EXHIBIT 2.8
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of May 7, 1997 (herein, together with
the Schedules and Exhibits attached hereto, referred to as the "Agreement"),
among Detection Systems, Inc., a New York corporation (the "Buyer" or "DSI"),
and Numerex Corp., a Pennsylvania corporation (the "Seller"). Capitalized terms
used in this Agreement which are not defined in context shall have the meanings
ascribed to them in Section 8.1 hereof.
WHEREAS, the Seller owns all of the issued and outstanding capital stock of
Digital Audio Limited, a company incorporated in England and Wales with limited
liability having registered number 2865840 and having its registered office at
Cranleigh Gardens, Southall Middlesex England (the "Company"); and
WHEREAS, upon the terms and conditions set forth herein, the Buyer and the
Seller desire that, at the Closing (as defined in Section 2.1), the Buyer
purchase all of the issued and outstanding shares of the Company in exchange for
shares of common stock, par value $.05 per share, of the Buyer ("DSI Stock");
NOW, THEREFORE, in consideration of the mutual representations, warranties,
covenants, agreements and conditions contained herein, the parties hereto,
intending to be legally bound, hereby agree as follows:
1. The Stock Purchase.
1.1 Sale and Purchase of Common Stock of the Company. Subject to the terms
and conditions of this Agreement, at the Closing, the Seller shall sell,
transfer and deliver to the Buyer or its agent a certificate or certificates
representing 100 ordinary shares of (pound)1 per share of the Company owned by
the Seller (the "Company Stock"), accompanied by stock transfer forms and a
power of attorney authorizing the Buyer to vote the Company Stock, each duly
executed by the Seller, and the Buyer shall purchase and accept such shares of
Company Stock.
1.2 Purchase Price. In consideration for the sale, transfer and delivery of
the Company Stock to the Buyer by the Seller pursuant to Section 1.1, the Buyer
shall pay to the Seller, in the manner provided in Section 1.4, an amount equal
to the net capital employed in the Company as of the Closing Date less
(pound)350,000 (the "Final Purchase Price"). The net capital employed in the
Company means the assets of the Company, excluding any cash distributed or
otherwise paid to the Seller or its Affiliates immediately prior to the Closing,
less the liabilities of the Company (the "Net Capital Employed"), as set forth
on Schedule 1.2 hereto.
1.3 Determination of Purchase Price.
(a) Attached hereto as Exhibit 1.3(a) is an unaudited Balance Sheet of
the Company as of April 30, 1997 (the "Preliminary Balance Sheet"). A
preliminary Purchase Price shall be calculated which shall be equal to the Net
Capital Employed as set forth on the Preliminary Balance Sheet less
(pound)350,000 (the "Preliminary Purchase Price"), and the number of shares of
DSI Stock issued by the Buyer to the Seller at the Closing shall be based on the
Preliminary Purchase Price.
(b) As soon as practicable after the Closing Date as defined in Section
1.4 hereof, but in no event later than forty-five (45) calendar days after the
Closing Date, the Seller shall prepare an audited Balance Sheet of the Company
as at the Closing Date, after taking into account any cash distributed or
otherwise paid to the Seller or its Affiliates immediately prior to the Closing
(the "Final Balance Sheet"), and shall deliver it to the Buyer with an audit
report thereon. The Final Purchase Price shall be computed based on the Final
Balance Sheet. The Final Balance Sheet shall be prepared in accordance with all
relevant financial reporting standards and/or Statements of Standard Accounting
Practice or, where there are none, in accordance with UK generally accepted
accounting principles, and shall be prepared on a consistent basis and in
accordance with the same accounting policies as have been used for the
corresponding accounts for the last three (3) years. In connection with the
preparation of the Final Balance Sheet, no adjustments to write-off any
inventory or other assets during or with respect to any prior accounting period
may be reversed. The Final Balance Sheet shall be audited by Deloitte & Touche
LLP (the "Auditor"), and the audit report delivered by the Auditor shall be
addressed to the Seller and the Buyer. The expense of the Auditor in preparing
or auditing the Final Balance Sheet shall be borne by the Seller; provided,
however, the Buyer shall reimburse the Seller for one-half of such costs up to a
maximum reimbursement by the Buyer of (pound)7,000. If requested by the Buyer,
the Seller and the Auditor shall afford the Buyer's accountants access to the
information and accounting procedure involved in preparation of the Final
Balance Sheet.
1.4 Payment of the Purchase Price.
(a) On the Closing Date, the Preliminary Purchase Price shall be
converted from British pounds sterling to United States dollars by using the
United States dollar equivalent exchange rate relating to British pounds
sterling published in the Wall Street Journal for the most recent date for which
such a rate has been so published prior to the Closing Date. The Preliminary
Purchase Price stated in United States dollars shall be divided by $17 to
determine the number of shares of DSI Stock to be delivered by the Buyer to the
Seller at the Closing (the "Preliminary Share Amount"). On the Closing Date, the
Buyer shall deliver to the Seller a stock certificate registered in the Seller's
name representing a number of shares of DSI Stock equal to the Preliminary Share
Amount.
(b) After the Final Balance Sheet is delivered, the difference between
the Final Purchase Price and the Preliminary Purchase Price (the "Price
Adjustment") shall be determined and the Price Adjustment shall be converted
from British pounds sterling to United States dollars by using the United States
dollar equivalent exchange rate relating to British pounds sterling published in
the Wall Street Journal for the most recent date for which such a
2
rate has been so published on or prior to the date on which the Final Balance
Sheet is delivered to the Buyer (the "Determination Date"). The Price Adjustment
as stated in U.S. Dollars shall be divided by $17 to determine the number of
shares of DSI Stock by which the Preliminary Share Amount should be increased or
decreased (the "Share Adjustment"). If the Final Purchase Price is greater than
the Preliminary Purchase Price, the Buyer shall deliver to the Seller a stock
certificate registered in the Seller's name representing a number of shares of
DSI Stock equal to the Share Adjustment. If the Final Purchase Price is less
than the Preliminary Purchase Price, the Seller shall deliver to the Buyer a
stock certificate representing the shares of DSI Stock delivered by the Buyer to
the Seller at the Closing together with a stock power, duly executed in blank
with the signature of the Seller guaranteed by a financial institution
reasonably acceptable to the Buyer, which conveys to the Buyer the number of
shares of DSI Stock equal to the Share Adjustment. The deliveries required by
this Section 1.4(b) shall be made within ten (10) days following the
Determination Date.
(c) No fractional shares of DSI Stock shall be issued in connection
with this Agreement. In connection with all calculations hereunder, all
fractional numbers equal to or greater than .5 shall be rounded up to the next
highest whole number and all fractional numbers below .5 shall be rounded down
to the next lowest whole number.
1.5 Repurchase of DSI Stock.
(a) Until June 30, 1998, the Buyer shall have the right to buy, and the
Seller shall be obligated to sell, any or all shares of DSI Stock acquired
pursuant to this Agreement (the "Acquired Shares"). The purchase price per share
for any Acquired Shares purchased by the Buyer pursuant to this Section 1.5
shall be equal to $17 plus interest thereon at the rate of 8.25% per annum from
the Closing Date through the date on which such Acquired Shares are purchased
based on the actual number of days elapsed during such period (the "Call/Put
Price"). The Buyer may exercise its right under this Section 1.5(a) from time to
time with respect to any or all of the Acquired Shares by notifying the Seller
in writing, on or prior to June 30, 1998, that it is exercising such right. The
purchase price for any Acquired Shares pursuant to this Section 1.5(a) shall be
paid in cash, and the parties shall close any transaction contemplated by this
Section 1.5(a) within fifteen (15) days after the date on which the Buyer
notifies the Seller it is exercising its right.
(b) If, on or prior to June 30, 1998, the Seller sells Acquired Shares
at a sale price per share before deducting any applicable sales commissions (the
"Gross Sale Price") greater than the Call/Put Price computed as of the date of
sale divided by .93 (the "Maximum Price"), the Seller shall refund consideration
to the Buyer in an amount equal to the Gross Sale Price minus the Maximum Price
and then multiplied by the number of Acquired Shares sold for such Gross Sale
Price.
(c) For a period of thirty (30) days commencing on July 1, 1998, the
Seller shall have the right to require the Buyer to buy any or all of the
3
Acquired Shares then owned by the Seller for cash in the amount equal to the
number of Acquired Shares purchased multiplied by the Call/Put Price. To
exercise such right, the Seller shall notify the Buyer in writing, on or prior
to July 30, 1998, that it is exercising such right. The parties shall close any
transaction contemplated by this Section 1.5(c) within fifteen (15) days after
the date on which the Seller notifies the Buyer it is exercising its right.
Notwithstanding the foregoing, the Buyer shall not be required to buy any
Acquired Shares which, prior to June 30, 1998, the Seller could have sold, but
decided not to sell, in a registered public offering or private placement at a
sale price per share (after deducting any sales commissions) equal to or greater
than the Call/Put Price as of the date of such public offering or private
placement.
(d) Until June 30, 1998 and to the extent that the Seller then owns
Acquired Shares, if the Buyer conducts or participates in a public offering or
private placement the Buyer shall purchase, upon the same terms and conditions
as set forth in Section 1.5(a), the whole number of Acquired Shares which the
Buyer can purchase from the Seller with (i) twenty-five percent (25%) of the
aggregate net proceeds received by the Buyer, its Affiliates and the Seller from
such public offering or private placement, minus (ii) the amount of net
proceeds, if any, received by the Seller from participating in such public
offering or private placement.
(e) To the extent that the Buyer has not exercised its right to
purchase any Acquired Shares by June 30, 1998 and the Seller has not exercised
its right to require the Buyer to purchase any Acquired Shares by July 30, 1998,
the Buyer shall not have the right to, and shall not be obligated to, purchase
any such Acquired Shares. The Seller shall be entitled to any and all proceeds
in connection with any sale of the Acquired Shares after June 30, 1998.
Following such date, the Buyer will remain subject to its obligations to
register the Acquired Shares pursuant to the terms of the Registration Rights
Agreement between the Buyer and the Seller entered into pursuant to this
Agreement.
2. Closing; Termination of Agreement.
2.1 Closing. The closing of the transactions contemplated by this Agreement
(the "Closing") shall take place at the offices of Nixon, Hargrave, Devans &
▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ (or at such other place as
the parties may jointly designate in writing) on May 7, 1997 (the "Closing
Date"), or on such other date as the parties may jointly designate in writing
(and for all purposes shall be effective as of the close of business on such
date).
2.2 Termination of Agreement. This Agreement may be terminated prior to the
Closing as follows:
(a) at the election of either the Buyer or the Seller if the Closing
shall not have occurred by June 30, 1997;
(b) by mutual written consent of the Buyer and the Seller;
4
(c) by either the Buyer or the Seller if there shall be in effect a
final nonappealable Order of a Governmental Body of competent jurisdiction
restraining, enjoining or otherwise prohibiting the consummation of the
transactions contemplated hereby; it being agreed that the parties hereto shall
promptly appeal, and shall diligently pursue, any adverse determination which is
not nonappealable;
(d) by the Buyer if any of the conditions set forth in Section 6.1
hereof becomes incapable of fulfillment and is not waived by the Buyer; or
(e) by the Seller if any of the conditions set forth in Section 6.2
hereof becomes incapable of fulfillment and is not waived by the Seller.
2.3 Survival After Termination. If this Agreement is terminated in
accordance with Section 2.2 and the transactions contemplated hereby are not
consummated, this Agreement shall become null and void and of no further force
and effect, except (i) for this Section 2.3, (ii) for the provisions of Section
5.1(c) and (iii) that the termination of this Agreement for any reason shall not
relieve any party hereto from any liability the benefit of which at the time of
termination had already accrued to any other party hereto or which thereafter
may accrue in respect of any act or omission of such party prior to such
termination.
3. Representations and Warranties of the Seller. The Seller represents and
warrants to the Buyer that:
3.1 Organization and Good Standing. The Company is a private limited
company duly incorporated under the laws of England and Wales and has the
requisite corporate power and authority to own, lease and operate its properties
and to carry on its business as now conducted, it being acknowledged that the
Company's present operational facilities are being leased by its subsidiary
Systemcredit Trading Limited (the "Subsidiary"). The Company is not and is not
required to be qualified or authorized to do business as a foreign corporation
under the laws of any other jurisdiction. The Subsidiary is a private limited
company duly incorporated under the laws of England and Wales, having registered
number 1287937 and its registered office at Cranleigh Gardens, Southall
Middlesex England, and has the requisite corporate power and authority to own,
lease and operate its properties but has been dormant since December 31, 1993.
The Seller is a corporation duly organized, validly existing and in good
standing under the laws of the Commonwealth of Pennsylvania and has the
requisite power and authority to own, lease and operate its properties and to
carry on its business as now conducted.
3.2 Authorization of Agreement. The Seller has all requisite power and
authority to execute and deliver this Agreement and each other Contract,
document or certificate contemplated by this Agreement to be executed by the
Seller in connection with the consummation of the transactions contemplated by
this Agreement (collectively, the "Seller Documents") and to perform duly its
obligations hereunder and thereunder. The execution, delivery and performance by
the Seller of this Agreement and the Seller Documents to which it is a party
have been duly authorized by all necessary corporate, including stockholder,
5
action on the part of the Seller. This Agreement has been, and each of the
Seller Documents will be at or prior to the Closing, duly and validly executed
and delivered by the Seller and this Agreement constitutes, and each of the
Seller Documents when so executed and delivered, and assuming due authorization,
execution and delivery by DSI, will constitute, legal, valid and binding
obligations of the Seller, enforceable against the Seller in accordance with
their respective terms, subject to applicable bankruptcy, insolvency,
reorganization, fraudulent transfer, moratorium and similar laws affecting
creditors' rights and remedies generally and subject, as to enforceability, to
general principles of equity.
3.3 Subsidiaries. Except as set forth on Schedule 3.3, the Company does not
(i) own beneficially or of record any shares of capital stock or any other
security or other proprietary or equity interest of or in any other Person or
(ii) have any other investment in any other Person.
3.4 Corporate Records.
(a) The copies of the Certificate of Incorporation and Memorandum and
Articles of Association of the Company previously delivered to the Buyer are
complete, correct and up to date.
(b) The minute books of the Company previously delivered or made
available to the Buyer contain complete and accurate records of all meetings and
accurately reflect all other corporate action of the Stockholders and Board of
Directors (including committees thereof) of the Company. All stock transfer
taxes levied or payable with respect to all transfers of shares of capital stock
of the Company prior to the date hereof have been paid and appropriate transfer
tax stamps affixed.
3.5 Consents of Third Parties. The execution and delivery by the Seller of
this Agreement and the Seller Documents, the consummation of the transactions
contemplated hereby or thereby, and compliance by the Seller with the provisions
hereof and thereof will not (i) conflict with, or result in the breach of, any
provision of the articles of incorporation or by-laws of the Seller or the
Memorandum and Articles of Association of the Company; (ii) except as set forth
on Schedule 3.5 conflict with, violate, result in the breach or termination of,
or constitute a default or give rise to any right of termination or acceleration
or right to increase the obligations or otherwise modify the terms thereof under
any Contract, Permit or Order to which the Seller or the Company is a party or
by which either of them or any of their respective properties or assets is
bound; (iii) constitute a violation of any Law applicable to the Seller or the
Company; or (iv) result in the creation of any Lien upon the properties or
assets of the Seller or the Company. Except as set forth on Schedule 3.5, no
consent, waiver, approval, Order, Permit or authorization of, or declaration or
filing with, or notification to, any Person or Governmental Body is required on
the part of the Seller or the Company in connection with the execution and
delivery of this Agreement or the Seller Documents, or the compliance by the
Seller or the Company, as the case may be, with any of the provisions hereof or
thereof.
