Stock Purchase Agreement



 



Exhibit 10.25


STOCK PURCHASE AGREEMENT



Between and among



WOODWARD GOVERNOR COMPANY



and



KNOWLES INTERMEDIATE HOLDING, INC.



and



KNOWLES ELECTRONICS HOLDINGS, INC.



May 20, 2003



 






 





STOCK PURCHASE AGREEMENT



This Stock Purchase Agreement (“Agreement”) is made as of May 20, 2003 by and
between Woodward Governor Company, a Delaware corporation (“Buyer”), Knowles
Intermediate Holding, Inc., a Delaware corporation (“Seller”), and Knowles
Electronics Holdings, Inc., a Delaware corporation and sole stockholder of
Seller (“Parent”).


PRELIMINARY STATEMENT



A.     Seller desires to sell, and Buyer desires to purchase, all of the
outstanding shares (the “Shares”) of Synchro-Start Products, Inc., a
corporation organized under the laws of Delaware (the “Company”), on the terms
and subject to the conditions set forth in this Agreement.


B.     As of the date of this Agreement, the Subsidiaries of the Company include:
Synchro-Start Products Europe, Ltd., a corporation organized under the laws of
England and Wales (“SSPEL”) and Synchro-Start Products (Suzhou) Co. Ltd., a
company organized under the laws of the People’s Republic of China (“PRC”)
(“SSPS”) and Knowles Electronics Trading (Shanghai) Co. Ltd., a corporation
organized under the laws of the PRC (“KESH”).


C.     Prior to the Closing (as defined below) and pursuant to this Agreement,
Seller and Parent will cause those assets and liabilities of Knowles
Electronics (Suzhou) Co. Ltd., a corporation organized under the laws of the
PRC (“KES”), relating primarily to the Business (as defined below) to be
transferred to SSPS.


AGREEMENT



The parties, intending to be legally bound, agree as follows:


CONSTRUCTION AND DEFINITIONS



     CONSTRUCTION


Any reference in this Agreement to an “Article,” “Section” or “Schedule” refers
to the corresponding Article, Section or Schedule of or to this Agreement,
unless the context indicates otherwise. The headings of Articles and Sections
are provided for convenience only and should not affect the construction or
interpretation of this Agreement. All words used in this Agreement should be
construed to be of such gender or number as the circumstances require. The
terms


 






 


“include” and “including” indicate examples of a foregoing general statement
and not a limitation on that general statement. The terms “herein”,
“hereunder”, “hereof”, and words of similar import shall be deemed references
to this Agreement as a whole and not to any particular Section or other
provision. Any reference to a statute refers to the statute, any amendments or
successor legislation, and all regulations promulgated under or implementing
the statute, as in effect at the relevant time. Any reference to a Contract or
other document as of a given date means the Contract or other document as
amended, supplemented and modified from time to time through such date. Any
reference to Adverse Consequences, as defined below, shall be interpreted in
connection with the events giving rise to such Adverse Consequences to include
any incidental or consequential damages to the extent allowed under the
applicable Law.


     DEFINITIONS


For the purposes of this Agreement, the following terms and variations on them
have the meanings specified in this Section:


“Accountants” is defined in Section 2.3(c).


“Accounts Receivable” means (a) all trade accounts receivable and other rights
to payment from customers of the Acquired Companies and the KES Business and
the full benefit of all security for such accounts or rights to payment,
including all trade accounts receivable representing amounts receivable in
respect of goods shipped, products sold or services rendered to customers of
the Acquired Companies and the KES Business, (b) all other accounts or notes
receivable of each Acquired Company and the KES Business and the full benefit
of all security for such accounts or notes, and (c) any claim, remedy or other
right related to any of the foregoing.


“Acquired Companies” means the Company and its Subsidiaries (including SSPEL,
SSPS and KESH), collectively.


“Acquired Company” means the Company or any of its Subsidiaries (including
SSPEL, SSPS and KESH).


“Acquired KES Assets” means, except as set forth in Section 3.10 of Seller’s
Disclosure Schedule, all right, title, and interest in and to only those assets
of KES constituting the KES Business, including, to the extent and only to the
extent such assets exist and are used primarily in the Business (a) real
property interests (including all parcels and tracts of land in which the KES
Business has a fee simple estate or leasehold estate (or, in each case, the
equivalent under local Laws) and all real property that the KES Business has a
legal or practical right to use,


 






 




occupy or operate), (b) tangible personal property (such as machinery,
equipment, inventories of raw materials and supplies, manufactured and
purchased parts, goods in process and finished goods, furniture, automobiles,
trucks, tractors, trailers, tools, jigs, and dies), (c) intellectual property,
goodwill associated therewith, licenses and sublicenses granted and obtained
with respect thereto, and rights thereunder, remedies against infringements
thereof, and rights to protection of interests therein under all applicable
Laws, (d) leases, subleases, and rights thereunder, (e) Company Contracts,
including all franchises, approvals, permits, licenses, orders, registrations,
certificates, variances, and similar rights obtained from Governmental Bodies,
and rights thereunder, (f) accounts, notes, and other receivables, (g)
securities, (h) claims, deposits, prepayments, refunds, causes of action,
choses in action, rights of recovery, rights of set off, and rights of
recoupment (including any such item relating to the payment of Taxes), (i)
books, records, ledgers, files, documents, correspondence, lists, plats,
architectural plans, drawings, and specifications, creative materials,
advertising and promotional materials, studies, reports, and other printed or
written materials, and (j) cash and cash equivalents; provided, however, that
the Acquired KES Assets will not include (i) the Governing Documents, including
all qualifications to conduct business as a foreign corporation, arrangements
with registered agents relating to foreign qualifications, taxpayer and other
identification numbers, seals, minute books, stock transfer books, blank stock
certificates, and other documents relating to the organization, maintenance,
and existence, of the Seller or KES, or (ii) any of the rights of the Seller
under this Agreement or any Ancillary Agreement.


“Adjustment Amount” is defined in Section 2.3(d).


“Adverse Consequence” means any Liability, loss, damage, claim, demand, Order,
penalty, cost, deficiency, diminution of value, or expense (including costs of
investigation and defense, penalties and reasonable legal fees and costs),
whether or not involving a third-party claim.


“Affiliate” means with respect to any Person, any company, partnership,
limited liability company or unincorporated organization that directly or
indirectly through one or more intermediaries controls, or is controlled by, or
is under common control with such Person.


“Allocation Statement” is defined in Section 11.13.


“ALTA” means the American Land Title Association.


“ALTA Statement” means an ALTA statement in a form satisfactory to the Title
Insurer.


“Ancillary Agreements” is defined in Section 2.5(c).


 






 


“Annual Incentive Plans” means the target bonuses for the Transferring KES
Employees and the employees of the Acquired Companies in Seller’s current
fiscal year as listed in Section 3.18(k) of Seller’s Disclosure Schedule.


“Assumed KES Liabilities” means (a) all Liabilities of the KES Business set
forth on the face of the Balance Sheet (including in any notes thereto), (b)
all Liabilities of the KES Business which have arisen after the date of the
Balance Sheet in the Ordinary Course of Business, (c) all obligations of the
KES Business under the Company Contracts and other arrangements referred to in
the definition of Acquired KES Assets either (i) to furnish goods, services,
and other non-cash benefits to another party after the Closing or (ii) to pay
for goods, services, and other non-cash benefits that another party will
furnish to it after the Closing, (d) all other Liabilities of the KES Business
identified in an appendix to Seller’s Disclosure Schedule under an express
statement (that the Buyer has initialed) to the effect that the definition of
Assumed KES Liabilities will include the Liabilities and obligations so
disclosed, and (e) all Liabilities of the KES Business which arise from events
that occur following the Closing.


“Balance Sheet” is defined in Section 3.4.


“Best Efforts” means the efforts that a prudent Person desirous of achieving a
result would use in similar circumstances to achieve that result as
expeditiously as possible; provided, however, that an obligation to use Best
Efforts under this Agreement does not require the Person subject to that
obligation to take actions that would result in a material adverse change in
the benefit to such Person of this Agreement and the Contemplated Transactions
taken as a whole.


“Benefit Obligation” means the employer’s aggregate financial liability to
provide all current, projected and contingent benefits to an employee, or his
beneficiaries or dependents, as the case may be, under the terms of a Plan,
regardless of whether an amount less than such aggregate financial liability is
reflected on the employer’s financial statements under applicable tax or
accounting rules.


“Business” means the design, manufacture, distribution and sale of solenoids,
proportional actuators, speed switches, speed sensors, and programmable
electronic controls used in the manufacture of individual diesel engines and
mobile equipment.


“Buyer” is defined in the first paragraph of this Agreement.


“Buyer Flex Plan” is defined in Section 12.1(e).


 






 


“Buyer’s Confidential Information” means any information concerning the
Acquired Companies, the KES Business, or this Agreement that is not already
generally available to the public.


“Buyer’s Disclosure Schedule” means the disclosure schedule delivered pursuant
to Article 4 by Buyer to Seller concurrently with the execution and delivery of
this Agreement, together with any updates to it.


“Buyer Indemnitees” is defined in Section 10.2.


“Cleanup” means any investigative, monitoring, cleanup, removal, containment or
other remedial or response action in accordance with any Environmental Law,
Occupational Safety and Health Law, or imposed by a Governmental Body. The
terms “removal,” “remedial” and “response action” include the types of
activities covered by the Comprehensive Environmental Response, Compensation
and Liability Act.


“Closing” means the consummation and completion of the purchase and sale of the
Shares.


“Closing Balance Sheet” is defined in Section 2.3(b).


“Closing Date” means the date on which the Closing actually takes place.


“Closing Working Capital” is defined in Section 2.3(b).


“Code” means the Internal Revenue Code of 1986.


“Company” is defined in the Preliminary Statement.


“Company Contract” means any Contract in effect (a) under which an Acquired
Company or the KES Business has or may acquire rights, (b) under which an
Acquired Company or the KES Business is or may become subject to Liability or
(c) by which an Acquired Company or the KES Business or any of their assets is
or may become bound.


“Company Plan” means any Plan covering any employee of an Acquired Company of
which an Acquired Company or an ERISA Affiliate is or was a Plan Sponsor, to
which an Acquired Company or an ERISA Affiliate otherwise contributes or has
contributed, in which an Acquired Company or an ERISA Affiliate otherwise
participates or has participated, or with respect to which an Acquired Company
or an ERISA Affiliate has any Liability.
“


Consent” means any approval, consent, ratification, waiver or other
authorization.


“Contemplated Transactions” means all of the transactions to be carried out in
accordance with this Agreement, including the purchase and sale of the Shares,
the performance by the parties of their other obligations under this Agreement
and the execution, delivery and performance of the Ancillary Agreements.


 






 


“Contract” means any contract, agreement, commitment, understanding, lease,
license, permit, franchise, warranty, guaranty, mortgage, note, bond or other
instrument or consensual obligation (whether written or oral and whether
express or implied) that is legally binding.


“Contravene” — an act or omission would “Contravene” something if, as the context requires:


(a)     the act or omission would conflict with it, violate it, result in a breach
or violation of or failure to comply with it, or constitute a default under it;


(b)     the act or omission would give any Governmental Body or other Person the
right to challenge, revoke, withdraw, suspend, cancel, terminate or modify it,
to exercise any remedy or obtain any relief under it, or to declare a default
or accelerate the maturity of any obligation under it; or


(c)     the act or omission would result in the creation of an Encumbrance on the
stock or assets of an Acquired Company.


“Covered Employees” is defined in Section 12.1(e).


“Designated Employees” is defined in Section 2.5(a)(iii).


“Election” is defined in Section 11.13.


“Employment Agreements” is defined in Section 2.5(a)(iii).


“Employee Noncompetition Agreements” is defined in Section 2.5(a)(iv).


“Encumbrance” means any charge, claim, mortgage, servitude, easement, right of
way, community or other marital property interest, covenant, equitable
interest, license, lease or other possessory interest, lien, option, pledge,
security interest, preference, priority, right of first refusal or similar
restriction, provided, however, that the term “Encumbrance” does not include
(a) mechanic’s, materialman’s or similar liens with respect to amounts not yet
due and payable, (b) liens for Taxes not yet due and payable and (c) liens
securing rental payments under capital lease arrangements.


“Environment” means soil, land surface or subsurface strata, surface waters
(including navigable water and ocean waters), groundwaters, drinking water
supply, stream sediments, ambient air (including indoor air), plant life,
animal life and any other similar medium or natural resource.


“Environmental, Health and Safety Liabilities” means any Adverse Consequence or
other responsibility arising from or under any applicable Environmental Law or
Occupational Safety and Health Law, including those consisting of or relating
to (a) any environmental, health or safety matter or condition (including
on-site or off-site contamination, occupational safety and


 






 




health, and regulation of any chemical substance or product), (b) any fine,
penalty, judgment, award, settlement, Proceeding, damages, loss, claim, demand
and response, investigative, monitoring, remedial or inspection cost or expense
arising under any applicable Environmental Law or Occupational Safety and
Health Law, (c) financial responsibility under any applicable Environmental Law
or Occupational Safety and Health Law for Cleanup costs or corrective action,
(whether or not such Cleanup has been required or requested by any Governmental
Body or other Person) and for any natural resource damage, (d) any other
compliance, corrective or remedial measures required under any applicable
Environmental Law or Occupational Safety and Health Law, or (e) any Release of
Hazardous Materials from the Acquired Companies or the Acquired KES Assets.


“Environmental Law” means any Law (other than any Occupational Safety and
Health Law) that requires or relates to (a) Releases of pollutants or
Hazardous Materials, violations of permit limits or other prohibitions and the
commencement of activities, such as resource extraction or construction, that
could have an impact on the Environment, (b) preventing, reducing or regulating
the Release of pollutants or Hazardous Materials into the Environment, (c)
reducing or regulating the quantities, preventing the Release, or minimizing
the hazardous characteristics of wastes that are generated, (d) assuring that
products are designed, formulated, packaged and used so that they do not
present unreasonable risks to human health or the Environment when used or
disposed of, (e) protecting resources, species or ecological amenities, (f)
reducing to acceptable levels the risks inherent in the transportation of
Hazardous Materials, pollutants, oil or other potentially harmful substances,
(g) Cleanup of pollutants that have been Released, preventing the threat of
Release, or paying the costs of such Cleanup or prevention, or (h) making
responsible parties pay private parties, or groups of them, for damages done to
their health or the Environment, or permitting self-appointed representatives
of the public interest to recover for injuries done to public assets.


“ERISA” means the Employee Retirement Income Security Act of 1974.


“ERISA Affiliate” means with respect to an Acquired Company, any other Person
that, together with the Company, would be treated as a single employer under
Code Section 414.


“Escrow Agent” is defined in Section 2.5(a)(xiv).


“Escrow Agreement” is defined in Section 2.5(a)(xiv).


 






 


“Excess and Obsolete Inventory” means without adjustment: 50% of the value of
Inventory in excess of 18 months’ usage and 100% of the value of Inventory in
excess of 36 months’ usage, excluding inventory directly related to new
products introduced within six months of the date hereof.


“Facility” means any Real Property or any equipment (including motor vehicles,
tank cars and rolling stock) owned or operated by an Acquired Company,
including the Real Property and equipment used or operated by an Acquired
Company at the respective locations of the Real Property listed in Section
3.11(a) of Seller’s Disclosure Schedule. For purposes of Section 3.21 and the
definition of “Hazardous Activity,” the term also includes any Real Property or
equipment formerly owned or operated by an Acquired Company or any predecessor
Person (including, for the purposes of this Agreement, KES).


“GAAP” means generally accepted accounting principles for financial reporting
in the United States as in effect on the date hereof.


“Governing Document” means any charter, articles, bylaws, certificate,
statement, statutes or similar document adopted, filed or registered in
connection with the creation, formation or organization of an entity, and any
Contract among all equityholders, partners or members of an entity.


“Governmental Authorization” means any Consent, license, permit or registration
issued, granted, given or otherwise made available and in effect by or under
the authority of any Governmental Body or pursuant to any Law.


“Governmental Body” means any (a) nation, region, state, county, city, town,
village, district or other jurisdiction, (b) federal, state, local, municipal,
foreign or other government, (c) governmental or quasi-governmental authority
of any nature (including any governmental agency, branch, department or other
entity and any court or other tribunal), (d) multinational organization, (e)
body exercising, or entitled to exercise, any administrative, executive,
judicial, legislative, police, regulatory or taxing authority or power of any
nature, or (f) official of any of the foregoing.


“Hazardous Activity” means the distribution, generation, handling, importing,
management, manufacturing, processing, production, refinement, Release,
storage, transfer, transportation, treatment or use (including any withdrawal
or other use of groundwater) of Hazardous Materials in, on, under, about, to or
from any of the Facilities or any part thereof into the Environment.


 






 


“Hazardous Material” means any waste or other substance that is listed,
defined, designated or classified as, or otherwise determined by any
Governmental Body authorized to make such a determination to be, hazardous,
radioactive or toxic or a pollutant or a contaminant under any Environmental
Law, including any admixture or solution thereof, and specifically including
petroleum and all derivatives thereof or synthetic substitutes therefor and
asbestos or asbestos-containing materials.


“Improvements” means all buildings, structures, fixtures and other improvements
located on the Real Property.


“Indemnified Person” is defined in Section 10.6(a).


“Indemnifying Person” is defined in Section 10.6(a).


“Initial Working Capital” is defined in Section 2.3(a).


“Intellectual Property” means any intellectual property owned, used or licensed
(as licensor or licensee) by any Acquired Company, including (a) each Acquired
Company’s name, assumed business names and corporate names, (b) patents, patent
disclosures, trademarks, service marks, trade dress, trade names, logos,
copyrights and mask works, and all registrations, applications and goodwill
associated with the foregoing, (c) computer software (including source and
object codes), databases, data models or structures, algorithms, system
architectures and related documentation, data and manuals, (d) trade secrets,
know-how and confidential business information (including information
concerning products, product specifications, data, formulae, compositions,
designs, sketches, photographs, graphs, drawings, samples, inventions,
discoveries, ideas, past, current, and planned research and development,
current and planned methods and processes, client and customer lists and files,
current and anticipated client and customer requirements, vendor and supplier
lists and files, price lists, market studies, business plans, business
opportunities and financial data), (e) rights in Internet web sites and domain
names used by an Acquired Company and (f) rights in electronic mail addresses
and in telephone, facsimile, cable or similar numbers used by an Acquired
Company.


“Interim Balance Sheet” is defined in Section 3.4.


“Inventories” means all inventories of each Acquired Company and the KES
Business, wherever located, including all finished goods, work in process, raw
materials, spare parts and all other materials and supplies to be used or
consumed by each Acquired Company or the KES Business in the production of
finished goods.


 






 


“IRS” means the Internal Revenue Service or any successor agency and, to the
extent relevant, the Department of Treasury.


“Joint Development Agreement” means the Joint Development Agreement by and
between Etymotic Research, Inc. and Ruf North America, a division of
Syncho-Start Products, Inc., dated June 24, 1998, as amended by the 1999
Additions to Appendix A and Additions to Appendix B and the Amendment to Joint
Development Agreement dated March 5, 2001.


“KES” is defined in the Preliminary Statement.


“KES Business” refers to KES, but only to the extent relating to KES’ conduct
of the Business.


“Key Employees” means the employees of the Acquired Companies listed in Section
1.2A of Buyer’s Disclosure Schedule.


“Knowledge” means, with respect to Seller, the actual knowledge after
reasonable investigation of those individuals listed in Section 1.2B of
Seller’s Disclosure Schedule and, with respect to Buyer, those individuals
listed in Section 1.2C of Buyer’s Disclosure Schedule.


“Law” means any constitution, law, statute, treaty, rule, regulation,
ordinance, code, binding case law, principle of common law or notice of any
Governmental Body, as in effect on the date hereof.


“Liabilities” includes liabilities or obligations of any nature, whether known
or unknown, whether absolute, accrued, contingent, choate, inchoate or
otherwise, whether due or to become due, and whether or not required to be
reflected on a balance sheet prepared in accordance with GAAP.


“Multiemployer Plan” has the meaning specified in ERISA Section 3(37)(A).


“NAFTA” is defined in Section 3.23(f).


“Notification Event” is defined in Section 5.5(a).


“Occupational Safety and Health Law” means any Law designed to provide safe and
healthful working conditions and to reduce occupational safety and health
hazards.


“Off-Balance Sheet Arrangement” means with respect to any Person, any
securitization transaction to which that Person or its Subsidiaries is party
and any other transaction, agreement or other contractual arrangement to which
an entity unconsolidated with that Person is a party, under which that Person
or its Subsidiaries, whether or not a party to the arrangement, has, or in the
future may have: (a) any obligation under a direct or indirect guarantee or
similar arrangement; (b) a retained or contingent interest in assets
transferred to an unconsolidated entity


 






 




or similar arrangement; (c) derivatives to the extent that the fair value
thereof is not fully reflected as a liability or asset in the financial
statements; or (d) any obligation or liability, including a contingent
obligation or liability, to the extent that it is not fully reflected in the
financial statements (excluding the footnotes thereto) (for this purpose,
obligations or liabilities that are not fully reflected in the financial
statements (excluding the footnotes thereto) include, without limitation:
obligations that are not classified as a liability according to generally
accepted accounting principles; contingent liabilities as to which, as of the
date of the financial statements, it is not probable that a loss has been
incurred or, if probable, is not reasonably estimable; or liabilities as to
which the amount recognized in the financial statements is less than the
reasonably possible maximum exposure to loss under the obligation as of the
date of the financial statements, but exclude contingent liabilities arising
out of litigation, arbitration or regulatory actions (not otherwise related to
off-balance sheet arrangements)).


“Order” means any order, injunction, judgment, decree, ruling, assessment or
arbitration award of any Governmental Body or arbitrator and any Contract with
any Governmental Body pertaining to compliance with Law, as in effect prior to
and on the Closing Date.


“Ordinary Course of Business” refers to actions taken in an Acquired Company’s
normal operation, consistent with its past practice and, in the case of SSPS,
the past practice of the KES Business, requiring no separate or specific
authorization by Seller and having no material adverse effect on the financial
or other condition, results of operations, assets, Liabilities, equity,
business or prospects of the Company or any of its Subsidiaries, taken as a
whole.


“Other Benefit Obligation” means any obligation, arrangement or customary
practice covering any employee of an Acquired Company owed, adopted or followed
by an Acquired Company or any ERISA Affiliate, to provide benefits, other than
salary, as compensation for services rendered, to present or former directors,
officers, employees or agents, other than obligations, arrangements and
practices that are Plans. Other Benefit Obligations include consulting
agreements under which the compensation paid does not depend upon the amount of
service rendered, sabbatical policies, severance payment policies and fringe
benefits within the meaning of Code Section 132.


“Partial Phase II Investigation” is defined in Section 6.3(b).


“PBGC” means the Pension Benefit Guaranty Corporation.


 






 


“Person” refers to an individual or an entity, including a corporation, share
company, limited liability company, partnership, trust, association,
Governmental Body or any other body with legal personality separate from its
equityholders or members.


“Plan” means each “employee pension benefit plan” as defined in Section 3(2) of
ERISA, each “employee welfare benefit plan,” as defined in Section 3(1) of
ERISA, and each agreement, plan, program, fund, policy, contract or arrangement
(whether written or unwritten) providing compensation, benefits, pension,
retirement, superannuation, profit sharing, stock bonus, stock option, stock
purchase, phantom or stock equivalent, bonus, thirteenth month, incentive,
deferred compensation, hospitalization, medical, dental, vision, vacation, life
insurance, death benefit, sick pay, disability, severance, termination
indemnity, redundancy pay, educational assistance, holiday pay, housing
assistance, moving expense reimbursement, fringe benefit or similar employee
benefits covering any employee, former employee, or the beneficiaries and
dependents of any employee or former employee, regardless of whether it is
mandated under local Law, voluntary, private, funded, unfunded, financed by the
purchase of insurance, contributory or non-contributory.


“Plan Sponsor” has the meaning specified in ERISA Section 3(16)(B).


“Pre-Closing Period” means the taxable period (including all prior taxable
years or periods) ending on and including the Closing Date, including that
portion of any Straddle Period ending on the Closing Date.


“Post-Closing Period” means the taxable period ending after the Closing Date,
including that portion of any Straddle Period ending after the Closing Date.


“PRC” is defined in the Preliminary Statement.


“Proceeding” means any action, arbitration, audit, examination, investigation,
hearing, litigation or suit (whether civil, criminal, administrative, judicial
or investigative, whether formal or informal, and whether public or private)
commenced, brought, conducted or heard by or before, or otherwise involving,
any Governmental Body or arbitrator.


“Purchase Price” is defined in Section 2.2.


“Qualified Plan” means any Plan that meets or purports to meet the requirements
of Code Section 401(a).


“Real Property” means all real property interests of each Acquired Company,
including all parcels and tracts of land in which each Acquired Company has a
fee simple estate or a leasehold


 






 




estate and all real property operated by an Acquired Company, as identified on
Section 3.11(a) of Seller’s Disclosure Schedule, and all Improvements,
easements and appurtenances thereto.


“Related Person” means, with respect to a particular Person, any other Person
directly or indirectly controlling, controlled by or under common control with,
such Person and, with respect to an individual, any other individual that is a
member of the individual’s immediate family (by blood, marriage or adoption), a
member of the individual’s household, an entity in which the individual
participates in management or an employee or employer of the individual. For
purposes of this definition, “control” means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of an entity, whether through the ownership of voting securities or
otherwise, and will be construed in accordance with the rules promulgated under
the Securities Act.


“Release” means any release, spill, emission, leaking, pumping, pouring,
dumping, emptying, injection, deposit, disposal, discharge, dispersal, leaching
or migration on or into the Environment, or into or out of any property.


“Representative” means, with respect to a particular Person, any director,
officer, employee, agent, consultant, advisor, legal counsel, accountant or
other representative of that Person.


“Reservation of Rights Event” is defined in Section 10.6(b).


“Retained KES Liabilities” means all Liabilities of KES (whether relating to
the KES Business or otherwise), including (a) any obligation of Seller of KES
to indemnify any Person by reason of the fact that such Person was a director,
officer, employee, or agent of Seller or KES or was serving at the request of
Seller or KES as a partner, trustee, director, officer, employee, or agent of
another entity (whether such indemnification is for judgments, damages,
penalties, fines, costs, amounts paid in settlement, losses, expenses, or
otherwise and whether such indemnification is pursuant to any statute, charter
document, bylaw, agreement, or otherwise), (b) any Liability of Seller or KES
for costs and expenses incurred in connection with this Agreement and the
Contemplated Transactions, or (c) any Liability or obligation of Seller or KES
under this Agreement or any Ancillary Agreement; provided, however, that the
Retained KES Liabilities will not include any of the Assumed KES Liabilities.


