Prepared by MERRILL CORPORATION www.edgaradvantage.com QuickLinks -- Click here to rapidly navigate through this document Exhibit 2.2 Final Version ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT (the "Agreement") is made as of this 10th day of...
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ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT (the "Agreement") is made as of this 10th day of March, 2000, by and among Amerimax Home Products, Inc., a Delaware corporation ("Purchaser"), Gutter World, Inc. ("GWI") and Global Expanded Metals, Inc. ("GEM"), each a Georgia corporation (collectively, the "Seller"), and all of the stockholders of GWI and GEM as set forth on the signature page of this Agreement (collectively, the "Stockholders").
W I T N E S S E T H: WHEREAS, Purchaser desires to purchase and Seller desires to sell substantially all of the assets of Seller relating to the conduct of Seller's distribution, expanded metal and fabrication business (collectively, the "Business"); and WHEREAS, the parties hereto desire to set forth certain representations, warranties and covenants made by each to the other as an inducement to the consummation of the transactions contemplated herein and certain additional agreements related thereto. NOW, THEREFORE, in consideration of the mutual representations, warranties and covenants herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:
ARTICLE I PURCHASE AND SALE OF PURCHASED ASSETS 1.1 Assets to Be Acquired. Except as set forth in Section 1.2 hereof, subject to the terms and conditions of this Agreement, Purchaser agrees to purchase from Seller, and Seller agrees to sell to Purchaser, as of the Closing (as hereinafter defined), good and marketable title in and to all of the tangible and intangible assets of Seller used or held for use by Seller in the conduct of the Business, free and clear of all claims, liens, encumbrances, security interests and similar interests of any kind or nature whatsoever (collectively, the "Purchased Assets"), including, without limitation, the following: (a) Fixed Assets. All of Seller's machinery, appliances, equipment, including computer hardware and software to the extent assignable, tools, supplies, leasehold improvements, construction in progress, and furniture and fixtures, used or held for use by Seller in connection with the Business, whether situated at the premises of Seller or the premises of third parties, including, without limitation, those items listed on Schedule 3.13 to be delivered by Seller ten (10) days prior to Closing (the "Fixed Assets"). (b) Contracts. All of Seller's right, title and interest under the Contracts (as defined in Section 3.16 below) listed on Schedule 3.16 attached hereto. (c) Accounts Receivable. All accounts receivable of Seller outstanding as of the Closing (collectively, "Accounts Receivable"). (d) Intellectual Property. All Intellectual Property (as defined in Section 3.17 below) of Seller relating to the Business including, without limitation, tradenames (including "Gutter World" and "Global Expanded Metals"), trademarks, service marks, website, website domain name, patents (including, without limitation, all divisionals, continuations, continuations-in-part, reexams, reissues, extensions and foreign counterparts of such patents) and inventions, customer lists, business records, goodwill and other intangible assets, including, without limitation, those listed on Schedule 3.17(a) attached hereto. (e) Licenses. All of Seller's licenses, consents, permits, variances, certifications and approvals of governmental agencies used or held for use in connection with the Business, to the extent assignable, to be listed on Schedule 3.7 to be delivered by Seller 10 days prior to Closing.
(f) Deposits. All prepaid expenses, security and other deposits, including, without limitation, those items to be listed on Schedule 3.10 to be delivered by Seller 10 days prior to Closing (collectively, the "Deposits"). (g) Cash. All cash, cash in bank or other financial institution accounts and cash equivalents (including without limitation, undeposited checks) of Seller and on hand at the Closing. (h) Inventory. All of Seller's inventory on hand at the Closing, excluding any and all product, tooling, equipment or inventory related to the Gutter Great product (collectively, the "Inventory"). (i) Books and Records. All of Seller's books, records (including, without limitation computer records), files and other materials relating to the Purchased Assets and the Business. (j) Personal Property. All supplies and other personal property of Seller related to the Purchased Assets and the Business. (k) Real Property Lease. All of Seller's interest in and rights as lessee under the real property lease by and between Seller and ▇▇▇▇▇▇▇▇▇ Holdings, Ltd. and Petula Associates, Ltd., dated October 30, 1997, as amended by First Amendment to Lease, dated September 2, 1998, constituting the "Additional Property Lease" referenced in Section 3.18 below. (l) Vehicles. All of the vehicles owned or leased by Seller and used in the Business, to be set forth on Schedule 1.1(l) to be delivered by Seller 10 days prior to Closing. 1.2 Excluded Assets. Purchased Assets shall not include airplanes, hangars and related aviation assets, bug and pest extermination assets, the Gutter Great assets, the Georgia Dome contract, the software developed by Seller for use by the Business, or any software businesses developed by Seller (such excluded assets constituting part of the businesses of Seller not related to the Business), as will be more particularly described on Schedule 1.2 to be delivered by Seller 10 days prior to Closing (collectively the "Excluded Business".) 