ASSET PURCHASE AGREEMENT
between
BELL MICROPRODUCTS INC.
and
PEMSTAR INC.
April 30, 1999
TABLE OF CONTENTS
Page
----
TABLE OF CONTENTS .............................................................i
Page ..........................................................................i
INDEX OF EXHIBITS ............................................................iv
INDEX OF SCHEDULES.............................................................v
RECITALS ......................................................................1
ARTICLE I SALE AND PURCHASE OF ASSETS..........................................1
1.1 Sale and Purchase of Assets..................................1
1.2 Assets to be Transferred.....................................1
1.3 Assumption of Liabilities....................................3
1.4 All Other Liabilities Not Assumed............................4
ARTICLE II PURCHASE PRICE; CLOSING.............................................4
2.1 Purchase Price...............................................4
2.2 Closing......................................................4
2.3 Transaction Taxes............................................5
2.4 Allocation of Consideration..................................5
2.5 Post-Closing Adjustment......................................5
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE SELLER.......................7
3.1 Organization of the Seller...................................7
3.2 Authority....................................................7
3.3 Division Financial Statements................................8
3.4 Absence of Changes...........................................8
3.5 Absence of Undisclosed Liabilities..........................10
3.6 Intellectual Property Rights................................10
3.7 Affiliate Transactions......................................10
3.8 Customers and Suppliers.....................................11
3.9 Legal and Other Compliance..................................11
3.10 Restrictions on Business Activities.........................12
3.11 Title to Properties; Absence of Liens;
Condition of Equipment ....................................12
3.12 Agreements, Contracts and Commitments.......................13
3.13 Powers of Attorney..........................................14
i
3.14 Litigation..................................................14
3.15 Environmental Matters.......................................14
3.16 Employment Matters..........................................16
3.17 Insolvency..................................................17
3.18 Consents....................................................17
3.19 Books and Records...........................................17
3.20 Product Warranties..........................................18
3.21 Inventory...................................................18
3.22 Accounts Receivable.........................................18
3.23 Tax Returns and Audits......................................18
3.24 Employee Benefit Plans......................................18
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER............................20
4.1 Organization of Buyer.......................................20
4.2 Authority...................................................20
4.3 No Conflicts................................................20
4.4 Litigation..................................................20
ARTICLE V CONDUCT PRIOR TO THE CLOSING DATE...................................21
5.1 Conduct of Business.........................................21
ARTICLE VI ADDITIONAL AGREEMENTS..............................................22
6.1 Approval....................................................22
6.2 Access to Information.......................................22
6.3 Access to Records After Closing.............................22
6.4 Confidentiality.............................................22
6.5 Public Disclosure...........................................23
6.6 Contractual Consents........................................23
6.7 Legal Conditions to Acquisition.............................23
6.8 Additional Documents and Further Assurances.................23
6.9 Notification of Certain Matters.............................24
6.10 Payment of Trade and Other Creditors........................24
6.11 No Solicitation.............................................24
6.12 Non-Competition.............................................25
6.13 Non-Solicitation of Employees...............................25
6.14 Continuing Customer Relationship............................26
6.15 Employment Matters..........................................26
6.16 Treatment of Other Matters..................................27
6.17 Profit Sharing..............................................29
ARTICLE VII CONDITIONS TO OBLIGATIONS TO CLOSE................................30
7.1 Conditions to Obligations of Each Party.....................30
ii
7.2 Additional Conditions to Obligations of the Seller..........30
7.3 Additional Conditions to the Obligations of Buyer...........31
ARTICLE VIII SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION......32
8.1 Indemnification.............................................32
8.2 Arbitration.................................................35
ARTICLE IX TERMINATION, AMENDMENT AND WAIVER..................................36
9.1 Termination.................................................36
9.2 Effect of Termination.......................................37
9.3 Amendment...................................................37
9.4 Extension; Waiver...........................................37
ARTICLE X GENERAL PROVISIONS..................................................38
10.1 Notices.....................................................38
10.2 Interpretation..............................................39
10.3 Expenses....................................................39
10.4 Counterparts................................................39
10.5 Entire Agreement; Assignment................................39
10.6 Severability................................................39
10.7 Sole Remedy.................................................39
10.8 Governing Law; Arbitration..................................40
10.9 Rules of Construction.......................................40
10.10 No Third Party Beneficiaries................................40
10.11 Specific Performance........................................40
10.12 Publicity...................................................41
10.13 Assignment by Buyer.........................................41
10.14 Change in Control of Buyer..................................41
BILL OF SALE AND GENERAL ASSIGNMENT............................................?
EXHIBIT C .....................................................................?
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME OF THE BUSINESS....................?
EXHIBIT F .....................................................................?
iii
INDEX OF EXHIBITS
Exhibit Description
------- -----------
Exhibit A December 31, 1998 Balance Sheet
Exhibit B Bill of Sale and General Assignment
Exhibit C Unaudited consolidated statements of income of the Business
for the fiscal year ended December 31, 1998
Exhibit D Unaudited consolidated statements of income of the Business
for the fiscal year ended December 31, 1997
Exhibit E Division Financial Statements
Exhibit F March 31, 1999 Balance Sheet
Exhibit G Form of Opinion of Buyer Counsel
Exhibit H Form of Opinion of Seller Counsel
iv
INDEX OF SCHEDULES
Schedule Description
-------- -----------
1.2(a) Inventory
1.2(b) Accounts Receivable
1.2(c) Lease Agreements
1.2(d) Contracts
(i) List of outstanding written customer
orders, purchase orders and other
customer contracts
(ii) List of customer names
1.2(e) Equipment and Tangible Assets
1.2(g) Prepaid Expenses
1.2(i) Telephone Numbers
1.3(b) Accounts Payable, Goods in Transit, Placed Orders
2.4 Purchase Price Allocation
3 Disclosure Schedule
3.3(b) No Liability, Indebtedness, Etc.
3.3(c) Division Financial Statements
3.4(c) Absence of Changes: Agreements
3.4(f) " " " Discontinued
Relationships
3.4(h) " " " Employment
3.4(i) " " " Key Employees
3.4(k) " " " Capital
Commitments
3.5 Absence of Undisclosed Liabilities
3.6. Intellectual Property Rights
3.7. Affiliate Transactions
3.8 Customers and Suppliers
3.9(a) Compliance with Applicable Laws,
Regulations, etc.
3.9(b) Non-Environmental Permits;
Assignability
3.9(c) Gifts of Money, Other Property or
Similar Benefits
3.11(a) Title to Properties: Absence of
Liens
3.11(d) Title to Properties: Assets
3.11(e) Title to Properties: Custody and
Control
3.12(ii) Agreements: Asset Acquisitions
3.12(iii) Agreements: Indemnification
3.12(iv) Agreements: Purchase Orders
3.12(vi) Agreements: Losses
3.12(vii) Agreements: Capital Expenditures
3.12(viii) Agreements: Payments Received
3.12(x) Agreements: Credit Agreements
v
3.12(xiii) Agreements: Distribution Agreements
3.14 Litigation
3.15 Environmental
3.16(c) Employment: No Liability
3.16(d) Employee Matters
3.18 Consents
3.22 Accounts Receivable
5.1 Conduct of Business Exceptions
6.16(b)(i)(1) Excess Inventory With MRP ($2,287,863)
6.16(b)(i)(2) Excess Inventory Without MRP ($2,433,579)
6.16(d) Excess Bone-Pile Inventory ($825,121)
6.16(e)(i) Amounts Paid in Prior Months Not Billed to
Customers
6.16(e)(ii) Prior Months Billings Without Cost
6.16(f) 90-Day A/R
vi
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of April 30, 1999 between Bell Microproducts Inc., a California
corporation (the "Seller"), and PEMSTAR INC., a Minnesota corporation (the
"Buyer").
RECITALS
WHEREAS, Seller maintains a custom contract manufacturing division of
its corporation known as the Quadrus division (the "Business");
WHEREAS, pursuant to this Agreement, the Buyer (directly or through one
of its wholly owned subsidiaries) wishes to purchase from the Seller, and the
Seller wishes to sell to the Buyer, all the Acquired Assets (as defined herein);
WHEREAS, pursuant to this Agreement, the Buyer (directly or through one
of its wholly owned subsidiaries) wishes to assume from the Seller, and the
Seller wishes to transfer to the Buyer all the Assumed Liabilities;
NOW, THEREFORE, in consideration of the covenants, promises, and
representations set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
ARTICLE I
SALE AND PURCHASE OF ASSETS
1.1 Sale and Purchase of Assets. Subject to the terms and conditions
contained in this Agreement, the Seller agrees to sell, assign, transfer, and
deliver to the Buyer all of the Seller's right, title, and interest in and to
each of the Acquired Assets (as defined below), and Buyer agrees to purchase
such assets on the Closing Date.
1.2 Assets to be Transferred. At the Closing, the Seller shall sell and
deliver to Buyer (or a wholly owned subsidiary of Buyer to be designated by
Buyer), and Buyer (either directly or through a wholly owned subsidiary of Buyer
to be designated by Buyer) shall purchase and accept from the Seller, the
following assets used exclusively or primarily in the Business (the "Acquired
Assets"):
(a) Inventory. Except as otherwise provided in Section 6.16
hereof, all of Seller's inventory relating to the Business identified in
Schedule 1.2(a) attached hereto subject to changes between December 31, 1998 and
Closing in the ordinary course of business.
(b) Accounts Receivable. Except as otherwise provided in Section
6.16(f) hereof, all of Seller's rights to receive payments currently owed to the
Seller resulting from the sale of goods by the Business identified on Schedule
1.2(b) subject to changes between December 31, 1998 and Closing in the ordinary
course of business.
(c) Rights Under Leases. All of the Seller's rights under the
real property lease agreements, as amended or supplemented to date, with respect
to the Company's facility located at 2020 S. Tenth Street, San Jose, California
95112 (the "Real Property"), and the equipment lease agreements, as amended or
supplemented to date, and relating primarily or exclusively to the Business
identified in Schedule 1.2(c) (the "Assumed Leases") subject to changes between
December 31, 1998 and Closing in the ordinary course of business.
(d) Rights Under Contracts. Except as otherwise provided in
Section 6.16 hereof, all of Seller's rights under any contract, agreement, plan
or arrangement relating primarily or exclusively to the Business identified in
Schedule 1.2(d) subject to changes between December 31, 1998 and Closing in the
ordinary course of business. It is the intent of the parties hereto that all of
the Acquired Assets and all of Seller's backlog, if any, arising out of the
operation of the Business be transferred to Buyer. Accordingly, the parties
agree to use their reasonable best efforts to facilitate such transfer of
customers to the extent transferable at the Closing. Included on Schedule 1.2(d)
is (i) a list as of December 31, 1998 of all outstanding written customer
orders, purchase orders, and other customer commitments from Seller's current
customers of the Business, and (ii) the names of all customers of the Business,
which list will be updated as of the Closing Date and provided to Buyer.
(e) Equipment; Tangible Assets. Except as otherwise provided in
Section 6.16 hereof, all equipment and other tangible assets used exclusively or
primarily in the Business or identified in Schedule 1.2(e) subject to changes
between December 31, 1998 and Closing in the ordinary course of business.
(f) Books and Records. Copies of all books and records related to
any Acquired Assets, including, without limitation, all financial records,
books, ledgers, supplier lists, customer and marketing lists or databases,
marketing plans, management plans, distribution and reseller materials,
advertising materials, manuals, and other materials of the Seller, in each case
only insofar as such items relate exclusively or primarily to the Business.
(g) Prepaid Expenses. The prepaid expenses for goods or services
to be provided exclusively or primarily to the Business after the Closing Date
(as defined below) identified in Schedule 1.2(g) subject to changes between
December 31, 1998 and Closing in the ordinary course of business. The actual
amount of prepaid inventory, expenses and supplies is to be determined during a
physical inventory to be conducted by Seller and audited by Buyer between May 1,
1999 and the Closing and only such prepaid inventory and supplies as are
physically identified will be purchased by Buyer.
2
(h) Intellectual Property. All of Seller's right, title and
interest in and to Seller's intellectual property used exclusively or primarily
in the Business, including, without limitation, (i) the trademark "Quadrus,"
(ii) the domain name and website of the Business, (iii) know-how, (iv)
good-will, and (v) all rights under proprietary information agreements with
respect to employees of Seller who become employees of Buyer from and after the
Closing.
(i) Phone Numbers. The phone numbers used exclusively or
primarily in the Business identified in Schedule 1.2(i)
(j) Other Assets. All of Seller's claims against any parties
relating exclusively or primarily to any Acquired Asset, the Business or any
contract rights assigned to Buyer, including without limitation, unliquidated
rights under manufacturers' or vendors' warranties or guarantees subject to
changes between December 31, 1998 and Closing in the ordinary course of
business.
(k) Balance Sheet Assets. All other assets reflected on the
December 31, 1998 balance sheet for Quadrus attached hereto as Exhibit A (the
"December 31, 1998 Balance Sheet") subject to changes between December 31, 1998
and Closing in the ordinary course of business.
1.3 Assumption of Liabilities. On the terms and subject to the
conditions set forth herein, from and after the Closing, the Buyer will assume
and satisfy or perform when due the following liabilities of the Seller (the
"Assumed Liabilities"):
(a) Obligations Under Leases. All of Seller's obligations after
the Closing Date (as defined below) under each of the Assumed Leases identified
in Schedule 1.2(c), and each of the contracts, agreements, plans and
arrangements identified in Schedule 1.2(d).
(b) Accounts Payable. The accounts payable, good in transit,
placed orders as set forth on Schedule 1.3(b) as of December 31, 1998 subject to
changes between December 31, 1998 and the Closing Date.
(c) Warranty Liability. All warranty liability relating to
warranty returns and replacements after the Closing relating exclusively or
primarily to the Business.
(d) Sales and Use Taxes. Any and all sales or use taxes imposed
by the sale of the Acquired Assets or the assumption of the Assumed Liabilities.
