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EXHIBIT 2.1
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (this "Agreement") is made and entered
into as of November 3, 2000 by and among Ram Belts & Chains, Inc., a Delaware
corporation ("Buyer"), Rainbow Industrial Products Corp., a Pennsylvania
corporation ("Rainbow"), Mr. Howard Miller and Ms. Lee Beth Miller, individuals
residing in the State of Pennsylvania ("Owners"), and Summa Industries, a
Delaware corporation and the parent of Buyer ("Parent"). (Rainbow and Owners are
sometimes referred to herein individually as a "Seller" and, collectively, as
"Sellers".)
RECITALS
WHEREAS, Rainbow is engaged, among other businesses, in the business of
designing, manufacturing and selling plastic modular conveyor belts and chains,
metal chains and related products and accessories thereof (collectively, the
"Ram Business");
WHEREAS, Rainbow is a sublessee from Danam Realty, a Pennsylvania
general partnership ("Danam"), of a portion of that certain real property and
improvements thereon located at 1036A and B MacArthur Road, Reading,
Pennsylvania (the "Real Property") pursuant to that certain existing sublease
between Rainbow and Danam, as amended (the "Rainbow Sublease") , which Real
Property is currently used as the primary location for the Ram Business, and a
portion of which is currently leased to a third party (the "Uni Lease");
WHEREAS, Rainbow owns or leases all of the Transferred Assets (as
defined in SECTION 1.1), which Transferred Assets are used in the conduct of the
Ram Business; and
WHEREAS, Rainbow desires to sell and assign to Buyer, and Buyer desires
to purchase and assume from Rainbow, the Transferred Assets, and certain Assumed
Obligations (as defined in SECTION 1.4), all on the terms and subject to the
conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants set forth herein and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the parties hereto,
intending to be legally bound, hereby agree as follows:
ARTICLE I
SALE AND TRANSFER OF ASSETS
1.1 TRANSFERRED ASSETS. Subject to the terms and conditions set forth
herein, at the Closing (as defined in SECTION 2.4), Rainbow shall sell, convey,
transfer, assign and deliver to Buyer, and Buyer shall purchase, assume and
acquire from Rainbow all of the assets, properties and rights of every kind,
character and description used in the conduct of the Ram Business, whether
tangible or intangible and wherever located except for the Retained Assets (as
defined in SECTION 1.2), as of the Closing Date (as defined in SECTION 2.4)
(collectively referred to herein as the "Transferred Assets"), including,
without limiting the foregoing, the following Transferred Assets (as described
in detail in the "Transferred Assets Schedule" attached hereto as SCHEDULE 1.1):
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(a) The Rainbow Sublease, as will be amended prior to or at Closing
pursuant to an amendment to sublease containing the terms and in substantially
the form attached hereto as EXHIBIT A;
(b) All machinery, equipment, vehicles, tooling, molds, fork lifts,
tables, spare parts and tools;
(c) All office supplies and equipment, computers, maintenance supplies
and other similar items;
(d) All inventories;
(e) All accounts and notes receivable;
(f) All prepaid assets;
(g) All Sellers' right, title and interest in and to those contracts
and agreements (including proprietary agreements with suppliers) set forth on
SCHEDULE 1.1(G), and all right, title and interest in and to purchase or sales
orders, quotes or commitments related to the Transferred Assets or the Ram
Business, whether written or oral;
(h) Access to and the right to copy all of Rainbow's books, records,
accounts, correspondence, production records, employment, payroll, personnel and
workers' compensation records, environmental control records, and access to and
the right to copy any other documents relating to the Transferred Assets or the
Ram Business;
(i) All of Sellers' rights under any and all express or implied
warranties from suppliers with respect to the Transferred Assets to the extent
such warranties are transferable;
(j) All of Rainbow's right, title and interest in and to patents,
trademarks, service marks, trade names (including "Ram Belts & Chains" but
excluding "Rainbow") and service names and all variants thereof, copyrights,
inventions, customer lists, trade secrets (including processes and software
programs owned by Rainbow or used or licensed by Rainbow and transferable),
registrations and all applications for any of the foregoing and works in
progress relating thereto, and all past, present and future causes of action and
remedies therefor relating to the Ram Business, as such are set forth on
SCHEDULE 3.10;
(k) A limited, perpetual, worldwide royalty-free right and license to
use the trade names "Rainbow" and "Rainbow/Ram Belts & Chains" and variants
thereof in connection with the on-going Ram Business, in substantially the form
attached hereto as EXHIBIT B;
(l) All of Rainbow's right, title and interest in computer programs to
the extent assignable, and other intangibles owned or used by Rainbow, relating
to the Transferred Assets or the Ram Business and all of the related goodwill;
(m) All claims as to which Rainbow is a judgment creditor relating to
the Ram Business;
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(n) To the extent assignable, all of Sellers' licenses, permits and
governmental authorizations relating to the Transferred Assets or the Ram
Business; and
(o) All of the assets, properties and rights owned or formerly owned by
Omni Manufacturing, Inc. ("Omni") and transferred to Rainbow of every kind,
character and description, whether tangible or intangible and wherever located.
1.2 RETAINED ASSETS. Notwithstanding the terms of SECTION 1.1, the
following assets (collectively, the "Retained Assets") shall be retained by
Rainbow and shall not be sold, transferred or assigned to Buyer:
(a) All assets owned by Rainbow used solely and exclusively in the
business of selling rubber belting products and other products that are not
competitive in any manner with the Ram Business (the "CIGO Business"), as all
such assets are set forth on SCHEDULE 1.2(A); provided that, those assets used
in both the CIGO Business and the Ram Business identified on SCHEDULE 1.2(A)
with an asterisk shall also be deemed Retained Assets;
(b) All books and other ownership records of Rainbow;
(c) All insurance policies of Rainbow obtained in connection with the
Ram Business and all rights of Rainbow under and arising out of such insurance
policies, including right to receive refunds of prepaid insurance; provided
that, Rainbow shall deliver copies of all such policies to Buyer and shall use
best efforts to assist Buyer in obtaining reimbursement under such policies that
pertain to the Ram Business following the Closing for claims that may be covered
thereunder;
(d) All cash and cash equivalents received by Rainbow prior to the
Closing Date;
(e) All rights to receive refunds with respect to any taxes paid by
Sellers in connection with the Ram Business;
(f) All existing life insurance policies insuring the lives of one or
more Owners, and all cash surrender values related thereto;
(g) The right to have Uni-Chains A/S and/or Maskinfabrikken Baeltix
grant to Rainbow a paid-up, non-assignable, royalty-free non-exclusive license
(with no right to sublicense) to make, have made, use, sell or offer to sell
products covered by any U.S. patents that may be granted upon Uni-Chain's
pending U.S. Patent Applications Serial No. 29/062,094 - Chain Link Module for
Conveyor Belt, filed November 7, 1996, Serial No. 08/661,427 - Chain Link
Conveyor filed June 11, 1996, and Serial No. 29/085,506 - Chain Link Belt for a
Conveyor Belt, filed March 25, 1998 (the "Uni Patent Pending License"); provided
that, Sellers shall not directly or indirectly manufacture, distribute, transfer
or sell any products that may be covered by the Uni Patent Pending License
following the Closing , shall not transfer any rights in connection therewith to
any third party, and shall not use the Uni Patent Pending License in any manner
without Buyer's prior written consent;
(h) The non-exclusive license under Rexnord Corp.'s U.S. Patent No.
4,909,380 issued on March 20, 1990, and U.S. Patent 5,096,050 issued on March
17, 1992, to sell in the United States Uni-Chains Int. A/S products known as PRR
and PRR Tab Products manufactured by Uni-Chains set forth in the Settlement
Agreement, effective April 1, 1994, among Uni-Chains, Rainbow, Eagle Supply and
Plastics, Inc., and Rexnord Corporation (the "PRR License"); provided that, (i)
pursuant to SECTION 6.10 hereof, Rainbow shall use reasonable
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commercial efforts to transfer all of its rights under the PRR License to Buyer,
and (ii) Sellers shall not manufacture, distribute, transfer or sell any
products that may be covered by the PRR License following the Closing, shall not
transfer any rights in connection therewith to any third party; and shall not
use the PRR License in any manner without Buyer's prior written consent;
(i) The "Rainbow" tradename and variants thereof, subject to the
limited license to be granted at Closing to Buyer; and
(j) Any rights of Sellers under this Agreement and any related
agreement.
1.3 CUSTOMER ASSETS. Notwithstanding the terms of SECTION 1.1, Rainbow
shall sell, convey, assign and transfer only such rights as it may have at the
Closing, if any, to those molds, toolings and inserts used in the Ram Business
which are owned by customers of Rainbow ("Customer Assets"), including those set
forth on SCHEDULE 1.3.
1.4 ASSUMED OBLIGATIONS. Effective as of the Closing Date, Buyer shall
assume and shall thereafter pay, discharge or perform only the following
liabilities and obligations (collectively, the "Assumed Obligations"), other
than which neither Buyer nor Parent shall assume nor be obligated to pay,
discharge or perform any liability or obligation of Sellers, whether direct or
indirect, known or unknown, absolute or contingent, and all such liabilities and
obligations shall remain with Sellers:
(a) Those trade payables relating to the Ram Business incurred by
Rainbow in the ordinary course of business on or before the Closing Date and set
forth on the Assumed Obligations Schedule attached hereto as SCHEDULE 1.4, as
such Schedule may be updated at Closing;
(b) Those accrued commissions on uncollected accounts receivable
relating to the Ram Business existing on the Closing Date and set forth on the
Assumed Obligations Schedule attached hereto as SCHEDULE 1.4, as such Schedule
may be updated at Closing;
(c) Liabilities and obligations, if any, of the Ram Business for
products liability claims regardless of when the relevant products were sold;
provided that Sellers are not in breach of any representation or warranty set
forth in SECTION 3.18 relating thereto;
(d) Sellers' obligations arising under those contracts and agreements
included in the Transferred Assets as set forth on SCHEDULE 1.1(G) and under
those purchase or sales orders, binding quotes or commitments which arise
hereafter in the ordinary course of business and are open as of the Closing
Date; and
(e) Any and all sublessee obligations under the Rainbow Sublease
arising after assignment thereof from Rainbow to Buyer at Closing.
1.5 NO OTHER DEBTS, OBLIGATIONS OR LIABILITIES ASSUMED. Buyer and
Parent do not assume and shall not be liable for, and Sellers shall indemnify
Buyer and Parent pursuant to ARTICLE IX against, any debts, obligations or
liabilities of Sellers of any nature whatsoever other than the Assumed
Obligations (the "Retained Obligations").
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ARTICLE II
PURCHASE PRICE AND PAYMENT
2.1 PURCHASE PRICE. In exchange and as consideration for the
Transferred Assets and in full payment of the purchase price therefor, Parent
and Buyer shall pay, in the manner provided in SECTION 2.3, an aggregate
purchase price of Six Million Five Hundred and Seventy Five Thousand Dollars
($6,575,000.00), subject to exercise of the indemnification rights set forth in
ARTICLE IX, and Buyer shall assume and pay for the Assumed Obligations in
accordance with SECTION 1.4 (the "Purchase Price").
2.2 ALLOCATION OF PURCHASE PRICE. The parties shall allocate the
Purchase Price for tax purposes amongst the Transferred Assets as set forth on
SCHEDULE 2.2. The parties shall file their respective tax returns in accordance
with such allocation and shall not take any position or action inconsistent with
such allocation.
