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 19, 1997
X-RITE, INCORPORATED
(Exact name of registrant as specified in its charter)
Michigan
(State or other jurisdiction of incorporation)
0-14800 38-1737300
(Commission File Number) (IRS Employer Identification No.)
3100 44th Street, S.W., Grandville, Michigan 49418
(Address and Zip Code of Principal Executive Offices)
(616) 534-7663
(Registrant's Telephone Number, Including Area Code)
Page 1 of 56
Exhibit Index at Page 4.
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Item 2. Acquisition or Disposition of Assets
Effective May 19, 1997, a newly incorporated, wholly-owned subsidary of the
Registrant, Light Source Acquisition Company, formed for this acquisition
("LSA") acquired substantially all of the assets of Light Source Computer
Images, Inc., a California corporation, with its principal place of business
located at 4040 Civic Center Drive, San Rafael, California 94939. Light Source
has been engaged in the business of developing, distributing, and selling
instruments and software for measurement and control of color, and the assets
acquired by LSA include substantially all of the inventory, equipment, accounts
receivable, intellectual property, contract rights, and all other tangible and
intangible property and property rights employed in the conduct of that
business. The consideration paid by the LSA for those assets was comprised of
$10,841,424 in cash, the assumption of current liabilities in the amount of
$751,576, and the assumption of certain specified contractual obligations. The
Registrant through LSA utilized cash and short-term investments to pay the cash
portion of the purchase price and discharge the assumed current liabilities.
Light Source has sold its products primarily into the desktop publishing
market, and the Registrant through LSA intends to continue to operate the
business in essentially the same manner for the foreseeable future.
Item 7. Financial Statements and Exhibits
It is currently impractical to provide the required financial statements
for Light Source Computer Images, Inc. and those statements will be filed as
soon as they are available, but not later than July 2, 1997.
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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, thereunto duly authorized.
X-RITE, INCORPORATED
Dated: June 2, 1997 By /s/ Duane Kluting
Duane Kluting
Its Chief Financial Officer
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EXHIBIT INDEX
Exhibit No. Description Page
2 Asset Purchase Agreement Between Light 5
Source Acquisition Company and Light
Source Computer Images, Inc. including
Escrow Agreement by and between Light
Source Acquisition Company and Light
Source Computer Images, Inc. and U.S.
Trust Company of California, N.A.
4
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ASSET PURCHASE AGREEMENT
BETWEEN
LIGHT SOURCE ACQUISITION COMPANY
AND
LIGHT SOURCE COMPUTER IMAGES, INC.
Drafted by:
VARNUM, RIDDERING, SCHMIDT
& HOWLETT LLP
Bridgewater Place
333 Bridge Street, N.W.
Post Office Box 352
Grand Rapids, Michigan 49501-0352
Telephone No. (616) 336-6000
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TABLE OF CONTENTS
ARTICLE I
PURCHASE AND SALE OF ASSETS
1.1 Agreement to Purchase and Sell........................................... 1
1.2 Enumeration of Purchased Assets.......................................... 1
1.3 Real Estate.............................................................. 3
1.4 Excluded Assets.......................................................... 4
ARTICLE II
ASSUMPTION AND DISCHARGE OF LIABILITIES
2.1 Agreement to Assume and Discharge........................................ 4
2.2 Description of Assumed Liabilities....................................... 5
2.3 No Expansion of Third Party Rights....................................... 5
ARTICLE III
PURCHASE PRICE AND MANNER OF PAYMENT
3.1 Cash Payment............................................................. 6
3.2 Escrowed Earn-Out........................................................ 6
3.3 Assumption of Liabilities................................................ 6
3.4 Performance Bonus........................................................ 6
3.5 Resale of Technology..................................................... 7
3.6 Allocation............................................................... 8
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 General Statement........................................................ 8
4.2 Purchaser's Representations and Warranties............................... 9
4.3 Seller's Representations and Warranties................................. 10
CORPORATE................................................................... 10
FINANCIAL................................................................... 11
CONDUCT OF BUSINESS......................................................... 13
CONTRACTS................................................................... 14
EMPLOYEES................................................................... 17
LITIGATION AND CLAIMS....................................................... 18
ENVIRONMENTAL MATTERS....................................................... 19
REAL ESTATE................................................................. 21
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INTELLECTUAL PROPERTY...................................................... 21
GENERAL.................................................................... 22
ARTICLE V
CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATION TO CLOSE
5.1 Transfer of Purchased Assets........................................... 23
5.2 Performance by Seller.................................................. 23
5.3 Accuracy of Representations and Warranties............................. 23
5.4 Validity of Documents.................................................. 23
5.5 Absence of Litigation.................................................. 24
5.6 Consents............................................................... 24
5.7 Noncompetition Agreements.............................................. 24
5.8 Shareholder Approval................................................... 24
ARTICLE VI
CONDITIONS PRECEDENT TO SELLER'S
OBLIGATION TO CLOSE
6.1 Purchaser's Performance................................................ 24
6.2 Accuracy of Representations and Warranties............................. 24
6.3 Absence of Litigation.................................................. 25
6.4 Shareholder Approval................................................... 25
ARTICLE VII
CLOSING
7.1 Closing................................................................ 25
7.2 Purchaser's Deliveries................................................. 25
7.3 Seller's Deliveries.................................................... 26
ARTICLE VIII
POST-CLOSING AGREEMENTS
8.1 Post-Closing Agreements................................................ 27
8.2 Inspection of Records.................................................. 27
8.3 Certain Assignments.................................................... 28
8.4 Use of Trademarks; References to Seller................................ 28
8.5 Employees.............................................................. 28
8.6 Back-Up................................................................ 28
8.7 Accounts Receivable.................................................... 28
8.8 Third-Party Claims..................................................... 28
8.9 Sales and Transfer Taxes and Fees...................................... 29
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8.10 Covenant Not to Compete................................................ 29
8.11 Disclosure of Confidential Information................................. 29
8.12 Injunctive Relief...................................................... 30
8.13 Further Assurances..................................................... 30
ARTICLE IX
INDEMNIFICATION
9.1 General................................................................. 30
9.2 Certain Definitions..................................................... 30
9.3 Indemnification Obligations of Seller................................... 31
9.4 Purchaser's Indemnification Covenants................................... 31
9.5 Limitations on Seller's Indemnification Obligations..................... 32
9.6 Limitations on Purchaser's Indemnification Obligations.................. 32
9.7 Exclusive Remedy........................................................ 33
9.8 Third Party Claims Procedures........................................... 33
9.9 Security................................................................ 34
ARTICLE X
MISCELLANEOUS
10.1 Publicity.............................................................. 34
10.2 Notices................................................................ 34
10.3 Expenses............................................................... 36
10.4 Entire Agreement....................................................... 36
10.5 Waiver................................................................. 36
10.6 Counterparts........................................................... 36
10.7 Severability........................................................... 36
10.8 Applicable Law......................................................... 37
10.9 Arbitration............................................................ 37
10.10 Binding Effect; Benefit............................................... 37
10.11 Assignability......................................................... 37
10.12 Amendments............................................................ 38
10.13 Headings.............................................................. 38
10.14 Bulk Sales Law........................................................ 38
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is made and entered into as of the 19th day
of May, 1997, by and between LIGHT SOURCE ACQUISITION COMPANY, a Michigan
corporation (the "Purchaser"), and LIGHT SOURCE COMPUTER IMAGES, INC., a
California corporation (the "Seller").
R E C I T A L S:
Seller is engaged in the business of developing, distributing, and selling
instruments and software for measurement and control of color (the "Business"),
and conducts no other business activities. Seller desires to sell, and X-Rite,
Incorporated ("X-Rite") desires to purchase the Business as a going concern.
Accordingly, X-Rite has formed the Purchaser as a wholly-owned subsidiary to
effectuate the purchase and the parties are entering into this Agreement for the
purpose of memorializing the terms and conditions upon which that sale will be
consummated.
A G R E E M E N T S:
In consideration of the mutual promises, and upon the conditions
hereinafter set forth, the parties AGREE:
ARTICLE I
PURCHASE AND SALE OF ASSETS
1.1 Agreement to Purchase and Sell. Purchaser shall purchase from Seller
all of its assets, properties, rights and business, as a going concern, as of
the date hereof, of whatever kind or nature and wherever situated or located and
whether reflected on Seller's books and records or previously written-off or
otherwise not shown on Seller's books and records, free and clear of any liens,
claims, encumbrances, security interests, options, pledges, charges, escrows,
rights of first refusal or first offer (the "Encumbrances"), other than those,
if any, as are expressly described in the Disclosure Schedule and the Permitted
Encumbrances as defined in Section 4.2(k), and except the Excluded Assets
described in Section 1.4 below. All of the aforementioned assets, properties,
rights, and business (other than the Excluded Assets) are collectively referred
to in this Agreement as the "Purchased Assets".
1.2 Enumeration of Purchased Assets. The Purchased Assets include, without
limitation, the following items which are used or useable in the conduct of the
Business:
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(a) all cash on hand and in banks, cash equivalents and investments
("Cash");
(b) all inventory, including, without limitation, raw materials, work
in process and finished goods ("Inventory");
(c) all furniture, fixtures, equipment (including office equipment),
machinery, supplies, parts, computer hardware, tools, dies, jigs, patterns,
molds, automobiles, and trucks, and all other tangible personal property
including, without limitation, any of the foregoing which has been fully
depreciated (the "Equipment");
(d) all leasehold interests and leasehold improvements created by all
leases of personal property, including, without limitation, automobiles
used by Seller's employees under which Seller is a lessee or lessor,
including those set forth on Schedule 1.2(d) (the "Leased Personalty");
(e) all trade accounts receivable, notes receivable, negotiable
instruments and chattel paper (the "Accounts Receivable");
(f) all deposits and rights with respect thereto and all rebates due
from vendors;
(g) all contracts, claims, rights, and benefits arising therefrom with
or against any person or entity, including, without limitation, all rights
against suppliers under warranties covering any of the Inventory or
Equipment, and all Permits and Environmental Permits;
(h) all sales orders and sales contracts, purchase orders, and
purchase contracts, quotations and bids;
(i) all intellectual property rights, including, without limitation,
patents and applications therefor, know-how, unpatented inventions, trade
secrets, secret formulas, business and marketing plans, copyrights and
applications therefor, trademarks and applications therefor, service marks
and applications therefor, trade names, trade dress, and names and slogans
used by the Business, and all goodwill associated with such intellectual
property rights;
(j) all license agreements, sales representative and sales agency
agreements, distribution agreements, service agreements, supply agreements,
and franchise agreements;
(k) all customer lists, customer records, and related customer
information;
(l) All books and records that are not Excluded Assets, including,
without limitation, blueprints, drawings and other technical papers,
payroll, accounts receivable and
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payable, inventory, maintenance, and asset history records, ledgers, and
books of original entry, all insurance records and OSHA and EPA files;
(m) all insurance policies and rights thereunder that are not Excluded
Assets;
(n) all rights in connection with prepaid expenses with respect to the
Purchased Assets;
(o) all letters of credit;
(p) all computer software, including all source codes and machine
readable copies and all related documentation and designs, in whatever form
and embodied in whatever media, and all licenses and leases of software and
related technical service agreements; provided, however, that the source
code for such computer software (the "Software") shall be transmitted by
network wire from disk media owned by Seller (which disk media shall
hereinafter be referred to as "Seller Media") to tape media owned by
Purchaser. The Seller Media shall not be sold, transferred or delivered to
Purchaser, notwithstanding anything to the contrary in this Agreement or
any Exhibit hereto or the bill of sale, but shall remain the property of
Seller and in its possession; provided further, however, that following
transmittal of the Software, the Seller Media shall be placed in escrow
with a bank or other escrow agent outside the state of California agreeable
to Purchaser and shall be available upon request for a period of five years
to verify the accuracy of the Software transmitted to Purchaser as provided
above. During the period of escrow, Seller shall not (i) remove the Seller
Media from the escrow, (ii) use or make copies of the Seller Media, or
(iii) permit any person other than Purchaser to have access to the Seller
Media. Upon written instructions from Purchaser, Seller agrees to erase the
Seller Media and certify same to Purchaser.
The retention of the Seller Media by Seller shall not imply any
retention of ownership or other rights to the Software, the ownership of
which shall pass to Purchaser upon transmission and Closing. The ownership
of the written support documentation for said source code shall be
transferred to Purchaser under the bill of sale provided for in this
Agreement.
(q) all sales and promotional materials, catalogues, and advertising
literature; and
(r) all telephone numbers and all lock boxes to which account debtors
remit payments.
1.3 Real Estate. Seller shall assign its entire rights as lessee to
Purchaser for the real estate and improvements occupied by the Seller in the
conduct of the Business (the "Real Estate").
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1.4 Excluded Assets. Notwithstanding the enumeration of the Purchased
Assets set forth in Section 1.2, the Excluded Assets shall consist of the
following assets of Seller relating to the Business:
(a) the consideration delivered by the Purchaser to the Seller
pursuant to this Agreement;
(b) all rights of the Seller to receive and collect federal and state
tax refunds (including interest relating thereto) and other amounts payable
to the Seller by federal and state taxing authorities;
(c) the Seller's certificate of incorporation, corporate seal, stock
books, minute books, and other corporate financial records;
(d) the Seller's income and franchise tax returns and tax records;
(e) checkbooks and canceled checks;
(f) rights in and to claims and litigation (and in each case benefits
to the extent they arise therefrom) against third parties to the extent
such claims and litigation are not in any way related to the Purchased
Assets or the Assumed Liabilities, and rights in and to claims and
litigation (and benefits to the extent they arise therefrom) that relate to
Excluded Seller Liabilities;
(g) insurance policies of Seller and rights in connection therewith,
except to the extent that prior to the Closing, Purchaser elects, by
written notice delivered to Seller, to accept assignments of any of such
insurance policies, and such policies relate to the Purchased Assets and/or
their continued use in the operation of the Business;
(h) rights arising from any refunds due with respect to insurance
premium payments to the extent they relate to insurance policies which
constitute Excluded Assets; and
(i) the assets, if any, described on Schedule 1.4(f).
