EX-2.2 3 smimergeragreement.txt SMI MERGER AGREEMENT AGREEMENT AND PLAN OF MERGER AMONG RESMED INC. SERVO MAGNETICS ACQUISITION, INC. SERVO MAGNETICS INCORPORATED AND LESLIE HOFFMAN MAY 14, 2002
TABLE OF CONTENTS ------------------- 1. DEFINITIONS 1 2. THE MERGER 6 (A) THE MERGER 6 (B) THE CLOSING 6 (C) EFFECTIVE TIME 6 (D) EFFECTS OF THE MERGER 7 (E) CERTIFICATE OF INCORPORATION 7 (F) BYLAWS 7 (G) OFFICERS AND DIRECTORS OF SURVIVING CORPORATION 7 (H) DELIVERIES OF HOFFMAN AND TARGET AT CLOSING 7 (I) DELIVERIES OF PARENT AND MERGER SUB AT CLOSING 8 3. EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS 8 (A) CAPITAL STOCK OF MERGER SUB 8 (B) CONVERSION OF TARGET SHARES 8 (C) CANCELLATION OF TREASURY STOCK AND PARENT-OWNED STOCK 8 (D) CONVEYANCE OF CONSIDERATION TO HOFFMAN 8 4. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION 9 (A) REPRESENTATIONS AND WARRANTIES OF HOFFMAN 9 (B) REPRESENTATIONS AND WARRANTIES OF THE PARENT AND MERGER SUB 11 5. REPRESENTATIONS AND WARRANTIES CONCERNING THE TARGET 14 (A) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER 15 (B) CAPITALIZATION 15 (C) AUTHORIZATION OF TRANSACTION 15 (D) NONCONTRAVENTION. 16 (E) APPROVALS 16 (F) BROKERS' FEES 16 (G) TITLE TO ASSETS . 16 (H) SUBSIDIARIES 16 (I) FINANCIAL STATEMENTS 16 (J) EVENTS SUBSEQUENT TO MOST RECENT FISCAL YEAR END 17 (K) UNDISCLOSED LIABILITIES 19 (L) LEGAL COMPLIANCE. 19 (M) TAX MATTERS 19 (N) REAL PROPERTY 22 (O) INTELLECTUAL PROPERTY 23 (P) TANGIBLE ASSETS . 26 (Q) INVENTORY 26 (R) CONTRACTS 26 (S) NOTES AND ACCOUNTS RECEIVABLE 27 (T) POWERS OF ATTORNEY 27 (U) INSURANCE 27 (V) LITIGATION 28 (W) PRODUCT WARRANTY. 28 (X) PRODUCT LIABILITY 29 (Y) EMPLOYEES 29 (Z) EMPLOYEE BENEFITS 29 (AA) GUARANTIES 31 (BB) ENVIRONMENTAL MATTERS 31 (CC) CERTAIN BUSINESS RELATIONSHIPS WITH THE TARGET 32 (DD) DISCLOSURE 32 6. POST-CLOSING COVENANTS 32 (A) GENERAL 32 (B) LITIGATION SUPPORT 33 (C) TRANSITION 33 (D) CONFIDENTIALITY . 33 (E) COVENANT NOT TO COMPETE 34 (F) NON-SOLICITATION. 34 (G) SHARE CERTIFICATES 34 (H) NEW YORK STOCK EXCHANGE LISTING 35 (I) FINANCIAL STATEMENTS 35 7. REMEDIES FOR BREACHES OF THIS AGREEMENT 35 (A) SURVIVAL OF REPRESENTATIONS AND WARRANTIES 35 (B) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE PARENT 35 (C) INDEMNIFICATION PROVISIONS FOR BENEFIT OF HOFFMAN 36 (D) MATTERS INVOLVING THIRD PARTIES 36 (E) DETERMINATION OF ADVERSE CONSEQUENCES 38 (F) LIMITATIONS ON INDEMNIFICATION 38 (G) OTHER INDEMNIFICATION PROVISIONS 39 8. TAX MATTERS 39 (A) TAX PERIODS ENDING ON OR BEFORE THE CLOSING DATE 39 (B) STRADDLE PERIODS. 40 (C) COOPERATION ON TAX MATTERS 40 (D) CERTAIN TAXES 41 (E) CHARACTERIZATION OF PAYMENTS 41 (F) S CORPORATION STATUS 41 9. REORGANIZATION MATTERS 41 (A) INTENDED TREATMENT 41 (B) REPORTING 41 10. MISCELLANEOUS 41 (A) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS 41 (B) NO THIRD-PARTY BENEFICIARIES 42 (C) ENTIRE AGREEMENT. 42 (D) SUCCESSION AND ASSIGNMENT 42 (E) COUNTERPARTS 42 (F) HEADINGS 42 (G) NOTICES 42 (H) GOVERNING LAW 43 (I) AMENDMENTS AND WAIVERS 43 (J) SEVERABILITY 43 (K) EXPENSES 44 (L) CONSTRUCTION 44 (M) INCORPORATION OF EXHIBITS AND SCHEDULES 44 (N) SPECIFIC PERFORMANCE 44 (O) SUBMISSION TO JURISDICTION 44 (P) ALTERNATIVE DISPUTE RESOLUTION 45
EXHIBIT A - FORM OF CERTIFICATE OF INCORPORATION EXHIBIT B - FINANCIAL STATEMENTS EXHIBIT C - FORM OF REGISTRATION RIGHTS AGREEMENT EXHIBIT D - MATTERS TO BE COVERED BY OPINION OF COUNSEL TO HOFFMAN AND TARGET EXHIBIT E - FORM OF EMPLOYMENT AGREEMENT EXHIBIT F - FORM OF ASSIGNMENT OF INVENTIONS SCHEDULE 2(G) - OFFICERS OF SURVIVING CORPORATION SCHEDULE 2(H) - MANDATORY CONSENTS HOFFMAN DISCLOSURE SCHEDULE - EXCEPTIONS TO HOFFMAN' REPRESENTATIONS AND WARRANTIES TARGET DISCLOSURE SCHEDULE - EXCEPTIONS TO REPRESENTATIONS AND WARRANTIES CONCERNING THE TARGET AGREEMENT AND PLAN OF MERGER ---------------------------- THIS AGREEMENT AND PLAN OF MERGER, DATED AS OF MAY 14, 2002 (THIS "AGREEMENT"), BY AND AMONG RESMED INC., A DELAWARE CORPORATION (THE "PARENT"), SERVO MAGNETICS ACQUISITION, INC., A DELAWARE CORPORATION AND A WHOLLY OWNED SUBSIDIARY OF PARENT ("MERGER SUB"), SERVO MAGNETICS INCORPORATED, A CALIFORNIA CORPORATION (THE "TARGET"), AND LESLIE HOFFMAN ( "HOFFMAN"). THE PARENT, MERGER SUB, HOFFMAN AND THE TARGET ARE REFERRED TO COLLECTIVELY HEREIN AS THE "PARTIES." WHEREAS, THE RESPECTIVE BOARDS OF DIRECTORS OF PARENT, MERGER SUB AND TARGET HAVE EACH DETERMINED THAT THE MERGER (AS DEFINED BELOW) IS IN THE BEST INTERESTS OF THEIR RESPECTIVE SHAREHOLDERS AND HAVE APPROVED THE MERGER UPON THE TERMS AND SUBJECT TO THE CONDITIONS SET FORTH IN THIS AGREEMENT, WHICH INCLUDE THAT THE ISSUED AND OUTSTANDING SHARES OF COMMON STOCK, NO PAR VALUE, OF TARGET ("TARGET COMMON STOCK"), WILL BE CONVERTED INTO THE RIGHT TO RECEIVE A COMBINATION OF COMMON STOCK, PAR VALUE $.004 PER SHARE, OF PARENT (THE "PARENT COMMON STOCK") AND CASH, AS FURTHER DESCRIBED HEREIN; AND WHEREAS, HOFFMAN OWNS ALL OF THE OUTSTANDING CAPITAL STOCK OF THE TARGET AND HAS APPROVED THIS AGREEMENT AND THE MERGER IN HIS CAPACITY AS SOLE SHAREHOLDER OF THE TARGET; AND WHEREAS, IN ORDER TO EFFECTUATE THE FOREGOING, THE TARGET, UPON THE TERMS AND SUBJECT TO THE CONDITIONS OF THIS AGREEMENT AND, IN ACCORDANCE WITH THE CALIFORNIA CORPORATIONS CODE (THE "CCC") AND THE DELAWARE GENERAL CORPORATION --- LAW (THE "DGCL"), WILL MERGE WITH AND INTO MERGER SUB (THE "MERGER"). NOW, THEREFORE, IN CONSIDERATION OF THE PREMISES AND THE MUTUAL PROMISES HEREIN MADE, AND IN CONSIDERATION OF THE REPRESENTATIONS, WARRANTIES, AND COVENANTS HEREIN CONTAINED, THE PARTIES AGREE AS FOLLOWS. 1. DEFINITIONS. ----------- "ACCREDITED INVESTOR" HAS THE MEANING SET FORTH IN REGULATION D PROMULGATED ------------------- UNDER THE SECURITIES ACT. "ADVERSE CONSEQUENCES" MEANS ALL ACTIONS, SUITS, PROCEEDINGS, HEARINGS, --------------------- INVESTIGATIONS, CHARGES, COMPLAINTS, CLAIMS, DEMANDS, INJUNCTIONS, JUDGMENTS, ORDERS, DECREES, RULINGS, DAMAGES, DUES, PENALTIES, FINES, COSTS, LOST TAX BENEFITS, AMOUNTS PAID IN SETTLEMENT, LIABILITIES, OBLIGATIONS, TAXES, LIENS, LOSSES, EXPENSES, AND FEES, INCLUDING COURT COSTS AND REASONABLE ATTORNEYS' FEES AND EXPENSES. "AGREEMENT OF MERGER" HAS THE MEANING SET FORTH IN 2(C) BELOW. --------------------- "AFFILIATE" HAS THE MEANING SET FORTH IN RULE 12B-2 OF THE REGULATIONS --------- PROMULGATED UNDER THE EXCHANGE ACT. -------- "AFFILIATED GROUP" MEANS ANY AFFILIATED GROUP WITHIN THE MEANING OF CODE ----------------- 1504(A) OR ANY SIMILAR GROUP DEFINED UNDER A SIMILAR PROVISION OF STATE, LOCAL OR FOREIGN LAW. 1 "BASIS" MEANS ANY PAST OR PRESENT FACT, SITUATION, CIRCUMSTANCE, STATUS, ----- CONDITION, ACTIVITY, PRACTICE, PLAN, OCCURRENCE, EVENT, INCIDENT, ACTION, FAILURE TO ACT, OR TRANSACTION THAT FORMS OR WOULD BE REASONABLY LIKELY TO FORM THE BASIS FOR ANY SPECIFIED CONSEQUENCE. "CASH CONSIDERATION" MEANS $7,625,000, TO BE PAID TO HOFFMAN IN HIS CAPACITY AS ------------------- THE SOLE SHAREHOLDER OF THE TARGET AS PARTIAL CONSIDERATION FOR THE MERGER. "CCC" MEANS THE CALIFORNIA CORPORATIONS CODE, AS AMENDED. "CERTIFICATE OF MERGER" HAS THE MEANING SET FORTH IN 2(C) BELOW. ----------------------- "CLOSING" HAS THE MEANING SET FORTH IN 2(B) BELOW. ------- "CLOSING DATE" HAS THE MEANING SET FORTH IN 2(B) BELOW. ------------- "CLOSING VALUE" MEANS$29. -------------- "CODE" MEANS THE INTERNAL REVENUE CODE OF 1986, AS AMENDED. ---- "CONFIDENTIAL INFORMATION" MEANS ANY INFORMATION CONCERNING THE BUSINESSES AND ------------------------- AFFAIRS OF THE TARGET THAT IS NOT ALREADY GENERALLY AVAILABLE TO THE PUBLIC. "CONSIDERATION" MEANS COLLECTIVELY (I) THE CASH CONSIDERATION AND (II) THE ------------- SHARES. ---- "CONTROLLED GROUP OF CORPORATIONS" HAS THE MEANING SET FORTH IN CODE 1563. ----------------------------------- "DEFERRED INTERCOMPANY TRANSACTION" HAS THE MEANING SET FORTH IN REG. ----------------------------------- 1.1502-13. -------- "DGCL" MEANS THE DELAWARE GENERAL CORPORATION LAW, AS AMENDED. ---- "EFFECTIVE TIME" HAS THE MEANING SET FORTH IN 2(C) BELOW. --------------- "EMPLOYEE BENEFIT PLAN" MEANS ANY (A) NONQUALIFIED DEFERRED COMPENSATION OR ----------------------- RETIREMENT PLAN OR ARRANGEMENT WHICH IS AN EMPLOYEE PENSION BENEFIT PLAN, (B) --- QUALIFIED DEFINED CONTRIBUTION RETIREMENT PLAN OR ARRANGEMENT WHICH IS AN - EMPLOYEE PENSION BENEFIT PLAN, (C) QUALIFIED DEFINED BENEFIT RETIREMENT PLAN OR - ARRANGEMENT WHICH IS AN EMPLOYEE PENSION BENEFIT PLAN (INCLUDING ANY MULTIEMPLOYER PLAN), OR (D) EMPLOYEE WELFARE BENEFIT PLAN OR MATERIAL FRINGE BENEFIT PLAN OR PROGRAM. "EMPLOYEE PENSION BENEFIT PLAN" HAS THE MEANING SET FORTH IN ERISA 3(2). -------------------------------- "EMPLOYEE PENSION DEFINED BENEFIT PLAN" MEANS AN EMPLOYEE PENSION BENEFIT PLAN --------------------------------------- THAT IS OR WAS SUBJECT TO TITLE IV OF ERISA. "EMPLOYEE WELFARE BENEFIT PLAN" HAS THE MEANING SET FORTH IN ERISA 3(1). -------------------------------- "EMPLOYMENT AGREEMENT" HAS THE MEANING SET FORTH IN 2(H) BELOW. --------------------- 2 "ENVIRONMENTAL LAWS" MEANS ANY AND ALL APPLICABLE INTERNATIONAL, FEDERAL, STATE, ------------------ OR LOCAL LAWS, STATUTES, ORDINANCES, REGULATIONS, POLICIES, GUIDANCE, RULES, JUDGMENTS, ORDERS, COURT DECISIONS OR RULE OF COMMON LAW, PERMITS, RESTRICTIONS AND LICENSES, WHICH (I) REGULATE OR RELATE TO THE PROTECTION OR CLEAN UP OF THE ENVIRONMENT; THE USE, TREATMENT, STORAGE, TRANSPORTATION, HANDLING, DISPOSAL OR RELEASE OF HAZARDOUS SUBSTANCES, THE PRESERVATION OR PROTECTION OF WATERWAYS, GROUNDWATER, DRINKING WATER, AIR, WILDLIFE, PLANTS OR OTHER NATURAL RESOURCES; OR THE HEALTH AND SAFETY OF PERSONS OR PROPERTY, INCLUDING WITHOUT LIMITATION PROTECTION OF THE HEALTH AND SAFETY OF EMPLOYEES; OR (II) IMPOSE LIABILITY OR RESPONSIBILITY WITH RESPECT TO ANY OF THE FOREGOING, INCLUDING WITHOUT LIMITATION THE COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION AND LIABILITY ACT (42 U.S.C. 9601 ET SEQ.), OR ANY OTHER LAW OF SIMILAR EFFECT. "ENVIRONMENTAL PERMITS" MEANS ANY MATERIAL PERMIT, LICENSE, AUTHORIZATION OR ---------------------- APPROVAL REQUIRED UNDER APPLICABLE ENVIRONMENTAL LAWS. -- "ERISA" MEANS THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED. ----- "ERISA AFFILIATE" MEANS ANY ENTITY WHICH IS (OR AT ANY RELEVANT TIME WAS) A ---------------- MEMBER OF A "CONTROLLED GROUP OF CORPORATIONS" WITH, UNDER "COMMON CONTROL" --- WITH, OR A MEMBER OF AN "AFFILIATED SERVICE GROUP" WITH ANY PERSON, AS DEFINED --- IN 52(A) OR (B), OR 414(B), (C), (M) OR (O) OF THE CODE, OR UNDER "COMMON CONTROL" WITH ANY PERSON WITHIN THE MEANING OF 4001(B)(1) OF ERISA. "EXCESS LOSS ACCOUNT" HAS THE MEANING SET FORTH IN REG. 1.1502-19. --------------------- "EXCHANGE ACT" MEANS THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. ------------- "EXTREMELY HAZARDOUS SUBSTANCE" HAS THE MEANING SET FORTH IN 302 OF THE ------------------------------- EMERGENCY PLANNING AND COMMUNITY RIGHT-TO-KNOW ACT OF 1986, AS AMENDED. ------ "FIDUCIARY" HAS THE MEANING SET FORTH IN ERISA 3(21). --------- "FINANCIAL STATEMENTS" HAS THE MEANING SET FORTH IN 5(I) BELOW. --------------------- "GAAP" MEANS UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AS IN EFFECT ---- FROM TIME TO TIME. "HAZARDOUS SUBSTANCES" MEANS ANY POLLUTANT, CHEMICAL, SUBSTANCE AND ANY TOXIC, --------------------- INFECTIOUS, CARCINOGENIC, REACTIVE, CORROSIVE, IGNITABLE OR FLAMMABLE CHEMICAL, OR CHEMICAL COMPOUND, OR HAZARDOUS SUBSTANCE, MATERIAL OR WASTE, WHETHER SOLID, LIQUID OR GAS, THAT IS SUBJECT TO REGULATION, CONTROL OR REMEDIATION UNDER ANY ENVIRONMENTAL LAWS, INCLUDING WITHOUT LIMITATION, ANY QUANTITY OF ASBESTOS IN ANY FORM, UREA FORMALDEHYDE, PCBS, RADON GAS, CRUDE OIL OR ANY FRACTION THEREOF, ALL FORMS OF NATURAL GAS, PETROLEUM PRODUCTS OR BY-PRODUCTS OR DERIVATIVES. "HOFFMAN DISCLOSURE SCHEDULE" HAS THE MEANING SET FORTH IN 4(A) BELOW. ----------------------------- "INDEMNIFIED PARTY" HAS THE MEANING SET FORTH IN 7(D) BELOW. ------------------ 3 "INDEMNIFYING PARTY" HAS THE MEANING SET FORTH IN 7(D) BELOW. ------------------- "INTELLECTUAL PROPERTY" MEANS (A) ALL INVENTIONS (WHETHER PATENTABLE OR ---------------------- UNPATENTABLE AND WHETHER OR NOT REDUCED TO PRACTICE), ALL IMPROVEMENTS THERETO, ------- AND ALL PATENTS, PATENT APPLICATIONS, AND PATENT DISCLOSURES, TOGETHER WITH ALL REISSUANCES, CONTINUATIONS, CONTINUATIONS-IN-PART, REVISIONS, EXTENSIONS, AND REEXAMINATIONS THEREOF, (B) ALL TRADEMARKS, SERVICE MARKS, TRADE DRESS, LOGOS, TRADE NAMES, AND CORPORATE NAMES, TOGETHER WITH ALL TRANSLATIONS, ADAPTATIONS, DERIVATIONS, AND COMBINATIONS THEREOF AND INCLUDING ALL GOODWILL ASSOCIATED THEREWITH, AND ALL APPLICATIONS, REGISTRATIONS, AND RENEWALS IN CONNECTION THEREWITH, (C) ALL COPYRIGHTABLE WORKS, ALL COPYRIGHTS, AND ALL APPLICATIONS, REGISTRATIONS, AND RENEWALS IN CONNECTION THEREWITH, (D) ALL MASK WORKS AND ALL APPLICATIONS, REGISTRATIONS, AND RENEWALS IN CONNECTION THEREWITH, (E) ALL TRADE SECRETS AND CONFIDENTIAL BUSINESS INFORMATION (INCLUDING IDEAS, RESEARCH AND DEVELOPMENT, KNOW-HOW, FORMULAS, COMPOSITIONS, MANUFACTURING AND PRODUCTION PROCESSES AND TECHNIQUES, TECHNICAL DATA, DESIGNS, DRAWINGS, SPECIFICATIONS, CUSTOMER AND SUPPLIER LISTS, PRICING AND COST INFORMATION, AND BUSINESS AND MARKETING PLANS AND PROPOSALS), (F) ALL COMPUTER SOFTWARE (INCLUDING DATA AND RELATED DOCUMENTATION), (G) ALL OTHER PROPRIETARY RIGHTS, AND (H) ALL COPIES AND TANGIBLE EMBODIMENTS THEREOF (IN WHATEVER FORM OR MEDIUM). "KNOWLEDGE" MEANS ACTUAL KNOWLEDGE AFTER REASONABLE INVESTIGATION. --------- "LEASE INDEMNIFICATION OBLIGATION" HAS THE MEANING SET FORTH IN 7(C) BELOW. ---------------------------------- "LIABILITY" MEANS ANY LIABILITY (WHETHER KNOWN OR UNKNOWN, WHETHER ASSERTED OR --------- UNASSERTED, WHETHER ABSOLUTE OR CONTINGENT, WHETHER ACCRUED OR UNACCRUED, WHETHER LIQUIDATED OR UNLIQUIDATED, AND WHETHER DUE OR TO BECOME DUE, INCLUDING, BUT NOT LIMITED TO CONTRACTUAL PERFORMANCE OBLIGATIONS CONTAINED IN THE MATERIAL CONTRACTS), INCLUDING ANY LIABILITY FOR TAXES. "MATERIAL ADVERSE CHANGE" OR "MATERIAL ADVERSE EFFECT" MEANS, WITH RESPECT TO ------------------------- ----------------------- ANY PERSON, ANY CHANGE OR EFFECT THAT IS OR IS REASONABLY LIKELY TO BE - MATERIALLY ADVERSE TO THE BUSINESS, OPERATIONS, ASSETS, CONDITION (FINANCIAL OR - OTHERWISE), PROSPECTS OR RESULTS OF OPERATIONS OF THAT PERSON; PROVIDED THAT WITH RESPECT TO PARENT, A CHANGE IN THE MARKET PRICE OF PARENT COMMON STOCK SHALL NOT BE A MATERIAL ADVERSE EFFECT ON PARENT; PROVIDED, FURTHER, THAT ANY EFFECT ARISING SOLELY FROM OR RELATING SOLELY TO THE ANNOUNCEMENT OF (I) THE MERGER OR (II) THE EXECUTION OF THIS AGREEMENT, SHALL NOT BE DEEMED TO CONSTITUTE A MATERIAL ADVERSE EFFECT ON ANY PERSON. "MATERIAL CONTRACTS" HAS THE MEANING SET FORTH IN 5(R) BELOW. ------------------- "MERGER SUB" HAS THE MEANING SET FORTH IN THE PREFACE ABOVE. ----------- "MOST RECENT BALANCE SHEET" MEANS THE BALANCE SHEET CONTAINED WITHIN THE MOST ---------------------------- RECENT FINANCIAL STATEMENTS. - "MOST RECENT FINANCIAL STATEMENTS" HAS THE MEANING SET FORTH IN 5(I) BELOW. ----------------------------------- "MOST RECENT FISCAL QUARTER END" HAS THE MEANING SET FORTH IN 5(I) BELOW. ---------------------------------- "MOST RECENT FISCAL YEAR END" HAS THE MEANING SET FORTH IN 5(I) BELOW. ------------------------------- 4 "MULTIEMPLOYER PLAN" HAS THE MEANING SET FORTH IN ERISA 3(37). ------------------- "ORDINARY COURSE OF BUSINESS" MEANS THE ORDINARY COURSE OF BUSINESS CONSISTENT ----------------------------- WITH PAST CUSTOM AND PRACTICE (INCLUDING WITH RESPECT TO QUANTITY AND FREQUENCY). "PARENT" HAS THE MEANING SET FORTH IN THE PREFACE ABOVE. ------ "PARENT COMMON STOCK" MEANS ANY SHARE OF THE COMMON STOCK, PAR VALUE $.004 PER --------------------- SHARE, OF THE PARENT. "PARENT INDEMNIFIED PARTY" HAS THE MEANING SET FORTH IN 7(B) BELOW. -------------------------- "PARENT SEC DOCUMENTS" HAS THE MEANING SET FORTH IN 4(B)(VI) BELOW. ---------------------- "PARTY" HAS THE MEANING SET FORTH IN THE PREFACE ABOVE. ----- "PBGC" MEANS THE PENSION BENEFIT GUARANTY CORPORATION. ---- "PERSON" MEANS AN INDIVIDUAL, A PARTNERSHIP, A CORPORATION, AN ASSOCIATION, A ------ JOINT STOCK COMPANY, A TRUST, A JOINT VENTURE, AN UNINCORPORATED ORGANIZATION, - OR A GOVERNMENTAL ENTITY (OR ANY DEPARTMENT, AGENCY, OR POLITICAL SUBDIVISION THEREOF). "POST-CLOSING PARTIAL PERIOD" HAS THE MEANING SET FORTH IN 7(B)(II) BELOW. ----------------------------- "PRE-CLOSING PARTIAL PERIOD" HAS THE MEANING SET FORTH IN 7(B)(II) BELOW. ---------------------------- "PRE-CLOSING PERIODS" HAS THE MEANING SET FORTH IN 7(B)(II) BELOW. -------------------- "PROHIBITED TRANSACTION" HAS THE MEANING SET FORTH IN ERISA 406 AND CODE 4975. ---------------------- "PROPERTY TAXES" HAS THE MEANING SET FORTH IN 8(B) BELOW. --------------- "REGISTRATION RIGHTS AGREEMENT" HAS THE MEANING SET FORTH IN 2(H) BELOW. ------------------------------- "REPORTABLE EVENT" HAS THE MEANING SET FORTH IN ERISA 4043. ----------------- "SEC" MEANS THE SECURITIES AND EXCHANGE COMMISSION. --- "SECURITIES ACT" MEANS THE SECURITIES ACT OF 1933, AS AMENDED. --------------- "SECURITY INTEREST" MEANS ANY MORTGAGE, PLEDGE, LIEN, ENCUMBRANCE, CHARGE, OR ------------------ OTHER SECURITY INTEREST, OTHER THAN (A) MECHANIC'S, MATERIALMEN'S, AND SIMILAR - LIENS, (B) LIENS FOR TAXES NOT YET DUE AND PAYABLE, (C) PURCHASE MONEY LIENS AND LIENS SECURING RENTAL PAYMENTS UNDER CAPITAL LEASE ARRANGEMENTS, AND (D) OTHER LIENS ARISING IN THE ORDINARY COURSE OF BUSINESS AND NOT INCURRED IN CONNECTION WITH THE BORROWING OF MONEY. "SHARES" MEANS 853,448 SHARES OF PARENT COMMON STOCK TO BE ISSUED TO HOFFMAN IN ------ HIS CAPACITY AS THE SOLE SHAREHOLDER OF THE TARGET AS PARTIAL CONSIDERATION FOR THE MERGER. 