Exhibit
10.34
EXECUTION COPY
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this “ Agreement
”) is entered into as of November 17, 2008 by and among
each of the individuals set forth on Annex I (each, a “
Seller ” and, collectively, the “ Sellers
”), NMC Group, Inc., a California corporation (the “
Company ”), and Esterline Technologies Corporation, a
Delaware corporation (the “ Buyer ”).
Introduction
The Sellers own all of the issued and outstanding shares of capital
stock of the Company (the “ Purchased Shares ”).
The Sellers wish to sell, and the Buyer wishes to buy, all of the
Purchased Shares on the terms and conditions set forth herein.
An index of defined terms as used in this Agreement is set forth in
Article 10.
NOW, THEREFORE, for good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties
hereto agree as follows:
ARTICLE 1
PURCHASE
AND SALE; CLOSING
1.1 Purchase and
Sale. Subject to the terms and conditions hereof,
at the Closing, the Sellers shall sell, transfer, assign and
deliver to the Buyer, and the Buyer shall purchase from the
Sellers, all of the Purchased Shares.
1.2
Purchase Price; Payments at Closing.
(a) As used
herein, the following terms shall have the following meanings:
“Closing Cash” means, as of immediately prior to
the Closing, all the cash, marketable securities and other cash
equivalents, and deposits of the Company (other than customer
advances), wherever located.
“ Closing Indebtedness ” means any liability for
(i) indebtedness for borrowed money, including interest
thereon and prepayment or other penalties becoming due as a result
of this transaction, created, issued or incurred by the Company,
including the Debt Amount, (ii) all payment obligations of the
Company for the deferred purchase price for purchases of property
outside the ordinary course of business arising in connection with
transactions occurring prior to the Closing which are not evidenced
by trade payables, (iii) the present value of all payment
obligations of the Company under leases in existence immediately
prior to the Closing to which the Company is a party which are
capital leases as of the Closing as determined in accordance GAAP,
(iv) any payment obligations in respect of letters of credit,
interest rate swaps, collars, caps, hedging obligations or other
similar contingent obligations, (v) any indebtedness of the
type referred to in clauses (i) through (iv) above of any
Person other than the Company in
existence immediately prior to the Closing which is either
guaranteed by, or secured by a security interest upon any property
owned by, the Company.
“ Closing Purchase Price ” means $89,500,000
(i) plus the aggregate amount of the Closing Cash,
(ii) minus an amount equal to the Closing
Indebtedness, and (iii) plus the amount, if any, by
which the Closing Working Capital exceeds the Target Working
Capital Ceiling, or minus the amount, if any, by which the
Closing Working Capital is less than the Target Working Capital
Floor.
“ Closing Working Capital ” means (i) the
accounts receivable, inventory, prepaid expenses and other current
assets (excluding deferred Tax assets, cash, marketable securities
and cash equivalents, other than customer advances and similar
prepaid amounts which will be retained in the Company) of the
Company as of immediately prior to the Closing (net of all
applicable reserves), minus (ii) the accounts payable, accrued
expenses, accrued compensation, accrued Taxes and all other current
liabilities of the Company as of immediately prior to the Closing,
excluding for this purpose the items set forth on Schedule
1.2(a)(i) hereto, the Debt Amount, Sale Bonuses and
Sellers’ Expenses paid pursuant to Section 1.2(c). The
Closing Working Capital shall be determined by reference to the
accounts that were used to determine the Target Working Capital,
which was determined in accordance with United States generally
accepted accounting principles (“ GAAP ”) as set
forth on Schedule 1.2(a)(ii) hereto.
“ Credit Facility ” means that certain Loan
Agreement by and among the Company and Community Bank, dated
May 15, 2006, as amended and supplemented, which established a
revolving credit line for the identified Borrowers from the
identified Lenders.
“ Debt Amount ” means all outstanding principal,
accrued interest, fees, expenses and other amounts owed by the
Company immediately prior to the Closing in connection with the
Credit Facility.
“ Escrow Account ” means the account established
by the Escrow Agent to hold the Escrow Amount and any earnings
thereon pursuant to the Escrow Agreement.
“ Escrow Agent ” means Wells Fargo, N.A.
“ Escrow Agreement ” means the Escrow Agreement,
substantially in the form of Exhibit A attached hereto, to
be entered into among the Buyer, the Representative and the Escrow
Agent at the Closing.
“ Escrow Amount ” means the amount in the Escrow
Account at the time of determination.
“ Estimated Closing Purchase Price ” means the
Closing Purchase Price, determined using the estimate of the
Closing Working Capital, the Closing Cash and the Closing
Indebtedness set forth in the Estimated Closing Purchase Price
Certificate.
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“ Retained Employee ” means each of Mark
Balderrama, Thomas Mendez and Stephen Williams.
“ Retention Amount ” means the following amounts
for each of the following Retained Employees:
Mark Balderrama – $87,000
Thomas Mendez – $180,620
Stephen Williams – $36,000
“ Retention Bonuses ” means the amount to be
paid pursuant to Section 5.14.
“ Sale Bonuses ” means the Retention Bonuses and
all change of control, sale, and transaction bonuses, if any,
payable to the employees of the Company in connection with or as a
result of the transactions contemplated by this Agreement.
“ Sellers’ Expenses ” means the fees and
expenses incurred by the Sellers and/or the Company in connection
with the transactions contemplated by this Agreement including,
without limitation, the fees and expenses of Houlihan Lokey
Howard & Zukin Capital, Inc. and Paul, Hastings,
Janofsky & Walker LLP, but specifically excluding any fees
and expenses incurred by or for the benefit of the Buyer or any of
its Affiliates.
“Target Working Capital” means $5,600,000.
“Target Working Capital Ceiling” means Target
Working Capital plus $50,000.
“Target Working Capital Floor” means Target
Working Capital minus $50,000.