ARTICLE II
ASSUMPTION AND DISCHARGE OF LIABILITIES
2.1 Agreement to Assume and Discharge. At the Closing, Purchaser shall
assume and agree to discharge and perform when due all of the liabilities of
Seller with respect to the Business which are specifically enumerated in Section
2.2 (the "Assumed Liabilities"). All claims against and liabilities and
obligations of Seller which are not specifically assumed by Purchaser pursuant
to Section 2.2, are collectively referred to herein as the "Excluded Seller
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Liabilities." Seller shall pay and discharge all of the Excluded Seller
Liabilities in the ordinary course of business.
2.2 Description of Assumed Liabilities. The Assumed Liabilities shall
consist of the following, and only the following, liabilities of Seller:
(a) liabilities and obligations of Seller under any purchase order,
sales order, lease (including all equipment leases), license, agency, and
distributorship agreement or other agreement or commitment of any kind by
which Seller is bound on the Closing Date, and is assigned to Purchaser
pursuant to this Agreement, and is either (i) set forth on Schedule 4.3(q)
of the Disclosure Schedule, or (ii) was made in the ordinary course of
business and is not required to be set forth on the Disclosure Schedule,
(but, in each case, only to the extent such liabilities and obligations
relate to performance after the Closing Date); and
(b) liabilities and obligations of Seller under any Permits and
Environmental Permits which are assigned or transferred to Purchaser
pursuant to the provisions hereof and are either (i) set forth on Schedule
4.3(s) or 4.3(aa) of the Disclosure Schedule, or (ii) were issued in the
ordinary course of business and are not required to be set forth on the
Disclosure Schedule, (but, in each such case, only to the extent such
liabilities and obligations relate to performance after the Closing Date);
and
(c) accrued liability for vacations and severance and health care
insurance for Seller's employees that is not discharged through Purchaser's
continuation of employees in the operation of the Business, up to a
maximum, in the aggregate, of Five Hundred Thousand Dollars ($500,000).
(d) the Seller's obligations for repair and replacement of its
products in accordance with the terms of the Seller's standard written
warranty on products currently produced by the Seller, a copy of which is
contained in Schedule 2.2(d) of the Disclosure Schedule.
(e) the Seller's obligations to indemnify the distributors listed on
Schedule 2.2(e) of the Disclosure Schedule for intellectual property
infringement.
(f) the Seller's obligations to pay the sums to the creditors of
Seller as set forth in Schedule 2.2(f) of the Disclosure Schedule, but only
to the extent of the amounts set forth therein and only the obligation to
pay money.
(g) the Seller's credit balance obligations as set forth in Schedule
2.2(g) of the Disclosure Schedule, but only to the extent of the amounts
set forth therein.
2.3 No Expansion of Third Party Rights. The assumption by Purchaser of the
Assumed Liabilities shall not expand the rights or remedies of any third party
against Purchaser
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or Seller as compared to the rights and remedies such third party would have had
against Seller had Purchaser not assumed the Assumed Liabilities. Without
limiting the generality of the preceding sentence, the assumption by Purchaser
of the Assumed liabilities shall not create any third party beneficiary rights.
ARTICLE III
PURCHASE PRICE AND MANNER OF PAYMENT
In consideration for the Purchased Assets, Purchaser shall pay the amounts
and in the manner specified below:
3.1 Cash Payment. Purchaser shall pay to Seller, at the Closing, in the
form of a certified or bank cashier's check (or wire transfer), the sum of
Eleven Million Five Hundred Ninety Three Thousand Dollars ($11,593,000), less
the aggregate amount of the liabilities assumed pursuant to Section 2.2(f)
above, Two Hundred Fifty Thousand Dollars ($250,000) of which shall be held for
one hundred eight (180) days pursuant to the terms of an Escrow Agreement of
even date (the "Escrow Agreement").
3.2 Escrowed Earn-Out. Seller shall pay into escrow, pursuant to the Escrow
Agreement, at the Closing, in the form of a certified or bank cashier's check
(or wire transfer), the sum of Four Million Six Hundred Thirty Eight Thousand
Dollars ($4,638,000) for future distribution in accordance with the terms of
that Escrow Agreement.
3.3 Assumption of Liabilities. At the Closing, the Purchaser shall deliver
to the Seller an undertaking (the "Assumption Agreement") in the form attached
as Exhibit 3.3 hereto whereby the Purchaser, on and as of the Closing Date,
assumes and agrees to pay, perform, and discharge when due, upon the terms and
subject to the conditions of this Agreement, the Assumed Liabilities.
3.4 Performance Bonus. Purchaser shall pay a performance bonus to Seller
for Net Sales (as defined below) during X-Rite's twelve (12) fiscal quarters
commencing in July 1997 (each four quarter period being referred to hereinafter
as a "Fiscal Year") in excess of Eighty Eight Million Eight Hundred Thousand
Dollars ($88,800,000). As used herein and in the Escrow Agreement, Net Sales
shall mean the aggregate gross sales prices for sales of: (i) Seller's current
products, (ii) Purchaser's and its Affiliates' (as defined in Section 4.3(m))
current products in product classes 404, 406 and 407, (iii) all improvements and
modifications to such products, (iv) all replacements for such products, (v) any
additional products sold by Purchaser or an Affiliate (as defined in Section
4.3(m)) of Purchaser into the desktop market, (vi) any products incorporating
the Intellectual Property (as defined in Section 4.3(ii)) contained as part of
the Purchased Assets and sold into the desktop market and (vii) any proceeds
from the sale, license or enforcement of the Intellectual Property, net of the
actual out-of-pocket expenses incurred to receive such proceeds, where in each
case the gross sales prices are reduced by sales returns and allowances. Net
Sales shall include one-half of the proceeds from
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the disposition of technology as described in Section 3.5 below. The bonuses
shall be paid in accordance with the following schedule:
- -------------------------------------------------------------------------------
Cumulative Sales
in Excess of $88.8 million Bonus as a %
(dollars in millions) of Excess Sales
- -------------------------------------------------------------------------------
0 to 15 5%
- -------------------------------------------------------------------------------
over 15 to 40 10%
- -------------------------------------------------------------------------------
over 40 15%
- -------------------------------------------------------------------------------
The bonus shall be paid, by certified or bank cashier's check (or wire
transfer), promptly after sales for the third year of the Business Plan have
been determined. Seller shall have the inspection rights, and disputes, if any,
with respect to such bonuses shall be resolved, as specified in the Escrow
Agreement.
3.5 Resale of Technology.
(a) In the event the Purchaser or an Affiliate sells or otherwise
disposes of its proprietary rights to the AeQ and/or Ofoto technology (as
those terms are defined in Schedule 3.5 of the Disclosure Schedule) to any
third party, whether exclusively or nonexclusively, but not to the extent
it is incorporated into a hardware product or an object-code software
product of Purchaser or an Affiliate, prior to December 14, 2010 (the
expiration date of U.S. patent No. 5,271,096), then Purchaser shall pay
one-half (1/2) of the proceeds from such sale(s) to the Seller, net of
out-of-pocket costs associated with the sale or disposition (a "Disposition
Payment"). The payment shall be in the form of a certified or bank
cashier's check (or wire transfer) to the extent any proceeds of some such
disposition consist of cash or cash equivalents. In the event proceeds are
in the form of royalties, or the equivalent, received in periodic
installments, one-half of such proceeds shall be paid quarterly to the
Seller. If some or all of the consideration given for such disposition is
in the form of property or property rights not consisting of cash or cash
equivalents, then the Purchaser shall promptly pay an amount equal to
one-half of the fair market value of such property rights to Seller by
certified or bank cashier's check (or wire transfer).
(b) Purchaser shall use its best efforts to compile all financial
information with respect to any disposition referred to in clause (a) above
and all other information relevant to the calculation of any Disposition
Payment promptly upon the consummation of any such disposition (and in any
event within 45 days of the consummation of such disposition), and shall
calculate the amount, if any, of the Disposition Payment in accordance with
the terms of this Agreement, and will promptly provide such information and
calculation to Seller, together with
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a certificate of X-Rite's Chief Financial Officer that such information is true,
correct and complete.
(c) With respect to the financial information and calculation provided
to Seller by Purchaser pursuant to clause (b) above, Seller shall have
thirty (30) days after receipt of such information and calculation to
object thereto. If Seller does not object within such thirty (30)- day
period, Purchaser shall, within five (5) business days of the end of such
thirty (30)-day period, pay the amount, if any, of the Disposition Payment
so calculated and set forth in such notice. If Seller objects to the
financial information or the calculation of the Disposition Payment, it
shall notify Purchaser of such objection and shall have the right to have
such financial information and calculation audited by auditors of Seller's
choice at Seller's expense, and shall notify Purchaser of its intention to
do so within such thirty (30)-day period. If the audit results in an upward
adjustment of the Disposition Payment calculation due to an increase in the
proceeds from such disposition of more than one percent (1%), then
Purchaser shall reimburse Seller for the cost of the audit.
(d) Any audit of the financial information and calculation of a
Disposition Payment must be completed within ninety (90) days of the date
Seller notifies Purchaser of its objection to the financial information or
calculation of the Disposition Payment provided by Purchaser. Purchaser
shall pay to Seller the amount, if any, of the Disposition Payment shown by
such audit report to be due to Seller in accordance with this Agreement
within five (5) business days after the receipt of such audit report.
(e) The payment of any Disposition Payment shall not constitute a
waiver of or be deemed to abridge or modify any rights or remedies of any
party to challenge the calculation or payment of any Disposition Payment.
3.6 Allocation. Purchaser and Seller agree that the Purchase Price shall be
allocated as set forth on Schedule 3.6, and that no tax return will be filed
with any governmental authority inconsistent with such allocation.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 General Statement. The parties make the representations and warranties
to each other which are set forth in this Article IV. All such representations
and warranties and all representations and warranties which are set forth
elsewhere in this Agreement and in any schedule or closing document delivered by
a party hereto to the other party pursuant to this Agreement or in connection
herewith shall survive the Closing (and none shall merge into any instrument of
conveyance) for the period set forth in Article IX, regardless of any
investigation or lack of investigation by any of the parties to this Agreement.
No specific representation or warranty shall limit the generality or
applicability of a more general representation or warranty. All representations
and warranties of Seller are made subject to the exceptions which are noted
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in the schedule delivered by Seller to Purchaser concurrently herewith and
identified by the parties as the "Disclosure Schedule," irrespective of whether
the text of the relevant representations and warranties makes reference thereto.
Any fact or item which is disclosed in any section of the Disclosure Schedule to
a representation or representations made elsewhere in this Agreement or to the
information called for by another section or other sections of the Disclosure
Schedule shall be deemed to be an exception to such representation or
representations or to be disclosed in such other section or sections, as the
case may be, notwithstanding the omission of a reference or cross-reference
thereto.
4.2 Purchaser's Representations and Warranties. Purchaser represents and
warrants to Seller that:
(a) Purchaser is a wholly-owned subsidiary of X-Rite, Incorporated and
is a corporation duly organized, existing, and in good standing under the
laws of the state of Michigan. The Purchaser has all necessary corporate
power and authority to conduct the Business after the Closing;
(b) Purchaser has full power and authority to enter into and perform
its obligations arising under this Agreement and all documents and
instruments to be executed by Purchaser pursuant to this Agreement
(collectively, "Purchaser's Ancillary Documents"). This Agreement has been,
and Purchaser's Ancillary Documents will be, duly executed and delivered by
duly authorized officers of Purchaser. This Agreement and each of
Purchaser's Ancillary Documents constitute a valid and legally binding
obligation of Purchaser, enforceable against Purchaser in accordance with
their respective terms.
(c) No consent, authorization, order or approval of, or filing or
registration with any governmental authority or other person is required
for the execution and delivery by Purchaser of this Agreement and
Purchaser's Ancillary Documents, or the consummation by Purchaser of the
transaction contemplated by this Agreement and Purchaser's Ancillary
Documents.
(d) Neither the execution and delivery of this Agreement and
Purchaser's Ancillary Documents by Purchaser, nor the consummation by
Purchaser of the transaction contemplated hereby, will conflict with or
result in a breach of any of the terms, conditions or provisions of the
Articles of Incorporation or Bylaws of Purchaser, or of any statute or
administrative regulation, or of any order, writ, injunction, judgment or
decree of any court or governmental authority or of any arbitration award
binding upon Purchaser.
(e) Purchaser is not a party to any unexpired, undischarged or
unsatisfied written or oral contract, agreement, indenture, mortgage,
debenture, note or other instrument under the terms of which performance by
Purchaser according to the terms of this Agreement will be a default or an
event of acceleration, or grounds for termination, or whereby timely
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performance by Purchaser according to the terms of this Agreement may be
prohibited, prevented or delayed.
(f) X-Rite's sales of its desktop products (product classes 404, 406,
and 422) for the year ended December 31, 1996, were in an amount equal to
Eleven Million Five Hundred Thousand Dollars ($11,500,000).