5 "STRADDLE PERIOD" HAS THE MEANING SET FORTH IN 7(B)(II) BELOW. ---------------- "SUBSIDIARY" MEANS ANY CORPORATION WITH RESPECT TO WHICH A SPECIFIED PERSON (OR ---------- A SUBSIDIARY THEREOF) OWNS A MAJORITY OF THE COMMON STOCK OR HAS THE POWER TO VOTE OR DIRECT THE VOTING OF SUFFICIENT SECURITIES TO ELECT A MAJORITY OF THE DIRECTORS. "SURVIVING CORPORATION" HAS THE MEANING SET FORTH IN 2(A) BELOW. ---------------------- "TARGET" HAS THE MEANING SET FORTH IN THE PREFACE ABOVE. ------ "TARGET COMMON STOCK" MEANS ANY SHARE OF THE COMMON STOCK, NO PAR VALUE, OF THE -------------------- TARGET. "TARGET DISCLOSURE SCHEDULE" HAS THE MEANING SET FORTH IN 5 BELOW. ---------------------------- "TAX" MEANS ANY FEDERAL, STATE, LOCAL, OR FOREIGN INCOME, GROSS RECEIPTS, --- LICENSE, PAYROLL, EMPLOYMENT, EXCISE, SEVERANCE, STAMP, OCCUPATION, PREMIUM, --- WINDFALL PROFITS, ENVIRONMENTAL (INCLUDING TAXES UNDER CODE 59A), CUSTOMS -- DUTIES, CAPITAL STOCK, FRANCHISE, PROFITS, WITHHOLDING, SOCIAL SECURITY (OR -- SIMILAR), UNEMPLOYMENT, DISABILITY, REAL PROPERTY, PERSONAL PROPERTY, SALES, -- USE, TRANSFER, REGISTRATION, VALUE ADDED, ALTERNATIVE OR ADD-ON MINIMUM, -- ESTIMATED, OR OTHER TAX OF ANY KIND WHATSOEVER, INCLUDING ANY INTEREST, PENALTY, -- OR ADDITION THERETO, WHETHER DISPUTED OR NOT. "TAX RETURN" MEANS ANY RETURN, DECLARATION, REPORT, CLAIM FOR REFUND, OR ----------- INFORMATION RETURN OR STATEMENT RELATING TO TAXES, INCLUDING ANY SCHEDULE OR ------ ATTACHMENT THERETO, AND INCLUDING ANY AMENDMENT THEREOF. -- "THIRD PARTY CLAIM" HAS THE MEANING SET FORTH IN 7(D) BELOW. ------------------- 2. THE MERGER. ----------- (A) THE MERGER ----------- . UPON THE TERMS AND SUBJECT TO THE CONDITIONS SET FORTH IN THIS AGREEMENT, AND IN ACCORDANCE WITH THE DGCL AND THE CCC, THE TARGET SHALL BE MERGED WITH AND INTO MERGER SUB AT THE EFFECTIVE TIME (AS DEFINED BELOW). FOLLOWING THE MERGER, THE SEPARATE CORPORATE EXISTENCE OF THE TARGET SHALL CEASE AND MERGER SUB SHALL CONTINUE AS THE SURVIVING CORPORATION (THE "SURVIVING --------- CORPORATION") IN ACCORDANCE WITH THE DGCL AND THE CCC. ------ (B) THE CLOSING ------------ . THE CLOSING OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT (THE "CLOSING") SHALL TAKE PLACE AT THE OFFICES OF LATHAM & WATKINS IN COSTA MESA, ---- CALIFORNIA, CONCURRENTLY WITH THE EXECUTION OF THIS AGREEMENT, OR ON SUCH OTHER DATE AS THE PARTIES MAY MUTUALLY DETERMINE (THE "CLOSING DATE"). ------------- (C) EFFECTIVE TIME --------------- . UPON THE CLOSING, THE PARTIES SHALL FILE WITH THE SECRETARY OF STATE OF THE STATE OF DELAWARE A CERTIFICATE OF MERGER IN THE FORM, AND TOGETHER WITH SUCH CERTIFICATES, AS IS REQUIRED UNDER THE DGCL (THE "CERTIFICATE OF MERGER"), --------------------- EXECUTED IN ACCORDANCE WITH THE RELEVANT PROVISIONS OF THE DGCL, AND AS SOON AS REASONABLY PRACTICABLE THEREAFTER SHALL FILE A CERTIFIED COPY OF THE CERTIFICATE OF MERGER WITH THE SECRETARY OF STATE OF THE STATE OF CALIFORNIA, AS IS REQUIRED UNDER THE CCC, AND SHALL MAKE ALL OTHER FILINGS, RECORDINGS OR PUBLICATIONS REQUIRED UNDER THE DGCL OR THE CCC IN CONNECTION WITH THE MERGER. THE MERGER 6 SHALL BECOME EFFECTIVE AT SUCH TIME AS THE CERTIFICATE OF MERGER IS FILED WITH THE SECRETARY OF STATE OF THE STATE OF DELAWARE, OR AT SUCH OTHER TIME AS THE PARTIES MAY AGREE AND SPECIFY IN THE CERTIFICATE OF MERGER (THE TIME THE MERGER BECOMES EFFECTIVE BEING THE "EFFECTIVE TIME"). --------------- (D) EFFECTS OF THE MERGER ------------------------ . AT AND AFTER THE EFFECTIVE TIME, THE MERGER WILL HAVE THE EFFECTS SET FORTH IN THE APPLICABLE PROVISIONS OF THE CCC AND THE DGCL. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, AT THE EFFECTIVE TIME, UNLESS OTHERWISE PROVIDED HEREIN, ALL THE PROPERTY, RIGHTS, PRIVILEGES, POWERS AND FRANCHISES OF THE TARGET AND MERGER SUB SHALL VEST IN THE SURVIVING CORPORATION, AND ALL DEBTS, LIABILITIES AND DUTIES OF THE TARGET AND MERGER SUB SHALL BECOME THE DEBTS, LIABILITIES AND DUTIES OF THE SURVIVING CORPORATION. (E) CERTIFICATE OF INCORPORATION ------------------------------ . THE CERTIFICATE OF INCORPORATION OF MERGER SUB, AS IN EFFECT IMMEDIATELY PRIOR TO THE EFFECTIVE TIME SHALL BE AMENDED AS SET FORTH IN EXHIBIT A ATTACHED --------- HERETO, AND, AS SO AMENDED, SHALL BE THE CERTIFICATE OF INCORPORATION OF THE SURVIVING CORPORATION UNTIL THEREAFTER AMENDED AS PROVIDED THEREIN OR BY APPLICABLE LAW. (F) BYLAWS ------ . THE BYLAWS OF MERGER SUB AS IN EFFECT IMMEDIATELY PRIOR TO THE EFFECTIVE TIME SHALL BE THE BYLAWS OF THE SURVIVING CORPORATION UNTIL THEREAFTER CHANGED OR AMENDED AS PROVIDED THEREIN OR BY APPLICABLE LAW. (G) OFFICERS AND DIRECTORS OF SURVIVING CORPORATION ---------------------------------------------------- . THE PERSONS LISTED ON SCHEDULE 2(G) SHALL BE THE OFFICERS OF THE SURVIVING CORPORATION, UNTIL THE EARLIER OF THEIR RESIGNATION OR REMOVAL OR OTHERWISE CEASING TO BE AN OFFICER OR UNTIL THEIR RESPECTIVE SUCCESSORS ARE DULY ELECTED AND QUALIFIED, AS THE CASE MAY BE. PETER C. FARRELL, LESLIE HOFFMAN, AND WALTER FLICKER SHALL BE THE DIRECTORS OF THE SURVIVING CORPORATION, UNTIL THE EARLIER OF THEIR RESIGNATION OR REMOVAL OR OTHERWISE CEASING TO BE A DIRECTOR OR UNTIL THEIR RESPECTIVE SUCCESSORS ARE DULY ELECTED AND QUALIFIED, AS THE CASE MAY BE. (H) DELIVERIES OF HOFFMAN AND TARGET AT CLOSING ------------------------------------------------- . AT THE CLOSING, HOFFMAN AND TARGET WILL DELIVER TO PARENT AND MERGER SUB: (I) CERTIFICATES REPRESENTING ALL OUTSTANDING SHARES OF TARGET COMMON STOCK; (II) AN OPINION FROM TARGET'S COUNSEL WHICH ADDRESSES THE ITEMS SET FORTH IN EXHIBIT D; ---------- (III) COPIES OF ALL THIRD PARTY CONSENTS LISTED ON SCHEDULE 2(H) ATTACHED ------------- HERETO; (IV) AN EMPLOYMENT AGREEMENT IN SUBSTANTIALLY THE FORM ATTACHED HERETO AS EXHIBIT E (THE "EMPLOYMENT AGREEMENT") EXECUTED BY HOFFMAN; -------- --------------------- (V) ASSIGNMENT OF INVENTIONS, IN SUBSTANTIALLY THE FORM ATTACHED HERETO AS EXHIBIT F, EXECUTED BY ALL EMPLOYEES OF TARGET AS OF THE CLOSING DATE; --------- 7 (VI) A REGISTRATION RIGHTS AGREEMENT IN SUBSTANTIALLY THE FORM ATTACHED HERETO AS EXHIBIT C RELATING TO THE SHARES (THE "REGISTRATION RIGHTS AGREEMENT") --------- ----------------------------- EXECUTED BY HOFFMAN; AND (VII) SUCH OTHER CLOSING CERTIFICATES AND INSTRUMENTS AS THE PARENT MAY REASONABLY REQUEST IN CONNECTION WITH THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. (I) DELIVERIES OF PARENT AND MERGER SUB AT CLOSING ----------------------------------------------------- . AT THE CLOSING, PARENT AND MERGER SUB WILL DELIVER TO HOFFMAN AND TARGET: (I) THE CONSIDERATION, AS CONTEMPLATED BY 3; (II) THE REGISTRATION RIGHTS AGREEMENT EXECUTED BY PARENT; (III) THE EMPLOYMENT AGREEMENT EXECUTED BY MERGER SUB; (IV) A FORM OF RELEASE OR TERMINATION AGREEMENT EVIDENCING THAT HOFFMAN HAS BEEN RELEASED FROM ALL PERSONAL GUARANTEES OF INDEBTEDNESS OF THE TARGET UNDER THAT CERTAIN CREDIT AGREEMENT, DATED AS OF APRIL 1, 1999, BY AND BETWEEN TARGET AND WELLS FARGO BANK, N.A., AS AMENDED TO THE DATE HEREOF; AND (V) SUCH OTHER CLOSING CERTIFICATES AND INSTRUMENTS AS HOFFMAN MAY REASONABLY REQUEST IN CONNECTION WITH THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. 3. EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS ------------------------------------------------------------------------- . AS OF THE EFFECTIVE TIME, BY VIRTUE OF THE MERGER AND WITHOUT ANY ACTION ON THE PART OF THE HOLDER OF ANY SHARES OF TARGET STOCK OR ANY SHARES OF CAPITAL STOCK OF MERGER SUB: (A) CAPITAL STOCK OF MERGER SUB ------------------------------- . EACH ISSUED AND OUTSTANDING SHARE OF CAPITAL STOCK OF MERGER SUB SHALL REMAIN ISSUED AND OUTSTANDING. (B) CONVERSION OF TARGET SHARES ------------------------------ . AT AND AS OF THE EFFECTIVE TIME, ALL OUTSTANDING SHARES OF TARGET COMMON STOCK, IN AGGREGATE, SHALL BE CONVERTED INTO THE RIGHT TO RECEIVE THE CONSIDERATION, PAYABLE AS SET FORTH BELOW. NO SHARE OF TARGET STOCK SHALL BE DEEMED TO BE OUTSTANDING OR TO HAVE ANY RIGHTS, OTHER THAN THE RIGHT TO RECEIVE THE CONSIDERATION, AFTER THE EFFECTIVE TIME. (C) CANCELLATION OF TREASURY STOCK AND PARENT-OWNED STOCK ----------------------------------------------------------- . EACH SHARE OF TARGET COMMON STOCK THAT IS OWNED BY TARGET AND EACH SHARE OF TARGET COMMON STOCK THAT IS OWNED BY PARENT, MERGER SUB OR ANY OTHER WHOLLY OWNED SUBSIDIARY OF PARENT SHALL AUTOMATICALLY BE CANCELED AND RETIRED AND SHALL CEASE TO EXIST, AND NO PARENT COMMON STOCK OR OTHER CONSIDERATION SHALL BE DELIVERED IN EXCHANGE THEREFOR. (D) CONVEYANCE OF CONSIDERATION TO HOFFMAN ------------------------------------------ . SUBJECT TO THE TERMS AND CONDITIONS OF THIS AGREEMENT, ON THE CLOSING DATE, IN EXCHANGE FOR CERTIFICATES REPRESENTING ALL OF THE OUTSTANDING TARGET COMMON STOCK, PARENT SHALL DELIVER TO HOFFMAN (A) CASH, PAYABLE BY WIRE TRANSFER OF IMMEDIATELY AVAILABLE FUNDS, IN THE AMOUNT OF THE CASH CONSIDERATION, AND (B) A CERTIFICATE OR CERTIFICATES IN THE NAME OF HOFFMAN REPRESENTING IN THE AGGREGATE 853,448 SHARES. 8 4. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION. -------------------------------------------------------------- (A) REPRESENTATIONS AND WARRANTIES OF HOFFMAN --------------------------------------------- . HOFFMAN REPRESENTS AND WARRANTS TO THE PARENT AND MERGER SUB THAT THE STATEMENTS CONTAINED IN THIS 4(A) ARE CORRECT AND COMPLETE AS OF THE DATE OF THIS AGREEMENT, EXCEPT AS SET FORTH IN THE DISCLOSURE SCHEDULE DELIVERED BY HOFFMAN TO THE PARENT ON THE DATE HEREOF, INITIALED BY THE PARTIES AND ATTACHED HERETO (THE "HOFFMAN DISCLOSURE SCHEDULE"). NOTHING IN THE HOFFMAN DISCLOSURE ---------------------------- SCHEDULE IS DEEMED ADEQUATE TO DISCLOSE AN EXCEPTION TO A REPRESENTATION OR WARRANTY MADE HEREIN, HOWEVER, UNLESS THE HOFFMAN DISCLOSURE SCHEDULE IDENTIFIES THE EXCEPTION WITH PARTICULARITY AND DESCRIBES THE RELEVANT FACTS IN DETAIL. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, THE MERE LISTING (OR INCLUSION OF A COPY) OF A DOCUMENT OR OTHER ITEM SHALL NOT BE DEEMED ADEQUATE TO DISCLOSE AN EXCEPTION TO A REPRESENTATION OR WARRANTY MADE HEREIN (UNLESS THE REPRESENTATION OR WARRANTY HAS TO DO WITH THE EXISTENCE OF THE DOCUMENT OR OTHER ITEM ITSELF). THE HOFFMAN DISCLOSURE SCHEDULE WILL BE ARRANGED IN PARAGRAPHS CORRESPONDING TO THE LETTERED AND NUMBERED PARAGRAPHS CONTAINED IN THIS 4(A), AND DISCLOSURE OF ANY MATTER IN ANY SUCH PARAGRAPH IS DEEMED TO BE DISCLOSURE FOR THE PURPOSES OF THE CORRESPONDINGLY NUMBERED PARAGRAPH OF THIS 4(A) ONLY, AND NOT FOR ANY OTHER PARAGRAPH OF THIS 4(A), OR FOR ANY OTHER PURPOSE. (I) AUTHORIZATION OF TRANSACTION. HOFFMAN HAS FULL POWER AND AUTHORITY TO ------------------------------ EXECUTE AND DELIVER THIS AGREEMENT AND TO PERFORM HIS OBLIGATIONS HEREUNDER. THIS AGREEMENT CONSTITUTES THE VALID AND LEGALLY BINDING OBLIGATION OF HOFFMAN, ENFORCEABLE IN ACCORDANCE WITH ITS TERMS AND CONDITIONS. NO NOTICE TO, OR CONSENT OF, HOFFMAN'S SPOUSE IS REQUIRED UNDER ANY LAW, STATUTE, RULE OR REGULATION RELATED TO MARITAL OR COMMUNITY PROPERTY IN ORDER FOR HOFFMAN TO EXECUTE AND DELIVER THIS AGREEMENT AND TO PERFORM HIS OBLIGATIONS HEREUNDER AND CONSUMMATE THE TRANSACTIONS CONTEMPLATED HEREBY, AND NO RIGHTS OF HOFFMAN'S SPOUSE UNDER ANY SUCH LAW, STATUTE, RULE OR REGULATION SHALL BE TRIGGERED BY THE EXECUTION AND DELIVERY OF THIS AGREEMENT, THE PERFORMANCE BY HOFFMAN OF HIS OBLIGATIONS HEREUNDER OR THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED HEREBY. (II) NONCONTRAVENTION. NEITHER THE EXECUTION AND THE DELIVERY OF THIS ---------------- AGREEMENT, NOR THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED HEREBY, WILL (A) VIOLATE ANY CONSTITUTION, STATUTE, REGULATION, RULE, INJUNCTION, JUDGMENT, ORDER, DECREE, RULING, CHARGE, OR OTHER RESTRICTION OF ANY GOVERNMENT, GOVERNMENTAL AGENCY, OR COURT TO WHICH HOFFMAN IS SUBJECT OR (B) CONFLICT WITH, RESULT IN A BREACH OF, CONSTITUTE A DEFAULT UNDER, RESULT IN THE ACCELERATION OF, CREATE IN ANY PARTY THE RIGHT TO ACCELERATE, TERMINATE, MODIFY, OR CANCEL, OR REQUIRE ANY NOTICE OR CONSENT UNDER ANY AGREEMENT, CONTRACT, LEASE, LICENSE, INSTRUMENT, OR OTHER ARRANGEMENT TO WHICH HOFFMAN IS A PARTY OR BY WHICH HE IS BOUND OR TO WHICH ANY OF HIS ASSETS IS SUBJECT. (III) APPROVALS. NO CONSENT, APPROVAL, ORDER OR AUTHORIZATION OF, OR --------- REGISTRATION, DECLARATION OR FILING WITH, OR PERMIT FROM, ANY GOVERNMENTAL ENTITY IS REQUIRED BY OR WITH RESPECT TO HOFFMAN IN CONNECTION WITH THE EXECUTION AND DELIVERY OF THIS AGREEMENT OR THE CONSUMMATION BY HOFFMAN OF THE TRANSACTIONS CONTEMPLATED HEREBY EXCEPT FOR: (A) THE FILING OF THE CERTIFICATE OF MERGER WITH THE SECRETARY OF STATE OF THE STATE OF DELAWARE PURSUANT TO THE DGCL; (B) THE FILING OF THE AGREEMENT OF MERGER WITH THE SECRETARY OF STATE OF THE STATE OF CALIFORNIA PURSUANT TO THE CCC; (C) SUCH FILINGS AND APPROVALS AS MAY BE REQUIRED BY ANY APPLICABLE NON-U.S. GOVERNMENTAL ENTITY; (D) SUCH FILINGS AND APPROVALS AS MAY BE REQUIRED BY ANY NON-U.S. PREMERGER NOTIFICATION, SECURITIES, CORPORATE OR OTHER LEGAL REQUIREMENT, AND (E) SUCH CONSENTS, APPROVALS, ORDERS, AUTHORIZATIONS, REGISTRATIONS, DECLARATIONS AND FILINGS THE FAILURE OF WHICH TO MAKE OR OBTAIN COULD NOT REASONABLY BE EXPECTED TO HAVE A MATERIAL ADVERSE EFFECT ON TARGET OR PARENT OR MATERIALLY IMPAIR OR DELAY THE ABILITY OF THE PARTIES TO CONSUMMATE THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. 9 (IV) BROKERS' FEES. HOFFMAN HAS NO LIABILITY OR OBLIGATION TO PAY ANY FEES -------------- OR COMMISSIONS TO ANY BROKER, FINDER, OR AGENT WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT FOR WHICH THE PARENT OR MERGER SUB COULD BECOME LIABLE OR OBLIGATED. (V) INVESTMENT. HOFFMAN (A) UNDERSTANDS THAT THE SHARES HAVE NOT BEEN, AND ---------- WILL NOT BE, REGISTERED UNDER THE SECURITIES ACT, OR UNDER ANY STATE SECURITIES LAWS, AND ARE BEING OFFERED AND SOLD IN RELIANCE UPON FEDERAL AND STATE EXEMPTIONS FOR TRANSACTIONS NOT INVOLVING ANY PUBLIC OFFERING, (B) IS ACQUIRING THE SHARES SOLELY FOR HIS OR ITS OWN ACCOUNT FOR INVESTMENT PURPOSES, AND NOT WITH A VIEW TO THE DISTRIBUTION THEREOF, (C) IS A SOPHISTICATED INVESTOR WITH KNOWLEDGE AND EXPERIENCE IN BUSINESS AND FINANCIAL MATTERS, (D) HAS RECEIVED CERTAIN INFORMATION CONCERNING THE PARENT AND HAS HAD THE OPPORTUNITY TO OBTAIN ADDITIONAL INFORMATION AS DESIRED IN ORDER TO EVALUATE THE MERITS AND THE RISKS INHERENT IN HOLDING THE SHARES, (E) IS ABLE TO BEAR THE ECONOMIC RISK AND LACK OF LIQUIDITY INHERENT IN HOLDING THE SHARES, AND (F) IS AN ACCREDITED INVESTOR FOR THE REASONS SET FORTH ON THE ACCREDITED INVESTOR QUESTIONNAIRE ATTACHED TO THE HOFFMAN DISCLOSURE SCHEDULE. (VI) TARGET SHARES. HOFFMAN HOLDS OF RECORD AND OWNS BENEFICIALLY 4,250,000 ------------- SHARES OF TARGET COMMON STOCK, BEING ALL OF THE OUTSTANDING SHARES OF TARGET COMMON STOCK, FREE AND CLEAR OF ANY RESTRICTIONS ON TRANSFER (OTHER THAN ANY RESTRICTIONS UNDER THE SECURITIES ACT AND STATE SECURITIES LAWS), TAXES, SECURITY INTERESTS, OPTIONS, WARRANTS, PURCHASE RIGHTS, CONTRACTS, COMMITMENTS, EQUITIES, CLAIMS, AND DEMANDS. HOFFMAN IS NOT A PARTY TO ANY OPTION, WARRANT, PURCHASE RIGHT, OR OTHER CONTRACT OR COMMITMENT THAT COULD REQUIRE HOFFMAN TO SELL, TRANSFER, OR OTHERWISE DISPOSE OF ANY CAPITAL STOCK OF THE TARGET (OTHER THAN THIS AGREEMENT). HOFFMAN IS NOT A PARTY TO ANY VOTING TRUST, PROXY, OR OTHER AGREEMENT OR UNDERSTANDING WITH RESPECT TO THE VOTING OF ANY CAPITAL STOCK OF THE TARGET, AND HAS FULL AUTHORITY TO VOTE THE SHARES OF TARGET COMMON STOCK HELD BY HIM. (VII) NO CONTRARY ACTION. HOFFMAN HAS NOT TAKEN OR CAUSED TO BE TAKEN, OR -------------------- AGREED TO TAKE OR CAUSE TO BE TAKEN, ANY ACTION, AND HAS NO PLAN OR INTENTION TO TAKE OR CAUSE TO BE TAKEN ANY ACTION THAT WOULD, OR IS REASONABLY LIKELY TO, PREVENT THE MERGER FROM QUALIFYING AS A REORGANIZATION WITHIN THE MEANING OF SECTION 368(A) OF THE CODE, NOR DOES HOFFMAN KNOW OR HAVE REASON TO KNOW OF ANY FACT, AGREEMENT, PLAN OR OTHER CIRCUMSTANCE THAT WOULD, OR IS REASONABLY LIKELY TO, PREVENT THE MERGER FROM QUALIFYING AS A REORGANIZATION WITHIN THE MEANING OF SECTION 368(A) OF THE CODE. FOR PURPOSES OF THIS REPRESENTATION, ANY FAILURE OR OMISSION TO ACT, OR THE CAUSING OF ANY FAILURE OR OMISSION TO ACT, SHALL CONSTITUTE AN ACTION TAKEN, OR CAUSED TO BE TAKEN, AS APPROPRIATE. 10 (B) REPRESENTATIONS AND WARRANTIES OF THE PARENT AND MERGER SUB ------------------------------------------------------------------- . PARENT AND MERGER SUB REPRESENT AND WARRANT TO HOFFMAN AND THE TARGET THAT THE STATEMENTS CONTAINED IN THIS 4(B) ARE CORRECT AND COMPLETE AS OF THE DATE OF THIS AGREEMENT. (I) ORGANIZATION OF THE PARENT AND MERGER SUB. EACH OF PARENT AND MERGER -------------------------------------------- SUB IS A CORPORATION DULY ORGANIZED, VALIDLY EXISTING, AND IN GOOD STANDING UNDER THE LAWS OF THE STATE OF DELAWARE. EACH OF PARENT AND MERGER SUB HAS ALL REQUISITE CORPORATE POWER AND AUTHORITY TO OWN, LEASE AND OPERATE ITS PROPERTIES AND TO CARRY ON ITS BUSINESS AS NOW BEING CONDUCTED, AND IS DULY QUALIFIED AND IN GOOD STANDING TO DO BUSINESS IN EACH JURISDICTION IN WHICH THE BUSINESS IT IS CONDUCTING, OR THE OPERATION, OWNERSHIP OR LEASING OF ITS PROPERTIES, MAKES SUCH QUALIFICATION NECESSARY, EXCEPT WHERE THE FAILURE TO SO QUALIFY, INDIVIDUALLY, OR IN THE AGGREGATE, WOULD NOT HAVE A MATERIAL ADVERSE EFFECT ON THE BUSINESS, OPERATIONS, ASSETS, FINANCIAL CONDITION OR RESULTS OF OPERATIONS OF THE PARENT AND ITS SUBSIDIARIES TAKEN AS A WHOLE. (II) AUTHORIZATION OF TRANSACTION. EACH OF PARENT AND MERGER SUB HAS FULL ------------------------------ POWER AND AUTHORITY (INCLUDING FULL CORPORATE POWER AND AUTHORITY) TO EXECUTE AND DELIVER THIS AGREEMENT AND TO PERFORM ITS OBLIGATIONS HEREUNDER. THE EXECUTION AND DELIVERY OF THIS AGREEMENT BY PARENT AND MERGER SUB AND THE CONSUMMATION BY PARENT AND MERGER SUB OF THE TRANSACTIONS CONTEMPLATED HEREBY HAVE BEEN DULY APPROVED BY THE BOARDS OF DIRECTORS OF PARENT AND MERGER SUB AND BY THE SOLE SHAREHOLDER OF MERGER SUB. NO OTHER CORPORATE PROCEEDINGS ON THE PART OF PARENT OR MERGER SUB ARE NECESSARY TO AUTHORIZE THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY. THIS AGREEMENT CONSTITUTES THE VALID AND LEGALLY BINDING OBLIGATION OF THE PARENT AND MERGER SUB, ENFORCEABLE IN ACCORDANCE WITH ITS TERMS AND CONDITIONS. (III) SHARES. WHEN ISSUED IN ACCORDANCE WITH THE TERMS OF THIS AGREEMENT, ------ THE SHARES WILL BE DULY AUTHORIZED, VALIDLY ISSUED, FULLY PAID AND NONASSESSABLE. (IV) NONCONTRAVENTION. NEITHER THE EXECUTION AND THE DELIVERY OF THIS ---------------- AGREEMENT, NOR THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED HEREBY, WILL VIOLATE ANY CONSTITUTION, STATUTE, REGULATION, RULE, INJUNCTION, JUDGMENT, ORDER, DECREE, RULING, CHARGE, OR OTHER RESTRICTION OF ANY GOVERNMENT, GOVERNMENTAL AGENCY, OR COURT TO WHICH THE PARENT OR MERGER SUB IS SUBJECT OR ANY PROVISION OF THEIR RESPECTIVE CHARTER OR BYLAWS. 