(e) Balance Sheet Liabilities. All other liabilities reflected on
the December 31, 1998 Balance Sheet subject to changes between December 31, 1998
and Closing in the ordinary course of business, other than liabilities in
respect of (i) "401K Withholding" (shown thereon as $48,124) and (ii) accrued
vacation in excess of 80 hours per person (shown in the books of Seller as
$71,227 (subject to adjustment)). The liabilities in this subsection (i) and
(ii), collectively, are referred to as the "Excluded Balance Sheet Liabilities."
3
(f) Additional Assumed Liabilities. Except as may otherwise be
provided in this Agreement, all of Seller's liabilities and obligations referred
to with an asterisk (*) in the Disclosure Schedule attached hereto.
1.4 All Other Liabilities Not Assumed. Other than the Assumed
Liabilities set forth in Section 1.3 above, it is agreed that Buyer shall not
assume or perform any other liabilities or obligations.
ARTICLE II
PURCHASE PRICE; CLOSING
2.1 Purchase Price. The purchase price payable by the Buyer to the
Seller as consideration for the sale, assignment, transfer, and delivery by the
Seller to the Buyer (or a wholly owned subsidiary of Buyer to be designated by
Buyer) of the Acquired Assets, and the assumption by Buyer of the Assumed
Liabilities, Buyer, on the terms and conditions set forth herein, shall be
$40,500,000.00 (the "Purchase Price"). At the Closing, the Buyer shall deliver
to the Seller by wire transfer in immediately available funds $37,500,000.00
(the "Partial Purchase Price Payment"). Subject to the Post-Closing Adjustment
in Section 2.5, Buyer will pay the balance of the Purchase Price at the time of
the payment to be made pursuant to Section 2.5(c)(1) or (2).
2.2 Closing.
(a) Delivery. The closing of the purchase and sale of the
Acquired Assets and the consummation of the other transactions contemplated
hereby shall be held at the offices of Wilson Sonsini Goodrich & Rosati, P.C.,
650 Page Mill Road, Palo Alto, California 94304-1050, at 1:00 p.m. (local time),
on June 1, 1999 (the "Closing") or at such other date, time and place not to be
later than June 30, 1999, unless Buyer and Seller shall have agreed in writing
(the date of the Closing is hereinafter referred to herein as the "Closing
Date").
(b) Closing Deliveries. At the Closing, Buyer shall deliver the
Partial Purchase Price Payment against delivery by the Seller of such transfer
documents relating to the sale and transfer of the Acquired Assets as the Buyer
shall reasonably request, including, without limitation, the Bill of Sale and
General Assignment of Assets in the form attached hereto as Exhibit B. At the
Closing, the Seller shall put Buyer into full possession and enjoyment of all
the Acquired Assets and Buyer shall be fully and solely responsible for and
perform when due or discharge all of the Assumed Liabilities.
At any time and from time to time after the Closing, at the
request of the Buyer and without further consideration, the Seller shall execute
and deliver such further instruments of sale, transfer, conveyance, assignment,
and confirmation and take such actions as Buyer may reasonably determine
necessary to transfer, convey, and assign to the Buyer (or such wholly owned
subsidiary as Buyer may designate), and to confirm Buyer's title to or interest
in, the Acquired
4
Assets, to put Buyer in actual possession and operating control
thereof, and to assist Buyer in exercising all rights with respect thereto.
2.3 Transaction Taxes.
(a) Sales Tax. At the Closing, upon Seller's delivery to Buyer of
an invoice therefor, Buyer shall remit to Seller, and Seller shall timely remit
to the appropriate California state tax authorities, an amount which is equal to
8.25% of the Allocation(s) (as defined herein) shown on Schedule 2.4 as subject
to collection of California State Sales Tax. Seller has already paid California
State sales tax on the equipment leases.
(b) Buyer will pay and promptly discharge when due (and indemnify
Seller against) all taxes and recording fees imposed or levied by reason of, in
connection with or attributable to the sale of Acquired Assets contemplated
hereby, the transactions contemplated hereby, and the sale of the Acquired
Assets to Buyer, except any income taxes payable by the Seller because of gain
on the sale thereof.
2.4 Allocation of Consideration. Buyer and Seller will allocate the
Purchase Price among the Assets (the "Allocation") in accordance with Schedule
2.4 to be attached to this Agreement at or prior to the Closing in a form
mutually agreeable to the parties. No party will take a position on any federal
or state tax return, before any governmental agency charged with the collection
of any income tax, or in any judicial proceeding that is in any way inconsistent
with the Allocation or prior to the final adjustment of the Purchase Price
pursuant to Section 2.5. To the extent required by Section 1060 of the Code and
any regulations promulgated thereunder, the Allocation will be revised for any
adjustment of the Purchase Price pursuant to Section 2.5.
2.5 Post-Closing Adjustment. The Purchase Price shall be subject to
adjustment after the Closing Date as specified in this Section 2.5.
(a) As soon as practicable, but in any event within fifteen (15)
business days after the Closing Date, Seller, with the assistance of any
necessary Buyer personnel at no cost to Seller, will prepare and deliver to
Buyer a Draft Closing Date Schedule 2.5 (the "Draft Closing Date Schedule") for
the Business as of the close of business on the Closing Date. The Draft Closing
Date Schedule will be prepared and calculated in accordance with GAAP and
consistent with Seller's accounting practices and policies and consistent with
the December 31, 1998 Balance Sheet. For purposes of this calculation, (v) the
Excluded Balance Sheet Liabilities, (w) the Excluded Excess Inventory (as
defined herein), (x) the Excluded Bone-Pile Inventory (as defined herein), and
(y) the Other Excluded Amounts (as defined herein) (the items described in (v)
through (y), collectively, the "Exclusions") shall be excluded.
(b) In the event Buyer disputes the accuracy or presentation of
any information or determination contained in the Draft Closing Date Schedule,
it will deliver a detailed statement describing its disagreement to Seller
within fifteen (15) business days after receiving the Draft
5
Closing Date Schedule. Buyer and Seller will use reasonable efforts to resolve
any such disagreement themselves. If the parties are unable to reach a final
resolution within ten calendar days from the delivery of Buyer's objections, the
objections to the Draft Closing Date Schedule will be submitted for binding
resolution to Arthur Andersen (the "Accounting Firm"), which firm is hereby
acknowledged as independent of the parties, within seven days of the termination
of the ten-day resolution period referred to above. Buyer will bear one-half of
Accounting Firm's fees and expenses, and Seller will bear the other one-half of
the fees. Both parties will make their work papers and other materials available
to Accounting Firm. The determination of Accounting Firm shall be made within
thirty (30) days after the submission of the objections for resolution, and the
determination shall be conclusive, final, and binding on the parties, absent
manifest error. Once the Draft Closing Date Schedule has been agreed upon or
resolved or determined in the manner set forth in this Section 2.5, it shall be
final, and used for the purposes of the Purchase Price adjustment set forth in
Section 2.5(c) below. Such final Schedule shall be referred to as the "Closing
Date Schedule."
(c) The Purchase Price will be adjusted as follows:
1. If the book value of the Business, as reflected on the
agreed to (or resolved or determined) Closing Date Schedule is less than the
book value of the Business as reflected on the unaudited December 31, 1998
balance sheet, then Seller will pay to Buyer within three days of the agreement
to the Closing Date Schedule (or within three days of resolution, or
determination by Accounting Firm, of any objections thereto) an amount equal to
the difference between the book value of the Business as reflected on the
unaudited December 31, 1998 Balance Sheet minus the book value of the Business
as reflected on the agreed to (or resolved or determined) Closing Date Schedule.
2. If the book value of the Business, as reflected on the
agreed to (or resolved or determined) Closing Date Schedule, is more than the
book value of the Business as reflected on the unaudited December 31, 1998
Balance Sheet, then Buyer will pay to Seller within three days of the agreement
to the Closing Date Schedule (or within three days of resolution, or
determination by the accounting firm, of any objections thereto) an amount equal
to the difference between the book value of the Business as reflected on the
unaudited December 31, 1998 balance sheet and the book value of the Business as
reflected on the agreed to (or resolved or determined) Closing Date Schedule.
3. If the book value of the Business as reflected on the
agreed to (or resolved or determined) Closing Date Schedule is equal to the book
value of the Business as reflected on the unaudited December 31, 1998 Balance
Sheet then there will be no adjustment to the Purchase Price.
(d) Any amounts required to be paid pursuant to Sections 2.5(c) 1
or 2 above shall bear interest from the Closing Date through the date of payment
hereunder at the rate of interest
6
announced publicly by Bank of America as its base lending rate calculated for
those dates and shall be paid by wire transfer in immediately available funds.
(e) During the preparation of the Closing Date Schedule by Seller
and the period of any dispute referred to in Section 2.5(b), Buyer will provide
Seller full access to the books, records, facilities and employees related to
the Business and will cooperate fully with Seller in order to prepare the
Closing Date Schedule and to investigate the basis for any such dispute;
provided, however, that any such investigation will be conducted in a manner as
not to interfere unreasonably with the operations of Buyer or the Business.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller hereby represents and warrants to Buyer subject to the
specific exceptions disclosed in the disclosure schedule (the "Disclosure
Schedule") (each referencing the appropriate section numbers of this Article III
as to which an exception exists) delivered by the Seller to Buyer, and dated as
of the date hereof, as follows:
3.1 Organization of the Seller. Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State of California.
The Seller has the power and authority to own, lease, and operate its assets and
property and to carry on the Business as now being conducted and is duly
qualified or licensed to do business and is in good standing in each
jurisdiction where the character of the properties owned, leased, or operated by
it or the nature of its activities makes such qualification or licensing
necessary, except where the failure to be so qualified would not have a material
adverse effect on the Business. The Seller has made available to Buyer a true
and correct copy of the constituent documents of the Seller, each as amended to
date, and each such instrument is in full force and effect.
3.2 Authority. The Seller has all requisite power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Seller. This Agreement has been duly
executed and delivered by the Seller and constitutes the valid and binding
obligation of the Seller enforceable against the Seller in accordance with its
terms. The execution and delivery of this Agreement by the Seller does not, and,
as of the Closing Date, the consummation of the transactions contemplated hereby
and thereby will not, conflict with, or result in any violation of, or default
under (with or without notice or lapse of time, or both), or give rise to a
right of termination, cancellation or acceleration of any obligation or loss of
any benefit under (any such event, a "Conflict") (i) any provision of the
constituent documents of the Seller or (ii) any mortgage, indenture, lease,
contract or other agreement or instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to the Business or any of its properties or assets. No consent,
waiver, approval, order, or authorization of, or registration, declaration or
filing with,
7
any court, administrative agency or commission or other federal, state, county
or local governmental authority, instrumentality, agency or commission (any of
the foregoing authorities, instrumentalities, agencies, or commissions, a
"Governmental Entity") (so as not to trigger any Conflict), is required by or
with respect to the Business in connection with the execution and delivery of
this Agreement or the consummation of the transactions contemplated hereby and
thereby, including any other assignment or instrument of transfer to be
delivered by the Seller at the Closing pursuant to Section 2.2(b).
3.3 Division Financial Statements.
(a) (i) The unaudited consolidated statements of income of the
Business for each of the fiscal years ended December 31, 1998 and 1997 (attached
hereto as Exhibit C and Exhibit D, respectively) and (ii) the unaudited
consolidated balance sheets of the Business for each such fiscal year are
complete and correct in all material respects, have been prepared in accordance
with GAAP applied on a consistent basis throughout the periods indicated (except
that the unaudited financial statements do not have notes thereto and do not
have a cash flow statement), and fairly present the consolidated financial
position of the Business, as of the respective dates and for the respective
periods indicated, subject, in the case of the unaudited financial statements,
to normal year-end adjustments. The Business' unaudited balance sheet at
December 31, 1998 is hereinafter referred to as the "Division Balance Sheet,"
and all such financial statements are hereinafter referred to as the "Division
Financial Statements."
(b) The Business has no liability, indebtedness, obligation,
expense, claim, deficiency, guaranty or endorsement of any type, whether
accrued, absolute, contingent, matured, unmatured or other (whether or not
required to be reflected in the Division Financial Statements in accordance with
GAAP) which (i) has not been reflected in the Division Balance Sheet or (ii) has
not arisen in the ordinary course of business since December 31, 1998 consistent
in nature and amount with past practices.
(c) A true and correct copy of the Division Financial Statements
is attached hereto as Exhibit E.
3.4 Absence of Changes. Since the date of the Division Balance Sheet
(or such other date specifically set forth herein), the Seller has conducted the
Business only in the ordinary course of business and, except to the extent the
following has occurred in the ordinary course of Business:
(a) There has not been any material adverse change in the
business, financial condition, operations, or results of operations of the
Business;
(b) The Seller has not sold, leased, licensed, or disposed of any
of the assets relating to the Business (whether by way of merger, purchase, or
otherwise);
8
(c) The Seller has not accelerated, terminated, modified or
cancelled any agreement, contract, lease, or license (or series of related
agreements, contracts, leases, and licenses) which relates to the Acquired
Assets;
(d) The Seller has not delayed or postponed the payment of
material accounts payable and other liabilities relating to the Acquired Assets
beyond their due date outside the ordinary course of business, except with
respect to accounts or liabilities that are subject to dispute in good faith by
Seller;
(e) The Seller has not cancelled, compromised, waived, or
released any right or claim (or series of related rights and claims) relating to
any Acquired Asset involving payments of more than $50,000 in the aggregate;
(f) To the Seller's knowledge, Seller has no reason to believe
that any vendors, licensors, licensees, distributors, or customers for any
Acquired Asset intend to discontinue with the Buyer a material business
relationship any such vendor licensor, licensee, distributor, or customer
currently has with the Seller;
(g) No Acquired Asset has been materially damaged, destroyed, or
lost (whether or not covered by insurance), and no material customer of the
Seller has been lost;
(h) The Seller has not entered into any employment contract or
collective bargaining agreement, or modified the terms of any existing
employment contract or collective bargaining agreement, relating to the Acquired
Assets, except in the ordinary course of business;
(i) The Seller has not changed employment or compensation terms
for any employee specified on Schedule 3.4(i) hereto ("Key Employees"), except
in the ordinary course of business;
(j) To Seller's knowledge, there has not been any other
occurrence, event, incident, action, failure to act, or transaction outside the
ordinary course of Seller's business involving the Acquired Assets which would
have a material adverse effect on the Acquired Assets and the Business;
(k) The Seller has not entered into any capital commitments in
relation to any of the Acquired Assets or the Business which in the aggregate
exceed $100,000;
(l) The Seller has not accelerated the collection or conversion
of accounts receivable or notes receivable relating to the Acquired Assets by
offering any incentive for such acceleration, including but not limited to
prepayment discounts, allowances, or enhancements, except in the ordinary course
of business;
(m) The Seller has not revalued any of the assets of the
Business;
9
(n) The Seller has not received notice of any claim or potential
claim of ownership of a material Acquired Asset by any person, and to the
knowledge of the Seller, no basis exists for any such claim of ownership; and
(o) The Seller has not negotiated with respect to or otherwise
committed or agreed to do any of the foregoing (other than negotiations with
Buyer and its representatives regarding the transactions contemplated by this
Agreement).
