UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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): June 7, 1996
HIRSCH INTERNATIONAL CORP.
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(Exact name of registrant as specified in its charter)
DELAWARE 0-23434 11-2230715
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
200 WIRELESS BOULEVARD, HAUPPAUGE, NEW YORK 11788
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 436-7100
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(Former name or former address, if changed since last report)
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Item 2. Acquisition or Disposition of Assets.
On June 7, 1996 Hirsch International Corp. (the "Company") acquired all
of the outstanding capital stock of Sewing Machine Exchange, Inc. ("SMX") for
$8.69 million. The purchase price was payable by delivery to each of the two
shareholders of SMX of a promissory note in the principal amount of $4.25
million and by delivery of an aggregate of 9,375 shares of the Company's Class A
Common Stock. Pursuant to the terms of the promissory notes, the Company was
required to make a principal payment on each note in the amount of $2.5 million
on June 12, 1996 with the balance of each note ($1.75 million) payable in 60
equal monthly installments of principal and interest beginning July 7, 1996.
In order to fund the acquisition of SMX and to repay approximately $2.5
million of SMX debt, the Company entered into a $7.5 million term loan agreement
with a bank.
SMX is the exclusive distributor in the states of Illinois, Iowa,
Minnesota, Wisconsin, North and South Dakota and Nebraska of single and
multihead embroidery machines manufactured by Tajima Industries Ltd., the
exclusive distributor in 11 midwestern states of 1, 4 and 12 head embroidery
machines and related software manufactured by Melco Embroidery Systems. SMX also
distributes industrial sewing machines.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired
It is presently impractical to provide the financial statements
required to be presented hereunder at the time of filing this report.
Such financial statements will be filed by amendment to this Form 8-K
as soon as practical, but in no event later than sixty (60) days after
the date of filing of this Form 8-K.
(b) Pro Forma Financial Information
It is presently impractical to provide the pro forma financial
information required to be presented hereunder at the time of filing
this report. Such pro forma financial information will be filed by
amendment to this Form 8-K as soon as practical, but in no event later
than sixty (60) days after the date of filing of this Form 8-K.
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(c) Exhibits
(2) Stock Purchase Agreement dated as of June 7, 1996 by
and among Hirsch International Corp., Ronald H.
Krasnitz and Martin Krasnitz
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
HIRSCH INTERNATIONAL CORP.
By:\s\ Henry Arnberg
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Henry Arnberg, President
Date: June 19, 1996
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EXHIBIT 2
STOCK PURCHASE AGREEMENT
AGREEMENT ("Agreement"), made as of the 7th day of June, 1996, by and among
HIRSCH INTERNATIONAL CORP., a Delaware corporation with its principal place of
business at 200 Wireless Boulevard, Hauppauge, NY 11788 ("Purchaser"), RONALD H.
KRASNITZ ("Ronald"), residing at 9826 Maynard Terrace, Niles, Illinois 60714 and
MARTIN KRASNITZ ("Martin, and together with Ronald, hereinafter sometimes
referred to as the "Shareholders") residing at 330 West Diversey, Chicago,
Illinois 60657. Purchaser and Shareholders are sometimes referred to
collectively herein as the "Parties."
WITNESSETH:
WHEREAS, Ronald is the record and beneficial owner of sixty six (66) shares
of the Common Stock, without par value (the "Ronald Shares") of Sewing Machine
Exchange Inc., an Illinois corporation ("SMX" or the "Corporation"), which
shares constitute fifty percent (50%) of the issued and outstanding capital
stock of SMX; and
WHEREAS, Martin is the record and beneficial owner of sixty six (66) shares
of the Common Stock, without par value (the "Martin Shares" and together with
the Ronald Shares hereinafter sometimes collectively referred to as the
"Shares") of SMX, which shares constitute fifty percent (50%) of the issued and
outstanding capital stock of SMX; and
WHEREAS, Purchaser desires to purchase the Ronald Shares from Ronald and
the Martin Shares from Martin, and Ronald and Martin desire to sell such Shares
to Purchaser, upon the terms and conditions set forth in this Agreement, so
that, following the consummation of the transaction contemplated hereby,
Purchaser shall be the record and beneficial owner of the Shares, which
constitute all of the issued and outstanding capital stock of SMX.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, covenants, representations and warranties hereinafter contained, and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the Parties agree as follows:
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ARTICLE 1
PURCHASE AND SALE OF SHARES
1.1 Purchase and Sale of Shares. Subject to and upon the terms and
conditions set forth in this Agreement:
(a) Ronald shall sell, assign, transfer and deliver the Ronald Shares to
Purchaser free and clear of all liens, claims, encumbrances and restrictions of
any kind, and Purchaser shall purchase from Ronald, at the Closing (as
hereinafter defined), the Ronald Shares; and
(b) Martin shall sell, assign, transfer and deliver the Martin Shares to
Purchaser free and clear of all liens, claims, encumbrances and restrictions of
any kind, and Purchaser shall purchase from Martin, at the Closing, the Martin
Shares.
ARTICLE 2
PURCHASE PRICE AND TERMS OF PAYMENT
2.1 Purchase Price. In consideration of the sale, assignment, transfer and
delivery of the Shares by the Shareholders to Purchaser, and in reliance upon
the representations, warranties, covenants and agreements made herein by the
Shareholders to Purchaser, Purchaser agrees to pay Shareholders at the Closing
and the Shareholders agree to accept from Purchaser in full payment thereof, the
sum of Eight Million Six Hundred Eighty-Nine Thousand Eight Hundred Forty-Three
and 75/100 ($8,689,843.75) Dollars (the "Purchase Price") as follows:
(a) Four Million Two Hundred Fifty Thousand ($4,250,000) Dollars by
delivery to Ronald at Closing of non- negotiable promissory note (the "Ronald
Promissory Note"), receipt whereof is hereby acknowledged;
(b) Four Million Two Hundred Fifty Thousand ($4,250,000) Dollars by
delivery to Martin at Closing of a non- negotiable promissory note (the "Martin
Promissory Note"), receipt whereof is hereby acknowledged;
(c) the delivery of Four Thousand Six Hundred Eighty- Seven (4,687) shares
of Purchaser's Class A Common Stock registered in the name of Ronald (the
"Ronald Shares"); and
(d) the delivery of Four Thousand Six Hundred Eighty- Eight (4,688) shares
of Purchaser's Class A Common Stock registered in the name of Martin (the
"Martin Shares").
2.2 Contingent Purchase Price
(a) In addition to the Purchase Price, Purchaser agrees to pay to each of
the Shareholders an amount up to One
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Hundred Ninety-Two Thousand ($192,000) Dollars (the "Contingent Purchase Price")
at the rate of Twenty-Four Thousand ($24,000) Dollars each for each full
consecutive three (3) month period following the Closing that Melco Embroidery
Systems (a) does not terminate its Distributorship Agreement with SMX dated
December 31, 1994 (the "Melco Agreement"); and (b) fully performs its duties and
obligations in accordance with the Melco Agreement in a due and timely manner
consistent with prior practices. If Purchaser determines that Melco has
defaulted under the Melco Agreement, it shall give notice thereof to
Shareholders setting forth the manner in which such default has occurred. If
Purchaser terminates or defaults under the Melco Agreement prior to the
expiration of two (2) full years from Closing, then Shareholders shall be
entitled to receive the Contingent Purchase Price at the times and in the manner
described herein. Payment of the Contingent Purchase Price shall be made within
thirty (30) days after the close of the quarter for which the payment is
intended. At Purchaser's option, determined after each quarter, the Contingent
Purchase Price may be paid in cash or in shares of Purchaser's Class A Common
Stock (the "Hirsch Stock") . If Purchaser elects to make payment in Hirsch
Stock, the number of shares to be delivered to each of the Shareholders will be
determined by dividing Twenty-Four Thousand ($24,000) Dollars by the average of
the per share closing bid and asked prices of the Hirsch Stock for each of the
last ten (10) trading days of the preceding quarter for which the calculation is
to be made.
(b) If Purchaser elects to pay Shareholders the Contingent Purchase Price
in Hirsch Stock, prior to delivery of any such shares each Shareholder shall
furnish to Purchaser a written undertaking, in form and substance satisfactory
to Purchaser and its legal counsel, to the effect that Shareholder (i) is
acquiring the Hirsch Stock for investment purposes only and not with a view to
the sale or distribution therefor and (ii) the Hirsch Stock will not be pledged,
transferred or otherwise disposed of except in accordance with the rules and
regulations of the Securities Act of 1933, as amended. All certificates
representing the Hirsch Stock shall bear a legend thereon to the following
effect:
THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933. NO TRANSFER, SALE
OR OTHER DISPOSITION OF THESE SHARES MAY BE MADE UNLESS A
REGISTRATION STATEMENT WITH RESPECT TO THESE SHARES HAS BECOME
EFFECTIVE UNDER SAID ACT, OR COMPLIANCE WITH RULE 144
PROMULGATED UNDER SAID ACT, OR THE CORPORATION IS FURNISHED
WITH AN OPINION FROM ITS COUNSEL THAT SUCH REGISTRATION IS NOT
REQUIRED.
