ASSET PURCHASE AGREEMENT
among:
SAGAMORE HOLDINGS, INC.,
a Florida corporation ("Parent"),
NECI Acquisition, Inc.
a Florida corporation ("Purchaser"),
NEXUS CUSTOM ELECTRONICS, INC.,
a Delaware corporation ("Seller"),
and
JACO ELECTRONICS, INC.,
a New York corporation ("Shareholder")
`
Dated as of September 20, 2004
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TABLE OF CONTENTS
1. DEFINITIONS.............................................................................................1
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1.1. Code...........................................................................................2
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1.2. Company Plan...................................................................................2
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1.3. Consent........................................................................................2
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1.4. Contract.......................................................................................2
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1.5. Contract Year..................................................................................2
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1.6. Damages........................................................................................2
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1.7. Disclosure Schedules...........................................................................2
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1.8. Encumbrance....................................................................................2
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1.9. Entity.........................................................................................2
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1.10. GAAP. 2
1.11. Governmental Authorization.....................................................................2
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1.12. Governmental Body..............................................................................3
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1.13. Hazardous Material.............................................................................3
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1.14. Knowledge......................................................................................4
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1.15. Legal Requirement..............................................................................4
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1.16. Liability......................................................................................4
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1.17. Material.......................................................................................4
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1.18. Material Seller Contracts......................................................................4
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1.19. Net Working Capital............................................................................4
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1.20. Order. 4
1.21. Ordinary Course of Business....................................................................5
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1.22. Permitted Distribution.........................................................................6
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1.23. Person. 6
1.24. Proceeding.....................................................................................6
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1.25. Proprietary Asset..............................................................................6
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1.26. Purchaser Group................................................................................6
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1.27. Seller Contracts...............................................................................6
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1.28. Supply Agreement...............................................................................6
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1.29. Tax. 6
1.30. Tax Return.....................................................................................7
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1.31. Transaction Documents..........................................................................7
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1.32. Transactions...................................................................................7
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2. SALE AND PURCHASE OF ASSETS; ASSUMPTION OF ASSUMED LIABILITIES..........................................8
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2.1. Sale and Purchase of Assets....................................................................8
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2.2. Excluded Assets................................................................................9
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2.3. No Encumbrances...............................................................................10
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2.4. Passage of Title..............................................................................10
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2.5. Transfer Taxes................................................................................10
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2.6. Assumed Liabilities...........................................................................10
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2.7. Excluded Liabilities..........................................................................10
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2.8. Employees.....................................................................................11
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2.9. Consideration Paid by Purchaser...............................................................11
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2.10. Closing. 14
3. REPRESENTATIONS AND WARRANTIES OF THE SELLER AND SHAREHOLDER...........................................16
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3.1. Due Organization; No Subsidiaries; Etc........................................................16
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3.2. Certificate of Incorporation and Bylaws; Records..............................................16
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3.3. Capitalization, Etc...........................................................................17
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3.4. Financial Statements..........................................................................17
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3.5. Absence of Material Changes...................................................................18
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3.6. Title to Assets...............................................................................18
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3.7. Inventories...................................................................................19
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3.8. Receivables...................................................................................19
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3.9. Fixed Assets..................................................................................19
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3.10. Real Property.................................................................................19
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3.11. Proprietary Assets............................................................................19
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3.12. Contracts.....................................................................................20
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3.13. Liabilities...................................................................................21
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3.14. Compliance With Legal Requirements............................................................22
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3.15. Governmental Authorizations...................................................................22
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3.16. Tax Matters...................................................................................23
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3.17. Employee and Labor Matters....................................................................23
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3.18. Company Plans.................................................................................25
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3.19. Environmental Matters.........................................................................25
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3.20. Proceedings; Orders...........................................................................25
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3.21. Authority; Binding Nature of Agreements.......................................................26
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3.22. Non-Contravention Consents....................................................................26
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3.23. Brokers. 27
4. REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER.................................................27
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4.1. Due Organization..............................................................................27
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4.2. Authority; Binding Nature of Agreement........................................................27
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4.3. Employees.....................................................................................28
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4.4. Brokers.......................................................................................28
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5. CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATION TO CLOSE................................................28
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5.1. Accuracy of Representations...................................................................28
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5.2. Performance of Obligations....................................................................28
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5.3. Consents......................................................................................28
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5.4. No Material Adverse Change....................................................................28
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5.5. Additional Documents..........................................................................28
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5.6. No Claim Regarding the Purchased Assets or Sale Proceeds......................................29
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5.7. No Prohibition................................................................................29
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5.8. No Actions Outside of the Ordinary Course of Business.........................................29
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5.9. Compliance with Legal Requirements............................................................29
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5.10. 2004 EBITDA Target............................................................................29
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5.11. No Injunction.................................................................................29
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6. CONDITIONS PRECEDENT TO THE SELLER AND SHAREHOLDER'S OBLIGATION TO CLOSE...............................29
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6.1. Accuracy of Representations...................................................................30
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6.2. Purchaser's Performance.......................................................................30
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6.3. No Injunction.................................................................................30
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6.4. No Prohibition................................................................................30
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7. INDEMNIFICATION, ETC...................................................................................30
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7.1. Survival of Representations and Covenants.....................................................30
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7.2. Indemnification by the Seller and Shareholder.................................................31
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7.3. Remediation Obligation........................................................................32
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7.4. Setoff........................................................................................32
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7.5. Defense of Third Party Claims.................................................................32
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7.6. Exercise of Remedies by Purchaser Indemnitees Other Than Purchaser............................33
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7.7. Indemnification by Parent and Purchaser.......................................................33
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7.8. Threshold for Indemnification by the Seller and Shareholder...................................33
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7.9. Threshold for Indemnification by Parent and Purchaser.........................................34
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7.10. Limitation on Indemnification.................................................................34
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7.11. Exclusivity of Indemnification Remedies.......................................................34
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8. OTHER AGREEMENTS.......................................................................................34
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8.1. Non-Compete...................................................................................34
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8.2. Nonsolicitation...............................................................................35
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8.3. Confidentiality...............................................................................35
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8.4. Severability..................................................................................36
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8.5. Judicial Modification.........................................................................36
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8.6. Specific Enforcement..........................................................................36
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8.7. Tolling of Time Periods.......................................................................37
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8.8. Confirmation as to Scope......................................................................37
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8.9. Access to Records.............................................................................37
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8.10. No Resale of Purchased Assets.................................................................37
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8.11. Post-Audit Closing Cooperation................................................................38
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8.12. Transitional Services.........................................................................38
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9. MISCELLANEOUS..........................................................................................38
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9.1. Counterparts; Interpretation..................................................................38
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9.2. Governing Law.................................................................................38
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9.3. Successors and Assigns; Assignment............................................................38
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9.4. Partial Invalidity and Severability...........................................................38
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9.5. Waiver........................................................................................39
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9.6. Headings......................................................................................39
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9.7. Acceptance by Fax.............................................................................39
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9.8. Expenses......................................................................................39
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9.9. Attorneys' Fees...............................................................................39
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9.10. Specific Performance..........................................................................39
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9.11. Further Assurances............................................................................39
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9.12. Notices. 40
9.13. NO JURY TRIAL.................................................................................41
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of this 20th day of September, 2004 by and between SAGAMORE HOLDINGS,
INC., a Florida corporation ("Parent"); NECI ACQUISITION, INC., a Florida
corporation ("Purchaser"); NEXUS CUSTOM ELECTRONICS, INC., a Delaware
corporation ("Seller"); and JACO ELECTRONICS, INC., a New York corporation
("Shareholder"). Parent Purchaser, Seller and Shareholder are each referred to,
at times, as a "Party" and collectively as the "Parties".
RECITALS
WHEREAS, Seller operates a printed circuit board contract manufacturing
business (the "Business"); --------
WHEREAS, Seller, which is 100% owned by Shareholder, desires to sell to
Purchaser, which is 100% owned by Parent, and Purchaser desires to purchase from
Seller, substantially all of the assets of Seller upon the terms and conditions
set forth herein; and
WHEREAS, Parent shall execute an agreement (the "Guaranty") pursuant to
which the Parent shall guarantee the obligations of the Purchaser under this
Agreement.
AGREEMENT:
NOW, THEREFORE, in consideration of the mutual promises herein
contained, and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Parties agree as follows:
1. DEFINITIONS
Set forth below are definitions, for the purposes of the Agreement, for
certain capitalized terms. Other capitalized terms are defined throughout the
Agreement.
1.1. Code. "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.2. Company Plan. "Company Plan" shall mean any current benefit plan or
past benefit plan under which employees, officers or directors of the Seller has
received benefits.
1.3. Consent. "Consent" shall mean any approval, consent, ratification,
permission, waiver or authorization (including any Governmental Authorization).
1.4. Contract. "Contract" shall mean any written, oral, implied or other
agreement, contract, understanding, arrangement, instrument, note, guaranty,
indemnity, representation, warranty, deed, assignment, power of attorney,
certificate, purchase order, work order, insurance policy, benefit plan,
commitment, covenant, assurance or undertaking of any nature.
1.5. Contract Year. "Contract Year" shall mean (i) the period commencing on
the Closing Date and ending September 30, 2005 and thereafter (ii) each twelve
(12) month period beginning on October 1.
1.6. Damages. "Damages" shall include any loss, damage, injury, decline in
value, lost opportunity, Liability, claim, demand, settlement, judgment, award,
fine, penalty, Tax, fee (including any legal fee, expert fee, accounting fee or
advisory fee), charge, cost (including any cost of investigation) or expense of
any nature.
1.7. Disclosure Schedules. "Disclosure Schedules" shall mean the schedules
(dated as of the date of the Agreement) delivered to the Purchaser by or on
behalf of the Seller and Shareholder as set forth in the Agreement, copies of
which are attached to the Agreement and incorporated in the Agreement by
reference.
1.8. Encumbrance. "Encumbrance" shall mean any lien, pledge, hypothecation,
charge, mortgage, security interest, encumbrance, equity, trust, equitable
interest, claim, preference, right of possession, lease, tenancy, license,
encroachment, covenant, infringement, interference, Order, proxy, option, right
of first refusal, preemptive right, community property interest, legend, defect,
impediment, exception, reservation, limitation, impairment, imperfection of
title, condition or restriction of any nature (including any restriction on the
voting of any security, any restriction on the transfer of any security or other
asset, any restriction on the receipt of any income derived from any asset, any
restriction on the use of any asset and any restriction on the possession,
exercise or transfer of any other attribute of ownership of any asset).
1.9. Entity. "Entity" shall mean any corporation (including any non-profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, cooperative, foundation, society,
political party, union, company (including any limited liability company or
joint stock company), firm or other enterprise, association, organization or
entity.
1.10. GAAP."GAAP" shall mean generally accepted accounting principles,
applied on a consistent basis.
1.11. Governmental Authorization. "Governmental Authorization" shall mean
any permit, license, certificate, franchise, concession, approval, Consent,
ratification, permission, clearance, confirmation, endorsement, route authority,
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waiver, certification, designation, rating, registration, qualification or
authorization that is, has been or may in the future be issued, granted, given
or otherwise made available by or under the authority of any Governmental Body
or pursuant to any Legal Requirement or under any Contract with any Governmental
Body.
1.12. Governmental Body."Governmental Body" shall mean any:
(a) Nation, principality, state, commonwealth, province,
territory, county, municipality, district or other
jurisdiction of any nature;
(b) Federal, state, local, municipal, foreign or other
government;
(c) Governmental or quasi-governmental authority of any
nature (including any governmental division,
subdivision, department, agency, bureau, branch,
office, commission, council, boars, instrumentality,
officer, official, representative, organization, unit,
body or Entity and any court or other tribunal);
(d) Multi-national organization or body; or
(e) Individual, Entity or body exercising, or entitled to
exercise, any executive, legislative, judicial,
administrative, regulatory, police, military or taxing
authority or power of any nature.