(g) Neither the Purchaser nor any of its directors, officers,
employees, or agents have retained, employed or used any broker or finder
in connection with the transaction provided for herein or in connection
with the negotiation thereof.
(h) The representations and warranties of the Purchaser in this
Agreement, and all representations, warranties, and statements of the
Purchaser contained in any schedule (or attachment to such schedule) or
closing document delivered pursuant hereto or in connection herewith, do
not omit to state a material fact necessary in order to make the
representations, warranties, or statements contained herein or therein not
misleading.
4.3 Seller's Representations and Warranties. Seller represents and warrants
to Purchaser that, except as set forth in the Disclosure Schedule:
CORPORATE
(a) Seller is a corporation duly organized, existing and in good
standing, under the laws of the state of California. The Seller has all
necessary corporate power and authority to conduct the Business as the
Business is now being conducted.
(b) Seller has qualified as a foreign corporation, and is in good
standing, under the laws of all jurisdictions where the nature of the
Business or the nature or location of its assets which are used in the
Business requires such qualification, except where the failure to so
qualify would not have a material adverse effect on the Business. All
jurisdictions in which the Seller is qualified as a foreign corporation are
set forth in the Disclosure Schedule.
(c) Seller has full corporate power and authority to enter into and
perform its obligations arising under this Agreement and all documents and
instruments to be executed by Seller pursuant to this Agreement
(collectively, "Seller's Ancillary Documents"). This Agreement has been,
and Seller's Ancillary Documents will be, duly executed and delivered by
duly authorized officers of Seller. This Agreement and each of Seller's
Ancillary Documents constitute a valid and legally binding obligation of
Seller, enforceable against Seller in accordance with their respective
terms.
(d) No consent, authorization, order or approval of, or filing or
registration with, any governmental authority or other person is required
for the execution and delivery by Seller of this Agreement and Seller's
Ancillary Documents or the consummation by Seller of the
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transaction contemplated by this Agreement and Seller's Ancillary Documents
(other than the approval of the Seller's shareholders, which it shall use
its best efforts to obtain prior to Closing).
(e) Neither the execution and delivery of this Agreement and Seller's
Ancillary Documents by Seller, nor the consummation by Seller of the
transaction herein contemplated, will conflict with or result in a breach
of any of the terms, conditions, or provisions of the Seller's respective
Certificate of Incorporation or Bylaws, or of any statute or administrative
regulation, or of any order, writ, injunction, judgment, or decree of any
court or any governmental authority or of any arbitration award binding
upon Seller or the Business.
(f) True and complete copies of the Seller's Certificate of
Incorporation and all amendments thereto, and the Bylaws as amended and
currently in force, have been furnished for inspection by Purchaser. Seller
does not own, directly or indirectly, any capital stock or other equity
securities of any corporation or other entity engaged in, or which is a
customer or supplier of the Business, or have any direct or indirect equity
interest in, or operate, manage or otherwise control any business which
engages in, or which is a customer or supplier of the Business.
FINANCIAL
(g) The Seller's books, accounts, and records with respect to the
Business are, and have been maintained in the usual, regular, and ordinary
manner, in accordance with generally accepted accounting principles (GAAP),
and all material transactions to which the Seller is or has been a party
with respect to the Business are properly reflected therein.
(h) Complete and accurate copies of the 1996 year-end financial
statements and a April 26, 1997 balance sheet are contained in the
Disclosure Schedule. All such financial statements are referred to herein
collectively as the "Financial Statements". The Financial Statements fairly
present the financial position of the Business as of the respective dates
thereof, and the results of operations and cash flows of the Business for
the respective periods covered by said statements, in accordance with GAAP,
consistently applied. Complete and correct copies of all attorney's
responses to audit inquiry letters with respect to the Business and all
management letters from independent accountants with respect to the
Business for the last five (5) fiscal years, have been furnished to the
Purchaser. Schedule 4.3(h) contains a complete listing of all of Seller's
obligations to pay money in excess of Fifty Thousand Dollars ($50,000) in
the aggregate to any creditor, irrespective of maturity date, except for
Assumed Liabilities other than those obligations described in Section
2.2(f) above.
(i) To the best of Seller's knowledge, none of the accounts receivable
which are reflected on the Financial Statements or which arose subsequent
to April 26, 1997, is or was subject to any counterclaim or setoff. All of
such receivables arose out of bona fide, arms-length transactions for the
sale of goods or performance of services, and, to the best of Seller's
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knowledge, all such receivables are good and collectible (or have been
collected) in the ordinary course of business using normal collection
practices at the aggregate recorded amounts thereof, less the amount of
applicable reserves for doubtful accounts and allowances, and discounts.
All such reserves, allowances and discounts, were and are adequate and
consistent in extent with reserves, allowances and discounts previously
maintained by the Business in the ordinary course of business. Adequate
provision has been timely made in the Financial Statements with respect to
doubtful accounts, and the Financial Statements reflect all discounts,
returns and allowances granted by Seller with respect to the periods
covered thereby. Since April 26, 1997, there has not been a material change
in the aggregate amount of the accounts receivable of the Business or the
aging thereof. The Business has no outstanding sales on consignment, sales
on approval, sales on return or guaranteed sales that are material in
amount.
(j) All inventory which is held for sale or resale consists of items
of a quantity and quality historically useable and/or saleable in the
normal course of business, except for items of obsolete and slow-moving
material and materials which are below standard quality, all of which have
been written down to estimated net realizable value on an item by item
basis. With the exception of items of below standard quality which have
been written down to their estimated net realizable value, the inventory is
free from material defects in materials and/or workmanship. The supply of
spare parts in the inventory, the product mix of such inventory and the raw
materials and work in process necessary to convert to finished goods is not
materially out of balance in relation to the sales experience of the
Business during the past five years and is consistent with Seller's
expectations of the demands of the customers of the Business. Since April
26, 1997, there has not been a material change in the level of the
inventory of Seller with respect to the Business.
(k) Seller has good, valid, and legal title to, and the corporate
power to sell, the Purchased Assets, free and clear of any Encumbrances,
except for the following "Permitted Encumbrances": (i) statutory liens for
taxes not yet due, (ii) liens of carriers, warehousemen, mechanics, and
materialmen incurred in the ordinary course of business for sums not yet
due; (iii) conditions, restrictions, and easements of record which are set
forth on the Disclosure Schedule. No unreleased mortgage, trust deed,
chattel mortgage, security agreement, financing statement or other
instrument encumbering any of the Purchased Assets, other than instruments
reflecting or creating the Permitted Encumbrances, has been recorded,
filed, executed or delivered.
(l) The Disclosure Schedule contains a true and correct list and
description (including coverages, deductibles and expiration dates) of
all insurance policies which are owned by the Seller relating to the
conduct of the Business or which name the Seller as an insured and
which pertain to the Purchased Assets or the Business, or employees
who are employed in the conduct of the Business. In the three (3) year
period ending on the date hereof, the Seller has not received any
written notice from, or on behalf of, any insurance carrier issuing
such policies, to the effect that insurance rates will hereafter be
substantially increased (except to the extent that insurance rates may
be increased for all similarly situated risks), that there will
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hereafter be no renewal of an existing policy, or that material
alteration of any Purchased Asset, purchase of additional equipment,
or material modification of any method of conducting the Business,
will be required or is suggested.
(m) The Disclosure Schedule describes each: (i) business relationship
relating to or in connection with the conduct of the Business (excluding
employee compensation, severance and other ordinary incidents of employment
or termination of employment) existing on the date of this Agreement
between any present or former officer, director, or Affiliate of the
Seller, (collectively "Related Parties" and individually "Related Party")
and the Seller; (ii) transaction relating to or in connection with the
conduct of the Business occurring between January 1, 1995, and the date of
this Agreement between the Seller and any Related Party; and (iii) amount
owing by or to any of the Related Parties, respectively, to or from the
Seller relating to or in connection with the conduct of the Business as of
the date of this Agreement. No property or interest in any property
(including, without limitation, designs and drawings) which relates to and
is or will be necessary or useful in the present operation of the Business,
is presently owned by or leased by or to any Related Party. Seller has no
interest, directly or indirectly, in any business, corporate or otherwise,
which is in competition with the Business. As used herein, an "Affiliate"
is any person or entity which controls a party to this Agreement, which
that party controls, or which is under common control with that party.
"Control" means the power, direct or indirect, to direct or cause the
direction of the management and policies of a person or entity through
voting securities, contract or otherwise.
CONDUCT OF BUSINESS
(n) Since February 22, 1997, Seller has not, with respect to the
Business:
(i) sold, assigned, leased, exchanged, transferred, or otherwise
disposed of any of its assets or property (including sales and
transfers to Related Parties), except for (a) sales of inventory in
the usual and ordinary course of business in accordance with the past
practices of the Business, and (b) sales of assets which did not
exceed Twenty-Five Thousand Dollars ($25,000) for any item or One
Hundred Thousand Dollars ($100,000) in the aggregate;
(ii) suffered any material casualty, damage, destruction, or
loss, or any material interruption in use, of any material assets or
property (whether or not covered by insurance), on account of fire,
flood, riot, strike, or other hazard or Act of God;
(iii) waived any material right or canceled or compromised any
debt or claim, other than in the ordinary course of business;
(iv) made (or committed to make) capital expenditures in an
amount which exceeds $25,000 for any item or $100,000 in the
aggregate;
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(v) increased the compensation payable to any employee, including
bonuses;
(vi) paid or incurred any management or consulting fees
(excluding contract labor for programming);
(vii) hired or terminated any employee who has an annual salary
in excess of $30,000;
(viii) made any change in accounting methods or principles not
disclosed in the notes to the Financial Statements;
(ix) declared or paid any dividend or other distribution on, or
redeemed, purchased or otherwise retired any shares of its capital
stock; or
(x) operated the Business other than in the usual and ordinary
course.
(o) The Seller has not suffered or been threatened with any material
adverse change in the business, operations, assets, liabilities, or
financial condition of the Business, including, without limiting the
generality of the foregoing, the existence or threat of any labor dispute,
or any material adverse change in, or loss of, any relationship between
Seller and any of the key employees of the Business.
(p) Since April 14, 1997 (the date of Seller's Account Review and
Forecast), no "Significant Customer" (as herein defined) has terminated its
business relationship with Seller, and Seller has no knowledge that a
significant Customer has threatened to hereafter terminate its business
relationship with it or to limit or alter its projected business
relationship with it in a manner which would have or would reasonably be
expected to have a material adverse effect on the business, operations,
assets, liabilities, or financial condition of Seller taken as a whole (a
"Material Adverse Effect"). Seller has no knowledge of any intention of or
indication by a "Significant Supplier" (as herein defined) to terminate its
business relationship with it or to limit or alter its business
relationship with it in a manner which would have or would reasonably be
expected to have a Material Adverse Effect. As used herein, "Significant
Customer" means any customer which was projected in Seller's Account Review
and Forecast to purchase $50,000 or more of goods. As used herein,
"Significant Supplier" means any supplier from whom the Seller has
purchased $50,000 or more of goods during fiscal years.
CONTRACTS
(q) Except as set forth on Schedule 4.3(q), the Seller is not a party
to, or bound by, or the issuer, beneficiary or recipient of, any
undischarged written or oral:
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(i) contract for the employment for any period of time
whatsoever, or in regard to the employment, or restricting the
employment, of any employee;
(ii) consulting agreement (excluding contract labor for
programming);
(iii) collective bargaining agreement;
(iv) plan, policy or contract or arrangement providing for
bonuses, options, deferred compensation, retirement payments,
severance benefits, profit sharing, medical and dental benefits or the
like which shall become an obligation of the Purchaser as of the
Closing Date;
(v) contract for the purchase of equipment, inventory, or other
materials having a price under any such contract in excess of $25,000
per annum;
(vi) contract for the sale of any equipment, inventory or other
assets in excess of $5,000, except for sales of inventory in the
ordinary course of business;
(vii) contract or agreement restricting in any manner the
Seller's right to compete with, sell to, or purchase from, any other
person, or to employ any person, or restricting the right of any other
party to compete with the Business, or restricting the ability of any
person or entity to employ any of Seller's employees employed in the
conduct of the Business;
(viii) secrecy or confidentiality agreement;
(ix) contract of agency, representation, distribution,
dealership, or franchise which cannot be canceled by the Seller
without payment or penalty upon notice of thirty (30) days or less;
(x) contract for the advertisement, display or promotion of any
products or services which cannot be canceled by Seller without
payment or penalty upon notice of thirty (30) days or less which
involves payments in excess of $10,000;
(xi) service contract affecting any of the Purchased Assets where
the annual service charge is in excess of $25,000 and has an unexpired
term as of the Closing Date in excess of thirty (30) days;
(xii) contract, order, pricing agreement, or quotation for the
sale of goods or the performance of services which, if performed in
accordance with its terms, could not be performed by Seller with a
positive gross profit, or which could not be performed within the time
limits or other terms therein provided or, when actually performed,
would result in an obligation (contractual or otherwise) to pay
damages or penalties;
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(xiii) guaranty, performance, bid or completion bond, or surety
or indemnification agreement;
(xiv) contract with any railroad or other transportation company
which involves payments in excess of $10,000;
(xv) lease or sublease, either as lessee or sublessee, lessor or
sublessor, of real or personal property or intangibles, where the
lease or sublease provides for an annual rent in excess of $25,000 and
has an unexpired term as of the Closing Date in excess of thirty (30)
days;
(xvi) contract for the purchase, sale, or removal (as the case
may be) of electricity, gas, water, telephone, coal, sewage, power or
other utility service which involves payments in excess of $10,000;
(xvii) contract for the treatment or disposal of Hazardous
Materials;
(xviii) industrial security clearance;
(xix) contract not specifically enumerated above which provides
for the receipt or expenditure by Purchaser after such assignment of
more than $25,000, except agreements for the sale of goods or the
rendering of services by Seller in the ordinary course of business.
