SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 20, 1999
LABTEC INC.
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(Exact Name of Registrant as Specified in Charter)
Massachusetts 0-27302 04-3116697
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(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File No.) Identification No.)
1499 S.E. Tech Center Place, Suite 350, Vancouver, Washington 98683
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (360) 896-2000
Not Applicable
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(Former Name or Former Address, if Changed Since Last Report)
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ITEM 2. ACQUISITION OF ASSETS.
On August 20, 1999, Labtec Inc., a Massachusetts corporation (the
"Company"), acquired (the "Acquisition") all of the outstanding capital
stock of Connector Resources Unlimited, Inc., a California corporation
("CRU"). The Acquisition was effected pursuant to a Stock Purchase
Agreement, dated as of August 4, 1999 (the "Stock Purchase Agreement"),
among CRU Acquisition Corp., a Delaware corporation and wholly-owned
subsidiary of the Company formed for the purpose of the Acquisition
(the "Purchaser"), the Company and the four stockholders of CRU (the
"Sellers").
Pursuant to the Acquisition, the Purchaser acquired all of the issued
and outstanding capital stock of CRU, consisting of 823,780 shares of
common stock (the "Shares"), in consideration for which the Purchaser
(i) paid to the Sellers $12,000,000 in cash, subject to adjustment
following the closing of the Acquisition based upon CRU's net worth as
of the closing date, and (ii) delivered to the Sellers a promissory
note issued by the Company in the principal amount of $1,500,000
payable to Carl W. Gromada, as collection agent for each of the Sellers
(the "Promissory Note"). The foregoing consideration was allocated pro
rata among the Sellers based upon their respective ownership of CRU
prior to the consummation of the Acquisition. The principal amount of
the Promissory Note is payable in full at the end of its 7-1/2 year
term and accrues interest, payable quarterly, at a rate of 6% through
June 30, 2001 and 9% thereafter. The Promissory Note is unsecured,
subordinated to all institutional indebtedness of the Company,
prepayable by the Company (subject to the subordination provisions), in
whole or in part, without penalty, at any time at the Company's option,
and prepayable by the Company (subject to the subordination
provisions), in full, upon the occurrence of certain prepayment events.
The terms of the Acquisition were determined in accordance with the
Stock Purchase Agreement and were established through arm's-length
negotiations between the Company and the Sellers.
Pursuant to the Stock Purchase Agreement, CRU entered into an
employment agreement with one of the Sellers and committed to employ
one of the other Sellers following the closing of the Acquisition.
The cash portion of the purchase price of the Acquisition was financed
with a new senior secured bank credit facility of the Company led by
The Chase Manhattan Bank, which credit facility also replaced the
Company's previous credit facility led by Bankers Trust Company.
The foregoing summary of the terms of the Acquisition, the Stock
Purchase Agreement and the Promissory Note does not purport to be
complete and is qualified in its entirety by reference to the full text
of the Stock Purchase Agreement and the Promissory Note, copies of
which are filed as Exhibit 2.1 and 2.2 hereto, respectively, and
incorporated herein by reference.
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Prior to the consummation of the Acquisition, the Company did not own,
directly or indirectly, any of the voting securities of CRU, apart from
any beneficial ownership interest it may have had as a result of
entering into the Stock Purchase Agreement.
Through its acquisition of CRU, the Company acquired a developer and
marketer of mass storage devices for computer systems, offering a full
line of enclosures and removable storage modules. CRU's products are
sold throughout North America by distributors such as DSS, Gates/Arrow,
Ingram Micro and Tech Data, as well as large original equipment
manufacturers, systems integrators, value-added resellers and Megahaus,
a mail-order company.
The Company intends to continue using the assets acquired pursuant to
the Acquisition for the purposes previously noted.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
To be filed by amendment.
(b) PRO FORMA FINANCIAL INFORMATION.
To be filed by amendment.
(c) EXHIBITS.
Exhibit
No. Description
2.1 Stock Purchase Agreement, dated as of August 4, 1999, among
the Purchaser, the Company and each of the stockholders of
Connector Resources Unlimited, Inc.
2.2 Promissory Note, dated as of August 20, 1999, issued by the
Company and payable to Carl W. Gromada, as collection agent
for each of the stockholders of Connector Resources
Unlimited, Inc.
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SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of
1934, as amended, the registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
Dated: September 2, 1999
LABTEC INC.
By: /s/ Robert G. Wick
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Name: Robert G. Wick
Title: President and Chief
Executive Officer
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EXHIBIT INDEX
Exhibit
No. Description
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2.1 Stock Purchase Agreement, dated as of August 4, 1999, among
the Purchaser, the Company and each of the stockholders of
Connector Resources Unlimited, Inc.
2.2 Promissory Note, dated as of August 20, 1999, issued by the
Company and payable to Carl W. Gromada, as collection agent
for each of the stockholders of Connector Resources
Unlimited, Inc.
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STOCK PURCHASE AGREEMENT
between
CRU ACQUISITION CORP.
and
EACH OF THE STOCKHOLDERS
of
CONNECTOR RESOURCES UNLIMITED, INC.
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Dated as of August 4, 1999
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT, is made as of August 4, 1999,
between CRU Acquisition Corp., a Delaware corporation with offices c/o Sun
Capital Partners, Inc., 5355 Town Center Road, Suite 802, Boca Raton, Florida
33486 (the "Purchaser"), and the persons set forth on Exhibit A hereto
(collectively, the "Sellers"), who together own all of the issued and
outstanding capital stock of Connector Resources Unlimited, Inc., a California
corporation with offices at 1005 Ames Avenue, Milpitas, California 95035 (the
"Company").
W I T N E S S E T H:
WHEREAS, the Sellers desire to sell all of their shares of the
Company's capital stock to the Purchaser upon the terms and conditions set forth
herein; and
WHEREAS, the Purchaser desires to purchase such shares from
the Sellers upon the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants,
conditions and promises contained herein, the parties hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF SHARES; CONSIDERATION; CLOSING
1.1. Purchase and Sale of Shares. Subject to the terms and
conditions set forth in this Agreement, the Sellers hereby agree to sell,
transfer, convey, assign and deliver to the Purchaser at the Closing (as defined
in Section 1.6 hereof), and the Purchaser hereby agrees to purchase, accept and
acquire from the Sellers at the Closing, all of the issued and outstanding
shares of the capital stock of the Company (collectively, the "Shares"),
consisting of 823,780 issued and outstanding shares of the Company's common
stock ("Common Stock"), free and clear of all Liens (as defined in Section 3.6
hereof).
1.2. Purchase Price. As consideration in full for its
acquisition of the Shares, the Purchaser shall pay an aggregate amount equal to
$13,500,000, as such sum is adjusted pursuant to Section 1.4 hereof (the
"Purchase Price").
1.3. Payment of the Purchase Price. At the Closing, the
Purchaser shall (a) cause an aggregate amount in cash equal to $12,000,000 to be
paid by wire transfer to (i) the account and in such amount as specified in
writing by the Sellers' Representative (as defined in Section 8.13 hereof) to
the Purchaser not later than three (3) business days prior to the Closing Date
and (ii) such
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holders of Designated Indebtedness (as defined in Section 4.10 hereof) such
amounts as specified in writing by the Sellers' Representative pursuant to
Section 4.10(a) hereof, and (b) deliver to the Sellers' Representative a
promissory note in the principal amount of $1,500,000, issued by Labtec Inc., a
Massachusetts corporation and the direct owner of all of the issued and
outstanding shares of capital stock of the Purchaser ("Labtec"), and payable to
the Sellers' Representative, as collection agent, substantially in the form of
Exhibit B hereto (the "Promissory Note").
1.4. Purchase Price Adjustment. The amount of the Purchase
Price shall be subject to adjustment as follows:
(a) Within ninety (90) days following the Closing
Date, the Purchaser shall cause to be prepared, in accordance with generally
accepted accounting principles ("GAAP") on a basis consistent with those used in
the Balance Sheet (as defined in Section 3.4 hereof), (i) a balance sheet (the
"Draft Closing Date Balance Sheet") setting forth the Purchaser's determination
of the Company's Closing Net Worth (as defined below), and (ii) a statement (the
"Draft Closing Date Net Cash Statement") setting forth the Purchaser's
determination of the Company's Closing Cash Deficiency (as defined below), if
any, in each case as of the close of business on the day prior to the Closing
Date, but after giving effect to (A) the payments and accruals required to be
made hereunder by the Company pursuant to Section 4.13 prior to or at the
Closing and (B) the accrual required to be made hereunder by the Company
pursuant to Section 4.15, the cost of which balance sheet and statement shall be
borne by the Purchaser or the Company (except to the extent provided in the
foregoing clause (B)). The inventory valuation set forth in the Draft Closing
Date Balance Sheet shall be based on a physical count of the inventory conducted
jointly by the Purchaser and the Sellers' Representative promptly prior to the
Closing Date. The Purchaser and the Sellers' Representative shall use their best
efforts to complete the physical count of the inventory on or before the close
of business on the Closing Date, and such physical count shall be updated by the
Company's inventory records for the time period after the taking of such
physical count through the Closing Date.
(b) Within ninety (90) days following the Closing
Date, the Purchaser shall deliver to the Seller's Representative the Draft
Closing Date Balance Sheet and the Draft Closing Date Net Cash Statement,
together with any work papers or other such items as the Sellers' Representative
shall reasonably request. The Draft Closing Date Balance Sheet and the Draft
Closing Date Net Cash Statement shall become final and binding upon the parties
unless the Sellers' Representative gives written notice of its disagreement (a
"Notice of Disagreement") to the Purchaser within fifteen (15) business days
after the Sellers' Representative's receipt of the Draft Closing Date Balance
Sheet and the Draft Closing Date Net Cash Statement, specifying the Sellers'
Representative's disagreement with either of such statements. If a Notice of
Disagreement is received by the Purchaser in a timely manner, then the Draft
Closing Date Balance Sheet and the Draft Closing Date Net Cash Statement shall
each become final and binding upon the parties on the earlier of (i) the date
the parties hereto resolve in writing any differences they may have with respect
to any matter specified in the Notice of Disagreement and (ii) the date any
Disputed Matters (as defined below) are finally resolved in writing by the
Arbitrator (as defined below). In the event that a Notice of Disagreement is
received by the Purchaser in a timely manner, then the portion, if any, of the
Purchase Price Adjustment (as
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defined in Section 1.4(d) hereof) that is not in dispute shall be paid by the
Purchaser or the Sellers, as the case may be, in accordance with Section 1.4
hereof, within five (5) days after the expiration of the aforesaid fifteen (15)
business day period. Any such Notice of Disagreement shall state in reasonable
detail the nature of any disagreement so asserted. During a period of ten (10)
days (or such longer period as the Purchaser and the Sellers' Representative may
mutually agree) after the expiration of the aforesaid fifteen (15) business day
period, the Purchaser and the Sellers' Representative shall attempt to resolve
in writing any differences that they may have with respect to any matter
specified in the Notice of Disagreement. If, at the end of such ten (10) day
period (or such longer period as the Purchaser and the Sellers' Representative
may have mutually agreed), the Purchaser and the Sellers' Representative have
failed to reach written agreement with respect to all of such matters, then all
such matters as specified in the Notice of Disagreement as to which such written
agreement has not been reached (the "Disputed Matters") shall be submitted to
and reviewed by an arbitrator (the "Arbitrator"). If the Purchaser and the
Sellers' Representative are unable to agree upon the identity of the Arbitrator
within five (5) days, the Sellers' Representative and the Purchaser shall each
select within five (5) days thereafter one of the "Big-Five" accounting firms
having no other relationship with any party hereto during the past two (2) years
to select the Arbitrator. If such accounting firms cannot agree as to the
identity of the Arbitrator, then each of such accounting firms shall select one
nominee and the Arbitrator shall be chosen by lot. The Arbitrator shall consider
only the Disputed Matters and shall be instructed to act promptly to resolve all
Disputed Matters, and its decision with respect to all Disputed Matters shall be
final and binding upon the Purchaser and the Sellers. The Arbitrator shall
decide all of the Disputed Matters within fifteen (15) days and provide the
Sellers' Representative and the Purchaser with a written decision regarding his
determination of the Disputed Matters. The fees and expenses of the Arbitrator
with respect to the settlement of all Disputed Matters shall be borne by the
Purchaser, on the one hand, and the Sellers, on the other hand, in such
proportion as shall be determined by the Arbitrator giving consideration to the
Purchaser's and the Sellers' initial positions with respect to the matter and
how far such positions were from the Arbitrator's decision.
(c) As used herein,
(i) "Closing Date Balance Sheet" means the
Draft Closing Date Balance Sheet in the form in which it becomes final in
accordance with this Section 1.4.
(ii) "Closing Date Net Cash Statement"
means the Draft Closing Date Net Cash Statement in the form in which it becomes
final in accordance with this Section 1.4.
(iii) "Closing Net Worth" means the
Company's total assets minus the Company's total liabilities (including, without
limitation, contingent liabilities under outstanding letters of credit issued
for the account of the Company, any capitalized leases of the Company and
accruals for all Taxes not yet payable with respect to any Pre-Closing Period)
as reflected on the Closing Date Balance Sheet.
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(iv) "Closing Cash Deficiency" means the
amount, if any, by which (A) the Company's cash plus cash equivalents (including
any promissory notes from shareholders of the Company being paid in connection
with the Closing) minus (B) the Company's Indebtedness (as defined in Section
4.10 hereof, however, excluding $750,000 of Indebtedness incurred by the Company
to fund the Company's redemption on July 7, 1999 of shares of Common Stock from
Kentex Electronics Co., Ltd. to the extent such redemption reduces the Closing
Net Worth) is less than $100,000, as reflected on the Closing Date Net Cash
Statement.
(d) The Purchase Price shall be adjusted dollar-
for-dollar by an amount (the "Purchase Price Adjustment") equal to the sum of
(i) the Closing Net Worth, minus (ii) $2,150,000, minus (iii) the Closing Cash
Deficiency, if any, plus (iv) the amount of Indebtedness paid by the Company
pursuant to Section 4.10 hereof or by the Purchaser pursuant to Section
1.3(a)(ii) hereof. Promptly (but no later than five (5) days) after the
finalization of both the Closing Date Balance Sheet and the Closing Date Net
Cash Statement:
(A) if the amount of the Purchase Price
Adjustment is positive, the Purchase Price shall be increased by such amount and
the Purchaser shall pay such amount (or, in the event that a Notice of
Disagreement had been delivered, the previously disputed portion of the Purchase
Price Adjustment) to the Sellers' Representative in cash, by check or by wire
transfer of immediately available funds, to an account specified by the Sellers'
Representative; or
(B) if the amount of the Purchase Price
Adjustment is negative, the Purchase Price shall be decreased by such amount and
the Sellers shall pay such amount (or, in the event that a Notice of
Disagreement had been delivered, the previously disputed portion of the Purchase
Price Adjustment) to the Purchaser in cash, by check or by wire transfer of
immediately available funds, to an account specified by the Purchaser.
For illustrative purposes only, attached as Exhibit 1.4 hereto is an example of
the calculation of the Purchase Price Adjustment.
(e) Any payment required to be made by the
Purchaser to the Sellers' Representative or by the Sellers to the Purchaser, as
the case may be, pursuant to this Section 1.4 shall not be subject to the
provisions of Section 6.3 hereof.
1.5. Allocation of Purchase Price. The Purchase Price shall be
allocated among the Sellers in the respective amounts set forth on Exhibit A
hereto.
1.6. Closing. Subject to the fulfillment of the conditions
precedent hereinafter set forth, the consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Kaye, Scholer, Fierman, Hays & Handler, LLP, 425 Park Avenue, New York, New
York 10022, counsel to the Purchaser's lenders, at such time and date (and, if
applicable, such other place) as the parties hereto may agree upon (the "Closing
Date").
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Sellers as
follows:
2.1. Corporate Organization, Etc. The Purchaser is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. The Purchaser has the power and authority to execute
and deliver this Agreement and the other agreements and instruments contemplated
herein and to perform its other obligations hereunder and thereunder. The
Purchaser is a newly formed corporation, formed solely for the purposes of the
transactions contemplated hereby. All of the issued and outstanding shares of
capital stock of the Purchaser are owned, beneficially and of record, by Labtec.
2.2. Authorization. The execution, delivery and performance by
the Purchaser of this Agreement and the other agreements and instruments
contemplated hereby and the performance by the Purchaser of the transactions
contemplated hereby and thereby have been duly authorized by all requisite
corporate action of the Purchaser and do not and will not contravene or violate
any provisions of its Certificate of Incorporation or By-Laws, any agreement or
other instrument by which it is bound, or any judgment, order, injunction,
decree, statute, rule or regulation applicable to it, except for those
contraventions and violations of agreements, instruments (other than its
Certificate of Incorporation and By-Laws), judgments, orders, injunctions,
decrees, statutes, rules or regulations which would not have a Material Adverse
Effect (as defined in Section 8.18 hereof) on the Purchaser. No consents,
waivers, approvals, authorizations or orders of or registrations or
qualifications with, any person, bank, corporation, association, governmental
body or court having authority or power to regulate, supervise or direct the
business and affairs of the Purchaser are necessary for the consummation by the
Purchaser of the transactions contemplated by this Agreement. This Agreement has
been, and the other agreements and instruments contemplated hereby will be, duly
and validly executed and delivered by the Purchaser and (assuming due
authorization, execution and delivery by the Sellers and each other party
thereto) constitute or will then constitute, as the case may be, the legal,
valid and binding obligations of the Purchaser, enforceable against it in
accordance with their respective terms, subject to the effect of bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance and other similar
laws relating to or affecting creditors' rights generally and court decisions
with respect thereto and the availability of equitable remedies.