11 (V) APPROVALS. NO CONSENT, APPROVAL, ORDER OR AUTHORIZATION OF, OR --------- REGISTRATION, DECLARATION OR FILING WITH, OR PERMIT FROM, ANY GOVERNMENTAL ENTITY IS REQUIRED BY OR WITH RESPECT TO PARENT OR MERGER SUB IN CONNECTION WITH THE EXECUTION AND DELIVERY OF THIS AGREEMENT OR THE CONSUMMATION BY PARENT AND MERGER SUB OF THE TRANSACTIONS CONTEMPLATED HEREBY EXCEPT FOR: (A) THE FILING OF THE CERTIFICATE OF MERGER WITH THE SECRETARY OF STATE OF THE STATE OF DELAWARE PURSUANT TO THE DGCL; (B) THE FILING OF THE AGREEMENT OF MERGER WITH THE SECRETARY OF STATE OF THE STATE OF CALIFORNIA PURSUANT TO THE CCC; (C) FILINGS WITH THE SEC REQUIRED UNDER THE EXCHANGE ACT; (D) SUCH FILINGS AND APPROVALS AS MAY BE REQUIRED BY ANY APPLICABLE STATE SECURITIES, "BLUE SKY" OR TAKEOVER LAWS; (E) SUCH FILINGS WITH THE SEC UNDER THE SECURITIES ACT AS MAY BE REQUIRED IN CONNECTION WITH THE ISSUANCE OF THE SHARES AND THE SUBSEQUENT REGISTRATION OF THE SHARES PURSUANT TO THE REGISTRATION RIGHTS AGREEMENT REFERRED TO IN 7 BELOW; (F) SUCH FILINGS AND APPROVALS AS MAY BE REQUIRED BY THE RULES AND REGULATIONS OF THE NEW YORK STOCK EXCHANGE; (G) SUCH FILINGS AND APPROVALS AS MAY BE REQUIRED BY ANY APPLICABLE NON-U.S. GOVERNMENTAL ENTITY; (H) SUCH FILINGS AND APPROVALS AS MAY BE REQUIRED BY ANY NON-U.S. PREMERGER NOTIFICATION, SECURITIES, CORPORATE OR OTHER LEGAL REQUIREMENT, AND (I) SUCH CONSENTS, APPROVALS, ORDERS, AUTHORIZATIONS, REGISTRATIONS, DECLARATIONS AND FILINGS THE FAILURE OF WHICH TO MAKE OR OBTAIN COULD NOT REASONABLY BE EXPECTED TO HAVE A MATERIAL ADVERSE EFFECT ON THE BUSINESS, OPERATIONS, ASSETS, FINANCIAL CONDITION OR RESULTS OF OPERATIONS OF THE PARENT AND ITS SUBSIDIARIES TAKEN AS A WHOLE, OR MATERIALLY IMPAIR OR DELAY THE ABILITY OF THE PARTIES TO CONSUMMATE THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. (VI) PARENT SEC DOCUMENTS. THE PARENT HAS FILED ALL REQUIRED REPORTS, ---------------------- SCHEDULES, FORMS, STATEMENTS AND OTHER DOCUMENTS WITH THE SEC SINCE JUNE 30, 2000 (SUCH DOCUMENTS, TOGETHER WITH ALL EXHIBITS AND SCHEDULES THERETO AND DOCUMENTS INCORPORATED BY REFERENCE THEREIN, COLLECTIVELY REFERRED TO HEREIN AS THE "PARENT SEC DOCUMENTS"). AS OF THEIR RESPECTIVE DATES, NONE OF THE PARENT --------------------- SEC DOCUMENTS CONTAINED WHEN FILED ANY UNTRUE STATEMENT OF A MATERIAL FACT OR OMITTED TO STATE A MATERIAL FACT REQUIRED TO BE STATED THEREIN OR NECESSARY TO MAKE THE STATEMENTS THEREIN, IN LIGHT OF THE CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT MISLEADING. THE CONSOLIDATED FINANCIAL STATEMENTS OF THE PARENT INCLUDED IN THE PARENT SEC DOCUMENTS COMPLIED AS TO FORM IN ALL MATERIAL RESPECTS WITH THE PUBLISHED RULES AND REGULATIONS OF THE SEC WITH RESPECT THERETO, WERE PREPARED IN ACCORDANCE WITH GAAP APPLIED ON A CONSISTENT BASIS DURING THE PERIODS INVOLVED (EXCEPT AS MAY BE INDICATED IN THE NOTES THERETO OR, IN THE CASE OF THE UNAUDITED STATEMENTS, AS PERMITTED BY RULE 10-01 OF REGULATION S-X OF THE SEC) AND FAIRLY PRESENT IN ACCORDANCE WITH APPLICABLE REQUIREMENTS OF GAAP (SUBJECT, IN THE CASE OF THE UNAUDITED STATEMENTS, TO NORMAL YEAR-END ADJUSTMENTS AND OTHER ADJUSTMENTS DISCUSSED THEREIN) THE CONSOLIDATED FINANCIAL POSITION OF THE PARENT AS OF THEIR RESPECTIVE DATES AND THE RESULTS OF OPERATIONS AND THE CONSOLIDATED CASH FLOWS OF THE PARENT AND ITS CONSOLIDATED SUBSIDIARIES FOR THE PERIODS PRESENTED THEREIN. (VII) BROKERS' FEES. NEITHER PARENT NOR MERGER SUB HAS ANY LIABILITY OR -------------- OBLIGATION TO PAY ANY FEES OR COMMISSIONS TO ANY BROKER, FINDER, OR AGENT WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT FOR WHICH HOFFMAN OR TARGET COULD BECOME LIABLE OR OBLIGATED. 12 (VIII) NO CONTRARY ACTION. -------------------- (A) EXCEPT WITH RESPECT TO (1) OPEN-MARKET PURCHASES OF PARENT COMMON STOCK PURSUANT TO A GENERAL STOCK REPURCHASE PROGRAM OF PARENT THAT HAS NOT BEEN CREATED OR MODIFIED IN CONNECTION WITH THE MERGER, (2) REPURCHASES IN THE ORDINARY COURSE OF BUSINESS OF UNVESTED SHARES, IF ANY, ACQUIRED FROM TERMINATED EMPLOYEES; OR (3) PAYMENTS OF CASH, IF ANY, IN LIEU OF THE ISSUANCE OF FRACTIONAL SHARES, NEITHER PARENT NOR ANY PERSON RELATED TO PARENT WITHIN THE MEANING OF TREAS. REG. 1.368-1(E)(3), (E)(4) AND (E)(5) HAS ANY PLAN OR INTENTION TO, REDEEM OR OTHERWISE ACQUIRE ANY OF THE SHARES FOLLOWING THE MERGER. (B) NEITHER PARENT NOR, TO THE KNOWLEDGE OF PARENT, ANY PERSON RELATED TO PARENT (WITHIN THE MEANING OF TREAS. REG. 1.368-1(E)(3), (E)(4) AND (E)(5)) HAS ACQUIRED ANY TARGET COMMON STOCK IN CONTEMPLATION OF THE MERGER OR OTHERWISE AS PART OF A PLAN OF WHICH THE MERGER IS A PART. (C) PARENT HAS NO PLAN OR INTENTION TO CAUSE THE SURVIVING CORPORATION, AFTER THE MERGER, TO ISSUE ADDITIONAL SHARES OF THE COMMON STOCK OF THE SURVIVING CORPORATION THAT WOULD RESULT IN PARENT LOSING CONTROL OF THE SURVIVING CORPORATION WITHIN THE MEANING OF 368(C) OF THE CODE. (D) EXCEPT FOR TRANSFERS OF STOCK AND ASSETS DESCRIBED IN TREAS. REG. 1.368-2(K) OR TRANSFERS OF SHARES OF COMMON STOCK OF THE SURVIVING CORPORATION TO ANOTHER SUBSIDIARY CONTROLLED BY PARENT WITHIN THE MEANING OF CODE 368(C), PARENT HAS NO PLAN OR INTENTION TO LIQUIDATE THE SURVIVING CORPORATION; TO MERGE THE SURVIVING CORPORATION WITH OR INTO ANOTHER CORPORATION; TO SELL OR OTHERWISE DISPOSE OF THE STOCK OF THE SURVIVING CORPORATION; OR, EXCEPT FOR DISPOSITIONS MADE IN THE ORDINARY COURSE OF BUSINESS, TO CAUSE THE SURVIVING CORPORATION TO SELL OR OTHERWISE DISPOSE OF ANY OF ITS ASSETS. (E) ASSUMING (1) THE TARGET CURRENTLY CONDUCTS A BUSINESS, AND (2) SUCH BUSINESS IS THE TARGET'S "HISTORIC BUSINESS" WITHIN THE MEANING OF TREAS. REG. 1.368-1(D), AND (3) NO ASSETS OF THE TARGET HAVE BEEN SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF THAT WOULD PREVENT PARENT FROM CONTINUING THE "HISTORIC BUSINESS" OF THE TARGET OR FROM USING A "SIGNIFICANT PORTION" OF THE TARGET'S "HISTORIC BUSINESS ASSETS" IN A BUSINESS FOLLOWING THE MERGER, AS SUCH TERMS ARE USED IN TREAS. REG. 1.368-1(D), PARENT WILL CAUSE THE SURVIVING CORPORATION TO CONTINUE THE TARGET'S HISTORIC BUSINESS OR USE A SIGNIFICANT PORTION OF THE TARGET'S HISTORIC BUSINESS ASSETS IN A BUSINESS. FOR PURPOSES OF THIS REPRESENTATION, PARENT WILL BE DEEMED TO SATISFY THE FOREGOING REPRESENTATION IF (X) THE MEMBERS OF PARENT'S QUALIFIED GROUP (AS DEFINED IN TREAS. REG. 1.368-1(D)(4)(II)), IN THE AGGREGATE, CONTINUE THE HISTORIC BUSINESS OF THE TARGET OR USE A SIGNIFICANT PORTION OF THE TARGET'S HISTORIC BUSINESS ASSETS IN A BUSINESS, OR (Y) THE FOREGOING ACTIVITIES ARE UNDERTAKEN BY A PARTNERSHIP AS CONTEMPLATED BY TREAS. REG. 1.368-1(D)(4) (PROVIDED, HOWEVER, THAT IN THE EVENT THAT ANY ASSUMPTION SET FORTH IN THIS 4(B)(VIII)(E) IS INCORRECT, THIS 4(B)(VIII)(E) SHALL NOT BE CONSIDERED TO BE OR HAVE BEEN BREACHED). 13 (F) NEITHER PARENT NOR MERGER SUB IS AN INVESTMENT COMPANY AS DEFINED IN 368(A)(2)(F)(III) AND (IV) OF THE CODE. (G) ASSUMING THAT, AT THE EFFECTIVE TIME, THE TARGET WILL HOLD AT LEAST 90 PERCENT OF THE FAIR MARKET VALUE OF ITS NET ASSETS AND AT LEAST 70 PERCENT OF THE FAIR MARKET VALUE OF ITS GROSS ASSETS HELD IMMEDIATELY PRIOR TO THE EFFECTIVE TIME, AT THE EFFECTIVE TIME, THE SURVIVING CORPORATION WILL HOLD AT LEAST 90 PERCENT OF THE FAIR MARKET VALUE OF THE TARGET'S NET ASSETS AND AT LEAST 70 PERCENT OF THE FAIR MARKET VALUE OF THE TARGET'S GROSS ASSETS AND AT LEAST 90 PERCENT OF THE FAIR MARKET VALUE OF MERGER SUB'S NET ASSETS AND AT LEAST 70 PERCENT OF THE FAIR MARKET VALUE OF MERGER SUB'S GROSS ASSETS HELD IMMEDIATELY PRIOR TO THE EFFECTIVE TIME. FOR PURPOSES OF THIS REPRESENTATION (INCLUDING THE ASSUMPTION SET FORTH ABOVE), AMOUNTS USED BY THE TARGET TO PAY MERGER EXPENSES, AMOUNTS PAID BY THE TARGET TO REDEEM STOCK, SECURITIES, WARRANTS OR OPTIONS OF THE TARGET AS PART OF ANY OVERALL PLAN OF WHICH THE MERGER IS A PART, AND AMOUNTS DISTRIBUTED BY THE TARGET TO HOFFMAN (EXCEPT FOR ANY REGULAR, NORMAL DIVIDENDS) AS PART OF AN OVERALL PLAN OF WHICH THE MERGER IS A PART, INCLUDING, BUT NOT LIMITED TO, ANY INDEBTEDNESS OWED BY HOFFMAN TO THE TARGET THAT IS FORGIVEN AS PART OF AN OVERALL PLAN OF WHICH THE MERGER IS A PART, IN EACH CASE WILL BE TREATED AS CONSTITUTING ASSETS OF THE TARGET IMMEDIATELY PRIOR TO THE EFFECTIVE TIME (PROVIDED, HOWEVER, THAT IN THE EVENT THAT THE ASSUMPTION SET FORTH IN THIS 4(B)(VIII)(G) IS INCORRECT, THIS 4(B)(VIII)(G) SHALL NOT BE CONSIDERED TO BE OR HAVE BEEN BREACHED). (H) PARENT AND MERGER SUB WILL PAY THEIR RESPECTIVE EXPENSES, IF ANY, INCURRED IN CONNECTION WITH THE MERGER. IN THE MERGER, NO LIABILITIES OF HOFFMAN WILL BE ASSUMED BY PARENT, AND PARENT WILL NOT ASSUME ANY LIENS, ENCUMBRANCES OR ANY SIMILAR LIABILITIES RELATING TO ANY TARGET COMMON STOCK ACQUIRED BY PARENT IN THE MERGER. (I) AT THE EFFECTIVE TIME, THERE WILL BE NO INTERCORPORATE INDEBTEDNESS EXISTING BETWEEN PARENT OR MERGER SUB AND THE TARGET THAT WAS ISSUED OR ACQUIRED, OR WILL BE SETTLED, AT A DISCOUNT. 5. REPRESENTATIONS AND WARRANTIES CONCERNING THE TARGET --------------------------------------------------------- . HOFFMAN AND TARGET REPRESENT AND WARRANT TO PARENT AND MERGER SUB THAT THE STATEMENTS CONTAINED IN THIS 5 ARE CORRECT AND COMPLETE AS OF THE DATE OF THIS AGREEMENT, EXCEPT AS SET FORTH IN THE DISCLOSURE SCHEDULE DELIVERED BY TARGET TO THE PARENT ON THE DATE HEREOF, INITIALED BY THE PARTIES AND ATTACHED HERETO (THE "TARGET DISCLOSURE SCHEDULE"). NOTHING IN THE TARGET DISCLOSURE ---------------------------- SCHEDULE SHALL BE DEEMED ADEQUATE TO DISCLOSE AN EXCEPTION TO A REPRESENTATION OR WARRANTY MADE HEREIN, HOWEVER, UNLESS THE TARGET DISCLOSURE SCHEDULE IDENTIFIES THE EXCEPTION WITH PARTICULARITY AND DESCRIBES THE RELEVANT FACTS IN DETAIL. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, THE MERE LISTING (OR INCLUSION OF A COPY) OF A DOCUMENT OR OTHER ITEM SHALL NOT BE DEEMED ADEQUATE TO DISCLOSE AN EXCEPTION TO A REPRESENTATION OR WARRANTY MADE HEREIN (UNLESS THE REPRESENTATION OR WARRANTY HAS TO DO WITH THE EXISTENCE OF THE DOCUMENT OR OTHER ITEM ITSELF). THE TARGET DISCLOSURE SCHEDULE IS ARRANGED IN PARAGRAPHS CORRESPONDING TO THE LETTERED AND NUMBERED PARAGRAPHS CONTAINED IN THIS 5, AND DISCLOSURE OF ANY MATTER IN ANY SUCH PARAGRAPH IS DEEMED TO BE DISCLOSURE FOR THE PURPOSES OF THE CORRESPONDINGLY NUMBERED PARAGRAPH OF THIS 5 ONLY, AND NOT FOR ANY OTHER PARAGRAPH OF THIS 5, OR FOR ANY OTHER PURPOSE. 14 (A) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER ---------------------------------------------------- . THE TARGET IS A CORPORATION DULY ORGANIZED, VALIDLY EXISTING, AND IN GOOD STANDING UNDER THE LAWS OF THE STATE OF CALIFORNIA. THE TARGET IS DULY AUTHORIZED TO CONDUCT BUSINESS AND IS IN GOOD STANDING UNDER THE LAWS OF EACH JURISDICTION WHERE SUCH QUALIFICATION IS REQUIRED, EXCEPT WHERE THE FAILURE TO SO QUALIFY, INDIVIDUALLY, OR IN THE AGGREGATE, WOULD NOT HAVE A MATERIAL ADVERSE EFFECT ON THE TARGET. 5(A) OF THE TARGET DISCLOSURE SCHEDULE LISTS THE JURISDICTIONS IN WHICH THE TARGET IS DULY AUTHORIZED TO CONDUCT BUSINESS. THE TARGET HAS FULL CORPORATE POWER AND AUTHORITY AND ALL LICENSES, PERMITS, AND AUTHORIZATIONS NECESSARY TO CARRY ON THE BUSINESSES IN WHICH IT IS ENGAGED AND IN WHICH IT PRESENTLY PROPOSES TO ENGAGE AND TO OWN AND USE THE PROPERTIES OWNED AND USED BY IT. 5(A) OF THE TARGET DISCLOSURE SCHEDULE LISTS THE DIRECTORS AND OFFICERS OF THE TARGET. THE TARGET AND HOFFMAN HAVE DELIVERED TO THE PARENT CORRECT AND COMPLETE COPIES OF THE CHARTER AND BYLAWS OF THE TARGET (AS AMENDED TO DATE). THE MINUTE BOOKS (CONTAINING THE RECORDS OF MEETINGS OF THE SHAREHOLDERS, THE BOARD OF DIRECTORS, AND ANY COMMITTEES OF THE BOARD OF DIRECTORS), THE STOCK CERTIFICATE BOOKS, AND THE STOCK RECORD BOOKS OF THE TARGET PROVIDED TO PARENT ARE CORRECT AND COMPLETE. THE TARGET IS NOT IN DEFAULT UNDER OR IN VIOLATION OF ANY PROVISION OF ITS CHARTER OR BYLAWS. (B) CAPITALIZATION -------------- . THE ENTIRE AUTHORIZED CAPITAL STOCK OF THE TARGET CONSISTS OF 15,000,000 TARGET SHARES, OF WHICH 4,250,000 TARGET SHARES ARE ISSUED AND OUTSTANDING AND NO TARGET SHARES ARE HELD IN TREASURY. ALL OF THE ISSUED AND OUTSTANDING TARGET SHARES HAVE BEEN DULY AUTHORIZED, ARE VALIDLY ISSUED, FULLY PAID, AND NONASSESSABLE, AND ARE HELD OF RECORD BY HOFFMAN. THERE ARE NO OUTSTANDING OR AUTHORIZED OPTIONS, WARRANTS, PURCHASE RIGHTS, SUBSCRIPTION RIGHTS, CONVERSION RIGHTS, EXCHANGE RIGHTS, OR OTHER CONTRACTS OR COMMITMENTS THAT COULD REQUIRE THE TARGET TO ISSUE, SELL, OR OTHERWISE CAUSE TO BECOME OUTSTANDING ANY OF ITS CAPITAL STOCK. THERE ARE NO OUTSTANDING OR AUTHORIZED STOCK APPRECIATION, PHANTOM STOCK, PROFIT PARTICIPATION, OR SIMILAR RIGHTS WITH RESPECT TO THE TARGET. THERE ARE NO VOTING TRUSTS, PROXIES, OR OTHER AGREEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE VOTING OF THE CAPITAL STOCK OF THE TARGET. (C) AUTHORIZATION OF TRANSACTION ------------------------------ . THE TARGET HAS FULL POWER AND AUTHORITY (INCLUDING FULL CORPORATE POWER AND AUTHORITY) TO EXECUTE AND DELIVER THIS AGREEMENT AND TO PERFORM ITS OBLIGATIONS HEREUNDER. THE EXECUTION AND DELIVERY OF THIS AGREEMENT BY THE TARGET AND THE CONSUMMATION BY THE TARGET OF THE TRANSACTIONS CONTEMPLATED HEREBY HAVE BEEN DULY APPROVED BY THE BOARD OF DIRECTORS AND THE SOLE SHAREHOLDER OF THE TARGET. NO OTHER CORPORATE PROCEEDINGS ON THE PART OF THE TARGET OR ITS SHAREHOLDER IS NECESSARY TO AUTHORIZE THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY. THIS AGREEMENT CONSTITUTES THE VALID AND LEGALLY BINDING OBLIGATION OF THE TARGET, ENFORCEABLE IN ACCORDANCE WITH ITS TERMS AND CONDITIONS. 15 (D) NONCONTRAVENTION ---------------- . NEITHER THE EXECUTION AND THE DELIVERY OF THIS AGREEMENT, NOR THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED HEREBY, WILL (I) VIOLATE ANY CONSTITUTION, STATUTE, REGULATION, RULE, INJUNCTION, JUDGMENT, ORDER, DECREE, RULING, CHARGE, OR OTHER RESTRICTION OF ANY GOVERNMENT, GOVERNMENTAL AGENCY, OR COURT TO WHICH THE TARGET IS SUBJECT OR ANY PROVISION OF THE CHARTER OR BYLAWS OF THE TARGET OR (II) CONFLICT WITH, RESULT IN A BREACH OF, CONSTITUTE A DEFAULT UNDER, RESULT IN THE ACCELERATION OF, CREATE IN ANY PARTY THE RIGHT TO ACCELERATE, TERMINATE, MODIFY, OR CANCEL, OR REQUIRE ANY NOTICE OR CONSENT UNDER ANY AGREEMENT, CONTRACT, LEASE, LICENSE, INSTRUMENT, OR OTHER ARRANGEMENT TO WHICH THE TARGET IS A PARTY OR BY WHICH IT IS BOUND OR TO WHICH ANY OF ITS ASSETS IS SUBJECT (OR RESULT IN THE IMPOSITION OF ANY SECURITY INTEREST UPON ANY OF ITS ASSETS). (E) APPROVALS --------- . NO CONSENT, APPROVAL, ORDER OR AUTHORIZATION OF, OR REGISTRATION, DECLARATION OR FILING WITH, OR PERMIT FROM, ANY GOVERNMENTAL ENTITY IS REQUIRED BY OR WITH RESPECT TO TARGET IN CONNECTION WITH THE EXECUTION AND DELIVERY OF THIS AGREEMENT OR THE CONSUMMATION BY TARGET OF THE TRANSACTIONS CONTEMPLATED HEREBY EXCEPT FOR: (A) THE FILING OF THE CERTIFICATE OF MERGER WITH THE SECRETARY OF STATE OF THE STATE OF DELAWARE PURSUANT TO THE DGCL; (B) THE FILING OF THE AGREEMENT OF MERGER WITH THE SECRETARY OF STATE OF THE STATE OF CALIFORNIA PURSUANT TO THE CCC; (C) SUCH FILINGS AND APPROVALS AS MAY BE REQUIRED BY ANY APPLICABLE NON-U.S. GOVERNMENTAL ENTITY; (D) SUCH FILINGS AND APPROVALS AS MAY BE REQUIRED BY ANY NON-U.S. PREMERGER NOTIFICATION, SECURITIES, CORPORATE OR OTHER LEGAL REQUIREMENT, AND (E) SUCH CONSENTS, APPROVALS, ORDERS, AUTHORIZATIONS, REGISTRATIONS, DECLARATIONS AND FILINGS THE FAILURE OF WHICH TO MAKE OR OBTAIN COULD NOT REASONABLY BE EXPECTED TO HAVE A MATERIAL ADVERSE EFFECT ON PARENT OR MATERIALLY IMPAIR OR DELAY THE ABILITY OF THE PARTIES TO CONSUMMATE THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. (F) BROKERS' FEES -------------- . THE TARGET HAS NO LIABILITY OR OBLIGATION TO PAY ANY FEES OR COMMISSIONS TO ANY BROKER, FINDER, OR AGENT WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. (G) TITLE TO ASSETS ----------------- . THE TARGET HAS GOOD AND MARKETABLE TITLE TO, OR A VALID LEASEHOLD INTEREST IN, THE PROPERTIES AND ASSETS USED BY IT, LOCATED ON ITS PREMISES, OR SHOWN ON THE MOST RECENT BALANCE SHEET OR ACQUIRED AFTER THE DATE THEREOF, FREE AND CLEAR OF ALL SECURITY INTERESTS, EXCEPT FOR PROPERTIES AND ASSETS DISPOSED OF IN THE ORDINARY COURSE OF BUSINESS SINCE THE DATE OF THE MOST RECENT BALANCE SHEET. (H) SUBSIDIARIES ------------ . THE TARGET DOES NOT CONTROL DIRECTLY OR INDIRECTLY OR HAVE ANY DIRECT OR INDIRECT EQUITY PARTICIPATION IN ANY CORPORATION, PARTNERSHIP, TRUST, OR OTHER BUSINESS ASSOCIATION. (I) FINANCIAL STATEMENTS --------------------- . ATTACHED HERETO AS EXHIBIT B ARE THE FOLLOWING FINANCIAL STATEMENTS ---------- (COLLECTIVELY THE "FINANCIAL STATEMENTS"): (I) UNAUDITED BALANCE SHEETS AND --------------------- STATEMENTS OF INCOME, STATEMENTS OF SHAREHOLDERS' EQUITY, AND CASH FLOW AS OF AND FOR THE FISCAL YEARS ENDED DECEMBER 31, 1997, DECEMBER 31, 1998, DECEMBER 31, 1999, DECEMBER 31, 2000, AND DECEMBER 31, 2001 (THE "MOST RECENT FISCAL YEAR ----------------------- END"), FOR THE TARGET; AND (II) AN UNAUDITED BALANCE SHEET AND STATEMENT OF --- INCOME, STATEMENT OF SHAREHOLDERS' EQUITY, AND CASH FLOW (THE "MOST RECENT --- FINANCIAL STATEMENTS") AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 2002 (THE --- "MOST RECENT FISCAL QUARTER END"), FOR THE TARGET. THE FINANCIAL STATEMENTS ---------------------------------- (INCLUDING THE NOTES THERETO) HAVE BEEN PREPARED IN ACCORDANCE WITH GAAP APPLIED --- ON A CONSISTENT BASIS THROUGHOUT THE PERIODS COVERED THEREBY, PRESENT FAIRLY THE FINANCIAL CONDITION OF THE TARGET AS OF SUCH DATES AND THE RESULTS OF OPERATIONS OF THE TARGET FOR SUCH PERIODS, ARE CORRECT AND COMPLETE, AND ARE CONSISTENT WITH THE BOOKS AND RECORDS OF THE TARGET (WHICH BOOKS AND RECORDS ARE CORRECT AND COMPLETE); PROVIDED, HOWEVER, THAT THE MOST RECENT FINANCIAL STATEMENTS ARE SUBJECT TO NORMAL YEAR-END ADJUSTMENTS (WHICH WILL NOT BE MATERIAL INDIVIDUALLY OR IN THE AGGREGATE) AND LACK FOOTNOTES AND OTHER PRESENTATION ITEMS. 