Exhibit 10.14
ASSET PURCHASE AGREEMENT
Agreement
entered into on March 4, 2005, by and between Clarion Sensing
Systems Acquisition Corp. , a New Jersey
corporation (the "Buyer"), and Clarion
Sensing Systems, Inc., an Indiana
corporation (the "Target"). The Buyer and the
Target are referred to collectively herein
as the "Parties."
This
Agreement contemplates a transaction in which the Buyer will
purchase
all of the assets (and assume certain of
the liabilities) of the Target.
Now,
therefore, in consideration of the premises and the mutual
promises
herein made, and in consideration of the
representations, warranties, and
covenants herein contained, the Parties
agree as follows.
1.
Definitions.
"Acquired
Assets" means all right, title, and interest in and to all of
the assets of the Target, including without
limitation, those assets set forth
on Schedule 1 or otherwise wherever
located, whether known or unknown, and
whether or not on the books and records of
the Target, including without
limitation all of its (a) real property,
leaseholds and subleaseholds therein,
improvements, fixtures, and fittings
thereon, and easements, rights-of-way, and
other appurtenants thereto (such as
appurtenant rights in and to public
streets), (b) tangible personal property
(such as computers and peripherals,
equipment, purchased parts, furniture and
automobiles), (c) Intellectual
Property, goodwill associated therewith,
licenses and sublicenses granted and
obtained with respect thereto, and rights
thereunder, remedies against
infringements thereof, and rights to
protection of interests therein under the
laws of all jurisdictions, (d) leases,
subleases, and rights thereunder, (e)
agreements, contracts, indentures,
mortgages, instruments, Security Interests,
guaranties, other similar arrangements, and
rights thereunder, (f) accounts,
notes, and other receivables, (g)
securities, (h) claims, deposits, prepayments,
refunds, causes of action, choses in
action, rights of recovery, rights of set
off, and rights of recoupment (including
any such item relating to the payment
of Taxes), (i) franchises, approvals,
permits, licenses, orders, registrations,
certificates, variances, and similar rights
obtained from governments and
governmental agencies, (j) books, records,
ledgers, files, documents,
correspondence, lists, plats, architectural
plans, drawings, and specifications,
creative materials, advertising and
promotional materials, studies, reports, and
other printed or written materials, and (k)
Cash; provided, however, that the
Acquired Assets shall not include (i) the
corporate charter, qualifications to
conduct business as a foreign corporation,
arrangements with registered agents
relating to foreign qualifications,
taxpayer and other identification numbers,
seals, minute books, stock transfer books,
blank stock certificates, and other
documents relating to the organization,
maintenance, and existence of the Target
as a corporation or (ii) any of the rights
of the Target under this Agreement
(or under any side agreement between the
Target on the one hand and the Buyer on
the other hand entered into on or after the
date of this Agreement).
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"Affiliate" has the meaning set forth in Rule 12b-2 of the
regulations
promulgated under the Securities Exchange
Act.
"Assumed
Liabilities" means only those Liabilities of the Target set
forth
on Exhibit A attached hereto.
"Basis"
means any past or present fact, situation, circumstance,
status,
condition, activity, practice, plan,
occurrence, event, incident, action,
failure to act, or transaction that forms
or could form the basis for any
specified consequence.
"Buyer"
has the meaning set forth in the preface above.
"Buyer
Disclosure Schedule" has the meaning set forth in ss.4 below.
"Cash"
means cash and cash equivalents (including marketable
securities
and short term investments) calculated in
accordance with GAAP applied on a
basis consistent with the preparation of
the Financial Statements.
"Closing"
has the meaning set forth in ss.2(d) below.
"Closing
Date" has the meaning set forth in ss.2(d) below.
"COBRA"
means the requirements of Part 6 of Subtitle B of Title I of
ERISA
and Code ss.4980B.
"Code"
means the Internal Revenue Code of 1986, as amended.
"Disclosure Schedule" has the meaning set forth in ss.3 below.