“Securities Act” means the Securities Act of 1933.


“Seller” is defined in the first paragraph of this Agreement.


“Seller FSAs” is defined in Section 12.1(e).


 






 


“Seller’s Confidential Information” means any information concerning the
Seller, Parent or Parent’s Affiliates, including Knowles Electronics, LLC, or
this Agreement that is not already generally available to the public.


“Seller’s Disclosure Schedule” means the disclosure schedule delivered pursuant
to Article 3 by Seller to Buyer concurrently with the execution and delivery of
this Agreement, together with any updates thereto.


“Seller’s Pro Rata Share of the Annual Incentive Plans” means Seller’s
obligation with respect to the Annual Incentive Plans for Seller’s current
fiscal year as set forth on Section 3.18(k) of Seller’s Disclosure Schedule.


“Shares” is defined in the Preliminary Statement.


“Significant Internal Control Deficiency” means a significant internal control
deficiency exists when: (a) either (i) a necessary control is missing or an
existing control is not properly designed so that even when the control is
operating as designed the control objective is not reliably met or (ii) a
properly designed control either is not operating as designed or the person
performing a control does not possess the necessary authority or qualifications
to perform the control effectively, and (b) that deficiency could adversely
affect the ability of the Acquired Companies or KES to initiate, record,
process, and report financial data consistent with the assertions of management
in the relevant financial statements.


“Software” is defined in Section 3.13(g).


“SSPEL” is defined in the Preliminary Statement.


“SSPS” is defined in the Preliminary Statement.


“Straddle Period” means any taxable year or period beginning on or before the
Closing Date and ending after the Closing Date.


“Subsidiary” means, with respect to any Person (the “Owner”), any corporation
or other Person of which securities or other interests having the power to
elect a majority of that corporation’s or other Person’s board of directors or
similar governing body, or otherwise having the power to direct the business
and policies of that corporation or other Person (other than securities or
other interests having such power only upon the happening of a contingency that
has not occurred) are held by the Owner or one or more of its Subsidiaries;
when used without reference to a particular Person, “Subsidiary” means a
Subsidiary of the Company.


 






 


“Survey” means an ALTA survey of the Real Property owned by the Company dated
no earlier than six months prior to the Closing Date, prepared by a surveyor
approved by Buyer and licensed in the jurisdiction of the respective owned Real
Property, setting forth the legal description, street addresses, flood zone
designations, and zoning and use classifications of the owned Real Property,
and showing thereon any Improvements, fences, square footage of any buildings
thereon, easements (visible or recorded), building lines, curb cuts, sewage,
water, electricity, gas, and other utility facilities (together with recording
information concerning the documents creating any such easements and building
lines), parking areas indicating the number of parking spaces, roads and means
of physical and record ingress to and from the owned Real Property by public
roads.


“Tax” or “Taxes” means all federal, state, local, foreign and other taxes,
charges, fees, duties (excluding customs duties), levies or assessments,
including income, corporation, gross receipts, net proceeds, profits, gains,
capital duty, alternative or add-on minimum, ad valorem, turnover, real and
personal property (tangible and intangible), sales, use, franchise, excise,
value added, stamp, leasing, lease, user, transfer, fuel, excess profits,
occupational, interest equalization, windfall profits, severance, license,
payroll, environmental, capital stock, disability, employee’s income
withholding, other withholding, unemployment and social security taxes, that
are imposed by any Governmental Body, and including any interest, penalties or
additions to tax attributable thereto.


“Tax Return” means any report, declaration, claim for refund, return or
information return or statement required to be supplied to a Governmental Body
in connection with any Taxes, including any attachments, schedules, amendments,
or supplements to any of the foregoing.


“Termination Right Threshold” is defined in Section 5.5(b).


“Title IV Plan” is defined in Section 3.18(e).


“Title Insurer” means Chicago Title Insurance Company.


“Title Policy” means a pro forma or marked-up ALTA Form B 1970 Owner’s Title
Insurance Policy issued by the Title Insurer, insuring the Company’s title to
owned Real Property free and clear of any Encumbrance, with the following
endorsements: extended coverage endorsement over all general exceptions, ALTA
3.1 zoning endorsement with parking, access endorsement insuring that there is
direct and unencumbered access for automobiles and commercial vehicles from the
Real Property owned in fee simple to public rights of way, streets, or roads
adjoining


 






 




such Real Property, a comprehensive endorsement insuring, among other things,
against the violation of any restrictive covenants affecting the Real Property
and, if the Real Property is comprised of more than one parcel, a contiguity
endorsement, endorsement over the creditor’s rights exception.


“Transferring KES Employees” is defined in Section 3.20(h).


“Transfer Taxes” is defined in Section 11.7.


“Transition Services Agreement” is defined in Section 2.5(a)(v).


“UK Pension Plan” means the Knowles Europe Pension Plan governed by a
Definitive Trust Deed and Rules dated April 7, 1995.


“VAT” is defined in Section 3.17(r).


“Virus” is defined in Section 3.13(g).


“WARN Act” means the Worker Adjustment and Retraining Notification Act.


SALE AND TRANSFER OF SHARES; CLOSING



     SHARES


Upon the terms set forth in this Agreement, at the Closing, Seller hereby sells
and transfers the Shares to Buyer, and Buyer hereby purchases and acquires the
Shares from Seller.


     PURCHASE PRICE


The purchase price for the Shares and all other benefits accrued to Buyer,
including those provided pursuant to Section 14.4 (Noncompetition;
Nonsolicitation) (the “Purchase Price”), will be $49,750,000, payable in
immediately available funds, increased or reduced by the Adjustment Amount, as
appropriate, but in no event will the Purchase Price, including the Adjustment
Amount, exceed $49,950,000.


     ADJUSTMENT PROCEDURE


     Buyer and Seller agree that the working capital attributed to the Acquired
Companies and the KES Business as of the date of the Balance Sheet (the
“Initial Working Capital”) was $7,618,000. This number was calculated based on
the Balance Sheet by subtracting the current liabilities (consisting of any
accounts and notes payable, accrued expenses, and provisions for Taxes, other
than Taxes incurred as a result of the Election) of the Acquired Companies and
the KES Business shown on the Balance Sheet from current assets (consisting of
any accounts receivable, inventory and prepaid expenses) of the Acquired
Companies and the KES Business

 






 




shown on the Balance Sheet and calculated in accordance with Section 2.3 of
Seller’s Disclosure Schedule.


     Buyer will cause the Company to prepare a consolidated balance sheet (the
“Closing Balance Sheet”) of the Acquired Companies as of the Closing Date.
Buyer will prepare the Closing Balance Sheet in accordance with GAAP, using the
same principles used in preparing the Balance Sheet, but only to the extent
such principles are in accordance with GAAP, and reflect compensated absences
that are fully accrued as of Close. Buyer will then determine working capital
as of the Closing Date (the “Closing Working Capital”) based on the Closing
Balance Sheet and using the same methodology as was used to calculate the
Initial Working Capital, but including cash at Closing. Buyer will deliver the
Closing Balance Sheet and its Closing Working Capital calculation to Seller
within 60 days after the Closing Date. If within 30 days following delivery of
the Closing Balance Sheet and Closing Working Capital calculation, Seller does
not deliver to Buyer notice of any objection to the Closing Balance Sheet or
the Closing Working Capital calculation (which notice must contain a reasonably
detailed statement of the basis of their objection), then the Closing Working
Capital calculated by Buyer will be conclusive and binding on the parties and
will be used in computing the Adjustment Amount. Notwithstanding the
foregoing, for the purpose of calculating the Closing Working Capital, the
Accounts Receivable are net of the proper reserves, and Inventories do not
include Excess and Obsolete Inventories. For purposes of allowing the review
contemplated hereunder, Seller shall have access to all financial records of
the Acquired Companies and the KES Business, reasonably necessary to evaluate
and verify the Closing Balance Sheet.


     The parties will act in good faith to resolve among themselves any
objections to the Closing Balance Sheet or Closing Working Capital calculation.
If they are unable to do so within 30 days of Buyer’s receipt of the notice of
objection, then the issues in dispute will be submitted to a mutually
acceptable Big Four firm of certified public accountants (the “Accountants”),
for resolution applying the principles, policies and practices referred to in
Section 2.3(b). Each party will furnish to the Accountants such work papers
and other documents and information relating to the disputed issues as the
Accountants may request and are available to that party (or its independent
public accountants), and will be afforded the opportunity to present to the
Accountants any material relating to the disputed issues and to discuss the
issues with the Accountants. The resolution of the issues in dispute by the
Accountants, as set forth in a notice delivered to both parties by the
Accountants, will be conclusive and binding on the parties. Buyer and Seller
will each bear 50% of the Accountants’ fees and expenses for such resolution.
Buyer will recalculate the Closing Working Capital based on the resolution of
the issues in dispute, and such recalculated Closing Working Capital will be
used in calculating the Adjustment Amount.


     The “Adjustment Amount” (which may be a positive or negative number) will
be equal to the Closing Working Capital minus the Initial Working Capital.


     On the tenth business day following (i) the expiration of Seller’s
objection period in Section 2.3(b), if Seller makes no objection, (ii) Buyer’s
and Seller’s resolution of all objections pursuant to Section 2.3(c) or (iii)
the date of the Accountants’ notice pursuant to Section 2.3(c) (as the case may
be), if the Adjustment Amount is positive Buyer will pay that amount to Seller,
and if the Adjustment Amount is negative Seller will pay the absolute value of
that amount to Buyer.


 






 


All payments will be made together with interest at 6% per annum, compounded
daily beginning on the Closing Date and ending on the date of payment. At
Buyer’s discretion, the Adjustment Amount will be paid by (i) wire transfer to
an account specified by Buyer (if the Adjustment Amount is negative) or Seller
(if the Adjustment Amount is positive), or (ii) a distribution to Buyer or
Seller, as the case may be, from the Escrow Agent pursuant to the Escrow
Agreement. Notwithstanding anything to the contrary herein, Seller shall not
be obligated to indemnify Buyer against any Adverse Consequences as a result
of, or based upon, or arising from, a Liability to the extent such Liability is
taken into account in determining the Adjustment Amount.


     CLOSING


The Closing will take place at the offices of Baker & McKenzie, 130 East
Randolph Drive, Suite 3500, Chicago, Illinois, 60601, at 10:00 a.m. (local
time) on the later of May 30, 2003 or (b) the date that is two business days
following the satisfaction or waiver of each of the conditions set forth in
Articles 7 and 8, unless Buyer and Seller agree otherwise and subject to
Article 9, failure to consummate the purchase and sale provided for in this
Agreement at the place and on the date determined by the previous sentence will
not result in the termination of this Agreement and will not relieve any party
of any obligation under this Agreement.


     CLOSING DELIVERIES


At the Closing:


     Seller will deliver to Buyer (and Buyer hereby acknowledges receipt or
waiver of the delivery of the following):


     the certificate or certificates representing the Shares, duly endorsed in
blank (or accompanied by duly executed stock powers in blank);


     all release documentation, reasonably required by, and in a form
reasonably acceptable to, Buyer, evidencing the release of all security
arrangements over the Shares or assets of the Acquired Companies, and all
guarantees entered into by the Acquired Companies;


     employment agreements in the form of Exhibit 2.5(a)(iii), executed by each
of the following persons: Patrick W. Cavanagh, Richard Glogovsky and Paul
Dolinar (collectively, the “Designated Employees”) (collectively, the
“Employment Agreements”);


     a noncompetition agreement in the form of Exhibit 2.5(a)(iv) with each of
the Designated Employees (collectively, the “Employee Noncompetition
Agreements”);


     an executed counterpart to a transition services agreement between Seller
and Buyer in the form of Exhibit 2.5(a)(v) (the “Transition Services
Agreement”);


     a certificate executed by the Chief Executive Officer of Seller as to the
accuracy of Seller’s representations and warranties as of the Closing Date and
as to its compliance with and

 






 




performance of its covenants and obligations performed or complied with on or
before the Closing Date under this Agreement;


     an opinion of Rooks Pitts, dated the Closing Date, in the form of Exhibit
2.5(a)(vii);


     estoppel certificates or other substantially equivalent documents under
applicable Law executed on behalf of Ascenda-Xinso Development (Suzhou) Co.
Ltd., Shanghai Waigaoqiao Xin Development Co. Ltd., LaSalle National Trust,
N.A., Successor Trustee to LaSalle National Bank, not individually, but as
Trustee under Trust Agreement dated August 1, 1986 and known as Trust No.
111410 and Landacq Associates, dated as of a date not more than 5 days before
the Closing Date, each in the form of Exhibit 2.5(a)(viii); and


     the certifications required by Section 11.14;


     written resignations and releases, in a form reasonably satisfactory to
Buyer, from (A) the secretary and directors of the Company; (B) the secretary
and directors of SSPEL (executed as a deed); and (C) the secretary and
directors of SSPS and KESH;


     written resignation of the auditors of the Acquired Companies;


     copies of all existing bank mandates and statements of the bank balances
of any account in the name of each of the Acquired Companies as at the close of
business on the last business day before Closing together with a list of all
unpresented cheques and uncleared cheques which upon presentation would be
debited or credited to those accounts and the relevant cheque books;


     IRS Form 8023 executed by Seller as prepared by Buyer and agreed to by
Seller;


     an escrow agreement in the form of Exhibit 2.5(a)(xiv) (the “Escrow
Agreement”) executed by Seller and LaSalle Bank National Association (the
“Escrow Agent”) of purchase price required;


     an ALTA Statement in the form of Exhibit 2.5(a)(xv) and such other
documents, instruments, certificates, and confirmations as may be reasonably
required by the Title Insurer to issue the Title Policy; and


     agreements, instruments and other documentation reasonably requested by
Buyer pertaining to the Seller’s pre-Closing transactions set forth in Section
3.10 of Seller’s Disclosure Schedule.


     Buyer will deliver (and Seller hereby acknowledges receipt or waiver of
delivery of the following):


     the sum of $47,250,000 by wire transfer of immediately available funds to
the accounts that have been specified by Seller at least three days prior to
Closing by Seller;


     an executed counterpart of the Transition Services Agreement;


     a certificate executed by the chief executive officer of Buyer as to the
accuracy of Buyer’s representations and warranties as of the Closing Date and
as to its compliance with and

 






 




performance of its covenants and obligations to be performed or complied with
on or before the Closing Date under this Agreement;


     an executed counterpart of each of the Employment Agreements;


     an executed counterpart of each of the Employee Noncompetition Agreements;


     IRS Form 8023 executed and signed by Buyer;


     an opinion of Buyer’s General Counsel, dated the Closing Date, in the form
of Exhibit 2.5(b)(viii);


     an executed counterpart to the Escrow Agreement;


     the sum of $2,500,000 to the Escrow Agent by wire transfer to an account
specified by the Escrow Agent; and


     an ALTA Statement in the form of Exhibit 2.5(a)(xv) and such other
documents, instruments, certificates, and confirmations as may be reasonably
required by the Title Insurer to issue the Title Policy.


     The Employment Agreements, Employee Noncompetition Agreements, Transition
Services Agreement and the Escrow Agreement are collectively referred to as the
“Ancillary Agreements.”


     SELLER PRE-CLOSING TRANSACTIONS


Prior to Closing, Seller has executed, or will execute the transactions set
forth in Section 3.10(a) of Seller’s Disclosure Schedule.


REPRESENTATIONS AND WARRANTIES OF SELLER



Seller represents and warrants to Buyer that, except as set forth in Seller’s
Disclosure Schedule:


     ORGANIZATION AND GOOD STANDING


     Each Acquired Company is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of organization, with
full corporate power and authority to conduct its business as presently
conducted, to own or use the properties and assets that it purports to own or
use, and to perform all its obligations under all its Company Contracts. Each
Acquired Company is duly qualified to do business as a foreign entity and is in
good standing in each jurisdiction in which either the ownership or use of the
properties owned or used by it, or the nature of the activities conducted by
it, requires such qualification.


     Seller has delivered to Buyer copies of the Governing Documents of each
Acquired Company, as currently in effect. Section 3.1(b) of Seller’s
Disclosure Schedule contains an accurate and complete listing of each Acquired
Company’s jurisdiction of formation and other

 






 




jurisdictions in which it is authorized to do business. Attached to Seller’s
Disclosure Schedule are true copies of the current business licenses of SSPS
and KESH and such business licenses have not been revoked and are in full force
and effect.


     ENFORCEABILITY; NO CONFLICT


     Each of Seller and Parent is a corporation duly organized, validly
existing and in good standing under the laws of Delaware. Subject to obtaining
any consents and approvals required by Governing Documents or any debt
instrument or Contract identified in Section 3.2 of Seller’s Disclosure
Schedule, each of Seller and Parent has the absolute and unrestricted right,
power, authority and capacity to execute and deliver this Agreement and the
Ancillary Agreements to which it is a party and to perform its obligations
under this Agreement and such Ancillary Agreements. Assuming due
authorization, execution and delivery of this Agreement by Buyer, this
Agreement constitutes the legal, valid and binding obligation of each of Seller
and Parent, enforceable against each of Seller and Parent in accordance with
its terms. Assuming due authorization, execution and delivery by the other
parties thereto, each Ancillary Agreement to which each of Seller and Parent
(or their respective Subsidiaries) becomes a party will, upon execution and
delivery, constitute each of Seller and Parent’s (or, as applicable, their
respective Subsidiary’s) legal, valid and binding obligation, enforceable
against it in accordance with its terms.


     Except as set forth in Section 3.2(b) of Seller’s Disclosure Schedule,
each of Seller and Parent and the Acquired Companies are not and will not be
required to give any notice to any Person or obtain any Consent or Governmental
Authorization in connection with the execution and delivery of this Agreement
or the consummation or performance of any of the Contemplated Transactions.


     Except as set forth in Section 3.2(c) of Seller’s Disclosure Schedule,
neither the execution and delivery of this Agreement nor the consummation or
performance of any of the Contemplated Transactions will directly or indirectly
(with or without notice or lapse of time) (i) Contravene any provision of the
Governing Documents of an Acquired Company, or any resolution adopted by the
stockholders or board of directors of an Acquired Company, (ii) Contravene any
Company Contract, Governmental Authorization, Law or Order to which Seller or
any Acquired Company, or any of the assets owned or used by an Acquired
Company, may be subject; or (iii) result in the imposition or creation of any
Encumbrance upon, or with respect to, any of the assets owned or used by an
Acquired Company.


     Except as set forth in Section 3.2(d) of Seller’s Disclosure Schedule,
neither the execution and delivery of this Agreement by each of Seller and
Parent nor the consummation or performance of any Contemplated Transaction by
each of Seller and Parent will give any Person the right to prevent, delay, or
otherwise interfere with any of the Contemplated Transactions pursuant to any
provision of each of Seller and Parent’s Governing Documents, any resolution
adopted by the board of directors or the stockholders of Seller or Parent, any
law or Order to which Seller or Parent may be subject, or any Contract to which
Seller or Parent is a party or by which Seller or Parent may be bound.


 






 


     CAPITALIZATION AND OWNERSHIP; REORGANIZATION


     The authorized equity securities of the Company consist of 3000 shares of
common stock, par value $100 per share, of which 2000 shares are issued and
outstanding. The Shares represent all of the issued and outstanding shares in
the Company. Seller is and will be on the Closing Date the record holder and
beneficial owner of the Shares, and on the Closing Date such Shares will be
free and clear of all Encumbrances. With the exception of the Shares (which
are owned by Seller), all of the outstanding equity securities and other
securities of each Acquired Company will at Closing be owned of record and
beneficially by one or more of the Acquired Companies, free and clear of all
Encumbrances. No legend or other reference to any purported Encumbrance
appears upon any certificate representing equity securities of any Acquired
Company. All of the outstanding equity securities of each Acquired Company
have been duly authorized and validly issued and are fully paid and
nonassessable. Except as disclosed in Section 3.2 of Seller’s Disclosure
Schedule, there are no Contracts relating to the issuance, sale or transfer of
any equity securities or other securities of any Acquired Company. None of the
outstanding equity securities of any Acquired Company was issued in violation
of any Law. No Acquired Company owns, or has any Contract to acquire, any
equity securities or other securities of any Person or any direct or indirect
equity or ownership interest in any other business, including any branches,
companies, joint ventures, associations or other Persons. Set forth in Section
3.3 of Seller’s Disclosure Schedule are true and complete details of the
registered capital of SSPS and KESH and issued share capital of SSPEL.


     KESH is has been at all times prior to and including the Closing Date
funded to satisfy all capitalization requirements under the Laws of the PRC.


     FINANCIAL STATEMENTS


     Seller has delivered to Buyer (a) unaudited consolidated balance sheets of the
Acquired Companies and the KES Business as at December 31 for each of the years
2000 and 2001, and the related consolidated statements of income for each of
the fiscal years then ended, (b) an unaudited consolidated balance sheet of the
Acquired Companies and the KES Business as at December 31, 2002 (the “Balance
Sheet”), and the related statements of income for the fiscal year then ended,
together with, (c) an unaudited consolidated balance sheet of the Acquired
Companies as of April 30, 2003 (the “Interim Balance Sheet’), and (d) separate
unaudited balance sheets for each of the Acquired Companies and the KES
Business as of April 30, 2003. Such financial statements fairly present the
financial condition and the results of operations of the Acquired Companies and
the KES Business as at the respective dates of and for the periods referred to
in such financial statements, all in accordance with GAAP, subject in the case
of interim financial statements to normal recurring year-end adjustments (the
effect of which will not, individually or in the aggregate, be materially
adverse) and the absence of notes and other

 






 




presentation items (that, if presented, would not differ materially from those
included in the Balance Sheet). The financial statements referred to in this
Section reflect the consistent application of accounting principles throughout
the periods involved, except as otherwise disclosed in the notes to such
financial statements. No financial statements of any Person other than the
Acquired Companies are required by GAAP to be included in the financial
statements of the Company.


     BOOKS AND RECORDS


Except as set forth in Section 3.5 of Seller’s Disclosure Schedule, the books
of account, minute books, equity record books, current policies and procedures,
if any, and other records of the Acquired Companies, all of which have been
made available to Buyer, are accurate, up to date and complete in all material
respects and have been maintained in accordance with (a) sound business
practices; (b) the requirements of Section 13(b)(2) of the Securities Exchange
Act of 1934 (regardless of whether the Acquired Companies are subject to that
Section); and (c) local Laws in the case of the Subsidiaries of the Company,
including (in each case) the maintenance of an adequate system of internal
controls. Each transaction of each Acquired Company is properly and accurately
recorded on the books and records of account of the Acquired Company, and each
document (including any Contract, invoice or receipt) on which entries in the
Acquired Company’s books and records of account are based is accurate, up to
date and complete in all material respects. The minute books of each Acquired
Company contain accurate, up to date and complete records of all meetings held
of, and corporate action taken by, the Acquired Company’s stockholders,
directors, directors’ committees, and any committees and no formally noticed
meeting has been held for which minutes have not been prepared and are not
contained in such minute books. At the time of the Closing, all of those books
and records will be in the possession of the respective Acquired Company or its
attorneys or other authorized representatives.


     ACCOUNTS RECEIVABLE


All Accounts Receivable that are reflected on the Balance Sheet, the Interim
Balance Sheet or the accounting records of each Acquired Company as of the
Closing Date represent or will represent valid obligations arising from sales
actually made or services actually performed in the Ordinary Course of
Business. All Accounts Receivable reflected on the Closing Balance Sheet will
as of the Closing Date be collectible net of the respective reserves shown on
the Closing


 






 




Balance Sheet. Subject to such reserves, each of the Accounts Receivable
reflected on the Closing Balance Sheet will be collected in full, without any
setoff, within 180 days after the day on which it first became or becomes due
and payable. There is no contest, claim, defense or right of setoff, other
than returns in the Ordinary Course of Business, under any Contract with any
obligor of an Account Receivable relating to the amount or validity of such
Account Receivable. Section 3.6 of Seller’s Disclosure Schedule contains an
accurate and complete list of all Accounts Receivable as of the date of the
Interim Balance Sheet, which list sets forth the aging of each such Account
Receivable.


     INVENTORIES


All items included in the Inventories are of a quality and quantity usable and,
with respect to finished goods, salable in the Ordinary Course of Business,
except for obsolete items and items of below-standard quality, all of which
have been or will be written off or written down to net realizable value or
accounted for in a reserve on the Balance Sheet, the Interim Balance Sheet or
the accounting records of the appropriate Acquired Company as of the Closing
Date, as the case may be. No Acquired Company is in possession of any
Inventories, including goods already sold, not owned by an Acquired Company.
All of the Inventories not written off have been valued at the lower of cost or
market on a first in, first out basis and include no intercompany profits. All
of the Inventories now on hand that were purchased after the date of the
Interim Balance Sheet were purchased in the Ordinary Course of Business at a
cost not exceeding market prices prevailing at the time of purchase. The
quantities of each item of Inventory (whether raw materials, work-in-process or
finished goods) are not excessive, but are reasonable in the present
circumstances of the Acquired Companies. Work-in-process Inventories are now
valued and on the Closing Date will be valued according to GAAP, using the same
principles used in preparing the Balance Sheet, but only to the extent such
principles are in accordance with GAAP. All Inventories are maintained at one
of the locations of Real Property listed in Section 3.11(a) of Seller’s
Disclosure Schedule.


     NO UNDISCLOSED LIABILITIES


          (a)     Except as set forth in Section 3.8(a) of Seller’s Disclosure Schedule,
no Acquired Company has any Liabilities of the type required to be reflected on
a balance sheet prepared in accordance with GAAP except for Liabilities
reflected or reserved against in the Balance Sheet or the Interim Balance
Sheet, and current Liabilities incurred in the Ordinary Course of Business
since the respective dates thereof.



 






 





          (b)     All indebtedness owed to any Acquired Company by Seller or any Related
Person of Seller has been or will be paid in full prior to the Closing Date.