2.3 Accounts Receivable. For a period of one hundred and eighty (180) days
after the Closing, SMX will attempt to collect (and Shareholders will refrain
from all efforts in this regard
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except to provide assistance to SMX upon SMX's request) all accounts receivable
of SMX outstanding as of the Closing Date (the "Transferred Receivables") in the
normal course of its business (but without resort to litigation or the use of
collection agencies or similar efforts, except where consistent with past
practice). At the Closing, the Shareholders shall deliver to Purchaser a true,
correct and complete list of all of the Transferred Receivables, setting out in
reasonable detail such information with respect thereto as Purchaser shall
require (including, without limitation, aging), as of the most recent
practicable date, which shall not be more than five (5) days prior to the
Closing Date (the "Initial Transferred Receivables List"). The Shareholders
shall further provide Purchaser, as soon after the Closing Date as practicable,
but in no event later than the fifth (5th) business day after the Closing Date,
with a true, correct and complete list of the Transferred Receivables, in form
substantially equivalent to the Initial Transferred Receivables List, as of the
Closing Date (such list being hereinafter referred to as the "Supplemental
Transferred Receivable List"). Purchaser will not compromise any of the
Transferred Receivables without the prior written consent of the Shareholders,
which consent shall not be unreasonably withheld. On the date which is one
hundred and eighty (180) days after the Closing Date (the "Settlement Date"),
SMX shall assign to the Shareholders, jointly, without warranty or recourse of
any kind, the uncollected Transferred Receivables, together with a schedule
setting forth, to the best of SMX's knowledge (i) the name of each customer who
was an account debtor as of the Closing Date and who has made any payment on
account of any Transferred Receivables since the Closing Date, (ii) the
remaining balance of such account debtor's account then outstanding, and (iii)
the aggregate amount of all then uncollected Transferred Receivables. On the
Settlement Date, Shareholders shall reimburse to Purchaser the amount by which
the collected Transferred Receivables is less than Two Million Eight Hundred
Seventy Five Thousand ($2,000,875) Dollars by reducing the first payment or
payments to be made in respect of the Purchase Price by the amount of said
difference. Thereafter, SMX shall have no continuing obligation whatsoever with
respect to the Transferred Receivables, provided, however, that if SMX
subsequently collects any Transferred Receivable reassigned to the Shareholders,
SMX shall promptly remit the amount thereof to the Shareholders.
2.4 Inventory. At the Closing, Shareholders shall deliver to the Purchaser
a true, correct and complete list of all of SMX's inventory (the "Transferred
Inventory") as of the Closing Date, which list shall categorize the Transferred
Inventory between (a) Machinery and Equipment, and (b) Parts. Such list shall
value the Transferred Inventory at the lower of cost or market on a first in
first out basis ("Value"). For a period of one (1) year following the Closing
Date, SMX shall offer such Transferred Inventory for sale in the ordinary course
of business and will account for the sales thereof using the first in first out
method. SMX will not sell such Transferred Inventory below Value without consent
of the Shareholders. On the date one year
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from the Closing Date (the "Transferred Inventory Settlement Date"),
Shareholders shall reimburse ("Reimbursement") to Purchaser an amount equal to
the excess of the remaining Value of the Transferred Inventory, if any, above
the reserve for obsolescence applicable to the Transferred Inventory. Such
reserve shall be either (a) eight and three-tenths (8 3/10%) percent of the
Transferred Inventory, or (b) Three Hundred Twenty Thousand ($320,000) Dollars,
whichever amount shall be greater. The Transferred Inventory shall continue to
be the property of SMX and to the extent that it is sold from time to time
thereafter (at such price and terms as shall be determined by SMX), the Value
thereof up to the amount of Reimbursement by the Shareholders shall be refunded
to Shareholders by SMX. Notwithstanding the foregoing, the Reimbursement and
subsequent refund as aforesaid shall be adjusted to give credit to the
Shareholders or Purchaser, as the case may be, based upon whether the gross
profit margins on sales of the following categories of Transferred Inventory are
more or less than the following:
Gross Profit Margin
new Melco embroidery machines 26%
used embroidery machines 20%
all parts and accessories 27%
industrial sewing machines 15%.
ARTICLE 3
CLOSING
The closing of the transactions hereunder (the "Closing") shall take place
at the offices of Ruskin, Moscou, Evans & Faltischek, P.C., 170 Old Country
Road, Mineola, New York 11501, counsel to Purchaser, upon the execution of this
Agreement. The day on which the Closing actually takes place is herein sometimes
referred to as the "Closing Date."
ARTICLE 4
OBLIGATIONS AT CLOSING
4.1 Obligations of Shareholders at Closing. At Closing, Shareholders shall
deliver, or cause to be delivered, to Purchaser the following:
(a) a valid certificate representing the Ronald Shares, duly endorsed in
blank;
(b) a valid certificate representing the Martin Shares, duly endorsed in
blank;
(c) an employment agreement between SMX and Ronald (the "Ronald Employment
Agreement"), duly executed by Ronald;
(d) an employment agreement between SMX and Martin (the "Martin Employment
Agreement"), duly executed by Martin;
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(e) a non-competition undertakin g duly executed by Ronald;
(f) a non-competition undertaking duly executed by Martin;
(g) a true and complete copy of SMX's Articles of Incorporation (and any
amendments thereto), certified as of a recent date by the Secretary of State of
Illinois;
(h) a written opinion of counsel for Shareholders dated the Closing Date;
(i) the resignation of Ronald and Martin as officers and directors of SMX;
(j) an investment undertaking of Ronald with respect to the Ronald Shares;
(k) an investment undertaking of Martin with respect to the Martin Shares;
and
(l) any and all such other documents, agreements, certificates and
instruments required to be executed and/or delivered by Shareholders to
Purchaser, and all payments (if any) required to be made, pursuant to the terms
and provisions of this Agreement.
4.2 Obligations of Purchaser at Closing. At Closing, Purchaser shall
deliver, or cause to be delivered, to Shareholders the following:
(a) the Ronald Promissory Note;
(b) the Martin Promissory Note;
(c) the Ronald Shares;
(d) the Martin Shares;
(e) the Ronald Employment Agreement, duly executed by SMX;
(f) the Martin Employment Agreement, duly executed by SMX;
(g) a certificate, dated the Closing Date, of the Secretary of Purchaser
certifying the resolutions adopted by the Board of Directors of Purchaser
approving the execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby;
(h) a written opinion of counsel for Purchaser dated the Closing Date;
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(i) a certificate, dated the Closing Date, of the Secretary of SMX
certifying the resolutions adopted by the Board of Directors of SMX approving
the execution and delivery of the Ronald Employment Agreement and the Martin
Employment Agreement; and
(j) any and all such other documents, agreements, certificates and
instruments required to be executed and/or delivered by Purchaser, and all
payments required to be made, pursuant to the terms and provisions of this
Agreement.
4.3 Further Assurances. At any time and from time to time after the
Closing, at Purchaser's request and without further consideration, Shareholders
will execute and deliver such other instruments of sale, transfer, assignment
and delivery and take such action as Purchaser may reasonably deem necessary or
desirable in order to more effectively transfer, assign and deliver to Purchaser
and to confirm Purchaser's title to the Shares.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS
Shareholders, jointly and severally, represent and warrant to Purchaser as
follows:
5.1 Organization and Good Standing of Seller. SMX is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Illinois. SMX has all requisite corporate power and authority, licenses, permits
and franchises to own, lease and operate its properties and assets and to carry
on its business as currently conducted. SMX is qualified and in good standing to
do business as a foreign corporation in each jurisdiction in which the property
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification necessary, except where the failure to so qualify would
not have a material adverse effect on its business, properties or assets.
5.2 Authorization of Agreement and Enforceability. Each of Ronald and
Martin has full power and capacity to execute, deliver and perform his
obligations under this Agreement and to consummate the transactions contemplated
hereby. This Agreement has been duly and validly executed and delivered by the
Shareholders and (assuming the valid execution and delivery of the Agreement by
Purchaser) constitutes a legal, valid and binding obligation of the
Shareholders, enforceable against them in accordance with its terms.
5.3 Effect of Agreement. Neither the execution, delivery and performance of
this Agreement by the Shareholders, nor the consummation by the Shareholders of
the transactions contemplated hereby will (a) conflict with or result in a
breach of any provision of the Articles of Incorporation or By-laws of SMX; (b)
constitute or result in the breach of, conflict with or give rise
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to a right of forfeiture, termination, cancellation or acceleration with respect
to, any term, condition or provision of, any note, bond, mortgage, indenture,
license or other contract or obligation to which SMX or the Shareholders are a
party or by which SMX or the Shareholders are subject, except for such
conflicts, breaches or defaults as to which written waivers or consents have
been obtained, or (c) violate in any material respect any law, statute,
regulation, judgment, order, writ, injunction, or decree applicable to SMX or
the Shareholders, its business, properties or assets.