6
3.6 Capitalization. The authorized share capital of the Company consists of
1,000 ordinary shares of (pound)1 per share, and the Company Stock constitutes
all of the issued or outstanding shares or stock of the Company. All outstanding
shares of the Company Stock are duly authorized, validly issued, fully paid and
nonassessable. Except for the Company Stock, there are no issued or outstanding
proprietary or equity interests in the Company. There are no outstanding
options, warrants or other rights of any kind to acquire any additional shares
or stock of the Company or other proprietary or equity interests in the Company
or securities convertible into or exchangeable for, or which otherwise confer on
the holder thereof any right to directly or indirectly acquire, any shares or
stock of the Company or other proprietary or equity interests in the Company,
nor is the Company committed to issue any such option, warrant, right or
security.
3.7 Ownership of Shares. The Seller is the registered holder and beneficial
owner of the Company Stock free and clear of any and all Liens, except for Liens
set forth in Schedule 3.7 which shall be satisfied or otherwise released on or
before the Closing Date. The Company is the registered holder and beneficial
owner of all of the issued and outstanding shares or stock of the Subsidiary,
free and clear of any and all Liens, except as set forth in Schedule 3.7. The
Seller sells the Company Stock with full title guarantee.
3.8 Financial Statements. The Seller has delivered to the Buyer copies of
(i) the audited balance sheets of the Company as at October 31, 1995 and 1996
and the related audited statements of income and retained earnings, and cash
flows of the Company for the years then ended and the unaudited balance sheet of
the Company as at April 30, 1997 and the related unaudited statements of income
and retained earnings, and cash flows of the Company for the period then ended
(such audited and unaudited financial statements of the Company, including the
related notes and schedules thereto, are referred to herein as the "Financial
Statements"). Each of the Financial Statements: (i) fairly represents the
financial position and of the state of affairs of the Company as at their date
and have not been affected by any unusual, extraordinary, exceptional or
non-recurring event; (ii) complies with all relevant statutory requirements;
(iii) were prepared in accordance with all relevant financial reporting
standards and/or Statements of Standard Accounting Practice or, where there are
none, in accordance with UK generally accepted accounting principles, and (iv)
were prepared on a consistent basis and in accordance with the same accounting
policies as have been used for the corresponding accounts for the last three (3)
years, except that the audited balance sheet and the statements of income and
retained earnings and cash flows for the year ended October 31, 1996 will be
adjusted by (pound)350,000 to reflect a decrease in royalty expense and
inter-company debt.
For the purposes hereof, the audited balance sheet of the Company as at
October 31, 1996 is referred to as the "Balance Sheet" and October 31, 1996 is
referred to as the "Balance Sheet Date."
3.9 No Undisclosed Liabilities. The audited accounts of the Company for the
period ending on the Balance Sheet Date disclose or contain proper provisions
and/or reserves for all material liabilities (actual, contingent or otherwise
7
including, without limitation, deferred taxation) of the Company as at the
Balance Sheet Date, and since the Balance Sheet Date the Company has not
incurred or entered into any material debt, obligation or liability of any kind
other than those incurred in the ordinary course of business consistent with
past practice or otherwise expressly disclosed herein or in a schedule hereto.
The Seller and the Company know of no facts (other than facts of a general
economic or political nature or facts generally known within the industry) which
have caused or in the future are reasonably likely to cause a Material Adverse
Change to the Company which have not been set forth in the Financial Statements
or expressly disclosed herein or in a schedule hereto. Where not otherwise
stated in the audited accounts of the Company, the Seller has disclosed in
Schedule 3.9 full details of all deferred taxation liability. There are no
conditions or circumstances existing as of the Closing Date which could give
rise to liabilities which are not reflected as liabilities in the Financial
Statements.
3.10 Absence of Certain Developments. Except as set forth on Schedule 3.10
or as expressly contemplated by this Agreement, since the Balance Sheet Date:
(i) there has not been any Material Adverse Change to the Company nor,
to the knowledge of the Seller or the Company has any event occurred which
is reasonably likely to result in any Material Adverse Change to the
Company;
(ii) there has not been any material damage, destruction or loss,
whether or not covered by insurance, with respect to the property and
assets of the Company;
(iii) there has not been any declaration, setting aside or payment of
any dividend or other distribution in respect of any shares of capital
stock of the Company or any repurchase, redemption or other acquisition by
the Company of any outstanding shares of capital stock, or other securities
of, or other proprietary or equity interest in, the Company;
(iv) there has not been any transfer, issue, sale or other disposition
by the Seller or the Company of any shares of capital stock, proprietary or
equity interests or other securities of the Company or any grant of
options, warrants, rights or other securities to purchase or otherwise
acquire shares of such capital stock, proprietary or equity interests or
such other securities;
(v) the Company has not awarded or paid any bonuses to employees of
the Company except in the ordinary course of business consistent with past
practice or to the extent accrued on the Balance Sheet, or entered into any
employment, deferred compensation, severance or similar agreement (nor
amended any such agreement) or agreed to increase the compensation payable
or to become payable by it to the Company's directors, officers, employees,
agents or representatives or agreed to increase the coverage or benefits
available under any severance pay, termination pay, vacation pay, company
8
awards, salary continuation for disability, sick leave, deferred
compensation, bonus or other incentive compensation, insurance, pension or
other employee benefit plan, payment or arrangement made to, for or with
such directors, officers, employees, agents or representatives;
(vi) there has not been any change by the Company in its accounting
principles, methods or policies;
(vii) the Company has not entered into any transaction or Contract or
conducted its business other than in the ordinary course of its business
consistent with past practice;
(viii) other than in the ordinary course of business consistent with
past practice, the Company has not failed to promptly pay and discharge
current liabilities of the Company except where disputed in good faith by
appropriate proceedings;
(ix) the Company has not made any loans, advances or capital
contributions to, or investments in, any Person or paid any fees or
expenses to the Seller or any Affiliate of the Seller (other than the
Company);
(x) the Company has not mortgaged, pledged or subjected to any Lien
any of its assets, or acquired any assets or sold, assigned, transferred,
conveyed, leased or otherwise disposed of any assets of the Company except
for assets of the Company acquired or sold, assigned, transferred,
conveyed, leased or otherwise disposed of in the ordinary course of
business consistent with past practice;
(xi) the Company has not discharged or satisfied any Lien, or paid any
obligation or liability (fixed or contingent) of the Company, except in the
ordinary course of business consistent with past practice and which, in the
aggregate, would not be material to the Company taken as a whole;
(xii) the Company has not cancelled or compromised any debt or claim
of the Company or amended, cancelled, terminated, relinquished, waived or
released any Contract or right of the Company except in the ordinary course
of business consistent with past practice and which, in the aggregate,
would not be material to the Company taken as a whole;
(xiii) neither the Seller nor the Company has transferred or granted
any rights under any concessions, leases, licenses or agreements of the
Company or Intangible Property used by the Company in its business;
9
(xiv) the Company has not made or committed to make any capital
expenditures or capital additions or betterments in excess of $5,000
individually or $25,000 in the aggregate;
(xv) the Company has not instituted or settled any material Legal
Proceeding to which the Company is a party; and
(xvi) the Company has agreed to do anything set forth in this
Section 3.10 and the Seller has not agreed to cause the Company to do
anything set forth in this Section 3.10.
3.11 Taxes.
(a) Except as provided on Schedule 3.11, the Company has timely filed
with the appropriate Governmental Bodies all Tax Returns required to be filed by
or with respect to the Company, its operations and assets, and all such Tax
Returns are true, complete and correct and are not being disputed by any
Governmental Body.
(b) Except as provided on Schedule 3.11, the Company has timely paid
(and until the Closing Date will timely pay) all Taxes that are due and payable
on or before the Closing Date with respect to the Company, its operations and
assets, except for Taxes that are being contested in good faith by appropriate
proceedings disclosed on Schedule 3.11 and as to which adequate reserves have
been or will be, as applicable, reflected on the Balance Sheet, the Preliminary
Balance Sheet or the Final Balance Sheet.
(c) Except as provided on Schedule 3.11, the Company has complied (and
through and including the Closing Date will comply) with all applicable Laws
relating to the payment and withholding of Taxes, and has timely deducted from
employee wages and paid over (and through and including the Closing Date will
timely deduct and pay over) to the Inland Revenue of England or other proper
Governmental Bodies all amounts required to be so deducted and paid over for all
periods under all applicable Laws.
(d) Except as provided on Schedule 3.11, neither the Company nor the
Seller has requested any extension of time within which to file any Tax Return
covering any Tax for which the Company would be liable, which Tax Return has not
since been filed.
(e) The income Tax Returns of the Company have been examined by the
appropriate Governmental Bodies, or the period covered by such Tax Returns has
been closed by an applicable statute of limitations, for all periods through
October 31, 1993. All deficiencies asserted as a result of such examinations or
otherwise have been paid, fully settled or adequately provided for in the
Balance Sheet, and no issue has been raised by a Governmental Body in any such
examination which, by application of the same or similar principles, could
reasonably be expected to result in a proposed deficiency for any subsequent
taxable period.
10
(f) Except as provided on Schedule 3.11, the Company has not executed
or filed (and prior to the close of business on the Closing Date will not
execute or file) with any Governmental Body any agreement or other document
extending or having the effect of extending the period for assessment or
collection of any Taxes for which the Company would be liable.
(g) Except as described on Schedule 3.11, no audit, examination or
other administrative proceeding or court proceeding is presently pending or been
conducted since January 1, 1994 or, to the knowledge of the Seller or the
Company, threatened with regard to any Taxes for which the Company would be
liable.
(h) Except as described on Schedule 3.11, the Company (i) has not
agreed to and is not required to make any adjustment by reason of a change in
accounting method initiated by the Company, (ii) has no knowledge that a
Governmental Body has proposed any such adjustment or change in accounting
method and (iii) has no application pending with any Governmental Body
requesting permission for any change in accounting methods that relates to the
business and operations of the Company.
(i) The Seller is not a "foreign person" within the meaning of Section
1445 of the Code.
3.12 Real Property.
(a) Neither the Company nor the Subsidiary owns any freehold real
property. Schedule 3.12 contains a correct and complete schedule of the
documents under which the Company or the Subsidiary uses or occupies or has the
right to use or occupy, now or in the future, any real property (the "Real
Property Leases"). Neither the Company nor the Subsidiary is a party to any
lease, sublease, license or other agreement for the use or occupancy of any real
property other than the Real Property Leases. There exists no reciprocal
easement or operating agreements relating to the Real Property Leases between
the Company or the Subsidiary and any third party and, to the knowledge of the
Seller and the Company, between the lessors under the Real Property Leases and
any third party. The Subsidiary is the sole lessee under the Real Property
Leases and the Subsidiary has not assigned, sublet, mortgaged or otherwise
encumbered in any respect whatsoever its respective leasehold estate under the
Real Property Leases. Neither the Company nor the Subsidiary owns or holds, or
is obligated under or a party to, any option, right of first refusal or other
contractual right to purchase, acquire, sell, assign or dispose of any real
estate or any portion thereof or interest therein.
(b) Each of the Real Property Leases is a valid and binding obligation
enforceable by and against the Subsidiary in accordance with its terms, and
there is no default under any of the Real Property Leases by the Company or the
Subsidiary or, to the knowledge of the Seller and the Company, by any other
party thereto and, to the knowledge of the Seller and the Company, no event has
occurred that with the lapse of time or the giving of notice or both would
constitute a default thereunder. No previous or current party to the Real
11
Property Leases has given written notice of or made a Claim against the Company
or the Subsidiary with respect to any breach or default thereunder which remains
uncured or otherwise in existence as of the date hereof. All rent and other sums
and charges payable by the Subsidiary under or in respect of the Real Property
Leases have been paid. Each of the Real Property Leases covers the entire estate
it purports to cover and, upon the consummation of the transactions contemplated
by this Agreement, will continue to entitle the Company and/or the Subsidiary to
the use, occupancy and possession of the real property specified in the Real
Property Leases (the "Leased Property") and for the purposes such property is
now being or is contemplated to be used by the Company or the Subsidiary.
Complete and correct copies of the Real Property Leases, together with all
amendments, modifications, supplements or side letters affecting the obligations
of any party thereunder, have been delivered to the Buyer. None of the rights of
the Company or the Subsidiary under any of the Real Property Leases will be
subject to termination or modification as a result of the transactions
contemplated by this Agreement. The Leased Property complies in all material
respects with all applicable Laws and no notice of violation of any such Law has
been received by any of the Seller, the Company or the Subsidiary or, to the
knowledge of the Seller, the Company or the Subsidiary, no such notice has been
issued by any Governmental Body with respect to such property. To the knowledge
of the Seller, the Company and the Subsidiary, no part of the Leased Property is
subject to any conditional limitation imposed by virtue of any permission,
notice or order under the Town & Country Planning ▇▇▇ ▇▇▇▇ and preceding
Planning and Town & Country Planning Acts (collectively, the "Planning Acts")
that would restrict or prevent the present use and operation of such property,
that no development has been undertaken on or at any part of the Leased Property
otherwise than in accordance with the provisions of the Planning Acts, the
current use of the Leased Property is lawful for the purposes of the Planning
Acts and there is no proposal or dispute that could negatively impact on the use
and operation of a Leased Property. Except as set forth on Schedule 3.12, no
labor has been performed or material furnished for any portion of the Leased
Property for which any Lien having a value in excess of $5,000 in the aggregate
can be claimed.
(c) No portion of the Leased Property is dependent for its access,
operation or utility on any land, building or other improvement not part of the
Leased Property. The Leased Property has direct, unobstructed access, both
pedestrian and vehicular, to public rights of way. All utility systems required
in connection with use, occupancy and operation of the Leased Property are
supplied directly to the Leased Property by facilities of public utilities, are
sufficient for their present purposes, are fully operational and in working
order, and are benefitted by customary utility easements providing for the
continued use and maintenance of such systems.
3.13 Tangible Personal Property.
(a) The Company owns or leases all tangible personal property necessary
for or used in the conduct of its business as now conducted. The Subsidiary does
not own or lease any tangible personal property except to the extent that
fixtures covered by the Real Property Leases may constitute tangible personal
property.
12
(b) Schedule 3.13 sets forth all leases of personal property involving
annual payments in excess of $5,000 relating to personal property used in the
business of the Company or to which the Company is a party or by which the
Company or any of its properties or assets is bound ("Personal Property
Leases"), as well as a brief description of each such Personal Property Lease
(including the date and substance of any amendments or modifications thereto),
the parties thereto, the amount of annual payments in respect thereof and the
termination date and the conditions of renewal thereof. Complete and correct
copies of the Personal Property Leases, together with all amendments,
modifications, supplements or side letters affecting the obligations of any
party thereunder, have been delivered or otherwise made available to the Buyer.
(c) Each of the Personal Property Leases is valid and enforceable
against the Company and the other party or parties thereto in accordance with
its terms, and there is no default under any Personal Property Lease either by
the Company or, to the knowledge of the Seller and the Company, by any other
party thereto, and to the knowledge of the Seller and the Company, no event has
occurred that with the lapse of time or the giving of notice or both would
constitute a default thereunder. To the knowledge of the Seller and the Company,
no previous or current party to any such Personal Property Lease has given
notice of or made a claim with respect to any breach or default thereunder. With
respect to those Personal Property Leases that were assigned or subleased to the
Company by a third party, all necessary consents to such assignments or
subleases have been obtained. Except as set forth on Schedule 3.13, none of the
rights of the Company under any of the Personal Property Leases will be subject
to termination or modification as a result of the transactions contemplated by
this Agreement.
(d) The Company has good title to all of the items of tangible personal
property reflected in the Balance Sheet (except as sold or disposed of
subsequent to the date thereof in the ordinary course of business consistent
with past practice), free and clear of any and all Liens. All such items of
tangible personal property which, individually or in the aggregate, are material
to the operation of the business of the Company are in good condition and in a
state of good maintenance and repair (ordinary wear and tear excepted) and are
suitable for the purposes used for the operation of the business of the Company.