"Employee
Benefit Plan" means any (a) nonqualified deferred compensation
or retirement plan or arrangement, (b)
qualified defined contribution retirement
plan or arrangement which is an Employee
Pension Benefit Plan, (c) qualified
defined benefit retirement plan or
arrangement which is an Employee Pension
Benefit Plan (including any Multiemployer
Plan), or (d) Employee Welfare Benefit
Plan or material fringe benefit or other
retirement, bonus, or incentive plan or
program.
"Employee
Pension Benefit Plan" has the meaning set forth in ERISA
ss.3(2).
"Employee
Welfare Benefit Plan" has the meaning set forth in ERISA
ss.3(1).
"Environmental, Health, and Safety Requirements" shall mean all
federal,
state, local and foreign statutes,
regulations, ordinances and other provisions
having the force or effect of law, all
judicial and administrative orders and
determinations, all contractual obligations
and all common law concerning public
health and safety, worker health and
safety, and pollution or protection of the
environment, including without limitation
all those relating to the presence,
use, production,
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generation, handling, transportation,
treatment, storage, disposal,
distribution, labeling, testing,
processing, discharge, release, control, or
cleanup of any hazardous materials,
substances or wastes, chemical substances or
mixtures, pesticides, pollutants,
contaminants, toxic chemicals, petroleum
products or byproducts, asbestos,
polychlorinated biphenyls, noise or radiation,
each as amended and as now in effect.
"ERISA"
means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA
Affiliate" means each entity which is treated as a single
employer
with Seller for purposes of Code
ss.414.
"Fiduciary" has the meaning set forth in ERISA ss.3(21).
"Financial
Statement" has the meaning set forth in ss.3(g) below.
"GAAP"
means United States generally accepted accounting principles as
in
effect from time to time.
"Intellectual Property" means (a) all inventions (whether
patentable or
unpatentable and whether or not reduced to
practice), all improvements thereto,
and all patents, patent applications, and
patent disclosures, together with all
reissuances, continuations,
continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks,
service marks, trade dress, logos,
trade names, and corporate names, together
with all translations, adaptations,
derivations, and combinations thereof and
including all goodwill associated
therewith, and all applications,
registrations, and renewals in connection
therewith, (c) all copyrightable works, all
copyrights, and all applications,
registrations, and renewals in connection
therewith, (d) all mask works and all
applications, registrations, and renewals
in connection therewith, (e) all trade
secrets and confidential business
information (including ideas, research and
development, know-how, formulas,
compositions, manufacturing and production
processes and techniques, technical data,
designs, drawings, specifications,
customer and supplier lists, pricing and
cost information, and business and
marketing plans and proposals), (f) all
computer software (including data and
related documentation), (g) all other
proprietary rights, and (h) all copies and
tangible embodiments thereof (in whatever
form or medium).
"Knowledge" means with respect to a person or entity actual
knowledge
after reasonable investigation.
"Liability" means any liability (whether known or unknown,
whether
asserted or unasserted, whether absolute or
contingent, whether accrued or
unaccrued, whether liquidated or
unliquidated, and whether due or to become
due), including any liability for
Taxes.
"Most
Recent Balance Sheet" means the balance sheet contained within
the
Most Recent Financial Statements.
"Most
Recent Financial Statements" has the meaning set forth in
ss.3(g)
below.
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"Most
Recent Fiscal Month End" has the meaning set forth in ss.3(g)
below.
"Most
Recent Fiscal Year End" has the meaning set forth in ss.3(g)
below.
"Multiemployer Plan" has the meaning set forth in ERISA
ss.3(37).
"Ordinary
Course of Business" means the ordinary course of business
consistent with past custom and practice
(including with respect to quantity and
frequency).
"Parent"
means Electronic Control Security International, Inc., a New
Jersey corporation.
"Parent
Shares" means any shares of common stock $.001 par value per
share
of the Parent.
"Party"
has the meaning set forth in the preface above.
"PBGC"
means the Pension Benefit Guaranty Corporation.
"Person"
means an individual, a partnership, a corporation, an
association, a joint stock company, a
trust, a joint venture, an unincorporated
organization, or a governmental entity (or
any department, agency, or political
subdivision thereof).