5.4 Capitalization and Ownership of Capital Stock. The presently
authorized, issued and outstanding shares of capital stock of SMX and the names
and addresses of the record and beneficial owners thereof are as set forth on
Schedule 5.4 heretofore delivered to Purchaser by Shareholders and certified by
the President of SMX. Each of such persons is the lawful record and beneficial
owner of the number of shares set forth opposite his name, free and clear of any
liens, claims, encumbrances or restrictions of any kind. Except for that certain
Amendment and Restatement of the Sewing Machine Exchange, Inc. Buy-Sell
Agreement by and between the Shareholders and SMX dated November 12, 1991, which
will terminate at Closing, there are no outstanding subscriptions, options,
warrants, calls, contracts, demands, commitments, convertible securities or
other agreements or arrangements of any character or nature whatsoever under
which SMX or the Shareholders are or may become obligated to issue, assign or
transfer any shares of the capital stock of SMX.
5.5 Government and Other Consents. No consent, order, authorization,
qualification, or approval of, or exemption by, or filing with any governmental,
public, or regulatory body or authority is required in connection with the
execution, delivery and performance by the Shareholders of this Agreement.
5.6 Books and Records. All financial, business and accounting books,
ledgers, accounts and official and other records relating to SMX have been made
available to Purchaser and its representatives. Such books and records have been
substantially, properly and accurately kept and completed in all material
respects, and there are no material inaccuracies or discrepancies of any kind
contained or reflected therein.
5.7 No Subsidiaries or Investments. SMX does not own capital shares or
other equity or ownership or proprietary interest in any corporation, limited
liability company, partnership, association, trust, joint venture or other
entity.
5.8 Financial Statements.
(a) The Shareholders have previously delivered to Purchaser copies of (i)
SMX's balance sheet dated as at April 30, 1996 (the "Balance Sheet") and the
related statement of income for the twelve months then ended (collectively, the
"Financial
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Statements"). The Financial Statements correctly and completely reflect SMX's
books and records, fairly present the financial position and results of
operations of SMX as of the date and for the period indicated and have been
prepared in accordance with generally accepted accounting principles ("GAAP")
applied on a basis consistent with that of prior periods.
(b) Except for such claims, debts and liabilities as are reflected or
reserved against on the Balance Sheet, SMX does not have any outstanding
indebtedness for money borrowed and is not subject to any material claims or
liabilities, contingent or otherwise, other than obligations incurred in the
ordinary course of business since the date of the Balance Sheet, in amounts
usual and normal, individually and in the aggregate and other than as may not
have been required under GAAP to be disclosed or reserved for as contingencies
as of the date of the Balance Sheet.
(c) All of the accounts receivable (trade or otherwise) reflected in the
Balance Sheet, result from the sale of inventory, parts and services in the
ordinary course of business and, subject to the reserve therefor on the Balance
Sheet, the Shareholders have no knowledge that such accounts receivable are not
collectible in the full amount thereof in the ordinary course of business. All
such accounts receivable are owned by SMX free and clear of all liens, claims,
charges, encumbrances and other interests of third parties except as shown on
the Balance Sheet.
(d) Since the date of the Balance Sheet, there has not been any material
adverse change in the condition, financial or otherwise, of the business,
assets, properties, liabilities, prospects or results of operations of SMX, and
no fact or condition exists or is contemplated or threatened which might cause
any such change at any time in the future. Since the date of the Balance Sheet,
SMX has conducted the its business only in the ordinary course in all material
respects.
5.9 Title to Properties; Encumbrances. Other than as set forth in Schedule
5.9 heretofore delivered to Purchaser and certified by the President of SMX, SMX
does not own any real property or have any lease or other interest in real
property. SMX does not use any real estate or have an interest in real estate,
including, without limitation, any building, office, plant, factory, warehouse,
improvement or structure in connection with its business other than pursuant to
the leases identified on Schedule 5.9. Except as disclosed on Schedule 5.9, SMX
has good title to all of its properties and assets, including, without
limitation, all of the properties and assets reflected in the Balance Sheet
(except for properties and assets sold since April 30, 1996 in the ordinary
course of business and consistent with past practices), and all of the
properties or assets purchased by it since April 30, 1996. Except as set forth
on Schedule 5.9, none of such properties or assets is subject to any mortgage,
pledge, lien, security interest, encumbrance or charge of any kind except (a)
liens shown on the Balance Sheet as securing
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specified liabilities or obligations with respect to which no default exists;
(b) liens arising in the ordinary course of business, consistent with past
practice since April 30, 1996 and liens arising by operation of law or minor
imperfections of title, if any, none of which is substantial in amount,
materially detracts from the value or materially impairs the use of the property
subject thereof, or materially impairs SMX's operations and (c) liens for
current taxes not yet due, or, if due, that are being contested in good faith in
the ordinary course of business. Except as disclosed on Schedule 5.9, SMX does
not use in its business any assets owned by a shareholder or affiliate of SMX.
5.10 Leases. Schedule 5.10 heretofore delivered to Purchaser and certified
by the President of SMX, contains an accurate and complete list and description
of the terms of all leases to which SMX is a party (as lessee or lessor), copies
of which have been previously delivered to Purchaser. Except as disclosed on
Schedule 5.10, each lease set forth in Schedule 5.10 (or required to be set
forth in Schedule 5.10) is in full force and effect; all rents and additional
rents due to date on each such lease have been paid; in each case, the lessee
has been in peaceable possession since the commencement of the original term of
such lease and is not in default thereunder and no waiver, indulgence or
postponement of the lessee's obligations thereunder has been granted by the
lessor; and there exists no event of default or event, occurrence, condition or
act (including the purchase of the Shares hereunder) which, with the giving of
notice, the lapse of time or the happening of any further event or condition,
would become a material breach under such lease. Except as disclosed on Schedule
5.10, SMX has not violated any of the terms or conditions under any such lease
in any material respect, and to the knowledge of the Shareholders, all of the
covenants to be performed by any other party under any such lease have been
fully performed. The property leased by SMX is in a state of reasonable
maintenance and repair and is adequate and suitable for the purposes for which
it is presently being used.
5.11 Business Practices. Neither SMX nor Shareholders have made, offered or
agreed to offer anything of value to any government official, political party or
candidate for government office nor have any of them taken any action which
would be in violation of the Foreign Corrupt Practices Act of 1977 or any
anti-boycott or export laws.
5.12 Officers, Directors and Key Employees. Schedule 5.12 heretofore
delivered to Purchaser and certified by the President of SMX sets forth a
complete and correct list of (i) the officers and directors of Seller prior to
the transaction contemplated by this Agreement; the name, position and total
compensation, including bonuses, of each officer and director of SMX, (ii) the
name of each other employee, consultant, independent contractor, agent or other
representative of Seller who received $50,000 or more in any form of
compensation from SMX since January 1, 1994, and (iii) all wage or salary
increases or bonuses received by any such person since April 30, 1996, and any
accruals for or
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commitment or agreement by SMX to pay such increases or bonuses. Except as set
forth in Schedule 5.12, none of such persons has, in writing or (to the
knowledge of the Shareholders) verbally, threatened, informed or otherwise
indicated to SMX or either Shareholder or any officer or director of SMX that he
or she plans to cancel or otherwise terminate his or her relationship with SMX
for any reason, including, without limitation, the consummation of the
transactions contemplated hereby.
5.13 Employment Arrangements. SMX does not have any material obligation,
contingent or otherwise, under any employment agreement, collective bargaining
or other labor agreement, any agreement containing severance or termination pay
arrangements, deferred compensation agreement, retainer or consulting
arrangement, pension or retirement plan, bonus or profit-sharing plan, stock
option or purchase plan or other employee contract or non-terminable (whether
with or without penalty) arrangement, group, life, health, medical or
hospitalization insurance plan or program or other employee or fringe benefit
plan, including vacation plans or programs and sick leave plans or programs,
other than those listed or described on Schedule 5.13 heretofore delivered to
Purchaser and certified by the President of SMX, true and complete copies of
which have heretofore been delivered to Purchaser. SMX has performed all of its
obligations required to be performed by it under all such agreements, plans and
arrangements, and to the knowledge of the Shareholders, no party thereto is in
breach of or in default or arrears in any material respect under any of the
provisions thereof.
5.14 Employee Relations. SMX is in compliance in all material respects with
all Federal, state or other applicable laws, domestic or foreign, respecting
employment and employment practices, terms and conditions of employment and
wages and hours, and has not and is not engaged in any unfair labor practice. No
unfair labor practice complaint against SMX is pending before the National Labor
Relations Board. No labor strike, picket, dispute, slowdown, stoppage or other
labor trouble has ever occurred or is pending or, to the knowledge of the
Shareholders, threatened against or involving SMX. To the knowledge of the
Shareholders, no union representation question exists respecting the employees
of SMX. No grievance or any arbitration proceeding is pending and, to the
knowledge of the Shareholders, no such claim has been asserted or is threatened.