All contracts, leases, subleases and other instruments referred to in this
Section, and all other contracts or instruments to which the Seller is a party
or by which it is bound and which relate to the Business, are in full force and
binding upon the Seller and, to the knowledge of the Seller, are in full force
and binding upon the parties thereto. No default by the Seller has occurred
thereunder and, to the best of Seller's knowledge, no default by the other
contracting parties has occurred thereunder. No event, occurrence or condition
exists which, with the lapse of time, the giving of notice, or both, would
become a default by Seller or, to Seller's knowledge, the other contracting
party thereunder. The Seller has not released or waived any of its rights under
any contract, lease, sublease or other instrument which relates to the Business.
(r) The Seller is not a party to, or bound by, any unexpired,
undischarged or unsatisfied written or oral contract, agreement, indenture,
mortgage, debenture, note or other instrument under the terms of which
performance by the Seller according to the terms of this Agreement will be
a default or an event of acceleration, or grounds for termination, or
whereby timely performance by the Seller according to the terms of this
Agreement may be prohibited, prevented or delayed which would be required
to be disclosed under Section 4.3(q).
(s) The Disclosure Schedule identifies a true and correct copy of
every material license, permit, registration, governmental approval and
consent applied for, pending
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by, issued or given to the Seller, with respect to the Business, and every
material agreement with governmental authorities (federal, state, local, or
foreign) entered into by the Seller, with respect to the Business, which is
in effect or has been applied for or is pending, exclusive of Environmental
Permits (the "Permits"). The Permits constitute all licenses, permits,
registrations, approvals, agreements and consents (other than Environmental
Permits) which are required in order to conduct the Business as presently
conducted, except where the failure to obtain any such Permit would not
require the payment of $2,500 or more or otherwise materially and adversely
affect the Business.
EMPLOYEES
(t) Neither Seller nor any affiliate of Seller as determined under
Section 414(b), (c), (m), or (o) ("ERISA Affiliate") of the Internal
Revenue Code of 1986, as amended (the "Code") maintains, administers, or
contributes to any Employee Benefit Plan as defined in Section 3(3) of
ERISA that will become an obligation of the Purchaser as of or after the
Closing Date, including any: employee pension benefit plan (as defined in
Section 3(2) of ERISA ("Plan"), including, without limitation, any
multi-employer plan as defined in Section 3(37) of ERISA ("Multi-employer
Plan"); employee welfare benefit plan (as defined in Section 3(1) of ERISA)
("Welfare Plan"); or bonus, deferred compensation, stock purchase, stock
option, severance plan, salary continuation, vacation, sick leave, fringe
benefit, incentive, insurance, welfare or plan, policy, practice or similar
arrangement ("Employee Benefit Plan"); other than those plans described in
the Disclosure Schedule.
(u) With respect to employees of the Seller:
(i) there is no pending or, to Seller's knowledge, threatened
unfair labor practice charges or employee grievance charges;
(ii) there is no request for union representation, labor strike,
dispute, slowdown or stoppage actually pending or, to the best of
Seller's knowledge, threatened;
(iii) no grievance or arbitration proceeding arising out of or
under collective bargaining agreements is pending and Seller has no
knowledge of any existing claims therefor;
(iv) except as set forth on the Disclosure Schedule, the
employment of each of its employees is terminable at will without cost
to the Seller except for payments required under the Plans, Welfare
Plans, and Employee Benefit Plans and payment of accrued salaries or
wages and vacation pay. No employee or former employee has any right
to be rehired by the Seller prior to the Seller hiring a person not
previously employed by the Seller.
(v) the Disclosure Schedule contains a true and complete list of
all full and part time employees (other than temporary employees) and
said list correctly reflects their
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salaries, wages, other compensation (other than benefits under the
Plans, Welfare Plans, and Employee Benefit Plans), dates of employment
and positions;
(vi) either the Seller has complied with the notice and any other
requirements of the Worker Adjustment Retraining Notification Act
("WARN Act") within the time period required therein, in view of the
Closing Date, or such compliance is not required because the
consummation of this transaction will not result in a "plant closing"
or "mass layoff" within the meaning of the WARN Act, and Seller has
complied with the comparable requirements of all other applicable
state and local laws pertaining to employees of the Business of Seller
who may be affected by the transaction contemplated hereby .
LITIGATION AND CLAIMS
(v) There is no litigation or proceeding, in law or in equity, and
there are no proceedings or governmental investigations before any
commission or other administrative authority, pending, or, to the best of
Seller's knowledge, threatened (except for threats by trade creditors),
against the Seller with respect to or affecting or arising out of the
Business, directly or indirectly, or with respect to the consummation of
the transaction contemplated hereby, or the use of the Purchased Assets.
(w) Seller has no knowledge of any facts which, if known by a
potential claimant or governmental authority, would give rise to a claim or
proceeding which, if asserted or conducted, would have or would reasonably
be expected to have a Material Adverse Effect or adversely affect the
consummation of the transaction contemplated hereby, or the use of the
Purchased Assets.
(x) The Seller has not made any oral or written warranties with
respect to the quality or absence of defects of the products or services
which it has sold or performed in the conduct of the Business which are in
force as of the date hereof, except for those warranties which are
described in the Disclosure Schedule. There are no claims pending or, to
the best of Seller's knowledge, reasonably anticipated or threatened
against the Seller with respect to the quality of, or absence of defects in
such products or services which would have or would reasonably be expected
to have a Material Adverse Effect, or adversely affect the consummation of
the transactions contemplated hereby, or the use of the Purchased Assets.
The Disclosure Schedule sets forth a summary, which is accurate in all
material respects, of returns of defective products of the Business during
the period beginning January 1,1996, and ending on the date hereof, and the
aggregate dollar amount of credits and allowances for defective products
given to customers during said period. Seller has no knowledge or reason to
believe that the percentage of products sold and services performed by the
Seller in the conduct of the Business for which warranties are presently in
effect and for which warranty adjustments can be expected during unexpired
warranty periods which extend beyond the Closing Date will be higher than
the percentage of such products and services which Seller has sold and
performed in the conduct of the Business for which warranty adjustments
have been required in the past. The Seller has
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not been required to pay direct, incidental, or consequential damages to
any person in connection with any of such products or services at any time
during the three (3) year period preceding the date hereof.
(y) The Seller is not a party to, or bound by, any decree, order or
arbitration award (or agreement entered into in any administrative,
judicial or arbitration proceeding with any governmental authority) with
respect to the properties, assets, personnel or business activities of the
Business.
(z) The Seller is not, with respect to the Business, in violation of,
or delinquent with respect to, any decree, order or arbitration award or
law, statute, or regulation of or agreement with, or Permit from, any
federal, state, provincial, county, or local governmental authority (or to
which the properties, assets, personnel, business activities of the
Business, is subject), including, without limitation, laws, statutes and
regulations relating to equal employment opportunities, fair employment
practices, occupational health and safety, wages and bonuses, and
discrimination which would have or would reasonably be expected to have a
Material Adverse Effect, or adversely affect the consummation of the
transactions contemplated hereby, or the use of the Purchased Assets.
ENVIRONMENTAL MATTERS
(aa) The Seller is in compliance in all material respects with all
Environmental Laws and Environmental Permits, except for any noncompliance
which would not have or reasonably be expected to have a Material Adverse
Effect, or adversely affect the consummation of the transactions
contemplated hereby, or the use of the Purchased Assets. A copy of any
notice, citation, inquiry, or complaint which has been received in the past
three years of any alleged violation of any Environmental or Environmental
Permit relating to the Business is contained in the Disclosure Schedule,
and all violations alleged in said notices have been corrected. The Seller
possess all material Environmental Permits which are required for the
operation of the Business, and is in compliance in all material respects
with the provisions of all such Environmental Permits. Copies of all
currently effective Environmental Permits with respect to the conduct of
the Business are contained in the Disclosure Schedule.
(bb) There has been no storage, treatment, generation, transportation,
or Release of any Hazardous Materials by the Seller or, to Seller's
knowledge, its predecessors in interest, or by any other person or entity
for which it is or may be held responsible, at any Facility or any Offsite
Facility in violation of, or which could give rise to any obligation under,
Environmental Laws, except for any storage, treatment, generation,
transportation, or Release of any Hazardous Materials which would not have
or reasonably be expected to have a Material Adverse Effect, or adversely
affect the consummation of the transactions contemplated hereby, or the use
of the Purchased Assets.
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(cc) The Disclosure Schedule sets forth a complete list of all
Containers that are now present at, or have heretofore been removed from,
the Real Estate. All such Containers which have been heretofore removed
have been removed in accordance with all then applicable Environmental
Laws.
(dd) For purposes of this Agreement:
(i) "Containers" means above-ground and underground storage
tanks;
(ii) "Environmental Laws" means all federal, state, and local
statutes, regulations, ordinances, rules, regulations and policies,
all court orders and decrees and arbitration awards, and the common
law, in effect as of the Closing Date, which pertain to environmental
matters or contamination of any type whatsoever. Environmental Laws
include, without limitation, those relating to: manufacture,
processing, use, distribution, treatment, storage, disposal,
generation or transportation of Hazardous Materials; air, soil,
surface or ground water or noise pollution; Releases; protection of
wildlife, endangered species, wetlands or natural resources;
Containers; health and safety of employees and other persons; and
notification requirements relating to the foregoing;
(iii) "Environmental Permits" means licenses, permits,
registrations, governmental approvals, agreements and consents which
are required under or are issued pursuant to Environmental Laws;
(iv) "Facility" means any facility as defined in the
Comprehensive Environmental Response, Compensation and Liability Act,
42 U.S.C. Section 9601, et as amended and reauthorized ("CERCLA");
(v) "Hazardous Materials" means: pollutants, contaminants,
pesticides, petroleum and petroleum products, radioactive substances,
solid wastes or hazardous or extremely hazardous, special, dangerous
or toxic wastes, substances, chemicals or materials within the meaning
of or regulated by any Environmental Law, including without limitation
any (i) "hazardous substance" as defined in CERCLA, and (ii) any
"hazardous waste" as defined in the Resource Conservation and Recovery
Act, 42 U.S.C., Section 6902 et seq. as amended and reauthorized
("RCRA")
(vi) "Offsite Facility" means any Facility which is not
presently, and has not heretofore been, owned, leased or occupied by
Seller with respect to the Business;
(vii) "Release" means any spill, discharge, leak, emission,
escape, injection, dumping, or other release or threatened release of
any Hazardous Materials into the environment, whether or not
notification or reporting to any governmental agency was or is,
required, including, without limitation, any Release which is subject
to CERCLA.
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REAL ESTATE
(ee) Seller has full corporate power and authority to lease the Real
Estate. The Disclosure Schedule accurately sets forth the street address
and description of the Real Estate. The Real Estate is not subject to any
subleases or other tenancies. None of the improvements comprising the Real
Estate or the businesses conducted by Seller thereon, are in material
violation of any federal, state, county, or municipal use or occupancy
restriction, limitation, condition, or covenant of record or any federal,
state, county, or municipal zoning or building law, code, or ordinance or
public utility easement, except for any violations of any federal, estate,
county, or municipal use or occupancy restriction, limitation, condition,
or covenant of record or any federal, state, county, or municipal zoning or
building law, code, or ordinance or public utility easement which would not
have or reasonably be expected to have a Material Adverse Effect, or
adversely affect the consummation of the transactions contemplated hereby
or the use of the Purchased Assets. To the best of Seller's knowledge, no
material expenditures are required to be made for the repair or maintenance
of any improvements on the Real Estate.
(ff) The Real Estate is served by gas, electricity, water, sewage and
waste disposal and other utilities adequate to use the facility as
presently used, and none of the utility companies serving the facility has
threatened Seller with any reduction in service. Such utilities either
enter the Real Estate through adjoining public streets or, if they pass
through adjoining private land, do so in accordance with valid, permanent
public or private easements which, following the Closing, will inure to the
benefit of Purchaser, its successors and assigns. All of said utilities are
installed and operating and all installation and connection charges have
been paid for in full.
(gg) There are no condemnation proceedings pending or, to the best of
Seller's knowledge, threatened with respect to any portion of the Real
Estate. There is no tax assessment (in addition to the normal, annual
general real estate tax assessment) pending or, to the best of Seller's
knowledge, threatened with respect to any portion of the Real Estate.
(hh) To the best of Seller's knowledge, the building and other
facilities located on the Real Estate are in good condition and repair and
are free of any structural or engineering defects (regardless of whether
latent or patent). The continued maintenance and operation of the Real
Estate as currently maintained and operated is not dependent on facilities
located at other property, and the continued maintenance and operation of
any other property is not dependent on facilities located on the Real
Estate.