          (c)     Except as set forth in Section 3.14(a) of Seller’s Disclosure
Schedule, none of the Acquired Companies is, directly or indirectly, engaged
in, nor a party to, any form of Off-Balance Sheet Arrangement, derivative
contracts or currency and other hedging arrangements.



     NO MATERIAL ADVERSE CHANGE


Except as set forth in Section 3.9 of Seller’s Disclosure Schedule, since the
date of the Balance Sheet, there has been no material adverse change in the
financial or other condition, results of operations, assets (considered in the
aggregate), Liabilities, equity, business or prospects of any Acquired
Companies or the KES Business and no event has occurred, and Seller has no
Knowledge or reasonable basis to suspect that a condition has arisen, that (a)
may result in such a change, (b) has materially impeded or may materially
impede the ongoing operations of the any Acquired Company or the KES Business,
or (c) has significantly adversely affected or may significantly adversely
affect a material asset of any Acquired Company or the KES Business.


     ABSENCE OF CERTAIN CHANGES AND EVENTS


Since the date of the Balance Sheet, each Acquired Company and the KES Business
has conducted its business only in the Ordinary Course of Business and there
has not been any:


     change in an Acquired Company’s authorized or issued shares; grant of any
equity option or right to purchase shares of an Acquired Company; issuance of
any security convertible into such equity; grant of any registration rights;
purchase, redemption, retirement or other acquisition by an Acquired Company of
any shares; or declaration or payment of any dividend or other distribution or
payment with respect to any shares, except as set forth in Section 3.10(a) of
Seller’s Disclosure Schedule;


     amendment to the Governing Documents of an Acquired Company;


     payment (except in the Ordinary Course of Business) or increase by an
Acquired Company or the KES Business of any bonuses, salaries or other
compensation to Seller, or any director, officer or employee, or entry into any
employment, severance or similar Contract with any director, officer or
employee;


     adoption of, amendment to or increase in the payments to or benefits
under, any Plan or material Other Benefit Obligation of an Acquired Company or
the KES Business;


     damage to or destruction or loss of any asset or property of an Acquired
Company or the KES Business, whether or not covered by insurance, with an
aggregate value to the Company in excess of $50,000;


 






 


     entry into, modification, cancellation or termination of or receipt of
notice of termination of or default under (i) any license, distributorship,
dealer, sales representative, joint venture, credit, guaranty or similar
Contract, or (ii) any Contract or transaction involving a total remaining
commitment by or to an Acquired Company or the KES Business of at least
$50,000;


     sale, lease or other disposition of any asset or property of an Acquired
Company or the KES Business (other than in the Ordinary Course of Business),
including Intellectual Property, or the creation of any Encumbrance on Real
Property or any other material asset of an Acquired Company or the KES
Business;


     cancellation or waiver of any claims or rights with a value to an Acquired
Company or the KES Business in excess of $50,000;


     material acceleration or delay in the payment of accounts payable or in
the collection of Accounts Receivable;


     material change in the accounting methods used by an Acquired Company or
the KES Business; or


     Contract by an Acquired Company or the KES Business to do any of the
foregoing.


     PROPERTIES; ENCUMBRANCES


     Section 3.11(a) of Seller’s Disclosure Schedule contains (i) a correct
legal description, street address and tax parcel identification number of all
Real Property in which an Acquired Company has a fee simple estate, (ii) an
accurate description (by subject leased Real Property, name of lessor, date of
lease and term expiration date) of all leases of Real Property in which an
Acquired Company has a leasehold estate, and (iii) a description of any other
Real Property interest, or legal or practical right to use, operate or occupy
Real Property, held by an Acquired Company and (iv) a description of or copy of
such document related to, if available, all Encumbrances affecting the estate
of any Acquired Company in any of the Real Property or any of the other assets
of any Acquired Company.


     Except as set forth in Section 3.11(a) of Seller’s Disclosure Schedule,
each Acquired Company owns good and marketable title to its respective estates
in the Real Property, free and clear of any Encumbrances. Each Acquired
Company owns good and transferable title to all of its other assets free and
clear of any Encumbrances, except as set forth in Section 3.11(a) of Seller’s
Disclosure Schedule.


     Seller has delivered to Buyer true and complete copies of (i) all deeds
and other instruments in its possession (as recorded) by which each Acquired
Company acquired its estates in the Real Property, (ii) all title insurance
policies and surveys in the possession of Seller or an Acquired Company of or
pertaining to the Real Property, and (iii) all Contracts and other documents in
its possession, whether recorded or not, evidencing, creating or constituting
Encumbrances upon the Real Property, or otherwise affecting the Real Property.


     Seller has no Knowledge or reasonable basis to suspect that the use of the
Real Property for the various purposes for which it is presently being used is
not permitted as of right under

 






 




applicable zoning Laws or that the Real Property is subject to “permitted
non-conforming” use or structure classifications except as set forth in Section
3.11(a) of Seller’s Disclosure Schedule. Seller has no Knowledge or reasonable
basis to suspect that any Improvements are not in compliance with applicable
Laws, including those pertaining to zoning, building and the disabled. To
Seller’s Knowledge, no part of any Improvement encroaches on any real property
not included in the Real Property, and there are no buildings, structures,
fixtures or other improvements primarily situated on adjoining property which
encroach on any part of the Real Property, except as set forth in Section
3.11(a) of Seller’s Disclosure Schedule. The Real Property on which each
Improvement is located (i) abuts on and has direct vehicular access to a public
road or has access to a public road via a permanent, irrevocable, appurtenant
easement benefiting such parcel of Real Property and comprising a part of the
Real Property, (ii) is supplied with public or quasi-public utilities
reasonably sufficient for the operation of the Improvement and (iii) to
Seller’s Knowledge, is not located within any flood plain or area subject to
wetlands regulation or any similar restriction. Seller has no Knowledge that
there is any existing or proposed plan to modify or realign any street or
highway or any existing or proposed eminent domain Proceeding that would result
in the taking of all or any part of any Real Property or that would prevent or
hinder the continued use of any Real Property as heretofore used in the conduct
of the business of the Acquired Companies. Except as set forth in Section
3.11(d) of Seller’s Disclosure Schedule, no Person other than an Acquired
Company is in possession of any portion of the Real Property.


     Seller has not received notice that the Real Property is in violation of
any Laws or Environmental Laws, except as set forth in Section 3.21(a) of
Seller’s Disclosure Schedule. To Seller’s Knowledge, there are no pending or
proposed changes in the zoning classification of the Real Property.


     No assessments for unpaid public improvements have been made against the
Real Property.


     All real property taxes relating to the Real Property that is owned by an
Acquired Company or as to which an Acquired Company has the legal obligation to
pay, except those for the 2002 and 2003 tax years which are not yet due and
payable, have been paid in full.


     None of the Acquired Companies are in default under any agreement
affecting the Real Property, and, to Seller’s Knowledge, no event exists which,
with the passage of time, or giving of notice, will become a default thereunder
on the part of any of the Acquired Companies. The Acquired Companies and the
Real Property are in full compliance with all terms and provisions of all
applicable covenants, conditions, restrictions, rights of way, and easements
affecting the Real Property.


     To Seller’s Knowledge, there are no investigations, actions, suits,
proceedings, or claims pending against or affecting the Real Property, no such
action, suit, proceeding, or claim has been pending during the 24 month period
preceding the Closing, and to Seller’s Knowledge there is no basis or grounds
for any such investigation, action, suit, proceeding, or claim. There are no
pending, or to Seller’s Knowledge, threatened condemnation or eminent domain
proceedings that would affect any Real Property. None of the Acquired
Companies are operating under or subject to, or in default with respect to, any
order, writ, injunction, or decree of any Governmental Body.


 






 


     To Seller’s Knowledge, there are no outstanding disputes or notices which
affect, or might in the future affect the use of any of the Real Property for
the purposes for which they are now used and which would prevent or impede each
Acquired Company from operating and carrying on the business currently carried
out at any of the Real Properties and all covenants, restrictions, conditions
and other terms affecting the Real Property and the uses of the Real Property
have been duly observed and performed and payments made and, to Seller’s
Knowledge, there are no circumstances which would entitle or require any
landlord or other person to withdraw from any rent deposit or draw upon any
other available security. The Acquired Companies have and maintain all
necessary permits, licenses and authorizations to operate and carry on the
Business conducted at any of the Real Properties.


     No Acquired Company is a party to or has any Liability pursuant to the
lease of property in Monroe, Michigan.


     SSPEL is not liable for any outgoings in relation to the Real Property
situated in England save for a monthly fee of GBP1,500 and SSPEL has not
entered into any agreements for the supply of any services in connection with
such property.


     CONDITION AND SUFFICIENCY OF TANGIBLE ASSETS


     The Improvements are structurally sound, are in good operating condition
and repair, ordinary wear and tear excepted, are free from latent and patent
defects, and are adequate for the uses to which they are being put, except as
set forth in Section 3.12(b) of Seller’s Disclosure Schedule. Each item of
tangible personal property of each Acquired Company is in good operating
condition and repair, ordinary wear and tear excepted, is free from latent and
patent defects and is suitable for immediate use in the Ordinary Course of
Business. The Real Property and tangible personal property of the Acquired
Companies are free and clear of all Encumbrances and constitute all of Seller’s
assets necessary for (i) the conduct of the Business as currently conducted by
Seller and its Related Persons, and (ii) the continued operation of the
Acquired Companies after the Closing in the same manner as before the Closing.


     Set forth in Section 3.12(b) of Seller’s Disclosure Schedule is a true and
complete list of all the material machinery, equipment and vehicles used in
connection with the Business as at the date of this Agreement, together with a
breakdown of their age, original cost, and net book value as at the date
hereof, and monthly hire-purchase, lease or rental payments (where applicable)
payable in respect thereof.


     INTELLECTUAL PROPERTY


          (a) An Acquired Company owns or has the rights pursuant to a valid
Contract to all material items of Seller’s Intellectual Property necessary for
the operation of the Acquired Companies as presently conducted. Each material
item of Intellectual Property owned or licensed by an Acquired Company as of
the date of this Agreement will be owned or licensed by an Acquired Company on
substantially identical terms immediately subsequent to the Closing.



          (b) No Acquired Company has received any notice or other communication
(whether oral or written) regarding any actual, alleged or potential
interference, infringement, misappropriation or Contravention and Seller has no
Knowledge or reasonable basis to suspect that any Acquired

 






 





Company has interfered with, infringed upon, misappropriated or otherwise
Contravened any intellectual property rights or confidential information of
third parties. No event has occurred, and Seller has no Knowledge or
reasonable basis to suspect that any circumstance exists, that may (with or
without notice or lapse of time) constitute or result, directly or indirectly,
in any such interference, infringement, misappropriation or Contravention or
that the continued operation of the Acquired Companies after the Closing as
presently conducted constitute or result, directly or indirectly, in any such
interference, infringement, misappropriation or Contravention. To Seller’s
Knowledge, no third party has interfered with, infringed upon, misappropriated
or otherwise Contravened any Intellectual Property rights of any Acquired
Company.


          (c) Section 3.13(c) of Seller’s Disclosure Schedule identifies each issued
patent, design and each registered trademark, service mark and copyright owned
by an Acquired Company and identifies each pending patent application or
application for registration that has been made with respect to any
Intellectual Property owned by an Acquired Company. Seller has delivered to
Buyer true and complete copies of all such patents, registrations and
applications, each as amended to date, and has made available to Buyer true and
complete copies of all other written documentation evidencing ownership and
prosecution of each such item. With respect to each item of Intellectual
Property required to be identified in Section 3.13(c) of Seller’s Disclosure
Schedule:



     An Acquired Company possesses all right, title and interest in and to the
item, and at Closing, subject to the release contemplated in Section 7.4(d)
below, such rights will be free and clear of any Encumbrances, without any duty
of attribution or accounting, provided, however; that all Oracle software and
related hardware will remain owned by Seller;


     The item is not subject to any outstanding Order;


     No Proceeding is pending or, to Seller’s Knowledge, threatened, which
challenges the legality, validity, enforceability, use or ownership of the
item, and no event has occurred or circumstance exists that may give rise to
such a challenge;


     No Acquired Company has agreed to indemnify any Person for or against any
interference, infringement, misappropriation or other Contravention with
respect to the item;


     All registration and renewal fees due as of Closing have been paid in
respect of all registered Intellectual Property so identified;


     All such registrations are valid and in force, and all applications to
register any unregistered Intellectual Property are pending and in good
standing, all without challenge of any kind;


     An Acquired Company has the sole and exclusive right to bring actions for
infringement or unauthorized use of the Intellectual Property owned by it, and,
to Seller’s Knowledge, there is no basis for any such action; and


     No Acquired Company has granted any sublicense or similar right with
respect to any such Intellectual Property.


 






 


     The Intellectual Property (i) owned by a third party is not subject to any
transfer, assignment, site, equipment or other operational limitations, except
that the Oracle Software and hardware will remain owned by Seller and will not
be transferred to an Acquired Company, (ii) owned by an Acquired Company (1)
bears all necessary proprietary notices (including without limitation the
notice of copyright in accordance with the requirements of 17 U.S.C. §401),
and (2) was developed through the efforts or for the account only of an
Acquired Company, without the aid or use of any consultants, agents,
independent contractors or employees (other than employees of an Acquired
Company), or any such Person who did assist or participate in its development
is a party to a “work for hire” agreement under which an Acquired Company is
deemed to be the owner of the Intellectual Property ab initio, or has executed
an assignment of all of such Person’s right, title and interest in and to the
Intellectual Property to an Acquired Company. Seller has no Knowledge or
reasonable basis to suspect that the Intellectual Property owned by an Acquired
Company is used or disclosed other than pursuant to confidentiality and
nondisclosure agreements.


     Except as disclosed in Section 3.13(e) of Seller’s Disclosure Schedule,
and excluding any item that is not required to be listed pursuant to Section
3.14(a)(vi) of Seller’s Disclosure Schedule, with respect to any computer
software comprising the Intellectual Property, an Acquired Company is in
possession of all source code, system documentation, statement of principles of
operation and schematics, as well as any pertinent commentary, explanation,
program (including compilers), workbenches, tools and higher level (or
“proprietary”) languages used for development, maintenance, implementation and
use thereof, so that a trained computer programmer could develop, maintain,
support, compile and use all releases or separate versions of the same.


     Any computer software and related technical information comprising the
Intellectual Property complies with all applicable requirements of Laws
relating to the export or re-export of the same, and for any such item owned by
an Acquired Company, such item may be exported or re-exported to all non-U.S.
embargoed countries without the necessity of any license.


     Except as otherwise disclosed in Section 3.13(g) of Seller’s Disclosure
Schedule:


     All reasonable steps have been taken to ensure that any and all forms of
computer program, including without limitation, applications and operating
systems and in each case whether in source, object or machine form used by an
Acquired Company (the “Software”) is free from any virus, worm, salami, Trojan
Horse, back door or other disabling code (“Virus”), an Acquired Company has
used current commercially available computer programs to detect the presence of
a Virus, and there are no grounds to believe that any Virus has come into
contact with the Software.


     There have been no material failures or breakdowns of any of the Computer
Systems or Software, or corruption of any data, in the 18 months preceding the
Closing. For the purposes of this Section only, “material” means any failure
or breakdown which has caused loss to any Acquired Company of its business,
customers or contracts which has resulted in a financial impact on that
Acquired Company of $10,000 or more. For the purposes of Section 3.13(g),
“Computer Systems” means the computer and data processing systems, information
and communications technologies used in or for the business of an Acquired
Company or the KES

 






 




Business including hardware, proprietary and third party software, networks,
data storage devices, printers, VDU’s, firmware, dedicated power supplies,
cabling, peripherals and associated documentation.


     Each Acquired Company has relied upon a disaster recovery plan of Seller
in respect of damage to or destruction of some or all of the Computer Systems.
Except as provided in the Transition Services Agreement, this plan will not be
available following Closing.


     Each of the Acquired Companies has procedures in place to ensure the
security of the Computer Systems and data stored on them, including an
effective firewall, encryption software, properly administered and run password
protection, virus checking software and procedures for taking and storing
back-up copies of the Software and all data stored on the Computer Systems and
no unauthorised access, amendment or damage to such data has taken place since
December 31, 1999.


     The Computer Systems are Date Compliant. For the purposes of this Section
3.13(g)(v), “Date Compliant” means the ability of a computer system and/or
related hardware, and/or software and/or microcode to be unaffected either in
its performance or in its functionality, by any dates (past, present and
future) and in particular (but without prejudice to the generality of the
foregoing):


                         (A)     no value for current date causes or will cause any interruption in
operation;



                         (B)     date-based functionality behaves and will behave consistently for all
dates;



                         (C)     in all interfaces and data storage, the century in any date is and
will be specified either explicitly or by unambiguous algorithms or inferencing
rules; and



                         (D)     all leap years are and will be recognised as a leap year.



     Any and all development, implementation, upgrading, porting and other
projects related to Software used by an Acquired Company (A) are proceeding in
accordance with its written schedule without material delay, (B) have not
exceeded the established budget for the project by more than 5%, (C) has not
been terminated, abandoned or delayed within the prior 24 months, (D) to
Seller’s Knowledge, may be carried on by the Acquired Company after Closing
under the same conditions and with the same material, infrastructure and
personnel as was carried on by the Acquired Company prior to Closing.


          (h) With respect to each Company Contract required to be identified in
Section 3.14(a)(vi) of Seller’s Disclosure Schedule pursuant to which an
Acquired Company uses Intellectual Property owned by a third party:



               (i)     The underlying item of Intellectual Property is not subject to any
Order;



 






 





               (ii)     No Proceeding is pending or, to Seller’s Knowledge, threatened, which
challenges the legality, validity, enforceability, use or ownership of the
underlying item of Intellectual Property, and no event has occurred or
circumstance exists that may give rise to such a challenge; and



               (iii)     With respect to such Company Contracts under which an Acquired
Company is a sublicensee, the representations and warranties set forth in
Sections 3.14(c) and 3.14(d) are, to Seller’s Knowledge, true and correct with
respect to the underlying license.



          (i) Except as disclosed in Section 3.13(i) of Seller’s Disclosure
Schedule, any Internet web sites and domain names used by SSPS are
appropriately registered with the China Internet Information Center.



     CONTRACTS; NO DEFAULTS


     Section 3.14(a) of Seller’s Disclosure Schedule contains an accurate and
complete list of:


     each Company Contract that involves performance of services or delivery of
goods or materials by one or more Acquired Companies of an amount or value in
excess of $50,000;


     each Company Contract that involves performance of services for or
delivery of goods or materials to one or more Acquired Companies of an amount
or value in excess of $50,000;


     each Company Contract that was not entered into in the Ordinary Course of
Business and that involves the expenditure or receipt by one or more Acquired
Companies of an amount or value in excess of $50,000;


     each Company Contract that is a (A) mortgage, indenture, note, installment
obligation or other instrument relating to the borrowing of money, (B) letter
of credit, bond or other indemnity (including letters of credit, bonds or other
indemnities as to which an Acquired Company is the beneficiary but excluding
endorsements of instruments for collection in the Ordinary Course of Business)
or (C) currency or interest rate swap, collar or hedge agreement that will not
be released as to the Acquired Companies as of Closing;


     each Company Contract affecting the ownership of, leasing of, title to,
use of, or any other interest in any real or personal property (except personal
property leases and installment and conditional sales agreements having a term
of less than one year);


     each Company Contract with respect to Intellectual Property (including
Contracts with current or former employees, consultants or contractors
regarding the appropriation or the non-disclosure of any of the Intellectual
Property) except for any license implied by the sale of a product and
perpetual, paid-up licenses for commonly available software programs with a
value of less than $50,000 under which an Acquired Company is the licensee, and
the list identifies those pursuant to which an Acquired Company uses
Intellectual Property owned by a third party;


     each Company Contract with any labor union or other employee
representative of a group of employees;


 






 


     each Company Contract with any employee or independent contractor
providing services for an Acquired Company or the KES Business (including
covenants not to compete or other restrictive covenants);


     each Company Contract other than Company Plans involving a sharing of
profits, losses, costs or Liabilities by an Acquired Company with any other
Person;


     each Company Contract containing covenants that in any way purport to
restrict the business activity of an Acquired Company or limit the freedom of
an Acquired Company to engage in any line of business or to compete with any
Person;


     each Company Contract providing for payments to or by any Person based on
or determined by reference to sales, purchases or profits, other than direct
payments for goods;


     each power of attorney that is currently effective and outstanding;


     each Company Contract entered into other than in the Ordinary Course of
Business that contains or provides for an express undertaking by an Acquired
Company to be responsible for consequential damages;


     each Company Contract for capital expenditures in excess of $50,000; and


     each written warranty, guaranty or other similar undertaking with respect
to contractual performance extended by an Acquired Company other than in the
Ordinary Course of Business.


     Seller has delivered to Buyer a true and complete copy (in the case of
each written Company Contract) or an accurate and complete written summary (in
the case of each oral Company Contract) of each of the Company Contracts listed
on Section 3.14(a) of Seller’s Disclosure Schedule.


     Each Company Contract is in full force and effect and is valid and
enforceable in accordance with its terms. Except as disclosed in Section
3.14(c) of Seller’s Disclosure Schedule, (i) neither an Acquired Company nor
any other party to a Company Contract has Contravened any of the applicable
terms of a Company Contract; (ii) no event has occurred (including the transfer
of the Acquired KES Assets to SSPS) or circumstance exists that (with or
without notice or lapse of time) may constitute or result directly or
indirectly in Contravention of any Company Contract; and (iii) no Acquired
Company has given or received notice or other communication (written or oral)
regarding any actual, alleged or potential Contravention of any Company
Contract.


     No party to a Company Contract has repudiated any provision of it. There
currently are no renegotiations of, attempts to renegotiate or outstanding
rights to renegotiate any Company Contracts, nor has any written demand for
renegotiation been made. Seller has no Knowledge that any party to a Company
Contract does not intend to renew it.


     Set forth in Section 3.14(e) of Seller’s Disclosure Schedule is a true and
complete list and description of all warranty claims made against each Acquired
Company and the KES Business by its customers since December 31, 1997.


 






 


     Except as set forth in Section 3.14(a) of Seller’s Disclosure Schedule, no
Acquired Company is a member of, or party to, any association, partnership,
joint venture, consortium, profit or loss sharing arrangement or agency,
licensing, marketing, distributorship, purchasing or manufacturing agreement or
arrangement.


     CUSTOMERS AND SUPPLIERS


Section 3.15 of Seller’s Disclosure Schedule lists the names and addresses of
the 20 largest customers and the 10 largest suppliers (measured in each case by
dollar volume of purchases or sales during the year ended December 31, 2002) of
the Acquired Companies and the KES Business, taken as a whole, and the dollar
amount of purchases or sales which each such customer or supplier represented
during the years ended December 31, 2001 and 2002, respectively. To Seller’s
Knowledge, there has not been any, and to, Seller’s Knowledge, there has not
been any threat of, termination, cancellation or material limitation of, or any
material change in, the business relationship of any Acquired Company with any
customer, supplier, group of customers or group of suppliers listed in Section
3.15 of Seller’s Disclosure Schedule and, to Seller’s Knowledge, there are no
facts that could give rise to termination, cancellation or material limitation
of, or any material change in such business relationship (including the
transfer of the Acquired KES Assets from KES to SSPS). To Seller’s Knowledge,
no customer of any Acquired Company has any right to any credit or refund for
products sold or services rendered or to be rendered by the Acquired Company
pursuant to any Contract, understanding or practice of the Acquired Company
other than pursuant to the normal course return policy of the Acquired
Companies described in Section 3.15 of Seller’s Disclosure Schedule and,
Seller’s Knowledge, there are no facts that could give rise to any such right
to any credit or refund for products sold or services rendered or to be
rendered by the Acquired Company other than pursuant to the normal course
return policy of the Acquired Company.


     INSURANCE


Each Acquired Company is a named insured on insurance policies covering its
insurable business risks and Liabilities (except for business interruption
insurance) and providing protection for the business of and the properties
owned and used by the Acquired Company. Section 3.16 of Seller’s Disclosure
Schedule contains a list and brief description of each (a) insurance policy in
which an Acquired Company is a “named insured” or otherwise providing insurance
to an Acquired Company as an insured party or additional insured party, or on
any


 






 


other basis, that was in effect since June 30, 1999, and (b) any self-insurance
program, retrospective premium program or captive insurance program in which an
Acquired Company has participated since June 30, 1999. For each such insurance
policy, Section 3.16 of Seller’s Disclosure Schedule sets forth the type of
coverage provided by the policy, whether the policy is provided on a primary,
excess, excess umbrella or other basis, the identity of the named insured, the
policy number, the name and address of the insurance carrier, the annual
premium, the policy period and the policy liability limits (including any
deductible or self-insured retention and, if known, the remaining, intact,
unexhausted liability limits). Section 3.16 of Seller’s Disclosure Schedule
also contains a list and brief description of all circumstances, potential
claims, claims, damages, injuries, occurrences, losses and lawsuits for which
an Acquired Company, or any Person on its behalf, has provided notice to any
insurer or otherwise sought coverage under any insurance policy or program
identified in Section 3.16 of Seller’s Disclosure Schedule (including settled
and outstanding claims). The Acquired Companies have complied with each such
insurance policy and program and have not failed to give any notice or present
any claim thereunder in a due and timely manner which failure would reasonably
be expected to result in a loss or forfeiture of any material right thereunder.
Coverage under these insurance policies will not be available following
Closing.


     TAXES


     The Acquired Companies have filed (or have had filed on their behalf) on a
timely basis all Tax Returns as required to be filed by or with respect to the
Acquired Companies prior to the Closing Date. Each such Tax Return is accurate
and complete in all respects. All Taxes shown as due and owing on all such Tax
Returns have been paid or appropriate provision for unpaid Taxes have been made
and are reflected as Liabilities on the Balance Sheet of the Acquired
Companies. Except as disclosed in Section 3.17(a) of Seller’s Disclosure
Schedule, the Acquired Companies have not requested an extension of time within
which to file any Tax Return which has not since been filed.


     Parent and Seller have filed (or have had filed on their behalf) on a
timely basis all Tax Returns that they were required to file for each taxable
period which include or are based upon the assets, operations, ownership or
activities of the Acquired Companies including any consolidated combined,
unitary, fiscal unity or similar Tax Return which includes or is based upon the
assets, operations, ownership, or activities of the Acquired Companies. Each
such Tax Return is accurate and complete in all respects. All Taxes shown as
due and owing on all such Tax Returns have been paid or appropriate provision
for unpaid Taxes have been made and are reflected as Liabilities on the Balance
Sheet of the Acquired Companies. Except as disclosed in Section 3.17(b) of
Seller’s Disclosure Schedule, Parent and Seller have not requested an extension
of time within which to file any Tax Return which has not since been filed.