All of the items of tangible personal property used by the Company under the
Personal Property Leases are in good condition and in a state of good
maintenance and repair (ordinary wear and tear excepted) and are suitable for
the purposes used.
3.14 Intangible Property.
(a) Schedule 3.14 sets forth a complete and correct list of each
material patent, trademark, trade name, service ▇▇▇▇, brand ▇▇▇▇, brand name,
invention, industrial design, computer software developed by or specifically for
the Company and copyright owned or, if material, used in the business of the
Company as well as all registrations thereof and pending applications therefor,
and each material license or other material Contract relating thereto
(collectively, the "Intangible Property") and indicates, with respect to each
item of Intangible Property, the owner thereof and, if applicable, the name of
13
the licensor and licensee thereof and the basic material terms of such license
or other Contract relating thereto. Except as set forth on Schedule 3.14, each
of the foregoing is owned by the party shown on such Schedule as owning the same
free and clear of any and all Liens and is in good standing, no other Person or
entity has any claim of ownership with respect thereto and, where applicable,
all registrations or other required filings have been timely made. To the
knowledge of the Seller and the Company, the use of the Intangible Property by
the Company does not conflict with, infringe upon, violate or interfere with or
constitute an appropriation of any right, title, interest or goodwill,
including, without limitation, any intellectual property right, patent,
trademark, trade name, service ▇▇▇▇, brand ▇▇▇▇, brand name, invention,
industrial design, computer software, copyright or any pending application
therefor of any other Person. Except as set forth on Schedule 3.14, there have
been no Legal Proceedings initiated to which the Company is a party or of which
the Seller or the Company is aware, and neither the Seller nor the Company has
received any notice or otherwise knows that any of the Intangible Property is
invalid or conflicts with the asserted rights of other Persons or have failed to
be used or enforced in a manner that would result in the abandonment,
cancellation or unenforceability of the Intangible Property.
(b) The Company owns or licenses all Intangible Property, trade
secrets, know-how, formulae and other proprietary and trade rights necessary for
the conduct of its business as now conducted or relating to products or
processes under development. Except as set forth on Schedule 3.14, the Company
has not forfeited or otherwise relinquished any such Intangible Property, trade
secrets, know-how, formulae or other proprietary right used in and necessary for
the conduct of its business as now conducted or relating to products or
processes under development.
(c) Each of the licenses or other Contracts relating to the Intangible
Property ("Intangible Property Licenses") is valid and enforceable by or against
the Company in accordance with its terms, and there is no default under any
Intangible Property License by the Company or, to the knowledge of the Seller
and the Company, by any other party thereto, and no event has occurred that with
the lapse of time or the giving of notice or both would constitute a default
thereunder. Complete and correct copies of the Intangible Property Licenses,
together with all amendments, modifications, supplements or side letters
affecting the obligations of any party thereunder have been delivered or
otherwise made available to the Buyer. Except as set forth on Schedule 3.14, no
previous or current party to any such Intangible Property License has given
notice of or initiated a Legal Proceeding with respect to any breach or default
thereunder. With respect to those Intangible Property Licenses that were
assigned or sublicensed to the Company by a third party, all necessary consents
to such assignments or sublicenses have been obtained. Except as set forth on
Schedule 3.14, none of the rights of the Company under any of the Intangible
Property Licenses will be subject to termination or modification as a result of
the transactions contemplated by this Agreement.
(d) To the Seller's and Company's knowledge, except as set forth in
Schedule 3.14, no third party is infringing upon any rights of the Company to
the Intangible Property. Neither the Seller nor the Company is aware that any of
Company's employees is obligated under any Contract or covenants or commitments
of any nature, or subject to any judgment, decree or order of any court or
14
administrative agency, that would interfere with the use of his best efforts to
promote the interests of the Company or that would conflict with the Company's
business as presently conducted. Neither the execution nor delivery of this
Agreement, nor the carrying on of the Company's business by the employees of the
Company, nor the conduct of the Company's business as presently conducted, will,
to the Seller's or the Company's knowledge, conflict with or result in a breach
of the terms, conditions or provisions of, or constitute a default under any
Contract, covenant or commitment under which any of such employees is now
obligated. Neither the Seller nor the Company believes that it is or will be
necessary to utilize any inventions of any of its employees (or people it
currently intends to hire) made prior to their employment by the Company.
3.15 Material Contracts.
(a) Except as set forth on Schedules 3.12, 3.13 and 3.14 or as set
forth on Schedule 3.15, neither the Company nor any of its properties or assets
is a party to, bound by or subject to any (i) Contract not made in the ordinary
course of business, the performance of which will extend over a period greater
than thirty (30) days; (ii) Contract, whether or not made in the ordinary course
of business, which as of or after the Closing Date will obligate the Company to
sell or deliver any product or service, taken as a whole, at a price which does
not cover the aggregate cost (including labor, materials and production
overhead) thereof plus the customary profit margin associated with such product
or service, which is not terminable by the Company within thirty (30) days after
written notice thereof and without liability to the Company; (iii) employment,
consulting, non-competition, severance, golden parachute or indemnification
Contract (including, without limitation, in each case any Contract to which the
Company is a party involving employees of the Company), which is not terminable
by the Company, as the case may be, within thirty (30) days after written notice
thereof and without liability to the Company; (iv) advertising, public
relations, franchise, distributorship, sales representative or sales agency
Contract, which is not terminable by the Company, as the case may be, within
thirty (30) days after written notice thereof and without liability to the
Company; (v) Contract (including, without limitation, purchase orders issued by
customers or to suppliers of the Company which remain open as of the date of
this Agreement) involving the commitment or payment in excess of $10,000 for the
future purchase of services or equipment; (vi) Contract among stockholders or
granting a right of first refusal or for a partnership or a joint venture or for
the acquisition, sale or lease of any assets, partnership interests or capital
stock of the Company or any other Person or involving a sharing of profits;
(vii) mortgage, pledge, conditional sales contract, security agreement,
factoring agreement or other similar Contract with respect to any real or
tangible personal property of the Company involving an amount in excess of
$10,000; (viii) loan agreement, credit agreement, promissory note, guarantee,
subordination agreement, letter of credit or any other similar type of Contract
involving an amount in excess of $10,000; (ix) confidentiality agreement,
non-solicitation agreement, non-competition agreement or other similar Contract
restricting in any way the scope or nature of business which may be conducted by
the Company or any of its affiliates; (x) Contract with any Governmental Body
except standard purchase orders with any Governmental Body in the ordinary
course of business; (xi) Contract with respect to the discharge, storage or
removal of Hazardous Materials; (xii) retainer Contract with attorneys,
15
accountants, actuaries, appraisers, investment bankers or other professional
advisers; or (xiii) commitment or agreement to enter into any of the foregoing.
Except as set forth on Schedule 3.15, the Company is not a party to or bound by
any distributorship, sales representative or sales agency Contract with any
Person in respect of products and/or services manufactured, sold or marketed by
the Company. There has been delivered or otherwise made available to the Buyer
complete and correct copies of the Contracts listed on Schedule 3.15, together
with all amendments, modifications, supplements or side letters affecting the
obligations of any party thereunder. With respect to (x) certain Contracts of
the type described in clause (v) above and (y) Contracts which are not in
writing, Schedule 3.15 contains a description of the material terms thereof
(including, without limitation, the parties thereto, the amount of consideration
thereunder and any termination provisions contained therein or pertaining
thereto).
(b) Each of the Contracts listed on Schedule 3.15 is valid and binding
obligation enforceable by and against the Company in accordance with its terms,
and there is no material or known default under any Contract listed or described
on Schedule 3.15 either by the Company or, to the knowledge of the Seller and
the Company, by any other party thereto, and no event has occurred that with the
lapse of time or the giving of notice or both would constitute a default
thereunder. No party to any Contract set forth on Schedule 3.15 has given notice
of or initiated a Legal Proceeding with respect to any breach or default
thereunder.
(c) With respect to any Contract listed or described on Schedule 3.15
that was assigned or subleased to the Company by a third party, all necessary
consents to such assignments or subleases have been obtained. Except as set
forth on Schedule 3.15, none of the rights of the Company under any of the
Contracts listed or described on Schedule 3.15 will be subject to termination or
modification as a result of the transactions contemplated by this Agreement.
3.16 Employees; Employee Benefits.
(a) Schedule 3.16(a) sets forth a complete and correct list of all
employees of the Company, together with their job descriptions and rates of pay.
(b) Other than under or in respect to the Digital Audio Group Personal
Pension Scheme and the Digital Audio ▇▇▇▇▇▇▇▇▇ Group Personal Pension Scheme
(collectively, the "GPPs"), no obligations, liabilities or promises have been
created or made by the Company to pay any gratuity, or to provide retirement,
death, disability, sickness, accident, termination of employment, or other like
benefit, or to contribute to or participate in any scheme or any arrangement
providing any such benefits for or in respect of any past or present employee of
the Company. There is no contribution due but unpaid in respect of the GPPs
which has not been accrued for in the Financial Statements. The GPPs are group
personal pension plans and no assurance, promise or guarantee (either written or
oral) has been made or given to any member of the GPPs of any particular level
or amount of benefits (other than insured lump sum death in service benefits) to
16
be provided for or in respect of him under the GPPs on retirement death or
leaving service.
3.17 Labor.
(a) The Company is not a party to any labor or collective bargaining
agreement and there are no labor or collective bargaining agreements which
pertain to employees of the Company.
(b) No employees of the Company are represented by any labor
organization. No labor organization or group of employees of the Company has
made a pending demand for recognition, and there are no representation
proceedings or petitions seeking a representation proceeding presently pending
or, to the knowledge of the Seller or the Company, threatened to be brought or
filed, with any Governmental Body. There is no organizing activity involving the
Company pending or, to the knowledge of the Seller or the Company, threatened by
any labor organization or group of employees of the Company.
(c) Neither the Seller nor the Company has any knowledge of any (i)
strikes, work stoppages, slowdowns, lockouts or arbitrations or (ii) grievances
or other labor disputes pending or, to the knowledge of the Seller or the
Company, threatened against or involving the Company. Except as set forth on
Schedule 3.17, there are no unfair labor practice charges, grievances or
complaints pending or, to the knowledge of the Seller or the Company, threatened
by or on behalf of any employee or group of employees of the Company nor are the
Seller or the Company aware of any circumstances which might give rise to such
charges, grievances or complaints.
(d) Except as set forth on Schedule 3.17, there are no complaints,
charges or claims of any kind against the Company pending or, to the knowledge
of the Seller or the Company, threatened to be brought or filed, with any
Governmental Body based on, arising out of, in connection with, or otherwise
relating to the employment or engagement by the Company of any individual as an
employee or independent contractor. Hours worked by and payments made to
employees of the Company have not been in violation of any Law dealing with such
matters. The Company is in compliance with all Laws and Orders relating to
employment, including all such Laws and Orders relating to wages, hours, pay
practices, benefits, collective bargaining, discrimination, retaliations, civil
rights, sexual and other types of unlawful harassment, safety and health, leaves
of absence, accommodation of individuals with disabilities, pay equity and the
collection and payment of PAYE and National Insurance.
(e) Except as set forth on Schedule 3.17, all employees of the Company
are employed on an at-will basis and are terminable upon giving notice without
any liability or obligation to them except as provided by Law.
3.18 Litigation. There are no Legal Proceedings pending or, to the
knowledge of the Seller or the Company, threatened (or any basis therefor known
to the Seller or the Company) that question the validity of this Agreement or
the Seller Documents or any action taken or to be taken by the Seller or the
17
Company in connection with the consummation of the transactions contemplated
hereby or thereby. Schedule 3.18 sets forth a list of all Legal Proceedings
pending or, to the knowledge of the Seller or the Company, threatened against
(or any basis therefor known to the Seller or the Company) or involving the
Company or any properties or assets of the Company, at law or in equity. There
is no outstanding or, to the knowledge of the Seller or the Company, threatened
(or any basis therefor known to the Seller or the Company) Order of any
Governmental Body against, involving or naming the Company or involving any of
its properties or assets. Schedule 3.18 sets forth a list of all Legal
Proceedings pending or contemplated in which the Company is the plaintiff.
3.19 Compliance with Laws; Permits.
(a) Except as set forth on Schedule 3.19, the Company is and at all
times has been in compliance with all Laws and Orders promulgated by any
Governmental Body applicable to the Company or to the conduct of the business or
operations of Company or the use of any of its properties (including the Leased
Properties) and assets. Except as set forth on Schedule 3.19, neither the Seller
nor the Company has received, or knows of the issuance of, any notices of any
violation or alleged violation of any such Law or Order of any Governmental
Body. Except as set forth on Schedule 3.19, any products manufactured, sold,
marketed, distributed or delivered by the Company ("Products") are and at all
times have been in compliance with all Laws and Orders promulgated by any
Governmental Body applicable to the Products, there are no product recalls by
any Governmental Body pending or, to the knowledge of the Seller and the
Company, contemplated or threatened, with respect to any of the Products and, to
the knowledge of the Seller and the Company, there are no pending or threatened
investigations by any Governmental Body with respect to any of the Products.
(b) Schedule 3.19 lists all Permits of the Company issued or granted by
all Governmental Bodies, indicating, in each case, the expiration date thereof.
The Company has all Permits that are required to be obtained by the Company to
permit the operations of its business in the manner in which such operations are
currently conducted. To the knowledge of the Seller and the Company, such
Permits have been validly issued to the Company by the appropriate Governmental
Bodies in compliance, in all material respects, with all applicable Laws, and
the Company has complied with all conditions of such Permits applicable to it.
No default or violation, or event that with the lapse of time or giving of
notice or both would become a default or violation, has occurred in the due
observance of any such Permit. All such Permits are in full force and effect
without further consent or approval of any Person. Schedule 3.19 also lists all
Permits applied for or expected to be applied for by the Company.
3.20 Environmental Matters. (i) The operations of the Company have been
and, as of the Closing Date, will be in compliance with all Environmental Laws;
(ii) the Company has obtained, currently maintains and, as of the Closing Date,
will have all Environmental Permits required for its operations; all such
Environmental Permits are and, as of the Closing Date, will be, in full force
and effect and in good standing; there are no Legal Proceedings pending or, to
the knowledge of the Seller or the Company, threatened with respect to any such
18
Environmental Permit; the Company is, and as of the Closing Date will be, in
material compliance with such Environmental Permits; and neither the Seller nor
the Company has received any notice from any source, or has otherwise obtained
knowledge, to the effect that there is lacking any Environmental Permit required
in connection with the current operations of the Company or the current use or
operation of the Leased Property or any real property previously leased or owned
by the Company; (iii) the Company and all of their past and current Facilities
and operations are not (x) subject to any outstanding written Order or Contract,
including Environmental Liens, with or in favor of any Regulatory Authority or
(y) to the knowledge of the Seller or the Company, subject to any investigation
respecting (A) Environmental Laws, (B) any Remedial Action or (C) any
Environmental Claim; (iv) the Company is not subject to any Legal Proceeding
alleging the violation of any Environmental Law or Environmental Permit; (v)
neither the Seller nor the Company has received (nor, to the knowledge of the
Seller or the Company, has there been issued) any written communication that
alleges that the Company is not in compliance with any Environmental Law or
Environmental Permit; (vi) the Company has not caused or permitted any Hazardous
Materials to remain or be disposed of, either on or under real property legally
or beneficially owned or operated by the Company or on any real property not
permitted to accept, store or dispose of such Hazardous Materials other than in
compliance with Environmental Laws and Permits; (vii) the Company has no
liabilities (other than those related to its disposal obligations) with respect
to Hazardous Materials; (viii) none of the operations of the Company involve the
generation, transportation, treatment, storage or disposal of hazardous waste or
controlled waste other than in compliance with Environmental Laws and Permits;
and (ix) to the knowledge of the Seller and the Company, there is not now on or
in the Leased Property, nor have there been, (A) any underground storage tanks
or surface tanks, dikes or impoundments; (B) any asbestos-containing materials
or (C) any polychlorinated biphenyls.