1.3 Closing. The closing of the transactions contemplated herein (the "Closing") shall take place not later than five business days following expiration of the waiting period under the HSR Act (as defined below) at the offices of Purchaser's counsel or by the exchange of documents and instruments by mail, courier, telecopy or wire transfer to the extent mutually acceptable to the parties hereto or such other date as is mutually agreed upon by the parties hereto (such date to be herein referred to as the "Closing Date"). All computations, adjustments, and transfers for the purposes hereof shall be effective as 12:01 a.m. on the Closing Date.ARTICLE II PURCHASE PRICE; ASSUMPTION OF LIABILITIES 2.1 Purchase Price. Subject to the adjustments set forth herein and the other terms and conditions of this Agreement, the Purchase Price ("Purchase Price") for the Purchased Assets shall be determined in the manner set forth in subparagraphs (a) and (b) below. (a) Cash Payment at Closing. At the Closing, $43.0 million shall be paid by Purchaser to Seller in immediately available funds, subject to the following adjustments (the "Cash Payment at Closing"): (i) Capital Expenditures Adjustment. The Cash Payment at Closing shall be increased by the actual amount of all capital expenditures of Seller from December 1, 1999 through the Closing for capital assets that are part of the Purchased Assets, except that, after the date hereof, such capital expenditures shall be made only upon the mutual agreement of the parties hereto. (ii) Working Capital Adjustment. The Cash Payment at Closing shall be increased by the amount that Seller's "Working Capital" at Closing is more than $2.6 million and decreased by the amount that Seller's "Working Capital" at Closing is less than $2.3 million. As used herein, the term "Working Capital" means the sum of the current assets (to the extent the current assets of Seller are included in the Purchased
Assets (as defined in Section 1.1 above) minus the sum of the current liabilities of Seller (to the extent that the current liabilities of Seller are included in the Assumed Liabilities (as defined in Section 2.3 below) as determined in accordance with generally accepted accounting principles ("GAAP"), and in a manner consistent with Seller's prior year's practices. For purposes of determining the Working Capital, (i) the Accounts Receivable shall be that which arose in the ordinary course to creditworthy customers, and the inventory shall be that which is currently salable, and (ii) no accounting reserve will be made for the Accounts Receivable or the Inventory because none has been made in the Seller 1999 Audited Financial Statements (as defined in Section 3.8 below). Within 30 business days following the Closing, the Working Capital as of the Closing shall be reported by Seller to Purchaser. In the event Purchaser disagrees with Seller's determination of the Working Capital as of the Closing, then Purchaser shall notify Seller in writing within 10 business days after receipt of Seller's calculation of the Working Capital as of the Closing, setting forth in reasonable detail the basis for such dispute. If Purchaser does not provide such notice within such 10 business day period, then the determination of the Working Capital as of the Closing by Seller shall be final, binding and conclusive upon the parties hereto. If Purchaser does provide such notice, Purchaser and Seller shall attempt in good faith to reconcile their differences and any resolution by them as to any disputed amount shall be final, binding and conclusive upon each of the parties hereto. If Purchaser and Seller fail to reach a resolution within 10 business days after Seller's receipt of Purchaser's written notice of dispute, Purchaser and Seller shall submit the items remaining for resolution to Deloitte & Touche LLP or such other national accounting firm as may be agreed upon by Purchaser and Seller (the "Independent Accounting Firm"), which shall within 30 business days of submission resolve and report to Seller and Purchaser upon such remaining disputed items, and such report shall be final, binding and conclusive upon each of the parties hereto. Purchaser and Seller agree that the party which claims the greatest variance in Working Capital from that finally determined by the Independent Accounting Firm shall be responsible for the fees and disbursements of the Independent Accounting Firm in connection with the resolution of such dispute. Seller or Purchaser, as the case may be, shall pay the adjustment to the Working Capital within 5 business days following its determination by the parties or the Independent Accounting Firm. (b) Escrow Fund. At the Closing, Purchaser shall deliver $2,000,000 (the "Escrow Fund") into escrow pursuant to the Escrow Agreement among Purchaser, Seller, Stockholders' Representative (as defined below) and SunTrust Bank, N.A., as escrow agent (the "Escrow Agent") thereunder (the "Escrow Agreement"), substantially in the form attached hereto as Exhibit 2.1, and satisfactory to Escrow Agent and its counsel. The cost of the Escrow Agent shall be borne by Seller. The Escrow Fund shall be paid from escrow to Seller on February 15, 2001, or such earlier date, if any, as may be elected and directed by the joint written instruction of Purchaser and the Stockholders' Representative. Simultaneously with the payment of the Escrow Fund to Seller, all interest earned thereon shall be paid to Purchaser. 2.2 Intentionally omitted. 2.3 Assumed Liabilities. Purchaser agrees to assume from and after the Closing only the following liabilities and obligations of Seller relating to the Business (the "Assumed Liabilities"): (a) the rights and obligations of Seller arising from and after the Closing under the Contracts (as hereinafter defined); (b) the rights and obligations of Seller arising from and after the Closing under the Real Property Leases (as hereinafter defined); (c) Seller's normal, customary and current accounts payable due to Seller's unaffiliated trade creditors (the "Accounts Payable") incurred in the ordinary course of the business of Seller and outstanding as of the Closing (excluding bank debt and Stockholder distributions); provided, however, that Purchaser shall not assume any of the Seller Transaction Expenses, as defined and provided in Section 5.11 hereof;3