 






 


     The Acquired Companies have and will have no additional Liability for
Taxes with respect to any Tax Return which was required by applicable Laws to
be filed on or before the Closing Date, other than those reflected as
liabilities on the Balance Sheet. The amounts reflected as liabilities on the
Balance Sheet for all Taxes are adequate to cover all unpaid Liabilities for
all Taxes, whether or not disputed, that have accrued with respect to or are
applicable to the period ended on and including the Closing Date or to any
years and periods prior thereto and for which any Acquired Company may be
directly or contingently liable in its own right or as a transferee of the
assets of, or successor to, any Person.


     No federal, state, local or foreign audits or other Proceedings exist, or
to Parent’s or Seller’s Knowledge, are pending or threatened with regard to any
Taxes or Tax Returns of any Acquired Company. None of Parent, Seller or the
Acquired Companies have received any notice that an audit or other Proceeding
is pending or threatened with respect to any Taxes due from or with respect to
any Acquired Company or any Tax Return filed by or with respect to any Acquired
Company. None of Parent, Seller or the Acquired Companies have granted or been
requested to grant any waiver or extension of any statutes of limitations
applicable to any claim for Taxes.


     All Tax deficiencies that have been claimed, proposed or asserted against
any Acquired Company have been fully paid or finally settled, and no issue has
been raised in any examination which, by application of similar principles,
could be expected to result in the proposal or assertion of a Tax deficiency
for any other year not so examined.


     No position has been taken on any Tax Return which includes the business
or operations of any Acquired Company for a taxable year for which the statute
of limitations for the assessment of any Taxes with respect thereto has not
expired that is contrary to any publicly announced position of a taxing
authority or that is substantially similar to any position which a taxing
authority has successfully challenged in the course of an examination of a Tax
Return of the Parent, Seller or any Acquired Company.


     All Taxes that each Acquired Company is required by law to withhold or
collect, including sales and use Taxes and amounts required to be withheld for
Taxes of employees, have been duly withheld or collected and, to the extent
required, have been paid over to the proper taxing authority or are held in
separate bank accounts for such purpose.


     None of the Acquired Companies is or has been a United States real
property holding corporation (as defined in Code Section 897(c)(2)) during the
applicable period specified in Code Section 897(c)(1)(A)(ii).


     There are no Encumbrances upon any properties or assets of any Acquired
Company arising from any failure or alleged failure to pay any Tax.


     No Acquired Company has made or become obligated to make, and no Acquired
Company will as a result of any Contemplated Transaction become obligated to
make, any payments that will not be deductible under Section 280G or 162(m) of
the Code, nor will any Acquired Company be required to “gross up” or otherwise
compensate any individual because of the imposition of any excise tax on such a
payment to the individual.


 






 


     No Acquired Company will be obligated to pay Taxes of any Person other
than itself under Treasury Regulation Section 1.1502-6 (or any similar
provision of state, local or foreign law).


     None of the Acquired Companies will have any taxable income or gain as a
result of prior intercompany transactions that have been deferred and that will
be taxed as a result of the Contemplated Transactions.


     Any tax sharing agreement (whether written or imposed pursuant to any Tax
Law) between Parent, Seller and any Acquired Company shall be terminated as of
the Closing Date and will have no further affect for any taxable year (whether
current, future or past).


     No claim has ever been made by a Governmental Body in a jurisdiction where
the Parent, Seller or the Acquired Companies does not file a Tax Return that it
is or may be subject to taxation by that jurisdiction.


     No charge to Tax will arise on SSPEL as a result of the signing of this
Agreement or the Closing.


     SSPEL is registered in the UK for Value Added Tax (“VAT”) purposes and is
not, and has never been, for UK VAT purposes, a member of a group of companies.
SSPEL has complied with all statutory provisions and regulations relating to
UK VAT and has duly paid or provided for all amounts of VAT for which SSPEL is
liable. SSPEL is not registered, and has never been required to be registered,
for VAT purposes, or to account for VAT, in any jurisdiction other than the UK.


     KES duly and accurately declared to the relevant Governmental Body the
import of any Acquired KES Assets.


     KES obtained all necessary approvals from the relevant Governmental Body
to effect the transfer of the Acquired KES Assets to SSPS and paid all Taxes
arising from, or relating to, the transfer.


     No Acquired Company is liable to, or has at any time incurred any
Liability related to, Tax in any jurisdiction other than the jurisdiction in
which it was incorporated.


     EMPLOYEE BENEFITS


     Section 3.18(a) of Seller’s Disclosure Schedule contains an accurate and
complete list of all Company Plans and material Other Benefit Obligations and
sets forth the financial cost of all obligations owed under any Company Plan or
material Other Benefit Obligation that is not subject to the disclosure and
reporting requirements of ERISA.


     Seller has delivered to Buyer (i) all documents that set forth the terms
of each Company Plan or material Other Benefit Obligation, and of any related
trust, including all summary plan descriptions, summaries and descriptions
furnished to participants and beneficiaries, (ii) all personnel, payroll and
employment manuals and policies of each Acquired Company, (iii) a written
description of any Company Plan or material Other Benefit Obligation that is
not otherwise in writing, (iv) all registration statements filed with respect
to any Company Plan, (v)

 






 




all insurance policies purchased by or to provide benefits under any Company
Plan, (vi) all reports submitted since December 31, 1999, by third-party
administrators, actuaries, investment managers, trustees, consultants or other
independent contractors with respect to any Company Plan or Other Benefit
Obligation, (vii) the Form 5500 filed in each of the most recent three plan
years with respect to each Company Plan and Other Benefit Obligation, including
all schedules thereto and the opinions of independent accountants, (viii) all
notices that were given regarding any Company Plan by any Acquired Company, any
ERISA Affiliate or any Company Plan to the IRS, the PBGC or any participant or
beneficiary, pursuant to statute, since December 31, 1999, including notices
that are expressly mentioned elsewhere in this Section, (ix) all notices that
were given by the IRS, the PBGC or the Department of Labor regarding any
Company Plan to any Acquired Company, any ERISA Affiliate or any Company Plan
since December 31, 1999, and (x) with respect to Company Plans that are
Qualified Plans, the most recent determination letter for each such Plan.


     The Acquired Companies have performed all of their obligations under all
Company Plans and with respect to all Other Benefit Obligations. The Acquired
Companies have made appropriate entries in their financial records and
statements for all obligations and liabilities under the Company Plans and
Other Benefit Obligations that have accrued but are not due. The Acquired
Companies, with respect to all Company Plans and Other Benefit Obligations, are
and each Company Plan and Other Benefit Obligation is in compliance in all
material respects with ERISA, the Code and other applicable Laws, including the
provisions of such Laws expressly mentioned in this Section. No transaction
prohibited by ERISA Section 406 and no “prohibited transaction” under Code
Section 4975(c) has occurred with respect to any Company Plan. Neither Seller
nor any Acquired Company has any Liability to the IRS with respect to any Plan,
including any Liability imposed by Chapter 43 of the Code. Neither Seller nor
any Acquired Company has any Liability to the PBGC with respect to any Plan or
has any Liability under ERISA Section 502 or Section 4071. All contributions
and payments made or accrued with respect to all Company Plans and Other
Benefit Obligations are deductible under Code Sections 162 or 404. No event
has occurred or circumstance exists that may result in (i) a material increase
in premium costs of Company Plans and Other Benefit Obligations that are
insured or (ii) a material increase in benefit costs of Company Plans and Other
Benefit Obligations that are self-insured. Other than routine claims for
benefits submitted by participants or beneficiaries, no claim against, or
Proceeding involving, any Company Plan or Other Benefit Obligation is pending
or, to Seller’s Knowledge, is threatened.


     Except as set forth in Section 3.18(d) of Seller’s Disclosure Schedule,
each Qualified Plan of each Acquired Company has received a favorable
determination letter from the IRS that it is qualified under Code Section
401(a) and that its related trust is exempt from federal income tax under Code
Section 501(a), and each such Plan complies in form and in operation with the
requirements of the Code and meets the requirements of a “qualified plan” under
Section 401(a) of the Code. No event has occurred or circumstance exists that
may give rise to disqualification or loss of tax-exempt status of any such Plan
or trust. Each Acquired Company and each ERISA Affiliate of an Acquired
Company has met the minimum funding standard, and has made all contributions
required under each Company Plan and Multiemployer Plan of the Company, under
ERISA Section 302 and Code Section 412. There is no unfunded liability under
any Company Plan.


 






 


     Except as set forth in Section 3.18(e) of Seller’s Disclosure Schedule, no
Acquired Company nor any ERISA Affiliate has ever established, maintained or
contributed to, or had an obligation to maintain or contribute to, any Plan
that is subject to Title IV of ERISA (“Title IV Plan”). Except as set forth in
Section 3.18(e) of Seller’s Disclosure Schedule, neither the Seller nor any
Acquired Company has ever established, maintained or contributed to, or had an
obligation to maintain or contribute to, any voluntary employees’ beneficiary
association under Code Section 501(c)(9), any organization or trust described
in Code Section 501(c)(17) or 501(c)(20), or any welfare benefit fund as
defined in Code Section 419(e). No Acquired Company nor any ERISA Affiliate
has ever established, maintained, contributed to or otherwise participated in,
or had an obligation to maintain, contribute to or otherwise participate in,
any Multiemployer Plan. Except to the extent required under ERISA Section 601
et seq. and Code Section 4980B, no Acquired Company provides health or welfare
benefits for any retired or former employee nor is any Acquired Company
obligated to provide health or welfare benefits to any active employee
following such employee’s retirement or other termination of service.


     Seller and each Acquired Company have paid all amounts due to the PBGC
pursuant to ERISA Section 4007. No Acquired Company or any ERISA Affiliate of
an Acquired Company has ceased operations at any facility or has withdrawn from
any Title IV Plan in a manner that would subject Seller or any Acquired Company
to Liability under ERISA Sections 4062(e), 4063 or 4064.


     No Acquired Company or any ERISA Affiliate of an Acquired Company has
filed a notice of intent to terminate any Company Plan or has adopted any
amendment to treat a Company Plan as terminated. The PBGC has not instituted
Proceedings to treat any Company Plan as terminated. No event has occurred or
circumstances exist that may constitute grounds under ERISA Section 4042 for
the termination of, or the appointment of a trustee to administer, any Company
Plan. No amendment has been made, or is reasonably expected to be made, to any
Company Plan that has required or could require the provision of security under
ERISA Section 307 or Code Section 401(a)(29).


     No accumulated funding deficiency, whether or not waived, exists with
respect to any Company Plan. To Seller’s Knowledge, no event has occurred or
circumstance exists that may result in an accumulated funding deficiency as of
the last day of the current plan year of any such Plan. The actuarial report
for each Company Plan that is a pension plan fairly presents the financial
condition and the results of operations of each such Plan in accordance with
GAAP. The actuarially determined present value of all accrued benefits under
each Title IV Plan of Seller or each Acquired Company (determined on a
projected benefits basis) does not exceed, as of the Closing Date, the fair
market value of the assets of each such Title IV Plan. No reportable event (as
defined in ERISA Section 4043 and in regulations issued thereunder) has
occurred.


     Each Acquired Company has the right to modify and terminate benefits to
retirees (other than pensions) with respect to both retired and active
employees. Seller and all Acquired Companies have complied with the provisions
of ERISA Section 601 et seq. and Code Section 4980B and with the provisions of
ERISA Section 701 et seq. and Subtitle K of the Code.


     No payment that is owed or may become due to any director, officer,
employee or agent of any Acquired Company will be non-deductible to the
Acquired Company under Code Section

 






 




280G or subject to tax under Code Section 4999, nor will any Acquired Company
be required to “gross up” or otherwise compensate such person because of the
imposition of any excise tax on a payment to such person. Except as set forth
in Section 3.18(j) of Seller’s Disclosure Schedule, the consummation of the
Contemplated Transactions will not result in the payment, vesting or
acceleration of any benefit under or in connection with any Company Plan or
Other Benefit Obligation.


     Seller has properly accrued for Seller’s Pro Rata Share of the Annual
Incentive Plans based upon an assumption of meeting plan targets. Section
3.18(k) of Seller’s Disclosure Schedule contains: (i) a true and complete list
of all Annual Incentive Plans and (ii) a calculation of Seller’s Pro Rata Share
of the Annual Incentive Plans based on the pro ration of the Annual Incentive
Plans to reflect (A) the application of the Annual Incentive Plans to the
period from January 1, 2003 through September 30, 2003 and (B) the term of
employment with Seller of the Transferring KES Employees and employees of the
Acquired Companies during the current calendar year prior to Closing.


     EMPLOYEE RESTRICTIONS


          Except as set forth in Section 3.19 of Seller’s Disclosure Schedule, no
employee, director, officer, agent, consultant or contractor of any Acquired
Company is a party to, or is otherwise bound by, any Contract, including any
confidentiality, noncompetition or proprietary rights agreement, with any other
Person that in any way adversely affects or will affect (a) the performance of
his or her duties for the Acquired Companies, (b) his or her ability to assign
to an Acquired Company rights to any invention, improvement, discovery or
information relating to the business of the Acquired Companies, or (c) the
ability of the Acquired Companies to conduct their business. To Seller’s
Knowledge, no director, officer, Key Employee or group of employees of the
Acquired Companies intends to terminate his or their employment with an
Acquired Company within one year of the date hereof.



     LABOR RELATIONS; EMPLOYMENT LAW COMPLIANCE; EMPLOYEES


     Seller and each Acquired Company are in material compliance with all
domestic and foreign Laws, regulations, ordinances, codes or other legally
binding rules applicable to the business and its own policies relating to
employment and employment practices.


     Except as set forth in Section 3.20(b) of Seller’s Disclosure Schedule,
since December 31, 2000, there has not been, and there is not presently pending
or threatened against any Acquired Company or the KES Business, any charge of
discrimination relating to any actual or alleged violation of any labor
relations, employment or employment practice law.


     Since June 30, 1999, there has not been, and there is not presently
pending, any audit, investigation, or citation of any Acquired Company relating
to violation of or compliance with any Law regarding labor and employment
practices.


     The Acquired Companies have, and at all previous times since June 30,
1999, had, worker’s compensation insurance covering its employees and former
employees, as required by Law.


 






 


     Seller and the Acquired Companies have not caused any “employment loss”
(as that term is defined in the WARN Act) at any time on and after the date
that is 90 days immediately preceding the Closing.


     No Acquired Company has been, or is now, a party to any collective
bargaining agreement or other labor Contract. To Seller’s Knowledge, no
application or petition is pending for an election of or for certification of a
collective bargaining agent representing any Acquired Company’s employees.


     Section 3.20(g) of Seller’s Disclosure Schedule sets forth a true and
complete list of each works council, union or other labor organization which
has to be notified or consulted or with which negotiations need to be conducted
in connection with the Contemplated Transaction and each collective bargaining
agreement which has any impact on the terms and conditions of employment with
respect to the employees of any Acquired Company and the KES Business. Where
required under local law, Seller or the Acquired Company will have, prior to
the Closing Date, properly and timely notified, or where appropriate, consulted
or negotiated with, the local works council, union, labor board or relevant
governmental agency concerning the Contemplated Transactions.


     Since June 30, 1999, there has not been, there is not presently pending or
existing, and to Seller’s Knowledge there is not threatened, any strike,
slowdown, picketing, employee grievance process or other work stoppage or labor
dispute involving an Acquired Company or the KES Business or the Facilities.
Since June 30, 1999, no event has occurred (including the transfer of the
Acquired KES Assets from KES to SSPS or the termination of employment by KES of
each employee primarily involved in the KES Business (the “Transferring KES
Employees”)) or circumstance exists that may provide the basis for any such
work stoppage or labor dispute. There is no lockout of any employees by an
Acquired Company, and no Acquired Company contemplates such action.


     Section 3.20(i) of Seller’s Disclosure Schedule contains an accurate and
complete list of the following information for each director, officer,
full-time employee, independent contractor, consultant and agent of each
Acquired Company, including each employee on leave of absence or layoff status:
name, employer, job title, date of hiring or engagement, date of commencement,
current compensation paid or payable and any change in compensation since last
six months, sick and vacation leave that is accrued but unused, and service
credited for purposes of vesting and eligibility to participate under any
Company Plan.


     In relation to each Acquired Company, there are no pending or, to Seller’s
Knowledge, threatened claims or litigation of any type by any existing or
former employee of any Acquired Company or the KES Business.


     Full details of all temporary workers, contractors or self-employed
individuals have been disclosed to Buyer prior to Closing. Each Acquired
Company has complied with all applicable
Laws in relation to each such person. All such persons are not employees of
any Acquired Company or KES (but only to the extent related to the Business).


 






 


     Except as set forth in Section 3.20(l) of Seller’s Disclosure Schedule,
none of the Key Employees have indicated to their employer that he or she
intends to resign or retire as a result of the Contemplated Transactions or
otherwise before the first anniversary of the Closing Date and no notice with
respect to the same has been received by Seller or any Acquired Company.


     Except as set forth in Section 3.20(m) of Seller’s Disclosure Schedule, to
Seller’s Knowledge, no person who is not an employee of an Acquired Company as
of the date hereof has a right to return to work or any right to be reinstated
or re-employed by an Acquired Company in connection with the Business whether
under any Law or otherwise.


     No employee of an Acquired Company will become entitled by virtue of his
or her contract of employment to any enhancement in or improvement to his or
her remuneration, benefits or terms and conditions of employment by reason of
the Contemplated Transactions.


     No board director or employee of an Acquired Company is or will become
entitled by virtue of his or her contract of employment or appointment or
otherwise to any claim from an Acquired Company or Buyer for any compensation,
redundancy, relocation or repatriation costs arising as a result of the
termination or cessation of his or her appointment to or employment with an
Acquired Company at the Closing or otherwise by reason of the consummation of
the Contemplated Transactions.


     No employee of an Acquired Company in the PRC or Transferring KES Employee
has been offered or granted the right to be employed or remain in the
employment of an Acquired Company for life or indefinitely, and every contract
of employment, including each labor contract that has been signed or entered
into between SSPS and each of the Transferring KES Employees and each
employment agreement entered into between an Acquired Company and each of its
expatriate employees, as of the Closing Date, reserves to each Acquired Company
the right to terminate the employment of the relevant employee of each Acquired
Company in accordance with applicable PRC labor and employment Laws in the case
of local employees, and at will or upon the giving of notice or payment in lieu
thereof in the case of expatriate employees.


     Except as set forth in Section 3.20(q) of Seller’s Disclosure Schedule,
none of the Acquired Companies provides or, to Seller’s Knowledge, has any
obligation to provide social benefits, facilities or services such as canteens,
hospitals, schools, sports arenas or welfare to, or on behalf of, the employees
of an Acquired Company or any third party.


     Except for the Annual Incentive Plans listed in Section 3.18(k) of
Seller’s Disclosure Schedule and except as may otherwise be agreed upon by the
parties between the date hereof and the Closing Date, Seller or the Acquired
Companies will have fully paid all employees, directors, officer, agents,
consultants, and independent contractors of the Acquired Companies all earned,
accrued or promised compensation, including regular pay, overtime pay, holiday
pay, bonuses, commissions, and accrued paid time off (including vacation time),
arising out of employment or the performance of services up to and through the
Closing Date.


     Seller represents and warrants that as of the Closing Date, KES will have
terminated or fully ended the employment or contracting relationships of all
employees, directors, officers, agents,



 










 



consultants, and
independent contractors of the KES Business and Seller will have fully and
completely satisfied any and all obligations, payments, notices, consents, and
liabilities under Laws to such employees, directors, officers, agents,
consultants, and independent contractors, arising out of or due to such
terminations or their employment by the KES Business prior to such
terminations, including, termination indemnities and transfers of undertaking
arising under the Laws of the PRC and any claims of benefits of such employees,
contractors, or consultants on the basis of their employment by the KES
Business.


     ENVIRONMENTAL, HEALTH AND SAFETY MATTERS


     Seller and each Acquired Company is, and at all times has been, in full
compliance with, and has not been and is not in Contravention of or liable
under, any Environmental Law or Occupational Safety and Health Law. Neither
Seller nor any Acquired Company has any basis to expect, nor has any of them or
any other Person for whose conduct they are or may be held responsible
received, any actual or threatened Order, notice or other communication from
(i) any Governmental Body or other Person acting in the public interest, or
(ii) any third party, of any actual or potential violation or failure to comply
with any applicable Environmental Law, or of any actual or threatened
obligation to undertake or bear the cost of any Environmental, Health and
Safety Liabilities with respect to any Facility or other property or asset
(whether real, personal or mixed) in which Seller or Acquired Company has had
an interest, or with respect to any property or facility at or to which
Hazardous Materials were generated, manufactured, refined, transferred,
imported, used or processed by Seller, any Acquired Company, or any other
Person for whose conduct they are or may be held responsible, or from which
Hazardous Materials have been transported, treated, stored, handled,
transferred, disposed, recycled or received, except as set forth in Section
3.21(a) of Seller’s Disclosure Schedule.


     There are no pending or, to Seller’s Knowledge, threatened, claims,
Encumbrances or other restrictions of any nature, resulting from any
Environmental, Health and Safety Liabilities or arising under any applicable
Environmental Law or Occupational Safety and Health Law, with respect to or
affecting any Facilities or any other properties and assets (whether real,
personal or mixed) in which Seller or Acquired Company has or had an interest.


     Seller has no Knowledge of or any basis to expect, nor has it or any other
Person for whose conduct it is or may be held responsible, received any
citation, directive, inquiry, notice, Order, summons, warning or other
communication (i) that relates to Hazardous Activity, Hazardous Materials or
any actual, alleged or potential Contravention of or failure to comply with any
Environmental Law or Occupational Safety and Health Law, or (ii) of any actual,
alleged or potential obligation to undertake or bear the cost of any
Environmental, Health and Safety Liabilities with respect to any Facility or
other property or asset (whether real, personal or mixed) in which Seller or
any Acquired Company had an interest, or with respect to any property or
facility to or by which Hazardous Materials generated, manufactured, refined,
transferred, imported, used or processed by Seller, any Acquired Company, or
other Person for whose conduct they are or may be held responsible, have been
transported, treated, stored, handled, transferred, disposed, recycled or
received.


     Neither Seller nor any Acquired Company, nor any other Person for whose
conduct they are or may be held responsible, has any Environmental, Health and
Safety Liabilities with respect to


 






 


any Facility or, to Seller’s Knowledge, with respect to any other property or
asset (whether real, personal or mixed) in which Seller or any Acquired Company
(or any predecessor) has or had an interest, or at any property geologically or
hydrologically adjoining any Facility or any such other property or asset.


     There are no Hazardous Materials present on or in the Environment at any
Facility or at any geologically or hydrologically adjoining property, including
any Hazardous Materials contained in barrels, above or underground storage
tanks, landfills, land deposits, dumps, equipment (whether moveable or fixed)
or other containers, either temporary or permanent, and deposited or located in
land, water, sumps or any other part of any Facility or such adjoining
property, or incorporated into any structure therein or thereon. Neither
Seller, nor any Acquired Company, nor any other Person for whose conduct they
are or may be held responsible, nor, to the Seller’s Knowledge, any other
Person has permitted or conducted, or is aware of, any Hazardous Activity
conducted with respect to any Facility or other property or asset (whether
real, personal or mixed) in which Seller or any Acquired Company has or had an
interest except in full compliance with applicable Environmental Laws.


     There has been no Release or, to Seller’s Knowledge, threat of Release, of
any Hazardous Materials at, to or from any Facility or at, to or from any other
location where any Hazardous Materials were generated, manufactured, refined,
transferred, produced, imported, used or processed from or by any Facility, or
from any other property or asset (whether real, personal or mixed) in which any
Seller or Acquired Company has or had an interest, or any geologically or
hydrologically adjoining property, whether by Seller, any Acquired Company or
any other Person, except as set forth in Section 3.21(f) of Seller’s Disclosure
Schedule.


     Seller has delivered to Buyer true and complete copies of any reports,
studies, analyses, tests or monitoring results possessed or initiated by Seller
or any Acquired Company pertaining to Hazardous Materials or Hazardous
Activities in, on or under any Facilities, or concerning compliance by Seller,
any Acquired Company or any other Person for whose conduct they are or may be
held responsible, with Environmental Laws.


     Seller and all Acquired Companies possess, and at no time have failed to
possess, all permits and other authorizations required to be possessed under
any applicable Environmental Law and Occupational Health and Safety Law for
operation of the Business and for all activities conducted by them or allowed
by them to be conducted at each Facility. To Seller’s Knowledge, at no time
has Seller or any Acquired Company failed to comply with any term of such
permit or other authorization.


     Neither Seller, nor any Acquired Company has any Liability pursuant to or
arising out of the 1993 OSHA Audit of the property in Niles, Illinois.


     COMPLIANCE WITH LAWS; GOVERNMENTAL AUTHORIZATIONS


     Without limiting the scope of any other representation in this Agreement,
each Acquired Company is, and at all times since June 30, 1999, and, to
Seller’s Knowledge, at all times from December 31, 1997 through June 30, 1999,
each Acquired Company and the KES Business has been, in full compliance with
each Law that is or was applicable to it or to the conduct of its


 






 


business or the ownership or use of any of its assets. No event has occurred
or circumstance exists that (with or without notice or lapse of time) may cause
an Acquired Company to Contravene any Law or may give rise to any obligation on
the part of an Acquired Company to undertake, or to bear all or any portion of
the cost of, any remedial action of any nature. Except as set forth in Section
3.22(a) of Seller’s Disclosure Schedule, none of Seller, any Acquired Company
or the KES Business has at any time since June 30, 1999 received, or to
Seller’s Knowledge, at any time from December 31, 1997 through June 30, 1999
received, any notice or other communication (whether oral or written) from any
Governmental Body or any other Person regarding any actual, alleged or
potential Contravention of any Law or any actual, alleged or potential
obligation on the part of an Acquired Company to undertake, or to bear all or
any portion of the cost of, any remedial action of any nature.


