SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange of 1934
Date of Report October 8, 1997
DCX, Inc.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Colorado 0-14273 84-0868815
- -------- ------- ----------
(State of (Commission (IRS Employer
incorporation) File Number) Identification No.)
1597 Cole Boulevard, Suite 300B, Golden, CO 80401
- ------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (303) 274-2700
3002 North State Highway 83, Franktown, CO 80116-0569
(Former name or former address, if changed since last report)
<PAGE>
Item 2. Acquisiton or Disposition of Assets
On October 8, 1997, DCX, Inc. (the "Company") sold certain of its assets as
described below pursuant to an Asset Purchase Agreement executed on October 8,
1997 with DCX-Chol Enterprises, Inc. ("Chol"), a Colorado Corporation, an
affiliate of Chol Enterprises, Inc., a California Corporation located in Los
Angeles, California, which provided for the purchase of the assets as of
September 30, 1997. The assets purchased by Chol include the equipment,
inventories of raw materials, work in process and finished goods and contracts
related to the Company's business of manufacturing electrical, electronic and
electomechanical assemblies and systems, wire harness, cable assemblies and
interface test adaptors. Chol is assuming none of the liabilities of the
Comapany, whether related to the acquired assets or not, except taht it is
assuming the obligation to perform the assigned contracts with the Company's
customers and equipment lessors.
The purchase price of $1,100,000 was received at closing subject to certain
adjustments, a number of which are not yet determinable. Under the agreement,
the Company has leased its Franktown, Colorado facility to Chol and Chol will
have an option to purchase the facility and real property for a purchase price
of $1.5 million until October 31, 1998 and will have a right of first refusal to
match any third party offers thereafter until June 30, 2000.
b. Pro Forma Financial Information
The accompanying unaudited pro forma consolidated financial statements give
effect to the acquisition by DCX, Inc. (the "Company" or "DCX") of 100% of the
outstanding common stock of PlanGraphics, Inc. ("PlanGraphics") pursuant to the
agreement between the two parties to reflect the issuance of 2,631,145 shares of
the Company's common stock and are based on the estimates and assumptions set
forth herein under the purchase method of accounting. In addition, these pro
forma financial statements give effect to the sale of the Company's
manufacturing assets pursuant to the agreement between DCX and Chol executed on
October 8, 1997 and effective as of September 30, 1997. The unaudited pro forma
information has been prepared utilizing the historical financial statements and
notes thereto, which are incorporated by reference herein. The unaudited pro
forma financial data does not purport to be indicative of the results which
actually would have been obtained had the purchase been effected on the dates
indicated or of the results which may be obtained in the future. The unaudited
pro forma financial statements should be read in conjunction with the financial
statements which are incorporated herein by reference from the Form 8-K, dated
September 22, 1997.
The pro forma consolidated balance sheet assumes the acquistion and the disposal
of assets were both consumated at June 30, 1997. The accompanying unaudited pro
forma statement of income has been derived from the statement of income of the
Company for the nine month period ended June 30, 1997 and PlanGraphics for the
nine month period ended June 30, 1997, and such information has been adjusted to
give effect to the acquisition and the sale of the manufacturing assets as if
these transactions had occurred as of the beginning of the period presented.
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<TABLE>
<CAPTION>
DCX, Inc. and Subsidiary
Unaudited Pro Forma Consolidated Balance Sheet
June 30, 1997
DCX, Inc. PlanGraphics ProForma
Actual Actual Adjustments
ASSETS
<S> <C> <C> <C>
Cash and cash equivalents $ 183,447 $ 10,016
Accounts receivable 630,826 2,018,353
Accounts receivable--unearned (WIP) 1,073,019 1,073,019
Inventories 1,213,121 0
Prepaid and Other 272,828 125,945
--------------------------------------------
Total Current Assets $ 3,373,241 $ 2,154,314 $0
Property and equipment 1,206,419 2,802,617
Other assets 46,310 197,715
Goodwill 0 145,561 4,496,842 b,c
--------------------------------------------
TOTAL ASSETS $ 4,625,970 $ 5,300,207 $4,496,842
LIABILITIES AND
STOCKHOLDERS' EQUITY
Notes payable 907,708 1,109,645
Accounts payable 888,445 713,500
Accrued expenses and other liabilities 161,961 869,067 400,000 b
Accrued litigation settlement 521,000 0
Deferred revenues 0 156,044
--------------------------------------------
Total current liabilities $ 2,479,114 $ 2,848,256 $400,000
Notes payable 0 514,400
Obligations under capital leases 0 2,068,176
--------------------------------------------
Total Liabilities $ 2,479,114 $ 5,430,832 $400,000
Stockholders' Equity:
Preferred stock 0 0 0
Common Stock (NPV) 5,545,806 434,454 3,564,966 a, d
Additional paid in capital 329,384 0 0
Subscriptions receivable (179,000) 0 0
Accumulated deficit (3,549,334) (565,079) 531,956 d, e
--------------------------------------------
Total stockholders' equity $ 2,146,856 ($ 130,625) $4,096,842
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 4,625,970 $ 5,300,207 $4,496,842
3
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DCX, Inc. and Subsidiary
Unaudited Pro Forma Consolidated Balance Sheet
June 30, 1997
Consolidated Asset Sale Post-Sale
Pro-Forma Adjustments Pro-Forma
ASSETS
Cash and cash equivalents $784,077 f,k,l $ 977,540
Accounts receivable $ 2,649,179
Accounts receivable--unearned (WIP) $ 0
Inventories (1,213,121) g $ 0
Prepaid and Other $ 398,773
------------ ------------ ------------
Total Current Assets $ 5,527,555 ($ 1,502,063) $ 4,025,492
Property and equipment (164,209) h $ 3,844,827
Other assets $ 244,025
Goodwill 4,496,842 b,c 4,642,403 $ 4,642,403
------------ ------------ ------------
TOTAL ASSETS $ 14,423,019 ($ 1,666,272) $ 12,756,747
LIABILITIES AND
STOCKHOLDERS' EQUITY
Notes payable $ 2,017,353
Accounts payable (464,423) k $ 1,137,522
Accrued expenses and other liabilities 1,431,028 105,000 i $ 1,536,028
Accrued litigation settlement $ 521,000
Deferred revenues $ 156,044
------------ ------------ ------------
Total current liabilities $ 5,727,370 ($ 359,423) $ 5,367,947
Notes payable $ 514,400
Obligations under capital leases $ 2,068,176
------------ ------------ ------------
Total Liabilities $ 8,309,946 ($ 359,423) $ 7,950,523
Stockholders' Equity:
Preferred stock 0 0 $ 0
Common Stock (NPV) 9,545,146 0 $ 9,545,146
Additional paid in capital 329,384 0 $ 329,384
Subscriptions receivable (179,000) 0 ($ 179,000)
Accumulated deficit (3,582,457) (1,306,849) ($ 4,889,306)
------------ ------------ ------------
Total stockholders' equity $ 6,113,073 ($ 1,306,849) $ 4,806,224
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 14,423,019 ($ 1,666,272) $ 12,756,747
4
</TABLE>
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<TABLE>
<CAPTION>
DCX, Inc. and Subsidiary
Unaudited Pro Forma Consolidated Statement of Income
June 30, 1997
DCX, Inc. PlanGraphics
Nine Months Nine Months Pro Forma
June 30, 1997 June 30, 1997 Adjustments
<S> <C> <C> <C>
Revenue $ 3,964,929 $ 6,764,206 $ 0
Cost of revenue 3,530,824 2,175,170 0
Gross profit $ 434,105 $ 4,589,036 $ 0
General and administrative 702,705 4,280,089 224,842 e
--------------------------------------------
Income (loss) from operations ($ 268,600) $ 308,947 ($ 224,842)
Other income (expense):
Interest expense ($ 101,622) ($ 314,029) $ 0
Facility lease income 0 0 0
Miscellaneous 415,562 0 0
--------------------------------------------
Total other income $ 313,940 ($ 314,029) $ 0
--------------------------------------------
Income from continuing operations $ 45,340 ($ 5,082) ($ 224,842)
Income from discontinued operations 0 0 0
Loss on sale of manufacturing assets 0 0 0
--------------------------------------------
Net income before income taxes
and extraordinary item $ 45,340 ($ 5,082) ($ 224,842)
Income taxes 0 10,130 0
--------------------------------------------
Net income before extraordinary
item $ 45,340 ($ 15,212) ($ 224,842)
Extraordinary item: gain on
extinguishment of debt (net of tax) 267,050 0 0
--------------------------------------------
NET INCOME ( LOSS) $ 312,390 ($ 15,212) ($ 224,842)
Income (Loss) per share of common stock
from continuing operations
Net Income (Loss) per share of common
stock
Weighted average number of shares of 4,613,600 7,244,745 7,244,745
common stock outstanding
5
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DCX, Inc. and Subsidiary
Unaudited Pro Forma Consolidated Statement of Income
June 30, 1997
Asset Sale
Consolidated Pro Forma Post-Sale
Pro Forma Adjustments Pro Forma
Revenue 10,729,135 ($3,964,929) o 6,764,206
Cost of revenue 5,705,994 (3,530,824) o 2,175,170
------------ ------------ ------------
Gross profit $ 5,023,141 ($ 434,105) $ 4,589,036
General and administrative 5,207,636 (246,176) p 4,961,460
------------ ------------ ------------
Income (loss) from operations ($ 184,495) ($ 187,929) ($ 372,424)
Other income (expense):
Interest expense (415,651) 0 (415,651)
Facility lease income 0 148,500 l 148,500
Miscellaneous 415,562 0 415,562
------------ ------------ ------------
Total other income ($ 89) $ 148,500 $ 148,411
------------ ------------ ------------
Income from continuing operations ($ 184,584) ($ 39,429) ($ 224,013)
Income from discontinued operations 0 187,929 187,929
Loss on sale of manufacturing assets 0 (1,455,349) q (1,455,349)
------------ ------------ ------------
Net income before income taxes
and extraordinary item (184,584) ($ 1,306,849) ($ 1,491,433)
Income taxes 10,130 0 10,130
------------ ------------ ------------
Net income before extraordinary
item ($ 194,714) ($ 1,306,849) ($ 1,501,563)
Extraordinary item: gain on
extinguishment of debt (net of tax) 267,050 0 267,050
------------ ------------ ------------
NET INCOME ( LOSS) 72,336 ($ 1,306,849) ($ 1,234,513)
Income (Loss) per share of common stock .01 (.03) (.31)
from continuing operations
Net Income (Loss) per share of common stock .07 .01 (.17)
Weighted average number of shares of
common stock outstanding
6
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DCX, Inc. and Subsidiary
Notes to Pro Forma Consolidated Financial Statements:
a. To record the issuance of 2,631,145 shares of DCX, Inc. common stock (NPV)
at the agreed upon rate of $1.52 per share.