1.13. Hazardous Material. "Hazardous Material" shall include:
(a) Any petroleum, waste oil, crude oil, asbestos, urea
formaldehyde or polychlorinated biphenyl;
(b) Any waste, gas or other substance or material that is
explosive or radioactive;
(c) Any "hazardous substance," "pollutant," "contaminant,"
"hazardous waste," "regulated substance," "hazardous
chemical" or "toxic chemical" as designated, listed or
defined (whether expressly or by reference) in any
statute, regulation or other Legal Requirement
(including CERCLA, any other so-called "superfund" or
"superlien" law, the Resource Conservation Recovery
Act, the Federal Water Pollution Control Act, the Toxic
Substances Control Act, the Emergency Planning and
Community Right-to-Know Act and the respective
regulations promulgated thereunder);
(d) Any other substance or material (regardless of physical
form) or form of energy that is subject to any Legal
Requirement which regulates or establishes standards of
conduct in connection with, or which otherwise relates
to, the protection of human health, plant life, animal
life, natural resources, property or the enjoyment of
life or property from the presence in the environment
of any solid, liquid, gas, odor, noise or form of
energy; and
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(e) Any compound, mixture, solution, product or other
substance or material that contains any substance or
material referred to in clause "(a)", "(b)", "(c)" or
"(d)" above.
1.14. Knowledge. An individual shall be deemed to have "Knowledge" of a
particular fact or other matter if:
(a) Such individual is actually aware of such fact or other
matter; or
(b) A prudent individual in the performance of his
fiduciary responsibilities would be expected to be
aware of such fact or other matter.
A Party shall be deemed to have "Knowledge" of a particular fact or other
matter if any executive officer or director of such Party has Knowledge of such
fact or other matter.
1.15. Legal Requirement. "Legal Requirement" shall mean any federal, state,
local, municipal, foreign or other law, statute, legislation, constitution,
principle of common law, resolution, ordinance, code, edict, decree,
proclamation, treaty, convention, rule, regulation, ruling, directive,
pronouncement requirement, specification, determination, decision, opinion or
interpretation that is, has been or may in the future be issued, enacted,
adopted, passed, approved, promulgated, made, implemented or otherwise put into
effect by or under the authority of any Governmental Body.
1.16. Liability. "Liability" shall mean any debt, obligation, duty or
liability of any nature (including any unknown, undisclosed, unmatured,
unaccrued, unasserted, contingent, indirect, conditional, implied, vicarious,
derivative, joint, several or secondary liability), regardless of whether such
debt, obligation, duty or liability would be required to be disclosed on a
balance sheet prepared in accordance generally accepted accounting principles
and regardless of whether such debt, obligation, duty or liability is
immediately due and payable.
1.17. Material. "Material" shall mean more than de minimis, minor or
insignificant.
1.18. Material Seller Contracts. "Material Seller Contracts" means Seller
Contracts which required the expenditure by Seller of more than $250,000 in any
of Seller's last 3 fiscal years, or which accounted for more than 10% of
Seller's revenues in any of Seller's last 3 fiscal years.
1.19. Net Working Capital. "Net Working Capital" shall mean total current
assets, less total current liabilities, as computed in accordance with GAAP,
after adjustment for any Permitted Distribution.
1.20. Order. "Order" shall mean any,
(a) Order, judgment, injunction, edict, decree, ruling,
pronouncement, determination, decision, opinion,
verdict, sentence, subpoena, writ or award that is or
has been issued, made, entered, rendered or otherwise
put into effect by or under the authority of any court,
administrative agency or other Governmental Body or any
arbitrator or arbitration panel; or
4
(b) Contract with any Governmental Body that has been
entered into in connection with any Proceeding.
1.21. Ordinary Course of Business. An action taken by or on behalf of the
Seller shall not be deemed to have been taken in the "Ordinary Course of
Business" unless:
(a) Such action is recurring in nature, is consistent with
the Seller's past practices and is taken in the
ordinary course of the Seller's normal day-to-day
operations:
(b) Such action is taken in accordance with sound and
prudent business practices; and
(c) Such action is not required to be authorized by the
Seller's stockholders, the Seller's board of directors
or any committee of the Seller's board of directors and
does not require any other separate or special
authorization of any nature.
Actions outside of the Ordinary Course of Business include, but are not
limited to, (i) selling any of the Purchased Assets other than inventory sales
in the Ordinary Course of Business and dispositions of assets in excess of
$50,000 individually or $100,000 collectively, in the aggregate, during any one
(1) month period; (ii) obtaining any loans, incurring any Liability other than
routine accounts payable, routine accrued expenses, and entering into any
Contracts; (iii) transactions that would result in Net Working Capital at
Closing which is not reflective of a continuation of historical business
practices; (iv) payment of excess salary, bonuses or dividends; and (v)
acquisitions of assets in excess of $50,000 individually.
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1.22. Permitted Distribution. "Permitted Distribution" shall mean any
payment or provision for payment of any dividend or other amount by Seller to
Shareholder to the extent that same results in a zero Net Working Capital
adjustment.
1.23. Person. "Person" shall mean any individual, Entity or Governmental
Body.
1.24. Proceeding. "Proceeding" shall mean any action, suit, litigation,
arbitration, proceeding (including any civil, criminal, administrative,
investigative or appellate proceeding and any informal proceeding), prosecution,
contest, hearing, inquiry, inquest, audit, examination or investigation that is,
has been or may in the future be commenced, brought, conducted or heard by or
before, or that otherwise has involved or may involve, any Governmental Body or
any arbitrator or arbitration panel.
1.25. Proprietary Asset. "Proprietary Asset" shall mean any patent, patent,
application, trademark (whether registered or unregistered and whether or not
relating to a published work), trademark application, trade name, fictitious
business name, service mark (whether registered or unregistered), service mark
application, copyright (whether registered or unregistered), copyright
application, goodwill, maskwork, maskwork application, trade secret, know-how,
franchise, system, computer software, invention, design, blueprint, proprietary
product, technology, proprietary right or other intellectual properly right or
intangible asset including any route authority.
1.26. Purchaser Group. "Purchaser Group" shall collectively mean the
Purchaser and the Parent.
1.27. Seller Contracts. "Seller Contracts" shall collectively mean each
Contract:
(a) To which the Seller is a party;
(b) By which the Seller or any of its assets are or may
become bound or under which the Seller has, or may
become subject to, any obligation; or
(c) Under which the Seller has or may acquire any right or
interest.
1.28. Supply Agreement. "Supply Agreement" shall mean an agreement executed
and delivered by Purchaser, Parent and Shareholder at the Closing, the form of
which is attached hereto as Exhibit A, pursuant to which Purchaser, Parent shall
purchase at least Fifteen Percent (15%) of their annual electronic components
from Shareholder, subject to the terms set forth in the Supply Agreement.
1.29. Tax. (a) "Tax" shall mean any tax (including any income tax,
franchise tax, capital gains tax, --- estimated tax, gross receipts tax,
value-added tax, surtax, excise tax, ad valorem tax, transfer tax, stamp tax,
tax, use tax, property tax, business tax, occupation tax, inventory tax,
occupancy tax, withholding tax or payroll tax), levy, assessment, tariff,
impost, imposition, toll, duty (including any customs duty), deficiency or fee,
and any related charge or amount (including any fine, penalty or interest), that
is or has been imposed, assessed or collected by or under the authority of any
Governmental Body.
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1.30. Tax Return. "Tax Return" shall mean any return (including any
information return), report, statement, declaration, estimate, schedule, notice,
notification, form, election, certificate or other document or information that
is or has been filed with or submitted to, or required to be filed with or
submitted to, any Governmental Body in connection with the determination,
assessment, collection or payment of any Tax or in connection with the
administration, implementation or enforcement of or compliance with any Legal
Requirement relating to any Tax.
1.31. Transaction Documents. "Transaction Documents" shall mean:
(a) The Agreement including the Disclosure Schedules; and
(b) The Bills of Sale;
(c) The Assumption Agreement;
(d) The Assignment;
(e) The Seller Note;
(f) The Supply Agreement;
(g) The Employment Agreement;
(h) The Guaranty; and
(i) Such other documents necessary to complete the
Transactions, including without limitation a contract
between Purchaser and Seller with respect to the
purchase and sale of the Real Property (the "Real
Property Contract").
1.32. Transactions. "Transactions" shall mean:
(a) The execution and delivery of the respective
Transaction Documents, and
(b) All of the transactions contemplated by the respective
Transaction Document including:
(i) the sale of the Purchased Assets by the Seller to the
Purchaser in accordance with the Agreement;
(ii) the assumption of the Assumed Liabilities by Purchaser
in accordance with the Agreement; and
(iii)the performance by the Seller, Shareholder and the
Purchaser of their respective obligations under the
Transaction Documents and the exercise by the Seller,
Shareholder and the Purchaser of their respective
rights under the Transaction Documents.
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2. SALE AND PURCHASE OF ASSETS; ASSUMPTION OF ASSUMED LIABILITIES
2.1. Sale and Purchase of Assets. The Seller shall sell, convey, assign,
transfer and deliver to Purchaser at the Closing (as hereinafter defined), and
Purchaser will purchase and accept at the Closing, all assets, properties,
privileges, rights, interests, business and goodwill belonging to the Seller
(except the Excluded Assets, as hereinafter defined), of every kind and
description, real, personal and mixed, tangible and intangible and wherever
located (such assets, properties, privileges, rights, interests, business and
goodwill being transferred hereunder are hereinafter referred to collectively as
the "Purchased Assets"). Without limiting the generality of the foregoing, the
Purchased Assets shall include all of the Seller's right, title and interest in
and to the following (except to the extent any of the following constitute
Excluded Assets):
(a) Fixed Assets. All machinery, equipment, computers,
vehicles, furniture, tools and other fixed assets and
goods and other Material items of tangible personal
property owned or leased by the Seller from an
independent third party as of the date of this
Agreement and used by the Seller, other than the
Excluded Assets, as more fully set forth on Schedule
3.9 (the "Fixed Assets");
(b) Inventories. All inventories of raw materials, work in
process, components, subassemblies, finished goods,
projects, supplies, packaging materials, and similar
items used in the conduct of the Business by the
Seller, all as more fully set forth on Schedule 3.7
(the "Inventory");
(c) Accounts Receivable. All notes receivables, accounts
receivable and other receivables of Seller of any kind
arising out of the Business of the Seller as of the
Closing Date (as defined below), whether billed or
unbilled, all as more fully set forth on Schedule 3.8
("Accounts Receivable");
(d) Real Property and Real Property Leases. All real
property owned by the Seller and used in the conduct of
the Business (the "Real Property") and all Lease and
Sublease Agreements (the "Lease Agreements"), all of
which are listed in Schedule 3.10;
(e) Seller Contracts. The Seller Contracts listed on
Schedule 3.12;
(f) Proprietary Assets. All Proprietary Assets listed on
Schedule 3.13, which also contains a summary of the
Material Proprietary Assets;
(g) Files and Records. All files and records of Seller
related to the conduct of the Business, including,
without limitation, all of Seller's books, records,
manuals, documents, books of account, correspondence,
sales and credit reports, customer lists, literature,
brochures, advertising material and the like, provided
that Purchaser shall be provided with only a copy of
Seller's books of account and Seller shall retain the
original books of account and such other records (the
"Retained Data") as Seller requires for income tax and
other reporting purposes;
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(h) Capital Leases. All rights of Seller under the capital
leases listed on Schedule 3.12 (the "Assumed Capital
Leases");
(i) Goodwill. All of Seller's goodwill related to the
Seller, and the going concern value of the Seller
("Goodwill");
(j) Net Working Capital Cash. Cash in the possession of
Seller to the extent such cash is included in Net
Working Capital as of the Closing Date;
(k) Operating Leases. All rights of Seller under the
operating leases described in Schedule 3.12 (the
"Assumed Operating Leases").
2.2. Excluded Assets. There shall be excluded from the Purchased Assets and
retained by Seller all of the following (collectively, the "Excluded Assets"):
(a) Cash and Investments. All cash items, securities and
financial instruments of the Seller, not included in
Net Working Capital as of the Closing Date;
(b) Books and Records. The minute books, seal, stock record
books and transfer records of the Seller and the
Retained Data;
(c) Other Excluded Assets. Equipment leased under any
capital leases other than the Assumed Capital Leases.