16 (J) EVENTS SUBSEQUENT TO MOST RECENT FISCAL YEAR END ------------------------------------------------------- . SINCE THE MOST RECENT FISCAL YEAR END, THERE HAS NOT BEEN ANY ADVERSE CHANGE IN THE BUSINESS, FINANCIAL CONDITION, OPERATIONS, RESULTS OF OPERATIONS, OR FUTURE PROSPECTS OF THE TARGET, OTHER THAN AS EXPLICITLY CONTEMPLATED BY THIS AGREEMENT. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, SINCE THAT DATE: (I) THE TARGET HAS NOT SOLD, LEASED, TRANSFERRED, OR ASSIGNED ANY OF ITS ASSETS, TANGIBLE OR INTANGIBLE, OTHER THAN FOR A FAIR CONSIDERATION IN THE ORDINARY COURSE OF BUSINESS; (II) THE TARGET HAS NOT ENTERED INTO ANY AGREEMENT, CONTRACT, LEASE, OR LICENSE (OR SERIES OF RELATED AGREEMENTS, CONTRACTS, LEASES, AND LICENSES) EITHER INVOLVING MORE THAN $35,000 OR OUTSIDE THE ORDINARY COURSE OF BUSINESS; (III) NO PARTY (INCLUDING THE TARGET) HAS ACCELERATED, TERMINATED, MODIFIED, OR CANCELLED ANY AGREEMENT, CONTRACT, LEASE, OR LICENSE (OR SERIES OF RELATED AGREEMENTS, CONTRACTS, LEASES, AND LICENSES) INVOLVING MORE THAN $35,000 TO WHICH THE TARGET IS A PARTY OR BY WHICH TARGET IS BOUND; (IV) NO SECURITY INTEREST HAS BEEN IMPOSED UPON ANY OF THE TARGET'S ASSETS, TANGIBLE OR INTANGIBLE; (V) THE TARGET HAS NOT MADE ANY CAPITAL EXPENDITURE (OR SERIES OF RELATED CAPITAL EXPENDITURES) EITHER INVOLVING MORE THAN $35,000 OR OUTSIDE THE ORDINARY COURSE OF BUSINESS; (VI) THE TARGET HAS NOT MADE ANY CAPITAL INVESTMENT IN, ANY LOAN TO, OR ANY ACQUISITION OF THE SECURITIES OR ASSETS OF, ANY OTHER PERSON (OR SERIES OF RELATED CAPITAL INVESTMENTS, LOANS, AND ACQUISITIONS) EITHER INVOLVING MORE THAN $35,000 OR OUTSIDE THE ORDINARY COURSE OF BUSINESS; (VII) THE TARGET HAS NOT ISSUED ANY NOTE, BOND, OR OTHER DEBT SECURITY OR CREATED, INCURRED, ASSUMED, OR GUARANTEED ANY INDEBTEDNESS FOR BORROWED MONEY OR CAPITALIZED LEASE OBLIGATION EITHER INVOLVING MORE THAN $35,000 SINGLY OR $35,000 IN THE AGGREGATE; 17 (VIII) THE TARGET HAS NOT DELAYED OR POSTPONED THE PAYMENT OF ACCOUNTS PAYABLE AND OTHER LIABILITIES OUTSIDE THE ORDINARY COURSE OF BUSINESS; (IX) THE TARGET HAS NOT CANCELLED, COMPROMISED, WAIVED, OR RELEASED ANY RIGHT OR CLAIM (OR SERIES OF RELATED RIGHTS AND CLAIMS) EITHER INVOLVING MORE THAN $35,000 OR OUTSIDE THE ORDINARY COURSE OF BUSINESS; (X) THE TARGET HAS NOT GRANTED ANY LICENSE OR SUBLICENSE OF ANY RIGHTS UNDER OR WITH RESPECT TO ANY INTELLECTUAL PROPERTY; (XI) THERE HAS BEEN NO CHANGE MADE OR AUTHORIZED IN THE CHARTER OR BYLAWS OF THE TARGET; (XII) THE TARGET HAS NOT ISSUED, SOLD, OR OTHERWISE DISPOSED OF ANY OF ITS CAPITAL STOCK, OR GRANTED ANY OPTIONS, WARRANTS, OR OTHER RIGHTS TO PURCHASE OR OBTAIN (INCLUDING UPON CONVERSION, EXCHANGE, OR EXERCISE) ANY OF ITS CAPITAL STOCK; (XIII) THE TARGET HAS NOT DECLARED, SET ASIDE, OR PAID ANY DIVIDEND OR MADE ANY DISTRIBUTION WITH RESPECT TO ITS CAPITAL STOCK (WHETHER IN CASH OR IN KIND) OR REDEEMED, PURCHASED, OR OTHERWISE ACQUIRED ANY OF ITS CAPITAL STOCK; (XIV) THE TARGET HAS NOT EXPERIENCED ANY DAMAGE, DESTRUCTION, OR LOSS (WHETHER OR NOT COVERED BY INSURANCE) TO ITS PROPERTY; (XV) THE TARGET HAS NOT MADE ANY LOAN TO, OR ENTERED INTO ANY OTHER TRANSACTION WITH, ANY OF ITS DIRECTORS, OFFICERS, AND EMPLOYEES OUTSIDE THE ORDINARY COURSE OF BUSINESS; (XVI) THE TARGET HAS NOT ENTERED INTO ANY EMPLOYMENT CONTRACT OR COLLECTIVE BARGAINING AGREEMENT, WRITTEN OR ORAL, OR MODIFIED THE TERMS OF ANY EXISTING SUCH CONTRACT OR AGREEMENT; (XVII) THE TARGET HAS NOT GRANTED ANY INCREASE IN THE BASE COMPENSATION OF ANY OF ITS DIRECTORS, OFFICERS, AND EMPLOYEES OUTSIDE THE ORDINARY COURSE OF BUSINESS; (XVIII) THE TARGET HAS NOT ADOPTED, AMENDED, MODIFIED, OR TERMINATED ANY BONUS, PROFIT-SHARING, INCENTIVE, SEVERANCE, OR OTHER PLAN, CONTRACT, OR COMMITMENT FOR THE BENEFIT OF ANY OF ITS DIRECTORS, OFFICERS, AND EMPLOYEES (OR TAKEN ANY SUCH ACTION WITH RESPECT TO ANY OTHER EMPLOYEE BENEFIT PLAN); (XIX) THE TARGET HAS NOT MADE ANY OTHER CHANGE IN EMPLOYMENT TERMS FOR ANY OF ITS DIRECTORS, OFFICERS, AND EMPLOYEES OUTSIDE THE ORDINARY COURSE OF BUSINESS; (XX) THE TARGET HAS NOT MADE OR PLEDGED TO MAKE ANY CHARITABLE OR OTHER CAPITAL CONTRIBUTION OUTSIDE THE ORDINARY COURSE OF BUSINESS; 18 (XXI) THERE HAS NOT BEEN ANY OTHER OCCURRENCE, EVENT, INCIDENT, ACTION, FAILURE TO ACT, OR TRANSACTION OUTSIDE THE ORDINARY COURSE OF BUSINESS INVOLVING THE TARGET, OTHER THAN THE ACCRUAL OF PROFESSIONAL FEES IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT; AND (XXII) THE TARGET HAS NOT COMMITTED TO ANY OF THE FOREGOING. (K) UNDISCLOSED LIABILITIES ------------------------ . THE TARGET HAS NO LIABILITIES (AND, TO THE KNOWLEDGE OF ANY OF HOFFMAN AND THE DIRECTORS AND OFFICERS (AND EMPLOYEES WITH RESPONSIBILITY FOR FINANCIAL MATTERS) OF THE TARGET, THERE IS NO BASIS FOR ANY PRESENT OR FUTURE ACTION, SUIT, PROCEEDING, HEARING, INVESTIGATION, CHARGE, COMPLAINT, CLAIM, OR DEMAND AGAINST ANY OF THEM GIVING RISE TO ANY LIABILITY), EXCEPT FOR (I) LIABILITIES SET FORTH ON THE FACE OF THE MOST RECENT BALANCE SHEET (RATHER THAN IN ANY NOTES THERETO) AND (II) LIABILITIES WHICH HAVE ARISEN AFTER THE MOST RECENT FISCAL QUARTER END IN THE ORDINARY COURSE OF BUSINESS (NONE OF WHICH RESULTS FROM, ARISES OUT OF, RELATES TO, IS IN THE NATURE OF, OR WAS CAUSED BY ANY BREACH OF CONTRACT, BREACH OF WARRANTY, TORT, INFRINGEMENT, OR VIOLATION OF LAW). (L) LEGAL COMPLIANCE ----------------- . THE TARGET AND ITS PREDECESSORS AND AFFILIATES HAVE BEEN IN MATERIAL COMPLIANCE WITH ALL APPLICABLE LAWS (INCLUDING RULES, REGULATIONS, CODES, PLANS, INJUNCTIONS, JUDGMENTS, ORDERS, DECREES, RULINGS, AND CHARGES THEREUNDER) OF FEDERAL, STATE, LOCAL, AND FOREIGN GOVERNMENTS (AND ALL AGENCIES THEREOF), AND NO ACTION, SUIT, PROCEEDING, HEARING, INVESTIGATION, CHARGE, COMPLAINT, CLAIM, DEMAND, OR NOTICE HAS BEEN FILED OR, TO THE KNOWLEDGE OF HOFFMAN AND THE DIRECTORS AND OFFICERS OF THE TARGET, COMMENCED OR THREATENED AGAINST ANY OF THEM ALLEGING ANY FAILURE SO TO COMPLY. (M) TAX MATTERS. ------------ (I) FILING OF TAX RETURNS. THE TARGET HAS DULY AND TIMELY FILED WITH THE ------------------------ APPROPRIATE TAX AUTHORITIES ALL TAX RETURNS REQUIRED TO BE FILED THROUGH THE DATE HEREOF. ALL SUCH TAX RETURNS FILED ARE COMPLETE AND ACCURATE IN ALL RESPECTS. THE TARGET HAS DISCLOSED ON ITS FEDERAL INCOME TAX RETURNS ALL POSITIONS TAKEN THEREIN THAT COULD GIVE RISE TO A SUBSTANTIAL UNDERSTATEMENT OF FEDERAL INCOME TAX WITHIN THE MEANING OF 6662 OF THE CODE. THE TARGET IS NOT CURRENTLY THE BENEFICIARY OF ANY EXTENSION OF TIME WITHIN WHICH TO FILE ANY TAX RETURN. NO CLAIM HAS EVER BEEN MADE BY AN AUTHORITY IN A JURISDICTION WHERE THE TARGET DOES NOT FILE TAX RETURNS THAT IT IS OR MAY BE SUBJECT TO TAXATION BY THAT JURISDICTION. (II) PAYMENT OF TAXES. ALL TAXES OWED BY THE TARGET (WHETHER OR NOT SHOWN ON ---------------- ANY TAX RETURN) HAVE BEEN PAID. THE UNPAID TAXES OF THE TARGET (I) DID NOT, AS OF THE MOST RECENT FISCAL QUARTER END, EXCEED THE RESERVE FOR TAX LIABILITY (EXCLUDING ANY RESERVE FOR DEFERRED TAXES ESTABLISHED TO REFLECT TIMING DIFFERENCES BETWEEN BOOK AND TAX INCOME) SET FORTH ON THE FACE OF THE MOST RECENT BALANCE SHEET (RATHER THAN IN ANY NOTES THERETO), AND (II) WILL NOT EXCEED THAT RESERVE AS ADJUSTED FOR OPERATIONS AND TRANSACTIONS THROUGH THE CLOSING DATE IN ACCORDANCE WITH THE PAST CUSTOM AND PRACTICE OF THE TARGET IN FILING ITS TAX RETURNS. 19 (III) AUDITS, INVESTIGATIONS, DISPUTES OR CLAIMS. NO DEFICIENCIES FOR TAXES ------------------------------------------ HAVE BEEN CLAIMED, PROPOSED OR ASSESSED BY ANY TAXING OR OTHER GOVERNMENTAL AUTHORITY AGAINST THE TARGET. THERE ARE NO PENDING OR, TO THE KNOWLEDGE OF ANY OF HOFFMAN, THE TARGET, OR ANY DIRECTOR OR OFFICER (OR EMPLOYEES RESPONSIBLE FOR TAX MATTERS) OF THE TARGET, THREATENED AUDITS, INVESTIGATIONS, DISPUTES OR CLAIMS OR OTHER ACTIONS FOR OR RELATING TO ANY LIABILITY FOR TAXES WITH RESPECT TO THE TARGET, AND THERE ARE NO MATTERS UNDER DISCUSSION WITH ANY GOVERNMENTAL AUTHORITIES, OR OF WHICH ANY OF HOFFMAN, THE TARGET, OR ANY DIRECTOR OR OFFICER (OR ANY EMPLOYEE RESPONSIBLE FOR TAX MATTERS) OF THE TARGET, HAS KNOWLEDGE, WITH RESPECT TO TAXES THAT ARE LIKELY TO RESULT IN AN ADDITIONAL LIABILITY FOR TAXES WITH RESPECT TO THE TARGET. NO AUDITS OF FEDERAL, STATE AND LOCAL TAX RETURNS OF THE TARGET BY THE RELEVANT TAX AUTHORITIES HAVE BEEN INITIATED OR COMPLETED, AND THE TARGET HAS NOT BEEN NOTIFIED THAT ANY TAX AUTHORITY INTENDS TO AUDIT A TAX RETURN FOR ANY PERIOD. THE TARGET HAS DELIVERED TO PARENT COMPLETE AND ACCURATE COPIES OF ALL TAX RETURNS OF THE TARGET FOR THE YEARS ENDED ON OR AFTER DECEMBER 31, 1997, AND COMPLETE AND ACCURATE COPIES OF ALL EXAMINATION REPORTS AND STATEMENTS OF DEFICIENCIES ASSESSED AGAINST OR AGREED TO BY THE COMPANY SINCE DECEMBER 31, 1997. THE TARGET HAS NOT WAIVED ANY STATUTE OF LIMITATIONS IN RESPECT OF TAXES OR AGREED TO ANY EXTENSION OF TIME WITH RESPECT TO A TAX ASSESSMENT OR DEFICIENCY. (IV) ASSET LIENS. THERE ARE NO LIENS FOR TAXES (OTHER THAN FOR CURRENT ------------ TAXES NOT YET DUE AND PAYABLE) ON ANY ASSETS OF THE TARGET OR ON ANY TARGET SHARES. (V) TAX ELECTIONS. ALL ELECTIONS WITH RESPECT TO TAXES AFFECTING THE TARGET ------------- THAT ARE EFFECTIVE AS OF THE DATE HEREOF ARE SET FORTH IN 5(M) OF THE TARGET DISCLOSURE SCHEDULE. THE TARGET: (I) IS NOT A PERSONAL HOLDING COMPANY WITHIN THE MEANING OF 542 OF THE CODE; (II) HAS NOT CONSENTED AT ANY TIME UNDER 341(F)(1) OF THE CODE TO HAVE THE PROVISIONS OF 341(F)(2) OF THE CODE APPLY TO ANY DISPOSITION OF THE TARGET'S ASSETS; (III) HAS NOT AGREED, NOR IS REQUIRED, TO MAKE ANY ADJUSTMENT UNDER 481(A) OF THE CODE BY REASON OF A CHANGE IN ACCOUNTING METHOD OR OTHERWISE, AS A RESULT OF ANY TRANSACTIONS, OPERATIONS OR EVENTS OCCURRING ON OR PRIOR TO THE CLOSING DATE; (IV) HAS NOT MADE AN ELECTION, NOR IS REQUIRED, TO TREAT ANY ASSET OF THE TARGET AS OWNED BY ANOTHER PERSON PURSUANT TO THE PROVISIONS OF 168(F) OF THE INTERNAL REVENUE CODE OF 1954, AS AMENDED AND IN EFFECT IMMEDIATELY PRIOR TO THE ENACTMENT OF THE TAX REFORM ACT OF 1986, OR AS TAX-EXEMPT BOND FINANCED PROPERTY OR TAX-EXEMPT USE PROPERTY WITHIN THE MEANING OF 168 OF THE CODE; AND (V) HAS NOT MADE ANY ELECTIONS WITH RESPECT TO ANY OF THE FOREGOING NOR IS REQUIRED TO APPLY ANY OF THE FOREGOING RULES UNDER ANY COMPARABLE STATE, LOCAL OR FOREIGN TAX PROVISION. (VI) PRIOR AFFILIATED GROUPS. THE TARGET HAS NEVER BEEN A MEMBER OF AN ------------------------- AFFILIATED GROUP OR ANY GROUP OF CORPORATIONS FILING A CONSOLIDATED, COMBINED, UNITARY OR SIMILAR TAX RETURN. THE TARGET HAS NO LIABILITY FOR THE TAXES OF ANY PERSON OTHER THAN THE TARGET (I) UNDER TREASURY REGULATIONS 1.1502-6 (OR ANY SIMILAR PROVISION OF STATE, LOCAL OR FOREIGN LAW), (II) AS A TRANSFEREE OR SUCCESSOR, (III) BY CONTRACT, OR (IV) OTHERWISE. 20 (VII) TAX RULINGS; BINDING AGREEMENTS. THE TARGET HAS NOT REQUESTED OR ---------------------------------- RECEIVED ANY RULING FROM ANY TAX AUTHORITY, OR SIGNED ANY BINDING AGREEMENT WITH ANY TAX AUTHORITY (INCLUDING, WITHOUT LIMITATION, ANY ADVANCE PRICING AGREEMENT), THAT WOULD AFFECT THE AMOUNT OF TAX LIABILITY OF THE TARGET AFTER THE CLOSING DATE. (VIII) POWER OF ATTORNEY. THERE IS NO POWER OF ATTORNEY GRANTED BY THE ------------------- TARGET RELATING TO ANY TAX THAT IS CURRENTLY IN FORCE. (IX) TAX SHARING AGREEMENTS. THERE ARE NO, AND AT THE CLOSING DATE THERE ------------------------ WILL BE NO, TAX-SHARING AGREEMENTS OR SIMILAR ARRANGEMENTS WITH RESPECT TO OR INVOLVING THE TARGET, AND, AFTER THE CLOSING DATE, THE TARGET SHALL NOT BE BOUND BY ANY SUCH TAX-SHARING AGREEMENTS OR SIMILAR ARRANGEMENTS OR HAVE ANY LIABILITY THEREUNDER FOR AMOUNTS DUE IN RESPECT OF ANY PERIODS. (X) PARTNERSHIPS AND SINGLE MEMBER LLCS. THE TARGET (I) IS NOT SUBJECT TO ------------------------------------- ANY JOINT VENTURE, PARTNERSHIP, OR OTHER ARRANGEMENT OR CONTRACT WHICH IS TREATED AS A PARTNERSHIP FOR UNITED STATES FEDERAL INCOME TAX PURPOSES OR (II) DOES NOT OWN A SINGLE MEMBER LIMITED LIABILITY COMPANY WHICH IS TREATED AS A DISREGARDED ENTITY. (XI) WITHHOLDING. THE TARGET HAS WITHHELD AND PAID ALL TAXES REQUIRED TO ----------- HAVE BEEN WITHHELD AND PAID IN CONNECTION WITH AMOUNTS PAID OR OWING TO ANY EMPLOYEE, INDEPENDENT CONTRACTOR, CREDITOR, SHAREHOLDER, OR OTHER THIRD PARTY. THE TARGET IS NOT A "UNITED STATES REAL PROPERTY HOLDING CORPORATION" WITHIN THE MEANING OF 897 OF THE CODE. (XII) PARACHUTE PAYMENTS. THERE IS NO CONTRACT, AGREEMENT, PLAN OR ------------------- ARRANGEMENT COVERING ANY EMPLOYEE OR FORMER EMPLOYEE OF THE TARGET (WITH RESPECT TO THEIR RELATIONSHIP WITH THE TARGET) THAT, INDIVIDUALLY OR COLLECTIVELY, PROVIDES FOR THE PAYMENT BY THE TARGET OF ANY AMOUNT (I) THAT IS NOT DEDUCTIBLE UNDER 162(A)(1) OR 404 OF THE CODE OR (II) THAT IS AN "EXCESS PARACHUTE PAYMENT" PURSUANT TO 280G OF THE CODE. (XIII) TAX-EXEMPT INTEREST. NONE OF THE ASSETS OF THE TARGET DIRECTLY OR -------------------- INDIRECTLY SECURES ANY DEBT THE INTEREST ON WHICH IS TAX-EXEMPT UNDER 103(A) OF THE CODE. (XIV) PERMANENT ESTABLISHMENT. THE TARGET DOES NOT HAVE, AND HAS NOT HAD, A ----------------------- PERMANENT ESTABLISHMENT IN ANY FOREIGN COUNTRY, AS DEFINED IN ANY APPLICABLE TAX TREATY OR CONVENTION BETWEEN THE UNITED STATES OF AMERICA AND SUCH FOREIGN COUNTRY. (XV) INTERNATIONAL BOYCOTT. THE TARGET HAS NEVER PARTICIPATED IN NOR IS ---------------------- PARTICIPATING IN AN INTERNATIONAL BOYCOTT WITHIN THE MEANING OF 999 OF THE CODE. 21 (XVI) S CORPORATION ELECTION. THE TARGET HAS BEEN A VALIDLY ELECTING S ------------------------ CORPORATION WITHIN THE MEANING OF SECTIONS 1361 AND 1362 OF THE CODE AT ALL TIMES SINCE ITS FORMATION, AND WILL BE AN S CORPORATION UP TO AND INCLUDING THE CLOSING DATE. (XVII) NO SUBSIDIARIES. NONE OF THE TARGET'S ASSETS CONSTITUTE STOCK IN A ---------------- CORPORATION. (XVIII) TAX-FREE REORGANIZATION. TARGET HAS NOT TAKEN OR CAUSED TO BE ------------------------ TAKEN, OR AGREED TO TAKE OR CAUSE TO BE TAKEN, ANY ACTION, AND HAS NO PLAN OR INTENTION TO TAKE OR CAUSE TO BE TAKEN ANY ACTION THAT WOULD, OR IS REASONABLY LIKELY TO, PREVENT THE MERGER FROM QUALIFYING AS A REORGANIZATION WITHIN THE MEANING OF SECTION 368(A) OF THE CODE, NOR DOES IT KNOW OR HAVE REASON TO KNOW OF ANY FACT, AGREEMENT, PLAN OR OTHER CIRCUMSTANCE THAT WOULD, OR IS REASONABLY LIKELY TO, PREVENT THE MERGER FROM QUALIFYING AS A REORGANIZATION WITHIN THE MEANING OF SECTION 368(A) OF THE CODE. FOR PURPOSES OF THIS REPRESENTATION, ANY FAILURE OR OMISSION TO ACT, OR THE CAUSING OF ANY FAILURE OR OMISSION TO ACT, SHALL CONSTITUTE AN ACTION TAKEN, OR CAUSED TO BE TAKEN, AS APPROPRIATE. (XIX) SECTION 1374 OF THE CODE. THE TARGET WOULD NOT BE LIABLE FOR ANY TAX ------------------------- UNDER SECTION 1374 OF THE CODE IF ITS ASSETS WERE SOLD FOR THEIR FAIR MARKET VALUE AS OF THE CLOSING DATE. THE TARGET HAS NOT, IN THE PAST 10 YEARS, (A) ACQUIRED ASSETS FROM ANOTHER CORPORATION IN A TRANSACTION IN WHICH THE TARGET'S TAX BASIS FOR THE ACQUIRED ASSETS WAS DETERMINED, IN WHOLE OR PART, BY REFERENCE TO THE TAX BASIS OF THE ACQUIRED ASSETS (OR ANY OTHER PROPERTY) IN THE HANDS OF THE TRANSFEROR OR (B) ACQUIRED THE STOCK OF ANY CORPORATION WHICH IS A QUALIFIED SUBCHAPTER S SUBSIDIARY. (N) REAL PROPERTY. -------------- (I) THE TARGET DOES NOT OWN ANY REAL PROPERTY. (II) 5(N)(II) OF THE TARGET DISCLOSURE SCHEDULE LISTS AND DESCRIBES BRIEFLY ALL REAL PROPERTY LEASED TO THE TARGET. THE TARGET AND HOFFMAN HAVE MADE AVAILABLE TO THE PARENT CORRECT AND COMPLETE COPIES OF THE LEASES LISTED IN 5(N)(II) OF THE TARGET DISCLOSURE SCHEDULE (AS AMENDED TO DATE). THE TARGET IS NOT PARTY TO ANY SUBLEASE. WITH RESPECT TO EACH LEASE LISTED IN 5(N)(II) OF THE TARGET DISCLOSURE SCHEDULE: (A) THE LEASE IS LEGAL, VALID, BINDING, ENFORCEABLE, AND IN FULL FORCE AND EFFECT; (B) THE LEASE WILL CONTINUE TO BE LEGAL, VALID, BINDING, ENFORCEABLE, AND IN FULL FORCE AND EFFECT ON IDENTICAL TERMS FOLLOWING THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED HEREBY; (C) THE TARGET IS NOT IN BREACH OR DEFAULT AND, TO THE KNOWLEDGE OF ANY OF HOFFMAN AND THE DIRECTORS AND OFFICERS (AND EMPLOYEES WITH RESPONSIBILITY FOR REAL PROPERTY MATTERS) OF THE TARGET, NO OTHER PARTY TO THE LEASE IS IN BREACH OR DEFAULT, AND NO EVENT HAS OCCURRED WHICH, WITH NOTICE OR LAPSE OF TIME, WOULD CONSTITUTE A BREACH OR DEFAULT OR PERMIT TERMINATION, MODIFICATION, OR ACCELERATION THEREUNDER; 22 (D) NEITHER THE TARGET NOR, TO THE KNOWLEDGE OF ANY OF HOFFMAN AND THE DIRECTORS AND OFFICERS (AND EMPLOYEES WITH RESPONSIBILITY FOR REAL PROPERTY MATTERS) OF THE TARGET, ANY OTHER PARTY TO THE LEASE HAS REPUDIATED ANY PROVISION THEREOF; (E) THERE ARE NO DISPUTES, ORAL AGREEMENTS, OR FORBEARANCE PROGRAMS IN EFFECT AS TO THE LEASE; (F) THE TARGET HAS NOT ASSIGNED, TRANSFERRED, CONVEYED, MORTGAGED, DEEDED IN TRUST, OR ENCUMBERED ANY INTEREST IN THE LEASEHOLD; (G) ALL FACILITIES LEASED THEREUNDER HAVE RECEIVED ALL APPROVALS OF GOVERNMENTAL AUTHORITIES (INCLUDING LICENSES AND PERMITS) REQUIRED IN CONNECTION WITH THE OPERATION OF THE TARGET'S BUSINESS AS CURRENTLY CONDUCTED AND HAVE BEEN OPERATED AND MAINTAINED BY TARGET IN SUBSTANTIAL COMPLIANCE WITH APPLICABLE LAWS, RULES, AND REGULATIONS; (H) ALL FACILITIES LEASED THEREUNDER ARE SUPPLIED WITH UTILITIES AND OTHER SERVICES NECESSARY FOR THE OPERATION OF SAID FACILITIES; AND (O) INTELLECTUAL PROPERTY. ---------------------- (I) THE TARGET OWNS OR HAS THE RIGHT TO USE PURSUANT TO LICENSE, SUBLICENSE, AGREEMENT, OR PERMISSION ALL INTELLECTUAL PROPERTY NECESSARY FOR THE OPERATION OF THE BUSINESSES OF THE TARGET AS PRESENTLY CONDUCTED. EACH ITEM OF INTELLECTUAL PROPERTY OWNED OR USED BY THE TARGET IMMEDIATELY PRIOR TO THE CLOSING HEREUNDER WILL BE OWNED OR AVAILABLE FOR USE BY THE SURVIVING CORPORATION ON IDENTICAL TERMS AND CONDITIONS IMMEDIATELY SUBSEQUENT TO THE CLOSING HEREUNDER. TO THE KNOWLEDGE OF ANY OF HOFFMAN AND THE DIRECTORS AND OFFICERS (AND EMPLOYEES WITH RESPONSIBILITY FOR INTELLECTUAL PROPERTY MATTERS) OF THE TARGET, THE TARGET HAS TAKEN ALL NECESSARY ACTION TO MAINTAIN AND PROTECT EACH ITEM OF INTELLECTUAL PROPERTY THAT IT OWNS OR USES. (II) THE TARGET HAS NOT INTERFERED WITH, INFRINGED UPON OR MISAPPROPRIATED ANY INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES, AND NONE OF HOFFMAN OR THE DIRECTORS AND OFFICERS (AND EMPLOYEES WITH RESPONSIBILITY FOR INTELLECTUAL PROPERTY MATTERS) OF THE TARGET HAS EVER RECEIVED ANY CHARGE, COMPLAINT, CLAIM, DEMAND, OR NOTICE ALLEGING ANY SUCH INTERFERENCE, INFRINGEMENT, MISAPPROPRIATION, OR VIOLATION (INCLUDING ANY CLAIM THAT THE TARGET MUST LICENSE OR REFRAIN FROM USING ANY INTELLECTUAL PROPERTY RIGHTS OF ANY THIRD PARTY). TO THE KNOWLEDGE OF ANY OF HOFFMAN AND THE DIRECTORS AND OFFICERS (AND EMPLOYEES WITH RESPONSIBILITY FOR INTELLECTUAL PROPERTY MATTERS) OF THE TARGET, NO THIRD PARTY HAS INTERFERED WITH, INFRINGED UPON OR MISAPPROPRIATED ANY INTELLECTUAL PROPERTY RIGHTS OF THE TARGET. 