INTELLECTUAL PROPERTY
(ii) Except for those assets which are Excluded Assets, the Disclosure
Schedule identifies all of the following, if any, which are used in the
Business or in which the Seller claims any ownership rights in connection
with the Business: (i) all trademarks, service marks, slogans, trade names,
trade dress and the like which have been registered or for which there are
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pending registrations to register such rights (collectively the "Registered
Trademarks"), together with information regarding any registrations and
pending applications to register any such rights; (ii) all patents on and
pending applications to patent any technology or design; (iii) all
registrations of, and applications to register copyrights; and (iv) all
licenses of rights in computer software, Trademarks, patents, copyrights,
unpatented formulations, manufacturing methods and other know-how, whether
to or by the Seller, which are not Excluded Assets. The rights required to
be scheduled pursuant to the previous sentence, the unregistered
trademarks, service marks, slogans, trade names, trade dress and the like
which are material to the business (collectively, the "Unregistered
Trademarks" and, collectively with the Registered Trademarks, the
"Trademarks") and all proprietary formulations, manufacturing methods,
know-how and trade secrets which are material to the Business are referred
to herein collectively as the "Intellectual Property."
(jj) (i) Seller is the owner of, or duly licensed to use each
Trademark and its associated goodwill and each copy of computer software
included within the Purchased Assets; (ii) each Trademark registration
exists and has been maintained in good standing; (iii) each patent and
application included in the Intellectual Property exists, is owned by or
licensed to Seller and has been maintained in good standing; (iv) each
copyright registration exists and is owned by Seller; (v) to the best of
Seller's knowledge, no other firm, corporation, association or person
claims the right to use, in connection with similar or closely related
goods and in the same geographic area, any mark which is identical or
confusingly similar to any of the Trademarks; (vi) Seller has no knowledge
of any claim or any reason to believe that any third party asserts
ownership rights in any of the Intellectual Property; (vii) Seller has no
knowledge of any claim or any reason to believe that Seller's use of any
Intellectual Property infringes any right of any third party; and (viii)
Seller has no knowledge or any reason to believe that any third party is
infringing any of Seller's rights in any of the Intellectual Property.
GENERAL
(kk) Neither the Seller nor, to the best of Seller's knowledge, any of
its current officers, directors, employees, agents, or representatives has
made, directly or indirectly, with respect to the Business, any bribes or
kickbacks, illegal political contributions, payments from corporate funds
not recorded on the books and records of the Seller, payments from
corporate funds to governmental officials, in their individual capacities,
for the purpose of affecting their action or the action of the government
they represent, to obtain favorable treatment in securing business or
licenses or to obtain special concessions, or illegal payments from
corporate funds to obtain or retain business. Without limiting the
generality of the foregoing, the Seller has not, with respect to the
Business, directly or indirectly made or agreed to make (whether or not
said payment is lawful) any payment to obtain, or with respect to, sales
other than usual and regular compensation to its employees and sales
representatives with respect to such sales.
(ll) The Purchased Assets, in combination with the Real Estate to be
leased, are adequate to conduct the Business as it is presently being
conducted.
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(mm) The Equipment and Leased Personalty are in good operating
condition and repair (ordinary wear and tear excepted).
(nn) The Seller has not attempted to dissuade any present employees,
representatives or agents who are employed in the conduct of the Business
from becoming associated with Purchaser.
(oo) Neither the Seller nor any of its directors, officers, or
employees have retained, employed, or used any broker or finder in
connection with the transaction provided for herein or in connection with
the negotiation thereof.
(pp) The representations and warranties of Seller in this Agreement,
and all representations, warranties and statements of Seller contained in
any schedule (or attachment to such schedule) or closing document delivered
pursuant hereto or in connection herewith, do not omit to state a material
fact necessary in order to make the representations, warranties or
statements contained herein or therein not misleading.
ARTICLE V
CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATION TO CLOSE
The obligation of Purchaser to close this transaction is expressly subject
to the conditions, any of which may be waived by Purchaser, that, on or before
the Closing Date:
5.1 Transfer of Purchased Assets. All actions, proceedings, instruments,
and documents necessary or appropriate to consummate the transactions
contemplated by this Agreement or incidental hereto and all other related legal
matters shall have been reasonably approved by counsel for Purchaser.
5.2 Performance by Seller. Seller shall have performed and complied in all
material respects, with all agreements, covenants, and conditions required by
this Agreement to have been performed or complied with by it prior to or at the
time of Closing, including the delivery of documents pursuant to Section 7.3.
5.3 Accuracy of Representations and Warranties. The representations and
warranties made by Seller herein shall be correct in all material respects on
and as of the Closing Date with the same force and effect as though such
representations and warranties had been made as of such date, except for all
such inaccuracies which would not have or reasonably be expected to have a
Material Adverse Effect, or adversely affect the consummation of the
transactions contemplated hereby, or the use of the Purchased Assets.
5.4 Validity of Documents. The instruments executed and delivered to
Purchaser by Seller pursuant to this Agreement shall be valid in accordance with
their terms, and effectively vest in Purchaser good and marketable title to the
Purchased Assets and business as contemplated
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by this Agreement, free and clear of any liabilities, obligations, or
encumbrances, except those liabilities expressly assumed by Purchaser and those
encumbrances expressly permitted by Purchaser, both as provided herein.
5.5 Absence of Litigation. No litigation, administrative procedure, or
administrative investigation shall have been commenced or threatened against
Purchaser or Seller challenging or seeking to enjoin the consummation of any
transaction contemplated in this Agreement, or seeking to impose upon Purchaser
any liabilities or obligations which are not to be specifically assumed by
Purchaser under this Agreement.
5.6 Consents. All necessary consents of governmental authorities, lessors,
lenders, and other third parties shall have been obtained, except where the
failure to obtain any such consents would not subject the Seller to a material
penalty or loss. Notwithstanding the foregoing, receipt of the consents of any
third party to the assignment of any contract, lease, or agreement which is not
(and is not required to be) disclosed in the Disclosure Schedule shall not be a
condition to the Purchaser's obligation to close, provided that the aggregate of
such contracts, leases, and agreements does not represent a material portion of
the Seller's sales or expenditures. After the Closing, the Seller shall continue
to use its reasonable efforts to cooperate with the Purchaser to obtain any such
consents or approvals.
5.7 Noncompetition Agreements. Noncompetition agreements in form and
substance satisfactory to Purchaser shall have been obtained from the Seller's
officers.
5.8 Shareholder Approval. This Agreement and the Seller's Ancillary
Documents and the transactions contemplated hereby and thereby shall have been
approved by the shareholders of the Seller.
ARTICLE VI
CONDITIONS PRECEDENT TO SELLER'S
OBLIGATION TO CLOSE
The obligation of Seller to close this transaction is subject to the
conditions, any of which may be waived by Seller, that, on or before the Closing
Date:
6.1 Purchaser's Performance. Purchaser shall have performed and complied,
in all material respects, with all agreements, covenants, and conditions
required by this Agreement to have been performed or complied with by it prior
to or at the time of closing, including the delivery of documents pursuant to
Section 7.2.
6.2 Accuracy of Representations and Warranties. The representations and
warranties made by Purchaser herein shall be correct in all material respects on
and as of the Closing Date with the same force and effect as though such
representations and warranties had been made as of such date, except for all
such inaccuracies which would not have or reasonably
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be expected to have a material adverse effect on the business, operations,
assets, liabilities, or financial condition of the Purchaser taken as a whole,
or adversely affect the consummation of the transactions contemplated hereby, or
the use of the Purchased Assets.
6.3 Absence of Litigation. No litigation, administrative procedure, or
administrative investigation shall have been commenced or threatened against
Purchaser or Seller challenging or seeking to enjoin the consummation of any
transaction contemplated in this Agreement, or seeking to impose upon Purchaser
any liabilities or obligations which are not to be specifically assumed by
Purchaser under this Agreement.
6.4 Shareholder Approval. This Agreement and the Seller's Ancillary
Documents and the transactions contemplated hereby and thereby shall have been
approved by the shareholders of the Seller.
ARTICLE VII
CLOSING
7.1 Closing. The transaction contemplated herein shall be closed (the
"Closing") at the offices of Cooley Godward LLP in Palo Alto, California, on the
date hereof, or at such later date (the "Closing Date") as the parties may
mutually agree. At or before the Closing, the parties shall deliver the
documents and shall perform the acts which are set forth in this Article VII.
7.2 Purchaser's Deliveries. Purchaser shall execute and/or deliver to
Seller all of the following:
(a) a certified or bank cashier's check (or wire transfer) as required
by Section 3.1 hereof;
(b) the Assumption Agreement of even date (the "Assumption
Agreement"), duly executed by the Purchaser;
(c) a certified copy of Purchaser's Articles of Incorporation and
Bylaws;
(d) a certificate of good standing of Purchaser, issued not earlier
than ten (10) days prior to the Closing Date by the Michigan Department of
Commerce;
(e) the written opinion of Varnum, Riddering, Schmidt & Howlett LLP,
counsel to Purchaser, addressed to Seller, in substantially the form of
Exhibit A attached hereto;
(f) the Escrow Agreement, duly executed by Purchaser and the Escrow
Agent;
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(g) a Resale Certificate, duly executed by Purchaser, pursuant to
Regulation 1668 of the California Sales and Use Tax Regulations;
(h) without limitation by the specific enumeration of the foregoing,
all other documents required from Purchaser to consummate the transaction
contemplated hereby; and
(i) a certificate, dated the Closing Date, signed by Purchaser's
Secretary/Treasurer, certifying to the best of his knowledge, after
investigation by him, that the conditions specified in Sections 6.1 and 6.2
have been fulfilled.
7.3 Seller's Deliveries. Seller shall deliver to Purchaser physical
possession of all tangible Purchased Assets, and shall execute (where applicable
in recordable form) and/or deliver or cause to be executed and/or delivered to
Purchaser all of the following:
(a) a certified or bank cashier's check (or wire transfer) as required
by Section 3.2 hereof to the Escrow Agent;
(b) certified copies of the Certificate of Incorporation and Bylaws of
the Seller;
(c) certificates of good standing of Seller, issued not earlier than
ten (10) days prior to the Closing Date by the California Secretary of
State.
(d) certified copies of resolutions of Seller's board of directors and
shareholders authorizing the execution, delivery, and performance of this
Agreement and Seller's Ancillary Documents.
(e) a bill of sale conveying all of the Inventory, Equipment, and
other personal property included in the Purchased Assets to Purchaser, free
and clear of all liens, claims, encumbrances and security interests other
than Permitted Encumbrances and containing the warranties of title set
forth in this Agreement;
(f) an assignment to Purchaser of its interest in the Real Estate and
all of the Purchased Assets, other than the Inventory, Equipment, and the
other personal property specified in Section 7.3(e) above, along with the
original instruments (if any) representing, evidencing or constituting the
same, free and clear of all material liens, claims, encumbrances and
security interests other than Permitted Encumbrances and containing the
warranties of title set forth in this Agreement. To the extent necessary in
the opinion of Purchaser's counsel, Seller shall also execute and deliver
(in recordable form where required) separate assignments of any of the
Purchased Assets, and where applicable, in the form required by the
applicable governmental agencies, insurance companies, customers, lessors,
and other parties with whom the assignments must be filed;
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(g) the written opinion of Cooley Godward LLP, counsel to Seller,
addressed to Purchaser, in substantially the form of Exhibit C attached
hereto;
(h) releases of all liens and other encumbrances and security
interests held by Imperial Bank, Barco N.V., Mayfield Associates, Mayfield
Software Technology Funding, Mayfield VI, Venrock Associates, Venrock
Associates II, L.P., and Philip Moffitt in any of the Purchased Assets,
including, without limitation, UCC-2 termination statements;
(i) all necessary consents for the assignment of material contracts,
leases, purchase orders, sales orders, Permits and Environmental Permits
which are to be assigned to Purchaser or alternate arrangements with
respect thereto, all as reasonably acceptable to Purchaser;
(j) certificates of title or origin (or like documents) with respect
to all vehicles included in the Purchased Assets and other Equipment for
which a certificate of title or origin is required in order for title
thereto to be transferred to Purchaser;
(k) all clearance certificates or similar types of documents which may
be required by any federal, state, provincial or other taxing authority in
order to relieve the Purchaser of any obligation to withhold any portion of
the Purchase Price;
(l) without limitation by the specific enumeration of the foregoing
all other documents reasonably required from Seller to consummate the
transaction contemplated hereby;
(m) the Escrow Agreement, duly executed by Seller and the Escrow
Agent; and
(n) a certificate(s), dated the Closing Date, signed by Seller's
President and its Chief Financial Officer, certifying to the best of their
knowledge, after investigation by them, that the conditions specified in
Section 5.2 and 5.3 have been fulfilled.
ARTICLE VIII
POST-CLOSING AGREEMENTS
8.1 Post-Closing Agreements. From and after the Closing, the parties shall
have the respective rights and obligations which are set forth in the remainder
of this Article VIII.
8.2 Inspection of Records. Seller and Purchaser shall make their respective
books and records (including work papers in the possession of their respective
accountants) available for inspection by the other, or by its duly authorized
representatives, for reasonable business purposes at all reasonable times during
normal business hours, for a seven (7) year period after the Closing Date, with
respect to all transactions of the Business occurring prior to, and those
relating to the Closing, the historical financial condition, assets,
liabilities, operations and cash
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flows of the Business, or the Assumed Liabilities. The right of inspection
includes the right to make extracts or copies.