(d) the accrued vacation and sick pay (after giving effect to all compensation, benefits, FICA and similar costs attributable to such accrued vacation and sick pay) (the "Accrued Vacation") for those employees of Seller hired by Purchaser at the Closing; and (e) those additional current liabilities of Seller at Closing expressly set forth on Schedule 2.3(e) attached hereto (the "Additional Liabilities"). Except for the Assumed Liabilities, Purchaser shall not assume, nor shall it be liable for, any liability, debt, obligation, claim against or contract of Seller of any kind or nature whatsoever, at any time existing or asserted, whether or not accrued, whether fixed, contingent or otherwise, whether known or unknown, whether related to the Business or the Purchased Assets, and whether or not recorded on the books and records of Seller. On or before the Closing, Seller shall pay or make adequate provision for the payment of all of its liabilities on a timely basis (other than the Assumed Liabilities). 2.4 Allocation of Purchase Price Among Purchased Assets. Each payment of the Purchase Price shall be allocated between GWI and GEM in the manner set forth on Schedule 2.4 attached hereto. The Purchase Price shall be allocated for tax purposes among each item or class of Purchased Assets as mutually agreed by Purchaser and Seller and set forth on Schedule 2.4 attached hereto. Seller and Purchaser agree that they will prepare and file any notice or other filing required pursuant to Section 1060 of the Code, and that any such notices or filings will be prepared based upon such tax allocation of the Purchase Price. Purchaser agrees to send to Seller a completed copy of its Form 8594 ("Asset Acquisition Statement under Section 1060"), completed in accordance with Schedule 2.4, with respect to this transaction prior to filing such form with the Internal Revenue Service.ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER AND STOCKHOLDERS In order to induce the Purchaser to enter into this Agreement and consummate the transactions contemplated hereby, the Stockholders, GWI and GEM, jointly and severally, represent and warrant to Purchaser as follows, each of which representations and warranties is material to and relied upon by the Purchaser. 3.1 Organization and Authority of Seller. GWI and GEM are corporations duly organized, validly existing and in good standing under the laws of the State of Georgia. GWI and GEM are duly qualified as a foreign corporations in all jurisdictions in which the conduct of its business or the ownership of its properties requires such qualification and Schedule 3.1 attached hereto lists all the states where GWI and GEM are so qualified. GWI and GEM have all necessary corporate power and authority to own, lease and operate its properties and conduct its business as it is currently being conducted. GWI and GEM do not own, directly or indirectly, any equity interest in any corporation, partnership, joint venture, or other entity. 3.2 Corporate Power and Authority; Due Authorization. GWI and GEM each has full corporate power and authority, and each Stockholder has full power and authority, to execute and deliver this Agreement and each of the Seller's Transaction Documents (as defined in Section 7.4 hereof) to which GWI and GEM or any of the Stockholders is or will be a party and to consummate the transactions contemplated hereby. Prior to the Closing, the directors and the Stockholders of GWI and GEM shall have duly approved and authorized the execution and delivery of this Agreement and each of the Transaction Documents to which GWI or GEM is or will be a party and the consummation of the transactions contemplated hereby and thereby, and no other corporate proceedings shall then be necessary for such purposes. Assuming that this Agreement and each of Seller's Transaction Documents which are also Purchaser's Transaction Documents (as defined in Section 8.4 below) constitutes a valid and binding agreement of the Purchaser, this Agreement and each of Seller's Transaction Documents constitutes, or will constitute when executed and delivered, a valid and binding agreement of GWI or GEM and/or the Stockholders, as the case may be, in each case enforceable in accordance with its terms, subject to laws of general application affecting
creditors' rights and subject to general equitable principles. The duly elected directors and officers of GWI and GEM are set forth on Schedule 3.2 attached hereto. 3.3 Title to Assets. At the Closing, GWI and GEM will each deliver to Purchaser good and marketable title to their respective Purchased Assets, free and clear of any mortgages, liens, pledges, security interests, encumbrances, claims or similar rights of every kind and nature. 3.4 No Conflict; Required Consents. Assuming all consents, approvals, authorizations and other actions on Schedule 3.4 attached hereto have been obtained or taken prior to Closing, the execution and delivery by Seller and the Stockholders of this Agreement and the Seller's Transaction Documents, and the consummation by Seller and each of the Stockholders of the transactions contemplated hereby and thereby do not and will not (a) require the consent, approval or action of, or any filing with or notice to, any corporation, firm, person or other entity or any public, governmental or judicial authority; (b) violate the terms of any instrument, document or agreement to which Seller or any of the Stockholders is a party, or by which Seller or any of the Stockholders or the property of Seller or any of the Stockholders is bound, or be in conflict with, result in a breach of or constitute (upon the giving of notice or lapse of time or both) a default under any such instrument, document or agreement, or result in the creation of any lien upon any of the property or assets of Seller or any of the Stockholders; (c) violate Seller's Articles of Incorporation or Bylaws; or (d) violate any order, writ, injunction, decree, judgment, ruling, law, rule or regulation of any federal, state, county, municipal, or foreign court or governmental authority applicable to Seller or any of the Stockholders, or the Business or assets of Seller. Neither Seller nor any of the Stockholders is subject to, or is a party to, any mortgage, lien, lease, agreement, contract, instrument, order, judgment or decree or any other restriction of any kind or character which would prevent or hinder the continued operation of the Business of Seller after the Closing on substantially the same basis as theretofore operated. 3.5 Capitalization of Seller. Schedule 3.5 attached hereto is a true, correct and complete list of the authorized capital stock, par value per share, number of issued and outstanding shares of capital stock and number of treasury shares for GWI and GEM. All outstanding shares of capital stock have been duly authorized, and are validly issued, fully paid and nonassessable and are owned of record and beneficially solely by the persons and in the amounts set forth on Schedule 3.5. No one other than the Stockholders has any beneficial or record interest in the capital stock of Seller. Each Stockholder represents and warrants that he is the lawful owner of, and has good and marketable title to, the number of shares of outstanding capital stock as shown on Schedule 3.5 as being owned by him, free and clear of any mortgage, pledge, claim, lien, charge, encumbrance or other right in any third party (including any right to purchase, vote or direct the voting of, any shares thereof). Seller has not issued any convertible securities, options, warrants, or entered into any contracts, commitments, agreements, understandings, arrangements or restrictions by which it is bound to issue any additional shares of its capital stock or other securities. 