2.3 PAYMENT OF PURCHASE PRICE. The Purchase Price shall be paid as
follows:
(a) At Closing, Buyer shall pay to Rainbow in cash, by wire transfer of
immediately available funds, the aggregate amount of Five Million Eight Hundred
and Twenty Five Thousand Dollars ($5,825,000.00); and
(b) At Closing, Parent and Buyer, jointly and severally, shall execute
and deliver to Rainbow an unsecured promissory note in the principal amount
equal to Seven Hundred and Fifty Thousand Dollars ($750,000.00), due eighteen
(18) months after Closing and bearing simple interest at nine and one-half
percent (9.5%), with interest only payable monthly from Closing, in
substantially the form attached hereto as EXHIBIT C (the "Note").
2.4 CLOSING. The consummation of the transactions contemplated by this
Agreement (the "Closing") shall take place on November 29, 2000 or as soon
thereafter as possible upon satisfaction of the conditions set forth in ARTICLE
VII (the "Closing Date"), at the offices of DeSantis, DeSantis, Essig &
Valeriano, 708 Centre Avenue, Reading, Pennsylvania 19612 , or at such other
date, time and place as may be mutually agreed upon in writing by the parties.
All proceedings to take place at the Closing shall take place simultaneously,
and no delivery shall be considered to have been made until all such proceedings
have been completed. The Closing shall be deemed to have taken place at 12:01
a.m. EST on the Closing Date. At Closing:
(a) Buyer shall pay to Rainbow the cash portion of the Purchase Price
set forth in SECTION 2.3(A);
(b) Parent and Buyer shall execute and deliver to Rainbow the Note as
set forth in SECTION 2.3(B);
(c) Buyer shall receive an assignment of the Rainbow Sublease from
Rainbow, and Danam and Buyer shall execute and deliver to each other an
amendment to sublease in substantially the form attached hereto as EXHIBIT A;
(d) Rainbow shall execute and/or deliver to Buyer a General Instrument
of Conveyance, Transfer and Assignment in the form attached hereto as EXHIBIT D
and all such
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other instruments and documents of conveyance and assignment as are requested by
Buyer to vest in Buyer title to the Transferred Assets, including without
limitation assignments of intellectual property and assignment and consents
thereof to the Rainbow Sublease; and
(e) Buyer shall execute and deliver to Rainbow an Assumption Agreement
in the form attached hereto as EXHIBIT E, and Sellers, Parent and Buyer shall
execute and deliver certificates regarding the representations, warranties and
covenants contained herein.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers hereby jointly and severally represent and warrant to Buyer and
Parent as follows:
3.1 ORGANIZATION AND QUALIFICATION - RAINBOW. Rainbow is a corporation
duly domesticated, validly existing and in good standing under the laws of the
State of Pennsylvania, and is duly qualified to do business as a foreign entity
and is in good standing in each other jurisdiction in which the character of its
properties or the nature of its business makes such qualification necessary.
Rainbow has the requisite power and authority to own, use or lease its
properties and to carry on its business as it is now being conducted. Rainbow is
not in default in the performance, observation or fulfillment of any provision
of its articles of incorporation or bylaws. All entities merged with and into
Rainbow prior to the date hereof (including without limitation Omni) were duly
organized, validly existing and in good standing under the laws of their states
of incorporation until their respective dates of merger, were duly qualified to
do business as foreign corporations and were in good standing in each
jurisdiction in which the character of their properties or the nature of their
business made such qualification necessary, and had the requisite corporate
power and authority to own, use or lease their properties and to carry on their
business as conducted. Set forth on SCHEDULE 3.1 is a complete and accurate list
of all holders of Rainbow equity.
3.2 OWNERSHIP. Other than as relates to the Ram Business and the CIGO
Business, Rainbow does not own any material assets or conduct any operations.
3.3 AUTHORITY RELATIVE TO THIS AGREEMENT. Each Seller has all requisite
power, authority and capacity to execute and deliver this Agreement and all
related agreements and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and all related agreements and the
consummation of the transactions contemplated hereby on the part of each Seller
has been duly and validly authorized and no other proceedings on the part of
each Seller are necessary, as a matter of law or otherwise, to authorize this
Agreement and the related agreements or to consummate the transactions so
contemplated. This Agreement has been duly and validly executed and delivered by
each Seller and, assuming this Agreement constitutes a valid and binding
obligation of Buyer and Parent, this Agreement constitutes a valid and binding
agreement of Sellers, enforceable against each of them in accordance with its
terms, except as such enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
affecting enforcement of creditors' rights or by general principles of equity.
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3.4 CONSENTS AND APPROVALS; NO VIOLATION. Except as set forth on
SCHEDULE 3.4, the execution and delivery of this Agreement and any related
agreements by each Seller, the consummation of the transactions contemplated
hereby and/or the performance by each Seller of their obligations hereunder will
not:
(a) conflict with any provision of the articles of incorporation,
bylaws, or other organizational documents of Rainbow;
(b) require any consent, approval, authorization or permit of, or
filing with or notification to, any governmental or regulatory authority;
(c) conflict with, result in the breach of or constitute a default (or
give rise to any right of termination, cancellation or acceleration or
guaranteed payments) under any of the terms, conditions or provisions of any
material note, lease, mortgage, license, agreement or other instrument or
obligation to which any Seller is a party or by which any Seller or any of their
assets may be bound, including the Ram Business, except for such defaults (or
rights of termination, cancellation or acceleration or guaranteed payments) as
to which requisite waivers or consents have been obtained in writing;
(d) conflict with or violate the provisions of any order, writ,
injunction, judgment, decree, statute, rule or regulation; or
(e) result in the creation of any lien, charge or encumbrance upon any
of the Transferred Assets.
3.5 FINANCIAL STATEMENTS. The audited balance sheets of Rainbow as of
July 31, 2000, September 30, 1999 and 1998 and the compiled unaudited balance
sheets of Omni as of December 31, 1999 and 1998 (collectively, the "Balance
Sheet") and the related statements of income and cash flows for the ten and
twelve-month periods then ended (the "Rainbow Financial Statements", the "Omni
Financial Statements" and, collectively, the "Financial Statements") are
attached hereto as SCHEDULE 3.5. The Rainbow Financial Statements have been
prepared in accordance with GAAP applied on a consistent basis throughout the
period indicated, and present fairly in all material respects the financial
position of Rainbow as of the end of such periods and the results of operations
and cash flows for such periods. The Omni Financial Statements have been
compiled in accordance with Statements on Standards for Accounting and Review
Services issued by the American Institute of Certified Public Accountants
applied on a consistent basis throughout the period indicated, and present
fairly in all material respects the financial position of Omni as of the end of
such fiscal years and the results of operations and cash flows for such years.
Until Closing, Rainbow shall deliver to Buyer, within thirty (30) days after
each month end, monthly unaudited balance sheets, statements of income and cash
flows which, at the time they are delivered to Buyer, will present fairly in all
material respects the assets and liabilities and results of operations and cash
flows of Rainbow as of their respective dates, compiled in the same manner as
the July 2000 financial statements (the "July Financials"), excluding certain
footnotes and presentational items.
3.6 ABSENCE OF CERTAIN CHANGES. Except as set forth on SCHEDULE 3.6,
since July 31, 2000, (i) Rainbow has conducted the Ram Business only in, and
since such date, has not engaged in any transaction other than according to, the
ordinary and usual course of such
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business, and, (ii) there has not been (a) any event, circumstance, condition,
development or occurrence causing, resulting in or having a material adverse
effect on the financial condition, business, prospects, properties or results of
operations of either the Ram Business or the Transferred Assets (a "Material
Adverse Change"); (b) any material change by Rainbow in accounting principles,
practices or methods; (c) any labor dispute or difficulty which is reasonably
likely to result in any Material Adverse Change, and to Sellers' Knowledge, no
such dispute or difficulty is now threatened; (d) any asset material to the Ram
Business sold or disposed of (except inventory sold in the ordinary course of
business), or any material asset mortgaged, pledged or subjected to any lien,
charge or other encumbrance; (e) any increase in excess of $5,000, individually
in the compensation payable or which could become payable by Rainbow to
employees, distributors, dealers or sales representatives of the Ram Business;
(f) any amendment by Rainbow of any employee benefit plan; (g) any indebtedness
incurred by Rainbow with respect to the Ram Business, except for indebtedness
that will be repaid in full by Rainbow prior to the Closing; (h) any loan made
or agreed to be made by Rainbow with respect to the Ram Business, nor has
Rainbow become liable or agreed to become liable as a guarantor with respect to
any such loan; or (i) any waiver by Rainbow of any right or rights of material
value related to the Ram Business.
3.7 ABSENCE OF UNDISCLOSED LIABILITIES. Rainbow and the Ram Business
has no indebtedness, obligations or liabilities, whether accrued, absolute,
contingent or otherwise and whether due or to become due, known or unknown, as
of date of the July Financials, which are not reflected or reserved for in the
July Financials or set forth on SCHEDULE 3.7, as such Schedule may be updated at
Closing.
3.8 TITLE TO ASSETS. Each Transferred Asset with an original cost in
excess of $1,000.00 is set forth and described in detail on SCHEDULE 1.1.
Rainbow has good and marketable title to all Transferred Assets. Except as set
forth in this Agreement, the Transferred Assets constitute all of the assets and
interests in assets that are owned or used in the conduct of the Ram Business as
currently being conducted, other than leased or licensed assets identified as
such and set forth on SCHEDULE 3.8, the Retained Assets and the Customer Assets.
All of the Transferred Assets will be conveyed to Buyer free and clear of
restrictions on or conditions to transfer or assignment, and free and clear of
mortgages, liens, leases, security interests, pledges, charges, encumbrances,
equities, claims, easements, rights of way, covenants, conditions or
restrictions or any other adverse claims or rights whatsoever (collectively,
"Liens"), other than (i) those items set forth on SCHEDULE 3.8, (ii) liens for
property taxes not yet due and payable, (iii) rights of customers with respect
to work-in-process under orders or contracts entered into in the ordinary course
of business, and (iv) immaterial imperfections of title, easements,
restrictions, rights of way and encumbrances (collectively, "Permitted Liens").
Subject to the consents set forth on SCHEDULE 3.4, Rainbow has the absolute and
unrestricted right, power, authority and capacity to transfer the Transferred
Assets to Buyer and, upon Closing, Buyer will acquire from Rainbow legal and
beneficial ownership of, good and valid title to, the Transferred Assets, free
from any Lien other than Permitted Liens. At Closing, except as set forth on
SCHEDULE 3.8, none of the Transferred Assets will be subject to any leasing
arrangement. Except for shareholder interests in Rainbow, no partner, agent,
owner or employee of Sellers, nor any spouse, child, sibling or other relative
of any of these persons, owns or has any interest, directly or indirectly, in
any of the Transferred Assets.
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3.9 REAL PROPERTY. Rainbow does not own any real property. Set forth in
SCHEDULE 3.9 is a complete and accurate description of each parcel of real
property leased and/or occupied or used in any manner by Rainbow for the Ram
Business, including any easement, covenants, rights of way or similar
restrictions, and, except as set forth in SCHEDULE 3.9, the Ram Business does
not lease, sublease, own, occupy or use any other real property nor is any other
real property used in or related to the Ram Business. Except as indicated in
SCHEDULE 3.9:
(a) Subject to the terms and conditions of the Rainbow Sublease and
existing superior interests in and to the Real Property, Rainbow has a good,
valid and marketable leasehold interest in and to that portion of the Real
Property which is covered by the Rainbow Sublease, and all amounts due under the
Rainbow Sublease have been timely paid in full; (b) Rainbow does not lease any
other real property, nor is any other leased real property used in the Ram
Business;
(c) Each of the buildings and all fixtures and improvements and roofs
located on the Real Property are in good operating condition, ordinary wear and
tear excepted;
(d) No Seller has received any notice, nor is any Seller aware, that
any of the buildings, structures or other improvements erected on the Real
Property, or the present use thereof, (i) do not conform in all respects with
all applicable zoning and building laws (or does not constitute a legal
nonconforming use), ordinances, regulations or other laws and applicable deed
restrictions, or (ii) encroach on property of others;
(e) No Seller has received any written or oral notice of any pending
(i) change of such zoning and building laws, ordinances, regulations or other
laws affecting any of such properties, or (ii) condemnation of any such
properties; and
(f) No Seller has received any notice from any municipal body or other
public authority requiring work to be done or improvements to be made upon any
of the Real Property and there has been no enactment or adoption of any
ordinance or resolution by any such body or authority authorizing work or
improvements for which any of the Real Property may be assessed.
