a
party.
(d) Third-Party Consents. Seller and Company shall have
obtained all Approvals and Permits listed on Schedule 6.2(d).
ARTICLE VII
TERMINATION OF OBLIGATIONS; SURVIVAL
7.1 Termination of Agreement.
Anything herein to the contrary notwithstanding, this
Agreement and the transactions contemplated by this Agreement shall terminate if
the Closing does not occur on or before the close of business on December 15,
1997 unless extended by mutual consent in writing of Buyer and Seller and
otherwise may be terminated at any time before the Closing as follows and in no
other manner:
(a) Mutual Consent. By mutual consent in writing of Buyer and
Seller.
(b) Conditions to Buyer's Performance Not Met. By Buyer by
written notice to Seller if any event occurs or condition exists which
would render impossible the satisfaction of one or more conditions to
the obligations of Buyer to consummate the transactions contemplated by
this Agreement as set forth in Section 6.1 or 6.2.
(c) Conditions to Seller's Performance Not Met. By Seller by
written notice to Buyer if any event occurs or condition exists which
would render impossible the satisfaction of one or more conditions to
the obligation of Seller to consummate the transactions contemplated by
this Agreement as set forth in Section 6.1 or 6.3.
(d) Material Breach. By Buyer or Seller if there has been a
material misrepresentation or other material breach by the other party
(or, in the case of Buyer, by
59
Seller or Company) in its representations, warranties and covenants set
forth herein; provided, however, that if such breach is susceptible to
cure, the breaching party shall have ten business days after receipt of
notice from the other party of its intention to terminate this
Agreement if such breach continues in which to cure such breach.
(e) Retention of Key Employees. By Buyer by written notice to
Seller if Buyer is not reasonably satisfied with arrangements made to
ensure that following the Closing Company will retain the services of
each of not more than ten employees of the Business identified to
Seller by Buyer in writing not later than 7 days after the date hereof;
provided, however, that Buyer's termination right set forth in this
clause (f) shall expire and be of no further force and effect as of
5:00 p.m. San Francisco Time on the day that is two weeks after the
date hereof.
(f) Customer and Supplier Relations. By Buyer by written
notice to Seller if (1) Buyer, after having been afforded the
opportunity to conduct a comprehensive review of Seller's and Company's
relations with customers and suppliers of the Business, shall have
become aware of information not previously disclosed by Seller or
Company which Buyer reasonably believes has or is likely to have a
material adverse effect on the Business or is materially adversely
inconsistent with information disclosed to Buyer prior to the date
hereof; provided, however, that Buyer's termination right set forth in
this clause (f)(1) shall expire and be of no further force and effect
as of 5:00 p.m. San Francisco Time on the day that is two weeks after
the date hereof (unless extended pursuant to the provisions of clause
(f)(2) below); or (2) if Buyer shall not be satisfied with the
arrangements made by Seller to afford Buyer the opportunity to conduct
a comprehensive review of Seller's and Company's relations with
customers and suppliers of the Business; provided, however, that
Buyer's termination right set forth in this clause (f)(2) shall expire
and be of no further force and effect as of 5:00 p.m. San Francisco
Time on the day that is two weeks after the date hereof (unless
extended pursuant to the provisions of this clause (f)(2)); and
provided, further, that in the event Buyer shall notify Seller prior to
such expiration of the termination right set forth in this clause
(f)(2) of Buyer's determination to terminate this Agreement pursuant to
this clause (f)(2), such notice shall not be effective if Seller shall
notify Buyer in writing within 24 hours of Seller's receipt of such
notice that Seller has extended the duration of
60
Buyer's termination rights set forth in both clauses (f)(1) and (f)(2)
for an additional two weeks.
(g) Supplemental Deposit/Financing Commitment. By Seller or by
Buyer by written notice to the other pursuant to Section 1.8(b).
(h) Schedules By Buyer by written notice to Seller pursuant to
Section 9.20.
7.2 Effect of Termination.
In the event that this Agreement shall be terminated pursuant
to Section 7.1, all further obligations of the parties under this Agreement
shall terminate without further liability of any party to another; provided that
the obligations of the parties contained in Sections 1.8, 9.12 and 9.19 shall
survive any such termination. A termination under Section 7.1 shall not relieve
any party of any liability for a breach of, or for any misrepresentation under
this Agreement, or be deemed to constitute a waiver of any available remedy
(including specific performance if available) for any such breach or
misrepresentation.
