|
<PAGE>
EXECUTION COPY
EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
by and among
AXSYS TECHNOLOGIES, INC.
as Buyer,
DIVERSIFIED OPTICAL PRODUCTS, INC.
and
THOSE PERSONS LISTED AS
SELLERS ON THE SIGNATURE PAGES
HERETO
as Sellers
Dated as of March 23, 2005
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I
DEFINITIONS........................................................
1
Section 1.1 Definition of Certain
Terms.................................. 1
ARTICLE II SALE AND PURCHASE OF THE
SHARES.................................... 8
Section 2.1 Place and
Date............................................... 8
Section 2.2 Purchase
Price............................................... 9
Section 2.3 Post-Closing
Adjustment...................................... 10
Section 2.4 Sellers'
Representative...................................... 12
Section 2.5 Waiver of Certain Transfer
Restrictions...................... 13
Section 2.6 Escrow
Arrangement........................................... 13
ARTICLE III REPRESENTATIONS AND WARRANTIES OF
SELLERS.......................... 13
Section 3.1 Corporate
Status............................................. 13
Section 3.2 Authorization,
etc........................................... 14
Section 3.3 No
Conflicts................................................. 14
Section 3.4 Financial
Statements......................................... 14
Section 3.5 Absence of Undisclosed
Liabilities........................... 15
Section 3.6
Taxes........................................................
15
Section 3.7 Absence of
Changes........................................... 16
Section 3.8
Litigation...................................................
17
Section 3.9 Compliance with Laws; Governmental Approvals and
Consents.... 18
Section 3.10
Assets.......................................................
18
Section 3.11
Contracts....................................................
18
Section 3.12 Territorial
Restrictions..................................... 20
Section 3.13
Inventories..................................................
20
Section 3.14
Receivables..................................................
20
Section 3.15 Product Warranties and
Liability............................. 21
Section 3.16 Intellectual
Property........................................ 21
Section 3.17
Insurance....................................................
22
Section 3.18 Environmental
Matters........................................ 22
Section 3.19 Employees, Labor Matters,
etc................................ 23
Section 3.20 Employee Benefit Plans and Related
Matters................... 23
Section 3.21 Brokers, Finders,
etc........................................ 26
Section 3.22 Suppliers and
Customers...................................... 26
</TABLE>
i
<PAGE>
TABLE OF CONTENTS (CONT'D)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Section 3.23 Order
Backlog................................................ 26
Section 3.24 Dealings with
Affiliates..................................... 26
Section 3.25 Capital Stock of the
Company................................. 26
Section 3.26 Other
Investments............................................ 27
Section 3.27
Disclosure...................................................
27
Section 3.28 Real and Personal
Property................................... 27
Section 3.29 Bank
Accounts................................................ 27
Section 3.30 Government
Contracts......................................... 28
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE
COMPANY...................... 28
Section 4.1 Authorization,
etc........................................... 28
Section 4.2 No Conflicts,
etc............................................ 29
ARTICLE V REPRESENTATIONS AND WARRANTIES OF
BUYER............................ 29
Section 5.1 Corporate
Status............................................. 29
Section 5.2 Authorization,
etc........................................... 29
Section 5.3 No Conflicts,
etc............................................ 29
Section 5.4
Litigation...................................................
30
Section 5.5 Brokers, Finders,
etc........................................ 30
Section 5.6
Financing....................................................
30
Section 5.7
Disclosure...................................................
30
Section 5.8
Investment...................................................
30
Section 5.9 Security
Clearance........................................... 31
ARTICLE VI
COVENANTS..........................................................
31
Section 6.1 Covenants of
Sellers......................................... 31
Section 6.2 Covenants of
Buyer........................................... 36
Section 6.3 HSR Act
Filing............................................... 37
ARTICLE VII CONDITIONS
PRECEDENT............................................... 38
Section 7.1 Conditions to Obligations of Each
Party...................... 38
Section 7.2 Conditions to Obligations of
Buyer........................... 38
Section 7.3 Conditions to Obligations of
Sellers......................... 41
ARTICLE VIII CONTINUATION OF EMPLOYEE COMPENSATION, BONUS AND
OTHER BENEFITS.... 42
ARTICLE IX
TERMINATION........................................................
42
Section 9.1
Termination..................................................
42
</TABLE>
ii
<PAGE>
TABLE OF CONTENTS (CONT'D)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Section 9.2 Effect of
Termination........................................ 43
ARTICLE X
INDEMNIFICATION....................................................
44
Section 10.1 Survival of Representations and Warranties,
etc.............. 44
Section 10.2 Indemnification By
Sellers................................... 44
Section 10.3 Indemnification By
Buyer..................................... 46
Section 10.4 Indemnification
Procedures................................... 47
Section 10.5 Exclusive
Remedy............................................. 48
ARTICLE XI TAX
MATTERS........................................................
48
Section 11.1 Tax
Indemnity................................................ 48
Section 11.2 Tax
Returns.................................................. 49
Section 11.3 Transfer
Taxes............................................... 50
Section 11.4 Cooperation;
Audits.......................................... 50
Section 11.5
Controversies................................................
50
Section 11.6 Code Section 338(h)(10)
Election............................. 51
Section 11.7 Purchase Price
Allocation.................................... 52
Section 11.8 Tax Sharing
Agreements....................................... 52
Section 11.9
Liability....................................................
52
ARTICLE XII
MISCELLANEOUS......................................................
52
Section 12.1
Expenses.....................................................
52
Section 12.2
Severability.................................................
53
Section 12.3
Notices......................................................
53
Section 12.4
Interpretation...............................................
54
Section 12.5
Headings.....................................................
54
Section 12.6 Entire
Agreement............................................. 54
Section 12.7
Counterparts.................................................
54
Section 12.8 Governing
Law................................................ 54
Section 12.9 Consent to Jurisdiction; Waiver of Jury
Trial................ 55
Section 12.10 Binding
Effect............................................... 55
Section 12.11
Assignment...................................................
55
Section 12.12 No Third Party
Beneficiaries................................. 55
Section 12.13 Amendment; Waivers,
etc...................................... 55
Section 12.14 Limitation on Representations and
Warranties................. 55
</TABLE>
iii
<PAGE>
EXHIBITS
EXHIBIT A Form of Escrow Agreement
EXHIBIT B-1 Form of Noncompetition Agreement for Fantozzi
EXHIBIT B-2 Form of Noncompetition Agreement for Kessler
EXHIBIT B-3 Form of Noncompetition Agreement for Parkas
SCHEDULES
SCHEDULE 2.2(a) Wire Instructions and Seller Expenses
SCHEDULE 2.2(c) Base Net Working Capital
SCHEDULE 6.1(b) Conduct of Business
SCHEDULE 7.2(f) Termination of Agreements
SCHEDULE 11.7 Allocation Schedule
SELLERS DISCLOSURE SCHEDULE
iv
<PAGE>
THIS STOCK PURCHASE AGREEMENT dated as of March 23, 2005, by and
among
Axsys Technologies, Inc., a Delaware corporation ("Buyer"),
Diversified Optical
Products, Inc., a New York corporation (the "Company"), and
those Persons listed
as Sellers on the signature pages hereof ("Sellers").
RECITALS
A. The Company is in the business of designing,
manufacturing,
marketing and selling a wide range of thermal imaging optical
lens assemblies,
cameras and related products (the "Business").
B. Sellers own all the issued and outstanding shares (the
"Shares") of
common stock, no par value, of the Company (the "Common
Stock").
C. Buyer wishes to purchase the Shares from Sellers and Sellers
wish to
sell the Shares to Buyer, all for the purchase price and upon
the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants,
agreements,
representations and warranties made herein and for other good
and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, and
subject to and upon the terms and conditions set forth in this
Agreement, the
parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definition of Certain Terms. The terms defined in
this Section
1.1, whenever used in this Agreement, shall have the respective
meanings
indicated below for all purposes of this Agreement. All
references herein to a
Section, Article, Exhibit or Schedule are to a Section, Article,
Exhibit or
Schedule of or to this Agreement, unless otherwise
indicated.
"Adjusted Purchase Price": has the meaning set forth in Section
2.2(a).
"AFC": has the meaning set forth in Section 5.6.