3.6 Compliance with Laws. Except as disclosed on Schedule 3.6 attached, Seller is not in violation of, and has not violated, any applicable Federal, state, local or foreign or other law, regulation or order or any other requirement of any governmental, regulatory or administrative agency or authority or court or other tribunal (collectively, "Governmental Authority") relating to Seller or the Purchased Assets (including, but not limited to, any law, regulation, order or requirement relating to state or local sales and use taxes, securities, properties, business, products, manufacturing processes, advertising, sales or employment practices, state or Federal franchise or business opportunity laws, terms and conditions of employment, wages and hours, safety, occupational safety, health or welfare conditions relating to premises occupied, environmental protection, product safety and liability or civil rights); and Seller is not now charged with, and to the knowledge of Seller and the Stockholders, Seller is not now under investigation with respect to any possible violation of any applicable law, regulation, order or requirement relating to any of the foregoing in connection with Seller or the Purchased Assets, and Seller has filed all reports required to be filed with any Governmental Authority.5
3.7 Licenses and Permits. Seller holds and is in compliance with all licenses and permits, to be listed on Schedule 3.7 to be delivered by Seller 10 days prior to Closing, and such list shall contain all of the licenses, permits, approvals and authorizations necessary or required for the use or ownership of Seller's assets and the operation of Seller's Business (collectively, the "Licenses and Permits"). Neither Seller nor any of the Stockholders has received written notice of, nor do they have any knowledge of, any violations in respect of any such licenses, permits, approvals or authorizations. No proceeding is pending or, to the knowledge of Seller or any of the Stockholders, is threatened, which seeks revocation or limitation of any such licenses, permits, concessions, grants, franchises, approvals or authorizations. 3.8 Financial Information. (a) The independent certified public accountant designated by Seller has completed and delivered to GWI, GEM and Purchaser (i) the audited balance sheets of GWI and GEM at December 31, 1999 (collectively, the "Seller 1999 Audited Balance Sheets"), and (ii) the related audited income statements and related financial information for such 12-month period then ended (collectively, the "Seller 1999 Audited Income Statements") each containing an unqualified report of such independent certified public accountant (the Seller 1999 Audited Balance Sheets and the Seller 1999 Audited Income Statements are hereinafter collectively referred to as the "Seller 1999 Audited Financial Statements"). Purchaser's independent accountants may review such audit at the sole expense of Purchaser. The Seller 1999 Audited Financial Statements have been prepared in accordance with generally accepted accounting principles consistently applied. The Seller 1999 Audited Financial Statements, together with adjustments to exclude operating results, assets and liabilities of the Excluded Business (as defined in Section 1.2), shall be attached to this Agreement as Schedule 3.8. Seller and the Stockholders represent and warrant that the Seller 1999 Audited Balance Sheets fairly present the condition of Seller relating to the Business as of December 31, 1999, and the Seller 1999 Audited Income Statements fairly present the results of the operations of the Business of Seller for the period then ended. Seller and Stockholders represent and warrant that the Seller 1999 Audited Financial Statements do not contain any untrue statements of material fact or omit to state any material fact necessary in order to make the statements contained in this paragraph or the documents referenced in this paragraph not misleading. The Seller's 1999 Audited Income Statements and the Unaudited Financial Statements do not contain any items of special or non-recurring income, except as specifically identified therein. (b) Neither GWI nor GEM is, nor has either been during the year immediately preceding the execution of this Agreement, insolvent within the meaning of 11 U.S.C. §101(31). GWI and GEM are each paying their debts in all material respects as they become due unless such debts are subject to a bona fide dispute. (c) The 1999 EBITDA is not less than $7.1 million. "1999 EBITDA" means the operating earnings of the Business before interest, taxes, depreciation, amortization and other non-operating income, gains, losses and expenses during the fiscal year ended December 31, 1999, as adjusted in the manner set forth on Schedule 3.8(c) attached hereto. 3.9 Sufficiency of Assets. The Purchased Assets constitute all of the material assets and rights of any nature with which Seller has conducted the Business for the twelve month period prior to the Closing Date, subject only to additions and deletions in the ordinary course of business. The Purchased Assets are held solely by, and all agreements, obligations, expenses and transactions related to Seller's Business have been entered into, incurred and conducted solely by, Seller. The Purchased Assets are in good operating condition and repair, ordinary wear and tear excepted. 3.10 Deposits. Not less than 10 days prior to the Closing, Seller will deliver to Purchaser as Schedule 3.10 a true, correct and complete list of all Deposits of Seller, setting forth the amount of each Deposit. 3.11 Accounts Payable. Seller has delivered to Purchaser a true, correct and complete list of Seller's Accounts Payable as of February 16, 2000. The Accounts Payable schedule will be updated through the Closing and the Closing Date and delivered to Purchaser at the Closing Date. None of the Accounts6