No collective bargaining agreement is currently being negotiated by SMX. Except
as disclosed on Schedule 5.14, no claim of discrimination or harassment is
pending or, to the knowledge of the Shareholders, threatened before the Equal
Employment Opportunity Commission, or any other judicial or administrative body
or agency.
5.15 Contracts and Liabilities.
(a) Except as may otherwise be expressly provided for on Schedule 5.15
heretofore delivered to Purchaser and
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certified by the President of SMX, that Schedule sets forth all of the following
contracts and commitments and obligations of, or which relate to the business of
SMX, written or otherwise, to which it is a party or by or to which it or its
assets or properties are bound or subject and which are in all events material
to the business, properties or assets of SMX:
(1) contracts, commitments and other agreements with any current or former
officer, director, employee, independent contractor, consultant, agent or other
representative (including the Shareholders);
(2) contracts and other agreements with any labor union or association
representing any employee;
(3) contracts, commitments and other agreements for the sale of any of its
assets or properties other than in the ordinary course of business or for the
grant to any person of any preferential rights to purchase any of its assets or
properties;
(4) joint venture or other agreements involving sharing of profits or joint
ownership of assets or sharing of obligations or liabilities;
(5) contracts or other agreements under which it agrees to indemnify any
party or to share tax liability of or with any party;
(6) loan, factoring, credit line, security, collateral assignment or pledge
agreement, guaranty, subordination or similar type agreement;
(7) contracts, commitments and other agreements with customers or suppliers
for the sharing of fees, the rebating of charges or other similar arrangements;
(8) contracts, commitments and other agreements containing obligations or
liabilities of any kind to or with either of the Shareholders as such;
(9) contracts and other agreements containing covenants of SMX not to
compete in any line of business or with any person in any geographical area (or
not to solicit or accept any business) or covenants of any other person not to
compete with SMX in any line of business or in any geographical area (or not to
solicit or accept any business);
(10) contracts and other agreements relating to the acquisition by SMX of
any operating business or the capital shares of any other person;
(11) options for the purchase of any asset, tangible or intangible;
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(12) contracts and other agreements requiring the payment to any person of
an override or similar commission or fee;
(13) contracts and other agreements for the payment of fees or other
consideration to any officer or director of SMX or to any other entity in which
any of the foregoing has a direct or indirect interest;
(14) contracts and other agreements relating to the borrowing of money;
(15) purchase orders, contracts and commitments for the purchase or sale of
any goods or services to or by SMX, except for those orders, contracts and
commitments which are less than $10,000 in amount or which cannot be canceled at
will by SMX without penalty or premium; and
(16) other contracts or business arrangements which are not made in the
ordinary course of business.
(b) Except as set forth in Schedule 5.15(b), all such contracts are valid,
binding and enforceable and in full force and effect. Except as set forth in
Schedule 5.15(b), SMX is not in default under any such contract and there have
been no claims of defaults and to the knowledge of the Shareholders there are no
existing factors or conditions which with the passage of time or giving of
notice or both would constitute such a default or in any case in which such
default would give rise to a right of termination by the other party thereto or
which would result in any material cost, expense or penalty to SMX.
(c) There have been delivered to Purchaser complete and correct copies of
all of the written contracts and documents constituting commitments set forth on
Schedule 5.15.
5.16 Operation of SMX. Except as provided on Schedule 5.16 heretofore
delivered to Purchaser and certified by the President of SMX, since April 30,
1996, SMX has conducted its business and operations only in the ordinary and
usual course of business, consistent with past practices, has preserved intact
its business, has maintained its relationships with all customers and suppliers
and has used commercially reasonable efforts to keep available the services of
its officers and employees. Except as set forth on Schedule 5.16, since April
30, 1996, SMX has not:
(a) amended its Articles of Incorporation or By- Laws or merged with or
into or consolidated with any other person, subdivided or in any way
reclassified any of its shares of capital stock or changed or agreed to change
in any manner the rights of any shares of its capital stock or the character of
SMX;
(b) issued or sold or purchased, or issued options or rights to subscribe
to, or entered into any contracts or
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commitments to issue or sell or purchase, any shares of its capital stock or any
other securities;
(c) entered into or amended any employment agreement, entered into or
amended any agreement with any labor union or association representing any
employee, adopted, entered into, or amended any employee benefit plan, or made
any change in the actuarial methods or assumptions used in funding any defined
benefit pension plan, or made any change in the assumption or factors used in
determining benefit equivalencies thereunder;
(d) incurred any indebtedness for borrowed money;
(e) declared or paid any dividends or declared or made any other
distributions of any kind to its shareholders (other than normal compensation
not exceeding in the aggregate $50,000), or made any direct or indirect
redemption, retirement, or any purchase or other acquisition of any shares of
its capital stock or any other securities convertible into shares of its capital
stock;
(f) reduced its cash or short-term investments or their equivalents, other
than to meet cash needs arising in the ordinary course of business, consistent
with past practices;
(g) made any change in its accounting methods or practices or made any
change in depreciation or amortization policies or rates adopted by it;
(h) changed any of its business policies in any material respect,
including, without limitation, advertising, marketing, pricing, purchasing,
credit, personnel, sales, returns, budget or product acquisition policies;
(i) except in the ordinary course of business, consistent with past
practices, made any wage or salary increase or paid any bonus, or increase any
direct or indirect compensation, for or to any of its officers, directors,
employees, consultants, agents or other representatives, or any accrual for or
commitment or agreement to make or pay the same;
(j) made any loan or advance to any of its shareholders, officers,
directors, employees, consultants, agents or other representatives (other than
travel advances made in the ordinary course of business), or made any other loan
or advance otherwise than in the ordinary course of business;
(k) made any payment or commitment to pay any severance or termination pay
to any of its officers, directors, employees, consultants, agents or other
representatives, other than payments or commitments to pay persons other than
officers, directors or shareholders made in the ordinary course of business;
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(l) except in the ordinary course of business: entered into any lease (as
lessor or lessee); sold, abandoned or made any other disposition of any of its
assets or properties; granted or suffered any material lien or other encumbrance
of any of its assets or properties; entered into or amended any material
contract or other agreement to which it is a party, or by or to which it or its
assets or properties are bound or subject, or pursuant to which it agrees to
indemnify any party or to refrain from competing with any party;
(m) except in the ordinary course of business, incurred or assumed any
material liability;
(n) except in the ordinary course of business, made any acquisition of all
or any part of the assets, properties, capital shares or business of any other
person;
(o) paid, directly or indirectly, any liabilities or obligations before the
same became due in accordance with its terms or otherwise than in the ordinary
course of business or consistent with prior practice or deferred the payment of
any liability or obligation;
(p) suffered or incurred any damage, destruction or loss (whether or not
covered by insurance) which materially adversely affected the business,
properties or assets of SMX;
(q) collected or billed any accounts receivable in advance of the dates on
which payments were due other than in the ordinary course of business or
consistent with prior practice;
(r) gave or agreed to give any of its customers any discounts or special
payment terms or arrangements which were not consistent with prior practice or
which were outside the ordinary course of business;
(s) made any material change in the type, nature or composition of its
services, or made any material change relating to its fees, commissions or other
changes or terms for its services;
(t) terminated or failed to renew, or received any information, written or
otherwise, threatening to terminate or fail to renew, any contract or other
agreement that materially affects the assets, properties, business, operations
or condition (financial or otherwise) of SMX; or
(u) except in the ordinary course of business, entered into any other
material contract, agreement or transaction.
5.17 Insurance Policies. Schedule 5.17 heretofore delivered to Purchaser
and certified by the President of SMX, contains a complete and correct list and
description of all insurance polices with respect to the business, properties,
assets and employees of SMX. Such policies are in full force and effect and
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insure adequately against risks to which SMX and its assets, properties and
employees are normally exposed in the operation of business. No notice of
cancellation, expiration or non-renewal of any such policy has been received by
SMX and no cause for such termination exists.
5.18 Related-Party Transactions. Except as disclosed in Schedule 5.18
heretofore delivered to Purchaser and certified by the President of SMX, none of
SMX, the Shareholders, nor any person controlling, controlled by or under common
control with any of the foregoing or any relative or spouse of any of the
foregoing has any interest, financial or otherwise, in any business, corporate
or otherwise (the value of which equals or exceeds $2,000 per annum), which is a
party to, or has an interest in any property which is the subject of, or has
business relationships or arrangements of any kind with SMX, including, without
limitation, any customer, supplier, competitor, or potential competitor or
lessor.
5.19 Compliance with ERISA.
(a) Schedule 5.19 heretofore delivered to Purchaser and certified by the
President of SMX, sets forth a complete and correct list of all "employee
pension benefit plans" and "employee benefit plans" as defined respectively in
Sections 3(2) and 3(3) of ERISA, including "multiemployer plans" as defined in
Section 3(37) of ERISA, and any other pension, profit sharing, retirement,
deferred compensation, vacation, severance, disability, hospitalization, medical
insurance or other employee benefit plan or program, if any, which SMX or any
other entity which constitutes part of a "controlled group" (within the meaning
of Section 4001(b) of ERISA and/or Sections 414(b)-(o) of the Code and the
Treasury Regulations proposed thereunder) with SMX maintains or to which SMX has
any present or future obligation to contribute (collectively, the "SMX Plans").