"Prohibited Transaction" has the meaning set forth in ERISA ss.406
and
Code ss.4975.
"Purchase
Price" has the meaning set forth in ss.2(c) below.
"Reportable Event" has the meaning set forth in ERISA ss.4043.
"Security
Interest" means any mortgage, pledge, lien, encumbrance,
charge,
or other security interest, other than (a)
mechanic's, materialmen's, and
similar liens, (b) liens for Taxes not yet
due and payable, (c) purchase money
liens and liens securing rental payments
under capital lease arrangements, and
(d) other liens arising in the Ordinary
Course of Business and not incurred in
connection with the borrowing of money.
"Side
Agreements" means the agreements referred to in Exhibit B.
"Subsidiary" means any corporation with respect to which a
specified
Person (or a Subsidiary thereof) owns a
majority of the common stock or has the
power to vote or direct the voting of
sufficient securities to elect a majority
of the directors.
"Target"
has the meaning set forth in the preface above.
"Target
Share" means any share of the Common Stock of the Target.
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"Target
Stockholder" means any person who or which holds any Target
Shares.
"Tax"
means any federal, state, local, or foreign income, gross
receipts,
license, payroll, employment, excise,
severance, stamp, occupation, premium,
windfall profits, environmental (including
taxes under Code ss.59A), customs
duties, capital stock, franchise, profits,
withholding, social security (or
similar), unemployment, disability, real
property, personal property, sales,
use, transfer, registration, value added,
alternative or add-on minimum,
estimated, or other tax of any kind
whatsoever, including any interest, penalty,
or addition thereto, whether disputed or
not.
"Tax
Return" means any return, declaration, report, claim for refund,
or
information return or statement relating to
Taxes, including any schedule or
attachment thereto, and including any
amendment thereof.
2. Basic
Transaction.
(a)
Purchase and Sale of Assets. On and subject to the terms and
conditions of this Agreement, the Buyer
agrees to purchase from the Target, and
the Target agrees to sell, transfer,
convey, and deliver to the Buyer, all of
the Acquired Assets at the Closing for the
consideration specified below in this
ss.2.
(b)
Assumption of Liabilities. (i) On and subject to the terms and
conditions of this Agreement, the Buyer
agrees to assume and become responsible
for all of the Assumed Liabilities at the
Closing. The Buyer will not assume or
have any responsibility, however, with
respect to any other obligation or
Liability of the Target not included within
the definition of Assumed
Liabilities.
(ii) Certain of the
Assumed Liabilities as follows:
Mark Harmless $267,423
Jon Payne - $81,846.49
Barry Pachciarz - $80,668.01
Bob Plummer - $5,841.49
William Eby - $3,049.28
Scott Cronk - $131.25
(collectively "Contingent Liabilities")
shall be payable, if at all, only in the event the Buyer
achieves
(i) sales in excess of $3,000,000 ("$3,000,000 in Sales")
and/or
(ii) net earnings before taxes in excess of $600,000 ("$600,000
in
Net Earnings") in one of its fiscal years beginning within three
(3)
years of the date hereof all determined in accordance with GAAP.
In
the event $3,000,000 in Sales are achieved but $600,000 in Net
Earnings are not achieved, then 10% of Buyer's net earnings
before
taxes earned during such fiscal year shall be utilized to pay
the
Contingent Liabilities which amount shall be allocated among
the
Contingent Liabilities pro rata until paid in full. In the
event
$600,000 in Net Earnings are achieved (whether or not
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$3,000,000 in Sales are achieved), then (y) all net earnings
before
taxes in excess of $600,000 earned during such fiscal year plus
(z)
10%
of Buyer's net earnings before taxes earned during such fiscal
year, shall be utilized to pay the Contingent Liabilities which
amount shall be allocated among the Contingent Liabilities pro
rata
until paid in full. If the Contingent Liabilities are not paid
in
full and $3,000,000 in Sales or $600,000 in Net Earnings occurs
in
one or more subsequent fiscal years, then net earnings before
taxes
with respect to such fiscal years shall be utilized to pay the
Contingent Liabilities in the manner set forth in the preceding
two
sentences until such time, if ever, the Contingent Liabilities
are
paid in full. Any amounts paid hereunder shall be paid in cash
or
shares of Parent Stock (valued as of the closing ask price on
the
date of issuance) as the recipient shall direct.