3.10 INTELLECTUAL PROPERTY.
(a) Except as set forth on SCHEDULE 3.10, Rainbow does not have any
right, title or interest in any Intellectual Property (as defined below)
relating to the Ram Business, and no such Intellectual Property is necessary for
or used in any manner in the Ram Business as now conducted and as conducted in
the past three years. With respect to registered patents and trademarks,
SCHEDULE 3.10 contains a list of all jurisdictions in which such patents and
trademarks are registered or applied for and all registration and application
numbers.
(b) "Intellectual Property" includes United States and foreign
inventions, invention disclosures, patents, inventors' certificates, utility
models, trademarks, service marks, trade names, copyrights, mask work
registrations, trade secrets (including processes and software programs),
registrations and applications therefor and works in progress, and past, present
and future causes of action and remedies therefor, customer lists and
proprietary arrangements with vendors of Rainbow.
(c) Except as set forth on SCHEDULE 3.10, Rainbow owns or, to Sellers'
Knowledge, has the unrestricted perpetual right to use, free and clear of any
rights of others and without payment to any other party, the Intellectual
Property listed on such SCHEDULE 3.10 plus all trade secrets, customer lists,
manufacturing and secret processes owned by Rainbow or used in the
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Ram Business, and the consummation of the transactions contemplated hereby will
not alter or impair any such items nor the unrestricted right of the Ram
Business to use such items without violating any rights of third parties. To
Sellers' Knowledge, Rainbow is not making use of any confidential information or
trade secrets of any present or past employee that has not been fully assigned
to Rainbow.
(d) No Seller has received any communications alleging that Rainbow has
violated any other person's Intellectual Property rights or has engaged in
unfair competition against such person. To Sellers' Knowledge, Rainbow does not
now infringe or misappropriate any third party's Intellectual Property rights
and does not have any liability for any past infringement or misappropriation.
No dispute or disagreement involving Rainbow exists or ,to Sellers' Knowledge,
is threatened with regard to any third party's Intellectual Property rights,
including any allegation of Intellectual Property infringement or
misappropriation or of any breach or default of an Intellectual Property license
or similar agreement.
(e) To Sellers' Knowledge and except as set forth on SCHEDULE 3.10, (i)
no third party is now infringing or misappropriating any Intellectual Property
rights of Rainbow or the Ram Business, and (ii) there has not been any past such
infringement or misappropriation.
3.11 ACCOUNTS RECEIVABLE. The accounts receivable reflected on the July
Financials constituted all accounts receivable of the Ram Business as of the
date thereof, other than accounts receivable fully written off as uncollectible
as of such date in accordance with consistently applied prior practice, except
as may be reserved on the July Financials. All such accounts receivable arose
from valid sales made (as opposed to consignments) or services rendered in the
ordinary course of business, and are not subject to any return privileges,
set-off or counterclaim, except as may be reserved on the July Financials.
Except as disclosed on SCHEDULE 3.11, such accounts receivable have been
collected in full since the date of the July Financials or remain valid, binding
and legally enforceable obligations at their full respective amounts (net of
allowance for doubtful accounts established in accordance with consistently
applied prior practice). All accounts receivable created after the date of the
July Financials up to the Closing will arise from valid transactions in the
ordinary course of business, and will be valid, binding and legally enforceable
obligations at their full respective amounts (net of the allowance for doubtful
accounts established with consistently applied prior practice).
3.12 INVENTORIES. Except as set forth on SCHEDULE 3.12, Rainbow has
good and marketable title to all of its inventories of raw materials,
work-in-process and finished goods, free and clear of all Liens. Except to the
extent reserved for on the July Financials, all such inventories (i) consist of
items that are usable in the ordinary course of business for an amount at least
equal to the book value thereto plus costs of disposition thereof, (ii) except
as set forth on SCHEDULE 3.12, represent quantities, individually and in the
aggregate, not in excess of twelve month's requirements for the business as
currently conducted, and (iii) except as set forth on SCHEDULE 3.12, have not
been present in inventory for more than twelve months.
3.13 CONTRACTS. Rainbow does not have any contract, agreement,
obligation or commitment, written or oral, expressed or implied, relating in any
manner to the Ram Business which was not incurred in the ordinary course of
business, or involves a commitment or liability in excess of $10,000, or is for
a term of more than one year or whose terms do not permit cancellation without
liability on 30 days' notice or less (other than obligations which are included
in accounts payable), and has no union contracts, employee, representative or
consultant contracts, loan, credit or other financing agreements, inventory
flooring arrangements, debtor or
<PAGE>
creditor arrangements, security agreements, licenses, franchise, manufacturing,
distributorship or dealership agreements, leases, or bonus, health or stock
option plans, except for those described in SCHEDULE 3.13 (collectively, the
"Contracts"), copies of all of which have been delivered to Buyer prior to the
execution hereof. As of the date hereof, there exists no circumstances on
Rainbow's part and, to Sellers' Knowledge, on the part of any third party, which
would affect the validity or enforceability of any such Contracts in accordance
with their respective terms. Rainbow has performed and complied in all material
respects with all obligations required to be performed to date under, and is not
in default (without giving effect to any required notice or grace period) under,
or in breach of, the terms, conditions or provisions of any Contract. Except for
consents to assignment required as set forth on SCHEDULE 3.4, the validity and
enforceability of each Contract described herein has not been and shall not in
any manner be affected by the execution and delivery of this Agreement or any
related agreement or the consummation of the transactions contemplated hereby.
There are not any customer sales contracts relating to the Ram Business which in
the ordinary course would require future expenditures (including internal costs
and overhead) in excess of reasonably anticipated receipts.
3.14 EMPLOYEE AND LABOR MATTERS.
(a) EMPLOYEE. Except as set forth in SCHEDULE 3.14, no stockholder,
director, officer or employee of Rainbow or is presently a party to any
transaction involving the Ram Business, including without limitation any
contract, loan or other agreement or arrangements providing for the furnishing
of services by, the rental of real or personal property from or to, or otherwise
requiring loans or payments to, any such stockholder, director, officer or
employee, or, to Sellers' Knowledge, to any member of the family of any of the
foregoing or to any corporation, partnership, trust or other entity in which any
partner, stockholder, director, officer or employee or any member of the family
of any of them has a substantial interest or is a partner, officer, director,
trustee, or employee. There is set forth in SCHEDULE 3.14 a list showing (i) the
name, title, date and amount of last compensation increase, and aggregate
compensation, including amounts paid or accrued pursuant to any bonus, pension,
profit sharing, commission, deferred compensation or other plans or arrangements
in effect as of the date of this Agreement, of each officer or employee of the
Ram Business whose salary and other compensation, in the aggregate, received or
accrued is at an annual rate (or aggregated for the most recently completed
fiscal year) in excess of $40,000, as well as any written or oral employment
and/or severance agreements relating to any such persons; (ii) a description of
any and all bonus, pension, profit sharing, commission, deferred compensation,
retirement, savings, thrift, severance, performance, vacation, holiday, medical,
disability, life or other welfare or retiree plan or policy or other plans or
arrangements in effect for any employees of the Ram Business as of the date of
this Agreement, except as may be set forth in SCHEDULE 3.16 (ERISA Plans); (iii)
a description of any noncompetition or similar agreements to which Rainbow or
the Ram Business or any officer or employee of either is a party; (iv) all
powers of attorney from Rainbow or the Ram Business to any person or entity; and
(v) the name of each person or entity authorized to borrow money or incur or
guarantee indebtedness on behalf of Rainbow or the Ram Business. Rainbow has
delivered to Buyer copies of all written personnel policies, including without
limitation vacation, severance, bonus, profit sharing and commission policies,
applicable to any employees or agents of the Ram Business. To Sellers'
Knowledge, all current employees of Rainbow are legally entitled to work in the
United States, and Rainbow has retained all required documentation in its
records related thereto. Neither the execution and delivery of this Agreement by
Sellers, nor the consummation by Sellers of any of the transactions contemplated
hereby, or compliance by Sellers with any of the provisions hereof, shall create
any obligation or liability on the part of the
<PAGE>
Ram Business under any bonus, profit sharing, deferred compensation or other
plan or arrangement in effect as of the date of this Agreement and the Closing
Date.
(b) LABOR. None of the facilities or operations of Rainbow or the Ram
Business has been the subject of any strike, work stoppage, boycott, union
organizational effort, unfair labor practice charge or employment discrimination
charge; and no such action is pending or, to Sellers' Knowledge, threatened.
3.15 ERISA PLANS.
(a) Each employee pension benefit plan, program, agreement or
arrangement maintained or contributed to by Rainbow and related in any manner to
the Ram Business or the Transferred Assets ("Plan") which is subject to the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), if any,
is set forth on SCHEDULE 3.15 and such Plan(s) conform in all material respects
to all applicable federal laws; no liability under ERISA or the Internal Revenue
Code of 1986, as amended (the "Code"), has been or will be incurred by Rainbow
with respect to any Plan (other than for benefits under such Plan); full payment
has been made of all amounts required to have paid as contributions to such
Plan(s); the cost of providing all retirement and post-termination benefits has
been properly accrued and is reflected in the Financial Statements in accordance
with GAAP, including without limitation, Statements of Financial Accounting
Standards 87, 106 and 112; there is not in the aggregate any accumulated funding
deficiency with respect to such Plan(s); and the current value of accrued
benefits of each such Plan(s) does not exceed the current value of such Plan(s)'
assets.
(b) Sellers have provided Buyer with copies of the following documents
relating to Plans, or any other plan terminated by Rainbow during the last five
(5) years, which are subject to ERISA: (i) copies of the plan documents and all
amendments relating thereto; (ii) the most recent Form 5500 filed with respect
to such plans, including all schedules and attachments relating thereto; (iii)
where applicable, the most recent determination letters received with respect
thereto from the Internal Revenue Service; (iv) the most recent financial
statements and actuarial reports, where applicable, prepared with respect to
such plans; and (v) copies of all correspondence with the Internal Revenue
Service, Pension Benefit Guaranty Corporation, Department of Labor, or any other
governmental agency regarding any pending dispute or any pending or threatened
audit or investigation relating to any such plan.
3.16 PERMITS. Sellers hold all material permits, licenses, franchises,
certificates and authorizations that are required by any governmental agency to
permit the Ram Business to be conducted as now conducted, and all such permits,
licenses, franchises, certificates and authorizations are valid and in full
force and effect. To Sellers' Knowledge, no suspension, cancellation or
termination of any of such permits, licenses, franchises, certificates and
authorizations is threatened or imminent.
3.17 TAXES. Except as set forth on SCHEDULE 3.17:
(a) Rainbow and Owners ("Filers") have timely filed all returns,
declarations, reports, or information returns or statements relating to Taxes
(as defined below) with respect to the Ram Business or the Transferred Assets,
including any schedule or attachment thereto and including any amendment thereof
("Tax Returns") that are required to be filed under federal, state, local or
foreign law. All such Tax Returns were complete in all material respects. All
<PAGE>
Taxes owed by Filers with respect to the Ram Business and the Transferred
Assets (whether or not shown on any of said Tax Returns) have been paid for
all periods for which Tax Returns have been filed. Neither the Ram Business
nor any Filer is currently the beneficiary of any extension of time within
which to file any Tax Return. No outstanding claim has been made by any
authority in a jurisdiction where Filers do not file Tax Returns that
Rainbow, the Ram Business or the Transferred Assets may be subject to
taxation by that jurisdiction.