     Section 3.22(b) of Seller’s Disclosure Schedule contains an accurate and
complete list of each Governmental Authorization that is held by each Acquired
Company or that otherwise relates to the business of, or to any of the assets
owned or used by, an Acquired Company, all of which are valid and in full force
and effect and will remain so following the Closing. Each Acquired Company is,
and at all times since June 30, 1999, and, to Seller’s Knowledge, at all times
from December 31, 1997 through June 30, 1999, each Acquired Company and the KES
Business has been, in full compliance with all of the terms and requirements of
each such Governmental Authorization. No event has occurred (including the
transfer of the Acquired KES Assets from KES to SSPS or termination of the
Transferring KES Employees’ employment with KES) or circumstance exists that
may (with or without notice or lapse of time) constitute or result directly or
indirectly in Contravention of any Governmental Authorization. No Acquired
Company or the KES Business has received at any time since December 31, 1997
any notice or other communication (whether oral or written) from any
Governmental Body or any other Person regarding any actual, alleged or
potential Contravention of any Governmental Authorization. All applications
required to have been filed for the renewal of such Governmental Authorizations
have been duly filed on a timely basis with the appropriate Governmental
Bodies, and all other filings required to have been made with respect to such
Governmental Authorizations (including as a result of the transfer of the
Acquired KES Assets from KES to SSPS or termination of the Transferring KES
Employees’ employment with KES) have been duly made on a timely basis with the
appropriate Governmental Bodies. All such Governmental Authorizations are
renewable by their terms or in the Ordinary Course of Business without the need
to comply with any special qualification procedures or to pay any amounts other
than routine fees or similar charges.


     The Governmental Authorizations listed in Section 3.22(b) of Seller’s
Disclosure Schedule collectively constitute all of the Governmental
Authorizations necessary to permit the Acquired Companies to conduct their
businesses lawfully in the manner in which they currently conduct such
businesses and to permit the Acquired Companies to own and use their assets in
the manner in which they own and use such assets currently.


     The Acquired Companies currently are and at all times prior have been, in
compliance with the EU Data Privacy Directive.


 






 


     COMPLIANCE WITH RELEVANT SECURITIES LAWS, THE FOREIGN CORRUPT PRACTICES
ACT AND EXPORT CONTROL, ANTI-BOYCOTT AND IMPORT RELATED LAWS


     No Acquired Company or the KES Business, nor any Representative of an
Acquired Company or the KES Business, has directly or indirectly, offered,
paid, or promised to pay, or authorized the payment of, any money or other
thing of value (including any fee, gift, sample, travel expense or
entertainment with a value in excess of $100 in the aggregate to any one
individual in any year) or any commission payment in excess of 5% of the value
of any related Contract, to (i) any Person who is an official, officer, agent
employee or representative of any Government Body, or any existing or
prospective customer (whether government-owned or non-government-owned), (ii)
any political party or official thereof, (iii) any candidate for political or
political party office, or (iv) any other Person; while knowing or having
reason to believe that all or any portion of such money or thing of value would
be offered, given, or promised, directly or indirectly, to any such official,
officer, agent, employee, representative, political party, political party
official, candidate, individual or any entity affiliated with such customer,
political party or official, or political office.


     Each Acquired Company and the KES Business has made all payments to third
parties by check mailed to such third parties’ principal place of business or
by wire transfer to a bank located in the same jurisdiction as such party’s
principal place of business.


     Each transaction is properly and accurately recorded on the books and
records of the appropriate Acquired Company or KES, and each document on which
entries in the Acquired Companies’ or KES’ (as applicable) books and records
are based is accurate and complete in all respects. Each Acquired Company and
KES maintain a system of internal accounting controls adequate to insure that
the Acquired Company or KES (as applicable) maintains no Off-Balance Sheet
Arrangements and that the assets of the Acquired Company and KES are used only
in accordance with the management directives of the Acquired Companies and KES
(as applicable). Each Acquired Company and KES maintains a system of internal
accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management’s general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
United States accounting principles and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management’s general or
specific authorization, and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate
action is taken with respect to any differences. Seller has evaluated the
effectiveness of internal controls over financial reporting for each Acquired
Company and KES. Based on such evaluation, Seller did not identify any
Significant Internal Control Deficiency other than those listed on Section 3.23
(c) of Seller’s Disclosure Schedule. For purposes of evaluating the
effectiveness of each of the internal controls of each Acquired Company and KES
over financial reporting: (a) Seller has evaluated whether each Acquired
Company’s and KES’ internal controls are suitably designed to prevent or detect
material misstatements in financial reporting, and (b) Seller has considered
how each Acquired Company’s and KES’ internal controls are applied, the
consistency to which they are applied, and by whom they are applied. As part
of these evaluations, Seller has considered (a) controls over initiating,
recording, processing, and reporting significant account balances, classes of
transactions, and disclosures and related


 






 


assertions embodied in the financial statements; (b) antifraud programs and
controls; (c) controls, including general controls, on which other significant
controls are dependent; (d) each significant control in a group of controls
that functions together to achieve a control objective; (e) controls over
significant nonroutine and nonsystemic transactions (such as accounts involving
judgments and estimates); and (f) controls over the period-end financial
reporting process, including controls over procedures used to enter transaction
totals into the general ledger, to initiate, record and process journal entries
in the general ledger, and to record recurring and nonrecurring adjustments to
the financial statements.


     Each Acquired Company and the KES Business has at all times complied with
all Laws relating to export controls and trade sanctions. No product sold or
service provided by an Acquired Company or the KES Business since June 30,
1999, has been, or, to Seller’s Knowledge, from December 31, 1997 through June
30, 1999 was, directly or indirectly, sold to or performed on behalf of
Afghanistan, Cuba, Iraq, Iran, Libya, Myanmar (Burma), India, Pakistan, Sudan,
Syria or North Korea.


     To Seller’s Knowledge, since December 31, 1997, no Acquired Company or the
KES Business was, a party to or a beneficiary under any Contract under which a
product has been sold or services provided to customers in Bahrain, Iraq,
Kuwait, Jordan, Lebanon, Libya, Oman, Qatar, Saudi Arabia, Sudan, Syria, United
Arab Emirates or the Republic of Yemen.


     Except as set forth in Section 3.23 of Seller’s Disclosure Schedule, since
December 31, 1999, each Acquired Company and the KES Business has been in full
compliance with all Laws relating to imports, including import-related Laws
which concern sales to customers (including U.S. Laws regarding the North
American Free Trade Agreement (“NAFTA”).


     LEGAL PROCEEDINGS; ORDERS


     Section 3.24(a) of Seller’s Disclosure Schedule lists any pending
Proceedings (i) by or against any Acquired Company or the KES Business, or that
otherwise relate to or may affect the business of, or any of the assets owned
or used by, any Acquired Company or the KES Business, or (ii) that challenge,
or that may have the effect of preventing, delaying, making illegal or
otherwise interfering with, any of the Contemplated Transactions. To Seller’s
Knowledge, no other such Proceeding has been threatened, and no event has
occurred or circumstance exists that is reasonably likely to give rise to or
serve as a basis for the commencement of any such Proceeding. Seller has
delivered to Buyer copies of all pleadings, correspondence and other documents
relating to such Proceedings. Such Proceedings will not in the aggregate have
a material adverse effect on the financial or other condition, results of
operations, assets, Liabilities, equity, business or prospects of any Acquired
Company.


     Section 3.24(b) of Seller’s Disclosure Schedule lists each Order to which
any Acquired Company or the KES Business, or any of the assets owned or used by

any Acquired Company or the KES Business, is subject. To Seller’s Knowledge,
no officer, director, agent or employee of any Acquired Company is subject to
any Order that prohibits such officer, director, agent or employee from
engaging in or continuing any conduct, activity or practice relating to the
business of any Acquired Company.


 






 


     Each Acquired Company is, and at all times since June 30, 1999, and, to
Seller’s Knowledge, at all times from December 31, 1997 through June 10, 1999,
each Acquired Company and the KES Business has been, in full compliance with
all of the terms and requirements of each Order to which it, or any of the
assets owned or used by it, is or has been subject. No event has occurred or
circumstance exists that may constitute or result in (with or without notice or
lapse of time) a violation of or failure to comply with any term or requirement
of any Order to which any Acquired Company, or any of the assets owned or used
by any Acquired Company, is subject. Since June 30, 1999, no Acquired Company
has received, and, to Seller’s Knowledge, from December 31, 1997 through June
30, 1999, no Acquired Company or the KES Business received, , any notice or
other communication (whether oral or written) from any Governmental Body or any
other Person regarding any actual, alleged or potential violation of, or
failure to comply with, any term or requirement of any Order to which any
Acquired Company, or any of the assets owned or used by any Acquired Company,
is or has been subject.


     RELATIONSHIPS WITH RELATED PERSONS


Except as set forth in Section 3.25 of Seller’s Disclosure Schedule, none of
the Parent, Seller, any Related Person of Seller, has, or since January 1, 2001
has had, any interest in any property (whether real, personal or mixed and
whether tangible or intangible), used in or pertaining to any Acquired
Company’s business. None of Parent, Seller or any Related Person of Seller, or
any Acquired Company owns, or since January 1, 2001 has owned, (of record or as
a beneficial owner) an equity interest or any other financial or profit
interest in a Person that has (a) had business dealings or a material financial
interest in any transaction with an Acquired Company, or (b) engaged in
competition with an Acquired Company with respect to any line of the products
or services of the Acquired Company in any market presently served by the
Acquired Company. Except as set forth in Section 3.25 of Seller’s Disclosure
Schedule, none of Parent, Seller or any Related Person of Seller, or any
Acquired Company is a party to any Contract with, or has any claim or right
against, an Acquired Company. Section 3.25 of Seller’s Disclosure Schedule
describes all services that Parent or Seller, or a Related Person of Parent or
Seller, provides to any Acquired Company, utilizing either assets not owned by
an Acquired Company or persons not employed by an Acquired Company, and the
manner in which the costs of providing such services have been allocated to any
Acquired Company.


     BROKERS OR FINDERS


None of Parent, Seller, or any of their respective Representatives, has
incurred any Liability for brokerage or finders’ fees or agents’ commissions or
other similar payment in connection with the Contemplated Transactions which
will not be fully paid by Seller or Parent prior to Closing.


 






 


     DISCLOSURE


No representation or warranty of Seller in this Agreement and no statement in
Seller’s Disclosure Schedule contains any material untrue statement or omits to
state a material fact necessary to make the statements herein or therein, in
light of the circumstances in which they were made, not misleading. Seller has
no Knowledge of any fact that has specific application to an Acquired Company
(other than general economic or industry conditions) and that could reasonably
have a material adverse effect on the financial or other condition, results of
operations, assets, Liabilities, equity, business or prospects of an Acquired
Company that has not been set forth in this Agreement or in Seller’s Disclosure
Schedule.


REPRESENTATIONS AND WARRANTIES OF BUYER



Buyer represents and warrants to Seller that, except as set forth in Buyer’s
Disclosure Schedule:


     ORGANIZATION


Buyer is a corporation duly organized, validly existing and in good standing
under the laws of its jurisdiction of organization.


     ENFORCEABILITY; NO CONFLICT


     Buyer has the absolute and unrestricted right, power and authority to
execute and deliver this Agreement and its Ancillary Agreements and to perform
its obligations under this Agreement and its Ancillary Agreements, which
actions have been duly authorized and approved by all necessary corporate
action of Buyer. Assuming the execution and delivery of this Agreement by
Seller and Parent, this Agreement constitutes the legal, valid and binding
obligation of Buyer, enforceable against Buyer in accordance with its terms.
Assuming their execution and delivery by the other parties thereto, the
Ancillary Agreements to which Buyer (or its Subsidiaries) becomes a party will,
upon execution and delivery, constitute legal, valid and binding obligations of
Buyer (or, as applicable, its Subsidiaries), enforceable against Buyer (or its
Subsidiaries) in accordance with their respective terms.


     Except as set forth Section 4.2 of Buyer’s Disclosure Schedule, Buyer is
not and will not be required to obtain any Consent or Governmental
Authorization in connection with the execution and delivery of this Agreement
or the consummation or performance of any of the Contemplated Transactions.


     Neither the execution and delivery of this Agreement by Buyer nor the
consummation or performance of any of the Contemplated Transactions by Buyer
will give any Person the right to prevent, delay or otherwise interfere with
any of the Contemplated Transactions pursuant to (i) any provision of Buyer’s
Governing Documents, (ii) any resolution adopted by the board of directors or
the stockholders of Buyer, (iii) any Law, Order or Governmental Authorization
to


 






 


which Buyer may be subject or (iv) any Contract to which Buyer is a party or by
which Buyer may be bound.


     CERTAIN PROCEEDINGS


There is no pending Proceeding that has been commenced against Buyer and that
challenges, or may have the effect of preventing, delaying, making illegal or
otherwise interfering with, any of the Contemplated Transactions. To Buyer’s
knowledge, no such Proceeding has been threatened.


     INVESTMENT INTENT


Buyer is acquiring the Shares for its own account and not with a view to their
distribution within the meaning of Section 2(11) of the Securities Act.


     BROKERS OR FINDERS


Buyer will be solely responsible for Liability for brokerage or finders’ fees
or agents’ commissions or other similar payment authorized by it or any of its
Representatives in connection with the Contemplated Transactions (including all
fees payable to Philpott Ball & Werner, Inc.).


     NO KNOWLEDGE OF MISREPRESENTATIONS OR OMISSIONS


Buyer acknowledges that it has conducted an independent investigation of the
financial condition, results of operations, assets, Liabilities, properties and
projected operations of the Acquired Companies and the KES Business and, in
making its determination to proceed with the Contemplated Transactions, Buyer
has relied on the results of its own independent investigation and
verification, the representations and warranties of the Seller expressly and
specifically set forth in this Agreement, including the Seller’s Disclosure
Schedules and any updates thereto as permitted by this Agreement. SUCH
REPRESENTATIONS AND WARRANTIES BY SELLER CONSTITUTE THE SOLE AND EXCLUSIVE
REPRESENTATIONS AND WARRANTIES OF SELLER AND THE PARENT TO BUYER IN CONNECTION
WITH THE CONTEMPLATED TRANSACTIONS CONTEMPLATED HEREBY, AND BUYER UNDERSTANDS,
ACKNOWLEDGES AND AGREES THAT ALL OTHER REPRESENTATIONS AND WARRANTIES OF ANY
KIND OR NATURE EXPRESSED OR IMPLIED (INCLUDING, BUT NOT LIMITED TO, ANY
RELATING TO THE FUTURE OR HISTORICAL FINANCIAL CONDITION, RESULTS OF
OPERATIONS, ASSETS OR


 






 


LIABILITIES OF THE ACQUIRED COMPANIES AND THE KES BUSINESS ARE SPECIFICALLY
DISCLAIMED BY SELLER AND THE PARENT. BUYER REPRESENTS AND WARRANTS THAT IT HAS
NO KNOWLEDGE THAT ANY OF THE REPRESENTATIONS AND WARRANTIES OF SELLER IN THIS
AGREEMENT, THE SELLER’S DISCLOSURE SCHEDULE, ANY UPDATES THERETO AND ANY OTHER
SCHEDULES HERETO ARE NOT TRUE AND CORRECT IN ALL MATERIAL RESPECTS AND BUYER
DOES NOT HAVE ANY KNOWLEDGE OF ANY MATERIAL ERRORS IN, OR MATERIAL OMISSIONS
FROM SELLER’S DISCLOSURE SCHEDULE, ANY UPDATES THERETO OR THE OTHER SCHEDULES
TO THIS AGREEMENT.


COVENANTS OF SELLER BEFORE CLOSING



     ACCESS AND INVESTIGATION


Between the date of this Agreement and the Closing Date and upon reasonable
advance notice from Buyer and without undue disruption to the operations of the
Acquired Companies and the KES Business, Seller will, and will cause the
Acquired Companies, the KES Business and their Representatives to, (a) afford
Buyer and its Representatives and prospective lenders and their Representatives
full and free access to the management personnel, properties (including
subsurface testing), Contracts, books and records, and other documents and
data, of each Acquired Company and the KES Business (b) furnish such Persons
with copies of all such Contracts, books and records, and other documents and
data as Buyer may reasonably request, and (c) furnish such Persons with such
additional financial, operating and other data and information as Buyer may
reasonably request.


     OPERATION OF THE BUSINESSES OF THE ACQUIRED COMPANIES


Except as otherwise expressly permitted by this Agreement, between the date of
this Agreement and the Closing Date, Seller will, and will cause each Acquired
Company and the KES Business to, (a) conduct the business of such Acquired
Company and the KES Business only in the Ordinary Course of Business except for
transactions expressly contemplated in this Agreement and reflected in Section
3.10 of Seller’s Disclosure Schedule, (b) use their Best Efforts to preserve
intact the current business organization of such Acquired Company, keep
available the services of the current officers, employees and agents of such
Acquired Company, and maintain


 






 


relations and goodwill with suppliers, customers, landlords, creditors,
employees, agents and others having business relationships with such Acquired
Company, (c) confer with Buyer concerning operational matters of a material
nature and (d) otherwise report periodically to Buyer concerning the status of
the business, operations and finances of such Acquired Company.
Notwithstanding anything contained herein to the contrary, except as disclosed
in Section 3.24(b) of Seller’s Disclosure Schedule, between the date hereof and
the Closing Date, Seller will not cause the Acquired Companies to enter into
any new listing agreement for the sale of the Real Property located in Niles,
Illinois or any agreement for the sale and purchase of such Real Property
without Buyer’s prior written approval in each instance, which approval will be
either granted or denied by Purchaser within five business days following
Buyer’s receipt of written notice of any such proposed listing agreement or
purchase agreement.


     NEGATIVE COVENANT


     Except as otherwise expressly permitted by this Agreement, between the
date of this Agreement and the Closing Date, Seller will not, and will not
cause or permit any Acquired Company or the KES Business to, without the prior
consent of Buyer, (a) take any affirmative action, or fail to take any
reasonable action within their or its control, as a result of which any of the
changes or events in Section 3.10 would be likely to occur, (b) make any
modifications to any other material Company Contract or Governmental
Authorization, (c) permit the levels of Inventories to vary materially from the
levels customarily maintained, or (d) enter into any compromise or settlement
of any pending or threatened Proceeding to which any Acquired Company or the
KES Business is a party or for which an Acquired Company or the KES Business
has any Liability.


     REQUIRED APPROVALS


As promptly as practicable after the date of this Agreement, Seller will, and
will cause each Acquired Company to, make all filings that they are required by
Law to make and use Best Efforts to obtain all other consents and approvals
required to consummate the Contemplated Transactions, including any filings
identified in Seller’s Disclosure Schedule as an exception to Sections 3.2(b),
3.2(c) or 3.2(d). Between the date of this Agreement and the Closing Date,
Seller will, and will cause each Acquired Company and the KES Business to use
Best Efforts to (a) cooperate with Buyer with respect to all filings that Buyer
elects to make or that Buyer is required by Law to make in connection with the
Contemplated Transactions, and (b) cooperate with Buyer in obtaining any
Governmental Authorizations and Consents identified in Buyer’s Disclosure
Schedule as an exception to Section 4.2(b).


 






 


     NOTIFICATION


     Between the date of this Agreement and the Closing Date, Seller will
promptly notify Buyer in writing if any Acquired Company, the KES Business or
Seller becomes aware of (i) any fact or condition that causes or constitutes a
breach of any of Seller’s representations and warranties as of the date of this
Agreement, or (ii) the occurrence after the date of this Agreement of any fact
or condition that would (except as expressly contemplated by this Agreement)
cause or constitute a breach of any such representation or warranty had that
representation or warranty been made as of the time of the occurrence or
discovery of such fact or condition (collectively, a “Notification Event”).
Should any such fact or condition require any change in Seller’s Disclosure
Schedule, Seller will promptly deliver to Buyer a supplement to Seller’s
Disclosure Schedule specifying such change. Subject to 5.2(b) and 5.2(c), such
delivery will not affect any rights of Buyer under Section 9.2 and Article 10.
During the same period, Seller will promptly notify Buyer of the occurrence of
any breach of any covenant of Seller in this Article or of the occurrence of
any event that may make the satisfaction of the conditions in Article 7
impossible or unlikely.


     Notwithstanding the foregoing, between the date of this Agreement and the
Closing Date, Seller may notify Buyer in writing that in Seller’s reasonable
estimation a Notification Event will result in Liabilities individually or in
the aggregate in excess of $250,000 (the “Termination Right Threshold”). Buyer
will have ten (10) business days after receiving such notification to terminate
this Agreement. Notwithstanding anything in this Agreement to the contrary, in
the event of a termination by Buyer under the circumstances described in this
Section 5.5(b), neither the Seller, the Parent nor any of the Acquired
Companies shall have any further Liability to Buyer. Unless the Buyer
terminates this Agreement within the aforementioned period, notification under
this Section 5.5(b) will be deemed to have amended the Seller’s Disclosure
Schedule, to have qualified the representations and warranties contained
herein, and to have cured any misrepresentation or breach of warranty that
otherwise might have existed hereunder.


     Between the date of this Agreement and the Closing Date, if in Seller’s
reasonable estimation a Notification Event has occurred under Section 3.21 that
will result in Liabilities that are individually or in the aggregate in excess
of the Termination Right Threshold, then Seller shall so notify Buyer under
Section 5.5(b). In addition, Seller will have 10 business days after Buyer’s
receipt of such notification to terminate this Agreement. Notwithstanding
anything in this Agreement to the contrary, in the event of a termination by
Seller under the circumstances described in this Section 5.5(c), Seller shall
have no further Liability to Buyer, Parent or any of the Acquired Companies.


     PAYMENT OF INDEBTEDNESS BY RELATED PERSONS


Except as expressly provided in this Agreement or Seller’s Disclosure Schedule,
Seller will cause all net indebtedness owed to the Acquired Companies by either
Seller or any Related Person of Seller to be paid in full before the Closing
Date.


 






 


     NO NEGOTIATION


Seller will immediately discontinue any negotiations or discussions with any
Person (other than Buyer) relating to any business combination transaction
involving any Acquired Company, including the sale of any of the shares of any
Acquired Company, any merger or consolidation, or the sale of any of the assets
of any Acquired Company (other than in the Ordinary Course of Business). Until
such time, if any, as this Agreement is terminated pursuant to Article 9,
Seller will not, and will cause each Acquired Company and each of their
Representatives not to, directly or indirectly, solicit, initiate, encourage or
entertain any inquiries or proposals from, discuss or negotiate with, provide
any non-public information to, or consider the merits of any inquiries or
proposals from, any Person (other than Buyer) relating to any such transaction
involving any Acquired Company or the KES Business. Seller will immediately
notify Buyer regarding any contact between Seller, an Acquired Company or their
respective Representatives and any other Person regarding any such transaction
or any related inquiry.


     BEST EFFORTS


Seller will use its Best Efforts to cause the conditions in Article 7 and
Section 8.3 to be satisfied. Notwithstanding anything to the contrary in this
Agreement, to the extent Seller uses its Best Efforts, but fails to obtain a
Consent, agreement, release or other instrument from or of a Governmental
Authority or third Person, such failure will not be deemed a breach of this
covenant or this Agreement and Seller will have no liability under this
Agreement, for indemnification or otherwise; provided, however, Buyer will
continue to have the right to terminate this Agreement pursuant to Article 9
for such failure.


     INTERIM FINANCIAL STATEMENTS


Until the Closing Date, Seller will deliver to Buyer within 21 days after the
end of each month a copy of the unaudited consolidated balance sheet of the
Acquired Companies. prepared in a manner and containing information consistent
with the Acquired Companies’ current practices and certified by each Acquired
Company’s chief financial officer as to compliance with Section 3.4.


 






 


     TAX BENEFITS


Seller will use its Best Efforts to ensure that SSPS will be able to take
advantage of all tax benefits in the PRC currently enjoyed by KES and all tax
benefits that SSPS is entitled to under PRC law and policy.


COVENANTS OF BUYER BEFORE CLOSING



     REQUIRED APPROVALS


As promptly as practicable after the date of this Agreement, Buyer will make
all filings that it is required by Law to make to consummate the Contemplated
Transactions, including any filings identified in Buyer’s Disclosure Schedule
as an exception to Section 4.2(b). Between the date of this Agreement and the
Closing Date, Buyer will (a) cooperate with Seller with respect to all filings
Seller elects to make or that they are required by Law to make in connection
with the Contemplated Transactions, and (b) cooperate with Seller in obtaining
any Governmental Authorizations and Consents identified in Seller’s Disclosure
Schedule as an exception to Section 3.2(b); provided, however, that this
Section will not require Buyer to dispose of or make any change in any portion
of its business or to incur any other unreasonable burden.


     BEST EFFORTS


Except as set forth in the proviso to Section 6.1, Buyer will use its Best
Efforts to cause the conditions in Section 7.3 and Article 8 to be satisfied.


     ADDITIONAL COVENANTS


     Buyer will obtain at its sole cost and expense:


     an updated Title Policy (or Title Policies);


     an updated Survey (or Surveys);


     an updated ALTA Statement, and such other documents, instruments,
certificates, and confirmations as may be reasonably required by the Title
Insurer to issue the Title Policy in the form required herein;


     Buyer will obtain a Phase II Environmental Investigation of the property
in Niles, Illinois, as identified on Schedule 6.3(b) of Buyer’s Disclosure
Schedule (the “Partial Phase II Investigation”) at Seller’s sole cost and
expense, not to exceed $50,000.


 






 


CONDITIONS PRECEDENT TO BUYER’S OBLIGATION TO CLOSE



Buyer’s obligation to purchase the Shares and to take the other actions
required to be taken by Buyer at the Closing is subject to the satisfaction, on
or before the Closing Date, of each of the following conditions (any of which
may be waived by Buyer, in whole or in part):


     ACCURACY OF REPRESENTATIONS


     All of Seller’s representations and warranties in this Agreement
(considered both collectively and individually) must have been accurate in all
material respects as of the date of this Agreement, and must be accurate in all
material respects as of the Closing Date as if then made, without giving effect
to any supplement to Seller’s Disclosure Schedule.


     In addition, each of Seller’s representations and warranties in Sections
3.2 and 3.4, and each of Seller’s representations and warranties in this
Agreement that contains an express materiality qualification, must have been
accurate in all respects as of the date of this Agreement, and must be accurate
in all respects as of the Closing Date as if then made, without giving effect
to any supplement to Seller’s Disclosure Schedule.