(iii) Parent hereby guarantees the performance of Buyer of its
obligations under this Section2(b).
(c)
Purchase Consideration. In addition to the assumption of the
Assumed
Liabilities, the consideration for the
Purchase of the Acquired Assets shall
consist of 394,682 shares of Parent Shares
which shares shall be issued and
delivered to the escrow agent named in that
certain escrow agreement of even
date herewith, which Parent Shares shall be
held and disposed of in accordance
with said escrow agreement.
(d) The
Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place
at the offices of Lasser Hochman,
L.L.C. in Roseland, New Jersey, commencing
at 10:00 a.m. local time on the
second business day following the
satisfaction or waiver of all conditions to
the obligations of the Parties to
consummate the transactions contemplated
hereby (other than conditions with respect
to actions the respective Parties
will take at the Closing itself) or such
other date as the Parties may mutually
determine (the "Closing Date"); provided,
however, that the Closing Date shall
be no earlier than November 15, 2004.
(e)
Deliveries at the Closing. At the Closing, (i) the Target will
deliver
to the Buyer the various certificates,
instruments, and documents referred to in
ss.6(a) below; (ii) the Buyer will deliver
to the Target the various
certificates, instruments, and documents
referred to in ss.6(b) below; (iii) the
Target will execute, acknowledge (if
appropriate), and deliver to the Buyer (A)
assignments (including real property and
Intellectual Property transfer
documents) in the form attached hereto as
Exhibit 2(e)-1 and (B) such other
instruments of sale, transfer, conveyance,
and assignment as the Buyer and its
counsel reasonably may request; (iv) the
Buyer will execute, acknowledge (if
appropriate), and deliver to the Target (A)
an assumption in the form attached
hereto as Exhibit 2(e)-2 and (B) such other
instruments of assumption as the
Target and its counsel reasonably may
request; and (v) the Buyer will deliver to
the Target the consideration specified in
ss.2(c) above.
(f)
Allocation. The Parties agree to allocate the Purchase
Consideration
(and all other capitalizable costs) among
the Acquired Assets for all purposes
(including financial accounting and tax
purposes) in accordance with the
allocation schedule attached hereto as
Exhibit 2 (f).
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(g) Post
Closing Covenant. The Parties intend that the transaction
contemplated hereby will be treated for
income tax purposes as a taxable
purchase of assets and not a tax-free
reorganization. The Seller shall take no
action or fail to take an action contrary
to this intention, including but not
limited to (i) distributing any property it
receives in connection with the
transaction pursuant to a plan of
reorganization or (ii) taking the position for
tax or other purposes to the effect that
the transaction is a tax-free
reorganization.
3.
Representations and Warranties of the Target. The Target represents
and
warrants to the Buyer and Parent that the
statements contained in this ss.3 are
correct and complete as of the date of this
Agreement and will be correct and
complete as of the Closing Date (as though
made then and as though the Closing
Date were substituted for the date of this
Agreement throughout this ss.3),
except as set forth in the disclosure
schedule accompanying this Agreement and
initialed by the Parties (the "Disclosure
Schedule"). The Disclosure Schedule
will be arranged in paragraphs
corresponding to the lettered and numbered
paragraphs contained in this ss.3. Any
information contained on the Disclosure
Schedule shall be adequate to disclose an
exception to any representation or
warranty made herein even if such
information contained on the Disclosure
Schedule does not specifically correspond
to a lettered or numbered paragraph
contained in this Agreement.
(a)
Organization of the Target. The Target is a corporation duly
organized, validly existing, and in good
standing under the laws of the
jurisdiction of its incorporation.