2.3. Brokers and Finders. The Purchaser has not employed any
broker, agent or finder or agreed to incur any liability for any brokerage fees,
agents' commissions or finders' fees in connection with the transactions
contemplated hereby, other than Sun Capital Partners, Inc. and Dinan & Co.
2.4. Size of Person for Purposes of HSR Act. Capitalized
terms used in this Section 2.4 but not otherwise defined herein are used as
defined in the rules adopted under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"). Financial
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information described in this Section 2.4 is to be determined in accordance with
the HSR Act. As of the date hereof and as of the Closing Date, (a) the annual
net sales of the Person within which the Purchaser is included under the HSR Act
(the "Purchaser HSR Person"), determined in accordance with the HSR Act, for its
most recent fiscal year were less than $100,000,000, and (b) the total assets of
the Purchaser HSR Person, determined in accordance with the HSR Act, were less
than $100,000,000.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
Each Seller jointly and severally represents and warrants to
the Purchaser as follows:
3.1. Corporate Organization, Etc. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of California, with full corporate power to own its assets and to carry on
its business as it is now being conducted. The Company is qualified or licensed
to conduct its business and is in good standing in each of the jurisdictions set
forth on Schedule 3.1 hereto, which constitute the only jurisdictions where the
nature of its activities or the character of the properties utilized in its
business make such qualification or licensing necessary and where the failure to
be so qualified or licensed would have a Material Adverse Effect on the Company.
3.2. Authorization.
(a) Each Seller has the power and authority to
execute and deliver this Agreement and the other agreements and instruments
contemplated hereby and to perform his obligations hereunder and thereunder. The
execution, delivery and performance by the Sellers of this Agreement and the
other agreements and instruments contemplated hereby and the performance by the
Sellers of the transactions contemplated hereby and thereby has been duly
authorized by all requisite corporate action of each Seller which is not an
individual, do not and will not contravene or violate, in the case of any Seller
which is not an individual, its documents of formation and management and do not
and will not contravene or violate any agreement or other instrument by which
they are affected or any judgment, order, injunction, decree, statute, rule or
regulation applicable to any Seller, except for those contraventions or
violations of agreements, instruments (other than, in the case of any Seller
which is not an individual, its documents of formation and management),
judgments, orders, injunctions, decrees, statutes, rules and regulations which
would not have a Material Adverse Effect on the consummation of the transactions
contemplated hereby. Except as set forth on Schedule 3.2 hereto, no consents,
waivers, approvals, authorizations or orders of, or registrations or
qualifications with, any person, bank, corporation, association, governmental
body or court having authority or power to regulate, supervise or direct the
business and affairs of a Seller or the Company are necessary for the
consummation by any Seller of the transactions contemplated by this Agreement.
This Agreement has been, and the agreements and instruments
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contemplated hereby will at the Closing be, duly and validly executed and
delivered by the Sellers and (assuming due authorization, execution and delivery
by the Purchaser and each other party thereto) constitute or will then
constitute, as the case may be, the legal, valid and binding obligations of each
Seller, enforceable against him or it in accordance with their respective terms,
subject to the effect of bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance and other similar laws relating to or affecting creditors'
rights generally and court decisions with respect thereto and the availability
of equitable remedies.
(b) The execution, delivery and performance of this
Agreement and the performance of the transactions contemplated hereby do not and
will not contravene or violate any agreement or other instrument by which the
Company is bound or by which any of the assets of the Company are affected or
any judgment, order, injunction, decree, statute, rule or regulation applicable
to the Company or the assets or business of the Company, except for those
contraventions and violations of agreements, instruments, judgments, orders,
injunctions, decrees, statutes, rules and regulations which would not have a
Material Adverse Effect on the Company.
3.3. Capitalization. The authorized capital stock of the
Company consists of 2,500,000 shares of Common Stock, of which 823,780 shares
are issued and outstanding. All of the outstanding shares of Common Stock were
duly authorized and validly issued and are fully paid and non-assessable and are
owned of record and beneficially by the Sellers in the respective amounts set
forth on Exhibit A hereto. Each Seller owns the shares of Common Stock set forth
opposite his name on Exhibit A beneficially and of record, free and clear of any
Liens. Except as set forth on Schedule 3.3 hereto, there are no outstanding
options, warrants, rights to acquire or subscribe to, or calls or commitments of
any character whatsoever to which the Company is a party or may be bound,
requiring the issuance or sale of shares of any class of capital stock or other
equity securities of the Company or securities or rights convertible into or
exchangeable for such shares or other equity securities, and there are no
contracts, commitments, understandings or arrangements for which the Company is
or may become bound to issue additional shares of its capital stock or other
equity securities or options, warrants or rights to acquire or subscribe to any
additional shares of any class of its capital stock or other equity securities
or securities convertible into or exchangeable for such shares or other equity
securities. There is no existing arrangement that requires or permits any shares
of the capital stock of the Company to be voted by or at the discretion of
anyone other than the record owner thereof and there are no proxies providing
for such a voting arrangement. Except for restrictions imposed by applicable
securities laws, there are no restrictions of any kind on the transfer of any of
the outstanding shares of capital stock of the Company.
3.4. Financial Information. The audited balance sheets of the
Company as at March 31, 1997, 1998 and 1999 (said March 31, 1999 balance being
referred to herein as the "Balance Sheet" and March 31, 1999 being referred to
herein as the "Balance Sheet Date") and the related statements of operations,
cash flows and stockholders' equity of the Company for the twelve-month periods
ended on the respective dates of such balance sheets, together with the notes
and schedules thereto and accompanied by the reports thereon of Ireland San
Filippo, LLP, with respect to the March 31, 1997 balance sheet and such related
statements, and Petrinovich, Pugh and
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Company, with respect to the March 31, 1998 and 1999 balance sheets and such
related statements (collectively, the "Financial Statements"), a copy of each of
which has been delivered to the Purchaser, fairly present the financial
condition of the Company as of the respective dates of such balance sheets and
the results of its operations and cash flows for the periods covered by such
statements of operation and have been prepared in accordance with GAAP
consistently applied. The unaudited balance sheet of the Company at May 31, 1999
(said balance sheet being referred to herein as the "Latest Balance Sheet" and
May 31, 1999 being referred to herein as the "Latest Balance Sheet Date") and
the related unaudited statements of operations, cash flows and stockholders'
equity of the Company for the comparable two-month period, a copy of each of
which has been delivered to the Purchaser, fairly present the financial
condition of the Company and the results of its operations and cash flows as of
the date and for the period then ended, and have been prepared in accordance
with GAAP consistently applied, except that they do not contain all the footnote
disclosures required by GAAP and except for normal year-end audit adjustments.
All contingent liabilities of the Company at the Balance Sheet Date are noted in
the Balance Sheet to the extent required by GAAP and, to the knowledge of the
Company and each of the Sellers, the Company has not incurred any contingent
liabilities subsequent to the Balance Sheet Date except as noted in the Latest
Balance Sheet to the extent required by GAAP or except as disclosed in writing
to the Purchaser.
3.5. Ordinary Course; No Material Adverse Change. The business
of the Company has been conducted in the ordinary course since the Balance Sheet
Date. The Company has not suffered any material adverse change in its business,
operations, condition (financial or otherwise) or prospects subsequent to the
Balance Sheet Date.
3.6. Inventory and Supplies. The inventory and supplies of the
Company were acquired in the ordinary course of the business of the Company and
consist of items that are good and merchantable and of a quality and quantity
usable and saleable (in the case of inventory) in the ordinary course of
business, except to the extent of reserves, allowances and write-downs reflected
in the Balance Sheet. All such inventory is valued at the lower of cost or
market (using the standard cost method), in accordance with GAAP consistently
applied. Except as set forth on Schedule 3.6 hereto, there are no actual or, to
the knowledge of the Company and each of the Sellers, potential material
liabilities or material obligations with respect to the return of inventory in
the possession of customers other than returns in connection with stock
rotations in the ordinary course of business, consistent with past practice. The
inventories do not consist of any items held on consignment. The Company has
good and merchantable title to each item of inventory and supplies free and
clear of all mortgages, liens, claims, pledges, charges, security interests,
restrictions, prior assignments and encumbrances of any kind whatsoever, or any
conditional sale agreement or other title retention agreement (collectively,
"Liens"), except for Liens set forth on Schedule 3.6 hereto.
3.7. Accounts Receivable. The accounts receivable of the
Company represent bona fide indebtedness incurred by account debtors and arose
in the ordinary course of the business of the Company. To the knowledge of the
Company and each of the Sellers, since the Balance Sheet Date, except as set
forth on Schedule 3.7 hereto, no event has occurred that would, under practices
in effect when the Balance Sheet was prepared, require an increase in the
reserves for any accounts receivable.
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To the knowledge of the Company and each of the Sellers, there is no contest,
claim or right of set-off with any account debtor relating to the amount or
validity of any account receivable other than those which do not exceed, in the
aggregate, the reserve for uncollectible accounts contained in the Balance
Sheet. The Company has good and merchantable title to each of the accounts
receivable free and clear of all Liens, except for Liens set forth on Schedule
3.7 hereto.
3.8. Property.
(a) Real Property Leases. Schedule 3.8(a) hereto
contains a description of all real property leased, licensed to or otherwise
used by the Company (including, where available, the address thereof, a brief
description of the premises and the structures and improvements thereon, the
annual fixed rental, the expiration of the term and any extension options). A
true and correct copy of each such lease, license and/or occupancy agreement,
and any amendments thereto, has been delivered to the Purchaser, and no changes
have been made thereto since the date of delivery. The Company has a valid and
enforceable leasehold interest, free and clear of all Liens which individually
or in the aggregate would have a Material Adverse Effect on the use or value
thereof, in each parcel or tract of real property leased, licensed and/or
occupied by it. To the knowledge of the Company and each of the Sellers, each
such lease, license and/or occupancy agreement is valid, binding and enforceable
in accordance with its terms and is in full force and effect in all material
respects. There are no existing material defaults thereunder by the Company or,
to the knowledge of the Company and each of the Sellers, the lessor thereof and,
to the knowledge of the Company and each of the Sellers, no event has occurred
which (with notice, lapse of time or both) would constitute a material breach or
default thereunder by any party or give any party the right to terminate,
accelerate or modify such lease, license and/or occupancy agreement. Except as
set forth on Schedule 3.2 hereto, no consent is required from the lessor under
any lease, license and/or occupancy agreement of real property listed on
Schedule 3.8(a) hereto in order to consummate the transactions contemplated
hereby.
(b) Real Property. The Company does not own any real
property.
(c) Tangible Personal Property. Schedule 3.8(c)
hereto lists, by categories, all equipment, machinery, and other similar
tangible personal property, with an individual original cost of $50,000 or more,
owned or leased by the Company (the "Tangible Personal Property"). Except as set
forth on Schedule 3.8(c) hereto, the Company has good and marketable title to
and is in possession of all items of tangible personal property used in its
business (other than leased property), whether or not listed on Schedule 3.8(c)
hereto, and such property is free and clear of all Liens, except for (a) Liens
set forth on Schedule 3.8(c) hereto, (b) Liens for Taxes not yet due, and (c)
imperfections in title, if any, which do not interfere with the conduct of the
business of the Company, or detract from the value or materially adversely
affect the marketability of such property. The buildings, machinery, equipment
and other tangible assets that the Company owns and leases are free from
material defects (patent and latent), have been maintained in accordance with
normal industry practice, and are in good operating condition and repair
(subject to normal wear and tear).
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(d) Plants; Utilities and Systems. The plants,
buildings, fixtures, structures, equipment and systems in the buildings,
including, but not limited to, plumbing, mechanical, heating, ventilating, air
conditioning and internal sprinkler systems, used by the Company are in good
operating condition and repair, excluding ordinary wear and tear, are
structurally sound, and are adequate for the uses to which they are being put
and constitute all the plants, buildings, fixtures, structures and equipment
necessary for the conduct by the Company of its business as now conducted. The
real property owned, leased or otherwise used or occupied by the Company
(collectively, the "Real Property") has (i) water supply and sewer service,
electricity service and all other public or private utilities and (ii) all
easements and rights of ingress and egress necessary for the operation of the
Real Property for its use in connection with the conduct of the business of the
Company.
(e) Condemnation. Neither the whole nor any portion
of the Real Property has been condemned, requisitioned or otherwise taken by any
public authority, and no such condemnation, requisition or taking is, to the
knowledge of the Company and each of the Sellers, threatened or contemplated.
(f) Absence of Violations. Except as specifically set
forth on Schedule 3.8(f) hereto:
(i) None of the real or personal properties
owned, leased, occupied or operated by the Company nor the ownership, leasing,
occupancy or operation thereof, is in violation of any law or any building,
zoning, environmental or other ordinance, code, rule or regulation, except for
violations which would not have a Material Adverse Effect on the Company.
(ii) No notice from any governmental body or
other person has been served upon the Company or upon any property owned or, to
the knowledge of the Company and each of the Sellers, leased, occupied or
operated by the Company claiming any violation of any such law, ordinance, code,
rule or regulation or requiring, or calling attention to the need for, any work,
repairs, construction, alterations or installation on or in connection with such
property which has not been complied with in all material respects. The Company
has the right to use its properties for all operations currently conducted by it
on such properties.
(iii) Each portion of the improvements on
the Real Property is covered by a valid building permit therefor that has been
filed in compliance with all local requirements with the building permit
department in the locality where such Real Property is located. There is no
alteration, improvement or change in use of any building or other improvement
located on the Real Property that would require a new certificate of occupancy
or amendment of an existing certificate of occupancy or building permit. The
condition and use of the Real Property conforms to each applicable certificate
of occupancy, and all other Permits required to be issued in connection with the
Real Property. The Company has obtained all Permits necessary for the operation
of the business of the Company on the Real Property.
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3.9. Miscellaneous Contracts.
(a) Schedule 3.9(a) hereto contains an accurate and
complete list of all material agreements, leases, licenses, contracts or
commitments (whether oral or written) to which the Company is a party or by
which any of its material assets are bound, including, without limitation, (i)
royalty, distribution, sales representative, agency, territorial or license
agreements, (ii) agreements or contracts with any officer, employee, director,
shareholder, professional person or firm, independent contractor or advertising
firm or agency, (iii) contracts or collective bargaining agreements with any
labor union or representative of employees, (iv) agreements, contracts or
commitments containing any covenant restricting the business conducted by the
Company, (v) leases of real and personal property, (vi) agreements or contracts
granting or agreeing to grant any person or entity sourcing, marketing,
distribution or similar rights, (vii) purchase and sales orders and commitments
and agreements or contracts with vendors, contractors or customers, (viii)
powers of attorney, (ix) loans, financing or other credit arrangements or
agreements under which money has been borrowed or loaned (including security
agreements relating thereto), (x) bonds, fidelity or surety contracts,
guarantees or similar obligations, (xi) employment, consulting, pension, profit
sharing, retirement, severance, matching gift, bonus, stock option, employee
stock ownership, employee or officer incentive or other compensation or employee
benefit contracts, plans or agreements, (xii) commitments or contracts relating
to political contributions or donations, (xiii) agreements restricting dividends
or distributions or the right to conduct business and (xiv) joint venture
agreements. For purposes of this Section 3.9, an agreement, lease, license,
contract or commitment shall not be deemed "material" unless it (a) obligates
the Company to pay an amount of $50,000 or more and (b) cannot be terminated by
providing less than ninety (90) days' notice or by paying any penalty. Complete
and accurate copies of all such listed contracts or other obligations have been
delivered by the Sellers to the Purchaser.
(b) No Defaults. Except as set forth on Schedule
3.9(b) hereto, the Company (i) is not in default under any material contract,
commitment or agreement to which it is a party or under which it is obligated or
bound or to which any of its properties may be subject, and there is no material
breach or default on the part of the Company or event known to any Seller that,
with notice or lapse of time, or both would constitute a default by any party to
any of these agreements or give them any right to terminate, cancel, accelerate
or modify any of these agreements, (ii) has not received notice that any party
to any of these agreements intends to cancel or terminate any of these
agreements or to exercise or not to exercise any renewal or extension options or
rights under any of these agreements, and (iii) has not waived or exercised any
material renewal or extension options or rights under any of these agreements.
3.10. Intellectual Property. Set forth in Schedule 3.10 hereto
is a true and correct list of all trademarks, trade names, patents, service
marks and copyrights, including any applications therefor (collectively, the
"Intellectual Property"), used in connection with the business of the Company,
together with all registration and application numbers and expiration dates in
jurisdictions where registrations have been filed. Except as set forth on
Schedule 3.10 hereto, no items of Intellectual Property are licensed to the
Company. Except as set forth on Schedule 3.10 hereto, the
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Company has not received any written notification of infringement of any
Intellectual Property by the Company or anyone claiming under the Company or any
written claims with regard to any Intellectual Property. To the knowledge of the
Company and each of the Sellers, no Intellectual Property used by the Company
infringes on any trademark, service mark, trade name, copyright or other rights
of others in any jurisdiction in which such Intellectual Property is used. The
Company owns or possesses all of the Intellectual Property material to the
business of the Company.
