<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) May 21, 1999
INTEGRATED SECURITY SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DE 1-11900 75-2422983
(State or other jurisdiction (Commission File Number) (I.R.S. Employer Identification No.)
of incorporation)
</TABLE>
8200 SPRINGWOOD DRIVE, SUITE 230, IRVING, TX 75063
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (972) 444-8280
(Former name or former address, if changed since last report.)
Page 1 of 5
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Item 2. Disposition of Assets
Effective May 31, 1999, Integrated Security Systems, Inc. (the "Company")
disposed of its wholly owned subsidiary, Golston Company, Inc. ("Golston") to
SciTech Plastics Group, LLC. The stock of Golston was sold for $4.74 million,
subject to certain post-closing adjustments. The Company retired debt of
approximately $1.7 million with this transaction and took a one-year $100,000
note receivable, bearing interest at 8%. The remainder of the transaction was
cash.
Item 5. Other Events
On May 21, 1999, the Company completed a non-cash repurchase of the worldwide
sales and marketing rights of the Company's Intelli-Site software from I.S.T.
Partners, Ltd. I.S.T. Partners' interests were repurchased through a combination
of the Company's common stock and warrants. Unregistered common stock totaling
1,200,000 shares, which are restricted for one year under SEC Rule 144, were
issued to the partnership. The partnership also received 450,000 ten-year
warrants, exercisable at $2.00 per warrant.
Page 2 of 5
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Item 7. Financial Statements
INTEGRATED SECURITY SYSTEMS, INC.
PRO FORMA BALANCE SHEET
MARCH 31, 1999
($ in thousands)
<TABLE>
<CAPTION>
Actual
Historical Adjustments Pro Forma
---------------- ---------------- ----------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Cash $ 259 $ 1,185(a) $ 1,444
Accounts receivable 2,499 (581) 1,918
Notes receivable 360 100(b) 460
Other 1,283 (494)(c) 790
---------- --------- -----------
Total current assets 4,401 210 4,612
Property, plant and equipment 3,933 (2,893)(d) 1,040
Intangible assets, net 1,409 (1,086)(e) 323
Other 618 -- 618
---------- --------- -----------
Total assets $ 10,361 $ (3,769) $ 6,593
========== ========= ===========
LIABILITIES
Accounts payable $ 1,388 (286) $ 1,102
Other 983 (328)(f) 628
Current portion 2,976 (1,534)(g) 1,470
---------- --------- -----------
Total current liabilities 5,347 (2,148) 3,200
Long-term debt 6,048 (1,107)(g) 4,941
STOCKHOLDERS' EQUITY
Preferred stock -- --
Common stock 93 93
Additional paid-in capital 11,890 11,890
Accumulated deficit (12,898) (514)(h) (13,412)
Treasury stock (119) (119)
---------- --------- -----------
Total stockholders' equity (1,034) (514) (1,548)
Total liabilities and stockholders' equity $ 10,361 $ (3,769) $ 6,593
========== ========= ===========
</TABLE>
- ----------
(a) Net cash
(b) Note receivable -interest due quarterly beginning September 1999; principal
due May 28, 2000; interest at 8%
(c) Inventory
(d) Fixed assets, net of accumulated depreciation
(e) Goodwill, $905K; Covenant not to Compete, $181K; Net of accumulated
amortization
(f) Repayment of interest on debt
(g) Payment of debt
(h) Loss on sale, $514K
Page 3 of 5
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INTEGRATED SECURITY SYSTEMS, INC.
PRO FORMA STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED JUNE 30, 1998
AND THE NINE MONTHS ENDED MARCH 31, 1999
($ in thousands)
<TABLE>
<CAPTION>
For the Twelve Months Ended June 30, 1998
---------------------------------------------
Actual Adjustments Pro Forma
----------- ----------- -----------
<S> <C> <C> <C>
Sales $ 11,092 $ (4,422)(a) $ 6,670
Cost of sales 6,765 (2,094)(a) 4,671
----------- -------- -----------
Gross margin 4,327 (2,328) 1,999
Operating expenses:
Selling, general and administrative 6,407 (1,132)(b) 5,275
Research and product development 246 -- 246
----------- -------- -----------
Income (loss) from operations (2,326) 1,196 (3,522)
Other income (expense) (862) (143)(c) (719)
(Provision) benefit for income taxes (7) 4 (a) (3)
----------- -------- -----------
Net income (loss) $ (3,195) $ 1,049 $ (4,244)
----------- ======== -----------
Weighted average
common shares outstanding 8,197,392 8,197,392
----------- -----------
Basic and diluted net loss per share $ (0.39) $ (0.52)
=========== ===========
<CAPTION>
For the Nine Months Ended March 31, 1999
---------------------------------------------
Actual Adjustments Pro Forma
----------- ----------- -----------
<S> <C> <C> <C>
Sales $ 8,524 $ (3,181)(d) $ 5,343
Cost of sales 5,170 (1,447)(d) 3,723
----------- ----------- -----------
Gross margin 3,354 (1,734) 1,620
Operating expenses:
Selling, general and administrative 5,270 (760)(e) 4,510
Research and product development 283 -- 283
----------- ----------- -----------
Income (loss) from operations (2,199) 974 (3,173)
Other income (expense) (826) 82 (f) (908)
(Provision) benefit for income taxes (11) 11 (d) --
----------- ----------- -----------
Net income (loss) $ (3,036) $ 1,045 $ (4,081)
----------- =========== -----------
Weighted average
common shares outstanding 8,956,722 8,956,722
----------- -----------
Basic and diluted net loss per share $ (.34) $ (.46)
========== ==========
</TABLE>
- ----------
(a) Golston Company results for the twelve months ended June 30, 1998
(b) Management fee reduction, $360K
(c) Interest expense reduction, $360K; loss on sale, ($514K)
(d) Golston Company results for the nine months ended March 31, 1999
(e) Management fee reduction, $270K
(f) Interest expense reduction, $270K; loss on sale, ($514K)
Page 4 of 5
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PART II. OTHER INFORMATION
Exhibits
10.73 Stock Purchase Agreement by and among Day's Molding &
Machinery, LLC, Golston Acquisition Corporation and Integrated
Security Systmes, Inc. dated May 27, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
INTEGRATED SECURITY SYSTEMS, INC.
--------------------------------------
(Registrant)
June 14, 1999 /s/ Gerald K. Beckmann
- -------------------------- --------------------------------------
(Date) Gerald K. Beckmann
President and CEO
Page 5 of 5
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INDEX TO EXHIBIT
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<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10.73 Stock Purchase Agreement by and among Day's Molding &
Machinery, LLC, Golston Acquisition Corporation and Integrated
Security Systmes, Inc. dated May 27, 1999.
</TABLE>
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STOCK PURCHASE AGREEMENT
BY AND AMONG
DAY'S MOLDING & MACHINERY, LLC,
GOLSTON ACQUISITION CORPORATION
AND
INTEGRATED SECURITY SYSTEMS, INC.
MAY 27, 1999
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TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. DEFINITIONS................................................................................................1
2. PURCHASE AND SALE OF SHARES................................................................................6
(a) Basic Transaction...................................................................................6
(b) Purchase Price; Purchase Price Adjustment...........................................................6
(i) Payment at Closing..........................................................................6
(ii) Adjustment Procedure........................................................................7
(c) The Closing.........................................................................................7
(d) Deliveries at the Closing...........................................................................8
3. REPRESENTATIONS AND WARRANTIES OF SELLER...................................................................9
(a) Representations and Warranties Concerning Seller....................................................9
(i) Organization of Seller......................................................................9
(ii) Authorization of Transaction................................................................9
(iii) Noncontravention............................................................................9
(iv) Brokers'Fees...............................................................................10
(v) Shares.....................................................................................10
(vi) All Environmental Documents................................................................10
(b) Representations and Warranties Concerning the Company..............................................10
(i) Organization, Qualification, and Power.....................................................10
(ii) Capitalization.............................................................................10
(iii) Noncontravention...........................................................................11
(iv) Brokers'Fees...............................................................................11
(v) Financial Statements.......................................................................11
(vi) Title to Tangible Assets...................................................................11
(vii) Inventories................................................................................12
(viii) Accounts Receivable........................................................................12
(ix) Absence of Undisclosed Liabilities.........................................................12
(x) Events Subsequent to Most Recent Fiscal Month End..........................................13
(xi) Product Warranty...........................................................................14
(xii) Licenses and Permits.......................................................................14
(xiii) Legal Compliance...........................................................................14
(xiv) Tax Matters................................................................................14
(xv) Real Property..............................................................................15
(xvi) Intellectual Property......................................................................16
(xvii) Contracts..................................................................................16
(xviii) Litigation.................................................................................18
(xix) Employees..................................................................................18
(xx) Employee Benefits..........................................................................18
(xxi) Environmental, Health and Safety...........................................................19
(xxii) Insurance..................................................................................20
(xxiii) Customers..................................................................................20
(xxiv) Vendors....................................................................................20
(xxv) Conflicts of Interest......................................................................20
</TABLE>
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<TABLE>
<S> <C> <C>
4. REPRESENTATIONS AND WARRANTIES OF BUYER...................................................................21
(a) Organization of the Buyer..........................................................................21
(b) Authorization of Transaction.......................................................................21
(c) Brokers'Fees.......................................................................................21
(d) Noncontravention...................................................................................21
(e) Litigation.........................................................................................21
(f) Investment Intent..................................................................................22
5. THERE IS NO SECTION 5.....................................................................................22
6. POST-CLOSING COVENANTS....................................................................................22
(a) General............................................................................................22
(b) Transition.........................................................................................22
(c) Non-Competition; Non-Solicitation..................................................................22
(d) Mutual Assistance and Records......................................................................23
7. THEREIS NO SECTION 7......................................................................................23
8. THEREIS NO SECTION 8......................................................................................23
9. ADDITIONAL AGREEMENTS.....................................................................................23
(a) Survival of Representations, Warranties and Covenants..............................................23
(b) Indemnification....................................................................................24
10. TAXES 28
11. OFFSET 29
12. MISCELLANEOUS.............................................................................................29
(a) Press Releases and Public Announcements............................................................29
(b) No Third Party Beneficiaries.......................................................................29
(c) Entire Agreement...................................................................................29
(d) Succession and Assignment..........................................................................29
(e) Counterparts.......................................................................................29
(f) Headings...........................................................................................29
(g) Notices............................................................................................29
(h) Governing Law......................................................................................30
(i) Amendments and Waivers.............................................................................30
(j) Severability.......................................................................................30
(k) Expenses...........................................................................................30
(l) Construction.......................................................................................31
(m) Incorporation of Exhibits and Schedules............................................................31
LIST OF SCHEDULES................................................................................................33
LIST OF EXHIBITS.................................................................................................34
</TABLE>
3
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is entered into as of May 27, 1999 (this
"Agreement") by and among Day's Molding & Machinery, LLC, a Delaware limited
liability company ("Parent"), Golston Acquisition Corporation, a Delaware
corporation ("Buyer"), and Integrated Security Systems, Inc., a Delaware
corporation ("Seller"). Parent, Buyer and Seller are collectively referred to
herein as the "Parties."
