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STOCK PURCHASE AGREEMENT

Stock Purchase Agreement

STOCK PURCHASE AGREEMENT | Document Parties: AUTOMOTIVE INFORMATION SYSTEMS, INC.  | MOBILE PRODUCTIVITY, INC.  | CSK AUTO, INC. You are currently viewing:
This Stock Purchase Agreement involves

AUTOMOTIVE INFORMATION SYSTEMS, INC. | MOBILE PRODUCTIVITY, INC. | CSK AUTO, INC.

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Title: STOCK PURCHASE AGREEMENT
Governing Law: Minnesota     Date: 1/27/2005
Industry: Retail (Specialty)     Law Firm: CSK Auto, Inc. 645 E. Missouri Suite 450 Phoenix, AZ 85012 Telephone: 602.631.7258 Telecopier: 602.264.0495 Attn:Lon B. Novatt, Esq. Senior VP, Chief Administrative Officer and General CounselAnd a copy (which shall not constitute notice) to:Bryan     Sector: Services

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Exhibit 10.1

STOCK PURCHASE AGREEMENT

relating to

AUTOMOTIVE INFORMATION SYSTEMS, INC.

by and between

MOBILE PRODUCTIVITY, INC.

and

CSK AUTO, INC.

Dated as of _________ __, 2005

1

STOCK PURCHASE AGREEMENT
TABLE OF CONTENTS

Page

 

 

 

 

 

ARTICLE 1 DEFINITIONS

 

 

1

 

1.1 Definitions

 

 

1

 

1.2 Interpretation and Accounting Terms

 

 

11

 

ARTICLE 2 PURCHASE AND SALE OF SHARES

 

 

13

 

2.1 Transfer of Shares

 

 

13

 

2.2 Consideration

 

 

13

 

2.3 Closing

 

 

13

 

ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLER

 

 

13

 

3.1 Corporate Existence and Power

 

 

13

 

3.2 Valid and Enforceable Agreement; Authorization; Non-contravention

 

 

14

 

3.3 Capitalization and Ownership

 

 

15

 

3.4 Financial Statements

 

 

15

 

3.5 Events Subsequent to February 1, 2004

 

 

16

 

3.6 Undisclosed Liabilities

 

 

18

 

3.7 Taxes

 

 

18

 

3.8 Accounts Receivable

 

 

21

 

3.9 Inventories; Consignment

 

 

21

 

3.10 No Breach of Law or Governing Document

 

 

21

 

3.11 Litigation.

 

 

22

 

3.12 Owned and Leased Real Property

 

 

22

 

3.13 Personal Property; Title to Assets

 

 

24

 

3.14 Personal Property Leases

 

 

24

 

3.15 Necessary Property

 

 

24

 

3.16 Use and Condition of Property; Location

 

 

24

 

3.17 Licenses and Permits

 

 

25

 

3.18 Environmental Matters

 

 

25

 

3.19 Contracts and Commitments

 

 

26

 

3.20 Validity of Contracts

 

 

28

 

3.21 Intellectual Property

 

 

28

 

3.22 Insurance

 

 

30

 

3.23 Employees, Officers, Directors and Consultants

 

 

31

 

3.24 Bank Accounts of the Company

 

 

32

 

3.25 Labor Matters

 

 

32

 

3.26 Employee Benefit Matters

 

 

34

 

3.27 Product and Service Warranties

 

 

35

 

3.28 Product Liability Claims

 

 

36

 

3.29 Books and Records and Financial Controls

 

 

36

 

3.30 Customers, Suppliers and Competitors

 

 

37

 

3.31 Propriety of Past Payments

 

 

37

 

3.32 Change in Ownership

 

 

37

 

3.33 Guarantees

 

 

37

 

3.34 Brokers, Finders

 

 

37

 

3.35 Accuracy of Information

 

 

37

 

ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYER

 

 

38

 

4.1 Corporate Existence and Power

 

 

38

 

4.2 Valid and Enforceable Agreement

 

 

38

 

4.3 Brokers, Finders

 

 

39

 

4.4 Solvency

 

 

39

 

4.5 Investment Representation

 

 

39

 

4.6 Independent Investigation

 

 

39

 

4.7 Litigation and Arbitration / HSR Act

 

 

39

 

ARTICLE 5 ADDITIONAL COVENANTS OF THE PARTIES

 

 

40

 

5.1 Confidentiality

 

 

40

 

5.2 Covenant Not To Compete and Not to Solicit

 

 

40

 

5.3 Taxes

 

 

43

 

5.4 Books and Records

 

 

45

 

5.5 Public Announcements

 

 

45

 

5.6 Filings

 

 

46

 

5.7 Registration Rights Agreement and Stockholders Agreement

 

 

46

 

5.8 Further Assurances; Cooperation

 

 

46

 

ARTICLE 6 CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER

 

 

46

 

6.1 Accuracy of Representations and Warranties and Performance of Obligations

 

 

46

 

6.2 Consents and Approvals

 

 

47

 

6.3 No Litigation or Contrary Judgment

 

 

47

 

6.4 No Material Adverse Effect

 

 

47

 

6.5 Deliveries of Seller at Closing

 

 

47

 

ARTICLE 7 CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER

 

 

48

 

7.1 Accuracy of Representations and Warranties and Performance of Obligations

 

 

48

 

7.2 Consents and Approvals

 

 

49

 

7.3 No Litigation or Contrary Judgment

 

 

49

 

7.4 Deliveries of Buyer at Closing

 

 

49

 

ARTICLE 8 INDEMNIFICATION

 

 

50

 

8.1 Survival of Representations and Warranties

 

 

50

 

8.2 Indemnification by Seller

 

 

50

 

8.3 Indemnification by Buyer

 

 

51

 

8.4 Notice of Claim

 

 

51

 

8.5 Right to Contest Claims of Third Persons

 

 

51

 

8.6 Limitations on Indemnity

 

 

52

 

8.7 Characterization of Indemnity Payments

 

 

55

 

8.8 Exclusive Remedy

 

 

55

 

8.9 Other Limitations

 

 

55

 

ARTICLE 9 MISCELLANEOUS PROVISIONS

 

 

55

 

9.1 Notice

 

 

55

 

9.2 Termination

 

 

57

 

9.3 Entire Agreement

 

 

57

 

9.4 Amendment and Modification

 

 

57

 

9.5 Assignment; Binding Agreement

 

 

57

 

9.6 Waiver of Compliance; Consents

 

 

57

 

9.7 Expenses

 

 

57

 

9.8 Equitable Relief

 

 

57

 

9.9 Counterparts, Facsimiles

 

 

58

 

9.10 Severability

 

 

58

 

9.11 Governing Law

 

 

58

 

9.12 No Third Party Beneficiaries or Other Rights

 

 

58

 

9.13 Submission to Jurisdiction

 

 

58

 

9.14 Waiver of Jury Trial

 

 

58

 

9.15 Further Assurances

 

 

58

 

2

Exhibits and Schedules

 

 

 

Exhibit

 

Description

1

 

Summary of Potential Terms of Acquisition

 

 

 

2

 

Senior Secured 5% Convertible Promissory Note

 

 

 

3

 

Security Agreement

 

 

 

4

 

Source Code Escrow Agreement

 

 

 

5

 

Pledge Agreement

 

 

 

6

 

UCC Filings

 

 

 

7

 

Guaranty

 

 

 

8

 

Amended Certificate of Incorporation

 

 

 

9

 

License Agreement

 

 

 

10

 

Employment Agreement

 

 

 

11

 

Form of First Amended and Restated Registration Rights Agreement

 

 

 

12

 

First Amended and Restated Stockholders’ Agreement

 

 

 

13

 

Voting Agreement

 

 

 

14

 

Buyer’s Counsel Legal Opinion

 

 

 

15

 

Seller’s Counsel Legal Opinion

 

 

 

16

 

Certificate of Representations and Warranties (J. Sweet)

 

 

 

 

Schedule

 

Description

A

 

Disclosure Letter

 

 

 

B

 

Business Interests

3

STOCK PURCHASE AGREEMENT

This STOCK PURCHASE AGREEMENT (this “ Agreement ”) is entered into as of the       day of       , 2005, by and between Mobile Productivity, Inc., a Delaware corporation (“ Buyer ”), and CSK Auto, Inc., an Arizona corporation (“ Seller ”). Buyer and Seller are referred to herein as a “ Party ” and together as the “ Parties ”. Capitalized terms are defined in Article 1 .