7.3 Survival of Representations and Warranties.
The representations and warranties contained in or made
pursuant to this Agreement shall expire on the second anniversary of the Closing
except that (i) the representations and warranties contained in Sections 2.1(a),
2.2, 2.6(c), 2.19, 3.1 and 3.4 shall survive the Closing and shall remain in
full force and effect indefinitely, (ii) the representations and warranties
contained in Section 2.22 shall survive the Closing and shall remain in full
force and effect until the tenth anniversary of the Closing, (iii) the
representations and warranties contained in Sections 2.6(b) shall survive the
Closing and shall remain in full force and effect until the end of the day that
is sixth months following the Closing, (iv) the representations and warranties
contained in Section 2.20 shall survive the Closing and shall remain in full
force and effect until the final determination of the Adjustment Amount pursuant
to Section 1.6, (v) the representations and warranties contained in Section 2.4
shall continue through the expiration of the applicable statute of limitations
as the same may be extended (or, if a claim has been asserted prior to such
expiration, until the date of its final resolution), and (vi) if a claim or
notice is given under Article VIII with respect to any representation or
warranty prior to the applicable expiration date, such representation or
warranty shall continue indefinitely until such claim is finally resolved.
61
7.4 Limitation on Obligations of Company.
Company's representations, warranties, and covenants hereunder
are solely for the benefit of Buyer. Notwithstanding anything to the contrary
contained herein, after the Closing Company shall have no obligations hereunder,
nor shall it be jointly or severally liable with Seller in connection with any
inaccuracy in or breach or nonperformance of any of the representations,
warranties, covenants or agreements made by Seller in or pursuant to this
Agreement. Any such inaccuracy in representations of or any breach by Company
shall have no effect on the obligations of Seller to Buyer hereunder.
ARTICLE VIII
INDEMNIFICATION
8.1 Obligations of Seller.
Seller agrees to indemnify and hold harmless Buyer, Company
and their respective directors, officers, employees, affiliates, agents and
assigns from and against any and all Losses of Buyer or Company, directly or
indirectly, as a result of, or based upon or arising from:
(a) any inaccuracy in or breach of any of the representations
and warranties made by Seller or Company in or pursuant to this
Agreement;
(b) any breach or nonperformance of any of the covenants or
agreements made by Seller or Company in or pursuant to this Agreement;
(c) any matter as to which Seller in other provisions of this
Agreement has agreed to indemnify Buyer or Company;
(d) the Excluded Liabilities;
(e) any third party claim or demand regarding the conduct
prior to the Closing of the Business;
(f) any violation of Law, prior to the Closing, by Seller or
Company including, without limitation, any Law dealing with health,
safety or environmental protection, including, but not limited to, any
action required to correct any condition that exists as of the Closing
that is in violation of any Law, which condition continues after the
Closing;
(g) the generation, use, transportation, treatment, storage,
release or disposal, before the
62
Closing, of Hazardous Substances by, or at any property or facility of,
Seller or Company;
(h) the presence of Hazardous Substances at any property or
facility other than those of Company for which Company is responsible
by reason of events antedating the Closing; and
(i) the threatened or pending Orders, Actions and Labor
Matters referred to in Schedule 2.9.
8.2 Obligations of Buyer.
Buyer agrees to indemnify and hold harmless Seller from and
against any Losses of Seller, directly or indirectly, as a result of, or based
upon or arising from:
(a) any inaccuracy in or breach of any of the representations
and warranties made by Buyer in or pursuant to this Agreement;
(b) any breach or nonperformance of any of the covenants or
agreements made by Buyer in or pursuant to this Agreement;
(c) any matter as to which Buyer in other provisions of this
Agreement has agreed to indemnify Seller;
(d) the Assumed Obligations;
(e) any third party claim or demand regarding the conduct
following the Closing of the Business; and
(f) any violation of Law following the Closing by Buyer or
Company (except for any violation of Law with respect to which Seller
is obligated to provide indemnity under this Agreement).