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2.3. No Encumbrances. The Purchased Assets shall be sold and conveyed to
Purchaser free and clear of all Encumbrances, except (i) those Encumbrances
identified on Schedule 2.3, (ii) with respect to the Real Property, easements,
rights of way, restrictions, encroachments, and other minor defects or
irregularities in title which do not interfere with the ordinary conduct of the
Business, and (iii) rights of the lessors under the Lease Agreements, the
Assumed Capital Leases and the Assumed Operating Leases.
2.4. Passage of Title. Title to all of the Purchased Assets shall pass from
Seller to Purchaser at Closing.
2.5. Transfer Taxes. The Purchaser shall pay at Closing all applicable
transfer, recording and other charges, taxes or fees in connection with the
transfer of the Real Property hereunder. The Purchaser and the Seller shall
equally divide the payment of any other transfer, sales, use and bulk sales
taxes, ad valorem and property taxes, and similar assessments which arise from
the consummation of the transactions contemplated herein. The Purchaser shall be
responsible for all documentary, filing, recording and vehicle registration fees
payable as a result of the transfer of the Purchased Assets. The Purchaser shall
furnish the Seller with such information and certificates as the Seller may
reasonably request to enable the Seller to obtain any available sales tax
clearance certificates.
2.6. Assumed Liabilities. The Purchaser hereby agrees to assume from the
Seller, and the Seller agrees to assign to the Purchaser, on the Closing Date
(i) the liabilities specifically set forth on Schedule 2.6, as modified to
include all accounts payable and accrued expenses included in the final Net
Working Capital Statement Closing Balance Sheet and (ii) the prospective
obligations of the Seller under the Lease Agreements, Seller Contracts, Assumed
Operating Leases and Assumed Capital Leases (collectively, with respect to the
liabilities and obligations described in clauses (i) and (ii), the "Assumed
Liabilities") and no other liabilities. From and after the Closing, Purchaser
shall have complete control over the payment, settlement or other disposition
of, or any dispute involving, any of the Assumed Liabilities, and Purchaser
shall have the right to conduct and control all negotiations and proceedings
with respect thereto. The Seller shall notify Purchaser immediately of any claim
made with respect to any of the Assumed Liabilities and shall not, except with
the prior written consent of Purchaser, voluntarily make any payment of, or
settle or offer to settle, or consent to any compromise with respect to, any of
the Assumed Liabilities.
2.7. Excluded Liabilities. Except for the Assumed Liabilities, the
Purchaser is not assuming any liability or obligation of the Seller (or any
predecessor owner of all or part of the Purchased Assets) and will not pay,
discharge, perform or otherwise be liable for any liabilities, indebtedness or
obligations which relate to the Seller or the Purchased Assets existing on the
Closing Date or arising out of any transactions entered into, or any state of
facts existing, on or prior to the Closing Date (collectively, the "Excluded
Liabilities"). All such Excluded Liabilities and obligations shall be retained
by and remain obligations and liabilities of the Seller. Without limiting the
generality of the foregoing, the Excluded Liabilities shall include, except for
the Assumed Liabilities:
10
(a) All liabilities and obligations of Seller for costs and
expenses incurred in connection with this Agreement or
the consummation of the transactions contemplated by
this Agreement;
(b) All liabilities and obligations of the Seller for any
Taxes incurred, or attributed to the Seller or the
Purchased Assets prior to the Closing Date;
2.8. Employees. Purchaser shall, as of the Closing Date, employ Dan Shea
pursuant to the terms and conditions of an employment agreement between
Purchaser and Dan Shea (the "Employment Agreement", the form of which is
attached hereto as Exhibit B).
2.9. Consideration Paid by Purchaser. Subject to any adjustments set forth
in Section 2.9(d), Purchaser shall (i) pay to the Seller the Purchase Price (as
hereinafter defined in Section 2.9(a)); (ii) assume the Assumed Liabilities; and
(iii) pay to the Seller the Earn-Out in an amount up to a maximum of One Million
Dollars ($1,000,000), as more fully set forth in Section 2.9(c) (collectively
the "Consideration").
(a) Purchase Price. Purchaser shall pay to the Seller the
total amount of Twelve Million Dollars ($12,000,000)
paid in accordance with Section 2.9(b), subject to any
adjustment pursuant to Section 2.9(d).
(b) Payment of Purchase Price. The Purchase Price shall be
paid as follows:
(i) Nine Million Two Hundred Fifty Thousand Dollars
($9,250,000) paid to or as directed by the Seller in
cash at Closing by wire transfer to such account(s) as
Seller may designate; subject to any adjustments set
forth in Section 2.9(d) ("Cash at Closing").
(ii) Two Million Seven Hundred Fifty Thousand Dollars
($2,750,000) in the form of a five (5) year promissory
note (the form of which is attached hereto as Exhibit
C) delivered to Seller at Closing (the "Seller Note"),
which shall bear interest at a fluctuating rate equal
to the prime rate set by the Wall Street Journal,
capped at seven percent (7%) per annum, payable
quarterly, with principal payable as follows:
(A) Five Hundred Thousand Dollars ($500,000), payable at
the two (2) year anniversary of the Seller Note;
(B) One Hundred Fifty-Six Thousand Two Hundred Fifty
Dollars ($156,250) on or before the end of each of the
next eight (8) quarters, beginning with the quarter
commencing after the two (2) year anniversary of the
Seller Note; and
(C) Two Hundred Fifty Thousand ($250,000) on or before the
end of each of the four (4) quarters commencing after
the four (4) year anniversary of the Seller Note.
11
The Seller Note is subject to offset as set forth in Section 7, and is also
subject to acceleration following a default and as further provided in the
Seller Note.
(c) Earn-Out. The Purchaser shall pay to Shareholder (or as
otherwise directed by Shareholder) five percent
-------- (5%) of the Purchaser Group's net sales (gross
sales less returns, allowances and sales taxes) in
excess of $20,000,000 per Contract Year, as determined
in accordance with GAAP, for each of the first six (6)
Contract Years after the Closing Date (the "Earn-Out").
The Earn-Out payment shall be due within thirty (30)
days after the end --------- of each Contract Year and
shall be accompanied by reasonable documentation of the
amount of such net sales for such Contract Year. Net
sales shall include net sales from existing customers
of Seller, Purchaser Group and any existing
subsidiaries of Purchaser Group, as well as from
customers of Purchaser Group and of their subsidiaries
acquired after the Closing Date as a result of merger,
acquisition or otherwise. Notwithstanding anything to
the contrary contained herein, the total amount of all
Earn-Out payments shall not exceed One Million Dollars
($1,000,000). If the Seller Note is accelerated, then
provided that at least (i) $100,000 of Earn-Out payment
was due and payable for the first Contract Year, or
(ii) $150,000 of Earn-Out payment was due and payable
for the second Contract Year, the difference between
$1,000,000 and the aggregate amount paid under this
Section 2.9(c) shall become due and payable.
(d) Adjustments to Purchase Price. The Purchase Price shall
be subject to the following adjustments:
The Cash at Closing shall be adjusted on a dollar-for-dollar basis to the
extent the Net Working Capital as of the Closing Date, as determined by a
post-closing review (described below), is different from the target Net Working
Capital amount of $7,331,000 by more than Two Hundred Thousand Dollars
($200,000) (the "Net Working Capital Adjustment"). The maximum amount of the Net
Working Capital Adjustment shall be Five Hundred Thousand Dollars ($500,000).
(e) Net Working Capital Calculation. After the Closing, the
Seller shall prepare a statement of Net Working
-------------------------------- Capital as of the
close of business on the Closing Date (the "Net Working
Capital ---------------------- Statement"). The Seller
shall deliver the Net Working Capital Statement to the
--------- Purchaser within thirty (30) days after the
Closing Date. The Seller shall provide the Purchaser
with complete access to all relevant information used
by the Seller in preparing the Net Working Capital
Statement. The Net Working Capital Statement delivered
to the Purchaser shall be conclusive and binding on the
Parties for purposes of determining any Net Working
Capital Adjustment, unless the Purchaser notifies the
Seller of the Purchaser's disagreement with the Net
Working Capital Adjustment in writing within thirty
(30) days after the Purchaser's receipt of the Net
Working Capital Statement. The Purchaser's notice must
state with specificity the amounts and the reasons for
Purchaser's disagreement. If Purchaser notifies Seller
of its disagreement with the Net Working Capital
Statement, Purchaser and Seller shall use their good
faith efforts to agree on the amount of the Net Working
Capital Adjustment.
12
(f) Arbitration. If the Purchaser and the Seller do not
agree on the amount of the Net Working Capital
----------- Adjustment within forty-five (45) days
following the Purchaser's receipt of the Net Working
Capital Statement, the amount of the Net Working
Capital Adjustment that is undisputed, if any, shall be
paid at such time, to the extent that the undisputed
amount would not be offset by the amount in dispute.
The Purchaser and the Seller shall promptly engage a
nationally recognized firm of independent accountants
to resolve any such dispute. In the absence of prompt
agreement on the identity of the independent
accountants, the Parties shall cause their respective
accounting firms to jointly designate an accounting
firm to resolve the dispute within ninety (90) days of
the engagement. The Seller and the Purchaser shall
furnish or cause to be furnished to the independent
accountants such work papers and other documents and
information relating to the disputed issues as the
independent accountants may request and are available
to that party or its agents and shall be afforded the
opportunity to present to the independent accountants
any material relating to the disputed issues and to
discuss the issues with the independent accountants.
Absent fraud, the independent accountants' decision
shall be final, binding and conclusive upon the Parties
and shall be the Parties' sole and exclusive remedy
regarding any dispute concerning any Net Working
Capital Adjustment and the amount so determined shall
be paid by Purchaser or Seller, as the case may be,
within 10 days of such determination. The Purchaser and
the Seller shall share equally the fees and expenses of
the independent accountants.
(g) Allocation of Consideration Paid by Purchaser. The
Consideration shall be allocated in accordance with
---------------------------------------------- Code
Section 1060 and the allocation statement (the
"Allocation Statement") prepared ---------------------
by the Parties within One Hundred Sixty-Five (165) days
after the Closing Date. The Parties each agree to
prepare and file on a timely basis any necessary Tax
forms setting forth an allocation set forth in the
Allocation Statement. The Parties further agree to
report this transaction for income tax purposes in
accordance with the Allocation Statement and each Party
agrees to act in accordance with such Allocation
Statement in the course of any Tax audit, Tax review or
Tax litigation concerning such Party and relating
thereto (except as otherwise required by law). Neither
the Seller nor Purchaser will assert that the
allocation set forth in the Allocation Statement was
not separately bargained for at arm's length and in
good faith. The Parties confirm that $450,000 of the
Consideration shall be allocated to the Real Property.
13
(h) Pro-Rating Adjustment. The Parties confirm that they
shall pro-rate and adjust for the following items
---------------------- only: rent and security deposit
under the Lease Agreement and under the Assumed
Operating Leases, other monthly expenses, real estate
taxes on the Real Property, the health insurance costs
described in Section 8.12 and customer deposits, and,
the net result thereof, (the "Pro-Rating Adjustment"),
shall be paid to the Purchaser or the
---------------------- Shareholder, as the case may be,
when the Net Working Capital Adjustment is required to
be paid, provided, however, that if any such item is
included in the calculation of Net Working Capital,
then it shall be excluded from the Pro-Rating
Adjustment. The Shareholder and Seller further confirm
that they have paid, or will pay upon receipt of
appropriate bills, all utility costs through the
Closing Date applicable to the Real Property and the
Lease Agreement.
2.10. Closing.
(a) The closing of the Transactions (the "Closing") shall
take place at the offices of Seller's counsel, Morrison
Cohen Singer & Weinstein, LLP, 750 Lexington Avenue,
New York, New York, at 10:00 a.m. (Eastern Standard
Time), on the date hereof, or on such other date as the
Parties may agree in writing (the "Closing Date").