b. To record the laibility for PlanGraphics transaction costs.
c. To record the purchase of PlanGraphics and the related goodwill.
d. To eliminate the capital accounts of PlanGraphics upon consolidation with
DCX, Inc.
e. To record the amortization of goodwill over a 15 year period.
f. To record sale price of assets of $1.1 million
g. To record the sale of all inventory and raw materials
h. To record the value of fixed assets which were sold to Chol
I. To record transaction costs of approximately $105,000.
j. To record pro forma rental income of $16,500 per month for facility lease.
k. To record the agreed paydown of vendor payables by DCX, In.c in the amount
of $464,423.
l. Not used.
m. To record the loss on the disposition of manufacturing assets sold to Chol:
n. Not used.
o. To eliminate revenue and cost of sales for discontinued operations
p. To adjust General and Adminsitrative expenses for the portion related to
discontinued operations.
(c) Exhibits
2. Plan of acquisition, reorganization, arrangement, liquidation or succession:
2.1b Asset Purchase Agreement (without schedules) executed October 8, 1997 and
effective as of September 30, 1997 between DCX, Inc. (seller) and DCX-Chol
Enterprises, Inc. (buyer).
7
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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.
DCX, Inc.
(Registrant)
October 23, 1997 /S/ Fred Beisser
---------------------------------
(Signature)
Frederick G. Beisser
Secretary, Treasurer &
Vice President - Finance
& Administration
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Asset Purchase Agreement
THIS ASSET PURCHASE AGREEMENT ("Agreement") is made and effective as of
September 30, 1997, at 11:59 PM Denver local time (hereinafter, as of said date
and time, the "Effective Date"), between DCX-CHOL ENTERPRISES, INC., a Colorado
corporation ("Buyer") and DCX, Inc., a Colorado corporation ("Seller"), with
reference to the following facts:
A. Seller has been operating an electric cable assembly manufacturing
business in Franktown, Colorado (the "Business").
B. Buyer desires to purchase from Seller and Seller desires to sell to
Buyer, on the terms and subject to the conditions of this Agreement, certain of
the assets of Seller, as hereinafter delineated.
C. In connection with such purchase, Buyer desires to assume certain
obligations of Seller relating to the Business (and none others), as more
specifically set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations, and warranties contained in this Agreement, and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Buyer and Seller agree as follows:
Purchase and Sale of Assets. Subject to the terms and conditions set forth
in this Agreement, Seller shall sell, convey, transfer, assign and deliver to
Buyer free and clear of all liens, encumbrances and creditor claims, except
those expressly assumed by Buyer hereunder, and Buyer shall purchase and acquire
from Seller, at the Closing (as hereinafter defined) the following assets
(collectively the "Assets"):
Equipment. All of Seller's right, title and interest in equipment,
machinery, tools, dies, appliances, furnishings, office furnishings, fixtures,
storage racks, repair parts, set up devices, computers, data processing hardware
and associated telecommunications equipment, media and tools, templates,
patterns, telephones, telecopiers and all other tangible personal property
(together, "Equipment") which are located on Seller's premises at 3002 N. State
Highway, Franktown, Colorado 80116 (the "Site") on the date of Closing and which
are identified in Schedule 1.A., attached hereto.
Inventories.
------------
That certain inventory of saleable finished products, replacement and
component parts, raw materials, including work in process, (together, the
"Inventory" or "Inventories"), that are on hand at the Site as of the Effective
Date and that are attributable to contracts that are "in house" (accepted
purchase orders pursuant to "Contracts" as defined in Section 1.C) (the
"Purchased Inventory"), a list of which is attached hereto as Schedule 1.B.(i),
but limited to such Inventory that is in excess of that which has been billed by
Seller to its customers prior to the Effective Date.
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That certain Inventory for which Seller has paid but has not been delivered
to the Site as of the Effective Date ("Prepaid Purchased Inventory"), that
certain Inventory located on Site which is in excess of that required to fulfill
contracts "in house" as of the Effective Date ("Excess Inventory") and that
certain Inventory located on Site which is obsolete ("Obsolete Inventory"), a
summary of which is attached hereto as Schedule 1.B.(ii).
Contracts; Leases; Intellectual Property; Corporate Name and Goodwill
---------------------------------------------------------------------
Contracts. All rights of Seller as of the Effective Date and the Closing
Date under all contracts, agreements, commitments or arrangements with any
person or entity relating to, or arising out of, the Business (the "Contracts"),
a list of which is attached hereto as Schedule 1.C.(i). The term "Contracts"
shall also include any agreements to modify customer Contracts as a result of
engineering change notices ("ECNs") sent by a customer prior to the Effective
Date.
Leases. Seller's entire leasehold or rental interest arising under leases
(together, the "Leases," a list of which is attached hereto as Schedule
1.C.(ii)) of:
() Equipment, as described in Section 1.A hereof; and
() Other personal property, in each case as used in the Business.
Intellectual Property. All patents, trademarks, trade names, service marks,
copyrights or applications therefor and all other intellectual property rights,
trade secrets, know-how and other proprietary information, processes and
formulae owned by or registered in the name of Seller relating to the conduct of
the Business or the operation of the Assets (the "Intellectual Property").
Corporate Name and Goodwill.
----------------------------
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() All of Seller's right, title and interest in Seller's corporate name
(the "Corporate Name"), including specifically, and without
limitation, the name "DCX, Inc." and all variations thereof, including
any registrations or applications for registration and all goodwill
associated therewith.
() All goodwill associated with the Business and the operation of the
Assets at the Site (the "Goodwill").
Supplies. All of Seller's supplies ("Supplies"), substantially all of which
are listed on Schedule 1.D, attached hereto.
Telephone Numbers. The telephone number of (303) 688-6070, and the telefax
number of (303) 688-6106 and any prepayments or deposits therefor.
Licenses. All licenses and permits required for the operation of the
Business, to the extent transferable or assignable by Seller (collectively
"Permits").
Books and Records. Originals or accurate copies of all documents, records
and papers relating to the Assets or the Business that are reasonable and/or
necessary for the continued operation of the Business of Seller at the Site as
it is presently conducted, including but not limited to all personnel and labor
relations records (except such records as are prohibited by law to be
transferred), environmental control records, sales and business records,
accounting and financial records and statements, price lists, methods of pricing
items and assemblies, vendor records (including lists of all companies providing
outside services, with a description of the types of services provided, the
prices charged, and an history of each vendor's association with the Business),
supplier lists (including outstanding purchase orders, breakdowns of the items
supplied, cost of each items, trade terms extended, and alternative suppliers),
product specifications, operating and production records, records relating to
manufacturing procedures, manufacturing specifications, records evidencing
standard operating procedures, computer systems and programs (including all
software), plans, drawings, schemes, designs, contacts, business plans, and
present and past account/customer lists (collectively "Books and Records").
Prepayments. All interest in deposits, security deposits, down payments,
loan prepayments, prepaid insurance premiums, prepaid taxes, and prepayments of
any expenses related to the Assets and/or the Business, as well as all benefits
therefrom.
11
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Obligations Assumed by Buyer. On the terms and subject to the conditions
and exceptions contained herein, at Closing, Seller shall assign and delegate to
Buyer, and Buyer shall assume and undertake to pay and perform in full when due,
pursuant to a General Assignment, Bill of Sale and Assumption Agreement (the
"Assignment and Assumption Agreement"), (a) Seller's payment and performance
obligations that come due, after Closing, under the Contracts and the Leases
(whether or not the Leases' assignment and assumption occurred with the lessor's
consent) identified in Schedules 1.C.(i) and 1.C.(ii), on condition, in the
event consents are not obtained, that Buyer continue to receive the benefits of
those Contracts or Leases; (b) the warranties, returns, and/or repairs of
products manufactured and/or shipped following the date hereof other than the
warranties for which Seller is responsible pursuant to Section 6.D; (c) all
expenses directly attributable to the Business and the operation of the Assets
from the Effective Date to the Closing Date (expenses similar to the expenses
listed on the Profit and Loss Statements in Schedule 8.X), except all payroll
expenses through October 4, 1997 for which Seller shall be responsible and which
Seller has paid; and none others. Together, the items under (a), (b) and (c)
shall be known as the "Assumed Obligations."