RECITALS

A. Buyer desires to purchase from Seller, on the following terms and conditions, the Shares, which comprise all of the issued and outstanding capital stock of Automotive Information Systems, Inc., d/b/a Identifix, a Minnesota corporation (the “ Company ”); and

B. Seller desires to sell the Shares to Buyer on the following terms and conditions.

NOW, THEREFORE, in consideration of the foregoing recitals and the mutual covenants, representations, warranties, conditions, and agreements hereinafter contained and contained in the Related Agreements, and for other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, the Parties agree as follows:

ARTICLE 1

DEFINITIONS

1.1 Definitions . The following words shall have the respective meanings given to them in this Article 1.

 

1.1.1

 

Accounts Receivable ” has the meaning set forth in Section 3.8 .

1.1.2 “ Action ” has the meaning set forth in Section 3.11 .

 

1.1.3

 

Affiliate ” means with respect to any Person, any other Person which is controlling, controlled by, or under common control with, directly or indirectly through any Person, the Person referred to, and, if the Person referred to is a natural Person, any member of such Person’s immediate family. The term “control” (including, with correlative meaning, the terms “controlled by” and “under common control with”) as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise. Immediately following the Effective Time, the Company shall be the Affiliate of Buyer and shall no longer be deemed to be the Affiliate of Seller.

 

 

1.1.4

 

Agreement ” means this Agreement as executed on the date hereof and as amended or supplemented in accordance with the terms hereof, including the Disclosure Letter and all Schedules and Exhibits hereto.

 

 

1.1.5

 

Amended Certificate of Incorporation ” means the Amended Certificate of Incorporation of Buyer substantially in the form of Exhibit 8 attached hereto.

 

 

1.1.6

 

Book Value ” means the sum of (a) Seller’s initial cash outlay for the Company, including without limitation any and all indirect costs associated with the acquisition of the Company; (b) net cash advances made by Seller to the Company through February 1, 2004; and (c) the book value (as defined under GAAP) of the Company’s capitalized software as of January 31, 2004.

 

 

1.1.7

 

Business ” means any and all business activities in which the Company is engaged (including, without limitation, designing, developing, manufacturing, distributing, promoting and selling the Identifix Internet “Direct-Hit” product, as such business is conducted by the Company on the date hereof and as of the Effective Time.

 

 

1.1.8

 

Business Day ” means any day which is not a Saturday, Sunday or legal holiday in the State of Arizona, United States of America.

 

 

1.1.9

 

Buyer ” has the meaning set forth in the first paragraph hereof.

1.1.10 “ Buyer Indemnified Persons ” has the meaning set forth in Section 8.2 .

 

1.1.11

 

Buyer’s Counsel Legal Opinion ” means the legal opinion letter of counsel to Buyer, August Law Group, P.C., in favor of Seller and its counsel substantially in the form attached as Exhibit 14 hereto.

 

 

1.1.12

 

Certificate of Representations and Warranties ” means the Certificate of Representations and Warranties of Jeff Sweet, the President of the Company, substantially in the form attached as Exhibit 16 hereto.

 

 

1.1.13

 

Closing ” means the consummation of the transactions contemplated by this Agreement, as provided for in Section 2.3 .

 

 

1.1.14

 

Closing Date ” means the date of the Parties’ execution of this Agreement.

 

 

1.1.15

 

COBRA ” means the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended from time to time.

 

 

1.1.16

 

Code ” means the Internal Revenue Code of 1986, as amended from time to time.

1.1.17 “ Company ” has the meaning set forth in the Recitals.

 

1.1.18

 

Confidential Information ” has the meaning set forth in Section 5.2(f) .

 

 

1.1.19

 

Contract ” means any written or oral contract, agreement, understanding, lease, indenture, mortgage, deed of trust, evidence of indebtedness, commitment or instrument, open purchase order or offer, to which the Company is a party or by which it or any of its assets is bound.

 

 

1.1.20

 

Disclosure Letter ” means the letter from Seller to Buyer, dated the date hereof, of exceptions to the representations and warranties made in Article 3 , and the listings of information provided by Seller in Article 3 , to be dated as of, and attached to this Agreement as Schedule A by the Parties at, Closing.

1.1.21 “ EPA ” means the United States Environmental Protection Agency.

 

1.1.22

 

Effective Time ” means the effective time of the Closing, which shall be deemed to be as of 12:01 a.m. Central Daylight Time on the Closing Date.

 

 

1.1.23

 

Employment Agreement ” means the Employment Agreement to be executed at Closing by and between Jeff Sweet (the President of the Company) and the Buyer substantially in the form of Exhibit 10 attached hereto.

 

 

1.1.24

 

Environmental Claim(s) ” means all Actions, Liens, or Orders asserted by a Person other than Buyer, Seller, or any of its Affiliates, and arising out of any violation or alleged violation of any Environmental Laws or Environmental Permits, including, but not limited to, (i) any and all Actions, Liens, or Orders asserted by a Government for enforcement, cleanup, removal, response, closure, remedial or other actions, or damages pursuant to any applicable Environmental Laws or Environmental Permits, and (ii) any and all Actions, Liens, or Orders asserted by a Person other than Buyer, Seller, or any of its Affiliates, arising out of any violation or alleged violation of any Environmental Laws or Environmental Permits, seeking damages, contribution, indemnification, cost recovery, compensation, private or Governmental enforcement, or injunctive relief resulting from Hazardous Materials.

 

 

1.1.25

 

Environmental Law ” means all applicable laws, statutes, enactments, orders, regulations, rules and ordinances of any Government relating to pollution or protection of human health, safety, the environment, natural resources or laws relating to releases or threatened releases of Hazardous Materials into the indoor or outdoor environment (including, without limitation, ambient air, surface water, groundwater, land, surface and subsurface strata) or otherwise relating to the manufacture, generation, processing, distribution, use, treatment, storage, release, transport, disposal or handling of Hazardous Materials, including, without limitation (as applicable), the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. § 9601 et seq.), the Hazardous Materials Transportation Act (49 U.S.C. App. § 1801 et seq.), the Resource Conservation and Recovery Act (42 U.S.C. § 6901 et seq.), the Clean Water Act (33 U.S.C. § 1251 et seq.), the Clean Air Act (42 U.S.C. § 7401 et seq.), the Toxic Substances Control Act (15 U.S.C. § 2601 et seq.) and the Occupational Safety and Health Act, 29 U.S.C. § 651 et seq. ), the Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C. §136y, et. seq. ), and the Oil Pollution Act (33 U.S.C. §2701, et seq. ), all as amended from time to time and the regulations promulgated pursuant thereto.