3.11. Legal Proceedings. Except as set forth on Schedule 3.11
hereto, there are no actions, suits, proceedings, charges, complaints,
inquiries, audits, investigations or requests for information (each, a
"Proceeding") instituted by or against, or, to the knowledge of the Company and
each of the Sellers, threatened against the Company, whether at law, in equity
or admiralty or before any governmental department, commission, board, agency or
instrumentality, domestic or foreign, whether or not fully covered by insurance.
To the knowledge of the Company and each of the Sellers, the Company is not
subject to any order, writ, injunction or decree of any court or any
governmental department, commission, board, agency or instrumentality, domestic
or foreign, having jurisdiction over it.
3.12. Licenses and Compliance with Law.
(a) The Company holds and is in compliance with all
permits, certificates, licenses, approvals, registrations and authorizations
required by it in connection with the conduct of the business of the Company
under all federal, state and local laws, rules and regulations (the "Permits"),
except where failure to be in compliance has not had and is not reasonably
expected to (i) have a Material Adverse Effect on the Company, (ii) prevent the
continued operation of the business of the Company following the Closing in the
manner heretofore conducted without the incurrence of any material additional
expense by the Company, or (iii) subject the Company or the Purchaser to (A) any
material penalty or (B) any enforcement action as a result thereof. Except as
set forth on Schedule 3.12(a) hereto, all of the Permits are in full force and
effect and will continue to be in full force and effect in all respects pursuant
to their respective terms after the Closing of the transactions contemplated
hereby. All of the Permits and the expiration dates thereof, if any, are set
forth on Schedule 3.12(a) hereto.
(b) The Company has complied and is currently in
compliance with all applicable laws (including rules, regulations, codes, plans,
injunctions, judgements, orders, decrees, rulings, and changes thereunder) of
federal, state, local and foreign governments (and all agencies thereof),
asserting or claiming jurisdiction over it or over any part of its operations,
and no Proceedings or notices have been filed or, to the knowledge of the
Company and each of the Sellers, commenced against the Company alleging any
failure to comply, except where the failure to be in compliance has not had and
is not reasonably expected to have a Material Adverse Effect on the Company.
3.13. Environmental Matters. Except as set forth on
Schedule 3.13 hereto:
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(a) The Company has complied in all material respects
with all, is not in violation in any material respect of any, and has no
liability under any applicable Environmental Laws (as defined in Section 8.18
hereof).
(b) The Company has not received any request for
information, notice of claim, notice of violation, complaint, demand or
notification stating that it is or may be potentially responsible with respect
to any threatened or actual Release (as such term is defined below) of any
Hazardous Substance (as such term is defined below).
(c) No notice, citation, summons or order has been
issued, no complaint has been filed, no penalty has been assessed and no
investigation or review is pending or, to the knowledge of the Company and each
of the Sellers, threatened, by any federal, state, and any analogous state laws
or local governmental or regulatory agency or authority: (i) with respect to any
alleged violation by the Company of any Environmental Law; (ii) with respect to
any alleged failure by the Company to have any Permit; or (iii) with respect to
any use, possession, generation, treatment, storage, recycling, transportation
or arrangement for transportation or disposal (collectively, "Management" and
the act of Management being referred to as "Managing" or "Managed") of any
substance regulated under any Environmental Laws, including, without limitation,
hazardous substances ("Hazardous Substances") as defined by the Comprehensive
Environmental Response Compensation and Liability Act, 42 U.S.C. ss.9601 et
seq., as amended ("CERCLA"), petroleum products, radioactive materials, asbestos
and polychlorinated biphenyls ("PCBs") by or on behalf of the Company.
(d) The Company has not Managed any Hazardous
Substance on any property now or previously owned, operated or leased by the
Company nor, to the knowledge of the Company and each of the Sellers, has anyone
else Managed any Hazardous Substance on any property now or previously owned,
operated or leased by the Company, except in compliance in all material respects
with all Environmental Laws.
(e) To the knowledge of the Company and each of the
Sellers, there are no underground storage tanks, active or abandoned, at any
property now or previously owned, operated or leased by the Company.
(f) No Hazardous Substance Managed by the Company was
sent by the Company or any person hired or employed by the Company to any site
which is listed or proposed for listing under CERCLA, on the Comprehensive
Environmental Response Compensation and Liability Information System ("CERCLIS")
or on any similar state list (collectively, "Environmental Lists"), or which is
the subject of any federal, state or local enforcement action. To the knowledge
of the Company and each of the Sellers, no Hazardous Substance Managed by the
Company has come to be located at any site which is on any Environmental List,
or which is the subject of any federal, state or local enforcement action.
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(g) No Hazardous Substance has been released,
spilled, leaked, discharged, disposed of, pumped, poured, emitted, emptied,
injected, leached, dumped or allowed to escape into the environment ("Release")
by the Company or, to the knowledge of the Company and each of the Sellers, by
anyone else which will subject the Company to any liability.
(h) No oral or written notification of a Release or
threat of Release of a Hazardous Substance has been filed by or on behalf of the
Company, excluding any Release or threat of Release which will not subject the
Company to any liability. No real property, now or previously owned, operated or
leased by the Company is listed or, to the knowledge of the Company and each of
the Sellers, proposed for listing on the National Priority List promulgated
pursuant to CERCLA, on CERCLIS or on any similar state list of sites.
(i) There are no environmental Liens on any
properties owned or leased by the Company and no actions by any federal, state,
local, or foreign governmental or regulatory agency or authority have been taken
or, to the knowledge of the Company and each of the Sellers, are in process or
pending which would subject any of such properties to such Liens.
(j) There have been no written environmental
inspections, investigations, studies, audits, tests, reviews or other analyses
conducted in relation to any property or business now or previously owned,
operated, or leased by the Company which have not heretofore been provided to
the Purchaser which are in the Company's possession, custody or control.
(k) Neither the Company nor any Seller knows of any
facts or circumstances related to environmental matters concerning the existing
or previously owned, operated or leased properties or businesses of the Company
that would reasonably be expected to lead to any future environmental claims,
liabilities or responsibilities against the Company or the Purchaser.
(l) No PCBs or asbestos-containing materials, are or
have been present at any property now or previously owned, operated or leased by
the Company.
(m) To the knowledge of the Company and each of the
Sellers, no real property previously owned by the Company has a notice or
restriction in its deed relating to the presence of Hazardous Substances.
3.14. Labor Matters.
(a) Except as set forth on Schedule 3.14 hereto, no
employees of the Company are covered by a collective bargaining agreement and no
collective bargaining agreement binding on the Company restricts the Company
from relocating or closing any or all of its business or operations.
(b) Except as set forth on Schedule 3.14 hereto,
there are currently pending, and during the past five (5) years there has been,
no strike, lockout, picketing, slow-downs
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or work stoppages with respect to the Company and, to the knowledge of each of
the Sellers, no such strikes, picketing, lockouts, slow-downs or work stoppages
are threatened.
(c) Except as set forth on Schedule 3.14 hereto,
there has not existed during the past five (5) years, does not currently exist
and, to the knowledge of the Company and each of the Sellers, is not currently
threatened, any grievance, arbitration proceeding, charge or complaint filed on
behalf of an employee or labor organization, before the National Labor Relations
Board, the Equal Employment Opportunity Commission, state and local civil rights
agencies, federal or state departments of labor, the various occupational health
and safety agencies or any judicial or arbitration forum with respect to the
Company.
(d) To the knowledge of the Company and each of the
Sellers, no representation question exists or has been raised with respect to
employees of the Company during the past three (3) years. To the knowledge of
the Company and each of the Sellers, there are no campaigns being conducted to
solicit cards or authorization from employees of the Company to be represented
by any labor organization.
(e) The Company is and has been in compliance, in all
material respects, with all applicable laws, regulations, policies, procedures
and contractual obligations relating to employment, employment practices, wages,
hours, discrimination, safety and health of employees, workers compensation,
unemployment insurance, withholding of wages, and terms and conditions of
employment. All personnel manuals, handbooks, policy and procedure manuals
applicable to the employees of the Company have been disclosed and made
available to the Purchaser.
(f) The Company has not closed any plant or facility,
effectuated any mass layoff of employees as defined under the Workers Adjustment
and Retraining Notification Act (or other similar state law), or implemented any
early retirement or separation program during the past three (3) years nor has
the Company announced any such action. Set forth on Schedule 3.14 hereto is a
list of all persons whose employment was terminated by the Company during the
past three (3) years whose compensation exceeded $50,000 per annum.
(g) Except as set forth on Schedule 3.14 hereto, the
Company is not liable for any severance pay or other payments to any employee or
former employee due to the termination of employment and will not have any
liability under any benefit or severance plan, policy, practice, program or
agreement which exists or may be deemed to exist under any applicable law, as a
result of the transactions contemplated hereunder.
3.15. Taxes. Except as set forth on Schedule 3.15 hereto, the
Company: (i) has duly and timely filed (taking into account all valid extensions
of filing dates) with the appropriate authorities all Tax Returns (as defined in
Section 8.18 hereof) required to be filed by it on or before the date hereof,
(ii) has duly and timely paid or caused to be timely paid all Taxes due and
payable in respect of all periods up to and including the date hereof (other
than Taxes being contested in good faith), and (iii) has properly accrued on the
Financial Statements all Taxes not yet payable in respect
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of all periods up to and including the date thereof. All Tax Returns filed by
the Company are true, complete and correct. Schedule 3.15 hereto sets forth a
list of each jurisdiction in which the Company has filed or is required to file
a Tax Return, the type of Tax and the type of Tax Return filed or required. No
claim has ever been made by any authority in a jurisdiction where the Company
does not file a Tax Return that the Company is or may be subject to taxation in
that jurisdiction. The Sellers have provided the Purchaser with a copy of each
Tax Return filed by the Company during the past three (3) years. The Company has
duly and timely withheld or collected, paid over and reported all Taxes required
to be withheld or collected by it on or before the date hereof. Except as set
forth on Schedule 3.15 hereto: (A) the Company will not incur any liability or
expense for Taxes for the period between the Balance Sheet Date and the Closing
Date other than with respect to operations in the ordinary course of business;
(B) no taxing authority has claimed, proposed or asserted any adjustment that
could result in the creation of, or an increase in, any deficiency in any Tax
for which the Company is or may be liable or which relates to its income, assets
or operations; (C) there is no pending or, to the knowledge of the Company and
each of the Sellers, threatened audit, investigation, proceeding or claim
respecting any Tax for which the Company is or may be liable or which relates to
the income, assets or operations of the Company; (D) no statute of limitations
relating to the assessment or collection of any Tax for which the Company is or
may become liable or subject has been waived or extended; (E) the Company is not
a party to any agreement, contract or arrangement that would result,
individually or in the aggregate, in the payment of any amount that would not be
deductible by reason of Section 162, Section 280G or Section 404 of the Internal
Revenue Code of 1986, as amended, and the regulations promulgated thereunder
(the "Code"); (F) the Company is not a party to any Tax sharing or Tax
allocation agreement; and (G) there are no Liens for Taxes upon the assets of
the Company, except for Liens for Taxes not yet due and payable. The Company is
not a "consenting corporation" within the meaning of Section 341(f) of the Code.
No Tax is required to be withheld pursuant to Section 1445 of the Code as a
result of the transactions contemplated by this Agreement. The Company has never
made or been required to make an election under Section 338 of the Code (or any
comparable state, local or foreign Tax provision). None of the assets of the
Company is required to be treated as being owned by any other person pursuant to
the "safe harbor" leasing provisions of Section 168(f)(8) of the Internal
Revenue Code of 1954, as in effect prior to the repeal of said provision (or any
comparable state, local or foreign Tax provision). The Company does not have any
"tax-exempt bond financed property" or "tax-exempt use property" within the
meanings of Section 168(g) or (h), respectively, of the Code (or any comparable
state, local or foreign Tax provision).
3.16. Compensation. The Sellers have delivered to the
Purchaser a true and complete list of the name, title or job description and
total annual compensation of each current employee of the Company and a schedule
setting forth the material terms of the policies, if any, of the Company
concerning vacations, bonuses, leaves of absence, holidays and severance pay.
3.17. Employee Benefit Plans.
(a) Schedule 3.17(a) hereto lists any bonus,
incentive compensation, deferred compensation, pension, profit sharing,
retirement, stock purchase, stock option, stock
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ownership, stock appreciation rights, phantom stock, cafeteria, life, health,
accident, disability, welfare, worker's compensation or other insurance,
severance, separation or other employee benefit plan of any kind, including, but
not limited to, any "employee benefit plan" within the meaning of Section 3(3)
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")
(other than a "multiemployer plan" within the meaning of Sections 3(37) and
4001(a)(3) of ERISA; a "Multiemployer Plan") established by the Company or to
which the Company contributes or has contributed (including employee benefit
plans not now maintained by the Company or to which the Company does not now
contribute, but with respect to which the Company has or may have any
liability). No such employee benefits plan is or was subject to Title IV of
ERISA. With respect to each employee benefit plan (where applicable): the
Sellers have delivered or made available to the Purchaser complete and accurate
copies of (i) all plan texts and agreements, (ii) material communications to
employees with respect to benefit commitments, and (iii) the most recent
determination letter received from the Internal Revenue Service.
(b) Except as set forth on Schedule 3.17(b) hereto,
each employee benefit plan listed thereon and any related trust agreements,
annuity contracts, insurance contracts or other instruments are in compliance in
all material respects both as to form and operation with the requirements of
ERISA and the Code.
(c) No "pension plan" (within the meaning of Section
3(2) of ERISA) maintained by the Company which is subject to Section 302 of
ERISA or Section 412 of the Code has incurred any "accumulated funding
deficiency" (as defined in Section 302 of ERISA or Section 412 of the Code),
whether or not waived. Each pension plan which is intended to be qualified under
Section 401(a) of the Code has been determined to be qualified by the Internal
Revenue Service.
(d) The Company has not communicated (whether orally
or in writing) generally to employees or specifically to any employee regarding
(i) any future increase of benefit levels (or creation of new benefits) with
respect to any employee benefit plan set forth on Schedule 3.17(a) hereto beyond
those reflected in such plans or (ii) the adoption or creation of any new
benefit plan.
(e) Except as set forth on Schedule 3.17(e) hereto,
all reports and applications relating thereto required by any government agency
have been timely filed and all contributions required to be made to each
employee benefit plan under the terms of such plan, ERISA, the Code or other
applicable law have been timely made. Schedule 3.17(e) hereto sets forth the
liability of the Company, if any, for contributions accrued with respect to such
employee benefit plans and either not yet paid or not recorded on the Financial
Statements.
(f) The Company has not engaged in, and, to the
knowledge of the Company and each of the Sellers, no fiduciary of any such
employee benefit plan has engaged in, any transaction in violation of Section
406 of ERISA or any "prohibited transaction" (within the meaning of Section 4975
of the Code) for which no exemption exists under ERISA or the Code.
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(g) Except as set forth on Schedule 3.17(g) hereto,
the Company does not maintain or contribute to any employee benefit plan which
provides, and has no liability or obligation to provide, life insurance, medical
or other employee welfare benefits to any employee (or such employee's
beneficiary) upon such employee's retirement or termination of employment,
except as may be required by federal, state or local laws, rules or regulations,
and the Company has never represented, promised or contracted to any employee
that such employee would be provided with life insurance, medical or other
employee welfare benefits upon such employee's retirement or termination of
employment, except to the extent required by federal, state or local laws, rules
or regulations.
(h) Except as set forth on Schedule 3.17(h) hereto,
the Company has not taken any action, and, to the knowledge of the Company and
each of the Sellers, no action or event has occurred that could cause the
Company to incur material liability, fines or penalties under ERISA or the Code
in respect of an employee benefit plan (other than routine claims for benefits
or normal operations of the plan).
(i) The Company is not now nor has ever been a
contributing employer with respect to any Multiemployer Plan. There is no
circumstance, event or condition which could cause the Company to incur any
liability in respect of an employee benefit plan maintained by any entity which
is (or at any relevant time was) a member of a "controlled group of
corporations" (within the meaning of Section 414(c) of the Code) with the
Company or under "common control" (within the meaning of Section 414(c) of the
Code) with the Company.
(j) Except as set forth on Schedule 3.17(j) hereto,
the consummation of the transactions contemplated by this Agreement will not (i)
entitle any individual to severance pay or (ii) accelerate the time of payment,
vesting or increase the amount of compensation due to any such individual.
3.18. Relationships with Customers and Suppliers. Schedule
3.18 hereto sets forth a complete and correct list of the names and addresses of
the ten (10) largest suppliers and twenty (20) largest customers of the Company
during the Company's fiscal year ended March 31, 1999 (the "1998 Fiscal Year")
and the total sales to or purchases from such customers or suppliers made by the
Company during the 1998 Fiscal Year. No such supplier or customer of the Company
has advised the Company, formally or informally, and neither the Company nor any
of the Sellers has any knowledge, that any such supplier or customer set forth
on Schedule 3.18 hereto intends to terminate, discontinue or substantially
reduce its business with the Company by reason of the transactions contemplated
by this Agreement or otherwise.
3.19. Consultants. Set forth on Schedule 3.19 hereto is a list
of all of the outside consultants currently retained by the Company and a
summary of the material terms of any arrangements or agreements between the
Company and those consultants.
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3.20. Other Entities.