     SELLER’S PERFORMANCE


     All of the covenants and obligations that Seller is required to perform or
to comply with under this Agreement on or before the Closing Date (considered
both collectively and individually) must have been duly performed and complied
with in all material respects.


     In addition, Seller must have (i) delivered each document that Section 2.5
requires it to deliver, and (ii) performed and complied with, in all respects,
each of the covenants and obligations in Sections 5.4 and 5.8 and each of the
covenants and obligations in this Agreement that Seller is required to perform
or comply with on or before the Closing Date that contains an express
materiality qualification.


     CONSENTS


Each of the Governmental Authorizations and Consents identified in Section
3.22(b) of Seller’s Disclosure Schedule and Sections 4.2(b) and (c) of Buyer’s
Disclosure Schedule as a Governmental Authorization or Consent that is required
to be obtained as a condition to Closing must have been obtained and must be in
full force and effect.


     ADDITIONAL DOCUMENTS


     Each of the following documents must have been delivered to Buyer:


     an opinion of, dated the Closing Date, in the form of Exhibit 7.4(a);


 






 


     estoppel certificates or other substantially equivalent documents under
applicable Law executed on behalf of Ascenda-Xinso Development (Suzhou) Co.
Ltd., Shanghai Waigaoqiao Xin Development Co. Ltd., LaSalle National Trust,
N.A., Successor Trustee to LaSalle National Bank, not individually, but as
Trustee under Trust Agreement dated August 1, 1986 and known as Trust No.
111410 and Landacq Associates, dated as of a date not more than 5 days before
the Closing Date, each in the form of Exhibit 7.4(b);


     the certifications required by Section 11.14;


     releases from the banks of the Company’s pledge of its personal property,
including shares in SSPEL, the mortgage of the property in Niles, Illinois,
Seller’s pledge of the Shares and UCC termination statements in respect of all
financing statements that are presently in effect in connection with the
Company’s pledge;


     a release from the bank of the Company as guarantor under the subsidiary
guarantee agreement dated June 30, 1999;


     the Employment Agreements in the form of Exhibit 2.5(a)(iii);


     the Employee Noncompetition Agreements in the form of Exhibit 2.5(a)(iv);


     an ALTA Statement in the form of Exhibit 2.5(a)(xv) and such other
documents, instruments, certificates, and confirmations as may be reasonably
required by the Title Insurer to issue the Title Policy;


     such other documents as Buyer may reasonably request for the purpose of
facilitating the consummation or performance of any of the Contemplated
Transactions or (x) enabling Buyer’s counsel to provide the opinion required
under Section 8.4; and


     agreements, instruments and other documentation reasonably requested by
Buyer pertaining to the Seller’s pre-Closing transactions set forth in Section
3.10 of Seller’s Disclosure Schedule.


     Buyer must have obtained each of the following:


     an updated Title Policy (or Title Policies);


     an updated Survey (or Surveys);


     an ALTA Statement, and such other documents, instruments, certificates,
and confirmations as may be reasonably required by the Title Insurer to issue
the Title Policy in the form required herein; and


     the Partial Phase II Investigation as set forth in Section 6.3(b).


     NO PROCEEDINGS


Since the date of this Agreement, there must not have been commenced or
threatened against Buyer, or against any Related Person of Buyer, any
Proceeding (a) involving any challenge to, or


 






 


seeking damages or other relief in connection with, any of the Contemplated
Transactions, or (b) that may have the effect of preventing, delaying, making
illegal or otherwise interfering with any of the Contemplated Transactions.


     NO CLAIM REGARDING EQUITY OWNERSHIP OR SALE PROCEEDS


There must not have been made or threatened by any Person who is not a party to
this Agreement any claim asserting that such Person (a) is the holder or the
beneficial owner of, or has the right to acquire or to obtain beneficial
ownership of, any stock of or any other voting, equity or ownership interest in
an Acquired Company, or (b) is entitled to all or any portion of the Purchase
Price.


     NO PROHIBITION


Neither the consummation nor the performance of any of the Contemplated
Transactions will, directly or indirectly (with or without notice or lapse of
time), Contravene, or cause Buyer or any Related Person of Buyer to suffer any
Adverse Consequence under, (a) any applicable Law, Order or Governmental
Authorization, or (b) any Law or Order that has been published, introduced, or
otherwise formally proposed by or before any Governmental Body.


     ADDITIONAL CONDITIONS


To Buyer’s reasonable satisfaction Seller has, and has caused its respective
Related Persons to have, taken all steps as are necessary or appropriate,
including as required under applicable Laws, to :


     duly form SSPS in PRC (including government approvals);


     cause the Acquired KES Assets and Assumed KES Liabilities to be sold,
transferred, assigned or otherwise conveyed to or assumed by, SSPS (including
obtaining all requisite third party Consents to the transfer or assignment of
any Contracts relating to the KES Business);


     cause KES to terminate the employment contracts with each Transferring KES
Employee, and to cause SSPS to offer employment to and to employ, all such
Transferring KES Employees on no less favorable terms, in each case with effect
at or prior to the Closing and at Seller’s sole cost and expense;


     satisfy all PRC capitalization requirements with respect to KESH and
transfer 100% of the equity interest in KESH to the Company; and


     cause the Company to enter into a license and maintenance agreement, with
a commencement date no later than the Closing Date, for the currently licensed
Microsoft software, on an enterprise wide basis for the Company and its
Affiliates, and such license shall


 






 


(i)  be no less restrictive than the Microsoft Office license held by the
Acquired Companies prior to Closing, (ii) contain no change of control
provisions that would be triggered by the purchase of the Shares or any other
activity or transaction contemplated by this Stock Purchase Agreement, (iii)
have a term of not less than 36 months, and (iv) include the total number of
licenses purchased for the Acquired Companies, such license to be procured for
the Company’s direct benefit and at Seller’s sole cost and expense.


CONDITIONS PRECEDENT TO SELLER’S OBLIGATION TO CLOSE



Seller’s obligation to sell the Shares and to take the other actions
required to be taken by Seller at the Closing is subject to the satisfaction,
on or before the Closing Date, of each of the following conditions (any of
which may be waived by Seller, in whole or in part):


     ACCURACY OF REPRESENTATIONS


All of Buyer’s representations and warranties in this Agreement (considered
both collectively and individually) must have been accurate in all material
respects as of the date of this Agreement and must be accurate in all material
respects as of the Closing Date as if then made.


     BUYER’S PERFORMANCE


     All of the covenants and obligations that Buyer is required to perform or
to comply with under this Agreement on or before the Closing Date (considered
both collectively and individually) must have been performed and complied with
in all material respects.


     Buyer must have (i) delivered each of the documents required to be
delivered by Buyer pursuant to Section 2.5 and (ii) made the cash payments
required under Sections 2.5(b)(i) and 2.5(b)(ix).


     CONSENTS


Each of the Governmental Authorizations and Consents identified in Section
3.22(b) of Seller’s Disclosure Schedule as a Governmental Authorization or
Consent that is required to be obtained as a condition to Closing must have
been obtained and must be in full force and effect and Seller has obtained all
required third party Consents identified herein or in Seller’s Disclosure
Schedule.


     ADDITIONAL DOCUMENTS


Buyer must have delivered to Seller an opinion of Buyer’s General Counsel,
dated the Closing Date, in the form of Exhibit 8.4 and such other documents as
Seller may reasonably request for


 






 


the purpose of facilitating the consummation or performance of any of the
Contemplated Transactions or enabling Seller’s counsel to provide the opinion
required under Section 7.4.


     NO PROHIBITION


Neither the consummation nor the performance of any of the Contemplated
Transactions will, directly or indirectly (with or without notice or lapse of
time), Contravene, or cause Seller or any Related Person of Seller to suffer
any Adverse Consequence under, (a) any applicable Law, Order or Governmental
Authorization, or (b) any Law or Order that has been published, introduced, or
otherwise formally proposed by or before any Governmental Body.


TERMINATION



     TERMINATION EVENTS


Subject to Section 9.2, this Agreement may, by notice given before or at the
Closing, be terminated:


     by mutual consent of Buyer and Seller;


     by Buyer if Seller has committed a material breach of any material
provision of this Agreement and Buyer has not waived such breach;


     by Seller if Buyer has committed a material breach of any material
provision of this Agreement and Seller has not waived such breach;


     by Buyer if the satisfaction of any condition in Article 7 is or becomes
impossible (other than through the failure of Buyer to comply with its
obligations under this Agreement) and Buyer has not waived such condition;


     by Seller if any condition in Article 8 is not satisfied or becomes
impossible (other than through the failure of any Seller to comply with its
obligations under this Agreement) and Seller has not waived such condition; or


     by either Buyer or Seller if the Closing has not occurred (other than
through the failure of any party seeking to terminate this Agreement to comply
fully with its obligations under this Agreement) on or before August 1, 2003,
or such later date as Buyer and Seller may agree upon.


     by Buyer pursuant to Section 5.5(b);


     by Seller pursuant to Section 5.5(c).


 






 


     EFFECT OF TERMINATION


Each party’s right of termination under Section 9.1 is in addition to any other
rights it may have under this Agreement or otherwise, and the exercise of such
right of termination will not be an election of remedies. If this Agreement is
terminated pursuant to Section 9.1, all obligations of the parties under this
Agreement will terminate, except that the representations in Sections 3.26 and
4.5 and the obligations in Sections 14.1, 14.2, 14.3 and 14.15 will survive;
provided, however, that if this Agreement is terminated by a party because of
the breach of the Agreement by another party or because one or more of the
conditions to the terminating party’s obligations under this Agreement is not
satisfied as a result of any other party’s failure to comply with its
obligations under this Agreement, the terminating party’s right to pursue all
legal remedies will survive such termination unimpaired.


INDEMNIFICATION; REMEDIES



     SURVIVAL, KNOWLEDGE; WAIVER


     All representations and warranties of Seller contained in this Agreement
will survive until the second anniversary of the Closing Date, unless Buyer
notifies Seller in writing prior to such date of any specific claim or claims
for alleged breach of any such representation or warranty in which case such
representation or warranty will survive with respect to such claim or claims
until the final resolution by settlement, arbitration, litigation, or otherwise
of such claim or claims; provided, however, that (i) representations and
warranties contained in Sections 3.1 (Organization and Good Standing), 3.2
(Enforceability; No Conflict), 3.3 (Capitalization and Ownership), and 3.26
(Brokers or Finders) will survive the Closing indefinitely; (ii)
representations and warranties in Section 3.21 (Environmental, Health and
Safety Matters) will survive until the fifth anniversary of the Closing Date,
but only to the extent the representations in Section 3.21 do not pertain to
Occupational, Safety and Health Law; and (iii) representations and warranties
contained in Sections 3.17 (Taxes) and 3.18 (Employee Benefits) will be
governed by Article 11 and Article 12, respectively.


     All representations and warranties of Buyer confirmed in this Agreement
will survive until the second anniversary of the Closing Date, unless Seller
notifies Buyer in writing prior to such date of any specific claim or claims
for alleged breach of any such representation or warranty in which case such
representation or warranty will survive with respect to such claim or claims
until the final resolution by settlement, arbitration, litigation, or otherwise
of such claim or claims; provided, however, that (i) representations and
warranties contained in Sections 4.1 (Organization), 4.2 (Enforceability; No
Conflict), 4.5 (Brokers or Finders) and 4.6 (No Knowledge of Misrepresentation
or Omissions) will survive the Closing indefinitely.


 






 


     A claim for indemnification or reimbursement based on any covenant or
obligation to be performed or complied with subsequent to the Closing Date may
be made at any time.


     INDEMNIFICATION BY SELLER


Seller will indemnify and hold harmless Buyer, the Acquired Companies and their
respective Representatives, equity owners, controlling persons and Affiliates
(collectively, the “Buyer Indemnitees”) for, and will pay to the Buyer
Indemnitees the monetary value of, any Adverse Consequences arising from or in
connection with:


     any breach of any representation or warranty made by Seller or any Related
Person in this Agreement, Seller’s Disclosure Schedule, the certificate
delivered pursuant to Section 2.5(a)(vi) or any other certificate or document
delivered by Seller pursuant to this Agreement;


     any breach by a Seller of any covenant or obligation in this Agreement;


     any (i) Retained KES Liabilities, and (ii) Liabilities of an Acquired
Company existing at or arising out of a state of facts existing at or before
the Closing Date, to the extent that such Liability is not reflected or
reserved against in the Closing Balance Sheet, including Liabilities arising
from or relating to:


          (A)     any product shipped or manufactured by, or any services provided by,
an Acquired Company;



          (B)     any risk or actual incidence of illness, disability, death or other
injury to, or the contraction of any diseases by, any Person (including any
current or former employee) resulting from exposure to Hazardous Materials,
products or other materials before the Closing Date, without regard to when
such injuries or diseases are first manifested;



     any matter disclosed in Section 3.24 of Seller’s Disclosure Schedule;


     any claim by any Person (other than Philpott Ball & Werner, Inc.) for
brokerage or finder’s fees or commissions or similar payments based upon any
agreement or understanding alleged to have been made by any such Person with
Seller or any Acquired Company (or any Person acting on their behalf) in
connection with any of the Contemplated Transactions;


     a breach of customs Laws related to the misclassification of imported
goods or the issuance of Certificates of Origin under NAFTA;


     the Joint Development Agreement, other than any such Adverse Consequences
resulting from Buyer’s manufacture, sale or distribution of the system (as that
term is defined in the Joint Development Agreement);


     Accounts Receivable under Section 3.6;


 






 


     a breach of Occupational, Safety and Health Laws related to the 1993 OSHA
Audit of the Property in Niles, Illinois;


     the listing agreement between the Company and Grubb & Ellis regarding the
property in Niles, Illinois that expired effective December 31, 2002;


     the Partial Phase II Investigation under Section 6.3(b) subject to the
limitations below; and


     any Proceedings, demands or assessments incidental to any of the matters
set forth in Sections 10.2(a) through (k).


Notwithstanding the foregoing, (a) indemnification for breach of any
representation or warranty contained in Section 3.17 or for breach of any
covenant or obligation contained in Article 11 will be governed by Article 11;
and (b) indemnification for breach of any representation or warranty contained
in Section 3.18 or for breach of any covenant or obligation contained in
Article 12 will be governed by Article 12. For purposes of this Section,
Seller will be deemed to have breached its representations and warranties in
this Agreement if any third party alleges facts that, if true, would mean
Seller has breached any such representation or warranty. If and to the extent
any Adverse Consequences with respect to which any Buyer Indemnitee is entitled
to indemnification under this Section 10.2 arise from or in connection with any
matter described in Sections 10.2(c) – (j), then the Buyer Indemnitee will be
entitled to be indemnified from and against the entirety of such Adverse
Consequences under such Sections notwithstanding that the matter giving rise to
such Adverse Consequences may also constitute a breach of Seller’s
representations and warranties contained in this Agreement and such Indemnities
shall survive the Closing indefinitely. Notwithstanding the foregoing, Buyer
is entitled to be indemnified under this Section 10.2 for Adverse Consequences
that arise, from or in connection with the matter described in Section 6.3(b)
for the full amount of any such Adverse Consequences up to $50,000, including
cost and expenses related to the Partial Phase II Investigation, and amounts in
excess of $50,000 will be indemnified in accordance with Section 3.21, but only
to the extent that such amounts are reasonably required to maintain the same
level of benefit of the 2002 NFR letter regarding the property in Niles,
Illinois for the property indicated on the Partial Phase II Investigation. The
parties shall make appropriate adjustments for Insurance Proceeds in
determining the amount of indemnification due hereunder. The amount subject to
indemnification hereunder shall be calculated net of any accruals, reserves or
provisions reflected in the Closing Balance Sheet.


 






 


     INDEMNIFICATION BY BUYER


Buyer will indemnify and hold harmless Seller, and will pay to Seller the
monetary value of any Adverse Consequences arising, directly or indirectly,
from or in connection with:


     any breach of any representation or warranty made by Buyer in this
Agreement or in any certificate delivered by Buyer pursuant to this Agreement;


     any breach by Buyer of any covenant or obligation in this Agreement;


     any claim by any Person for brokerage or finder’s fees or commissions
(including Philpott Ball & Werner, Inc.) or similar payments based upon any
agreement or understanding alleged to have been made by such Person with Buyer
(or any Person acting on its behalf) in connection with any of the Contemplated
Transactions;


     any Liabilities that arise from Buyer’s operation of the Business
subsequent to Close;


     any Liabilities for any oral agreements regarding the listing of the
property in Niles, Illinois; and


     any Proceedings, demands or assessments incidental to any of the matters
set forth in Section 10.3(a) through (e)


Notwithstanding the foregoing, (a) indemnification for breach of a covenant or
obligation contained in Article 11 will be governed by Article 11; and (b)
indemnification for breach of a covenant or obligation contained in Article 12
will be governed by Article 12. For purposes of this Agreement, Buyer will be
deemed to have breached its representations and warranties in this Agreement if
any third party alleges facts that, if true, would mean Buyer has breached any
such representation or warranty. For purposes of this Section, Buyer will be
deemed to have breached its representations and warranties in this Agreement of
any third party alleges facts that, if true, would mean Buyer has breached any
such representation or warranty. If and to the extent any Adverse Consequences
with respect to which Seller is entitled to indemnification under this Section
10.3 arise, directly or indirectly, from or in connection with any matter
described in Sections 10.3(a) through (e), then Seller will be entitled to be
indemnified from and against the entirety of such Adverse Consequences under
such Sections notwithstanding that the matter giving rise to such Adverse
Consequences may also constitute a breach of Buyer’s representations and
warranties contained in this Agreement and such Indenmities shall survive the
Closing indefinitely.


     LIMITATIONS ON AMOUNT—SELLER


Seller will have no liability (for indemnification or otherwise) with respect
to the matters governed by Section 10.2(a) until the total monetary value of
all Adverse Consequences with respect to such matters exceeds $250,000, and
then Seller will be liable for the full monetary value of such Adverse
Consequences, in excess of $250,000, but less than or equal to $7,500,000.
Seller and Buyer will equally share Liability for the monetary value of such


 






 


Adverse Consequences in excess of $7,500,000, but less than or equal to
$12,500,000 provided, however, that Seller will have no Liability (for
indemnification or otherwise) for the amount by which the total monetary value
of all Adverse Consequences exceeds $12,500,000. Notwithstanding the foregoing
limitations, (a) a claim with respect to Section 3.17 will be governed by
Article 11; (b) a claim with respect to Section 3.18 will be governed by
Article 12; and (c) the limitations in this Section will not apply to Seller’s
breach of Section 3.6, or Section 3.26, or to Seller’s breach of any of its
other representations and warranties of which breach Seller had Knowledge
before the date on which Seller made such representation and warranty; Seller
will be liable for all Adverse Consequences with respect to such breaches.
Notwithstanding anything in this Agreement to the contrary, Seller’s aggregate
liability with respect to Articles 10, 11, and 12 or otherwise, will not exceed
the Purchase Price, as adjusted by the Adjustment Amount pursuant to Section
2.2 and less any amounts held in escrow from time to time.


     LIMITATIONS ON AMOUNT—BUYER


Buyer will have no liability (for indemnification or otherwise) with respect to
the matters governed by Section 10.3(a) until the total monetary value of all
Adverse Consequences with respect to such matters exceeds $250,000, and then
Buyer will be liable for the full monetary value of such Adverse Consequences,
including the initial $250,000, provided, however, that Buyer will have no
liability (for indemnification or otherwise) for the amount by which the total
monetary value of all Adverse Consequences exceeds the Purchase Price.
Notwithstanding the foregoing, this Section will not apply to Buyer’s breach of
Section 4.5 or any of its other representations and warranties of which breach
Buyer had knowledge before the date on which it made such representation and
warranty; Buyer will be liable for all Adverse Consequences with respect to
such breaches.


     PROCEDURE FOR INDEMNIFICATION—DEFENSE OF THIRD-PARTY CLAIMS


     Promptly after receipt by a Person entitled to indemnity under Section
10.2 or 10.3 (an “Indemnified Person”) of notice of the assertion of a
third-party claim against it, the Indemnified Person will, if a claim is to be
made against a Person obligated to indemnify under such Section (an
“Indemnifying Person”), give notice to the Indemnifying Person of the assertion
of such claim. An Indemnified Person’s failure to notify an Indemnifying
Person will not relieve the Indemnifying Person of any Liability that it may
have to the Indemnified Person, except to the extent that the Indemnifying
Person demonstrates that the resolution of such claim is prejudiced by the
Indemnified Person’s failure to give such notice.


 






 


     If any claim referred to in Section 10.6(a) is brought against an
Indemnified Person by means of a Proceeding and the Indemnified Person gives
notice to the Indemnifying Person of the commencement of such Proceeding, the

Indemnifying Person will be entitled to participate in such Proceeding and, to
the extent that it wishes, to assume the defense of such Proceeding with
counsel satisfactory to the Indemnified Person (unless (i) the Indemnifying
Person is also a party to such Proceeding and the Indemnified Person determines
in good faith that joint representation would be inappropriate or (ii) the
Indemnifying Person fails to provide reasonable assurance to the Indemnified
Person of its financial capacity to defend such Proceeding and provide
indemnification with respect to such Proceeding). After notice from the
Indemnifying Person to the Indemnified Person of its election to assume the
defense of such Proceeding, the Indemnifying Person will not, as long as it
diligently conducts such defense, be liable to the Indemnified Person under
this Agreement for any fees of other counsel or any other expenses with respect
to the defense of such Proceeding, in each case subsequently incurred by the
Indemnified Person in connection with the defense of such Proceeding, other
than reasonable costs of investigation. If the Indemnifying Person assumes the
defense of a Proceeding, (i) it will be conclusively established for purposes
of this Agreement that the claims made in that Proceeding are within the scope
of and subject to indemnification unless the Indemnifying Person states in
writing at the time that it assumes such defense that its assumption of such
defense is without prejudice to, and does not operate as a waiver of, any of
the Indemnifying Person’s rights or claims to deny that such Proceeding are
within the scope of and subject to indemnification (a “Reservation of Rights
Event”); provided, however, that upon the occurrence of a Reservation of Rights
Event, the purported Indemnified Person shall have the right to participate in
such Proceeding with legal counsel of its own choosing and at the sole cost and
expense of the purported Indemnified Person, (ii) no compromise or settlement
of such claims may be effected by the Indemnifying Person without the
Indemnified Person’s consent unless (A) there is no finding or admission of any
violation of Laws or any violation of the rights of any Person and no effect on
any other claims that may be made against the Indemnified Person, and (B) the
sole relief provided is monetary damages that are paid in full by the
Indemnifying Person, and (iii) the Indemnified Person will have no Liability
with respect to any compromise or settlement of such claims effected without
its consent.


     If notice is given to an Indemnifying Person of the commencement of any
Proceeding and the Indemnifying Person does not, within 20 days after the
Indemnified Person’s notice is given, give notice to the Indemnified Person of
its election to assume the defense of such Proceeding, the Indemnifying Person
will be bound by any determination made in such Proceeding or any compromise or
settlement effected by the Indemnified Person.


     Notwithstanding the foregoing, if an Indemnified Person determines in good
faith that there is a reasonable probability that a Proceeding may adversely
affect it or its Affiliates, other than as a result of monetary damages for
which it would be entitled to indemnification under this Agreement, the
Indemnified Person may, by notice to the Indemnifying Person, assume the
exclusive right to defend, compromise or settle such Proceeding, but the
Indemnifying Person will not be bound by any determination of a Proceeding so
defended or any compromise or settlement effected without its consent (which
may not be unreasonably withheld).


     Notwithstanding the provisions of Sections 10.6(a) through (d), Buyer will
be entitled to assume control of any Cleanup and related Proceeding arising
from a claim relating to any


 






 


Environmental, Health and Safety Liability, provided, however, that prior to
entering any agreement or plan with a third party relating to such Cleanup,
Buyer will submit to and obtain Seller’s written consent for such agreement or
plan, which consent will not be unreasonably withheld.


     PROCEDURE FOR INDEMNIFICATION—OTHER CLAIMS


A claim for indemnification for any matter not involving a third-party claim
may be asserted by notice to the party obligated to indemnify and will be paid
promptly after such notice.


     INTEREST


Indemnification of any cash disbursement by an Indemnified Person under this
Article, Article 11 or Article 12 will include interest from the date of the
disbursement to the date of indemnification at the rate of 6% per annum.


     EXCLUSIVE REMEDY


     Except for actions for fraud or securities fraud, Buyer and Seller
acknowledge and agree that from and after the Closing, the indemnification
provisions in this Article 10 shall be the exclusive remedy of the parties with
respect to the Contemplated Transactions, and the certificates delivered in
connection with, this Agreement. With respect to actions for fraud or
securities fraud;


     the right of a party to be indemnified and held harmless pursuant to the
indemnification provisions in this Agreement shall be in addition to and
cumulative of any other remedy of such party at law or equity; and


     no such party shall, by exercising any remedy available to it under this
Article 10, be deemed to have elected such remedy exclusively or to have waived
any other remedy, whether at law or in equity, available to it.


     Without limiting the generality of the foregoing, Buyer and Seller hereby
waive any rights relating to matters arising under CERCLA.


TAX MATTERS



     TAX RETURNS


     To the extent required by applicable Tax Law, Parent shall include the
income and loss of the Acquired Companies (including any deferred items
triggered into income by Treasury Regulation Section 1.1502-13 and any excess
loss account taken into income under Treasury Regulation Section 1.1502-19) on
Parent’s consolidated U.S. federal income Tax Returns for all periods through
the Closing Date and timely pay or cause the Acquired Companies to timely pay


 






 


any Taxes attributable to such income. For all taxable periods ending on or
before the Closing Date, to the extent required by applicable Tax Law, Parent
shall cause the Acquired Companies to join in Parent’s consolidated federal
income Tax Return and, in jurisdictions requiring separate reporting from
Parent, to timely file separate Tax Returns (including, but not limited to,
state, local or foreign Tax Returns). Seller will cause the Acquired Companies
to timely pay any Taxes shown as due thereon (or due with respect to Tax
Returns for which an extension has been granted) or which are otherwise
required to be paid at any time prior to or during such period. Such Tax
Returns shall be prepared using accounting methods and other practices that are
consistent with those used by the Acquired Companies in their prior Tax
Returns. Items to be taken into account in the Acquired Companies’ Tax Returns
for the short taxable period ending on the Closing Date will be determined
under the “closing-the-books” method as described in Treasury Regulation
Section 1.1502-76(b)(2)(i) (or any similar provision of state, local or foreign
law). Parent or Seller will deliver, or cause to be delivered, a draft of each
of the Tax Returns for the Acquired Companies to Buyer not less than 90 days
prior to the due date for filing such Tax Returns, and Buyer will provide
Seller with its comments on, and proposed changes to, such Tax Returns not
later than 60 days prior to such due date; provided, however that Buyer’s
comments shall be limited to only those items that may affect Buyer’s liability
for taxes under this Article 11. If any aspect of Buyer’s comments and
proposed changes is in dispute within 30 days prior to the due date for filing
such Tax Returns, the matter in dispute will be submitted to a mutually
acceptable, nationally-recognized firm of certified public accountants for
resolution. The decision of such accountant will be final and binding on the
parties, and the fees and expenses of the accountant will be paid one-half by
Buyer and one-half by Seller.