8.3 Certain Tax Matters.
(a) Seller Indemnity. Seller agrees to indemnify, defend and
hold harmless Buyer and Company against (i) any Tax payable by or on behalf of
Seller or any of its Affiliates or Company for any taxable period ending on or
prior to the Closing Date and any Pre-Closing Partial Period, (ii) any
deficiencies in any Tax payable by or on behalf of Seller or any of its
Affiliates or Company resulting from any audit by any taxing agency or authority
of any period ending on or prior to the Closing Date and any Pre-Closing Partial
Period, (iii) Taxes of any member of a consolidated or combined tax group of
which Seller or any of its Affiliates is, or was at any time, a member, for
which
63
Company is jointly or severally liable as a result of its inclusion in such
group, (iv) any claim or demand for reimbursement or indemnification resulting
from any transfer by Seller prior to the Closing of any Tax benefits or credits
to any other person, provided, however that Seller does not agree to indemnify,
defend or hold harmless Buyer and Company with respect to Tax indemnification
obligations of Company under the leases listed in Schedule 8.3(a), (v) any Tax
liabilities arising out of the Contribution or the transfer of the Stock
(including, but not limited to, any sales Taxes), and (vi) with respect to any
Taxes due for Tax periods ending after the Closing Date, a pro-rata share of
such tax, calculated pursuant to Section 5.3. Seller further agrees to indemnify
Buyer from and against any Losses or Taxes Buyer may suffer or incur resulting
from, arising out of, relating to, in the nature of, or caused by any liability
of any of Seller, Company and their respective subsidiaries by contract or as a
transferee or successor.
(b) Audit Matters. Seller, on the one hand, and Buyer, on the
other hand, agree to give prompt notice to the other of any proposed adjustment
to Taxes for any period ending on or prior to the Closing Date or any
Pre-Closing Partial Period. Seller shall have the responsibility for, and the
right to control, at Seller's expense, the audit (and disposition thereof) of
any Tax Return relating to periods ending on or prior to the Closing Date and to
participate in the disposition of the audit of any Tax Return relating to the
periods ending after the Closing Date if such audit or disposition thereof could
give rise to a claim for indemnification hereunder. Buyer, at Buyer's expense,
shall have the right directly or through its designated representatives, to
review in advance and comment upon all submissions made in the course of audits
or appeals thereof to any Governmental Entity relating to periods ending on or
prior to the Closing Date and any Pre-Closing Partial Period or Post-Closing
Partial Period for which Seller has responsibility if such audit or appeal will
or might reasonably be expected to result in Buyer or Company having liability
for the Taxes at issue and to approve the disposition of any audit adjustment
with respect to such periods if such disposition will or might reasonably be
expected to result in an increase in Taxes of Buyer or Company for any period
beginning at or after the Closing Date, such consent not to be unreasonably
withheld.
(c) Buyer agrees to indemnify, defend and hold harmless Seller
against any tax apportionable to Buyer pursuant to Section 5.3(c).
64
8.4 Procedure.
(a) Notice. Written notice to the Indemnifying Party of any
Loss or the existence of a third-party claim shall be given by the Indemnified
Party within 30 days after such Loss is suffered or receipt of a written
assertion of liability from the third party. The Indemnified Party shall not be
foreclosed by any failure to provide timely notice of any Loss or the existence
of a third party claim to the Indemnifying Party except to the extent that the
Indemnifying Party incurs an out-of-pocket expense or otherwise has been
materially prejudiced as a direct result of such delay.