(a) Except as set forth on Schedule 3.20 hereto with
respect to the Company's subsidiary, Computer Resources Unlimited, Inc., a
Nevada corporation ("CRU Nevada"), the Company does not own, directly or
indirectly, any outstanding capital stock or equity interest in any corporation,
partnership, joint venture or other entity. CRU Nevada (i) is duly organized,
validly existing and in good standing under the laws of the State of Nevada,
(ii) has no assets or liabilities of any type or nature, and (iii) conducts no
business or operations.
(b) The authorized capital stock of CRU Nevada
consists of 250,00 shares of common stock, $1.00 par value per share, of which
125,000 shares are issued and outstanding. All of such outstanding shares were
duly authorized and validly issued, are fully paid and non-assessable and are
owned, of record and beneficially, by the Company, free and clear of any Liens.
There are no outstanding options, warrants, rights to acquire or subscribe to,
or calls or commitments of any character whatsoever to which CRU Nevada is a
party or may be bound, requiring the issuance or sale of shares of any class of
capital stock or other equity securities of CRU Nevada or securities or rights
convertible into or exchangeable for such shares or other equity securities, and
there are no contracts, commitments, understandings or arrangements for which
CRU Nevada is or may become bound to issue additional shares of its capital
stock or other equity securities or options, warrants or rights to acquire or
subscribe to any additional shares of any class of its capital stock or other
equity securities or securities convertible into or exchangeable for such shares
or other equity securities. There is no existing arrangement that requires or
permits any shares of the capital stock of CRU Nevada to be voted by or at the
discretion of anyone other than the record owner thereof and there are no
proxies providing for such a voting arrangement. Except for restrictions imposed
by applicable securities laws, there are no restrictions of any kind on the
transfer of any of the outstanding shares of capital stock of CRU Nevada.
3.21. No Undisclosed Liabilities. Except as set forth on
Schedule 3.21 hereto, the Company does not have any liabilities or obligations
(whether fixed, accrued, absolute, contingent, secured, unsecured or otherwise
and whether due or to become due and including, without limitation, Tax
liabilities) which individually or in the aggregate would be deemed material and
which are required under GAAP to be reflected on the Latest Balance Sheet, other
than those set forth in the Latest Balance Sheet and those incurred thereafter
in the ordinary course of its business.
3.22. Accounts Payable and Other Accrued Expenses. The
accounts payable and other accrued expenses included among the liabilities of
the Company represent bona fide obligations incurred by the Company which arose
in the ordinary course of its business. Set forth on Schedule 3.22 hereto is a
list of all accounts payable and other accrued expenses as of April 30, 1999 in
excess of $50,000, indicating the name of each payee, their relationship (if
any) to the Company, the date each such payment is due and the nature of the
transaction in which it was incurred if other than a trade payable incurred in
the ordinary course of business.
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3.23. Prohibited Payments. Neither any Seller nor the Company
nor, to the knowledge of the Company and each of the Sellers, any of the
Company's Affiliates (as defined in Section 8.18 hereof) or any employee or
agent of the Company has offered, paid or agreed to pay to any person or entity,
including any government official, or solicited, received or agreed to receive
from any such person or entity, directly or indirectly, any money or anything of
value for the purpose or with the intent of obtaining or maintaining business
for the Company or otherwise affecting the business, operations, prospects,
properties, or condition (financial or otherwise) of the Company and which is or
was in violation of any ordinance, regulation or law, or, in the case of payment
of money or anything of value, if not in violation of any such ordinance,
regulation or law, is not properly and correctly recorded or disclosed on the
books and records of the Company as an expense in accordance with GAAP. The
Company has not engaged in any transaction, maintained any bank account or used
any other funds except for transactions, bank accounts and funds which have been
and are properly and correctly reflected in the normally maintained books and
records of the Company.
3.24. Absence of Changes. Except as contemplated hereby,
reflected in the Balance Sheet or set forth on Schedule 3.24 hereto, since the
Balance Sheet Date there has not been:
(a) any material damage, destruction or casualty loss
(whether or not covered by insurance) suffered by the Company;
(b) any change in the condition (financial or
otherwise), business, properties, assets, liabilities, earnings, business or
prospects of the Company, other than changes in the ordinary course of business
which individually or in the aggregate are not materially adverse;
(c) any transaction material to the business or the
assets of the Company, except in the ordinary course of business;
(d) any employment agreement or deferred compensation
agreement entered into between the Company and any of its employees providing
for payments in excess of $50,000; or any increase, not in the ordinary course
of business, in the compensation payable or to become payable by the Company or
the adoption of any new (or amendment to or alteration of any existing) bonus,
incentive, compensation, pension, stock, matching gift, profit sharing,
retirement, death benefit or other fringe benefit plan;
(e) any increase in the aggregate indebtedness for
borrowed money or any increase in purchase commitments or other liabilities or
obligations (whether absolute, accrued, contingent or otherwise) incurred by the
Company, except for liabilities, commitments and obligations incurred in the
ordinary course of business;
(f) any Lien created on any of the assets of the
Company, other than Liens permitted by clauses (a) through (c) of Section
3.8(c);
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(g) any material labor dispute involving the
employees of the Company;
(h) any sale, assignment, transfer or other
disposition or license of any material tangible or intangible assets of the
Company, other than the sale of inventory in the ordinary course of business;
(i) any amendment, termination or waiver by the
Company of any right of substantial value belonging to it;
(j) any amendment of the Certificate of Incorporation
or By-Laws of the Company;
(k) any declaration, payment or setting aside by the
Company of any dividend or other distribution of assets, pro rata or otherwise,
to its stockholders or any direct or indirect purchase, redemption or retirement
or other acquisition by the Company of any shares of its capital stock;
(l) any capital expenditure or commitment by the
Company not fully paid for; or
(m) any agreement by the Company to do any of the
foregoing.
3.25. Insurance. Schedule 3.25 hereto sets forth each
insurance policy (specifying the insurer, the type of insurance and the policy
number) maintained by the Company on its properties, assets, products, business
or personnel, and true and complete copies of the most recent inspection
reports, if any, received from insurance underwriters as to the condition of the
properties and assets owned, leased, occupied or operated by the Company or the
conduct of its business. The Company is not in default with respect to any
provision contained in any material insurance policy and has not failed to give
any notice or present any material claim under any insurance policy in due and
timely fashion. Except as set forth on Schedule 3.25 hereto, the Company has
maintained comparable insurance with carriers which are, to the knowledge of the
Company and each of the Sellers, financially sound and of good reputation
continuously for the past five (5) years and such insurance is, and has been
adequate as to coverage, and in amounts, in accordance with the standards of the
industry in which the Company operates. True and complete copies of all
liability insurance policies of the Company which are in effect have heretofore
been delivered by the Sellers to the Purchaser.
3.26. Bank Accounts. Schedule 3.26 hereto sets forth: (a) the
name of each bank in which the Company has an account or safe deposit box and
the names of all persons authorized to draw thereon or to have access thereto;
and (b) the name of each person, corporation, firm, association or business
organization, entity or enterprise holding a general or special power of
attorney from the Company and a summary of the terms thereof.
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3.27. Third Party Obligations. Except as set forth on Schedule
3.27 hereto, the Company has no material obligation or liability, either actual
or accrued, accruing or contingent, as guarantor, surety, co-signer, endorser,
co-maker, indemnitor or otherwise, in respect of the obligation of any person,
partnership, joint venture, association, organization or other entity, except as
endorser or maker of checks endorsed or made in the ordinary course of business.
3.28. Affiliate and Associate Transactions. Except as set
forth on Schedule 3.28 hereto, the Company has no loan or advance outstanding to
any stockholder, officer, director or employee and, to the knowledge of the
Company and each of the Sellers, no officer or director of the Company or any
Affiliate of any Seller or any such officer or director has, either directly or
indirectly:
(a) an equity or debt interest in any corporation,
partnership, joint venture, association, organization or other person or entity
which purchases from or sells or furnishes to the Company any goods or otherwise
does business with the Company; or
(b) a beneficial interest in any contract, commitment
or agreement to which the Company is a party or under which the Company is
obligated or bound or to which the property of the Company may be subject, other
than contracts, commitments or agreements between the Company and such persons
in their capacities as employees, officers or directors of the Company;
provided, however, that such representation and warranty in clauses (a) and (b)
above shall not apply to the ownership, as a passive investment, by any such
employee, officer, director, or Affiliate, of less than 1% of a class of
securities listed for trading on a national securities exchange or publicly
traded in the over-the-counter market.
3.29. Year 2000. All of the Company's equipment, systems,
software, data and databases, and applications designed for each of its
customers (to the extent represented by the Company in the applicable contract
with such customer), including, without limitation, its accounting systems
(collectively, the "Systems"), is Year 2000 Compliant (as hereinafter defined).
For purposes of this Agreement, "Year 2000 Compliant" shall mean: (a) the
occurrence in or use by the Systems of dates before, on or after January 1, 2000
will not adversely affect the performance of the Systems with respect to
date-dependent data, computations, output or other functions, including, without
limitation, calculating, comparing and sequencing; (b) the Systems will not
abnormally end or provide invalid or incorrect results as a result of
date-dependant data; and (c) the Systems can accurately recognize, manage,
accommodate and manipulate date-dependant data, including, without limitation,
single century formulas and leap years.
3.30. Brokers and Finders. None of the Sellers nor the Company
nor any of their respective officers, directors or employees has employed any
broker, agent or finder or incurred any liability for any brokerage fees,
agents' commissions or finders' fees in connection with the transactions
contemplated hereby, other than Geneva Corporate Finance, Inc.
3.31. Size of Person for Purposes of HSR Act. Capitalized
terms used in this Section 3.31 but not otherwise defined herein are used as
defined in the rules adopted under the HSR
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Act. Financial information described in this Section 3.31 is to be determined in
accordance with the HSR Act. As of the date hereof and as of the Closing Date,
(a) the annual net sales of the Person within which the Company is included
under the HSR Act (the "Company HSR Person"), determined in accordance with the
HSR Act, for its most recent fiscal year were less than $100,000,000, and (b)
the total assets of the Company HSR Person, determined in accordance with the
HSR Act, were less than $100,000,000.
3.32. Information Accurate and Complete; Reliance. Without
limiting the specific language of any other representation or warranty herein,
all information furnished or to be furnished by the Sellers to the Purchaser in
this Agreement, in exhibits or schedules attached hereto, or otherwise delivered
or to be delivered by the Sellers to the Purchaser is or will be accurate and
complete in all material respects, includes or will include all material facts
required to be stated therein and does not or will not contain any untrue
statement of a material fact or omit any material fact necessary to make the
statements therein not misleading. Notwithstanding any right of the Purchaser
fully to investigate the affairs of the Company and the Sellers, and
notwithstanding any knowledge of facts determined or determinable by the
Purchaser pursuant to such investigation or right of investigation, the
Purchaser has the right to rely fully upon the representations and warranties of
the Sellers contained herein, in the exhibits or the schedules hereto or in any
other document delivered in connection with the transactions contemplated
hereby.
ARTICLE IV
COVENANTS
4.1. Conduct of Business. Each Seller covenants that, from and
after the execution of this Agreement through the Closing, the Company will
conduct its business in the ordinary course and in the same manner as it has
previously been concluded (except for changes to the conduct of its business
requested by the Sellers and approved in writing by the Purchaser) and will not
(except to the extent otherwise permitted by this Agreement or consented to by
the Purchaser in writing):
(a) take any action or omit to take any action
covered by Section 3.24;
(b) fail to comply with any laws, ordinances,
regulations or other governmental restrictions applicable to it or fail to
attain or maintain all Permits required to operate its business as it is
presently being operated, except where such failures would not have a Material
Adverse Effect on the Company;
(c) merge or consolidate with, purchase all or a part
of the assets of, or otherwise acquire any business or any proprietorship, firm,
association, corporation or other business organization or division thereof;
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(d) other than in the ordinary and usual course of
business and consistent with past practice, incur any liability or obligation
(absolute, accrued, contingent or otherwise) or issue any debt securities or
assume, guarantee, endorse or otherwise as an accommodation become responsible
for, the obligations of any other individual or entity, or change any assumption
underlying, or methods of calculating, any bad debt, contingency or other
reserve;
(e) acquire (including by lease) any assets or
properties or dispose of or place a Lien on, any assets or properties other than
Liens permitted by clauses (a) through (c) of Section 3.8(c);
(f) make any change (except for changes in authorized
signatories arising out of personnel changes) in banking or safe deposit box
arrangements;
(g) grant any powers of attorney (other than powers
of attorney granted in the ordinary course of business with respect to Tax
matters or powers granted for the sole purpose of executing the documents
contemplated by this Agreement);
(h) make any capital expenditure or commitment not
fully paid for;
(i) increase any compensation or benefits to any
employee, except as required by an existing collective bargaining agreement or
employment agreement set forth on Schedule 3.9(a) hereto;
(j) enter into any transaction of any kind with any
officer, director or stockholder which would create obligations of the Company
to such officer, director or stockholder after the Closing Date;
(k) except as set forth on Schedule 3.10 hereto,
dispose of or license any rights or interests to any of the intangible personal
property set forth on Schedule 3.10, cause to or inject in the public domain or
make public, or dispose of or license or disclose to any entity any of such
intangible personal property not theretofore a matter of public knowledge;
(l) engage in or enter into any material transaction
of any nature not expressly provided for herein, except arm's length
transactions in the ordinary course of business;
(m) make any change in any methods of accounting or
accounting practice other than those required by changes in GAAP; or
(n) agree or commit, whether in writing or otherwise,
to do any of the foregoing.
4.2. Access. From the date hereof until the Closing, each
Seller will on reasonable notice (a) give the Purchaser and its authorized
representatives, access, during normal business hours,
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to the books, records, properties and personnel of the Company, and (b) permit
the Purchaser to make such inspections as it may reasonably require; provided,
however, that any contact by the Purchaser with Company personnel may be made
only upon prior notice to Carl Gromada, President of the Company, and with his
prior consent, not to be unreasonably withheld. No investigation conducted by
the Purchaser or its representatives or agents or disclosure of any such
information to any Seller shall in any way diminish, modify or alter the
representations, warranties or covenants of any Seller or the liability of the
Sellers for any misrepresentation or breach of any representation, warranty or
covenant hereunder or the conditions to Closing contained in Article V hereof.
4.3. [INTENTIONALLY OMITTED]
4.4. Preservation of Organization. Except (i) for changes to
the conduct of its business requested or approved in writing by the Purchaser or
(ii) as otherwise permitted by this Agreement, from the date hereof through the
Closing, the Sellers will use reasonable best efforts to cause the Company to:
(a) maintain its existence in good standing and its properties and facilities in
as good working order and condition as at present, ordinary wear and tear
excepted; (b) perform all its material obligations under agreements related to
or affecting its assets, properties and rights; (c) pay any and all premiums
necessary to keep in full force and effect present insurance policies or other
comparable insurance coverage; (d) keep available the services of its present
employees and agents; and (e) preserve the goodwill of its customers, suppliers
and others having business relations with it.
4.5. No-Shop.
(a) From and after the date hereof and continuing
until the Closing or the earlier termination of this Agreement pursuant to
Article VII hereof, each Seller hereby covenants and agrees that it will not,
and will not authorize or permit the Company or any officer, director, employee
or agent of the Company or any Affiliate of the Company to, or authorize or
permit any investment banker, attorney, accountant or other representative
retained by the Company, any Seller or any Affiliate of the Company to, directly
or indirectly, without the written consent of the Purchaser, solicit or
encourage, furnish any information with respect to the Company to any person in
connection with, or engage in any discussions with any other person in
connection with any proposal for a merger or other business combination
involving the Company or for the acquisition of an equity interest in the
Company or a substantial portion of the Company's assets, other than as
contemplated by this Agreement. Notwithstanding the foregoing, subject to any
other restrictions contained in this Agreement, the Sellers shall have the right
to sell or otherwise transfer Shares among themselves or to any employee of the
Company, and the Company shall have the right to redeem or otherwise purchase
Shares from any Seller, provided that (i) such transaction, either individually
or in the aggregate with all such other similar transactions, would not have any
adverse effect on the Purchaser or the transactions contemplated hereby, and
(ii) each individual or entity that is not a Seller and would become a
shareholder of the Company as a result of such transaction agrees to be bound by
the provisions of this Agreement as a Seller hereunder. Each Seller hereby
covenants and agrees that it will promptly advise the Purchaser of any offer,
solicitation or request for information received by it from any person,
including the identity of the person making such offer, solicitation or
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request and the nature and terms (if any) of any such offer, solicitation or
request. Additionally, the Sellers will cause the Company to use its reasonable
best efforts to immediately request in writing that all materials concerning the
Company previously provided to any person in connection with any such
negotiations or discussions be returned to the Company as soon as possible.
(b) Upon a breach of any provisions of this Section
4.5, the Purchaser shall be entitled to injunctive relief, both pendente lite
and permanently, without the requirement for the posting of bond or other
security, since the remedy at law would be inadequate and insufficient. In
addition, the Purchaser shall be entitled to be immediately reimbursed for all
costs and expenses (including, without limitation, legal, accounting and
consultant fees and expenses, and commitment fees of prospective lenders)
incurred by or on behalf of the Purchaser in connection with the transactions
contemplated hereunder and such damages as it can show it has sustained by
reason of such breach.
4.6. Subsequent Financial Statements. From the date hereof
until the Closing, the Sellers will deliver to the Purchaser as promptly as
possible, monthly consolidated and consolidating financial information of the
Company for periods subsequent to the date of the Latest Balance Sheet. The
delivery of such financial statements to the Purchaser shall not constitute
approval by the Purchaser of the financial information contained therein or
approval of any transaction reflected therein or result in any waiver of any
rights of the Purchaser under this Agreement or exceptions to any
representations and warranties of the Sellers.