WITNESSETH:
WHEREAS, Buyer desires to purchase from Seller, and Seller desires to
sell to Buyer, on the following terms and conditions, all of the issued and
outstanding shares of all of the capital stock (the "Shares") of Golston
Company, a Texas corporation ("Company"); and
WHEREAS, Parent owns all of the issued and outstanding stock of Buyer,
and desires to facilitate Buyer's purchase of the shares.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter contained and other good and valuable consideration had
and received, Buyer and Seller, on the basis of and in reliance upon the
representations, warranties, covenants, obligations and agreements set forth in
this Agreement, and upon the terms and subject to the conditions contained
herein, hereby agree as follows:
1. DEFINITIONS.
"ACCOUNTANTS" has the meaning set forth in Section 2(b)(iii).
"ACCOUNTS RECEIVABLE" means all accounts receivable, excluding all
accounts receivable due to the Company by Seller, but including, without
limitation, all trade accounts receivable, notes receivable from customers and
accounts receivable from employees, all obligations from customers for products
shipped or delivered and for services performed but unbilled and all other
obligations from customers with respect to sales of goods or performance of
services, whether or not evidenced by a note.
"ADJUSTMENT AMOUNT" has the meaning set forth in Section 2(b)(ii)
below.
"AFFILIATE" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"AGREEMENT" has the meaning set forth in the preface above.
"BUSINESS" shall mean the business operated by the Company at any time
since October 2, 1998.
"BUYER" has the meaning set forth in the preface above.
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"BUYER GROUP" has the meaning set forth in Section 9(b) below.
"CERCLA" has the meaning set forth in Section 3(b)(xxi) below.
"CLOSING" has the meaning set forth in Section 2(c) below.
"CLOSING BALANCE SHEET" means the balance sheet of the Company as of
the Closing Date.
"CLOSING DATE" has the meaning set forth in Section 2(c) below.
"CLOSING NET ASSET VALUE" means the Net Asset Value as of the Closing.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMPANY" has the meaning set forth in the recitals above.
"CONTRACTS" has the meaning set forth in Section 3(b)(xvii) below.
"DELIVERY DATE" has the meaning set forth in Section 2(b)(iii) below.
"EMPLOYEE BENEFIT PLAN" means any (a) nonqualified deferred
compensation or retirement plan or arrangement which is an Employee Pension
Benefit Plan, (b) qualified defined contribution retirement plan or arrangement
which is an Employee Pension Benefit Plan, (c) qualified defined benefit
retirement plan or arrangement which is an Employee Pension Benefit Plan
(including any Multiemployer Plan), or (d) Employee Welfare Benefit Plan or
material fringe benefit plan or program.
"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in ERISA
Section 3(2).
"EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in ERISA
Section 3(1).
"ENVIRONMENTAL DOCUMENTS" means all documents relating to Environmental
and Safety Requirements in the possession of or under the control of Seller, its
agents, employees, representatives, counsel and consultants, all of which have
been provided to Buyer.
"ENVIRONMENTAL LAWS" shall mean any federal, state, local or foreign
laws relating to public health and safety, worker health and safety, or
pollution or protection of the environment, including laws relating to
emissions, discharges, releases, or threatened releases of Foreign Materials
into ambient air, surface water, ground water, or lands, both surface and
subsurface, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport, or handling of Foreign Materials
and any common law theories relating thereto and any rules, regulations, codes,
plans, judgments, orders, decrees, stipulations, agreements, injunctions,
charges, notices and demand letters issued, entered, promulgated or approved
under such laws or theories.
"ENVIRONMENTAL AND SAFETY REQUIREMENTS" means all of the terms and
conditions of all
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permits, licenses, certificates, approvals and other authorizations which are
required under or pursuant to, and all other limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations, schedules, and
timetables which are contained in or required by, all applicable Environmental
Laws.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"FINANCIAL STATEMENTS" has the meaning set forth in Section 3(b)(v)
below.
"FOREIGN MATERIALS" shall mean pollutants, contaminants and chemical,
industrial and hazardous materials and wastes, and shall include, but not be
limited to, substances regulated under any of the Environmental Laws. Foreign
Materials shall specifically include, but not be limited to, the following
substances: chlorobenzene, dichlorobenzene, methylene chloride, aluminum,
chromium, petroleum hydrocarbons and petroleum derived substances, and any other
substance identified as present on any property referenced in the Environmental
Documents or subject to any Environmental and Safety Requirements applicable to
the Business.
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"GOLSTON NOTE" has the meaning set forth in Section 2(b)(i) below.
"INCOME TAX" means any federal, state, local, or foreign income tax,
including any interest, penalty, or addition thereto, whether disputed or not.
"INDEMNITEE" has the meaning set forth in Section 9(b) below.
"INDEMNITOR" has the meaning set forth in Section 9(b) below.
"INTERCOMPANY DEBT" has the meaning set forth in Section 2(b)(i) below.
"INVENTORIES" has the meaning set forth in Section 3(b)(vii) below.
"INTELLECTUAL PROPERTY" has the meaning set forth in Section 3(b)(xvi)
below.
"KNOWLEDGE" means, with respect to an individual, actual knowledge of a
particular fact or other matter or which fact or other matter a prudent
individual could be expected to discover or become aware of in the course of
conducting a reasonably comprehensive investigation.
"LICENSES" has the meaning set forth in Section 3(b)(xii) of this
Agreement.
"LOSSES" has the meaning set forth in Section 9(b) below.
"MANAGERS" shall mean each of Brian Zimmerman and Danny Keller.
"MATERIAL ADVERSE EFFECT" means the result of any change, event,
occurrence or state of facts which is, or which would reasonably be expected to
lead to, a materially adverse change
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upon the assets, liabilities, condition (financial or otherwise), operating
results, employee, customer or supplier relations, business activities or
business prospects of the Business or the Company.
"MOST RECENT FINANCIAL STATEMENTS" has the meaning set forth in Section
3(b)(v) below.
"MOST RECENT FISCAL MONTH END" has the meaning set forth in Section
3(b)(v) below.
"MULTIEMPLOYER PLAN" has the meaning set forth in ERISA Section 3(37).
"NET ASSET VALUE" means, as of the Closing Date and after giving effect
to the repayment of any Third Party Debt of the Company (whether or not such
repayment is to be made out of the Purchase Price payable at Closing and
Intercompany Debt), the Company's total assets, determined in accordance with
GAAP (consistent with past practice if such past practice is in accordance with
GAAP), less the liabilities of the Company that would be required to be
reflected on a balance sheet in accordance with GAAP (consistent with past
practice if such past practice is in accordance with GAAP).
"NON-COMPETE AGREEMENTS" has the meaning set forth in Section 2(b)(i).
"NON-COMPETITION PERIOD" has the meaning set forth in Section 6(c)
below.
"ORDINARY COURSE OF BUSINESS" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"PARENT" means Day's Molding and Machinery, LLC, a Delaware limited
liability company.
"PARTY" has the meaning set forth in the preface above.
"PBGC" means the Pension Benefit Guaranty Corporation.
"PERMITTED LIENS" means liens for taxes not yet due.
"PERSON" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, or a governmental entity (or any
department, agency, or political subdivision thereof).
"PRODUCTS" has the meaning set forth in Section 6(c) below.
"PROPRIETARY RIGHTS AGREEMENT" has the meaning set forth in Section
3(b)(xix) below.
"PURCHASE PRICE" has the meaning set forth in Section 2(b) below.
"RELATED AGREEMENTS" means the Stock Purchase Agreement dated November
7, 1996 between Seller and S. Webb Golston; the Secured Promissory Note dated
December 31, 1996 by
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Seller in favor of S. Webb Golston; the three Consulting Agreements and
Covenants not to Compete dated December 31, 1996 between the Company and S. Webb
Golston, Roxanne Golston Sandefur and MPA Modular, L.L.C., respectively; the
three Guaranty Agreements dated December 31, 1996 between the Seller and S. Webb
Golston, Roxanne Goldston Sandefur and MPA Modular, L.L.C., respectively.
"REPORTABLE EVENT" has the meaning set forth in ERISA Section 4043.
"SECTION 338(h)(10) ELECTIONS" has the meaning set forth in Section 10
below.
"SECTION 338(h)(10) FORMS" has the meaning set forth in Section 10
below.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"SECURITY INTEREST" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest, other than (a) mechanic's, materialmen's,
and similar liens, (b) liens for taxes not yet due and payable or for taxes that
the taxpayer is contesting in good faith through appropriate proceedings, (c)
purchase money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
"SELLER" has the meaning set forth in the preface above.
"SHARE" has the meaning set forth in the Recitals to this Agreement.
"SUBSIDIARY" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or has the
power to vote or direct the voting of sufficient securities to elect a majority
of the directors.
"SURVIVAL DATE" has the meaning set forth in Section 9(a) below.
"TAX" OR "TAXES" means any federal, state, local or foreign income,
gross receipts, franchise, estimated, alternative minimum, add-on minimum,
sales, use, transfer, real property gains, registration, value added, excise,
natural resources, severance, stamp, occupation, premium, windfall profit,
environmental, customs, duties, real property, personal property, capital stock,
social security, unemployment, disability, payroll, license, employee or other
withholding, or other tax, of any kind whatsoever, including any interest,
penalties or additions to tax or additional amounts in respect of the foregoing;
the foregoing shall include any transferee or secondary liability for a Tax and
any liability assumed by agreement or arising as a result of being (or ceasing
to be) a member of any Affiliated Group (or being included (or required to be
included) in any Tax Return relating thereto).