Shareholders have caused SMX to deliver to Purchaser true and complete copies of
all SMX Plans (including other instruments relating thereto), if any, as they
may have been amended to the date hereof, embodying, relating to or summarizing
the SMX Plans. Shareholders have made available to Purchaser the most recent
annual report (Form 5500) filed and the most recent summary plan description
with respect to each SMX Plan.
(b) Other than those employee pension benefit plans set forth on Schedule
5.19, SMX maintains no "employee pension benefit plan" as defined in ERISA
Section 3(2) for the benefit of SMX's employees and has maintained no such plan
during any part of the past five (5) years.
(c) SMX has no obligation to contribute to any "multiemployer" plan, as
defined in Section 3(37) of ERISA.
(d) SMX is in compliance in all material respects with the requirements
prescribed by any and all statutes, orders, governmental rules or regulations
applicable to the SMX Plans and
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all reports and disclosures relating to the SMX Plans required to be filed with
or furnished to governmental agencies, participants or beneficiaries prior to
the date of this Agreement have been filed in accordance with applicable law.
(e) SMX, as of the date of this Agreement, has not completely or partially
withdrawn from any "multiemployer plan" within the meaning of the Multiemployer
Pension Plan Amendments Act of 1990. SMX has not suffered a seventy (70%)
percent decline in "contribution base units" (within the meaning of ERISA
Section 4205(b)(1)(A)) in any plan year beginning after 1979.
(f) There are no actions, audits, suits or claims pending (other than
routine claims for benefits) or to the knowledge of Shareholders, threatened,
against any of the SMX Plans or any fiduciary of any of the SMX Plans or against
the assets of any of the SMX Plans.
(g) The consummation of the transactions contemplated hereby will not
accelerate any liability under any of the benefit plans because of an
acceleration of any rights or benefits to which employees may be entitled
thereunder.
(h) With respect to any SMX Plan that is an "employee welfare benefit plan"
within the meaning of Section 3(1) of ERISA ("SMX Welfare Plan") (i) each such
SMX Welfare Plan, the contributions to which are claimed as a deduction under
any provision of the Code, is in compliance in all material respects with all
applicable requirements pertaining to such deduction, (ii) with respect to any
"welfare benefit fund" within the meaning of Section 419 of the Code that
comprises part of a SMX Welfare Plan, there is no disqualified benefit within
the meaning of Section 4976(a) of the Code, (iii) any such SMX Welfare Plan that
is a "group health plan" within the meaning of Section 162(i)(3) of the Code
meets all of the requirements of Section 162(k) of the Code.
(i) Except as disclosed on Schedule 5.19 hereto, SMX has no obligation to
any retired or former employee under any disability (long or short term),
hospitalization, medical, dental or life insurance plans (whether insured or
self-insured) or other employee welfare plan as defined in ERISA Section 3(1)
maintained by the SMX.
5.20 Tax Matters.
(a) Filing of Tax Returns; Payment of Taxes; No Audits, Investigations or
Claims. Shareholders have heretofore delivered to Purchaser true, complete and
correct copies of all Federal, state and local tax returns filed by SMX for each
of the three (3) taxable years of SMX ended December 31, 1995, any statement of
audit adjustments applicable thereto and all Federal, state and local returns of
estimated taxes filed during 1996. SMX has duly and timely filed all federal,
state, local and other tax and information returns required to be filed by it
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with regard to any income, sales, use, gross receipts, property, employment and
other taxes, charges, levies or other assessments related to its business,
properties or assets, and has duly paid in full or made adequate provision for
all taxes and other charges shown as due on such returns or which otherwise have
been accrued or have become due prior to the date hereof whether or not shown on
any such return. SMX has received no written notice of any claim or claims for
additional taxes which are claimed to be due from it by Federal, state, local or
foreign taxing authorities in connection with such reports or returns. There are
no liens for Federal, state, local or foreign taxes, assessments or government
charges or levies upon any of SMX's properties or assets. There are no
outstanding agreements or waivers extending the statutory period of limitation
applicable to any income tax or other return of SMX for any period and there are
not, nor have there been, any audits of SMX by any Federal, state or local
governmental tax authority and no notice of any audit has been received by SMX.
(b) "S Corporation" Status. SMX is an "S Corporation" (within the meaning
of Section 1361(a)(1) of the Code) for federal income tax purposes and, except
as set forth on Schedule 5.20(b) heretofore delivered to Purchaser and certified
by the President of SMX, under the tax laws of each of the relevant states and
jurisdictions in which SMX is doing business, and where S Corporation status is
permitted, and has maintained that status continuously since August 1, 1990.
Neither SMX nor the Shareholders have taken any action that caused a termination
of SMX's "S Corporation" status other than the sale of stock as contemplated by
this Agreement.
5.21 Intellectual Property. Schedule 5.21 heretofore delivered to Purchaser
and certified by the President of SMX, contains a list of all Intellectual
Property of SMX. SMX has full ownership right, title and interest in and to the
Intellectual Property and to the best knowledge of the Shareholders, the
Intellectual Property constitutes valid and enforceable rights of SMX. SMX has
not received any notice and has no reason to believe that the validity of the
Intellectual Property or SMX's interest therein can be or is being challenged by
any third party. SMX has not heretofore granted any licenses or conveyed any
other rights or interests to any of the Intellectual Property. The operation of
SMX as currently conducted does not infringe upon any patents or other
intellectual property rights of any third party. All trade names and trademarks
used by SMX to identify its products and services are protected by registration
in the name of SMX on the principal register in the United States Patent and
Trademark Office, state registrations and/or by rights in the United States
accorded to SMX by virtue of the common law.
5.22 Environmental Matters.
(a) SMX has not received any notice from any governmental agency or private
or public entity advising that it
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is potentially responsible for response costs or other costs with respect to a
release or threatened release of any Hazardous Substance and neither it nor to
SMX's knowledge its predecessors in interest with respect to the business,
properties or assets of SMX have conducted activities which could reasonably be
expected to result in such a notice. No administrative, civil or criminal
actions, including without limitation third-party actions for personal injury or
property damage, are pending or threatened with respect to Environmental Laws or
related to the business of SMX. No judgements, consent orders, consent decrees,
stipulations, or other restrictions have been entered or applied with respect to
Environmental Laws or related to the business, properties or assets of SMX. SMX
neither received nor is aware of any governmental orders, notifications, notices
of violation, or requests for information relating to environmental or health
and safety conditions at or related to the business, properties or assets of
SMX, nor is SMX aware of any past or current violations of any Environmental Law
related to the business, properties or assets of SMX or of environmental
conditions related to the business, properties or assets of SMX. Neither the
operation of SMX, either as currently conducted or conducted in the past at any
office space or other facility or real property owned, leased, used or occupied
by SMX, whether currently or at any time in the past, violate nor have violated
any Environmental Laws.
(b) For purposes of this Agreement, (i) "Environmental Laws" shall mean
statute, law, ordinance or regulation of any federal, state, county, local or
foreign governmental authority relating to the environment, including air, water
or noise pollution, emissions or discharges, the environment, public health,
employee health, safety or welfare, land use or the production, processing,
distribution, use, storage, labeling, handling, transportation, treatment or
disposition of any Hazardous Substance; and (ii) "Hazardous Substance" shall
mean asbestos, paints, solvents, ureaformaldehyde, polychlorinated biphenyls,
nuclear fuel or material, chemical waste, hazardous waste, radioactive material,
explosives, known carcinogens, petroleum products and by-products and other
dangerous, toxic, infectious or hazardous pollutants, contaminants, chemicals,
materials, wastes or substances listed or identified in, or regulated by, any
Environmental Laws.
5.23 Product Warranty. Each product manufactured, sold, leased, or
delivered by SMX has been in conformity with all applicable contractual
commitments and all express and implied warranties, and SMX does not have any
liability (and to the knowledge of the Shareholders there is no basis for any
present or future action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand against SMX giving rise to any liability of SMX) for
replacement or repair thereof or other damages in connection therewith, subject
only to the reserve for product warranty claims set forth on the face of the
Balance Sheet. No product manufactured, sold, leased, or delivered by SMX is
subject to any guaranty, warranty, or other indemnity
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beyond the applicable standard terms and conditions of sale or lease. Schedule
5.23 heretofore delivered to Purchaser and certified by the President of SMX
includes copies of the standard terms and conditions of sale or lease for SMX
(containing applicable guaranty, warranty, and indemnity provisions).