3.5 Absence of Undisclosed Liabilities. With respect to the Assets or
the operations of the Business, Seller has no liabilities (whether accrued,
absolute, contingent, unliquidated or otherwise, whether known or unknown as of
or prior to the date hereof) arising out of transactions or events heretofore
entered into, or any action or inaction, or any state of facts existing, with
respect to or based upon transactions or events heretofore occurring, except (i)
as reflected in the March 31, 1999 Balance Sheet (attached hereto as Exhibit F),
(ii) liabilities which have arisen after the date of such Balance Sheet in the
ordinary course of business (none of which is a material uninsured liability for
breach of contract, breach of warranty, tort, infringement, claim or lawsuit),
or (iii) as otherwise set forth in the Disclosure Schedule under the caption
referencing this Section.
3.6 Intellectual Property Rights. The Disclosure Schedule describes
under the caption referencing this Section all rights in patents, patent
applications, trademarks, service marks, trade names, corporate names,
copyrights mask works, trade secrets, know-how or other intellectual property
rights owned by or licensed to Seller in connection with the conduct of the
Business or used in, developed for use in or necessary to the conduct of the
Business as now conducted or planned to be conducted, except commercially
available software and hardware subject to standard or shrink-wrap license
agreements. Seller owns and possesses all right, title and interest, or holds a
valid license, in and to the rights set forth under such caption. The Disclosure
Schedule describes under the caption referencing this Section all intellectual
property rights which have been licensed to third parties and those intellectual
property rights which are licensed from third parties, except commercially
available software and hardware subject to standard or shrink-wrap license
agreements. Seller has not received any notice of any infringement or
misappropriation by, or conflict from, any third party with respect to the
intellectual property rights listed in the Disclosure Schedule; no claim by any
third party contesting the validity of any intellectual property rights listed
under such caption has been made against the Company, is currently outstanding
or, to the knowledge of the Company, is threatened against the Company; Seller
has not received any notice of any infringement, misappropriation or violation
by Seller of any intellectual property rights of any third parties and Seller
has not infringed, misappropriated or otherwise violated any such intellectual
property rights.
3.7 Affiliate Transactions. Except as disclosed in the Schedule 3.7,
and other than pursuant to this Agreement, no officer, director or employee of
Seller or any member of the immediate family of any such officer, director or
employee, or any entity in which any of such persons owns any beneficial
interest (other than any publicly-held corporation whose stock is traded on a
national securities exchange or in the over-the-counter market and less than one
percent of the
10
stock of which is beneficially owned by any of such persons) (collectively
"insiders"), has any agreement with Seller (other than normal employment
arrangements) or any interest in any property, real, personal or mixed, tangible
or intangible, used in or pertaining to the Business of Seller (other than
ownership of capital stock of Seller). None of the insiders has any direct or
indirect interest in any competitor, supplier or customer of Seller or in any
person, firm or entity from whom or to whom Seller leases any property, or in
any other person, firm or entity with whom Seller transacts business of any
nature.
For purposes of this Section, the members of the immediate
family of an officer, director or employee shall consist of the spouse, parents,
children, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, and
brothers- and sisters-in-law of such officer, director or employee.
3.8 Customers and Suppliers. The Disclosure Schedule, under the caption
referencing this Section, lists the largest customers and suppliers of Seller
relating to the Business for the fiscal year ended and for the month period
ended and sets forth opposite the name of each such customer or supplier the
approximate percentage of net sales or purchases by Seller attributable to such
customer or supplier for each such period.
3.9 Legal and Other Compliance.
(a) Seller and its officers, directors, agents and employees have
complied in all material respects with all applicable laws, regulations and
other requirements, including, but not limited to, federal, state, local and
foreign laws, ordinances, rules, regulations and other requirements pertaining
to product labeling, consumer products safety, equal employment opportunity,
employee retirement, affirmative action and other hiring practices, occupational
safety and health, workers' compensation, unemployment and building and zoning
codes, which materially affect the Business, the Assets or the Real Property and
no claims have been filed against Seller alleging a material violation of any
such laws, regulations or other requirements. Seller has no knowledge of any
material action, pending or threatened, to change the zoning or building
ordinances or any other laws, rules, regulations or ordinances affecting the
Assets or the Real Property. Seller is not relying on any exemption from or
deferral of any such applicable law, regulation or other requirement that would
not be available to Buyer after it acquires the Assets, except, however, Seller
does not make any representation with respect to the continuing availability to
Buyer of any Enterprise Zone benefits.
(b) To the knowledge of Seller, Seller has, in full force and
effect, all material licenses, permits and certificates, from federal, state,
local and foreign authorities (including, without limitation, federal and state
agencies regulating occupational health and safety) necessary to conduct its
Business and own and operate Assets (other than Environmental Permits, as such
term is defined in Section 3.15(c) hereof) (collectively, the "Permits"). A
true, correct and complete list of all the Permits is set forth under the
caption referencing this Section in the Disclosure Schedule, with an
11
indication as to whether the Permit is assignable to Buyer. Seller has conducted
its business in compliance with all material terms and conditions of the
Permits.
(c) In connection with the Business, Seller has not made or
agreed to make gifts of money, other property or similar benefits (other than
incidental gifts or articles of nominal value) to any actual or potential
customer, supplier, governmental employee or any other person in a position to
assist or hinder Seller in connection with any actual or proposed transaction.
(d) In particular, but without limiting the generality of the
foregoing, Seller has not violated in any material respect and has no material
liability, and has not received a notice or charge asserting any violation in
any material respect of or material liability under, the federal Occupational
Safety and Health Act of 1970 or any other federal or state acts (including
rules and regulations thereunder) regulating or otherwise affecting employee
health and safety in connection with the Business.
3.10 Restrictions on Business
Activities. There is no agreement (noncompetition, field of use, or otherwise),
judgment, injunction, order or decree which has or reasonably could be expected
to have the effect of prohibiting or impairing any business practice utilizing
any Acquired Asset. Without limiting the foregoing, the Business is not subject
to any agreement which restricts the sale, license, or distribution of any
product, service, or technology to any class of customers, in any geographic
area, during any period of time or in any segment of the market.
3.11 Title to Properties; Absence of Liens; Condition of Equipment.
(a) The Seller does not own any real property that is used in the
Business conducted with respect to any Acquired Asset. The Seller has delivered
to the Buyer a true and correct copy of each Assumed Lease related to the Real
Property. Such Assumed Leases are in full force and effect, are valid and
effective in accordance with its terms, and there is not, under any of such
leases, any material existing default or event of default (or event which with
notice or lapse of time, or both, would constitute a material default). To the
knowledge of the Seller, neither the business operations conducted on the Real
Property, nor such Real Property, including improvements thereon, violate any
applicable law, building code, zoning requirement, or classification, or
pollution control ordinance or statute relating to the particular property or
such operations, and such non-violation is not dependent, in any instance, on
so-called non-conforming use exceptions. To the knowledge of the Seller, all
approvals of governmental authorities (including licenses and permits) required
in connection with the operation of the Business on such real property have been
obtained.
(b) The Seller has good and valid title to, or, in the case of
leased properties and assets, valid leasehold interests in, each Acquired Asset
being transferred to the Buyer, free and clear of any liens, except as reflected
in the Division Financial Statements.
12
(c) Each item of equipment is free from material defects and is
reasonably fit and usable for the purposes for which it is presently being used.
(d) The Acquired Assets comprise all of the assets, properties,
and rights of every type and description, real, personal, tangible, and
intangible used primarily or exclusively by the Seller in the Business as
currently conducted.
(e) The Seller is in custody and control of all the Acquired
Assets being sold and transferred to the Buyer pursuant to this Agreement or any
assignments or other instruments of transfer delivered or to be delivered to
Buyer pursuant hereto or thereto.
3.12 Agreements, Contracts and Commitments. Except as
contemplated by this Agreement, the Business does not currently have, is not a
party to, nor is bound by with respect to any Acquired Asset or Key Employee:
(i) any collective bargaining agreements;
(ii) any agreement, contract, or commitment relating to the
disposition or acquisition of assets or any interest in any business enterprise;
(iii) any agreement of indemnification or guaranty;
(iv) any purchase order or contract for the purchase of
materials in excess of $25,000;
(v) any agreement entered otherwise than in the ordinary
course of business;
(vi) any agreement that is likely to result in a loss in
excess of $100,000 on completion of performance;
(vii) any agreement (or group of related agreements)
relating to capital expenditures and involving future payments in excess of
$100,000;
(viii) any agreement (or group of related agreements) under
which payment in excess of $50,000 has already been received by the Seller
(whether in whole or in part) but which requires the performance of services
after the Closing Date;
(ix) any fidelity or surety bond or completion bond;
(x) any mortgages, indentures, loans or credit agreements,
security agreements or other agreements or instruments relating to the borrowing
of money by the Seller or extension of credit to the Seller exclusive of routine
trade payables, involving obligations in excess of $50,000 or under which the
Seller has imposed any lien on any of the Acquired Assets;
13
(xi) any purchase order or contract for the purchase of
materials (excluding capital expenditures) involving $50,000 or more;
(xii) any agreement concerning confidentiality, except in
the ordinary course;
(xiii) any distribution, joint marketing, development, or
partnership or joint venture agreement; or
(xiv) any other agreement, contract, lease, or license (or
series of related agreements, contracts, leases, and licenses) that involves
payment of $50,000 or more.
The Seller has delivered to the Buyer a correct and complete copy of
each written agreement listed in the Disclosure Schedule referencing this
Section 3.9 (any such agreement, contract, or commitment, a "Contract"). Each
Contract is in full force and effect and, except as otherwise disclosed, is not
subject to any default thereunder of which the Seller has knowledge by any party
obligated to a Seller pursuant thereto.
3.13 Powers of Attorney. There are no outstanding powers of attorney
executed on behalf of the Seller in respect of any Acquired Asset.
3.14 Litigation. There is no action, suit, proceeding, claim,
arbitration, or investigation pending before any court or administrative agency
against the Seller or any officer or director of the Seller in their capacity as
such that may result in any adverse change in the Business or to the Acquired
Assets or that questions the validity of this Agreement or of any action taken
to or to be taken pursuant to or in connection with this Agreement. To the
knowledge of the Seller, no such action, proceeding, claim, arbitration, or
investigation has been threatened, for any such action, suit, proceeding, claim,
arbitration, or investigation. There are no judgments, orders, decrees,
citations, fines, or penalties heretofore assessed against the Seller affecting
the Business or the Acquired Assets under any federal, state or local law. No
governmental entity has at any time challenged or questioned the legal right of
the Seller to manufacture, offer, or sell any product related to the Acquired
Assets in the present manner or style thereof.
3.15 Environmental Matters.
(a) As used in this Section, the following terms shall have the
following meanings:
(i) "Hazardous Materials" means any dangerous, toxic or
hazardous pollutant, contaminant, chemical, waste, material or
substance as defined in or governed by any federal, state or local law,
statute, code, ordinance, regulation, rule or other requirement
relating to such substance or otherwise relating to the environment or
human health or safety, including without limitation any waste,
material, substance, pollutant, or contaminant that
14
might cause any injury to human health or safety or to the environment
or might subject Seller to any imposition of costs or liability under
any Environmental Law.
(ii) "Environmental Laws" means all applicable federal,
state, local and foreign laws, rules, regulations, codes, ordinances,
orders, decrees, directives, permits, licenses and judgments relating
to pollution, contamination or protection of the environment
(including, without limitation, all applicable federal, state, local
and foreign laws, rules, regulations, codes, ordinances, orders,
decrees, directives, permits, licenses and judgments relating to
Hazardous Materials in effect as of the date of this Agreement).
(iii) "Release" shall mean the spilling, leaking, disposing,
discharging, emitting, depositing, ejecting, leaching, escaping or any
other release or threatened release, however defined, whether
intentional or unintentional, of any Hazardous Material.
(b) Seller, with respect to the Business and the Real Property,
is in material compliance with all applicable Environmental Laws.
(c) Seller has obtained, and maintained in full force and effect,
all environmental permits, licenses, certificates of compliance, approvals and
other authorizations necessary to conduct the Business and own or operate the
Assets, including the Real Property (collectively, the "Environmental Permits").
A copy of each Environmental Permit shall be provided by Seller to Buyer at
least 14 days prior to the Closing. Seller has conducted the Business in
compliance with all terms and conditions of the Environmental Permits. Seller
has filed all reports and notifications required to be filed under and pursuant
to all applicable Environmental Laws with respect to the Business and the
Assets.
(d) Except as set forth in the Disclosure Schedule under the
caption referencing this Section, to the best of Seller's knowledge, (i) no
Hazardous Materials have been generated, treated, contained, handled, located,
used, manufactured, processed, buried, incinerated, deposited, stored, or
released on, under or about any part of the Real Property, (ii) the Real
Property and any improvements thereon, contain no asbestos, urea, formaldehyde,
radon at levels above natural background, polychlorinated biphenyls (PCBs) or
pesticides, and (iii) no aboveground or underground storage tanks are located
on, under or about the Real Property, or have been located on, under or about
the Real Property and then subsequently been removed or filled.
(e) Except as set forth in the Disclosure Schedule under the
caption referencing this Section, Seller has not received notice alleging in any
manner that Seller is, or might be potentially responsible for, any Release of
Hazardous Materials, or any material costs arising out of any violation of
Environmental Laws with respect to the Business or the Assets.