"TAX RETURN" means any return, declaration, report, claim for refund,
information return or other document (including any related or supporting
schedule, statement or information) filed or required to be filed in connection
with the determination, assessment or collection of any Tax
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of any party or the administration of any laws, regulations or administrative
requirements relating to any Tax.
"THIRD PARTY DEBT" means non-Ordinary Course of Business debt,
including interest-bearing indebtedness to banks and others as more fully set
forth on the Schedule of Third Party Debt attached hereto.
2. PURCHASE AND SALE OF SHARES.
(a) Basic Transaction. On and subject to the terms and conditions of
this Agreement, the Buyer agrees to purchase from the Seller, and the Seller
agrees to sell and deliver to Buyer, all the Shares for the consideration
specified below in this Section 2, free and clear of all security interests,
claims and restrictions. Seller shall also assign to Buyer all of Seller's
right, title and interest in and to the Related Agreements, by the Assignments
in the form attached hereto as Exhibit 2(a).
(b) Purchase Price; Purchase Price Adjustment.
(i) Payment at Closing. Buyer agrees to pay to Seller at the
Closing $3,300,000 (the "Purchase Price") subject to the Adjustment
Amount consisting of: (1) $3,190,000 in cash by wire transfer upon
receipt of funds from Buyer's lender, (2) $10,000 earnest money already
paid by Buyer to Seller, and (3) a $100,000 Subordinated Note bearing
interest at 8% per annum, in the form of Exhibit 2(b)(1) attached
hereto. In addition, Buyer agrees to: (A) discharge or assume and
indemnify Seller against the balance payable under a certain Note
payable to the Golston Family Partnership, which Note is attached
hereto as Exhibit 2(b)(2) (the "Golston Note"), not to exceed
$1,245,170; and (B) to assume the Seller's obligations as guarantor
under the three Guaranty Agreements of three Consulting Agreements and
Covenants not to Compete with S. Webb Goldston, Roxanne Goldston
Sandefur and MPA Modular, L.L.C., such Guaranty Agreements and
Consulting Agreements and Covenants not to Compete attached hereto as
Exhibit 2(b)(3). Schedule 2(b)(i) sets forth all intercompany
receivables and payables between Seller and the Company (the
"Intercompany Debt"). As of the Closing, Seller shall contribute to the
Company all Intercompany Debt payable to Seller and shall furnish to
Buyer evidence of such contribution, satisfaction and release of all
Intercompany Debt.
(ii) Adjustment Amount. The cash portion of the Purchase Price
shall be increased by the amount that the Closing Net Asset Value
exceeds $1,284,773 or decreased by the amount that the Closing Net
Asset Value is less than $1,284,773, as applicable.
(iii) Adjustment Procedure. Seller has, or has caused its certified
public accountants to, take a physical inventory at May 1, 1999. Within
ten (10) days of the Closing, Seller will deliver to Buyer the Closing
Balance Sheet, together with a computation of the Net Asset Value and
the workpapers and back-up materials used in connection with the
preparation of the Closing Balance Sheet (the date of such delivery,
the "Delivery Date"). Within ten (10) days of the Delivery Date, Buyer
shall deliver to Seller Buyer's calculation of the Net Asset Value. The
Parties shall attempt
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in good faith to mutually agree upon the Net Asset Value to be used to
calculate the Adjustment Amount. If the Parties are unable to agree
upon the Net Asset Value within ten (10) days of the delivery of
Buyer's calculation of the Net Asset Value to Seller, Seller shall
mutually agree upon and engage a firm of certified public accountants
(the "Accountants") to conduct an audit of the Closing Balance Sheet
and to calculate the Net Asset Value. The issues in dispute will be
submitted to the Accountants for resolution and: (A) each Party will
furnish to the Accountants such workpapers and other documents and
information relating to the disputed issues as the Accountants may
request and are available to that Party (or its accountants), (B) the
Parties will be afforded the opportunity to present to the Accountants
any material relating to the determination and to discuss the
determination with the Accountants; and (C) the determination by the
Accountants, as set forth in a notice delivered to both Parties by the
Accountants, will be not less than the Net Asset Value calculated by
Buyer and not more than the Net Asset Value calculated by Seller, and
will be binding and conclusive on the Parties. The fees and costs of
such resolution by the Accountants will be borne by the Party whose
calculation of the Net Asset Value differs most from such calculation
of the Accountants. On the tenth business day following the final
determination of the Adjustment Amount, if the Adjustment Amount
increases the Purchase Price, Buyer will pay the Adjustment Amount to
Seller and if the Adjustment Amount decreases the Purchase Price,
Seller will pay the Adjustment Amount to Buyer. All payments will be
made, together with interest at 7 percent compounded annually beginning
on the Closing Date and ending on the date of payment, in immediately
available funds. Payments to Seller or Buyer must be made by wire
transfer to such bank account as such Party shall specify. For purposes
of determining Net Asset Value, the accrual of Federal income taxes
shall be made in accordance with GAAP and applicable Federal income tax
law, but shall recognize that the Company shall be included in Seller's
consolidated Federal income tax return through and including the
Closing Date.
(c) The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of, Haynes and Boone,
LLP, 901 Main Street, Suite 3100, Dallas, Texas, commencing at 10:00 a.m. local
time on May 27, 1999, unless another date is otherwise mutually determined by
the parties (the "Closing Date").
(d) Deliveries at the Closing. At the Closing,
(i) Seller will deliver to Buyer:
(A) good standing certificate for the Company;
(B) good standing certificate for Seller;
(C) certified copies of the Company's Article of Incorporation;
(D) consent of the directors of Seller to the transaction;
(E) stock certificates representing all the Shares, endorsed in
blank or accompanied by duly executed assignment documents;
(F) employment contracts with the Company, executed by each of
the Managers, which is satisfactory to Buyer;
(G) evidence satisfactory to Buyer that all Intercompany Debt
has been paid off or released;
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<PAGE> 11
(H) evidence satisfactory to Buyer that the UCC Financing
Statements in favor of the Frost National Bank, d/b/a Frost Capital
Group, have been terminated;
(I) evidence satisfactory to Buyer that the UCC Financing
Statements in favor of Renaissance Capital Growth Income Fund III,
Inc. have been terminated;
(J) the original Secured Promissory Note dated December 31,
1996 by Seller in favor of S. Webb Golston;
(K) Assignment & Assumption Agreements executed by Seller for
each of the Related Agreements;
(L) resignations of all directors and officers of the Company
from all positions held with the Company; and
(M) the Consent, Termination and Release, in the form of
Exhibit 2(d) attached hereto, executed by Seller terminating the
Security Agreement dated December 31, 1996 by the Company in favor
of S. Webb Golston, and evidence that the Company and the
collateral described in the Security Agreement has been released
from any further obligation thereunder.
(ii) Buyer will deliver to Seller:
(A) good standing certificate for Parent;
(B) good standing certificate for Buyer;
(C) certified copy of Parent's Certificate of Formation;
(D) certified copy of Buyer's Certificate of Incorporation;
(E) consent of the directors of Parent to the transaction;
(F) consent of the directors of the Company to the
transaction;
(G) the consideration specified in Section 2(b)(i) above;
(H) the Subordinated Note;
(I) Parent guaranty of the Subordinated Note; and
(J) Assignment & Assumption Agreements for each of the Related
Agreements executed by Buyer or Parent, as applicable.
3. REPRESENTATIONS AND WARRANTIES OF SELLER.
(a) Representations and Warranties Concerning Seller. Seller represents
and warrants to Buyer that the representations and warranties made by Seller in
this Section 3(a) are correct and complete as of the date of this Agreement and
will be correct and complete as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this Section 3(a)) with respect to itself, except as set forth in the
Section 3(a) Schedules attached hereto.
(i) Organization of Seller. Seller is a corporation and is duly
organized, validly existing, and in good standing under the laws of the
state of Delaware.
(ii) Authorization of Transaction. Seller has full corporate power
and authority (including full entity power and authority) to execute
and deliver this Agreement and to perform its obligations hereunder.
This Agreement constitutes the valid and legally binding obligation of
Seller, enforceable in accordance with its terms and conditions. Seller
need not give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or
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<PAGE> 12
governmental agency in order to consummate the transactions
contemplated by this Agreement.
(iii) Noncontravention. Neither the execution and delivery of this
Agreement, nor the consummation of the transactions contemplated
hereby, will (A) violate any statute, regulation, rule, injunction,
judgment, order or decree of any government, governmental agency, or
court to which Seller is subject or any provision of its organizational
documents or (B) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, terminate, modify, or
cancel, or require any notice under any material agreement, contract,
lease, license, instrument, or other arrangement to which Seller is a
party or by which it is bound or to which any of its assets is subject.
(iv) Brokers' Fees. Except as set forth on Schedule 3(a)(iv),
Seller has no liability or obligation to pay any fees or commissions to
any broker, finder, or agent with respect to the transactions
contemplated by this Agreement for which Buyer or the Company could
become liable or obligated.
(v) Shares. Seller is and will at Closing be the sole holder of
record and beneficial owner of the Shares. The Shares consist of 1,000
shares of common stock of the Company and are owned free and clear of
any restrictions on transfer (other than restrictions under the
Securities Act and state securities laws), taxes, Security Interests,
options, warrants, purchase rights, contracts, commitments, equities,
claims, and demands. Except as set forth in Schedule 3(a)(v), Seller is
not a party to any option, warrant, purchase right, or other contract
or commitment that could require Seller to sell, transfer, or otherwise
dispose of any of the Shares (other than this Agreement), nor is Seller
a party to any voting trust, proxy, or other agreement or understanding
with respect to the voting of the Shares.
(vi) All Environmental Documents. Seller has provided to Buyer for
its examination and review all Environmental Documents.
(b) Representations and Warranties Concerning the Company. Seller
represents and warrants to Buyer that the statements contained in this Section
3(b) are correct and complete as of the date of this Agreement and will be
correct and complete as of the Closing Date (as though made then and as though
the Closing Date were substituted for the date of this Agreement throughout this
Section 3(b)), except as set forth in the Section 3(b) Schedules attached
hereto.