3.21 Investment Company Act. The Seller is not, and is not directly or
indirectly controlled by or acting on behalf of any Person that is, an
investment company within the meaning of the Investment Company Act of 1940, as
amended (an "Investment Company"), and, immediately following the consummation
of the transactions contemplated by this Agreement, the Seller will not be, and
will not be directly or indirectly controlled by or acting on behalf of any
Person that will be, an Investment Company.
3.22 Insurance. Schedule 3.22 sets forth a list of all policies of
insurance of any kind or nature covering the Company or any of its employees,
properties or assets, including, without limitation, policies of life,
disability, fire, theft, workers compensation, employee fidelity and other
casualty and liability insurance. All such policies are in full force and
effect. The Seller or the Company have delivered or otherwise made available to
the Buyer complete and correct copies of each such policy, together with all
amendments, modifications, supplements or side letters affecting the obligations
of any party thereunder.
19
3.23 Receivables; Payables. Subject to the Final Balance Sheet:
(a) All accounts receivable of the Company have arisen from bona fide
transactions in the ordinary course of business consistent with past practice
and are legally binding. All accounts receivable of the Company reflected on the
Financial Statements or arising after the date thereof are good and collectible
at the aggregate recorded amounts thereof, net of any applicable reserve for
returns or doubtful accounts reflected thereon, which reserves are adequate and
were calculated in a manner consistent with past practice and in accordance with
generally accepted accounting principles consistently applied.
(b) All accounts payable of the Company reflected on the Balance Sheet,
or arising after the date thereof, are the result of bona fide transactions in
the ordinary course of business and have been paid or, in the ordinary course of
business consistent with the Company's past practices, have not yet been paid.
(c) Except for customer pre-payments in the ordinary course of business
which are or will be reflected on the Balance Sheet, the Preliminary Balance
Sheet or the Final Balance Sheet, the Company has not received any advance
payments, deposits or similar payments in respect of any goods sold or to be
sold or services performed or to be performed after the Closing Date.
3.24 Customers and Suppliers. Schedule 3.24 lists (on a dollar amount
basis) the fifteen (15) largest customers in terms of sales and the twenty (20)
largest suppliers in terms of purchases of the Company taken as a whole during
the year ended October 31, 1996 and the approximate amount of sales to each such
customer and purchases from each such supplier during such year. Except as
expressly set forth on Schedule 3.24, (i) the relationships of the Company taken
as a whole with its customers and suppliers have been entered into and are
conducted pursuant to arms' length transactions, and (ii) since January 1, 1996
no customer or supplier of the Company set forth on Schedule 3.24 or other
material customer or supplier of the Company has cancelled, otherwise
terminated, materially altered, or threatened in writing to cancel, otherwise
terminate or materially alter, its relationship with the Company or withheld or
materially delayed payment for, or shipment of, any products or threatened in
writing to do so.
3.25 Related Party Transactions. Except as set forth on Schedule 3.25,
since the Balance Sheet Date and as of the date hereof, neither the Seller nor
any of its Affiliates has entered into any transaction with or is a party to any
Contract with the Company. Except as set forth on Schedule 3.25, neither the
Seller nor any of its Affiliates owns any direct or indirect interest of any
kind in, or controls or is a director, officer, employee or partner of, or
consultant to, or lender to or borrower from or has the right to participate in
the profits of, any Person which is a competitor, supplier, customer, landlord,
tenant, creditor or debtor of the Company.
3.26 Banks; Powers of Attorney and Proxies. Schedule 3.26 sets forth a
complete and correct list of the names and locations of all banks in which the
20
Company has accounts or safe deposit boxes, the account numbers of all such
accounts and the names of all Persons authorized to draw thereon or to have
access thereto. Except as set forth on Schedule 3.26, no Person holds a power of
attorney, proxy or similar instrument to act on behalf of the Company.
3.27 Special Terms; Product Warranties. Except as set forth on Schedule
3.27, the Company has not provided any customer with any special credit,
discount or other terms outside the ordinary course of business consistent with
past practice. Except in the ordinary course of business consistent with past
practices and within industry norms, no express product or service warranties or
guarantees have been given by the Company.
3.28 Entire Business. The assets, properties and rights which will be owned
or leased by the Company or the Subsidiary as of the Closing Date will
constitute all of the tangible and intangible property used by and necessary to
the Company in connection with the conduct of its businesses as now conducted.
3.29 Investment in DSI Stock.
(a) The Seller has (i) received and reviewed this Agreement, including
all schedules and exhibits hereto, the Buyer Disclosure Documents (as defined in
Section 4.5), the Certificate of Incorporation, as amended, of the Buyer, and
the By-laws of the Buyer, as amended, and (ii) had, during the course of the
transactions contemplated hereby and prior to the Seller's receipt of DSI Stock,
the opportunity to ask questions of, and has received answers from, the Buyer
concerning the transactions contemplated hereby and to obtain any additional
information which the Buyer possesses or could acquire without unreasonable
effort or expense; provided, however, that no such investigation by the Seller
shall limit or modify any representation or warranty made under this Agreement
by the Buyer or rights which the Seller may have with respect thereto.
(b) The Seller is acquiring DSI Stock for its own account, for
investment, and not with a view to any resale or "distribution" thereof within
the meaning of the Securities Act of 1933, as amended (the "Securities Act").
(c) The Seller understands that because DSI Stock to be received by it
pursuant to this Agreement has not been registered under the Securities Act, the
Seller cannot dispose of any of such DSI Stock until such DSI Stock is
subsequently registered under the Securities Act or an exemption from such
registration is available. The Seller understands that each certificate
representing such DSI Stock will bear the following legend or one substantially
similar thereto:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR ANY APPLICABLE
STATE OR FOREIGN SECURITIES LAWS. THESE SECURITIES
HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A
VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE
SOLD, MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE
TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT FOR SUCH SECURITIES UNDER THE ACT AND ANY
APPLICABLE STATE AND FOREIGN SECURITIES LAWS OR THE
AVAILABILITY OF AN EXEMPTION FROM SUCH REGISTRATION
REQUIREMENTS.
21
(d) The Seller is sufficiently knowledgeable and experienced in
financial matters so as to be able to evaluate the risks and merits of its
investment in DSI Stock and is able to bear the economic risk of loss of its
entire investment in DSI Stock. The Seller is an "accredited investor" as such
term is defined in Rules 215 and 501 promulgated under the Securities Act.
(e) If the Seller desires to dispose of DSI Stock pursuant to Rule 144A
under the Securities Act, the Seller will re-offer and resell DSI Stock only to
persons whom such Stockholder reasonably believes to be "qualified institutional
buyers" as defined in Rule 144A under the Securities Act in reliance on the
exemption from the registration requirements of the Securities Act provided by
Rule 144A, and each of whom, in purchasing such DSI Stock will be deemed to have
represented and agreed that (i) it is purchasing DSI Stock for its own account
or an account with respect to which it exercises sole investment discretion and
it or such accounts are "qualified institutional buyers", (ii) such DSI Stock
will not have been registered under the Securities Act and may be resold,
pledged or otherwise transferred, only (A)(1) inside the United States to a
person who the Stockholder reasonably believes is a "qualified institutional
buyer" within the meaning of Rule 144A under the Securities Act in a transaction
meeting the requirements of Rule 144A, or in accordance with Rule 144 under the
Securities Act, or pursuant to another exemption from the registration
requirements of the Securities Act (and based upon an opinion of counsel if the
Buyer so requests), (2) to the Buyer, (3) outside the United States to a foreign
person in a transaction meeting the requirements of Rule 904 under the
Securities Act, or (4) pursuant to an effective registration statement under the
Securities Act and (B) in each case, in accordance with any applicable
securities laws of any State of the United States or any other applicable
jurisdiction, and (iii) the holder will, and each subsequent holder is required
to, notify any purchaser from it of the DSI Stock of the resale restrictions set
forth in (ii) above.
(f) The Seller has been advised that the DSI Stock to be received by it
pursuant to the transactions contemplated by this Agreement has not been
registered under the Securities Act or under the "blue sky" laws of any
jurisdiction and that the Buyer in issuing DSI Stock to such Stockholder
pursuant to this Agreement in reliance upon, among other things, the
representations and warranties of the Seller contained in this Section 3.29.
3.30 Financial Advisors. Except as set forth on Schedule 3.30, no Person
has acted directly or indirectly as a broker, finder or financial advisor for
22
the Seller or the Company in connection with the negotiations relating to or the
transactions contemplated by this Agreement and no Person is entitled to any fee
or commission or like payment in respect thereof based in any way on agreements,
arrangements or understandings made by or on behalf of the Seller or the
Company. The Seller shall be solely responsible for the obligations described in
Schedule 3.30.
3.31 Disclosure. No representation or warranty made by the Seller in this
Agreement, or in the Seller Documents or other instruments or certificates
delivered pursuant to this Agreement, contains at the time made and of the
respective dates or will contain as of the Closing Date any untrue statement of
a material fact, or omits or will omit to state a material fact necessary to
make the statements or facts contained herein or therein, in light of the
circumstances under which they were made, taken as a whole, not misleading
except as the accuracy and/or completeness thereof may be affected by this
Agreement and the transactions contemplated hereby.
4. Representations and Warranties of the Buyer. The Buyer hereby represents
and warrants to the Seller that:
4.1 Organization and Good Standing. The Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
New York and has full corporate power and authority to own, lease and operate
its properties and to carry on its business as now conducted. Each of the Buyer
and each Subsidiary of the Buyer is duly qualified or authorized to do business
as a foreign corporation, and is in good standing under the laws of (i) each
jurisdiction in which it owns or leases real property and (ii) each other
jurisdiction in which the conduct of its business or the ownership of its
properties requires such qualification or authorization, other than in such
jurisdictions where the failure to be so qualified or licensed would not cause a
Material Adverse Change to the Buyer.
4.2 Authorization of Agreement. The Buyer has all requisite corporate power
and authority to execute and deliver this Agreement and each other Contract,
document or certificate contemplated by this Agreement to be executed by it in
connection with the consummation of the transactions contemplated hereby and
thereby (collectively, the "Buyer Documents") and to perform fully its
obligations hereunder and thereunder. The execution, delivery and performance by
the Buyer of this Agreement and the Buyer Documents have been duly authorized by
all necessary corporate, including stockholder, action on the part of the Buyer.
This Agreement has been, and each of the Buyer Documents will be at or prior to
the Closing, duly executed and delivered by the Buyer, and this Agreement
constitutes, and each of the Buyer Documents when so executed and delivered will
constitute, legal, valid and binding obligations of the Buyer, enforceable
against it in accordance with their respective terms, subject to applicable
bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium and
similar laws affecting creditors' rights and remedies generally and subject, as
to enforceability, to general principles of equity.
4.3 Consents of Third Parties. The execution and delivery by the Buyer of
this Agreement and the Buyer Documents, the consummation of the transactions
23
contemplated hereby or thereby, and compliance by the Buyer with the provisions
hereof and thereof will not (i) conflict with, or result in the breach of, any
provision of the certificate of incorporation or Bylaws of the Buyer; (ii)
conflict with, violate, result in the breach of, or constitute a default or give
rise to a right of termination or acceleration under any Contract or Order to
which the Buyer is a party or by which it or any its properties or assets is
bound, which, either individually or in the aggregate, could result in a
Material Adverse Change to the Buyer; (iii) constitute a violation of any Law
applicable to the Buyer; or (iv) result in the creation of any Lien upon the
properties or assets of the Buyer. Except as set forth on Schedule 4.3, no
consent, waiver, approval, Order, Permit or authorization of, or declaration or
filing with, or notification to, any Person or Governmental Body is required on
the part of the Buyer in connection with the execution and delivery of this
Agreement or the Buyer Documents or the compliance by the Buyer with any of the
provisions hereof or thereof.
4.4 Litigation. There are no Legal Proceedings pending or, to the knowledge
of the Buyer, threatened that question the validity of this Agreement or any of
the Buyer Documents or any action taken or to be taken by the Buyer in
connection with the consummation of the transactions contemplated hereby or
thereby.
4.5 The Buyer Disclosure Documents. The Buyer has previously delivered to
the Seller, and the Seller hereby acknowledges receipt of, complete and correct
copies of (i) the Buyer's Annual Report on Form 10-K for the year ended ▇▇▇▇▇
▇▇, ▇▇▇▇, (▇▇) the Buyer's Quarterly Reports on Form 10-Q for the quarters ended
June 30, 1996, September 30, 1996, and ▇▇▇▇▇▇▇▇ ▇▇, ▇▇▇▇, (▇▇▇) the Buyer's
Certificate of Incorporation, as amended, (iv) the Buyer's By-laws, as amended
(collectively with the documents referred to in clauses (i), (ii), (iii) and
(iv) of this Section 4.5 and the additional documents referred to in Section
5.8(b), the "Buyer Disclosure Documents"). The Buyer Disclosure Documents are
incorporated herein by reference and made a part hereof. No representation or
warranty of the Buyer contained in this Agreement or any of the Buyer Documents
and no statement contained in any document, certificate or schedule furnished or
to be furnished on or prior to the Closing Date by or on behalf of the Buyer
contains or will contain as of the Closing Date, and none of the Buyer
Disclosure Documents as of the respective dates thereof contained, any untrue
statement of a material fact or omitted to state a material fact necessary to
make the statements contained therein, in light of the circumstances under which
they were made, taken as a whole, not misleading except as the accuracy and/or
completeness thereof may be affected by this Agreement and the transactions
contemplated hereby.
4.6 Capitalization.
(a) The authorized capital stock of the Buyer consists of 12,000,000
shares of Common Stock, par value $.05 per share, of which 4,473,820 shares are
issued and outstanding. All of the issued and outstanding shares of capital
stock of the Buyer are duly authorized, validly issued, fully paid and
nonassessable, except as provided in Section 630 of the New York Business
Corporation Law, and none of such shares is subject to any preemptive or
subscription rights.
24
(b) On the Closing Date, the shares of DSI Stock delivered to the
Seller will be duly authorized, validly issued, fully paid and nonassessable,
except as provided in Section 630 of the New York Business Corporation Law, not
subject to any Lien.
4.7 Absence of Certain Developments. Since March 31, 1997, there has not
been any Material Adverse Change to the Buyer nor has any event occurred which
is reasonably likely to result in a Material Adverse Change to the Buyer.
4.8 SEC Reports. The Buyer is subject to the reporting requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and has filed on a timely basis all reports required to be filed
by it under Section 13 or 15(d) at all times since the Buyer has been subject to
such reporting requirements.
4.9 Financial Advisors. No Person has acted directly or indirectly as a
broker, finder or financial advisor for the Buyer in connection with the
negotiations relating to or the transactions contemplated by this Agreement and
no Person is entitled to any fee or commission or like payment in respect
thereof based in any way on agreements, arrangements or understandings made by
or on behalf of the Buyer.
4.10 Exempt Status. Subject to the accuracy of the Seller's representations
and warranties in Section 3.29, the shares of DSI's common stock issuable to the
Seller pursuant to this Agreement will be exempt from registration under
applicable federal and state securities laws.
4.11 Corporate Records. The copies of the Certificate of Incorporation and
Bylaws of the Buyer previously delivered to the Seller are complete, correct and
up to date.