Payable is overdue. All of the Accounts Payable are normal, customary and current Accounts Payable and were incurred in the ordinary course of Business of Seller. 3.12 Tax Returns and Payments. Seller has correctly and timely filed all Tax Returns (as defined in Section 5.10 below) required by law to be filed on or before the date of this Agreement and shall correctly and timely file all Tax Returns required by law to be filed on or prior to the Closing Date. All such Tax Returns are true, correct and complete in all respects to the best of Seller's knowledge and belief, and all amounts shown as owing thereon have been paid. No penalties, interest or other charges are or will be due with respect to the late filing of any such Tax Returns. Seller has made all estimated Tax (as defined in Section 5.10 below) payments required to be made under the Code. Taxes for all Tax periods (or portions thereof) ending prior to or on the Closing Date have been, or prior to the Closing shall be, fully paid. Neither Seller nor any of the Stockholders has received a claim of Taxes due or notice of any such claims from any Tax Authority (as defined in Section 5.10 below) with respect to Seller. There are no pending or, to Seller's or Stockholders' knowledge, threatened audits, investigations or claims by any Tax Authority for or relating to any liability in respect of Taxes. No state, federal or local tax liens exist with respect to Seller or any of the Stockholders or any of Seller's assets, other than liens, if any, for taxes not yet due and payable. Neither Seller nor any of the Stockholders has entered into any agreements or waivers extending the time for the assessment of any Tax that remain in effect. Prior to the execution of this Agreement, Seller has provided to Purchaser true, correct and complete copies of Seller's federal and state income tax returns for 1996, 1997 and 1998, which returns were properly signed by Seller and timely filed with the Internal Revenue Service and appropriate state tax authorities, if any. 3.13 Fixed Assets. The Fixed Assets include all of the furniture, fixtures, equipment and vehicles owned and used by Seller in the operation of its Business. Except as shall be specifically set forth on Schedule 3.13 to be delivered by Seller ten (10) days prior to Closing, each of the Fixed Assets is in good operating condition and repair, normal wear and tear excepted. A true, correct and complete list of the Fixed Assets and the location thereof will be set forth on Schedule 3.13 to be delivered by Seller ten (10) days prior to Closing. 3.14 Accounts Receivable. Seller has delivered to Purchaser a true, correct and complete list of all Accounts Receivable of Seller as of February 16, 2000 showing the aging and time period for collection thereof, and all such Accounts Receivable listed thereon are bona fide, arose in the ordinary course of business, and are not subject to any disputes or offsets, except as noted in Schedule 3.14 attached hereto. The Accounts Receivable schedule will be updated through the Closing Date and delivered to Purchaser on the Closing Date. All such Accounts Receivable are current and shall be collected in accordance with their terms within 90 days after the Closing Date, at their recorded amounts. 3.15 Bank Accounts. Five days prior to Closing, Seller shall provide Schedule 3.15 which shall contain a true, complete and correct list showing the name and location of each bank or other institution in which Seller has any deposit account, together with a listing of account numbers and names of all persons authorized to draw thereon or have access thereto. 3.16 Contracts. Schedule 3.16 sets forth a true and complete list of all written or oral contracts, customer contracts, vendor and other agreements to which Seller is a party relating to the Business, except for the Existing Real Property Leases (defined in Section 3.18 below) and any contract, agreement or understanding involving an aggregate annual expenditure of less than $5,000 and which is terminable at will or within 30 days (collectively, the "Contracts"). Prior to execution of this Agreement, Seller and the Stockholders have provided to Purchaser true, correct and complete copies of the Contracts, including any and all amendments and waivers thereto. Such Contracts are valid, legally binding and enforceable against the parties thereto subject to laws of general application in effect affecting creditors' rights and subject to the exercise of judicial discretion in accordance with general equitable principles. Neither Seller nor, to the knowledge of Seller and the Stockholders, any other party to any of the Contracts, is in breach of, or in default under, any of the Contracts, and no event has occurred which, with the giving of notice or lapse of7
time, or both, would constitute a default by Seller or, to the knowledge of Seller and the Stockholders, any other party to any of the Contracts. Except as specifically set forth on Schedule 3.16 attached hereto, the assignment of any of the Contracts to the Purchaser in accordance with this Agreement will not constitute a breach or violation of such Contract. None of the Contracts requires Seller to sell goods or provide services which Seller knows or has reason to believe are at prices which would result in a negative incremental gross margin on such sale or provision of said goods or services, or which provide terms or conditions which Seller cannot reasonably expect to satisfy or fulfill in their entirety in the ordinary course of business consistent with past practices. 3.17 Intellectual Property. (a) Schedule 3.17(a) attached hereto shall list the corporate name, all tradenames, trademarks, service marks, copyrights, website, website domain name, patents, patent applications, patent rights (including, without limitation, patent licenses), software licenses, customer lists and intangible assets used by Seller in the operation of its Business, or to which Seller is otherwise a party (collectively, "Intellectual Property") and Seller owns and/or has the sole and exclusive right to use all of the Intellectual Property. Upon the consummation of the transactions contemplated hereby and compliance with applicable laws as to the assignment of such Intellectual Property, the Purchaser will have the sole and exclusive right to own and use the Intellectual Property. No claims have been asserted and no claims are pending nor, to Seller's or the Stockholders' knowledge, threatened by any person or entity, as to the use of any such Intellectual Property or challenging or questioning the validity or effectiveness of any state or federal registration of the Intellectual Property. Seller's use of the Intellectual Property, and the Purchaser's continued use of the Intellectual Property following the Closing