Purchase Price. The Purchase Price shall be $1,100,000, payable in readily
available funds. The Purchase Price shall be allocated among the Assets as
provided in Schedule 3 , attached hereto.
Payment Terms. As full payment for the Assets, Buyer shall pay Seller
according to the terms of this Section 4.
At the Closing, Buyer shall pay Seller the sum of $600,000.
At the Closing, Buyer shall also pay $500,000 to the client trust account
of the law firm of Davis, Graham & Stubbs LLP ("DGS"), which funds shall be
distributed according to Section 6.H.
Attached as Schedule 4.C is a list of specific ECNs ("Listed ECNs") to be
used in determining the amount of ECN Revenue Deficiency (defined in Section
4.D), if any, that Seller may owe Buyer, as more particularly described in
Section 4.D and Section 4.E. Schedule 4.C shall also include a table showing the
amount of increase that each Listed ECN will cause a customer to owe under the
Contract with which it is associated, and the net total of those increases ("ECN
Total"). In addition to Seller's warranties, representations and indemnities
otherwise provided in this Agreement, Seller warrants that said Schedule 4.C is
complete and accurate in all material respects, and hereby indemnifies Buyer
from all Claims resulting from a breach hereof.
12
<PAGE>
On or before April 1, 1998, Buyer shall determine the amount of increased
revenue, directly attributable to the Listed ECNs, that it has actually received
("ECN Revenue"). The "ECN Revenue Proportion" shall be equal to the quotient of
the ECN Revenue divided by the ECN Total. If the ECN Revenue Proportion is at
least 0.75 then the "ECN Revenue Deficiency" shall be valued at zero. If the ECN
Revenue Proportion is 0.65 or less, then the "ECN Revenue Deficiency" shall be
valued at $100,000. If and only if the ECN Revenue Proportion is between 0.65
and 0.75, then Buyer shall calculate the dollar value of the ECN Revenue
Deficiency according to the following formula:
subtract 0.65 from the ECN Revenue Proportion;
multiply the total in Section 4.D.(i) by the number 1,000,000 (one
million).
Buyer shall promptly deliver to Seller copies of all changed purchase
orders relating to the Listed ECNs received from the customer. Buyer shall give
Seller written notice of the ECN Revenue Deficiency, if any, no later than April
5, 1998. Buyer shall forthwith set off the ECN Revenue Deficiency as described
in Section 6.B.(vi) and Section 6.I, plus any equitable adjustments paid by
Buyer to a customer on account of any ECN, without any additional notice,
notwithstanding Section 19.C.
Closing. The Closing of the purchase and sale of the Assets shall take
place at the offices of DAVIS, GRAHAM & STUBBS LLP, 370 Seventeenth Street,
Suite 4700, Denver, Colorado at 4:00 P.M. local time, on October 8, 1997, or at
such other place and time as Buyer and Seller may agree in writing (the
"Closing" or "Closing Date").
Deliveries by Seller; Certain Conditions to Closing. At or before the
Closing, and as a condition to Buyer's obligation to close, Seller shall deliver
or cause to be delivered to Buyer at the Site the following:
Assignments ("Assignments") of all Leases listed in Schedule 1.C.(ii), and
subject to no encumbrances except those expressly assumed by Buyer hereunder;
Assignments of all Contracts listed in Schedule 1.C.(i);
Instruments of assignment and transfer of the Equipment, the Inventories,
and the Supplies, including a Bill of Sale, in form and substance satisfactory
to the parties;
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Originals or accurate copies of all Books and Records;
All documents, in form and substance satisfactory to Buyer, reasonable or
necessary to transfer the Intellectual Property, the Permits, the Corporate
Name, and the Goodwill to Buyer to the extent transferable or assignable by
Seller;
Possession, at the Site, of all of the Assets;
The consents listed on Schedule 5.A.(vii) attached hereto, which include
all consents necessary to assign the "Major Customer Contracts" (defined as all
Contracts of each customer that accounts for more than 20% of gross revenue
expected on the Contracts);
Seller's officers' certificate, dated as of the Closing, certifying that
all representations and warranties of the Seller are complete and accurate as of
the date hereof;
Resolutions of the Board of Directors of Seller approving the transactions
contemplated by this Agreement; and
All other agreements and writings to be executed and/or delivered at or
prior to the Closing in accordance with this Agreement, including but not
limited to those agreements delineated in Section 6.
Deliveries by Buyer; Conditions to Closing. At or before the Closing, and
as condition to Seller's obligation to close, Buyer shall deliver or cause to be
delivered to Seller the following:
The Purchase Price, in accordance with Section 4;
All documents and agreements, including the Assignment and Assumption
Agreement for the assumption by Buyer of the Assumed Obligations and any
liabilities represented by any other covenant, agreement, or indemnity of Buyer
in this Agreement or contemplated hereby;
Buyers officers' certificate, dated as of the Closing, certifying that all
representations and warranties of Buyer are complete and accurate as of the
Closing;
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Resolutions of the Board of Directors of Buyer approving the transactions
contemplated by this Agreement;
All other agreements or documents to be executed and delivered at or prior
to the Closing in accordance with this Agreement, including but not limited to
those agreements delineated in Section 6.
Other Agreements.
-----------------
Sales Representative Agreements. Before the Closing, Seller shall notify
each of its sales representatives (listed in Schedule 6.A.) in writing that
Seller shall be responsible for paying any commission compensation earned prior
to the Closing Date and that the Buyer shall be responsible for paying any
commission compensation earned after the Closing Date. Seller shall obtain and
deliver to Buyer the written acknowledgment of each sales representative that
they have received such notice and agree to such terms in a form acceptable to
Buyer, in its sole and absolute discretion. Buyer hereby agrees and undertakes
to pay commission compensation earned by the sales representatives after the
Closing Date.
Lease of Site. At the Closing, Buyer and Seller shall enter into a triple
net lease of the portion of the Site currently used for the conduct of the
Business (not to include the portions of the Site currently leased to ABC Kids,
Inc. ("ABC Kids") and used as a child care facility) (the "Site Lease"),
effective as of the Closing Date, providing for terms and conditions mutually
acceptable to Buyer and Seller, in a recordable form, including but not limited
to the following provisions:
A six (6) month initial term;
One six (6) month option, exercisable up to thirty (30) days prior to the
expiration of the initial term, and one twenty-four (24) month option,
exercisable up to ninety (90) days prior to the expiration of the first extended
term;
Monthly rental shall be as follows:
() $16,500 for the initial term;
() $16,500 for the first extended term;
() the lower of $17,500 or "market" for the second extended term but in
no event less than $16,500. "Market" shall be determined by mutual
agreement or independent appraisal as more particularly provided in
the Site Lease.
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The option to purchase the buildings and real property constituting the
Site for a purchase price of $1,500,000. Such option shall be exercisable by
Buyer during the initial term of the Site Lease, and any extensions thereof
("Option Right"), and may be exercised until ("Option Period") the later of:
() October 31, 1998, or
() the sixtieth (60th) day following the date that the portion of the
Site currently occupied by ABC Kids becomes vacant;
provided, however, that the Option Period shall not extend beyond the Option
Right. Following the expiration of such purchase option, the Buyer shall have a
right of first refusal to match the terms of any bona fide third party offer to
purchase the buildings and real property constituting the Site. Such right of
first refusal shall be exercisable during an extension of the Site Lease but in
no event later than June 30, 2000.
The subsequent inclusion in the premises leased to Buyer of the portion of
the Site currently occupied by ABC Kids (to occur upon termination or expiration
of the ABC Kids Lease and the vacating of such space by ABC Kids), but only if
the Buyer is occupying the Site under a valid extension of the Site Lease at the
time of such vacancy of the premises by ABC Kids.
The right to set off any unpaid obligation of Seller under, Section 4.E,
Section 6.D, Section 6.G, or Section 6.J of this Agreement against any payment
to be made by Buyer under the Site Lease, the option to purchase the Site or the
right of first refusal.
Lease to ABC Kids. All rent payments received by Seller following the
Closing Date from ABC Kids under the ABC Kids lease (the "ABC Kids Lease") shall
be assigned to Buyer. Buyer shall not assume any liability of Seller arising out
of or in connection with the termination of the leasehold interest of ABC Kids
upon expiration of the ABC Kids Lease in August, 1998 and the vacating of the
leased premises by ABC Kids. Seller shall indemnify Buyer against, and hold
Buyer harmless from, any claims or liabilities which may arise from the
termination of such lease to the extent such claims or liabilities did not
result from the negligent, reckless or intentional acts of the Buyer. So long as
Buyer is a tenant of Seller, Seller shall not extend or renew the ABC Kids
Lease. Seller shall use its reasonable best efforts to remove ABC Kids from the
premises following the termination or expiration of the ABC Kids Lease.