(b) Defense. Other than with respect to Taxes, as to which
Section 8.3 controls to the extent inconsistent with this Section, if any claim,
demand or liability is asserted by any third party against any Indemnified
Party, the Indemnifying Party shall upon the written request of the Indemnified
Party defend any actions or proceedings brought against the Indemnified Party in
respect of matters embraced by the indemnity. The Indemnifying Party shall have
the right to control the defense of any Indemnifiable Claim; provided, however,
that the Indemnified Party shall have the right to control the defense of a
claim under either of the following circumstances: (i) the Indemnifying Party
fails to assume the defense of an Indemnifiable Claim within 15 days after
receiving written notice of the existence of the claim or fails to diligently
conduct the defense of any such claim; or (ii) the Indemnified Party shall
reasonably conclude that there is a conflict of interest between the
Indemnifying Party and the Indemnified Party in the conduct of the defense of
such claim or there are specific defenses available to the Indemnified Party
which are different from or additional to those available to the Indemnifying
Party, in either of which events the Indemnifying Party shall pay the fees and
disbursements of counsel to each of the Indemnifying Party and the Indemnified
Party. If the Indemnifying Party does not assume such defense or the Indemnified
Party has the right to control the defense of the claim, the Indemnified Party
may compromise or settle the claim on behalf of and for the account and risk of
the Indemnifying Party, who shall be bound by the result. The Indemnifying Party
shall not, without the written consent of the Indemnified Party (which consent
shall not be unreasonably withheld), settle or compromise any Indemnifiable
Claim or permit a default or consent to entry of any judgment unless the
claimant and the Indemnifying Party provide to the Indemnified Party an
unqualified release from all liability in respect of the Claim. In all cases,
the party without the right to control the defense of an Indemnifiable Claim may
participate in the defense at its own expense.
65
(c) Cooperation. The parties shall cooperate in the defense of
all third party claims which may give rise to Indemnifiable Claims hereunder. In
connection with the defense of any claim, each party shall make available to the
party controlling such defense any books, records or other documents within its
control and access to employees that are reasonably requested in the course of
such defense.
8.5 Limitations on Indemnification. Seller shall not be
required to indemnify any other Person under Section 8.1(a) unless the aggregate
of all amounts for which indemnity would otherwise be payable by Seller exceeds
$500,000, and, in such event, Seller shall be responsible only for the amount in
excess of such $500,000. Buyer shall not be required to indemnify any other
Person under Section 8.2(a) unless the aggregate of all amounts for which
indemnity would otherwise be payable by Buyer exceeds $500,000, and in such
event, Buyer shall be responsible only for the amount in excess of such
$500,000. Seller's indemnity obligations under Section 8.1(a) (except with
respect to any inaccuracy in or breach of any of the representations and
warranties contained in Sections 2.1(a), 2.2, 2.4, 2.6(c), 2.19 and 2.22) shall
be limited, in the aggregate, to an amount equal to $20 million. Buyer's
indemnity obligations under Section 8.2(a) shall be limited, in the aggregate,
to an amount equal to $20 million.
8.6 Tax Adjustments. Any amounts payable by an Indemnifying
Party to or on behalf of an Indemnified Party in respect of a Loss shall be
adjusted as follows:
(a) If such Indemnified Party is liable for any additional
Taxes as a result of the payment of amounts in respect of a Loss, the
Indemnifying Party will pay to the Indemnified Party in addition to
such amounts in respect of the Loss within 10 days after being notified
by the Indemnified Party of the payment of such liability (x) an amount
equal to such additional Taxes (the "Tax Reimbursement Amount") plus
(y) any additional amounts required to pay additional Taxes imposed
with respect to the Tax Reimbursement Amount and with respect to
amounts payable under this clause (y), with the result that the
Indemnified Party shall have received from the Indemnifying Party, net
of the payment of Taxes, an amount equal to the Loss.
(b) The Indemnified Party shall reimburse the Indemnifying
Party an amount equal to the net reduction in any year in the liability
for Taxes (that are based upon or measured by income) of the
Indemnified Party or any member of a consolidated or combined tax group
of which the Indemnified Party is, or was at any time, part, which
reduction is actually realized with respect
66
to any period after the Closing Date and which reduction would not have
been realized but for the amounts paid (or any audit adjustment or
deficiency with respect thereto, if applicable) in respect of an
Indemnifiable Claim, or amounts paid by the Indemnified Party pursuant
to this paragraph (a "Net Tax Benefit"). The amount of any Net Tax
Benefit shall be paid not later than 15 days after the date on which
such Net Tax Benefit shall be realized. Any expenses associated with
the realization of a Net Tax Benefit or any contest or proceeding with
respect to a Net Tax Benefit shall be deemed to reduce such Net Tax
Benefit. Buyer agrees to provide Seller or its designated
representatives with such assistance and such documents and records
reasonably requested by them that are relevant to their ability to
determine whether a Net Tax Benefit has been realized including but not
limited to copies of Tax Returns, estimated tax payments, schedules,
and related supporting documents.