4.12 No Undisclosed Liabilities. The financial statements of the Buyer
included in the Buyer Disclosure Documents disclose or contain proper provisions
and/or reserves for all material liabilities (actual, contingent or otherwise
including, without limitation, deferred taxation) of the Buyer as at the dates
presented, and since December 31, 1996 the Buyer has not incurred or entered
into any material debt, obligation or liability of any kind other than those
incurred in the ordinary course of business consistent with past practice or
otherwise expressly disclosed herein or in a schedule hereto. The Buyer knows of
no facts (other than facts of a general economic or political nature or facts
generally known within the industry) which have caused or in the future are
reasonably likely to cause a Material Adverse Change to the Buyer which have not
been set forth in the Buyer Disclosure Documents or expressly disclosed herein
or in a schedule hereto. There are no conditions or circumstances existing as of
the Closing Date which could give rise to liabilities which are not reflected as
liabilities in the Buyer Disclosure Documents.
4.13 Compliance with Laws; Permits.
(a) The Buyer is and at all times has been in compliance with all Laws
and Orders promulgated by any Governmental Body applicable to the Buyer or to
the conduct of the business or operations of Buyer or the use of any of its
properties and assets. The Buyer has not received, and does not know of the
25
issuance of, any notices of any violation or alleged violation of any such Law
or Order of any Governmental Body. Except as set forth on Schedule 4.13, any
products manufactured, sold, marketed, distributed or delivered by the Buyer
("Buyer Products") are and at all times have been in compliance with all Laws
and Orders promulgated by any Governmental Body applicable to the Buyer
Products, there are no product recalls by any Governmental Body pending or, to
the knowledge of the Buyer, contemplated or threatened, with respect to any of
the Buyer Products and, to the knowledge of the Buyer, there are no pending or
threatened investigations by any Governmental Body with respect to any of the
Buyer Products.
(b) The Buyer has all Permits that are required to be obtained by the
Buyer to permit the operations of its business in the manner in which such
operations are currently conducted. To the knowledge of the Buyer, such Permits
have been validly issued to the Buyer by the appropriate Governmental Bodies in
compliance, in all material respects, with all applicable Laws, and the Buyer
has complied with all conditions of such Permits applicable to it. No default or
violation, or event that with the lapse of time or giving of notice or both
would become a default or violation, has occurred in the due observance of any
such Permit. All such Permits are in full force and effect without further
consent or approval of any Person.
4.14 Environmental Matters. (i) The operations of the Buyer have been and,
as of the Closing Date, will be in compliance with all Environmental Laws; (ii)
the Buyer has obtained, currently maintains and, as of the Closing Date, will
have all Environmental Permits required for its operations; all such
Environmental Permits are and, as of the Closing Date, will be, in full force
and effect and in good standing; there are no Legal Proceedings pending or, to
the knowledge of the Buyer, threatened with respect to any such Environmental
Permit; the Buyer is, and as of the Closing Date will be, in material compliance
with such Environmental Permits; and the Buyer has not received any notice from
any source, or has otherwise obtained knowledge, to the effect that there is
lacking any Environmental Permit required in connection with the current
operations of the Buyer or any real property presently or previously leased or
owned by the Buyer; (iii) the Buyer and all of its past and current properties
and operations are not (x) subject to any outstanding written Order or Contract,
including Environmental Liens, with or in favor of any Governmental Body or (y)
to the knowledge of the Buyer, subject to any investigation respecting (A) U.S.
Environmental Laws, (B) any Remedial Action or (C) any Environmental Claim; (iv)
the Buyer is not subject to any Legal Proceeding alleging the violation of any
U.S. Environmental Law or Environmental Permit; (v) the Buyer has not received
(and to the knowledge of the Buyer, there has not been issued) any written
communication that alleges that the Buyer is not in compliance with any U.S.
Environmental Law or Environmental Permit; (vi) the Buyer has not caused or
permitted any Hazardous Materials to remain or be disposed of, either on or
under real property legally or beneficially owned or operated by the Buyer or on
any real property not permitted to accept, store or dispose of such Hazardous
Materials other than in compliance with U.S. Environmental Laws and Permits;
(vii) the Buyer has no liabilities (other than those related to its disposal
obligations) with respect to Hazardous Materials; (viii) none of the operations
of the Buyer involve the generation, transportation, treatment, storage or
disposal of hazardous waste or controlled waste other than in compliance with
U.S. Environmental Laws and Permits; and (ix) to the knowledge of the Seller and
26
the Buyer, there is not now on or in the property owned or leased by the Buyer,
nor have there been, (A) any underground storage tanks or surface tanks, dikes
or impoundments; (B) any asbestos-containing materials or (C) any
polychlorinated biphenyls.
4.15 Investment in Company Stock.
(a) The Buyer has (i) received and reviewed this Agreement, including all
schedules and exhibits hereto, certain documents relating to the Company as have
been requested by the Seller, the Certificate of Incorporation, as amended, of
the Company, and the Memorandum and Articles of Association of the Company, and
(ii) had, during the course of the transactions contemplated hereby and prior to
the Buyer's receipt of Company Stock, the opportunity to ask questions of, and
has received answers from, the Seller and the Company concerning the
transactions contemplated hereby and to obtain any additional information which
the Seller or the Company possesses or could acquire without unreasonable effort
or expense; provided, however, that no such investigation by the Buyer shall
limit or modify any representation or warranty made under this Agreement by the
Seller or rights which the Buyer may have with respect thereto.
(b) The Buyer is acquiring the Company Stock for its own account, for
investment, and not with a view to any resale or "distribution" thereof within
the meaning of the Securities Act.
5. Further Agreements of the Parties.
5.1 Access to Information; Confidentiality.
(a) The Seller agrees that, prior to the Closing Date, the Buyer shall
be entitled, through its officers, employees and representatives (including,
without limitation, its legal advisors and accountants), to make such
investigation of the properties, businesses and operations of the Company and
such examination of the books, records and financial condition of the Company as
it reasonably requests and to make extracts and copies of such books and
records. Any such investigation and examination shall be conducted during
regular business hours and under reasonable circumstances, and the Seller shall
cooperate, and shall cause the Company to cooperate, fully therein. No
investigation by the Buyer prior to or after the date of this Agreement shall
diminish or obviate any of the representations, warranties, covenants or
agreements of the Seller or the Company contained in this Agreement or the
Seller Documents. In order that the Buyer may have full opportunity to make such
physical, business, accounting and legal review, examination or investigation as
it may reasonably request of the affairs of the Company, the Seller shall, and
shall cause the Company to, use reasonable efforts to cause the officers,
employees, consultants, agents, accountants, attorneys and other representatives
of the Seller or the Company to cooperate fully with the Buyer and its
representatives in connection with such review and examination. In addition, the
Buyer and its officers, employees and representatives with the consent of the
Seller, which shall not be unreasonably withheld, may contact and communicate
27
with the customers and suppliers of the Company so long as such communications
do not interfere with the business or operations of the Company and so long as
the information obtained from such communications is only used in connection
with the transactions contemplated by this Agreement.
(b) The Buyer agrees that, prior to the Closing Date, the Seller shall
be entitled, through its officers, employees and representatives (including,
without limitation, its legal advisors and accountants), to make such
investigation of the properties, businesses and operations of the Buyer and such
examination of the books, records and financial condition of the Buyer as it
reasonably requests and to make extracts and copies of such books and records.
Any such investigation and examination shall be conducted during regular
business hours and under reasonable circumstances, and the Buyer shall
cooperate, and shall cause its officers, employees, consultants, agents,
accountants, attorneys and other representatives to cooperate, fully therein. No
investigation by the Seller shall diminish or obviate any of the
representations, warranties, covenants or agreements of the Buyer contained in
this Agreement or the Buyer Documents.
(c) Any information provided to the Buyer, the Seller or their
respective officers, employees or representatives pursuant to this Agreement
shall be held by the Buyer, the Seller and such officers, employees or
representatives in strict confidence, and used by them only for purposes of the
transactions contemplated by this Agreement. If the Closing does not occur, all
copies of such information in whatever form shall be returned to the party
providing the information, and all copies of documents prepared by the Buyer,
the Seller or their officers, employees or representatives incorporating any
such information, in whatever form, shall be destroyed.
5.2 Conduct of the Business Pending the Closing. Except as otherwise
expressly contemplated by this Agreement or with the prior written consent of
the Buyer, which shall not be unreasonably withheld, conditioned or delayed, the
Seller shall and shall cause the Company to:
(i) conduct the business of the Company only in the ordinary course
consistent with past practice;
(ii) not (A) declare, set aside, make or pay any dividend or other
distribution in respect of the capital stock of the Company (other than to
distribute as a dividend or repayment of inter-company advances cash of the
Company as of the Closing Date to the extent that the amount of such cash
does not exceed (pound)1,008,000); (B) repurchase, redeem or otherwise
acquire any outstanding shares of the capital stock or other securities of,
or other proprietary or equity interests in, the Company; (C) transfer,
issue, sell or dispose of any shares of capital stock, or other proprietary
or equity interests in, or other securities of the Company or grant
options, warrants, calls or other rights to directly or indirectly purchase
or otherwise acquire shares of capital stock or other securities of, or
other proprietary or equity interests in, the Company;
28
(iii) not issue or agree to issue any more shares or stock nor effect
any recapitalization, reclassification, division, consolidation or like
change in the capitalization of the Company;
(iv) not amend the Memorandum and Articles of Association of the
Company;
(v) use its best efforts to (A) preserve its present business
operations, organization (including, without limitation, management other
than ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇) and goodwill of the Company and (B) preserve its
present relationship with Persons having business dealings with the
Company;
(vi) maintain insurance upon all of the properties and assets of the
Company in such amounts and of such kinds comparable to that in effect on
the date of this Agreement (with insurers of substantially the same or
better financial condition);
(vii) (A) maintain the books, accounts and records of the Company in
the ordinary course of business consistent with past practices, (B)
continue to collect accounts receivable and pay accounts payable utilizing
normal procedures and without discounting or accelerating payment of such
accounts, and (C) comply in all material respects with all contractual and
other obligations applicable to the operations of the Company;
(viii) not, other than in the ordinary course of business consistent
with past practice and without materially increasing the benefits or the
costs thereof, (A) increase the compensation payable or to become payable
by the Company to any of their respective directors, officers, employees,
agents or representatives, (B) increase the coverage or benefits available
under any (or create any new) severance pay, termination pay, vacation pay,
company awards, salary continuation for disability, sick leave, deferred
compensation, bonus or other incentive compensation, insurance, pension or
other employee benefit plan, payment or arrangement made to, for, or with
any of the directors, officers, employees, agents or representatives of the
Company or (C) enter into any employment, deferred compensation, severance,
consulting, non-competition or similar agreement (or amend any such
agreement) to which the Company is a party or involving a director, officer
or employee of the Company in his or her capacity as a director, officer or
employee of the Company, except as provided under Section 5.14;
(ix) except for trade payables incurred in the ordinary course of
business consistent with past practice and for indebtedness for borrowed
money incurred in the ordinary course of business from the existing
revolving credit facility of the Company and consistent with past practice,
not create, incur, acquire or assume or become subject to, or agree to
29
incur or become subject to, any debt, obligation or liability (contingent
or otherwise) on behalf of the Company;
(x) not acquire any material properties or assets and not sell,
assign, transfer, convey, lease or otherwise dispose of any of the material
properties or assets of the Company (except for fair consideration in the
ordinary course of business consistent with past practice);
(xi) not cancel or compromise any debt or claim or waive or release
any material right of the Company except in the ordinary course of business
consistent with past practice;
(xii) not enter into any commitment for capital expenditures of the
Company in excess of $5,000 for any individual commitment and $25,000 for
all commitments in the aggregate;
(xiii) not enter into, modify or terminate any labor or collective
bargaining agreement of the Company or, through negotiation or otherwise,
make any commitment or incur any liability to any labor organization with
respect to the Company;
(xiv) not introduce any material change with respect to the operations
of the Company;
(xv) not permit the Company to enter into any transaction or to make
or enter into any Contract which by reason of its size, subject matter or
otherwise is not in the ordinary course of business consistent with past
practice;
(xvi) promptly notify the Buyer of (A) any Extraordinary Loss or
Extraordinary Losses suffered by the Company, (B) any casualty losses or
damages suffered by the Company with respect to property and assets having
an individual replacement cost of more than $10,000 or aggregate
replacement cost of more than $50,000 or which could cause a Material
Adverse Change, whether or not such losses or damages are covered by
insurance, and (C)(i) any Legal Proceeding commenced or threatened by or
against the Company or (ii) any Legal Proceeding commenced or threatened
against the Seller relating to the transactions contemplated by this
Agreement;
(xvii) not permit the Company to enter into or agree to enter into any
merger or consolidation with, any corporation or other entity, and not
engage in any new area of business or invest in, make a loan, advance or
capital contribution to, or otherwise acquire the securities of any other
Person;
30
(xviii) not permit the Company to make any investments in or loans to,
or pay any fees or expenses to, or enter into or modify any Contract with,
the Seller or any of its Affiliates (other than the Company);
(xix) promptly and accurately record in the appropriate records and
books of account and minute books of the Company, all material corporate
action taken on or after the date hereof by the Company or the Board of
Directors (including committees thereof) of the Company and promptly
following such recordation deliver true, correct and complete copies
thereof to the Buyer;
(xx) unless the Buyer has given written notice to the Company that it
is abandoning the transactions contemplated by this Agreement, not permit
any of their respective directors, officers, employees, Affiliates,
representatives or agents to, directly or indirectly, (A) discuss,
negotiate, undertake, authorize, recommend, propose or enter into any
transaction involving a merger, consolidation, business combination,
purchase or disposition of any amount of the assets, or capital stock or
securities of, or other proprietary or equity interest in, the Company
other than the transactions contemplated by this Agreement (an "Acquisition
Transaction"), (B) facilitate, encourage, solicit or initiate discussions,
negotiations or submissions of proposals or offers in respect of an
Acquisition Transaction, (C) furnish or cause to be furnished, to any
Person any information, other than any information furnished prior to April
25, 1997, the date of the letter of intent among the Seller and the Buyer,
concerning the business, operations, properties or assets of the Company in
connection with an Acquisition Transaction, or (D) otherwise cooperate in
any way with, or assist or participate in, facilitate or encourage, any
effort or attempt by any other Person to do or seek any of the foregoing;
and
(xxi) not agree to do anything prohibited by this Section 5.2 or
anything which would make any of the representations and warranties of the
Seller in this Agreement or the Seller Documents untrue or incorrect in any
material respect.
5.3 Records of the Company. The originals or complete and correct copies of
all of the books, records, accounts, files, logs, ledgers, journals, advertising
material, Contracts and other documents (including such of the foregoing as are
stored electronically in computer data bases) held by the Seller and used by the
Company in connection with the conduct of its business as of the Closing Date
and any stock records it is obligated to hold shall be delivered or made
available to the Buyer at the Closing in form and format reasonably satisfactory
to the Buyer.
5.4 Consents. Each of the Seller and the Buyer shall, and the Seller shall
cause the Company to, use its best efforts to obtain at the earliest practicable
date all consents and approvals required to consummate the transactions
contemplated by this Agreement, including, without limitation, the consents and
approvals referred to in Section 3.5 hereof; provided, however, that none of the
31
Company, the Seller or the Buyer shall be obligated to pay any consideration
therefor to any third party from whom consent or approval is requested.
5.5 Other Actions. Each of the Seller and the Buyer shall, and the Seller
shall cause the Company to, use its best efforts to (i) take all actions
necessary or appropriate to consummate the transactions contemplated by this
Agreement, (ii) cause the fulfillment at the earliest practicable date of all of
the conditions to their respective obligations to consummate the transactions
contemplated by this Agreement set forth in Section 6, and (iii) provide the
necessary time for the accounting staff of the Company to assist the independent
auditors in connection with the preparation of the Final Balance Sheet.