4.7. Reasonable Best Efforts. Upon the terms and subject to
the conditions hereof, each of the parties hereto agrees to use its reasonable
best efforts to promptly take, or cause to be taken, all actions and to do, or
cause to be done, all things necessary, proper or advisable to consummate and
make effective the transactions contemplated by this Agreement and will use its
best efforts to obtain all waivers, Permits, consents, approvals and releases
and to effect all registrations, filings, assignments and notices with or to
third parties or governmental or public bodies or authorities which are in the
opinion of any party hereto necessary or desirable in connection with the
transactions contemplated by this Agreement. An undertaking of a person under
this Agreement to use such person's best efforts shall not require such person
to incur unreasonable expenses or obligations in order to satisfy such
undertaking. If at any time after the Closing any further action is necessary or
desirable to carry out the purposes of this Agreement, each party hereto and its
proper officers, directors or other representatives will promptly take such
action.
4.8. Notification of Certain Matters. The Purchaser, on the
one hand, and the Sellers, on the other hand, will each give prompt notice to
the other of (a) the occurrence, or failure to occur, of any event the
occurrence or failure of which would reasonably be likely to cause any of their
respective representations or warranties contained in this Agreement to be
untrue or incorrect at any time from the date hereof to the Closing Date, and
(b) any failure on their respective parts or on the part of any of their
respective officers, directors, partners, employees, representatives or agents,
if any, to comply with or satisfy any covenant, condition or agreement to be
complied with
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or satisfied by each of them under this Agreement; provided, however, that no
such notification will alter or otherwise affect such representations,
warranties, covenants, conditions or agreements.
4.9. Non-Competition, Non-Solicitation and Confidentiality.
(a) Each Seller agrees that it shall not, and, in the
case of any Seller which is not a natural person, shall cause each of its
executive officers, directors and Affiliates to agree in writing not to, for a
period of five (5) years following the Closing Date, without the prior written
consent of the Purchaser, either directly or indirectly, engage in any business,
the products of which compete with the dataport or redundant array of
independent disks enclosure products of the Company, in North America or any
other country in which the Company has made a sale of its products at any time
during the past two (2) years; provided, however, that the Sellers shall each be
permitted to own up to 1% of the equity of a publicly-owned corporation which is
engaged in such business. Each Seller further agrees not to, and to cause its
executive officers, directors and Affiliates not to, during a period of five (5)
years following the Closing Date, (A) hire or solicit, employees of the Company,
or (B) solicit from any customer of the Company business of the type performed
by the Company or to persuade any customer to cease to do business or to reduce
the amount of business which any such customer has customarily done or is
reasonably expected to do with the Company, whether or not the relationship
between the Company and such customer was originally established in whole or in
part through such Seller's efforts. In addition, each Seller agrees not to
disclose or furnish at any time to any other person, firm or corporation, except
to the extent required by law or by order of any court or governmental agency,
(1) any information relating to any confidential process, technique or procedure
used by the Company, (2) any confidential information relating to the operations
or financial condition of the Company (including, without limitation, financial
data and sources of financing), (3) any trade secrets of the Company, or (4) the
name, address or other information relating to any customer or supplier of the
Company, which in any such case is not specifically a matter of public
knowledge. As used in this Section 4.9, the term "Company" shall include all
subsidiaries and affiliates of the Company, and the term "customer" shall mean:
(x) anyone who is a customer of the Company on the Closing Date or at the time
of the alleged prohibited conduct (the "Determination Date"); (y) anyone who was
a customer of the Company at any time during the two-year period immediately
preceding the Determination Date; and (z) any prospective customer to whom the
Company had made a new business presentation at any time during the six-month
period immediately preceding the Determination Date.
(b) In the event that any Seller commits a breach, or
is about to commit a breach, of any of the provisions of Section 4.9(a) hereof,
the Company and the Purchaser shall have the right to have the provisions of
this agreement specifically enforced by any court having equity jurisdiction
without being required to post bond or other security and without having to
prove the inadequacy of the available remedies at law, it being acknowledged and
agreed by each Seller that any such breach or threatened breach will cause
irreparable injury to the Company and the Purchaser and that money damages will
not provide an adequate remedy to the Company or the Purchaser. In addition, the
Company and the Purchaser may take all such other actions and seek all such
other
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remedies available to it under law or in equity and shall be entitled to such
damages as it can show it has sustained by reason of such breach.
(c) Each Seller acknowledges that the type, scope and
periods of restriction imposed in the provisions of Section 4.9(a) hereof are
fair and reasonable and are reasonably required for the protection of the
Company and the Purchaser and the goodwill associated with the business of the
Company; and that the time, scope, geographic area and other provisions of this
Section 4.9 have been specifically negotiated by sophisticated commercial
parties, it being understood that the customers of the Company may be serviced
from any location and, accordingly, it is reasonable that the restrictive
covenants set forth herein are not limited by narrow geographic area. If any of
the covenants contained in Section 4.9(a) hereof, or any part thereof, is
hereafter construed to be invalid or unenforceable, the same shall not affect
the remainder of the covenants, which shall be given full effect, without regard
to the invalid portions. If any of the covenants contained in Section 4.9(a)
hereof, or any part thereof, is held to be unenforceable because of the duration
of such covenant or the geographic area covered thereby, the parties agree that
the court making such determination shall have the power to reduce the duration
and/or geographic areas of such covenant and, in its reduced form, such covenant
shall then be enforceable. The parties hereto intend to and hereby confer
jurisdiction to enforce the covenants contained in Section 4.9(a) hereof upon
the courts of any state or other jurisdiction within the geographical scope of
such covenants in which a breach or alleged breach of a covenant contained in
Section 4.9(a) has been alleged to have occurred. In the event that the courts
of any one or more of such states or other jurisdictions shall hold any such
covenants wholly or partially unenforceable by reason of the breadth of such
scope or otherwise, it is the intention of the parties hereto that such
determination not bar or in any way affect the right of the Company or the
Purchaser to the relief provided above in the courts of any other states or
other jurisdictions within the geographical scope of such covenants, as to
breaches of such covenants in such other respective states or other
jurisdictions, the above covenants as they relate to each state or other
jurisdiction being, for this purpose, severable into diverse and independent
covenants.
4.10. Repayment of Existing Indebtedness.
(a) Prior to or concurrently with the Closing
hereunder, the Sellers shall cause the Company to repay in full and retire
(through the Company's direct payment and/or by the Purchaser's payment pursuant
to Section 1.3(a)(ii) hereof) that portion of the Company's current and
long-term indebtedness for borrowed money (including, without limitation, all
revolving credit facilities, term loans and notes and lines of credit or loans
due to banks, similar financial institutions or other third parties, outstanding
letters of credit issued for the account of the Company, negative book balances
and overdrafts; sometimes collectively referred to herein as "Indebtedness") as
the Purchaser may designate in writing to the Sellers' Representative or the
Sellers' Representative may designate in writing to the Purchaser, in either
case at least five (5) business days prior to the Closing Date (collectively,
the "Designated Indebtedness"), and all notes, loan agreements and other
documents and instruments evidencing, securing or otherwise pertaining to the
Designated Indebtedness to be surrendered or terminated. For purposes hereof,
"Indebtedness" shall also include
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all amounts due from the Company to any Seller or any Affiliate of any Seller or
any Affiliate of the Company. To the extent that any Designated Indebtedness
will remain outstanding immediately prior to the Closing, the Sellers shall
deliver to the Purchaser at least three (3) business days prior to the Closing
Date "pay down" letters from the holder of any such Designated Indebtedness
indicating the amount required to be paid on the Closing Date to the holder of
such Designated Indebtedness in order to pay and retire in full such Designated
Indebtedness and confirming the matters provided in Section 4.10(b) below. At
the Closing, (i) the Purchaser shall, pursuant to Section 1.3(a)(ii) hereof, pay
to those holders of Designated Indebtedness (or such other persons who shall be
entitled to receive payment thereof as directed in the "pay down" letters
applicable thereto) specified by the Sellers' Representative to the Purchaser at
least three (3) business days prior to the Closing Date the amounts set forth on
the "pay down" letters applicable thereto in accordance with the terms of such
"pay down" letters, and (ii) to the extent the Sellers' Representative has not
previously instructed the Purchaser to pay such Designated Indebtedness pursuant
to Section 1.3(a)(ii) hereof, the Sellers shall cause the Company to pay the
amounts set forth on the "pay down" letters applicable thereto to the holders of
such Designated Indebtedness (or such other persons who shall be entitled to
receive payment thereof as directed in such "pay down" letters) in accordance
with the terms of such "pay down" letters.
(b) The "pay down" letters from each financial
institution or other person to which payment of Designated Indebtedness is to be
made shall confirm that, upon receipt of such amount, the Designated
Indebtedness held by such financial institution or other person will be paid in
full and that all further obligations of the Company in respect thereof will be
released and that all Liens securing such indebtedness held by such financial
institution or other person will be released and all notes evidencing such
indebtedness will be canceled and returned to the Company.
(c) Prior to or concurrently with the Closing,
subject to the satisfaction of the other conditions to Closing hereunder, the
Sellers shall cause all holders of any and all Designated Indebtedness to: (i)
release all Liens in any assets of the Company securing such indebtedness, and
(ii) terminate all obligations of the Company with respect to such indebtedness.
4.11. Cancellation of Stock Options, Etc. On or prior to the
Closing Date, the Sellers shall cause all outstanding stock options for, and all
stock appreciation rights with respect to, shares of capital stock of the
Company to be canceled.
4.12. Tax Returns and Payments.
(a) The Sellers shall duly file or cause to be filed
on a timely basis all Tax Returns of, relating to or which include the Company,
its income, assets or business, for all Tax periods ending on or before the
Closing Date and shall pay or cause to be paid all Taxes reflected thereon as
payable by the Company. Such Tax Returns shall be true, correct and complete,
shall be filed on a basis consistent with prior Tax Returns of, relating to or
which include the Company, its income, assets or business, and shall not make,
amend or terminate any election by the Company (or to which the Company is
subject) or change any Tax accounting method, practice or procedure of
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the Company, without the Purchaser's prior written consent. The Sellers shall
give the Purchaser a copy of each such Tax Return for its review with sufficient
time for comments and corrections prior to filing. The Sellers shall cause the
Company to timely and properly withhold and collect, pay over and report all
Taxes required to be withheld or collected by the Company on or before the
Closing Date. After the Closing, the Sellers and the Purchaser shall cooperate
with each other (and with the Company) at all reasonable times in connection
with the preparation and filing of any Tax Return, making any determination
under this Agreement and verifying issues relating to Taxes.
(b) The Sellers shall be responsible for and shall
timely pay or accrue all Taxes, including, without limitation, any Taxes
resulting from a Proceeding for which the Company is or may be liable with
respect to any Pre-Closing Period. The Sellers shall indemnify the Company, the
Purchaser and their respective Affiliates, as the case may be (collectively, the
"Taxpayer"), and hold the Taxpayer harmless from and against (i) any Taxes with
respect to a Pre-Closing Period for which the Taxpayer is or may be liable which
the Company has not paid or properly accrued, (ii) the effect, if any, on the
Taxpayer in any period that ends after the Closing Date of any adjustment with
respect to a Pre-Closing Period which the Company has not properly accrued, and
(iii) any fees and expenses (including, without limitation, reasonable
attorneys' fees) incurred by the Purchaser, the Company or their Affiliates in
connection therewith or in enforcing its rights or collecting any amounts due
hereunder. This indemnity shall apply notwithstanding any investigation made by
the Purchaser in connection with the transactions contemplated by this Agreement
or, its receipt, examination, filing of or commenting on any Tax Return, shall
be separate and independent of any other indemnity between the parties hereto,
and notwithstanding anything in this Agreement to the contrary shall survive
until three (3) months after the expiration of the applicable statue of
limitations (including extension and waivers thereof) for such Taxes or other
items.
(c) The Purchaser shall promptly forward to the
Sellers' Representative a copy of all written communications from any
governmental authority received by the Taxpayer relating to any Pre-Closing
Period. The Sellers shall promptly forward to the Purchaser a copy of all
written communications from any governmental authority received by any Seller
relating to any Pre-Closing Period for which the Taxpayer is or may be liable. A
party's failure to give such notice shall not relieve any other party of its
obligations under this Agreement, except to the extent such other party is
actually and materially prejudiced by the failure to give notice.
(d) The Purchaser shall not settle or make any
payment of any amount claimed to be due with respect to a proposed adjustment
described above for at least 15 days after giving notice thereof to the Sellers
under Section 4.12(c) hereof. If, within such 15-day period, the Purchaser
receives from the Sellers in writing a request that the proposed adjustments be
contested, which includes a reasonable basis in fact or in law for such contest,
and acknowledges their liability under this indemnity, the Taxpayer shall
contest such proposed adjustments in good faith and agrees to consult with the
Sellers' Representative regarding the contest and to keep the Sellers'
Representative informed as to its progress, all at the Sellers' expense. The
Sellers and the Sellers' Representative shall cooperate with the Taxpayer in
connection with any such Tax-related Proceeding. The Sellers' Representative may
participate in such Proceeding at the Sellers' own
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expense; provided, however, that the Taxpayer shall retain full control over the
Proceeding. The decision of a court of competent jurisdiction as to the outcome
of such contest which has become final shall be conclusive and binding on the
parties. The Taxpayer shall not be required to appeal.
(e) Any Taxes for a period which includes but does
not end on the Closing Date shall be allocated between the Pre-Closing Period
and the balance of the period in accordance with this Section 4.12(e). To the
extent permitted under applicable Law, the parties shall elect to treat the Tax
period as ending at the close of business on the Closing Date. Where applicable
Law does not permit such an election to be made, the taxable income or other Tax
base for the entire period shall be allocated between the Pre-Closing Period and
the balance of the period on the basis of an interim closing of the books at the
close of the Closing Date, except that exemptions, allocations and deductions
calculated on an annual basis shall be apportioned on the basis of the relative
number of days in the Pre-Closing Period and in the balance of the period.
Notwithstanding the foregoing, any real estate or personal property Taxes shall
be allocated on the basis of the relative number of days in the Pre-Closing
Period and in the balance of the applicable period.
(f) The Sellers shall timely file all required stock
transfer, real or personal property transfer, sales, use and other transfer Tax
Returns and pay when due any such Taxes in connection with the transactions
contemplated by this Agreement.
4.13. Certain Employee Bonuses. Prior to or concurrently with
the Closing hereunder, the Sellers shall cause the Company to (a) pay the sum of
$10,000 to each of the Identified Employees (as defined in Section 5.1(l)
hereof), other than Carl W. Gromada who shall be paid $15,000, and (b) accrue an
aggregate liability in the amount of $90,000 in connection with its potential
future payment obligations to each of the Identified Employees, in each case
pursuant to their respective employment agreements described in Section 5.1(l)
hereof.
4.14. Certain Employee Benefits. The Purchaser covenants that,
following the Closing and continuing until the earlier of the fifth anniversary
of the Closing Date and the date on which the Promissory Note has been paid in
full by the Company, it shall cause the Company to (a) provide to Mary C.
Harvey, at the Company's expense, health insurance coverage (including medical,
dental and eye care) under the Company's plans, insuring her and James C.
Harvey, comparable to that provided by the Company prior to the Closing, and (b)
employ Mary C. Harvey for the minimum number of hours per week and at the
minimum wage necessary in order to enable the Company to provide such medical
insurance coverage to her.
4.15. Audit Expense Accrual. Prior to or concurrently with the
Closing hereunder, the Sellers shall cause the Company to accrue a liability in
the amount of $5,000 in connection with the costs to be incurred by the
Purchaser or the Company for the preparation of the Draft Closing Date Balance
Sheet and the Draft Closing Date Net Cash Statement.
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ARTICLE V
CONDITIONS PRECEDENT TO THE TRANSACTION
5.1. Conditions Precedent to the Purchaser's Obligation to
Close. Notwithstanding any other provision herein, the obligations of the
Purchaser to consummate the transactions contemplated hereunder are, at the
option of the Purchaser, subject to the satisfaction of each of the conditions
set forth below:
(a) Agreements and Conditions. On or before the
Closing Date, the Sellers shall have complied with and duly performed all
agreements and conditions to be complied with or performed by them on or before
the Closing Date pursuant to or in connection with this Agreement.
(b) Representations and Warranties. The
representations and warranties of each Seller contained in this Agreement shall
be true and correct in all material respects on and as of the Closing Date with
the same force and effect as though such representations and warranties had been
restated and made on and as of the Closing Date, except for those
representations and warranties which speak as of a specified date.
(c) Opinion of Counsel. The Purchaser shall have
received an opinion of Higham, McConnell & Dunning, LLP, counsel for the Sellers
and the Company, dated as of the Closing Date, substantially in the form of
Exhibit C hereto.
(d) No Legal Proceedings. No Proceeding shall have
been instituted or threatened which, in the Purchaser's sole opinion, (i)
questions or reasonably appears to portend subsequent questioning of the
validity or legality of this Agreement or the transactions contemplated hereby
or seeks to restrict, limit, prohibit or enjoin (or to obtain damages as a
result of) such transactions or may have a Material Adverse Effect on the
Company.
(e) Consents. The Sellers shall have obtained the
consent of each party to all material contracts, leases and agreements, and all
governmental consents and approvals, which are required in order to consummate
the transactions contemplated by this Agreement as set forth on Schedule 3.2
hereto.