(b) Rainbow has each withheld and accrued or paid all Taxes required to
have been withheld and paid in connection with amounts paid or owing to any
employee, creditor, independent contractor, or other third party.
(c) There is no dispute or claim concerning any Tax liability relating
in any manner to the Ram Business or the Transferred Assets either (i) claimed
or raised by any authority or (ii) as to which any Seller has Knowledge based
upon personal contact or correspondence with any agent of such authority.
Rainbow has made available to Buyer all federal, state, local and foreign Tax
Returns filed with respect to Rainbow or the Ram Business for taxable periods
ended on or after December 31, 1997, and has disclosed to Buyer those of such
Tax Returns, if any, that have been audited, and those of such Tax Returns, if
any, that currently are the subject of audit. Rainbow has delivered to Buyer
correct and complete copies of all Tax Returns, examination reports and
statements of deficiencies assessed against or agreed to by Rainbow with respect
to Rainbow or the Ram Business since December 31, 1997.
(d) No Seller has waived in writing any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency pertaining to it, which waiver or extension is still in
effect. No Seller has received notice or become aware of any pending increase in
real or personal property taxes applicable to the Ram Business or the
Transferred Assets.
(e) For purposes of this Agreement, "Tax" or "Taxes" means any federal,
state, county, local or foreign income, gross receipts, license, payroll,
employment, excise, severance, stamp, occupation, premium, windfall profits,
environmental (including taxes under Code Section 59A), customs duties, capital
stock, franchise, profits, withholding, social security (or similar),
unemployment, disability, real property, personal property, sales, use,
transfer, registration, value added, alternative or add-on minimum, estimated,
or other tax of any kind whatsoever, including any interest, penalty, or
addition thereto, whether disputed or not.
3.18 LITIGATION. Except as set forth on SCHEDULE 3.18, there is no
claim, action or proceeding pending or, to Sellers' Knowledge, threatened
against or relating to any Seller, the Ram Business or any of the Transferred
Assets before any federal, state, municipal or other governmental department,
commission, court, board, bureau, agency, instrumentality or other person acting
in an adjudicative capacity, domestic or foreign. To Sellers' Knowledge, there
is no basis for any claim, action or proceeding against or relating to any
Seller, the Ram Business or any of the Transferred Assets. Except as set forth
on SCHEDULE 3.18, no Seller nor, to Sellers' Knowledge, any employee of Rainbow
has been permanently or temporarily enjoined by any order, judgment or decree of
any court or any other governmental or regulatory authority from engaging in or
continuing any conduct or practice in connection with the Ram Business or the
Transferred Assets nor is any Seller or, to Sellers' Knowledge, any employee of
Rainbow under investigation by any governmental or regulatory authority. Except
as set forth on SCHEDULE 3.18, there is not in existence any order, judgment or
decree of any court or other tribunal or other
<PAGE>
agency enjoining or requiring any Seller to take any action of any kind with
respect to the Ram Business or the Transferred Assets. To Sellers' Knowledge,
neither any Seller nor the Ram Business has been threatened with any action,
suit, proceeding or claim (including actions, suits, proceedings or claims where
its liabilities may be adequately covered by insurance) for personal injuries
allegedly attributable to products sold or services performed by the Ram
Business asserting a particular defect or hazardous property in any of products
of the Ram Business, services or Ram Business practices or methods, nor has any
Seller or the Ram Business been a party to or, to Sellers' Knowledge, threatened
with proceedings brought by or before any federal or state agency; and, to
Sellers' Knowledge, there is no defect or hazardous property, claimed or actual,
in any such product, service, business practice or method, except as reserved
for in the Balance Sheet. Neither any Seller nor the Ram Business is subject to
any voluntary or involuntary proceeding under the United States Bankruptcy Code
and neither has made an assignment for the benefit of creditors. Except as
described in detail on SCHEDULE 3.18, in the past five (5) years no Seller has
been a party to or, to Sellers' Knowledge, threatened with any legal claims,
actions or proceedings of any type directly or indirectly involving Rainbow, the
Ram Business or the Transferred Assets, nor has any Seller entered into any
settlements or agreements of any kind related in any manner to a dispute
directly or indirectly involving Rainbow, the Ram Business or the Transferred
Assets.
3.19 COMPLIANCE WITH APPLICABLE LAWS. Rainbow holds, and has at all
times held, all licenses, permits and authorizations then necessary for the
lawful conduct of the Ram Business, as now conducted and all such licenses,
permits and authorizations are valid and sufficient for all business now
conducted by the Ram Business. Rainbow has complied with, and is in material
compliance with, all applicable laws, orders, rules and regulations promulgated
by any federal, state, municipal or other governmental authority relating to the
operation and conduct of the Ram Business and its properties, and there have not
been and are not any violations of any such law, order, rule or regulation,
existing or, to Sellers' Knowledge, threatened. Sellers have not received any
notice from any authority or person that the Ram Business has been or is being,
conducted in violation of any applicable zoning regulation or order, or other
law, order, regulation or requirement relating to the operation of its business
or to its properties.
3.20 ENVIRONMENTAL MATTERS.
(a) Except as set forth on SCHEDULE 3.20 hereto:
(i) Rainbow and the Ram Business have complied with all
applicable Environmental Laws;
(ii) The Property (including soils, groundwater, surface
water, buildings or other structures) is not contaminated with any Hazardous
Substances that may subject any Seller, Buyer, the Ram Business or the
Transferred Assets to liability under any Environmental Law;
(iii) All properties formerly owned or operated by Rainbow and
the Ram Business are not contaminated with Hazardous Substances that may subject
any Seller, Buyer, the Ram Business or the Transferred Assets to liability under
any Environmental Law;
<PAGE>
(iv) Neither Rainbow nor the Ram Business are subject to
liability under any Environmental Law for any Hazardous Substance disposal or
contamination on any third party property;
(v) Neither Rainbow nor the Ram Business have caused or
contributed to any release or threat of release of any Hazardous Substance that
may subject any Seller, Buyer, the Ram Business or the Transferred Assets to
liability under any Environmental Law;
(vi) None of the Sellers has received any notice, demand,
letter, claim or request for information alleging that any Seller or the Ram
Business may be in violation of, or liable under, any Environmental Law;
(vii) Neither any Seller nor the Ram Business are subject to
any orders, decrees, injunctions or other arrangements with any governmental
entity, nor subject to any indemnity or other agreement with any third party
relating to liability under any Environmental Law or relating to Hazardous
Substances;
(viii) There are no circumstances or conditions involving any
Seller or the Ram Business that could reasonably be expected to result in any
claims, liability, investigations, costs or restrictions on the ownership, use
or transfer of any of Property pursuant to any Environmental Law; and
(ix) The Property has not and does not contain any underground
storage tanks, asbestos-containing material, lead-based products, halogenated
solvents or polychlorinated biphenyls.
(b) "Environmental Law" means any federal, state, local or foreign law,
statute, ordinance, rule, regulation, or treaty; all judicial administrative,
and regulatory orders, judgments, decrees, permits, and authorizations; and
common law relating to: (i) the protection of human health, the environment or
natural resources, (ii) the investigation, remediation or restoration of the
environment or natural resources, (iii) the handling, use, storage, treatment,
disposal, release or threatened release of any Hazardous Substance; or (iv)
noise, odor, pollution, contamination, land use, or any injury or threat of
injury to persons or property related thereto.
(c) "Hazardous Substance" means any substance, material or waste that
is: (i) listed, classified or regulated in any concentration pursuant to any
Environmental Law; (ii) any petroleum product or by-product, asbestos-containing
material, lead-containing paint or plumbing, polychlorinated biphenyls,
radioactive materials; or (iii) any other substance, material or waste which may
be the subject of regulatory action by any governmental entity pursuant to any
Environmental Law.
(d) "Property" means any real property and improvements owned, leased,
used, operated or occupied by any Seller or the Ram Business, including without
limitation the Real Property.
3.21 RELATIONSHIPS WITH CUSTOMERS AND SUPPLIERS. Except as set forth on
SCHEDULE 3.21, no present customer or substantial supplier to the Ram Business
has indicated an intention to terminate or adversely alter its existing business
relationship therewith, and Sellers have no
<PAGE>
reason to believe that any of the present customers of or substantial suppliers
to the Ram Business intends to do so.
3.22 WARRANTIES; PRODUCT RETURNS. Except as described in SCHEDULE 3.22
hereto, Rainbow does not offer any warranties for its products and services. To
Sellers' Knowledge, Rainbow's warranty reserve reflected in the allowance for
doubtful accounts in the Financial Statements adequate to cover all warranty
claims pending as of the date hereof. None of the products manufactured by the
Ram Business have been subject to recall.
3.23 INSURANCE. Rainbow maintains insurance with reputable insurance
companies on all of its equipment, tools, machinery, inventory and properties,
and maintains products and personal liability insurance, and such other
insurance against hazards, risks and liability to persons and property as
described on SCHEDULE 3.23. SCHEDULE 3.23 sets forth a true and correct list and
a general description of all insurance policies of any nature whatsoever
maintained by Rainbow pertaining to the Ram Business or the Transferred Assets,
including all policies of life, group medical and/or dental insurance. Such
policies are and will be in full force and effect through the Closing Date and,
except as otherwise set forth on SCHEDULE 3.23, such policies, or other policies
covering the same risks, have been in full force and effect, without gaps,
continuously for the past five (5) years. Copies of all such policies have been
delivered to Buyer for its inspection. Rainbow is not in default under any of
such policies or binders nor has either failed to give any notice or to present
any material claim under any such policy or binder in a due and timely fashion.
3.24 BROKER'S COMMISSION OR FINDER'S FEES. No person or entity has
acted for any Seller in connection with the transactions provided for in this
Agreement in a way which would entitle such person to, and no person or entity
is entitled to, any broker's commissions or finder's fees (or other similar fees
or commissions) in connection with this Agreement. Sellers shall be solely
responsible for payment of all such commissions and fees.
3.25 THIRD PARTY BENEFITS. Neither any Seller nor any other related
third party has provided, directly or indirectly, any benefit, service, good or
product to the Ram Business other than as has been fully and fairly allocated to
Rainbow and expensed by Rainbow at fair value in the cost of sales or selling,
general and administrative sections of Rainbow's income statements.
3.26 FULL DISCLOSURE; KNOWLEDGE. All instruments, agreements and other
documents delivered or to be delivered, or made available, to Buyer pursuant to
this Agreement are complete and correct in all material respects. No
representation or warranty made by Sellers in this ARTICLE III or the Schedules
to this Agreement contains or will contain any untrue statement of a material
fact or omits or will omit to state a material fact required to be stated herein
or therein necessary to make the statements on behalf of Sellers in this ARTICLE
III and the Schedules to this Agreement, in light of the circumstances in which
they are made, not misleading. As used in this Agreement, "Knowledge" means,
with respect to an entity, such knowledge as would be obtained after reasonable
inquiry by the officers or partners of that entity and, with respect to an
individual, such knowledge as would be obtained by that individual after
reasonable inquiry.
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER AND PARENT
Buyer and Parent hereby jointly and severally represent and warrant to
Sellers as follows:
4.1 ORGANIZATION. Buyer and Parent are corporations duly organized,
validly existing and in good standing in the State of Delaware. Buyer and Parent
have the requisite corporate power to own, use or lease their respective
properties and to carry on their businesses as such are now being conducted.