"Affiliate": of a specified Person means a Person that directly
or
indirectly through one or more intermediaries, controls, is
controlled by, or is
under common control with, such specified Person or a member of
such specified
Person's immediate family. "Control" (including the terms
"controlled by" and
"under common control with") means the possession, directly or
indirectly, of
the power to direct or cause the direction of the management
policies of a
Person, whether through the ownership of voting securities, by
contract or
credit arrangement, as trustee or executor, or otherwise.
Following the Closing,
the Company shall be an Affiliate of Buyer.
"Agreement": means this Stock Purchase Agreement (including the
Exhibits
and the Schedules), as the same from time to time may be
amended, supplemented
or waived.
"Allocation Schedule": has the meaning set forth in Section
11.7.
"Applicable Law": means any and all applicable provisions of any
and all
(i) constitutions, treaties, statutes, laws (including the
common law), rules,
regulations, ordinances, codes or orders of any Governmental
Authority, (ii)
Governmental Approvals, and (iii) orders,
<PAGE>
decisions, injunctions, judgments, awards and decrees of or
agreements with any
Governmental Authority.
"Atlantic": has the meaning set forth in Section 3.21.
"Backlog": has the meaning set forth in Section 3.23.
"Base Net Working Capital": has the meaning set forth in Section
2.2(c).
"BoA": has the meaning set forth in Section 5.6.
"Business": has the meaning set forth in Recital A of this
Agreement.
"Business Day": means any day other than Saturday, Sunday or any
federal
holiday.
"Buyer": has the meaning set forth in the first paragraph of
this
Agreement.
"Buyer Export Control Counsel": means Venable LLP, or any
successor
counsel reasonably acceptable to Sellers.
"Buyer Indemnitees": has the meaning set forth in Section
10.2(a).
"Buyer's Accountant": has the meaning set forth in Section
2.3(b).
"Cash": means, as of any date of determination, the sum of the
Company's
cash, cash equivalents and investments.
"Claims": has the meaning set forth in Section 10.2(a).
"Closing": has the meaning set forth in Section 2.1.
"Closing Date": has the meaning set forth in Section 2.1.
"Closing Date Balance Sheet": has the meaning set forth in
Section 2.3(b).
"Closing Date Net Working Capital": means Net Working Capital as
of the
Effective Date (including, without duplication, as a current
liability any New
Hampshire Business Profits taxes of the Company relating to the
Section
338(h)(10) Election) calculated using the Closing Date Balance
Sheet and in the
same manner as the Base Net Working Capital as set forth on
Schedule 2.2(c)
(excluding the application of the adjustment amount).
"Closing Payment": has the meaning set forth in Section
2.2(a).
"Code": means the Internal Revenue Code of 1986, as amended.
"Common Stock": has the meaning set forth in Recital B of this
Agreement
and also shall include any securities issued or issuable with
respect to the
Common Stock, by way of a stock dividend, stock split,
combination of shares,
recapitalization, restructuring, merger, consolidation or other
reorganization
of the Company.
"Company": has the meaning set forth in the first paragraph of
this
Agreement.
"Company Export Control Counsel": has the meaning set forth in
Section
3.9(c).
"Company Intellectual Property": has the meaning set forth in
Section
3.16(a).
"Company's Accountant": shall mean Nardella & Taylor,
L.L.P.
"Confidential Matters": has the meaning set forth in Section
7.2(g)(ii).
2
<PAGE>
"Consent": means any consent, approval, authorization, waiver,
permit,
grant, franchise, concession, agreement, license, exemption or
order of,
registration, certificate, declaration or filing with, or report
or notice to,
any Person.
"Contract": means any agreement, contract, commitment, order,
license,
lease or other instrument or arrangement (whether written or
oral).
"December Balance Sheet": means the audited balance sheet of the
Company
at December 31, 2004 included in the Financial Statements, a
copy of which has
been delivered to Buyer or its representatives.
"$" or "dollars": means lawful money of the United States of
America.
"Effective Date": has the meaning set forth in Section 2.1.
"Employee Benefit Plans": has the meaning set forth in Section
3.20(a).
"Environmental Laws": means any and all Applicable Laws relating
to the
protection of the environment and natural resources (which
includes ambient air,
surface water, groundwater, wetlands, vegetation, wildlife, land
surface and
subsurface strata), or to any emission, discharge, generation,
processing,
storage, holding, abatement, existence, Release, threatened
Release, arranging
for the disposal or transportation of any Hazardous
Substances.
"Environmental Liabilities and Costs": means any and all Claims
imposed
by, under or pursuant to Environmental Laws, based on, arising
out of or
otherwise in respect of (i) the ownership or operation of the
Business or any
real property owned, leased or operated by the Company, which
has accrued prior
to the Closing Date, or (ii) the environmental conditions
existing on the
Closing Date on, under, above, or about any real property owned,
leased or
operated by the Company.
"ERISA": means the Employee Retirement Income Security Act of
1974, as
amended.
"Escrow Agent": has the meaning set forth in Section 2.6.
"Escrow Agreement": has the meaning set forth in Section
2.6.
"Escrow Amount": has the meaning set forth in Section 2.6.
"Excluded Representations": has the meaning set forth in Section
10.1.
"Export Control Audit": has the meaning set forth in Section
3.9(c).
"Export Matters MAE": means any order, determination, ruling,
judgment or
action by any U.S. Governmental Authority against or with
respect to the
Company, as a result of the violation by the Company of any U.S.
Export Control
Laws: (i) that debars the Company from exporting any of its
products, technology
or services that are controlled under U.S. Export Control Laws
or selling any of
its products, technology or services to the United States or any
agency,
department, board, commission or instrumentality of the United
States, (ii) that
suspends the Company from exporting any of its products,
technology or services
that are controlled under U.S. Export Control Laws or selling
any of its
products, technology or services to the United States or any
agency, department,
board, commission or instrumentality of the United States, which
suspensions, in
the aggregate, would reasonably be expected to result in a
material decline in
the revenues or operating income of the Company, (iii) that, in
the good faith
determination of Buyer, after consultation with the Company
Export Control
Counsel and the Buyer Export
3
<PAGE>
Control Counsel, would result in the imposition of fees,
penalties or other
monetary assessments against the Company in excess of $5
million, or (iv) that
would reasonably be expected to result in a material decline in
the revenues or
operating income of the Company.
"Export Matters Memorandum": means the confidential memorandum
of the
Company dated March 15, 2005 in respect to certain export
matters, and referred
to in Section 3.9 of Sellers Disclosure Schedule.
"Final Closing Date Balance Sheet": has the meaning set forth in
Section
2.3(d).
"Final Closing Date Net Working Capital": means Net Working
Capital as of
the Effective Date (including, without duplication, as a current
liability any
New Hampshire Business Profits taxes of the Company relating to
the Section
338(h)(10) Election) calculated using the Final Closing Date
Balance Sheet and
in the same manner as the Base Net Working Capital as set forth
on Schedule
2.2(c) (excluding the application of the adjustment amount).
"Financial Statements": has the meaning set forth in Section
3.4.
"Financing": has the meaning set forth in Section 5.6.
"GAAP": means generally accepted accounting principles as in
effect in the
United States.
"Governmental Approval": means any Consent of, with or to any
Governmental
Authority.
"Governmental Authority": means any nation or government, any
state or
other political subdivision thereof, any entity exercising
executive,
legislative, judicial, regulatory or administrative functions of
or pertaining
to government (including any government authority, agency,
department, board,
commission or instrumentality of the United States, any State of
the United
States or any political subdivision thereof), or any tribunal or
arbitrator(s)
of competent jurisdiction, or any self-regulatory
organization.
"Government Contract": means any Contract with the Unites
States,
including any government authority, agency, department, board,
commission or
instrumentality of the United States.
"Hazardous Substance": means any substance that: (i)
requires
investigation, removal or remediation under any Environmental
Law, or is
defined, listed or identified as a "hazardous waste" or
"hazardous substance"
thereunder; or (ii) is toxic, explosive, corrosive, flammable,
infectious,
radioactive, carcinogenic, mutagenic, or otherwise hazardous and
is regulated by
any Governmental Authority under any Environmental Law.
"HLHZ": has the meaning set forth in Section 3.21.
"HSR Act": means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976,
as amended.