(b) Except
where the context clearly requires to the contrary: (i) each
reference in this Agreement to a designated “Section,”
“Article,” “Schedule,”
“Exhibit,” or “Annex” is to the
corresponding Section, Article, Schedule, Exhibit or Annex of
or to this Agreement; (ii) instances of gender or
entity-specific usage (e.g., “his”
“her” “its” “person” or
“individual”) shall not be interpreted to preclude the
application of any provision of this Agreement to any individual or
entity; (iii) the word “or” shall not be applied
in its exclusive sense; (iv) “including” shall
mean “including, without limitation”;
(v) references to laws, regulations and other governmental
rules, as well as to contracts, agreements and other instruments,
shall mean such rules and instruments as in effect as of the date
of this Agreement; (vi) references to “$” or
“dollars” shall mean the lawful currency of the United
States; (vii) references to “Federal” or
“federal” shall be to laws, agencies or other
attributes of the United States (and not to any State or locality
thereof); (viii) the meaning of the terms
“domestic” and “foreign” shall be
determined by reference to the United States; (ix) references
to “days” shall mean calendar days; references to
“business days” shall mean any day other than Saturday,
Sunday or any day on which commercial banks in Los Angeles,
California are
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authorized to close;
(x) references to months or years shall be to the actual
calendar months or years at issue (taking into account the actual
number of days in any such month or year); (xi) days, business
days and times of day shall be determined by reference to local
time in Los Angeles, California; and (xii) the English
language version of this Agreement shall govern all questions of
interpretation relating to this Agreement, notwithstanding that
this Agreement may have been translated into, and executed in,
other languages.
(c) At least
two business days prior to the Closing, the Representative
will furnish to the Buyer (i) a certificate (the “
Estimated Closing Purchase Price Certificate ”)
setting forth an estimate of the Closing Working Capital, the
Closing Cash and the Closing Indebtedness and a calculation of the
Closing Purchase Price based thereon, and (ii) a payoff letter
from each holder of such outstanding Closing Indebtedness
(A) indicating the amount required to discharge such Closing
Indebtedness at Closing and (B) if such Closing Indebtedness
is secured by any liens, security interests, mortgages,
restrictions or encumbrances (collectively, “ Liens
”), agreeing to release such Liens upon receipt of the payoff
amount. The Estimated Closing Purchase Price Certificate shall be
reasonably acceptable to the Buyer, and the Representative and the
Buyer shall cooperate in good faith to resolve any disputes raised
by the Buyer with respect to items set forth in the Estimated
Closing Purchase Price Certificate and consider whether any
modifications thereto are applicable prior to the Closing; provided
that (i) if the Representative and the Buyer are unable to
agree on the Estimated Closing Purchase Price Certificate
notwithstanding such good faith efforts to resolve any such
disputes prior to the Closing, then the estimate of the Closing
Working Capital, the Closing Cash and the Closing Indebtedness
reflected on the Estimated Closing Purchase Price Certificate, with
any modifications agreed to by the Representative and the Buyer,
shall be used in the calculation of the Estimated Closing Purchase
Price payable pursuant to Section 1.2(d) and (ii) no
actions taken by the Buyer pursuant to this
Section 1.2(c) shall operate as a waiver of or otherwise
affect or impair the Buyer’s ability to take any actions or
assert any disagreement or other rights pursuant to
Section 1.7.
(d) At the
Closing, the Buyer shall make the following payments in an amount,
in the aggregate, equal to the Estimated Closing Purchase Price, by
wire transfer of immediately available funds:
(i) first,
to the respective holders of the Closing Indebtedness, if any, the
amounts specified in the payoff letters delivered by the
Representative to the Buyer pursuant to Section 1.2(c)(ii)
above;
(ii) second,
to such payees of the Sellers’ Expenses as directed in
writing by the Representative prior to the Closing;
(iii) third,
to an account established by the Company (the “ Payment
Account ”), an amount equal to the aggregate amount of
Sale Bonuses (and following the Closing, the Company shall pay the
Retention Bonuses in accordance with Section 5.14);
(iv) fourth,
to the Escrow Agent pursuant to the Escrow Agreement, an amount
equal to $8,500,000 (the “ Initial Escrow Amount
”) to be held in the Escrow Account and disbursed in
accordance with the terms of the Escrow Agreement; and
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(v) fifth,
the remainder to or as directed by the Representative.
1.3 Cash
Withdrawal. Subject to the terms and conditions of
this Agreement, including Section 5.2 hereof, between the date
hereof, through and including the Closing Date, the Company shall
have the right to distribute any portion of its cash and cash
equivalents from time to time to the Sellers, other than such cash
representing customer advance payments and other similar prepaid
amounts which will be retained in Company accounts.
1.4 The
Closing. The consummation of the transactions
contemplated hereby (the “ Closing ”) will take
place at the offices of Paul, Hastings, Janofsky & Walker
LLP, on (a) the day that is two (2) business
days after the conditions set forth in Article 6 are satisfied
(other than those conditions which by their nature are normally
satisfied at the Closing) or waived, or (b) such later date
that is agreed to in writing by the Sellers and the Buyer (the
“ Closing Date ”).
1.5 Deliveries at
Closing by the Sellers and the Company. At the
Closing, and upon satisfaction or waiver of the conditions set
forth in Section 6.2, the Sellers and the Company will deliver
or cause to be delivered the instruments, consents, certificates
and other documents required of them by Section 6.1.
1.6 Deliveries at
Closing by the Buyer. At the Closing, and upon
satisfaction or waiver of the conditions set forth in
Section 6.1, the Buyer will deliver or cause to be delivered
the instruments, consents, certificates and other documents
required of it by Section 6.2.
1.7 Determination
of Closing Purchase Price.
(a) Within
120 days after the Closing Date, the Buyer will deliver to the
Representative a certificate (the “ Closing Purchase Price
Certificate ”) executed by the Buyer setting forth an
itemized statement of the Closing Working Capital, the Closing Cash
and the Closing Indebtedness and a calculation of the Closing
Purchase Price.
(b) If the
Representative delivers written notice (the “ Disputed
Items Notice ”) to the Buyer within
thirty (30) days after receipt by the Representative of
the Closing Purchase Price Certificate, stating that the
Representative objects to any items in the Closing Purchase Price
Certificate, specifying in reasonable detail the basis for such
objection and setting forth the Representative’s proposed
modification to the Closing Purchase Price, the Buyer and the
Representative shall use their commercially reasonable efforts to
resolve and finally determine and agree upon the Closing Purchase
Price as promptly as practicable. The Disputed Items Notice shall
specify those items or amounts as to which the Representative
disagrees, and the Representative shall be deemed to have agreed
with (and the Independent Accountant, if any, shall be deemed to be
bound by) all other items and amounts contained in the Closing
Purchase Price Certificate delivered pursuant to
Section 1.7(a).