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Product Returns and Warranties. After the Closing, Buyer may honor (in
accordance with the terms of Seller's warranties, express and/or implied,)
returns, repairs and/or warranties of products manufactured in whole or in part
by Seller and/or shipped by Seller (the "Warranty Claims"). Seller shall
reimburse Buyer within seven (7) business days following billing to Seller of
all expenses and costs of Buyer arising in connection with such Warranty Claims
made during the twelve (12) months following the date that the warranted product
is delivered to the customer, or if that date is not reasonably ascertainable,
twelve (12) months following the earlier of the Code Date or the Liquidation
Date (as defined hereinafter) for the Contract under which the product was
shipped (the "Warranty Expenses"). Seller shall reimburse Buyer for all Warranty
Expenses incurred in honoring Warranty Claims clearly attributable to
manufacturing work or process occurring before Closing. Seller shall not
reimburse Buyer and shall in no way be liable for Warranty Expenses incurred by
Buyer in honoring Warranty Claims clearly attributable to manufacturing work or
process occurring after the Closing. If any Warranty Claim is not clearly
attributable to the manufacturing work or process of either party, then Seller
shall reimburse Buyer for its pro rata share of the Warranty Expenses incurred
in honoring such Warranty Claim. The proration shall be based on the percentage
of the product's price billed before the Closing, which shall be allocated to
Seller, as compared to the percentage billed after the Closing, which shall be
allocated to Buyer. Seller acknowledges that certain products shipped by it
prior to the Closing Date were shipped without date codes and/or serial numbers.
Seller acknowledges that Buyer may be unable to determine the exact age or date
of shipment of certain products returned by customers for repair and therefore
Buyer may be unable to determine if the applicable warranty on the returned item
has expired. Subject to the approval of its customers, Buyer shall mark products
shipped by it following the Closing Date with readily determinable date codes
and/or serial number, in ink, to determine the date of shipment of all products
shipped by Buyer, the return or repair of which would expose Seller to potential
liability hereunder. The "Liquidation Date" is the last date that the last
product with a particular part number is shipped pursuant to a Contract. The
"Code Date" for any product is the shipping date of the product as determined by
the product's code. If the Buyer has not placed a code on the product, and the
customer has approved the coding of products under the applicable Contract, the
"Code Date" for that item shall be thirty (30) days after the customer approved
the ink coding of products for that Contract.
Sales and/or Use Tax. Buyer shall pay all applicable sales and/or use taxes
resulting from or in connection with the Closing of this transaction.
Observation of the Business by Buyer. From the date hereof and until the
prior of the Closing or the termination of this Agreement by either party under
Section 20, Seller shall permit Buyer to observe in all respects and have access
to all information relating to the Business at the Site and the Assets. Seller
shall also permit Buyer to contact Seller's existing customers of the Business
for the purpose of determining the status of Seller's relationships with such
customers.
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Employee Hiring. Buyer shall be under no obligation to employ any employees
of the Seller for any specified period after Closing. In addition to all other
rights of indemnity and defense contained in this Agreement, Seller shall
indemnify, defend and hold harmless Buyer for any Claims (as defined in Section
11), of any former employee, related to his or her termination by Seller or
Buyer's decision not to employ him or her by or at the Closing. Seller shall
reimburse Buyer within seven (7) business days following billing to Seller of
all expenses and costs of Buyer arising in connection with such Claims.
Payment of Trade Payables. As part of the Purchase Price, Buyer shall
deliver to DGS at Closing $500,000 in readily available funds (the "Funds"), for
the payment of all trade payable accounts of the Business and payments owed to
sales representatives (all of which are fully and completely listed on Schedule
6.H), except for those accounts that the parties may agree not to pay at that
time. The trade creditors listed on Schedule 6.H. who shall be paid out of the
Funds are referred to as the "Payees." Seller shall mail or fax to each Payee
promptly following the Closing Date a request for verification of the amount
owed to that Payee. Seller and Buyer shall prepare joint instructions to DGS
indicating the name and address of each Payee and the amount to be paid to such
Payee. DGS shall not be obligated to write any checks or disburse any portion of
the Funds until it has received confirmation from its bank that the Funds have
been cleared and are available. DGS shall only act upon receipt of joint
instructions signed by both the Buyer and the Seller. Upon receipt of such joint
instructions, DGS shall mail checks to Payees out of the Funds in the Agency
Account in accordance with the instructions received. If DGS has not received
joint instructions for the disbursement for the full amount of the Funds by
October 30, 1997, then DGS shall disburse the portion of the Funds remaining in
the Agency Account according to any joint instructions it receives on that date.
If no such joint instructions on the disbursement of the remaining Funds is
received by midnight on October 30, 1997, then DGS shall write a check payable
jointly to Seller and Buyer for the full amount of such remaining Funds. The
responsibilities of DGS hereunder are intended to be ministerial in nature and
DGS shall have no liability to the Seller, the Buyer or any other person
hereunder except for its knowing and willful refusal to abide by the terms of
this Section. Buyer acknowledges that DGS is counsel to Seller and agrees that
neither the activities performed by it pursuant to this Section nor any dispute
between or among Seller, Buyer and DGS will prevent DGS from continuing such
representation.
Setoff. Notwithstanding Section 19.C, within seven (7) business days of
Buyer's receipt of notice of a Claim or obligation regarding Claims made or
obligations incurred under Section 6.D, Section 6.G, or Section 6.J of this
Agreement, and prior to Buyer's settlement thereof, Buyer shall notify Seller of
such Claim. Subject to the notice provisions contained in the first sentence of
this Section 6.I which relates only to Sections 6.D, 6.G and 6.J, Buyer may
forthwith set off any unpaid obligation of Seller (whether arising before or
after the Closing) under Section 4.E, Section 6.D, Section 6.G or Section 6.J of
this Agreement against any payment to be made by Buyer under the Site Lease, the
option to purchase the Site or the right of first refusal.
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Insurance. Seller shall obtain a products liability insurance policy the
coverage limits of which shall be the maximum levels which are offered for
annual premiums of $10,000 per year, if such insurance is available on terms
reasonably acceptable to both parties. In no event shall the Seller be obligated
to expend more than $10,000 per year in premiums to maintain such a policy.
Until such time as Seller has obtained such a products liability insurance
policy, and in no event thereafter, Seller shall, at its expense maintain in
force general liability insurance that is at least equivalent in coverage and
insurance company quality to that maintained by Seller before the Closing, but
notwithstanding previous coverage, has an aggregate liability limit of at least
$3,000,000 and has a single occurrence limit of at least $1,000,000. Seller
shall name Buyer as an additional insured under any such products liability or
general liability insurance policy. Either such policy shall require at least
thirty (30) days written notice of termination to Buyer and shall allow Buyer to
pay any premiums therefor for or on the account of Seller.
If Seller, at any time before December 31, 2003, allows the termination or
expiration of any insurance policy or policies required under this Section 6.J,
fails to maintain any of those policies, or fails to make a required premium
payment, then Buyer may, in its sole and absolute discretion, immediately pay
any or all premiums therefor, or obtain and maintain an equivalent policy.
Seller shall reimburse Buyer for any expenses incurred under Section
6.J.(i), and those expenses shall be subject to the setoff right described in
Section 6.I.
Seller shall send certificates of insurance covered by this Section 6.J,
and evidence of payment of all premiums therefor, on January 1 of each year or
promptly thereafter.
Payments Received by Buyer. Following the Closing, Buyer shall forward to
Seller any payments, received by Buyer, to which Seller is entitled under this
Agreement, including payments for billings to customers before the Effective
Date. Of such payments, Buyer shall promptly indorse any checks or drafts to
Seller and forward them to Seller, and Buyer shall promptly deliver any cash or
cash equivalents (or an equivalent sum in cash or certified funds) to Seller.
Valid Contracts and Leases. In addition to Seller's Representations and
Warranties contained in Section 8 of this Agreement and/or elsewhere herein,
Seller represents and warrants that the Contracts and Leases (as delineated in
Schedules 1.C.(i) and 1.C.(ii)) are valid and binding upon the parties thereto
and enforceable according to their terms and there is no default or event that
with notice or lapse of time, or both, would constitute a default by any party
to any of them that would have a material adverse effect upon the Assets or the
Business. Seller has not received notice that any party to any of the Contracts
intends to cancel, terminate, or not continue any of them or to exercise or not
exercise any options under any of them.
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Representations and Warranties of Seller. Seller represents and warrants to
Buyer that, as of the date hereof, the following facts and circumstances are
correct and complete in all material respects:
Corporate Standing. Seller is a corporation duly organized, validly
existing, and in good standing under the laws of Colorado, has all necessary
corporate power and authority to own its properties and to operate its business
as now owned and operated by it, is duly qualified and/or licensed to transact
intrastate and interstate business, and is in good standing in all jurisdictions
in which the nature of its business or of its properties makes such
qualification necessary.
Schedules of Seller. All Schedules to this Agreement, when attached to this
agreement, will be complete and accurate.
No Change in Seller's Ordinary Business Activities. Except as shall be set
forth in Schedule 8.C, since June 30, 1997, except in the ordinary course of
business and consistent with past practice and except as does not relate to the
Assets, there has not been any material:
Labor trouble or other event or condition of any character adversely
affecting the financial condition of the Business at the Site;
Adverse change in the financial condition liabilities, assets, working
capital, reserves or business operations of Seller, or in the relationships with
customers of Seller;
Sale or transfer of, destruction or damage to, or loss of, any of the
Assets (whether or not covered by insurance);
Execution, creation, amendment or termination of any contract, agreement or
license to which Seller is a party;
Re-valuation of any of the Assets;
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Waiver or release of any right or claim of Seller or the cancellation of
any debts owed to Seller;
Creation of any lien, mortgage, pledge or other encumbrance of any Asset;
Permitting of any rights to Intellectual Property or Corporate Name to
lapse or disclosure of any of Seller's trade secrets;
Other event or condition of any character that has or might reasonably have
an adverse effect on the condition of the Assets or Business of Seller; or
Agreement by Seller or by any of its agents or employees to do or permit
any of the things described in this Section 8.C, except nder this Agreement.