"Indebtedness": means, as of any date of determination, the
Company's
indebtedness for borrowed money, capitalized leases or other
obligations which
would be reflected as indebtedness on the Company's balance
sheet prepared in
accordance with GAAP and including, without limitation, all
indebtedness of the
Company to Sovereign Bank, but specifically excluding trade
payables, accrued
expenses and other similar liabilities incurred in the ordinary
course of
business.
4
<PAGE>
"include", "includes", "included" and "including": shall be
construed as
if followed by the phrase "without being limited to".
"Indemnified Party": has the meaning set forth in Section
10.4.
"Indemnifying Party": has the meaning set forth in Section
10.4.
"Indemnified Officers and Directors": has the meaning set forth
in Section
6.2(e).
"Intellectual Property": means: (i) any and all trademarks,
service marks,
brand names, certification marks, trade dress, assumed names,
trade names, logos
and other indications of origin, sponsorship or affiliation,
together with the
goodwill associated therewith (whether the foregoing are
registered or
unregistered); registrations thereof in any jurisdiction and
applications to
register any of the foregoing in any jurisdiction, and any
extension,
modification or renewal of any such registration or application;
(ii) any and
all inventions, developments, improvements, discoveries, know
how, concepts and
ideas, whether patentable or not in any jurisdiction; (iii) any
and all patents,
revalidations, industrial designs, industrial models and utility
models, patent
applications (including reissues, continuations, divisions,
continuations-in-part and extensions) and patent disclosures;
(iv) any and all
mask works and other semiconductor chip rights and registrations
thereof; (v)
any and all non-public information, trade secrets and
proprietary or
confidential information and rights in any jurisdiction to limit
the use or
disclosure thereof by any Person; (vi) any and all writings and
other works,
whether copyrighted, copyrightable or not in any jurisdiction,
such works
including computer programs and software (including source code,
object code,
data and databases); (vii) any and all copyrights, copyright
registrations and
applications for registration of copyrights in any jurisdiction,
and any
renewals or extensions thereof; (viii) any and all other
intellectual property
or proprietary rights; (ix) any and all agreements, licenses,
immunities,
covenants not to sue and the like relating to any of the
foregoing; and (x) any
and all Claims or causes of action arising out of or related to
any infringement
or misappropriation of any of the foregoing.
"Interim Balance Sheet": means the interim balance sheet of the
Company as
of February 28, 2005 included in the Financial Statements, a
copy of which has
been delivered to Buyer or its representatives.
"Interim Financial Statements": has the meaning set forth in
Section 3.4.
"Inventories": means all inventories of raw materials, work in
process,
finished products, goods, spare parts, replacement and component
parts, and
office and other supplies (whether on hand, in-transit or on
order) existing on
the Closing Date.
"IRS": means the Internal Revenue Service.
"Knowledge of Sellers": means to the facts and circumstances
that Sellers
knew or should have known after reasonable due inquiry of the
following officers
of the Company: Louis R. Fantozzi, Lawrence Kessler, Paul
Parkas, William Mather
and Jennifer Richardson.
"Leased Real Property": means all premises leased pursuant to
the Leases.
"Leases": means the real property leases, subleases, use
agreements,
licenses and occupancy agreements pursuant to which the Company
is the current
lessee, sublessee, user, licensee or occupant.
5
<PAGE>
"Lien": means any mortgage, pledge, hypothecation, right of
others, claim,
security interest, encumbrance, lease, sublease, license,
occupancy agreement,
adverse claim or interest, easement, covenant, encroachment,
burden, title
defect, title retention agreement, voting trust agreement,
interest, equity,
option, lien, right of first refusal, charge or other
restriction or limitation.
"Material Adverse Effect": means any event, circumstance,
occurrence,
fact, condition, change or effect, that is materially adverse to
the Business,
operations, results of operations, financial condition,
properties, assets or
liabilities of the Company, taken as a whole, excluding an
Export Matters MAE.
"Material Contract": has the meaning set forth in Section
3.11(a).
"Net Working Capital": means, as of any date of determination,
with
respect to the Company (a) the Company's total current assets
(including,
without limitation, accounts receivable (less allowances for
doubtful accounts
and deductions), inventories and prepaid expenses), excluding
Cash, less (b) the
Company's total current liabilities (including, without
limitation, accounts
payable, accrued New Hampshire Business Profits taxes relating
to the operation
of the business and accrued liabilities and expenses (which
shall include any
accrued salary, bonus, vacation and other employee
compensation), but excluding
current portions of Indebtedness, all as determined in
accordance with GAAP.
"Net Working Capital Adjustment": has the meaning set forth in
Section
2.2(c).
"Neutral Auditor": has the meaning set forth in Section
2.3(d).
"Noncompetition Agreements": has the meaning set forth in
Section
7.2(g)(vii).
"Objection Notice": has the meaning set forth in Section
2.3(c).
"Payoff Letters": has the meaning set forth in Section
2.2(b).
"Pension Plan": has the meaning set forth in Section
3.20(c).
"PCBs": has the meaning set forth in Section 3.18(b).
"Permitted Closing Liens": means those Permitted Liens specified
in
clauses (i), (iv), (v) and (vi) of the definition thereof.
"Permitted Liens": means (i) Liens, or obligations secured
thereby
(including accrued interest and other charges), reserved against
in the December
Balance Sheet, to the extent so reserved, (ii) Liens for Taxes
not yet due and
payable, (iii) Liens for Taxes which are being contested in good
faith and by
appropriate proceedings if adequate reserves with respect
thereto are maintained
on the Company's books in accordance with GAAP, (iv) mechanics,
carriers,
workers, repairers and other statutory liens incurred in the
ordinary course of
business consistent with past practice relating to obligations
as to which there
is no default on the part of the Company, (v) contract rights of
third parties
to Contracts, or (vi) Liens that, individually and in the
aggregate, do not and
would not materially detract from the value of any of the
property or assets of
the Company or materially interfere with the use thereof as
currently used or
contemplated to be used or otherwise.
"Person": means any natural person, firm, partnership,
limited
partnership, association, corporation, company, limited
liability company,
trust, business trust, Governmental Authority or other
entity.
6
<PAGE>
"Post-Closing Straddle Period": has the meaning set forth in
Section
11.1(b).
"Post-Closing Tax Period": has the meaning set forth in Section
11.5(a).
"Pre-Closing Straddle Period": has the meaning set forth in
Section
11.1(b).
"Pre-Closing Tax Period": has the meaning set forth in Section
11.1(a).
"Proceeding": means any claim, demand, charge, complaint,
action, suit,
proceeding, hearing, audit, hearing or investigation, whether
judicial or
administrative, of any Person.
"Purchase Price": has the meaning set forth in Section
2.2(a).
"Release": means any releasing, disposing, discharging,
injecting,
spilling, leaking, leaching, pumping, dumping, emitting,
escaping, emptying,
seeping, dispersal, migration, transporting, including the
moving of any
materials through, into or upon, any land, soil, surface water,
ground water or
air, or otherwise entering into the environment.
"Released Persons" has the meaning set forth in Section
6.1(j).
"Resolution Period": has the meaning set forth in Section
2.3(c).
"Section 338(h)(10) Election": has the meaning set forth in
Section 11.6.
"Securities Act": means the Securities Act of 1933, as
amended.
"Seller Expenses": means (i) all fees and expenses payable by
the Company
and/or Sellers to any legal counsel, accountants, investment
bankers or
consultants, including the collective amount payable by the
Company and/or
Sellers to Posternak, Blankstein & Lund LLP, the Company
Export Control Counsel,
the Company's Accountant, HLHZ and Atlantic and (ii) all amounts
payable to
employees and/or directors of the Company as a result of Sellers
entering into
this Agreement and the other Transaction Documents and/or the
consummation of
the transactions contemplated hereby and thereby (including any
and all
severance payments the Company may have to make under any of the
Employee
Benefit Plans), as well as all costs, taxes, Code Sections 280G
or 4999 gross-up
payments and expenses of the Company incurred as a result of any
such payments.
"Sellers": has the meaning set forth in the first paragraph of
this
Agreement.
"Sellers Disclosure Schedule": has the meaning set forth in the
preamble
to Article III.
"Sellers' Indemnitees": has the meaning set forth in Section
10.3(a).
"Sellers' Representative": has the meaning set forth in Section
2.4(a).