 

 

1.1.26

 

Environmental Permits ” means all permits, registrations, approvals, licenses, filings and submissions to any Government or other authority required by or made by or on behalf of the Company under or pursuant to any Environmental Law.

 

 

1.1.27

 

Environmental Property ” means any assets or real property currently or previously owned, leased, operated or used by the Company or any Affiliate thereof to the extent liability for an Environmental Claim could be asserted against the Company under any applicable Environmental Law.

 

 

1.1.28

 

ERISA ” means the Employee Retirement Income Security Act of 1974, as amended.

 

 

1.1.29

 

Financial Statements ” means the unaudited (a) balance sheets of the Company as of February 1, 2004, 2003, and 2002; (b) balance sheet of the Company as of November 30, 2004 (the “ Interim Financial Statements ”); and (c) related statements of earnings, stockholders’ equity and changes in financial position and cash flows for the periods then ended, together, as to all the foregoing, with any notes or schedules thereto.

 

 

1.1.30

 

First Amended and Restated Stockholders’ Agreement ” means the First Amended and Restated Stockholders’ Agreement among Buyer, Seller and the other stockholders of Buyer identified therein, substantially in the form attached as Exhibit 12 hereto.

 

 

1.1.31

 

Form of First Amended and Restated Registration Rights Agreement ” means the First Amended and Restated Registration Rights Agreement among Buyer, Seller and the other parties thereto, substantially in the form attached as Exhibit 11 hereto.

 

 

1.1.32

 

GAAP ” means the accounting principles generally accepted in the United States, including as set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board, applied consistently throughout the periods involved.

 

 

1.1.33

 

Government ” means the United States of America, any other nation or state, any federal, bilateral or multilateral governmental authority, state, any possession, territory, local, county, district, city or other governmental unit or subdivision, and any branch, entity, agency, or judicial body of any of the foregoing.

 

 

1.1.34

 

Guaranty ” means the Guaranty made by Warburg Pincus in favor of Seller substantially in the form attached as Exhibit 7 hereto.

 

 

1.1.35

 

Hazardous Materials ” means any petroleum, petroleum hydrocarbons, petroleum waste or petroleum products, underground storage tanks, asbestos or asbestos-containing materials, pesticides, lead and lead-containing materials, urea formaldehyde insulation and polychlorinated biphenyls (PCBs), ionizing and non-ionizing radiation including radon and electromagnetic frequency radiation; and any chemicals, materials, substances or wastes in any amount or concentration which are “hazardous substances,” “hazardous wastes,” “hazardous materials,” “extremely hazardous wastes,” “restricted hazardous wastes,” “toxic substances,” “toxic pollutants” or words of similar import, or which are defined or regulated as dangerous, toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic or otherwise hazardous or as a pollutant or contaminant, in each case under any applicable Environmental Law.

 

 

1.1.36

 

HSR Act ” shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, or any successor thereto.

 

 

1.1.37

 

Income Taxes ” means any Tax imposed upon or measured by net income or gross income (excluding any Tax based solely on gross receipts) including any interest, penalty, or additions thereto, whether disputed or not.

 

 

1.1.38

 

IRCA ” means the Immigration Reform and Control Act of 1986 and the rules and regulations thereunder.

 

 

 

 

1.1.39

 

“IRS” means the United States Internal Revenue Service.

 

 

 

 

 

 

1.1.40

 

“Indemnified Losses” has the meaning set forth in Section 8.2 .

 

 

 

 

 

 

1.1.41

 

“Indemnified Party” has the meaning set forth in Section 8.4 .

 

 

 

 

 

 

1.1.42

 

“Indemnifying Party” has the meaning set forth in Section 8.4 .

 

 

 

 

 

1.1.43

 

Intellectual Property ” means all intellectual property owned or used by the Company, including, without limitation, all:

 

 

(a)

 

inventions, models, designs, developments, ideas, concepts, shop rights, proprietary processes and formulae, and items of proprietary know-how, information or data whether or not patentable, whether or not reduced to practice or whether or not yet made the subject of a pending patent application or applications;

 

 

(b)

 

ideas and conceptions of potentially patentable subject matter, including, without limitation, any patent disclosures, whether or not reduced to practice and whether or not yet made the subject of a pending patent application or applications;

 

 

(c)

 

national (including the United States) and multinational statutory invention registrations, patents, patent registrations and patent applications (including all reissues, divisions, continuations, continuations-in-part, extensions and reexaminations) and all rights therein provided by multinational treaties or conventions and all improvements to the inventions disclosed in each such registration, patent or application;

 

 

(d)

 

trademarks, service marks, trade dress, logos, trade names, domain names, business names and corporate names, including but not limited to “Automotive Information Systems”, “Identifix” and “Direct-Hit”, and any variations, derivations and abbreviations thereof, whether or not registered, including all common law rights and registrations and applications for registration thereof, including, but not limited to, all marks registered in the United States Patent and Trademark Office, and the trademark offices of other nations throughout the world, and all rights therein provided by multinational treaties or conventions,

 

 

(e)

 

copyrights (registered or otherwise), copyrighted works, mask works, derivative works, and registrations and applications for registration thereof, and all rights therein provided by multinational treaties or conventions;

 

 

(f)

 

computer software, including, without limitation, source code, operating systems and specifications, data, data bases, files, programs, documentation and other materials related thereto, and rights to Uniform Resource Locators and web site addresses;

 

 

(g)

 

trade secrets and confidential, technical or business information (including ideas, formulas, compositions, inventions, and conceptions of inventions whether patentable or unpatentable and whether or not reduced to practice);

 

 

(h)

 

whether or not confidential, technology (including know-how and show-how), manufacturing and production process and techniques, research and development information, drawings, specifications, designs, plans, proposals, technical data, copyrightable works, financial, marketing and business data, projections, market studies, pricing and cost information, business and marketing plans and prospects, customer and supplier lists and information;

 

 

(i)

 

copies and tangible embodiments of all of the foregoing, in whatever form or medium;

 

 

(j)

 

rights to obtain and rights to apply for patents, to claim priority to earlier-filed patent applications, and to register trademarks and copyrights;

 

 

(k)

 

rights to sue and recover and retain damages and costs and attorneys’ fees for present and past infringement of any of the intellectual property rights set forth above;

 

 

(l)

 

all intangible rights, in whatever form, recognized as protectable intellectual property under the laws of any country; and

 

 

(m)

 

all the goodwill associated with any of the foregoing, and licenses, sublicenses, assignments, and agreements in respect of any of the foregoing, in each case which are owned, used, licensed or assigned by or to the Company.

 

 

1.1.44

 

Knowledge ” or “ knowledge ” means, subject to Section 1.2.1(a) , a Person’s actual knowledge (i.e., the conscious awareness of facts or other information), without undertaking any investigation, and not constructive or imputed knowledge. The words “know,” “knowing” and “known” shall be construed accordingly.

 

 

1.1.45

 

Law ” means any statute, law, ordinance, decree, order, injunction, rule, directive, or regulation of any Government or quasi-governmental authority, and includes rules and regulations of any regulatory or self-regulatory authority compliance with which is required by any such statute, law, ordinance, decree, order, injunction, rule, directive, or regulation.

1.1.46 “ Leased Real Property ” has the meaning set forth in Section 3.12(b) .

 

1.1.47

 

Liabilities ” or “ Liability ” means all debts, adverse claims, liabilities and/or obligations, direct, indirect, absolute or contingent, liquidated or unliquidated, whether accrued, vested or otherwise, and whether or not reflected or required to be reflected on the financial statements of a Person.