in the same manner as heretofore used by Seller, does not and will not infringe on the rights of any person or entity. (b) Except as set forth on Schedule 3.17(b) to be delivered 10 days prior to Closing, Seller has tested all software, hardware and other devices containing or utilizing electronic components used in the performance of the business obligations and operations of Seller (collectively, the "Hardware and Software"), and the Hardware and Software perform satisfactorily in the operation of the Business. Except as shall be noted on Schedule 3.17(b), all of the Hardware and Software has functioned and shall function normally before, during and after the change from year 1999 to the year 2000. Seller shall set forth on Schedule 3.17(b) a list of all correspondences, notices, agreements and documents received by Seller from, or sent by Seller to, any suppliers or customers of Seller with respect to matters relating to the testing, use or performance of the Hardware and Software or other devices containing or utilizing electronic components and the function of such Hardware and Software, components and devices for, during or after the change from year 1999 to the year 2000. 3.18 Real Property Lease. (a) Except for Purchaser's leasehold with respect to the property situated at ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ (the "Main Plant Property") and the property situated at 4420-A, 4420-B and ▇▇▇▇-▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ (the "Additional Property") (the Main Plant Property and the Additional Property collectively herein the "Leased Property"), Seller holds no interest in real property (including, but not limited to any interest as a fee owner or any interest as lessor, lessee, sublessor, sublessee, assignor, assignee or guarantor or other surety). (b) The Main Plant Property is presently leased by Seller under a lease agreement dated April 16, 1998 between Seller as tenant and Auto Parts Wholesale, Inc. as landlord (the "Existing Main Plant Lease"). On or before the Closing, Seller and the landlord will terminate the Existing Main Plant Lease to permit Purchaser to enter into a new lease for the Main Plant Property at the Closing in accordance with Section 7.10 below. (c) The Additional Property is presently leased by Seller under a lease agreement by and between Seller and ▇▇▇▇▇▇▇▇▇ Holdings, Ltd. and Petula Associates, Ltd., dated October 30, 1997, as amended by First8
Amendment to Lease, dated September 2, 1998 (the "Additional Property Lease"). The Additional Property Lease shall be transferred and assigned by Seller to Purchaser at the Closing. Prior to such assignment, Seller agrees to use its best efforts to amend the Additional Property Lease to (i) include an option by tenant to extend the lease for two three year periods and (ii) expand the permitted use section of the lease to include light fabrication and packaging activities. Seller has delivered to Purchaser true and complete copies of the lease for the Additional Property Lease (the "Additional Property Lease"), including any and all amendments and waivers thereto. The Additional Property Lease constitutes the valid and binding agreement of the parties thereto enforceable against the parties thereto subject to laws of general application in effect affecting creditors' rights and subject to general equitable principles. (d) Except as disclosed on Schedule 3.18 attached, to the knowledge of Seller or the Stockholders, there is no development, occurrence or condition affecting the Leased Property that has occurred or is pending or that might restrict in any respect the present or future use of the Leased Property for the purpose for which it is used. Except as disclosed on Schedule 3.18 attached, neither Seller nor, to the knowledge of Seller or the Stockholders, any other party to the Additional Property Lease has breached any provision of, or is in default in any respect under, the terms of such leases, nor does there exist any event which, with notice or the lapse of time or both, would constitute a breach or cause a default under the terms of any such leases. (e) No Governmental Authority having jurisdiction over the Leased Property has provided any written or oral communication or notice or order to Seller or the Stockholders (or, to the knowledge of Seller and the Stockholders, to the landlord for the Leased Property) that adversely affects the operation of the Leased Property as presently conducted. Without limiting the foregoing, no state, county or municipal department or division has provided any written or oral communication or notice or order to Seller or the Stockholders that adversely affects the operation of the Leased Property as presently conducted. (f) To the knowledge of Seller or the Stockholders, there are no condemnation or eminent domain proceedings pending, threatened or contemplated against the Leased Property or any part of the Leased Property, and neither Seller nor any Stockholder has received any written or oral communication or notice of the desire of any Governmental Authority or other entity to take or use the Leased Property or any part of the Leased Property. 3.19 Litigation; Judgments. Except as set forth on Schedule 3.19 attached hereto, there is no action, proceeding or investigation pending or, to Seller's or any Stockholder' knowledge, threatened against or involving Seller or any of the Stockholders relating to the Purchased Assets or the Business, nor is there any action or proceeding pending or, to the knowledge of Seller or any of the Stockholders, threatened before any court, tribunal or governmental body seeking to restrain or prohibit or to obtain damages or other relief in connection with the consummation of the transactions contemplated by this Agreement, or which might adversely affect the Business or the Purchased Assets, or Seller's or the Stockholders' ability to consummate the transactions contemplated by this Agreement and the Seller's Transaction Documents to which Seller or any Stockholder is a party. Neither Seller nor any of the Stockholders is subject to any judgment, order or decree, or entered in or become subject to any lawsuit or proceeding relating to the Purchased Assets or the operation of the Business, except as set forth in Schedule 3.19. 3.20 Insurance. Seller maintains property, fire, casualty, worker's compensation, general liability insurance and other forms of insurance relating to its assets and the operation of its Business against risks of the kind insured against and in amounts insured (and, where appropriate, in amounts not less than the replacement cost of the Purchased Assets) each of which policies is written on an occurrence basis. Seller shall maintain such insurance policies in full force and effect through the Closing Date, except that Seller agrees to maintain workers' compensation insurance relating to its Business through Closing and such policy shall cover incurred but not reported occurrences which occur on or before the Closing Date. At Closing, Seller shall deliver Schedule 3.20 which shall list all of the insurance policies maintained by Seller,9