(c) If the
Representative and the Buyer are unable to agree upon the Closing
Purchase Price within thirty (30) days after delivery of
the Disputed Items Notice, the Representative and the Buyer will
select an accounting firm of nationally recognized standing, which
shall in all cases be independent from the parties hereto (the
“ Independent Accountant ”), to resolve the
items set forth in the Disputed Items Notice (the “
Disputed Items ”). If the Buyer
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and the Representative
are unable to agree upon the selection of the Independent
Accountant, either party may petition a court to select the
Independent Accountant. The Independent Accountant will
(i) resolve the Disputed Items and (ii) make a
determination of the Closing Purchase Price using the calculations
set forth in the Closing Purchase Price Certificate, as modified
only by the Independent Accountant’s resolution of the
Disputed Items. In making such calculation, the Independent
Accountant shall consider only those items or amounts in the
Closing Purchase Price Certificate and the calculation of the
Closing Working Capital, Closing Cash and the Closing Indebtedness
as to which the Representative has disagreed in the Disputed Items
Notice and the Independent Accountant’s determination with
respect to each disputed item shall not be in excess of, nor less
than, the greatest or lowest value, respectively, claimed for that
particular item in the Closing Purchase Price Certificate or in the
Disputed Items Notice. The determination of the Independent
Accountant will be made within sixty (60) days after
being selected. Such determination shall be final and binding upon
the Buyer and the Sellers, shall be deemed a final arbitration
award that is binding on the Buyer and the Sellers, and none of the
Buyer or the Sellers may seek further recourse to courts or other
tribunals with respect thereto, other than to enforce such
determination. The fees and expenses of the Independent Accountant
shall be allocated to the Buyer, on the one hand, and the Sellers,
on the other, based upon the percentage that the portion of the
contested amount not awarded to each party bears to the amount
actually contested by such party, as determined by the Independent
Accountant.
(d) If the
Representative does not deliver the Disputed Item Notice to the
Buyer within thirty (30) days after receipt by the
Representative of the Closing Purchase Price Certificate, the
Closing Purchase Price specified in the Closing Purchase Price
Certificate will be conclusively presumed to be true and correct in
all respects and will be final and binding upon the parties.
(e) At such
time as the Closing Purchase Price is finally determined, either
(i) the Buyer shall pay the Representative (for payment to the
Sellers) an aggregate amount equal to the excess, if any, of the
Closing Purchase Price over the Estimated Closing Purchase Price or
(ii) the Representative shall instruct the Escrow Agent to pay
the Buyer from the Escrow Account an aggregate amount equal to the
excess, if any, of the Estimated Closing Purchase Price over the
Closing Purchase Price. Any payment pursuant to this
Section 1.7(e) shall be made within five business days after
the Closing Purchase Price has been determined by wire transfer by
the Buyer or the Escrow Agent, as the case may be, of immediately
available funds to the account of such other party as may be
designated in writing by such other party. Except as set forth in
this Section 1.7, the Buyer shall have no right to make any
claim against any Seller in respect of the determination of the
Closing Purchase Price or the Closing Working Capital and, without
limiting the generality of the foregoing, no adjustment to the
Closing Purchase Price pursuant to this Section 1.7 shall be
considered a breach of any representation, warranty or other
provision of this Agreement.
(f) The
Sellers and their accountants, lawyers and other representatives
will be given full access at all reasonable times to (and shall be
allowed to make copies of) the relevant books and records of the
Company and to any personnel of the Company reasonably requested by
such persons, in each case in connection with the final
determination of the Closing Purchase Price or any dispute relating
thereto.
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1.7.2 Withholding.
The Buyer shall be entitled to deduct and withhold from
the Closing Purchase Price otherwise deliverable to the Sellers
under this Agreement, and from any other payments to the Sellers
otherwise required pursuant to this Agreement, any amounts the
Buyer is required to deduct and withhold with respect to any such
deliveries and payments under the Internal Revenue Code of 1986, as
amended (the “ Code ”) or any provision of
state, local, provincial or foreign Tax law. To the extent that
amounts are so withheld, such withheld amounts shall be treated for
all purposes of this Agreement as having been delivered and paid to
the Sellers in respect of which such deduction and withholding was
made.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
CONCERNING
THE SELLERS
Each Seller hereby, severally and not jointly, represents and
warrants to the Buyer that each of the statements contained in this
Article 2, with respect to himself or herself, when read
together with and qualified by the Disclosure Schedule delivered by
the Sellers to the Buyer in connection with and prior to the
execution of this Agreement (the “ Disclosure Schedule
”) is true and correct as of the date hereof.
2.1 Title.
Except as set forth on Schedule 2.1 of the Disclosure
Schedule, such Seller owns, and has good title to, the Purchased
Shares set forth opposite his or her name on Annex I attached
hereto (the percentage of such Purchased Shares owned being his or
her “ Pro Rata Share ”). At the Closing, such
Seller will transfer his or her Purchased Shares to the Buyer free
and clear of all Liens, other than restrictions under applicable
securities laws. Upon the consummation of the transactions
contemplated by this Agreement, the Buyer will own such Purchased
Shares, free and clear of all Liens, other than restrictions
imposed under applicable securities law.
2.2 Power and
Authority. Such Seller has the requisite capacity
to execute and deliver and to carry out the terms of this Agreement
and the other agreements, instruments and documents to be executed
and delivered by such Seller as contemplated hereby.
2.3 No-Conflict.
Except as set forth on Schedule 2.3 of the
Disclosure Schedule, such Seller’s execution, delivery and
performance of this Agreement and the other agreements, instruments
and documents to be executed and delivered by such Seller as
contemplated hereby will not result in any material violation of,
be in material conflict with or constitute a material default under
any law, statute, regulation, rule, ordinance, contract, agreement
or instrument, judgment, decree or order to which such Seller is a
party or by which such Seller or his or her assets is bound.