(f) No expenditure in excess of $10,000 in the aggregate (and
other than normal operating, repair, maintenance, and ongoing permitting
expenses) will be required in order for Buyer to comply with any Environmental
Law in effect at the time of the Closing in connection with the
15
operation or continued operation of the Business or the Real Property in a
manner consistent with the current operation thereof by Seller.
(g) The Real Property is not and has not been listed on the
United States Environmental Protection Agency National Priorities List of
Hazardous Waste Sites, or any other list, schedule, law, inventory, or record of
hazardous or solid waste sites maintained by any federal, state or local agency,
except as set forth in the Disclosure Schedule under the caption referencing
this Section and except as would not subject the Business or the Assets to any
liability.
(h) Seller has disclosed and delivered to Buyer all environmental
reports and investigations which Seller has obtained or ordered with respect to
the Business and the Assets, including the Real Property.
(i) Except as set forth in the Disclosure Schedule under the
caption referencing this Section, to the best of Seller's knowledge, no part of
the Business or the Assets (including the Real Property) have been used as a
landfill, dump or other disposal, storage, transfer, handling or treatment area
for Hazardous Materials, or as a gasoline service station or a facility for
selling, dispensing, storing, transferring, disposing or handling petroleum
and/or petroleum products.
(j) No lien has been attached or filed against Seller (with
respect to the Business or the Assets) or the Assets or the Real Property in
favor of any governmental or private entity for (i) any liability or imposition
of costs under or violation of any applicable Environmental Law; or (ii) any
Release of Hazardous Materials.
3.16 Employment Matters.
(a) Compliance with Applicable Laws. Seller (i) is in compliance
in all material respects with all applicable foreign, federal, state and local
laws, rules, and regulations respecting employment and employment practices,
including without limitation, those relating to discrimination in employment,
terms and conditions of employment, election of employee representatives (where
applicable), obligations to consult with and inform employee representatives,
calculations and accruals of vacations and of other accruals, seniority bonuses
(if any), and wages and hours; (ii) has withheld all amounts required by law or
by agreement to be withheld from the wages, salaries and other payments to
employees or other persons who by virtue of their activities performed on behalf
of the Seller may be deemed employees within the meaning of applicable law;
(iii) is not liable for any arrears of wages or any taxes or any penalty for
failure to comply with any of the foregoing; and (iv) is not liable for any
payment to any trust or other fund or to any governmental or administrative
authority, with respect to unemployment compensation benefits, social security
or other benefits or obligations for employees or other persons who by virtue of
their activities performed on behalf of the Seller may be deemed employees
within the meaning of applicable law (other than routine payments to be made in
the normal course of business and consistent with past practice).
16
(b) Labor. No work stoppage or labor strike against the Seller is
pending, nor to the best knowledge of the Seller, threatened or reasonably
anticipated. The Seller is not involved in nor has been threatened with any
labor dispute, grievance, or litigation relating to labor, safety or
discrimination matters involving any employee, including, without limitation,
charges of unfair labor practices or discrimination complaints, which, if
adversely determined, would, individually or in the aggregate, result in
Liability to the Seller or Buyer. The Seller has not engaged in any unfair labor
practices which could, individually or in the aggregate, directly or indirectly
result in a liability to the Seller. The Seller is not presently, nor has it in
the past, been a party to, or bound by, any agreement negotiated with its
employees and no collective bargaining agreement is being negotiated by the
Seller.
(c) No Liability. Except as otherwise provided in Section 6.15
hereof, unless Buyer shall make any independent agreements or arrangements with
any employees or former employees of Seller, Buyer will not have any liability
for making payments or providing benefits of any kind to any employee or former
employee of the Seller including, without limitation, (A) any obligation to
provide former employees of the Seller (including individuals who become former
employees by reason of the consummation of the transactions contemplated by this
Agreement) so-called COBRA continuation coverage (with respect to U.S. employees
of Seller), (B) any liability in respect of medical and other benefits for
existing and future retirees of the Seller and for claims made after Closing in
respect of costs and expenses incurred prior to Closing, (C) any liability in
respect of work-related employee injuries or worker's compensation claims by
employees or former employees of the Seller occurring prior to the Closing Date,
and (D) any liability in respect of employee bonuses payable to former employees
of the Seller.
(d) Key Employees. Schedule 3.16(d) sets forth the current job
title and the annual base salary of certain employees identified by Buyer to
whom Buyer expects to make an offer of either at-will or term employment.
3.17 Insolvency. No insolvency proceedings of any character, including
bankruptcy, receivership, reorganization, winding up, or arrangement with
creditors, voluntary or involuntary, affecting any of the Acquired Assets are
pending or, to the knowledge of the Seller, are threatened, and the Seller has
not made any assignment for the benefit of creditors, nor taken any other action
which would constitute the basis for the institution of such insolvency
proceedings.
3.18 Consents. Schedule 3.18 sets forth a true, correct, and complete
list of the identities of any person or entity whose consent or approval is
required, and the matter, agreement, or contract to which such consent relates,
in connection with the transfer, assignment or conveyance by the Seller of any
Acquired Asset.
3.19 Books and Records. The books and records of the Seller related to
the Business (i) have been fully and accurately maintained in accordance with
applicable laws and with generally accepted practices and standards in the
jurisdiction(s) in which the Seller operates and (ii) are in the Seller's
possession or under its control. The Acquired Assets include the computer system
used in
17
the Business, although Seller is not transferring to Buyer any rights to
continue to maintain such records on Seller's computer systems or databases.
3.20 Product Warranties. Each product manufactured, sold, licensed,
leased, or delivered by the Seller in the Business has been in conformity with
all applicable contractual commitments. Except as reflected in the reserve for
warranty claims and the separate reserve for returns on the Division Balance
Sheet, to Seller's knowledge, the Seller has no liability.
3.21 Inventory. The inventory of the Business as reflected on the
Division Balance Sheet consists of raw materials and supplies, manufactured and
purchased parts, goods in process, and finished goods, all of which is
merchantable and fit for the purpose for which it was procured or manufactured,
all of which is reflected on such balance sheet at the lower of cost or market
value, subject only to the reserve for inventory writedown to net realizable
value set forth in such Division Balance Sheet.
3.22 Accounts Receivable. The Seller has delivered to Buyer a complete
and accurate aging of all accounts receivable of the Company as of December 31,
1998. No account receivable reflected on Schedule 1.2(b) and in the Division
Balance Sheet and no account receivable arising after the date of the Division
Balance Sheet and reflected on the books of the Company and the Closing Date
Balance Sheet is uncollectible, subject to counterclaim or offset, except to the
extent reserved against thereon. No such accounts receivable are subject to
discount on volume or rebate or any other reduction. All accounts receivable
have been generated in the ordinary course of business and reflect a bona fide
obligation for the payment of goods or services provided by the Company.
3.23 Tax Returns and Audits. To the extent the failure to do so would
adversely affect Seller's ability to deliver free and clear title to the
Acquired Assets or Buyer's right to hold, own or use the Acquired Assets, Seller
has filed within the time period for filing or any extension granted with
respect thereto all federal, state, local, foreign and other returns, estimates
and reports ("Returns") which it is required to file relating or pertaining to
any and all Taxes attributable to, levied or imposed upon, or incurred in
connection with the Acquired Assets or the Business and each portion of any Tax
Return pertaining or related to the Acquired Assets or the Business is true and
correct and has been completed in accordance with applicable law. Seller has
paid all Taxes relating to all the Acquired Assets and the Business and has
withheld with respect to its employees and paid to the appropriate taxing
authority all federal, state and local income taxes, FICA, FUTA and any other
Taxes required to be withheld with respect to the Acquired Assets. There are
(and immediately following the Closing there will be) no Liens on the Acquired
Assets relating to or attributable to Taxes.
3.24 Employee Benefit Plans. (a) With respect to all employees and
former employees of Seller who perform or performed functions in connection with
the Business and all dependents and beneficiaries of such employees and former
employees: (i) Seller does not maintain or contribute to any nonqualified
deferred compensation or retirement plans, contracts or arrangements; (ii)
Seller does not maintain or contribute to any qualified defined contribution
plans (as defined in
18
Section 3(34) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or Section 414(i) of the Code; (iii) Seller does not maintain or
contribute to any qualified defined benefit plans (as defined in Section 3(35)
of ERISA or Section 414(j) of the Code); and (iv) Seller does not maintain or
contribute to any employee welfare benefit plans (as defined in Section 3(1) of
ERISA) other than general medical, dental and vision plans (copies of which have
been provided to Buyer).
(b) To the extent required (either as a matter of law or to
obtain the intended tax treatment and tax benefits), all employee benefit plans
(as defined in Section 3(3) of ERISA) which Seller does maintain or to which it
does contribute (collectively, the "Plans") comply in all material respects with
the requirements of ERISA and the Code. With respect to the Plans, (i) all
required contributions which are due have been made and a proper accrual has
been made for all contributions due in the current fiscal year; (ii) there are
no actions, suits or claims pending, other than routine uncontested claims for
benefits; and (iii) there have been no prohibited transactions (as defined in
Section 406 of ERISA or Section 4975 of the Code).
(c) Buyer has received true and complete copies of (i) the most
recent determination letter, if any, received by Seller from the Internal
Revenue Service regarding the Plans which Seller maintains or to which it
contributes and any amendment to any Plan made subsequent to any Plan amendments
covered by any such determination letter; (ii) the most recent financial
statements and annual report or return for the Plans; and (iii) the most
recently prepared actuarial valuation reports.
(d) Seller does not contribute (and has not ever contributed) to
any multi-employer plan, as defined in Section 3(37) of ERISA. Seller has no
actual or potential liabilities under Section 4201 of ERISA for any complete or
partial withdrawal from a multi-employer plan. Seller has no actual or potential
liability for death or medical benefits after separation from employment, other
than (i) death benefits under the employee benefit plans or programs (whether or
not subject to ERISA) set forth under the caption referencing this Section in
the Disclosure Schedule and (ii) health care continuation benefits described in
Section 4980B of the Code.
(e) Neither Seller nor any of its directors, officers, employees
or other "fiduciaries", as such term is defined in Section 3(21) of ERISA, has
committed any breach of fiduciary responsibility imposed by ERISA or any other
applicable law with respect to the Plans which would subject Seller, Buyer,
Buyer's subsidiaries or any of their respective directors, officers or employees
to any liability under ERISA or any applicable law.
(f) Seller has not incurred any liability for any tax or civil
penalty or any disqualification of any employee benefit plan (as defined in
Section 3(3) of ERISA) imposed by Sections 4980B and 4975 of the Code and Part 6
of Title I and Section 502(i) of ERISA.
19
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to the Seller as follows:
4.1 Organization of Buyer. Buyer is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Minnesota.
Buyer has the corporate power to own its properties and to carry on its business
as now being conducted.
4.2 Authority. Buyer has all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Buyer. This Agreement has been duly executed and
delivered by Buyer and constitutes the valid and binding obligation of Buyer,
enforceable in accordance with its terms.
4.3 No Conflicts. The execution and delivery of this Agreement by the
Buyer does not, and, as of the Closing Date, the consummation of the
transactions contemplated hereby and thereby will not, conflict with, or result
in any violation of, or default under (with or without notice or lapse of time,
or both), or give rise to a right of termination, cancellation or acceleration
of any obligation or loss of any benefit under (any such event, a "Conflict")
(i) any provision of the constituent documents of the Buyer or (ii) any
mortgage, indenture, lease, contract or other agreement or instrument, permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to the Buyer or any of its properties
or assets. No consent, waiver, approval, order, or authorization of, or
registration, declaration or filing with, any court, administrative agency or
commission or other federal, state, county or local governmental authority,
instrumentality, agency or commission (any of the foregoing authorities,
instrumentalities, agencies, or commissions, a "Governmental Entity") or any
third party (so as not to trigger any Conflict), is required by or with respect
to the Buyer in connection with the execution and delivery of this Agreement or
the consummation of the transactions contemplated hereby and thereby, including
any other assignment or instrument of transfer to be delivered by the Buyer at
the Closing pursuant to Section 2.2(b).
4.4 Litigation. There is no action, suit or proceeding of any nature
pending or, to Buyer's knowledge, threatened against Buyer that could reasonably
be expected to interfere with the consummation of the transactions contemplated
by this Agreement or that questions the validity of this Agreement or of any
action taken or to be taken pursuant to or in connection with the provisions of
this Agreement.
20
ARTICLE V
CONDUCT PRIOR TO THE CLOSING DATE
5.1 Conduct of Business. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
or the Closing, the Seller agrees (except to the extent that Buyer shall
otherwise consent in writing) to use reasonable commercial efforts to carry on
the Business in the usual, regular and ordinary course in substantially the same
manner as heretofore conducted, to pay all debts and taxes when due, to pay or
perform other obligations when due, and, to the extent consistent with such
businesses, to use all reasonable efforts consistent with past practice and
policies to preserve intact its present business organizations, keep available
the services of Key Employees and preserve its relationships with customers,
suppliers, distributors, licensors, licensees, and others having business
dealings with it, all with the goal of preserving unimpaired the goodwill and
ongoing businesses associated with the Acquired Assets on the Closing Date. The
Seller shall promptly notify Buyer of any event which materially adversely
effects the Business or any Acquired Assets. Except as expressly contemplated by
this Agreement or disclosed in Schedule 5.1, the Seller will not cause the
Business to, without the prior written consent of Buyer:
(a) Enter into any commitment or transaction related to any
Acquired Asset not in the ordinary course of business;
(b) Enter into or amend any agreements pursuant to which any
other party is granted marketing, distribution, or similar rights of any type or
scope with respect to any products, except in the ordinary course of business;
(c) Amend or otherwise modify (or agree to do so), except in the
ordinary course of business, or violate the terms of, any of the agreements set
forth or described in the Seller schedules;
(d) Commence or settle any litigation regarding the Business,
except to enforce its rights under or to interpret this Agreement or any other
agreement, obligation or arrangement contemplated hereby or entered into or
established in connection herewith which affects the Business, except in the
ordinary course of business;
(e) Sell, lease, license, pledge, or otherwise dispose of any
Acquired Asset other than in the ordinary course of business;
(f) Revalue any of the Acquired Assets, including without
limitation writing down the value of inventory or writing off notes and accounts
receivable other than in the ordinary course of business;
(g) Enter into any strategic alliance, joint development or joint
marketing agreement affecting the Business or any Acquired Asset; or
21
(h) Take, or agree in writing or otherwise to take, any of the
actions described in Sections 5.1(a) through (g) above, or any other action that
would prevent the Seller from performing or cause the Seller not to perform its
covenants hereunder.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Approval. The Seller shall promptly after the date hereof take all
action necessary in accordance with applicable law and the constituent documents
of the Seller to obtain all requisite approvals, as the case may be, of this
Agreement and the transactions contemplated hereby.