(b) At the Closing, the Seller shall execute to the extent
the execution by the Seller is necessary and deliver
to, or cause to be delivered to, Purchaser the
following:
(i) bills of sale, deeds, certificates of title and general
instruments of assignment and transfer to transfer
ownership of the Purchased Assets from the Seller to
Purchaser in a form reasonably acceptable to the
Parties and duly executed by the Seller (the "Bills of
Sale");
(ii) an assignment and assumption agreement transferring to
the Purchaser from the Seller all Proprietary Assets,
Governmental Authorizations and warranties relating to
the Purchased Assets and responsibility for the Assumed
Liabilities in a form reasonably acceptable to the
Parties and duly executed by the Seller (the
"Assignment and Assumption Agreement");
(iii)the books and records of the Seller required by this
Agreement, the certified copies of the articles of
incorporation of the Seller as set forth in Section
3.2(a)(i), the certificates of good standing as set
forth in Section 3.2(a)(ii), the Consents as set forth
in Section 3.22, copies of the Governmental
Authorizations as set forth in Section 3.15(a) and
copies of the documents relating to any Proceedings as
set forth in Section 3.20(b);
14
(iv) an opinion from the Seller's attorney to the effect
that this Agreement and all other documents to be
delivered by the Seller at the Closing have been duly
authorized, executed and delivered, and, subject to
customary exceptions and limitations, are enforceable
against the Seller;
(v) the Supply Agreement executed by the Shareholder;
(vi) the Employment Agreement executed by Dan Shea; and
(vii)a certified copy of resolutions duly adopted by the
Board of Directors of Seller and of Shareholder,
together with a copy of Seller's By-Laws, a certified
copy of Seller's Certificate of Incorporation and a
good standing certificate with respect to Seller.
(c) At the Closing, Purchaser shall make the payment
provided for in Section 2.9(b)(i) and shall execute and
deliver to the Seller, to the extent the execution by
the Purchaser is necessary, the following:
(i) the Seller Note;
(ii) the Bills of Sale executed by Purchaser;
(iii)the Assignment and Assumption Agreement executed by
the Purchaser;
(iv) the Supply Agreement executed by the Purchaser and the
Parent;
(v) the Employment Agreement executed by the Purchaser;
(vi) a Guaranty executed by the Parent, the form of which is
attached hereto as Exhibit D;
(vii)an opinion from the Purchaser's attorney to the effect
that this Agreement and all other documents to be
delivered by the Purchaser at the Closing have been
duly authorized, executed and delivered and, subject to
customary exceptions and limitations, are enforceable
against the Purchaser; and
(viii) a certified copy of resolutions duly adopted by the
Board of Directors of Purchaser and of Parent, together
with a copy of Purchaser's By-Laws, a certified copy of
Purchaser's Certificate of Incorporation and a good
standing certificate with respect to Purchaser.
(d) At the Closing, in addition to the foregoing, the Real
Property Contract shall be executed and delivered and
each Party shall deliver to the other such other
agreements and documents as such other Party may
reasonably request.
15
3. REPRESENTATIONS AND WARRANTIES OF THE SELLER AND SHAREHOLDER
The Seller and Shareholder jointly and severally represent and warrant,
to and for the benefit of the Purchaser and Parent, as follows:
3.1. Due Organization; No Subsidiaries; Etc.
(a) The Seller is a corporation duly organized, validly
existing and in good standing under the laws of the
State of Delaware and has all necessary power and
authority:
(i) to conduct its Business in the manner in which its
Business is currently being conducted;
(ii) to own and use its assets in the manner in which its
assets are currently owned and used; and (iii) to
perform its obligations under the Seller Contracts.
(b) The Seller has not during the past three (3) years
conducted any business under or otherwise used, for any
purpose or in any jurisdiction, any fictitious name,
assumed name, or other name, other than the name
"Nexus".
(c) The Seller is in good standing as a foreign corporation
in each of the jurisdictions identified in Schedule
3.1.
(d) Schedule 3.1 accurately sets forth (i) the names of the
members of the Seller's board of directors, and (ii)
the names and titles of the Seller's officers.
(e) Neither the Seller nor Shareholder has during the past
three (3) years approved, or commenced any proceeding
or made any election contemplating, the dissolution or
liquidation of the Seller or the winding up or
cessation of the Seller's Business or affairs.
(f) The Seller has no subsidiaries, and the Seller has not
during the past three (3) years owned, beneficially or
otherwise, any shares or other securities of, or any
direct or indirect interest of any nature in, any other
Entity.
3.2. Certificate of Incorporation and Bylaws; Records.
(a) The Seller has delivered to Purchaser accurate and
complete copies of:
16
(i) the Seller's certificate of incorporation (certified
copy) and bylaws, including all amendments thereto;
(ii) a certificate of good standing for the Seller;
(iii) stock records of the Seller; and
(iv) the minutes and other records of the meetings and other
proceedings (including any actions taken by written
consent or otherwise without a meeting) of the
Shareholder, the board of directors of the Seller and
all committees of the board of directors of the Seller.
(b) The books of account, stock records, minute books and
other records of the Seller are accurate, up-to date
and complete, in all Material respects, and have been
maintained in accordance with sound and prudent
business practices. All of the records of the Seller
are in the actual possession and direct control of the
Seller or the Shareholder.
3.3. Capitalization, Etc.
(a) The authorized and issued capital stock of the Seller
consists solely of 200 shares of common stock $0.01 par
value per share (the "Shares").
(b) All of the Shares are owned of record, legally and
beneficially by Shareholder. All rights and powers to
vote the Shares are held exclusively by Shareholder.
(c) All of the Shares (i) have been duly authorized and
validly issued, (ii) are fully paid and non-assessable,
and (iii) have been issued in full compliance with all
applicable securities laws and other applicable Legal
Requirements.
3.4. Financial Statements.
(a) The Seller has delivered to the Purchaser the following
financial statements and notes, (collectively, the
"Seller Financial Statements"):
(i) Balance sheet, statement of operations, statement of
cash flows and statement of stockholder's equity with
respect to the Seller for the fiscal years ended June
30, 2004, June 30, 2003 and June 30, 2002;
(ii) Balance sheet and statement of operations for the
two-month period ended September 3, 2004 attached as
Schedule 3.4(a); and
(iii)Statements showing the accounts receivable, accounts
payable, any other liabilities, and other statements
requested by Purchaser with respect to the Seller for
the two-month period ended September 3, 2004 attached
as Schedule 3.4(a).
17
(b) All of the Seller Financial Statements are accurate and
complete in all Material respects. The Seller Financial
Statements in clauses (i) and (ii) above present fairly
the financial position of the Seller as of the
respective dates thereof and the results of operations
for the periods covered thereby. The Seller Financial
Statements in clauses (i) and (ii) above have been
prepared in accordance with GAAP, applied on a
consistent basis throughout the periods covered, except
for the absence of footnotes.
3.5. Absence of Material Changes. After June 30, 2004:
(a) There has not been any Material adverse change in the
Seller's Business, ability to operate the Business,
condition, assets, liabilities, operations, financial
performance, net income (or in any Material aspect or
portion thereof), and no event has occurred that might
have a Material adverse effect on the Seller's
Business, ability to operate the Business, condition,
assets, liabilities, operations, financial performance,
net income (or on any Material aspect or portion
thereof);
(b) The Seller has not forgiven any debt or otherwise
released or waived any right or claim except in the
Ordinary Course of Business; and
(c) The Seller has not entered into any transaction or
taken any other action outside the Ordinary Course of
Business, other than transactions contemplated by or
taken in connection with the consummation of this
Agreement and a transaction described in Schedule 3.13,
and except nothing contained herein shall restrict
Seller from declaring or paying any Permitted
Distribution.
3.6. Title to Assets.
(a) The Seller owns, and has good, valid and marketable
title to, all of the following assets:
(i) all assets reflected on the Seller's Financial
Statements (except for inventory and non-Material
assets sold by the Seller since June 30, 2004 in the
Ordinary Course of Business);
(ii) all assets acquired by the Seller since June 30, 2004
(except for inventory sold by the Seller since June 30,
2004 in the Ordinary Course of Business):
(iii)all assets referred to in Schedules 3.7, 3.8, 3.9 and
3.11 and the Real Property described in
------------------------------------ Schedule 3.10;
-------------
(iv) all other assets reflected in the Seller's books and
records as being owned by the Seller; and
18
(v) the Purchased Assets, to the extent not included in
clauses "(i)" through "(iv)" above.
(b) Schedule 3.6. identifies all assets that are being
leased or licensed to the Seller. Except for the rights
of the lessors or licensors of the assets set forth in
Schedule 3.6, all of said assets are owned by the
Seller free and clear of any Encumbrances.
3.7. Inventories. All of the Inventory owned by the Seller as of September
3, 2004 is identified on, and located at the locations identified on, Schedule
3.7. The Inventory is valued on the books and records of the Seller and in the
Seller Financial Statements at the lower of cost or market. All inventory is
accounted for using the average cost in accordance with GAAP. All of the
finished goods Inventory included in the Purchased Assets is in good,
merchantable and usable condition and is salable in the Ordinary Course of
Business within a reasonable time and at normal profit margins (except as
reserved in the Seller Financial Statements), except for not more than $25,000
thereof.
3.8. Receivables.
(a) Schedule 3.8 provides an accurate and complete
breakdown and aging of all Accounts Receivable of the
Seller as of September 3, 2004.
(b) Except as set forth on Schedule 3.8, all existing
Accounts Receivable of the Seller represent valid
obligations of customers of the Seller arising from
bona fide transactions entered into in the Ordinary
Course of Business.
3.9. Fixed Assets. Schedule 3.9 accurately identifies all Fixed Assets
owned by the Seller. Schedule 3.9 also accurately identifies all tangible assets
leased to the Seller. The Fixed Assets identified in Schedule 3.9 are adequate
for the conduct of the Seller's Business in the manner in which such Business is
currently being conducted.
3.10. Real Property. The Seller does not own any real property or any
interest in real property, except for real property and the leaseholds created
under the Lease Agreements identified in Schedule 3.10, which provides an
accurate and complete description of the real property and the premises covered
by said Lease Agreements and the facilities located on such premises. The Seller
enjoys peaceful and undisturbed possession of such premises. The manufacturing
facility located on the Real Property is a one-story building. The Seller has
not, during the past three (3) years received notice of any claim that the use
of the Real Property creates smoke, noxious fumes, odors or noise offensive to
the neighboring inhabitants.
3.11. Proprietary Assets.
(a) Except as set forth in Schedule 3.11, there is no
Proprietary Asset that is owned by or licensed to the
Seller or that is otherwise used or useful in
connection with the conduct of the Seller's Business.
19
(b) The Seller has taken such measures and precautions
which the Seller has considered necessary and
appropriate to protect the confidentiality and value of
each Proprietary Asset identified or required to be
identified in Schedule 3.11.
(c) To the Knowledge of the Seller and Shareholder, the
Seller is not infringing and has not, during the past
three (3) years, infringed or received any notice or
other communication (in writing or otherwise) of any
actual, alleged, possible or potential Material
infringement of, any Material Proprietary Asset owned
or used by any other Person. To the Knowledge of the
Seller and Shareholder, no other Person is infringing,
and no Proprietary Asset owned or used by any other
Person infringes or conflicts with, any Proprietary
Asset owned or used by the Seller.
3.12. Contracts.
(a) Schedule 3.12 identifies and provides an accurate and
complete description of each of the Material Seller
Contracts, Assumed Capital Leases and Assumed Operating
Leases. The Seller has delivered to the Purchaser
accurate and complete copies of all of the Material
Seller Contracts, the Assumed Capital Leases and the
Assumed Operating Leases identified in Schedule 3.12,
including all amendments thereto.
(b) Each Material Seller Contract, Assumed Capital Lease
and Assumed Operating Lease is valid and in full force
and effect, and is enforceable by the Seller in
accordance with their terms.
(c) Except as set forth in Schedule 3.12:
(i) no Person has violated or breached, or declared or
committed any Material default under, any of the
Material Seller Contracts or the Assumed Capital Leases
or the Assumed Operating Leases;
(ii) no event has occurred, and no circumstance or condition
exists, that might (with or without notice or lapse of
time) (A) result in a violation or breach of any of the
provisions of any of the Material Seller Contracts or
the Assumed Capital Leases, or the Assumed Operating
Leases (B) give any Person the right to declare a
default or exercise any remedy under any of the
Material Seller Contracts or the Assumed Capital Leases
or the Assumed Operating Leases, (C) give any Person
the right to accelerate the maturity or performance of
any of the Material Seller Contracts or the Assumed
Capital Leases or the Assumed Operating Leases, or (D)
give any Person the right to cancel, terminate or
modify any of the Material Seller Contracts or the
Assumed Capital Leases or the Assumed Operating Leases;
and
20
(iii)the Seller has not received any notice or other
communication (in writing or otherwise) regarding any
actual, alleged, possible or potential violation or
breach of, or default under, any of the Material Seller
Contracts or the Assumed Capital Leases or the Assumed
Operating Leases.