23 (III) 5(O)(III) OF THE TARGET DISCLOSURE SCHEDULE IDENTIFIES EACH PATENT OR REGISTRATION WHICH HAS BEEN ISSUED TO THE TARGET WITH RESPECT TO ANY OF ITS INTELLECTUAL PROPERTY, IDENTIFIES EACH PENDING PATENT APPLICATION OR APPLICATION FOR REGISTRATION WHICH THE TARGET HAS MADE WITH RESPECT TO ANY OF ITS INTELLECTUAL PROPERTY, AND IDENTIFIES EACH LICENSE, AGREEMENT, OR OTHER PERMISSION WHICH THE TARGET HAS GRANTED TO ANY THIRD PARTY WITH RESPECT TO ANY OF ITS INTELLECTUAL PROPERTY (TOGETHER WITH ANY EXCEPTIONS). THE TARGET AND HOFFMAN HAVE MADE AVAILABLE TO THE PARENT CORRECT AND COMPLETE COPIES OF ALL SUCH PATENTS, REGISTRATIONS, APPLICATIONS, LICENSES, AGREEMENTS, AND PERMISSIONS (AS AMENDED TO DATE) AND CORRECT AND COMPLETE COPIES OF ALL OTHER WRITTEN DOCUMENTATION EVIDENCING OWNERSHIP AND PROSECUTION (IF APPLICABLE) OF EACH SUCH ITEM. 5(O)(III) OF THE TARGET DISCLOSURE SCHEDULE ALSO IDENTIFIES EACH TRADE NAME OR UNREGISTERED TRADEMARK USED BY THE TARGET IN CONNECTION WITH ANY OF ITS BUSINESSES. WITH RESPECT TO EACH ITEM OF INTELLECTUAL PROPERTY REQUIRED TO BE IDENTIFIED IN 5(O)(III) OF THE TARGET DISCLOSURE SCHEDULE: (A) THE TARGET POSSESS ALL RIGHT, TITLE, AND INTEREST IN AND TO THE ITEM, FREE AND CLEAR OF ANY SECURITY INTEREST, LICENSE, OR OTHER RESTRICTION; (B) THE ITEM IS NOT SUBJECT TO ANY OUTSTANDING INJUNCTION, JUDGMENT, ORDER, DECREE, RULING, OR CHARGE; (C) NO ACTION, SUIT, PROCEEDING, HEARING, INVESTIGATION, CHARGE, COMPLAINT, CLAIM, OR DEMAND IS PENDING OR, TO THE KNOWLEDGE OF ANY OF HOFFMAN AND THE DIRECTORS AND OFFICERS (AND EMPLOYEES WITH RESPONSIBILITY FOR INTELLECTUAL PROPERTY MATTERS) OF THE TARGET, IS THREATENED WHICH CHALLENGES THE LEGALITY, VALIDITY, ENFORCEABILITY, USE, OR OWNERSHIP OF THE ITEM; AND (D) THE TARGET HAS NEVER AGREED TO INDEMNIFY ANY PERSON FOR OR AGAINST ANY INTERFERENCE, INFRINGEMENT, MISAPPROPRIATION, OR OTHER CONFLICT WITH RESPECT TO THE ITEM. (IV) 5(O)(IV) OF THE TARGET DISCLOSURE SCHEDULE IDENTIFIES EACH ITEM OF INTELLECTUAL PROPERTY THAT ANY THIRD PARTY OWNS AND THAT THE TARGET USES PURSUANT TO LICENSE, SUBLICENSE, AGREEMENT, OR PERMISSION. THE TARGET AND HOFFMAN HAVE MADE AVAILABLE TO THE PARENT CORRECT AND COMPLETE COPIES OF ALL SUCH LICENSES, SUBLICENSES, AGREEMENTS, AND PERMISSIONS (AS AMENDED TO DATE). WITH RESPECT TO EACH ITEM OF INTELLECTUAL PROPERTY REQUIRED TO BE IDENTIFIED IN 5(O)(IV) OF THE TARGET DISCLOSURE SCHEDULE: (A) THE LICENSE, SUBLICENSE, AGREEMENT, OR PERMISSION COVERING THE ITEM IS LEGAL, VALID, BINDING, ENFORCEABLE, AND IN FULL FORCE AND EFFECT; 24 (B) THE LICENSE, SUBLICENSE, AGREEMENT, OR PERMISSION WILL CONTINUE TO BE LEGAL, VALID, BINDING, ENFORCEABLE, AND IN FULL FORCE AND EFFECT ON IDENTICAL TERMS FOLLOWING THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED HEREBY; (C) THE TARGET IS NOT, AND, TO THE KNOWLEDGE OF ANY OF HOFFMAN AND THE DIRECTORS AND OFFICERS (AND EMPLOYEES WITH RESPONSIBILITY FOR INTELLECTUAL PROPERTY MATTERS) OF THE TARGET, NO OTHER PARTY TO THE LICENSE, SUBLICENSE, AGREEMENT, OR PERMISSION IS IN BREACH OR DEFAULT, AND, TO THE KNOWLEDGE OF ANY OF HOFFMAN AND THE DIRECTORS AND OFFICERS (AND EMPLOYEES WITH RESPONSIBILITY FOR INTELLECTUAL PROPERTY MATTERS) OF THE TARGET, NO EVENT HAS OCCURRED WHICH WITH NOTICE OR LAPSE OF TIME WOULD CONSTITUTE A BREACH OR DEFAULT OR PERMIT TERMINATION, MODIFICATION, OR ACCELERATION THEREUNDER; (D) THE TARGET HAS NOT, AND, TO THE KNOWLEDGE OF ANY OF HOFFMAN AND THE DIRECTORS AND OFFICERS (AND EMPLOYEES WITH RESPONSIBILITY FOR INTELLECTUAL PROPERTY MATTERS) OF THE TARGET, NO OTHER PARTY TO THE LICENSE, SUBLICENSE, AGREEMENT, OR PERMISSION HAS REPUDIATED ANY PROVISION THEREOF; (E) WITH RESPECT TO EACH SUBLICENSE, THE REPRESENTATIONS AND WARRANTIES SET FORTH IN SUBSECTIONS (A) THROUGH (D) ABOVE ARE TRUE AND CORRECT WITH RESPECT TO THE UNDERLYING LICENSE; (F) THE UNDERLYING ITEM OF INTELLECTUAL PROPERTY IS NOT SUBJECT TO ANY OUTSTANDING INJUNCTION, JUDGMENT, ORDER, DECREE, RULING, OR CHARGE; (G) NO ACTION, SUIT, PROCEEDING, HEARING, INVESTIGATION, CHARGE, COMPLAINT, CLAIM, OR DEMAND IS PENDING OR, TO THE KNOWLEDGE OF ANY OF HOFFMAN AND THE DIRECTORS AND OFFICERS (AND EMPLOYEES WITH RESPONSIBILITY FOR INTELLECTUAL PROPERTY MATTERS) OF THE TARGET, IS THREATENED WHICH CHALLENGES THE LEGALITY, VALIDITY, OR ENFORCEABILITY OF THE UNDERLYING ITEM OF INTELLECTUAL PROPERTY; AND (H) THE TARGET HAS NOT GRANTED ANY SUBLICENSE OR SIMILAR RIGHT WITH RESPECT TO THE LICENSE, SUBLICENSE, AGREEMENT, OR PERMISSION. (V) TO THE KNOWLEDGE OF ANY OF HOFFMAN AND THE DIRECTORS AND OFFICERS (AND EMPLOYEES WITH RESPONSIBILITY FOR INTELLECTUAL PROPERTY MATTERS) OF THE TARGET, THE TARGET WILL NOT INTERFERE WITH, INFRINGE UPON OR MISAPPROPRIATE ANY INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES AS A RESULT OF THE CONTINUED OPERATION OF ITS BUSINESSES AS PRESENTLY CONDUCTED. (VI) NONE OF HOFFMAN AND THE DIRECTORS AND OFFICERS (AND EMPLOYEES WITH RESPONSIBILITY FOR INTELLECTUAL PROPERTY MATTERS) OF THE TARGET IS AWARE OF ANY NEW PRODUCTS, INVENTIONS, PROCEDURES, OR METHODS OF MANUFACTURING OR PROCESSING THAT ANY COMPETITORS OR OTHER THIRD PARTIES HAVE DEVELOPED WHICH REASONABLY COULD BE EXPECTED TO SUPERSEDE OR MAKE OBSOLETE ANY PRODUCT OR PROCESS OF THE TARGET. 25 (P) TANGIBLE ASSETS ---------------- . THE TARGET OWNS OR LEASES ALL BUILDINGS, MACHINERY, EQUIPMENT, AND OTHER TANGIBLE ASSETS NECESSARY FOR THE CONDUCT OF ITS BUSINESS AS PRESENTLY CONDUCTED. EACH SUCH TANGIBLE ASSET IS FREE FROM DEFECTS (PATENT AND LATENT), HAS BEEN MAINTAINED IN ACCORDANCE WITH NORMAL INDUSTRY PRACTICE, IS IN GOOD OPERATING CONDITION AND REPAIR (SUBJECT TO NORMAL WEAR AND TEAR), AND IS SUITABLE FOR THE PURPOSES FOR WHICH IT PRESENTLY IS USED. (Q) INVENTORY --------- . THE INVENTORY OF THE TARGET CONSISTS OF RAW MATERIALS AND SUPPLIES, MANUFACTURED AND PURCHASED PARTS, GOODS IN PROCESS, AND FINISHED GOODS, ALL OF WHICH IS MERCHANTABLE AND FIT FOR THE PURPOSE FOR WHICH IT WAS PROCURED OR MANUFACTURED, AND NONE OF WHICH IS SLOW-MOVING (BASED ON THE PAST EXPERIENCE OF TARGET AS TO THE LENGTH OF TIME INVENTORY IS HELD BY IT PRIOR TO SALE), OBSOLETE, DAMAGED, OR DEFECTIVE, SUBJECT ONLY TO THE RESERVE FOR INVENTORY WRITEDOWN SET FORTH ON THE FACE OF THE MOST RECENT BALANCE SHEET (RATHER THAN IN ANY NOTES THERETO) AS ADJUSTED FOR THE PASSAGE OF TIME THROUGH THE CLOSING DATE IN THE ORDINARY COURSE OF BUSINESS OF THE TARGET. (R) CONTRACTS --------- . 5(R) OF THE TARGET DISCLOSURE SCHEDULE LISTS THE FOLLOWING CONTRACTS AND OTHER AGREEMENTS TO WHICH THE TARGET IS A PARTY (THE "MATERIAL CONTRACTS"): ------------------ (I) ANY AGREEMENT (OR GROUP OF RELATED AGREEMENTS) FOR THE LEASE OF PERSONAL PROPERTY TO OR FROM ANY PERSON PROVIDING FOR LEASE PAYMENTS IN EXCESS OF $35,000 PER ANNUM; (II) ANY AGREEMENT (OR GROUP OF RELATED AGREEMENTS) FOR THE PURCHASE OR SALE OF RAW MATERIALS, COMMODITIES, SUPPLIES, PRODUCTS, OR OTHER PERSONAL PROPERTY, OR FOR THE FURNISHING OR RECEIPT OF SERVICES, THE PERFORMANCE OF WHICH WILL EXTEND OVER A PERIOD OF MORE THAN ONE YEAR, RESULT IN A LOSS TO THE TARGET, OR INVOLVE CONSIDERATION IN EXCESS OF $35,000; (III) ANY AGREEMENT CONCERNING A PARTNERSHIP OR JOINT VENTURE; (IV) ANY AGREEMENT (OR GROUP OF RELATED AGREEMENTS) UNDER WHICH IT HAS CREATED, INCURRED, ASSUMED, OR GUARANTEED ANY INDEBTEDNESS FOR BORROWED MONEY, OR ANY CAPITALIZED LEASE OBLIGATION, IN EXCESS OF $35,000 OR UNDER WHICH IT HAS IMPOSED A SECURITY INTEREST ON ANY OF ITS ASSETS, TANGIBLE OR INTANGIBLE; (V) ANY AGREEMENT CONCERNING CONFIDENTIALITY OR NONCOMPETITION; (VI) ANY AGREEMENT WITH ANY OF HOFFMAN AND HIS AFFILIATES (OTHER THAN THE TARGET); (VII) ANY PROFIT SHARING, STOCK OPTION, STOCK PURCHASE, STOCK APPRECIATION, DEFERRED COMPENSATION, SEVERANCE, OR OTHER PLAN OR ARRANGEMENT FOR THE BENEFIT OF ITS CURRENT OR FORMER DIRECTORS, OFFICERS, AND EMPLOYEES; (VIII) ANY COLLECTIVE BARGAINING AGREEMENT; 26 (IX) ANY AGREEMENT FOR THE EMPLOYMENT OF ANY INDIVIDUAL ON A FULL-TIME, PART-TIME, CONSULTING, OR OTHER BASIS PROVIDING ANNUAL COMPENSATION IN EXCESS OF $35,000 OR PROVIDING SEVERANCE BENEFITS; (X) ANY AGREEMENT UNDER WHICH IT HAS ADVANCED OR LOANED ANY AMOUNT TO ANY OF ITS DIRECTORS, OFFICERS, AND EMPLOYEES OUTSIDE THE ORDINARY COURSE OF BUSINESS; (XI) ANY AGREEMENT UNDER WHICH THE CONSEQUENCES OF A DEFAULT OR TERMINATION COULD HAVE A MATERIAL ADVERSE EFFECT ON THE TARGET; OR (XII) ANY OTHER AGREEMENT (OR GROUP OF RELATED AGREEMENTS) THE PERFORMANCE OF WHICH INVOLVES CONSIDERATION IN EXCESS OF $35,000. THE TARGET AND HOFFMAN HAVE MADE AVAILABLE TO THE PARENT A CORRECT AND COMPLETE COPY OF EACH WRITTEN MATERIAL CONTRACT (AS AMENDED TO DATE) AND A WRITTEN SUMMARY SETTING FORTH THE TERMS AND CONDITIONS OF EACH ORAL MATERIAL CONTRACT. WITH RESPECT TO EACH SUCH AGREEMENT: (A) THE AGREEMENT IS LEGAL, VALID, BINDING, ENFORCEABLE, AND IN FULL FORCE AND EFFECT; (B) THE AGREEMENT WILL CONTINUE TO BE LEGAL, VALID, BINDING, ENFORCEABLE, AND IN FULL FORCE AND EFFECT ON IDENTICAL TERMS FOLLOWING THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED HEREBY; (C) THE TARGET IS NOT, AND, TO THE KNOWLEDGE OF ANY OF HOFFMAN AND THE DIRECTORS AND OFFICERS (AND EMPLOYEES WITH RESPONSIBILITY FOR CONTRACT MATTERS) OF THE TARGET, NO OTHER PARTY IS IN BREACH OR DEFAULT, AND NO EVENT HAS OCCURRED WHICH WITH NOTICE OR LAPSE OF TIME WOULD CONSTITUTE A BREACH OR DEFAULT, OR PERMIT TERMINATION, MODIFICATION, OR ACCELERATION, UNDER THE AGREEMENT; AND (D) THE TARGET HAS NOT, AND, TO THE KNOWLEDGE OF ANY OF HOFFMAN AND THE DIRECTORS AND OFFICERS (AND EMPLOYEES WITH RESPONSIBILITY FOR CONTRACT MATTERS) OF THE TARGET, NO OTHER PARTY HAS REPUDIATED ANY PROVISION OF THE AGREEMENT. (S) NOTES AND ACCOUNTS RECEIVABLE -------------------------------- . ALL NOTES AND ACCOUNTS RECEIVABLE OF THE TARGET ARE REFLECTED PROPERLY ON THEIR BOOKS AND RECORDS, ARE VALID RECEIVABLES SUBJECT TO NO SETOFFS OR COUNTERCLAIMS, ARE CURRENT AND COLLECTIBLE, AND WILL BE COLLECTED IN ACCORDANCE WITH THEIR TERMS AT THEIR RECORDED AMOUNTS, SUBJECT ONLY TO THE RESERVE FOR BAD DEBTS SET FORTH ON THE FACE OF THE MOST RECENT BALANCE SHEET (RATHER THAN IN ANY NOTES THERETO) AS ADJUSTED FOR THE PASSAGE OF TIME THROUGH THE CLOSING DATE IN ACCORDANCE WITH THE PAST CUSTOM AND PRACTICE OF THE TARGET. (T) POWERS OF ATTORNEY -------------------- . THERE ARE NO OUTSTANDING POWERS OF ATTORNEY EXECUTED ON BEHALF OF THE TARGET. (U) INSURANCE --------- . 5(U) OF THE TARGET DISCLOSURE SCHEDULE SETS FORTH THE FOLLOWING INFORMATION WITH RESPECT TO EACH INSURANCE POLICY (INCLUDING POLICIES PROVIDING PROPERTY, CASUALTY, LIABILITY, AND WORKERS' COMPENSATION COVERAGE AND BOND AND SURETY ARRANGEMENTS) TO WHICH THE TARGET HAS BEEN A PARTY, A NAMED INSURED, OR OTHERWISE THE BENEFICIARY OF COVERAGE AT ANY TIME WITHIN THE PAST THREE YEARS: (I) THE NAME, ADDRESS, AND TELEPHONE NUMBER OF THE AGENT; 27 (II) THE NAME OF THE INSURER, THE NAME OF THE POLICYHOLDER, AND THE NAME OF EACH COVERED INSURED; (III) THE POLICY NUMBER AND THE PERIOD OF COVERAGE; (IV) THE SCOPE (INCLUDING AN INDICATION OF WHETHER THE COVERAGE WAS ON A CLAIMS MADE, OCCURRENCE, OR OTHER BASIS) AND AMOUNT (INCLUDING A DESCRIPTION OF HOW DEDUCTIBLES AND CEILINGS ARE CALCULATED AND OPERATE) OF COVERAGE; AND (V) A DESCRIPTION OF ANY RETROACTIVE PREMIUM ADJUSTMENTS OR OTHER LOSS-SHARING ARRANGEMENTS. WITH RESPECT TO EACH SUCH INSURANCE POLICY: (A) THE POLICY IS LEGAL, VALID, BINDING, ENFORCEABLE, AND IN FULL FORCE AND EFFECT; (B) NEITHER THE TARGET NOR, TO THE KNOWLEDGE OF ANY OF HOFFMAN AND THE DIRECTORS AND OFFICERS (AND EMPLOYEES WITH RESPONSIBILITY FOR INSURANCE MATTERS) OF THE TARGET, ANY OTHER PARTY TO THE POLICY IS IN BREACH OR DEFAULT (INCLUDING WITH RESPECT TO THE PAYMENT OF PREMIUMS OR THE GIVING OF NOTICES), AND NO EVENT HAS OCCURRED WHICH, WITH NOTICE OR THE LAPSE OF TIME, WOULD CONSTITUTE SUCH A BREACH OR DEFAULT, OR PERMIT TERMINATION, MODIFICATION, OR ACCELERATION, UNDER THE POLICY; AND (C) NO PARTY TO THE POLICY HAS REPUDIATED ANY PROVISION THEREOF. THE TARGET HAS BEEN COVERED DURING THE PAST THREE YEARS BY INSURANCE IN SCOPE AND AMOUNT CUSTOMARY AND REASONABLE FOR THE BUSINESS IN WHICH IT HAS ENGAGED DURING THE AFOREMENTIONED PERIOD. 5(U) OF THE TARGET DISCLOSURE SCHEDULE DESCRIBES ANY SELF-INSURANCE ARRANGEMENTS AFFECTING THE TARGET. (V) LITIGATION ---------- . 5(V) OF THE TARGET DISCLOSURE SCHEDULE SETS FORTH EACH INSTANCE IN WHICH THE TARGET (I) IS SUBJECT TO ANY OUTSTANDING INJUNCTION, JUDGMENT, ORDER, DECREE, RULING, OR CHARGE OR (II) IS A PARTY OR, TO THE KNOWLEDGE OF ANY OF HOFFMAN AND THE DIRECTORS AND OFFICERS (AND EMPLOYEES WITH RESPONSIBILITY FOR LITIGATION MATTERS) OF THE TARGET, IS THREATENED TO BE MADE A PARTY TO ANY ACTION, SUIT, PROCEEDING, HEARING, OR INVESTIGATION OF, IN, OR BEFORE ANY COURT OR QUASI-JUDICIAL OR ADMINISTRATIVE AGENCY OF ANY FEDERAL, STATE, LOCAL, OR FOREIGN JURISDICTION OR BEFORE ANY ARBITRATOR. NONE OF THE ACTIONS, SUITS, PROCEEDINGS, HEARINGS, AND INVESTIGATIONS SET FORTH IN 5(V) OF THE TARGET DISCLOSURE SCHEDULE COULD RESULT IN ANY MATERIAL ADVERSE CHANGE IN THE TARGET, EXCEPT AS DESCRIBED IN 5(V) OF THE TARGET DISCLOSURE SCHEDULE. NONE OF HOFFMAN OR THE DIRECTORS AND OFFICERS (AND EMPLOYEES WITH RESPONSIBILITY FOR LITIGATION MATTERS) OF THE TARGET HAS ANY REASON TO BELIEVE THAT ANY SUCH ACTION, SUIT, PROCEEDING, HEARING, OR INVESTIGATION MAY BE BROUGHT OR THREATENED AGAINST THE TARGET. (W) PRODUCT WARRANTY ----------------- . EACH PRODUCT MANUFACTURED, SOLD, LEASED, OR DELIVERED BY THE TARGET HAS BEEN IN MATERIAL CONFORMITY WITH ALL APPLICABLE CONTRACTUAL COMMITMENTS AND ALL EXPRESS AND IMPLIED WARRANTIES, AND TARGET HAS NO LIABILITY (AND, TO THE KNOWLEDGE OF ANY OF HOFFMAN AND THE DIRECTORS AND OFFICERS (AND EMPLOYEES WITH RESPONSIBILITY FOR PRODUCT WARRANTY MATTERS) OF THE TARGET, THERE IS NO BASIS FOR ANY PRESENT OR FUTURE ACTION, SUIT, PROCEEDING, HEARING, INVESTIGATION, CHARGE, COMPLAINT, CLAIM, OR DEMAND AGAINST ANY OF THEM GIVING RISE TO ANY LIABILITY) FOR REPLACEMENT OR REPAIR THEREOF OR OTHER DAMAGES IN CONNECTION THEREWITH, SUBJECT ONLY TO THE RESERVE FOR PRODUCT WARRANTY CLAIMS SET FORTH ON THE FACE OF THE MOST RECENT BALANCE SHEET (RATHER THAN IN ANY NOTES THERETO) AS ADJUSTED FOR THE PASSAGE OF TIME THROUGH THE CLOSING DATE IN ACCORDANCE WITH THE PAST CUSTOM AND PRACTICE OF THE TARGET. NO PRODUCT MANUFACTURED, SOLD, LEASED, OR DELIVERED BY THE TARGET IS SUBJECT TO ANY CONTRACTUAL GUARANTY, WARRANTY, OR OTHER INDEMNITY BEYOND THE APPLICABLE TERMS AND CONDITIONS OF SALE OR LEASE. THE CUSTOMER AGREEMENTS WHICH FORM PART OF THE MATERIAL CONTRACTS (COPIES OF WHICH HAVE BEEN DELIVERED TO THE PARENT) CONTAIN ALL TERMS AND CONDITIONS OF SALE OR LEASE FOR THE TARGET RELATED TO SUCH CUSTOMER AGREEMENTS (INCLUDING ALL APPLICABLE GUARANTY, WARRANTY AND INDEMNITY PROVISIONS). 28 (X) PRODUCT LIABILITY ------------------ . THE TARGET HAS NO LIABILITY (AND, TO THE KNOWLEDGE OF ANY OF HOFFMAN AND THE DIRECTORS AND OFFICERS (AND EMPLOYEES WITH RESPONSIBILITY FOR PRODUCT LIABILITY MATTERS) OF THE TARGET, THERE IS NO BASIS FOR ANY PRESENT OR FUTURE ACTION, SUIT, PROCEEDING, HEARING, INVESTIGATION, CHARGE, COMPLAINT, CLAIM, OR DEMAND AGAINST ANY OF THEM GIVING RISE TO ANY LIABILITY) ARISING OUT OF ANY INJURY TO INDIVIDUALS OR PROPERTY AS A RESULT OF THE OWNERSHIP, POSSESSION, OR USE OF ANY PRODUCT MANUFACTURED, SOLD, LEASED, OR DELIVERED BY THE TARGET. (Y) EMPLOYEES --------- . TO THE KNOWLEDGE OF ANY OF HOFFMAN AND THE DIRECTORS AND OFFICERS (AND EMPLOYEES WITH RESPONSIBILITY FOR EMPLOYMENT MATTERS) OF THE TARGET, NO EXECUTIVE, KEY EMPLOYEE, OR GROUP OF EMPLOYEES HAS ANY PLANS TO TERMINATE EMPLOYMENT WITH THE TARGET. THE TARGET IS NOT A PARTY TO OR BOUND BY ANY COLLECTIVE BARGAINING AGREEMENT, NOR HAS IT EXPERIENCED ANY STRIKES, GRIEVANCES, CLAIMS OF UNFAIR LABOR PRACTICES, OR OTHER COLLECTIVE BARGAINING DISPUTES. THE TARGET HAS NOT COMMITTED ANY UNFAIR LABOR PRACTICE. NONE OF HOFFMAN OR THE DIRECTORS AND OFFICERS (AND EMPLOYEES WITH RESPONSIBILITY FOR EMPLOYMENT MATTERS) OF THE TARGET HAS ANY KNOWLEDGE OF ANY ORGANIZATIONAL EFFORT PRESENTLY BEING MADE OR THREATENED BY OR ON BEHALF OF ANY LABOR UNION WITH RESPECT TO EMPLOYEES OF THE TARGET. 