5.6 Preservation of Records. The Seller and the Buyer agree that each of
them shall preserve and keep the records held by it relating to the business of
the Company for a period of seven years from the Closing Date and shall make
such records and personnel available to the other as may be reasonably required
by such party in connection with, among other things, any insurance claims by,
Legal Proceedings against or governmental investigations of the Seller, the
Company or the Buyer or any of their Affiliates or in order to enable the
Seller, the Company or the Buyer to comply with their respective obligations
under this Agreement and each other agreement, document or instrument
contemplated hereby.
5.7 Publicity. None of the Seller, the Company, the Buyer or their
respective Affiliates shall issue any press release or public announcement
concerning this Agreement or the transactions contemplated hereby without
obtaining the prior written approval of the other party hereto, which approval
will not be unreasonably withheld, conditioned or delayed, unless otherwise
required by applicable Law or by the applicable rules, regulations and policies
of the Nasdaq Stock Market.
5.8 Updating of Information.
(a) The Seller shall, or shall cause the Company to, promptly deliver
to the Buyer any information concerning events subsequent to the date of this
Agreement which is necessary to supplement the information contained in or made
a part of the representations and warranties contained herein, including the
schedules hereto, or delivered by the Seller or the Company pursuant to any of
the covenants contained herein in order that the information contained herein or
so delivered be complete and accurate in all material respects; it being
understood and agreed that the delivery of such information shall not in any
manner constitute a waiver by the Buyer of any of the conditions precedent to
the Closing hereunder.
(b) The Buyer shall promptly deliver to the Seller copies of any
reports that the Buyer files prior to the Closing Date with the Securities and
Exchange Commission (the "SEC") under the Exchange Act and, upon such delivery,
for purposes of this Agreement, such documents shall thereafter be deemed to
constitute "Buyer Disclosure Documents."
32
5.9 Certain Tax Matters.
(a) For all federal, state, local and foreign Tax purposes, each of the
parties hereto agrees to treat the purchase of the Company Stock to be
consummated pursuant to the terms and conditions of this Agreement as a tax-free
reorganization described in Section 368(a) of the Code. Neither the Seller nor
the Buyer makes any representations or warranties to the other as to whether the
transaction contemplated by this Agreement will in fact qualify as such tax-free
reorganization. Neither the Seller nor the Buyer shall take any action, or
permit the Company to take any action, that could reasonably be expected to
prevent such purchase of the Company Stock from qualifying as such tax-free
reorganization.
(b) The Buyer shall prepare and file or cause to be prepared and filed
all Tax Returns for the Company that are due on or after the Closing Date.
(c) The Buyer shall promptly notify the Seller in writing upon receipt
by the Buyer or any Affiliate of the Buyer of notice of (i) any pending or
threatened federal, state, local or foreign Tax audits or assessments of the
Company, so long as any Pre-Closing Period remains open, and (ii) any pending
or threatened federal, state, local or foreign Tax audits or assessments of the
Buyer or any Affiliate of the Buyer which may affect the Tax liabilities of the
Company for any Pre-Closing Period. The Seller shall promptly notify the Buyer
in writing upon receipt by the Seller of notice hereinafter received of any
pending or threatened federal, state, local or foreign Tax audits or assessments
relating, in whole or in part, to the income, properties or operations of the
Company.
(d) After the Closing Date, the Buyer and the Seller shall provide each
other, and the Buyer shall cause the Company to provide the Seller, with such
cooperation and information relating to the Company as either party reasonably
may request in filing any Tax Return (or amended Tax Return) or refund claim,
determining any Tax liability or a right to a refund, conducting or defending
any audit or other proceeding in respect of Taxes or effectuating the terms of
this Agreement. The parties shall retain, and the Buyer shall cause the Company
to retain, all Returns, schedules, work papers and other material documents
relating thereto, until the expiration of any relevant statute of limitations
(and, to the extent notified by any party, any extensions thereof) and, unless
such Returns and other documents are offered and delivered to the Seller or the
Buyer, as applicable, until the final determination of any Tax in respect of
such years. Any information obtained under this Section 5.9 shall be kept
confidential, except as may be otherwise necessary in connection with filing any
Tax Return (or amended Tax Return) or refund claim, determining any Tax
liability or a right to a refund, conducting or defending any audit or other
proceeding in respect of Taxes or otherwise effectuating the terms of this
Agreement. Notwithstanding the foregoing, neither the Seller nor the Buyer, nor
any of their Affiliates, shall be required unreasonably to prepare any document,
or determine any information not then in its possession, in response to a
request under this Section 5.9(d); provided, however, no request shall be deemed
unreasonable if made in response to the request of a taxing authority for
information or documents not in the possession of the requested party nor
otherwise reasonably available to it.
33
(e) All registration, stamp, value-added or other similar taxes that
are payable by reason of the transactions contemplated by this Agreement or
attributable to the sale, transfer or delivery of the Company Stock hereunder
shall be borne by the Seller, except that the stamp tax shall be borne equally
by the Buyer and the Seller, and all such taxes payable or attributable to the
sale, transfer or delivery of the DSI Stock hereunder shall be borne by the
Buyer. The Seller and the Buyer, as the case may be, shall file, or shall
prepare and the Buyer shall cause the Company to file, all necessary Tax Returns
and other documentation with respect to the Taxes described in this Section
5.9(e).
5.10 Preparation of Certain Financial Statements. After the Closing, at the
request of the Buyer, the Seller shall reasonably cooperate with and assist the
Buyer and its independent public accountants, in the compilation and preparation
of all financial statements and financial statement schedules of the Company
(prepared in accordance with generally accepted accounting principles) and
reports and consents of the Company's auditors prior to the Closing, as may be
necessary for the Buyer to comply in a timely manner with SEC reporting
requirements. If requested by the Buyer, the Seller shall deliver to the
independent public accountants of the Buyer and the Company all engagement
letters and management representation letters, as may be reasonably requested by
the Buyer or such accountants, which shall cover the periods set forth above and
such other periods from the year ended October 31, 1994 through the Closing Date
as the Buyer may reasonably request. In connection with the foregoing, the
Seller shall use its best efforts to cause the Company's auditors to cooperate
with and assist the Buyer and its independent public accountant in the
preparation of the audited and unaudited financial statements contemplated by
this Section 5.10; provided, however, that the Seller shall not be obligated to
pay any consideration in connection with the foregoing undertaking.
5.11 Continuity of Business Enterprise. Following the Closing and in
connection with the business of the Company, the Buyer will conduct its business
in a manner that satisfies the continuity of business enterprise requirement in
Treasury Regulation 1.368-1(d).
5.12 No Transfer. Following the Closing, the Seller agrees that no shares
of DSI Stock received by it pursuant to this Agreement will be transferred
except (a) in an offering in which the Seller is entitled to participate
pursuant to the Registration Rights Agreement described in Section 6.1(i) or (b)
the first anniversary of the Closing Date; provided, however, that the foregoing
provision shall not prohibit a pledge of such shares of DSI Stock prior to such
dates. The Buyer agrees that it will use all reasonable diligence to continue to
file with the SEC on a timely basis all reports required to be filed by it under
the Exchange Act.
34
5.13 Intercompany Debt. Prior to the Closing, the Seller shall cause each
of its Affiliates to assign or otherwise transfer to the Seller any intercompany
debt owed by the Company to such Affiliates (the "Affiliate Intercompany Debt")
and shall contribute to the capital of the Company the entire principal balance,
plus all unpaid interest accrued thereon, of the Affiliate Intercompany Debt and
any other intercompany debt owed by the Company to the Seller through the
Closing Date to the extent that such amounts exceed the amount of cash, if any,
permitted to be paid to the Seller by the Company pursuant to Section
5.2(ii)(a).
5.14 Employee Severance Expenses.
The Seller shall cause the Company to terminate ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇'▇
employment and other relationships with the Company on or before the Closing
Date. The Seller shall bear all costs associated with the termination of such
relationships and shall satisfy any and all other obligations the Company may
have to ▇▇. ▇▇▇▇▇▇▇▇▇, all out of assets other than those of the Company, and
shall indemnify and hold harmless the Company from and against such costs and
other obligations. Except as provided in this Section 5.14, the Company will
bear any and all employee separation costs incurred after the Closing,
satisfying any and all other obligations the Company may have to its employees,
and shall indemnify and hold harmless the Seller from and against such costs and
other obligations.
5.15 Covenants Against Competition. The Seller acknowledges that (i) the
Company has developed trade secrets and confidential information concerning the
intrusion alarm business (the "Business"); (ii) the Company conducts the
Business in the United Kingdom, Ireland, Russia and Western Europe (the
"Territory") and (iii) the agreements and covenants contained in this Section
5.15 are essential to protect the Business following the consummation of the
transactions contemplated hereby. Accordingly, the Seller covenants and agrees
as follows:
(a) Non-Compete. For a period of one (1) year following the Closing,
the Seller (or any other entity 25% or more of the beneficial ownership of which
is held by the Seller alone or together with any of its Affiliates (a
"Controlled Entity")) shall not anywhere in the Territory thereto (i) engage in
the Business for its own account, or (ii) become a partner, owner, principal,
employee, consultant or agent of any Person engaged in the Business. Nothing in
this Section 5.15(a) shall be construed to prevent Versus Technology Ltd. from
engaging in the subscriber terminal units business.
(b) Confidential Information. The Seller and any Controlled Entity
shall keep secret and retain in strictest confidence, and shall not use, in
competition with or in a manner otherwise detrimental to the interests of the
Company, for the benefit of itself or others other than the Company any
confidential information, including without limitation any confidential
"know-how," trade secrets, customer lists, details of client or consultant
contracts, pricing policies, operational methods, marketing plans or strategies,
product development techniques or plans, business acquisition plans and new
personnel acquisition plans related to the Business ("Confidential
Information"). The term "Confidential Information" does not include, and there
shall be no obligation hereunder with respect to, (i) information that becomes
generally available to the public other than as a result of a disclosure by the
Seller or a Controlled Entity or any agent or other representative thereof and
35
(ii) general business methods applicable to the Business. Neither the Seller nor
any Controlled Entity shall have any obligation hereunder to keep confidential
any of the Confidential Information to the extent disclosure of any thereof is
required by law, or determined in good faith by the Seller to be necessary or
appropriate to comply with any legal or regulatory order, regulation or
requirement; provided, however, that in the event disclosure is required by law
the Seller or the Controlled Entity concerned shall provide the Buyer with
prompt notice of such requirement so that the Buyer may seek an appropriate
protective order.
(c) Non-Solicitation. For a period of two (2) years following the
Closing, the Seller and any Controlled Entity shall not, directly or indirectly,
(i) hire or solicit any employee of the Buyer or the Company or encourage any
such employee to leave such employment who is engaged in the alarm business or
the subscriber terminal units business, or (ii) solicit, induce or influence any
customer, supplier, lender, lessor or any other person or entity which has a
business relationship with the Buyer or the Company to discontinue or reduce the
extent of such relationship with the Buyer or the Company. Notwithstanding the
above, this Section 5.15(c) shall not apply to any employee of the Company who
ceases to be employed as a result of being terminated by the Company.
(d) Rights and Remedies Upon Breach. In the event the Seller or any
Controlled Entity breaches, or threatens to commit a breach of, any of the
provisions of this Section 5.15 (the "Restrictive Covenants"), the Buyer shall
have the following rights and remedies, which shall be independent of any others
and severally enforceable, and shall be in addition to, and not in lieu of, any
other rights and remedies available to the Buyer at law or in equity:
(i) the right and remedy to enjoin the breaching party from
violating or threatening to violate the Restrictive Covenants and to
have the Restrictive Covenants specifically enforced by any court of
competent jurisdiction, it being agreed that any breach or threatened
breach of the Restrictive Covenants would cause irreparable injury to
the Buyer and that money damages would not provide an adequate remedy
to the Buyer; and
(ii) the right and remedy to require the breaching party to
account for and pay over to the Buyer all compensation, profits,
monies, accruals, increments or other benefits derived or received by
such party as the result of any transactions constituting a breach of
the Restrictive Covenants.
(e) Severability of Covenants. The Seller acknowledges and agrees that
the Restrictive Covenants are reasonable in geographical scope and duration and
in all other respects. If any court determines that any of the Restrictive
Covenants, or any part thereof, are invalid or unenforceable, the remainder of
the Restrictive Covenants shall not thereby be affected and shall be given full
effect, without regard to the invalid portions.
36
(f) Blue-Pencilling. If any court determines that any of the
Restrictive Covenants, or any part thereof, are unenforceable because of the
duration or geographic scope of such provision, such court shall have the power
to reduce the duration or scope of such provision, as the case may be, and, in
its reduced form, such provision shall then be enforceable.
(g) Enforceability in Jurisdictions. The parties hereto intend to and
hereby confer jurisdiction to enforce the Restrictive Covenants upon the courts
of any jurisdiction within the geographical scope of such Restrictive Covenants.
If the courts of any one or more of such jurisdictions hold the Restrictive
Covenants unenforceable by reason of the breadth of such scope or otherwise, it
is the intention of the parties hereto that such determination not bar or in any
way affect the Buyer's right to the relief provided above in the courts of any
other jurisdiction within the geographical scope of such Restrictive Covenants,
as to breaches of such Restrictive Covenants in such other respective
jurisdictions, such Restrictive Covenants as they relate to each jurisdiction
being, for this purpose, severable into diverse and independent covenants.
5.16 Reservation and Listing. The Buyer agrees to promptly apply for and
diligently pursue registration of the DSI Stock on the Nasdaq Stock Market. The
Buyer agrees to reserve for issuance shares sufficient to cover the Final Share
Amount and any additional shares issued to the Seller pursuant to Section 1.5 of
this Agreement.
5.17 Insurance. The Buyer will use reasonable efforts to maintain insurance
coverage as described in Section 7.2(a)(iii).
5.18 Certain Contracts. On or prior to the Closing Date, the Seller shall
cause the Company to terminate any contract or negotiations with Hans Einhell
AG, Isar, Germany, Transmit Security Ltd., London England and its managing
director, ▇▇▇▇▇ ▇▇▇▇▇▇▇. The Seller shall indemnify and hold harmless the Buyer
and the Company from and against any and all Losses or Expenses, as such terms
are defined in Sections 7.2(a)(i) and 7.2(a)(iv), resulting from such
termination, such contracts or such negotiations including, but not limited to,
any commissions or other amounts payable to ▇▇. ▇▇▇▇ ▇▇▇▇▇▇, Surrey England as a
result thereof. The Buyer shall not be entitled to any indemnification under
this Section 5.18 if it enters into a transaction with one or more of Hans
Einhell AG, Transmit Security Ltd., or ▇▇▇▇▇ ▇▇▇▇▇▇▇ within twelve (12) months
following the Closing Date.
5.19 Director Resignation. The Seller shall be responsible for, and shall
indemnify the Company against, any Losses and Expenses related to the board of
director resignations of Ash ▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇,
from the board of directors of the Company, based solely upon a claim that such
resignation, as a board director, was an unfair dismissal.