6.2 Access to Information. The Seller shall afford Buyer and its
accountants, legal counsel, and other representatives reasonable access during
normal business hours during the period prior to the Closing Date to (i) all of
the properties, books, inventory, contracts, commitments, and records of the
Seller relating to the Acquired Assets and (ii) all other information concerning
the Business, properties, and personnel of the Seller which are associated with
the Acquired Assets as Buyer may reasonably request. The Seller agrees to
provide Buyer and its accountants, legal counsel, and other representatives
copies of internal financial statements promptly upon request.
6.3 Access to Records After Closing. For a period of one year after the
Closing Date, the Seller and its representatives, on the one hand, and the Buyer
and its representatives, on the other hand, shall have reasonable access to any
books, records, documents, files, and correspondence to the extent that such
access may reasonably be required in connection with matters relating to or
affected by the operation of the businesses conducted with the Acquired Assets,
in the case of the Seller prior to the Closing Date and, in the case of the
Buyer, after the Closing Date. Such access shall be afforded upon reasonable
advance written notice, during normal business hours and at the expense of the
party seeking access.
6.4 Confidentiality. From the date hereof to and including the Closing
Date, the parties hereto shall maintain, and cause their directors, employees,
agents, and advisors to maintain, in confidence and not to disclose or use for
any purpose, except for the evaluation of the transactions contemplated hereby
and the accuracy of the respective representations and warranties of the parties
contained herein, information concerning the other parties hereto and obtained
directly or indirectly from such parties, or their directors, employees, agents,
or advisors, except such information as is or becomes (i) available to the
non-disclosing party from third parties not subject to an undertaking of
confidentiality; (ii) generally available to the public other than as a result
of a breach by the non-disclosing party hereunder; or (iii) required to be
disclosed under applicable law; and except such information as was in the
possession of such party prior to obtaining such information from such other
party as to which the fact of prior possession such possessing party shall have
the burden of proof. In the event that the transactions contemplated hereby
shall not be consummated, all such information which shall be in writing shall
be returned to the party furnishing the same, including to the extent reasonably
practicable, copies or reproductions thereof which may have been prepared.
22
6.5 Public Disclosure. Unless otherwise required by law (including,
without limitation, applicable securities laws) or, as to Buyer, by the rules
and regulations of the Nasdaq National Market, prior to the Closing Date, no
disclosure (whether or not in response to an inquiry) of the subject matter of
this Agreement shall be made by any party hereto unless approved by both parties
prior to release, provided that such approval shall not be unreasonably
withheld.
6.6 Contractual Consents.
(a) The Seller will promptly apply for or otherwise seek and
use its reasonable commercial efforts to obtain, all consents and approvals
required to be obtained by it for the consummation of the transactions
contemplated hereby, and the Seller shall use its reasonable commercial efforts
to obtain all required consents, waivers, or approvals under any of the
agreements, contracts, licenses, or leases of the Seller in order to preserve
for the Buyer the benefits of the Business associated with the Acquired Assets.
Seller will list all of the supplier and similar agreements that the Business
currently has in force on the date of this Agreement, and Seller will use its
reasonable commercial efforts to effect assignments of all such agreements,
except those identified in writing by Buyer as not material to the Business.
(b) Buyer will use its reasonable commercial efforts to
obtain all consents and approvals required to be obtained it for the
consummation of the transactions contemplated hereby.
6.7 Legal Conditions to Acquisition. The Buyer and the Seller shall
take all reasonable actions necessary to comply promptly with all legal
requirements which may be imposed on such party with respect to this Agreement
and the transactions contemplated hereby and will promptly cooperate with and
furnish information to any other party hereto in connection with any such
requirements imposed upon such other party in connection herewith. Each party
will take all reasonable actions to obtain (and will cooperate with the other
parties in obtaining) any consent, authorization, order or approval of, or any
registration, declaration, or filing (including any filing required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the
regulations promulgated thereunder (the "HSR Act")) with, or an exemption by,
any governmental entity, or other third party, required to be obtained or made
by such party or its subsidiaries in connection with this Agreement and
consummating the transactions contemplated hereby or the taking of any action
contemplated thereby or by this Agreement.
6.8 Additional Documents and Further Assurances. Except to the extent
described otherwise, each of the parties to this Agreement shall use its
commercially reasonable efforts to effectuate the transactions contemplated
hereby and to fulfill and cause to be fulfilled the conditions to closing under
this Agreement. Each party hereto, at the request of another party hereto, shall
execute and deliver such other instruments and do and perform such other acts
and things as may be reasonably necessary or desirable for effecting completely
the consummation of the transactions contemplated by this Agreement.
23
6.9 Notification of Certain Matters. The Seller shall give prompt
notice to Buyer, and Buyer shall give prompt notice to the Seller, of (i) the
occurrence or non-occurrence of any event, the occurrence or non-occurrence of
which is likely to cause any representation or warranty of the Seller or the
Buyer, as the case may be, contained in this Agreement to be untrue or
inaccurate in any material respect at or prior to the Closing Date except as
contemplated by this Agreement (including the Seller Schedules) and (ii) any
failure of the Seller or Buyer, as the case may be, to comply with or satisfy in
any material respect any covenant, condition or agreement to be complied with or
satisfied by it hereunder; provided, however, that the delivery of any notice
pursuant to this Section 6.9 shall not limit or otherwise affect any remedies
available to the party receiving such notice.
6.10 Payment of Trade and Other Creditors. The Seller shall comply with
its obligation to satisfy amounts due to trade and other creditors of the Seller
to the extent required prior to closing. The Business shall continue to pay on a
current basis and shall be responsible for all obligations included in the
Assumed Liabilities up to the Closing Date.
6.11 No Solicitation. From and after the date of this Agreement until
the earlier to occur of the Closing Date or termination of this Agreement
pursuant to its terms, (a) Seller will not, and the Seller will instruct its
respective directors, officers, employees, representatives, investment bankers,
agents, and affiliates not to, directly or indirectly (i) solicit or encourage
submission of any Acquisition Proposal (as defined herein) by any person,
entity, or group (other than Buyer and its Affiliates (as defined herein),
agents, and representatives) or (ii) participate in any discussions or
negotiations with, or disclose any non-public information concerning the Seller
to, or afford access to the properties, books, or records of the Seller to, or
otherwise assist or facilitate, or enter into any agreement or understanding
with, any person, entity, or group (other than Buyer and its Affiliates, agents,
and representatives) in connection with any Acquisition Proposal with respect to
the Seller. For purposes of this Section 6.11(a), an "Acquisition Proposal"
means any proposal or offer relating to any merger, consolidation, sale or
license of substantial assets or similar transactions involving the Business or
the Acquired Assets (other than sales or licenses of software in the ordinary
course of business or as permitted by this Agreement). The Seller will
immediately cease any and all existing activities, discussion, or negotiations
with any parties conducted heretofore with respect to the foregoing.
(b) Buyer will not, and the Buyer will instruct its respective
directors, officers, employees, representatives, investment bankers, agents, and
affiliates not to, directly or indirectly (i) solicit or encourage submission of
any Acquisition Proposal (as defined herein) by any person, entity, or group
(other than Seller and its Affiliates (as defined herein), agents, and
representatives) or (ii) participate in any discussions or negotiations with, or
disclose any non-public information concerning Buyer to, or afford access to the
properties, books, or records of Buyer to, or otherwise assist or facilitate, or
enter into any agreement or understanding with, any person, entity, or group
(other than Seller and its Affiliates, agents, and representatives) in
connection with any Acquisition Proposal with respect to the Buyer. For purposes
of this Agreement, an "Acquisition Proposal" means any proposal or offer
relating to any merger, consolidation, sale or license of substantial
24
assets or similar transactions involving any business similar to the Business or
any assets similar to the Acquired Assets (other than sales or licenses of
software in the ordinary course of business or as permitted by this Agreement).
The Buyer will immediately cease any and all existing activities, discussion, or
negotiations with any parties conducted heretofore with respect to the
foregoing.
For purposes of this Section, an "Affiliate" means any entity or person
that, directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with the particular party.
6.12 Non-Competition.
(a) For a period of three (3) years from and after the Closing
Date ("Non-Competition Period"), Seller shall not directly or indirectly,
without the prior written consent of Buyer, engage anywhere in the Restricted
Territory, or have any ownership interest in (except for ownership of one
percent (1%) or less of any entity whose securities have been registered under
the Securities Act or the Exchange Act), or participate in the financing,
operation, management or control of, any firm, partnership, corporation, entity
or business that engages or participates in a "Seller Competing Business
Purpose". The term, "Restricted Territory" shall mean each and every country,
province, state, city or other political subdivision of the world. The term
"Seller Competing Business Purpose" means the Business as conducted at the
Closing Date and the manufacture of print circuit board assemblies.
Notwithstanding the foregoing, it is expressly understood and agreed that
nothing contained in this Section 6.12(a) shall operate so as to (i) prevent
Seller from continuing to conduct its business as currently conducted and as
currently proposed to be conducted related to (w) the sale and distribution of
semiconductors and other electronic components, disk drives and other computer
components, (x) the manufacture of personal computers, servers, memory storage
systems, RAID systems, (y) value-added activities related to semiconductors and
computer products, and (z) systems integration activities; or (ii) otherwise
restrict the ability of Seller to contact and engage in business transactions
with current customers of and supplier to the Business so long as such contacts
or transactions are not related to the conduct of the Business by Buyer after
the Closing.
(b) Seller acknowledges and agrees that its covenants and
obligations with respect to non-competition relate to special, unique and
extraordinary matters and that a violation of any of the terms of such covenants
and obligations will cause irreparable injury for which adequate remedies are
not available at law. Therefore, Seller agrees that Buyer will be entitled to an
injunction, restraining order or such other equitable relief as a court of
competent jurisdiction may deem necessary or appropriate to restrain Seller from
committing any violation of the covenants set forth in this Section 6.12.
6.13 Non-Solicitation of Employees.
(a) Neither party shall, for a period of two (2) years following
the Closing Date, for its own account or jointly with another, directly or
indirectly, for or on behalf of any individual,
25
partnership, corporation or other legal entity, as principal, agent or otherwise
solicit or induce, or in any manner attempt to solicit, any person employed by
the other party to leave such employment, whether or not such employment is
pursuant to a written contract and whether or not such employment is at will, or
hire any person who has been employed by the other party at any time during the
six (6) month period preceding such hiring.
(b) Each party recognizes the importance of the covenant not to
solicit contained in this subsection (a) above and acknowledges that the
restrictions imposed herein are: (i) reasonable as to scope, time and area; (ii)
necessary for the protection of its legitimate business interests, including
without limitation, trade secrets, goodwill, and its relationship with customers
and suppliers; (iii) not unduly restrictive of its rights; and (iv) supported by
adequate consideration. Each party acknowledges and agrees that the covenants
not to compete contained in this Section 6.13 are essential elements of this
Agreement and that but for these covenants, the other party would not have
agreed to enter into this Agreement. Such covenants shall be construed as
agreements independent of any other provision of this Agreement.
6.14 Continuing Customer Relationship. Except with respect to Excluded
Excess Inventory (as defined herein) and items identified as being treated like
Excluded Excess Inventory, all of which are subject to the treatment described
in Section 6.16(b)(ii) hereof, Buyer agrees, in good faith to consider Seller as
a preferred products and services provider and, to the extent that Buyer, in its
judgment deems it commercially reasonable to do so, agrees to offer Seller the
opportunity to satisfy Buyer's needs for such products and services as Seller
currently provides the Business.
6.15 Employment Matters. Buyer hereby represents, covenants and
warrants that after the Closing Date, Buyer will not take any action to trigger
liability under the Worker Adjustment and Retraining Notification (hereinafter
"WARN") Act, 29 U.S.C. ss.ss. 2101-09, for the Seller. Buyer hereby further
agrees to indemnify and hold Seller harmless from any claims, demands,
deficiencies, penalties, assessments, executions, judgments, or recoveries for
any and all claims due to any actual or alleged violation of the WARN Act caused
by Buyer's actions or failures to act after the Closing Date. Except as provided
immediately above, Buyer shall be under no duty whatsoever to hire any employee
or group of employees of Seller. Effective as of the Closing Date, Buyer may
offer to hire such persons as are necessary and qualified to operate its
business. All terms, including benefits, of each offer to such person shall be
determined by Buyer in its sole discretion and nothing herein shall constitute
an agreement to assume or be bound by any previous or existing agreement between
Seller and any of Seller's employees or a guaranty that any employee of Seller,
to whom an offer of employment may be made, shall be entitled to remain in the
employment of Buyer for a specified period of time. An employee of the Business
to whom an offer of employment is made by Buyer and who accepts such offer shall
become an employee of Buyer on the day such person reports to work for the
Buyer. Such person who is unable to report to work for Buyer on the Closing Date
due to illness, injury or other reason shall remain an employee of Seller until
such person reports to work for Buyer. Seller shall remain solely responsible
for all salaries, wages, benefits (other than up to 80 hours of accrued vacation
per employee and other than accrued sick pay, which Buyer is assuming),
26
severance arrangements and all other terms of employment for (a) each person who
may become an employee of Buyer accruing prior to the date such person becomes
an employee of Buyer and (b) each employee of the Business who does not become
an employee of Buyer accruing at any time.