(b)
Authorization of Transaction. The Target has full power and
authority
(including full corporate power and
authority) to execute and deliver this
Agreement and to perform its obligations
hereunder. Without limiting the
generality of the foregoing, the board of
directors of the Target and the Target
Stockholders have or will have by the
Closing Date duly authorized the
execution, delivery, and performance of
this Agreement by the Target. This
Agreement constitutes the valid and legally
binding obligation of the Target,
enforceable in accordance with its terms
and conditions, except that the
enforceability hereof may be subject to
bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or
hereafter in effect relating to
creditors' rights generally and that the
remedy of specific performance and
injunctive and other forms of equitable
relief may be subject to equitable
defenses and to the discretion of the court
before which any proceeding may be
brought.
(c)
Noncontravention. Neither the execution and the delivery of
this
Agreement, nor the consummation of the
transactions contemplated hereby
(including the assignments and assumptions
referred to in ss.2 above), will (i)
violate any constitution, statute,
regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other
restriction of any government,
governmental agency, or court to which the
Target is subject or any provision of
the charter or bylaws of the Target or (ii)
conflict with, result in a breach
of, constitute a default under, result in
the acceleration of, create in any
party the right to accelerate, terminate,
modify, or cancel, or require any
notice under any material agreement,
contract, lease, license, instrument, or
other arrangement to which the Target is a
party or by which it is bound or to
which any of its assets is subject (or
result in the imposition of any Security
Interest upon any of its assets). The
Target
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does not need to give any notice to, make
any filing with, or obtain any
authorization, consent, or approval of any
government or governmental agency in
order for the Parties to consummate the
transactions contemplated by this
Agreement (including the assignments and
assumptions referred to in ss.2 above).
(d)
Brokers' Fees. The Target has no Liability or obligation to pay
any
fees or commissions to any broker, finder,
or agent with respect to the
transactions contemplated by this Agreement
for which the Buyer could become
liable or obligated.
(e) Title
to Assets. The Target has good title to, or a valid leasehold
or
license interest in, the properties and
assets used by it, located on its
premises, or shown on the Most Recent
Balance Sheet or acquired after the date
thereof, free and clear of all Security
Interests, except for properties and
assets disposed of in the Ordinary Course
of Business since the date of the Most
Recent Balance Sheet. Without limiting the
generality of the foregoing, the
Target has good title to all of the
Acquired Assets, free and clear of any
Security Interest or restriction on
transfer. Schedule 1 contains a list of each
item of tangible and intangible property
included in the Most Recent Balance
Sheet carrying a value of more than
$500.
(f)
Subsidiaries. The Target has no and has never had any
Subsidiaries.
(g)
Financial Statements. Attached hereto as Exhibit 3(g) are the
following financial statements
(collectively the "Financial Statements"): (i)
Statements of Assets, Liabilities and
Equity for the year ending December 31,
2003; and (ii) Statements of Assets,
Liabilities, and Equity (the "Most Recent
Financial Statements") as of and for the
month ended, October 31, 2004 (the
"Most Recent Fiscal Month End") for the
Target. The Financial Statements have
been prepared in accordance with GAAP
applied on a consistent basis throughout
the periods covered thereby, present fairly
in all material respects the
financial condition of the Target as of
such dates and the results of operations
of the Target for such periods, subject to
customary year end adjustments, are
correct and complete, and are consistent
with the books and records of the
Target (which books and records are correct
and complete).