Taxes. Within the times and in the manner prescribed by law, Seller has
filed all federal, state, municipal, county and local tax returns and reports
required by law and has paid all taxes, assessments, penalties and other charges
due and payable. There are no present suits, actions, claims, proceedings,
disputes, examinations or audits, as to taxes of any nature payable by Seller
and all deficiencies which have been assessed have been paid. There are no tax
liens except for current taxes not yet delinquent.
Zoning. The present zoning of the Site permits the presently existing
improvements, Assets, manufacturing and assembly processes, and all other
processes and tangible items used in the business and the continuation of the
business as it is presently being conducted thereat. Seller knows of no claim by
or plan of any governmental agency that in any way may affect current zoning.
Inventory Quality. The Purchased Inventories consist of items which have
passed the quality control tests and inspections normally relied upon in the
ordinary course of business by Seller. All items included in the Purchased
Inventories are the property of the Seller, except for sales made in the
ordinary course of business and, with respect to each of these sales, either the
purchaser has made full payment or the purchaser's liability to make payment is
reflected in the Books and Records. No item included in the Inventories is
subject to any security interests, liens or encumbrances and none of the
Inventories has been pledged as collateral or is held by the Seller on
consignment from any person or entity other than those security interests,
liens, encumbrances or pledges that will be released or terminated at Closing.
To the best of Seller's knowledge, all the Purchased Inventories are free of
material defects and, to the extent that they consist of finished or
semi-finished goods, also comply with any specifications of the purchasers
thereof.
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Proprietary Information. Attached hereto as Schedule 8.G is a list and
brief description of all patents, trademarks, tradenames, service marks,
copyrights or applications therefor owned by or registered in the name of Seller
relating to the conduct of the Business or the operation of the Assets. Seller
has furnished Buyer with copies of all license agreements to which Seller is a
party, either as licensor or licensee, with respect to any patents, trademarks,
tradenames, or copyrights. Except as described on Schedule 8.G hereto, Seller
has good title to or the right to use such assets and all inventions, processes,
designs, formulae, trade secrets and know-how necessary for the conduct of the
Business or the operation of the Assets as presently conducted or operated
without the payment of any royalty or similar payment, and Seller has received
no notice that it is infringing on any patent right, tradename, copyright or
trademark right of others, and Seller is not aware of any infringement by others
of any such rights owned by Seller.
Title to Assets; Working Order. Except as disclosed on Schedule 8.H, Seller
has good title to all the Assets and interests in the Assets and, except as
otherwise disclosed, all the Assets are free and clear of mortgages, liens,
pledges, charges, encumbrances, equities, claims, easements, rights of way,
covenants, conditions, or restrictions. Except as set forth in Schedule 8.H all
Assets are in good operating condition and repair, ordinary wear and tear
excepted, are adequate for intended and current uses, and are not in need of any
maintenance or repair, except for routine maintenance not material in nature or
cost.
Customers; Suppliers Absence of Certain Business Practices.
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Schedule 8.I.(i) to this Agreement shall be a correct and current list, as
of the date hereof, of the names and addresses of all customers of Seller. To
the best of Seller's knowledge, there have been no adverse changes in any
existing business relationships with any of such customers since June 30, 1997.
Except as indicated in Schedule 8.I.(i), Seller has no information and is not
aware of any facts indicating that any of such customers intend to cease doing
business with Seller or intend to alter the amount of the business (or to reduce
the price therefor) that they are presently doing with Seller, except where the
effect thereof would not be materially adverse to the Business.
Schedule 8.I.(ii) to this Agreement shall be a correct and current list, as
of the date hereof, of the names and addresses of all suppliers from which
Seller ordered raw materials, supplies merchandise and other goods and services
at the Site and the amount for which each supplier invoiced Seller during the
last 12 month period. Except as indicated in Schedule 8.I.(ii), Seller has no
information and is not aware of any facts indicating that any of such suppliers
intend to cease doing business with Seller or intend to alter the amount of the
business (or to increase the price therefor) that they are presently doing with
Seller, except where the effect thereof would not be materially adverse to the
Business.
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To the best of Seller's knowledge, neither Seller, nor any officer,
employee or agent of Seller, nor any other person acting on their behalf, has,
directly or indirectly, within the past five years given or agreed to give any
gift or similar benefit to any customer, supplier, governmental employee or
other person who is or may be in position to help or hinder the business (or
assist Seller in connection with any actual or proposed transaction relating to
the business) (a) which subjected or might have subjected seller to any damage
or penalty in any civil, criminal or governmental litigation or proceeding, (b)
which if not given in the past, might have had a material adverse effect upon
the business, operations or prospects of seller, (c) which if not continued in
the future, might have a material adverse effect upon the business, operations
or prospects of Seller or subject Seller to suit or penalty in any private or
governmental litigation or proceeding, (d) for any of the purposes described in
Section 162(c) of the Internal Revenue Code of 1986, 26 U.S.C.A. ss. 162(c), or
(e) for the purpose of establishing or maintaining any concealed fund or
concealed bank account.
Copies of Insurance; Claims. In addition to the documentation required in
Section 6.J, Seller shall deliver to Buyer photocopies of all liability, fire,
workers' compensation, products liability and other insurance policies held by
the Sellers in connection with the business and/or the Assets ("Insurance
Policies"). Seller has maintained, and through the Closing shall continue to
maintain, all adequate (i) insurance on all the Assets and the business of a
type of customarily insured, covering property damage and loss of income by fire
or other casualty, and (ii) insurance protection against all liabilities,
claims, and risks against which it is customary to insure. Seller is not in
default with respect to payment of premiums on any such policy. Except as set
forth in Schedule 8.J, no claim is pending under any such policy.
No Restrictions. Except as otherwise provided in this Agreement or any
Schedule hereto, the Assets and the Business are not bound by any distributor's
or manufacturer's representative or agency agreement, any output or requirements
agreement, any agreement not entered into in the ordinary course of business,
any indenture, mortgage, deed of trust, lease or any other agreement. Seller is
not a party to, nor is Seller or the Assets bound by, any agreement that is
adverse to the business, property or condition of the Assets of Seller. All
Contracts and Leases contemplated to be assigned by the Closing are assignable
either without the consent of a third party or with such consent.
No Violation of Law. Seller has complied with in all material respects, and
is not in violation of, applicable federal, state, municipal and/or local
statutes, laws and regulations (including but not limited to any applicable
environmental, employment, health, building, zoning or other law, ordinance or
regulation) affecting the Assets or the operation of Seller's business. Seller
has received no pending notice of past or present failure to comply with any
such statutes, laws or regulations, and no expenditures shall be required after
the Closing in order for Buyer to so comply. Schedule 8.L. to this Agreement
shall be a complete and accurate identification of all environmental permits
Seller currently holds.
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Claims and Proceedings. Except as set forth in Schedule 8.M., there are no
claims, actions, suits, legal, administrative or regulatory proceedings or
investigations pending or, to the knowledge of Seller, threatened, against or
relating to Seller, its properties, assets or Business, which, if adversely
determined would be reasonably expected to have a material adverse effect on the
Business, the Assets or the transactions contemplated by this Agreement.
No Default or Other Violation. Other than the effect of the failure to
obtain any third-party consents and any required shareholder consent, the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby will not result in or constitute any of the
following: (i) a default or an event that, with notice or lapse of time or both,
would be a default, breach or violation of the articles of incorporation or
Bylaws of Seller or any lease, license, promissory note, contract, commitment,
indenture, mortgage, deed of trust or other agreement, instrument or arrangement
to which Seller is a party or by which Seller or the Assets are bound; (ii) an
event that would permit any party to terminate any agreement or to accelerate
the maturity of any indebtedness or other obligation of Seller; (iii) the
creation or imposition of any lien, charge or encumbrance on any of the Assets;
or (iv) the violation of any law, regulation, ordinance, judgment, order or
decree applicable to or affecting Seller, its employees or the Assets.
Employees. Schedule 8.O is a true and complete list of all agreements or
arrangements providing for employee remuneration or benefits in connection with
the business at the Site. Seller is in substantial compliance with labor laws
and regulations. There has been no grant or commitment to increase the
compensation of any employee outside of the ordinary course of business. Except
as disclosed on Schedule 8.O, there are not pending employment related
proceedings, investigations or complaints against Seller or its business and
none are threatened. There is no labor union with respect to the Business at the
Site. Seller has complied in all material respects with all laws relating to its
employees including, but not limited to, the Worker Adjustment Retraining
Notification Act.
Corporate Authority. Seller has full corporate power and authority to enter
into and perform its obligations under this Agreement. The execution and
delivery of this Agreement by Seller, and the transactions contemplated hereby
have been duly authorized by the board of directors of Seller. Seller shall use
reasonable best efforts to obtain approval for the transactions contemplated
hereby from its shareholders if, in the opinion of Seller and its counsel, such
approval is required by applicable law.