(d) Schedule 3.22 sets forth all of the Consents that are
required to be obtained resulting from a transfer
-------------- or an assignment of the Material Seller
Contracts, the Assumed Capital Leases and the Assumed
Operating Leases and Seller and Shareholder shall use
reasonable efforts to cause such Consents to be
delivered to Purchaser by the Seller at Closing,
provided that if any of such Consents disclosed on
Schedule 3.22 are not obtained and the -------------
Closing nonetheless occurs, the failure to obtain same
shall be deemed to have been waived.
3.13. Liabilities.
(a) The Seller has no Liabilities, except for:
(i) liabilities identified as such in the "liabilities"
column of the Seller's June 30, 2004 Financial
Statements;
(ii) accounts payable and accrued expenses (of the type
required to be reflected as current liabilities in the
"liabilities" column of a balance sheet prepared in
accordance with GAAP) incurred by the Seller in the
Ordinary Course of Business since June 30, 2004;
(iii)the Seller's obligations under the Seller Contracts,
including the Material Seller Contracts, the Assumed
Capital Leases, the Assumed Operating Leases and the
Lease Agreement and such other Liabilities not in
excess of $100,000 in the aggregate which are not
required to be included in the "liabilities" column of
a balance sheet prepared in accordance with GAAP; and
(iv) the liabilities identified on Schedule 3.13.
(b) Schedule 3.13
(i) provides an accurate and complete breakdown and aging
of the Seller's accounts payable as of September 3,
2004; and
(ii) provides an accurate and complete breakdown of all
customer deposits and other deposits held by the Seller
as of September 3, 2004.
21
3.14. Compliance With Legal Requirements.
Except as set forth in Schedule 3.14
-------------
(i) the Seller is in compliance in all Material respects
with each Legal Requirement that is applicable to it or
to the conduct of its Business or the ownership of any
of its assets; and
(ii) the Seller has not received, at any time within the
past three (3) years, any notice or other communication
(in writing or otherwise) from any Governmental Body or
any other Person regarding (i) any actual, alleged,
possible or potential violation of, or failure to
comply with, any Legal Requirement, or (ii) any actual,
alleged, possible or potential obligation on the part
of the Seller to undertake, or to bear all or any
portion of the cost of, any cleanup or any remedial,
corrective or response action of any nature.
3.15. Governmental Authorizations.
(a) Schedule 3.15 identifies:
(i) each Governmental Authorization that is held by the
Seller; and
(ii) each other Governmental Authorization that, to the
Knowledge of the Seller and Shareholder, is held by any
of the Seller's employees and relates to or is useful
in connection with the Seller's Business.
The Seller has delivered to the Purchaser accurate and complete copies of
all of the Governmental Authorizations identified in Schedule 3.15, including
all renewals thereof and all amendments thereto. Each Governmental Authorization
identified or required to be identified in Schedule 3.15 is valid and in full
force and effect.
(b) Except as set forth in Schedule 3.15:
(i) the Seller and its employees are in compliance in all
Material respects with all of the terms and
requirements of each Governmental Authorization
identified or required to be identified in Schedule
3.15; and
(ii) the Seller has not received during the past three (3)
years, and, to the Knowledge of Shareholder, no
employee of the Seller has received during the past
three (3) years, any notice or other communication (in
writing or otherwise) from any Governmental Body or any
other Person regarding (A) any actual, alleged,
possible or potential violation of or failure to comply
with any term or requirement of any Governmental
Authorization, or (B) any actual, proposed, possible or
potential revocation, withdrawal, suspension,
cancellation, termination or modification of any
Governmental Authorization.
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(c) The Governmental Authorizations identified in Schedule
3.15 constitute all of the Governmental Authorizations
necessary to enable the Seller to conduct its Business
in the manner in which its Business is currently being
conducted.
3.16. Tax Matters.
(a) Any Material Tax required to have been paid by the
Seller (whether pursuant to any Tax Return or
otherwise) with respect to the Purchased Assets has
been duly paid in full. Any Material Tax required to
have been withheld or collected by the Seller with
respect to the Purchased Assets has been duly withheld
and collected; and (to the extent required) each such
Tax has been paid to the appropriate Governmental Body.
(b) Schedule 3.16 accurately identifies all Tax Returns
required to be filed by or on behalf of the Seller with
respect to the Purchased Assets with any Governmental
Body with respect to any taxable period ending on or
before the three (3) year period ending on the Closing
Date (the "Seller Returns"). All Material Seller
Returns (i) have been filed when due, and (ii) have
been accurately and completely prepared in all Material
respects in accordance with all applicable Legal
Requirements.
(c) Schedule 3.16 accurately identifies each examination or
audit of any Seller Return with respect to the
------------- Purchased Assets that has been conducted
at any time during the past three (3) years. The Seller
has delivered to the Purchaser accurate and complete
copies of all audit reports and similar documents (to
which the Seller has access) relating to such Seller
Returns. Except as set forth in Schedule 3.16, no
extension or waiver of the -------------- limitation
period applicable to any of the Seller Returns with
respect to the Purchased Assets has been granted (by
the Seller or any other Person), and no such extension
or waiver has been requested from the Seller.
(d) Except as set forth in Schedule 3.16, no claim or other
Proceeding is pending or has been threatened against or
with respect to the Seller with respect to the
Purchased Assets in respect of any Tax.
3.17. Employee and Labor Matters.
(a) Schedule 3.17 accurately sets forth, with respect to
each employee of the Seller (including any employee of
the Seller who is on a leave of absence or on layoff
status):
(i) the name of such employee and the date as of which such
employee was originally hired by the Seller and
responsibilities;
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(ii) such employee's title, and a description of such
employee's duties;
(iii)the dollar amount of the compensation (including
wages, salary, commissions, director's fees, fringe
benefits, bonuses, profit-sharing payments and other
payments or benefits of any type) received by such
employee from the Seller with respect to services
performed in 2003;
(iv) such employee's annualized compensation as of the date
of this Agreement; and
(v) any Governmental Authorization that is held by such
employee and that relates to is useful in connection
with the Seller's Business.
(b) Except as set forth in Schedule 3.17, the Seller is not
a party to or bound by, and the Seller has not been
during the past three (3) years a party to or bound by,
any employment agreement with any current employee or
any union contract, collective bargaining agreement or
similar Contract.
(c) Except as set forth in Schedule 3.17, the employment of
each of the Seller's employees is terminable by the
Seller at will. The Seller has delivered to the
Purchaser accurate and complete copies of all employee
manuals and handbooks, disclosure materials, policy
statements and other materials relating to the
employment of the current employees of the Seller.
(d) The Seller agrees to pay, perform and discharge any all
Liabilities or obligations owed to any employee of the
Seller for wages or benefits accruing on or prior to
the Closing Date, except to the extent same is included
as a liability in the Net Working Capital calculation.
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3.18. Company Plans. The Seller does not currently maintain any Company
Plans, and is not currently obligated to pay benefits to any former employee or
their family members, except for the Company Plans identified on Schedule 3.18.
3.19. Environmental Matters. Except as set forth on Schedule 3.19, the
Seller has not during the past six (6) years received any notice or other
communication (in writing or otherwise) from any Governmental Body or other
Person regarding any actual, alleged, possible or potential Liability arising
from or relating to the presence, generation, manufacture, production,
transportation, importation, use, treatment, refinement, processing, handling,
storage, discharge, release, emission or disposal of any Hazardous Material. No
Person or Governmental Body has during the past six (6) years commenced or
threatened to commence any contribution action or other Proceeding against the
Seller in connection with any such actual, alleged, possible or potential
Liability; and, except as set forth on Schedule 3.19, no event has occurred
during the past six (6) years, and no condition or circumstance exists, that may
directly or indirectly give rise to, or result in the Seller becoming subject
to, any such Liability.
3.20. Proceedings; Orders.
(a) Except as set forth in Schedule 3.20, there is no
pending Proceeding, and, to the Knowledge of Seller and
the Shareholder, no Person has threatened to commence
any Proceeding;
(i) that involves the Seller or that otherwise relates to
or might affect the Seller's Business or any of the
Purchased Assets (whether or not the Seller is named as
a party thereto); or
(ii) that challenges, or that may have the effect of
preventing, delaying, making illegal or interfering
with, any of the Transactions.
Except as set forth in Schedule 3.20, no event has occurred, and no claim,
dispute or other condition or circumstance exists, that might directly or
indirectly give rise to or serve as a basis for the commencement of any such
Proceeding.
(b) The Seller has delivered to the Purchaser accurate and
complete copies of all pleadings, correspondence and
other written materials to which the Seller has access
that relate to the Proceedings identified in Schedule
3.20.
(c) There is no Order to which the Seller, or any of the
assets owned or used by the Seller, is subject; and
Shareholder is not subject to any Order that relates to
the Seller's Business or to any of the Purchased
Assets.
(d) To the Knowledge of the Seller and Shareholder, no
officer or employee of the Seller is subject to any
Order that prohibits an employee from engaging in or
continuing any conduct, activity or practice relating
to the Seller's Business.
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3.21. Authority; Binding Nature of Agreements.
(a) The Seller has the absolute and unrestricted right,
power and authority to enter into and to perform its
obligations under this Agreement; and the execution,
delivery and performance by the Seller of this
Agreement have been duly authorized by all necessary
action on the part of the Seller. This Agreement
constitutes the legal, valid and binding obligation of
the Seller, enforceable against the Seller in
accordance with its terms.
(b) Shareholder has the absolute and unrestricted right,
power and capacity to enter into and to perform
Shareholder's obligations under each of the Transaction
Documents to which Shareholder is or may become a
party. This Agreement constitutes the legal, valid and
binding obligation of Shareholder, enforceable against
Shareholder in accordance with its terms. Upon the
execution of each of the other Transaction Documents at
the Closing, each of such other Transaction Documents
will constitute the legal, valid and binding obligation
of Shareholder, and will be enforceable against
Shareholder in accordance with its terms.
3.22. Non-Contravention Consents. Except as set forth in Schedule 3.22,
neither the execution nor delivery of any of the Transaction Documents, nor the
consummation or performance of any of the Transactions, will directly or
indirectly (with or without notice or lapse of time):
(a) Contravene, conflict with or result in a violation of
(i) any of the provisions of the Seller's certificate
of incorporation or bylaws, or (ii) any resolution
adopted by the Shareholder, the Seller's board of
directors or any committee of the Seller's board of
directors;
(b) Contravene, conflict with or result in a violation of,
or give any Governmental Body or other Person the right
to challenge any of the Transactions or to exercise any
remedy or obtain any relief under, any Legal
Requirement or any Order to which the Seller or
Shareholder, or any of the assets owned or used by the
Seller, is subject;
(c) Contravene, conflict with or result in a violation of
any of the terms or requirements of, or give any
Governmental Body the right to revoke, withdraw,
suspend, cancel, terminate or modify, any Governmental
Authorization that is held by the Seller or any of
their employees or that otherwise relates to the
Seller's Business or to any of the Purchased Assets;
(d) Contravene, conflict with or result in a violation or
breach of, or result in a default under, any provision
of any of the Material Seller Contracts;
(e) Give any Person the right to (i) declare a default or
exercise any remedy under any of the Material Seller
Contracts, (ii) accelerate the maturity or performance
of any of the Material Seller Contracts, or (iii)
cancel, terminate or modify any of the Material Seller
Contracts;
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(f) Contravene, conflict with or result in a violation or
breach of or a default under any provision of, or give
any Person the right to declare a default under, any
Contract to which Shareholder is a party or by which
Shareholder is bound; or
(g) Result in the imposition or creation of any Encumbrance
upon or with respect to any of the Purchased Assets.