ARTICLE IX
GENERAL
9.1 Amendments; Waivers.
This Agreement and any schedule or exhibit attached hereto may
be amended only by agreement in writing of all parties. No waiver of any
provision nor consent to any exception to the terms of this Agreement or any
agreement contemplated hereby shall be effective unless in writing and signed by
the party to be bound and then only to the specific purpose, extent and instance
so provided.
9.2 Schedules; Exhibits; Integration.
Each schedule and exhibit delivered pursuant to the terms of
this Agreement shall be in writing and shall constitute a part of this
Agreement, although schedules need not be attached to each copy of this
Agreement. This Agreement, together with such schedules and exhibits,
constitutes the entire agreement among the parties pertaining to the subject
matter hereof and supersedes all prior agreements and understandings of the
parties in connection therewith including, but not limited to, that certain
Confidentiality Agreement dated April 30, 1997 by and between Buyer and Seller.
9.3 Best Efforts; Further Assurances.
Each party will use its best efforts to cause all conditions
to its obligations hereunder to be timely satisfied and to perform and fulfill
all obligations on its
67
part to be performed and fulfilled under this Agreement, to the end that the
transactions contemplated by this Agreement shall be effected substantially in
accordance with its terms as soon as reasonably practicable. The parties shall
cooperate with each other in such actions and in securing requisite Approvals.
Each party shall execute and deliver both before and after the Closing such
further certificates, agreements and other documents and take such other actions
as may be necessary or appropriate to consummate or implement the transactions
contemplated hereby or to evidence such events or matters. As used in this
Agreement, the term "best efforts" shall not mean efforts which require the
performing party to do any act that is unreasonable under the circumstances, to
make any capital contribution or to expend any funds other than reasonable
out-of-pocket expenses incurred in satisfying its obligations hereunder,
including but not limited to the fees, expenses and disbursements of its
accountants, actuaries, counsel and other professionals.
9.4 Governing Law.
This Agreement, the legal relations between the parties and
any Action, whether contractual or non-contractual, instituted by any party with
respect to matters arising under or growing out of or in connection with or in
respect of this Agreement, including, but not limited to, the negotiation,
execution, interpretation, coverage, scope, performance, breach, termination,
validity, or enforceability of this Agreement, shall be governed by and
construed in accordance with the laws of the State of California applicable to
contracts made and performed in such State and without regard to conflicts of
law doctrines, except to the extent that certain matters are preempted by
federal law or are governed as a matter of controlling law by the law of the
jurisdiction of incorporation of the respective parties.
9.5 Assignment.
Neither this Agreement nor any rights or obligations under it
are assignable except that Buyer may assign its rights hereunder (including but
not limited to its rights under Article VIII) to any Affiliate of Buyer.
9.6 Headings.
The descriptive headings of the Articles, Sections and
subsections of this Agreement are for convenience only and do not constitute a
part of this Agreement.
68
9.7 Counterparts.
This Agreement and any amendment hereto or any other agreement
(or document) delivered pursuant hereto may be executed in one or more
counterparts and by different parties in separate counterparts. All of such
counterparts shall constitute one and the same agreement (or other document) and
shall become effective (unless otherwise provided therein) when one or more
counterparts have been signed by each party and delivered to the other party.
9.8 Publicity and Reports.
Seller and Buyer shall coordinate all publicity relating to
the transactions contemplated by this Agreement and, except to the extent
required by Law or applicable stock exchange rules or required in connection
with Buyer's efforts to obtain financing necessary for it to pay the Total
Purchase Price and adequately capitalize itself upon the consummation of the
transactions contemplated hereby, no party shall issue any press release,
publicity statement or other public notice relating to this Agreement, or the
transactions contemplated by this Agreement, without obtaining the prior consent
of the other parties hereto. Buyer and Seller shall each consult with the other
with respect to the form and content of any application or report made to any
Governmental Entity which relates to this Agreement or the transactions
contemplated hereby.
9.9 Parties in Interest.
This Agreement shall be binding upon and inure to the benefit
of each party, and nothing in this Agreement, express or implied, is intended to
confer upon any other Person any rights or remedies of any nature whatsoever
under or by reason of this Agreement except for the provisions of Article VIII
(which are intended to be for the benefit of the Persons provided for therein
and may be enforced by such Persons). Nothing in this Agreement is intended to
relieve or discharge the obligation of any third Person to (or to confer any
right of subrogation or action over against) any party to this Agreement.