6.16 Treatment of Other Matters.
(a) HSR Matters. Each party agrees to make the appropriate filing
pursuant to the HSR Act with respect to the transactions contemplated by this
Agreement as soon as reasonably possible after the date hereof, but in no case
later than seven business days of the date hereof, and to remit one-half of the
required filing fee with such filing. Each party further agrees to supply as
promptly as practicable to the appropriate governmental authorities any
additional information and documentary material that may be requested pursuant
to the HSR Act.
(b) Excluded Excess Inventory. (i) Schedules 6.16(b)(i)(1) and
(2), respectively, set forth all of Sellers "Excess Inventory With MRP"
($2,287,863) and "Excess Inventory Without MRP" ($2,433,579), which, aggregated,
are carried on the books of Seller at $4,721,442 as of April 19, 1999, subject
to changes between that date and the Closing in the ordinary course of business.
After excluding amounts for Netro of $165,287 (with MRP) and $565,154 (without
MRP), the net amount of Excluded Excess Inventory is $3,991,001. If either party
subsequently should believe that this net amount is incorrect, the parties agree
to work together in good faith to reach an agreement with respect to the
difference. If, between the date hereof and the Closing, Seller shall receive a
purchase order with respect to such excess inventory, or execute a written
contract with a customer pursuant to which such customer agrees to accept such
excess inventory, then such excess inventory shall be an Acquired Asset for
purposes of this Agreement and shall be transferred to Buyer at Closing, with a
corresponding dollar-for-dollar reduction to appropriate amounts above. All
other such excess inventory shall be considered "Excluded Excess Inventory" (and
valued net of the reduction in the previous sentence) for purposes of this
Agreement and shall not be transferred to Buyer at Closing.
(ii) Notwithstanding the provisions of subsection (i) above,
Buyer agrees (x) to store, maintain, insure, and protect the Excluded Excess
Inventory in the same manner as it does its own inventory at the Quadrus
facility and at its expense; (y) to use its commercially diligent efforts to
sell such Excluded Excess Inventory; and (z) dedicate one regular employee whose
primary function shall be to attend to the matters described in these
subsections (x) and (y). Buyer agrees that, in the event it has a use for any of
the Excluded Excess Inventory in any new or current product, it will use (or
make a good faith effort to use) such inventory before procuring such inventory
or substitutes from third parties and promptly (and, in no case, later than 30
days after receipt of such inventory) pay Seller the cost of such inventory. For
the purposes of this Section 6.16, "the cost of such inventory" shall be the
cost of such inventory to Seller, provided, however, that if Seller's cost is
above market, Buyer will allow Seller two business days to agree to match the
market price, in which case, "the cost of such inventory" shall be the market
price. Buyer and Seller agree to review the Excluded Excess Inventory situation
quarterly from the date of Closing and, upon the first anniversary of the
Closing, Buyer will have the right to require Seller to remove any
27
and all such remaining Excluded Excess Inventory (such inventory, the "Removed
Excluded Excess Inventory"). Upon the first anniversary of the Closing, Buyer
and Seller will conduct a physical inventory of the Excluded Excess Inventory
and if any of such Excluded Excess Inventory should be determined to be missing,
Buyer will promptly pay Seller the cost of such inventory.
(c) Litigation and Other Third-Party Disputes. (i) Netro
Arbitration Matters. Seller's rights in and to any settlement with respect to
the Netro Arbitration, as more fully described in Schedule 3.14 on the
Disclosure Schedule, shall be transferred to Buyer. In the event that Buyer
suffers any Damages (as defined in Section 8.1(c) hereof) or the final
unappealable award is less than $956,000, subject to adjustment in such
arbitration, Seller shall pay Buyer such difference and/or indemnify and hold
Buyer harmless with respect thereto, in which case Seller's indemnification
obligations contained in Article VIII of this Agreement are inapplicable.
(ii) Fore Systems, Inc. Matters. The Fore Systems, Inc.
litigation matter, as more fully described in Schedule 3.14 of the Disclosure
Schedule, is not an Acquired Asset and shall not be an Account Receivable for
purposes of the Draft Closing Date Schedule. Buyer agrees to render such
assistance as Seller may reasonably request to prosecute this matter to
conclusion, with reimbursement of time and expenses to be made at a fair rate to
be agreed upon at the time.
(iii) CoinWorld, Inc. The CoinWorld, Inc. dispute, as more
fully described in Schedule 3.14 of the Disclosure Schedule, shall not be an
Assumed Liability for purposes of this Agreement. Buyer agrees to render such
assistance as Seller may reasonably request to prosecute this matter to
conclusion, with reimbursement of time and expenses to be made at a fair rate to
be agreed upon at the time.
(iv) Capsco, Enhanced Cable, Advanced Hardware Technology,
KBM, AlliedSPEC, DeltaPac, Jayco, Kalex, Landsburg, Meridan, Nanya, Paperpn,
Prepro, and Wldwiser Inventory Disputes. The Capsco, Enhanced Cable, Advanced
Hardware Technology, KBM, AlliedSPEC, DeltaPac, Jayco, Kalex, Landsburg,
Meridan, Nanya, Paperpn, Prepro, and Wldwiser Inventory Disputes shall not be an
Assumed Liability for purposes of this Agreement. Buyer agrees to render such
assistance as Seller may reasonably require to resolve these supplier disputes,
as more fully described in Schedule 3.3(b) of the Disclosure Schedule. In the
event the supplier prevails, Seller agrees to purchase the inventory that was
the subject of the dispute. Such inventory, when purchased and shipped by Seller
to Buyer, shall be treated in the manner specified in Section 6.16(b)(ii) for
Excluded Excess Inventory. In the event that Buyer suffers any Damages (as
defined in Section 8.1(c) hereof), Seller shall indemnify and hold Buyer
harmless with respect thereto, in which case Seller's indemnification
obligations contained in Article VIII of this Agreement are inapplicable. Seller
shall reimburse Buyer for its time and expenses at a fair rate to be agreed upon
at the time.
(d) Excluded Bone-Pile Inventory. Schedule 6.16(d) sets forth
all of Seller's "Excess Bone-Pile Inventory" (carried on
Seller's books as of as of April 19, 1999 at $825,121,
subject to changes between that date and the Closing in the
28
ordinary course of business). If, between the date hereof
and the Closing, Seller shall recover, or Buyer, using its
reasonable efforts shall debug, any of such Excess
Bone-Pile Inventory, then such excess inventory shall be an
Acquired Asset for purposes of this Agreement and shall be
transferred to Buyer at Closing, with a corresponding
dollar-for-dollar reduction to appropriate amounts above.
All other such excess inventory shall be considered
"Excluded Bone-Pile Inventory" (and valued net of the
reduction in the previous sentence) and shall be treated in
the manner specified in Section 6.16(b)(ii) for Excluded
Excess Inventory.
(e) Other Excluded Amounts. Schedule 6.16(e)(i) sets forth all
of Seller's "Amounts Paid in Prior Months Not Billed to
Customers" and Schedule 6.16(e)(ii) sets forth all of
Seller's "Prior Month Billings Without Customers"
(collectively carried on Seller's books as of March 31,
1999 at $189,616, subject to changes between that date and
the Closing in the ordinary course of business). If,
between the date hereof and the Closing, Seller shall shall
receive a purchase order with respect to such
tools/fixtures, or execute a written contract with a
customer pursuant to which such customer agrees to accept
such tools/fixtures, then such excess tools/fixtures shall
be an Acquired Asset for purposes of this Agreement and
shall be transferred to Buyer at Closing, with a
corresponding dollar-for-dollar reduction to appropriate
amount above. All other such excess tools/fixtures shall be
considered "Other Excluded Amounts" (and valued net of the
reduction in the previous sentence) and shall be treated
valued net of the reduction in the previous sentence) and
shall be treated in the manner specified in Section
6.16(b)(ii) for Excluded Excess Inventory.
(f) Excluded 90-Day A/R. Schedule 6.16(f) will set forth, as of
the Closing, all of Seller's accounts receivable which have
aged more than 90 days from their respective invoice dates
(the "90-Day A/R"), and all of which are transferred to
Buyer at the Closing. To the extent that, between the
Closing and the date which is 90 days later, Buyer shall
not have collected any of the 90-Day A/R's, Buyer will have
the right to require Seller to repurchase any and all such
remaining 90-Day A/R's (the "Excluded 90-Day A/R") and
Seller shall repurchase the Excluded 90-Day A/R at face
value (the "Repurchased 90-Day A/R"). This repurchase
obligation shall not be subject to the limitation contained
in Section 8.1(f) of this Agreement.
6.17 Profit Sharing. To the extent that Buyer earns a profit on its
operations of the Business from the Closing Date through and including June 30,
1999, Buyer will reimburse Seller for any Operating Losses Seller may incur with
respect to its operations of the Business from April 1, 1999 through and
including the Closing Date. For purposes of this Section 6.17, "Operating
Income/Losses" will be calculated consistently with Seller's accounting
practices and policies
29
employed prior to the Closing Date by Seller, and in the event of any
disagreement, the dispute mechanisms provided in Section 2.5(b) will apply.
Corporate overhead of Buyer and Seller, for the respective periods, will not be
taken into account in this calculation, however, in the event Buyer and/or
Seller has capital employed in the Business during their respective operating
periods, interest will be allowed at the rate of 7.20%.
ARTICLE VII
CONDITIONS TO OBLIGATIONS TO CLOSE
7.1 Conditions to Obligations of Each Party. The respective obligations
of each party to this Agreement shall be subject to the satisfaction at or prior
to the Closing of the following conditions:
(a) Government Approvals. All applicable waiting periods (and any
extensions thereof) under the HSR Act shall have expired or otherwise been
terminated, and all authorizations, consents, orders, or approvals of, or
declarations or filings with, or expiration of waiting periods imposed by, any
governmental entity necessary for the consummation of the transactions
contemplated by this Agreement, shall have been obtained.
(b) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the transactions contemplated hereby
shall be in effect.
7.2 Additional Conditions to Obligations of the Seller. The obligations
of the Seller to consummate the transactions contemplated by this Agreement
shall be subject to the satisfaction at or prior to the Closing of each of the
following conditions, any of which may be waived, in writing, exclusively by the
Seller:
(a) Representations, Warranties, and Covenants. The
representations and warranties of Buyer contained in this Agreement shall be
true and correct in all material respects on the Closing Date except to the
extent such representations and warranties address matters only as of a
particular date (which shall remain true and correct as of such date), and the
Buyer shall have performed and complied in all material respects with all
covenants including the payment of the Consideration, obligations, and
conditions of this Agreement required to be performed and complied with by it as
of the Closing Date.
(b) Certificate of Buyer. The Buyer shall have provided the
Seller with a certificate executed on behalf of Buyer by its President, or any
Vice President, and its Chief Financial Officer to the effect that as of the
Closing Date:
30
(i) all representations and warranties made by the Buyer
under this Agreement are true and complete in all material respects; and
(ii) all covenants, obligations, and conditions of this
Agreement to be performed by the Buyer on or before such date have been so
performed in all material respects.
(c) Opinion of Counsel. Seller shall have received an opinion,
addressed to it and dated the Closing Date, of Dorsey & Whitney, counsel to the
Buyer, substantially in the form set forth in Exhibit D.
7.3 Additional Conditions to the Obligations of Buyer. The obligations
of Buyer to consummate the transactions contemplated by this Agreement shall be
subject to the satisfaction at or prior to the Closing of each of the following
conditions, any of which may be waived, in writing, exclusively by Buyer:
(a) Representations, Warranties, and Covenants. The
representations and warranties of the Seller contained in this Agreement shall
be true and correct in all material respects on the Closing Date, except to the
extent such representations and warranties address matters only as of a
particular date (which shall remain true and correct as of such date) and the
Seller shall have performed and complied in all material respects with all
covenants, obligations, and conditions of this Agreement required to be
performed and complied with by it as of the Closing Date.
(b) Certificate of the Seller. Buyer shall have been provided
with certificates executed on behalf of the Seller by its respective President,
or any Vice President, and Chief Financial Officer to the effect that as of the
Closing Date:
(i) all representations and warranties made by such entity
under this Agreement are true and complete in all material respects; and
(ii) all covenants, obligations, and conditions of this
Agreement to be performed by such entity on or before such date have been so
performed in all material respects.
(c) Opinion of Counsel. Buyer shall have received an opinion,
addressed to it and dated the Closing Date, of Wilson Sonsini Goodrich & Rosati,
P.C., counsel to the Seller, substantially in the form set forth in Exhibit E.
(d) Assignment of Facility, Equipment Lessors, Customer and
Supplier Contracts. All consents necessary to assign the Assumed Leases, as well
as the customer and material supplier contracts to Buyer shall have been
obtained.
31
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
8.1 Indemnification.
(a) Indemnification by the Seller. Subject to the qualifications
and limitations in this Section 8.1, if the Closing is consummated, Seller shall
indemnify and defend and hold Buyer, its subsidiaries, directors, officers,
agents, and other Affiliates harmless against and with respect to, any and all
Damages (as defined in subsection 8.1(c) below) incurred by Buyer, its
subsidiaries, directors, officers, agents or other Affiliates as a result of any
of the following:
(i) any inaccuracy or misrepresentation by Seller in, or
breach of any warranty of Seller in, this Agreement or the related documents
executed and delivered by Seller in connection with this Agreement (the
"Operative Documents");
(ii) any breach or failure by Seller to perform any of its
covenants or agreements under this Agreement or any of the other Operative
Documents; and
(iii) any liability of the Business arising exclusively from
events occurring prior to the Closing Date which are not expressly being assumed
by Buyer hereunder.
(b) Indemnification by Buyer. Subject to the qualifications and
limitations in this Section 8.1, if the Closing is consummated, Buyer shall
indemnify and defend and hold Seller and its directors, officers, agents, and
other Affiliates harmless against and with respect to, any and all Damages (as
defined in subsection 8.1(c) below) incurred by Seller or any of its directors,
officers, agents or other Affiliates as a result of any of the following:
(i) any inaccuracy or misrepresentation by Buyer in, or
breach of any warranty of Buyer in, this Agreement or the other Operative
Documents;
(ii) any breach or failure by Buyer to perform any of its
covenants or agreements under this Agreement or any of the other Operative
Documents; and
(iii) any Assumed Obligation.