8.3 Certain Assignments. Any other provision of this Agreement to the
contrary notwithstanding, this Agreement shall not constitute an agreement to
transfer or assign, or a transfer or assignment of, any claim, contract, lease,
Permit, Environmental Permit, commitment, sales order or purchase order, or any
benefit arising thereunder or resulting therefrom, if an attempt at transfer or
assignment thereof without the consent required or necessary for such
assignment, would constitute a breach thereof or in any way adversely affect the
rights of Purchaser or Seller thereunder. If such a consent or agreement to
transfer or assign is not obtained for any reason, Purchaser and Seller shall
cooperate in any arrangement Purchaser may reasonably request to provide for
Purchaser, to the extent practicable, the benefits under such claim, contract,
lease, Permit, Environmental Permit, commitment or order.
8.4 Use of Trademarks; References to Seller. Seller shall cease to use and
shall not license or permit any third party to use the name "Light Source," or
any name, slogan, logo or trademark which is similar or deceptively similar to
any of the Trademarks, for any purpose. Purchaser may refer to the Business as
formerly being Seller's.
8.5 Employees. Purchaser shall not be obligated to offer employment to any
employee of Seller, but Purchaser shall have the right to employ employees of
Seller employed in the Business as of the Closing Date, on terms and conditions
established by Purchaser in its sole discretion. For a period of two (2) years
commencing on the Closing Date, Seller shall not take any actions which are
calculated to persuade any salaried, technical or professional employees,
representatives or agents of Purchaser to terminate their association with
Purchaser.
8.6 Back-Up. Seller shall, at Purchaser's request and expense, furnish such
detailed back-up material with respect to the Purchased Assets, the historical
financial statements of the Business, and the Assumed Liabilities as are in
Seller's possession or are reasonably available to Seller.
8.7 Accounts Receivable. In the event Seller shall receive any instrument
of payment of any of the Accounts Receivable, Seller shall deliver it within
three (3) days to Purchaser, by wire transfer as to any cash received, endorsed
where necessary, without recourse, in favor of Purchaser. At the request of
Purchaser, Seller shall assist Purchaser in the collection of Accounts
Receivable, at no expense to Seller.
8.8 Third-Party Claims. The parties shall cooperate with each other with
respect to the defense of any claims or litigation made or commenced by third
parties subsequent to the Closing Date which are not subject to the
indemnification provisions contained in Article X, provided that the party
requesting cooperation shall reimburse the other party for the other party's
reasonable out-of-pocket costs and expenses of furnishing such cooperation.
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8.9 Sales and Transfer Taxes and Fees. Seller shall pay when due from
assets other than the Purchased Assets, all sales taxes and/or use taxes,
recording fees, personal property title application fees, patent and trademark
assignment registration fees, real property transfer taxes and fees and all
other taxes and fees on transfer of the Purchased Assets arising by virtue of
the sale of the Purchased Assets to Purchaser, regardless of whether the
liability for said taxes or fees is imposed by law upon Seller or upon
Purchaser.
8.10 Covenant Not to Compete. As an inducement for Purchaser to enter into
this Agreement, Seller agrees that:
(a) For five (5) years after the Closing Date, Seller shall not do any
one or more of the following, directly or indirectly:
(i) engage or participate as an owner, partner, shareholder,
joint venturer, consultant or otherwise in any activity that is
competitive to the Business any where in the world where the Seller
currently either conducts or has made preparations to conduct the
Business; or
(ii) solicit any customer of Purchaser which has been a customer
of, or solicited to become a customer of Seller with respect to the
Business within the past five (5) years, to purchase from any source
other than Purchaser any product or service pertaining to the Business
as conducted on the Closing Date.
(b) Seller recognizes that the territorial, time and scope limitations
set forth in this Section 8.11 are reasonable and are required for the
protection of Purchaser and in the event that any such territorial, time or
scope limitation is deemed to be unreasonable by a count of competent
jurisdiction, Purchaser and Seller agree to the reduction of either or any
of said territorial, time or scope limitations to such an area, period or
scope as said court shall deem reasonable under the circumstances.
8.11 Disclosure of Confidential Information.
(a) As a further inducement for Purchaser to enter into this
Agreement, Seller agrees that for five (5) years after the Closing Date,
Seller shall not, without the prior written approval of Purchaser, use for
its own benefit or the benefit of any party other than Purchaser or
disclose to any person, firm or corporation other than Purchaser (other
than as required by law) any Confidential Information (as defined herein)
comprising part of the Purchased Assets. Intending that the term shall be
broadly construed to include anything protectible under applicable law,
"Confidential Information" means all information, and all documents and
other tangible items which record information, which at the time or times
concerned is protectible as a trade secret under applicable law, including,
without limitation, the following especially sensitive types of information
with respect to the Business:
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(i) product development and marketing plans and strategies;
(ii) unpublished drawings, manuals, know-how, production
techniques, proprietary formulas, research in progress, and the like;
(iii) the identity, purchase and payment patterns of, and special
relations with, customers;
(iv) the identity, net prices and credit terms of, and special
relations with, suppliers; and
(v) proprietary software and business records, to the extent
included within the Purchased Assets.
Confidential Information shall not include information of the foregoing
description which was in the public domain, which is disclosed to Seller by a
third party-not having a duty to not disclose such information, and information
as to which disclosure is required by law. Seller shall advise Purchaser of any
request, including a subpoena or similar legal inquiry to disclose any such
Confidential Information, so that Purchaser can seek appropriate legal relief.
8.12 Injunctive Relief. The parties hereto specifically recognize that any
breach of Sections 8.10 or 8.11 will cause irreparable injury to Purchaser and
that actual damages may be difficult to ascertain, and in any event, may be
inadequate. Accordingly (and without limiting the availability of legal or
equitable remedies under any other provisions of this Agreement), the parties
hereto agree that in the event of any such breach, Purchaser shall be entitled
to injunctive relief in addition to such other legal and equitable remedies that
may be available.
8.13 Further Assurances. The parties shall execute such further documents,
and perform such further acts, as may be necessary to transfer and convey the
Purchased Assets to Purchaser, on the terms herein contained, and to otherwise
comply with the terms of this Agreement and consummate the transaction
contemplated hereby.
ARTICLE IX
INDEMNIFICATION
9.1 General. From and after the Closing, the parties shall indemnify each
other as provided in this Article IX. No specifically enumerated indemnification
obligation with respect to a particular subject matter as set forth below shall
limit or affect the applicability of a more general indemnification obligation
as set forth below with respect to the same subject matter.
9.2 Certain Definitions. As used in this Agreement, the following terms
shall have the indicated meanings:
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(a) "Damages" shall mean all liabilities, demands, claims, actions or
causes of action, regulatory, legislative or judicial proceedings or
investigations, assessments, levies, losses, fines, penalties, damages,
costs and expenses, including, without limitation, reasonable attorneys',
accountants', investigators', and experts' fees and expenses, sustained or
incurred in connection with the defense or investigation of any of the
foregoing;
(b) "Indemnified Party" shall mean a party hereto who is entitled to
indemnification from another party hereto pursuant to this Article IX;
(c) "Indemnifying Party" shall mean a party hereto who is required to
provide indemnification under this Article IX to another party hereto;
(d) "Third Party Claim" shall mean any claim, action, suit,
proceeding, investigation or like matter which is asserted or threatened by
a party other than the parties hereto, their successors and permitted
assigns, against any Indemnified Party or to which an Indemnified Party is
subject.
9.3 Indemnification Obligations of Seller. Seller shall indemnify Purchaser
against, and hold it harmless from all Damages resulting from, or arising out
of, or by virtue of:
(a) any inaccuracy in, or breach of any representation or warranty
made by Seller in this Agreement or in any closing document delivered to
Purchaser in connection with this Agreement;
(b) any breach by Seller of, or failure by Seller to comply with any
of its covenants or obligations under this Agreement (including, without
limitation, its obligations under this Article IX);
(c) the failure to discharge when due any liability or obligation of
Seller not assumed by Purchaser that is asserted against Purchaser or the
Purchased Assets; and
(d) the cost of perfecting title to any of the Purchased Assets and
the amount of any undisclosed lien or encumbrance on any of the Purchased
Assets existing on the Closing Date.
9.4 Purchaser's Indemnification Covenants. Purchaser shall indemnify Seller
against, and hold it harmless from all Damages resulting from, or arising out
of, or by virtue of:
(a) any inaccuracy in, or breach of any representation or warranty
made by Purchaser in this Agreement or in any closing document delivered to
Seller in connection with this Agreement;
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(b) any breach by Purchaser of, or failure by Purchaser to comply with
any of its covenants or obligations under this Agreement (including,
without limitation, its obligations under this Article IX); and
(c) Purchaser's failure to pay, discharge and perform any of the
Assumed Liabilities when due.
(d) all Damages related to operations of the Business from and after
the Closing Date.
9.5 Limitations on Seller's Indemnification Obligations. Seller's
obligations pursuant to the provisions of Section 9.3 are subject to the
following limitations, as well as the procedures set forth in Section 9.7:
(a) the Purchaser shall not be entitled to recover under Section
9.3(a) until the total amount which Purchaser would recover under Section
9.3(a) equals or exceeds $50,000, in which event the Purchaser shall be
entitled to recovery for the first dollar and all amounts in excess
thereof; provided, however, that Purchaser's total recovery under Section
9(a) shall not exceed $2,000,000;
(b) the Purchaser shall not be entitled to recover under Section
9.3(a) unless a claim has been asserted by written notice specifying the
details of the alleged misrepresentation, breach or failure, delivered to
Seller on or before one year after the Closing Date, except as set forth in
Section 9.5 (c);
(c) the Purchaser shall not be entitled to recover under the
indemnification provisions of Section 9.3 as follows: (i) with respect to a
misrepresentation or breach of warranty under Section 4.3 (ee) (as to any
liability under Environmental Laws or pertaining to Environmental Matters),
Sections 4.3 (aa), (bb) or (cc), or (ii) due to the existence of any
liability relating to the existence or absence of any Environmental Permit
required under applicable Environmental Law as of the Closing Date, unless
a claim has been asserted by written notice, specifying the details of the
breach, on or before five years after the Closing Date.
9.6 Limitations on Purchaser's Indemnification Obligations. Purchaser's
obligations pursuant to the provisions of Section 9.4(a) are subject to the
following limitations, as well as the procedures set forth in Section 9.7:
(a) the Seller shall not be entitled to recover under Section 9.4(a)
until the total amount which Seller would recover under Section 9.4(a)
equals or exceeds $50,000, in which event the Seller shall be entitled to
recovery for the first dollar and all amounts in excess thereof; and
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(b) the Seller shall not be entitled to recover under Section 9.4(a)
unless a claim has been asserted by written notice, specifying the details
of the alleged misrepresentation, breach of warranty or other breach or
failure to comply, delivered to Purchaser on or prior to two years after
the Closing Date.
9.7 Exclusive Remedy. Except for acts constituting fraud, intentional
misrepresentation or other willful misconduct, the indemnification provided for
in this Article IX shall be the exclusive remedy in respect of any matter
subject to the indemnification hereunder and no claim or cause of action with
respect to any misrepresentation, breach, or default as to any representation,
warranty, agreement, covenant, or obligation contained in this Agreement, shall
be enforceable unless made in accordance with the procedures, and, within the
time periods, set forth in this Article IX.
9.8 Third Party Claims Procedures.
(a) If either party shall receive notice of a Third Party Claim, the
party receiving the notice of the Third Party Claim shall notify the other
party in writing of its existence, within thirty (30) days of receiving
such notice (i) setting forth with reasonable specificity the facts and
circumstances of which such party has received notice, and, if the party
giving such notice is an Indemnified Party, (ii) specifying the basis
hereunder upon which the Indemnified Party's claim for indemnification is
asserted; provided, however, that failure by the Indemnified Party to give
such notice shall not relieve Indemnifying Party from any liability it
shall otherwise have pursuant to this Agreement except to the extent
Indemnifying Party is actually prejudiced by such failure. Upon the giving
of any such notice, the remaining provisions of this Section 9.7 shall
apply.
(b) The Indemnifying Party shall have a period of twenty (20) days
from the date of receipt of any notice from the Indemnified Party within
which to respond thereto. The indemnification period provided for herein
shall be tolled for a particular claim for the period beginning on the date
the Indemnifying Party receives written notice of that claim until the
final resolution of such claim.
(c) Subject to the remainder of this Section 9.7(c), the Indemnifying
Party shall have the right, at its option, to be represented by counsel of
its choice and to assume the defense or otherwise control the handling of
any claim, suit, judgment or matter for which indemnity is sought, which is
set forth in any notice sent by the Indemnified Party, by notifying the
Indemnified Party in writing to such effect within twenty (20) days of
receipt of such notice. If the Indemnifying Party does not give timely
notice in accordance with the preceding sentence, the Indemnifying Party
shall be deemed to have determined that it does not wish to control the
handling of such claim, suit or judgment. The Indemnified Party shall have
the right to be represented by counsel at its own expense in any contest,
defense, litigation or settlement conducted by the Indemnifying Party,
provided that the Indemnified Party shall be entitled to reimbursement
therefor if the Indemnifying Party shall lose its right to contest, defend,
litigate
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and settle the Third Party Claim as provided in the preceding sentence. If
the Indemnifying Party elects to assume the defense of such Third Party
Claim, (i) notwithstanding anything to the contrary contained herein, the
Indemnifying Party shall not be required to pay or otherwise indemnify the
Indemnified Party against any attorneys' fees or other expenses incurred on
behalf of the Indemnified Party in connection with such Third Party Claim
following the Indemnifying Party's election to assume the defense of such
Third Party Claim, (ii) the Indemnified Party shall make available to the
Indemnifying Party all books, records, and other documents and materials
that are under the direct or indirect control of the Indemnified Party and
that the Indemnifying Party considers necessary or desirable for the
defense of such matter, (iii) the Indemnified Party shall otherwise fully
cooperate as reasonably requested by the Indemnifying Party in the defense
of such Third Party Claim, (iv) the Indemnified Party shall not admit any
liability with respect to such Third Party Claim, (v) the Indemnifying
Party shall keep the Indemnified Party informed of all material
developments and events relating to such Third Party Claim, and (vi) the
Indemnified Party shall have the right to participate, at its own expense,
in the defense of such Third Party Claim; provided, however, that the
Indemnifying Party shall in all events have the exclusive right to settle,
adjust, or compromise such Third Party Claim, on such terms as it may deem
appropriate, without the consent or approval of the Indemnified Party or
any other party. If the Indemnifying Party elects not to assume the defense
of such Third Party Claim, the Indemnified Party may defend the matter in
such manner as it deems advisable, in its sole discretion, and the
Indemnifying Party shall be foreclosed from thereafter contesting the
substance of the matter or the manner of the defense, including any
decision to settle, adjust, or compromise the matter, except that the
Indemnifying Party shall be entitled to assert that the Indemnified Party
was too generous in any settlement, adjustment, or compromise as a result
of factors unrelated to the merits of the Third Party Claim and the
Indemnifying Party may assert that no indemnification is due hereunder.