5.24 Permits, Licenses, Compliance with Laws. SMX has all permits,
licenses, orders, consents and approvals of federal, state, local or foreign
governmental or regulatory bodies that are required in order to permit SMX to
carry on its business as currently conducted. Schedule 5.24 heretofore delivered
to Purchaser and certified by the President of SMX, sets forth a correct and
complete list of all such permits, licenses, orders and approvals, all of which
are in full force and effect, and no suspension or cancellation of any of them
is threatened, and to the Shareholders' knowledge, no cause exists for such
suspension or cancellation. The business of SMX has been and is being conducted
in accordance and in compliance with all applicable federal, state, local or
foreign laws, codes, ordinances, rules and regulations, except for minor
violations which do not have a material adverse effect on SMX.
5.25 Litigation. There is no claim, action, suit, proceeding, arbitration,
investigation or inquiry pending before any federal, state, local, or other
court or governmental, administrative, or self-regulatory body or agency, or any
private arbitration tribunal, or to the knowledge of the Shareholders,
threatened against SMX relating to the business of SMX, any of the properties or
assets of SMX or the transactions contemplated by this Agreement; nor is there
any basis for any such claim, action, suit, proceeding, arbitration,
investigation or inquiry. SMX is not in default under any order, license,
regulation or demand of any federal, state or local, or other court or
governmental, administrative or self-regulatory body or agency.
5.26 Inventories. The inventories of SMX shown on the Balance Sheet and the
inventories acquired subsequent to April 30, 1996 consists of items of a quality
and quantity usable and saleable in the normal course of its business, and the
values of obsolete materials and materials below standard quality have been
written down on its books of account to realizable market value, or adequate
reserves have been provided therefor, and the values at which such inventories
are carried reflect the customary inventory valuation policy consistently
applied by SMX of stating inventory at the lower of cost or realizable market
value, on a first in first out basis, all in accordance with GAAP.
5.27 Broker. No broker, finder, agent or other intermediary has acted on
behalf of the Shareholders or otherwise assisted in bringing about the
transactions contemplated by this Agreement and no broker, finder, agent or
other intermediary is entitled to any commission or finder's fee in respect
thereof based in any way on agreements, understandings or arrangements with or
the conduct of SMX.
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5.28 Product Liability. SMX has no liability (and there is no basis for any
present or future action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand against SMX giving rise to any liability) arising
out of any injury to individuals or property as a result of the ownership,
possession, or use of any product manufactured, sold, leased, or delivered by
SMX.
5.29 Powers of Attorney. There are no outstanding powers of attorney
executed on behalf of any of SMX.
5.30 Material Information; Full Disclosure. This Agreement and any other
certificate, document, agreement or information furnished (including, without
limitation, any schedule hereto) or to be furnished pursuant to this Agreement
by the Shareholders to Purchaser does not contain and will not contain any
untrue statement of a material fact or omits or will omit to state a material
fact necessary to make the statement herein or therein not misleading. There is
no fact, development or to the knowledge of Shareholders, threatened development
(excluding general economic factors affecting business in general or generally
affecting SMX's industry), which has not been disclosed to Purchaser in writing
which adversely affects or, so far as the Shareholders can now foresee, may
adversely affect, the business, operations, assets, properties, prospects or
condition (financial or otherwise) of SMX.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Shareholders as follows:
6.1 Organization and Good Standing of Purchaser. Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. Purchaser has all requisite corporate power and authority to
make the representations, warranties and agreements made hereunder, to own,
lease and operate its properties and assets and to carry on its business as
currently conducted, to execute and deliver this Agreement and to perform its
obligations under this Agreement.
6.2 Authorization of Agreement and Enforceability. Purchaser has full
corporate power and authority to execute and deliver this Agreement and the
Guaranty under the Employment Agreements and Lease of even date herewith between
SMX and each of the Shareholders and to perform its obligations hereunder. This
Agreement has been duly and validly authorized, executed and delivered by
Purchaser and (assuming the valid execution and delivery of the Agreement by
Shareholders) constitutes the legal, valid and binding obligation of Purchaser,
enforceable against Purchaser in accordance with its terms.
6.3 Effect of Agreement. Neither the execution, delivery and performance of
this Agreement by Purchaser, nor the
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consummation by Purchaser of the transactions contemplated hereby will (a)
conflict with or result in a breach of any provision of Purchaser's Certificate
of Incorporation or By-Laws, (b) constitute or result in the breach of, conflict
with or give rise to a right of termination, cancellation or acceleration with
respect to, any term, condition or provision of, any note, bond, mortgage,
indenture, license or other contract or obligation to which Purchaser is a party
or by which it or any of its properties or assets may be bound, except for such
conflicts, breaches or defaults as to which written waivers or consents have
been obtained, or (c) violate any law, statute, regulation, judgment, order,
writ, injunction, or decree applicable to Purchaser or any of its properties or
assets.
6.4 Government and Other Consents. No consent, order, authorization,
qualification, or approval of, or exemption by, or filing with any governmental,
public, or regulatory body or authority is required in connection with the
execution, delivery and performance by Purchaser of this Agreement.
6.5 Broker. No broker, finder, agent or other intermediary has acted on
behalf of Purchaser or otherwise assisted in bringing about the transactions
contemplated by this Agreement and no broker, finder, agent or other
intermediary is entitled to any commission or finder's fee in respect thereof
based in any way on agreements, understandings or arrangements with or the
conduct of Purchaser.
6.6 Material Information; Full Disclosure. This Agreement and any other
certificate, document, agreement or information furnished (including, without
limitation, any schedule hereto) or to be furnished pursuant to this Agreement
by the Purchaser to the Shareholders does not contain and will not contain any
untrue statement of a material fact or omits or will omit to state a material
fact necessary to make the statement herein or therein not misleading.
6.7 SEC Filings.
(a) Purchaser has filed and made available to the Shareholders all forms,
reports and documents required to be filed by Purchaser with the Securities and
Exchange Commission ("SEC") since February 17, 1994 (collectively, the
"Purchaser's SEC Reports"). The Purchaser's SEC Reports (i) at the time filed,
complied in all material respects with the applicable requirements of the
Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as
the case may be; and (ii) did not at the time they were filed (or if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such filing) contain any untrue statement of a material fact or omit to state a
material fact required to be stated in such Purchaser's SEC Reports or necessary
in order to make the statements in such Purchaser's SEC Reports, in the light of
the circumstances under which they were made, not misleading.
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(b) Since the date of filing of the last Purchaser's SEC Report, there has
not been any material adverse change in the assets, liabilities, financial
condition or results of operations of Purchaser and its Subsidiaries, taken as a
whole.
ARTICLE 7
INDEMNIFICATION
7.1 Indemnification by Shareholders. The Shareholders, jointly and
severally, agree that, notwithstanding the Closing, the sale of the Shares
provided for herein and regardless of any investigation at any time made by or
on behalf of Purchaser or of any information Purchaser may have in respect
thereof, the Shareholders, jointly and severally, will indemnify and hold
Purchaser and SMX harmless from and against any damage, liability, loss or
deficiency (including, without limitation, reasonable attorneys' fees and other
costs and expenses incident to any suit, action or proceeding) arising out of or
resulting from, and will pay Purchaser or SMX on demand the full amount of any
sum or sums which Purchaser or SMX may pay or become obligated to pay on account
of: (i) any inaccuracy in any representation or the breach of any warranty made
by the Shareholders herein or in any agreement, instrument or document delivered
pursuant to this Agreement, (ii) any failure of the Shareholders duly to perform
or observe any term, provision, covenant, agreement, or condition herein or in
any agreement, instrument or document delivered pursuant to this Agreement on
the part of Shareholders to be performed or observed, and (iii) any liability or
obligation arising with respect to SMX's assets or the conduct of the SMX
business prior to the Closing, (v) warranty obligations attributable to sales
prior to Closing, in excess of the sum of One Hundred Ten Thousand ($110,000)
Dollars plus any unapplied portion of the Indemnification Threshold.
Notwithstanding anything herein to the contrary, neither Purchaser nor SMX may
bring a claim for indemnification under this Section if the applicable statute
of limitations with respect to such claim has expired.
7.2 Indemnification by Purchaser. Purchaser hereby agrees to indemnify and
hold the Shareholders harmless from, against and in respect of (and shall on
demand reimburse Shareholders for) any and all claims, loss, liability, damage,
cost or expense (including, without limitation, reasonable attorneys' fees and
other costs and expenses incident to any suit, action or proceeding) suffered or
incurred by Shareholders on account of: (i) any inaccuracy in any representation
or the breach of any warranty made by Purchaser herein or in any agreement,
instrument or document delivered pursuant to this Agreement; or (ii) any failure
of Purchaser duly to perform or observe any term, provision, covenant,
agreement, or condition herein or in any agreement, instrument or documents
delivered pursuant to this Agreement on the part of Purchaser to be performed or
observed.