(i) Organization, Qualification, and Power. The Company is a
corporation duly organized, validly existing, and in good standing
under the laws of the State of Texas; and is duly qualified and in good
standing in each foreign jurisdiction listed in Schedule 3(b)(i)(A)
where such qualification is required. The Company has the full power
and authority to carry on its business and to own and use the
properties owned and used by it. Schedule 3(b)(i)(B) lists the
directors and officers of the Company.
(ii) Capitalization. The authorized and issued equity of the
Company consists solely of 1,000 shares of common stock, par value
$.01, of which the Shares are the only Shares issued and outstanding.
All the Shares have been duly authorized, are validly issued, fully
paid, and nonassessable, and are held of record by the Seller. There
are no outstanding or authorized options, warrants, purchase rights,
subscription rights, conversion rights, exchange rights, or other
contracts or commitments that could require the Company to issue, sell,
or otherwise cause to become outstanding any of its capital stock.
There are no outstanding or authorized equity
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<PAGE> 13
appreciation, phantom equity, profit participation, or similar rights
with respect to the Company.
(iii) Noncontravention. Except as set forth in Schedule
3(b)(iii)(A), neither the execution and delivery of this Agreement, nor
the consummation of the transactions contemplated hereby, will (A)
violate any statute, regulation, rule, judgment, or order of any
government or court to which the Company is subject or any provision of
the articles of incorporation or bylaws of the Company or (B) conflict
with, result in a breach of, constitute a default under, result in the
acceleration of, terminate or cancel any material agreement, contract,
lease, license or instrument to which the Company is a party or by
which it is bound or to which any of its assets is subject (or result
in the imposition of any Security Interest upon any of its assets),
except where the violation, conflict, breach, default, acceleration,
termination, cancellation, or Security Interest would not have a
Material Adverse Effect or impair the ability of the Seller to
consummate the transactions contemplated by this Agreement. Except as
set forth in Schedule 3(b)(iii)(B), the Company does not need to give
any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency in order
for the Seller to consummate the transactions contemplated by this
Agreement, except where the failure to give notice would not impair the
ability of the Seller to consummate the transactions contemplated by
this Agreement.
(iv) Brokers' Fees. The Company has no liability or obligation to
pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement.
(v) Financial Statements. Attached hereto as Schedule 3(b)(v) are
the following financial statements (collectively the "Financial
Statements"): (A) unaudited balance sheet and statement of income as of
and for the fiscal year ended June 30, 1998 and the six months ended
June 30 1997 for the Company, and (B) unaudited balance sheet and
statement of income (the "Most Recent Financial Statements") as of and
for the ten months ended March 31, 1999 (the "Most Recent Fiscal Month
End") for the Company. The Financial Statements (including the notes
thereto) have been prepared in accordance with GAAP applied on a
consistent basis throughout the periods covered thereby and present
fairly the financial condition of the Company as of such dates and the
results of operations of the Company for such periods; subject, in the
case of the Most Recent Financial Statements, to normal year-end
adjustments (the effect of which will not be materially adverse and the
absence of notes thereto).
(vi) Title to Tangible Assets. Except for Permitted liens the
Company has good title to, or a valid leasehold interest in, the
material tangible assets it uses regularly in the conduct of the
Business. All such tangible assets are in good condition and repair,
subject to normal wear and tear, and fit for their current use by the
Business, and are not in violation of applicable zoning or other laws.
Except for the Cincinnati Milacron 75-ton plastic injection molding
press, which is transferred as is, none of the tangible assets is in
need of maintenance or repairs except for ordinary, routine maintenance
and repairs that are not material in nature and cost. The buildings,
plants, structures and equipment of the Company are sufficient for the
continued conduct of the Business after Closing in substantially the
same manner as before Closing.
(vii) Inventories. Except as et forth on Schedule 3(b)(vii), all
inventories of the Company (A) are properly reflected on the Company's
books and records in accordance with GAAP consistently applied at the
lower of cost or fair market value on a first in, first out basis, and
(B) consist of a quality and quantity useable and, with respect to
finished goods, saleable in the Ordinary Course of Business without
rework or discount and are not obsolete, slow-moving, or
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<PAGE> 14
damaged (the "Inventories").
(viii) Accounts Receivable. Set forth on Schedule 3(b)(viii) is a
list of all the Accounts Receivable of the Company and an aging
schedule relating thereto, each as of June 30, 1998 and March 31, 1999.
The Accounts Receivable of the Company (A) are valid receivables
arising from sales actually made or services actually performed in the
Ordinary Course of Business, (B) are properly reflected on the
Financial Statements and the Most Recent Financial Statements in
accordance with GAAP consistently applied, and (C) are not and will not
be subject to any valid counterclaim, deduction, credit, setoff or
offset (unless reflected in the reserve for doubtful Accounts
Receivable on the Most Recent Financial Statements). Unless paid prior
to the Closing, the Accounts Receivable are or will be as of the
Closing current and collectible net of the respective reserves for
doubtful Accounts Receivable shown on the Financial Statements and the
Most Recent Financial Statements (which reserves are adequate and
calculated consistent with past practice and, in the case of the
reserve as of the Closing, will not represent a greater percentage of
the Accounts Receivable as of the Closing than the reserve reflected in
the Financial Statements and the Most Recent Financial Statements
represented of the Accounts Receivable reflected therein and will not
represent a material adverse change in the composition of such Accounts
Receivable in terms of aging). Subject to such reserves, each of the
Accounts Receivable either has been or will be collected in full,
without any set-off, within ninety days after the day on which it first
becomes due and payable. If as of 90 days following the Closing Date
the Company has collected amounts of Accounts Receivable existing as of
the Closing Date and reflected in the Net Asset Value as finally
determined which exceed the difference between the gross Accounts
Receivable and the reserve for doubtful accounts existing as of the
Closing Date and reflected in the Net Asset Value as finally
determined, then the Buyer shall cause the Company to pay promptly that
excess to Seller.
(ix) Absence of Undisclosed Liabilities. Except as provided on
Schedule 3(b)(ix), the Company has no debts, liabilities or obligations
of any nature (whether accrued, absolute, contingent, direct, indirect,
perfected, inchoate, unliquidated or otherwise, whether due or to
become due) arising out of transactions entered into at or prior to the
Closing, or any transaction, series of transactions, action or
inaction, at or prior to the Closing, or any state of facts or
condition existing at or prior to the Closing (regardless of when any
such liability or obligation is asserted), including, without
limitation, Taxes with respect to or based upon transactions or events
occurring on or before the Closing, except (A) liabilities and
obligations under agreements, contracts, leases or commitments
described on Schedule 3(b)(xvii)(A) or entered into in the Ordinary
Course of Business and not required by Schedule 3(b)(xvii)(A) to be
disclosed thereon (in all cases none of which relates to any breach of
contract, breach of warranty, tort, infringement or violation of law or
arose out of any charge, complaint, action, suit, proceeding, hearing,
investigation, claim or demand), and (B) liabilities and obligations to
the extent specifically reflected and reserved against on the Financial
Statements and Most Recent Financial Statements.
(x) Events Subsequent to Most Recent Fiscal Month End. Since the
Most Recent Fiscal Month End, there has not been any event or
development (other than economic conditions
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<PAGE> 15
generally affecting and known to the plastics injection molding
business) that could have a Material Adverse Effect. Since the Most
Recent Fiscal Month End the Company has not engaged in any practice,
taken any action, or entered into any transaction outside the Ordinary
Course of Business. In particular, there has not been any:
(A) change in the Company's authorized or issued capital stock;
grant of any stock option or right to purchase shares of capital
stock of the Company; issuance of any security convertible into
such capital stock; grant of any registration rights; purchase,
redemption, retirement, or other acquisition by the Company of any
shares of any such capital stock; or declaration or payment of any
dividend or other distribution or payment in respect of shares of
capital stock;
(B) amendment to the organizational documents of the Company;
(C) payment or increase by the Company of any bonuses,
salaries, fees or other compensation to the Seller or any director,
officer, or (except in the Ordinary Course of Business) employee or
entry into any employment, severance, or similar Contract with any
employee, director, or officer;
(D) adoption of, or increase in the payments to or benefits
under, any profit sharing, bonus, deferred compensation, savings,
insurance, pension, retirement, or, other employee benefit plan
for or with any employees of the Company;
(E) damage to or destruction or loss of any asset or property
of the Company, whether or not covered by insurance, materially
and adversely affecting the properties, assets, business,
financial condition, or prospects of the Company, taken as a
whole;
(F) entry into, termination of, or receipt of notice of
termination of (i) any license, distributorship, dealer, sales
representative, joint venture, credit, or similar agreement, or
(ii) any Contract or transaction involving a total remaining
commitment by or to the Company of at least Ten Thousand Dollars
($10,000);
(G) sale (other than sales of inventory in the Ordinary Course
of Business), lease, or other disposition of any asset or property
of the Company or mortgage, pledge, or imposition of any lien or
other encumbrance on any material asset or property of the Company,
including the sale, lease, or other disposition of any of the
Intellectual Property;
(H) cancellation or waiver of any claims or rights with a value
to the Company in excess of Ten Thousand Dollars ($10,000);
(I) material change in the accounting methods used by the
Company; or
(J) agreement, whether oral or written, by the Company to do
any of the foregoing.
(xi) Product Warranty. All products manufactured, distributed or
sold by the Company at any time prior to the Closing have been in
conformity with all applicable contractual commitments and all express
or implied warranties. Except as described on Schedule 3(b)(xi), no
liability exists for replacement thereof or other damages in connection
with such sales or deliveries at any time prior to the Closing Date. No
products heretofore sold by the Company are now subject to any
guarantee or warranty except to the extent of the Company's standard
terms and conditions of sale. Set forth in Schedule 3(b)(xi) are the
standard forms of product warranties and guarantees used by the
Company, and copies of all other material outstanding product
warranties and guarantees.