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Interests in Competitors, Suppliers, Customers, Etc. Except as disclosed on
Schedule 8.Q attached hereto, no officer or director involved in the conduct of
the Business has any ownership interest in any competitor, supplier or customer
of the Business (other than ownership of securities of a publicly-held
corporation of which such person owns, or has real or contingent rights to own,
less than one percent of any class outstanding securities) or property used in
the operation of the business of any competitor, supplier or customer of the
Business.
Completeness of Schedules, etc. Each copy or original of any agreement,
contract or other instrument which is identified in any exhibit or schedule
delivered by Seller, whether before or after the execution hereof, is in fact
what it is purported to be by Seller, is true, accurate and complete as of the
date of delivery and has not been amended, canceled or otherwise modified.
Ordinary Course. Except as disclosed on Schedule 8.S hereto, since June 30,
1997, except as otherwise disclosed herein, Seller has conducted its business
only in the ordinary course and consistent with past practices.
No Undisclosed Material Liabilities. There are no liabilities of Seller
affecting the Assets of any kind whatsoever, whether accrued, contingent,
absolute, determined, determinable or otherwise, and there is no existing
condition, situation or set of circumstances which could reasonably be expected
to result in such a liability, other than (i) liabilities disclosed on Schedule
8.T attached hereto, (ii) liabilities provided for in the balance sheet as of
June 30, 1997 or disclosed in the notes thereto and any liabilities incurred
since that date in the ordinary course of business, and (iii) other undisclosed
liabilities which, individually or in the aggregate, are not material to Seller.
Corporate Name. Except for the Corporate Name "DCX, Inc." Seller does not
use any trademark, service mark, trade name or copyright in the business
conducted at the Site. Seller has received no notice that in using its Corporate
Name it is infringing on any right, trade name, copyright or trademark right of
others, and Seller is not aware of any third party using its Corporate Name or
otherwise infringing on any rights to the Corporate Name owned by Seller.
Backlog. As of the Closing Date, the amounts listed on Schedule 8.V
attached hereto, are substantially accurate estimates of the dollar total of the
remainder of products to be shipped pursuant to the Contracts, the anticipated
progress and liquidation payments to be received thereunder and the cost of raw
materials and labor required to complete unfinished work under the Contracts.
No Untrue Statements. Neither this Agreement nor any other statements or
certificates made or delivered in connection herewith contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements herein or therein not misleading.
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Financial Statements. Schedule 8.X sets forth the profit and loss
statements for August and September 1997 (the "Profit and Loss Statements").
Such financial statements are true, complete and accurate in all material
respects, and have been prepared from the books and records of the Business and
Seller in accordance with GAAP consistently applied and maintained throughout
the periods indicated and fairly present the results of operations for the
periods covered thereby.
Supplier Rating. Seller is designated as a "Star Supplier" by Lockheed.
Buyer's Representations and Warranties. Buyer represents and warrants to
Seller that the following facts and circumstances are correct and complete in
all material respects:
Due Organization. Buyer is a corporation validly existing and in good
standing under the laws of the State of Colorado with the corporate power and
authority to conduct its business and to own and lease its properties and
assets. Buyer is duly qualified or licensed to do business and is in good
standing as a foreign corporation in each state in which the failure to be so
qualified or licensed would have a material adverse effect on its financial
condition or operations.
Due Authorization. Buyer has the power and authority to execute, deliver,
and perform this Agreement and the other agreements and instruments to be
executed and delivered by it in connection with the transactions contemplated
hereby and thereby, and Buyer has taken all necessary corporate action to
authorize the execution and delivery of this Agreement and such other agreements
and instruments and the consummation of the transactions contemplated hereby and
thereby. This Agreement is, and, when such other agreements and instruments are
executed and delivered, the other agreements and instruments to be executed and
delivered by Buyer in connection with the transactions contemplated hereby and
thereby shall be, the legal, valid, and binding obligations of Buyer,
enforceable in accordance with their terms.
No Conflicts. Neither the execution and delivery by Buyer of this Agreement
and of the other agreements and instruments to be executed and delivered by
Buyer in connection with the transactions contemplated hereby or thereby, nor
the consummation by Buyer of the transactions contemplated hereby or thereby
will violate or conflict with (i) any federal, state, or local law, regulation,
ordinance, governmental restriction, order, judgement, or decree applicable to
Buyer, or (ii) any provision of any charter, bylaw, or other governing or
organizational instrument of Buyer or any contract or other instrument by which
Buyer is bound.
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Litigation. There are no claims, actions, suits, legal, administrative or
regulatory proceedings or investigations pending or, to the knowledge of Buyer,
threatened, against or relating to Buyer, its properties, assets or business,
which, if adversely determined would be reasonably expected to have a material
adverse effect on Buyer's performance under this Agreement or the consummation
of the transactions contemplated hereby.
Survival of Representations and Warranties. Except as otherwise herein or
therein provided, all statements, representations, warranties, indemnities,
covenants and agreements made by each of the parties hereto shall survive the
consummation of the transactions contemplated hereby for a period of two (2)
years following the Closing Date.
Non-assumption of Liabilities; Indemnification Pending Closing. Buyer shall
not assume any product warranties, product returns, debt, liability or
obligation of Seller of any kind or nature other than the Assumed Obligations.
Seller shall indemnify against, defend, and hold Buyer harmless from, any and
all claims, Warranty Claims, liabilities, demands, losses, costs, damages,
obligations, expenses and causes of action, other than those Warranty Claims and
Warranty Expenses for which Buyer is responsible pursuant to Section 6.D hereof,
including but not limited to, any interest, penalties and attorney fees
(collectively "Claims"), which Buyer may sustain or incur or which may be
asserted against Buyer in connection with, resulting from or arising out of
Seller's operation of the Business or use or ownership of the Assets and/or any
and all acts or omissions performed or committed by Seller or any of its agents
at any time ("Indemnified Claims"), before or through the Closing.
Name of Business. At the Closing, Seller shall grant to Buyer the Corporate
Name and the right to use the Corporate Name. Seller has not granted, and shall
not grant to any other person or entity, the Corporate Name or the right to use
the Corporate Name. Seller shall change its name no later than ten (10) days
following the next meeting of Seller's shareholders. During the period after
Closing and before the completion of Seller's name change, Seller shall refrain
from using the Corporate Name in a commercial manner or for purposes of
promoting its business. Seller acknowledges that Buyer would be irreparably
damaged if Seller breaches its obligations under this Section.
Further Assurances. The parties, at any time before or after the Closing,
shall execute, acknowledge and deliver any and all further assignments,
conveyances, documents, instruments and writings reasonably requested by the
other party, and shall take any other action consistent with the terms of this
Agreement that may reasonably be requested by the other party, for the purpose
of assigning, transferring, granting, conveying and confirming to Buyer, or
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reducing to Buyers possession, any or all of the Assets or for the purposes of
the assumption by Buyer of the Assumed Obligations. If requested by Buyer,
Seller shall, at Buyer's expense, prosecute or otherwise enforce in its own
individual or collective name for the benefit of Buyer any claims, rights or
benefits that are transferred to Buyer by this Agreement and that require
prosecution or enforcement in the Seller's name.
Confidential Information; Competition.
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Confidential Information. During the course of the negotiations of this
Agreement and during the course of Buyer's operation of the Business prior to
Closing, each party hereto acknowledges it has gained confidential information
regarding the customers, employees, methods of operation, financial affairs, or
any other confidential matter of the business of the other and that the other
party would be irreparably damaged if the confidential knowledge of their
respective businesses were disclosed to or utilized on behalf of any person or
entity which is in competition with Seller or Buyer, as applicable. Therefore
each party hereto covenants and agrees as follows:
Confidentiality Obligation of Buyer Prior to Closing. Until Closing (and,
if this Agreement is terminated for any reason, forever thereafter), Buyer
shall, and shall use its reasonable best efforts to cause its personnel and
agents to, hold in strict confidence, not disclose to any person without the
prior written consent of Seller, and not use in any manner (including for
Buyer's competitive benefit) except in connection with the transactions
contemplated hereby, any confidential business or technical information
including information regarding the customers, employees, methods of operation,
financial affairs, or any other confidential matter (including specifically all
designs, specifications, know-how, including any proposed design and
specifications for future products and products in development, marketing plans,
and all other technical and business information) obtained from Seller in
connection with the transactions contemplated hereby concerning the Business or
the Assets ("Confidential Information"). This obligation shall cease to apply to
Buyer upon the Closing. In the event that this Agreement terminates for any
reason, Buyer shall return to Seller or destroy all materials in its possession
containing any such Confidential Information, including all copies, extracts,
adaptations, and transcriptions thereof. Notwithstanding any terms of this
Section or any other Section of this Agreement to the contrary, Buyer may
solicit any customer, including the customers of Seller, for any purpose
whatsoever, so long as Buyer does not utilize the Confidential Information. The
restrictions on disclosure and use of information shall not apply to information
known to Buyer prior to the commencement of the negotiations relating to the
transactions contemplated hereby.