"Sellers' Threshold Amount": has the meaning set forth in
Section 10.2(b).
"Shareholders Agreement": means the Diversified Optical
Products, Inc.
Shareholder's Agreement dated December 13, 2001, as amended from
time to time.
"Shares": has the meaning set forth in Recital B of this
Agreement and
also shall include any securities issued or issuable with
respect to the Shares,
by way of a stock dividend, stock split, combination of
shares,
recapitalization, restructuring, merger, consolidation or other
reorganization
of the Company.
"Straddle Period": has the meaning set forth in Section
11.1(b).
"Straddle Period Tax Matter": has the meaning set forth in
Section
11.5(b).
7
<PAGE>
"Subsidiaries": means each corporation or other Person in which
a Person
owns or controls, directly or indirectly, capital stock or other
equity
interests representing at least 50% of the outstanding voting
stock or other
equity interests.
"Survival Period": has the meaning set forth in Section
10.1.
"Tax Matter": has the meaning set forth in Section 11.5(a).
"Tax Return": means any return, report, declaration, form, claim
for
refund or information return or statement relating to Taxes,
including any
schedule or attachment thereto, and including any amendment
thereof.
"Taxes": means any federal, state, provincial, local or foreign
income,
alternative, minimum, accumulated earnings, personal holding
company, franchise,
capital stock, net worth, capital, profits, windfall profits,
gross receipts,
value added, business enterprise, dividend, sales, use, goods
and services,
excise, customs duties, transfer, conveyance, mortgage,
registration, stamp,
documentary, recording, premium, severance, environmental
(including taxes under
Section 59A of the Code), real property, personal property, ad
valorem,
intangibles, rent, occupancy, occupational, employment,
unemployment insurance,
social security, disability, workers' compensation, payroll,
health care,
withholding, estimated or other similar tax, duty or other
governmental charge
or assessment or deficiencies thereof, and including any
interest, penalties or
additions to tax attributable to the foregoing.
"Termination Date": has the meaning set forth in Section
9.1(b).
"Transaction Documents": means, with respect to any Person,
this
Agreement, the Escrow Agreement and the Noncompetition
Agreements (including all
Schedules and Exhibits hereto and thereto), together with any
other agreements,
instruments, certificates and documents executed by such Person
in connection
herewith or therewith.
"Treasury Regulations": means the regulations prescribed
pursuant to the
Code.
"TSS Matter": has the meaning set forth in Section 3.9(c).
"U.S. Export Control Laws": means the Export Administration
Regulations, the
International Traffic in Arms Regulations, the Cuban Assets
Control Regulations,
the Federal Republic of Yugoslavia (Serbia and Montenegro)
Kosovo Sanctions
Regulations, the Foreign Assets Control Regulations (as applied
to North Korea),
the Iraqi Sanctions Regulations, the Iranian Transactions
Regulations, the
Libyan Sanctions Regulations, and the Sudanese Sanctions
Regulations, including
restrictions maintained against persons identified on the U.S.
Department of the
Treasury's Office of Foreign Assets Control List of Specially
Designated
Nationals and Other Blocked Persons.
ARTICLE II
SALE AND PURCHASE OF THE SHARES
Section 2.1 Place and Date. On the Closing Date, Sellers shall
sell the
Shares to Buyer, and Buyer shall purchase the Shares from
Sellers. The closing
of the sale and purchase of the Shares (the "Closing") shall
take place
beginning at 10:00 A.M. local time on the later of
8
<PAGE>
May 9, 2005, or seven (7) days after which all of the conditions
in Article VI
are either fulfilled or waived (or, if such seventh day is not a
Business Day,
then the next Business Day thereafter) at the offices of
Posternak Blankstein &
Lund LLP, Prudential Tower, 800 Boylston St., Boston,
Massachusetts, or such
other time and place upon which the parties may agree. The day
on which the
Closing actually occurs is herein sometimes referred to as the
"Closing Date".
The Closing shall be effective as of the close of business on
the Closing Date;
provided, however, that the Closing shall be effective for
purposes of
calculating the Closing Date Balance Sheet as of the close of
business on the
Business Day immediately preceding the Closing Date (the
"Effective Date").
Section 2.2 Purchase Price.
(a) Buyer shall pay to Sellers the aggregate amount of Sixty
Million
Dollars ($60,000,000) (the "Purchase Price") plus an amount
equal to the Cash,
less an amount equal to the Indebtedness, plus or minus, as
applicable, an
amount equal to the Net Working Capital Adjustment, each as of
the Effective
Date (as adjusted pursuant to Section 2.3, the "Adjusted
Purchase Price"), and
each of which shall be subject to post-Closing adjustment as
provided in Section
2.3. Sellers hereby direct Buyer to pay, at the Closing, (i) the
Adjusted
Purchase Price, as determined on the Closing Date, less the
Escrow Amount as set
forth in Section 2.6 and less the amount of the Seller Expenses
(but only to the
extent not included in the Net Working Capital Adjustment) to
Sellers' counsel,
Posternak Blankstein & Lund LLP by wire transfer of
immediately available funds
to a United States bank account or accounts designated by
Posternak Blankstein &
Lund LLP as set forth in Schedule 2.2(a) (the "Closing
Payment"); (ii) the
Escrow Amount to the Escrow Agent pursuant to Section 2.6 and
the terms of the
Escrow Agreement; (iii) the amount of Seller Expenses to the
persons and in the
amounts set forth in Schedule 2.2(a).
(b) For purposes of determining (i) Cash, such amount shall be
the
amount reported by the Company's banks as of the Effective Date;
(ii)
Indebtedness, such amount shall be the payoff amount as of the
Closing Date
pursuant to payoff letter(s) received from the Company's
lender(s) (the "Payoff
Letters"); and (iii) the Net Working Capital Adjustment, such
amount shall be
estimated as of the Effective Date, based upon the Company's
most recent
internally prepared balance sheet and the books and records of
the Company, such
schedule to be prepared in good faith by Sellers in the same
manner as the Base
Net Working Capital set forth on Schedule 2.2(c) and consistent
with past
practices and the definition of such amounts as set forth in
this Agreement, and
reviewed by Buyer, not less than three (3) days prior to
Closing.
(c) In determining the Adjusted Purchase Price, Buyer and
Sellers have
agreed that the Base Net Working Capital shall be equal to
$7,000,000, as set
forth on Schedule 2.2(c) (the "Base Net Working Capital"). To
the extent that
the Closing Date Net Working Capital is greater than the Base
Net Working
Capital, the Adjusted Purchase Price shall be increased on a
dollar-for-dollar
basis by the amount of such excess and to the extent that the
Closing Date Net
Working Capital is less than the Base Net Working Capital, the
Adjusted Purchase
Price shall be reduced on a dollar-for-dollar basis by the
amount of such
shortfall (the "Net Working Capital Adjustment").
9
<PAGE>
(d) Simultaneously with the Closing, Buyer shall pay, or cause
the
Company to pay, the amount of any Indebtedness in accordance
with the Payoff
Letters.
Section 2.3 Post-Closing Adjustment.
(a) Within five (5) business days after the Final Closing Date
Balance
Sheet is agreed to by Sellers' Representative and Buyer or is
determined by the
Neutral Auditor, the Adjusted Purchase Price shall be (i)
decreased
dollar-for-dollar by the amount that the Final Closing Date Net
Working Capital
is less than the Closing Date Net Working Capital; (ii)
increased
dollar-for-dollar by the amount that the Final Closing Date Net
Working Capital
is greater than the Closing Date Net Working Capital; and (iii)
decreased or
increased, as appropriate, by the amount by which the Cash is
less or more,
respectively, than the amount thereof on the Effective Date as
determined by
reference to the Final Closing Balance Sheet. The amount of any
decrease to the
Adjusted Purchase Price pursuant to this Section 2.3(a) shall be
paid, jointly
and severally, by Sellers to Buyer; provided, however, that if
Sellers do not
pay such amount, Buyer shall have the right, in its sole
discretion, to request
such amount be paid from the Escrow Amount by submission of a
claim by Buyer to
the Escrow Agent pursuant to the Escrow Agreement. Sellers
hereby direct Buyer
to pay the amount of any increase to the Adjusted Purchase Price
pursuant to
this Section 2.3(a) by wire transfer in immediately available
funds to a United
States bank account or accounts designated by Posternak
Blankstein & Lund LLP as
set forth in Schedule 2.2(a).