2.4 Consents and
Approvals. Except for any applicable filings under
the HSR Act or as set forth on Schedule 2.4 of the
Disclosure Schedule, no consent, order, approval, authorization,
declaration or filing from or with any governmental authority or
third party is required on the part of such Seller to permit such
Seller to fulfill all of such Seller’s obligations under this
Agreement and the other agreements, instruments and documents of
such Seller contemplated hereby.
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2.5 Validity and
Enforceability. Assuming the valid execution and
delivery by the other parties hereto and thereto, this Agreement
is, and each of the other agreements, instruments and documents to
be executed and delivered by such Seller as contemplated hereby
will be when executed and delivered by such Seller, the valid and
binding obligations of such Seller, enforceable against such Seller
in accordance with their respective terms, subject, however, to
applicable bankruptcy, insolvency and other laws affecting the
rights and remedies of creditors and to general equitable
principles.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
CONCERNING
THE COMPANY
The Company represents and warrants to the Buyer that each of the
statements contained in this Article 3 when read together with
and qualified by the Disclosure Schedule is true and correct as of
the date hereof.
3.1 Organization,
Power and Standing. The Company is a corporation
duly organized, validly existing and in good standing under the
laws of the State of California. The Company has full corporate
power and authority to own, lease and operate its properties and to
carry on its business as such business is conducted on the date
hereof. The copies of the articles of incorporation and by-laws of
the Company, each as amended through the date hereof (the “
Company Charter Documents ”), that have been made
available to the Buyer by the Company are complete and correct
copies thereof.
3.2 Power and
Authority. The Company has the corporate power and
authority and has taken all required corporate action on its part
necessary to permit it to execute and deliver and to carry out the
terms of this Agreement and the other agreements, instruments and
documents to be executed and delivered by the Company as
contemplated hereby.
3.3 Validity and
Enforceability. Assuming the valid execution and
delivery by the other parties hereto and thereto, this Agreement
is, and each of the other agreements, instruments and documents to
be executed and delivered by the Company as contemplated hereby
will be when executed and delivered by the Company, the valid and
binding obligations of the Company, enforceable against the Company
in accordance with their respective terms, subject, however, to
applicable bankruptcy, insolvency and other laws affecting the
rights and remedies of creditors and to general equitable
principles.
3.4 Subsidiaries.
The Company has no subsidiaries and does not own or
have the right to acquire any equity interest in any corporation,
limited liability company, partnership, joint venture, trust or
other business organization.
3.5 Foreign
Qualifications. Schedule 3.5 of the
Disclosure Schedule sets forth a complete and accurate list of
all jurisdictions in which the Company is qualified to do business
as a foreign entity. There are no other jurisdictions in which the
Company is required to qualify to do business as a foreign entity,
except for any jurisdiction(s) in which the failure to so qualify
would not have a Company Material Adverse Effect.
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As
used herein, the term “ Company Material Adverse
Effect ” shall mean any event, circumstance, or condition
which has had or reasonably could be expected to have, a material
adverse effect on the assets, liabilities, properties, results of
operations or financial condition of the Company, taken as a whole;
provided , however , that in no event shall any of
the following be taken into account in the determination of whether
a Company Material Adverse Effect has occurred: (a) any change
in any Legal Requirement or GAAP; (b) any change resulting
from conditions affecting any of the industries in which the
Company operates or from changes in general business, financial,
political, capital market or economic conditions (including any
change resulting from any hostilities, war or military or terrorist
attack), so long as the Company is not disproportionately affected
thereby; (c) any change resulting from the announcement or
pendency of the transactions contemplated by this Agreement or
attributable to the fact that the Buyer or any of its Affiliates
are the prospective owners of the Company; (d) any event,
condition or other matter described on the Disclosure Schedule that
has not materially changed since the date of such disclosure; or
(e) any change resulting from the compliance by the Company
with the terms of, or the taking of any action by the Company
contemplated or permitted by, this Agreement.
3.6 Capitalization.
Schedule 3.6 of the Disclosure
Schedule sets forth a complete and accurate list of all
outstanding shares of capital stock of the Company and the record
holders thereof. Such shares are duly authorized, validly issued,
fully paid and nonassessable. There are no outstanding options,
warrants, convertible or exchangeable securities or other rights
that would obligate the Company to issue shares of its capital
stock or other equity securities. Except as set forth on
Schedule 3.6 of the Disclosure Schedule, there are no
agreements, written or oral, to which the Company is a party
relating to the acquisition, disposition, voting or registration
under applicable securities laws of any equity security of the
Company. Except as set forth on Schedule 3.6 of the
Disclosure Schedule, there are no outstanding or authorized stock
appreciation, phantom stock or other similar rights with respect to
the Company.
3.7 Financial
Statements. (a) The Sellers have
delivered to the Buyer (i) an audited balance sheet of
the Company as of each of December 31, 2006 and 2007, and
audited statements of income, stockholders’ equity and cash
flows for the fiscal years then ended, and (ii) an unaudited
balance sheet of the Company (the “ Balance Sheet
”) as of June 30, 2008 (the “ Balance Sheet
Date ”) and an unaudited statement of income for the
six-month period then ended. Such financial statements and the
notes thereto, if any, fairly present, in all material respects,
the financial condition of the Company for the periods then ended,
and were prepared in accordance with the books and records of the
Company in conformity with GAAP (except as set forth on
Schedule 3.7(a) of the Disclosure Schedule or in the
case of unaudited financial statements for the omission of
footnotes and subject to year-end adjustments).
(b) Except
as set forth on Schedule 3.7(b) of the Disclosure
Schedule, each accrual reflected on the Balance Sheet is adequate
to meet the liability underlying such accrual and the reserve
provided for doubtful accounts reflected on the Balance Sheet is
adequate given the Company’s history and current knowledge of
the account.
(c) The
Company has no liabilities, contingent or otherwise that are not
reflected on the Balance Sheet, including the notes thereto, other
than liabilities arising in the
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ordinary course of
business, liabilities incurred in connection with the transactions
contemplated hereby and liabilities which are not material to the
Company. Except as reflected on the Balance Sheet and
Schedule 3.7(c)(i) of the Disclosure Schedule, the
Company has no indebtedness for money borrowed or for the deferred
purchase price of property or services, capital lease obligations,
conditional sale or other title retention agreements relating to
the Company’s assets or business. Except as set forth in
Schedule 3.7(c)(ii) of the Disclosure Schedule, the
Company is not a guarantor or otherwise liable for any liability or
obligation or any other person for any matter which relates to or
affects the Company or its assets or business.