(f) Officer's Certificate. The Purchaser shall have
received a certificate dated the Closing Date and executed by each individual
Seller, or the Chairman of the Board, the President or any Vice President or a
General Partner or Trustee, as the case may be, of each non-individual Seller,
certifying that the representations and warranties made by such Seller in this
Agreement are true and correct in all material respects at and as of the Closing
Date (except for such representations and warranties which speak as of a
specified date) and that he or it has fulfilled all conditions to the Closing
provided for in this Agreement to be fulfilled by him or it.
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(g) Certificate of Secretary. The Purchaser shall
have received a certificate of the Secretary of the Company, setting forth (i) a
copy of the resolutions, if any, adopted by Board of Directors and shareholders
of the Company approving the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby and (ii) copies of the
Company's Certificate of Incorporation and By-Laws (in each case as in effect as
of the Closing), together with a signature and incumbency certificate with
respect to the Company's officers.
(h) Non-Foreign Status. The Purchaser shall have
received from each Seller a certification of non-foreign status, in the form
required by Section 1445 of the Code and the regulations issued thereunder,
signed under penalty of perjury.
(i) No Material Adverse Change. Except as set forth
on Schedule 3.23 hereto, there shall not have occurred an adverse change in the
financial condition, results of operations, business or prospects of the Company
since the Balance Sheet Date which, in the Purchaser's judgment, would make it
inadvisable to proceed with the Closing. The Purchaser shall not have discovered
any fact, event or condition which, in the Purchaser's judgment, has materially
disrupted or is likely in the immediate future to materially disrupt the conduct
of the business of the Company or has materially changed or is likely to
materially change its ability to operate such businesses in accordance with its
financial projections. The Company shall not have sustained a loss material or
substantial to it caused by fire, flood, accident, hurricane, earthquake, theft,
sabotage or other calamity or act which, whether or not such loss shall have
been insured, makes it, in the Purchaser's opinion, inadvisable for it to
proceed with the Closing; notwithstanding the foregoing, the Purchaser may in
its sole discretion agree to proceed with the Closing in which event the amount
of the cash portion of the Purchase Price provided in Section 1.3(a)(i) to be
delivered by the Purchaser shall be reduced by the amount of any deductible in
respect of any insurance against such loss, or by the amount of such loss if no
such insurance is then in effect with respect to such loss.
(j) Instruments of Transfer. The Sellers shall have
delivered to the Purchaser original certificates representing the Shares, with
endorsed blank stock powers attached, in form and substance satisfactory to the
Purchaser, to vest in the Purchaser all of the right, title and interest of each
Seller in and to the Shares, free and clear of all Liens.
(k) Good Standing Certificates. The Sellers shall
have delivered to the Purchaser certificates as to the good standing of each of
the Company and CRU Nevada in the States of California and Nevada, respectively,
and each other state in which the Company or CRU Nevada is qualified to conduct
business.
(l) Employment Agreements. Each of Chris DeWaard,
Larry Fish, Gordon Guinn, Jack Harvey, Jerry Hoobler, Robert Lin, Steven Lu,
George Zraick and Carl W. Gromada (collectively, the "Identified Employees")
shall have entered into an employment agreement with the Company substantially
in the form of Exhibit D hereto.
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(m) Bank Accounts. The authorized signatories with
respect to each bank account of the Company listed on Schedule 3.26 hereto shall
have executed all documents and taken all other actions necessary to have
themselves removed as authorized signatories with respect such bank accounts.
(n) Financing. The Purchaser shall have obtained
financing to consummate the transactions contemplated hereunder and to provide
working capital sufficient to operate the business of the Company following the
Closing, in such amounts and upon terms and conditions satisfactory to the
Purchaser in its sole discretion.
(o) Affiliate Receivables and Payables. As of the
Closing Date, there shall be no outstanding obligations (i) from any Seller or
its Affiliates or from any officer, director or shareholder of the Company to
the Company, or (ii) to any Seller or its Affiliates or to any officer, director
or shareholder of the Company from the Company with respect to any bonus or
incentive compensation for any period prior to the Closing.
(p) Third Party Real Estate Documents. The Sellers
shall have delivered to the Purchaser original (i) non-disturbance and
attornment agreements from the holder of each mortgage or deed of trust
encumbering the Real Property leased, licensed and/or occupied by the Company
and (ii) estoppel certificates, and landlord waivers and access agreements, from
each landlord of any Real Property leased, licensed and/or occupied by the
Company, in each case to extent required by the Purchaser's senior lender and
each of which documents shall be in form and substance reasonably satisfactory
to the Purchaser.
(q) Lien Releases. The Sellers shall have delivered
to the Purchaser releases of all liens and security interests in the Company's
assets and properties relating to Designated Indebtedness or otherwise requested
by the Purchaser, in each case in form and substance reasonably satisfactory to
the Purchaser.
(r) Kentex Release. The Sellers shall have delivered
to the Purchaser a general release from Kentex Electronics Co., Ltd. in favor of
the Company dated after the date hereof.
5.2. Conditions Precedent to the Sellers' Obligation to Close.
Notwithstanding any other provision herein, the obligations of the Sellers to
consummate the transactions contemplated hereunder are, at the option of the
Sellers, subject to the satisfaction of each of the conditions set forth below:
(a) Agreements and Conditions. On or before the
Closing Date, the Purchaser shall have complied with and duly performed all
agreements and conditions to be complied with or performed by it on or before
the Closing Date pursuant to or in connection with this Agreement.
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(b) Representations and Warranties. The
representations and warranties of the Purchaser contained in this Agreement
shall be true and correct in all material respects on and as of the Closing Date
with the same force and effect as though such representations and warranties had
been restated and made on and as of the Closing Date, except for those
representations and warranties which speak as of a specified date.
(c) Opinion of Counsel. The Sellers shall have
received an opinion of Parker Chapin Flattau & Klimpl, LLP, counsel for the
Purchaser, dated as of the Closing Date, substantially in the form of Exhibit E
hereto.
(d) No Legal Proceedings. No order shall have been
entered against any Seller restraining or prohibiting consummation of, the
acquisition by the Purchaser, or the conveyance by such Seller, of the Shares.
(e) Consents. The Sellers shall have obtained all
material governmental consents and approvals which are required in order to
consummate the transactions contemplated by this Agreement.
(f) HSR Act. Any applicable waiting period (and any
extension thereof) under the HSR Act shall have expired or been terminated.
(g) Officer's Certificate. The Sellers shall have
received a certificate dated the Closing Date and executed by the Chairman of
the Board, the President or any Vice President of the Purchaser certifying that
the representations and warranties made by the Purchaser in this Agreement are
true and correct in all material respects at and as of the Closing Date (except
for such representations and warranties which speak as of a specified date) and
that it has fulfilled all conditions to closing provided for in this Agreement
to be fulfilled by it.
(h) Certificate of Secretary. The Sellers shall have
received a certificate of the Secretary of the Purchaser setting forth a copy of
the resolutions adopted by the Board of Directors of the Purchaser approving the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby, together with a signature and incumbency
certificate.
(i) Payment of Consideration. The Purchaser shall
have delivered (i) the cash portion of the Purchase Price provided in Section
1.3(a)(i) to the Sellers' Representative, (ii) the amount of the Designated
Indebtedness being paid by the Purchaser, if any, to the holders thereof, and
(iii) the Promissory Note to the Sellers' Representative.
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ARTICLE VI
INDEMNIFICATION
6.1. By the Sellers.
(a) The Sellers agree jointly and severally to
indemnify, defend and hold harmless the Purchaser from and against (i) any and
all liabilities, debts, obligations, losses, damages, deficiencies, claims,
actions, suits, proceedings, demands, assessments, Taxes, customs obligations,
penalties, interest or any other costs, orders and judgments (whether known or
unknown, fixed, contingent, accrued, absolute or otherwise), joint or several,
to which the Purchaser or the Company may become subject, arising out of (A) any
inaccuracy in any representation or warranty by any Seller in this Agreement,
(B) any breach or default in the performance or observance by any Seller of any
of the covenants or agreements which it is to perform or observe hereunder, (C)
any brokerage, finder's fee or the like incurred as a result of the actions of
any Seller in connection with the transactions herein contemplated, (D) any of
the matters described on Schedule 3.10 hereto, or (E) any failure by the Company
on or prior to the Closing Date to be qualified to conduct business as a foreign
corporation in the State of Florida; and (ii) any and all actual costs, fees and
expenses (including, without limitation, reasonable legal and accounting fees)
related to, resulting from or arising out of any of the foregoing.
(b) The Sellers shall not be liable hereunder for any
claims made by the Purchaser pursuant to Sections 6.1(a)(i)(A) or (D) hereof
after June 30, 2001, except that there shall be no limitation on the time within
which a claim may be made by the Purchaser (i) pursuant to Section 6.1(a)(i)(A)
with respect to a breach of Section 3.2, Section 3.3, the second sentence of
Section 3.8(c), Section 3.13, Section 3.15 or Section 3.17 hereof, (ii) pursuant
to Sections 6.1(a)(i)(B), (C) or (E) hereof, or (iii) with respect to any
fraudulent act or omission by any Seller.
6.2. By the Purchaser.
(a) The Purchaser agrees to indemnify, defend and
hold harmless each Seller from and against (i) any and all liabilities, debts,
obligations, losses, damages, deficiencies, claims, actions, suits, proceedings,
demands, assessments, orders and judgments (whether known or unknown, fixed,
contingent, accrued, absolute or otherwise), joint or several, to which such
Seller may become subject, arising out of (A) any inaccuracy in any
representation or warranty made by the Purchaser in this Agreement, (B) any
breach or default in the performance or observance by the Purchaser of any of
the covenants or agreements which it is to perform or observe hereunder, or (C)
any brokerage, finder's fee or the like incurred as a result of the Purchaser's
actions in connection with the transactions herein contemplated; and (ii) any
and all actual costs, fees and expenses (including, without limitation,
reasonable legal and accounting fees) related to, resulting from or arising out
of any of the foregoing.
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(b) The Purchaser shall not be liable hereunder for
any claims made by any Seller pursuant to Section 6.2(a)(i)(A) hereof after June
30, 2001, except that there shall be no limitation on the time within which a
claim may be made by any Seller (i) pursuant to Section 6.2(a)(i)(A) with
respect to a breach of Section 2.2, (ii) pursuant to Sections 6.2(a)(i)(B) or
(C) hereof, or (iii) with respect to any fraudulent act or omission by the
Purchaser.
6.3. Indemnification Amounts.
(a) Notwithstanding anything to the contrary
contained herein, the Sellers shall not have any liability under Sections
6.1(a)(i)(A) or (D) hereof unless at least $67,500 of damage is suffered by the
Purchaser ("Minimum Purchaser's Damages") by reason of the matters described
therein, in which event the Sellers shall be liable for the amount of all such
damage. In addition, the aggregate liability of the Sellers under Sections
6.1(a)(i)(A) and (D) hereof shall at any time be limited to the amount of the
principal and interest then outstanding under the Promissory Note; provided,
however, that there shall be no Minimum Purchaser's Damages applicable to
liability of the Sellers with respect to any claim that may be made by the
Purchaser (i) pursuant to Section 6.1(a)(i)(A) with respect to a breach of
Section 3.2, Section 3.3, the second sentence of Section 3.8(c), Section 3.13,
Section 3.15 or Section 3.17 hereof, (ii) pursuant to Sections 6.1(a)(i)(B), (C)
or (E) hereof, or (iii) with respect to any fraudulent act or omission by any
Seller.
(b) Notwithstanding anything to the contrary
contained herein, the Purchaser shall not have any liability under Sections
6.2(a)(i)(A) hereof unless at least $67,500 of damage is suffered by the Sellers
("Minimum Sellers' Damages") by reason of the matters described therein, in
which event the Purchaser shall be liable for the amount of all such damage;
provided, however, that there shall be no Minimum Sellers' Damages applicable to
liability of the Purchaser with respect to any claim that may be made by the
Sellers (i) pursuant to Section 6.2(a)(i)(A) with respect to a breach of Section
2.2 hereof, (ii) pursuant to Sections 6.2(a)(i)(B) or (C) hereof, or (iii) with
respect to any fraudulent act or omission by the Purchaser.
6.4. Notice of and Defense Against Claims.
(a) Promptly after receipt by an indemnified party of
notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party, send
notice of the commencement thereof to the indemnifying party. The failure of the
indemnified party to give such notice shall not relieve the indemnifying party
of its obligations under this Article VI except to the extent that the
indemnifying party is actually and materially prejudiced by the failure to give
such notice. In case any such action shall be brought against any indemnified
party and it shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate in, and, to the extent
that it shall wish, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party shall not be liable to such indemnified party in
respect of such action for any legal or other expenses subsequently incurred by
the indemnified party after the date such notice is
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given to such indemnified party in connection with the defense thereof. The
indemnified party, however, shall have the right, but not the obligation, to
participate at its own cost and expense in such defense by counsel of its own
choice. In the event that the indemnifying party and the indemnified party are
named parties in or are subject to such action and either such party determines
with the advice of counsel that there may be one or more legal defenses
available to it that are different from or additional to those available to the
other party or that a material conflict of interest between such parties may
exist in respect of such action, the indemnifying party may decline to assume
the defense on behalf of the indemnified party or the indemnified party may
retain the defense on its own behalf and in either such case the indemnifying
party shall be required to pay any legal or other expenses, including, without
limitation, reasonable attorneys' fees and disbursements, incurred by the
indemnified party in such defense. If the indemnifying party shall assume the
defense of any such action, the indemnified party shall cooperate with it and
the indemnifying party shall not, without the consent of the indemnified party,
consent to the entry of any judgment or enter into any settlement or compromise
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such indemnified party of a release from all liability
in respect of such action or claim. Provided the proper notice has been duly
given, if the indemnifying party shall fail promptly and diligently to assume
the defense thereof, the indemnified party may respond to, contest and defend
against such action and make in good faith any compromise or settlement with
respect thereto and recover the entire cost and expense thereof, including,
without limitation, reasonable attorneys' fees and disbursements and all amounts
paid or foregone as a result of such action or the settlement of compromise
thereof from the indemnifying party. The indemnification required hereunder
shall be made by periodic payments of the amount thereof during the course of
the investigation or defense, as and when bills or invoices are received or
loss, liability, obligation, damage or expense is actually suffered or incurred.
Except as is otherwise provided hereinabove, no indemnifying party shall be
liable for any settlement of any claim or action pursuant to this Article VI
effected without the prior written consent of such indemnifying party; provided,
however, that if the indemnifying party does not consent to a settlement, the
indemnified party may nevertheless settle, unless the indemnifying party secures
the indemnified party against loss to the indemnified party's reasonable
satisfaction.
(b) Any claim on account of any loss, liability,
obligation, damage or expense referred to in Sections 6.1 or 6.2 hereof which
does not result from a third party claim shall be asserted by written notice
given by the indemnified party to the indemnifying party. The indemnifying party
shall have a period of thirty (30) days within which to respond thereto. If the
indemnifying party does not respond within such thirty (30) day period, the
indemnifying party shall be deemed to have accepted responsibility to make
payment and shall have no further right to contest the validity of such claim.
If the indemnifying party does respond within such thirty (30) day period and
rejects such claim in whole or in part, the indemnified party shall be free to
pursue such remedies as may be available to such party under applicable law.
(c) Notwithstanding anything to the contrary set
forth in this Agreement, from and after the time when the aggregate amount of
claims paid or potentially payable by the Sellers under this Agreement, which
are subject to the limitation set forth in the second sentence of Section 6.3(a)
above, exceeds or could potentially exceed such limitation based upon claims
paid and pending
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in accordance with this Agreement, the Purchaser shall have the right, at its
own cost and expense, to jointly control the defense and settlement of any
pending indemnification claims the liability for which could potentially result
in the aggregate claims exceeding such limitation. At such time as the aggregate
amount of claims subject to such limitation which have been paid or settled
(subject to being paid) exceeds such limitation, the Sellers shall no longer
have the right to participate in the control or defense of such claims.
(d) This Section 6.4 shall not apply to the extent
Section 4.12 hereof applies.
6.5. Set-Off Against Promissory Note. In addition to any other
rights or remedies available to the Purchaser either at law or in equity, the
Purchaser may set-off the amount of any indemnity payment required to be made by
any Seller hereunder against any amounts payable by Labtec pursuant to the
Promissory Note, in accordance with the terms and provisions hereof and of the
Promissory Note; provided, however, that the Purchaser's recourse against the
Sellers with respect to claims pursuant to (a) Section 6.1(a)(i)(A) (other than
with respect to any breach of Section 3.2, Section 3.3, the second sentence of
Section 3.8(c), Section 3.13, Section 3.15 or Section 3.17 or any fraudulent act
or omission by any Seller) and (b) Section 6.1(a)(i)(D) shall be limited to
set-offs by the Purchaser against the amounts payable by Labtec pursuant to the
Promissory Note and the proceeds of any prepayment of the Promissory Note while
held in escrow pursuant to Section 7 thereof.
ARTICLE VII
TERMINATION
7.1. Termination by Mutual Consent. This Agreement may be
terminated at any time prior to the Closing Date by the mutual written consent
of the Purchaser and the Sellers. This Agreement shall automatically terminate
if the Closing Date has not occurred on or before August 31, 1999 unless such
date is extended by written consent of the parties hereto.