(c) Damages. For purposes of this Section 8.1, "Damages" means
all demands, claims, claims for reimbursement, actions or causes of action,
assessments, losses, damages, costs, expenses, liabilities, deficiencies,
judgments, awards, fines, sanctions, penalties, charges and amounts paid in
settlement, whether civil, criminal or administrative in nature, including the
reasonable costs, fees and expenses of attorneys, experts, accountants,
appraisers, consultants, witnesses, investigators and agents and all such costs,
fees and expenses incurred in defending against any of the foregoing or in
enforcing this Agreement or the Operative Documents. Notwithstanding the
foregoing definition, when used with reference to amounts recoverable as the
32
result of any breach of a representation, warranty or covenant contained in this
Agreement or any other Operative Document, Damages shall not include amounts
recoverable solely as lost profits, incidental damages, indirect damages,
special damages, punitive damages or consequential damages unless such damages
arise from a third-party claim.
(d) Procedure for Indemnification. The procedure for
indemnification shall be as follows:
(i) The party claiming indemnification ("Claimant") shall,
within thirty (30) days after its discovery of any claim for which
indemnification will be sought as provided in this Agreement (the "Claim"), give
notice to the party from whom indemnification is sought ("Indemnitor") of its
Claim, specifying in reasonable detail the factual basis for the Claim and, to
the extent known, the amount of the Claim. Notwithstanding the foregoing, the
failure by Claimant to provide notice of any Claim within the period specified,
or any delay in providing such notice, shall not affect or impair the
obligations of Indemnitor hereunder, except and only to the extent that
Indemnitor has been adversely affected by such failure or delay.
(ii) With respect to Claims between the parties, following
receipt of notice from Claimant of a Claim, Indemnitor shall have sixty (60)
days to make any investigation of the Claim that Indemnitor deems necessary or
desirable. For purposes of this investigation, Claimant agrees to make available
to Indemnitor and its authorized representatives the information relied upon by
Claimant to substantiate the Claim. If Claimant and Indemnitor cannot agree as
to the validity and amount of the Claim within the sixty (60) day period (or any
mutually agreed upon extension thereof), Claimant may seek appropriate legal
remedy, subject to the provisions of Section 8.3.
(iii) With respect to any Claim by a third party as to which
Claimant is entitled to indemnification hereunder, Indemnitor shall have the
right, exercisable by written notice to Claimant within 30 days after receipt of
written notice from Claimant of the commencement or assertion of any such Claim,
at its own expense to participate in or assume control of the defense of the
Claim, and Claimant shall cooperate fully with Indemnitor, with the right to
reimbursement for actual out-of-pocket expenses incurred by Claimant as a result
of any such request by the Indemnitor. If Indemnitor does not elect to assume
control or otherwise participate in the defense of any third party Claim within
thirty (30) days of its receipt of notice of the Claim (or any extended period
mutually agreed upon in writing by the parties), Claimant shall have the right
to undertake the defense, compromise or settlement of the Claim for the account
of Indemnitor subject to the right of Indemnitor, at its expense, to assume the
defense of the Claim at any time prior to final settlement, compromise or
determination thereof. In no event shall Indemnitor be liable or otherwise have
any obligation with respect to any settlement, compromise or determination of
any Claim agreed to by Claimant without the prior written consent of Indemnitor
(which consent will not be withheld unreasonably).
(iv) The defending party shall have reasonable access to the
books, records and personnel which are pertinent to the defense and which are in
control of the other party. The
33
parties agree to furnish such records, information and testimony, and attend
such conferences, discovery proceedings, hearings, trials and appeals, as may be
reasonably requested by the other party in connection with defending any third
party Claim.
(e) Limitations and Conditions Applicable to Buyer. The right of
Buyer to obtain indemnification from Seller pursuant to Section 8.1(a) of this
Agreement is subject to the following limitations:
(i) Buyer shall not be entitled to indemnification from
Seller pursuant to Section 8.1(a) until the aggregate Damages for which Seller
is liable under Section 8.1(a) exceed $150,000, whereupon Buyer shall be
entitled to indemnification by Seller for all such Damages thereafter, and for
$75,000 of the first $150,000 of such Damages (and Buyer shall be responsible
for the other $75,000 of the first $150,000 of such Damages).
(ii) Buyer shall not be entitled to indemnification from
Seller pursuant to Section 8.1(a) for that amount in excess of 35% of the
purchase price.
(iii) No Claim shall be brought by Buyer against Seller
under Section 8.1(a) unless notice in writing of such Claim shall have been
given to Seller on or prior to 5:00 p.m. Pacific Standard Time on the second
anniversary of the Closing Date, except for claims based on an inaccuracy or
misrepresentation by Seller with respect to the representations or warranties
made in (i) Section 3.8 hereof with respect to title to the Assets for which
notice in writing of any such claim must be given to Seller on or prior to the
expiration of the applicable statute of limitations period for any such claims,
or (ii) in Section 3.12 with respect to environmental matters for which notice
in writing of any such claim must be given to seller on or prior to 5:00 p.m.
Pacific Standard time on the fifth anniversary of the Closing Date. Claims may
be brought against Seller as to any Damages (or a potential claim by an
appropriate party) asserted in good faith prior to such dates.
(iv) Buyer shall not be entitled to recover Damages in
respect of any Claim or otherwise obtain reimbursement or restitution more than
once with respect to any claim hereunder. For any matter for which an adjustment
has been made subject to Section 2.5, there will be no indemnification for such
matter for the amount of the adjustment.
(v) In calculating the amount of any indemnifiable Damages,
there shall be deducted any actual tax benefit realized by the Indemnified
Person.
(vi) The Buyer shall first seek recovery from any Damages
from any applicable insurance.
(f) Limitations and Conditions Applicable to Seller. The right of
Seller to obtain indemnification from Buyer pursuant to Section 8.1(b) of this
Agreement is subject to the following limitations:
34
(i) Seller shall not be entitled to indemnification from
Buyer pursuant to Section 8.1(b) until the aggregate Damages for which Buyer is
liable under Section 8.1(b) exceed $150,000, whereupon Seller shall be entitled
to indemnification by Buyer for all such Damages thereafter, and for $75,000 of
the first $150,000 of such Damages (and Seller will be responsible for the other
$75,000 of the first $150,000 of such Damages).
(ii) Seller shall not be entitled to indemnification from
Buyer pursuant to Section 8.1(b) for that amount of its aggregate Damages for
which Buyer is liable under Section 8.1(b) which is in excess of 35% of the
purchase price; provided, however, that the above limitation shall not apply as
to Damages arising from failure by the Buyer to pay the Purchase Price or to pay
or discharge of the Assume Liabilities.
(iii) No Claim shall be brought by Seller against Buyer
under Section 8.1(b) unless notice in writing of such Claim shall have been
given to Buyer on or prior to 5:00 p.m. Pacific Standard Time on the second
anniversary of the Closing Date, but Claims may be brought against Buyer as to
any Damages (or a potential claim by an appropriate party) asserted in good
faith prior to such date.
(iv) Seller shall not be entitled to recover Damages in
respect of any Claim or otherwise obtain reimbursement or restitution more than
once with respect to any claim hereunder. For any matter which an adjustment has
been made subject to Section 2.5, there will be no indemnification for such
matter for the amount of the adjustment.
(v) In calculating the amount of any indemnfiable Damages,
there shall be deducted any actual tax benefit realized by the Indemnified
Party.
(vi) The Seller shall first seek recovery for any Damages
from any applicable insurance.
(g) Remedies Exclusive. Except for the remedies provided in
Section 6.16(c)(i) and (iv), the remedies provided in this Section 8.1 shall be
exclusive as to any Claims by a party under this Agreement or any other
Operative Document or arising out of the transactions provided for herein and
therein and shall preclude assertion by any party of any other rights or the
seeking of any other remedies against another party; provided, however, that
nothing in this Section 8.1(g) shall limit rights or remedies expressly provided
for in this Agreement in Section 6.12 (non-competition), rights or remedies for
fraud, or rights or remedies which, as a matter of applicable law or public
policy, cannot be limited or waived.
8.2 Arbitration. Any controversy involving a claim by an indemnified
party pursuant to this Article VIII shall be finally settled by arbitration in
the County of Santa Clara, California in accordance with the then current
Commercial Arbitration Rules of the American Arbitration Association; and
judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. Such arbitration shall be conducted by an
arbitrator chosen by mutual
35
agreement of Buyer and Seller. Failing such agreement, the arbitration shall be
conducted by three independent arbitrators, none of whom shall have any
competitive interests with Buyer or Seller. Buyer shall choose one such
arbitrator, Seller shall choose one such arbitrator, and such two arbitrators
shall mutually select a third arbitrator. Any decision of two such arbitrators
shall be binding on Buyer and Seller. Each party shall pay its own costs and
expenses (including counsel fees) of any such arbitration except that the
arbitrator can compel one party to pay all or a portion of the other party's
costs and expenses.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
9.1 Termination. Except as provided in Section 9.2 below, this
Agreement may be terminated at any time prior to the Closing Date:
(a) by mutual consent of Buyer and the Seller;
(b) by Buyer or the Seller if (i) the Closing Date has not
occurred by June 30, 1999 (provided that the right to terminate this Agreement
under this clause 9.1(b)(i) shall not be available to any party whose willful
failure to fulfill any obligation hereunder has been the cause of, or resulted
in, the failure of the Closing Date to occur on or before such date); (ii) there
shall be a final nonappealable order of a federal, state, or foreign court in
effect preventing consummation of the transactions contemplated hereby; or (iii)
there shall be any statute, rule, regulation or order enacted, promulgated or
issued or deemed applicable hereto by any Governmental Entity that would make
consummation of the transactions contemplated hereby illegal;
(c) by Buyer if there shall be any action taken, or any statute,
rule, regulation or order enacted, promulgated or issued or deemed applicable
hereto, by any Governmental Entity, which would prohibit Buyer's ownership or
operation of the Business, which prohibition cannot reasonably be addressed by
allowing Seller to retain the affected portion of the Business; (d) by Buyer if
it is not in material breach of its obligations under this Agreement and there
has been a breach of any representation, warranty, covenant or agreement
contained in this Agreement on the part of the Seller and as a result of such
breach the conditions set forth in Section 7.3(a) would not be satisfied;
provided, however, that if such breach is curable by the Seller within ten days
through the exercise of its reasonable efforts, then for so long as the Seller
continues to exercise such reasonable efforts Buyer may not terminate this
Agreement under this Section 9.1(d) unless such breach is not cured within ten
days (but no cure period shall be required for a breach which by its nature
cannot be cured);
(e) by Buyer if there has been a material adverse change in the
Business that reduces the book value of the Business by more than 10% of the
Purchase Price; or
36
(f) by the Seller if neither Seller nor Buyer are in material
breach of their obligations under this Agreement and there has been a breach of
any representation, warranty, covenant or agreement contained in this Agreement
on the part of Buyer and as a result of such breach the conditions set forth in
Section 7.2(a), would not then be satisfied; provided, however, that if such
breach is curable by Buyer within ten days through the exercise of its
reasonable best efforts, then for so long as Buyer continues to exercise such
reasonable best efforts the Seller may not terminate this Agreement under this
Section 0 unless such breach is not cured within ten days (but no cure period
shall be required for a breach which by its nature cannot be cured).
(g) In the event that this Agreement is terminated by Buyer as a
result of "force majeure" events that lead to Buyer's inability to obtain
financing, Buyer shall pay Seller a termination fee in the amount of $500,000.00
in cash within ten (10) business days of such termination. If this Agreement is
terminated by Buyer for any other reason other than those specified in
subsections (a) through (d) above, Buyer shall pay Seller a termination fee in
the amount of $2,500,000 in cash within ten (10) business days of such
termination. This termination fee shall be the sole and exclusive remedy of
Seller for such termination by Buyer. For the purposes of this subsection (g),
the term "force majeure" shall mean an act of God, riot, war, civil unrest,
flood, earthquake, or other cause beyond such party's reasonable control that
results in significant adverse effects on the debt and equity capital markets.
9.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 9, this Agreement shall forthwith become void
and, there shall be no liability or obligation on the part of Buyer or the
Seller, or their respective officers, directors or stockholders, provided that
(i) the provisions of Section 6.4 (Confidentiality) and this Article IX shall
remain in full force and effect and survive any termination of this Agreement,
and (ii) the termination of this Agreement shall not relieve any party from any
liability for any willful and knowing breach of this Agreement.
9.3 Amendment. Except as is otherwise required by applicable law, prior
to the Closing, this Agreement may be amended by the parties hereto at any time
by execution of an instrument in writing signed by the Buyer and the Seller.
Except as is otherwise required by applicable law, after the Closing, this
Agreement may be amended by the parties hereto at any time by execution of an
instrument in writing signed by Buyer and the Seller.
9.4 Extension; Waiver. At any time prior to the Closing, Buyer and the
Seller may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations of the other party hereto, (ii) waive any
inaccuracies in the representations and warranties made to such party contained
herein or in any document delivered pursuant hereto, and (iii) waive compliance
with any of the agreements or conditions for the benefit of such party contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party.
37
ARTICLE X
GENERAL PROVISIONS
10.1 Notices. Any request, communication, or other notice required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given if sent by facsimile or delivered by recognized overnight or international
courier service or personal delivery (as the situation may require) at the
respective address or facsimile number of the party receiving notice as set
forth below. Any party hereto may by notice so given change its address or
facsimile number for future notice hereunder. All such notices and other
communications hereunder shall be deemed given (i) upon confirmation of
delivery, if sent by facsimile and (ii) upon delivery, if sent by recognized
overnight or international courier service or personal delivery.
(a) if to Seller, to:
Bell Microproducts Inc.
1941 Ringwood Avenue
San Jose, California 95131-1721
Attn: Bruce M. Jaffe, Senior Vice President
Telephone No.: (408) 451-1685
with a copy (which shall not constitute notice) to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
Attn: Larry W. Sonsini, Esq. and Thomas C. Klein, Esq.
Telephone No.: (650) 493-9300
Facsimile No.: (650) 493-6811
(b) if to the Buyer, to:
PEMSTAR INC.