(d) All
accounts receivable of the Company reflected in the Balance Sheet
or existing as of the Closing Date, are bona fide accounts
receivables and are or will be valid and enforceable against the
account debtor, subject to the allowance for doubtful accounts set
forth on the Balance Sheet or in the books and records of the
Company, as the case may be.
(e) All
inventories of finished products consist of items of a quality and
quantity that are saleable in the ordinary course of business as
currently conducted by the Company, and all inventories of raw
materials, work in process, supplies, parts and packaging and
labeling materials consist of items of a quality and quantity that
are useable in the ordinary course of business as currently
conducted by the Company. To the knowledge of the Company, there is
no adverse condition affecting the quality or supply of raw
materials, intermediates, supplies, parts and other materials
available to the Company that are necessary to manufacture, package
or label its products.
3.8 Absence of
Certain Changes. Since the Balance Sheet Date,
except as set forth on Schedule 3.8 of the Disclosure
Schedule and except for transactions contemplated by this
Agreement, (a) the Company has conducted its business in all
material respects in the ordinary course, (b) no Lien has been
placed upon any of the Company’s assets, other than Permitted
Liens, (c) the Company has not acquired or disposed of any
material assets, except in the ordinary course of business,
(d) there has been no material damage, destruction or casualty
loss (other than those covered by insurance the proceeds of which
will be used to replace or repair the subject assets prior to
Closing) with respect to any of the assets or properties of the
Company, (e) the Company has not cancelled, compromised or
waived any material right or claim, (f) the Company has not
accelerated, terminated, modified or cancelled any material
agreement, contract, lease or license related to the
Company’s business, and (g) to the Company’s
knowledge, there has been no event or circumstance relating
specifically to the Company that has caused or could reasonably be
expected to cause a Company Material Adverse Effect.
3.9 Taxes.
(a) The
representations and warranties set forth in this Section 3.9
are subject in all respects to the qualifications and disclosures
set forth on Schedule 3.9 of the Disclosure
Schedule.
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(b) For
purposes of this Agreement, the following definitions shall
apply:
(i) “
Pre-Closing Tax Period ” means all taxable periods
ending on or before the Closing Date and the portion of a Straddle
Period ending on and including the Closing Date.
(ii) “
Pre-Closing Taxes ” means any and all Taxes of the
Company that are attributable to a Pre-Closing Tax Period, relate
to an event or transaction occurring on or before the Closing Date,
or arise out of or result from the transactions contemplated by
this Agreement (including any transfer, documentary, sales, use,
stamp, registration and other such Taxes and fees, and any
interest, fines, assessments, penalties or additions to tax imposed
in connection therewith or with respect thereto).
(iii)
“ Straddle Period ” means a Tax period that
includes, but does not end on, the Closing Date
(iv) “
Tax ” or “ Taxes ” means
(a) any and all federal, state, provincial, local, foreign and
other taxes, levies, fees, imposts, duties and similar governmental
charges (including any interest, fines, assessments, penalties or
additions to tax imposed in connection therewith or with respect
thereto), whether computed on a separate or consolidated, unitary
or combined basis or in any other manner, including, without
limitation, (A) taxes imposed on, or measured by, income,
franchise, profits or gross receipts, and (B) ad valorem,
value added, capital gains, sales, goods and services, use, real or
personal property, capital stock, license, branch, payroll,
estimated, withholding, employment, social security (or similar),
unemployment, compensation, utility, severance, production, excise,
stamp, occupation, premium, windfall profits, transfer and gains
taxes, and customs duties; (b) liability for the payment of
any amounts of the type described in clause (a) arising as a
result of being (or ceasing to be) a member of any affiliated,
consolidated, unitary or similar group; or (c) liability for
the payment of any amounts of the type described in clause
(a) or (b) as a result of any express or implied
obligation to indemnify or otherwise assume or succeed to the
liability of any other Person.
(v) “
Tax Returns ” means all reports, estimates,
declarations of estimated Tax, information statements and returns
relating to Taxes and any schedules attached to or amendments of
any of the foregoing.
(c) The
Company has made a valid election, effective as of May 1, 1988
to be treated as an S corporation within the meaning of Sections
1361 and 1362 of the Code and under any corresponding state or
local tax provision. For federal and applicable state and local
income Tax purposes, the Company has properly qualified as an S
corporation since the effective date of its election through the
date of this Agreement, and will properly qualify as an S
corporation through and until the Closing Date in all applicable
jurisdictions in which it is subject to Tax. Since the effective
date of its election, the Company has not been subject to income
Tax as a C corporation within the meaning of Section 1361(a)
of the Code (or comparable provision of state or local law).
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(d) The
Company will not be obligated to pay Tax under Section 1374 of
the Code (or comparable provision of state or local law) in
connection with the transactions contemplated by this Agreement.
The Company has not, in the past 10 years 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.
(e) The
Company has made available to the Buyer true and correct copies of
the Tax Returns of the Company for the 2005, 2006 and 2007 taxable
years.
(f) Except
as set forth on Schedule 3.9(f) of the Disclosure
Schedule, the Company has duly and timely filed all Tax Returns
that were required to be filed by it and all such Tax Returns are
true, correct and complete in all material respects. The Company
has paid when due all Taxes required to be paid by it (whether or
not shown or required to be shown to be due on any Tax Return). The
Company does not have any currently effective agreement or waiver
that would have the effect of extending any applicable statute of
limitations in respect of any of its Tax liabilities. No power of
attorney has been granted by the Company with respect to any Tax
matter which is currently in force. There are no unpaid assessments
against the Company of any Taxes for any fiscal period or pending
or, to the knowledge of the Company, threatened tax examinations or
audits by any foreign, federal, state or local taxing authority. No
governmental authority has given notice to the Company of any
intention to assert any deficiency or claim for additional Taxes
against the Company. All Taxes that the Company is required by law
to withhold or to collect for payment have been duly withheld and
collected and, to the extent required, paid to the proper
governmental entity. There are no Tax Liens pending or, to the
knowledge of the Company, threatened against the Company or its
assets or property, other than Permitted Liens.