9.10 Performance by Subsidiaries.
Each party agrees to cause its subsidiaries to comply with any
obligations hereunder relating to such subsidiaries and to cause its
subsidiaries to take any other action which may be necessary or reasonably
requested by the other party in order to consummate the transactions
contemplated by this Agreement.
69
9.11 Notices.
Any notice or other communication hereunder must be given in
writing and (a) delivered in person, (b) transmitted by telex, telefax or
telecommunications mechanism (provided that any notice so given is also mailed
or delivered as provided in clause (c)) or (c) mailed by certified or registered
mail, postage prepaid, receipt requested or delivered by reputable overnight
courier service as follows:
If to Buyer, addressed to:
TSMD Acquisition Corp.
c/o Mentmore Holdings, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
With a copy to:
O'Melveny & ▇▇▇▇▇
Embarcadero Center West
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
If to Company (prior to the Closing) or Seller, addressed to:
▇▇▇▇▇▇▇-▇▇▇▇▇▇▇ Company
Stanford Research Park
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
Attn: W. ▇▇▇▇▇ ▇▇▇▇▇▇▇
With a copy to:
▇▇▇▇▇▇ ▇▇▇▇▇▇ White & ▇▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇'▇▇▇▇, Esq.
or to such other address or to such other person as either party shall have last
designated by such notice to the other party. Each such notice or other
communication shall be effective (i) if given by telecommunication, when
70
transmitted to the applicable number so specified in (or pursuant to) this
Section 9.11 and an appropriate answerback is received, (ii) if given by mail or
by overnight delivery, three days after such communication is deposited in the
mails with first class postage prepaid or delivered to the overnight courier,
addressed as aforesaid or (iii) if given by any other means, when actually
delivered at such address.
9.12 Expenses.
Seller, Company and Buyer shall each pay their own expenses
incident to the negotiation, preparation and performance of this Agreement and
the transactions contemplated hereby, including but not limited to the fees,
expenses and disbursements of their respective investment bankers, accountants
and counsel. Any such expenses of Company shall be paid by Seller prior to the
Closing.
9.13 Remedies; Waiver.
To the extent permitted by Law, all rights and remedies
existing under this Agreement and any related agreements or documents are
cumulative to and not exclusive of, any rights or remedies otherwise available
under applicable Law. No failure on the part of any party to exercise or delay
in exercising any right hereunder shall be deemed a waiver thereof, nor shall
any single or partial exercise preclude any further or other exercise of such or
any other right.
9.14 Attorney's Fees.
In the event of any Action by any party arising under or out
of, in connection with or in respect of, this Agreement including any
participation in bankruptcy proceedings to enforce against a party a right or
claim in such proceedings, the prevailing party shall be entitled to reasonable
attorney's fees, costs and expenses incurred in such Action. Attorney's fees
incurred in enforcing any judgement in respect of this Agreement are recoverable
as a separate item. The parties intend that the preceding sentence be severable
from the other provisions of this Agreement, survive any judgment and, to the
maximum extent permitted by law, not be deemed merged into such judgment.
9.15 Knowledge Convention.
Whenever any statement herein or in any schedule, exhibit,
certificate or other documents delivered to any party pursuant to this Agreement
is made "to knowledge" or "to best knowledge" or words of similar intent or
effect, such statement shall refer to the actual knowledge of those persons
listed on Schedule 9.15, after due inquiry, and each
71
such statement shall be deemed to include a representation that such inquiry has
been made.
9.16 Representation By Counsel; Interpretation.
Seller, Company and Buyer each acknowledge that each party to
this Agreement has been represented by counsel in connection with this Agreement
and the transactions contemplated by this Agreement. Accordingly, any rule of
Law, including but not limited to Section 1654 of the California Civil Code, or
any legal decision that would require interpretation of any claimed ambiguities
in this Agreement against the party that drafted it has no application and is
expressly waived. The provisions of this Agreement shall be interpreted in a
reasonable manner to effect the intent of Buyer and Seller.