(b) (i) As soon as practicable, and in any event within 60 days
after
the Closing Date, Sellers shall, at their cost and expense,
cause the
Company's Accountant to prepare (A) a balance sheet of the
Company as of
the Effective Date, determined on a pro forma basis as if the
parties
hereto had not consummated the transactions contemplated by this
Agreement
and prepared on an accrual basis in accordance with GAAP and
the
provisions of this Section 2.3(b); provided, however, consistent
with the
determination of the Net Working Capital Adjustment, the Closing
Date
Balance Sheet shall take into account any New Hampshire Business
Profits
taxes of the Company relating to the Section 338(h)(10) Election
(the
"Closing Date Balance Sheet") and (B) a schedule of the Closing
Date Net
Working Capital. In connection with the preparation of the
Closing Date
Balance Sheet, Buyer may have Ernst & Young LLP, their
nationally
recognized independent accounting firm ("Buyer's Accountant") be
present
during and accompany the Company's Accountant in the physical
inventory
counting (which shall begin on April 30, 2005, and the results
of such
physical inventory counting shall be rolled forward or back to
the
Effective Date; provided, however, the Company's Accountant and
Buyer's
Accountant may mutually agree to other agreed upon procedures
for
determination of the Closing Date Balance Sheet inventory in
lieu of a
physical inventory count, including, any procedures to
roll-forward or
roll-back the inventory balance from the most recent physical
inventory
reviewed by the Company's Accountant). For purposes of this
Agreement,
GAAP shall mean GAAP applied on a basis consistent with the
December
Balance Sheet and related statements of operations and cash
flows (except
for footnotes and other presentation items). Sellers and
Company's
Accountant, shall have reasonable access during normal business
hours to
the books and records and appropriate employees of the Company,
to the
extent reasonably required to complete the Closing Date Balance
Sheet.
10
<PAGE>
(ii) The accounting policies, methods and practices and
their
related applications used by the Company's Accountant to prepare
the
Closing Date Balance Sheet and the schedule of Closing Date Net
Working
Capital shall be consistent with those underlying the December
Balance
Sheet, provided, however, that reserve amounts may only be
changed and
adjusted to reflect actual changes in the facts and
circumstances upon
which such reserves are based, and without giving effect to
the
transactions contemplated by this Agreement. In the event that
during the
audit, the Company's Accountant determines that a change to the
accounting
policies, methods or practices is warranted in order for the
Company's
Accountant to render an opinion on the Closing Date Balance
Sheet, then
such change in accounting policies, methods or practices shall
be applied
on a consistent basis to the December Balance Sheet and the Base
Net
Working Capital shall be adjusted accordingly.
(iii) The Closing Date Balance Sheet shall be accompanied by
the
report of the Company's Accountant, which shall state that the
Closing
Date Balance Sheet presents fairly in all material respects the
financial
condition of the Company at the Closing Date in conformity with
GAAP as
defined in this Section 2.3(b). Sellers and Company's
Accountant, shall
have reasonable access during normal business hours to the books
and
records and appropriate employees of the Company, to the extent
reasonably
required to complete the Closing Date Balance Sheet.
(c) After receipt of the Closing Date Balance Sheet and the
schedule of
Closing Date Net Working Capital, Buyer and Buyer's Accountant
shall have 30
days to review them. Buyer and Buyer's Accountant shall have
reasonable access
during normal business hours to the books and records of the
Company and the
workpapers of the Company's Accountant and appropriate employees
of the
Company's Accountant, to the extent reasonably required to
complete their review
of the Closing Date Balance Sheet and the schedule of Closing
Date Net Working
Capital. All fees, costs and expenses incurred by Buyer relating
to Buyer's
review of the Closing Date Balance Sheet and the schedule of
Closing Date Net
Working Capital shall be borne by Buyer. Unless Buyer delivers
notice to the
Sellers' Representative on or prior to the 30th day after
receipt of the Closing
Date Balance Sheet specifying in reasonable detail all disputed
items and the
basis therefore (the "Objection Notice"), the parties shall be
deemed to have
accepted and agreed to the Closing Date Balance Sheet and the
schedule of
Closing Date Net Working Capital. If Buyer so notifies the
Sellers'
Representative of any objections to the Closing Date Balance
Sheet, the parties
shall, within 30 days following the date of such notice (the
"Resolution
Period"), attempt to resolve their differences and any
resolution by them as to
any disputed amount shall be final, binding, conclusive and
non-appealable for
all purposes under this Agreement.
(d) If at the conclusion of the Resolution Period the parties
have not
reached an agreement on Buyer's objections, then all amounts
remaining in
dispute may, at the election of any party, be submitted to a
mutually acceptable
nationally recognized independent accounting firm, other than
the Company's
Accountant and Buyer's Accountant (the "Neutral Auditor"). Each
party agrees to
execute, if requested by the Neutral Auditor, a reasonable
engagement letter.
All fees and expenses relating to the work, if any, to be
performed by the
Neutral Auditor shall be borne equally by Sellers (on the one
hand) and Buyer
(on the other hand); provided, however, that Buyer shall bear
all of such fees
and expenses if the Neutral Auditor determines
11
<PAGE>
that Buyer acted in bad faith in delivering to Sellers an
Objection Notice.
Except as provided in the preceding sentence, all other costs
and expenses
incurred by the parties in connection with resolving any dispute
hereunder
before the Neutral Auditor shall be borne by the party incurring
such cost and
expense. The Neutral Auditor shall act as an arbitrator to
determine, based
solely on the presentations by Sellers and Buyer and the terms
of this
Agreement, only those issues still in dispute. The Neutral
Auditor's
determination shall be made within 30 days of its engagement
(which engagement
shall be made no later than five (5) business days after the end
of the
Resolution Period), or as soon thereafter as possible, shall be
set forth in a
written statement delivered to Sellers and Buyer and shall be
final, binding,
conclusive and non-appealable for all purposes hereunder. The
term "Final
Closing Date Balance Sheet" shall mean the definitive Closing
Date Balance Sheet
agreed to by Sellers and Buyer in accordance with Section 2.3(c)
or the
definitive Closing Date Balance Sheet resulting from the
determination made by
the Neutral Auditor in accordance with this Section 2.3(d) (in
addition to those
items theretofore agreed to by Sellers and Buyer).
Section 2.4 Sellers' Representative.
(a) Each Seller hereby irrevocably constitutes and appoints
Louis R.
Fantozzi, and Louis R. Fantozzi hereby accepts such appointment
as the sole,
exclusive, true and lawful agent, representative and
attorney-in-fact for all
Sellers and each of them ("Sellers' Representative") with
respect to any and all
matters relating to, arising out of, or in connection with, this
Agreement, and
for purposes of taking any action or omitting to take action on
behalf of
Sellers under this Agreement including, without limitation, (i)
service of
process upon Sellers, (ii) executing and delivering to Buyer or
any other Person
on behalf of any of or all Sellers any and all instruments,
certificates,
documents, agreements and amendments thereto with respect to the
transactions
contemplated hereby, including the Escrow Agreement and any
instrument,
certificate, document or agreement referred to in Section 7.2,
and (iii) receipt
of all notices on behalf of Sellers with respect to any matter,
suit, claim,
action or proceeding arising with respect to the sale of the
Shares or any
transaction contemplated by this Agreement, including the
defense, settlement or
compromise of any claim, action or proceeding pursuant to
Article IX. All
actions, notices, communications and determinations by or on
behalf of Sellers
shall be given or made by Sellers' Representative and all such
actions, notices,
communications and determinations by Sellers' Representative
shall conclusively
be deemed to have been authorized by, and shall be binding upon,
any of and all
Sellers.
(b) If Sellers' Representative dies or becomes legally
incapacitated,
then those Sellers holding a majority of the Shares immediately
prior to Closing
promptly shall designate in writing to Buyer a single individual
to replace the
deceased or legally incapacitated Sellers' Representative as the
successor
Sellers' Representative hereunder. If at any time there shall
not be a Sellers'
Representative or Sellers so fail to designate a successor
Sellers'
Representative, then Buyer may have a court of competent
jurisdiction appoint a
Sellers' Representative hereunder.