5(Y) OF THE TARGET DISCLOSURE SCHEDULE LISTS EACH EMPLOYEE OF THE TARGET AND HIS OR HER (I) TITLE OR JOB DESIGNATION, (II) BASE RATE OF PAY FOR THE YEAR 2002, (III) ANY ANTICIPATED BONUS, PROFIT SHARING OR OTHER CASH COMPENSATION FOR THE YEAR 2002, AND (IV) TOTAL COMPENSATION (INCLUDING ANY BONUS, PROFIT SHARING OR OTHER CASH COMPENSATION) FOR THE YEARS 2000 AND 2001. (Z) EMPLOYEE BENEFITS. ------------------ (I) 5(Z) OF THE TARGET DISCLOSURE SCHEDULE LISTS EACH EMPLOYEE BENEFIT PLAN THAT THE TARGET MAINTAINS OR TO WHICH THE TARGET CONTRIBUTES. (A) EACH SUCH EMPLOYEE BENEFIT PLAN (AND EACH RELATED TRUST, INSURANCE CONTRACT, OR FUND) PRESENTLY COMPLIES AND HAS BEEN MAINTAINED IN COMPLIANCE WITH ITS TERMS AND COMPLIES BOTH IN FORM AND IN OPERATION IN ALL RESPECTS WITH THE APPLICABLE REQUIREMENTS OF ERISA, THE CODE, AND OTHER APPLICABLE LAWS. (B) ALL REQUIRED REPORTS AND DESCRIPTIONS (INCLUDING FORM 5500 ANNUAL REPORTS, SUMMARY ANNUAL REPORTS, PBGC-1'S, AND SUMMARY PLAN DESCRIPTIONS) HAVE BEEN FILED OR DISTRIBUTED APPROPRIATELY WITH RESPECT TO EACH SUCH EMPLOYEE BENEFIT PLAN. TO THE EXTENT APPLICABLE, THE REQUIREMENTS OF PART 6 OF SUBTITLE B OF TITLE I OF ERISA AND OF CODE 4980B HAVE BEEN MET WITH RESPECT TO EACH SUCH EMPLOYEE BENEFIT PLAN WHICH IS AN EMPLOYEE WELFARE BENEFIT PLAN. 29 (C) ALL CONTRIBUTIONS (INCLUDING ALL EMPLOYER CONTRIBUTIONS AND EMPLOYEE SALARY REDUCTION CONTRIBUTIONS) WHICH ARE DUE HAVE BEEN PAID TO EACH SUCH EMPLOYEE BENEFIT PLAN WHICH IS AN EMPLOYEE PENSION BENEFIT PLAN AND ALL CONTRIBUTIONS FOR ANY PERIOD ENDING ON OR BEFORE THE CLOSING DATE WHICH ARE NOT YET DUE HAVE BEEN PAID TO EACH SUCH EMPLOYEE PENSION BENEFIT PLAN OR ACCRUED IN ACCORDANCE WITH THE PAST CUSTOM AND PRACTICE OF THE TARGET. ALL PREMIUMS OR OTHER PAYMENTS FOR ALL PERIODS ENDING ON OR BEFORE THE CLOSING DATE HAVE BEEN PAID WITH RESPECT TO EACH SUCH EMPLOYEE BENEFIT PLAN WHICH IS AN EMPLOYEE WELFARE BENEFIT PLAN. (D) THE TERMS OF EACH SUCH EMPLOYEE BENEFIT PLAN WHICH IS AN EMPLOYEE PENSION BENEFIT PLAN THAT IS INTENDED TO QUALIFY UNDER CODE 401(A) HAS BEEN DETERMINED BY THE INTERNAL REVENUE SERVICE TO QUALIFY UNDER 401(A) OF THE CODE. (E) THE MARKET VALUE OF ASSETS UNDER EACH SUCH EMPLOYEE BENEFIT PLAN WHICH IS AN EMPLOYEE PENSION DEFINED BENEFIT PLAN (OTHER THAN ANY MULTIEMPLOYER PLAN) EQUALS OR EXCEEDS THE PRESENT VALUE OF ALL VESTED AND NONVESTED LIABILITIES THEREUNDER DETERMINED IN ACCORDANCE WITH PBGC METHODS, FACTORS, AND ASSUMPTIONS APPLICABLE TO AN EMPLOYEE PENSION DEFINED BENEFIT PLAN TERMINATING ON THE DATE FOR DETERMINATION. (F) THE TARGET AND HOFFMAN HAVE MADE AVAILABLE TO THE PARENT CORRECT AND COMPLETE COPIES OF THE PLAN DOCUMENTS AND SUMMARY PLAN DESCRIPTIONS, THE MOST RECENT DETERMINATION LETTER RECEIVED FROM THE INTERNAL REVENUE SERVICE, THE MOST RECENT FORM 5500 ANNUAL REPORT, AND ALL RELATED TRUST AGREEMENTS, INSURANCE CONTRACTS, AND OTHER FUNDING AGREEMENTS WHICH IMPLEMENT EACH SUCH EMPLOYEE BENEFIT PLAN. (II) WITH RESPECT TO EACH EMPLOYEE BENEFIT PLAN THAT THE TARGET OR ANY OF ITS ERISA AFFILIATES MAINTAINS OR EVER HAS MAINTAINED OR TO WHICH ANY OF THEM CONTRIBUTES, EVER HAS CONTRIBUTED, OR EVER HAS BEEN REQUIRED TO CONTRIBUTE, OR WITH RESPECT TO WHICH TARGET OR ANY OF ITS ERISA AFFILIATES HAVE OR MAY, OR IN THE PAST HAD, OR ARE OR HAVE BEEN DEEMED TO HAVE ANY LIABILITY OR OBLIGATIONS WITH RESPECT THERETO: (A) NO SUCH EMPLOYEE BENEFIT PLAN WHICH IS AN EMPLOYEE PENSION BENEFIT PLAN (OTHER THAN ANY MULTIEMPLOYER PLAN) HAS BEEN COMPLETELY OR PARTIALLY TERMINATED OR BEEN THE SUBJECT OF A REPORTABLE EVENT (AS DEFINED IN 4043(C) OF ERISA AND THE PBGC REGULATIONS PROMULGATED THEREUNDER) AS TO WHICH NOTICES WOULD BE REQUIRED TO BE FILED WITH THE PBGC. NO PROCEEDING BY THE PBGC TO TERMINATE ANY SUCH EMPLOYEE PENSION BENEFIT PLAN (OTHER THAN ANY MULTIEMPLOYER PLAN) HAS BEEN INSTITUTED OR, TO THE KNOWLEDGE OF ANY OF HOFFMAN AND THE DIRECTORS AND OFFICERS (AND EMPLOYEES WITH RESPONSIBILITY FOR EMPLOYEE BENEFITS MATTERS) OF THE TARGET, THREATENED. 30 (B) THERE HAVE BEEN NO TRANSACTIONS IN VIOLATION OF 404 OR 406 OF ERISA OR ANY PROHIBITED TRANSACTIONS WITH RESPECT TO ANY SUCH EMPLOYEE BENEFIT PLAN FOR WHICH NO EXEMPTION EXISTS UNDER 408 OF ERISA OR 4975(C)(2) OR (D) OF THE CODE. TO THE KNOWLEDGE OF ANY OF HOFFMAN AND THE DIRECTORS AND OFFICERS (AND EMPLOYEES WITH RESPONSIBILITY FOR EMPLOYEE BENEFITS MATTERS) OF THE TARGET, NO FIDUCIARY HAS ANY LIABILITY FOR BREACH OF FIDUCIARY DUTY OR ANY OTHER FAILURE TO ACT OR COMPLY IN CONNECTION WITH THE ADMINISTRATION OR INVESTMENT OF THE ASSETS OF ANY SUCH EMPLOYEE BENEFIT PLAN. NO ACTION, SUIT, PROCEEDING, HEARING, OR INVESTIGATION WITH RESPECT TO THE ADMINISTRATION OR THE INVESTMENT OF THE ASSETS OF ANY SUCH EMPLOYEE BENEFIT PLAN (OTHER THAN ROUTINE CLAIMS FOR BENEFITS) IS PENDING OR, TO THE KNOWLEDGE OF ANY OF HOFFMAN AND THE DIRECTORS AND OFFICERS (AND EMPLOYEES WITH RESPONSIBILITY FOR EMPLOYEE BENEFITS MATTERS) OF THE TARGET, THREATENED. NONE OF HOFFMAN OR THE DIRECTORS AND OFFICERS (AND EMPLOYEES WITH RESPONSIBILITY FOR EMPLOYEE BENEFITS MATTERS) OF THE TARGET HAS ANY KNOWLEDGE OF ANY BASIS FOR ANY SUCH ACTION, SUIT, PROCEEDING, HEARING, OR INVESTIGATION. (C) THE TARGET AND ITS ERISA AFFILIATES HAVE NOT INCURRED, AND NONE OF HOFFMAN OR THE DIRECTORS AND OFFICERS (AND EMPLOYEES WITH RESPONSIBILITY FOR EMPLOYEE BENEFITS MATTERS) OF THE TARGET HAS ANY REASON TO EXPECT THAT THE TARGET OR ANY OF ITS ERISA AFFILIATES WILL INCUR, ANY LIABILITY TO THE PBGC (OTHER THAN PBGC PREMIUM PAYMENTS) OR OTHERWISE UNDER TITLE IV OF ERISA (INCLUDING ANY WITHDRAWAL LIABILITY) OR UNDER THE CODE WITH RESPECT TO ANY SUCH EMPLOYEE BENEFIT PLAN WHICH IS AN EMPLOYEE PENSION BENEFIT PLAN. (III) NEITHER THE TARGET OR ANY OF ITS ERISA AFFILIATES CONTRIBUTES TO, EVER HAS CONTRIBUTED TO, OR EVER HAS BEEN REQUIRED TO CONTRIBUTE TO ANY MULTIEMPLOYER PLAN OR HAS ANY LIABILITY (INCLUDING WITHDRAWAL LIABILITY) UNDER ANY MULTIEMPLOYER PLAN. (IV) NEITHER THE TARGET NOR ANY OF ITS ERISA AFFILIATES MAINTAINS OR HAS EVER MAINTAINED OR CONTRIBUTED TO, OR EVER HAS BEEN REQUIRED TO CONTRIBUTE TO ANY EMPLOYEE WELFARE BENEFIT PLAN PROVIDING MEDICAL, HEALTH, OR LIFE INSURANCE OR OTHER WELFARE-TYPE BENEFITS FOR CURRENT OR FUTURE RETIRED OR TERMINATED EMPLOYEES, THEIR SPOUSES, OR THEIR DEPENDENTS (OTHER THAN IN ACCORDANCE WITH CODE 4980B OR SIMILAR STATE LAW). (AA) GUARANTIES ---------- . THE TARGET IS NOT A GUARANTOR OR OTHERWISE IS LIABLE FOR ANY LIABILITY OR OBLIGATION (INCLUDING INDEBTEDNESS) OF ANY OTHER PERSON. (BB) ENVIRONMENTAL MATTERS. ---------------------- (I) THE TARGET IS NOW AND ALWAYS HAS BEEN IN MATERIAL COMPLIANCE WITH ALL ENVIRONMENTAL LAWS. 31 (II) THE TARGET HAS ALL ENVIRONMENTAL PERMITS NECESSARY FOR THE CONDUCT AND OPERATION OF ITS BUSINESS AS PRESENTLY CONDUCTED, AND ALL SUCH PERMITS ARE IN GOOD STANDING. (III) THERE IS NOT NOW AND HAS NOT BEEN ANY HAZARDOUS SUBSTANCE USED, GENERATED, TREATED, STORED, TRANSPORTED, DISPOSED OF, RELEASED, HANDLED OR OTHERWISE EXISTING ON, UNDER, ABOUT, OR EMANATING FROM OR TO, ANY TARGET OWNED, LEASED OR OPERATED PROPERTY ASSOCIATED WITH THE BUSINESS EXCEPT IN SUBSTANTIAL COMPLIANCE WITH ALL APPLICABLE ENVIRONMENTAL LAWS. (IV) THE TARGET HAS NOT RECEIVED ANY NOTICE OF ALLEGED, ACTUAL OR POTENTIAL RESPONSIBILITY FOR, OR ANY INQUIRY OR INVESTIGATION REGARDING, ANY RELEASE OR THREATENED RELEASE OF HAZARDOUS SUBSTANCES OR ALLEGED VIOLATION OF, OR NON-COMPLIANCE WITH, ANY ENVIRONMENTAL LAW, NOR IS ANY OF HOFFMAN AND THE DIRECTORS AND OFFICERS (AND EMPLOYEES WITH RESPONSIBILITY FOR ENVIRONMENTAL MATTERS) OF THE TARGET AWARE OF ANY INFORMATION WHICH MIGHT FORM THE BASIS OF ANY SUCH NOTICE OR ANY CLAIM. (V) THERE IS NO SITE TO WHICH THE TARGET HAS TRANSPORTED OR ARRANGED FOR THE TRANSPORT OF HAZARDOUS SUBSTANCES AS TO WHICH ANY OF HOFFMAN AND THE DIRECTORS AND OFFICERS (AND EMPLOYEES WITH RESPONSIBILITY FOR ENVIRONMENTAL MATTERS) OF THE TARGET HAS ANY INFORMATION THAT WOULD REASONABLY LEAD ANY OF THEM TO CONCLUDE THAT ANY SUCH SITE IS OR MAY BECOME THE SUBJECT OF ANY ENVIRONMENTAL ACTION. (VI) TRUE, COMPLETE AND CORRECT COPIES OF THE WRITTEN REPORTS, AND ALL PARTS THEREOF, OF ALL ENVIRONMENTAL AUDITS OR ASSESSMENTS OF WHICH ANY OF HOFFMAN AND THE DIRECTORS AND OFFICERS (AND EMPLOYEES WITH RESPONSIBILITY FOR ENVIRONMENTAL MATTERS) OF THE TARGET HAS KNOWLEDGE AND THAT HAVE BEEN CONDUCTED AT ANY TARGET OWNED, LEASED OR OPERATED PROPERTY, HAVE BEEN MADE AVAILABLE TO THE PARENT. (CC) CERTAIN BUSINESS RELATIONSHIPS WITH THE TARGET --------------------------------------------------- . NONE OF HOFFMAN AND HIS AFFILIATES HAS BEEN INVOLVED IN ANY BUSINESS ARRANGEMENT OR RELATIONSHIP WITH THE TARGET WITHIN THE PAST 12 MONTHS, AND NONE OF HOFFMAN AND HIS AFFILIATES OWNS ANY ASSET, TANGIBLE OR INTANGIBLE, WHICH IS USED IN THE BUSINESS OF THE TARGET. (DD) DISCLOSURE ---------- . NONE OF (I) THE REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS 5, OR (II) ANY WRITTEN MATERIALS FURNISHED BY HOFFMAN OR THE TARGET TO THE PARENT, CONTAINS ANY UNTRUE STATEMENT OF A MATERIAL FACT OR OMITS TO STATE ANY MATERIAL FACT NECESSARY IN ORDER TO MAKE THE STATEMENTS AND INFORMATION CONTAINED THEREIN NOT MISLEADING. 6. POST-CLOSING COVENANTS ----------------------- . THE PARTIES AGREE AS FOLLOWS WITH RESPECT TO THE PERIOD FOLLOWING THE CLOSING. (A) GENERAL ------- . IN CASE AT ANY TIME AFTER THE CLOSING ANY FURTHER ACTION IS NECESSARY OR DESIRABLE TO CARRY OUT THE PURPOSES OF THIS AGREEMENT, EACH OF THE PARTIES WILL TAKE SUCH FURTHER ACTION (INCLUDING THE EXECUTION AND DELIVERY OF SUCH FURTHER INSTRUMENTS AND DOCUMENTS) AS THE OTHER PARTY REASONABLY MAY REQUEST, ALL AT THE SOLE COST AND EXPENSE OF THE REQUESTING PARTY (UNLESS THE REQUESTING PARTY IS ENTITLED TO INDEMNIFICATION THEREFOR UNDER 7 BELOW). HOFFMAN ACKNOWLEDGES AND AGREES THAT FROM AND AFTER THE CLOSING THE PARENT WILL BE ENTITLED TO POSSESSION OF ALL DOCUMENTS, BOOKS, RECORDS (INCLUDING TAX RECORDS), AGREEMENTS, AND FINANCIAL DATA OF ANY SORT RELATING TO THE TARGET. NOTWITHSTANDING THE FOREGOING, PARENT AND MERGER SUB WILL PERMIT HOFFMAN AND HIS REPRESENTATIVES TO HAVE, AT HOFFMAN'S SOLE COST AND EXPENSE, FULL, COMPLETE AND PROMPT ACCESS TO AND THE RIGHT TO MAKE COPIES OF ANY AND ALL DOCUMENTS REASONABLY REQUESTED BY HOFFMAN THAT RELATE IN ANY MANNER TO ANY ADVERSE CONSEQUENCES CLAIMED BY PARENT UNDER 7 BELOW FOR PURPOSES OF EVALUATING THE MERITS OF THE CLAIMED ADVERSE CONSEQUENCES IN CONNECTION WITH HOFFMAN'S INDEMNIFICATION OBLIGATIONS UNDER 7 BELOW OR DEFENDING AGAINST ANY SUCH ADVERSE CONSEQUENCES; PROVIDED, HOWEVER, THAT HOFFMAN SHALL HAVE AGREED IN WRITING TO USE ANY DOCUMENTS REQUESTED PURSUANT TO THIS SENTENCE ONLY FOR THE PURPOSES SET FORTH HEREIN. FOR THE PURPOSES OF THIS 6(A), WITHOUT LIMITING THE FOREGOING, IT SHALL NOT BE DEEMED REASONABLE FOR HOFFMAN TO REQUEST ACCESS TO DOCUMENTS SUBJECT TO ATTORNEY-CLIENT OR OTHER SIMILAR PRIVILEGE. 32 (B) LITIGATION SUPPORT ------------------- . IN THE EVENT AND FOR SO LONG AS ANY PARTY ACTIVELY IS CONTESTING OR DEFENDING AGAINST ANY ACTION, SUIT, PROCEEDING, HEARING, INVESTIGATION, CHARGE, COMPLAINT, CLAIM, OR DEMAND IN CONNECTION WITH (I) ANY TRANSACTION CONTEMPLATED UNDER THIS AGREEMENT OR (II) ANY FACT, SITUATION, CIRCUMSTANCE, STATUS, CONDITION, ACTIVITY, PRACTICE, PLAN, OCCURRENCE, EVENT, INCIDENT, ACTION, FAILURE TO ACT, OR TRANSACTION ON OR PRIOR TO THE CLOSING DATE INVOLVING THE TARGET, THE OTHER PARTY WILL COOPERATE WITH HIM OR IT AND HIS OR ITS COUNSEL IN THE CONTEST OR DEFENSE, MAKE AVAILABLE THEIR PERSONNEL, AND PROVIDE SUCH TESTIMONY AND ACCESS TO THEIR BOOKS AND RECORDS AS SHALL BE NECESSARY IN CONNECTION WITH THE CONTEST OR DEFENSE, ALL AT THE SOLE COST AND EXPENSE OF THE CONTESTING OR DEFENDING PARTY (SUBJECT TO THE RIGHT, IF ANY, OF THE CONTESTING OR DEFENDING PARTY TO OBTAIN INDEMNIFICATION THEREFOR UNDER 7 BELOW). (C) TRANSITION ---------- . HOFFMAN WILL NOT TAKE ANY ACTION THAT IS DESIGNED OR INTENDED TO HAVE THE EFFECT OF DISCOURAGING ANY LESSOR, LICENSOR, CUSTOMER, SUPPLIER, OR OTHER BUSINESS ASSOCIATE OF THE TARGET FROM MAINTAINING THE SAME BUSINESS RELATIONSHIPS WITH THE TARGET AFTER THE CLOSING AS IT MAINTAINED WITH THE TARGET PRIOR TO THE CLOSING. HOFFMAN WILL REFER ALL CUSTOMER INQUIRIES RELATING TO THE BUSINESSES OF THE TARGET TO THE PARENT FROM AND AFTER THE CLOSING. (D) CONFIDENTIALITY --------------- . HOFFMAN WILL TREAT AND HOLD AS SUCH ALL OF THE CONFIDENTIAL INFORMATION, REFRAIN FROM USING ANY OF THE CONFIDENTIAL INFORMATION EXCEPT IN CONNECTION WITH THIS AGREEMENT, AND DELIVER PROMPTLY TO THE PARENT OR DESTROY, AT THE REQUEST AND OPTION OF THE PARENT, ALL TANGIBLE EMBODIMENTS (AND ALL COPIES) OF THE CONFIDENTIAL INFORMATION WHICH ARE IN HIS OR ITS POSSESSION. IN THE EVENT THAT HOFFMAN IS REQUESTED OR REQUIRED (BY ORAL QUESTION OR REQUEST FOR INFORMATION OR DOCUMENTS IN ANY LEGAL PROCEEDING, INTERROGATORY, SUBPOENA, CIVIL INVESTIGATIVE DEMAND, OR SIMILAR PROCESS) TO DISCLOSE ANY CONFIDENTIAL INFORMATION, HOFFMAN WILL NOTIFY THE PARENT PROMPTLY OF THE REQUEST OR REQUIREMENT SO THAT THE PARENT MAY SEEK AN APPROPRIATE PROTECTIVE ORDER OR WAIVE COMPLIANCE WITH THE PROVISIONS OF THIS 6(D). IF, IN THE ABSENCE OF A PROTECTIVE ORDER OR THE RECEIPT OF A WAIVER HEREUNDER, HOFFMAN IS, ON THE ADVICE OF COUNSEL, COMPELLED TO DISCLOSE ANY CONFIDENTIAL INFORMATION TO ANY TRIBUNAL OR ELSE STAND LIABLE FOR CONTEMPT, THAT SELLER MAY DISCLOSE THE CONFIDENTIAL INFORMATION TO THE TRIBUNAL; PROVIDED, -------- HOWEVER, THAT HOFFMAN SHALL USE HIS BEST EFFORTS TO OBTAIN, AT THE REQUEST OF ------- THE PARENT, AN ORDER OR OTHER ASSURANCE THAT CONFIDENTIAL TREATMENT WILL BE -- ACCORDED TO SUCH PORTION OF THE CONFIDENTIAL INFORMATION REQUIRED TO BE -- DISCLOSED AS THE PARENT SHALL DESIGNATE. THE FOREGOING PROVISIONS SHALL NOT -- APPLY TO ANY CONFIDENTIAL INFORMATION WHICH IS GENERALLY AVAILABLE TO THE PUBLIC -- IMMEDIATELY PRIOR TO THE TIME OF DISCLOSURE. 33 (E) COVENANT NOT TO COMPETE -------------------------- . FOR A PERIOD OF THREE YEARS FROM AND AFTER THE CLOSING DATE, HOFFMAN WILL NOT, AND WILL NOT PERMIT ANY AFFILIATE OF HOFFMAN TO, ENGAGE DIRECTLY OR INDIRECTLY IN ANY BUSINESS THAT THE TARGET CONDUCTS AS OF THE CLOSING DATE IN ANY GEOGRAPHIC AREA IN WHICH THE TARGET CONDUCTS THAT BUSINESS AS OF THE CLOSING DATE; PROVIDED, HOWEVER, THAT NO OWNER OF LESS THAN 1% OF THE OUTSTANDING STOCK -------- ------- OF ANY PUBLICLY TRADED CORPORATION SHALL BE DEEMED TO ENGAGE SOLELY BY REASON THEREOF IN ANY OF ITS BUSINESSES. IF THE FINAL JUDGMENT OF A COURT OF COMPETENT JURISDICTION DECLARES THAT ANY TERM OR PROVISION OF THIS 6(E) IS INVALID OR UNENFORCEABLE, THE PARTIES AGREE THAT THE COURT MAKING THE DETERMINATION OF INVALIDITY OR UNENFORCEABILITY SHALL HAVE THE POWER TO REDUCE THE SCOPE, DURATION, OR AREA OF THE TERM OR PROVISION, TO DELETE SPECIFIC WORDS OR PHRASES, OR TO REPLACE ANY INVALID OR UNENFORCEABLE TERM OR PROVISION WITH A TERM OR PROVISION THAT IS VALID AND ENFORCEABLE AND THAT COMES CLOSEST TO EXPRESSING THE INTENTION OF THE INVALID OR UNENFORCEABLE TERM OR PROVISION, AND THIS AGREEMENT SHALL BE ENFORCEABLE AS SO MODIFIED AFTER THE EXPIRATION OF THE TIME WITHIN WHICH THE JUDGMENT MAY BE APPEALED. (F) NON-SOLICITATION ---------------- . FOR A PERIOD OF THREE YEARS FROM AND AFTER THE CLOSING DATE, HOFFMAN SHALL NOT, DIRECTLY OR INDIRECTLY, AND WILL NOT PERMIT ANY AFFILIATE OF HOFFMAN TO, (I) OFFER EMPLOYMENT TO OR SEEK TO OFFER EMPLOYMENT TO ANY PERSON WHO IS EMPLOYED BY THE PARENT OR ANY OF ITS AFFILIATES ON OR AFTER THE CLOSING DATE, UNLESS THE PARENT OR AFFILIATE FIRST TERMINATES THE EMPLOYMENT OF SUCH EMPLOYEE OR GIVES ITS WRITTEN CONSENT TO SUCH EMPLOYMENT OR OFFER OF EMPLOYMENT, (II) INDUCE OR ATTEMPT TO INDUCE ANY PERSON WHO IS EMPLOYED BY THE PARENT OR ANY OF ITS AFFILIATES ON OR AFTER THE CLOSING DATE TO LEAVE THE EMPLOY OF THE PARENT OR ANY OF ITS AFFILIATES OR (III) INDUCE OR ATTEMPT TO INDUCE ANY CUSTOMER, SUPPLIER, VENDOR, LICENSEE OR BUSINESS RELATION OF THE PARENT OR ANY OF ITS AFFILIATES TO CEASE DOING BUSINESS WITH THE PARENT OR ANY OF ITS AFFILIATES OR IN ANY WAY INTERFERE WITH THE RELATIONSHIP BETWEEN ANY CUSTOMER, SUPPLIER, VENDOR, LICENSEE OR BUSINESS RELATION OF THE PARENT OR ANY OF ITS AFFILIATES. HOFFMAN SHALL NOT BE PRECLUDED FROM HIRING ANY SUCH PERSON WHO (I) INITIATES DISCUSSIONS REGARDING SUCH EMPLOYMENT OR (II) RESPONDS TO ANY PUBLIC ADVERTISEMENT PLACED BY HOFFMAN. (G) SHARE CERTIFICATES ------------------- . EACH CERTIFICATE EVIDENCING SHARES WILL BE IMPRINTED WITH A LEGEND SUBSTANTIALLY IN THE FOLLOWING FORM: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED FOR --------------- SALE, SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FILED UNDER THE SECURITIES ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES OR BLUE SKY LAWS. EACH HOLDER DESIRING TO TRANSFER SHARES FIRST MUST FURNISH THE PARENT WITH A WRITTEN OPINION SATISFACTORY TO THE PARENT IN FORM AND SUBSTANCE FROM COUNSEL SATISFACTORY TO THE PARENT BY REASON OF EXPERIENCE TO THE EFFECT THAT THE HOLDER MAY TRANSFER THE SHARES AS DESIRED WITHOUT REGISTRATION UNDER THE SECURITIES ACT. 34 (H) NEW YORK STOCK EXCHANGE LISTING ----------------------------------- . THE PARENT SHALL USE ITS REASONABLE BEST EFFORTS TO CAUSE THE SHARES TO BE APPROVED FOR QUOTATION ON THE NEW YORK STOCK EXCHANGE, SUBJECT TO OFFICIAL NOTICE OF ISSUANCE. (I) FINANCIAL STATEMENTS. --------------------- (I) IF REQUESTED IN WRITING BY PARENT, HOFFMAN SHALL PREPARE, AT PARENT'S EXPENSE, AND DELIVER TO THE PARENT AS SOON AS PRACTICABLE BUT NOT LATER THAN FORTY-FIVE (45) DAYS AFTER THE CLOSING DATE FINANCIAL STATEMENTS FOR THE TARGET AUDITED BY KPMG LLP FOR THE YEARS ENDED DECEMBER 31, 1999, DECEMBER 31, 2000 AND DECEMBER 31, 2001, INCLUDING YEAR END BALANCE SHEETS AND RELATED STATEMENTS OF INCOME AND CASH FLOWS FOR THE BUSINESS FOR THE YEARS THEN ENDED. HOFFMAN SHALL USE HIS BEST EFFORTS TO PROVIDE ALL ASSISTANCE REQUESTED BY PARENT AND THE SURVIVING CORPORATION IN CONNECTION WITH THE PREPARATION OF SUCH AUDITED FINANCIAL STATEMENTS. (II) IN THE EVENT THAT THE PARENT CONCLUDES THAT IT IS NECESSARY OR ADVISABLE TO PREPARE FINANCIAL STATEMENTS OF THE TARGET FOR ANY OTHER PERIODS PRIOR TO CLOSING, HOFFMAN AGREES TO COOPERATE WITH THE PARENT, PROVIDE IT WITH REASONABLE ACCESS TO APPROPRIATE FINANCIAL RECORDS AND PERSONNEL AND DIRECT THE TARGET'S INDEPENDENT ACCOUNTANTS TO ASSIST THE PARENT. ANY FEES AND EXPENSES OF THE OUTSIDE INDEPENDENT ACCOUNTANTS SHALL BE PAID BY THE PARENT. 