3535 Technology Drive
Rochester, MN 55901
Attn: Al Berning
Telephone No.: (507) 288-6720
Facsimile No.: (507) 280-0838
with a copy (which shall not constitute notice) to:
Dorsey & Whitney LLC
201 First Avenue, SW, Suite 340
38
Rochester, MN 55902
Attn: Bill Jonason, Esq.
Telephone No.: (507) 529-2207
Facsimile No.: (507) 288-6190
10.2 Interpretation. The words "include," "includes" and "including"
when used herein shall be deemed in each case to be followed by the words
"without limitation." The word "agreement" when used herein shall be deemed in
each case to mean any contract, commitment or other agreement, whether oral or
written, that is legally binding. The table of contents and headings contained
in this Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement.
10.3 Expenses. All fees and expenses incurred in connection with this
Agreement including, without limitation, all legal, accounting, financial
advisory, consulting and all other fees and expenses of third parties incurred
by a party hereto, in connection with the negotiation and effectuation of the
terms and conditions of this Agreement and the transactions contemplated hereby,
shall be the obligation of the respective party incurring such fees and
expenses.
10.4 Counterparts. This Agreement may be executed in counterparts, both
of which shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each of the parties and
delivered to the other party.
10.5 Entire Agreement; Assignment. This Agreement, the schedules and
exhibits hereto, and the documents and instruments and other agreements among
the parties hereto referenced herein: (a) constitute the entire agreement among
the parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof; (b) are not intended to confer upon any
other person any rights or remedies hereunder; and (c) shall not be assigned by
operation of law or otherwise except as otherwise specifically provided.
10.6 Severability. In the event that any provision of this Agreement or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
10.7 Sole Remedy. Except for the remedies provided in Section
6.16(c)(i) and (iv), the indemnification provided by Section 8.1 is the sole
remedy of the parties hereto or any other person
39
or entity claming a remedy for any and all matters whatsoever arising under or
related to the transactions contemplated by this Agreement or the Operative
Documents, except as set forth in Section 8.1(g).
10.8 Governing Law; Arbitration. This Agreement shall be governed by
and construed in accordance with the internal laws of the State of California,
regardless of the laws that might otherwise govern under applicable principles
of conflicts of laws thereof. Any claim or dispute arising out of or related to
this Agreement, or the interpretation, making, performance, breach or
termination thereof, shall be finally and exclusively settled by binding
arbitration in San Jose, California under the AAA Commercial Arbitration Rules
and Supplemental Procedures for Large Complex Disputes by a single arbitrator
mutually agreeable to the Buyer and the Seller. In the event that within 45 days
after the submission of any dispute to arbitration, the Buyer and the Seller
cannot mutually agree on a single arbitrator, the Buyer and the Seller shall
each select one arbitrator and the AAA shall select a third arbitrator. The
arbitrator(s) shall have the authority to grant any equitable and legal remedies
that would be available in any judicial proceeding instituted under California
substantive law to resolve a dispute. Judgment on the award rendered by the
arbitrators may be entered in any court having jurisdiction thereof. The
arbitrator(s) may award to the prevailing party, if any, as determined by the
arbitrator(s), all of its costs and fees, including, without limitation, AAA
administrative fees, arbitrator fees, attorneys' fees, expert fees, witness
fees, travel expenses and out-of-pocket expenses (including, without limitation,
such expenses as copying, telephone, facsimile, postage and courier fees). The
parties to the arbitration may apply to any court of competent jurisdiction for
a temporary restraining order, preliminary injunction or other interim or
conservatory relief, as necessary, without breach of this arbitration provision
and without any abridgement of the powers of the arbitrator(s). The parties
agree that, any provision of applicable law notwithstanding, they will not
request, and the arbitrator(s) shall have no authority to award, punitive or
exemplary damages against any party.
10.9 Rules of Construction. The parties hereto agree that they have
been represented by counsel during the negotiation and execution of this
Agreement and, therefore, waive the application of any law, regulation, holding
or rule of construction providing that ambiguities in an agreement or other
document will be construed against the party drafting such agreement or
document.
10.10 No Third Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any person or entity other than the parties hereto and
their respective successors and permitted assigns.
10.11 Specific Performance. The parties hereto agree that irreparable
damage will occur in the event that any of the provisions of this Agreement are
not performed in accordance with their specific terms or are otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any state
having jurisdiction, this being in addition to any other remedy to which they
are entitled at law or in equity.
40
10.12 Publicity. Buyer and Seller shall not, without the prior written
consent of the other party, make any public announcement in which the other
party is mentioned; provided that either party may make any public disclosure it
believes in good faith to be required by applicable law or stock exchange rule,
in which case the disclosing party will use reasonably commercial efforts to
advise the other party prior to making such disclosure.
10.13 Assignment by Buyer. Buyer may assign this Agreement to any
subsidiary of Buyer, provided, however, that the indemnification obligations of
Buyer under this Agreement shall remain with Buyer.
10.14 Change in Control of Buyer. In the event that there shall be a
change in control of Buyer, whether through merger, consolidation, or corporate
reorganization, or by acquisition of all or substantially all of the assets of
Buyer, this Agreement and all the rights and obligations hereunder, may be
transferred to the surviving or resulting entity so long as, (a) in the
reasonable opinion of Seller (i) such entity is not then engaged, or does not
then intend to become engaged, in any distribution business competitive with
that of Seller, or (ii) the acquisition by such entity of the Business as then
conducted by Buyer could not otherwise reasonably be expected to adversely
affect the legitimate business or strategic interests of Seller, and (b) such
person agrees to be bound by the provisions of this Agreement.
[Remainder of Page Intentionally Left Blank]
41
IN WITNESS WHEREOF, the Buyer and the Seller have caused this Asset
Purchase Agreement to be signed as of the date first written above.
"BUYER" PEMSTAR INC.
- ------- a Minnesota Corporation
By: __________________________________________
Name: ________________________________________
Title: _______________________________________
"SELLER" BELL MICROPRODUCTS INC.
- -------- a California Corporation
By: __________________________________________
Name: ________________________________________
Title: _______________________________________
By: __________________________________________
Name: ________________________________________
Title: _______________________________________
[Signature Page to Asset Purchase Agreement]
42
EXHIBIT A
DECEMBER 31, 1998 BALANCE SHEET
EXHIBIT B
BILL OF SALE AND GENERAL ASSIGNMENT
FORM OF BILL OF SALE AND GENERAL ASSIGNMENT
KNOW ALL PERSONS BY THESE PRESENTS, that BELL MICROPRODUCTS INC., a
California corporation (the "Seller") for good and valuable consideration,
receipt of which is hereby acknowledged, does hereby sell, assign, transfer, and
deliver to PEMSTAR INC., a Minnesota corporation, its successors and assigns
("Buyer") all its right, title, and interest ("Seller's Interest") in and to
each of the Acquired Assets (as defined in that certain Asset Purchase Agreement
between Buyer and Seller dated as of April 30, 1999, as amended (the "Asset
Purchase Agreement") being purchased by Buyer and sold by Seller pursuant to the
Asset Purchase Agreement.
Seller, its successors and assigns, covenants and agrees with Buyer
that Seller is the lawful owner of the Acquired Assets and has the right to sell
the same as aforesaid and that the same are free from all encumbrances except as
may be disclosed in the Asset Purchase Agreement.
Seller hereby constitutes and appoints Buyer the true and lawful
attorney-in-fact of each of them with full power of substitution in the name and
stead of each of them, on behalf and for the benefit of Buyer to demand and
receive any and all of Seller's Interest in the Acquired Assets hereby conveyed,
and to give receipts and releases for and in respect of the same, and any part
thereof, and from time to time to institute and prosecute in the name of Seller
and Seller's successors and assigns, any and all proceedings at law, in equity,
or otherwise, which Buyer may deem proper in order to collect or reduce to
possession any and all of Seller's Interest in the Acquired Assets hereby
conveyed or to collect or enforce any claim or right hereby conveyed, or
intended to be conveyed, and to do all acts and things in relation to Seller's
Interest in the Acquired Assets hereby conveyed which Buyer shall deem
desirable.
Seller hereby agrees that it will, from time to time, execute and
deliver such further instruments of conveyance and transfer as may be reasonably
required by Buyer to implement and effectuate this Bill of Sale and General
Assignment.
This Bill of Sale and General Assignment is executed and delivered in,
and shall be construed and enforced in accordance with, the laws of the state of
California, and shall be binding upon and shall inure to the benefit of the
respective successors and assigns of the parties hereto.
IN WITNESS WHEREOF, the undersigned have duly executed this Bill of
Sale and General Assignment as of this __th day of June, 1999, to be effective
on this same date.
SELLER:
BELL MICROPRODUCTS INC.
By:____________________________
Title:_________________________
By:____________________________
Title:_________________________
BUYER:
PEMSTAR INC.
By:____________________________
Title:_________________________
EXHIBIT C
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME OF THE BUSINESS
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
- -------------------------------------------------- -------------------------------------------
Statement of Income (000's) Historical Adjustments Proforma
- -------------------------------------------------- ------------- -----------------------------
1996
- --------------------------------------------------
Sales $483,316 $ 92,129 $ 391,187
Cost of sales 425,258 80,208 345,050
-------- -------- ---------
Gross profit 58,058 11,921 46,137
Marketing, general and
administrative expenses 41,008 4,909 36,099
-------- -------- ---------
Income from operations 17,050 7,012 10,038
Interest expense 3,495 2,636 859
-------- -------- ---------
Income before taxes 13,555 4,376 9,179
Provision for income taxes (5,693) (1,838) (3,855)
-------- -------- ---------
Net income $ 7,862 $ 2,538 $ 5,324
======== ======== =========
Earnings per share basic $ 0.94 $ 0.30 $ 0.64
Earnings per share diluted $ 0.92 $ 0.30 $ 0.63
Shares outstanding - basic 8,359 8,359 8,359
Shares outstanding - diluted 8,511 8,511 8,511
1997
- -------------------------------------------------- -------------------------------------------
Sales $533,736 $ 73,220 $ 460,516
Cost of sales 476,648 70,347 406,301
-------- -------- ---------
Gross profit 57,088 2,873 54,215
Marketing, general and
administrative expenses 44,430 3,556 40,874
-------- -------- ---------
Income from operations 12,658 (683) 13,341
Interest expense 4,574 2,123 2,451
-------- -------- ---------
Income before taxes 8,084 (2,806) 10,890
Provision for income taxes (3,395) 1,179 (4,574)
-------- -------- ---------
Net income $ 4,689 $ (1,627) $ 6,316
======== ======== =========
Earnings per share basic $ 0.55 $ (0.19) $ 0.74
Earnings per share diluted $ 0.53 $ (0.18) $ 0.71
Shares outstanding - basic 8,562 8,562 8,562
Shares outstanding - diluted 8,906 8,906 8,906
1998
- -------------------------------------------------- -------------------------------------------
Sales $661,428 $ 86,098 $ 575,330
Cost of sales 595,504 84,028 511,476
-------- -------- ---------
Gross profit 65,924 2,070 63,854
Marketing, general and
administrative expenses 49,738 3,665 46,073
-------- -------- ---------
Income from operations 16,186 (1,595) 17,781
Interest expense 5,711 2,686 3,025
-------- -------- ---------
Income before taxes 10,475 (4,281) 14,756
Provision for income taxes (4,400) 1,798 (6,198)
-------- -------- ---------
Net income 6,075 (2,483) 8,558
Other comprehensive income, net of tax:
Foreign currency translation adjustments 48 - 48
-------- -------- ---------
Comprehensive income $ 6,123 $ (2,483) $ 8,606
======== ======== =========
Earnings per share basic $ 0.69 $ (0.28) $ 0.97
Earnings per share diluted $ 0.68 $ (0.28) $ 0.96
Shares outstanding - basic 8,792 8,792 8,792
Shares outstanding - diluted 8,881 8,881 8,881
- -------------------------------------------------- -------------------------------------------
EXHIBIT D
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME OF THE BUSINESS FOR
THE FISCAL YEAR ENDED DECEMBER 31, 1997
EXHIBIT E
DIVISION FINANCIAL STATEMENTS
EXHIBIT F
MARCH 31, 1999 BALANCE SHEET
EXHIBIT G
FORM OF OPINION OF BUYER COUNSEL
FORM OF BUYER OPINION
1. Buyer is a corporation duly organized and validly existing under, and by
virtue of, the laws of the State of Minnesota and is in good standing under such
laws.
2. Buyer has all requisite legal and corporate power to execute and deliver the
[Transaction Agreements] and to carry out and perform its obligations under the
terms thereof.
3. All corporate action on the part of Buyer necessary for the authorization,
execution and delivery of the [Transaction Agreements] and the performance of
Buyer's obligations thereunder has been taken. The [Transaction Agreements] been
duly and validly executed and delivered by Buyer and constitute valid and
binding obligations of Buyer enforceable in accordance with their terms.
4. Buyer is not in violation of any term of its [Articles/Certificate] of
Incorporation or Bylaws. The execution and delivery of the [Transaction
Agreements] by Buyer, and the performance of its obligations thereunder, are not
in violation or breach of the [Articles/Certificate] of Incorporation or Bylaws
of Buyer.
EXHIBIT H
FORM OF OPINION OF SELLER COUNSEL
FORM OF SELLER OPINION
1. Seller is a corporation duly organized and validly existing under, and by
virtue of, the laws of the State of California and is in good standing under
such laws. Seller has requisite corporate power to own and operate its
properties and assets, and to carry on its business as presently conducted.
2. Seller has all requisite legal and corporate power to execute and deliver
the [Transaction Agreements] and to carry out and perform its obligations under
the terms thereof.
3. All corporate action on the part of Seller necessary for the authorization,
execution and delivery of the [Transaction Agreements] and the performance of
Seller's obligations thereunder has been taken. The [Transaction Agreements]
been duly and validly executed and delivered by Seller, and constitute valid and
binding obligations of Seller enforceable in accordance with their terms.
4. Seller is not in violation of any term of its Articles of Incorporation or
Bylaws. The execution and delivery of the [Transaction Agreements] by Seller,
and the performance of its obligations thereunder, are not in violation or
breach of, the Articles of Incorporation or Bylaws of Seller.
7