4.2 AUTHORITY RELATIVE TO THIS AGREEMENT. Subject only to approval and
ratification by Parent's board of directors, Buyer and Parent have all requisite
corporate power and authority to execute and deliver this Agreement and any
related agreements and to consummate the transactions contemplated hereby.
Subject only to approval and ratification by Parent's board of directors, the
execution and delivery of this Agreement, any related agreements and the
consummation of the transactions contemplated hereby on the part of Buyer and
Parent have been duly and validly authorized by Buyer and Parent and no other
corporate proceedings on the part of Buyer or Parent are necessary, as a matter
of law or otherwise, to authorize this Agreement or to consummate the
transactions so contemplated. This Agreement has been duly and validly executed
and delivered by Buyer and Parent and, assuming this Agreement constitutes a
valid and binding obligation of Sellers, this Agreement constitutes a valid and
binding agreement of Buyer and Parent, enforceable against Buyer and Parent in
accordance with its terms, except as such enforcement may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application affecting enforcement of creditors' rights or by general
principles of equity.
4.3 CONSENT AND APPROVALS; NO VIOLATION. The execution and delivery of
this Agreement by Buyer and Parent, the consummation of the transactions
contemplated hereby and the performance by each of Buyer and Parent of its
obligations hereunder, will not:
(a) conflict with any provision of the certificate of incorporation or
bylaws of Buyer or Parent;
(b) require any consent, approval, authorization or permit of, or
filing with or notification to, any governmental or regulatory authority other
than the post-Closing filing by Parent on Form 8-K with the Securities and
Exchange Commission (the "Commission");
(c) conflict with, result in the breach of or constitute a default (or
give rise to any right of termination, cancellation or acceleration or
guaranteed payments) under any of the terms, conditions or provisions of any
material note, lease, mortgage, license, agreement or other instrument or
obligation to which Buyer or Parent is a party or by which Buyer or Parent or
any of their assets may be bound, except for such defaults (or rights of
termination, cancellation or acceleration) as to which requisite waivers or
consents have been obtained; or
(d) conflict with or violate the provisions of any order, writ,
injunction, judgment, decree, statute, rule or regulation applicable to Buyer or
Parent.
<PAGE>
4.4 BROKER'S COMMISSION OR FINDER'S FEES. No person or entity has acted
for Buyer and/or Parent in connection with the transactions provided for in this
Agreement in a way which would entitle such person to, and no person or entity
is entitled to, any broker's commissions or finder's fees (or other similar fees
or commissions) in connection with this Agreement or the transactions
contemplated hereby. Buyer and Parent shall be solely responsible for payment of
all such commissions and fees.
ARTICLE V
COVENANTS OF SELLERS
During the period from the date of this Agreement until the Closing
Date or the earlier termination of this Agreement, Sellers each agree (except as
expressly contemplated by this Agreement or to the extent that Buyer shall
otherwise consent in writing) as follows:
5.1 ACCESS TO INFORMATION.
(a) Sellers shall each (i) give Buyer and its authorized
representatives reasonable access upon reasonable notice during normal business
hours in such a manner as not unduly to disrupt normal business activities to
the Transferred Assets and to all plants, offices, warehouses and other
facilities of the Ram Business and to all contracts, internal reports, data
processing files and records, federal, state, local and foreign tax returns and
records, commitments, books, records and affairs of Rainbow related to the Ram
Business whether located on the premises of the Ram Business, the office
facilities of Rainbow or at another location, (ii) permit Buyer to make such
inspections and inquiries as it may require, and (iii) cause its officers to
furnish Buyer such financial, operating, technical and product data and other
information with respect to the Ram Business and the Transferred Assets as Buyer
from time to time may reasonably request, including without limitation financial
statements and schedules; provided, however, that no investigation pursuant to
this SECTION 5.1 shall affect or be deemed to modify any representation or
warranty made by Sellers herein, and provided further that Buyer shall not
contact the customers, suppliers and employees of Sellers without the prior
consent of Sellers.
(b) Sellers shall give prompt notice to Buyer of any breach of any of
their covenants hereunder or the occurrence of any event that is reasonably
likely to cause any of their representations and warranties hereunder to become
incomplete or untrue in any respect.
5.2 ORDINARY COURSE. Rainbow shall (a) carry on its business in the
usual, regular and ordinary course, in substantially the same manner as
heretofore conducted and use reasonable efforts consistent with past practice
and policies to preserve its present business organizations, keep available the
services of its present officers and key employees (other than employees
terminated for cause) and preserve its relationships with customers, suppliers,
lessors, lessees and others having business dealings with it, (b) maintain its
books and records in accordance with existing practices, (c) except in the
ordinary course not hire additional employees nor become obligated for
additional rental payments, (d) except in the ordinary course not modify the
compensation or benefits paid to any employee, and (e) not undertake material
expenditures, including, without limitation, the purchase or lease of equipment
except for tooling requirements
<PAGE>
already committed and disclosed herein; provided that, expenditures less than
$25,000 individually and $50,000 in the aggregate shall not be deemed material.
5.3 EXCLUSIVE NEGOTIATIONS.
(a) No Seller shall, directly or indirectly through any employee, agent
or representative (including without limitation investment bankers, attorneys,
accountants and consultants), or otherwise:
(i) solicit, initiate, discuss or further the submission of
proposals or offers from, or enter into any agreement with, any firm,
corporation, partnership, association, group (as defined in Section 13(d)(3) of
the Securities Exchange Act of 1934, as amended) or other person or entity,
individually or collectively (including without limitation any managers,
employees or independent contractors of Rainbow or any of its affiliates), other
than Buyer (a "Third Party"), relating to any acquisition or purchase of all or
a material portion of the Transferred Assets, or any equity interest in Rainbow
(or the Ram Business), or any merger, consolidation or business combination with
Rainbow;
(ii) participate in any discussions or negotiations regarding,
or furnish to any Third Party any confidential information with respect thereto;
or
(iii) otherwise cooperate in any way with, or assist or
participate in, facilitate or encourage, any effort or attempt by any Third
Party to do or seek to do any of the foregoing.
(b) Sellers shall promptly notify Buyer in writing if any such proposal
or offer, or any inquiry or contact with any Third Party with respect thereto,
is made.
(c) Sellers shall immediately cease and cause to be terminated any
existing activities, discussions or negotiations with any Third Party conducted
prior to the date of this Agreement with respect to any of the foregoing.
(d) The terms set forth in this SECTION 5.3 shall remain in effect from
the date of this Agreement until such time, if ever, as terminated in writing by
Sellers by delivery to Buyer of a termination notice referencing this Section;
provided that, no such termination shall be effective prior to the earlier of
(i) the termination of this Agreement by Buyer, or (ii) November 30, 2000.
5.4 NO DISPOSITIONS. Except for the sale of inventory in the ordinary
course of business and other than as may be required by existing contracts,
Sellers shall not sell, lease or otherwise dispose of any Transferred Assets and
shall promptly notify Buyer in writing prior to any dispositions of
non-inventory items.
5.5 INDEBTEDNESS. Rainbow shall not incur, become subject to, or agree
to incur or become subject to any obligation or liability (absolute or
contingent), except current liabilities incurred, and obligations under existing
contracts, in the ordinary course of business consistent with prior practice and
revolving loan advances in the ordinary course consistent with past practices.
5.6 BENEFIT PLANS. Rainbow shall not:
<PAGE>
(a) pay, agree to pay or make any accrual or arrangement for payment of
any pension, retirement allowance or other employee benefit pursuant to any
existing plan, agreement or arrangement to any employee except in the ordinary
course of business and consistent with past practice;
(b) commit itself to adopt or pay, grant, issue or accrue salary or
benefits pursuant to any additional pension, profit-sharing, bonus, extra
compensation, incentive, deferred compensation, group insurance, severance pay,
retirement or other employee benefit plan, agreement or arrangement, or any
employment or consulting agreement with or for the benefit of any employee,
agent or consultant, whether past or present; or
(c) amend in any material respect any such existing plan, agreement or
arrangement, except where required by law.
5.7 MAINTENANCE OF WORKING CAPITAL. Consistent in all respects with
past practices, Rainbow shall (a) timely pay when due all accounts payable and
other expenses, and (b) collect all accounts receivable and convert or use all
other non-cash assets in the ordinary course.
5.8 CASH MANAGEMENT. Sellers agree that all cash, whether in currency,
check or wire form, and all other property received by Sellers on or after the
Closing Date and related in any manner to the Ram Business or the Transferred
Assets shall be for the account of Buyer, and Sellers shall promptly deliver all
such cash to Buyer with a written accounting thereof. If requested, Sellers
shall provide assistance to Buyer in identifying and notifying certain customers
of changes in bank accounts for the Ram Business.
5.9 USE OF NAME. Rainbow shall take all necessary actions to cease use
of the "Ram Belts & Chains" and "Rainbow/Ram Belts & Chains" trade names
effective as of the Closing Date.
5.10 TAX AND REAL ESTATE MATTERS. All Tax Returns which relate to any
Taxes with respect to the Ram Business or the Transferred Assets for periods
prior to the Closing Date shall be prepared and filed by Sellers on a timely
basis, and Sellers shall be responsible for the payment of all Taxes related to
the Ram Business or the Transferred Assets attributable to periods prior to the
Closing. Sellers and Buyer shall each pay one half of all sales, use and
transfer taxes, if any, payable to the State of Pennsylvania, any subdivision
thereof or to any other governmental entity in connection with the transactions
contemplated by this Agreement and the Closing.
5.11 INSURANCE. Rainbow shall take all necessary actions to maintain in
force all of its existing insurance policies (or replacements therefor), subject
only to variations in amounts required by the ordinary operation of the Ram
Business.
ARTICLE VI
MUTUAL COVENANTS
6.1 CONFIDENTIALITY. Between the date hereof and the Closing Date, the
parties hereto agree that no party shall, without the prior written consent of
the others as to substance, existence
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and timing, disclose publicly or to any third party (except such party's
professional advisors) the existence of this Agreement or the terms and
conditions hereof, or any prior correspondence or any subsequent negotiations
between the parties, including any confidential information obtained thereby,
except to the extent required by law. The parties will cooperate with each other
to coordinate any and all public statements and releases with respect to the
transactions contemplated hereby. From the date hereof until the Closing,
neither Sellers nor any of their representatives shall purchase, directly or
indirectly, in the public marketplace or otherwise, any of Summa's securities.
Following the Closing, Sellers shall keep confidential and shall not disclose to
any third party all information not then in the public domain relating in any
manner to the Ram Business. Buyer and Parent agree that, until the Closing or,
if this Agreement is terminated for any reason, then, for a period of two (2)
years thereafter, all information concerning the Ram Business and Transferred
Assets obtained during due diligence and not otherwise known shall be used by
Buyer, Parent and any affiliate or agent of either solely for the purpose of
evaluating this transaction. If this Agreement is terminated for any reason,
Buyer and Parent shall return to Sellers all tangible embodiments, and all
copies, of any information concerning the Ram Business and the Transferred
Assets that are in their possession or control obtained during due diligence and
not otherwise already known.
6.2 SATISFACTION OF CONDITIONS. Each party will use reasonable efforts
to cause all conditions to its obligations under this Agreement to be timely
satisfied and to perform and fulfill all covenants and obligations on its part
to be performed and fulfilled under this Agreement, to the end that the
transactions contemplated by this Agreement shall be effected substantially in
accordance with its terms as soon as reasonably practicable. The parties shall
cooperate with each other in such actions and in attempting to secure requisite
approvals.