(c) Buyer shall be entitled to rely on Sellers'
Representative's
authority as the agent, representative and attorney-in-fact of
Sellers for all
purposes hereunder and shall have no liability for any such
reliance. None of
Sellers may revoke the authority of Sellers' Representative.
12
<PAGE>
(d) Each Seller hereby ratifies and confirms, and hereby agrees
to
ratify and confirm, any action taken by Sellers' Representative
in the exercise
of the power-of-attorney granted to Sellers' Representative
pursuant to this
Section 2.4, which power-of-attorney, being coupled with an
interest, is
irrevocable and shall survive the death, incapacity or
incompetence of such
Seller. Any payment made to Sellers' Representative pursuant to
this Agreement
shall be deemed to have been made to Sellers.
Section 2.5 Waiver of Certain Transfer Restrictions. As of
Closing, each
Seller hereby irrevocably waives any and all restrictions on
transfer, first
refusal rights, first offer rights, repurchase rights,
preemptive rights or
similar rights (if any) and any and all similar restrictions,
rights or
provisions contained in the Company's By-laws, the Shareholders'
Agreement or
any outstanding stock restriction agreement, stock purchase
agreement or similar
agreement or instrument or otherwise affecting any Seller's
right to transfer or
to sell his Shares to any third party purchaser.
Section 2.6 Escrow Arrangement. Subject to the terms and
conditions
herein, at the Closing, Buyer shall deposit, on behalf of
Sellers, with KeyBank,
N. A., a national banking association, as escrow agent (the
"Escrow Agent"), an
amount equal to Five Million Dollars ($5,000,000) (the "Escrow
Amount"). The
Escrow Amount shall be held in accordance with the terms of the
escrow
agreement, substantially in the form attached hereto as EXHIBIT
A (as the same
may be amended from time to time, the "Escrow Agreement").
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLERS
Except as set forth in the "Sellers Disclosure Schedule" (which
shall
include an identification by Section reference to the
representations and
warranties to which such exceptions and qualifications relate),
Sellers, except
as otherwise specifically provided for in this Agreement,
jointly and severally,
represent and warrant to Buyer to the matters as set forth in
this Article III.
Section 3.1 Corporate Status.
(a) The Company is a corporation duly organized, validly
existing and in
good standing under the laws of the jurisdiction of its
organization. The
Company has full corporate power and authority to carry on the
Business and to
own or lease and to operate the properties of the Company.
(b) Section 3.1(b) of the Sellers Disclosure Schedule sets forth
all
jurisdictions in which the Company is foreign qualified. The
Company is duly
qualified or licensed to do business and is in good standing in
each of the
jurisdictions in which the operation of the Business or the
character of the
properties owned, leased or operated by it in connection with
the Business makes
such qualification or licensing necessary, except where the
failure to be so
qualified or licensed to do business would not have a Material
Adverse Effect.
(c) The Company has delivered to Buyer true, complete and
correct copies
of its charter and by-laws (or other organizational documents),
in each case as
amended and in effect
13
<PAGE>
on the date hereof and on the Closing Date. The Company is not
in violation of
any of the provisions of its charter or by-laws or other
organizational
documents. The Company has delivered to Buyer true, complete and
correct copies
of minutes of all meetings of its directors (including
committees thereof) and
shareholders (or written actions or consents in lieu of
meetings) since January
1, 2000.
Section 3.2 Authorization, etc. Each Seller represents,
severally and not
jointly, that (a) he is an adult individual and is competent to
execute and
deliver this Agreement and the other Transaction Documents, to
perform fully his
obligations hereunder and thereunder and to consummate the
transactions
contemplated hereby and thereby, (b) he has duly executed and
delivered the this
Agreement and, when executed and delivered, will have duly
executed and
delivered the other Transaction Documents, and (c) this
Agreement is and, when
executed and delivered by such Seller, the other Transaction
Documents will be,
legal, valid and binding obligations of such Seller, enforceable
against each of
them in accordance with their respective terms, except as
enforceability may be
subject to bankruptcy, insolvency, receivership, moratorium,
reorganization,
fraudulent conveyance, equitable subordination or similar laws
of general
application, and the application of equitable principles.
Section 3.3 No Conflicts. The execution, delivery and
performance by
Sellers of this Agreement and the other Transaction Documents,
and the
consummation of the transactions contemplated hereby and
thereby, do not and
will not conflict with or result in a violation of or a default
under (with or
without the giving of notice or the lapse of time or both), or
result in the
acceleration of or give rise to any party the right to
terminate, modify or
cancel under, or result in the loss of any rights, privileges,
options or
alternatives under, or result in the creation of any Lien on any
of the
properties or assets of the Company under (a) the charter or
by-laws of the
Company, (b) any Applicable Law applicable to the Company or any
of its
properties or assets, except where failure to do so would not
have a Material
Adverse Effect, or (c) any Contract or other agreement or
instrument to which
the Company is a party or by which the Company or any of its
properties or
assets is bound, except where failure to do so would not have a
Material Adverse
Effect. Assuming the accuracy of Buyer's representations and
warranties in
Article IV, and as may be required under the HSR Act, no
Governmental Approval
or other Consent is required to be obtained or made by Sellers
or the Company in
connection with the execution and delivery of this Agreement and
the other
Transaction Documents or the consummation of the transactions
contemplated
hereby and thereby.
Section 3.4 Financial Statements. Sellers have delivered to
Buyer (a) the
Company's audited balance sheet as of December 31, 2002, 2003,
2004 and the
related statements of operations and cash flows for the years
then ended and (b)
the Company's internally prepared Interim Balance Sheet and the
related
statements of operations and cash flows of the Company for the
two (2) month
period ended February 28, 2005 ("Internal Financial Statement")
(each
individually, a "Financial Statement" and collectively, the
"Financial
Statements"). The Financial Statements are in accordance with
the books and
records of the Company, have been prepared in accordance with
GAAP consistently
applied (other than that the Internal Financial Statement is
subject to normal
year-end adjustments and lacks footnotes and other presentation
items) and
fairly present in all material respects the financial condition
and results of
operations of the Company as of and for the periods specified
therein.
14
<PAGE>
Section 3.5 Absence of Undisclosed Liabilities. The Company has
no debts,
claims, commitments, liabilities or obligations of any nature,
whether known or
unknown, absolute, accrued, contingent or otherwise and whether
due or to become
due, asserted or unasserted, except (a) as and to the extent
disclosed or
reserved against in the Interim Balance Sheet, and (b)
liabilities and
obligations that were incurred after the date of the Interim
Balance Sheet in
the ordinary course of business.
Section 3.6 Taxes.
(a) The Company has duly and timely filed all Tax Returns with
respect
to Taxes required to be filed on or before the Closing Date. All
such Tax
Returns are true, correct and complete in all material respects.
Except for (i)
Taxes which are being contested in good faith and by appropriate
proceeds and
for which adequate reserves are maintained on the Company's
books in accordance
with GAAP, and (ii) Taxes accrued in the ordinary course of
business since
December 31, 2004 and for which adequate reserves are maintained
on the
Company's books in accordance with GAAP, all Taxes owed by the
Company (whether
or not shown on any Tax Return) have been duly and timely paid.
The Company has
not extended or otherwise waived any applicable statute of
limitations or agreed
to any extension of time with respect to a Tax assessment or
deficiency. The
Company is not currently a beneficiary of any extension of time
to file any Tax
Return. The Company has withheld all required Taxes from amounts
paid to
employees, agents, independent contractors, nonresidents,
shareholders or any
other third party and, to the extent required by law, has
remitted such Taxes to
the proper Governmental Authority. Neither the Company nor any
of Sellers is a
"foreign person" within the meaning of Section 1445(b)(2) of the
Code. The
Company is not a party to any Tax allocation or sharing
agreement.
(b) There is no Proceeding now pending or, to the Knowledge of
Sellers,
threatened against or with respect to the Company in respect of
any Tax. Neither
the Company nor any of the Sellers has received notice of any
claim by a
Governmental Authority in a jurisdiction where the Company does
not file Tax
Returns that the Company is or may be subject to taxation by
that jurisdiction.