 

 

1.1.48

 

License Agreement ” means the License Agreement between Buyer and Seller substantially in the form attached as Exhibit 9 hereto.

 

 

1.1.49

 

Lien ” means any lien, security interest, mortgage, indenture, deed of trust, pledge, charge, adverse claim, easement, restriction or other encumbrance, including, without limitation, any liens arising pursuant to any Environmental Law or in respect of any Tax.

1.1.50 “ Losses ” has the meaning set forth in Section 8.2 .

 

1.1.51

 

Material Adverse Effect ” means any material adverse effect on (a) the Business, properties, assets, liabilities, profits, operations, results of operations or condition (financial or otherwise) of the Company taken as a whole, or (b) the authority or ability of Seller to perform its obligations under this Agreement, but shall not be deemed to include (i) any adverse changes resulting from general economic, regulatory or political conditions, (ii) circumstances that affect the industries in which the Company operates generally unless expressly directed at or disproportionately affecting the Company, (iii) with respect to the Company or its Affiliates, acts attributable to, omissions by, or circumstances affecting, the other Party hereto or its Affiliates, or (iv) any changes resulting from the announcement or pendency of the transactions provided for in this Agreement.

 

 

 

 

1.1.52

 

“Material Contracts” has the meaning set forth in Section 3.19(a) .

 

 

 

 

 

 

1.1.53

 

“Non-Competition Period” has the meaning set forth in Section 5.2(a) .

 

 

 

 

 

 

1.1.54

 

“Non-Income Taxes” means any Taxes other than Income Taxes.

 

 

 

 

 

1.1.55

 

Order ” means an order, writ, injunction, or decree of any court or Government.

 

 

1.1.56

 

Ordinary Course ” means, with respect to the Business of the Company, only the ordinary course of commercial operations customarily engaged in by the Company consistent with industry norms and the Company’s prior practices, and specifically does not include (a) any activity (i) involving the purchase or sale of the Company or of any product line or business unit of the Company, (ii) involving modification or adoption of any Plan, or (iii) which requires approval by the board of directors or shareholders of the Company, or (b) the incurrence of any material Liability for any tort or any breach or violation of or default under any Contract or Law.

1.1.57 “ Owned Real Property ” has the meaning set forth in Section 3.12(a) .

 

1.1.58

 

Party ” or “ Parties ” has the meaning set forth in the first paragraph hereof.

1.1.59 “ PBGC ” means the Pension Benefit Guaranty Corporation.

 

1.1.60

 

Permitted Liens ” means, collectively, (a) Liens that are disclosed in the Disclosure Letter, (b) Liens for Taxes, fees, levies, duties or other governmental charges of any kind which are not yet delinquent or are being contested in good faith by appropriate proceedings, (c) Liens for landlords, common carriers, warehousemen, mechanics, materialmen, laborers, employees, suppliers or similar liens arising by operation of law for amounts which are owed, but not yet delinquent, (d) purchase money security interests relating to the acquisition of goods in the Ordinary Course equal to, or less than, Ten Thousand Dollars ($10,000) per individual acquisition, (e) in the case of real property, any matters, restrictions, covenants, conditions, limitations, rights, rights of way, encumbrances, encroachments, reservations, easements, agreements and other matters of record, such state of facts of which an accurate survey of the property would reveal, and (f) Liens arising from or related to immaterial indebtedness or capital leases of the Company or its Subsidiaries equal to, or less than, Ten Thousand Dollars ($10,000) in each case.

 

 

1.1.61

 

Person ” shall be construed broadly and shall include an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization or a Government entity (or any department, agency or political subdivision thereof).

 

 

1.1.62

 

Plan ” means any agreement, arrangement, plan, or policy, whether or not written, that involves (a) any pension, retirement, profit sharing, savings, deferred compensation, bonus, stock option, stock purchase, phantom stock, health, welfare, or incentive plan; or (b) welfare or “fringe” benefits, including without limitation vacation, holiday, severance, disability, medical, hospitalization, dental, life and other insurance, tuition, company car, club dues, sick leave, maternity, paternity or family leave, or other benefits; or (c) any employment, consulting, engagement, or retainer agreement.

 

 

1.1.63

 

Pledge Agreement ” means the Pledge Agreement between Buyer, as pledgor, and Seller, as pledgee, substantially in the form of Exhibit 5 attached hereto.

1.1.64 “ Pre-Closing Periods ” has the meaning set forth in Section 5.3(b) .

1.1.65 “ Purchase Price ” has the meaning set forth in Section 2.2 .

 

1.1.66

 

Real Property ” means the Owned Real Property and the Leased Real Property.

 

 

1.1.67

 

Related Agreements ” means the Senior Secured 5% Convertible Promissory Note, Security Agreement, Pledge Agreement, Source Code Escrow Agreement, UCC Filings, Guaranty, Amended Certificate of Incorporation, License Agreement, Employment Agreement, Termination of Severance and Retention Agreement between Jeff Sweet (the President of the Company), the Company and Seller, and the Voting Agreement.

 

 

1.1.68

 

Security Agreement ” means the Security Agreement between Buyer, as debtor, and Seller, as secured party, substantially in the form of Exhibit 3 attached hereto.

 

 

1.1.69

 

Seller Indemnified Persons ” has the meaning set forth in Section 8.3 .

1.1.70 “ Seller ” has the meaning set forth in the first paragraph hereof.

 

1.1.71

 

Seller’s Counsel Legal Opinion ” means the legal opinion letter of counsel to Seller, Bryan Cave LLP, in favor of Buyer and its counsel substantially in the form attached as Exhibit 15 hereto.

 

 

1.1.72

 

Senior Secured 5% Convertible Promissory Note ” means the Senior Secured 5% Convertible Promissory Note made and issued by Buyer, as maker, to Seller, as payee, substantially in the form of Exhibit 2 attached hereto.

 

 

1.1.73

 

Shares ” means the shares of the Company’s common stock, par value $0.01 per share, to be sold by Seller to Buyer hereunder.

 

 

1.1.74

 

Source Code Escrow Agreement ” means the Source Code Escrow Agreement for the Company’s Identifix “Direct-Hit” software among Buyer, Seller, and the escrow agent named therein, substantially in the form of Exhibit 4 attached hereto.

 

 

1.1.75

 

Sponsor ” means any employer who is participating (or who has participated) in any Plan.

1.1.76 “ Straddle Period ” has the meaning set forth in Section 5.3(c) .

 

1.1.77

 

Summary of Potential Terms of Acquisition ” means the Summary of Potential Terms of Acquisition among Buyer, Seller and the Company attached as Exhibit 1 hereto.

 

 

1.1.78

 

Tax ” or “ Taxes ” means all taxes, charges, fees, levies, or other like assessments, including without limitation, all federal, possession, state, city, county and foreign (or governmental unit, agency, or political subdivision of any of the foregoing) income, profits, employment (including Social Security, unemployment insurance and employee income tax withholding), franchise, gross receipts, sales, use, transfer, stamp, occupation, property, capital, severance, premium, windfall profits, customs, duties, ad valorem, value added and excise taxes; PBGC premiums; and any other Government charges of the same or similar nature; including any interest, penalty or addition thereto, whether disputed or not and including any obligations to indemnify or otherwise assume or succeed to the Tax Liability of any other Person. Any one of the foregoing Taxes shall be referred to sometimes as a “Tax.”