9.17 Specific Performance.
Seller and Buyer each acknowledge that, in view of the
uniqueness of the Business and the transactions contemplated by this Agreement,
each party would not have an adequate remedy at law for money damages in the
event that this Agreement has not been performed in accordance with its terms,
and therefore agrees that the other party shall be entitled to specific
enforcement of the terms hereof in addition to any other remedy to which it may
be entitled, at law or in equity.
9.18 Severability.
If any provision of this Agreement is determined to be
invalid, illegal or unenforceable by any Governmental Entity, the remaining
provisions of this Agreement shall remain in full force and effect provided that
the essential terms and conditions of this Agreement for Buyer and Seller remain
valid, binding and enforceable.
9.19 Confidentiality.
(a) Seller and Company agree to, and shall cause their agents,
representatives, Affiliates, employees, officers and directors to: (i) treat and
hold as confidential (and not disclose or provide access to any Person to) all
Intangible Property and information relating to product development, price,
distributor and customer lists, pricing and marketing plans, policies and
strategies, details of client and consultant contracts, operations methods,
product development techniques, business acquisition plans, new personnel
acquisition plans and all other confidential information with respect to the
Business, except as may be required by applicable Law, in which event Seller and
Company agree to, and shall cause their agents,
72
representatives, Affiliates, employees, officers and directors to, furnish only
that portion of such confidential information which they reasonably believe is
legally required to be provided and exercise their reasonable efforts to obtain
assurances that confidential treatment will be afforded such information, and
(ii) in the event that Seller, Company or any such agent, representative,
Affiliate, employee, officer or director becomes legally compelled to disclose
any such information, provide Buyer with prompt written notice of such
requirement so that Buyer may, at the expense of Buyer, seek a protective order
or other remedy. This Section 9.19(a) shall not apply to any information that,
at the time of disclosure, is known to the receiving party before disclosure
thereof, is independently developed by the receiving party, is or becomes
publicly available through no fault of the receiving party, is obtained by the
receiving party from a third party not known by the receiving party to be under
any obligation not to disclose such information and which the receiving party
has no reason to believe is not otherwise publicly available (provided, however,
that once Seller is advised that information obtained under such circumstance is
indeed confidential hereunder, this Section 9.19(a) shall thereafter apply to
such information) or is reasonably necessary in order for Seller to litigate any
claim against Buyer pursuant to this Agreement. Seller agrees and acknowledges
that remedies at law for any breach of its obligations under this Section
9.19(a) are inadequate and that in addition thereto Buyer shall be entitled to
seek equitable relief, including injunction and specific performance, in the
event of any such breach. Notwithstanding the foregoing, (x) Seller may make
such disclosures to the independent public accountants of Seller as may be
necessary in connection with their auditing of the books and records of Seller
and its Affiliates; provided, however, that such independent public accountants
shall enter into a confidentiality and nondisclosure agreement on substantially
the same terms as set forth in this Section 9.19(a), and (y) Seller, with the
consent of Buyer (which consent shall not be unreasonably withheld) may make
such disclosures in connection with defending any claim brought against Seller
or any of its Affiliates by any third person as may be reasonably necessary in
order for Seller to conduct its defense thereof; provided, however, that Seller
agrees to, and agrees to cause its agents, representatives, Affiliates,
employees, officers and directors to, exercise their reasonable efforts to
obtain assurances that confidential treatment will be afforded such information
and to seek a protective order or other remedy to preserve the confidentiality
of such information.