(g) The
Company is not now, nor has it previously been, a member of an
affiliated group filing a consolidated, combined, unitary or
similar Tax Return. The Company has no liability for Taxes of any
Person (other than itself) under Treasury Regulation
Section 1.1502-6 (or any similar provision of state, local or
foreign law), as a transferee or successor, by contract, or
otherwise.
(h) No claim
has ever been made by a taxing 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.
(i) No
withholding is required under Section 1445 of the Code in
connection with the consummation of the transactions contemplated
by this Agreement.
(j) The
Company is not now, nor has it previously been, a party to a
“reportable transaction” within the meaning of
Section 1.6011-4(b) of the Treasury Regulations.
(k) The
Company has not distributed stock of another Person nor has had its
stock distributed by another Person in a transaction that was
purported or intended to be governed in whole or in part by
Sections 354, 355 or 361 of the Code.
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(l) Each
“nonqualified deferred compensation plan” (as such term
is defined in Section 409A(d)(1) of the Code) sponsored or
maintained by the Company since January 1, 2005 has been
operated since that date in good faith compliance with
Section 409A of the Code, the final or proposed regulations
thereunder, and any other Internal Revenue Service guidance issued
with respect thereto, to the extent applicable to such plan. No
deferred compensation plan existing prior to January 1, 2005,
which would otherwise not be subject to Section 409A of the
Code, has been “materially modified” at any time after
October 3, 2004.
3.10 Personal
Property. The Company has valid title to or a valid
leasehold, license or other similar interest in all tangible
personal property, free and clear of all Liens, except for
Permitted Liens, used by the Company in its business, except for
any tangible personal property disposed of in the ordinary course
of the business after the date hereof. The equipment and other
tangible operating assets of the Company, taken as a whole, are in
adequate condition to conduct the business of the Company as the
same is conducted on the date hereof, normal wear and tear
excepted.
As used herein, “ Permitted Liens ” means
(a) such imperfections of title, easements, encumbrances,
liens or restrictions which (i) are of record and (ii) do
not materially impair the current use of the Company’s
assets, (b) materialmen’s, mechanics’,
carriers’, workmen’s, warehousemen’s,
repairmen’s, landlords’, and other like Liens arising
in the ordinary course of business, or deposits to obtain the
release of such Liens for amounts which are not yet due and
payable, (c) Liens for Taxes not yet due and payable, or being
contested in good faith, (d) purchase money Liens incurred in
the ordinary course of business, (e) Liens created as a result
of any action taken by or through the Buyer or any of its
Affiliates, or (f) Liens securing the Debt Amount which will
be removed at the Closing assuming compliance by Buyer with its
obligations hereunder.
3.11
Real Property.
(a) The
Company does not own any real property.
(b) Schedule 3.11
of the Disclosure Schedule describes each interest in real
property leased by the Company, including the lessor of such leased
property, and identifies each lease or any other arrangement under
which such property is leased. The Company enjoys peaceful and
quiet possession of its leased premises and has not received any
written notice from any landlord asserting the existence of a
default under any such lease or been informed in writing that the
lessor under any such lease has taken action or, to the knowledge
of Company, threatened to terminate the lease before the expiration
date specified in the lease. Except as set forth on
Schedule 3.11 of the Disclosure Schedule, each lease of
real property is valid and binding against the Company and, to the
knowledge of the Company, against the counterparty thereto, and is
in full force and effect, and has not been amended from the version
provided to the Buyer. No security deposit or portion thereof
deposited with respect to any real property lease has been applied
with respect of a breach of default under such lease which has not
been redeposited in full. Except as set forth on
Schedule 3.11 of the Disclosure Schedule, the Company
has not subleased, licensed or otherwise granted to any person or
entity the right to use or occupy any of the leased real property
or any portion thereof. Except as shown on
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Schedule 3.11 of the Disclosure Schedule, the
transactions contemplated by this Agreement will not be the basis
for any lessor to terminate its lease prior to the expiration date
of the lease.
3.12 Intellectual
Property.
(a) As used
herein “ Intellectual Property ” means all
(i) patents, provisional patents, patent applications,
continuations, continuations in part, extensions and patent
disclosures, (ii) trademarks and service marks (registered and
unregistered), and registrations and applications for registration
thereof together, to the extent applicable, with all of the
goodwill associated therewith (iii) trade dress, trade names
and corporate names (iv) copyrights (registered or
unregistered) and copyrightable works and registrations and
applications for registration thereof, (v) computer software,
data, data bases and documentation thereof, (vi) trade secrets
and other confidential information (including, without limitation,
ideas, formulae, compositions, inventions (whether patentable or
unpatentable and whether or not reduced to practice), know-how,
manufacturing and production processes and techniques, research and
development information, drawings, specifications, designs, plans,
proposals, technical data, financial and marketing plans and
customer and supplier lists and information), and
(vii) Uniform Resource Locators (a.k.a. “URLs” or
“domain names”). As used herein “ Company
Intellectual Property ” means Intellectual Property owned
by the Company.
(b) Schedule 3.12(b)
of the Disclosure Schedule contains a list of all Company
Intellectual Property included in clauses (i), (ii) and
(vii) of the definition of Intellectual Property, and all
Company Intellectual Property included in clause (iv) thereof
that is material to the conduct of the business as currently
conducted. The Company has paid all necessary registration,
maintenance and renewal fees for the purpose of maintaining such
Company Intellectual Property.
(c) Schedule 3.12(c)
of the Disclosure Schedule contains a list of all Intellectual
Property licensed to the Company by any third party that is used in
the Company’s business, excluding “off-the-shelf”
or “shrink wrap” products licensed to the Company which
are licensed in the ordinary course of business and as to which the
Company has adequate site, user or other applicable licenses.
(d) Schedule 3.12(d)
of the Disclosure Schedule also contains a description of all
licenses granted by the Company to any third party with respect to
any Company Intellectual Property material to the Company’s
business as currently conducted.