7.2. Termination by the Purchaser. The Purchaser may terminate
this Agreement by written notice to the Sellers' Representative:
(a) at any time prior to the Closing Date if a
condition to the performance of the Purchaser set forth herein shall not be
fulfilled on or before the date specified for the fulfillment thereof, unless
such failure is a result of acts or failures to act of the Purchaser;
(b) at any time prior to the Closing Date if a
material default under or a material breach of this Agreement or a material
misrepresentation or a material breach of any representation, warranty or
covenant of any Seller set forth in this Agreement or in any instrument
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delivered by any Seller pursuant hereto shall have occurred and be continuing
unless the same is curable and is cured by such Seller prior to the Closing
Date;
(c) at any time prior to the Closing Date if, between
the Balance Sheet Date and the Closing Date, there has been any loss, damage or
destruction of a material or substantial nature to business or assets of the
Company (whether or not covered by insurance);
(d) at any time prior to the Closing Date if a
material adverse change in the business, operations, condition (financial or
otherwise) or prospects of the Company has occurred; or
(e) at any time prior to August 16, 1999 if the
Purchaser, in connection with its due diligence review of the business of the
Company, shall have discovered any fact, event or condition which in the
Purchaser's sole judgment makes it inadvisable for it to consummate the Closing
on the terms and conditions, including the consideration, provided for herein.
7.3. Termination by the Sellers. The Sellers may terminate
this Agreement by written notice to the Purchaser at any time prior to the
Closing Date if:
(a) a condition to the performance of the Sellers set
forth herein shall not be fulfilled on or before the date specified for the
fulfillment thereof, unless such failure is a result of acts or failures to act
of any Seller; or
(b) a material default under or a material breach of
this Agreement or a material misrepresentation or a material breach of any
representation, warranty or covenant of the Purchaser set forth in this
Agreement or in any instrument delivered by the Purchaser pursuant hereto shall
have occurred and be continuing unless the same is curable and is cured by the
Purchaser prior to the Closing Date.
7.4. Effect of Termination. In the event of the termination
and abandonment hereof prior to the Closing Date pursuant to the provisions of
this Article VII, this Agreement shall become void and have no effect, and each
party shall pay all of its own expenses incurred in connection herewith, without
any liability on the part of any party or its partners, directors, officers or
shareholders, except for the confidentiality obligations between the parties
described in Section 8.3; provided, however, that if this Agreement is
terminated and abandoned because either party has defaulted under or breached
this Agreement or any representation, warranty or covenant set forth in this
Agreement, then the party so electing to terminate this Agreement shall be
entitled to pursue, exercise and enforce any and all other remedies, rights,
powers and privileges available to it at law or in equity.
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ARTICLE VIII
MISCELLANEOUS
8.1. Further Assurances. From and after the Closing Date, the
parties hereto will, without further consideration, execute and deliver such
further documents and instruments and take such other actions as may be
necessary or desirable to perfect the transactions contemplated hereby.
8.2. Publicity. No publicity release or announcement
concerning this Agreement or the transactions contemplated hereby which
identifies the parties hereto other than the party making such announcement
shall be made without advance approval thereof by the Sellers' Representative
and the Purchaser, unless such announcement is required by law (including,
without limitation, as to the Purchaser or Labtec, any notice or announcement in
accordance with any applicable federal or state securities law), in which case
the other party shall be given notice of such requirement prior to such
announcement and the parties shall consult with each other as to the scope and
substance of such disclosure.
8.3. Confidentiality. Each party hereto agrees that it will,
and will advise its officers, directors, shareholders, attorneys, accountants,
consultants and agents of the necessity to, keep confidential all non-public
information concerning the other which it has learned in connection with the
transactions contemplated by this Agreement.
8.4. No Waiver. The failure of either party hereto to enforce
any provision hereof on any occasion shall not be deemed to be a waiver of any
preceding or succeeding breach of such provision or any other provision.
8.5. Entire Agreement. This Agreement and the Exhibits and
Schedules hereto and the documents delivered pursuant hereto constitute the
entire agreement and understanding of the parties hereto with respect to the
transactions contemplated herein and therein and supersede all previous
agreements, writings, negotiations and commitments, including, without
limitation, the letter of intent dated March 8, 1999, as amended on June 11,
1999 and July 14, 1999, between the Purchaser and the Company.
8.6. Governing Law. This Agreement shall be construed,
interpreted and enforced in accordance with, and shall be governed by, the laws
of the State of Florida applicable to contracts made and to be performed wholly
therein.
8.7. Arbitration. Any dispute arising out of or related to
this Agreement shall be submitted to arbitration in Orange County, Florida
before an arbitrator selected in accordance with the rules and procedures of the
American Arbitration Association as the exclusive remedy of such dispute;
provided, however, that provisional injunctive relief may, but need not, be
sought in any court of competent jurisdiction while arbitration proceedings are
pending, and any provisional injunctive relief granted by such court shall
remain effective until the matter is finally determined by
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<PAGE>
the arbitrator. Final resolution of any dispute through arbitration may include
any remedy or relief which the arbitrator deems just and equitable, including
permanent injunctive relief or specific performance, or both, and the arbitrator
is hereby empowered to award such relief. Any award or relief granted by the
arbitrator hereunder shall be final and binding on the parties hereto and may be
enforced by any court of competent jurisdiction.
8.8. Assignment.
(a) Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assignable by any of the parties
hereto without the prior written consent of the other party, except that the
rights of the Purchaser hereunder may be assigned, without the consent of the
other parties hereto, to any corporation all of the outstanding capital stock of
which is owned or controlled, directly or indirectly, by the Purchaser or to any
Affiliate of Sun Capital Partners, Inc.; provided that (i) the assignee shall
assume in writing all of the Purchaser's obligations hereunder, and (ii) the
Purchaser shall not be released from any of its obligations hereunder by reason
of such assignment.
(b) Notwithstanding the foregoing, the Purchaser
(including each subsequent assignee of the Purchaser) shall have the right to
assign any or all of its rights and obligations hereunder to any other person
who acquires all or substantially all of the assets and business of the
Purchaser (or a subsequent assignee of the Purchaser); provided that the
assignor shall not be released from any of its obligations hereunder by reason
of any such assignment.
(c) Notwithstanding any provision of this Agreement
to the contrary, each Seller hereby acknowledges and agrees that all of the
covenants, representations, warranties and indemnities of the Sellers under this
Agreement, and under any other agreement or instrument contemplated hereby to
which any Seller is a party may be collaterally assigned to any and all lenders
to the Purchaser or any of its Affiliates, any and all of whom may enforce their
rights and remedies in connection with any such collateral assignment or
realization thereon to the extent provided in the applicable security agreements
and other debt instruments or at law or in equity.
8.9. Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns. This Agreement is not intended, and shall not be deemed, to
create or confer any right or interest for the benefit of any person not a party
hereto.
8.10. Fees and Expenses. The Sellers, on the one hand, and the
Purchaser, on the other hand, shall each bear their own direct and indirect
expenses (including, without limitation, the fees and expenses of their legal,
tax and accounting counsel and advisors) incurred in connection with the
negotiation and preparation of this Agreement and the other agreements and
documents contemplated hereby and the consummation and performance of the
transactions contemplated hereby and thereby. In addition, in the event of the
consummation of the transactions contemplated hereby, the Sellers shall bear all
of the Company's direct and indirect expenses (including, without limitation,
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<PAGE>
the fees and expenses of its legal, tax and accounting counsel and advisors)
incurred in connection with the negotiation and preparation of this Agreement
and the other agreements and documents contemplated hereby and the consummation
and performance of the transactions contemplated hereby and thereby. In the
event of any Proceeding (including, without limitation, any arbitration under
Section 8.7 hereof) among any of the parties hereto concerning this Agreement or
the transactions contemplated hereby, the prevailing party in such Proceeding
shall be entitled to reimbursement from the party opposing such prevailing party
of all reasonable attorneys' fees and costs incurred in connection with such
Proceeding.
8.11. Amendment and Waiver. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance, either retroactively or prospectively,
and either for a specified period of time or indefinitely), only by the written
consent of the party against whom such amendment or waiver is sought to be
enforced. Any agreement on the part of a party to any extension or waiver shall
only be valid if set forth in an instrument in writing signed on behalf of such
party. Any such waiver or extension shall not operate as waiver or extension of
any other subsequent condition or obligation.
8.12. Paragraph Headings. The paragraph headings herein have
been inserted for convenience of reference only and shall in no way be deemed to
affect the meaning or interpretation of any of the terms or provisions hereof.
8.13. Sellers' Representative. Each Seller hereby designates
and appoints Carl Gromada as the exclusive agent, attorney-in-fact and
representative (the "Sellers' Representative") for and on behalf of such Seller,
with full power of substitution, to:
(a) receive and accept service of any and all
notices, requests and other communications to be delivered to any Seller in
accordance with the terms of this Agreement, including, without limitation,
service of all legal process;
(b) send to the Purchaser or its successors or
assigns any and all notices, requests and other communications in accordance
with the terms of this Agreement; and
(c) be each Seller's sole and exclusive
representative to communicate, respond, consent, confess, answer or otherwise
act with respect to any matter arising out of or involving this Agreement
(including, without limitation, all notices, requests and demands by the
Purchaser claiming for indemnification under this Agreement). In the event of,
and from the time of, the Sellers' Representative's or any successor's
resignation, death or disability, the Purchaser shall continue to address all
notices, requests and other communications to the Sellers' Representative, or
such other successors as set forth in this Section 8.13, until there is
delivered to the Purchaser an instrument duly executed by all of the Sellers or
their respective legal representatives appointing a successor to the Sellers'
Representative, on all of the same terms and conditions as set forth herein.
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<PAGE>
8.14. Notices. Any notice or demand hereunder to or upon any
party hereto required or permitted to be given or made shall be deemed to have
been duly given or made for all purposes if (a) in writing and sent by (i)
messenger or an overnight courier service against receipt, or (ii) certified or
registered mail, postage paid, return receipt requested, or (b) sent by
telegram, telecopy, telex or similar electronic means, provided that a written
copy thereof is sent on the same day by postage paid first-class mail, to such
party at the following address:
In the case of any Seller, to it at:
c/o the Sellers' Representative, at his
address set forth on Exhibit A hereto
with a copy to:
Higham, McConnell & Dunning LLP
28202 Cabot Road, Suite 450
Laguna Niguel, California 92677
Attn: Douglas F. Higham, Esq.
Fax: (949) 365-5522
In the case of the Purchaser, to it at:
c/o Sun Capital Partners, Inc.
5355 Town Center Road, Suite 802
Boca Raton, Florida 33486
Attn: Mr. Marc J. Leder and Mr. Rodger R. Krouse
Fax: (561) 394-0540
with copies to:
Labtec Inc.
1499 Southeast Tech Center Place, Suite 350
Vancouver, Washington 98683
Attn: President
Fax: (360) 896-2020
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<PAGE>
and
Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, New York 10036
Attn: Mark S. Hirsch, Esq.
Fax: (212) 704-6288
or such other address as either party hereto may at any time, or from time to
time, direct by notice given to the other party in accordance with this Section.
The date of giving or making of any such notice or demand shall be, in the case
of clause (a)(i), the date of the receipt; in the case of clause (a)(ii), five
(5) business days after such notice or demand is sent; and, in the case of
clause (b), the business day next following the date such notice or demand is
sent.
8.15. Unenforceability, Severability. If any provision of this
Agreement is found to be void or unenforceable by a court of competent
jurisdiction, the remaining provisions of this Agreement shall nevertheless be
binding upon the parties with the same force and effect as though the
unenforceable part had been severed and deleted.
8.16. Brokers' Fees. The Sellers warrant that the Purchaser
shall have no liability with respect to any brokerage fees or agents'
commissions incurred by any Seller in connection with the transactions
contemplated hereby. The Purchaser warrants that the Sellers shall have no
liability with respect to brokerage fees or agents' commissions incurred by the
Purchaser in connection with the transactions contemplated hereby.
8.17. Specific Performance. The parties hereto agree that
irreparable damage would occur if any of the provisions of this Agreement were
not performed in accordance with their specific terms or otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof, in addition to any other remedy to which they
are entitled at law or in equity.
8.18. Certain Definitions. As used in this Agreement, the
following terms have the following meanings unless the context otherwise
requires:
(a) "Affiliate" with respect to any person, means any
person controlling, controlled by or under common control with, or the parents,
spouse, lineal descendants or beneficiaries of such person.
(b) "Environmental Laws" means all federal, state and
local laws and regulations relating to pollution or to protection of human
health or the environment (including, without limitation, ambient air, surface
water, ground water, land surface or subsurface strata), including, without
limitation, laws and regulations relating to emissions, discharges, Releases or
threatened Releases of Hazardous Substances, record keeping, notification and
reporting
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<PAGE>
requirements respecting Hazardous Substances, or otherwise relating to
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Substances.
(c) "Knowledge" with respect to (i) any Seller means
the actual knowledge of such Seller, and (ii) the Company means the actual
knowledge of any of the Identified Employees or any director or officer of the
Company.
(d) "Material Adverse Effect" means, with respect to
any person, any effect that is, or series of effects that are, in the aggregate,
materially adverse to the operations, business, assets, liabilities, properties,
prospects, results of operations or financial condition of such person.
(e) "Pre-Closing Period" shall mean any Tax period
ending on or before the Closing Date and, in the case of any Tax period that
begins on or before the Closing Date and ends after the Closing Date, the
portion of such period through and including the Closing Date.
(f) "Tax" means any tax, fee, levy, duty, assessment
or other governmental charge imposed by any domestic or foreign governmental
authority (including, without limitation, any income, franchise, gross receipts,
property, sales, use, excise, services, value added, ad valorem, withholding,
social security, estimated, accumulated earnings, transfer, license, privilege,
payroll, profits, capital stock, employment, unemployment, severance, stamp,
minimum, environmental, occupancy, customs or occupation tax), including,
without limitation, any liability therefor as a result of Treasury Regulation
ss.1.1502-6 (or any comparable state, local or foreign Tax provision), as a
transferee (including under Section 6901 of the Code or any comparable state,
local or foreign Tax provision), or as a result of any Tax sharing or similar
agreement, and any interest, additions to tax and penalties in connection
therewith.
(g) "Tax Return" means any return, declaration,
report, estimate, information return or statement and any amendment thereto,
together with any supporting information or schedules, which is filed or
required to be filed under applicable law in connection with the determination,
assessment, collection, payment or administration of any Tax, whether on a
consolidated, combined, unitary or separate basis or otherwise.
8.19. Counterparts. This Agreement may be executed in
counterparts, all of which shall be deemed to be duplicate originals.
8.20. Labtec Limited Guaranty. Labtec hereby guarantees to the
Sellers the payment and performance by the Purchaser of all liabilities and
obligations of the Purchaser under clause (A) of Section 1.4(d) hereof;
provided, that Labtec shall be entitled to assert, and Labtec's liabilities and
obligations hereunder shall be subject to, all of the Purchaser's defenses and
other rights under the Agreement, the Promissory Note and applicable law and all
defenses, counterclaims and discharges, whether legal or equitable, of a surety
or guarantor under applicable law. Labtec hereby represents and warrants to the
Sellers that it has the authority to enter into this guarantee, and that, upon
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<PAGE>
execution and delivery hereof, this guarantee will constitute a legal, valid and
binding obligation of Labtec enforceable against Labtec in accordance with its
terms.
[THE NEXT PAGE IS THE SIGNATURE PAGE]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
CRU ACQUISITION CORP.
By: /s/ Marc J. Leder
---------------------------------
Name: Marc J. Leder
Title: Vice President
/s/ Carl W. Gromada
--------------------------------------
CARL W. GROMADA
JAMES C. HARVEY INTER VIVOS TRUST
UDT AUGUST 14, 1998
By: /s/ James C. Harvey
----------------------------------
Name: James C. Harvey
Title: Trustee
MARY C. HARVEY INTER VIVOS TRUST
UDT AUGUST 14, 1998
By: /s/ Mary C. Harvey
----------------------------------
Name: Mary C. Harvey
Title: Trustee
/s/ Robert Lin
--------------------------------------
ROBERT LIN
ACCEPTED AND AGREED TO, solely
with respect to Section 8.20
hereof (and Sections 8.1 through
8.19 to the extent they apply
to such Section):
LABTEC INC.
By: /s/ Marc J. Leder
- -------------------------------
Name: Marc J. Leder
Title: Co-Chairman, Senior Vice President,
Finance, Chief Financial Officer
and Treasurer
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<PAGE>
LIST OF SCHEDULES
Schedule 3.1 Qualifications
Schedule 3.2 Consents
Schedule 3.3 Capitalization
Schedule 3.6 Inventory
Schedule 3.7 Accounts Receivable
Schedule 3.8(a) Leased Real Property
Schedule 3.8(c) Personal Property
Schedule 3.8(f) Absence of Violations
Schedule 3.9(a) Material Contracts
Schedule 3.9(b) Absence of Defaults
Schedule 3.10 Intellectual Property
Schedule 3.11 Legal Proceedings
Schedule 3.12(a) Permits
Schedule 3.13 Environmental Matters
Schedule 3.14 Labor Matters
Schedule 3.15 Taxes
Schedule 3.17(a) Certain Benefit Plans
Schedule 3.17(b) ERISA Compliance
Schedule 3.17(e) Absence of Contribution Liabilities
Schedule 3.17(g) Absence of Additional Benefit Plans
Schedule 3.17(h) Absence of Other Plan Liabilities
Schedule 3.17(j) Absence of Severance Liabilities
Schedule 3.18 Suppliers and Customers
Schedule 3.19 Consultants
Schedule 3.20 Subsidiaries and Other Entities
Schedule 3.21 Absence of Undisclosed Liabilities
Schedule 3.22 Accounts Payable
Schedule 3.24 Absence of Changes
Schedule 3.25 Insurance
Schedule 3.26 Bank Accounts
Schedule 3.27 Third Party Obligations
Schedule 3.28 Affiliate Transactions
THE REGISTRANT HAS OMITTED THE ABOVE SCHEDULES IN THE FILING OF THIS CURRENT
REPORT ON FORM 8-K; HOWEVER, THE COMPANY SHALL FURNISH SUPPLEMENTALLY TO THE
SECURITIES AND EXCHANGE COMMISSION UPON REQUEST A COPY OF ANY OF SUCH SCHEDULES
NOT FILED HEREWITH.