which schedule includes the name of the insurance provider, the policy number, a description of the type of insurance covered by such policy, the dollar limit of the policy, and the annual premiums for such policy. 3.21 Benefit Plans and ERISA. (a) Schedule 3.21 attached hereto sets forth a true and complete list of each "employee benefit plan" (as defined by Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")), and any other bonus, profit sharing, pension, compensation, deferred compensation, stock option, stock purchase, fringe benefit, severance, post-retirement, scholarship, disability, sick leave, vacation, individual employment, commission, bonus, payroll practice, retention, or other plan, agreement, policy, trust fund or arrangement (each such plan, agreement, policy, trust fund or arrangement is referred to herein as an "Employee Benefit Plan", and collectively, the "Employee Benefit Plans") that is currently in effect, was maintained since December 31, 1992 or which has been approved before the date hereof but is not yet effective, for the benefit of (i) directors or employees of Seller working in the Business or any other persons performing services for Seller in the Business, (ii) former directors or employees of Seller working in the Business or any other persons formerly performing services for Seller in the Business, and/or (iii) beneficiaries of anyone described in (i) or (ii) (collectively, "Business Employees") or with respect to which Seller or any "ERISA Affiliate" (hereby defined to include any trade or business, whether or not incorporated, other than Seller, which has employees who are or have been at any date of determination occurring within the preceding six (6) years, treated pursuant to Section 4001(a)(14) of ERISA and/or Section 414 of the Code as employees of a single employer which includes Seller) has or has had any obligation on behalf of any Business Employee. Except as disclosed on Schedule 3.21 attached hereto, there are no other benefits to which any Business Employee is entitled. (b) Except as set forth in Schedule 3.21, each Employee Benefit Plan is in compliance with the provisions of ERISA and the provisions of the Internal Revenue Code of 1986, as amended (the "Code"), applicable to it. Except as set forth in Schedule 3.21, Seller has not maintained or contributed to any plan subject to the minimum funding standards of Section 302 of ERISA or Section 412 of the Code during its last six (6) fiscal years, and each plan maintained by an ERISA Affiliate which is subject to Title IV of ERISA or Section 412 of the Code is fully accrued and funded in compliance with ERISA and the Code as of the Closing Date, and if any such plan or plans were terminated as of the Closing Date, the termination would satisfy the minimum funding requirements of ERISA and the Code. All Employee Benefit Plans which are "pension plans" as defined in Section 3(2) of ERISA have received favorable determination letters from the Internal Revenue Service as to their tax-qualified status and the tax-exempt status of any related trust under Sections 401(a) and 501 of the Code, respectively, which determinations are currently in effect. (c) Purchaser shall not, as a result of the transactions contemplated by this Agreement (or any employment by Purchaser of Business Employees): (i) become liable for any contribution, tax, lien, penalty, cost, interest, claim, loss, action, suit, damage, cost assessment or other similar type of liability or expense of Seller or any ERISA Affiliate (including predecessors thereof) with regard to any Employee Benefit Plan or any Employee Benefit Plan sponsored, maintained or contributed to by an ERISA Affiliate (including predecessors thereof) (assuming a like definition of "Employee Benefit Plan" were applicable to ERISA Affiliates as to those same types of agreements, policies, trusts, funds and arrangements sponsored, maintained or contributed to by them) (each such plan for an ERISA Affiliate, an "ERISA Affiliate Employee Benefit Plan"), including, without limitation withdrawal liability arising under Title IV, Subtitle E, Part 1 of ERISA, liabilities to the PBGC, or liabilities under Section 412 of the Code or Section 302(a)(2) of ERISA, or (ii) be or become a party to any Employee Benefit Plan or any ERISA Affiliate Employee Benefit Plan. (d) Seller, each ERISA Affiliate, each Employee Benefit Plan and each Employee Benefit Plan "sponsor" or "administrator" (within the meaning of Section 3(16) of ERISA) has complied in all respects with the applicable requirements of Part 6 of Subtitle B of Title I of ERISA and Section 4980B of the Code (such statutory provisions and predecessors thereof are referred to herein collectively as "COBRA").10
Schedule 3.21 attached hereto lists the name of each Business Employee who has experienced a "Qualifying Event" (as defined in COBRA) with respect to an Employee Benefit Plan and who is thereby eligible for "Continuation Coverage" (as defined in COBRA) and whose maximum period for Continuation Coverage has not expired. Included in such list are the current address for each such individual, the date and type of each Qualifying Event, whether the individual has already elected Continuation Coverage and, for any individual who has not yet elected Continuation Coverage, the date on which such individual was notified of his or her rights to elect Continuation Coverage. Schedule 3.21 attached hereto also lists the name of each Business Employee who is on a leave of absence (whether or not pursuant to the Family and Medical Leave Act of 1993, as amended ("FMLA") and is receiving or entitled to receive health coverage under an Employee Benefit Plan, whether pursuant to FMLA, COBRA or otherwise. Neither Seller nor any ERISA Affiliate shall maintain any Employee Benefit Plan following the Closing which provides group health coverage