 

 

1.1.79

 

Tax Returns ” means all reports, estimates, declarations, claims for refund, information statements and returns relating to or required by Law to be filed by the Company in connection with any Taxes, and all information returns (e.g., Form W-2, Form 1099) and reports relating to Taxes and Taxes payable by, pursuant to, or in connection with, any Plans, including any amendment or supplement thereof. Any one of the foregoing Tax Returns shall be referred to sometimes as a “Tax Return.”

 

 

 

 

1.1.80

 

“Territory” has the meaning set forth in Section 5.2(a) .

 

 

 

 

 

 

1.1.81

 

“Third Person” has the meaning set forth in Section 8.5 .

 

 

 

 

 

 

1.1.82

 

“Third-Person Claim” has the meaning set forth in Section 8.5 .

 

 

 

 

 

1.1.83

 

UCC Filings ” means the Uniform Commercial Code Financing Statement(s) and Fixture Filing(s) in favor of Seller, as secured party, substantially in the form(s) attached as Exhibit 6 hereto.

1.1.84 “ VEBA ” means voluntary employees’ beneficiary association.

 

1.1.85

 

Voting Agreement ” means that Voting Agreement dated as of the date hereof by and among Seller, Buyer and the Stockholders of Buyer parties thereto substantially in the form attached as Exhibit 13 hereto.

 

 

1.1.86

 

Warburg Pincus ” means Warburg Pincus Private Equity VIII, Inc., a Delaware corporation.

 

 

1.1.87

 

Welfare Plan ” means an employee welfare benefit plan (within the meaning of ERISA Section 3(1)).

 

 

 

 

 

 

 

 

1.2

 

Interpretation and Accounting Terms.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1.2.1

 

 

Interpretation.

 

 

 

 

 

 

 

 

 

(a)

 

In respect of Seller, on the one hand, or Buyer, on the other hand, a reference to the “knowledge” or “Knowledge” of such Person or “awareness of” such Person, and variations thereof, shall be deemed to refer to the Knowledge of the Relevant Persons of such Person. In respect of Seller, (i) the term “Relevant Persons” shall be deemed to refer to Don Watson, Larry Buresh, Ed O’Brien, Maynard L. Jenkins and Martin Fraser (except with respect to any communications which are subject to attorney-client or attorney work product privileges), and any other individual who, prior to the Closing Date, shall succeed to the position or office now held by any of the foregoing individuals, and (ii) the terms “knowledge”, “Knowledge”, “awareness”, or variations thereof, of “Relevant Persons” shall include the Knowledge of Jeff Sweet, the President of the Company, solely to the extent disclosed in Mr. Sweet’s Certificate of Representations and Warranties pertaining to the representations and warranties relating to the Company in Article 3 of this Agreement, substantially in the form attached hereto as Exhibit 16 . In respect of Buyer, the term “Relevant Persons” shall be deemed to refer to Les Silver and Kevin Rogers, and any other individual who, prior to the Closing Date, shall succeed to the position or office now held by any of the foregoing individuals.

 

 

(b)

 

Whenever in this Agreement the terms “include,” “includes,” “including,” and derivative or similar words, are used, they shall be construed to be followed by the phrase “without limitation”.

 

 

(c)

 

Whenever in this Agreement the term “agreement” is used, it shall be deemed to refer to binding agreements, commitments, leases, contracts, contract rights, licenses and sublicense agreements, quotations, purchase orders, customer orders, work orders and other executory rights.

 

 

(d)

 

Wherever in this Agreement a statute or other piece of legislation is referenced, such reference shall be deemed to include any and all amendments thereto, as well as any successor legislation which may be adopted subsequent to the date of this Agreement, and covering the same subject matter or the referenced statute or legislation.

 

 

(e)

 

Whenever in this Agreement the term “party to” is used in regard to an agreement, it shall be construed as meaning “party to or bound by”.

 

 

(f)

 

The headings of the Articles, Sections and paragraphs of this Agreement are inserted for convenience of reference only and shall not constitute a part hereof.

 

 

(g)

 

Each reference in this Agreement to an Article, Paragraph, Section, Schedule or Exhibit, unless otherwise indicated, shall mean an Article, Paragraph or Section of this Agreement or a Schedule or Exhibit attached to this Agreement, respectively.

 

 

(h)

 

Whenever in this Agreement the terms “hereof,” “herein,” “hereby”, or derivative or similar words are used, such terms refer to this entire Agreement.

 

 

(i)

 

All references herein to “days” in this Agreement are to consecutive calendar days unless Business Days are specified.

 

 

(j)

 

The language in all parts of this Agreement shall in all cases be construed as a whole according to its fair meaning, strictly neither for nor against any Party hereto, and without implying a presumption that the terms thereof shall be more strictly construed against one Party by reason of the rule of construction that a document is to be construed more strictly against the Person who itself or through its prepared the same, it being agreed that representatives of both Parties have participated in the preparation hereof.

 

 

(k)

 

Whenever in this Agreement the singular is used, it shall include the plural if the context so requires, and whenever the masculine gender is used in this Agreement, it shall be construed as if the masculine, feminine or neuter gender, respectively, has been used where the context so dictates, with the rest of the sentence being construed as if the grammatical and terminological changes thereby rendered necessary have been made.

1.2.2 Accounting Terms . All accounting terms used herein which are not expressly defined in this Agreement shall have the respective meanings given to them in accordance with GAAP.

ARTICLE 2

PURCHASE AND SALE OF SHARES

2.1 Transfer of Shares . Upon the terms and subject to the conditions of this Agreement, at the Closing on the Closing Date and as of the Effective Time, Seller shall sell, assign, transfer and convey to Buyer, and Buyer shall purchase, acquire and accept from Seller, all of Seller’s right, title and interest to and in the Shares free and clear of all Liens.

2.2 Consideration . The consideration that Buyer shall pay Seller for the Shares, the obligations of Seller under Article 5 , and other rights of Buyer hereunder (the “ Purchase Price ”), shall be Twelve Million Eighteen Thousand Seven Hundred Sixteen Dollars ($12,018,716.00), representing the Book Value of the Company, paid by delivery to Seller of the Senior Secured 5% Convertible Promissory Note.

2.3 Closing . The execution of this Agreement by the Parties and the Closing shall take place at 9:00 a.m. (Phoenix, Arizona, time) on the Closing Date, effective as of the Effective Time, at the offices of Bryan Cave LLP, Two North Central Avenue, Suite 2200, Phoenix, Arizona 85004. At Closing, Seller shall deliver or cause to be delivered to Buyer the documents identified in Article 6 and Buyer shall deliver or cause to be delivered to Seller the documents identified in Article 7 .

ARTICLE 3

REPRESENTATIONS AND WARRANTIES OF SELLER

Seller represents and warrants to Buyer that as of the date of this Agreement and the Closing the statements contained in this Article 3 , when read together with and qualified by the Disclosure Letter delivered by Seller to Buyer in connection with this Agreement, are true and correct except for events, transactions or occurrences expressly contemplated or required by this Agreement.

The Disclosure Letter is divided into sections and subsections corresponding to the sections and subsections of Article 3 of this Agreement. Whether or not specifically required by the terms of this Article 3 or otherwise, Seller may modify Seller’s representations and warranties contained in this Agreement by disclosing relevant facts in the Disclosure Letter; provided , however , that for any such disclosure to be effective, it must indicate the specific sections or subsections of Article 3 to which it relates. The disclosure of any information in the Disclosure Letter shall not be deemed to constitute an acknowledgment that such information is required to be disclosed in connection with the representations and warranties made by Seller in Article 3 or that it is material, nor shall such information be deemed to establish a standard of materiality. Unless otherwise specifically defined therein or the context otherwise requires, capitalized terms set forth in the Disclosure Letter shall have the meanings ascribed to such terms in this Agreement.