(e) Except
as set forth on Schedule 3.12 of the Disclosure
Schedule, (i) to the Company’s knowledge, the Company is
not infringing or otherwise violating any Intellectual Property of
any other Person and it is in material compliance with the terms of
any license related to Intellectual Property licensed to the
Company and (ii) to the Company’s knowledge, no third
party is infringing on any Company Intellectual Property.
(f) The
Company has taken reasonable steps to protect its rights in, and
(to the extent confidential) the confidentiality of, (i) the
Company Intellectual Property and (ii) any Intellectual
Property provided by any other Person to the Company, each material
to the Company’s business as currently conducted.
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3.13 Material
Contracts. Set forth on Schedule 3.13
of the Disclosure Schedule is a list of all Material Contracts of
the Company, showing the parties thereto. Each Material Contract is
in full force and effect and the Company, and, to the knowledge of
the Company, each other party thereto has performed all material
obligations required to be performed by them thereunder. The
Company is not in default under any material provision of any
Material Contract. To the knowledge of the Company, no third party
is in default under any material provision of any Material
Contract.
As used herein, the term “ Material Contract ”
shall mean each written contract or agreement to which the Company
is a party involving (i) aggregate consideration payable to or
by the Company of $100,000 other than those contracts or agreements
which will be terminated at or prior to the Closing or are
terminable by notice of not more than thirty (30) days
without material liability to the Company), (ii) any
agreement, contract or commitment relating to the disposition or
acquisition of assets or any interest in any business enterprise
relating directly or indirectly to the Company, its current or
historic business which contain any obligation of the Company which
will continue after the Closing, (iii) any mortgages,
indentures, loans, security agreements or other instruments
relating to the borrowing of money by the Company or under which
any party has imposed or may, with notice or the lapse of time
impose, a lien on any of the Company’s assets, (iv) any
distribution, joint marketing, development, partnership or joint
venture agreement of the business of the Company, (v) any
employment, severance, bonus, noncompetition or nonsolicitation
agreement with any employee of the Company, (vi) any
agreement, contract or commitment containing any covenant limiting
in any respect the right of the Company or any of its Affiliates to
engage in any line of business or to compete with any person,
(vii) any agreement that provides for the payment or receipt
by the Company of an ongoing license fee or royalty payment in
excess of $100,000, (viii) any agreement or lease under which
the Company is a lessee of or holds or operates any personal
property owned by any other party that is used in the
Company’s business, (ix) any agreement involving a
commitment to make capital expenditures in excess of $100,000, or
(x) any agreement related to hazardous waste disposal, solid
waste disposal, waste water management, investigation of
environmental matters, environmental remediation or any other
material environmental obligation, liability or agreement.
3.14 Litigation.
Except as disclosed on Schedule 3.14 of the
Disclosure Schedule, there is no action, arbitration, litigation,
proceeding or governmental investigation pending or, to the
knowledge of the Company, threatened against the Company.
3.15 No-Conflict;
Required Consents and Approvals. Except as set
forth on Schedule 3.15 of the Disclosure Schedule and
except for applicable filings under the HSR Act, the
Company’s execution, delivery and performance of this
Agreement and the other agreements, instruments and documents of
the Company contemplated hereby will not result in any material
violation of, be in material conflict with or constitute a material
default under the Company Charter Documents, any Material Contract,
any Authorization or any Legal Requirement. Except as set forth on
Schedule 3.15 of the Disclosure Schedule and except for
applicable filings and approvals under the HSR Act, no material
consent, order, approval, authorization, declaration or filing with
or from any governmental authority or any party to a Material
Contract is required on the part of the Company for or in
connection with the
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execution and delivery
of this Agreement or the consummation of the transactions
contemplated hereby by the Company.
3.16 Licenses and
Permits. Schedule 3.16 of the
Disclosure Schedule sets forth a list of all licenses, permits and
authorizations of governmental authorities held by the Company
which are material to the business of the Company as it is
currently conducted (except for licenses, permits and
authorizations relating to Environmental Laws, as to which
Section 3.22 only applies) (collectively, the “
Authorizations ”). The Authorizations are in full
force and effect. The Company is in material compliance with the
Authorizations. To the knowledge of the Company, no governmental
authority has threatened the amendment, suspension or cancellation
of any Authorization, except where such threatened suspension or
cancellation relates to such items of noncompliance that the
Company had previously remedied or will remedy within the
applicable cure periods.
3.17 Compliance
with Laws. The Company is in material compliance
with all Legal Requirements (except as to Taxes, as to which
Section 3.9 only applies, to Benefit Plans, as to which
Section 3.19 only applies, and to Environmental Laws, as to
which Section 3.22 only applies). As used herein, the term
“ Legal Requirements ” means, with respect to
any Person, all foreign, federal, state, and local statutes, laws,
ordinances, judgments, decrees, and orders and all governmental
rules and regulations applicable to such Person.
3.18 Employees
and Compensation. Schedule 3.18 of the
Disclosure Schedule sets forth (i) a true and correct list of
the name and current annual salary of each officer or employee of
the Company whose annual base salary exceeds $75,000 and
(ii) any other form of compensation (other than salary,
bonuses or customary benefits) paid or payable by the Company to
each such officer or employee for the most recent fiscal year.
Except as contemplated by Section 6.1(i), to the
Company’s knowledge no employee identified on
Schedule 3.18 has any present intention to terminate
his or her employment with the Company within the next 12 months or
is bound by any confidentiality agreement, non-competition
agreement or other contract that may reasonably be expected to have
an adverse effect on such employee’s participation in the
Company’s business. The Company has complied in all material
respects with all provisions of all Legal Requirements relating to
employment and employment practices, terms and condition of
employment, wage and hours and similar matters.
3.19 Benefit
Plans.