7. REMEDIES FOR BREACHES OF THIS AGREEMENT. -------------------------------------------- (A) SURVIVAL OF REPRESENTATIONS AND WARRANTIES ---------------------------------------------- . ALL OF THE REPRESENTATIONS AND WARRANTIES OF EACH PARTY CONTAINED IN THIS AGREEMENT SHALL SURVIVE THE CLOSING HEREUNDER (EVEN IF PARENT OR HOFFMAN KNEW OR HAD REASON TO KNOW OF ANY MISREPRESENTATION OR BREACH OF WARRANTY OR COVENANT AT THE TIME OF CLOSING; PROVIDED, HOWEVER, THAT PARENT OR HOFFMAN, AS APPLICABLE, HAS DISCLOSED TO HOFFMAN OR PARENT, AS APPLICABLE, IN WRITING SUCH KNOWLEDGE AS SOON AS REASONABLY PRACTICABLE AFTER IT BECAME KNOWN TO THE PARENT OR HOFFMAN, AS APPLICABLE) AND CONTINUE IN FULL FORCE AND EFFECT FOR TWELVE (12) MONTHS FOLLOWING THE CLOSING DATE; PROVIDED, HOWEVER, THAT THE REPRESENTATIONS AND WARRANTIES CONTAINED IN 4(A)(I), 4(A)(IV), 4(A)(VI), 4(B)(II), 4(B)(III), 4(B)(VII), 5(B), 5(C), 5(F), 5(H), 5(M), 5(Z) AND 5(BB) SHALL CONTINUE IN FULL FORCE AND EFFECT THEREAFTER (SUBJECT TO ANY APPLICABLE STATUTES OF LIMITATIONS). (B) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE PARENT. ---------------------------------------------------------- 35 (I) IN THE EVENT HOFFMAN OR THE TARGET BREACHES (OR IN THE EVENT ANY THIRD PARTY ALLEGES FACTS THAT, IF TRUE, WOULD MEAN HOFFMAN OR THE TARGET HAS BREACHED) ANY OF THEIR RESPECTIVE REPRESENTATIONS, WARRANTIES, AND COVENANTS CONTAINED HEREIN, THEN HOFFMAN AGREES TO INDEMNIFY THE PARENT, THE SURVIVING CORPORATION, AND THEIR RESPECTIVE AFFILIATES, DIRECTORS, OFFICERS, EMPLOYEES, REPRESENTATIVES, SUCCESSORS, TRANSFEREES AND ASSIGNEES (EACH A "PARENT ------ INDEMNIFIED PARTY") FROM AND AGAINST THE ENTIRETY OF ANY ADVERSE CONSEQUENCES --------- SUCH INDEMNIFIED PARTY MAY SUFFER THROUGH AND AFTER THE DATE OF THE CLAIM FOR INDEMNIFICATION (INCLUDING ANY ADVERSE CONSEQUENCES SUCH INDEMNIFIED PARTY MAY SUFFER AFTER THE END OF ANY APPLICABLE SURVIVAL PERIOD) RESULTING FROM, ARISING OUT OF, RELATING TO, IN THE NATURE OF, OR CAUSED BY THE BREACH (OR THE ALLEGED BREACH). (II) NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT, HOFFMAN SHALL INDEMNIFY, SAVE AND HOLD HARMLESS THE INDEMNIFIED PARTIES FROM AND AGAINST ANY AND ALL ADVERSE CONSEQUENCES INCURRED IN CONNECTION WITH, ARISING OUT OF, RESULTING FROM OR RELATING OR INCIDENT TO: (X) ANY AND ALL TAXES (A) OF THE TARGET (1) WITH RESPECT TO ALL PERIODS ENDING ON OR PRIOR TO THE CLOSING DATE (THE "PRE-CLOSING PERIODS") AND (2) WITH RESPECT TO ANY PERIOD BEGINNING BEFORE ------------------- THE CLOSING DATE AND ENDING AFTER THE CLOSING DATE (A "STRADDLE PERIOD"), BUT --------------- ONLY WITH RESPECT TO THE PORTION OF SUCH PERIOD UP TO AND INCLUDING THE CLOSING DATE (SUCH PORTION SHALL BE REFERRED TO HEREIN AS THE "PRE-CLOSING PARTIAL ------------------- PERIOD" AND THE PORTION OF SUCH PERIOD AFTER THE CLOSING DATE SHALL BE REFERRED - TO HEREIN AS THE "POST-CLOSING PARTIAL PERIOD"), OR (B) FOR WHICH THE TARGET IS --------------------------- LIABLE UNDER TREASURY REGULATIONS 1.1502-6 (OR ANY SIMILAR PROVISION OF STATE, LOCAL OR FOREIGN LAW), AS A TRANSFEREE OR SUCCESSOR, BY CONTRACT, OR OTHERWISE; AND (Y) ANY UNTRUTH OR INACCURACY OF ANY REPRESENTATION OR WARRANTY OF OR BY HOFFMAN OR THE TARGET CONTAINED IN 5(M) (TAX MATTERS); IN EACH CASE TO THE EXTENT SUCH TAXES ARE NOT REFLECTED IN THE RESERVE FOR TAX LIABILITY (RATHER THAN ANY RESERVE FOR DEFERRED TAXES ESTABLISHED TO REFLECT TIMING DIFFERENCES BETWEEN BOOK AND TAX INCOME) SHOWN ON THE FACE OF THE MOST RECENT BALANCE SHEET (RATHER THAN IN ANY NOTES THERETO). FOR PURPOSES OF THIS SECTION, TAXES REQUIRED TO BE APPORTIONED AS PROVIDED IN CLAUSE (I)(A) OF THIS SUBSECTION SHALL BE APPORTIONED BETWEEN THE PRE-CLOSING PARTIAL PERIOD AND POST-CLOSING PARTIAL PERIOD OF ANY STRADDLE PERIOD IN ACCORDANCE WITH THE PROVISIONS DESCRIBED IN 8(B) OF THIS AGREEMENT (C) INDEMNIFICATION PROVISIONS FOR BENEFIT OF HOFFMAN ------------------------------------------------------ . IN THE EVENT PARENT OR MERGER SUB BREACHES (OR IN THE EVENT ANY THIRD PARTY ALLEGES FACTS THAT, IF TRUE, WOULD MEAN PARENT OR MERGER SUB HAS BREACHED) ANY OF THEIR RESPECTIVE REPRESENTATIONS, WARRANTIES, AND COVENANTS CONTAINED HEREIN, THEN PARENT AGREES TO INDEMNIFY HOFFMAN FROM AND AGAINST THE ENTIRETY OF ANY ADVERSE CONSEQUENCES HOFFMAN MAY SUFFER THROUGH AND AFTER THE DATE OF THE CLAIM FOR INDEMNIFICATION (INCLUDING ANY ADVERSE CONSEQUENCES HOFFMAN MAY SUFFER AFTER THE END OF ANY APPLICABLE SURVIVAL PERIOD) RESULTING FROM, ARISING OUT OF, RELATING TO, IN THE NATURE OF, OR CAUSED BY THE BREACH (OR THE ALLEGED BREACH). PARENT FURTHER AGREES TO INDEMNIFY HOFFMAN FROM AND AGAINST THE ENTIRETY OF ANY ADVERSE CONSEQUENCES HOFFMAN MAY SUFFER ARISING OUT OF, OR RELATING TO HOFFMAN'S PERSONAL GUARANTY OF THE OBLIGATIONS OF TARGET UNDER THAT CERTAIN STANDARD COMMERCIAL/INDUSTRIAL SINGLE-TENANT LEASE BY AND BETWEEN EJM DEVELOPMENT CO. AND TARGET, DATED DECEMBER 14, 1994, AS AMENDED AND MODIFIED IN WRITING TO THE DATE HEREOF (THE "GUARANTEED LEASE"), TO THE EXTENT THAT SUCH ADVERSE CONSEQUENCES ----------------- ARISE AFTER THE CLOSING DATE DUE TO ANY FAILURE OF THE SURVIVING CORPORATION TO PERFORM ITS OBLIGATIONS AS ASSIGNEE UNDER THE GUARANTEED LEASE (THE "LEASE ----- INDEMNIFICATION OBLIGATION"). ---------------------- 36 (D) MATTERS INVOLVING THIRD PARTIES. ---------------------------------- (I) IF ANY THIRD PARTY SHALL NOTIFY A PARENT INDEMNIFIED PARTY OR HOFFMAN (EACH, AN "INDEMNIFIED PARTY") WITH RESPECT TO ANY MATTER (A "THIRD PARTY ------------------ ----------- CLAIM") WHICH MAY GIVE RISE TO A CLAIM FOR INDEMNIFICATION AGAINST HOFFMAN OR PARENT (EACH, AS APPLICABLE, THE "INDEMNIFYING PARTY") UNDER THIS 7, THEN THE ------------------ INDEMNIFIED PARTY SHALL PROMPTLY NOTIFY THE INDEMNIFYING PARTY THEREOF IN WRITING; PROVIDED, HOWEVER, THAT NO DELAY ON THE PART OF THE INDEMNIFIED PARTY -------- ------- IN NOTIFYING THE INDEMNIFYING PARTY SHALL RELIEVE THE INDEMNIFYING PARTY FROM ANY OBLIGATION HEREUNDER UNLESS (AND THEN SOLELY TO THE EXTENT) THE INDEMNIFYING PARTY THEREBY IS PREJUDICED. (II) THE INDEMNIFYING PARTY WILL HAVE THE RIGHT TO DEFEND THE INDEMNIFIED PARTY AGAINST THE THIRD PARTY CLAIM WITH COUNSEL MUTUALLY SATISFACTORY TO THE INDEMNIFIED PARTY AND THE INDEMNIFYING PARTY SO LONG AS (A) THE INDEMNIFYING PARTY NOTIFIES THE INDEMNIFIED PARTY IN WRITING WITHIN THIRTY (30) DAYS AFTER THE INDEMNIFIED PARTY HAS GIVEN NOTICE OF THE THIRD PARTY CLAIM THAT THE INDEMNIFYING PARTY WILL INDEMNIFY THE INDEMNIFIED PARTY FROM AND AGAINST THE ENTIRETY OF ANY ADVERSE CONSEQUENCES THE INDEMNIFIED PARTY MAY SUFFER RESULTING FROM, ARISING OUT OF, RELATING TO, IN THE NATURE OF, OR CAUSED BY THE THIRD PARTY CLAIM, (B) THE INDEMNIFYING PARTY PROVIDES THE INDEMNIFIED PARTY WITH EVIDENCE REASONABLY ACCEPTABLE TO THE INDEMNIFIED PARTY THAT THE INDEMNIFYING PARTY WILL HAVE THE FINANCIAL RESOURCES TO DEFEND AGAINST THE THIRD PARTY CLAIM AND FULFILL ITS INDEMNIFICATION OBLIGATIONS HEREUNDER, (C) THE THIRD PARTY CLAIM INVOLVES ONLY MONEY DAMAGES AND DOES NOT SEEK AN INJUNCTION OR OTHER EQUITABLE RELIEF, (D) SETTLEMENT OF, OR AN ADVERSE JUDGMENT WITH RESPECT TO, THE THIRD PARTY CLAIM IS NOT, IN THE GOOD FAITH JUDGMENT OF THE INDEMNIFIED PARTY, LIKELY TO ESTABLISH A PRECEDENTIAL CUSTOM OR PRACTICE ADVERSE TO THE CONTINUING BUSINESS INTERESTS OF THE INDEMNIFIED PARTY, AND (E) THE INDEMNIFYING PARTY CONDUCTS THE DEFENSE OF THE THIRD PARTY CLAIM ACTIVELY AND DILIGENTLY. (III) SO LONG AS THE INDEMNIFYING PARTY IS CONDUCTING THE DEFENSE OF THE THIRD PARTY CLAIM IN ACCORDANCE WITH 7(D)(II) ABOVE, (A) THE INDEMNIFIED PARTY MAY RETAIN SEPARATE CO-COUNSEL AT ITS SOLE COST AND EXPENSE AND PARTICIPATE IN THE DEFENSE OF THE THIRD PARTY CLAIM, (B) THE INDEMNIFIED PARTY WILL NOT CONSENT TO THE ENTRY OF ANY JUDGMENT OR ENTER INTO ANY SETTLEMENT WITH RESPECT TO THE THIRD PARTY CLAIM WITHOUT THE PRIOR WRITTEN CONSENT OF THE INDEMNIFYING PARTY, AND (C) THE INDEMNIFYING PARTY WILL NOT CONSENT TO THE ENTRY OF ANY JUDGMENT OR ENTER INTO ANY SETTLEMENT WITH RESPECT TO THE THIRD PARTY CLAIM WITHOUT THE PRIOR WRITTEN CONSENT OF THE INDEMNIFIED PARTY (NOT TO BE WITHHELD UNREASONABLY). (IV) IN THE EVENT ANY OF THE CONDITIONS IN 7(D)(II) ABOVE IS OR BECOMES UNSATISFIED, HOWEVER, (A) THE INDEMNIFIED PARTY MAY DEFEND AGAINST, AND CONSENT TO THE ENTRY OF ANY JUDGMENT OR ENTER INTO ANY SETTLEMENT WITH RESPECT TO, THE THIRD PARTY CLAIM IN ANY MANNER IT MAY DEEM APPROPRIATE, (B) THE INDEMNIFYING PARTY WILL REIMBURSE THE INDEMNIFIED PARTY PROMPTLY AND PERIODICALLY FOR THE COSTS OF DEFENDING AGAINST THE THIRD PARTY CLAIM (INCLUDING REASONABLE ATTORNEYS' FEES AND EXPENSES), AND (C) SUBJECT TO THE LIMITATIONS SET FORTH IN 7(D)(V) BELOW, THE INDEMNIFYING PARTY WILL REMAIN RESPONSIBLE FOR ANY ADVERSE CONSEQUENCES THE INDEMNIFIED PARTY MAY SUFFER RESULTING FROM, ARISING OUT OF, RELATING TO, IN THE NATURE OF, OR CAUSED BY THE THIRD PARTY CLAIM TO THE FULLEST EXTENT PROVIDED IN THIS 7. 37 (V) IN THE EVENT THAT AN INDEMNIFIED PARTY DOES NOT PERMIT THE INDEMNIFYING PARTY TO DEFEND THE INDEMNIFIED PARTY AGAINST A THIRD PARTY CLAIM DUE TO THE FAILURE OF A CONDITION IN CLAUSE (C) OR (D) OF 7(D)(II) ABOVE, THE PARTIES AGREE THAT (A) THE INDEMNIFIED PARTY WILL CONDUCT THE DEFENSE WITH COUNSEL MUTUALLY SATISFACTORY TO THE INDEMNIFYING PARTY AND THE INDEMNIFIED PARTY, AND (B) THE INDEMNIFYING PARTY SHALL ONLY BE REQUIRED TO INDEMNIFY SUCH INDEMNIFIED PARTY FOR FIFTY PERCENT (50%) OF THE AMOUNT OF ANY ADVERSE CONSEQUENCES RESULTING FROM SUCH THIRD PARTY CLAIM. NOTWITHSTANDING THE FOREGOING, ONLY THE AMOUNT OF THE ADVERSE CONSEQUENCES ACTUALLY PAID BY THE INDEMNIFYING PARTY SHALL BE CONSIDERED FOR PURPOSES OF APPLYING THE INDEMNITY DEDUCTIBLE AND THE MAXIMUM INDEMNIFICATION AMOUNT FOR SUCH INDEMNIFYING PARTY. (VI) WITH RESPECT TO ANY THIRD PARTY CLAIM SUBJECT TO INDEMNIFICATION UNDER THIS SECTION 7: (I) BOTH THE INDEMNIFIED PARTY AND THE INDEMNIFYING PARTY, AS THE CASE MAY BE, SHALL KEEP THE OTHER PARTY FULLY INFORMED OF THE STATUS OF SUCH THIRD PARTY CLAIM AND ANY RELATED PROCEEDINGS AT ALL STAGES THEREOF WHERE SUCH PARTY IS NOT REPRESENTED BY ITS OWN COUNSEL, AND (II) THE PARTIES AGREE (AT THE EXPENSE OF THE INDEMNIFYING PARTY) TO RENDER TO EACH OTHER SUCH ASSISTANCE AS THEY MAY REASONABLY REQUIRE OF EACH OTHER AND TO COOPERATE IN GOOD FAITH WITH EACH OTHER IN ORDER TO ENSURE THE PROPER AND ADEQUATE DEFENSE OF ANY THIRD PARTY CLAIM. IN FURTHERANCE THEREOF, THE PARTY NOT CONDUCTING THE DEFENSE OF THE THIRD PARTY CLAIM SHALL MAKE AVAILABLE TO THE PARTY THAT IS CONDUCTING THE DEFENSE ALL BOOKS, RECORDS AND OTHER DOCUMENTS AND MATERIALS THAT ARE UNDER THE DIRECT OR INDIRECT CONTROL OF SUCH PARTY OR ANY OF ITS AFFILIATES AND THAT THE PARTY CONDUCTING THE DEFENSE REASONABLY CONSIDERS NECESSARY OR DESIRABLE FOR THE DEFENSE OF THE THIRD PARTY CLAIM; PROVIDED, HOWEVER, THAT THE PARTY NOT CONDUCTING THE DEFENSE MAY WITHHOLD BOOKS, RECORDS OR OTHER DOCUMENTS AND MATERIALS THAT ARE SUBJECT TO ATTORNEY-CLIENT OR OTHER SIMILAR PRIVILEGE. (E) DETERMINATION OF ADVERSE CONSEQUENCES ---------------------------------------- . ALL INDEMNIFICATION PAYMENTS UNDER THIS 7 SHALL BE DEEMED ADJUSTMENTS TO THE PURCHASE PRICE. (F) LIMITATIONS ON INDEMNIFICATION. -------------------------------- (I) EXCEPT AS SET FORTH BELOW, HOFFMAN SHALL NOT HAVE ANY LIABILITY UNDER 7(B)(I) ABOVE FOR ADVERSE CONSEQUENCES TO THE EXTENT THAT THE AGGREGATE AMOUNT OF ADVERSE CONSEQUENCES INDEMNIFIED BY HOFFMAN HEREUNDER EXCEEDS $10,683,750 (THE "MAXIMUM INDEMNIFICATION AMOUNT"). EXCEPT AS SET FORTH BELOW, HOFFMAN SHALL ------------------------------ NOT HAVE ANY LIABILITY UNDER 7(B)(I) ABOVE FOR ANY ADVERSE CONSEQUENCES UNTIL THE AGGREGATE AMOUNT OTHERWISE DUE TO ALL PARENT INDEMNIFIED PARTIES EXCEEDS AN ACCUMULATED TOTAL OF THREE HUNDRED FIFTY THOUSAND DOLLARS ($350,000) (THE "INDEMNITY DEDUCTIBLE") AND THEN ONLY FOR THE AMOUNT BY WHICH THE AGGREGATE -------------------- AMOUNT OF ALL SUCH ADVERSE CONSEQUENCES OTHERWISE DUE TO ALL PARENT INDEMNIFIED PARTIES EXCEEDS THE INDEMNITY DEDUCTIBLE. NOTWITHSTANDING THE FOREGOING, THE LIMITATIONS IMPOSED BY THE MAXIMUM INDEMNIFICATION AMOUNT AND THE INDEMNITY DEDUCTIBLE SHALL NOT APPLY WITH RESPECT TO (I) ANY CLAIM FOR INDEMNIFICATION UNDER 7(B)(II) ABOVE, (II) ANY ADVERSE CONSEQUENCES ARISING OUT OF FRAUD OR INTENTIONAL VIOLATION OF ANY REPRESENTATION, WARRANTY OR COVENANT OR (III) ANY ADVERSE CONSEQUENCES ARISING OUT OF A BREACH OF ANY REPRESENTATION, WARRANTY OR COVENANT CONTAINED IN 4(A)(I), 4(A)(IV), 4(A)(VI), 5(B), 5(C), 5(F), 5(H), 5(M), 5(Z), 5(BB), 6(D), 6(E), 6(F) AND 8. (II) EXCEPT AS SET FORTH BELOW, PARENT SHALL NOT HAVE ANY LIABILITY UNDER 7(C) ABOVE FOR ADVERSE CONSEQUENCES TO THE EXTENT THAT THE AGGREGATE AMOUNT OF ADVERSE CONSEQUENCES INDEMNIFIED BY PARENT HEREUNDER EXCEEDS THE MAXIMUM INDEMNIFICATION AMOUNT. EXCEPT AS SET FORTH BELOW, PARENT SHALL NOT HAVE ANY LIABILITY UNDER 7(C) ABOVE FOR ANY ADVERSE CONSEQUENCES UNTIL THE AGGREGATE AMOUNT OTHERWISE DUE TO HOFFMAN EXCEEDS THE INDEMNITY DEDUCTIBLE AND THEN ONLY FOR THE AMOUNT BY WHICH THE AGGREGATE AMOUNT OF ALL SUCH ADVERSE CONSEQUENCES OTHERWISE DUE TO HOFFMAN EXCEEDS THE INDEMNITY DEDUCTIBLE. NOTWITHSTANDING THE FOREGOING, THE LIMITATIONS IMPOSED BY THE MAXIMUM INDEMNIFICATION AMOUNT AND THE INDEMNITY DEDUCTIBLE SHALL NOT APPLY WITH RESPECT TO (I) ANY ADVERSE CONSEQUENCES ARISING OUT OF FRAUD OR INTENTIONAL VIOLATION OF ANY REPRESENTATION, WARRANTY OR COVENANT, (II) ANY ADVERSE CONSEQUENCES ARISING OUT OF A BREACH OF ANY REPRESENTATION, WARRANTY OR COVENANT CONTAINED IN 4(B)(II), 4(B)(III), OR 4(B)(VII) OR (III) ANY ADVERSE CONSEQUENCES ARISING OUT OF THE LEASE INDEMNIFICATION OBLIGATION DESCRIBED IN 7(C). 38 (G) OTHER INDEMNIFICATION PROVISIONS ---------------------------------- . THE FOREGOING INDEMNIFICATION PROVISIONS ARE IN ADDITION TO, AND NOT IN DEROGATION OF, ANY STATUTORY, EQUITABLE, OR COMMON LAW REMEDY ANY PARTY MAY HAVE FOR BREACH OF REPRESENTATION, WARRANTY, OR COVENANT; PROVIDED, HOWEVER, THAT THE FOREGOING INDEMNIFICATION PROVISIONS SHALL BE THE SOLE REMEDY FOR MONETARY DAMAGES FOR ANY SUCH BREACH OF REPRESENTATION, WARRANTY OR COVENANT. HOFFMAN HEREBY AGREES THAT HE WILL NOT MAKE ANY CLAIM FOR INDEMNIFICATION AGAINST THE TARGET BY REASON OF THE FACT THAT HE OR IT WAS A DIRECTOR, OFFICER, EMPLOYEE, OR AGENT OF TARGET OR WAS SERVING AT THE REQUEST OF TARGET AS A PARTNER, TRUSTEE, DIRECTOR, OFFICER, EMPLOYEE, OR AGENT OF ANOTHER ENTITY (WHETHER SUCH CLAIM IS FOR JUDGMENTS, DAMAGES, PENALTIES, FINES, COSTS, AMOUNTS PAID IN SETTLEMENT, LOSSES, EXPENSES, OR OTHERWISE AND WHETHER SUCH CLAIM IS PURSUANT TO ANY STATUTE, CHARTER DOCUMENT, BYLAW, AGREEMENT, OR OTHERWISE) WITH RESPECT TO ANY ACTION, SUIT, PROCEEDING, COMPLAINT, CLAIM, OR DEMAND BROUGHT BY THE PARENT AGAINST HOFFMAN (WHETHER SUCH ACTION, SUIT, PROCEEDING, COMPLAINT, CLAIM, OR DEMAND IS PURSUANT TO THIS AGREEMENT, APPLICABLE LAW, OR OTHERWISE). 8. TAX MATTERS ------------ . THE FOLLOWING PROVISIONS SHALL GOVERN THE ALLOCATION OF RESPONSIBILITY AS BETWEEN PARENT AND HOFFMAN FOR CERTAIN TAX MATTERS FOLLOWING THE CLOSING DATE: (A) TAX PERIODS ENDING ON OR BEFORE THE CLOSING DATE -------------------------------------------------------- . PARENT SHALL PREPARE OR CAUSE TO BE PREPARED AND FILE OR CAUSE TO BE FILED ALL TAX RETURNS FOR THE TARGET FOR ALL PERIODS ENDING ON OR PRIOR TO THE CLOSING DATE WHICH ARE FILED AFTER THE CLOSING DATE. PARENT SHALL PERMIT HOFFMAN TO REVIEW AND COMMENT ON EACH SUCH TAX RETURN DESCRIBED IN THE PRECEDING SENTENCE PRIOR TO FILING. HOFFMAN SHALL REIMBURSE PARENT FOR ANY TAXES OF THE TARGET WITH RESPECT TO SUCH PERIODS WITHIN FIFTEEN (15) DAYS AFTER PAYMENT BY PARENT OR THE TARGET OF SUCH TAXES TO THE EXTENT SUCH TAXES ARE NOT REFLECTED IN THE RESERVE FOR TAX LIABILITY (RATHER THAN ANY RESERVE FOR DEFERRED TAXES ESTABLISHED TO REFLECT TIMING DIFFERENCES BETWEEN BOOK AND TAX INCOME) SHOWN ON THE FACE OF THE MOST RECENT BALANCE SHEET (RATHER THAN IN ANY NOTES THERETO). 39 (B) STRADDLE PERIODS ----------------- . PARENT SHALL PREPARE AND TIMELY FILE OR SHALL CAUSE TO BE PREPARED AND TIMELY FILED, WITH THE APPROPRIATE AUTHORITIES ALL TAX RETURNS OF THE TARGET FOR ALL STRADDLE PERIODS, AND SHALL PAY ALL TAXES DUE WITH RESPECT TO SUCH TAX RETURNS; PROVIDED, HOWEVER, THAT HOFFMAN SHALL REIMBURSE PARENT FOR ANY TAXES OF THE TARGET TO THE EXTENT ALLOCABLE TO ANY PRE-CLOSING PARTIAL PERIOD OF A STRADDLE PERIOD WITHIN FIFTEEN (15) DAYS AFTER PAYMENT BY PARENT OR THE TARGET OF SUCH TAXES TO THE EXTENT SUCH TAXES ARE NOT REFLECTED IN THE RESERVE FOR TAX LIABILITY (RATHER THAN ANY RESERVE FOR DEFERRED TAXES ESTABLISHED TO REFLECT TIMING DIFFERENCES BETWEEN BOOK AND TAX INCOME) SHOWN ON THE FACE OF THE MOST RECENT BALANCE SHEET (RATHER THAN IN ANY NOTES THERETO). FOR PURPOSES OF ALLOCATING TAXES BETWEEN A PRE-CLOSING PARTIAL PERIOD AND A POST-CLOSING PARTIAL PERIOD, TO THE EXTENT PERMITTED BY LAW AND ADMINISTRATIVE PRACTICE, THE STRADDLE PERIOD SHALL BE TREATED AS CLOSING ON (AND INCLUDING) THE CLOSING DATE. IN THE CASE OF ANY TAXES THAT ARE PAYABLE FOR A STRADDLE PERIOD THAT IS NOT TREATED UNDER THE PRECEDING SENTENCE AS CLOSING ON THE CLOSING DATE, THE PORTION OF SUCH TAX RELATED TO THE PRE-CLOSING PARTIAL PERIOD: (I) IN THE CASE OF REAL, PERSONAL AND INTANGIBLE PROPERTY TAXES ("PROPERTY TAXES") OF THE TARGET FOR THE --------------- PRE-CLOSING PARTIAL PERIOD, SHALL BE EQUAL TO THE AMOUNT OF SUCH PROPERTY TAXES FOR THE ENTIRE STRADDLE PERIOD MULTIPLIED BY A FRACTION, THE NUMERATOR OF WHICH IS THE NUMBER OF DAYS DURING THE STRADDLE PERIOD THAT ARE IN THE PRE-CLOSING PARTIAL PERIOD AND THE DENOMINATOR OF WHICH IS THE NUMBER OF DAYS IN THE STRADDLE PERIOD, AND (II) IN THE CASE OF ANY TAXES OF THE TARGET OTHER THAN PROPERTY TAXES, SHALL BE COMPUTED AS IF SUCH TAXABLE PERIOD ENDED AS OF THE CLOSE OF THE BUSINESS ON THE CLOSING DATE. (C) COOPERATION ON TAX MATTERS. ----------------------------- (I) PARENT, THE TARGET AND HOFFMAN SHALL COOPERATE FULLY, AS AND TO THE EXTENT REASONABLY REQUESTED BY THE OTHER PARTY, IN CONNECTION WITH THE FILING OF TAX RETURNS PURSUANT TO THIS AGREEMENT AND ANY AUDIT, LITIGATION OR OTHER PROCEEDING WITH RESPECT TO TAXES. SUCH COOPERATION SHALL INCLUDE THE RETENTION AND (UPON THE OTHER PARTY'S REQUEST) THE PROVISION OF RECORDS AND INFORMATION WHICH ARE REASONABLY RELEVANT TO ANY SUCH AUDIT, LITIGATION OR OTHER PROCEEDING AND MAKING EMPLOYEES AVAILABLE ON A MUTUALLY CONVENIENT BASIS TO PROVIDE ADDITIONAL INFORMATION AND EXPLANATION OF ANY MATERIAL PROVIDED HEREUNDER. THE TARGET AND HOFFMAN AGREE (A) TO RETAIN ALL BOOKS AND RECORDS IN THEIR RESPECTIVE POSSESSION WITH RESPECT TO TAX MATTERS PERTINENT TO THE TARGET RELATING TO ANY TAXABLE PERIOD BEGINNING BEFORE THE CLOSING DATE UNTIL THE EXPIRATION OF THE STATUTE OF LIMITATIONS (AND, TO THE EXTENT NOTIFIED BY PARENT OR HOFFMAN, ANY EXTENSIONS THEREOF) OF THE RESPECTIVE TAX PERIODS, AND TO ABIDE BY ALL RECORD RETENTION AGREEMENTS ENTERED INTO WITH ANY TAX AUTHORITY, AND (B) TO GIVE THE OTHER PARTY REASONABLE WRITTEN NOTICE PRIOR TO TRANSFERRING, DESTROYING OR DISCARDING ANY SUCH BOOKS AND RECORDS AND, IF THE OTHER PARTY SO REQUESTS, THE TARGET OR HOFFMAN, AS THE CASE MAY BE, SHALL ALLOW THE OTHER PARTY TO TAKE POSSESSION OF SUCH BOOKS AND RECORDS 40 (II) PARENT AND HOFFMAN FURTHER AGREE, UPON REQUEST, TO USE THEIR REASONABLE BEST EFFORTS TO OBTAIN ANY CERTIFICATE OR OTHER DOCUMENT FROM ANY GOVERNMENTAL AUTHORITY OR ANY OTHER PERSON AS MAY BE NECESSARY TO MITIGATE, REDUCE OR ELIMINATE ANY TAX THAT COULD BE IMPOSED (INCLUDING, BUT NOT LIMITED TO, WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED HEREBY). (D) CERTAIN TAXES -------------- . ALL TRANSFER, DOCUMENTARY, SALES, USE, STAMP, REGISTRATION AND OTHER SUCH TAXES AND FEES (INCLUDING ANY PENALTIES AND INTEREST) INCURRED IN CONNECTION WITH THIS AGREEMENT SHALL BE PAID BY HOFFMAN WHEN DUE, AND HOFFMAN WILL, AT ITS OWN EXPENSE, FILE ALL NECESSARY TAX RETURNS AND OTHER DOCUMENTATION WITH RESPECT TO ALL SUCH TRANSFER, DOCUMENTARY, SALES, USE, STAMP, REGISTRATION AND OTHER TAXES AND FEES, AND, IF REQUIRED BY APPLICABLE LAW, PARENT WILL, AND WILL CAUSE ITS AFFILIATES TO, JOIN IN THE EXECUTION OF ANY SUCH TAX RETURNS AND OTHER DOCUMENTATION. (E) CHARACTERIZATION OF PAYMENTS ------------------------------ . ANY PAYMENTS MADE TO THE MERGER SUB OR PARENT PURSUANT TO THE INDEMNIFICATION PROVISIONS OF THIS AGREEMENT SHALL CONSTITUTE AN ADJUSTMENT OF THE CONSIDERATION PAID FOR THE STOCK OF THE TARGET FOR TAX PURPOSES AND SHALL BE TREATED AS SUCH BY PARENT, MERGER SUB, THE TARGET AND HOFFMAN ON THEIR TAX RETURNS TO THE EXTENT PERMITTED BY LAW. (F) S CORPORATION STATUS ---------------------- . NEITHER HOFFMAN NOR THE TARGET WILL REVOKE THE TARGET'S ELECTION TO BE TAXED AS AN S CORPORATION WITHIN THE MEANING OF 1361 AND 1362 OF THE CODE. NEITHER HOFFMAN NOR THE TARGET WILL TAKE, CAUSE TO BE TAKEN, OR ALLOW ANY ACTION THAT WOULD RESULT IN THE TERMINATION OF THE TARGET'S STATUS AS A VALIDLY ELECTING S CORPORATION WITHIN THE MEANING OF 1361 AND 1362 OF THE CODE AT ANY TIME PRIOR TO THE CLOSING. 