     Buyer will prepare and file, or cause to be prepared and filed, all of the
Acquired Companies’ Tax Returns for all taxable years or periods ending after
the Closing Date, and Buyer will pay, or cause to be paid, all Taxes shown as
due thereon; provided, that with respect to any Straddle Period, Buyer will be
entitled to indemnification as set forth in Section 11.3.


     APPORTIONMENT OF TAXES


With respect to any Straddle Period, Buyer, Parent, and Seller will, to the
extent permitted by law, elect to treat the Closing Date as the last day of the
taxable year or period of each Acquired Company and will apportion any Taxes
arising out of or relating to a Straddle Period to the Pre-Closing Period under
the “closing-the-books” method as described in Treasury Regulation Section
1.1502-76(b)(2)(i) (or any similar provision of state, local or foreign Tax
Law). In any case where applicable Tax Law does not permit an Acquired Company
to treat the Closing Date as the last day of the taxable year or period, any
Taxes arising out of or relating to a Straddle Period will be apportioned to
the Pre-Closing Period based on a closing of the books of the Acquired Company;
provided, however, that (a) exemptions, allowances or deductions that are
calculated on an annualized basis (including depreciation, amortization and
depletion deductions) will be apportioned on a daily pro rata basis and (b)
solely for purposes of


 






 


determining the marginal tax rate applicable to income during such period in a
jurisdiction in which such tax rate depends upon the level of income,
annualized income will be taken into account.


     INDEMNIFICATION BY SELLER


Notwithstanding the limitations set forth in Section 10.4 and notwithstanding
the disclosures in Section 3.17, Seller, will indemnify and hold harmless the
Buyer Indemnitees for, and will pay to the Buyer Indemnitees the monetary value
of:


     any Taxes imposed on or with respect to the Acquired Companies or their
assets, operations or activities that arise out of or relate to the Pre-Closing
Period that have not been paid prior to the Closing Date or appropriate
provision for unpaid Taxes have been made and are reflected as Liabilities on
the Balance Sheet of the Acquired Companies;


     any Taxes relating to any member of an affiliated group with which an
Acquired Company (or any predecessor of any of the foregoing) has filed a Tax
Return on a consolidated, combined or unitary basis on or before the Closing
Date, including Taxes imposed pursuant to Treasury Regulation Sections 1.1502-6
or any analogous or similar state, local, or foreign Law;


     any Taxes of any Person imposed on the Buyer, its Affiliates, or any
Acquired Company as a transferee or successor, by contract or pursuant to any
Law, rule or regulation, if such Taxes relate to an event or transaction that
occurred on or before the Closing Date;


     any Taxes incurred as a result of making the Election;


     any Adverse Consequences arising, directly or indirectly, from or in
connection with any breach of the representations and warranties contained in
Section 3.17 of this Agreement or of Seller’s covenants contained in this
Article;


     any Adverse Consequences arising, directly or indirectly, from or in
connection with the operations or activities of the Acquired Companies or their
predecessors prior to Closing; and


     any Adverse Consequences arising, directly or indirectly, from or in
connection with any Proceedings, demands or assessments incidental to any of
the matters set forth in Sections 11.3(a) through (f).


     INDEMNIFICATION BY BUYER


Buyer will indemnify and hold harmless Seller and will Pay Seller the monetary
value of:


     Any Taxes imposed on the Seller or its Affiliates or with respect to the
Acquired Companies or their assets, operations, activities that arise out of or
relate to the Post-Closing Period arising out of or relating to any breach of
Buyer’s covenants contained in this Article;


     Any Taxes arising out of or relating to any Breach of Buyer’s covenants,
representations or warranties contained in this Agreement.


 






 


     INDEMNIFICATION PROCESS


In the event of a third-party claim for Taxes arising out of or relating to any
taxable year or period of the relevant Acquired Companies ending on or before
the Closing Date, the indemnification procedures will be in accordance with
Section 10.6.


     CHARACTERIZATION OF INDEMNITY PAYMENT


All amounts paid by Buyer or Seller, as the case may be, by reason of Section
10.2, 10.3, 11.3, 11.4 or 12.2 will be treated to the extent permitted under
applicable Tax Law as adjustments to the Purchase Price for all Tax purposes.


     TRANSACTIONAL TAXES


Buyer and Seller will each bear one-half of the cost of any transfer,
documentary, recording, notarial, sales, use, registration, stamp and other
similar Taxes or fees (“Transfer Taxes”) imposed by any taxing authority in
connection with the Contemplated Transactions, provided, however, Seller will
be responsible for all Transfer Taxes imposed by any taxing authority in
connection with the transfer of the Acquired KES Assets and the Assumed KES
Liabilities to SSPS and the transfer of 100% of the ownership interest in KESH
to the Company. Buyer and Seller will cooperate in timely making and filing
all Tax Returns that may be required to comply with Tax Laws relating to such
Taxes.


     TAX SHARING AGREEMENTS


Seller will cause each Acquired Company to terminate as of the Closing Date any
Tax sharing, indemnity or allocation agreement between the Acquired Company and
any other party.


     TAX ELECTIONS


Except with respect to the Election, neither Parent or Seller will, without the
prior written consent of Buyer (which consent may not be unreasonably
withheld), make or revoke, or cause or permit to be made or revoked, any Tax
election pertaining to an Acquired Company or ownership of the Shares.


     TAX RECORDS AND ASSISTANCE


After the Closing Date, each of the Parent, Seller and the Buyer shall:


(a)     assist (and cause their respective Affiliates to assist) the other party in
preparing and filing (including obtaining all necessary signatures) any Tax
Returns which such other party is responsible for preparing and filing in
accordance with this Agreement;


 






 


(b)     cooperate fully in preparing for any audits of, or disputes with taxing
authorities regarding, any Tax Returns and payments in respect thereof;


(c)     make available to the other party and to any taxing authority as reasonably
requested all relevant information, records, and documents relating to Taxes;


(d)       provide timely notice to the other party in writing or any pending or
proposed audits or assessments with respect to Taxes for which the other may
have a liability under this Agreement; and


(e)    furnish the other party with copies of all relevant correspondence received
from any taxing authority in connection with any audit or information request
with respect to any Taxes referred to in subsection (d) above.


     AUDITS, ASSESSMENTS AND CONTEST PROVISIONS.


If Buyer or any Acquired Company on one hand, or Parent or Seller, on the other
hand, receive notice of any pending or threatened Proceeding which may affect
the Tax liabilities of any Acquired Company for which the other party would be
liable pursuant to this Agreement, then the party so informed shall promptly
notify the other party of such matter in writing. The Seller shall have the
right to control and represent any Acquired Company’s interests in any
Proceeding relating to taxable periods ending on or before the Closing Date,
and to employ counsel of its choice at its expense. The Buyer shall be
entitled to participate at its own expense in the defense of any claim for
Taxes for a year or period ending on or before the Closing Date for which
Seller may be liable pursuant to Section 3.17 or Article 11, and with the
written consent of the Seller and at its sole expense, may assume the entire
defense of such claim for Taxes. Notwithstanding the foregoing, the Seller
shall not be entitled to settle, either administratively or after the
commencement of litigation, any claim for Taxes which would affect in any
respect, the liability for Taxes of the Buyer or any Acquired Company for any
period after the Closing Date to any extent (including, but not limited to, the
imposition of income tax deficiencies, the reduction of asset basis or cost
adjustments, the lengthening of any amortization or depreciation periods, the
denial of amortization or deprecation deductions, or the reduction of loss or
credit carryforward) without the prior written consent of the Buyer. Such
consent shall not be unreasonably withheld.. The Buyer shall have the right to
control and represent any Acquired Company’s interest in any Proceeding
relating to a claim for Post-Closing Period Taxes, and to employ counsel of its
choice at its expense. The Seller shall be entitled to participate at its own


 






 


expense in the defense of any claim for Post-Closing Period Taxes for which
Seller may be responsible pursuant to Article 11 and with the written consent
of the Buyer, and at its sole expense, may assume the entire defense of such
claim for Post-Closing Period Taxes. None of the Buyer or any Acquired Company
may agree to settle any claim for Post-Closing Period Taxes owed relating to a
Pre-Closing Period for which Sellers may be responsible under Article 11
without the prior written consent of the Seller, which consent shall not be
unreasonably withheld.


     CARRYBACKS.


Parent or Seller shall immediately pay to Buyer any Tax refund (or reduction in
Tax liability) resulting from a carryback of a post-acquisition Tax attribute
of an Acquired Company into either of Parent’s or Seller’s Tax Return, when
such refund (or reduction) is realized by Parent or Seller, as the case may be.
This provision shall only apply to a carryback of a post-acquisition Tax
attribute to which the Acquired Company or Buyer cannot waive carryback under
the applicable Tax Law. At Buyer’s request and expense, including reimbursement
for any professional fees incurred by Parent and Seller, Parent and Seller will
cooperate with the Buyer in obtaining such refund (or reduction), including
through the filing of amended Tax Returns or refund claims. Buyer agrees to
indemnify Seller for any Taxes resulting from the disallowance of such
post-acquisition Tax attribute on audit or otherwise.


     SECTION 338(h)(10) ELECTION


Seller and Buyer will jointly make the elections provided for by Section
338(h)(10) of the Code and Treasury Regulations Section 1.338(h)(10)-1 (and any
comparable election under state or local tax law) with respect to the purchase
of the Shares (the “Election”). Seller and Buyer will cooperate with each
other to take all actions necessary and appropriate (including filing such
additional forms, returns, elections, schedules and other documents) as may be
required to effect and preserve a timely Election in accordance with the
provisions of Treasury Regulation Section 1.338(h)(10)-1 (or any comparable
provisions of state or local tax law). In connection with the Election, within
30 days after the Adjustment Amount is paid, Buyer will deliver to the Seller a
statement containing the Buyer’s allocation of the Purchase Price among the
assets of the Company (the “Allocation Statement”) for Sellers’ consent which
shall not be unreasonably withheld. The Allocation Statement will be prepared
in accordance with Sections 338 and 1060 of the Code and any comparable
provisions of state, local or foreign law, as appropriate.


 






 


If the Seller disagrees in good faith with the content of the Allocation
Statement, Seller will inform Buyer of such disagreement within thirty (30)
days after receipt of the Allocation Statement. Seller and Buyer will attempt
to resolve such disagreement. If Seller and Buyer are unable to agree on the
Allocation Statement within thirty (30) days after Seller informs Buyer of any
disagreement, Seller will deliver written notice to Buyer of any objections
thereto, which written notice should specify the rationale for such
disagreement and the amount in dispute, and the parties will attempt in good
faith effort to reach an agreement as to any matters in dispute. If Buyer and
Seller, notwithstanding such good faith effort fail to resolve all matters in
dispute within twenty (20) days after Seller advises Buyer of the objections,
then any remaining disputed matters will be finally and conclusively determined
in accordance solely and exclusively with this Agreement, by a mutually
acceptable Big 4 accounting firm. Promptly, but in no event later than ten
(10) days after its acceptance of its appointment, such accounting firm will
determine (based solely on written presentations by and review of working
papers of Seller, Buyer and their respective independent accountants and not by
independent review) only those matters in dispute and will render a written
report as to the disputed matters and the resulting Allocation Statement, which
report and statement will be conclusive and binding upon the parties. The fees
and expenses of the accounting firm will be born fifty-percent by Buyer and
fifty-percent by Seller.
Buyer, the Acquired Companies, Parent and Seller will (i) be bound by the
Allocation Statement for purposes of determining any Taxes, (ii) prepare and
file their Tax Returns (and, in the case of the Parent and Seller, IRS Form
8883) on a basis consistent with the Allocation Statement and (iii) take no
position inconsistent with the Allocation Statement on any applicable Tax
Return, in any Proceeding before any taxing authority or otherwise. If any
taxing authority disputes any Allocation made pursuant to the Allocation
Statement, the party receiving notice of the dispute will promptly notify the
other party hereto concerning resolution of the dispute


     FOREIGN INVESTMENT IN REAL PROPERTY TAX ACT CERTIFICATION


At the Closing, Seller will deliver a certification stating, under penalty of
perjury, such Seller’s U.S. taxpayer identification number and address and that
Seller is not a “foreign person” as defined in Section 1445 of the Code.


     SURVIVAL; KNOWLEDGE; WAIVER


The covenants and agreements of the parties contained in this Article and the
representations and warranties contained in Section 3.17 will survive the
Closing and the consummation of the


 






 


Contemplated Transactions and will remain in full force and effect until six
months following the expiration of all statutes of limitations with respect to
any Taxes that would be indemnifiable by Buyer or Seller under Sections 11.3
and 11.4. The right to indemnification, payment of damages or other remedy
based on such representations, warranties, covenants and obligations will not
be affected by any investigation conducted with respect to, or any knowledge
acquired (or capable of having been acquired) about, the accuracy or inaccuracy
of or compliance with, any such representation, warranty, covenant or
obligation. The waiver of any condition based on the accuracy of any
representation or warranty, or on the performance of or compliance with any
covenant or obligation, will not affect the right to indemnification, payment
of damages, or other remedy based on such representation, warranty, covenant or
obligation.


EMPLOYMENT MATTERS



     EMPLOYEE BENEFIT PLANS; OBLIGATIONS


     Except as otherwise provided in this Agreement, neither Buyer (or any
Affiliate of Buyer) nor any Acquired Company will assume or have any obligation
or Liability whatsoever with regard to any Company Plan or Other Benefit
Obligation (including without limitation, any accrued vested benefits in any
Plan, any VEBA or any Plan or Other Benefit Obligation providing severance pay,
retiree health or life insurance benefits).


     Except as otherwise provided in this Section 12.1, immediately prior to
the Closing, Seller, or an Affiliate of Seller, shall cause each Acquired
Company to cease to be an adopting employer of any Plan or Other Benefit
Obligation that is maintained by Seller or an Affiliate of Seller, and the
participation by employees of any Acquired Company in any Plan or Other Benefit
Obligation that provides benefits that are maintained by Seller or an Affiliate
of Seller, shall cease immediately prior to the Closing, on account of such
employee’s severance from employment covered by such Plan or Other Benefit
Obligation.


     Except as otherwise provided in this Section 12.1, Seller and its
Affiliates shall be solely responsible for any claims, obligations or
Liabilities for benefits arising under any Company Plan which are incurred by
or with respect to any former employee of any Acquired Company or the KES
Business or the beneficiaries or dependents of any former employee of any
Acquired Company or the KES Business on or before the Closing Date.


     As soon as practicable following the Closing Date, Seller and its
Affiliates shall, to the extent allowed by the Code, ERISA or Seller’s 401(k)
Plan, cause the account balances of the Transferring KES employees and the
employees of the Acquired Companies in the Seller 401(k) plan to be distributed
in accordance with the terms of such plan, and Buyer shall permit Transferring
KES employees and the employees of the Acquired Companies who were participants
in the Seller 401(k) plan to roll over such distributions (excluding a roll
over of


 






 


outstanding participant loans and any after-tax employee contributions) into
the Buyer 401(k) plan.


     Seller and its Affiliates and Buyer shall take all actions necessary or
appropriate so that, effective as of the Closing, (i) the account balances
(whether positive or negative) under Seller’s flexible spending accounts (the
“Seller FSAs”) of the employees of the Acquired Companies who were participants
in the Seller FSAs immediately prior to the Closing Date (the “Covered
Employees”) shall be transferred to one or more comparable plans of Buyer
(collectively, the “Buyer Flex Plan”); (ii) the elections and coverage levels
of the Covered Employees shall apply under the Buyer Flex Plan in the same
manner as under the Seller FSAs; and (iii) the Covered Employees shall be
reimbursed from the Buyer Flex Plan for claims incurred, but not yet paid, at
any time during the plan year of the Seller’s flex plan in which the Closing
Date occurs and submitted to the Buyer Flex Plan from and after the Closing
Date substantially on the same basis, terms and conditions as under the Seller
FSAs. Following the transfer of the account balances, Seller shall have no
further liability with respect to the transferred account balances and the
Buyer Flex Plan shall have sole responsibility therefor.


     Any Benefit Obligations under any Company Plan must, as of the Closing,
have been appropriately reflected on the books and records of the Plan Sponsor
in accordance with Law, past practice and generally accepted accounting
principles in the local jurisdiction.


     INDEMNIFICATION BY SELLER


          Notwithstanding the limitations set forth in Section 10.4 and
notwithstanding the disclosures in Section 3.18, Seller will indemnify and hold
harmless the Buyer Indemnitees for, and will pay to the Buyer Indemnitees the
monetary value of, any Adverse Consequences arising, directly or indirectly,
from or in connection with:



     any Company Plan maintained or contributed to by Seller, regardless of
whether the Adverse Consequences relate to or arise out or conditions, events
or transactions which exist or occur prior to, on or after the Closing;


     any severance, termination indemnity, compensation, benefit or amount,
under any employment agreement, non-qualified stock option, non-qualified stock
purchase, non-qualified stock bonus or any other Company Plan, Other Benefit
Obligation or otherwise, owing to any employee of an Acquired Company, any
former employee of an Acquired Company or any Transferring KES Employee, for
any reason in existence prior to or on the Closing Date, with the exception of
the Annual Incentive Plans;


     the participation of any Acquired Company in the UK Pension Plan
including, but not limited to, any Adverse Consequences arising as a result of
the operation of Section 75 of the English statute being the Pensions Act 1995;


     any breach of the representations and warranties contained in Section 3.18
of this Agreement or of Seller’s covenants contained in this Article; and


     any Proceedings, demands or assessments incidental to any of the matters
set forth in Section 12.2(a) through (d).


 






 


     INDEMNIFICATION PROCESS


          In the event of a third-party claim under this Article 12, the
indemnification procedures will be in accordance with Section 10.6. Buyer will
control any Proceeding based on a claim under this Article 12.



     SURVIVAL; KNOWLEDGE; WAIVER


          The covenants and agreements of the parties contained in this Article and
the representations and warranties contained in Section 3.18 will survive the
Closing and the consummation of the Contemplated Transactions and will remain
in full force and effect until six months following the expiration of all
statutes of limitations with respect to any Adverse Consequences arising,
directly or indirectly, from or in connection with Seller’s breach of Section
12.2. The right to indemnification, payment of damages or other remedy based
on such representations, warranties, covenants and obligations will not be
affected by any investigation conducted with respect to, or any knowledge
acquired (or capable of having been acquired) about, the accuracy or inaccuracy
of or compliance with, any such representation, warranty, covenant or
obligation. The waiver of any condition based on the accuracy of any
representation or warranty, or on the performance of or compliance with any
covenant or obligation, will not affect the right to indemnification, payment
of damages, or other remedy based on such representation, warranty, covenant or
obligation.



GUARANTEE



     PARENT GUARANTEE


The Parent hereby unconditionally and irrevocably guarantees to Buyer and the
Buyer Indemnitees the complete and timely performance of each and every
liability, duty and obligation of Seller under this Agreement (including each
of the representations and warranties provided under Article 3 and the
indemnities provided by Seller under Articles 10, 11 and 12) and the Ancillary
Agreements. The obligation of the Parent under this Section will be absolute,
unconditional and irrevocable and will remain in full force and effect until
all such liabilities, duties and obligations have been satisfied and discharged
in full. The guarantee hereunder will constitute a continuing guarantee and
will apply to all such liabilities, duties and obligations whenever and
whatever arising. Notwithstanding anything herein to the contrary, (i) a
separate cause of action may be brought against the Parent without the
necessity of previously proceeding against or exhausting any remedy against
Seller; and (ii) for the avoidance of doubt, the Parent shall be entitled to
any and all rights, defenses, counterclaims and setoffs available to any party


 






 


whose obligations and liabilities are guaranteed hereunder by the Parent, then
existing under applicable law and only to the extent not waived or previously
adjudicated by the Seller or its successor and assigns.


GENERAL PROVISIONS



     EXPENSES


Except as otherwise expressly provided in this Agreement, each party to this
Agreement will bear its respective expenses incurred in connection with the
preparation, execution and performance of this Agreement and the Contemplated
Transactions, including all fees and expenses of its Representatives.
Notwithstanding the previous sentence, Buyer will pay all amounts payable to
Philpott Ball & Werner, Inc. in connection with this Agreement and the
Contemplated Transactions. Seller will cause the Acquired Companies not to
incur any out-of-pocket expenses in connection with this Agreement unless such
expenses are taken into account in the calculation of the Adjustment Amount
pursuant to Section 2.3(d). If this Agreement is terminated, the obligation of
each party to pay its own expenses will be subject to any rights of such party
arising from a breach of this Agreement by another party.


     PUBLIC ANNOUNCEMENTS


Any public announcement or similar publicity with respect to this Agreement or
the Contemplated Transactions will be issued, if at all, at such time and in
such manner as Buyer determines. Seller will not make any disclosure of the
Contemplated Transactions, except with the prior written consent of Buyer or as
required by Law. Seller and Buyer will consult with each other concerning the
means by which the Acquired Companies’ employees, customers, suppliers and
others having dealings with the Acquired Companies will be informed of the
Contemplated Transactions, and Buyer will have the right to be present for any
such communication.


     CONFIDENTIALITY


     This Agreement is intended to supersede and replace the Amended and
Restated Confidentiality Agreement dated as of March 26, 2003 between Parent
and Buyer (the “Confidentiality Agreement”). The Confidentiality Agreement
will terminate in full as of the Closing and the parties thereto will have no
further obligations thereunder.


 






 


     The Seller and Parent will treat and hold as such, Buyer’s Confidential
Information and refrain from using Buyer’s Confidential Information except to
the extent such use is required to comply with securities Laws or in connection
with this Agreement or the Ancillary Documents. At the request and option of
Buyer, Seller and Parent will deliver promptly to the Buyer or destroy all
tangible embodiments (and all copies) of Buyer’s Confidential Information which
are
in its possession. In the event that any Acquired Company 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 of Buyer’s Confidential Information, such Acquired
Company will notify the Buyer promptly of the request or requirement so that
the Buyer may seek an appropriate protective order or waive compliance with the
provisions of this Section. If, in the absence of a protective order or the
receipt of a waiver hereunder, any Acquired Company is, on the advice of
counsel, compelled to disclose any of Buyer’s Confidential Information to any
Governmental Body or else stand liable for contempt, the Acquired Company may
disclose Buyer’s Confidential Information to the Governmental Body; provided,
however, that the Acquired Company shall use its Best Efforts to obtain, at the
request of the Buyer, an order or other assurance that confidential treatment
will be accorded to such portion of Buyer’s Confidential Information required
to be disclosed as the Buyer shall designate.


     Buyer will treat and hold as such, Seller’s Confidential Information and
refrain from using Seller’s Confidential Information except in connection with
this Agreement or the Ancillary Documents. At the request and option of Seller
or Parent, Buyer will deliver promptly to Seller or Parent, as applicable, or
destroy all tangible embodiments (and all copies) of Seller’s Confidential
Information which are in its possession. In the event that Buyer 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 of Seller’s Confidential Information, Buyer
will notify the Seller or Parent, as applicable, promptly of the request or
requirement so that the Seller or Parent may seek an appropriate protective
order or waive compliance with the provisions of this Section. If, in the
absence of a protective order or the receipt of a waiver hereunder, Buyer is,
on the advice of counsel, compelled to disclose any of Seller’s Confidential
Information to any Governmental Body or else stand liable for contempt, Buyer
may disclose Seller’s Confidential Information to the Governmental Body;
provided, however, that Buyer shall use its Best Efforts to obtain, at the
request of the Seller or Parent, an order or other assurance that confidential
treatment will be accorded to such portion of Seller’s Confidential Information
required to be disclosed as Seller or Parent shall designate.


     NONCOMPETITION; NONSOLICITATION


     For a term of five years from the date of this Agreement, the Seller and
Parent will not directly or indirectly (whether as a principal, agent,
independent contractor, partner or otherwise) own, manage, operate, control,
participate in, perform services for, render advice to, invest in, be
associated with, or otherwise carry on or engage in, the Business as conducted
by the Acquired Companies on the Closing Date anywhere in the world.


     Exceptions. The Seller and Parent will not be in violation of this
Agreement solely by reason of:


 






 


     investing in stock, bonds or other securities of any Person engaged in the
Business (but without otherwise participating in the Business), so long as (A)
such stock, bonds or other securities are listed on any national securities
exchange or have been registered under Section 12(g) of the Securities Exchange
Act of 1934 or any successor Law; and (B) such investment does not exceed, in
the case of any class of the capital stock of any one issuer, 3% of the issued
and outstanding shares or such capital stock, or, in the case of bonds or other
securities, 3% of the aggregate principal amount thereof issued and
outstanding; or


     providing services not directly related to the Business, including any
services currently offered by the Seller or Parent, or any Affiliate of either,
other than the Acquired Companies on the Closing Date; or


     acquiring, in whole or in part, or otherwise maintaining an interest in an
entity engaged in the Business, so long as either (A) during the five-year term
from the date of this Agreement, the annual revenues generated by the Business
do not exceed, in the aggregate, $500,000; or (B) promptly after acquiring its
interest in such entity, the Seller or Parent terminates or causes the
divestiture of the entity conducting the Business as soon as practicable in a
commercially reasonable manner.


     The Seller and Parent will not directly or indirectly cause or induce, or
attempt to cause or induce, any then-existing customer, supplier, licensee,
licensor, franchisee or other business relation of the Acquired Companies or
KES Business, to cease doing business with the Acquired Companies, to deal with
any competitor of the Acquired Companies, or in any way interfere with the
relationship between the Acquired Companies and their customers, suppliers,
licensees, licensors, franchisees or other business relations.