Except as set forth in Schedule 3.22, the Seller and Shareholder are not or
will not be required to obtain any Consent from, any Person in connection with
the execution and delivery of any of the Transaction Documents or the
consummation or performance of any of the Transactions.
3.23. Brokers. Except as set forth in Schedule 3.23, neither the Seller nor
Shareholder has agreed or will become obligated to pay, or has taken any action
that might result in any Person claiming to be entitled to receive, any
brokerage commission, finder's fee or similar commission or fee in connection
with any of the Transactions. The Shareholder shall pay or cause the Seller to
pay such amount as is payable pursuant to separate agreement with any Person
included in Schedule 3.23.
4. REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
The Parent and Purchaser, jointly and severally, represent and warrant,
to and for the benefit of the Seller and Shareholder, as follows:
4.1. Due Organization. The Parent and Purchaser are each duly organized,
validly existing and in good standing, under the laws of the State of Florida.
4.2. Authority; Binding Nature of Agreement.
(a) The Parent and the Purchaser each have the absolute and
unrestricted right, power and authority to enter into
and perform its obligations under this Agreement and
under each of the other Transaction Documents to which
the, Parent or Purchaser is a party.
(b) The execution, delivery and performance by the Parent
and the Purchaser of each of the Transaction Documents
to which the Parent or Purchaser is a party has been
duly authorized by all necessary action on the part of
the Parent or Purchaser and their respective board of
directors.
(c) This Agreement and each of the other Transaction
Documents to which the Parent or the Purchaser is a
party, constitutes the legal, valid and binding
obligation of the Parent or Purchaser, enforceable
against the Parent or Purchaser in accordance with its
terms.
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4.3. Employees. Immediately after the Closing Date, the Purchaser intends
to hire all or substantially all of the Seller's employees on substantially the
same terms as their employment with the Seller; provided however, except as
provided in any employment agreements entered into by the Purchaser, the
Purchaser has no obligation to employ any employee for any definitive amount of
time.
4.4. Brokers. Neither the Purchaser nor the Parent has agreed or will
become obligated to pay, or has taken any action that might result in any Person
claiming to be entitled to receive, any brokerage commission, finder's fee or
similar commission or fee in connection with any of the Transactions.
5. CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATION TO CLOSE.
The Purchaser's obligation to purchase the Purchased Assets, assume the
Assumed Liabilities, and to take the other actions required to be taken by the
Purchaser at the Closing is subject to the satisfaction, at or prior to the
Closing, of each of the following conditions (any of which may be waived by the
Purchaser, in whole or in part, in accordance with Section 9.5):
5.1. Accuracy of Representations. All of the representations and warranties
made by the Seller and Shareholder in this Agreement (considered collectively),
and each of said representations and warranties (considered individually), shall
have been accurate in all Material respects as of the date of this Agreement and
as of the Closing Date.
5.2. Performance of Obligations.
(a) The Seller shall have executed and delivered each of
the documents required to be executed and delivered by
the Seller pursuant to Section 2.10(b).
(b) All of the other covenants and obligations that the
Seller and Shareholder are required to comply with or
to perform at or prior to the Closing (considered
collectively), and each of said covenants and
obligations (considered individually), shall have been
duly complied with and performed in all Material
respects.
5.3. Consents. Each of the Consents identified in Schedule 3.22 shall have
been obtained and shall be in full force and effect.
5.4. No Material Adverse Change. There shall have been no Material adverse
change in the Seller's Business, ability to operate the Business, condition,
assets, liabilities, operations, financial performance, net income (or in any
aspect or portion thereof) since July 31, 2004.
5.5. Additional Documents. Purchaser shall have received and reviewed to
its satisfaction the following documents:
(a) Such documents as the Purchaser may reasonably request
in good faith for the purpose of (i) evidencing the
accuracy of any representation or warranty made by the
Seller or Shareholder, (ii) evidencing the compliance
by the Seller or Shareholder with, or the performance
by the Seller or Shareholder of, any covenant or
obligation set forth in this Agreement, (iii)
evidencing the satisfaction of any condition set forth
in this Section 5, or (iv) otherwise facilitating the
consummation or performance of any of the Transactions.
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(b) Any document required to be delivered to Purchaser
pursuant to this Agreement that has not already been
delivered to the Purchaser prior to the Closing Date,
including but not limited to the Disclosure Schedules.
5.6. No Claim Regarding the Purchased Assets or Sale Proceeds. No Person
shall have made or threatened any claim asserting that such Person (a) may be
the holder or the beneficial owner of, or may have the right to acquire or to
obtain beneficial ownership of, any of the Purchased Assets; or (b) may be
entitled to all or any portion of the Consideration.
5.7. No Prohibition. Neither the consummation nor the performance of any
the Transactions will, directly or indirectly (with or without notice or lapse
of time), contravene or conflict with or result in a violation of, or cause the
Purchaser or any Person affiliated with the Purchaser to suffer any adverse
consequence under, (a) any applicable Legal Requirement or Order, or (b) any
Legal Requirement or Order that has been proposed by or before any Governmental
Body.
5.8. No Actions Outside of the Ordinary Course of Business. The Seller
shall be operated only in the Ordinary Course of Business between September 3,
2004 and the Closing Date, except as otherwise permitted herein, including,
without limitation, the declaration and/or payment of any Permitted Distribution
..
5.9. Compliance with Legal Requirements. The Seller shall be in compliance
in all Material respects with each Legal Requirement that is applicable to it or
to the conduct of the Business or the ownership of any of its assets as of the
Closing Date.
5.10. 2004 EBITDA Target. Purchaser shall be reasonably satisfied that the
Seller's Business shall have achieved Earnings Before Interest, Taxes,
Depreciation and Amortization for the fiscal year ended June 30, 2004 of at
least Two Million Dollars ($2,000,000.00).
5.11. No Injunction.
There shall not be in effect any injunction that shall have been
entered by a court of competent jurisdiction since the date of this Agreement
that prohibits the purchase of the Purchased Assets by the Purchaser from the
Seller and no Person shall have threatened to obtain any such injunction.
6. CONDITIONS PRECEDENT TO THE SELLER AND SHAREHOLDER'S OBLIGATION TO CLOSE
The Seller's and Shareholder's obligation to sell the Purchased Assets
and to take the other actions required to be taken by the Seller and Shareholder
at the Closing is subject to the satisfaction, at or prior to the Closing, of
each of the following conditions (any of which may be waived by the Seller and
Shareholder, in whole or in part, in accordance with Section 9.5):
29
6.1. Accuracy of Representations. All of the representations and warranties
made by the Parent or Purchaser in this Agreement (considered collectively), and
each of said representations and warranties (considered individually), shall
have been accurate in all Material respects as of the date of this Agreement and
as of the Closing Date.
6.2. Purchaser's Performance.
(a) The Parent and Purchaser shall have made the payments
and shall have executed and delivered each of the
documents required to be executed and delivered by the
Parent and Purchaser pursuant to Section 2.10(c).
(b) All of the other covenants and obligations that the
Parent and Purchaser are required to comply with or to
perform pursuant to this Agreement at or prior to the
Closing (considered collectively), and each of said
covenants and obligations (considered individually),
shall have been complied with and performed in all
Material respect.
6.3. No Injunction. There shall not be in effect any injunction that shall
have been entered by a court of competent jurisdiction since the date of this
Agreement that prohibits the sale of the Purchased Assets by the Seller to the
Purchaser and no Person shall have threatened to obtain any such injunction.
6.4. No Prohibition. Neither the consummation nor the performance of any
the Transactions will, directly or indirectly (with or without notice or lapse
of time), contravene or conflict with or result in a violation of, or cause the
Seller or the Shareholder or any Person affiliated with either of them to suffer
any adverse consequence under, (a) any applicable Legal Requirement or Order, or
(b) any Legal Requirement or Order that has been proposed by or before any
Governmental Body.
7. INDEMNIFICATION, ETC.
7.1. Survival of Representations and Covenants.
(a) The representations, warranties, covenants and
obligations of each Party shall survive (without
limitation):
(i) the Closing and the sale of the Purchased Assets to,
and the assumption of the Assumed Liabilities by, the
Purchaser;
(ii) any sale or other disposition of any or all of the
Purchased Assets by the Purchaser;
(iii)the transfer or assignment of any of the Assumed
Liabilities by the Purchaser; and
30
(iv) any acquisition transaction effected by or otherwise
involving the Purchaser or the Seller.
All of said representations and warranties shall remain in full force and
effect and shall survive until March 31, 2006; provided, however, any Damages
arising from any representation or warranty set forth in Sections 3.1, 3.3, 3.6,
3.16 or 3.17, 3.18, 3.19 shall survive for the entire period of any applicable
statutes of limitations but not in excess of six (6) years. All of the covenants
and agreements of the Parties set forth herein including under Sections 2.9(c)
and Article 8 hereof or in any of the Transaction Documents, including under the
Seller Note, the Supply Agreement and the Assumption Agreement shall survive in
accordance with their terms.
(b) The representations, warranties, covenants and
obligations of the Seller and Shareholder, and the
rights and remedies that may be exercised in connection
therewith, shall not be limited or otherwise affected
by or as a result of any information furnished to, or
any investigation made by or Knowledge of the Parent or
Purchaser.
(c) For purposes of this Agreement, each statement or other
item of information set forth in the Disclosure
Schedules shall be deemed to be a representation and
warranty made by the Seller and Shareholder in this
Agreement.
7.2. Indemnification by the Seller and Shareholder. Subject to the
limitations in Sections 7.1, 7.8 and 7.10, the Seller and Shareholder, jointly
and severally, shall hold harmless and indemnify each of the Parent, the
Purchaser, their respective directors, officers and their respective successors
and assigns (collectively, "Purchaser Indemnitees") from and against, and shall
compensate and reimburse each of the Purchaser Indemnitees for, any Damages
which are directly or indirectly suffered or incurred by any of the Purchaser
Indemnitees or to which any of the Purchaser Indemnitees may otherwise become
subject (regardless of whether or not such Damages relate to any third-party
claim) which arise from or as a result of:
(a) any breach of any representation or warranty made by
the Seller or Shareholder in this Agreement or in any
of the other Transaction Documents;
(b) any breach of any representation, warranty, statement,
information or provision contained in the Disclosure
Schedules;
(c) any breach of any covenant or obligation of the Seller
or of the Shareholder in any of the Transaction
Documents;
(d) any Liability of the Seller other than the Assumed
Liabilities; or
(e) any Proceeding relating directly or indirectly to any
breach, alleged breach, Liability or matter of the type
referred to in clause "(a)," "(b), "(c)," or "(d),"
above (including any Proceeding commenced by any
Purchaser Indemnitee for the purpose of enforcing any
of its rights under this Section 7).
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7.3. Remediation Obligation.
The Parties acknowledge that Schedule 3.19 and the Continuation thereof
disclose that a portion of the building on the Real Property has been treated
for a mold condition (the "Treated Portion") and the remaining portion of the
building requires such treatment (the "Remaining Portion"). The Seller and the
Shareholder shall expeditiously cause the Remaining Portion to be treated for
such condition, at their sole cost and expense, (the "Remediation Obligation").
The Purchaser and Parent shall make the premises available for such purpose
(during business hours whenever possible and during non-business hours) and
shall reasonably cooperate with Seller, Shareholder and such Persons as they
hire for such purpose. The method of treatment shall be similar to the method
employed in remedying the Treated Portion, or such other method as Shareholder
shall determine, provided in any event that the result of the treatment is
comparable to that achieved with respect to the Treated Portion.
7.4. Setoff. Upon sixty (60) days' notice to Shareholder and Seller, the
Purchaser shall have the right to set off up to $462,500 of any amount that may
be owed to any Purchaser Indemnitee under this Section 7 against any amount
payable by any Purchaser Indemnitee under the Seller Note, provided however that
any such notice shall specify with particularity the basis for any such setoff
and, no amount shall be setoff if, within such sixty (60) day period, Seller or
Shareholder commences an action submitting such dispute to a court of
appropriate jurisdiction.