9. REORGANIZATION MATTERS. ----------------------- (A) INTENDED TREATMENT ------------------- . THE PARTIES INTEND THE MERGER TO QUALIFY AS A REORGANIZATION UNDER 368(A) OF THE CODE. HOWEVER, NONE OF PARENT, MERGER SUB, HOFFMAN OR THE TARGET MAKES ANY REPRESENTATION OR WARRANTY TO THE OTHER REGARDING THE TAX TREATMENT OF THE MERGER OR WHETHER THE MERGER WILL QUALIFY AS A REORGANIZATION UNDER THE CODE. EACH OF HOFFMAN, THE TARGET, MERGER SUB AND PARENT ACKNOWLEDGES THAT IT IS RELYING ON ITS OWN ADVISORS IN CONNECTION WITH THE TAX TREATMENT OF THE MERGER AND THE OTHER TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH OF HOFFMAN, THE TARGET, MERGER SUB AND PARENT AGREE TO USE THEIR RESPECTIVE REASONABLE BEST EFFORTS TO CAUSE THE MERGER TO QUALIFY, AND WILL NOT TAKE ANY ACTIONS WHICH WOULD REASONABLY BE EXPECTED TO PREVENT THE MERGER FROM QUALIFYING, AS A REORGANIZATION UNDER 368(A) OF THE CODE. (B) REPORTING --------- . EACH OF HOFFMAN, THE TARGET, MERGER SUB AND PARENT SHALL REPORT THE MERGER AS A REORGANIZATION WITHIN THE MEANING OF 368(A) OF THE CODE, UNLESS OTHERWISE REQUIRED PURSUANT TO A "DETERMINATION" WITHIN THE MEANING OF 1313(A) OF THE CODE. 10. MISCELLANEOUS. ------------- (A) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS ------------------------------------------- . NO PARTY SHALL ISSUE ANY PRESS RELEASE OR MAKE ANY PUBLIC ANNOUNCEMENT RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT WITHOUT THE PRIOR WRITTEN APPROVAL OF THE OTHER PARTY; PROVIDED, HOWEVER, THAT ANY PARTY MAY MAKE ANY -------- ------- PUBLIC DISCLOSURE IT BELIEVES IN GOOD FAITH IS REQUIRED BY APPLICABLE LAW OR ANY LISTING OR TRADING AGREEMENT CONCERNING ITS PUBLICLY-TRADED SECURITIES (IN WHICH CASE THE DISCLOSING PARTY WILL USE ITS REASONABLE BEST EFFORTS TO PROVIDE A COPY OF SUCH DISCLOSURE TO THE OTHER PARTY PRIOR TO MAKING THE DISCLOSURE). 41 (B) NO THIRD-PARTY BENEFICIARIES ------------------------------ . THIS AGREEMENT SHALL NOT CONFER ANY RIGHTS OR REMEDIES UPON ANY PERSON OTHER THAN THE PARTIES AND THEIR RESPECTIVE SUCCESSORS AND PERMITTED ASSIGNS. (C) ENTIRE AGREEMENT ----------------- . THIS AGREEMENT (INCLUDING THE DOCUMENTS REFERRED TO HEREIN) CONSTITUTES THE ENTIRE AGREEMENT AMONG THE PARTIES AND SUPERSEDES ANY PRIOR UNDERSTANDINGS, AGREEMENTS, OR REPRESENTATIONS BY OR AMONG THE PARTIES, WRITTEN OR ORAL, TO THE EXTENT THEY RELATED IN ANY WAY TO THE SUBJECT MATTER HEREOF. (D) SUCCESSION AND ASSIGNMENT --------------------------- . THIS AGREEMENT SHALL BE BINDING UPON AND INURE TO THE BENEFIT OF THE PARTIES NAMED HEREIN AND THEIR RESPECTIVE SUCCESSORS AND PERMITTED ASSIGNS. NO PARTY MAY ASSIGN EITHER THIS AGREEMENT OR ANY OF HIS OR ITS RIGHTS, INTERESTS, OR OBLIGATIONS HEREUNDER WITHOUT THE PRIOR WRITTEN APPROVAL OF THE OTHER PARTY; PROVIDED, HOWEVER, THAT THE PARENT MAY (I) ASSIGN ANY OR ALL OF ITS RIGHTS AND -------- ------- INTERESTS HEREUNDER TO ONE OR MORE OF ITS AFFILIATES AND (II) DESIGNATE ONE OR MORE OF ITS AFFILIATES TO PERFORM ITS OBLIGATIONS HEREUNDER (IN ANY OR ALL OF WHICH CASES THE PARENT NONETHELESS SHALL REMAIN RESPONSIBLE FOR THE PERFORMANCE OF ALL OF ITS OBLIGATIONS HEREUNDER). (E) COUNTERPARTS ------------ . THIS AGREEMENT MAY BE EXECUTED IN ONE OR MORE COUNTERPARTS, EACH OF WHICH SHALL BE DEEMED AN ORIGINAL BUT ALL OF WHICH TOGETHER WILL CONSTITUTE ONE AND THE SAME INSTRUMENT. (F) HEADINGS -------- . THE SECTION HEADINGS CONTAINED IN THIS AGREEMENT ARE INSERTED FOR CONVENIENCE ONLY AND SHALL NOT AFFECT IN ANY WAY THE MEANING OR INTERPRETATION OF THIS AGREEMENT. (G) NOTICES ------- . ALL NOTICES, REQUESTS, DEMANDS, CLAIMS, AND OTHER COMMUNICATIONS HEREUNDER WILL BE IN WRITING. ANY NOTICE, REQUEST, DEMAND, CLAIM, OR OTHER COMMUNICATION HEREUNDER SHALL BE DEEMED DULY GIVEN IF (AND THEN TWO BUSINESS DAYS AFTER) IT IS SENT BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, POSTAGE PREPAID, AND ADDRESSED TO THE INTENDED RECIPIENT AS SET FORTH BELOW: IF TO HOFFMAN: --------------- LESLIE HOFFMAN 6660 VARIEL AVENUE CANOGA PARK, CA 91203 TELECOPY: (818) 346-6294 COPY TO: -------- FULBRIGHT & JAWORSKI L.L.P. 865. S. FIGUEROA STREET, 29TH FLOOR LOS ANGELES, CALIFORNIA 90017 42 ATTN: DAVID A. EBERSHOFF, ESQ. TELECOPY: (213) 680-4518 IF TO THE PARENT OR MERGER SUB: ------------------------------------ RESMED INC. 14040 DANIELSON STREET POWAY, CALIFORNIA 92064 ATTN: LEGAL DEPARTMENT TELECOPY: (858) 746-2830 COPY TO: -------- LATHAM & WATKINS 650 TOWN CENTER DRIVE, 20TH FLOOR, COSTA MESA, CALIFORNIA 92626 ATTN: PATRICK T. SEAVER, ESQ. TELECOPY: (714) 755-8290 ANY PARTY MAY SEND ANY NOTICE, REQUEST, DEMAND, CLAIM, OR OTHER COMMUNICATION HEREUNDER TO THE INTENDED RECIPIENT AT THE ADDRESS SET FORTH ABOVE USING ANY OTHER MEANS (INCLUDING PERSONAL DELIVERY, EXPEDITED COURIER, MESSENGER SERVICE, TELECOPY, TELEX, ORDINARY MAIL, OR ELECTRONIC MAIL), BUT NO SUCH NOTICE, REQUEST, DEMAND, CLAIM, OR OTHER COMMUNICATION SHALL BE DEEMED TO HAVE BEEN DULY GIVEN UNLESS AND UNTIL IT ACTUALLY IS RECEIVED BY THE INTENDED RECIPIENT. ANY PARTY MAY CHANGE THE ADDRESS TO WHICH NOTICES, REQUESTS, DEMANDS, CLAIMS, AND OTHER COMMUNICATIONS HEREUNDER ARE TO BE DELIVERED BY GIVING THE OTHER PARTIES NOTICE IN THE MANNER HEREIN SET FORTH. (H) GOVERNING LAW -------------- . THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF CALIFORNIA WITHOUT GIVING EFFECT TO ANY CHOICE OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF CALIFORNIA OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF CALIFORNIA. (I) AMENDMENTS AND WAIVERS ------------------------ . NO AMENDMENT OF ANY PROVISION OF THIS AGREEMENT SHALL BE VALID UNLESS THE SAME SHALL BE IN WRITING AND SIGNED BY THE PARENT AND HOFFMAN. NO WAIVER BY ANY PARTY OF ANY DEFAULT, MISREPRESENTATION, OR BREACH OF WARRANTY OR COVENANT HEREUNDER, WHETHER INTENTIONAL OR NOT, SHALL BE DEEMED TO EXTEND TO ANY PRIOR OR SUBSEQUENT DEFAULT, MISREPRESENTATION, OR BREACH OF WARRANTY OR COVENANT HEREUNDER OR AFFECT IN ANY WAY ANY RIGHTS ARISING BY VIRTUE OF ANY PRIOR OR SUBSEQUENT SUCH OCCURRENCE. NO FAILURE OR DELAY ON THE PART OF ANY PARTY IN EXERCISING ANY RIGHT, POWER OR PRIVILEGE HEREUNDER SHALL OPERATE AS A WAIVER THEREOF, NOR SHALL ANY WAIVER ON THE PART OF ANY PARTY OF ANY RIGHT, POWER OR PRIVILEGE HEREUNDER OPERATE AS A WAIVER OF ANY OTHER RIGHT, POWER OR PRIVILEGE HEREUNDER, NOR SHALL ANY SINGLE OR PARTIAL EXERCISE OF ANY RIGHT, POWER OR PRIVILEGE HEREUNDER PRECLUDE ANY OTHER OR FURTHER EXERCISE THEREOF OR THE EXERCISE OF ANY OTHER RIGHT, POWER OR PRIVILEGE HEREUNDER. (J) SEVERABILITY ------------ . ANY TERM OR PROVISION OF THIS AGREEMENT THAT IS INVALID OR UNENFORCEABLE IN ANY SITUATION IN ANY JURISDICTION SHALL NOT AFFECT THE VALIDITY OR ENFORCEABILITY OF THE REMAINING TERMS AND PROVISIONS HEREOF OR THE VALIDITY OR ENFORCEABILITY OF THE OFFENDING TERM OR PROVISION IN ANY OTHER SITUATION OR IN ANY OTHER JURISDICTION. 43 (K) EXPENSES -------- . EACH OF THE PARTIES WILL BEAR HIS OR ITS OWN COSTS AND EXPENSES (INCLUDING LEGAL FEES AND EXPENSES) INCURRED IN CONNECTION WITH THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY. HOFFMAN REPRESENTS AND AGREES THAT THE TARGET HAS NOT BORNE AND SHALL NOT BEAR ANY OF HOFFMAN'S COSTS AND EXPENSES (INCLUDING ANY OF HIS LEGAL FEES AND EXPENSES) IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY, AND TARGET HAS NOT BORNE AND SHALL NOT BEAR MORE THAN $50,000 IN COSTS AND EXPENSES (INCLUDING ANY OF ITS LEGAL FEES AND EXPENSES) IN AGGREGATE IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY, AND THAT ANY COSTS AND EXPENSES BEYOND $50,000 IN AGGREGATE INCURRED BY TARGET IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY SHALL BE BORNE BY HOFFMAN. (L) CONSTRUCTION ------------ . THE PARTIES HAVE PARTICIPATED JOINTLY IN THE NEGOTIATION AND DRAFTING OF THIS AGREEMENT. IN THE EVENT AN AMBIGUITY OR QUESTION OF INTENT OR INTERPRETATION ARISES, THIS AGREEMENT SHALL BE CONSTRUED AS IF DRAFTED JOINTLY BY THE PARTIES AND NO PRESUMPTION OR BURDEN OF PROOF SHALL ARISE FAVORING OR DISFAVORING ANY PARTY BY VIRTUE OF THE AUTHORSHIP OF ANY OF THE PROVISIONS OF THIS AGREEMENT. ANY REFERENCE TO ANY FEDERAL, STATE, LOCAL, OR FOREIGN STATUTE OR LAW SHALL BE DEEMED ALSO TO REFER TO ALL RULES AND REGULATIONS PROMULGATED THEREUNDER, UNLESS THE CONTEXT REQUIRES OTHERWISE. THE WORD "INCLUDING" SHALL MEAN INCLUDING WITHOUT LIMITATION. THE PARTIES INTEND THAT EACH REPRESENTATION, WARRANTY, AND COVENANT CONTAINED HEREIN SHALL HAVE INDEPENDENT SIGNIFICANCE. IF ANY PARTY HAS BREACHED ANY REPRESENTATION, WARRANTY, OR COVENANT CONTAINED HEREIN IN ANY RESPECT, THE FACT THAT THERE EXISTS ANOTHER REPRESENTATION, WARRANTY, OR COVENANT RELATING TO THE SAME SUBJECT MATTER (REGARDLESS OF THE RELATIVE LEVELS OF SPECIFICITY) WHICH THE PARTY HAS NOT BREACHED SHALL NOT DETRACT FROM OR MITIGATE THE FACT THAT THE PARTY IS IN BREACH OF THE FIRST REPRESENTATION, WARRANTY, OR COVENANT. (M) INCORPORATION OF EXHIBITS AND SCHEDULES ------------------------------------------- . THE EXHIBITS, ANNEXES, AND SCHEDULES IDENTIFIED IN THIS AGREEMENT ARE INCORPORATED HEREIN BY REFERENCE AND MADE A PART HEREOF. (N) SPECIFIC PERFORMANCE --------------------- . EACH OF THE PARTIES ACKNOWLEDGES AND AGREES THAT THE OTHER PARTIES WOULD BE DAMAGED IRREPARABLY IN THE EVENT ANY OF THE PROVISIONS OF THIS AGREEMENT ARE NOT PERFORMED IN ACCORDANCE WITH THEIR SPECIFIC TERMS OR OTHERWISE ARE BREACHED. ACCORDINGLY, EACH OF THE PARTIES AGREES THAT THE OTHER PARTIES SHALL BE ENTITLED TO AN INJUNCTION OR INJUNCTIONS TO PREVENT BREACHES OF THE PROVISIONS OF THIS AGREEMENT AND TO ENFORCE SPECIFICALLY THIS AGREEMENT AND THE TERMS AND PROVISIONS HEREOF IN ANY ACTION INSTITUTED IN ANY COURT OF THE UNITED STATES OR ANY STATE THEREOF HAVING JURISDICTION OVER THE PARTIES AND THE MATTER (SUBJECT TO THE PROVISIONS SET FORTH IN 10(P) BELOW), IN ADDITION TO ANY OTHER REMEDY TO WHICH THEY MAY BE ENTITLED, AT LAW OR IN EQUITY. (O) SUBMISSION TO JURISDICTION ---------------------------- . SUBJECT TO COMPLIANCE WITH 10(P) BELOW, EACH OF THE PARTIES SUBMITS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT SITTING IN ORANGE COUNTY, CALIFORNIA, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT AND AGREES THAT ALL CLAIMS IN RESPECT OF THE ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT. EACH PARTY ALSO AGREES NOT TO BRING ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT IN ANY OTHER COURT. EACH OF THE PARTIES WAIVES ANY DEFENSE OF INCONVENIENT FORUM TO THE MAINTENANCE OF ANY ACTION OR PROCEEDING SO BROUGHT AND WAIVES ANY BOND, SURETY, OR OTHER SECURITY THAT MIGHT BE REQUIRED OF ANY OTHER PARTY WITH RESPECT THERETO. ANY PARTY MAY MAKE SERVICE ON ANY OTHER PARTY BY SENDING OR DELIVERING A COPY OF THE PROCESS TO THE PARTY TO BE SERVED AT THE ADDRESS AND IN THE MANNER PROVIDED FOR THE GIVING OF NOTICES IN 10(G) ABOVE. NOTHING IN THIS 10(O), HOWEVER, SHALL AFFECT THE RIGHT OF ANY PARTY TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AT EQUITY. EACH PARTY AGREES THAT A FINAL JUDGMENT IN ANY ACTION OR PROCEEDING SO BROUGHT SHALL BE CONCLUSIVE AND MAY BE ENFORCED BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW OR AT EQUITY. 44 (P) ALTERNATIVE DISPUTE RESOLUTION. -------------------------------- (I) THE PARTIES WILL ATTEMPT IN GOOD FAITH TO RESOLVE THROUGH NEGOTIATION ANY DISPUTE, CLAIM OR CONTROVERSY ARISING OUT OF OR RELATING TO THIS AGREEMENT. ANY PARTY MAY INITIATE NEGOTIATIONS BY PROVIDING WRITTEN NOTICE TO THE OTHER PARTIES, SETTING FORTH THE SUBJECT OF THE DISPUTE AND THE RELIEF REQUESTED. THE RECIPIENT OF SUCH NOTICE WILL RESPOND IN WRITING WITHIN FIVE DAYS WITH A STATEMENT OF ITS POSITION ON AND RECOMMENDED SOLUTION TO THE DISPUTE. IF THE DISPUTE IS NOT RESOLVED BY THIS EXCHANGE OF CORRESPONDENCE, THEN REPRESENTATIVES OF EACH PARTY WITH FULL SETTLEMENT AUTHORITY WILL MEET AT A MUTUALLY AGREEABLE TIME AND PLACE WITHIN TEN (10) DAYS OF THE DATE OF THE INITIAL NOTICE IN ORDER TO EXCHANGE RELEVANT INFORMATION AND PERSPECTIVES, AND TO ATTEMPT TO RESOLVE THE DISPUTE. IF THE DISPUTE IS NOT RESOLVED BY THESE NEGOTIATIONS, THE MATTER WILL BE SUBMITTED TO JAMS, OR ITS SUCCESSOR, FOR MEDIATION IN ACCORDANCE WITH 10(P)(II) BELOW. (II) THE PARTIES AGREE THAT ANY AND ALL DISPUTES, CLAIMS OR CONTROVERSIES ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE SUBMITTED TO JAMS, OR ITS SUCCESSOR, FOR MEDIATION, AND IF THE MATTER IS NOT RESOLVED THROUGH MEDIATION, THEN IT SHALL BE SUBMITTED TO JAMS, OR ITS SUCCESSOR, FOR FINAL AND BINDING ARBITRATION IN ORANGE COUNTY, CALIFORNIA. ANY PARTY MAY COMMENCE MEDIATION BY PROVIDING TO JAMS AND THE OTHER PARTIES A WRITTEN REQUEST FOR MEDIATION, SETTING FORTH THE SUBJECT OF THE DISPUTE AND THE RELIEF REQUESTED. THE PARTIES WILL COOPERATE WITH JAMS AND WITH ONE ANOTHER IN SELECTING A MEDIATOR FROM JAMS' PANEL OF NEUTRALS, AND IN SCHEDULING THE MEDIATION PROCEEDINGS. THE PARTIES COVENANT THAT THEY WILL PARTICIPATE IN THE MEDIATION IN GOOD FAITH, AND THAT HOFFMAN AND PARENT WILL SHARE EQUALLY IN ITS COSTS. ALL OFFERS, PROMISES, CONDUCT AND STATEMENTS, WHETHER ORAL OR WRITTEN, MADE IN THE COURSE OF THE MEDIATION BY ANY OF THE PARTIES, THEIR AGENTS, EMPLOYEES, EXPERTS AND ATTORNEYS, AND BY THE MEDIATOR OR ANY JAMS EMPLOYEES, ARE CONFIDENTIAL, PRIVILEGED AND INADMISSIBLE FOR ANY PURPOSE, INCLUDING IMPEACHMENT, IN ANY ARBITRATION OR OTHER PROCEEDING INVOLVING THE PARTIES, PROVIDED THAT EVIDENCE THAT IS OTHERWISE ADMISSIBLE OR DISCOVERABLE SHALL NOT BE RENDERED INADMISSIBLE OR NON-DISCOVERABLE AS A RESULT OF ITS USE IN THE MEDIATION. ANY PARTY MAY INITIATE ARBITRATION WITH RESPECT TO THE MATTERS SUBMITTED TO MEDIATION BY FILING A WRITTEN DEMAND FOR ARBITRATION AT ANY TIME FOLLOWING THE INITIAL MEDIATION SESSION OR 45 DAYS AFTER THE DATE OF FILING THE WRITTEN REQUEST FOR MEDIATION, WHICHEVER OCCURS FIRST. THE MEDIATION MAY CONTINUE AFTER THE COMMENCEMENT OF ARBITRATION IF THE PARTIES SO DESIRE. UNLESS OTHERWISE AGREED BY THE PARTIES, THE MEDIATOR SHALL BE DISQUALIFIED FROM SERVING AS ARBITRATOR IN THE CASE. THE PROVISIONS OF THIS CLAUSE MAY BE ENFORCED BY ANY COURT OF COMPETENT JURISDICTION, AND THE PARTY SEEKING ENFORCEMENT SHALL BE ENTITLED TO AN AWARD OF ALL COSTS, FEES AND EXPENSES, INCLUDING ATTORNEYS FEES, TO BE PAID BY THE PARTY AGAINST WHOM ENFORCEMENT IS ORDERED. 45 (III) THE PARTIES AGREE THAT ANY AND ALL DISPUTES, CLAIMS OR CONTROVERSIES ARISING OUT OF OR RELATING TO THIS AGREEMENT THAT ARE NOT RESOLVED BY THEIR MUTUAL AGREEMENT THROUGH MEDIATION PURSUANT TO 10(P)(II) ABOVE SHALL BE SUBMITTED TO FINAL AND BINDING ARBITRATION BEFORE JAMS, OR ITS SUCCESSOR, IN ORANGE COUNTY, CALIFORNIA, PURSUANT TO THE UNITED STATES ARBITRATION ACT, 9 U.S.C. SEC. 1 ET SEQ. ANY PARTY MAY COMMENCE THE ARBITRATION PROCESS CALLED FOR IN THIS AGREEMENT BY FILING A WRITTEN DEMAND FOR ARBITRATION WITH JAMS, WITH A COPY TO THE OTHER PARTY. THE ARBITRATION WILL BE CONDUCTED IN ACCORDANCE WITH THE PROVISIONS OF JAMS' COMPREHENSIVE ARBITRATION RULES AND PROCEDURES IN EFFECT AT THE TIME OF FILING OF THE DEMAND FOR ARBITRATION. THE PARTIES WILL COOPERATE WITH JAMS AND WITH ONE ANOTHER IN SELECTING AN ARBITRATOR FROM JAMS' PANEL OF NEUTRALS, AND IN SCHEDULING THE ARBITRATION PROCEEDINGS. THE PARTIES COVENANT THAT THEY WILL PARTICIPATE IN THE ARBITRATION IN GOOD FAITH, AND THAT HOFFMAN AND PARENT WILL SHARE EQUALLY IN ITS COSTS. THE PROVISIONS OF THIS CLAUSE MAY BE ENFORCED BY ANY COURT OF COMPETENT JURISDICTION, AND THE PARTY SEEKING ENFORCEMENT SHALL BE ENTITLED TO AN AWARD OF ALL COSTS, FEES AND EXPENSES, INCLUDING ATTORNEYS FEES, TO BE PAID BY THE PARTY AGAINST WHOM ENFORCEMENT IS ORDERED. ***** 46 IN WITNESS WHEREOF, THE PARTIES HERETO HAVE EXECUTED THIS AGREEMENT AND PLAN OF MERGER ON THE DATE FIRST ABOVE WRITTEN. RESMED INC., A DELAWARE CORPORATION BY: /S/ PETER C FARRELL ---------------------- NAME: PETER C. FARRELL TITLE: CEO SERVO MAGNETICS ACQUISITION, INC., A DELAWARE CORPORATION BY: /S/ LESLIE HOFFMAN -------------------- NAME: LESLIE HOFFMAN TITLE: CEO SERVO MAGNETICS INCORPORATED, A CALIFORNIA CORPORATION BY: /S/ LESLIE HOFFMAN -------------------- NAME: LESLIE HOFFMAN TITLE: CEO LESLIE HOFFMAN, AN INDIVIDUAL /S/ LESLIE HOFFMAN --------------------