7.3 Limitation of Liability. None of the Parties shall assert any claim for
indemnification under Sections 7.1 or 7.2
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unless the aggregate amount of all claims of such party against the other party
under this Agreement, on a cumulative basis, exceeds Seventy-Five Thousand
($75,000) Dollars (the "Indemnification Threshold"); provided, however, that (a)
once claims exceed such Seventy-Five Thousand ($75,000) Dollars threshold, the
indemnifying party shall be liable for all valid claims, including the initial
claims aggregating Seventy-Five Thousand ($75,000) Dollars, and (b) there shall
be no Indemnification Threshold for indemnification claims under Section 7.1 to
the extent such claims arise out of the breach by the Shareholders of a
representation, warranty or covenant set forth in Sections 2.3, 2.4 or 8. Under
no circumstances shall the liability of the Shareholders in the aggregate
pursuant to this Article 7 exceed Eleven Million One Hundred Seventy Thousand
($11,170,000) Dollars.
7.4 Right of Set-off. In addition to any remedies available to Purchaser,
Purchaser shall have a right to set-off any obligations of the Shareholders to
Purchaser under this Agreement against any obligation of Purchaser to
Shareholders under this Agreement, including without limitation, any payment due
after the Closing Date pursuant to Sections 2.1 and 2.2 hereof or pursuant to
the Martin Promissory Note or the Ronald Promissory Note. Notwithstanding the
foregoing right of set-off, if the Shareholders are disputing in good faith an
obligation alleged by Purchaser to be owed by Shareholders to which a set- off
right otherwise applies hereunder, the Purchaser shall continue making all
payments due from Purchaser to Shareholders under this Agreement until there has
been a Final Determination made with respect to the alleged obligation owing by
Shareholders to Purchaser. Pending such Final Determination, such payments made
by Purchaser shall be deposited with an escrow agent pursuant to an escrow
agreement, each of which shall be mutually satisfactory to Shareholders and
Purchaser. Upon a Final Determination the escrowed funds shall be disbursed
consistent with the terms of the escrow agreement. "Final Determination," as
used herein, shall mean a final order of a court, tribunal or adjudicator having
jurisdiction over such dispute.
7.5 No Waiver. No failure or delay on the part of Purchaser in exercising
any right, power or remedy under this Agreement, or available to Purchaser at
law or in equity shall operate as a wavier of such right, power or remedy, nor
shall any single or partial exercise of any such right, power or remedy preclude
any or further exercise thereof or the exercise of any other right, power or
remedy available to Purchaser. Subject to the limitations of Section 7.3, the
remedies provided in this Agreement are cumulative and not exclusive of any
remedies available to any Party at law or equity.
7.6 Third Party Claims.
(a) In case of the assertion in writing of any claim initiated or asserted
by any person, firm, governmental authority or corporation other than Purchaser
or any affiliate of
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Purchaser (a "Third Party Claim") against SMX or the commencement of any
litigation asserting a Third Party Claim which may give rise to any
indemnification obligation of Shareholders (each an "Indemnitor") to Purchaser
or SMX under the provisions of this Article, Purchaser shall give notice thereof
as provided hereunder as promptly as practicable after Purchaser's receipt of
such written assertion or the commencement of such litigation unless the failure
to give such notice would not materially prejudice Shareholders, such notice to
be given by Purchaser not later than would materially prejudice Shareholders if
they chose to defend such litigation as hereinafter provided. If Indemnitor
demonstrates to Purchaser that Indemnitor will be able to pay the full amount of
potential liability in connection with any Third Party Claim, Indemnitor may at
its sole cost and expense, upon written notice given to Purchaser within fifteen
(15) days after its receipt of Purchaser's notice under this Section 7.6, assume
the defense, with counsel reasonably satisfactory to Purchaser, of any such
Third Party Claim or litigation, provided that Indemnitor admits in writing to
Purchaser its liability solely as between it and Purchaser with respect to all
material elements thereof. If Indemnitor assumes the defense of any such claim
or litigation, the obligations of Indemnitor hereunder as to such claim or
litigation shall be limited to taking all steps necessary in the defense or
settlement thereof and to holding Purchaser harmless from and against any and
all losses, liabilities, expenses and damages caused by or arising out of any
settlement approved by Indemnitor or any judgment in connection with such claim
or litigation, and Purchaser shall make available or cause to be made available
to Indemnitor such books and records in SMX's possession as Indemnitor may
reasonably require in connection with such defense. Except with the express
prior written consent of Purchaser, Indemnitor shall not consent to the
settlement or entry of any judgment arising from any such claim or litigation
which in each case does not include as an unconditional term thereof the giving
by the claimant or plaintiff, as the case may be, to Purchaser of any
unconditional release from all liability in respect thereof unless Indemnitor
shall have actually paid the full amount of any such settlement or judgment.
Purchaser shall be entitled to be consulted about (but not control) the defense
of, and receive copies of all pleadings and other material papers in connection
with, any such claim or litigation. If Indemnitor does not assume the defense of
any such claim or litigation, Purchaser may defend the same in such manner as it
may deem appropriate, including but not limited to settling such claim or
litigation after giving reasonable notice of the same to Indemnitor on such
terms as Purchaser may deem appropriate, and Indemnitor will promptly reimburse
Purchaser in accordance with the provisions of this Section 7.6, provided that
Purchaser furnish Indemnitor with copies of all pleadings and other material
documents in connection with any such claim or litigation and that Indemnitor is
consulted about (albeit not in control of) such litigation. Anything contained
in this Section 7.6 to the contrary notwithstanding, (i) Indemnitor shall not be
entitled to assume the defense of any such claim or litigation if the Third
Party Claim seeks an order,
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injunction or other equitable relief against Purchaser which, if successful,
might materially interfere with, or adversely affect, the operation of its
business by Purchaser or SMX; and (ii) Purchaser or SMX may defend any Third
Party Claim to which Purchaser or SMX may have a defense or counterclaim which
Indemnitor is not entitled to assert to the extent necessary to assert and
maintain such defense or counterclaim provided that Purchaser provide or cause
to be provided to Indemnitor copies of all pleadings and other material
documents in connection with any such claim or litigation and that Indemnitor is
consulted about (albeit not in control of) such litigation.
(b) In case of the assertion in writing of any Third Party Claim or the
commencement of any litigation asserting a Third Party Claim which may give rise
to any obligation of Purchaser to Shareholders under the provisions of this
Section, Shareholders shall have the rights, duties and obligations of Purchaser
under Section 7.6 and Purchaser shall have the right, duties and obligations of
Shareholders.
ARTICLE 8
TAX MATTERS
The following provisions shall govern the allocation of responsibility as
between Purchaser and the Shareholders for certain tax matters following the
Closing Date:
8.1 Purchaser and the Shareholders covenant and agree at the direction of
Purchaser to make the election provided by Section 338(h)(10) of the Code (and
any corresponding elections under state, local or foreign tax law)
(collectively, the "Election") with respect to the Shares and to provide one
another with all necessary information to permit the Election to be made.
Purchaser and the Shareholders shall, at the direction of Purchaser, as promptly
as practicable following the Closing Date, take all actions necessary and
appropriate (including filing such forms, returns, elections, schedules and
other documents as may be required) to effect and preserve a timely Election.
The Shareholders shall pay any and all taxes due from SMX under Section 1374 of
the Code, including any liability of SMX for any taxes resulting from the
application to it of Treasury regulations Section 1.338(h)(10)-1(F)(5),
attributable to the making of the Election (except that Purchaser shall pay
one-half of the first Two Hundred Fifty Thousand and 00/100 ($250,000.00)
Dollars of any such tax liability ("Purchaser's Maximum Tax Obligation")) and
will indemnify Purchaser and SMX against any liabilities arising out of any
failure to pay such taxes. Purchaser agrees to reimburse the Shareholders an
amount equal to 50% of any loss to them of the time value of money (assuming a
6% discount rate) arising out of the loss of installment gain treatment with
respect to the deferred portion of the Purchase Price, in an amount not to
exceed Purchaser's Maximum Tax Obligation less the amount of any Taxes payable
by SMX attributable to the making of the Election.
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8.2 In connection with the Election, no later than 90 days after the
Closing Date, Purchaser and the Shareholders shall act together in good faith to
(i) determine and agree upon the amount of the "adjusted grossed-up basis" of
SMX's assets (within the meaning of Treasury Regulation Section
1.338(h)(10)-1(e)(5)), which "adjusted grossed-up basis" shall be determined in
a manner consistent with the Purchase Price and (ii) agree upon the proper
allocations (the "Allocations") of the "adjusted grossed-up basis" of SMX's
assets among the assets of SMX (the "Assets") in accordance with Section
338(b)(5) of the Code and the Treasury regulations promulgated thereunder. For
purposes of determining the proper Allocations, the Parties agree that the
Assets will be comprised solely of cash, prepaid expenses, accounts receivable,
notes receivable, inventory, leasehold improvements and goodwill. As soon as
practicable following the Closing, Purchaser and the Shareholders shall jointly
arrange for an appraisal of the Assets for the purpose of determining the proper
Allocations. The calculations of "adjusted grossed-up basis" and the Allocations
which the parties shall agree upon pursuant to this Article 8 shall not include
the respective investment banking, legal, accounting and other fees or costs
incurred by Purchaser and Shareholders as a result of the transactions
contemplated by this Agreement ("Transaction Costs"). SMX will calculate gain or
loss, if any, resulting from the Election in a manner consistent with the
Allocations and will not take any position inconsistent with the Allocations in
any tax return or otherwise; provided, however, that SMX will be entitled to
take into account its Transaction Costs when calculating such gain or loss.