(c) The Company (and any predecessor) has not been a member of
an
affiliated group of corporations (within the meaning of Section
1502 of the
Code) filing a consolidated federal income tax return. The
Company has no
liability for the Taxes of any Person under Treasury Regulation
Section 1.1502-6
(or any analogous or similar provision of state, local or
foreign law or
regulation), as a transferee or successor, by contract, or
otherwise.
(d) The Company will not be required to include any item of
income in,
or exclude any item of deduction from, taxable income for any
taxable period (or
portion thereof) ending after the Closing Date as a result of
any: (i) change in
method of accounting for a taxable period ending on or prior to
the Closing
Date, (ii) "closing agreement" as described in Section 7121 of
the Code (or any
corresponding or similar provision of state, local or foreign
law), (iii)
installment sale or open transaction disposition made on or
prior to the Closing
Date, or (iv) prepaid amount received on or prior to the Closing
Date.
15
<PAGE>
(e) The Company has not distributed the securities of another
Person, or
had its securities distributed by another Person, in a
transaction that was
purported or intended to be governed in whole or in part by
Section 355 or
Section 361 of the Code.
(f) The Company is not a party to any plan, transaction or
arrangement
described in Section 6111(d) of the Code or has participated in
a reportable
transaction within the meaning of Treasury Regulation Section
1.6011-4 (or any
predecessor provision thereto).
(g) Since October 1, 1997, the Company has been a validly
electing "S
corporation" within the meaning of Sections 1361 and 1362 of the
Code and under
each analogous or similar provision of state or local law in
each jurisdiction
where the Company is required to file a Tax Return. The Company
has no qualified
subchapter S subsidiaries within the meaning of Section
1361(b)(3)(B) of the
Code. The Company has not, in the past 10 years, (i) acquired
assets from
another corporation in a transaction in which the Company's Tax
basis for the
acquired assets was determined, in whole or in part, by
reference to the Tax
basis of the acquired assets (or any other property) in the
hands of the
transferor or (ii) acquire the stock of any corporation which is
a qualified
subchapter S subsidiary.
Section 3.7 Absence of Changes. Since December 31, 2004, the
Company has
not:
(a) suffered any Material Adverse Effect;
(b) incurred, assumed, guaranteed or discharged any debt,
claim,
commitment, obligation or liability, absolute, accrued,
contingent or otherwise,
whether due or to become due (including any indebtedness for
borrowed money) in
excess of $100,000, except for liabilities for trade or business
obligations
incurred in connection with the purchase of goods or services in
the ordinary
course of business;
(c) mortgaged, pledged or subjected to any other Lien, any
property,
business or assets, tangible or intangible other than Permitted
Liens;
(d) sold, transferred, leased to others or otherwise disposed of
any of
the assets of the Company in excess of $50,000, except for
Inventories sold in
the ordinary course of business, or canceled or compromised any
debt, claim,
commitment, liability or obligation, or waived or released any
right of
substantial value except in the ordinary course of business;
(e) received any notice of termination of any Material Contract
or Lease
of Leased Real Property;
(f) suffered any damage, destruction or loss (whether or not
covered by
insurance), in any case or in the aggregate, in excess of
$50,000;
(g) transferred or granted any rights under, or entered into
any
settlement regarding the breach, misappropriation or
infringement of, any
Intellectual Property, or modified any existing rights with
respect thereto;
(h) other than in the ordinary course of business consistent
with past
practice, (i) made any increase in, or agreement to increase,
the salary, wage,
bonus or other compensation
16
<PAGE>
payable by the Company or any of its Affiliates to any of their
respective
employees, directors or executive officers, (ii) made any grant
of any unusual
or extraordinary bonus, benefit or other direct or indirect
compensation to any
employee, director or executive officer, (iii) made any increase
in the coverage
or benefits available under any (or the creation or adoption of
any new)
severance pay, termination pay, vacation pay, company awards,
salary
continuation, sick leave, deferred compensation, incentive
compensation,
insurance, pension or other employee benefit plan or arrangement
made to, for,
or with any of the employees, directors or executive officers of
the Company or
any of its Affiliates or otherwise any modification or amendment
or termination
of any such plan or arrangement, or (iv) entered into any
employment, deferred
compensation, severance, consulting, retention, change of
control,
non-competition or similar agreement (or amendment of any such
agreement) to
which the Company or any of its Affiliates is a party or
involving an employee,
director or executive officer of the Company or any of its
Affiliates, except,
in each case, as required by Applicable Law from time to time in
effect or by
the terms of any Employee Benefit Plans;
(i) made any change in the accounting or auditing methods,
practices or
principles of the Company;
(j) encountered any labor union organizing activity, had any
actual or
threatened employee strikes, work stoppages, slowdowns or
lockouts, or had any
material change in its relations with its employees,
distributors, agents,
customers or suppliers;
(k) entered into any transaction, contract, arrangement, order,
license,
lease, permit, instrument, agreement or commitment other than in
the ordinary
course of business with past practice, or paid or agreed to pay
any brokerage or
finder's fee, or incurred any severance pay obligations by
reason of the
Transaction Documents or the transactions contemplated
hereby;
(l) made any grant of credit to any customer or distributor
other than
in the ordinary course of business consistent with past
practice; and
(m) taken any action or omitted to take any action that would
result in
the occurrence of any of the foregoing.
Section 3.8 Litigation.
(a) There is no action, claim, demand, suit, proceeding,
arbitration,
grievance, citation, summons, subpoena, inquiry or
investigation, civil,
criminal, regulatory or otherwise, in law or in equity, pending
or, to the
Knowledge of Sellers, threatened, by or against or relating to
the Company
seeking unspecified damages, damages in excess of $50,000 or any
injunctive or
other equitable relief.
(b) There are no judgments unsatisfied against the Company or
consent
decrees or injunctions to which the Company is subject.
(c) There is no action, claim, suit or proceeding pending, or,
to the
Knowledge of Sellers, threatened, by or against or affecting
Sellers or the
Company in connection with or relating to the transactions
contemplated by this
Agreement or the other Transaction Documents
17
<PAGE>
or of any action taken or to be taken in connection herewith or
therewith or the
consummation of the transactions contemplated hereby or
thereby.
Section 3.9 Compliance with Laws; Governmental Approvals and
Consents.
(a) The Company is in compliance with all Applicable Laws
relating to
the Business or the Company, except where the failure to do so
would not have
Material Adverse Effect or an Export Matters MAE.
(b) Section 3.9 of the Sellers Disclosure Schedule sets forth
all
material Governmental Approvals and other Consents necessary
for, or otherwise
used in connection with the conduct of the Business as presently
conducted by
the Company. All such Governmental Approvals and Consents have
been duly
obtained and are in full force and effect, and the Company is in
compliance in
all respects with each of such Governmental Approvals and
Consents held by it,
except where the failure to do so would not have any Material
Adverse Effect.
(c) Baker & McKenzie LLP, the Company's export control
counsel (or any
successor counsel reasonably acceptable to Buyer, the "Company
Export Control
Counsel"), has commenced an audit (the "Export Control Audit")
of the Company's
compliance with U.S. Export Control Laws since January 1, 2000,
and with respect
to the TSS matter disclosed in the Export Matters Memorandum
(the "TSS Matter").
Section 3.10 Assets.
(a) The Company has good and valid title to all its assets, free
and
clear of any and all Liens other than Permitted Liens. On the
Closing Date, the
Company shall have good and valid title to all its assets, free
and clear of any
and all Liens other than Permitted Closing Liens. The assets of
the Company
include all assets utilized by it for the conduct of the
Business as presently
conducted.
(b) All tangible property of the Company, used in connection
with the
conduct of the Business, is in good operating condition (except
for ordinary
wear and tear, normal repairs and maintenance). All premises
utilized by the
Company are in good condition (except for ordinary wear and
tear, normal repairs
and maintenance).
Section 3.11 Contracts.