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<PAGE> 16
(xii) Licenses and Permits. Schedule 3(b)(xii) contains a complete
listing and summary description of all material permits, licenses,
certificates, approvals and other authorizations of federal, state and
local governments or similar rights (collectively, the "Licenses") used
by the Company in the conduct of the Business. Except as indicated in
Schedule 3(b)(xii), the Company owns or possesses all right, title and
interest in and to all the Licenses that are necessary to own and
operate its assets and to conduct the Business as presently conducted
or as currently proposed to be conducted. The Company is in compliance
in all material respects with the terms and conditions of such Licenses
and has received no notices and neither Seller nor the Company has
knowledge that the Company is in violation of any of the terms or
conditions of such Licenses. The Company has taken all necessary action
to obtain and to maintain such Licenses. No loss or expiration of any
such License is threatened, pending or reasonably foreseeable other
than expiration in accordance with the terms thereof.
(xiii) Legal Compliance. The Company has complied with all
applicable laws of federal, state and local governments, except where
the failure to comply would not have a Material Adverse Effect.
(xiv) Tax Matters.
(A) All Tax Returns filed by the Company are true, correct
and complete in all material respects. The Company has filed all
Tax Returns that it was required to file and has paid all Taxes
shown thereon as owing, and there are no grounds for the assertion
or assessment of any additional Taxes against the Company or its
assets with respect to such periods. All such Tax Returns are true
and accurate in all material respects. Schedule 3(b)(xiv) sets
forth a list of all such Tax Returns filed since December 31, 1996.
(B) Except as set forth on Schedule 3(b)(xiv), the U.S.
federal and state income Tax Returns of the Company have not been
audited by the Internal Revenue Service or relevant state tax
authorities. The Company has not waived any statute of limitations
in respect of Taxes nor agreed to any extension of time with
respect to any Tax assessment or deficiency.
(C) Except as set forth on Schedule 3(b)(xiv), the Company is
not a party to any Tax allocation or sharing agreement nor has a
current or potential contractual obligation to indemnify any other
Person with respect to Taxes.
(D) Except as set forth on Schedule 3(b)(xiv), there is no
action, suit, taxing authority proceeding or known audit now in
progress pending or to the Seller's knowledge, threatened against
or with respect to the Company with respect to any Tax.
(E) The Company has withheld and 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.
(F) The charges, accruals, and reserves with respect to Taxes
on the Financial Statements and the Most Recent Financial
Statements are adequate (determined in accordance with GAAP). The
accruals of Federal income taxes shall be made in accordance with
GAAP and applicable Federal income tax law, but shall recognize
that the Company shall be included in Seller's consolidated Federal
income tax return through and including the Closing Date.
(G) Copies of all U.S. Federal Income Tax Returns, tax
examination reports and statements of deficiencies assessed
against, or agreed to with respect to the Company with respect to
the last two years have been made
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<PAGE> 17
available to Buyer.
(H) The only states, territories and jurisdictions (whether
foreign or domestic) in which the Company is required to file Tax
Returns relating to the Business are Texas.
(xv) Real Property.
(A) Schedule 3(b)(xv)(A) lists all real property that the
Company owns. With respect to each such parcel of owned real
property, and except for matters which would not have a Material
Adverse Effect:
the Company has good and indefeasable title to the parcel
of real property, free and clear of any Security Interest,
easement, covenant, or other restriction, except for
installments of special assessments not yet delinquent,
recorded easements, covenants, and other restrictions, and
utility easements, building restrictions, zoning restrictions,
and other easements and restrictions existing generally with
respect to properties of a similar character;
there are no leases or subleases granting to any Person
the right of use or occupancy of any portion of the parcel of
real property; and
there are no outstanding options or rights of first
refusal to purchase the parcel of real property, or any portion
thereof or interest therein.
(B) Schedule 3(b)(xv)(B) lists all real property leased or
subleased to the Company. Seller has delivered to Buyer correct and
complete copies of the leases and subleases listed in Schedule
3(b)(xv)(B) (as amended to date). Each lease and sublease listed in
Schedule 3(b)(xv)(B) is legal, valid, binding, enforceable, and in
full force and effect, except where the illegality, invalidity,
nonbinding nature, unenforceability, or ineffectiveness would not
have a Material Adverse Effect.
(xvi) Intellectual Property. Schedule 3(b)(xvi) identifies each
patent, trademark or copyright registration which has been issued to
the Company with respect to any of its intellectual property (the
"Intellectual Property"), and identifies each pending patent, trademark
or copyright application for registration which Company has made with
respect to any of its Intellectual Property. The Company has not
granted any licenses or other rights to any third party with respect to
the Intellectual Property and no third party has granted any licenses
or other rights to the Company with respect to such Intellectual
Property. The Company owns or has the valid right to use all the
Intellectual Property necessary for the operation of the Business as
presently conducted. No claim by any third party contesting the
validity, enforceability, use or ownership of any Intellectual Property
has been made, is currently outstanding or to the Knowledge of Seller
is threatened, and there are no grounds for any such claim. The Company
has not infringed, misappropriated or otherwise conflicted with any
rights of any third parties, nor is the Seller aware of any
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<PAGE> 18
infringement, misappropriation or conflict which will occur as a result
of the continued operation of the Business as presently conducted. The
Company is the exclusive owner of all internally developed prospect
lists, customer lists, projections, analyses, and market studies, free
and clear of all restrictions whatsoever, and has the unrestricted
right to use any other such materials used by the Company but not
internally developed.
(xvii) Contracts. Schedule 3(b)(xvii)(A) sets forth a
complete and accurate description of all written and oral contracts or
agreements to which the Company is a party, and the performance of
which (A) is material to the business, financial conditions, operations
of the Company, (B) involves (1) a guaranty, indemnity, or power of
attorney, (2) a sharing of payment or joint venture, (3) a sales
agency, representation, distributorship or franchise agreement, (4)
restrictions on competition, (5) collective bargaining, works council,
or union representation, or (6) an obligation in excess of [$10,000],
(C) is not terminable upon 30 days' notice without liability, (D) has
resulted or will result in a loss to the Company, or (E) is not in the
Ordinary Course of Business of the Company (collectively, the
"Contracts"). Seller has delivered to Buyer a correct and complete copy
of each contract or other agreement listed in Schedule 3(b)(xvii)(A)
(as amended to date). Each of the Contracts is valid, binding and
enforceable obligation of the Company and the other parties thereto. In
particular, without limiting the foregoing, except as set forth in
Schedule 3(b)(xvii)(B):
(A) the Company is, and at all times since the date of
the relevant Contract has been in full compliance with all
material terms and requirements of each Contract under which
the Company has or had any obligation or liability or by
which the Company or any of the assets owned or used by the
Company is or was bound;
(B) to the knowledge of Seller, each other Person that
has or had any obligation or liability under any Contract
under which the Company has or had any rights is, and at all
times since the date of the relevant Contract has been, in
full compliance with all material terms and requirements of
such Contract;
(C) to the knowledge of Seller, no event has occurred
or circumstance exists that (with or without notice or lapse
of time) may contravene, conflict with, or result in a
violation or breach of, or give the Company or any other
Person the right to declare a default or exercise any remedy
under, or to accelerate the maturity or performance of, or to
cancel, terminate, or modify, any Contract;
(D) the Company has not given or received from any
Person any notice or other communication (whether oral or
written) regarding any actual, alleged, possible, or
potential violation or breach of, or default under, any
Contract;
(E) there are no renegotiations of, attempts to
renegotiate, or outstanding rights to renegotiate any
material amounts paid or payable to the Company under current
or completed Contracts with any Person and no such Person has
made written demand for such renegotiation; and
(F) the Contracts relating to the sale, design,
manufacture, or provision of products or services by the
Company have been entered into in the Ordinary Course of
Business and have been entered into without commission of any
act alone or in concert with any other Person, or any
consideration having been paid or promised, that is or would
be in violation of any laws or other legal requirement.
(xviii) Litigation. Except as set forth on Schedule
3(b)(xviii), there is no
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pending action, suit or proceeding: (i) that has been commenced by or
against the Company or any of the assets owned or used by the Company;
or (ii) that challenges, or that may have the effect of preventing,
delaying, making illegal or otherwise interfering with, the execution
and performance of this Agreement or the transactions contemplated
hereby. To the knowledge of Seller, no such proceeding has been
threatened and no event has occurred or circumstance exists that may
give rise to or serve as a basis for the commencement of any such
proceeding. The actions, suits or proceedings set forth on Schedule
3(b)(xviii) will not have a Material Adverse Effect on the Business,
assets, condition or prospects of the Company. Schedule 3(b)(xviii)
sets forth each instance in which the Company is subject to any
outstanding injunction, judgment or order. The Company is in full
compliance with the terms and requirements of all such injunctions,
judgments or orders to which it is subject, and no event has occurred
or circumstance exists that may constitute or result in (with or
without notice or lapse of time) a violation thereof or failure to
comply therewith.
(xix) Employees. To the knowledge of Seller, no key employee
and no group of employees has any plans to terminate employment with
the Company. Except as set forth on Schedule 3(b)(xix), no employee or
director is a party to, or is otherwise bound by, any agreement or
arrangement, including any confidentiality, noncompetition or
proprietary rights agreement between such employee or director and any
other Person ("Proprietary Rights Agreement") that in any way adversely
affects or will affect the performance of his/her duties as an employee
or director of the Company. The Company is in compliance with and has
complied with all applicable laws relating to the employment of labor,
including provisions thereof relating to wages, hours, equal
opportunity, collective bargaining, and the payment of social security
and other Taxes. There are no administrative charges or court
complaints or investigations pending or, to the knowledge of Seller
threatened against the Company before the U.S. Equal Employment
Opportunity Commission or any state or federal court or agency
concerning alleged employment discrimination or any other matters
relating to the employment of labor. There is no unfair labor practice
charge or complaint pending or to the Knowledge of Seller threatened
against the Company before the National Labor Relations Board or any
similar state or local body. Within the last three years, the Company
has not experienced any union organization attempts, labor disputes or
work stoppage, or slow downs due to labor disagreements. There is no
labor strike, dispute or work stoppage or slow down pending or to the
Knowledge of Seller threatened with respect to the Company. There is no
grievance or arbitration proceeding pending which could have a Material
Adverse Effect.
(xx) Employee Benefits.
(A) Schedule 3(b)(xx) lists each Employee Benefit Plan
that the Company maintains or to which the Company
contributes.