(a) Schedule 3.19(a)
of the Disclosure Schedule sets forth all material employee benefit
plans, programs, policies, practices, agreements and arrangements
(including, but not limited to, all plans described in
Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended (“ ERISA ”)) maintained or
contributed to by the Company for the benefit of any of its current
or former officers, employees, directors or independent
contractors, or with respect to which the Company has (or
reasonably could be expected to have) any obligation or liability
(including, but not limited to, liabilities arising from
affiliation under Section 414(b), (c), (m) or (o) of
the Code, or Section 4001 of ERISA) (each, a “
Benefit Plan ” and collectively, the “
Benefit Plans ”). Except as disclosed on Schedule
3.19 of the Disclosure Schedule, there has been no amendment or
announcement (written or oral) by the Company relating to a change
in participation or coverage under, any Benefit Plan that could
reasonably be
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expected to materially
increase the expense of maintaining such Benefit Plan above the
level of expense incurred with respect thereto for the most recent
fiscal year included in the financial statements provided pursuant
to Section 3.7. Each Benefit Plan can be terminated by the
Company at any time without material liability or expense (other
than for any benefits accrued thereunder at the time of such
termination). None of the rights of the Company under any Benefit
Plan will be impaired in any way by the consummation of the
transactions contemplated by this Agreement.
(b) With
respect to each Benefit Plan, the Company has made available to the
Buyer (to the extent applicable to such Benefit Plan) true and
complete copies of: (i) all documents embodying such Benefit
Plan (including all amendments thereto) or, if such Benefit Plan is
not in writing, a written description of such Benefit Plan;
(ii) the last three annual reports (Form 5500 series and
all schedules and financial statements attached thereto) filed with
respect to such Benefit Plan; (iii) the most recent summary
plan description, and all summaries of material modifications
related thereto, distributed with respect to such Benefit Plan;
(iv) all contracts and agreements (and any amendments thereto)
relating to such Benefit Plan, including, without limitation, all
trust agreements, investment management agreements, annuity
contracts, insurance contracts, bonds, indemnification agreements
and service provider agreements; (v) the most recent
determination letter issued by the Internal Revenue Service (the
“ IRS ”) with respect to such Benefit Plan;
(vii) all written communications to employees or
beneficiaries, generally (A) in which the provisions of such
Benefit Plan, as set forth or described therein, differ materially
from such provisions as set forth or described in the other
information or materials furnished under this subsection (b), or
(B) relating to the amendment, creation or termination of such
Benefit Plan, or to an increase or decrease in benefits,
acceleration of payments or vesting or any other event with respect
to such Benefit Plan that could result in a material liability to
the Company; (viii) all material correspondence to or from any
governmental entity or agency relating to such Benefit Plan sent or
received in the past three (3) years; and (ix) all
coverage, nondiscrimination, top heavy and Code Section 415
tests performed with respect to such Benefit Plan for the three
most recently completed plan years.
(c) Except
as set forth on Schedule 3.19 of the Disclosure
Schedule, with respect to each Benefit Plan: (i) such Benefit
Plan is, and at all times since inception has been, maintained,
operated, administered and funded in accordance with its terms and
all Legal Requirements in all material respects; (ii) the
Company and each other Person (including, without limitation, all
fiduciaries) have, at all times and in all material respects,
properly performed all of their duties and obligations under or
with respect to such Benefit Plan; (iii) all returns, reports,
notices, statements and other disclosures relating to such Benefit
Plan required to be filed with any governmental authority or
distributed to any participant therein have been properly prepared
and duly filed or distributed in a timely manner; (iv) all
contributions, premiums and other payments due or required to be
paid to (or with respect to) such Benefit Plan have been timely
paid, or, if not yet due, have been accrued as a liability on the
Balance Sheet; (v) no breach of fiduciary duty has occurred
with respect to any Benefit Plan(vi) no “prohibited
transaction” (within the meaning of either
Section 4975(c) of the Code or Section 406 or 407 of
ERISA) has occurred with respect to such Benefit Plan; and
(vii) the Company has not incurred, and there exists no
condition or set of circumstances in connection with which the
Company or Buyer could incur, directly or indirectly, any material
liability or expense (except for routine contributions and benefit
payments) under ERISA, the Code or any other applicable Legal
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Requirement or pursuant
to any indemnification or similar agreement, with respect to such
Benefit Plan.
(d) Each
Benefit Plan that is intended to be qualified under
Section 401(a) of the Code is so qualified and each trust and
group annuity contract related thereto is exempt from taxation
under Section 501(a) of the Code. Each such Benefit Plan
(i) is the subject of an unrevoked favorable determination
letter from the IRS with respect to such Benefit Plan’s
qualified status under the Code, as amended by that legislation
commonly referred to as “GUST” and “EGTRRA”
and all subsequent legislation, (ii) has remaining a period of
time under the Code or applicable Treasury regulations or IRS
pronouncements in which to request, and make any amendments
necessary to obtain, such a letter from the IRS, or (iii) is a
prototype plan or volume submitter plan entitled, under applicable
IRS guidance, to rely on the favorable opinion or advisory letter
issued by the IRS to the sponsor of such prototype or volume
submitter plan. To the Company’s knowledge, nothing has
occurred, or is reasonably expected by the Company or any Seller to
occur, that could adversely affect the qualification or exemption
of any such Benefit Plan or any trust or group annuity contract
related thereto. The Company has been informed by the relevant
third party administrators that no such Benefit Plan is a
“top-heavy plan,” as defined in Section 416 of the
Code.
(e) The
Company is not, and has not within the past six (6) years
been, a member of (i) a controlled group of corporations,
within the meaning of Section 414(b) of the Code, (ii) a
group of trades or businesses under common control, within the
meaning of Section 414(c) of the Code, (iii) an
affiliated service group, within the meaning of Section 414(m)
of the Code, or (iv) any other group of Persons treated as a
single employer under Section 414(o) of the Code.
(f) The
Company does not sponsor, maintain or contribute to, and has not
previously sponsored, maintained or contributed to (or been
obligated to sponsor, maintain or contribute to), (a) a
“multiemployer plan,” as defined in Section 3(37)
or 4001(a)(3) of ERISA or 414(f) of the Code, (b) a multiple
employer plan within the meaning of Section 4063 or 4064 of
ERISA or Section 413(c) of the Code, (c) an employee
benefit plan that is subject to Part 3 of Subtitle B of Title I of
ERISA, Title IV of ERISA or Section 412 of the Code, or
(d) a “multiple employer welfare arrangement,” as
defined in Section 3(40) of ERISA.
(g) Neither
the Company nor any Benefit Plan provides or has any obligation to
p