7.5. Defense of Third Party Claims. In the event of the assertion or
commencement by any Person not a Party hereto of any claim or Proceeding
(whether against the Purchaser Indemnitees or against any other Person) with
respect to which the Seller and Shareholder may become obligated to indemnify,
hold harmless, compensate or reimburse any Purchaser Indemnitee pursuant to this
Section 7, the Seller and Shareholder shall assume the defense of such claim or
Proceeding at the sole expense of the Seller and Shareholder and, in connection
therewith:
(a) The Seller and Shareholder shall proceed to defend such
claim or Proceeding in a diligent manner with counsel
reasonably satisfactory the Purchaser;
(b) The Purchaser shall make available to the Seller and
Shareholder any non-privileged documents and materials
in the possession of the Purchaser that may be
necessary to the defense of such claim or Proceeding;
(c) The Seller and Shareholder shall keep the Purchaser
informed of all Material developments and events
relating to such claim or Proceeding;
(d) The Purchaser shall have the right to participate in
the defense of such claim or Proceeding at the cost and
expense of Purchaser, provided however, if Seller or
Shareholder fails to comply with the terms of this
Section 7.5, the cost and expense of defense of such
claim expended by Parent or Purchaser shall be
reimbursed to Parent or Purchaser by Seller or
Shareholder;
32
(e) The Seller and Shareholder shall not settle, adjust or
compromise such claim or Proceeding if such settlement
would have a Material adverse effect on the Purchaser
(after taking into account this indemnity) without the
prior written consent of the Purchaser, which consent
shall not be unreasonably withheld.
7.6. Exercise of Remedies by Purchaser Indemnitees Other Than Purchaser. No
Purchaser Indemnitee (other than the Purchaser or any successor thereto or
assign thereof) shall be permitted to assert any indemnification claim or
exercise any other remedy under this Agreement unless the Purchaser (or any
successor thereto or assign thereof) shall have consented to the assertion of
such indemnification clause or the exercise of such other remedy.
7.7. Indemnification by Parent and Purchaser. Subject to the limitations in
Sections 7.1, 7.9 and 7.10, the Parent and Purchaser, jointly and severally,
shall hold harmless and indemnify the Seller and Shareholder from and against,
and shall compensate and reimburse the Seller and Shareholder and their
respective directors and officers and their respective successors and assigns
(collectively, "Seller/Shareholder Indemnitees") for, any Damages which are
directly or indirectly suffered or incurred by any of the Seller/Shareholder
Indemnitees or to which any of the Seller/Shareholder Indemnitees may otherwise
become subject (regardless of whether or not such Damages relate to any
third-party claim), including all costs and reasonable attorneys' fees, which
arise from or as a result of:
(a) any breach of any representation or warranty made by
the Parent or Purchaser in this Agreement;
(b) any breach of any covenant or obligation of the Parent
or Purchaser in any of the Transaction Documents
including Purchaser's covenants and obligations in
respect of the Assumed Liabilities, the Seller Note,
the Earn-Out and the Supply Agreement; or
(c) any Proceeding relating directly or indirectly to any
breach, alleged breach, Liability or matter of the type
referred to in clause "(a)," or "(b)" above (including
any Proceeding commenced by any Seller/Shareholder
Indemnitee for the purpose of enforcing any of its
rights under this Section 7).
7.8. Threshold for Indemnification by the Seller and Shareholder. The
Seller and Shareholder shall not be required to make any indemnification payment
pursuant to Section 7.2 for any breach of any of their representations and
warranties and the setoff rights under Section 7.4 shall not be applicable until
such time as the total amount of all Damages (including the Damages arising from
such breach and all other Damages arising from any other breaches of any
representations or warranties) that have been directly or indirectly suffered or
incurred by any one or more of the Purchaser Indemnitees, or to which any one or
more of the Purchaser Indemnitees has or have otherwise become subject, exceeds
$250,000 (the "Basket") in the aggregate. At such time as the total amount of
such Damages exceeds the Basket in the aggregate, the Purchaser Indemnitees
shall be entitled to be indemnified against all Damages in excess of the first
$150,000 of Damages. The provisions of this Section 7.8 shall not apply to the
obligations of Seller and the Shareholder in respect of any Net Working Capital
Adjustment or any Pro-Rating Adjustment or the Remediation Obligation or the
obligations under Section 3.23.
33
7.9. Threshold for Indemnification by Parent and Purchaser. The Parent and
Purchaser shall not be required to make any indemnification payment pursuant to
Section 7.7 for any breach of any of its representations and warranties until
such time as the total amount of all Damages (including the Damages arising from
such breach and all other Damages arising from any other breaches of any
representations or warranties) that have been directly or indirectly suffered or
incurred by the Seller/Shareholder Indemnitees, or to which the
Seller/Shareholder Indemnitees have otherwise become subject, exceeds the Basket
in the aggregate. At such time as the total amount of such Damages exceeds the
Basket in the aggregate, the Seller/Shareholder Indemnitees shall be entitled to
be indemnified against all Damages in excess of the first $150,000 of Damages.
The provisions of this Section 7.9 shall not apply to the obligations of
Purchaser and the Parent under or in respect of the Seller Note, the Supply
Agreement, the Earn-Out, the Assumed Obligations, any Net Working Capital
Adjustment or any Pro-Rating Adjustment.
7.10. Limitation on Indemnification. The maximum aggregate dollar amount of
the collective indemnification liability of the Seller and the Shareholder to
the Purchaser Indemnitees shall be the Purchase Price to the extent actually
paid plus the sum of any Earn-Out payments actually paid to the Seller (the
"Seller/ Shareholder Limitation") except (i) if the Seller or Shareholder shall
have made any representation or warranty herein that, in either case, was
fraudulent or (ii) for breaches of Section 8 hereof, in either of which event
the Seller/Shareholder Limitation shall not apply and Section 7.8 shall not
apply. The maximum aggregate dollar amount of the indemnification liability of
the Parent and Purchaser to the Seller/Shareholder Indemnitees shall be the
Purchase Price to the extent actually paid plus the sum of any actual Earn-Out
payments paid to the Seller (the "Purchaser Limitation") except (i) if the
Parent or Purchaser shall have made any representation or warranty herein that
was fraudulent or (ii) for breaches of Section 8 hereof, in either of which
event the Purchaser Limitation shall not apply and Section 7.9 shall not apply.
7.11. Exclusivity of Indemnification Remedies. The indemnification remedies
and other remedies provided in this Section 7 shall be deemed to be exclusive.
Accordingly, the exercise by any Person of any of its rights under this Section
7 shall be deemed to be an election of remedies and shall be deemed to
prejudice, or to constitute or operate as a waiver of, any other right or remedy
that such Person may be entitled to exercise (whether under this Agreement,
under any other Contract, under any statute, rule or other Legal Requirement, at
common law, in equity or otherwise), except for the exercise of subsequent
remedies under this Section 7 and the exercise of remedies under any of the
Transaction Documents.
8. OTHER AGREEMENTS
8.1. Non-Compete. The Seller and Shareholder, collectively and
individually, agree that during the period starting on the Closing Date and
continuing through two (2) years from the Closing Date and provided that the
Purchaser has not previously committed a Material breach of its obligations
under the Seller Note, the Supply Agreement, or in respect of the Earn-Out which
remains uncured after any required notice (the "Restrictive Period"), the Seller
34
and Shareholder, shall not, directly or indirectly, anywhere that the Seller
currently does Business: (i) participate or engage in any business which
competes with the Business, whether as owner, operator, officer, director,
creditor, consultant, partner, agent, employee or otherwise or (ii) hire or
attempt to hire, or contract or attempt to contract with, any officers,
employees, agents, independent contractors or other persons that have an
employment related relationship (whether written or oral) with the Seller prior
to the Closing Date, provided however that the foregoing shall not prevent
Shareholder from continuing to employ or engage any such person who currently
performs services for both Seller and Shareholder so long as same does not
substantially interfere with the performance by such person of his services for
Purchaser. Notwithstanding the foregoing, Shareholder may, without violating
this Section 8.1, (i) continue its business of the integration and assembly of
components utilized with flat-panel displays (commonly known in the industry as
box build) and (ii) own up to a five percent (5%) passive equity interest in any
publicly traded company. This covenant is expressly enforceable by all assignees
and/or successors of Purchaser.
8.2. Nonsolicitation.
(a) Third Parties. During the Restrictive Period, the
Seller and Shareholder shall not, directly or
indirectly, solicit, encourage, facilitate or induce
any customer, supplier, agent, sales representative,
employee, consultant, or licensee of the Seller prior
to the Closing Date or Purchaser or any of its
affiliates to breach any agreement or discontinue his,
her, or its business relationships with the Purchaser
or its affiliates.
(b) Employees. The Seller and Shareholder covenant and
agree that during the Restrictive Period, the Seller
--------- and Shareholder shall not specifically
solicit to be an employee, or independent contractor of
Seller or Shareholder, any person who is an employee of
Purchaser, except with the prior written consent of
Purchaser, provided however that the foregoing shall
not prevent Shareholder from continuing to employ or
engage any such person who currently performs services
for both Seller and Shareholder so long as same does
not substantially interfere with the performance by
such person of his services for Purchaser.
8.3. Confidentiality
(a) Purchaser Confidential Information. The Seller and
Shareholder shall not, directly or indirectly, disclose
to anyone, or use in competition with the Purchaser,
any Purchaser Confidential Information. For purposes of
this Agreement, "Purchaser Confidential Information"
shall mean information relating to the Purchaser, its
business and potential business, including, without
limitation, information relating to the Business and
the Purchased Assets, trade secrets, financial
information, marketing and business plans, methods of
providing services, practices, documentation, drawings,
facilities, customers, policies, suppliers, pricing,
customer lists and leads, and other information and
know-how that has actual or potential economic value to
the Purchaser because it is not generally known to
others and is not readily ascertainable by them. The
restrictions of this Section 8.3 shall not apply to
information (i) which enters the public domain through
no fault of the Seller or Shareholder; (ii) the
disclosure of which is required by final order of a
court of competent jurisdiction; or (iii) the
disclosure of which is required to be made by the
Seller or Shareholder in any public filing.
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(b) Shareholder Confidential Information. The Parent and
Purchaser shall not, directly or indirectly,
-------------------------------------- disclose to
anyone, or use in competition with Shareholder, any
Shareholder Confidential Information. For purposes of
this Agreement, "Shareholder Confidential
------------------------- Information" shall mean
information relating to the Shareholder, its business
and ----------- potential business, including, without
limitation, trade secrets, financial information,
marketing and business plans, methods of providing
services, practices, documentation, drawings,
facilities, customers, policies, suppliers, pricing,
customer lists and leads, and other information and
know-how that has actual or potential economic value to
the Purchaser because it is not generally known to
others and is not readily ascertainable by them
provided however, does not include information
concerning the Seller, the Business or the Purchased
Assets. The restrictions of this Section 8.3 shall not
apply to information (i) which enters the public domain
through no fault of the Purchaser; (ii) the disclosure
of which is required by final order of a court of
competent jurisdiction; or (iii) the disclosure of
which is required to be made by the Purchaser in any
public filing.
8.4. Severability. The covenants set forth in this Section 8 shall be
deemed severable, and the invalidity of any covenant shall not affect the
validity or enforceability of any other covenant or the validity of this
Agreement. The existence of any claim or cause of action by a Party shall not
constitute a defense to the enforcement by any other Party of these covenants.
The failure by a Party to object to any conduct in violation of this Section 8
shall not be deemed a waiver by such Party, but such Party may, if it so
desires, specifically waive any part or any of these covenants only to the
extent that such waiver is set forth in writing.
8.5. Judicial Modification. In the event that any court finally holds that
the time or territory or any other provision stated in this Section 8
constitutes an unreasonable restriction, then the Parties hereto hereby
expressly agree that the provisions of this Agreement shall not be rendered
void, but shall apply as to time and territory or to such other extent as such
court may judicially determine or indicate constitutes a reasonable restriction
under the circumstances involved.
8.6. Specific Enforcement. The restrictive covenants contained in this
Section 8 are covenants independent of any other provision of this Agreement and
the existence of any claim that any Party may allege against any other Party,
whether based on this Agreement or otherwise, shall not prevent the enforcement
of these covenants. The Parties acknowledge that the restrictions on their
activities as contained in this Section 8 are required for the reasonable
protection of the interests of the Parties as a result of the Transactions.