Confidentiality Obligation of Seller Following Closing. Following the
occurrence of Closing, Seller shall, and shall use its reasonable best efforts
to cause its personnel and agents to, hold in strict confidence, not disclose to
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any person without the prior written consent of Buyer, and not use in any manner
whatsoever, any confidential business or technical information including
information regarding the customers, suppliers, employees, methods of operation,
financial affairs, or any other confidential matter (including specifically all
designs, specifications, know-how, including any proposed design and
specifications for future products and products in development, marketing plans,
and all other technical and business information) remaining in its possession
concerning the Business or the Assets. Promptly following Closing, Seller shall
surrender to Buyer or destroy all materials remaining in its possession
containing any such confidential information, including all copies, extracts,
adaptations, and transcriptions thereof.
Permitted Disclosures. Notwithstanding subsections (i) and (ii), either
party may disclose confidential information (a) only as described in Schedule
14.A.(iii), which is hereby incorporated into this Agreement by reference, (b)
to governmental agencies as required by applicable laws, following reasonable
notice to Buyer so that Buyer may appropriately object thereto, (c) if required
by court order or decree, following reasonable notice to Buyer so that Buyer may
appropriately object thereto, or (d) to its attorneys and accountants as
confidential and privileged information.
Competition. In consideration for the delivery to Buyer of the Assets, for
a period of five (5) years after the Closing, Seller shall not, within the
United States of America during the period described in this Section, directly
or indirectly:
Engage in or have any interest in any person or entity which directly or
indirectly engages in, or perform any services for any person or entity which
directly or indirectly engages in, competition with the Business as it was
conducted by Seller prior to Closing; or
Employ, solicit for employment, or advise or recommend to any other person
that they employ or solicit for employment, any person employed by Buyer or any
affiliate of Buyer; or
Hire, engage, send any work to or in any manner be associated with any
person or entity which competes with Buyer if such action would have an adverse
effect on the business, assets or financial condition of Buyer as it relates to
the continued operation of the Business and the Assets.
Irreparable Harm. Seller understands and agrees that the covenants made by
it in this Section 14 are made in connection with the acquisition by Buyer of
the Assets, including but not limited to the goodwill of Seller, and such
acquisition is being made in reliance on such covenants. Irreparable harm would
befall Buyer should Seller violate any of the provisions of this Section 14, and
would not be compensable in money damages; therefore. the parties stipulate and
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agree that Buyer shall be entitled to seek injunctive relief for such harm in
the event of any breach of this Section 14 in addition to all other rights and
remedies available to Buyer. If a determination is made by a court of competent
jurisdiction that any restriction imposed by this Section 14 is too broad to
permit enforcement thereof to its fullest extent, then such restriction shall be
enforced to the maximum extent permitted by applicable law.
Conditions Precedent to Buyer's Obligations. In addition to the conditions
delineated in Section 5.A, the Buyer's obligations under this Agreement are
subject to the satisfaction, at or prior to the Closing, of all of the following
conditions:
Seller's Representations Complete. All representations and warranties of
Seller in this Agreement shall be true and complete as of the Closing as though
such representations and warranties were made on and as of that date.
Full Performance. Seller shall have performed and satisfied all covenants,
conditions and agreements required by this Agreement to be performed and
satisfied by it.
No Damage. There shall have been no material loss or damage to the Assets.
No Lawsuits. There shall not then be in effect any order enjoining or
restraining the transactions contemplated by this Agreement, and there shall not
then be threatened, instituted or pending any action or proceeding before any
federal or state court or other governmental authority challenging the purchase
by Buyer or the disposition by Seller of the Assets or otherwise seeking to
restrain or prohibit consummation of the transactions contemplated hereby or
seeking to impose any material limitation on any provisions of this Agreement or
any related agreement.
Consents Obtained. The consents identified in Schedule 5.A.(vii), attached
hereto, shall have been obtained by Seller, and shall include all consents
necessary to assign the Major Customer Contracts and the Equipment Leases.
Form Satisfactory to Buyer. The form and substance of all certificates,
documents, consents and other writings delivered to Buyer pursuant to this
Agreement shall be reasonably satisfactory to Buyer.
Amendments Approved. Buyer has approved any amendments or changes made to
any Schedule attached hereto in accordance herewith.
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Due Authority. The execution and delivery of this Agreement by Seller, and
the performance of its covenants and obligations under it, shall have been duly
authorized by all necessary action, and Buyer shall have received copies of all
resolutions pertaining to that authorization, certified by the Secretary of
Seller.
Customer Relations. Buyer, in its sole and absolute discretion, shall be
satisfied with Seller's relationship with its customers as Buyer determines, in
accordance with its rights under Section 6.F.
Conditions Precedent to Seller's Obligations. In addition to the conditions
delineated at Section 5.B, the Seller's obligations to sell and transfer the
Assets under this Agreement are subject to the complete satisfaction, at or
prior to the Closing, of all of the following conditions:
Buyer's Representations Complete. All representations and warranties by
Buyer contained in this Agreement shall be true and correct in all respects on
and as of the Closing as though such representations and warranties were made on
and as of that date.
Full Performance. Buyer shall have performed and satisfied all covenants,
conditions and agreements required by this Agreement to be performed and
satisfied by it.
Due Authority. The execution and delivery of this Agreement by Buyer, and
the performance of its covenants and obligations under it, shall have been duly
authorized by all necessary corporate action, and Seller shall have received
copies of all resolutions pertaining to that authorization, certified by the
Secretary of Buyer.
Seller's Obligations Before Closing. Seller covenants that, except as
otherwise herein provided or agreed in writing by Buyer, from the date of this
Agreement until the Closing:
Access to Seller's Financial Records. Buyer and its counsel, accountants
and other representatives shall be entitled to have full access during normal
business hours to all of Seller's financial records, and other properties,
records, contracts and documents of or relating to the Assets. Seller shall
furnish or cause to be furnished to Buyer and its representatives all data and
information concerning the Assets and the finances of Seller that may be
reasonably requested by Buyer.
Continuation of Normal Business Activities. Except as otherwise herein
provided, beginning from the date hereof and ending upon Closing, Seller shall
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carry on its business and activities diligently and in substantially the same
manner as was previously carried on, and by way of example and not as a
limitation:
Use reasonable best efforts to retain substantially all present employees;
Use reasonable best efforts to maintain pleasant and harmonious
relationships with all suppliers, customers, employees, and others having
contact with the Business;
Exercise due diligence in safeguarding and maintaining the confidentiality
of all books, reports, and data pertaining to the Business;
Grant no increases in salary, pay, or other employment related benefits to
any officers, employees, or agents of the Business without the written consent
of the other party;
Enter into no contracts, leases or transactions on account of the Business
without the written consent of the other party;
Incur no obligations and purchase or order no merchandise for or on account
of the Business without the written consent of the other party;
Neither sell nor dispose of any assets of Seller nor enter into any
agreement or arrangement to do same;
Waive no rights or claims arising out or because of the Business without
the written consent of the other party;
Change no insurance or other benefit plan covering any employees of the
Business without the written consent of the other party;
Use reasonable best efforts to maintain the Insurance Policies in effect
and at all times to continue to insure all property constituting the Assets
against all ordinary and insurable casualty risks; and
Neither effect nor post any billings (on account of work performed after
the Effective Date) or sales, nor accept payments for sales made or work
performed after the Effective Date.
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Business Relations. Seller shall use its reasonable best efforts to
preserve Seller's business organization intact and to keep and preserve good
business relationships with Seller's suppliers, customers, lenders and others
having business relationships with Seller.
Consents. Seller shall use its reasonable best efforts to obtain all
consents listed in Schedule 5.A.(vii).
Regulatory Approvals. Seller shall fully cooperate with Buyer in preparing
and filing all information and documents deemed necessary by any governmental
entity or agency or reasonably desirable by Buyer pertaining to the transactions
contemplated by this Agreement.
Access to Financial Records. Seller shall allow Buyer and its counsel,
accountants and other representatives, such access to any books and records of
Seller which, after the Closing, are in the custody or control of Seller as
Buyer reasonably requests with respect to the Business, the Assets or the
Assumed Obligations assumed by Buyer pursuant to this Agreement.
Indemnification.
----------------
Seller's Indemnification Following the Closing. Seller shall indemnify
against, defend and hold Buyer harmless from:
Any and all Claims (as defined in Section 11) which Buyer may sustain or
incur, which arise, result from or relate to any breach of, or failure by Seller
to perform any of the representations, warranties, covenants or agreements in
this Agreement or in any Schedule, certificate, exhibit or other instrument
furnished or to be furnished by Seller under this Agreement; and
All Indemnified Claims (as defined in Section 11).
Buyer's Indemnification Following the Closing. From and after the Closing,
Buyer shall indemnify, defend and hold Seller harmless from any and all Claims
(as defined in Section 11) that Seller shall incur or suffer, which arise,
result from or relate to any breach of, or failure by Buyer to perform any of
the representations, warranties, covenants or agreements in this Agreement or in
any Schedule, certificate, exhibit or other instrument furnished or to be
furnished by Buyer under this Agreement, and from any Claims which Seller may
sustain or incur or which may be asserted against Seller in connection with,
resulting from or arising out of Buyer's operation of the Business or use or
ownership of the Assets and/or any and all acts or omissions performed or
committed by Buyer or any of its agents at any time. Seller shall provide prompt
notice of Claims hereunder, if any, to Buyer.
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Additional Indemnification Terms.
---------------------------------
Defense of Claims. If any legal proceeding shall be instituted, or any
claim or demand made by a third party, against Buyer in respect of which the
Seller may be liable hereunder, Buyer shall give prompt written notice thereof
to Seller, and Seller shall have the right to defend, or cause Buyer or its
successor to defend promptly any litigation, action, suit, demand, or claim for
which Buyer may seek indemnification, and Buyer shall extend reasonable
cooperation in connection with such defense, which shall be at Seller's expense.