(h) Events
Subsequent to Most Recent Fiscal Month End. Since the Most
Recent Fiscal Monthly End, there has not
been any material adverse change in the
business, financial condition, operations,
results of operations, or future
prospects of the Target. Without limiting
the generality of the foregoing, since
that date:
(i) the Target has not sold, leased, transferred, or assigned any
of
its
assets, tangible or intangible, other than for a fair consideration
in
the
Ordinary Course of Business;
(ii) the Target has not entered into any agreement, contract,
lease,
or license
(or series of related agreements, contracts, leases, and
licenses)
either involving more than $1,000 or outside the Ordinary
Course
of
Business;
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(iii) no party (including the Target) has accelerated,
terminated,
modified,
or cancelled any agreement, contract, lease, or license (or
series of
related agreements, contracts, leases, and licenses) to which
the Target
is a party or by which is bound;
(iv) the Target has not imposed any Security Interest upon any
of
its
assets, tangible or intangible;
(v) the Target has not made any capital expenditure (or series
of
related
capital expenditures) either involving more than $5,000 or
outside
the
Ordinary Course of Business;
(vi) the Target has not made any capital investment in, any loan
to,
or any
acquisition of the securities or assets of, any other Person
(or
series of
related capital investments, loans, and acquisitions) either
involving
more than $5,000 or outside the Ordinary Course of Business;
(vii) the Target has not issued any note, bond, or other debt
security
or created, incurred, assumed, or guaranteed any indebtedness
for
borrowed
money or capitalized lease obligation;
(viii) the Target has not delayed or postponed the payment of
accounts
payable and other Liabilities;
(ix) the Target has not cancelled, compromised, waived, or
released
any right
or claim (or series of related rights and claims) either
involving
more than $1,000 or outside the Ordinary Course of Business;
(x) the Target has not granted any license or sublicense of any
rights
under or with respect to any Intellectual Property;
(xi) there has been no change made or authorized in the charter
or
bylaws of
the Target;
(xii) the Target has not issued, sold, or otherwise disposed of
any
of its
capital stock, or granted any options, warrants, or other rights
to
purchase
or obtain (including upon conversion, exchange, or exercise)
any
of its
capital stock;
(xiii) the Target has not declared, set aside, or paid any
dividend
or made
any distribution with respect to its capital stock (whether in
cash or in
kind) or redeemed, purchased, or otherwise acquired any of its
capital
stock;
(xiv) the Target has not experienced any damage, destruction,
or
loss
(whether or not covered by insurance) to its property;
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(xv) the Target has not made any loan to, or entered into any
other
transaction with, any of its directors, officers, and employees
outside
the
Ordinary Course of Business;
(xvi) the Target has not entered into any employment contract
or
collective
bargaining agreement, written or oral, or modified the terms of
any
existing such contract or agreement;
(xvii) the Target has not granted any increase in the base
compensation of any of its directors, officers, and employees
outside the
Ordinary
Course of Business;
(xviii) the Target has not adopted, amended, modified, or
terminated
any bonus,
profit-sharing, incentive, severance, or other plan, contract,
or
commitment for the benefit of any of its directors, officers,
and
employees
(or taken any such action with respect to any other Employee
Benefit
Plan);
(xix) the Target has not made any other change in employment
terms
for any of
its directors, officers, and employees outside the Ordinary
Course of
Business;
(xx) the Target has not made or pledged to make any charitable
or
other
capital contribution outside the Ordinary Course of Business;
(xxi) the Target has not paid any amount to any third party
with
respect to
any Liability or obligation (including any costs and expenses
the Target
has incurred or may incur in connection with this Agreement and
the
transactions contemplated hereby) which would not constitute an
Assumed
Liability if in existence as of the Closing;
(xxii) there has not been any other material occurrence, event,
incident,
action, failure to act, or transaction outside the Ordinary
Course of
Business involving the Target; and
(xxiii) the Target has not committed to any of the foregoing.
(i)
Undisclosed Liabilities. The Target has no Liability (and there is
no
Basis for any present or future action,
suit, proceeding, hearing,
investigation, charge, complaint, claim, or
demand against any of them giving
rise to any Liability), except for (i)
Liabilities set forth on the face of the
Most Recent Balance Sheet and (ii)
Liabilities which have arisen after the Most
Recent Fiscal Month End in the Ordinary
Course of Business (none of which
results from, arises out of, relates to, is
in the nature of, or was caused by
any breach of contract, breach of warranty,
tort, infringement, or violation of
law).