6.3 FURTHER ASSURANCES. Each party shall execute and deliver, both
before and after the Closing, such further certificates, agreements and other
documents and take such other actions as may be necessary or appropriate to
consummate or implement the transactions contemplated hereby, including without
limitation the transfer of all Transferred Assets to Buyer, or to evidence such
events or matters.
6.4 BULK SALES COMPLIANCE. Subject to the indemnities set forth in this
Agreement, the parties agree to waive compliance with all applicable bulk
transfer laws. Nothing in this SECTION 6.4 shall operate or be construed to
estop or prevent any party hereto from asserting as a bar or defense to any
action or proceeding brought under any bulk sales law that such law does not
apply to the transfer contemplated under this Agreement. If required, Sellers
shall deliver to Buyer any bulk sale stop orders, and Sellers and Buyer shall
each escrow one half of any funds required thereby, and shall each pay one half
of such escrowed amounts to the appropriate governmental entity.
6.5 CERTAIN DEFAULTS. Sellers, on the one hand, and Buyer and Parent,
on the other hand, will give prompt notice to each other of:
(a) any notice of default received by such party subsequent to the date
of this Agreement and prior to the Closing Date under any instrument or
agreement to which any such party is a party or by which it is bound, which
default in the case of Sellers, would, if not remedied, result in a Material
Adverse Change or which, in the case of any such party, would render incomplete
or untrue any representation made herein; and
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(b) any suit, action or proceeding instituted or, to the Knowledge of
any Seller, Buyer or Parent, threatened against or affecting any such party
subsequent to the date of this Agreement and prior to the Closing Date which
would render incorrect any representation made herein or result in a Material
Adverse Change to such party that could impair the ability of such party to
consummate the transactions contemplated herein, including payment of the Note
on a timely basis.
6.6 BROKERS OR FINDERS. Neither any Seller, Buyer or Parent shall enter
into any agreement or arrangement not existing as of the date hereof with any
agent, broker, investment banker or other firm or person pursuant to which such
person shall be entitled to any broker or finder's fee or any other commission
or similar fee in connection with any of the transactions contemplated by this
Agreement.
6.7 NO EQUITABLE CONVERSION. Prior to the Closing Date, neither the
execution of this Agreement nor the performance of any provision contained
herein shall cause either Sellers, on the one hand, or Buyer and Parent, on the
other hand, to be or become liable for or in respect of the operations or
business of the other, for the cost of any labor or materials furnished to or
purchased by the other, for compliance with any laws, requirements or
regulations of, or taxes, assessments or other charges now or hereafter due to,
any governmental authority, or for any other charges or expenses whatsoever
pertaining to the conduct of the Ram Business or the ownership, title,
possession, use or occupancy of the property of the other.
6.8 CERTAIN EMPLOYEE ISSUES. On the Closing Date, Buyer shall offer at
will employment to all employees of the Ram Business as of Closing, other than
Owner and those Rainbow employees whose activities are primarily in support of
the CIGO Business, as such persons are listed in SCHEDULE 6.8 hereto, on such
terms and conditions and with such benefits as Buyer shall determine; provided
that, in the aggregate, such terms and conditions and benefits shall be
comparable to those now in effect with respect to the employment of such
employees by Rainbow. Nothing in this Section shall be deemed to require the
employment of any such employee or the continuation of any benefits for any
particular time after the Closing Date. Sellers jointly and severally covenant
that they shall timely (a) pay or cause to be paid all amounts due or to become
due prior to or in connection with Closing to current and former employees of
Rainbow, including without limitation all earned and accrued (i) wages, (ii)
bonuses and (iii) vacation pay, and (b) make all required deposits, tax and
other payments to health and benefit plans, taxing authorities and others.
6.9 SUBLEASE CONSENTS. Sellers shall use reasonable commercial efforts
to timely obtain the consents of First Union, Danam, Reading Airport Lot 10,
L.P. and Reading Regional Airport Authority to the assignment of the Rainbow
Sublease. Parent and Buyer shall cooperate and use reasonable commercial efforts
to assist Sellers in obtaining such consents.. In this regard, upon request,
Parent and Buyer will provide reasonably requested financial information and, if
required, will meet with the appropriate persons by telephone or in person.
6.10 CONTINGENT ADDITIONAL PURCHASE PRICE. The parties acknowledge
that, in accordance with its terms, the PRR License permitting Rainbow to sell
certain products manufactured by Uni-Chains A/S which are covered by two
existing Rexnord patents and the distributorship arrangement between Rainbow and
Uni-Chains A/S (the "PRR Products") are not
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assignable by Rainbow to Buyer at Closing without the prior written consent of
Rexnord and Uni-Chains. The parties further acknowledge and agree that, although
such PRR License and distributorship arrangement are valuable assets of Rainbow,
(a) the parties desire not to attempt to obtain assignment prior to Closing, and
(b) Buyer desires to obtain the right to continue to sell the PRR Products after
Closing. Therefor, Sellers agree to use reasonable commercial efforts to obtain
either the assignment of the PRR License and distributorship arrangement from
Rainbow to Buyer promptly following Closing, or a substantially similar new
license and arrangement permitting Buyer to sell the PRR Products without an
increase in cost. In the event that all of Rainbow's existing rights under such
license and distributorship arrangement are assigned to Buyer, or a
substantially similar new license and arrangement are created for Buyer's
benefit, within four (4) months after Closing, Buyer shall promptly pay Sellers
the additional amount set forth in SCHEDULE 6.10 (the "Contingent Purchase
Price").
6.11 PRODUCT LIABILITY INSURANCE. For a period of seven (7) years
following the Closing, or such shorter period as Buyer or any affiliate of Buyer
or Parent shall own the Transferred Assets, (a) Buyer shall use best efforts to
purchase and maintain products liability insurance from such carriers and with
such limits of liability and other terms as are reasonably comparable to the
insurance coverages heretofore maintained by Rainbow, and, at Rainbow's sole
cost and expense, if any, and provided that Buyer's then existing insurance
company permits such action, Rainbow shall be named as an additional insured on
the foregoing insurance coverages, and (b) Rainbow shall use best efforts to
maintain substantially similar coverages for a period of seven (7) years
following the Closing, or such shorter period as Rainbow is directly or
indirectly owned by an Owner or family member and, at Buyer's sole cost and
expense, if any, and provided that Rainbow's then existing insurance company
permits such action, Buyer shall be named as an additional insured on the
foregoing insurance coverages.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PARTIES
7.1 CONDITIONS TO THE OBLIGATIONS OF ALL PARTIES. The respective
obligations of Buyer, Parent and Sellers set forth in this Agreement shall be
subject to the satisfaction on or prior to the Closing Date of the following
conditions, unless waived by each such party in writing:
(a) LEGAL ACTION. No temporary restraining order, preliminary
injunction or permanent injunction or other order preventing the consummation of
the transactions contemplated by this Agreement shall have been issued by any
federal, state or foreign court or other governmental or regulatory authority
and shall remain in effect, and no litigation seeking the issuance of such an
order or injunction, or seeking substantial damages against Buyer, Parent or any
Seller if the transactions contemplated by this Agreement are consummated, shall
be pending which, in the reasonable good faith judgment of the party against
whom such damages or injunction is sought, have a reasonable probability of
resulting in such order, injunction or substantial damages. In the event any
such order or injunction shall have been issued, each party agrees to use its
reasonable efforts to have any such injunction lifted.
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(b) STATUTES. No federal, state, local or foreign statute, rule or
regulation shall have been enacted which would make the consummation of the
transactions contemplated by this Agreement illegal.
7.2 FURTHER CONDITIONS TO THE OBLIGATIONS OF BUYER AND PARENT. The
obligations of Buyer and Parent set forth in this Agreement are subject to the
satisfaction on or prior to the Closing Date of the following conditions, unless
waived by Buyer and/or Parent in writing:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Sellers set forth in ARTICLE III shall be true and correct as of the date of
this Agreement and, except as set forth on schedules to the Sellers' Certificate
(as defined below), as of the Closing Date as though made at and as of the
Closing Date, except as otherwise contemplated by this Agreement, and Buyer
shall have received a certificate dated the Closing Date signed by each of the
Sellers to such effect ("Sellers' Certificate"). If the schedules to the
Sellers' Certificate reflect a Material Adverse Change from the schedules
attached hereto, Buyer and Parent shall have no obligation to consummate the
transactions contemplated by this Agreement; provided that, if any such change
is not material, that this condition shall be deemed satisfied.
(b) PERFORMANCE OF OBLIGATIONS OF OTHER PARTIES. Sellers shall have
performed all obligations required to be performed by them under this Agreement
at or prior to the Closing Date and Buyer shall have received a certificate to
such effect.
(c) OPINION OF COUNSEL TO SELLERS. Buyer shall have received an opinion
dated as of the Closing Date of counsel to Sellers containing the opinions set
forth in EXHIBIT F attached hereto.
(d) NO LITIGATION. Since the date hereof, there shall not have been
instituted and be continuing or threatened against any Seller, any claims,
actions or proceedings relating in any manner to the Ram Business or the
Transferred Assets which, if adversely determined, might, individually or in the
aggregate, reasonably be expected to result in a Material Adverse Change.
(e) NO ADVERSE CHANGE. No Material Adverse Change to the Ram Business
or the Transferred Assets shall have occurred since the date of this Agreement.
(f) THIRD-PARTY APPROVALS. Any and all consents required from third
parties relating to licenses, leases and other agreements and instruments that
are part of the Transferred Assets shall have been obtained, other than as
contemplated by SECTION 6.10.
(g) NONCOMPETITION AND NONSOLICITATION AGREEMENT. Each Seller shall
have entered into a five-year noncompetition and nonsolicitation agreement with
respect to the types of products of the Ram Business, with Buyer and Parent
substantially in the form attached hereto as EXHIBIT G.
(h) DEBT; GUARANTEES. There shall be no agreements or instruments
evidencing loans to or interest bearing indebtedness incurred by Sellers related
in any manner to the Ram Business or the Transferred Assets, and Sellers, on or
prior to the Closing, shall have paid in full all such interest bearing
indebtedness and loans of any type, including current portions thereof, provided
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that, Sellers shall not be required to satisfy any mortgage obligations
pertaining to the Real Property.
(i) TERMINATION OF ENCUMBRANCES. All liens and encumbrances on the
Transferred Assets shall have been terminated, and Sellers shall have received
and delivered to Buyer duly executed UCC termination statements with respect to
any and all UCC financing statements covering such assets and property.
(j) APPROVAL BY BOARD. The Board of Directors of Parent shall have
approved consummation of the transactions contemplated hereby in their sole and
absolute discretion.
(k) RECEIPT OF TRANSFER DOCUMENTS. Buyer shall have received an
assignment of the Rainbow Sublease from Rainbow, and Danam shall have executed
and delivered to Buyer an amendment to sublease in substantially the form
attached hereto as EXHIBIT A, and Buyer shall have also received the executed
General Instrument of Conveyance, Transfer and Assignment in the form attached
hereto as EXHIBIT D and all other documents required by Buyer to transfer title
of the Transferred Assets to Buyer.
(l) DUE DILIGENCE. Buyer shall have completed its due diligence
investigations to its sole and absolute satisfaction.
7.3 FURTHER CONDITIONS TO THE OBLIGATIONS OF SELLERS. The obligations
of Sellers set forth in this Agreement are subject to the satisfaction on or
prior to the Closing Date of the following conditions, unless waived by Sellers
in writing:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Buyer and Parent set forth in ARTICLE IV shall be true and correct in all
material respects as of the date of this Agreement and, except as set forth on
schedules to the Buyers' Certificate (as defined below), as of the Closing Date
as though made at and as of the Closing Date, except as otherwise contemplated
by this Agreement, and Rainbow shall have received a certificate dated the
Closing Date signed by an authorized officer of Buyer and Parent to such effect
("Buyers' Certificate"). If the schedules to the Buyers' Certificate reflect an
adverse change or changes from the representations made and schedules delivered
as of the execution of this Agreement, Sellers shall have no obligation to
consummate the transactions contemplated by this Agreement.