37
6. Conditions to Closing.
6.1 Conditions Precedent to Obligations of the Buyer. The obligations of
the Buyer to consummate the transactions contemplated by this Agreement are
subject to the fulfillment, on or prior to the Closing Date, of each of the
following conditions (any or all of which may be waived by the Buyer in whole or
in part to the extent permitted by applicable Law):
(a) The Seller shall have executed and delivered this Agreement and
such other instruments, documents and certificates as are required to be
executed and delivered by the Seller or the Company pursuant to this Agreement;
(b) all representations and warranties of the Seller to the Buyer
contained herein shall be true and correct in all material respects at and as of
the Closing Date with the same effect as though those representations and
warranties had been made again at and as of that time;
(c) the Seller and the Company shall have performed and complied in all
material respects with all obligations and covenants required by this Agreement
to be performed or complied with them on or prior to the Closing Date;
(d) the Buyer shall have been furnished with certificates (dated the
Closing Date and in form and substance reasonably satisfactory to the Buyer)
executed by the Seller certifying as to the fulfillment of the conditions
specified in Sections 6.1(b) and 6.1(c) hereof;
(e) the Buyer shall have been furnished with an opinion of Blank Rome
▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, counsel to the Seller and Clarks Solicitors, counsel to the
Company, substantially in the form of Exhibit 6.1(e) hereto;
(f) there shall not have been or occurred (i) any change, destruction
or loss, whether or not covered by insurance, which would result in the loss of
a material part of the properties or assets of Company, (ii) any Legal
Proceedings instituted or threatened against the Seller or the Company seeking
to restrain or prohibit or to obtain substantial damages with respect to the
consummation of the transactions contemplated hereby, or which might, in the
reasonable opinion of the Buyer, result in a Material Adverse Change to the
Company, (iii) any Order by a Governmental Body of competent jurisdiction
restraining, enjoining or otherwise prohibiting the consummation of the
transactions contemplated hereby, or (iv) any other event or occurrence related
to the Company which could result in a Material Adverse Change to the Company;
(g) the Seller or the Company shall have obtained all consents and
waivers, in a form reasonably satisfactory to the Buyer, described in Section
3.5 or listed on Schedule 3.5;
38
(h) the Seller shall have delivered to the Buyer a Registration Rights
Agreement in the form of Exhibit 6.1(h)(i) hereto, duly executed by the Seller
and a Technology Licence in the form of Exhibit 6.1(h)(ii) hereto, duly executed
by the Seller and the Company.
(i) there shall have been delivered to the Buyer (i) resignations of
the members of the board of directors and secretary of the Company as are
reasonably requested by the Buyer, and resolutions of the Company with respect
to the election of new directors and a new secretary effective on the Closing
Date to the extent requested in writing by the Buyer on or prior to the Closing
Date, (ii) documents evidencing the transfer to such persons as the Buyer shall
have requested in writing at least three business days prior to the Closing
Date, of powers of attorney previously granted by the Company, and (iii)
revocations of such proxies and powers of attorney as the Buyer may have
requested in writing at least one business day prior to the Closing Date;
(j) the Seller shall have delivered to the Buyer such evidence,
including appropriate certificates of the Seller's authorized officers, as the
Buyer may reasonably request in order to establish the corporate or other legal
power and authority of the Seller to enter into and consummate the transactions
contemplated by this Agreement;
(k) the Seller shall have delivered to the Buyer such evidence,
including appropriate certificates of the Company's authorized officers, as the
Buyer may reasonably request in order to establish the corporate existence and
authenticity of the governing documents of the Company; and
(l) the Seller shall have delivered to the Buyer such other
instruments, documents and certificates as the Buyer may reasonably request in
connection with the consummation of the transactions contemplated by this
Agreement.
6.2 Conditions Precedent to Obligations of the Seller. The obligations of
the Seller to consummate the transactions contemplated by this Agreement are
subject to the fulfillment, prior to or on the Closing Date, of each of the
following conditions (any or all of which may be waived by the Seller in whole
or in part to the extent permitted by applicable Law):
(a) the Buyer shall have executed and delivered this Agreement and such
other instruments, documents and certificates as are required to be executed and
delivered by the Buyer pursuant to this Agreement;
(b) all representations and warranties of the Buyer contained herein
shall be true and correct in all material respects at and as of the Closing Date
with the same effect as though those representations and warranties had been
made again at and as of that date;
39
(c) the Buyer shall have performed and complied in all material
respects with all obligations and covenants required by this Agreement to be
performed or complied with by the Buyer on or prior to the Closing Date;
(d) the Seller shall have been furnished with certificates (dated the
Closing Date and in form and substance reasonably satisfactory to the Seller)
executed by the Buyer certifying as to the fulfillment of the conditions
specified in Sections 6.2(b) and 6.2(c);
(e) the Company and the Stockholders shall have been furnished with an
opinion of Nixon, Hargrave, Devans & ▇▇▇▇▇ LLP, counsel for the Buyer,
substantially in the form of Exhibit 6.2(e) hereto;
(f) there shall not have been or occurred (i) any change, destruction
or loss, whether or not covered by insurance, which would result in the loss of
a material part of the properties or assets of the Buyer, (ii) any Legal
Proceedings instituted or threatened against the Buyer seeking to restrain or
prohibit or to obtain substantial damages with respect to the consummation of
the transactions contemplated hereby, or which might, in the reasonable opinion
of the Seller, result in a Material Adverse Change to the Buyer, (iii) any Order
by a Governmental Body of competent jurisdiction restraining, enjoining or
otherwise prohibiting the consummation of the transactions contemplated hereby,
or (iv) any other event or occurrence related to the Buyer which could result in
a Material Adverse Change to the Buyer;
(g) the Buyer shall have obtained all consents and waivers, in a form
reasonably satisfactory to the Seller, described in Section 4.3 or listed on
Schedule 4.3;
(h) the Buyer shall have delivered to the Seller a Registration Rights
Agreement in the form of Exhibit 6.1(h) hereto, duly executed by the Buyer;
(i) the Buyer shall have delivered to the Seller such evidence,
including appropriate certificates of the Buyer's authorized officers, as the
Seller may reasonably request in order to establish the corporate power and
authority of the Buyer to consummate the transactions contemplated by this
Agreement and compliance with the conditions of Closing set forth herein; and
(j) the Buyer shall have delivered to the Seller such other
instruments, documents and certificates as the Seller may reasonably request in
connection with the consummation of the transactions contemplated by this
Agreement.
7. Survival and Indemnification.
7.1 Survival of Representations and Warranties. All representations and
warranties, covenants and agreements of the Seller and the Buyer contained in
this Agreement or in any of the Seller Documents or Buyer Documents shall
survive the execution and delivery of this Agreement and, notwithstanding any
investigation by the Buyer or the Seller, shall continue in full force and
40
effect for a period of two (2) years after the Closing Date; provided, however,
that (i) the representations and warranties of the Seller contained in Sections
3.6 and 3.7 and the first sentence of Section 3.13(d) shall continue in full
force and effect indefinitely, (ii) the representations and warranties of the
Seller contained in Sections 3.1, 3.2, 3.11 and 3.29 shall continue in full
force and effect until 60 days after any applicable statute of limitations
(taking into account any waiver or tolling thereof) with respect to any Legal
Proceeding which may arise thereunder or relate thereto shall have run, (iii)
the representations and warranties of the Seller contained in Sections 3.8 and
3.23 shall continue in full force and effect until April 30, 1998, (iv) the
representations and warranties of the Buyer contained in Section 4.6 shall
continue in full force and effect indefinitely, (v) the representations and
warranties of the Buyer contained in Sections 4.1, 4.2, 4.5 and 4.9 shall
continue in full force and effect until 60 days after any applicable statute of
limitations (taking into account any waiver or tolling thereof) with respect to
any Legal Proceeding which may arise thereunder or relate thereto shall have
run, and (vi) any covenants or agreements contained herein or made pursuant
hereto by the Buyer or the Seller which by their terms are to be performed after
the Closing Date, shall survive until fully discharged. The obligations of the
parties pursuant to Section 7.2 with respect to claims made pursuant to a
particular representation, warranty or covenant shall expire simultaneously with
such representation, warranty or covenant; provided, however, that such
obligations shall survive with respect to any pending claim until the pending
claim is settled or otherwise satisfied if written notice of such claim,
specifying in reasonable detail the factual basis therefor, is given to the
party from whom indemnification is sought prior to the expiration of the
representation, warranty or covenant upon which it is based. To the extent the
survival periods specified herein exceed an applicable statute of limitations,
the provisions of this Section 7.1 shall constitute a tolling by the Seller or
the Buyer, as applicable, of each such statute of limitations for a period of
time not to extend beyond the termination of such survival periods.
7.2 Indemnification.
(a) Subject to the limitations contained in this Section 7, the Seller
hereby agrees to indemnify and hold the Buyer, the Company and their respective
directors, officers, employees, Affiliates, agents, successors and assigns
(collectively, the "Buyer Indemnified Parties") harmless from and against:
(i) any and all losses, liabilities, obligations, damages,
deficiencies, demands, claims, actions, judgments, causes of action,
assessments, costs or expenses (including, without limitation,
reasonable attorneys' fees and other professionals' fees and
disbursements and costs of enforcing this Section 7) (collectively,
"Losses") based upon, attributable to or resulting from any inaccuracy
in or breach of any representation or warranty on the part of any of
the Seller under this Agreement or any one or more of the Seller
Documents, except Losses relating to inventory or fixed assets
adjustments;
41
(ii) any and all Losses based upon, attributable to or
resulting from the breach of any covenant or other agreement of the
Seller under this Agreement or any one or more of the Seller Documents;
(iii) any and all Losses based upon, arising out of or
otherwise in respect of any injury to Persons or property occurring
prior to the Closing Date as a result of the ownership, possession or
use of any product manufactured, sold, marketed, distributed or
delivered by the Company which is shipped by the Company prior to the
Closing Date; provided, however, that, subject to compliance by the
Seller with this Section 7.2(a)(iii), the Buyer will pay over to the
Seller any insurance proceeds received in respect of any such Losses
pursuant to the Company's commercial general liability insurance policy
with St. ▇▇▇▇ Insurance Company or any replacement or substitute policy
therefor to the extent such Losses shall have been paid by the Seller
pursuant to this Section 7.2(a)(iii) and such proceeds have not already
been applied by the Buyer Indemnified Parties to offset all or any
portion of such Losses; and provided, further, that, so long as the
Seller is obligated to indemnify the Buyer Indemnified Parties under
this Agreement, the Buyer (x) shall keep such general commercial
liability insurance policy, or an equivalent replacement or substitute
therefor (the "Policy") in effect at all times and (y) immediately
after the Closing and on a regular basis at least annually thereafter,
shall review the Policy in light of the Buyer's current and past
business experience and common industry practices, and (z) if after any
such review the Buyer shall conclude exercising reasonable commercial
judgment that the coverage of the Policy with respect to the types of
risks insured and the dollar amount of the losses or liability insured
per occurrence is inadequate, the Buyer shall use reasonable efforts to
procure, at the Buyer's or the Company's expense, such additional
insurance as the Buyer shall deem necessary to cover any such
inadequacy; and
(iv) any and all notices, actions, suits, proceedings,
demands, assessments, judgments, costs, penalties and expenses,
including reasonable attorneys' and other professionals, fees and
disbursements (collectively, "Expenses") incident to the foregoing.
(b) Subject to the limitations contained in this Section 7, the Buyer
hereby agrees to indemnify and hold the Seller and its employees, Affiliates,
agents, heirs, successors and assigns (collectively, the "Seller Indemnified
Parties") harmless from and against:
(i) any and all Losses based upon, attributable to or
resulting from any inaccuracy in or breach of any representation or
warranty on the part of the Buyer under this Agreement or any one or
more of the Buyer Documents;
42
(ii) any and all Losses based upon, attributable to or
resulting from the breach of any covenant or other agreement on the
part of the Buyer under this Agreement or any one or more of the Buyer
Documents; and
(iii) any and all Expenses incident to the foregoing.
(c) Neither the Seller nor the Buyer shall have any liability under
Section 7.2(a)(i), (iii) or (iv) or Section 7.2(b)(i) or (iii) unless and until
the aggregate amount of Losses incurred by the respective indemnified parties
and related Expenses finally determined to arise thereunder exceeds in the
aggregate U.S. $300,000 (the "Basket") and, in such event, the indemnifying
party shall be required to pay to the indemnified parties the entire amount of
such Losses in excess of the Basket, subject to the following limitation. The
indemnification obligation of the Seller under Section 7.2(a)(i), (iii) or (iv)
and the indemnification obligation of the Buyer under Section 7.2(b)(i) or (iii)
shall be limited, in each case, to forty percent (40%) of the Final Purchase
Price.
(d) The Seller and the Buyer agree that any indemnification payment
made hereunder will be treated by the parties on their respective Tax Returns as
an adjustment to the aggregate consideration for the shares of capital stock of
the Company. If, notwithstanding such treatment by the parties, any such
indemnification payment is determined to be taxable to the indemnified party by
any taxing authority, the indemnifying party shall also indemnify the
indemnified party for any Taxes payable by the indemnified party by reason of
the receipt of such indemnification payment.
(e) In the event that the Buyer Indemnified Parties are entitled to
indemnification pursuant to this Section 7, the sums due hereunder to which the
Buyer Indemnified Parties are entitled shall be paid: (i) first, by the delivery
of shares of DSI Stock from the Seller to the Buyer Indemnified Parties to the
extent that the Seller continues to hold shares of DSI Stock obtained pursuant
to this Agreement, and (ii) then, by the payment of cash by the Seller to the
Buyer Indemnified Parties. For purposes of clause (i) above, shares of DSI Stock
shall be deemed to have a value equal to $17.
(f) The Seller hereby agrees that if any payment by it is made under
the terms of this Agreement or otherwise, it shall have no rights against the
Company or any director, officer, employee or agent thereof, whether by reason
of contribution, indemnification, subrogation or otherwise, in respect of any
such payments, and shall not take any action against the Company with respect
thereto. Any such rights which the Seller may, by operation of law or otherwise,
have against the Company shall, at the Closing Date, be deemed to hereby
expressly and knowingly waived.
(g) No indemnifying party hereunder shall have any liability with
respect to any Losses if and to the extent such Losses are covered by any policy
of insurance by or for the benefit of the party seeking indemnification or would
have been covered by insurance if all of the policies of insurance in force at
the Closing Date had been maintained in force thereafter.
43
(h) Each party seeking indemnification hereunder shall be required to
take all reasonable steps to mitigate Losses with respect to any claim
hereunder. If any party seeking indemnification hereunder subsequently recovers
from a third party, or otherwise mitigates its Losses, the party so indemnified
shall repay to the indemnifying party any sums paid to it in connection with
such indemnification hereunder.
7.3 Determination of Losses and Expenses and Related Matters.
(a) In the event that any Legal Proceedings shall be instituted or
asserted by any Person in respect of which payment may be sought under Section
7.2 (regardless of the Basket or the Cap referred to in Section 7.2(c)), the
indemnified party shall reasonably and promptly cause written notice of the
assertion of any Legal Proceeding of which it has knowledge which is covered by
the indemnities under this Section 7 to be forwarded to the indemnifying party.
The indemnifying party shall have the right, at its sole option and expense, to
defend against, negotiate, settle or otherwise deal with any Legal Proceeding
which relates to any Losses and Expenses indemnified against hereunder and to be
represented by counsel of its choice, which must be reasonably satisfactory to
the indemnified party; provided, however, that no settlement shall be made
without the prior written consent of the indemnified party, which consent shall
not be unreasonably withheld, conditioned or delayed. If the indemnifying party
elects to defend against, negotiate, settle or otherwise deal with any Legal
Proceeding which relates to any Losses indemnified against hereunder, it shall
within thirty (30) days (or sooner, if the nature of the Legal Proceeding so
requires) notify the indemnified party of its intent to do so. If the
indemnifying party elects not to defend against, negotiate, settle or otherwise
deal with any Legal Proceeding which relates to any Losses and Expenses
indemnified against hereunder, fails to notify the indemnified party of its
election as herein provided or contests its obligation to indemnify the
indemnified party for such Losses and Expenses under this Agreement, the
indemnified party may defend against, negotiate, settle or otherwise deal with
such Legal Proceeding; provided that the indemnified party may not settle any
Legal Proceeding without the prior written consent of the indemnifying party,
which consent shall not be unreasonably withheld, conditioned or delayed.