(j) Legal
Compliance. Each of the Target and its predecessors has
complied
in all material respects with all
applicable laws (including rules, regulations,
codes, plans, injunctions, judgments,
orders, decrees, rulings, and charges
thereunder) of federal, state, local, and
foreign governments (and all agencies
thereof), and no action, suit, proceeding,
hearing, investigation,
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charge, complaint, claim, demand, or notice
has been filed or commenced against
any of them alleging any failure so to
comply.
(k) Tax
Matters.
(i) The Target has filed all Tax Returns that it was required
to
file. All
such Tax Returns were correct and complete in all respects. All
Taxes owed
by the Target (whether or not shown on any Tax Return) have
been paid.
The Target currently is not the beneficiary of any extension of
time
within which to file any Tax Return. No claim has ever been made
by
an
authority in a jurisdiction where the Target does not file Tax
Returns
that it is
or may be subject to taxation by that jurisdiction. There are
no
Security Interests on any of the assets of the Target that arose
in
connection
with any failure (or alleged failure) to pay any Tax.
(ii) The Target has withheld and paid all Taxes required to
have
been
withheld and paid in connection with amounts paid or owing to
any
employee,
independent contractor, creditor, stockholder, or other third
party.
(iii) The Target does not expect any authority to assess any
additional
Taxes for any period for which Tax Returns have been filed.
There is
no dispute or claim concerning any Tax Liability of the Target
either (A)
claimed or raised by any authority in writing or (B) based upon
personal
contact with any agent of such authority. ss.3(k) of the
Disclosure
Schedule lists all federal, state, local, and foreign income
Tax
Returns filed with respect to the Target for taxable periods ended
on
or after
December 31, 1996, indicates those Tax Returns that have been
audited,
and indicates those Tax Returns that currently are the subject
of
audit. The
Target has delivered to the Buyer correct and complete copies
of all
federal income Tax Returns, examination reports, and statements
of
deficiencies assessed against or agreed to by the Target since
December,
1996.
(iv) The Target has not waived any statute of limitations in
respect
of Taxes
or agreed to any extension of time with respect to a Tax
assessment
or deficiency.
(v) The Target is not a party to any Tax allocation or sharing
agreement.
The Target (A) has not been a member of an Affiliated Group
filing a
consolidated federal income Tax Return (other than a group the
common
parent of which was the Target) or (B) has any Liability for
the
Taxes of
any Person (other than any of the Target and its Subsidiaries)
under Reg.
ss.1.1502-6 (or any similar provision of state, local, or
foreign
law), as a transferee or successor, by contract, or otherwise.
(vi) S Corp. The Target has been an S Corporation since its
inception
within the meaning of Section 1361(a) of the Code. The Target
has no
unpaid balance of federal or state income Taxes resulting from
(i)
any
built-in gains under Section 1374 of the Code, (ii) any excess
net
passive
income under Section 1375 of the Code or (iii) any adjustments
under
Section 481(a) of the Code. Neither the Target nor any Target
Stockholder has taken, or failed to take, any action, or is aware
of any
circumstances, that
11
<PAGE>
would
cause the Target not to be classified as an S Corporation within
the
meaning of
Section 1361(a) of the Code.
(l) Real
Property.
(i) The Target does not own and has never owned any real
property.
(ii) ss.3(l)(ii) of the Disclosure Schedule lists and
identifies
briefly
all of the leases pursuant to which real property is leased or
subleased
to the Target. The Target has delivered to the Buyer correct
and
complete
copies of the leases and subleases listed in ss.3(l)(ii) of the
Disclosure
Schedule (as amended to date). With respect to each lease and
sublease
listed in ss.3(l)(ii) of the Disclosure Schedule:
(A) to the Knowledge of the Target, the lease or sublease is
legal, valid, binding, enforceable, and in full force and
effect;
(B) to the Knowledge of the Target, the lease or sublease will
continue to be legal, valid, binding, enforceable, and in full
force
and effect on identical terms following the consummation of the
transactions contemplated hereby (including the assignments and
assumptions referred to in ss.2 above);
(C) to the Knowledge the Target, no party to the lease or
sublease is in breach or default, and no event has occurred
which,
with notice or lapse of time, would constitute a breach or
default
or permit termination, modification, or acceleration ther