(b) PERFORMANCE OF OBLIGATIONS OF OTHER PARTIES. Buyer and Parent shall
have performed in all material respects all obligations required to be performed
by them under this Agreement at or prior to the Closing Date, and Sellers shall
have received a certificate signed by an authorized officer of Buyer and Parent
to such effect.
(c) RECEIPT OF ASSUMPTION AGREEMENT. Rainbow shall have received the
executed Assumption Agreement in the form attached hereto as EXHIBIT E.
(d) RECEIPT OF CONSIDERATION. Rainbow shall have received the cash
portion of the Purchase Price as set forth in SECTION 2.3(A).
(e) NOTE. Parent and Buyer shall have executed and delivered to Rainbow
the Note.
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(f) OPINION OF COUNSEL TO BUYER AND PARENT. Sellers shall have received
an opinion dated as of the Closing Date of counsel to Buyer and Parent
containing the opinions set forth in EXHIBIT H attached hereto.
(g) ASSUMPTION AND AMENDMENT OF SUBLEASE. Buyer shall have assumed the
Rainbow Sublease, and Buyer shall have executed and delivered to Danam an
amendment to sublease in substantially the form attached hereto as EXHIBIT A.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 TERMINATION. This Agreement may be terminated at any time prior to
the Closing Date:
(a) BY MUTUAL CONSENT. By the mutual written consent of Buyer and
Sellers;
(b) BY BUYER OR SELLERS. By either Buyer or Sellers:
(i) if the transactions contemplated by this Agreement shall
not have been consummated on or before November 30, 2000; provided that the
failure of the transactions to be consummated by such date is not caused by any
breach of this Agreement by the party seeking such termination;
(ii) if a court of competent jurisdiction or other
governmental or regulatory authority shall have issued an order, decree or
ruling or taken any other action, in each case permanently restraining,
enjoining or otherwise prohibiting the consummation of the transactions
contemplated by this Agreement; or
(iii) if any statute, rule or regulation is enacted,
promulgated or deemed applicable to the transactions contemplated by this
Agreement by any competent governmental or regulatory authority which makes the
consummation of the transactions illegal.
(c) BY BUYER. By Buyer, if a material default under or a material
breach of this Agreement by any Seller shall have occurred and be continuing ten
(10) days after receipt of written notice thereof from Buyer; provided that a
Closing condition would not otherwise be satisfied.
(d) BY SELLERS. By Sellers, if a material default under or a material
breach of this Agreement by Buyer or Parent shall have occurred and be
continuing ten (10) days after receipt of written notice thereof from Sellers;
provided that a Closing condition would not otherwise be satisfied.
Any action taken to terminate this Agreement pursuant to this SECTION
8.1 shall become effective when written notice of such termination is delivered
by the terminating party to the other party in accordance with the provisions of
SECTION 10.1 below.
8.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement by any party in accordance with SECTION 8.1 above, this Agreement
shall forthwith become void and there
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shall be no liability or obligation on the part of any party hereto or its
respective partners, officers, directors or employees, except that (a) SECTION
6.1 relating to the obligations to keep confidential certain information and
data, (b) SECTION 10.3 relating to certain expenses, (c) Section 10.10 relating
to arbitration of disputes, (d) SECTIONS 3.26 and 4.4 relating to finder's fees
and broker's fees, (e) SECTION 10.9 relating to jurisdiction and forum
selection, and (f) this ARTICLE VIII shall survive any termination. Nothing set
forth herein shall relieve a party hereto from liability for its willful breach
of this Agreement. Without limitation, if all of the conditions to a party's
obligations set forth in ARTICLE VII have been satisfied or waived by November
30, 2000, the failure of such party to perform its obligations on or before such
date shall be deemed to be a willful breach of this Agreement by such party.
8.3 AMENDMENT. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
8.4 EXTENSION; WAIVER. At any time prior to or on the Closing Date, to
the extent legally allowed, any party hereto (a) may extend the time for the
performance of any of the obligations owed to such party by the other parties
hereto, (b) may waive any inaccuracies in the representations and warranties
made to such party contained herein or in any document delivered pursuant
hereto, or (c) may waive compliance with any of the agreements or conditions for
the benefit of such party contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid if set forth in an
instrument in writing signed on behalf of such party and shall be effective only
to the extent set forth in such instrument. No extension or waiver of any single
condition, covenant, agreement, representation, warranty, breach, default or
other matter hereunder shall be deemed an extension or waiver of such or any
other condition, covenant, agreement, representation, warranty, breach, default
or other matter theretofore or thereafter occurring. The rights, remedies,
powers and privileges provided in this Agreement are exclusive of any other
rights, remedies, powers and privileges provided by law. The failure of any
party to insist upon a strict performance of any of the terms or provisions of
this Agreement, or to exercise any option, right or remedy herein contained,
shall not be construed as a waiver or as a relinquishment for the future of such
term, provision, option, right or remedy, but the same shall continue and remain
in full force and effect.
ARTICLE IX
INDEMNIFICATION
9.1 INDEMNIFICATION.
(a) INDEMNIFICATION BY SELLERS. Sellers jointly and severally agree to
indemnify and hold harmless Buyer, its affiliates (including without limitation
parent and sister corporations), and their respective directors, officers,
employees, agents and assigns from and against any and all "Losses" (as defined
below) incurred by, imposed on, borne by or asserted against any of such
indemnified parties in any way relating to, arising out of or resulting from (i)
any inaccuracy in or the breach or nonperformance of any of the representations,
warranties, covenants or agreements made by Sellers in this Agreement or in any
agreement delivered in connection herewith or pursuant hereto (each, a "Related
Agreement"), and/or (ii) the failure by Sellers to
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discharge or perform the Retained Obligations. Sellers shall not have any
obligation to indemnify or to hold harmless Buyer from or against any Losses
caused by a breach or breaches of a representation or warranty of Sellers until
the aggregate Losses attributable thereto exceed $75,000 (the "Floor"); provided
that, once such aggregate Losses exceed the Floor, Buyer shall only recover for
the amount of all such Losses in excess of the Floor, subject only to a maximum
aggregate recovery from Sellers equal to the Purchase Price (the "Ceiling"),
except with respect to fraud, for which there shall be no Floor or Ceiling.
(b) INDEMNIFICATION BY BUYER AND PARENT. Buyer and Parent shall
indemnify and hold harmless Sellers and their respective affiliates (including
without limitation, their directors, officers, employees, agents and assigns
from and against any and all "Losses" (as defined below) incurred by, imposed
on, borne by or asserted against any of such indemnified parties in any way
relating to, arising out of or resulting from (i) any inaccuracy in or the
breach or nonperformance of any of the representations, warranties, covenants or
agreements made by either in this Agreement or in any Related Agreement, (ii)
the failure by Buyer or Parent to discharge or perform an Assumed Obligation,
and/or (iii) Buyer's operation of the Ram Business after the Closing Date.
(c) DEFINITION OF LOSSES. For purposes of this Agreement, "Losses"
shall mean any and all liabilities, obligations, losses, damages, claims,
deficiencies, penalties, taxes, levies, actions, judgments, settlements, suits,
costs, legal fees, accountants' fees, experts' fees, disbursements and expenses
but shall exclude consequential damages, such as damages to customer
relationships.
9.2 THIRD PARTY CLAIMS, NOTICE AND OPPORTUNITY TO SETTLE.
(a) Within twenty (20) days after the receipt by the party entitled to
indemnity hereunder (the "Indemnified Party") of any claim or demand (including
but not limited to, notice of any action, suit or proceeding) by any third party
against an Indemnified Party which gives rise to a right to indemnification for
a Loss hereunder (a "Third Party Claim"), the affected Indemnified Party shall
give each party who may be obligated to provide indemnity hereunder (the
"Indemnifying Party") written notice of such claim or demand; provided, however,
that the failure to give such notice shall not relieve the Indemnifying Party of
its obligations hereunder.
(b) The Indemnifying Party shall (without prejudice to the right of any
Indemnified Party to participate at its own expense through counsel of its own
choosing) defend against such claim or demand at its sole expense and through
counsel of its own choosing (the choice of such counsel to be subject to the
consent of the affected Indemnified Parties, which consent shall not be
unreasonably withheld) and shall give written notice confirming its assumption
of the defense within twenty (20) days of the receipt of the notice referred to
in SECTION 9.2(A) above. If the Indemnifying Party fails to assume the defense
of such claim or demand, the affected Indemnified Parties shall have the right
to assume control of such defense at the sole expense of the Indemnifying Party.
The Indemnified Parties shall fully cooperate in the defense of such claim or
demand, at the Indemnifying Party's expense, and shall, among other things, make
available to the Indemnifying Party or its counsel pertinent information and
personnel under their control relating thereto. The Indemnifying Party agrees to
cooperate with the Indemnified Parties in order to enable their counsel to
participate in the defense and to deliver to the Indemnified Parties copies of
all pleadings and other information within the Indemnifying Party's
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knowledge or possession reasonably requested by the Indemnified Parties that is
relevant to the defense of any such claim or demand.
(c) The Indemnifying Party shall not consent to the entry of a judgment
or enter into any settlement with respect to a Third Party Claim without the
prior written consent of the Indemnified Party (not to be unreasonably
withheld), unless the judgment or proposed settlement involves only the payment
of money damages and does not impose any injunction or other equitable relief
upon the Indemnified Party or its assets. (d) In no event shall the Indemnified
Party consent to the entry of any judgment or enter into any settlement with
respect to a Third Party Claim without the prior written consent of the
Indemnifying Party (not to be unreasonably withheld).
9.3 NON-THIRD PARTY CLAIMS. In the event any Indemnified Party should
have a claim against any Indemnifying Party hereunder which does not involve a
Third Party Claim, the Indemnified Party shall transmit to the Indemnifying
Party a written notice (the "Indemnity Notice") describing in reasonable detail
the nature of the claim, an estimate of the amount of damages attributable to
such claim, and the basis of the Indemnified Party's request for indemnification
under this Agreement, and such further information as may be reasonably
requested by the Indemnifying Party. If the Indemnifying Party does not notify
the Indemnified Party within twenty (20) days from the Indemnifying Party's
receipt of the Indemnity Notice that the Indemnifying Party either disputes such
claim and the reasons therefor, or reasonably needs further information, the
claim specified by the Indemnified Party in the Indemnity Notice shall be deemed
admitted in full and a liability of the Indemnifying Party hereunder. If the
Indemnifying Party requests further information and then does not dispute such
claim and the set forth the reasons therefor within ten (10) days after receipt
of such information, then the claim specified by the Indemnified Party in the
Indemnity Notice shall be deemed admitted in full and a liability of the
Indemnifying Party hereunder.
9.4 PAYMENTS. Payments of all amounts owed by an Indemnifying Party
pursuant to this ARTICLE IX relating to a Third Party Claim shall be made within
ten (10) days after the latest of (i) the settlement of such Third Party Claim,
(ii) the final adjudication of such Third Party Claim or (iii) the final
adjudication of the Indemnifying Party's liability to the Indemnified Party
under this Agreement. Payments of all amounts owed by an Indemnifying Party
pursuant to SECTION 9.3 shall be made within ten (10) days after the later of
(i) the expiration of the 20-day Indemnity Notice period, or, if applicable, the
10-day extension thereof for further information or (ii) the agreement or final
adjudication of the Indemnifying Party's liability to the Indemnified Party.