3.1 Corporate Existence and Power .

 

(a)

 

The Company is a corporation validly existing and in good standing under the laws of the State of Minnesota. The Company has made available to Buyer true, complete and correct copies of its Articles of Incorporation and Bylaws, as currently in effect.

 

 

(b)

 

The Company has all requisite corporate power and authority to own, lease and use its assets and to transact the Business, and holds all authorizations, franchises, licenses and permits required therefor and all such authorizations, franchises, licenses and permits are valid and subsisting. Section 3.1(b) of the Disclosure Letter sets forth the jurisdiction(s) where the Company is duly licensed or qualified to do business as a foreign corporation. The Company is in good standing in each of the jurisdiction(s) set forth in Section 3.1(b) of the Disclosure Letter and is duly licensed or qualified to do business as a foreign corporation in any other jurisdiction where such license or qualification is required, and is in good standing in each such jurisdiction, except for jurisdictions where the failure to be so licensed or qualified would not, individually or in the aggregate, have a Material Adverse Effect.

 

 

(c)

 

Seller has the corporate power, authority and capacity to execute and deliver this Agreement, to perform Seller’s obligations hereunder, and to consummate the transactions contemplated thereby.

3.2 Valid and Enforceable Agreement; Authorization; Non-contravention .

 

(a)

 

This Agreement has been duly executed and delivered by Seller and constitutes a legal, valid and binding obligation of Seller, enforceable against Seller in accordance with its terms, except that such enforcement may be subject to (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting or relating to enforcement of creditors’ rights generally, and (ii) general principles of equity.

 

 

(b)

 

The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby do not require any action on the part of Seller.

 

 

(c)

 

Neither the Company nor Seller are a party to, subject to or bound by any Contract, Law or Order which does or would (i) conflict with or be breached or violated or its obligations thereunder accelerated or increased (whether or not with notice or lapse of time or both) by the execution, delivery or performance by Seller of this Agreement, or (ii) prevent the carrying out of the transactions contemplated hereby. No permit, consent, waiver, approval or authorization of, or declaration to or filing or registration with, any Government or third party is required in connection with the execution, delivery or performance of this Agreement by Seller or the Company any of the Related Agreements to which Seller or the Company is a party, or the consummation by Seller or the Company of the transactions contemplated hereby and thereby, except for any such permits, consents, waivers, approvals, authorizations, declarations, filings or registrations the failure of which to obtain would not have a Material Adverse Effect. The transactions contemplated hereby will not result in the creation of any Lien against the Company or any of its properties or assets (other than a Permitted Lien), nor in the cancellation or modification of any license, agreement or arrangement to which the Company is a party, except for any such cancellations or modifications which would not, individually or in the aggregate, have a Material Adverse Effect.

3.3 Capitalization and Ownership .

 

(a)

 

The authorized capital stock of the Company and the names, addresses and holdings of the record holders thereof are set forth in Section 3.3 of the Disclosure Letter. The Shares are owned by Seller of record and beneficially, and constitute the only issued and outstanding capital stock of the Company. Seller has valid and marketable title in and to the Shares. Upon purchase and payment therefor and delivery to Buyer thereof in accordance with the terms of this Agreement, the Shares shall be transferred at Closing free and clear of all Liens. All the Shares were duly authorized and validly issued and are fully paid and non-assessable without restriction on the right of transfer thereof (other than legends or other restrictions solely evidencing the restricted nature of such Shares pursuant to applicable state and federal securities laws). Except for Buyer’s rights pursuant to this Agreement, (i) there are no authorized or outstanding (A) securities of the Company other than the Shares, or (B) warrants, preemptive rights, other rights, or options with respect to any securities of the Company, and (ii) neither the Company nor Seller is subject to any obligation to issue, sell, deliver, redeem, exchange, convert, repurchase, substitute or otherwise transfer, acquire or retire the Shares or any other securities of the Company.

 

 

(b)

 

The Company does not have any subsidiaries. The Company does not directly or indirectly own or have any capital stock or other equity interest in any other Person (including, without limitation, any contractual, joint venture, profit sharing or other similar quasi-equity arrangement), and there are no Contracts to effect any of the foregoing to which the Company is a party.

 

 

3.4

 

Financial Statements . Attached as Section 3.4 of the Disclosure Letter are the Financial Statements. To Seller’s knowledge, the Financial Statements (i) have been prepared from, and are in accordance with, the books and records of the Company consistently applied, (ii) are complete and correct and in accordance with such books and records, (iii) present fairly the financial position and results of operations of the Company in all material respects at the dates and for the periods indicated, and (iv) have been prepared in accordance with GAAP (except for year-end adjustments and notes with respect to any interim financial statements) or are accompanied by a statement disclosing any deviations from GAAP.

 

 

3.5

 

Events Subsequent to February 1, 2004 . Since February 1, 2004, except as reflected in the Interim Financial Statements, there has been no:

 

 

(a)

 

change in the business or condition (financial or otherwise), operations or results of operations of the Company, or to Seller’s knowledge, current prospects, other than changes in the Ordinary Course (which changes have not, individually or in the aggregate, had a Material Adverse Effect);

 

 

(b)

 

damage, destruction or loss, whether covered by insurance or not, affecting the tangible assets of the Company which individually exceeds $25,000 or in the aggregate exceeds $100,000;

 

 

(c)

 

material adverse change in the Company’s relationship with any of the suppliers, customers, distributors, employees, consultants, lessors, licensors, licensees or other third parties;

 

 

(d)

 

declaration, setting aside, or payment of any dividend or any distribution (in cash or in kind) with respect to any securities of the Company;

 

 

(e)

 

sale or direct or indirect redemption, purchase or other acquisition of securities of the Company;

 

 

(f)

 

increase in or commitment to increase compensation, benefits, or other remuneration to or for the benefit of any employee, shareholder, director, officer, or agent of the Company, or any benefits granted under any Plan with or for the benefit of any such employee, director, officer, or agent, except for increases in salary, wages or benefits in the Ordinary Course which individually exceeds $25,000 or in the aggregate exceeds $100,000;

 

 

(g)

 

accrual or arrangement, whether direct or indirect, for, or payment of, bonuses or special compensation of any kind, or any severance or termination pay, to any present or former officer, director, or employee of the Company, other than in the Ordinary Course and provided that any such accrual or arrangement does not individually exceed $25,000 or in the aggregate exceed $100,000;

 

 

(h)

 

labor dispute or activity or proceeding by a labor union or threat thereof or other event or condition of any character that could have a Material Adverse Effect;

 

 

(i)

 

material transaction entered into or carried out by the Company or Seller in connection with the Business other than in the Ordinary Course;

 

 

(j)

 

borrowing or incurrence of any indebtedness (including letters of credit and foreign exchange contracts), contingent or otherwise, by or on behalf of the Company or any endorsement, assumption, or guarantee of payment or performance of any such indebtedness or any Liabilities of any other Person by or on behalf of the Company other than in the Ordinary Course and provided that any such borrowing or incurrence of indebtedness does not individually exceed $25,000 or in the aggregate exceed $100,000;

 

 

(k)

 

change made by the Company with respect to its Tax or financial accounting, or making of any Tax election;

 

 

(l)

 

grant of any Lien (other than Permitted Liens) with respect to the Shares or the assets of the Company;

 

 

(m)