(b) During the period starting at the execution of this
Agreement and ending on the earlier of (A) the
73
Closing Date or (B) April 10, 2000, Buyer agrees to, and shall cause its agents,
representatives, Affiliates, employees, officers and directors to: (i) treat and
hold as confidential (and not disclose or provide access to any Person to) all
Intangible Property, and information relating to product development, price,
distributor and customer lists, pricing and marketing plans, policies and
strategies, details of client and consultant contracts, operations methods,
product development techniques, business acquisition plans, new personnel
acquisition plans and all other confidential information with respect to the
Business, except as may be required by applicable Law, in which event Buyer
agrees to, and shall cause its agents, representatives, Affiliates, employees,
officers and directors to, furnish only that portion of such confidential
information which Buyer reasonably believes is legally required to be provided
and exercise its reasonable efforts to obtain assurances that confidential
treatment will be accorded such information, and (ii) in the event that Buyer or
any such agent, representative, Affiliate, employee, officer or director becomes
legally compelled to disclose any such information, provide Seller with prompt
written notice of such requirement so that Seller may, at the expense of Seller,
seek a protective order or other remedy. This Section 9.19(b) shall not apply to
any information that, at the time of disclosure, is known to the receiving party
before disclosure thereof, is independently developed by the receiving party, is
or becomes publicly available through no fault of the receiving party, or is
obtained by the receiving party from a third party not known by the receiving
party to be under any obligation not to disclose such information and which the
receiving party has no reason to believe is not otherwise publicly available
(provided, however, that once Buyer is advised that information obtained under
such circumstance is indeed confidential hereunder, this Section 9.19(b) shall
thereafter apply to such information) or is reasonably necessary in order for
Buyer to litigate any claim against Seller pursuant to this Agreement. Buyer
agrees and acknowledges that remedies at law for any breach of its obligations
under this Section 9.19(b) are inadequate and that in addition thereto Seller
shall be entitled to seek equitable relief, including injunction and specific
performance, in the event of any such breach. Notwithstanding the foregoing, (x)
Buyer may make such disclosures to the independent public accountants of Buyer
as may be necessary in connection with their auditing of the books and records
of Buyer, Company and their Affiliates; provided, however, that such independent
public accountants shall enter into a confidentiality and nondisclosure
agreement on substantially the same terms as set forth in this Section 9.19(b),
and (y) Buyer, with the consent of Seller (which consent shall not be
unreasonably withheld) may make such disclosures in connection with
74
defending any claim brought against Buyer or any of its Affiliates by any third
person as may be reasonably necessary in order for Buyer to conduct its defense
thereof; provided, however, that Buyer agrees to, and agrees to cause its
agents, representatives, Affiliates, employees, officers and directors to,
exercise their reasonable efforts to obtain assurances that confidential
treatment will be afforded such information and to seek a protective order or
other remedy to preserve the confidentiality of such information.
9.20 Schedules.
The parties acknowledge that the Schedules (including, but not
limited to, the Disclosure Schedule) other than Schedule 3.3 are incomplete as
of the date hereof (such incomplete Schedules (other than Schedule 6.2(d)) being
"Seller's Incomplete Schedules"). Seller shall deliver to Buyer and its counsel
for their review a complete and accurate version of each of Seller's Incomplete
Schedules not later than 5:00 p.m. San Francisco time on September 4, 1997.
Seller shall also provide Buyer with copies of any supporting documents and such
access to those officers and other employees of Seller and to Seller's legal
counsel as may be reasonably requested by Buyer and its legal counsel in
connection with their review of Seller's Incomplete Schedules. Buyer shall have
the right to terminate this Agreement by written notice to Seller as described
below in the event that Buyer is not satisfied with Seller's Incomplete
Schedules, as so revised; provided, however, that Buyer shall not be arbitrary
or capricious in determining to terminate this Agreement pursuant to this
Section 9.20. Not later than two business days after all such supporting
documents and access shall have been provided to Buyer, Buyer shall either (i)
advise Buyer that Seller's Incomplete Schedules, as revised by Seller, are
acceptable to Buyer and deliver to Seller Schedule 6.2(d), whereupon Seller's
Incomplete Schedules, as so revised, and Schedule 6.2(d), as so delivered, shall
become Schedules hereto, or (ii) advise Buyer that Buyer has determined to
terminate this Agreement pursuant to the provisions of this Section 9.20.
75
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed by its duly authorized representative as of the date
first above written.
TSMD ACQUISITION CORP.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇
----------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇
----------------------------
Title: Vice-President
----------------------------
▇▇▇▇▇▇▇-▇▇▇▇▇▇▇ COMPANY
By: /s/ ▇.▇. ▇▇▇▇▇▇▇
----------------------------
Name: ▇.▇. ▇▇▇▇▇▇▇
----------------------------
Title: President
----------------------------
▇-▇ TSMD INC.
By: /s/ ▇.▇. ▇▇▇▇▇▇▇
----------------------------
Name: ▇.▇. ▇▇▇▇▇▇▇
----------------------------
Title: President
----------------------------