9.9 Security. The performance of Seller's obligations under this Article IX
has been secured by amounts that become payable to Seller under the Escrow
Agreement of even date. Any claim for indemnification under this Agreement which
does not result from the assertion of a Third Party Claim shall be asserted as
provided in the Escrow Agreement.
ARTICLE X
MISCELLANEOUS
10.1 Publicity. Except as otherwise required by law, press releases and
other publicity concerning this transaction prior to the Closing Date shall be
made only with the prior agreement of the Seller and Purchaser.
10.2 Notices. All notices required or permitted to be given hereunder shall
be in writing and may be delivered by hand, by facsimile, by nationally
recognized private courier, or by United States mail. Notices delivered by mail
shall be deemed given three (3) business days after being deposited in the
United States mail, postage prepaid, registered or certified mail, return
receipt requested. Notices delivered by hand, by facsimile, or by nationally
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recognized private carrier shall be deemed given on the first business day
following receipt; provided, however, that a notice delivered by facsimile shall
only be effective if such notice is also delivered by hand, or deposited in the
United States mail, postage prepaid, registered or certified mail, on or before
two (2) business days after its delivery by facsimile. All notices shall be
addressed as follows:
If to Seller addressed to:
Robert Cook
President
LS Liquidation Company
380 Oak Crest Road
San Anselmo, CA 94960
Telephone/Telecopier: (415) 456-8310
With a copy to:
Michael R. Jacobson
Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306
Telephone: (415) 843-5000
Telecopier: (415) 857-0663
If to Purchaser addressed to:
Duane Kluting
Chief Financial Officer
X-Rite, Incorporated
3100 44th Street, S.W.
Grandville, MI 49418
Telephone: (616) 534-7663
Telecopier: (616) 534-9212
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With a copy to:
J. Terry Moran
VARNUM, RIDDERING, SCHMIDT & HOWLETT LLP
Bridgewater Place
333 Bridge Street, N.W.
Post Office Box 352
Grand Rapids, MI 49501-0352
Telephone: (616) 336-6000
Telecopier: (616) 336-7000
and/or to such other respective addresses and/or addressees as may be designated
by notice given in accordance with the provisions of this Section 10.2.
10.3 Expenses. Except as set forth in Section 8.9 and Article IX, each
party hereto shall bear all fees and expenses incurred by such party in
connection with, relating to or arising out of the execution, delivery and
performance of this Agreement and the consummation of the transaction
contemplated hereby, including, without limitation, financial advisors',
investment banker's, broker's, attorneys', accountants' and other professional
fees and expenses.
10.4 Entire Agreement. This Agreement and the instruments to be delivered
by the parties pursuant to the provisions hereof constitute the entire agreement
between the parties. Each exhibit, schedule and the Disclosure Schedule, shall
be considered incorporated into this Agreement. Any amendments, or alternative
or supplementary provisions to this Agreement, must be made in writing and duly
executed by an authorized representative of each of the parties hereto.
10.5 Waiver. The failure in any one or more instances of a party to insist
upon performance of any of the terms, covenants or conditions of this Agreement,
to exercise any right or privilege in this Agreement conferred, or the waiver by
said party of any breach of any of the terms, covenants or conditions of this
Agreement, shall not be construed as a subsequent waiver of any such terms,
covenants, conditions, rights or privileges, but the same shall continue and
remain in full force and effect as if no such forbearance or waiver had
occurred. No waiver shall be effective unless it is in writing and signed by an
authorized representative of the waiving party.
10.6 Counterparts. This Agreement may be executed in multiple counterparts,
each of which shall be deemed to be an original, and all such counterparts shall
constitute but one instrument.
10.7 Severability. The invalidity of any provision of this Agreement or
portion of a provision shall not affect the validity of any other provision of
this Agreement or the remaining portion of the applicable provision.
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10.8 Applicable Law. This Agreement shall be governed and controlled as to
validity, enforcement, interpretation, construction, effect and in all other
respects by the internal laws of the state of Michigan applicable to contracts
made in that State, without regard to conflict of laws principles.
10.9 Arbitration. Any dispute arising between the parties with respect to
this Agreement (excluding Sections 8.10 and 8.11), or the Escrow Agreement of
even date, shall be resolved exclusively by arbitration in accordance with the
Rules for Commercial Arbitration of the American Arbitration Association. The
arbitration shall be conducted in a mutually agreeable metropolitan area
approximately midway between California and Michigan. The arbitration award
shall be final and binding on the parties, enforceable in any court of competent
jurisdiction, and the arbitration panel shall determine which party is the
prevailing party, and that party shall be entitled to receive from the other
party, all of its costs and expenses associated with the arbitration
proceedings, including attorneys' fees. The parties hereto each desire to
minimize the time and expense of discovery associated with such arbitration.
Accordingly, the parties agree that they shall mutually agree to an expedited
discovery schedule (lasting no more than 90 days) which shall provide for no
more than two (2) depositions for each party. The arbitrators shall have the
power to enforce such expedited schedule. The arbitrators shall not have the
power to award punitive damages.
10.10 Binding Effect; Benefit. This Agreement shall inure to the benefit of
and be binding upon the parties hereto, and their successors and permitted
assigns. Nothing in this Agreement, express or implied, shall confer on any
person other than the parties hereto, and their respective successors and
permitted assigns any rights or remedies under or by reason of this Agreement.
10.11 Assignability.
(a) This Agreement shall not be assignable by either party without the
prior written consent of the other party, except that (i) Seller may
liquidate and distribute its assets, including its rights under this
Agreement, to its shareholders or to a liquidating trust for the benefit of
its shareholders, and (ii) Purchaser may assign its rights and delegate its
duties under this Agreement to any third party in connection with the sale
of the Business or the sale of substantially all of Purchaser's assets
(including the Business), provided that Purchaser shall give written notice
to Seller prior to any such assignment, and that the purchaser of the
Business shall assume all of Purchaser's obligations to Seller under this
Agreement, and provided further that no such assignment shall in any way
diminish the rights and remedies or increase the liabilities of Seller, and
no such assignment shall relieve Purchaser of any of its liabilities under
this Agreement. In the event Seller liquidates and distributes its assets
to a liquidating trust for the benefit of its shareholders, pursuant to the
preceding sentence, and subsequently dissolves, following the dissolution
of the Seller, (i) any payment required to be made to Seller by Purchaser
shall be made instead to the Agents (as hereinafter defined), (ii) any
notice or other document required to be delivered to Seller by Purchaser
shall be delivered instead to the
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Agents, (iii) any notice or other document required to be executed or
delivered to Purchaser by Seller (including, without limitation, any
amendment to this Agreement and any waiver of any of the provisions of this
Agreement) may be executed or delivered instead by or on behalf of the
Agents and (iv) the Agents shall have all of the rights of an "Indemnifying
Party" (as defined in Section 9.2) in connection with any Third Party Claim
with respect to which any of Seller's shareholders may become liable.
(b) As used herein, the term "Agents" shall consist of the members of
the board of directors of Seller as of the Closing Date. Notwithstanding
the preceding sentence, if at any time the Agents, or any two of the
Agents, shall execute and deliver to Purchaser a notice stating that one of
the Agents has been replaced and identifying the replacement therefor, then
thereafter, the person identified in such notice as having been replaced
shall cease to be an "Agent" and the replacement therefor identified in
such notice shall be deemed to be an "Agent."
10.12 Amendments. This Agreement shall not be modified or amended except
pursuant to an instrument in writing executed and delivered on behalf of each of
the parties hereto.
10.13 Headings. The headings contained in this Agreement are for
convenience of reference only and shall not affect the meaning or interpretation
of this Agreement.
10.14 Bulk Sales Law. Purchaser agrees to waive compliance by the Seller
with the provisions of the bulk sales law of any jurisdiction.
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IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.
SELLER:
LIGHT SOURCE ACQUISITION COMPANY
By /s/ Duane Kluting
Duane Kluting
Its Secretary/Treasurer
PURCHASER:
LIGHT SOURCE COMPUTER IMAGES, INC.
By /s/ Robert Cook
Robert Cook
Its President
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ESCROW AGREEMENT
THIS ESCROW AGREEMENT is made and entered into as of the 19th day of May,
1997, by and between LIGHT SOURCE ACQUISITION COMPANY, a Michigan corporation
("Purchaser"), and LIGHT SOURCE COMPUTER IMAGES, INC., a California corporation
("Seller"), and U.S. TRUST COMPANY OF CALIFORNIA, N.A. ("Escrow Agent").
R E C I T A L S:
Purchaser and Seller have entered into an Asset Purchase Agreement of even
date ("Purchase Agreement"). In order to provide for the return of a portion of
the purchase price if certain contingencies are not met and to secure Seller's
obligations under the Purchase Agreement, the sum of Four Million Eight Hundred
Eighty Eight Thousand Dollars ($4,888,000) is being deposited by Seller in
escrow with the Escrow Agent for future disposition as provided in this
Agreement, such deposit to constitute an escrow fund (the "Escrow Fund").
NOW, THEREFORE, in consideration of the mutual promises and upon the
conditions hereinafter set forth, it is AGREED:
1. Deposits Into Escrow. The Seller herewith deposits into escrow with the
Escrow Agent, and Escrow Agent acknowledges receipt of, the sum of Four Million
Eight Hundred Eighty Eight Thousand Dollars ($4,888,000) which sum shall be
divided into two funds of Two Hundred Fifty Thousand Dollars ($250,000) and Four
Million Six Hundred Thirty Eight Thousand Dollars ($4,638,000), respectively, to
be distributed as provided in Sections 2 and 3, respectively, of this Agreement.
2. Short-Term Escrow. The sum of Two Hundred Fifty Thousand Dollars
($250,000) shall be held in a separate fund for the purpose of securing the
indemnifications on behalf of the Seller for the benefit of the Purchaser in the
Purchase Agreement. The sum held pursuant to this Section 2, together with the
investment proceeds therefrom as provided for in Section 4 hereof (collectively,
the "Short-Term Escrow"), shall be distributed to the Seller, to the extent not
previously distributed to the Purchaser or then subject to a claim under Section
5 below, on the 180th day after the date hereof.
3. Earn-Out Escrow. The sum of Four Million Six Hundred Thirty Eight
Thousand Dollars ($4,638,000), together with the investment proceeds therefrom
as
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provided for in Section 4 hereof (collectively, the "Earn-Out Escrow"), shall be
held for distribution pursuant to this Section 3; provided, however, that any
sums that become distributable to Seller shall be subject to claims by Purchaser
for Seller's indemnification obligations under the Purchase Agreement. The
Seller and the Purchaser have agreed upon the following sales goals:
Annual Sales Goal Fiscal Year Ended In
$24,400,000 July, 1998
29,300,000 July, 1999
35,100,000 July, 2000
At the inception hereof, the money held pursuant to this Section 3 shall be
divided into three equal funds of One Million Five Hundred Forty Six Thousand
Dollars ($1,546,000) each, corresponding to the aforementioned Fiscal Years (as
such term is defined in Section 3.4 of the Purchase Agreement). If the Annual
Sales Goal is achieved for any Fiscal Year, the then current balance in the
corresponding escrow fund (including all investment proceeds) shall be
distributed to Seller. For purposes of this Agreement, "Net Sales" shall mean
the aggregate gross sales prices for sales of (i) Seller's current products,
(ii) Purchaser's and its Affiliates' (as defined in Section 4.3(m) of the
Purchase Agreement) current products in product classes 404, 406, and 407, (iii)
all improvements and modifications to such products, (iv) all replacements for
such products, (v) any additional products sold by Purchaser or an Affiliate (as
defined in Section 4.3(m) of the Purchase Agreement) of Purchaser into the
desktop market, (vi) any products incorporating the Intellectual Property (as
defined in Section 4.3(ii) of the Purchase Agreement) contained as part of the
Purchased Assets and sold into the desktop market and (vii) any proceeds from
the sale, license or enforcement of the Intellectual Property, net of the actual
out-of-pocket expenses incurred to receive such proceeds, where in each case the
gross sales prices are reduced by sales returns and allowances. Net Sales shall
include one-half of the proceeds from the disposition of technology as described
in Section 3.5 of the Purchase Agreement. For each Fiscal Year, a prorated
amount will become distributable to Seller if Net Sales are less than one
hundred percent (100%) but greater than ninety percent (90%) of the Annual Sales
Goal for that Fiscal Year. The prorated amount shall be equal to [((actual Net
Sales-(90% x Annual Sales Goal))/Annual Sales Goal) x 10], multiplied by the
corresponding escrow fund. In the event the Annual Sales Goal is not achieved in
either the first or second Fiscal Year (the "Short Year"), and the Sales Goal is
exceeded in the immediately subsequent year, a recalculation of the amount with
respect to the Short Year shall be made by adding such excess to the Net Sales
achieved in the Short Year and calculating the payment that would have been made
in the Short Year had such excess Net Sales taken place in the Short Year, less
any
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amount which was distributed to Seller in such Short Year, and the increased
amount, together with the investment proceeds attributable to such increased
amount, shall be distributed to Seller. Amounts, if any, of the Earn-Out Escrow
that are not distributed to Seller shall be distributed to Purchaser at such
time as the funds are no longer eligible for distribution to Seller. Any amount
paid to Seller from the Earn-Out Escrow pursuant to this Section 3 shall be
referred to as an "Earn-Out Payment". In the event Purchaser sells all, or
substantially all, of its assets or the Business (as defined in the Purchase
Agreement) to an unrelated party, then any amount in the Earn-Out Escrow that
remains eligible for potential payment to the Seller shall be paid to the Seller
simultaneously with the closing of that sale.