to Business Employees or other employees, except for Excluded Business Employees. (e) The consummation of the transactions contemplated by this Agreement will not give rise to any liability of Purchaser for any employee benefits, including, without limitation, liability for severance pay, unemployment compensation, termination pay or withdrawal liability, or accelerate the time of payment or vesting or increase the amount of compensation or benefits due from Purchaser to any Business Employee. (f) From December 31, 1998 and through the date hereof, except as set forth on Schedule 3.21, other than compensation increases in the ordinary course of business that were less than 25 percent of such Business Employee's total compensation, neither Seller nor any ERISA Affiliate has, nor from the date hereof to the Closing will it have, (i) instituted or agreed to institute any new employee benefit plan or practice, (ii) made or agreed to make any change in any Employee Benefit Plan, (iii) made or agreed to make any increase in the compensation payable or to become payable by Seller or any ERISA Affiliate to any Business Employee, or (iv) except pursuant to this Agreement and except for contributions required to provide benefits pursuant to the provisions of the Employee Benefit Plans, paid or accrued or agreed to pay or accrue any bonus, percentage of compensation, or other like benefit to, or for the credit of, any Business Employee. (g) Attached hereto as a part of Schedule 3.21(g) is a true, correct and complete list by employee of the number of days and amount of Accrued Vacation for each employee of Seller as of February 15, 2000. Seller shall update the Accrued Vacation List through the Closing Date and deliver a copy of the same to Purchaser at the Closing. 3.22 Immigration Matters. (a) With respect to all current employees (as defined in Section 274a.1(g) of Title 8, Code of Federal Regulations) of Seller, a true and complete list, true and complete copies of all Forms I-9 (Employment Eligibility Verification Forms) completed pursuant to the Immigration Reform and Control Act of 1986, as amended, and all regulations promulgated thereunder ("IRCA"), and any and all copies of documentation, records or other papers retained with Forms I-9 have been delivered to Purchaser. Seller has complied with IRCA with respect to the completion of Forms I-9 for all employees and the reverification of the employment status of any and all employees whose employment authorization documents indicated a limited period of employment authorization. (b) With respect to all former employees who left Seller's employment within three (3) years prior to Closing, Seller has complied with IRCA with respect to the maintenance of Forms I-9 for at least three years or for one year beyond the date of termination, whichever is later. True and complete copies of all Forms I-9 maintained for former employees pursuant to IRCA, and any and all copies of documentation, records or other papers retained with Forms I-9, have been delivered to Purchaser. (c) Schedule 3.22 attached hereto contains a true and complete list of all employees of Seller working under INS authorization in E, F, H, J, L, M, O, P, or TN Visa Status together with a listing of each such employee's visa status and visa expiration date. Purchaser maintains current files containing all Labor11
Condition Application (LCA) related public and non-public access documentation which it must present upon request by the U.S. Department of Labor or the general public, including but not limited to all documentation noted in 20 CFR § 655.760. (d) Seller has had no immigration violations and has only employed individuals authorized to work in the United States. Seller has never been the subject of any inspection or investigation relating to its compliance with or violation of IRCA, nor has it been warned, fined or otherwise penalized by reason of any failure to comply with IRCA, nor is such proceeding pending or threatened. (e) The consummation of the transactions contemplated by this Agreement will not give rise to any liability for the failure to properly complete, maintain and update Forms I-9, or give rise to any liability for the employment of individuals not authorized to work in the United States, or cause any current employee of Seller hired by Purchaser to become unauthorized to work in the United States. 3.23 Broker's Fees. Neither Seller nor any of the Stockholders has retained or utilized the services of any broker, finder or intermediary, or paid or agreed to pay any fee or commission to any other person or entity for or on account of the transactions contemplated hereby, or had any communications with any person or entity with respect thereto, which would obligate the Purchaser to pay any such fees or commissions. 3.24 Absence of Material Changes. (a) Since January 1, 1999, there has not been any material adverse change in the condition (financial or otherwise) of the Business or the liabilities, assets, operations, results of operations, prospects or conditions (financial or otherwise) of Seller. (b) Except as will be disclosed on Schedule 3.24 to be delivered by Seller 10 days prior to the Closing, since January 1, 1999, Seller has operated its business in the ordinary course consistent with past practice, and, except in the ordinary course consistent with past practice or as disclosed on Schedule 3.24 Seller has not: (i) permitted or allowed any of its assets to be (1) mortgaged, pledged or subjected to any encumbrance, other than immaterial encumbrances incurred in the ordinary course of business consistent with past practice, (2) distributed to the Stockholders or (3) transferred or sold to any parties, other than the sale of Inventory in the ordinary course of business; (ii) written down, or failed to write down, or written up the value of any of its inventory or assets, other than in the ordinary course of business consistent with past practice; (iii) amended, terminated, cancelled or compromised any claims or waived any other rights, or sold, transferred or otherwise disposed of any properties or assets, real, personal or mixed (including, without limitation, leasehold interests and intangible property), other than the sale of inventory in the ordinary course of business; (iv) disposed of or permitted to lapse any patent, trademark, assumed name, service ▇▇▇▇, trade name or copyright application, registration or license to its business, or under which Seller has any right or license;