Subject to Section 7.2(c), if the indemnified party defends any Legal
Proceeding, then the indemnifying party shall reimburse the indemnified party
for the Expenses of defending such Legal Proceeding upon submission of periodic
bills. If the indemnifying party shall assume the defense of any Legal
Proceeding, the indemnified party may participate, at its own expense, in the
defense of such Legal Proceeding; provided, however, such indemnified party
shall be entitled to participate in any such defense with separate counsel at
the expense of the indemnifying party if (i) so requested by the indemnifying
party to participate or (ii) in the reasonable opinion of counsel to the
indemnified party, a conflict exists between the indemnified party and the
indemnifying party that would make such separate representation advisable; and
provided, further, that the indemnifying party shall not be required to pay for
more than one such counsel for all indemnified parties in connection with any
Legal Proceeding. The parties hereto agree to cooperate fully with each other in
connection with the defense, negotiation or settlement of any such Legal
Proceeding.
44
After any final judgment or award shall have been rendered by a court,
arbitration board or administrative agency of competent jurisdiction and the
expiration of the time in which to appeal therefrom, or a settlement shall have
been consummated, or the indemnified party and the indemnifying party shall have
arrived at a mutually binding agreement with respect to a Legal Proceeding
hereunder, the indemnified party shall forward to the indemnifying party written
notice of any sums due and owing by the indemnifying party pursuant to this
Agreement with respect to such matter and the indemnifying party shall be
required to pay all of the sums so due and owing to the indemnified party by
wire transfer of immediately available funds within ten business days after the
date of such notice.
(b) The failure of the indemnified party to give reasonably prompt
notice of any Legal Proceeding shall not release, waive or otherwise affect the
indemnifying party's obligations with respect thereto except to the extent that
the indemnifying party can demonstrate actual loss or prejudice as a result of
such failure. The indemnified parties shall not be deemed to have notice of any
Legal Proceeding by virtue of knowledge acquired on or prior to the Closing Date
by an employee of the Company.
7.4 Sole and Exclusive Remedy.
The indemnification provided under this Article 7 shall constitute the sale
and exclusive remedy of the parties hereto as a result of any and all Losses
based upon, attributable to or resulting from any inaccuracy in or breach of any
representation or warranty.
8. Miscellaneous.
8.1 Certain Definitions. In addition to terms defined elsewhere in this
Agreement, the following terms shall have the meanings set forth below:
"Affiliate" shall have the meaning specified by Rule 12(b) under the
Exchange Act.
"Contract" means any contract, agreement, indenture, note, bond, loan,
instrument, lease, conditional sale contract, mortgage, license, franchise,
insurance policy, commitment or other arrangement or agreement, whether written
or oral.
"Environmental Claim" means any accusation, allegation, notice of breach or
violation, action, claim, Lien, demand, abatement or other order or direction
(conditional or otherwise) by any Regulatory Authority or Governmental Body for
personal injury (including sickness, disease or death), tangible or intangible
property damage, damage to the environment, nuisance, pollution, contamination
or other adverse effects on the environment, or for fines, penalties or
restrictions resulting from or based upon (i) the existence, whether known or
unknown, or the continuation of the existence, of a Release (including, without
limitation, sudden or non-sudden accidental or non-accidental Releases) and/or
threat of a Release of, or exposure to, any Hazardous Material or other
substance, chemical, material, pollutant, contaminant, odor, audible noise, or
other Release in, into or onto the environment (including, without limitation,
the air, soil, surface water or groundwater) at, in, by, from or related to the
Facilities or any activities conducted thereon; (ii) the environmental aspects
45
of the transportation, storage, treatment or disposal of Hazardous Materials in
connection with the operation of the Facilities; or (iii) the violation, or
alleged violation, of any Environmental Laws, orders or Permits of or from any
Governmental Body arising out of or relating to environmental matters connected
with the Facilities.
"Environmental Law" means any Law concerning Releases into any part of the
natural environment, or activities that might result in damage to the natural
environment, or any Law that is concerned in whole or in part with the natural
environment and with protecting or improving the quality of the natural
environment and protecting public and employee health and safety and includes,
but is not limited to, Part I and Part II of the Control Pollution ▇▇▇ ▇▇▇▇, the
Water ▇▇▇ ▇▇▇▇, the Environmental Protection ▇▇▇ ▇▇▇▇, the Water Resources ▇▇▇
▇▇▇▇, the Water Industry ▇▇▇ ▇▇▇▇, the Environment ▇▇▇ ▇▇▇▇, the Control of
Industrial Major Accidents Hazards Regulations 1984, the ▇▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇, the
Health & Safety at Work etc. ▇▇▇ ▇▇▇▇, the Control of Substances Hazardous to
Health Regulations 1988, the Noise at Work Regulations 1989, the Electricity at
Work Regulations 1990, the Planning Acts and the Public Health Acts, as such
laws have been amended or supplemented, and the regulations, codes of practice,
circulars and guidance notes promulgated pursuant thereto, and any and all
analogous laws and by-laws and the regulations promulgated pursuant thereto.
"Environmental Matters" means any matter arising out of or relating to the
production, storage, keeping, transportation, disposal or Release of any
Hazardous Material or otherwise arising out of or relating to safety, health or
the environment which could give rise to liability or require the expenditure of
money to address, and shall include, without limitation, the costs of
investigating and remediating any of the foregoing matters, any fines and
penalties arising in connection therewith, and any claim in respect thereof for
damages or injunctive relief for alleged personal injury, property damage or
damage to natural resources under common law or other Environmental Law.
"Environmental Permit" means any Permit, approval, authorization, consent,
license, variance, registration, or permission required under any applicable
Environmental Laws and all supporting documents associated therewith.
"Facilities" means real property now or heretofore owned, leased or
operated by the Company, including, without limitation, the Leased Property.
"Governmental Body" means any government or governmental or regulatory body
thereof, or political subdivision thereof, whether federal, state, local or
foreign, or any agency, instrumentality or authority thereof, or any court or
arbitrator (public or private).
"Hazardous Materials" means any substance, material or waste which is
regulated by any Regulatory Authority, Governmental Body or Environmental Law,
including, without limitation, any material or substance which is defined as a
"hazardous waste," "hazardous material," "hazardous substance," "extremely
hazardous waste" or "restricted hazardous waste," "controlled waste," "subject
waste," "contaminant," "toxic waste" or "toxic substance" under any provision of
46
any Environmental Law, including but not limited to, petroleum products,
asbestos and polychlorinated biphenyls.
"Law" means any federal, state, local or foreign statute, code, ordinance,
rule, regulation, code of practice, circular and guidance note or other
requirement.
"Legal Proceeding" means any judicial, civil, criminal, equitable,
administrative or arbitral actions, or suits, charges, complaints, demands,
investigations, proceedings (public or private) or claims.
"Lien" means any lien, pledge, mortgage, deed of trust, security interest,
claim, lease, charge, option, right of first refusal, easement, servitude,
transfer restriction under any shareholder or similar agreement, obligation
under any voting agreement, voting trust or similar agreement, encumbrance or
any other restriction or limitation whatsoever.
"Material Adverse Change" means any material adverse change in and/or
effect on the business, properties, results of operations, prospects, condition
(financial or otherwise) of the Person to which such term relates and such
Person's subsidiaries, if any, taken as a whole.
"Order" means any order, injunction, judgment, decree, ruling, writ,
assessment or arbitration award.
"Permits" means any approvals, authorizations, consents, licenses, permits,
registrations or certificates.
"Person" means any individual, corporation, partnership, firm, joint
venture, association, joint-stock company, trust, unincorporated organization,
Governmental Body or other entity.
"Pre-Closing Period" means any Tax period ending on or prior to the Closing
Date.
"Release" means any release, spill, emission, leaking, pumping, injection,
deposit, disposal, discharge, dispersal, leaching, or migration into the indoor
or outdoor environment, or into or out of any of the Facilities, including the
movement of any Hazardous Material or other substance through or in the air,
soil, surface water, groundwater, or property.
"Regulatory Authorities" means the Environment Agency, a Unitary, County,
District/Borough Authority and Council, Agencies, Authorities and Bodies with
statutory functions relating to an Environmental Law, The Crown and its
agencies, departments and authorities.
47
"Remedial Action" means all actions, including, without limitation, any
capital expenditures, required or voluntarily undertaken to (i) clean up,
remove, treat, or in any other way address any Hazardous Material or other
substance in the indoor or outdoor environment; (ii) prevent the Release or
threat of Release, or minimize the further Release of any Hazardous Material or
other substance so it does not migrate or endanger or threaten to endanger
public health or welfare of the indoor or outdoor environment; (iii) perform
pre-remedial studies and investigations or post-remedial monitoring and care; or
(iv) bring any Facility into compliance with all Environmental Laws and
Environmental Permits.
"Software" means any electronic data processing system, information system,
computer software program (exclusive of off-the-shelf computer software
available in the open market and related applications thereof), program
specification chart, procedure, source code, object code, input data, routine,
database, report layout, format, record file layout, diagram, functional
specification, narrative description, flow chart or other related material.
"Tax Returns" means all returns, declarations, reports, estimates,
information returns and statements required to be filed in respect of any Taxes.
"Tax or Taxes" means all taxes, charges, fees, imposts, levies or other
assessments, including, without limitation, all net income, gross receipts,
capital, sales, use, ad valorem, value added, transfer, franchise, profits,
inventory, capital stock, license, withholding (including its U.K. equivalent),
payroll (including its U.K. equivalent), employment (including its U.K.
equivalent), social security, unemployment, excise, severance, stamp,
occupation, property and estimated taxes, customs duties, fees, assessments and
charges of any kind whatsoever, together with any interest and any penalties,
fines, additions to tax or additional amounts imposed by any taxing authority
(domestic or foreign) and shall include any transferee liability in respect of
Taxes.
"U.S. Environmental Law" means any Law concerning Releases into any part of
the natural environment, or activities that might result in damage to the
natural environment, or any Law that is concerned in whole or in part with the
natural environment and with protecting or improving the quality of the natural
environment and protecting public and employee health and safety and includes,
but is not limited to, the Comprehensive Environmental Response, Compensation,
and Liability Act ("CERCLA") (42 U.S.C. ▇▇.▇▇. 9601 et seq.), the Hazardous
Materials Transportation Act (49 U.S.C. ▇▇.▇▇. 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 (33 U.S.C. ▇▇.▇▇. 7401 et
seq.), the Toxic Substances Control Act (15 U.S.C. ▇▇.▇▇. 2601 et seq.), the
Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. ▇▇.▇▇. 136 et
seq.) and the Occupational Safety and Health Act (29 U.S.C. ▇▇.▇▇. 651 et seq.)
("OSHA"), as such laws have been amended or supplemented, and the regulations
promulgated pursuant thereto, and any and all analogous state or local statutes,
and the regulations promulgated pursuant thereto.
8.2 Expenses. Except as otherwise provided herein, all expenses incurred by
the Buyer in connection with the negotiation, authorization, preparation,
48
execution and performance of this Agreement and the transactions contemplated
herein shall be paid by the Buyer. Except as otherwise provided herein, all
expenses incurred by the Seller and the Company in connection with the
negotiation, authorization, preparation, execution and performance of this
Agreement and the transactions contemplated herein shall be paid by the Seller
and shall not be paid from any of the assets of the Company.
8.3 Further Assurances. The Seller and the Buyer each agree to execute and
deliver, and to cause the Company to execute and deliver, such other documents
or agreements as may be necessary or desirable for the implementation of this
Agreement and the consummation of the transactions contemplated hereby.
8.4 Submission to Jurisdiction; Consent to Service of Process.
(a) The parties hereto hereby irrevocably submit to the non-exclusive
jurisdiction of any federal or state court located within the State of New York
over any dispute arising out of or relating to this Agreement or any of the
transactions contemplated hereby and each party hereby irrevocably agrees that
all claims in respect of such dispute or any suit, action proceeding related
thereto may be heard and determined in such courts. The parties hereby
irrevocably waive, to the fullest extent permitted by applicable law, any
objection which they may now or hereafter have to the laying of venue of any
such dispute brought in such court or any defense of inconvenient forum for the
maintenance of such dispute. Each of the parties hereto agrees that a judgment
in any such dispute may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law.
(b) Each of the parties hereto hereby consents to process being served
by any party to this Agreement in any suit, action or proceeding by the mailing
of a copy thereof in accordance with the provisions of Section 8.8.
8.5 Entire Agreement; Amendments and Waivers. This Agreement (including the
schedules and exhibits hereto) represents the entire understanding and agreement
between the parties hereto with respect to the subject matter hereof and can be
amended, supplemented or changed, and any provision hereof can be waived, only
by written instrument making specific reference to this Agreement signed by the
party against whom enforcement of any such amendment, supplement, modification
or waiver is sought. No action taken pursuant to this Agreement, including
without limitation, any investigation by or on behalf of any party, shall be
deemed to constitute a waiver by the party taking such action of compliance with
any representation, warranty, covenant or agreement contained herein. The waiver
by any party hereto of a breach of any provision of this Agreement shall not
operate or be construed as a further or continuing waiver of such breach or as a
waiver of any other or subsequent breach. No failure on the part of any party to
exercise, and no delay in exercising, any right, power or remedy hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of such
right, power or remedy by such party preclude any other or further exercise
thereof or the exercise of any other right, power or remedy. All remedies
hereunder are cumulative and are not exclusive of any other remedies provided by
law.
8.6 Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York applicable to
agreements made and to be performed entirely within such State, without regard
to conflicts of law principles.
49
8.7 Table of Contents and Headings. The table of contents and section
headings of this Agreement are for reference purposes only and are to be given
no effect in the construction or interpretation of this Agreement.
8.8 Notices. All notices and other communications under this Agreement
shall be in writing and shall be deemed given when delivered personally or
mailed by certified mail, return receipt requested, to the parties (and shall
also be transmitted by facsimile to the Persons receiving copies thereof) at the
following addresses (or to such other address as a party may have specified by
notice given to the other party pursuant to this provision):
If to the Seller, to:
Numerex Corp.
Rose Tree Corporate Center II
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇. ▇▇▇▇ ▇. ▇▇▇▇
Chief Executive Officer
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
Blank Rome ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇
Four ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Buyer, to:
Detection Systems, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇
Attention: ▇▇. ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
President
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
Nixon, Hargrave, Devans & ▇▇▇▇▇ LLP
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇.▇. ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
50
8.9 Disclosure Schedules. Items required to be disclosed on Schedules
pursuant to Articles 3 and 4 shall be deemed to be disclosed therein for all
purposes of Articles 3 and 4 irrespective of whether they are disclosed with
reference to all of the subsections to which they relate; provided, however, no
item shall be deemed to be included on any specific Schedule with respect to a
particular subsection if its omission therefrom would make such specific
Schedule misleading if such item is not specifically identified on such
Schedule.
8.10 Severability of Provisions. If any provision or any portion of any
provision of this Agreement, or the application of any such provision or any
portion thereof to any person or circumstance, shall be held invalid or
unenforceable, the remaining portion of such provision and the remaining
provisions of this Agreement, and the application of such provision or portion
of such provision as is held invalid or unenforceable to persons or
circumstances other than those as to which it is held invalid or unenforceable,
shall not be affected thereby.
8.11 Binding Effect; Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective heirs, successors and
permitted assigns. Nothing in this Agreement shall create or be deemed to create
any third party beneficiary rights in any person or entity not a party to this
Agreement other than the Company. No assignment of this Agreement or of any
rights or obligations hereunder may be made by either the Seller or the Buyer
(by operation of law or otherwise) without the prior written consent of the
other party hereto and any attempted assignment without the required consent
shall be void; provided, however, that the Buyer may assign this Agreement and
any or all rights, but not its obligations, hereunder to any Affiliate of the
Buyer. Upon any such permitted assignment, the references in this Agreement to
the Buyer shall also apply to any such assignee unless the context otherwise
requires.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first written above.
DETECTION SYSTEMS, INC.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
---------------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, President
NUMEREX CORP.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇
---------------------------------------
▇▇▇▇ ▇. ▇▇▇▇, Chief Executive Officer
51