4. Calculation of Earn-Out Payments.
a. Purchaser shall use its best efforts to compile all financial
information with respect to each Fiscal Year and the corresponding Net
Sales for such Fiscal Year and all other information relevant to the
calculation of each Earn-Out Payment promptly after the end of each Fiscal
Year (and in any event within 45 days of the end of such Fiscal Year), and
shall calculate the amount, if any, of the Earn-Out Payment for such Fiscal
Year in accordance with the terms of this Agreement, and will promptly
provide such information and calculation to Seller, together with a
certificate of X-Rite's chief Financial Officer that such information is
true, correct and complete .
b. With respect to the financial information and calculation provided
to Seller by Purchaser pursuant to clause (a) above, Seller shall have
thirty (30) days after receipt of such information and calculation to
object thereto. If Seller does not object within such thirty (30)-day
period, Purchaser shall, within five (5) business days of the end of such
thirty (30)-day period, pay the amount, if any, of the Earn-Out Payment so
calculated and set forth in such notice. If Seller objects to the financial
information or the calculation of the Earn-Out Payment with respect to such
Fiscal Year, it shall notify Purchaser of such objection and shall have the
right to have such financial information and calculation audited by
auditors of Seller's choice at Seller's expense, and shall notify Purchaser
of its intention to do so within such thirty (30)-day period. If the audit
results in an upward adjustment of the Earn-Out Payment calculation due to
an increase in Net Sales of more than one percent (1%), then Purchaser
shall reimburse Seller for the cost of the audit.
c. Any audit of the financial information and calculation of an
Earn-Out Payment must be completed within ninety (90) days of the date
Seller notifies Purchaser of its objection to the financial information or
calculation of the Earn-Out Payment provided by Purchaser. Purchaser shall
pay to Seller the amount, if any, of the Earn-Out
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Payment shown by such audit report to be due to Seller in accordance with
this Agreement within five (5) business days after the receipt of such
audit report.
d. The payment of any Earn-Out Payment shall not constitute a waiver
of or be deemed to abridge or modify any rights or remedies of any party to
challenge the calculation or payment of any Earn-Out Payment.
5. Investment of Funds. Each of the four (4) funds shall be invested and
maintained separately, in accordance with the direction(s) of the Seller from
time to time, in common stock of X-Rite, Incorporated, marketable obligations
issued or guaranteed by the United States of America or its agencies or
instrumentalities having maturities of not more than ninety (90) days, money
market funds having the highest rating from Standard & Poor's and Moody's
(including the Federated Treasury Cash Money Fund) and/or FDIC insured
certificates of deposit, with any investment proceeds resulting from such
investments being added to the respective fund. Expenses incurred with respect
to each separate fund shall be charged to that fund, and fees of the Escrow
Agent shall be spread across the funds in proportion to their respective size.
Amounts distributed to the Seller and/or the Purchaser shall be in the form of
cash, except that amounts distributed to Seller may be in kind and/or in cash,
in whole or in part, in Seller's discretion. The tax obligation with respect to
any payment from the Escrow Fund shall be that of the payee.
6. Procedure in Event of Claim. In the event a party hereto makes a claim
against funds held pursuant to this Agreement ("Claiming Party"), it shall send
written notice to Escrow Agent and the other party ("Defending Party") stating
the basis for the claim and the total amount claimed. If the Defending Party
objects to the claim, it shall give written notice of such objection to the
Escrow Agent and the Claiming Party within forty-five (45) days after the date
of the notice of claim. If no such objection has been sent within such
forty-five (45) day period, the Defending Party shall be deemed to have
acknowledged the validity of the claim for the full amount, and the Escrow Agent
shall deliver to the Claiming Party an amount of the funds held in escrow as
will be sufficient to cover the claim in full. In the event the Defending Party
shall have made timely objection to any such claim, the Defending Party and the
Claiming Party shall have failed to resolve or compromise the claim within sixty
(60) days from the date of the notice of objection, then the full amount of the
claim shall be set aside and continued in escrow, and the claim shall be settled
exclusively by arbitration in accordance with the Purchase Agreement.
7. Termination of the Escrow Fund. The Escrow Fund shall terminate upon
distribution with respect to the third fiscal year specified in Section 3 above.
If, as of
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such termination date, there exists any claim under this Agreement, then the
Escrow Agent shall retain in the Escrow Fund an amount equal to the full amount
claimed, and that amount shall continue to be held by the Escrow Agent,
appropriately allocated to each of the claims then pending, in accordance with
the provisions of this Agreement. The balance of the Escrow Fund shall be
distributed in accordance with the provisions of this Agreement. Upon subsequent
resolution of any such claim in accordance with Section 5 above, the amount
allocated to such claim shall be distributed in accordance with the
determination of the claim. At any time before final termination of the Escrow
Fund, Escrow Agent shall distribute funds to the parties as directed in a
writing signed by the Seller and the Purchaser.
8. Tax Allocation; Tax Distributions. Seller shall be allocated all taxable
ordinary income and pay all taxes associated with ordinary income earned on the
Escrow Fund. Seller shall receive a distribution from the Escrow Fund equal to
twenty-five percent (25%) of the amount of such taxable ordinary income for a
calendar year within ninety (90) days of the end of each calendar year if such
amount is $75,000 or less. Should the amount of taxable ordinary income in any
calendar year exceed $75,000, Seller shall provide Purchaser with an accounting
of the actual taxes paid with respect to such ordinary income within 180 days
after the end of such calendar year and, unless Purchaser objects within thirty
(30) days, the Escrow Agent shall remit to Seller any amount by which such
actual taxes paid exceeded such tax distribution.
9. Escrow Agent.
a. In taking any action under this Agreement, Escrow Agent shall be
protected in relying upon any notice or other document believed by Escrow
Agent to be genuine, or upon any evidence deemed by Escrow Agent to be
sufficient, and in no event shall Escrow Agent be liable for any act
performed or omitted to be performed hereunder in the absence of gross
negligence or bad faith. Escrow Agent may consult with counsel in
connection with its duties hereunder and shall be fully protected by any
action taken or omitted in good faith.
b. Escrow Agent undertakes to perform only such duties as are
expressly set forth in this Escrow Agreement. Escrow Agent shall not be
deemed to be a party to, or have any knowledge of, by reference or
implication, nor be required to examine, enforce, or pass upon the
validity, effectiveness, or genuineness of any agreement, or other
instrument related hereto, other than as provided in the express provisions
of this Escrow Agreement.
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c. Purchaser shall indemnify, defend, and hold the Escrow Agent
harmless from and against any and all loss, damage, liability, and expense
that may be incurred by the Escrow Agent hereunder as a consequence of
Purchaser's actions; Seller shall indemnify, defend, and hold the Escrow
Agent harmless from and against any and all loss, damage, liability, and
expense that may be incurred by the Escrow Agent hereunder as a consequence
of Seller's actions; and Seller and Purchaser, jointly and severally, shall
equally indemnify, defend, and hold harmless Escrow Agent from and against
any and all loss, liability, damage, or expense arising out of or in
connection with its acceptance of appointment as Escrow Agent hereunder
which are not a consequence of any action of any other party hereto, except
as caused by the Escrow Agent's willful misconduct.
d. Upon execution of this Agreement and initial deposit of the Escrow
Fund, a prepayment of the first year's administration fee of four thousand
five hundred dollars ($4,500.00) shall be payable to the Escrow Agent. This
acceptance fee shall cover the first year of the escrow. Thereafter, an
annual administrative fee shall be payable in accordance with the Escrow
Agent's fee schedules in effect from time to time. The Escrow Agent shall
also be entitled to reimbursement for extraordinary expenses incurred in
performance of its duties hereunder in accordance with clause (c) above.
e. In the event the Escrow Agent becomes unavailable or unwilling to
continue in its capacity herewith, the Escrow Agent may resign and be
discharged from its duties or obligations hereunder by giving notice of
resignation to the parties to this Agreement, specifying not less than
sixty (60) days' prior written notice of the date when such resignation
shall take effect. Seller may appoint a successor Escrow Agent with the
consent of Purchaser, which shall not be unreasonably withheld. If, within
such notice period, Seller provides to the Escrow Agent written
instructions with respect to the appointment of a successor Escrow Agent
and directions for the transfer of the Escrow Fund then held by the Escrow
Agent to such successor, the Escrow Agent shall act in accordance with such
instructions and promptly transfer the Escrow Fund to such designated
successor.
10. Notices. All notices required or permitted to be given hereunder shall
be in writing and may be delivered by hand, by facsimile, by nationally
recognized private courier, or by United States mail. Notices delivered by mail
shall be deemed given three (3) business days after being deposited in the
United States mail, postage prepaid, registered or certified mail, return
receipt requested. Notices delivered by hand, by facsimile, or by nationally
recognized private carrier shall be deemed given on the first business day
following receipt; provided, however, that a notice delivered by facsimile shall
only be effective if such notice is also delivered by hand, or deposited in the
United States mail, postage prepaid, registered or
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certified mail, on or before two (2) business days after its delivery by
facsimile. All notices shall be addressed as follows:
To Purchaser: Duane Kluting
Light Source Acquisition Company
3100 44th Street, S.W.
Grandville, MI 49418
Telephone: (616) 534-7663
Telecopier: (616) 534-9212
With a copy to: J. Terry Moran
Varnum, Riddering, Schmidt & Howlett LLP
PO Box 352
Grand Rapids, MI 49501-0352
Telephone: (616) 336-6000
Telecopier: (616) 336-7000
To Seller: Robert Cook
President
LS Liquidation Company
380 Oak Crest Road
San Anselmo, CA 94960
Telephone/Telecopier: (415) 456-8310
With a copy to: Michael R. Jacobson
Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306
Telephone: (415) 843-5000
Telecopier: (415) 857-0663
To Escrow Agent: U.S. Trust Company of California, N.A.
515 South Flower Street
Suite 2700
Los Angeles, CA 90071-2291
Attention: Corporate Trust Department
Telephone: (213) 861-5000
Telecopier: (213) 488-1370
11. Modification of Escrow Agreement. Any modification of this Escrow
Agreement or additional obligation assumed by any party in connection with this
Escrow
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Agreement shall be binding only if evidenced in a writing signed by each party
or an authorized representative of each party.
12. Effect of Partial Invalidity. The invalidity of any portion of this
Escrow Agreement shall not be deemed to affect the validity of any other
provision. In the event that any provision of this Escrow Agreement is held to
be invalid, the parties agree that the remaining provisions shall be deemed to
be in full force and effect as if they had been executed by all parties
subsequent to the removal of the invalid provision.
13. Governing Law. This Escrow Agreement shall be governed by, construed,
and enforced in accordance with the laws of the state of Michigan.
14. Waiver. The failure in any one or more instances of a party to insist
upon performance of any of the terms, covenants or conditions of this Agreement,
to exercise any right or privilege in this Agreement conferred, or the waiver by
said party of any breach of any of the terms, covenants or conditions of this
Agreement, shall not be construed as a subsequent waiver of any such terms,
covenants, conditions, rights or privileges, but the same shall continue and
remain in full force and effect as if no such forbearance or waiver had
occurred. No waiver shall be effective unless it is in writing and signed by an
authorized representative of the waiving party.
15. Counterparts. This Agreement may be executed in multiple counterparts,
each of which shall be deemed to be an original, and all such counterparts shall
constitute but one instrument.
16. Binding Effect; Benefit. This Agreement shall inure to the benefit of
and be binding upon the parties hereto, and their successors and permitted
assigns. Nothing in this Agreement, express or implied, shall confer on any
person other than the parties hereto, and their respective successors and
permitted assigns any rights or remedies under or by reason of this Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Escrow Agreement
as of the date set forth at the outset of this Agreement.
LIGHT SOURCE ACQUISITION COMPANY
By /s/ Duane Kluting
Duane Kluting
Its Secretary/Treasurer
"Purchaser"
LIGHT SOURCE COMPUTER IMAGES, INC.
By /s/ Robert Cook
Robert Cook
Its President
"Seller"
U.S. TRUST COMPANY OF CALIFORNIA, N.A.
By /s/ Sandee Parks
Sandee Parks
Its Vice President
"Escrow Agent"
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