 

transfer of any material assets, properties or rights (tangible or intangible) of the Company, other than arm’s-length sales, leases, or dispositions in exchange for not less than the fair market value thereof and in the Ordinary Course;

 

 

(n)

 

issuance by the Company of any security, including without limitation any option, warrant or right to receive any security;

 

 

(o)

 

change in the authorized capital or outstanding securities of the Company;

 

 

(p)

 

payment of any obligation or liability (absolute or contingent), by the Company other than current liabilities reflected in or shown on the Financial Statements and current liabilities incurred in the Ordinary Course;

 

 

(q)

 

change in any accounting methods or practices (including, without limitation, any change in depreciation or amortization methods, policies, or rate) by the Company;

 

 

(r)

 

entry into, or amendment, modification, or termination of any Material Contracts except as otherwise disclosed in Sections 3.5(r) or 3.19 of the Disclosure Letter;

 

 

(s)

 

waiver or release of any right or claim of the Company or cancellation of any debts or claims, except in the Ordinary Course and provided that any such waiver or release does not individually exceed $25,000 or in the aggregate exceed $100,000;

 

 

(t)

 

capital expenditure by the Company individually exceeding $25,000 or in the aggregate exceeding $100,000;

 

 

(u)

 

any agreement by the Company to do any of the foregoing items 3.5(d) through (u).

3.6 Undisclosed Liabilities .

 

(a)

 

To Seller’s knowledge, the Company does not have any Liabilities, except:

 

 

(i)

 

those Liabilities identified on the Financial Statements; or

 

 

(ii)

 

as incurred in the Ordinary Course since the date of the most recent Financial Statements (none of which has had or may reasonably be expected to have a Material Adverse Effect on the Company).

 

 

(b)

 

To Seller’s knowledge, except as disclosed in Sections 3.4, 3.5, 3.6(a), 3.7, 3.10, 3.11, 3.19, 3.21, 3.27, 3.28, 3.30 or 3.33 of the Disclosure Letter (noting in each case where such disclosure may involve a Liability which would have a Material Adverse Effect), there is no currently existing condition or circumstance which would reasonably be expected to result in such a Liability which would have a Material Adverse Effect.

3.7 Taxes .

 

(a)

 

The Company has filed, or caused to be filed, on a timely basis all Tax Returns, and such Tax Returns are true, correct and complete in all respects. Without limiting the foregoing, none of the Tax Returns contains any position that is, or would be, subject to penalties under Section 6662 of the Code (or any corresponding provisions of state, local or foreign Tax law). The Company has not entered into any “listed transactions” as defined in Section 1.6011-4(b)(2) of the Treasury Regulations, and the Company has properly disclosed all reportable transactions as required by Section 1.6011-4 of the Treasury Regulations.

 

 

(b)

 

Section 3.7 of the Disclosure Letter lists all Tax Returns for periods up to the Closing Date (whether or not the period ends on such date) that have not been filed on or before the Closing Date. The Company currently is not the beneficiary of any extension of time within which to file any Tax Return except for the Company’s fiscal year 2003 income tax returns (for which the Company has filed extensions).

 

 

(c)

 

All Taxes due and owing by the Company (whether or not reflected on any Tax Return) have been timely and fully paid when due and there are no grounds for the assertion or assessment of additional Taxes against the Company or its assets.

 

 

(d)

 

The Company has timely and properly withheld and paid all Taxes required to have been withheld and paid in connection with any amounts paid or owing to any employee, independent contractor, creditor, stockholder or other third party, including, but not limited to, amounts required to be withheld under Sections 1441 and 1442 of the Code, or any similar provision under foreign law.

 

 

(e)

 

The Company has filed or caused to be filed with the appropriate Government entity all unclaimed property reports required to be filed and has remitted to the appropriate Government entity all unclaimed property required to be remitted.

 

 

(f)

 

There are no Liens for Taxes (other than for current Taxes not yet due and payable) upon any assets of the Company.

 

 

(g)

 

The Company is not a party to or bound by any Tax indemnity, Tax sharing, Tax allocation or other similar agreement.

 

 

(h)

 

The Company (i) is not and never has been a member of an “affiliated group” within the meaning of Section 1504 of the Code, except that the Company has been included in the CSK Auto Corporation consolidated income tax return since the Company was acquired by Seller; and (ii) does not have any Liability for the Taxes of any Person under Treasury regulation Section 1.1502-6 (or similar provision of state, local or foreign law) as a transferee or successor, by contract or otherwise.

 

 

(i)

 

The Company is not a party to or a partner in any joint venture, partnership or other arrangement or contract that could be treated as a partnership for federal income tax purposes.

 

 

(j)

 

The Company has not conducted business outside the State of Minnesota in a manner that would subject it to the income tax of a state other than Minnesota. The Company does not have and has not had a permanent establishment in any foreign country, as defined in any applicable tax treaty or convention between the United States and such foreign country, or a presence in a foreign country that could subject the Company to income tax in such foreign country.

 

 

(k)

 

No federal, state, local or foreign Tax audits or administrative or judicial Tax proceedings are pending or being conducted with respect to the Company.

 

 

(l)

 

The Company has not received from any federal, state, local or foreign Tax authority (including jurisdictions where the Company has not filed a Tax Return) any (i) notice indicating an intent to open an audit or other review; (ii) request for information related to Tax matters; or (iii) notice or deficiency or proposed adjustment for any amount of Tax proposed, asserted, or assessed by any Tax authority against the Company.

 

 

(m)

 

The Company has not waived any statutes of limitation in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency.

 

 

(n)

 

True, correct and complete copies of all income Tax Returns, Tax examination reports and statements of deficiencies assessed against, or agreed to with respect to the Company with respect to the last three years with the IRS or any taxing authority have been made available to Buyer, except for the Company’s fiscal year 2003 income tax returns (for which the Company has filed extensions).

 

 

(o)

 

The Company is not a party to any agreement, contract, arrangement or plan that has resulted or would result in a payment that would not be fully deductible as a result of Section 162(m) or Section 280G of the Code or any similar provision of foreign, state, or local law.

 

 

(p)

 

None of the assets of the Company is property that the Company is required to treat as being a “safe harbor lease” within the meaning of Section 168(f)(8) of the Code, as in effect prior to amendment by the Tax Equity and Fiscal Responsibility Act of 1982.

 

 

(q)

 

None of the assets of the Company has been financed with or directly or indirectly secures any debt the interest on which is tax-exempt under Section 103(a) of the Code. The Company is not a borrower or guarantor of any outstanding industrial revenue , development or other similar bonds, and is not a tenant, principal user or related person to any principal user (within the meaning of Section 144(a) of the Code) of any property that has been financed or improved with the proceeds of any such bonds. +

 

 

(r)

 

None of the assets of the Company is “tax exempt use property” within the meaning of Section 168(h) of the Code.

 

 

(s)

 

The Company is not, and never has been, a United States real property holding company within the meaning of Section 897(c)(1)(A)(ii) of the Code.

 

 

(t)

 

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 income Tax law) executed on or prior to the Closing Date; (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.

 

 

3.8

 

Accounts Receivable . The accounts receivable of the Company (collectively, the “ Accounts Receivable ”) are (to the extent not yet paid in full) valid, genuine and existing and arose or will have arisen from bona fide sales of products or services actually made in the Ordinary Course. To Seller’s knowledge, the Accounts Receivable are not subject to, and the Company has received no notice of, any counterclaim, set-off, defense or Lien with respect to the Accounts Receivable. To Seller’s knowledge, except to the extent of any reserve therefor on the Closing Balance Sheet or to the extent paid prior to Closing, the Accounts Receivable are and will at Closing be fully collectible. Attached to the Disclosure Letter is an aging report for the Company’s Accounts Receivable dated as of January 1, 2005. No agreement for deduction, free goods, discount or deferred price or quantity adjustment has been made with respect to any Accounts Receivable, except in the Ordinary Course.