In the event that Seller fails to defend the same promptly, Buyer shall be
entitled to assume the defense thereof. Seller shall be liable to pay or to
repay Buyer for all expenses reasonably incurred in connection with said defense
(including reasonable attorney fees and settlement payments) if it is
determined, in accordance with the arbitration provisions of subsection (iii)
that such request for indemnification was proper. The provisions of this
subsection shall apply equally to Seller, mutatis mutandis, for any litigation,
action, suit, demand, or claim made against Seller in respect of which Buyer may
be liable thereunder; provided, however, that this subsection 19.C.(i) shall not
apply to the exercise of setoff rights contemplated under Sections 6.B.(vi)
and/or 6.I of this Agreement, in that Seller may not defend Claims for which
Buyer has exercised such setoff rights without Buyer's prior, written consent,
which consent may be withheld or granted in Buyer's sole and absolute
discretion.
Notice of Claim. Except as otherwise provided in this Agreement, and except
with respect to claims subject to subsection 19.C.(i) or under Sections 4.E,
6.D, and 6.G, before either party to this Agreement may claim against the other
party, under the indemnity provided in this Section 19 or in Section 11, that it
is entitled to indemnification ("Indemnitee"), it shall first serve written
notice of any alleged breach, nonperformance, misrepresentation, omission or the
like giving rise to the claim for indemnification within (10) days of learning
of such claim, along with supporting documentation, if any, and no action shall
commence to enforce the indemnity if the other party cures the breach and
compensates the Indemnitee for all such damages or other amounts due within
thirty (30) days after delivery of the written notice and supporting
documentation. The parties shall make a reasonable, good-faith effort to meet
and resolve the dispute before submitting the matter to arbitration under
subsection 19.C.(iii) below.
Arbitration Provisions. Without limiting the right to setoff under Sections
6.B.(vi) or 6.I pending the outcome of any arbitration, if the parties have been
unable to resolve any dispute or controversy arising under this Agreement, then
any such dispute or controversy arising with respect to a claim of
indemnification hereunder shall be settled by arbitration by a single
arbitrator, in accordance with the rules of the American Arbitration
Association, whose decisions shall be subject to review only as to matters of
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law. The arbitrator shall be selected pursuant to the rules of the American
Arbitration Association from a panel of independent and disinterested persons
with at least ten (10) years' experience each in significant corporate, business
or accounting matters, and who are familiar with the purchase and sale of
business concerns. The expenses of both parties in the arbitration, including
reasonable attorney fees and arbitration expenses, shall be paid by the party
who does not prevail. If each party prevails in part, the arbitrator will
determine the appropriate allocation of expenses among the parties utilizing the
principle described above. Judgment upon the award rendered by the arbitrators
may be entered in any court having jurisdiction thereof. The parties may pursue
all other remedies with respect to any claim not subject to arbitration.
Termination.
------------
Notwithstanding anything contained in this Agreement to the contrary, this
Agreement may be terminated at any time prior to Closing:
By the mutual written consent of Buyer and Seller;
By either Buyer or Seller if the Closing shall not have occurred before
October 9, 1997;
By Buyer if Seller fails to perform its obligations under this Agreement;
By Seller if Buyer fails to perform its obligations under this Agreement;
and
By Buyer if, for any reason, it disapproves any Schedule or any information
contained in any Schedule or connected with any Schedule.
In the event of the termination of this Agreement by either party as above
provided, except for obligations that expressly survive, neither party shall
have any liability hereunder of any nature whatsoever to the other party,
including any liability for damages or for breach of any implied covenant of
good faith and fair dealing.
In the event that a condition precedent to any party's obligations to
consummate the transactions contemplated hereby is not satisfied, nothing
contained herein shall be deemed to require such party to terminate this
Agreement, rather than to waive such condition precedent and proceed with the
transactions contemplated hereby.
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Boker Fees; Costs. Except as disclosed on Schedule 21, each of the parties
represents and warrants that it has dealt with no broker or finder in connection
with any of the transactions contemplated by this Agreement, and, insofar as it
knows, no broker or other person is entitled to any commission or finder's fee
in connection with any of these transactions. Each of the parties shall pay
their own costs and expenses incurred or to be incurred by it in negotiating and
preparing this Agreement and in the Closing and carrying out the transactions
contemplated by this Agreement.
Notices. All notices, demands, and communications required hereunder shall
be in writing and shall be deemed to have been duly given if personally
delivered, or if transmitted by facsimile transmission to the recipient at the
facsimile number set forth below with electronic confirmation of receipt, or if
mailed by United States registered or certified mail, return receipt requested,
postage pre-paid, addressed to the recipient at the following address (or to
such other or additional recipients or at such other or additional facsimile
numbers or addresses as shall be given to the other parties in the manner herein
provided for all notices):
Buyer: DCX-Chol Enterprises, Inc.
12831 S. Figueroa Street
Los Angeles, California 90061
Attention: Neal Castleman
Fax: (310) 516-1693
With Copy to: Silver & Freedman, A Professional Law Corporation
1925 Century Park East, Suite 2100
Los Angeles, California 90067-2722
Attention: Perry S. Silver, Esq.
Fax: (310) 556-0832
Seller: DCX, Inc. (subject to name change)
3002 North State Highway 83
Franktown, Colorado 80116
Attention: Stephen Carreker
Fax: (303) 688-6106
With Copy to: Transition Partners Limited
1942 Broadway, Suite 303
Boulder, Colorado 80302
Fax: (303) 665-7651
and: Davis, Graham & Stubbs LLP
370 17th Street, Suite 4700
Denver, Colorado 80202
Attention: John McCabe, Esq.
Phone: (303) 892-9400 / Fax: (303) 893-1379
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Notice given as provided herein shall be deemed duly given on the soonest to
occur of: (a) the date personally delivered, or (b) the first calendar day after
facsimile transmission with electronic confirmation of receipt, or (c) the third
calendar day alter deposit in the United States mail.
Notwithstanding the forgoing, any notice, demand, or communication required
hereunder which is transmitted by facsimile shall also be sent by United States
first class mail postage pre-paid, but the date upon which same shall be deemed
duly given is the first calendar day after facsimile transmission with
electronic confirmation of receipt. Entire Agreement; Written Amendment Only.
This Agreement, and the agreements referred to herein is an integrated document
containing and expressing all terms, covenants, conditions, warranties and
agreements of the parties relating to the subject matter hereof. No other or
prior agreements or understandings pertaining to the same shall be valid or of
any force or effect. This Agreement shall not be amended, altered or modified,
except in writing signed by the parties hereto.
Interpretation. Subject headings of the Sections of this Agreement are
included for purposes of convenience only and shall not affect the construction
or interpretation of any of its terms.
Governing Law. This Agreement shall be interpreted, construed and governed
by, in accordance with and consistent with the laws of the State of Colorado,
which shall apply in all respects, including statutes of limitation, to any
disputes or controversies arising out of or pertaining to this Agreement.
Counterparts. This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original but all of which, when taken together,
shall constitute one and the same document.
Gender; Plural and Singular. Whenever required by the context hereof, the
singular shall be deemed to include the plural, the plural shall be deemed to
include the singular; the masculine, the feminine and neuter gender shall be
deemed to include the others.
Severability. If any term, provision, clause, article, condition or other
portion of this Agreement is determined to be invalid, void or unenforceable by
a forum of competent jurisdiction, the same shall not affect any other term,
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provision, clause, article, condition or other portion hereof, and the remainder
of this Agreement shall remain in full force and effect, as if such invalid,
void or unenforceable term, provision, clause, article, condition or other
portion of this Agreement did not appear herein.
Publicity. Neither party shall issue any press release or make any public
statement regarding the transactions contemplated hereby or of the specific
terms of this Agreement without the prior approval of the other party (which
approval shall not be unreasonably withheld), except as such release or
announcement may be required by law or exchange rules and regulations, in which
case the party required to make such release or announcement shall allow the
other party reasonable time to comment on such release in advance of its
issuance. The parties hereto shall issue a mutually acceptable press release as
soon as practicable after the Closing.
Attorneys' Fees; Costs. In the event that any suit in law or equity,
arbitration or other formal proceeding is instituted by any party to enforce or
interpret any part of this Agreement, or to recover damages for breach thereof,
the prevailing party shall be entitled to recover costs of suit incurred
therein, and to also recover as an element of such costs (but not as damages)
reasonable attorneys' fees incurred by such prevailing party. For purposes of
this Agreement, the term "prevailing party" shall be the party who is entitled
to recover costs of suit, whether or not the proceeding is brought to final
judgment or award.
Time of the Essence. Time is of the essence in this Agreement.
IN WITNESS WHEREOF, the parties have executed or have caused their duly
authorized representatives to execute this Agreement as of the date and in the
place first above written.
Executed: October 8, 1997
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- -------------------------------------- -------------------------------------
SELLER: BUYER:
DCX, Inc. DCX-CHOL ENTERPRISES, INC.
a Colorado corporation a Colorado corporation
By: /S/ Fred Beisser By /S/ Neal Castleman
Name: FREDERICK G. BEISSER Name: NEAL CASTLEMAN, President
Its: Vice President - Finance &
Administration
- -------------------------------------- -------------------------------------
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