9.5 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties and covenants of each of the parties to this Agreement shall survive
the execution of this Agreement and the consummation of the purchase and sale
herein described for the following time periods: (a) twelve months for claims
made under Sections 3.11 (accounts receivable); 3.13 (contracts); 3.21
(customers); and 3.22 (warranties), (b) twenty-four months for claims made under
Sections 3.4 (consents; no violation); 3.5 (financials); 3.6 (absence of certain
changes); 3.7 (undisclosed liabilities); 3.9 (real property); 3.12 (inventory);
3.14 (employees); and 3.25 (third party benefits), (c) the longer of thirty-six
months or applicable statute of limitations period for claims made under
Sections 3.10 (intellectual property); 3.16 (permits); 3.18 (litigation); 3.19
(compliance with law); and 3.23 (insurance), and (d) the longer of forty-eight
months or
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applicable statute of limitations period for claims made under Sections 3.1
(organization), 3.2 (ownership), 3.3 (authority), 3.8 (title to assets), 3.15
(ERISA); 3.17 (taxes); 3.20 (environmental) and 3.24 (brokers' fees) and for
claims based on fraud; provided that, a representation or warranty related to
any claim asserted pursuant to ARTICLE IX within the applicable time period set
forth in this Section shall survive as to such claim until resolved.
9.6 ADJUSTMENT TO PURCHASE PRICE; INSURANCE. Any indemnification
received under this ARTICLE IX shall be, to the extent permitted by law, an
adjustment to the Purchase Price. The amount of any and all damages for which
indemnification is provided pursuant to this ARTICLE IX shall be net of any
amounts actually received by the Indemnified Party under insurance policies with
respect to such damages. In the event that any claim for indemnification
asserted under this Article IX is, or is likely to be, the subject of the
Indemnified Party's insurance coverages, the Indemnified Party agrees to notify
the insurance carrier of any such claim. The Indemnified Party agrees to pursue
and cooperate, at the sole cost of the Indemnifying Parties, such claims
diligently and to reasonably cooperate, at the sole cost of the Indemnifying
Parties, with any claim the Indemnifying Parties may have against any insurance
carrier.
9.7 SOLE AND EXCLUSIVE REMEDY. After the Closing, the rights set forth
in this ARTICLE IX shall be each party's sole and exclusive remedy against the
other parties hereto for any claim or dispute relating to the subject matter of
this Agreement.
ARTICLE X
GENERAL PROVISIONS
10.1 NOTICES. All notices and other communications hereunder shall be
in writing and shall be deemed given upon personal delivery, facsimile
transmission (with written or facsimile confirmation of receipt), or on the
first day following delivery by a reputable overnight commercial delivery
service (delivery, postage or freight charges prepaid), or on the third day
following deposit in the United States mail (if sent by registered or certified
mail, return receipt requested, delivery, postage or freight charges prepaid),
addressed to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
If to Buyer or Parent: With copy to:
Ram Belts & Chains, Inc. Summa Industries
c/o Summa Industries One Park Plaza, Sixth Floor
21250 Hawthorne Blvd., Suite 500 Irvine, CA 92614
Torrance, CA 90503 Fax: (949) 852-7316
Fax: (310) 792-7079 Attn: Trygve M. Thoresen
Attn: James R. Swartwout
If to Sellers: With copy to:
Mr. Howard Miller DeMartino, Finkelstein, Rosen & Virga
c/o DeSantis, DeSantis, Essig & Valeriano 90 Broad Street, Suite 1700
708 Centre Avenue New York, NY 10004
Reading, PA 19612 Fax: (212) 363-2500
Fax: (610) 395-2076 Attn: Gerard Virga, Esq.
Attn: Madelyn S. Fudeman, Esq.
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10.2 INTERPRETATION. When a reference is made in this Agreement to an
Article, Section, Exhibit or Schedule, such reference shall be to an Article,
Section, Exhibit or Schedule to this Agreement unless otherwise indicated. The
words "include," "includes" and "including" when used herein shall be deemed in
each case to be followed by the words "without limitation." The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. This Agreement was drafted by all the parties hereto and shall not be
interpreted against any party as the drafter.
10.3 EXPENSES. Whether or not the transactions contemplated hereby are
consummated, and except as otherwise specifically provided in this Agreement,
all fees, costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such fees,
costs or expenses.
10.4 INTEGRATION. This Agreement and the Exhibits, Schedules,
documents, instruments and other agreements among the parties hereto that are
referred to herein constitute the entire agreement among the parties with
respect to the subject matter set forth herein or therein and supersede all
prior agreements and understandings, both written and oral, among the parties
with respect to the subject matter hereof or thereof, including, without
limitation, any term sheets or letters of intent.
10.5 ASSIGNMENT. No party hereto shall assign or transfer or permit the
assignment or transfer of this Agreement without the prior written consent of
the other parties; provided, however, that Buyer may assign any of its rights
and obligations hereunder to any entity that, directly or indirectly, through
one or more intermediaries, controls, or is controlled by, or is under common
control with Buyer.
10.6 SEVERABILITY. Any portion or provision of the Agreement which is
invalid, illegal or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability, without affecting in any way the remaining portions or
provisions hereof in such jurisdiction or, to the extent permitted by law,
rendering that or any other portion or provision of the Agreement invalid,
illegal or unenforceable in any other jurisdiction.
10.7 GOVERNING LAW. This Agreement and the rights and obligations of
the parties hereunder shall be governed in all respects, including validity,
interpretation and effect, by the laws of the State of Delaware, without regard
to its rules of conflicts of law.
10.8 ATTORNEYS' FEES. If any party to this Agreement shall bring any
arbitration, action, suit, counterclaim or appeal for any relief against any
other party, declaratory or otherwise, to enforce the terms hereof or to declare
rights hereunder (collectively, an "Action"), the prevailing party shall be
entitled to recover as part of any such Action its reasonable attorneys' fees
and costs, including any fees and costs incurred in bringing and prosecuting
such Action and/or enforcing any order, judgment, ruling or award granted as
part of such Action. "Prevailing party" within the meaning of this section
includes, without limitation, a party who agrees to dismiss an Action upon the
other party's payment of all or a portion of the sums allegedly due or
performance of the covenants allegedly breached, or who obtains substantially
the relief sought by it.
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10.9 CONSENT TO JURISDICTION: FORUM SELECTION. The parties agree that
all arbitrations, actions or proceedings arising in connection with this shall
be tried and heard exclusively in the County of Kent, State of Delaware. The
aforementioned choice of venue is intended by the parties to be mandatory and
not permissive in nature, thereby precluding the possibility of arbitration or
litigation between the parties with respect to or arising out of this Agreement
in any jurisdiction other than those specified in this section. Each party
hereby waives any right it may have to assert the doctrine of forum non
conveniens or similar doctrine or to object to venue with respect to any
proceeding brought in accordance with this section, and stipulates that the
County of Kent, State of Delaware shall have in personam jurisdiction and venue
over each of them for the purpose of arbitrating or litigating any dispute,
controversy or proceeding arising out of or related to this Agreement. Each
party hereby authorizes and accepts service of process sufficient for personal
jurisdiction in any action against it as contemplated by this section by
registered or certified mail, return receipt requested, postage prepaid, to its
address for the giving of notices as set forth in this Agreement, or in the
manner set forth in SECTION 10.1 of this Agreement for the giving of notice. Any
final judgment rendered against a party in any action or proceeding shall be
conclusive as to the subject of such final judgment and may be enforced in other
jurisdictions in any manner provided by law.
10.10 DISPUTE RESOLUTION.
(a) NEGOTIATION. The parties will attempt in good faith to resolve any claim or
controversy arising out of or relating to the execution, interpretation and
performance of this Agreement (including the validity, scope and enforceability
of this mediation and arbitration provision) promptly by negotiations between
the parties.
(b) MEDIATION. If any claim or controversy is not fully resolved through
negotiation within fifteen (15) days after a party first notifies the other
party of a claim or controversy, the parties will attempt in good faith to
resolve the controversy or claim in accordance with the Center for Public
Resources ("CPR") Model Procedure for Mediation of Business Disputes. Any such
mediation shall be held in the County of Kent, State of Delaware unless the
parties otherwise agree to another location.
(c) ARBITRATION.
(i) Any controversy or claim arising out of or relating to the
execution, interpretation and performance of this Agreement that is not fully
resolved pursuant to SECTIONS 10.1(A) or 10.2(B) within thirty (30) days after a
party first notifies the other party of a claim or controversy shall be solely
and finally settled by arbitration in accordance with the CPR Non-Administered
Arbitration Rules as then in effect ("CPR Rules"). The arbitration shall be
conducted by one independent and impartial arbitrator, appointed by CPR (the
"Arbitrator"). The arbitration shall be governed by the provisions of the
Arbitration Act, 9 U.S.C. ss. 1, et seq., and judgment upon the award rendered
by the Arbitrator may be entered by any court having jurisdiction thereof. The
arbitration proceedings shall be held in County of Kent, State of Delaware
unless the parties otherwise agree to another location.
(ii) To the extent permissible under applicable law, the
parties agree that the award of the Arbitrator shall be final and shall be
subject only to the judicial review
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permitted by the Arbitration Act. It is the intent of the parties that the
arbitration provisions hereof be enforced to the fullest extent permitted by
applicable law.
10.11 NO THIRD-PARTY BENEFICIARIES. Except as provided in ARTICLE IX as
to Indemnified Parties, this Agreement is for the sole benefit of the parties
hereto and their permitted assigns and nothing herein expressed or implied shall
give or be construed to give to any person or entity, other than the parties
hereto and such assigns, any legal or equitable rights hereunder.
10.12 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed an original, and all of which taken together shall
constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
BUYER: RAINBOW:
RAM BELTS & CHAINS, INC., RAINBOW INDUSTRIAL PRODUCTS
a Delaware corporation CORP., a Pennsylvania corporation
By: /s/ Trygve M. Thoresen By: /s/ Howard Miller
--------------------------------- -----------------------------
Trygve M. Thoresen, President Howard Miller, President
PARENT: OWNERS:
SUMMA INDUSTRIES, /s/ Howard Miller
a Delaware corporation --------------------------------
Howard Miller, an individual
By: /s/ Trygve M. Thoresen /s/ Lee Beth Miller
--------------------------------- --------------------------------
Trygve M. Thoresen, Vice President of Lee Beth Miller, an individual
Business Development & Secretary
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SCHEDULES
1.1 Transferred Assets
1.1(g) Assumed Contracts
1.2(a) CIGO Assets
1.3 Customer Assets
1.4 Assumed Obligations
2.2 Allocation of Purchase Price
3.1 List of Rainbow Equity Holders
3.4 Consents and Approvals; No Violation
3.5 Financial Statements
3.6 Absence of Certain Changes
3.7 Undisclosed Liabilities
3.8 Leased and Licensed Transferred Assets
3.9 Real Property
3.10 Intellectual Property
3.11 Accounts Receivable
3.12 Inventory
3.13 Contracts
3.14 Employment and Labor Matters
3.15 ERISA Plans
3.17 Taxes
3.18 Litigation
3.20 Environmental Matters
3.21 Relationships with Customers and Suppliers
3.22 Warranties; Product Returns
3.23 Insurance
3.24 Bank Accounts
6.8 Certain Employee Issues
6.10 Contingent Additional Purchase Price
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EXHIBITS
A. Amendment to Rainbow Sublease
B. Form of License
C. Form of Promissory Note
D. General Instrument of Conveyance, Transfer and Assignment - Rainbow
E. Assumption Agreement
F. Form of Opinion of Counsel to Sellers
G. Form of Noncompetition and Nonsolicitation Agreement
H. Form of Opinion of Counsel to Buyer and Parent