 

 

3.9

 

Inventories; Consignment . The inventory held by the Company at any location consists of a quantity and quality usable and salable in the Ordinary Course, is not physically damaged, previously used, obsolete, discontinued “old” or “excess” (as defined below), is merchantable and fit for its intended use, is in compliance with all applicable Law, whether domestic or foreign, and is in conformity with all applicable product registrations and specifications, subject only to the reserve, if any, for inventory write-down set forth in the Financial Statements. If there is no reserve for inventory write-down set forth in the Financial Statements, then the aggregate amount of all physically damaged, previously used, obsolete, discontinued, old or excess inventory held by the Company does not exceed Twenty Five Thousand Dollars ($25,000). The Company does not hold any inventory or materials on consignment or have title to any inventory or materials in the possession of others except in the Ordinary Course. As used in this Agreement, “excess” inventory shall mean (A) with respect to products in existence more than 24 months, the amount of inventory in excess of a 24-month supply based on actual sales of such products over the preceding 12 months, and (B) with respect to products introduced within the last 24 months, the amount of such inventory in excess of a 24-month supply based upon the forecasted sales amount for such products during the 6 months following the Closing, which forecast has been prepared by Seller in a commercially reasonable manner. As used in the Agreement, “old” inventory shall mean any item of inventory which has been held by the Company for more than 24 months.

 

 

3.10

 

No Breach of Law or Governing Document . The Company is not (i) in default under or in breach or violation of any Law, or of any provision of its Articles of Incorporation or Bylaws, or (ii) the provisions of any Government permit, franchise, or license, which breach or violation of such permit, franchise, or license would have a Material Adverse Effect on the Company. Neither the Company nor Seller has received any notice alleging such default, breach or violation. Neither the execution of this Agreement nor any Related Agreement, nor the Closing, does or will constitute or result in any such default, breach or violation.

3.11 Litigation.

 

(a)

 

There is no, and for the previous three years there has not been any, suit, claim, litigation, proceeding (administrative, judicial, or in arbitration, mediation or alternative dispute resolution), Government or grand jury investigation, or other action (any of the foregoing, an “ Action ”), pending or, to Seller’s knowledge, threatened, anticipated or contemplated, against Seller (solely with respect to the Company or the Business), the Company, involving the Business, or involving any of the Company’s property, assets or capital stock or any of its shareholders, directors, officers, agents, or other personnel in its capacity as such, including without limitation any Action challenging, enjoining, or preventing this Agreement, or the consummation of the transactions contemplated hereby;

 

 

(b)

 

The Company is not currently and, to Seller’s knowledge, has not been subject to any Order other than Orders of general applicability; and

 

 

(c)

 

The Company has not been or been threatened to be subject to any Action or Order relating to personal injury, death, or property or economic damage arising from products sold, licensed or leased and services performed by the Company.

3.12 Owned and Leased Real Property .

 

(a)

 

Set forth in Section 3.12(a) of the Disclosure Letter is a list of the real property owned by the Company (the “ Owned Real Property ”) together with the legal description of each parcel of Owned Real Property, a description of the title insurance policy or other evidence of title issued with respect thereto and a description of the type of use of each such parcel. Except for Permitted Liens and easements and Liens set forth in Section 3.12(a) of the Disclosure Letter, none of which are substantial in character or amount and none of which detract from the value or interfere with the use of the property in any material way, the Company has good and marketable title to the Owned Real Property free and clear of all options, leases, covenants, conditions, easements, agreements, claims, and other Liens of every kind and there exists no restriction or limitation on the use or transfer of such property. Seller has no interest in or any right or obligation to acquire any interest in the Owned Real Property.

 

 

(b)

 

Set forth in Section 3.12(b) of the Disclosure Letter hereto is a description of each lease under which the Company is the lessee of any real property (“ Leased Real Property ”). The Company has made available to Buyer a true, correct and complete copy of each lease identified on Section 3.12(b) of the Disclosure Letter. The premises or property described in such leases are presently occupied or used by the Company as lessee under the terms of such leases. All rentals due under such leases have been paid and there exists no default by the Company or by any other party to such leases under the terms of such leases and no event has occurred which, upon passage of time or the giving of notice, or both, would result in any event of default by the Company or by any other party to such leases, or prevent or limit the Company from exercising and obtaining the benefits of any rights or options contained therein. The Company has all right, title and interest of the lessee under the terms of said leases, free of all Liens other than Permitted Liens and to Seller’s knowledge all such leases are valid and in full force and effect.

 

 

(c)

 

To Seller’s knowledge, all improvements located on, and the use presently being made of, the Real Property comply with all applicable zoning and building codes, ordinances and regulations and all applicable fire, environmental, occupational safety and health standards and similar standards established by Law and the same use thereof by the Company and Buyer following Closing will not result in any violation of any such code, ordinance, regulation or standard. To Seller’s knowledge, the present use and operation of the Real Property does not constitute a non-conforming use and is not subject to a variance. To Seller’s knowledge, there is no proposed, pending or threatened change in any such code, ordinance, regulation or standard which would have a Material Adverse Effect.

 

 

(d)

 

At and after the Closing, the Company shall have all rights, easements and agreements necessary for the use and maintenance of water, gas, electric, telephone, sewer or other utility pipelines, poles, wires, conduits or other like facilities, and appurtenances thereto, over, across and under the Real Property. No proceeding is pending or, to Seller’s knowledge, threatened which could adversely affect the zoning classification of the Real Property.

 

 

(e)

 

There is no unpaid property Tax, levy or assessment against the Real Property (except for Liens relating to Taxes not yet due and payable), nor is there pending or threatened any condemnation proceeding against the Real Property or any portion thereof. To Seller’s knowledge, no part of any improvements on the Real Property encroaches upon any property adjacent thereto or upon any easement, nor is there any encroachment or overlap upon the Real Property.

 

 

(f)

 

To Seller’s knowledge, there is no condition affecting the Real Property or the improvements located thereon which requires repair or correction to restore the same to reasonable operating condition.

3.13 Personal Property; Title to Assets .

 

(a)

 

Section 3.13 of the Disclosure Letter sets forth a complete and correct list and brief description of each item of equipment, furniture, fixtures and other tangible personal property owned or leased by the Company and having an individual book value in excess of $50,000.

 

 

(b)

 

Except with respect to leases set forth in Section 3.13 and Section 3.14 of the Disclosure Letter (or which, by the terms of such Sections, are not required to be set forth in the Disclosure Letter), the Company has good and marketable title to and is the sole and exclusive owner of all right, title and interest in and to all of the property used by it or necessary to conduct its business, including in each case all personal property reflected on the Financial Statements or acquired after the date thereof (except any personal property subsequently sold in the Ordinary Course), free and clear of all Liens except for Permitted Liens.

 

 

3.14

 

Personal Property Leases . Set forth in Section 3.14 of the Disclosure Letter is a description of each lease having annual lease payments in excess of $25,000 under which the Company is the lessee of any personal property and the location of such property. The Company has made available to Buyer a true, correct and complete copy of each lease identified on Section 3.14 of the Disclosure Letter. The property described in such leases is presently used by the Company as lessee under the terms of such leases. All rentals due under such leases have been paid and there exists no default


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