Each such Employee Benefit Plan (and each related
trust, insurance contract, or fund) complies in form
and in operation in all material respects with the
applicable requirements of ERISA and the Code.
All contributions (including all employer
contributions and employee salary reduction
contributions) which are due have been paid to
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<PAGE> 20
each such Employee Benefit Plan which is an Employee
Pension Benefit Plan.
Except as set forth in Schedule 3(b)(xx), each such
Employee Benefit Plan which is an Employee Pension
Benefit Plan has received a determination letter from
the Internal Revenue Service to the effect that it meets
the requirements of Code Section 401(a).
Seller has delivered to the Buyer summary plan
descriptions.
(B) With respect to each Employee Benefit Plan that
the Company maintains or ever has maintained or to which it
contributes, ever has contributed, or ever has been required
to contribute:
No such Employee Benefit Plan which is an Employee
Pension Benefit Plan (other than any Multiemployer Plan)
has been completely or partially terminated or been the
subject of a Reportable Event as to which notices would
be required to be filed with the PBGC. No proceeding by
the PBGC to terminate any such Employee Pension Benefit
Plan (other than any Multiemployer Plan) has been
instituted.
No action, suit or proceeding with respect to the
administration of the assets of any such Employee
Benefit Plan (other than routine claims for benefits) is
pending.
The Company has not incurred any liability to the
PBGC (other than PBGC premium payments) or otherwise
under Title IV of ERISA (including any withdrawal
liability) with respect to any such Employee Benefit
Plan which is an Employee Pension Benefit Plan.
(xxi) Environmental, Health and Safety. Except as set forth in
Schedule 3(b)(xxi)(A), the Company has obtained all permits, licenses
and other authorizations required under Environmental Laws. The Company
is in compliance with the terms and conditions of such permits,
licenses and authorizations and has received no notices that it is in
violation of the terms and conditions of such permits, licenses and
authorizations. Except as set forth on the Environmental Documents, the
Company has not disposed nor arranged for disposal or treatment, or
arranged with a transporter for transport for disposal or treatment, of
any Foreign Materials in any manner which may form the basis for any
present or future material claim, demand or action (including, but not
limited to, any claim, demand or action pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"), or
any similar state or local law or ordinance) seeking investigation or
clean up of any site, location or body of water, surface or subsurface,
or reimbursement of any costs related thereto. No notices, claims,
facts, events or conditions with respect to the past or present
operations or facilities of the Business or the Company interfere with
or prevent continued compliance with, or could give rise to any common
law or statutory liability under any Environmental and Safety
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Requirements, including without limitation liability for investigation
or clean up costs or liability for personal injury or property damage.
Except as set forth in Schedule 3(b)(xxi)(B), (A) the Company is in
compliance with all applicable Environmental Laws, and (B) there are no
outstanding or threatened citations, notices of violations or orders of
noncompliance issued to the Company pursuant to any Environmental Laws.
(xvii) Insurance. Schedule 3(b)(xxii) sets forth an accurate
description of each insurance policy or arrangement maintained by the
Company with respect to the Business (including each self-funded and/or
self-administered policy or plan). Seller has delivered to Buyer: (i)
true and complete copies of all policies of insurance to which the
Company is a party or under which the Company, or any director of the
Company, is or has been covered at any time within 2 years preceding
the date of this Agreement; (ii) true and complete copies of all
pending applications for policies of insurance; and (iii) any statement
of the auditors of the Financial Statements with regard to the adequacy
of the Company's insurance coverage or reserves for claims. The Company
maintains insurance policies with respect to the assets of the Company
and the Business with coverage adequate for the operation of the
Business. All such insurance policies are in full force and effect and
the Company is not in breach or default with respect to its obligations
under such insurance policies.
(xviii) Customers. Schedule 3(b)(xxiii) lists the Company's 25
largest customers. Except as disclosed on Schedule 3(b)(xxiii), the
Company has not received notice that any such customer intends to
terminate or materially reduce its business with the Company and Seller
has no knowledge of any such intent and no such customer has terminated
or materially reduced its business with the Company in the last 12
months.
(xix) Vendors. Schedule 3(b)(xxiv) lists the Company's 10
largest vendors. The Company has not received notice that any such
vendor intends to terminate or materially reduce its business with the
Company and Seller has no knowledge of any such intent, and no such
vendor has terminated or materially reduced its business with the
Company in the last 12 months.
(xx) Conflicts of Interest. Except as set forth in Schedule
3(b)(xxv), no director or stockholder of the Company, nor any Affiliate
of any such person, and no officer of the Company, nor any Affiliate of
any officer, now has or within the last three years had, either
directly or indirectly:
(A) An equity or debt interest in any corporation,
partnership, limited liability company, joint venture,
association, organization or other person or entity that
furnishes or sells or during such period furnished or sold
services or products to the Company or purchases or during
such period purchased from the Company any goods or services
or otherwise does or during such period did business with the
Company or competes or during such period was in competition
with the Company; or
(B) A beneficial interest in any contract, commitment or
agreement to which the Company is or was a party or under
which the Company is or was obligated or bound, to which any
of its properties may be or may have been subject.
4. REPRESENTATIONS AND WARRANTIES OF BUYER AND PARENT.
Buyer and Parent represent and warrant to Seller that the statements
contained in this
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Section 4 are correct and complete as of the date of this Agreement and will be
correct and complete as of the Closing Date (as though made then and as though
the Closing Date were substituted for the date of this Agreement throughout this
Section 4), except as set forth in the Schedules attached hereto.
(a) Organization of the Buyer. Buyer is a corporation duly organized,
validly existing, and in good standing under the laws of the state of Delaware.
(b) Authorization of Transaction. The Buyer has full power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder. This Agreement constitutes the valid and legally binding obligation
of Buyer, enforceable in accordance with its terms and conditions. Buyer need
not give any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency in order to
consummate the transactions contemplated by this Agreement.
(c) Brokers' Fees. Except as set forth on Schedule 4(c), Buyer has no
liability or obligation to pay any fees or commissions to any broker, finder, or
agent with respect to the transactions contemplated by this Agreement for which
the Seller could become liable or obligated.
(d) Noncontravention. Neither the execution and delivery of this
Agreement, nor the consummation of the transactions contemplated hereby will (i)
violate any statute, regulation, rule, injunction, judgment, order or decree of
any government, governmental agency, or court to which Buyer is subject or any
provisions of its organizational documents or (ii) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, terminate,
modify, or cancel, or require any notice under any material agreement, contract,
lease, license, instrument or other arrangement to which Buyer is a party or
which it is bound or to which any of its assets is subject.
(e) Litigation. Except otherwise as set forth in Schedule 4(e), there
is no pending action, suit or proceeding: (i) that has been commenced by or
against the Buyer or any of the assets owned or used by the Buyer; or (ii) that
challenges, or may have the affect of preventing, delaying, making illegal or
otherwise interfering with the execution and performance of this Agreement and
that transactions contemplated thereby.
(f) Investment Intent. Buyer is purchasing the Shares for investment,
and not with a view to the distribution thereof.
5. There Is No Section 5.
6. POST-CLOSING COVENANTS. The Parties agree as follows with respect to the
period following the Closing:
(a) General. In case at any time after the Closing any further action
is necessary to carry out the purposes of this Agreement, each of the Parties
will take such further action (including the execution and delivery of such
further instruments and documents) as the other Party reasonably may request,
all at the sole cost and expense of the requesting Party.
(b) Transition. Seller will not take any action that is designed or
intended to have the effect of
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discouraging any lessor, licensor, customer, supplier, or other business
associate of the Company from maintaining the same business relationships with
the Company after the Closing as it maintained with the Company prior to the
Closing.
(c) Non-Competition; Non-Solicitation. As a condition precedent to
Buyer entering into and performing its obligations under this Agreement, Seller
agrees that:
(i) During a period of five (5) years from the Closing Date (the
"Non-Competition Period"), it shall not, anywhere in the United States
of America, directly or indirectly, either for itself or for any other
Person, own, operate, manage, control, engage in, participate in,
invest in, permit its name to be used by, act as consultant or advisor
to, render services for (alone or in association with any Person) or
otherwise assist in any manner, any Person that engages in or owns,
invests in, operates, manages or controls any venture or enterprise
which directly or indirectly engages or proposes to engage in (A) the
manufacture, distribution or sale of any products or goods
manufactured, distributed or sold (or proposed to be manufactured,
distributed or sold) by the Company prior to the date of this
Agreement (the "Products") or (B) the provision of any services or the
manufacture, distribution or sale of any products or goods that are
similar to, may be used as substitutes for, are in competition with or
may detract from any of the Products. Nothing herein shall prohibit
the Seller from being a passive owner of not more than 3% of the
outstanding stock of any class of securities of a publicly traded
corporation engaged in such business, so long as it does not actively
participate in the business of such corporation.
(ii) During the Non-Competition Period, Seller will not directly or
indirectly offer employment to or hire (in any capacity) any employee
of the Company without the prior written consent of Buyer, provided
that if the Company terminates the employment of an employee, then
Seller may thereafter offer employment to or hire such former employee.
(iii) If, at the time of enforcement of this Section 6(c), a court
shall hold that the duration, scope, geographic area or other
restrictions stated herein are unreasonable under circumstances then
existing, the parties agree that the maximum duration, scope,
geographic area or other restrictions deemed reasonable under such
circumstances by such court shall be substituted for the stated
duration, scope, geographic area or other restrictions.
(iv) Seller acknowledges that the foregoing restrictions are
reasonable and further recognizes and affirms that in the event of
breach by it of any of the provisions of this Section 6(c), money
damages would be inadequate and Buyer would have no adequate remedy at
law. Accordingly, Seller agrees that Buyer shall have the right, in
addition to any other rights and remedies existing in its favor, to
enforce its rights and Seller's obligations under this Section 6(c)
not only by an action or actions for damages, but also by an action or
actions for specific performance, injunction and/or other equitable
relief in order to enforce or prevent any violations (whether
anticipatory, continuing or future) of the provisions of this Section
6(c) (including, without limitation, the extension of the
Non-Competition Period by a period equal to (A) the length of the
violation of this Section 6(c) plus (B) the length of any court
proceedings necessary to stop such violation). In the event of a
breach or violation by Seller of any of the provisions of this Section
6(c), the running of the Non-Competition Period (but not of Seller's
obligations under this Section 6(c)) shall be tolled with respect to
Seller during the continuance of any actual breach or violation.