Purchaser will allocate the "adjusted grossed-up basis" of SMX's assets among
the assets of SMX in a manner consistent with the Allocations and will not take
any position inconsistent with the Allocations in any tax return or otherwise;
provided, however, Purchaser will be entitled to add its Transaction Costs to
such "adjusted grossed-up basis" for purposes of allocating among the assets of
SMX.
8.3 Purchaser shall prepare or cause to be prepared and file or cause to be
filed all Tax Returns for SMX for all periods ending on or prior to the Closing
Date which are filed after the Closing Date. Purchaser shall permit the
Shareholders to review and comment on each such Tax Return described in the
preceding sentence prior to filing. The Shareholders shall reimburse Purchaser
for Taxes of SMX with respect to such periods within fifteen (15) days after
payment by Purchaser or SMX of such Taxes.
8.4 Purchaser shall prepare or cause to be prepared and file or cause to be
filed any Tax Returns of SMX for Tax periods which begin before the Closing Date
and end after the Closing Date. The Shareholders shall pay to Purchaser within
fifteen (15) days after the date on which Taxes are paid with respect to such
periods an amount equal to the portion of such Taxes which relates to the
portion of such taxable period ending on the Closing Date. For purposes of this
Section, in the case of any Taxes that are imposed on a periodic basis and are
payable for a
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Taxable period that includes (but does not end on) the Closing Date, the portion
of such Tax which relates to the portion of such taxable period ending on the
Closing Date shall (x) in the case of any Taxes other than Taxes based upon or
related to income or receipts, be deemed to be the amount of such Tax for the
entire taxable period multiplied by a fraction the numerator of which is the
number of days in the taxable period ending on the Closing Date and the
denominator of which is the number of days in the entire taxable period, and (y)
in the case of any Tax based upon or related to income or receipts be deemed
equal to the amount which would be payable if the relevant taxable period ended
on the Closing Date. Any credits relating to a taxable period that begins before
and ends after the Closing Date shall be taken into account as though the
relevant taxable period ended on the Closing Date. All determinations necessary
to give effect to the foregoing allocations shall be made in a manner consistent
with prior practice of SMX.
8.5 (a) Purchaser, SMX and the Shareholders shall cooperate fully, as and
to the extent reasonably requested by the other party, in connection with the
filing of Tax Returns pursuant to this Section and any audit, litigation or
other proceeding with respect to Taxes. Such cooperation shall include the
retention and (upon the other party's request) the provision of records and
information which are reasonably relevant to any such audit, litigation or other
proceeding and making employees available on a mutually convenient basis to
provide additional information and explanation of any material provided
hereunder. Purchaser and the Shareholders agree (i) to retain all books and
records with respect to Tax matters pertinent to SMX relating to any taxable
period beginning before the Closing Date until the expiration of the statute of
limitations (and, to the extent notified by Purchaser or the Shareholders, any
extensions thereof) of the respective taxable periods, and to abide by all
record retention agreements entered into with any taxing authority, and (ii) to
give the other party reasonable written notice prior to transferring, destroying
or discarding any such books and records and, if the other party so requests,
SMX or the Shareholders, as the case may be, shall allow the other party to take
possession of such books and records.
(b) Purchaser and the Shareholders further agree, upon request, to use
their best efforts to obtain any certificate or other document from any
governmental authority or any other person as may be necessary to mitigate,
reduce or eliminate any Tax that could be imposed (including, but not limited
to, with respect to the transactions contemplated hereby).
(c) Purchaser and the Shareholders further agree, upon request, to provide
the other party with all information that either party may be required to report
pursuant to Section 6043 of the Code and all Treasury Department Regulations
promulgated thereunder.
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8.6 For purposes of this Section 8, the following terms shall have the
meanings specified below:
(a) "Tax" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code Section
59A), customs duties, capital stock, franchise, profits, withholding, social
security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax of any kind whatsoever, including any interest,
penalty, or addition thereto, whether disputed or not.
(b) "Tax Return" means any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
ARTICLE 9
GENERAL
9.1 Expenses. Purchaser and Shareholders shall pay their own respective
counsel, accountants and other advisors' fees and expenses arising in connection
with the negotiation and preparation of this Agreement and the consummation of
the transactions contemplated hereby.
9.2 Sales, Transfer and Documentary Taxes, etc.. Shareholders shall pay all
sales, transfer and documentary taxes, if any, due as a result of the sale of
the shares to Purchaser and all other fees applicable to Shareholders directly
relating to the transfer of the Shares to Purchaser.
9.3 Survival of Representations and Warranties. Each of the Parties
covenants and agrees that all of the representations warranties, covenants, and
agreements set forth in this Agreement shall survive the Closing and shall not
be merged into any instruments of transfer or other documents delivered by any
of the Parties at Closing or at any other time.
9.4 No Third Party Beneficiaries. Nothing in this Agreement, expressed or
implied, is intended to confer on any person other than the Parties or their
respective heirs, successors and assigns any rights, remedies, obligations, or
other liabilities under or by reason of this Agreement.
9.5 Notices. All notices permitted or required under this Agreement shall
be in writing and shall be either (a) delivered by personal service, (b)
delivered by courier service, (c) telecopied and confirmed immediately in
writing by a copy mailed by registered or certified mail, postage prepaid,
return receipt requested, or (d) sent by certified or registered mail, postage
prepaid, return receipt requested, to the parties hereto at their
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addresses set forth below or at such other addresses which may be designated in
writing by the parties:
If to Ronald to: Ronald H. Krasnitz
9826 Maynard Terrace
Niles, Illinois 60714
If to Martin to: Martin Krasnitz
330 West Diversey
Chicago, Illinois 60657
With a copy to: Gardner, Carton & Douglas
321 N. Clark Street
Chicago, IL 60610-4795
Attn: David A. Rubenstein, Esq.
Telecopier No.: (312) 644-3381
If to Purchaser to: Hirsch International Corp.
200 Wireless Boulevard
Hauppauge, New York 11788
Attn: President
Telecopier No. (516) 436-5176
With a copy to: Ruskin, Moscou, Evans & Faltischek, P.C.
170 Old Country Road
Mineola, New York 11501
Attn: Raymond S. Evans, Esq.
Telecopier No.: (516) 663-6641
Such notices shall be effective upon receipt in the case of personal or courier
service or telecopier delivery and on the third (3rd) day after posting in the
U.S. mail.
9.6 Entire Agreement. This Agreement (including the Schedules hereto)
supersedes all prior agreements and understandings, oral and written, between
the parties with respect to the subject matter, and this Agreement constitutes
the entire agreement of the parties with respect to the subject matter hereof.
9.7 Headings. The article, section and other headings contained in this
Agreement are for reference purposes only and shall not be deemed to be a part
of this Agreement or to affect the meaning or interpretation of this Agreement.
9.8 Counterparts. This Agreement may be executed in any number of
counterparts, each of which, when executed, shall be deemed to be an original,
and all of which together shall be deemed to be one and the same instrument.
9.9 Governing Law. This Agreement shall be construed as to both validity
and performance and governed by and enforced in accordance with the laws of the
State of New York, without giving effect to the choice of law principles.
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9.10 Severability. If any term, covenant, condition, or provision of this
Agreement or the application thereof to any circumstance shall be invalid or
unenforceable to any extent, the remaining terms, covenants, conditions, and
provisions of this Agreement shall not be affected and each remaining term,
covenant, condition, and provision of this Agreement shall be valid and shall be
enforceable to the fullest extent permitted by law. If any provision of this
Agreement is so broad as to be unenforceable, such provision shall be
interpreted to be only as broad as is enforceable.
9.11 Amendments. This Agreement may not be modified or changed except by an
instrument or instruments in writing signed by all Parties.
9.12 Assignment. None of the Parties shall assign its rights or obligations
under this Agreement without the prior written consent of the other Parties,
except that Purchaser may assign this Agreement to any Affiliate of Purchaser
without the consent of Shareholders.
9.13 Successors and Assigns. The covenants, agreements, and conditions
contained or granted shall be binding upon and shall inure to the benefit of
Purchaser and Shareholders and their respective heirs, successors and permitted
assigns.
9.14 No Joint Venture. The Parties, by entering into this Agreement and
consummating the transactions contemplated in this Agreement, shall not be and
shall not be considered a partner or joint venturer of one another.
9.15 Construction of Agreement. This Agreement was negotiated at arm's
length by the Parties and their respective counsel. This Agreement shall not be
construed as having been "drafted" by any one Party and shall not be construed
against any Party as a drafting party.
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first written above.
HIRSCH INTERNATIONAL CORP.
By:\s\ Henry Arnberg
--------------------------
HENRY ARNBERG, President
\s\ Ronald H. Krasnitz
--------------------------
RONALD H. KRASNITZ
\s\ Martin Krasnitz
--------------------------
MARTIN KRASNITZ
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