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PROMISSORY NOTE
$1,500,000 August 20, 1999
FOR VALUE RECEIVED, the undersigned, LABTEC INC., a
Massachusetts corporation having offices at 1499 S.E. Tech Center Place, Suite
350, Vancouver, Washington 98683 (the "Company"), hereby promises to pay to CARL
W. GROMADA (or the then current endorsee and holder of this promissory note, the
"Collection Agent"), at 38390 Redwood Terrace, Fremont, California 94536 or at
such other place as may be designated from time to time in writing by the
Collection Agent, the sum of ONE MILLION FIVE HUNDRED THOUSAND DOLLARS
($1,500,000), together with all accrued but unpaid interest, all as provided in
this promissory note (as the same may be supplemented, modified, amended or
restated from time to time in the manner provided herein, the "Note").
1. The Company shall repay the principal amount outstanding
under this Note (the "Loan") in full on February 20, 2007.
2. The Loan shall bear interest (computed on the basis of a
year of 360 days for the actual number of days elapsed) on the unpaid principal
balance thereof outstanding from time to time, from and including the date
hereof until such principal balance is repaid in full, at an annual rate equal
to (a) six percent (6%) per annum through June 30, 2001 and (b) nine percent
(9%) per annum thereafter. Interest shall be payable by the Company in arrears
on March 1st, June 1st, September 1st and December 1st of each year, commencing
December 1, 1999, at maturity (whether by acceleration or otherwise) and upon
the making of any prepay ment, as hereinafter provided. The Company shall pay
interest on any installment of interest overdue until paid, if not paid within
ten (10) days after being due, from and after such due date, at a rate equal to
twelve percent (12%) per annum.
3. All payments under or pursuant to this Note shall be made
in United States Dollars, by check in immediately available funds, to the
Collection Agent at its office set forth in the first paragraph of this Note or
to such other person and/or address as the Collection Agent shall designate in
writing. Notwithstanding the foregoing, in the event that the payment of
interest by the Company is at any time prohibited from being made in cash
pursuant to Section 8 hereof, to the extent then required pursuant to the terms
of any Institutional Indebtedness (as defined below), the payment of interest by
the Company shall be made through the issuance to the Collection Agent of an
additional promissory note containing substantially the same terms and
conditions of this Note in a principal amount equal to the amount of interest
then required to be so paid. All payments made pursuant to this Note may be
recorded by the Collection Agent on its books and records, and such recordation
shall constitute prima facie evidence of the accuracy of the information so
recorded; provided, however, that the failure to so record any such information
shall not affect the obligations of the Company in respect of this
<PAGE>
Note. Payments hereunder shall be applied to the Company's obligations hereunder
in such order and manner as the Collection Agent shall from time to time
determine.
4. This Note may be prepaid in full at any time, or in part
from time to time, without prepayment premium or penalty. In addition, upon the
occurrence of any Prepayment Event (as defined below), the Collection Agent
shall have the right to require the Company to prepay this Note in full. Any
prepayment of this Note shall be accompanied by payment in full of all accrued
but unpaid interest on the amount prepaid to the date of prepayment. The
occurrence of any of the following events shall constitute a "Prepayment Event:"
(a) the sale of all or substantially all of the assets of the Company; (b) the
merger, consolidation or reorganization of the Company following which the
stockholders of the Company immediately prior to such event do not continue to
hold more than 50% of the outstanding capital stock of the Company or the
surviving entity; (c) the acquisition by any person or group of persons acting
in concert of more than 50% of the outstanding capital stock of the Company; or
(d) the consummation by the Company of a public or private offering of shares of
its capital stock pursuant to which the Company receives gross proceeds in
excess of $15,000,000. In the event of any prepayment of this Note prior to June
30, 2001, the amount prepaid shall be delivered at that time to an escrow agent
mutually acceptable to the Company and the Collection Agent (it being agreed by
the Company and the Collection Agent that Higham, McConnell & Dunning LLP is
acceptable as such escrow agent in the event that the parties are unable to
agree upon an alternative escrow agent), to hold, in escrow, through June 30,
2001, as a source of funds to satisfy any amounts due to CRU Acquisition Corp.
pursuant to the Agreement (as defined in Section 7 hereof). Any interest earned
on such funds while held in escrow shall be distributed to the Collection Agent.
5. Each of the following events shall constitute a default
under this Note (each an "Event of Default"): (a) any default (whether in whole
or in part) shall occur in the payment of any amount payable under this Note,
which default continues for a period of thirty (30) days following notice
thereof from the Collection Agent; (b) any proceedings are instituted in a court
of competent jurisdiction for the reorganization, liquidation or dissolution of
the Company or for its adjudication as a bankrupt or insolvent and, if
instituted by a third party, such proceedings are not dismissed, discharged or
stayed within sixty (60) days from the date such proceedings are instituted; (c)
the Company makes an assignment for the benefit of its creditors; (d) a
receiver, liquidator, assignee, trustee or custodian is appointed to administer
the affairs of the Company; or (e) the Company dissolves, liquidates or winds-up
its business and operations, other than in connection with its merger or
consolidation with, or its transfer of all or substantially all of its business
and operations to, any Affiliate (as defined in the Agreement (as defined
below)) of the Company that assumes all of the obligations of the Company
hereunder.
6. Upon the occurrence and at any time during the continuance
of any Event of Default, the Collection Agent shall be entitled to (a) declare
this Note, and any and all principal, interest and other amounts due under this
Note, to be immediately due and payable,
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<PAGE>
and (b) exercise or otherwise enforce any one or more of the Collection Agent's
rights, powers, privileges, remedies and interests under this Note or applicable
law.
7. This Note is issued pursuant to the Stock Purchase
Agreement dated as of August 4, 1999 (as the same may be amended from time to
time, the "Agreement"), among the Company and each of the stockholders of
Connector Resources Unlimited, Inc., a California corporation (collectively, the
"Stockholders"), and is subject to the provisions thereof, including (without
limitation) the right of the Company to offset any amounts due to CRU
Acquisition Corp. thereunder against all amounts due and payable hereunder. The
Collection Agent hereby acknowledges that it is holding the Note on behalf, and
for the benefit, of each of the Stockholders. By its acceptance of this Note,
the Collection Agent agrees for itself and all future holders of this Note to
all of the terms and conditions of the subordination provided for in Section 8
hereof. The Collection Agent hereby further acknowledges that it shall be solely
responsible for distributing any payments received from the Company in respect
of this Note to the Stockholders on a pro rata basis as provided in the
Agreement and hereby agrees to make such distributions.
8. Notwithstanding anything to the contrary contained in this
Note, the Collection Agent agrees that the payment of principal, interest and
all other charges with respect to the Note is expressly subordinated, in the
manner hereinafter set forth, in right of payment to the prior payment and
satisfaction in full of the Institutional Indebtedness (as defined below) at any
time outstanding.
(a) In the event of any insolvency or bankruptcy
proceedings, or any receivership, liquidation, reorganization or other similar
proceedings in connection therewith, relative to the Company or to its property,
or, in the event of any proceedings for voluntary liquidation, dissolution or
other winding up of the Company or distribution or marshaling of its assets or
any composition with creditors of the Company, whether or not involving
insolvency or bankruptcy, then and in any such event all Institutional
Indebtedness shall be paid in full in cash or cash equivalents before any
payment or distribution of any character, whether in cash, securities or other
property, shall be made on account of this Note; and any such payment or
distribution, except securities which are unsecured and subordinated and junior
in right of payment to the same extent as this Note to the payment of all
Institutional Indebtedness then outstanding, which would, but for the provisions
hereof, be payable or deliverable in respect of this Note shall be paid or
delivered directly to the holders of Institutional Indebtedness (or their duly
authorized representatives), in the proportions in which they hold the same,
until all Institutional Indebtedness shall have been paid in full, and every
holder of this Note by becoming a holder thereof shall have designated and
appointed the holder or holders of Institutional Indebtedness (and their duly
authorized representatives) as his or its agents and attorney-in-fact to demand,
sue for, collect and receive such Institutional Indebtedness holder's ratable
share of all such payments and distributions and to file any necessary proof of
claim therefor and to take all such other action (including the right to vote
such Institutional Indebtedness holder's ratable share of this Note), in the
name of the holder of this Note or otherwise, as such Institutional
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<PAGE>
Indebtedness holders (or their authorized representatives) may determine to be
necessary or appropriate for the enforcement of this Section 8. The Collection
Agent, and each successor holder of this Note by its or his acceptance thereof,
agrees to execute, at the request of the Company, a separate agreement with any
holder of Institutional Indebtedness on the terms set forth in this Section 8,
and to take all such other action as such holder or such holder's representative
may request in order to enable such holder to enforce all claims upon or in
respect of such holder's ratable share of this Note.
(b) In the event that any default occurs in the
payment of the principal of or interest on any Institutional Indebtedness
(whether as a result of acceleration thereof by the holders of such
Institutional Indebtedness or otherwise) and during the continuance of such
default until such default has been cured or waived in writing by such holder of
Institutional Indebtedness, no payment of principal or interest on this Note
shall be made by the Company or accepted by any holder of this Note who has
received notice from the Company or from a holder of Institutional Indebtedness
of such event. In the event that any other default occurs under any
Institutional Indebtedness (whether as a result of acceleration thereof by the
holders of such Institutional Indebtedness or otherwise) for a period of 180
days thereafter (or for such shorter period until such default has been cured or
waived in writing by such holders of Institutional Indebtedness), no payment of
principal or interest on this Note shall be made by the Company or accepted by
any holder of this Note who has received notice from the Company or from a
holder of Institutional Indebtedness of such default; provided, however, that
the restrictions on payment set forth in this sentence may only be imposed once
during any 12-month period.
(c) In case any payment or distribution shall be paid
or delivered to the Collection Agent before all Institutional Indebtedness shall
have been paid in full in violation or contravention of the terms of this
subordination, such payment or distribution shall be held in trust for and paid
and delivered ratably to the holders of Institutional Indebtedness (or their
duly authorized representatives), until all Institutional Indebtedness shall
have been paid in full.
(d) Subject to the payment in full of all
Institutional Indebtedness and until this Note shall be paid in full, the
Collection Agent shall be subrogated to the rights of the holders of
Institutional Indebtedness (to the extent of payments or distributions
previously made to such holders of Institutional Indebtedness pursuant to the
provisions of subsections (a) and (c) of this Section 8) to receive payments or
distributions of assets of the Company applicable to the Institutional
Indebtedness. No such payments or distributions applicable to the Institutional
Indebtedness shall, as between the Company and its creditors, other than the
holders of Institutional Indebtedness and the Collection Agent, be deemed to be
a payment by the Company to or on account of this Note; and for the purposes of
such subrogation, no payments or distributions to the holders of Institutional
Indebtedness to which the holder of this Note would be entitled except for the
provisions of this Section 8 shall, as between the Company and its creditors,
other than the holders of Institutional Indebtedness and the Collection Agent,
be deemed to be a payment by the Company to or on account of the Institutional
Indebtedness.
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<PAGE>
(e) The provisions of this Section 8 are intended
solely for the purpose of defining the relative rights of the Collection Agent,
on the one hand, and the holders of the Institutional Indebtedness, on the other
hand. Nothing contained in this Section 8 or elsewhere in this Note is intended
to or shall impair, as between the Company, its creditors other than the holders
of Institutional Indebtedness, and the Collection Agent, the obligation of the
Company, which is unconditional and absolute, to pay to the Collection Agent the
principal of and interest on the Note as and when the same shall become due and
payable in accordance with the terms thereof, or to affect the relative rights
of the holder of this Note and creditors of the Company other than the holders
of the Institutional Indebtedness, or to benefit any other creditors of the
Company other than the holders of the Institutional Indebtedness, nor shall
anything herein or therein prevent the Collection Agent from accepting any
payment with respect to this Note or exercising all remedies otherwise permitted
by applicable law upon default under this Note, subject to the rights, if any,
under this Section 8 of the holders of Institutional Indebtedness in respect of
cash, property or securities of the Company received by the holder of this Note.
(f) The right of any present or future holder of
Institutional Indebtedness to enforce subordination of this Note pursuant to the
provisions of this Section 8 shall not at any time be prejudiced or impaired by
any act or failure to act on the part of the Company or any such holder of
Institutional Indebtedness, including, without limitation, any forbearance,
waiver, consent, compromise, amendment, extension, renewal, or taking or release
of security of or in respect of any Institutional Indebtedness or by
noncompliance by the Company with the terms of such subordination regardless of
any knowledge thereof the holder may have or otherwise be charged with.
(g) The provisions of this Section 8 may not be
amended or waived in any manner which is detrimental to any Institutional
Indebtedness without the consent of the holders of a majority of the then
existing Institutional Indebtedness.
(h) The term "Institutional Indebtedness" shall mean
all indebtedness of the Company for money borrowed (including interest thereon
after commencement of any bankruptcy, insolvency or similar proceeding relating
to the Company, whether or not such interest would accrue in such proceeding)
from banks or other institutional lenders, including any extension or renewals
thereof, whether outstanding on the date hereof or thereafter created or
incurred, which is not by its terms expressly subordinate and junior to or on a
parity with this Note.
9. Any notice, request, demand or other communication
permitted or required to be given hereunder shall be in writing, shall be sent
by one of the following means to the addressee at the address set forth above
(or at such other address as shall be designated hereunder by notice to the
other parties and persons receiving copies, effective upon actual receipt) and
shall be deemed conclusively to have been given: (a) on the first Business Day
(as hereinafter defined) following the day timely deposited with Federal Express
(or other equivalent
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<PAGE>
national overnight courier) or United States Express Mail, with the cost of
delivery prepaid; (b) on the fifth Business Day following the day duly sent by
certified or registered United States mail, postage prepaid and return receipt
requested; or (c) when otherwise actually delivered to the addressee. Copies may
be sent by regular first-class mail, postage prepaid, to such person(s) as a
party may direct from time to time by notice to the others, but failure or delay
in sending copies shall not affect the validity of any such notice, request,
demand or other communication so given to a party. For purposes hereof,
"Business Day" shall mean any day, other than any Saturday, Sunday or a day on
which commercial banks in New York, New York are authorized or required to
close.
10. This Note shall be governed by, and construed and enforced
in accordance with, the laws of the State of Florida without regard to
principles of conflicts or choice of law (or any other law that would make the
laws of any state other than the State of Florida applicable hereto).
11. This Note shall not be negotiable, transferable or
assignable by the Company or the Collection Agent, whether by operation of law
or otherwise; provided, however, this Note shall be negotiable, transferrable
and assignable by the Collection Agent with the Company's prior consent, which
consent shall not be unreasonably withheld. Notwithstanding the foregoing, the
Company (including each subsequent assignee of the Company) shall have the right
to assign any or all of its rights and obligations hereunder to any other person
who acquires all or substantially all of the assets and business of the Company
(or a subsequent assignee of the Company); provided that the assignor shall not
be released from any of its obligations hereunder by reason of any such
assignment. Subject to the foregoing, whenever reference is made to any party,
such reference shall be deemed to include the successors, assigns and legal
representatives of such party.
12. Presentment for payment, notice of dishonor, protest and
notice of protest are hereby each waived by the Company. Any other waiver or
consent respecting this Note shall be effective only if in writing and signed by
the Collection Agent and then only in the specific instance and for the specific
purpose for which given. No such other waiver or consent shall be deemed,
regardless of frequency given, to be a further or continuing waiver or consent.
The failure or delay of the Collection Agent at any time or times to require
performance of, or to exercise its rights with respect to, any term or provision
of this Note in no manner shall affect its right at a later time to enforce any
such term or provision. No notice to or demand on the Company in any case shall
entitle such party to any other or further notice or demand. All rights, powers,
privileges, remedies and other interests of the Collection Agent under this Note
and applicable law are cumulative and not alternatives. The Company shall pay
all expenses (including, without limitation, reasonable attorneys' fees)
incurred by the Collection Agent in connection with any attempt to collect the
amounts due hereunder following an Event of Default.
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<PAGE>
13. This Note contains the entire agreement of the parties and
supersedes all other representations, warranties, agreements and understandings,
oral or written, with respect to the matters contained herein.
IN WITNESS WHEREOF, the Company has executed and delivered
this Note on the date first written above.
LABTEC INC.
By: /s/ Marc J. Leder
--------------------------------------
Name: Marc J. Leder
Title: Co-Chairman, Senior Vice
President, Finance, Chief
Financial Officer and
Treasurer
ACKNOWLEDGED:
/s/ Carl W. Gromada
- -------------------------
CARL W. GROMADA
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