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<PAGE> 24
(d) Mutual Assistance and Records. Buyer and Seller agree that they
will mutually cooperate in the expeditious filing of all notices, reports and
other filings with any governmental authority required to be submitted jointly
by any governmental authority required to be submitted jointly by Buyer and
Seller in connection with the execution and delivery of this Agreement, the
other agreements contemplated hereby and the consummation of the transactions
contemplated hereby or thereby. Subsequent to the Closing, Seller, at its own
cost, will assist Buyer (including by the retention and provision of access to
relevant records) in the defense of any audits or litigation to the extent that
such assistance is reasonably requested and relates to periods prior to the
Closing Date.
7. There is no Section 7.
8. There is no Section 8.
9. ADDITIONAL AGREEMENTS.
(a) Survival of Representations, Warranties and Covenants. All the
representations, warranties, covenants and agreements set forth in this
Agreement shall survive the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, regardless of any
investigation, inquiry or examination made for or on behalf of or any knowledge
of Buyer or Seller or any of Buyer's or Seller's Affiliates, officers,
directors, employees, agents, or representatives or the acceptance by Buyer or
Seller of any certificate or opinion; provided that the representations and
warranties contained in Sections 3 (except Sections 3(a) and 3(b)(xiv), (xx) and
(xxi)) and 4 of this Agreement shall survive for a period of two years from the
date hereof (the "Survival Date").
(b) Indemnification.
(i) Subject to Sections 9(b)(iii) and 9(b)(iv), and in addition to
all rights and remedies available to Buyer at law or in equity, Seller
shall indemnify Buyer and each of its Affiliates, directors, employees,
agents, representatives, successors and permitted assigns (the "Buyer
Group") and save and hold each of them harmless against and pay on
behalf of or reimburse such party as and when incurred for any loss,
liability, demand, claim, proceeding, assessment, action, cause of
action, cost, damages, deficiency, Tax, penalty, fine or expense
(excluding lost profits, incidental or consequential damages), whether
or not arising out of third party claims (including interest,
penalties, reasonable attorneys', engineers' and consultants' fees and
expenses and all amounts paid in investigation, defense or settlement
of any of the foregoing) (collectively, "Losses") which any such person
may suffer, sustain or become subject to, as a result of, in connection
with, arising out of, relating or incidental to or by virtue of:
(A) any misrepresentation or breach of warranty on the part of
Seller under Section 3 of this Agreement;
(B) any misrepresentation in or omission from any of the
representations, warranties, statements, schedules and exhibits,
certificates or other instruments or documents furnished to
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<PAGE> 25
Buyer by Seller pursuant to this Agreement;
(C) any nonfulfillment or breach of any covenant or agreement
on the part of Seller under this Agreement;
(D) any action, demand, proceeding, investigation or claim by
any third party (including governmental agencies) against or
affecting Buyer, the Business, or the Company which may give rise
to or evidence the existence of or relate to a breach of any of the
representations, warranties or covenants of Seller;
(E) any liabilities or obligations of or affecting Buyer, the
Business or the Company under any Environmental and Safety
Requirement that is related in any way to facts, events,
occurrences, circumstances, activities or other conditions that
occurred or existed on or prior to the Closing Date, (provided
however, that if the facts, events, occurrences, circumstances,
activities or conditions giving rise to liabilities or obligations
occur or arise both prior to and after the Closing Date, then an
appropriate apportionment of the liabilities and obligations shall
be made to reflect the facts, events, occurrences, circumstances,
activities or other conditions arising prior to and after the
Closing Date) including, but not limited to, (1) any such liability
or obligation relating to assets or property formerly owned, leased
or operated by the Company, or (2) any such liability or obligation
relating to the presence or release of Foreign Materials at, on, in
or under any property of the Company, or the migration of Foreign
Materials under or from any property of the Company;
(F) any claim for payment of fees and/or expenses of a broker
or finder in connection with the origin, negotiation or execution
of this Agreement or the consummation of the transactions
contemplated hereby based upon any alleged agreement, arrangement
or understanding between the claimant and Seller; or
(G) any liabilities or obligations of or affecting Buyer, the
Business or the Company resulting from or related to non-compliance
with any applicable law with respect to any Employee Benefit Plan
prior to the Closing Date.
Losses shall be reduced by and to the extent of the actual recovery of insurance
proceeds payable in connection with such Losses and shall be further reduced by
into the extent of any income tax benefit resulting from any or deductions
arising from such Losses.
With respect to claims for breaches of representations and warranties contained
in Section 3 hereof (except Sections 3(a) and 3(b)(xiv), (xx) and (xxi)) Seller
will not be liable for any Losses with respect to any breaches of such
representations and warranties unless written notices of a possible claim for
indemnification is given by Buyer to Seller on or before the Survival Date, it
being understood that so long as such written notice is given on or prior to the
Survival Date, such representations and warranties shall continue to survive
until such matter is resolved. Notwithstanding the foregoing, any breaches of
the representations and warranties contained in Sections 3(a) and 3(b)(xiv),
(xx) and (xxi) hereof, and any other breaches of the covenants and agreements
contained herein, including, without limitation, any breach of the covenants and
agreements contained in this Section 9 will not be subject to any time
limitations.
(i) Subject to Section 9(b)(iv), and in addition to all
rights and remedies available to Seller at law or in equity,
Buyer and Parent shall indemnify Seller and each of its
officers, directors, employees, agents, representatives,
successors and
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<PAGE> 26
permitted assigns and hold each of them harmless against and
pay on behalf of or reimburse such party as and when incurred
for any Losses (excluding lost profits, incidental or
consequential damages) which any such Person may suffer,
sustain or become subject to, as the result of, in connection
with, arising out of, relating or incidental to or by virtue
of:
(A) any misrepresentation or breach of warranty on the
part of Buyer under Section 4 of this Agreement;
(B) any misrepresentation in or omission from any of
the representations, warranties, statements, schedules and
exhibits, certificates or other instruments or documents
furnished to Seller by Buyer pursuant to this Agreement;
(C) any nonfulfillment or breach of any covenant or
agreement on the part of Buyer under this Agreement;
(D) any action, demand or claim by any third party
against or affecting Seller which, if it were to be
successful, would give rise to or evidence the existence of
or relate to a breach of any of the representations,
warranties or covenants of Buyer;
(E) any claim for payment of fees and/or expenses as a
broker or finder in connection with the origin, negotiation
or execution of this Agreement or the consummation of the
transactions contemplated hereby based upon any alleged
agreement, arrangement or understanding between the
claimant and Buyer; or
(F) any claim arising out of, relating to, resulting
from or caused by the conduct of the Business after the
Closing Date.
Losses shall be reduced by and to the extent of the actual recovery of
insurance proceeds payable in connection with such Losses and shall be further
reduced by and to the extent of any income tax reduction resulting from any
deductions arising from such Losses.
With respect to claims for breaches of representations and warranties
contained in Section 4 hereof, Buyer will not be liable for any Losses with
respect to such representations and warranties unless written notice of a
possible claim for indemnification is given by Seller to Buyer on or before the
Survival Date, it being understood that so long as such written notice is given
on or prior to the Survival Date, such representations and warranties shall
continue to survive until such matter is resolved. Notwithstanding the
foregoing, any breach of the covenants and agreements contained in this Section
9 will not be subject to any time limitations.
(ii) Notwithstanding anything herein to the contrary,
Seller shall not be liable for any Losses incurred by reason
of any misrepresentation or breach of Section 3 unless and
until Buyer has suffered Losses that exceed $65,000 in the
aggregate; provided, however, that if such losses exceed
$65,000, then the Seller shall be liable only for the amount
by which such losses exceed $39,000. The limitations on
indemnification set forth in this Section 9(b)(iii) shall not
be applicable to any willful breach of any representation or
warranty or to any covenant or agreement contained in this
Agreement.
(iii) Subject to the foregoing time limits for notifying
indemnification claims, any Party making a claim for
indemnification under this Section 9 (an "Indemnitee") shall
notify the indemnifying party (an "Indemnitor") of the claim
in writing promptly after receiving written notice of any
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<PAGE> 27
action, lawsuit, proceeding, investigation or other claim
against it (if by a third party) or discovering the liability,
obligation or facts giving rise to such claim for
indemnification, describing the claim, the amount thereof (if
known and quantifiable) and the basis thereof; provided, that
the failure to so notify an Indemnitor shall not relieve the
Indemnitor of its obligations hereunder, except to the extent
such failure shall have materially prejudiced the Indemnitor.
Any Indemnitor shall be entitled to participate in the defense
of such action, lawsuit, proceeding, investigation or other
claim giving rise to the Indemnitee's claim for
indemnification at its expense, and at its option (subject to
the limitations set forth below) shall be entitled to appoint
lead counsel of such defense with a nationally recognized
reputable counsel reasonably acceptable to the Indemnitee;
provided, that prior to the Indemnitor assuming control of
such defense it shall first (x) verify to the Indemnitee in
writing that such Indemnitor shall be fully responsible (with
no reservation of any rights or other qualifications
whatsoever) for all liabilities and obligations relating to
such claim for indemnification and that it will provide full
indemnification (whether or not otherwise required hereunder)
to the Indemnitee with respect to such action, lawsuit,
proceeding, investigation or other claim giving rise to such
claim for indemnification hereunder, and (y) furnish the
Indemnitee with evidence which, in the sole judgment of the
Indemnitee, is and will be sufficient to satisfy any such
liability; provided further, that:
(A) The Indemnitee shall be entitled to participate
in the defense of such claim and to employ counsel of its
choice for such purpose, the fees and expenses of such
separate counsel to be borne by the Indemnitee.