36
Therefore, the Parties hereby agree that, in the event of a violation of any
provision of this Section 8, each Party will be entitled, if it so elects, to
institute and prosecute proceedings at law or in equity to obtain damages with
respect to such violation or to enforce specific performance of this Section 8
against the other Parties or to enjoin the other Parties from engaging in any
activity in violation hereof without the posting of any bond in addition to any
other remedies which such Party may have.
8.7. Tolling of Time Periods. In the event that Shareholder or the Seller
violate the provisions of Section 8.1 or 8.2 of this Agreement, the Restrictive
Period shall toll during any period of non-compliance, and shall not continue to
elapse until Shareholder and the Seller is in full compliance with Section 8.1
and 8.2 of this Agreement.
8.8. Confirmation as to Scope. The Parties hereto acknowledge and confirm
that: (i) the length of the term of the restrictions and the geographical
restrictions contained in this Section 8 are fair and reasonable and are not the
result of overreaching, duress or coercion of any kind; (ii) the full,
uninhibited and faithful observance of each of the covenants contained in this
Section 8 shall not cause any undue hardship, financial or otherwise; and (iii)
the Seller's and Shareholder's special Knowledge of the Business of the Seller
is such as would cause Purchaser serious injury and loss if the Seller or
Shareholder uses such Knowledge to benefit a competitor of Purchaser or to
compete with Purchaser. The Parties hereto acknowledge and agree that the
provisions of this Section 8 are essential to protect Purchaser's legitimate
business interest as contemplated under New York law and are in addition to any
rights Purchaser may have to enforce its rights with respect to the trade
secrets of Purchaser pursuant to New York law.
8.9. Access to Records. The Parties agree to furnish or to cause to be
furnished to each other upon request as promptly as practicable, such
information and assistance relating to the Seller as is reasonably necessary for
the filing of any Tax return, declaration or report, the making of any election
related to Taxes, the preparation for any audit by any taxing authority, or the
prosecution or defense of any claim, suit, or proceeding; provided, however,
that such information and assistance shall be provided in a manner that will not
unreasonably disrupt the business of the Party providing information or
assistance, at the requesting Party's own cost and expense.
8.10. No Resale of Purchased Assets. The Parent and Purchaser covenant and
agree that until the Seller Note is paid in full and the Earn-Out, to the extent
earned, has been paid in full, the Purchaser will not, directly or indirectly,
unless consented to in writing by Purchaser, (i) sell, transfer or assign any
Material portion of the Purchased Assets to any Person, other than sales of
inventory in the Ordinary Course of Business, (ii) grant or permit to exist any
Encumbrance on any Material portion of the Purchased Assets in favor of any
Person other than a Person with which the Seller or the Shareholder has entered
into a subordination agreement, except for any Encumbrance on the Purchased
Assets existing immediately prior to the consummation of the transactions
contemplated hereby, and (iii) be a party to any merger, consolidation or other
transaction as a result of which a Change in Control (as defined in the Seller
Note) occurs or will occur.
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8.11. Post-Audit Closing Cooperation. Shareholder and Seller shall
cooperate with Purchaser in connection with Purchaser causing to be conducted at
Purchaser's cost and expense, an audit by Purchaser's certified public
accountants of the last two (2) fiscal years of the operation of the Business as
conducted by Seller, or of Seller with respect to its last two (2) fiscal years.
8.12. Transitional Services. The Shareholder shall continue to include
under its health insurance coverage employees of the Seller working at the
Seller's Woburn, MA premises until the earlier of such time as Purchaser is able
to include such employees under a policy procured by Purchaser, or October 1,
2004, and the cost thereof shall be included in the calculation of the
Pro-Rating Adjustment.
9. MISCELLANEOUS
9.1. Counterparts; Interpretation. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, and both of
which shall constitute one and the same instrument. This Agreement supersedes
all prior discussions and agreements between the Parties with respect to the
subject matter hereof, and this Agreement contains the sole and entire agreement
among the Parties with respect to the matters covered hereby. All Disclosure
Schedules hereto shall be deemed a part of this Agreement. This Agreement shall
not be altered or amended except by an instrument in writing signed by or on
behalf of all of the Parties hereto. No ambiguity in any provision hereof shall
be construed against a Party by reason of the fact it was drafted by such Party
or its counsel. References to "including" means including without limiting the
generality of any description preceding such term. Nothing expressed or implied
in this Agreement is intended, or shall be construed, to confer upon or give any
person other than the Parties any rights or remedies under or by reason of this
Agreement.
9.2. Governing Law. The validity and effect of this Agreement shall be
governed by and construed and enforced in accordance with the laws of New York
without regard to principles of conflicts of laws thereof. Any dispute,
controversy or question of interpretation arising under, out of, in connection
with or in relation to this Agreement or any amendments hereof, or any breach or
default hereunder, shall be litigated exclusively in the courts of competent
jurisdiction located in New York, New York. Each of the Parties hereby
irrevocably submits to the jurisdiction of any court of competent jurisdiction
located in New York, New York. Each Party hereby irrevocably waives, to the
fullest extent it may effectively do so, the defense of an inconvenient forum to
the maintenance of any such action in New York, New York.
9.3. Successors and Assigns; Assignment. This Agreement shall be binding
upon and shall inure to the benefit of the Parties and their respective heirs,
executors, legal representatives, and successors. Neither this Agreement nor the
rights and obligations hereunder may be assigned by either Party absent the
express prior written consent of the other.
9.4. Partial Invalidity and Severability. All rights and restrictions
contained herein may be exercised and shall be applicable and binding only to
the extent that they do not violate any applicable laws and are intended to be
limited to the extent necessary to render this Agreement legal, valid and
enforceable. If any terms of this Agreement not essential to the commercial
purpose of this Agreement shall be held to be illegal, invalid or unenforceable
38
by a court of competent jurisdiction, it is the intention of the Parties that
the remaining terms hereof shall constitute their agreement with respect to the
subject matter hereof and all such remaining terms shall remain in full force
and effect. To the extent legally permissible, any illegal, invalid or
unenforceable provision of this Agreement shall be replaced by a valid provision
which will implement the commercial purpose of the illegal, invalid or
unenforceable provision.
9.5. Waiver. Any term or condition of this Agreement may be waived at any
time by the Party which is entitled to the benefit thereof, but only if such
waiver is evidenced by a writing signed by such Party. No failure on the part of
a Party to exercise, and no delay in exercising, any right, power or remedy
created hereunder, shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, power or remedy by any such Party preclude any
other future exercise thereof or the exercise of any other right, power or
remedy. No waiver by any Party to any breach of or default in any term or
condition of this Agreement shall constitute a waiver of or assent to any
succeeding breach of or default in the same or any other term or condition
hereof. Upon the Closing of the transactions contemplated hereby, all conditions
to Closing set forth in Sections 5 and 6 hereof shall be deemed waived or
satisfied, except as otherwise provided in any agreement executed by the Parties
at the Closing.
9.6. Headings. The headings as to contents of particular sections of this
Agreement are inserted for convenience only and shall not be construed as a part
of this Agreement or as a limitation on the scope of any terms or provisions of
this Agreement.
9.7. Acceptance by Fax. This Agreement shall be accepted, effective and
binding, for all purposes, when the Parties shall have signed and transmitted to
each other, by telecopier or otherwise, copies of the signature pages hereto.
9.8. Expenses. All costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby will be paid by the Party
incurring such costs and expenses.
9.9. Attorneys' Fees. In the event of any litigation arising under the
terms of any of the Transaction Documents, the prevailing Party shall be
entitled to recover its or their reasonable attorneys' fees and court costs from
the other Party, including trial and appellate proceedings, as well as the costs
of collecting any judgment.
9.10. Specific Performance. Each Party agrees that the Transaction
Documents are intended to be legally binding and specifically enforceable
pursuant to their terms and that the other Party would be irreparably harmed if
any of the provisions of the Transaction Documents are not performed in
accordance with their specific terms and that monetary damages would not provide
adequate remedy in such event. Accordingly, in addition to any other remedy to
which a non-breaching party may be entitled at law, a non-breaching party shall
be entitled to injunctive relief without the posting of any bond to prevent
breaches of the Transaction Documents and specifically to enforce the terms and
provisions hereof.
9.11. Further Assurances. The Parties shall from time to time do and
perform such additional acts and execute and deliver such additional documents
and instruments as may be required or reasonably requested by any Party to
establish, maintain or protect its rights and remedies or to effect the purposes
of this Agreement.
39
9.12. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been given: (i) when delivered by hand; (ii)
one (1) day after delivery by internationally recognized express courier (i.e.,
Federal Express, DHL); or (iii) three (3) days after delivery by certified mail,
postage prepaid, to the Parties at the following addresses (or at such other
address for a Party as shall be specified by like notice):
If to Shareholder: Jaco Electronics, Inc.
145 Oser Avenue
Hauppauge, New York 11788
Attention: Mr. Jeffrey Gash
Telephone: (631) 273-5500
Facsimile: (631) 273-3621
With a copy to: Morrison Cohen Singer & Weinstein, LLP
750 Lexington Avenue
New York, New York 10022
Attention: Stephen I. Budow, Esq.
Telephone: (212) 735-8668
Facsimile: (212) 735-8708
If to Seller: Nexus Custom Electronics, Inc.
c/o Jaco Electronics, Inc.
145 Oser Avenue
Hauppauge, New York 11788
Attention: Mr. Jeffrey Gash
Telephone: (631) 273-5500
Facsimile: (631) 273-3621
With a copy to: Morrison Cohen Singer & Weinstein, LLP
750 Lexington Avenue
New York, New York 10022
Attention: Stephen I. Budow, Esq.
Telephone: (212) 735-8668
Facsimile: (212) 735-8708
If to Purchaser NECI Acquisition, Inc.
33 South Wood Avenue - Suite 600
Iselin, NJ 08830
Attention: Robert Farrell/ Joseph Donohue
Telephone: (732) 603-4967
Facsimile: (732) 603-3883
With a copy to: Kirkpatrick & Lockhart LLP
201 South Biscayne Boulevard, Suite 2000
Miami, Florida 33131
Attention: Harris C. Siskind, Esq.
Telephone: (305) 539-3316
Facsimile: (305) 358-7095
40
If to Parent: Sagamore Holdings, Inc.
33 South Wood Avenue - Suite 600
Iselin, NJ 08830
Attention: Robert Farrell/ Joseph Donohue
Telephone: (732) 603-4967
Facsimile: (732) 603-3883
With a copy to: Kirkpatrick & Lockhart LLP
201 South Biscayne Boulevard, Suite 2000
Miami, Florida 33131
Attention: Harris C. Siskind, Esq.
Telephone: (305) 539-3300
Facsimile: (305) 358-7095
9.13. NO JURY TRIAL. THE PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVE THE RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
AGREEMENT AND ANY OF THE TRANSACTION DOCUMENTS CONTEMPLATED TO BE EXECUTED IN
CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS PROVISION IS A
MATERIAL INDUCEMENT FOR THE PARTIES' ACCEPTANCE OF THIS AGREEMENT.
[SIGNATURE BLOCK ON FOLLOWING PAGE]
41
IN WITNESS WHEREOF, the parties hereto have executed this Asset
Purchase Agreement on the date first set forth above.
SELLER: PURCHASER:
NEXUS CUSTOM ELECTRONICS, INC., NECI ACQUISITION, INC.,
a Delaware corporation a Florida corporation
By: /s/ Jeffrey D. Gash By: /s/ Robert P. Farrell
-------------------------------------------- ------------------------------
Name: Jeffrey D. Gash Name: Robert P. Farrell
----------------------------------- --------------------------
Its: Vice President Its: President
-------------------------------------------- ------------------
SHAREHOLDER: PARENT:
JACO ELECTRONICS, INC., SAGAMORE HOLDINGS, INC.,
a New York corporation A Florida corporation
By: /s/ Jeffrey D. Gash By: /s/ Robert P. Farrell
-------------------------------------------- ------------------------------
Name: Jeffrey D. Gash Name: Robert P. Farrell
----------------------------------- --------------------------
Its: Vice President Its: President
-------------------------------------------- ------------------
42