(a) Section 3.11 of the Sellers Disclosure Schedule contains a
true,
complete and correct list of all Material Contracts (which
means, for purposes
of this Section 3.11(a) and the disclosures made hereunder, any
Contracts under
which the Company shall be obligated to pay or shall receive an
amount in excess
of $50,000 in any 12-month period, unless otherwise stated in
this Section
3.11(a)) of the types described below to which the Company is a
party or by
which it or any of its assets is bound:
(i) leases, licenses, franchises, insurance policies and
other
Contracts and Governmental Approvals concerning or relating to
the leased
real property;
18
<PAGE>
(ii) employment, consulting, agency, collective bargaining or
other
similar contracts, agreements, and other instruments and
arrangements
relating to or for the benefit of employees, sales
representatives,
distributors, dealers, agents, or (if material) independent
contractors;
(iii) loan agreements, indentures, letters of credit,
mortgages,
security agreements, pledge agreements, deeds of trust, bonds,
notes,
guarantees, and other agreements and instruments relating to the
borrowing
of money or obtaining of or extension of credit;
(iv) licenses, licensing arrangements and other contracts
providing
in whole or in part for the use of, or limiting the use of,
any
Intellectual Property;
(v) brokerage or finder's agreements;
(vi) joint venture, partnership and similar contracts involving
a
sharing of profits or expenses (including but not limited to
joint
research and development and joint marketing contracts);
(vii) asset purchase agreements and other acquisition or
divestiture
agreements, including but not limited to any agreements relating
to the
sale, lease or disposal of any assets (other than sales of
inventory in
the ordinary course of business) which involve continuing
indemnity or
other obligations;
(viii) any contract, agreement, commitment, order, license,
lease,
instrument or arrangement with respect to which the aggregate
amount that
could reasonably be expected to be paid or received thereunder
in the
future exceeds $50,000 per annum, except in the ordinary course
of
business;
(ix) sales agency, manufacturer's representative, marketing
or
distributorship agreements;
(x) contracts, agreements or arrangements with respect to
the
representation of the Company in foreign countries;
(xi) purchase commitments for inventory items or supplies
that,
together with amounts on hand, constitute in excess of six
months normal
usage;
(xii) any agreement, understanding, contract or commitment
(written
or oral) with (A) any employee (other than at-will employment
arrangements
with no severance or termination pay or other
post-employment
obligations), agent, consultant, distributor, dealer or
franchisee (other
than those involving in the aggregate consideration or other
expenditure
of less than $50,000), or (B) any Affiliate;
(xiii) any collective bargaining agreements with any unions,
guilds,
shop committees or other collective bargaining groups;
19
<PAGE>
(xiv) any guarantee of the payment or performance of any
Person,
agreement to indemnify any Person, or act as a surety, or other
agreement
to be contingently or secondarily liable for the obligations of
any Person
other than (A) the endorsement of checks in the ordinary course
of
business and (B) guarantees or agreements which in the aggregate
do not
exceed $50,000; and
(xv) any outstanding bid or any outstanding customer option
relating to Contracts in the Backlog in excess of $100,000.
(b) Sellers have caused the Company to furnish Buyer with access
to all
written Material Contracts, together with all amendments
thereto, set forth in
Section 3.11 of the Sellers Disclosure Schedule, except for the
agreements with
HLHZ and Atlantic, which Sellers shall provide to Buyer at the
Closing, in the
case of HLHZ a copy of such agreement and in the case of
Atlantic a written
summary of the oral agreement. Sellers have caused the Company
to furnish Buyer
with a true, complete and correct summary of all oral Material
Contracts, if
any, listed on Section 3.11 of the Sellers Disclosure
Schedule.
(c) Except as would not have a Material Adverse Effect, there
does not
exist under any Contract any event of default thereunder on the
part of the
Company, or to the Knowledge of Sellers, any other party
thereto, which would
enable such party to terminate or obtain damages for breach.
Except as would not
have a Material Adverse Effect, each Contract is a legal, valid,
binding and
enforceable obligation of the Company and, to the Knowledge of
Sellers, the
other parties thereto. No Consent of any third party is required
under any
Contract as a result of or in connection with the execution,
delivery and
performance of this Agreement and the other Transaction
Documents or the
consummation of the transactions contemplated hereby and
thereby.
Section 3.12 Territorial Restrictions. The Company is not
restricted by
any agreement or understanding with any other Person from
carrying on the
Business anywhere in the world.
Section 3.13 Inventories. Subject to reserves as reflected in
the Interim
Balance Sheet or to be reflected in the Final Closing Date
Balance Sheet,
Inventories (as recorded on the books and records of the
Company) are usable and
saleable in the ordinary course of business in amounts
consistent with past
practice.
Section 3.14 Receivables. The Company's receivables (including
accounts
receivable, loans receivable and advances) which have arisen in
connection with
the Business and which are reflected in the Interim Balance
Sheet or will be
reflected in the Final Closing Date Balance Sheet, and all such
receivables
which will have arisen since the date of the Financial
Statements, have arisen
only from bona fide transactions in the ordinary course of
business. To the
Knowledge of Sellers, there are no specific facts or
circumstances generally
(other than general economic conditions) which would result in
any material
increase in the uncollectability of such receivables as a class
in excess of the
reserves therefore set forth on the Financial Statements.
Section 3.14 of the
Sellers Disclosure Schedule sets forth a list of all receivables
which are more
than 30 days past due and of all receivables classified as
doubtful accounts, as
of the date of the Interim Balance Sheet.
20
<PAGE>
Section 3.15 Product Warranties and Liability.
(a) Section 3.15 of the Sellers Disclosure Schedule sets for a
summary
of the Company's general warranty policies and any variances or
changes to such
general warranty policies, except where such variances or
changes would not have
a Material Adverse Effect. There are no pending or, to the
Knowledge of Sellers,
threatened claims with respect to any such product warranty in
excess of
$50,000. To the Knowledge of Sellers, there are no facts that
indicate that the
reserves for product warranties reflected in the Interim Balance
Sheet are
materially understated.
(b) There is no claim now pending or, to the Knowledge of
Sellers,
threatened by any person or before any Governmental Authority
alleging any
defect in any product shipped, sold or delivered by the Company
or alleging,
with respect thereto, the failure of the Company to warn or any
breach by the
Company of any express or implied warranties; and there has not
since January 1,
2000 been any product recall or post-sale warning or similar
action
(collectively "Recalls") conducted with respect to any product
shipped, sold or
delivered by the Company, or any investigation by any
Governmental Authority
concerning whether to undertake or not undertake any Recalls,
nor to the
Knowledge of Sellers, is there a basis for any Recall with
respect to any
product shipped, sold or delivered by the Company.
Section 3.16 Intellectual Property.
(a) The Company owns all right, title and interest in or has
valid
rights to use the Intellectual Property used in the Business or
covering any
aspect of the Business as now conducted by the Company (the
"Company
Intellectual Property").
(b) The Company has taken commercially reasonable steps to
protect the
Company's rights in confidential information and trade secrets
of the Company or
provided by any other person to the Company. To the extent that
any Company
Intellectual Property has been developed or created by a third
party for the
Company, the Company has an agreement with such third party with
respect thereto
and the Company thereby either (i) has obtained ownership of,
and is the
exclusive owner of, or (ii) has obtained a license (sufficient
for the conduct
of its business as currently conducted) to such Intellectual
Property rights by
operation of law or by valid assignment. Section 3.16 of the
Sellers Disclosure
Schedule sets forth a list of all Company Intellectual Property
(including all
software, trademarks, service marks, trade names, patents,
patent applications,
copyright registrations and trademark registrations) owned by
the Company or
which are used in or cover any aspect of the Business, except
for publicly
available end-user software licensed to the Company, such as
"shrink-wrap" and
"off the shelf" licenses. None of the Company's rights of
ownership or use of
any Company Intellectual Property shall be adversely affected by
the
transactions contemplated herein. None of the Intellectual
Property owned by the
Company is subject to any Lien in favor of any third party and
the Company owns
all right, title and interest therein and thereto, except for
licenses or rights
of use granted to customers in the ordinary course of
business.
(c) No claims with respect to any Company Intellectual Property
have
been asserted or, to the Knowledge of Sellers, threatened by any
Person (i)
against the Company, or, (ii) to the Knowledge of Sellers,
against any other
Person, based on the Company's use of any of the
21
<PAGE>
Company Intellectual Property. No use of any of the Company
Intellectual
Property by the Company, or any other Person authorized by the
Company to use
Company Intellectual Property, constitutes an unauthorized use,
infringement,
misappropriation or other violation of the Intellectual Property
of any other
Person. To the Knowledge of Sellers, there has not been, nor is
there presently,
any unauthorized use, infringement, misappropriation or
violation of any of the
Company
| 