Notwithstanding the foregoing, the fees and expenses of such
separate counsel incurred prior to the date the Indemnitor
effectively assumes control of such defense shall be borne by
the Indemnitor;
(B) The Indemnitor shall not be entitled to assume
control of such defense and shall pay the fees and expenses of
counsel retained by the Indemnitee if (1) the claim for
indemnification relates to or arises in connection with any
criminal proceeding, action, indictment, allegation or
investigation; (2) the Indemnitee reasonably believes an
adverse determination with respect to the action, lawsuit,
investigation, proceeding or other claim giving rise to such
claim for indemnification would be detrimental to or injure
the Indemnitee's reputation or future business prospects (as,
for example, in the case of employee discrimination or product
liability), (3) the claim seeks an injunction or equitable
relief against the Indemnitee; or (4) upon petition by the
Indemnitee, the appropriate court rules that the Indemnitor
failed or is failing to vigorously prosecute or defend such
claim; and
(C) If the Indemnitor, with the consent of the
Indemnitee, shall control the defense of any such claim, the
Indemnitor shall obtain the prior written consent of the
Indemnitee (which shall not be unreasonably withheld) before
entering into any settlement of a claim or ceasing to defend
such claim, if pursuant to or as a result of such settlement
or cessation, injunction or other equitable relief will be
imposed against the Indemnitee or if such settlement does not
expressly and unconditionally release the Indemnitee from all
liabilities and obligations with respect to such claim,
without prejudice.
(c) Deed of Trust. Seller shall take all action necessary to prevent
the occurrence of an Event of Default, but only with respect to Seller, under
Paragraphs (5), (6), (9), (10) or (11) of the Deed of Trust dated December 31,
1996 by the Company in favor of S. Webb Golston.
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10. TAXES.
(a) At the request of Buyer Seller agrees to join, in an appropriate
and timely manner, with Buyer in making elections under Section 338(h)(10) of
the Code (and to the extent necessary to allow for an election under Section
338(h)(10) of the Code, an election under Section 338(g) of the Code) and any
corresponding election under foreign, state, or local law (the "Section
338(h)(10) Elections") with respect to Buyer's acquisition of the Shares.
(b) If Buyer requests that a Section 338(h)(10) election be made with
respect to Buyer's acquisition of the Shares, Seller agrees to cooperate with
Buyer to take all actions necessary or appropriate to effect and preserve timely
Section 338(h)(10) Elections with respect to Buyer's acquisition of the Shares,
including but not limited to, participating in the filing of IRS Form 8023 (or
any successor form) and any related or comparable forms for state, local, or
foreign law purposes (the "Section 338(h)(10) Forms"). If a Section 338(h)(10)
Election is made with respect to Buyer's acquisition of the Shares, Buyer shall
be responsible for preparing and, to the extent permitted by law, filing all
Section 338(h)(10) Forms with respect thereto. The Modified Aggregate Deemed
Sales Price (as defined in Treasury Regulation Section 1.338(h)(10)-1(f)) for
the acquisition shall be as determined by Buyer.
(c) If a Section 338(h)(10) Election is made Seller and Buyer agree to
report Buyer's acquisition of the Shares consistently with such election, the
allocation of the Modified Aggregate Deemed Sales Price, and the Section
338(h)(10) Forms, or cause to be reported Buyer's acquisition of the Shares
consistently with such election, the allocation of the Modified Aggregate Deemed
Sales Price, and the Section 338(h)(10) Forms, and take no position in any claim
for refund, examination, or any contest (administrative or judicial) that is
inconsistent with the Section 338(h)(10) Elections, the Section 338(h)(10)
Forms, or the allocation of the Modified Aggregate Deemed Sales Price.
(d) Seller shall be solely responsible for the payment of all Seller
and Company income taxes arising in connection with the transactions
contemplated by this Agreement including, without limitation, all income taxes
resulting from the Section 338(h)(10) Elections. Buyer shall be solely
responsible for the payment of all sales, use, transfer and stamp taxes arising
in connection with the transactions contemplated by this Agreement including,
without limitation, all sales, use, transfer and stamp taxes resulting from the
Section 338(h)(10) Elections.
(e) Buyer acknowledges and agrees that it shall have no interest in any
net operating loss carryover or capital loss carryover of the Company arising in
a period or periods prior to the Closing Date. Buyer further acknowledges and
agrees that any refunds of federal and state income taxes paid by the Company
for a period or periods prior to the Closing Date shall be solely and
exclusively the property of Seller. Buyer shall cooperate with the Seller in
obtaining any such refunds.
11. OFFSET. In addition to any rights or remedies which Buyer may have to
assert, pursue or enforce any claim against the Seller hereunder or with respect
to which the Buyer shall be entitled to indemnification under Section 9 hereof
or which Buyer may otherwise possess by virtue of this Agreement or at law or in
equity, Buyer shall have the absolute right, but not the obligation, to
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<PAGE> 29
offset any amount payable to the Seller by an amount equal to any and all of
such claims.
12. MISCELLANEOUS.
(a) Press Releases and Public Announcements. Prior to the Closing, no
Party shall issue any press release or make any public announcement relating to
the subject matter of this Agreement without the prior written approval of Buyer
and Seller; provided, however, that any Party may make any public disclosure it
believes in good faith is required by applicable law.
(b) No Third Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
(c) Entire Agreement. This Agreement (including the documents referred
to herein) constitutes the entire agreement between the Parties and supersedes
any prior understandings, agreements, or representations by or between the
Parties, written or oral, to the extent they related in any way to the subject
matter hereof.
(d) Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other Party; provided, however, that Buyer may (i) assign any or all of
its rights and interests hereunder to one or more of its Affiliates and (ii)
designate one or more of its Affiliates to perform its obligations hereunder (in
any or all of which cases Buyer nonetheless shall remain responsible for the
performance of all of its obligations hereunder).
(e) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(f) Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given (i) if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, (ii) if (and then upon telefax confirmation) it is
sent by telefax or (iii) if (and then one business day after) it is sent by
nationally recognized overnight delivery service, in each case addressed to the
intended recipient as set forth below:
If to Seller to: Copy to:
Gerald K. Beckmann David H. Oden
Integrated Security Systems, Inc. Haynes and Boone, LLP
8200 Springwood Drive 901 Main Street, Suite 3100
Irving, Texas Dallas, Texas 75202-3739
Telefax No. 972-869-3843 Telefax No. 214-651-5940
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If to Buyer to: Copy to:
Wallace W. Meyer Thomas W. Van Dyke
Acquisition Corp. Bryan Cave LLP
4520 Main Street 1200 Main Street
Kansas City, Missouri 64111 3500 One Kansas City Place
Telefax No.: 816-756-5552 Kansas City, Missouri 64105
Telefax No.: 816-374-3300
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, telex, ordinary mail, or electronic
mail), but no such notice, request, demand, claim, or other communication shall
be deemed to have been duly given unless and until it actually is received by
the intended recipient. Any Party may change the address to which notices,
requests, demands, claims, and other communications hereunder are to be
delivered by giving the other Party notice in the manner herein set forth.
(h) Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the state of Missouri without giving effect
to any choice or conflict of law provision or rule (whether of the State of
Missouri or any other jurisdiction) that would cause the application of the laws
of any jurisdiction other than the State of Missouri.
(i) Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by Buyer
and Seller. No waiver by any Party of any default, misrepresentation, or breach
of warranty or covenant hereunder, whether intentional or not, shall be deemed
to extend to any prior or subsequent default, misrepresentation, or breach of
warranty or covenant hereunder or affect in any way any rights arising by virtue
of any prior or subsequent such occurrence.
(j) Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remainder of such term or provision or the
remaining terms and provisions hereof or the validity or enforceability of the
offending term or provision in any other situation or in any other jurisdiction.
(k) Expenses. Each of Buyer and Seller will bear their own costs and
expenses (including legal fees and expenses) incurred in connection with this
Agreement and the transactions contemplated hereby.
(l) Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. The word "including" shall mean including
without limitation.
(m) Incorporation of Exhibits and Schedules. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
[signature page follows]
30
<PAGE> 31
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date first above written.
DAY'S MOLDING & MACHINERY, LLC
By:
Name:
Title:
GOLSTON ACQUISITION CORPORATION
By:
Name:
Title:
INTEGRATED SECURITY SYSTEMS, INC.
By:
Name:
Title:
31
<PAGE> 32
LIST OF SCHEDULES
TO
STOCK PURCHASE AGREEMENT
<TABLE>
<CAPTION>
Schedules Title
- --------- -----
<S> <C>
Schedule 2(b)(i) Intercompany Debt
Schedule 3(a)(iv) Brokers' Fees
Schedule 3(a)(v) Restrictions on Shares
Schedule 3(b)(i)(A) Company's Foreign Jurisdictions
Schedule 3(b)(i)(B) Company's Officers and Directors
Schedule 3(b)(iii)(A) Compliance
Schedule 3(b)(iii)(B) Consents, Approvals
Schedule 3(b)(v) Financial Statements
Schedule 3(b)(vii) Inventories
Schedule 3(b)(viii) Accounts Receivable
Schedule 3(b)(ix) Disclosed Liabilities and Obligations
Schedule 3(b)(xi) Standard Form Product Warranties
Schedule 3(b)(xii) Licenses and Permits
Schedule 3(b)(xiv) Tax Returns and Audits Since December 31, 1996
Schedule 3(b)(xv)(A) Real Property
Schedule 3(b)(xv)(B) Leased or Subleased Real Property
Schedule 3(b)(xvi) Intellectual Property
Schedule 3(b)(xvii)(A) Contractual Obligations
Schedule 3(b)(xvii)(B) Breached Contracts
Schedule 3(b)(xviii) Litigation
Schedule 3(b)(xix) Proprietary Rights Agreements
Schedule 3(b)(xx) Employee Benefit Plans
Schedule 3(b)(xxi)(A) Outstanding Environmental Consents
Schedule 3(b)(xxi)(B) Compliance with Environmental Laws
Schedule 3(b)(xxii) Insurance Policies
Schedule 3(b)(xxiii) 25 Largest Customers
Schedule 3(b)(xxiv) 10 Largest Vendors
Schedule 3(b)(xxv) Conflicts of Interest
</TABLE>
32
<PAGE> 33
LIST OF EXHIBITS
TO
STOCK PURCHASE AGREEMENT
Exhibit 2(a) Form of Assignments
Exhibit 2(b)(1) Form of Subordinated Note
Exhibit 2(b)(2) Golston Note
Exhibit 2(b)(3) Noncompetition Agreements and Guaranty
Exhibit 2(d) Consent, Termination and Release
33