     If a final judgment of any Governmental Body of competent jurisdiction
determines that any term or provision contained in Sections 14.4(a) or 14.4(c)
is invalid or unenforceable, then parties agree that the Governmental Body
making the determination of invalidity or enforceability will 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 will be enforceable as so modified after the expiration of
the time within which the judgment may be appealed.


     NOTICES


All notices, consents, waivers and other communications under this Agreement
must be in writing and will be deemed given to a party when (a) delivered to
the appropriate address by hand or by nationally recognized overnight courier
service (costs prepaid), (b) sent by facsimile or e-mail with confirmation of
transmission by the transmitting equipment, or (c) received or rejected by the
addressee, if sent by certified mail, return receipt requested; in each case to
the following addresses, facsimile numbers or e-mail addresses and marked to
the attention of the


 






 


individual (by name or title) designated below (or to such
other address, facsimile number, e-mail address or individual as a party may
designate by notice to the other parties):



	 	 	 
	If to Seller or
Parent:
	 	 	 
	Knowles Electronics Holdings, Inc.
	Attention:	 	
John J. Zei
	Address:	 	
1151 Maplewood Drive
	 	 	
Itasca, IL 60143
	Facsimile No.:	 	 
	E-mail Address:	 	 
	 	 	 
	with a copy (which will not constitute notice) to:
	 	 	 
	Rooks Pitts	 	 
	Attention:	 	
Thomas B. Cassidy
	Address:	 	
4200 Commerce Court
	 	 	
Lisle, IL 60532
	Facsimile No.:	 	
           630-245-0140
	E-mail Address:	 	
tcassidy@rookspitts.com
	 	 	 
	If to Buyer:	 	 
	 	 	 
	Woodward Governor Company
	Attention:	 	
General Counsel
	Address:	 	
5001 North Second Street
	 	 	
P.O. Box 7001
	 	 	
Rockford, IL 61125
	Facsimile No.:	 	 
	E-mail Address:	 	 
	 	 	 
	with a copy (which will not constitute notice) to:
	 	 	 
	Baker & McKenzie	 	 
	Attention:	 	
Mark C. Swords
	Address:	 	
One Prudential Plaza, Suite 3500
	 	 	
130 East Randolph Drive
	 	 	
Chicago, IL 60601
	Facsimile No.:	 	
                 312-861-2899
	E-mail Address:	 	
mark.c.swords@bakernet.com



     FURTHER ACTIONS


Upon the request of any party to this Agreement, the other parties will, and
will cause their respective Related Persons to (a) furnish to the requesting
party any additional information; (b) execute and deliver, at their own
expense, any other documents; and (c) take any other


 






 


actions as the requesting
party may reasonably require, to more effectively carry out the intent of this
Agreement and the Contemplated Transactions.


     INCORPORATION OF SCHEDULES AND EXHIBITS


The Schedules and Exhibits identified in this Agreement, including Seller’s
Disclosure Schedule and Buyer’s Disclosure Schedule, are incorporated herein by
reference and made a part of this Agreement.


     ENTIRE AGREEMENT AND MODIFICATION


This Agreement supersedes all prior agreements among the parties with respect
to its subject matter and constitutes (along with the documents delivered
pursuant to this Agreement) a complete and exclusive statement of the terms of
the agreement between the parties with respect to its subject matter. This
Agreement may not be amended, supplemented or otherwise modified except in a
written document executed by the party against whose interest the modification
will operate.


     DISCLOSURE SCHEDULES


Each of Seller and Buyer will use its Best Efforts to arrange Seller’s
Disclosure Schedule and Buyer’s Disclosure Schedule in sections corresponding
to the numbered sections of Articles 3 and 4, as applicable, and to ensure that
statements in such disclosure schedules relate only to the provisions in the
Section of this Agreement which they expressly address and not to any other
provision. Nothing in such disclosure schedules will be adequate to disclose
an exception to any representation or warranty made in Article 3 or Article 4
unless the applicable disclosure schedule identifies the exception with
reasonable particularity and describes the facts relating to such exception in
reasonable detail. Notwithstanding the Best Efforts of Seller, if and to the
extent any information required to be furnished in the Seller’s Disclosure
Schedule or any other schedule hereto is contained in this Agreement or in the
Seller Disclosure Schedule, the Buyer’s Disclosure Schedule or any updates
thereto, such information shall be deemed to be included in all Schedules in
which the information is required to be included to the extent the disclosure
is reasonably apparent on its face. The inclusion of any information in the
Seller’s Disclosure Schedule, the Buyer’s Disclosure Schedule or any updates
hereto or any other Schedule shall not be deemed to be an admission or
acknowledgement that such information is required by the terms hereof to be
disclosed or is material to or is outside the Ordinary Course of Business of
the


 






 


Acquired Companies and the KES Business. In the event of any inconsistency
between the statements in the body of this Agreement and those in such
disclosure schedules (other than an
exception expressly set forth as such in a disclosure schedule with respect to
a specifically identified representation or warranty), the statements in the
body of this Agreement will control.


     DRAFTING AND REPRESENTATION


The parties have participated jointly in the negotiation and drafting of this
Agreement. No provision of this Agreement will be interpreted for or against
any party because that party or its legal representative drafted the provision.


     SEVERABILITY


If a court of competent jurisdiction holds any provision of this Agreement
invalid or unenforceable, the other provisions of this Agreement will remain in
full force and effect. Any provision of this Agreement held invalid or
unenforceable only in part or degree will remain in full force and effect to
the extent not held invalid or unenforceable.


     ASSIGNMENT; SUCCESSORS; NO THIRD-PARTY RIGHTS


No party may assign any of its rights or delegate any of its obligations under
this Agreement without the prior written consent of the other parties, except
that Buyer may without the consent of Seller assign any of its rights under
this Agreement as collateral security for any lender providing financing to
Buyer and may assign any of its rights and delegate any of its obligations
under this Agreement to any entity that is a Related Person of Buyer or to any
subsequent acquirer of the Shares or of all or substantially all of the
businesses of the Acquired Companies. Subject to the preceding sentence, this
Agreement will apply to, be binding in all respects upon, and inure to the
benefit of Seller’s and Parent’s heirs, executors, administrators and permitted
assigns and Buyer’s successors and permitted assigns. Nothing expressed or
referred to in this Agreement will be construed to give any Person, other than
the parties to this Agreement, any legal or equitable right, remedy or claim
under or with respect to this Agreement or any provision of this Agreement
except such rights as may inure to a successor or permitted assignee under this
Section.


     ENFORCEMENT OF AGREEMENT


The parties each acknowledge and agree that another party or parties could be
damaged irreparably if certain provisions of this Agreement are not performed
in accordance with the


 






 


specific terms and that such breach of this Agreement by
could not be adequately compensated in all cases by monetary damages alone.
Accordingly, the parties each agree that, in addition to
any other right or remedy to which another party hereto may be entitled, at law
or in equity, it may be entitled to enforce certain provisions of this
Agreement by a decree of specific performance and to temporary, preliminary and
permanent injunctive relief to prevent breaches or threatened breaches of any
of the provisions of this Agreement, without posting any bond or other
undertaking.


     WAIVER


The rights and remedies of the parties to this Agreement are cumulative and not
alternative. Neither any failure nor any delay by any party in exercising any
right, power or privilege under this Agreement or any of the documents referred
to in this Agreement will operate as a waiver of such right, power or
privilege, and no single or partial exercise of any such right, power or
privilege will preclude any other or further exercise of such right, power or
privilege or the exercise of any other right, power or privilege. To the
maximum extent permitted by applicable law, (a) no claim or right arising out
of this Agreement or any of the documents referred to in this Agreement can be
discharged by one party, in whole or in part, by a waiver or renunciation of
the claim or right unless in a written document signed by the other party, (b)
no waiver that may be given by a party will be applicable except in the
specific instance for which it is given, and (c) no notice to or demand on one
party will be deemed to be a waiver of any obligation of that party or of the
right of the party giving such notice or demand to take further action without
notice or demand as provided in this Agreement or the documents referred to in
this Agreement.


     GOVERNING LAW


This Agreement will be governed by and construed under the laws of Illinois
without regard to conflicts of laws principles that would require the
application of any other law.


     JURISDICTION; SERVICE OF PROCESS


Any action, hearing, suit or proceeding arising out of or relating to this
Agreement or any Contemplated Transaction must be brought in the courts of the
State of Illinois, County of Cook, or, if it has or can acquire jurisdiction,
in the United States District Court for the Northern District of Illinois.
Each of the parties irrevocably submits to the exclusive jurisdiction of each
such court in any such Proceeding and waives any objection it may now or
hereafter have to


 






 


venue or to convenience of forum. The parties agree that any
or all of them may file a copy of this Section with any court as written
evidence of the knowing, voluntary and bargained
agreement between the parties irrevocably to waive any objections to venue or
to convenience of forum. Process in any Proceeding referred to in this Section
may be served on any party anywhere in the world.


     CLOSING COSTS; FILING FEES


The costs of the Title Policy with an extended coverage endorsement and ALTA
3.1 zoning with parking endorsement and all other endorsements, and the Survey
will be borne by Buyer. All costs and fees incurred with respect to merger
control and related filings in Germany and Brazil will be equally shared by
Buyer and Seller.


     COUNTERPARTS


This Agreement may be executed in two or more counterparts.


     ACCOUNTS RECEIVABLE


Commencing on the Closing and continuing thereafter, Buyer shall use efforts
used in the Ordinary Course of Business to collect all Accounts Receivable of
the Acquired Companies and the KES Business. All payment amounts undesignated
by the payor shall be applied first to the oldest outstanding Account
Receivable provided that the sole purpose for doing so is not to create a
liability for Seller under this Agreement. Buyer may not settle or compromise
any accounts receivable that are individually in excess of $5000, or, in the
aggregate, in excess of $25,000 without the prior written consent of the Seller
unless it agrees that any amount settled or compromised will not count against
any indemnification obligation owed by Seller to Buyer hereunder. Buyer shall
provide a written report between the collection of Accounts Receivable
outstanding as of the Closing to Seller within 15 days of the end of each month
until the seven month anniversary of this Agreement. In the event that Seller
pays any amounts to Buyer under the indemnification provisions hereof in
respect of unpaid Accounts Receivable, the applicable Accounts Receivable and
any security therefore held by any Acquired Company or the KES Business, shall
be assigned to Seller.


     POST-CLOSING ACCESS


From and after the Closing, Buyer shall and shall cause the Acquired Companies
and the KES Business to provide the Seller and its agents with reasonable
access (for the purpose of


 






 


examining and copying), during normal business hours
and upon reasonable notice, to the books and records of the Acquired Companies
and the KES Business with respect to periods or
occurrences prior to the Closing in connection with any matter whether or not
relating to or arising out of this Agreement or the transactions contemplated
hereby (it being understood that the requesting Person will reimburse all
out-of-pocket expenses reasonably incurred in connection with satisfying such
request). Unless otherwise consented to in writing by the Seller, neither the
Buyer, nor the Acquired Companies nor the KES Business or any successor to all
or substantially all the assets thereof shall, for a period of seven years
following the Closing, destroy, alter or otherwise dispose of any of the books
and records of the Acquired Companies or the KES Business for the period prior
to the Closing without first offering to surrender to the Seller such books and
records or any portion thereof which Buyer, the Acquired Companies, the KES
Business or any successor thereto may intend to destroy, alter or dispose of.
The parties have executed and delivered this Agreement as of the date indicated
in the first sentence of this Agreement.



	 	 	 	 	 
	 	 	
Woodward Governor Company

	 	 	 	 	 
	 	 	
By:
	 	/s/ Thomas A. Gendron
	 	 	 	 	

	 	 	 	 	Thomas A. Gendron
	 	 	 	 	President & COO
	 	 	 	 	 
	 	 	
Knowles Intermediate Holding, Inc.

	 	 	 	 	 
	 	 	
By:
	 	/s/ John J. Zei
	 	 	 	 	

	 	 	 	 	John J. Zei
	 	 	 	 	President & CEO
	 	 	 	 	 
	 	 	
Knowles Electronics Holdings, Inc.

	 	 	 	 	 
	 	 	
By:
	 	/s/ John J. Zei
	 	 	 	 	

	 	 	 	 	John J. Zei
	 	 	 	 	President & CEO



 






 




	 	 	 	 	 	 
	ARTICLE 1      CONSTRUCTION AND DEFINITIONS
	 	 	1	 
	 	1.1 CONSTRUCTION
	 	 	1	 
	 	1.2 DEFINITIONS
	 	 	2	 
	ARTICLE 2       SALE AND TRANSFER OF SHARES; CLOSING
	 	 	14	 
	 	2.1 SHARES
	 	 	14	 
	 	2.2 PURCHASE PRICE
	 	 	14	 
	 	2.3 ADJUSTMENT PROCEDURE
	 	 	14	 
	 	2.4 CLOSING
	 	 	15	 
	 	2.5 CLOSING DELIVERIES
	 	 	16	 
	 	2.6 SELLER PRE-CLOSING TRANSACTIONS
	 	 	18	 
	ARTICLE 3      REPRESENTATIONS AND WARRANTIES OF SELLER
	 	 	18	 
	 	3.1 ORGANIZATION AND GOOD STANDING
	 	 	18	 
	 	3.2 ENFORCEABILITY; NO CONFLICT
	 	 	18	 
	 	3.3 CAPITALIZATION AND OWNERSHIP; REORGANIZATION
	 	 	19	 
	 	3.4 FINANCIAL STATEMENTS
	 	 	20	 
	 	3.5 BOOKS AND RECORDS
	 	 	20	 
	 	3.6 ACCOUNTS RECEIVABLE
	 	 	21	 
	 	3.7 INVENTORIES
	 	 	21	 
	 	3.8 NO UNDISCLOSED LIABILITIES
	 	 	22	 
	 	3.9 NO MATERIAL ADVERSE CHANGE
	 	 	22	 
	 	3.10 ABSENCE OF CERTAIN CHANGES AND EVENTS
	 	 	22	 
	 	3.11 PROPERTIES; ENCUMBRANCES
	 	 	23	 
	 	3.12 CONDITION AND SUFFICIENCY OF TANGIBLE ASSETS
	 	 	25	 
	 	3.13 INTELLECTUAL PROPERTY
	 	 	25	 
	 	3.14 CONTRACTS; NO DEFAULTS
	 	 	29	 
	 	3.15 CUSTOMERS AND SUPPLIERS
	 	 	31	 
	 	3.16 INSURANCE
	 	 	31	 
	 	3.17 TAXES
	 	 	32	 
	 	3.18 EMPLOYEE BENEFITS
	 	 	34	 
	 	3.19 EMPLOYEE RESTRICTIONS
	 	 	37	 
	 	3.20 LABOR RELATIONS; EMPLOYMENT LAW COMPLIANCE; EMPLOYEES
	 	 	37	 
	 	3.21 ENVIRONMENTAL, HEALTH AND SAFETY MATTERS
	 	 	40	 



 






 




	 	 	 	 	 	 
	 	3.22 COMPLIANCE WITH LAWS; GOVERNMENTAL AUTHORIZATIONS
	 	 	41	 
	 	3.23 COMPLIANCE WITH RELEVANT SECURITIES LAWS, THE FOREIGN
CORRUPT PRACTICES ACT AND EXPORT CONTROL, ANTI-BOYCOTT AND
IMPORT RELATED LAWS
	 	 	42	 
	 	3.24 LEGAL PROCEEDINGS; ORDERS
	 	 	44	 
	 	3.25 RELATIONSHIPS WITH RELATED PERSONS
	 	 	45	 
	 	3.26 BROKERS OR FINDERS
	 	 	45	 
	 	3.27 DISCLOSURE
	 	 	45	 
	ARTICLE 4      REPRESENTATIONS AND WARRANTIES OF BUYER
	 	 	46	 
	 	4.1 ORGANIZATION
	 	 	46	 
	 	4.2 ENFORCEABILITY; NO CONFLICT
	 	 	46	 
	 	4.3 CERTAIN PROCEEDINGS
	 	 	46	 
	 	4.4 INVESTMENT INTENT
	 	 	47	 
	 	4.5 BROKERS OR FINDERS
	 	 	47	 
	 	4.6 NO KNOWLEDGE OF MISREPRESENTATIONS OR OMISSIONS
	 	 	47	 
	ARTICLE 5      COVENANTS OF SELLER BEFORE CLOSING
	 	 	47	 
	 	5.1 ACCESS AND INVESTIGATION
	 	 	47	 
	 	5.2 OPERATION OF THE BUSINESSES OF THE ACQUIRED COMPANIES
	 	 	48	 
	 	5.3 NEGATIVE COVENANT
	 	 	48	 
	 	5.4 REQUIRED APPROVALS
	 	 	48	 
	 	5.5 NOTIFICATION
	 	 	49	 
	 	5.6 PAYMENT OF INDEBTEDNESS BY RELATED PERSONS
	 	 	50	 
	 	5.7 NO NEGOTIATION
	 	 	50	 
	 	5.8 BEST EFFORTS
	 	 	50	 
	 	5.9 INTERIM FINANCIAL STATEMENTS
	 	 	50	 
	 	5.10 TAX BENEFITS
	 	 	50	 
	ARTICLE 6      COVENANTS OF BUYER BEFORE CLOSING
	 	 	51	 
	 	6.1 REQUIRED APPROVALS
	 	 	51	 
	 	6.2 BEST EFFORTS
	 	 	51	 
	 	6.3 ADDITIONAL COVENANTS
	 	 	51	 
	ARTICLE 7      CONDITIONS PRECEDENT TO BUYER’S OBLIGATION TO CLOSE
	 	 	51	 
	 	7.1 ACCURACY OF REPRESENTATIONS
	 	 	52	 




	 	 	 	 	 	 



 






 




	 	 	 	 	 	 
	 	7.2 SELLER’S PERFORMANCE
	 	 	52	 
	 	7.3 CONSENTS
	 	 	52	 
	 	7.4 ADDITIONAL DOCUMENTS
	 	 	52	 
	 	7.5 NO PROCEEDINGS
	 	 	53	 
	 	7.6 NO CLAIM REGARDING EQUITY OWNERSHIP OR SALE PROCEEDS
	 	 	54	 
	 	7.7 NO PROHIBITION
	 	 	54	 
	 	7.8 ADDITIONAL CONDITIONS
	 	 	54	 
	ARTICLE 8      CONDITIONS PRECEDENT TO SELLER’S OBLIGATION TO CLOSE
	 	 	55	 
	 	8.1 ACCURACY OF REPRESENTATIONS
	 	 	55	 
	 	8.2 BUYER’S PERFORMANCE
	 	 	55	 
	 	8.3 CONSENTS
	 	 	55	 
	 	8.4 ADDITIONAL DOCUMENTS
	 	 	55	 
	 	8.5 NO PROHIBITION
	 	 	55	 
	ARTICLE 9      TERMINATION
	 	 	56	 
	 	9.1 TERMINATION EVENTS
	 	 	56	 
	 	9.2 EFFECT OF TERMINATION
	 	 	56	 
	ARTICLE 10       INDEMNIFICATION; REMEDIES
	 	 	57	 
	 	10.1 SURVIVAL, KNOWLEDGE; WAIVER
	 	 	57	 
	 	10.2 INDEMNIFICATION BY SELLER
	 	 	57	 
	 	10.3 INDEMNIFICATION BY BUYER
	 	 	59	 
	 	10.4 LIMITATIONS ON AMOUNT—SELLER
	 	 	60	 
	 	10.5 LIMITATIONS ON AMOUNT—BUYER
	 	 	60	 
	 	10.6 PROCEDURE FOR INDEMNIFICATION—DEFENSE OF THIRD-PARTY
CLAIMS
	 	 	60	 
	 	10.7 PROCEDURE FOR INDEMNIFICATION—OTHER CLAIMS
	 	 	62	 
	 	10.8 INTEREST
	 	 	62	 
	 	10.9 EXCLUSIVE REMEDY
	 	 	62	 
	ARTICLE 11      
TAX MATTERS
	 	 	63	 
	 	11.1 TAX RETURNS
	 	 	63	 
	 	11.2 APPORTIONMENT OF TAXES
	 	 	63	 
	 	11.3 INDEMNIFICATION BY SELLER
	 	 	64	 
	 	11.4 INDEMNIFICATION BY BUYER
	 	 	64	 



 






 




	 	 	 	 	 	 
	 	11.5 INDEMNIFICATION PROCESS
	 	 	65	 
	 	11.6 CHARACTERIZATION OF INDEMNITY PAYMENT
	 	 	65	 
	 	11.7 TRANSACTIONAL TAXES
	 	 	65	 
	 	11.8 TAX SHARING AGREEMENTS
	 	 	65	 
	 	11.9 TAX ELECTIONS
	 	 	65	 
	 	11.10 TAX RECORDS AND ASSISTANCE
	 	 	65	 
	 	11.11 AUDITS, ASSESSMENTS AND CONTEST PROVISIONS
	 	 	66	 
	 	11.12 CARRYBACKS
	 	 	67	 
	 	11.13 SECTION 338(h)(10) ELECTION
	 	 	67	 
	 	11.14 FOREIGN INVESTMENT IN REAL PROPERTY TAX ACT
CERTIFICATION
	 	 	68	 
	 	
11.15 SURVIVAL; KNOWLEDGE; WAIVER
	 	 	68	 
	ARTICLE 12      EMPLOYMENT MATTERS
	 	 	68	 
	 	12.1 EMPLOYEE BENEFIT PLANS; OBLIGATIONS
	 	 	68	 
	 	12.2 INDEMNIFICATION BY SELLER
	 	 	69	 
	 	12.3 INDEMNIFICATION PROCESS
	 	 	70	 
	 	12.4 SURVIVAL; KNOWLEDGE; WAIVER
	 	 	70	 
	ARTICLE 13     GUARANTEE
	 	 	70	 
	 	13.1 PARENT GUARANTEE
	 	 	70	 
	ARTICLE 14      GENERAL PROVISIONS
	 	 	71	 
	 	14.1 EXPENSES
	 	 	71	 
	 	14.2 PUBLIC ANNOUNCEMENTS
	 	 	71	 
	 	14.3 CONFIDENTIALITY
	 	 	71	 
	 	14.4 NONCOMPETITION; NONSOLICITATION
	 	 	72	 
	 	14.5 NOTICES
	 	 	73	 
	 	14.6 FURTHER ACTIONS
	 	 	74	 
	 	14.7 INCORPORATION OF SCHEDULES AND EXHIBITS
	 	 	75	 
	 	14.8 ENTIRE AGREEMENT AND MODIFICATION
	 	 	75	 
	 	14.9 DISCLOSURE SCHEDULES
	 	 	75	 
	 	14.10 DRAFTING AND REPRESENTATION
	 	 	75	 
	 	14.11 SEVERABILITY
	 	 	75	 
	 	14.12 ASSIGNMENT; SUCCESSORS; NO THIRD-PARTY RIGHTS
	 	 	76	 
	 	14.13 ENFORCEMENT OF AGREEMENT
	 	 	76	 




	 	 	 	 	 



 






 




	 	 	 	 	 
	14.14 WAIVER
	 	 	76	 
	14.15 GOVERNING LAW
	 	 	77	 
	14.16 JURISDICTION; SERVICE OF PROCESS
	 	 	77	 
	14.17 CLOSING COSTS; FILING FEES
	 	 	77	 
	14.18 COUNTERPARTS
	 	 	77	 
	14.19 ACCOUNTS RECEIVABLE
	 	 	77	 
	14.20 POST-CLOSING ACCESS
	 	 	78	 



SCHEDULES

SELLER’S DISCLOSURE SCHEDULE




	 	 	 
	Section 1.2B	 	
Persons with Knowledge
	Section 3.1(b)	 	
     Details of Acquired Companies
	Section 3.2(b)	 	
     Consents and Approvals
	Section 3.2(c)	 	
     Contravention
	Section 3.2(d)	 	
     Prevention or Delay
	Section 3.3	 	
Registered Capital and Issued Share Capital
	Section 3.5	 	
Books and Records
	Section 3.6	 	
Accounts Receivable
	Section 3.8(a)	 	
     No Undisclosed Liabilities
	Section 3.9	 	
No Material Adverse Change
	Section 3.10	 	
Seller Transactions
	Section 3.11(a)	 	
Real Property
	Section 3.11(d)	 	
Real Property Rights of Other Persons
	Section 3.12(b)	 	
Condition and Sufficiency of Tangible Assets
	Section 3.13(c)	 	
Intellectual Property
	Section 3.13(e)	 	
Software
	Section 3.13(g)	 	
Software Security
	Section 3.13(i)	 	
     SSPS Web Sites and Domain Names
	Section 3.14(a)	 	
Company Contracts
	Section 3.14(c)	 	
Contravention of Company Contracts
	Section 3.14(e)	 	
Warranty Claims
	Section 3.15	 	
Customers and Suppliers
	Section 3.16	 	
Insurances
	Section 3.17(a)	 	
Tax Filing Extensions; Acquired Companies
	Section 3.17(b)	 	
Tax Filing Extensions; Parent or Seller
	Section 3.18(a)	 	
Company Plans; Other Benefit Obligations
	Section 3.18(d)	 	
Qualified Plans
	Section 3.18(e)	 	
Company Plans Subject to ERISA
	Section 3.18(j)	 	
     Payment, Vesting and Acceleration of Benefits
	Section 3.18(k)	 	
Annual Incentive Plans
	Section 3.19	 	
Employee Restrictions
	Section 3.20(b)	 	
Discrimination Charges
	Section 3.20(g)	 	
Unions and Other Labor Organizations



 






 




	 	 	 
	Section 3.20(i)	 	
     Employee Details
	Section 3.20(l)	 	
     Employee Resignations and Retirements
	Section 3.20(m)	 	
Former Employees
	Section 3.20(q)	 	
Social Benefits, Facilities and Services
	Section 3.21(a)	 	
Compliance with Environmental, Health and Safety Matters
	Section 3.21(f)	 	
     Release of Hazardous Materials
	Section 3.22(a)	 	
Contravention of Laws
	Section 3.22(b)	 	
Government Authorization
	Section 3.23(c)	 	
Internal Control Deficiencies
	Section 3.24(a)	 	
Proceedings
	Section 3.24(b)	 	
Orders
	Section 3.25	 	
Related Person Services



                            BUYER’S DISCLOSURE SCHEDULE




	 	 	 
	Section 1.2A	 	
Key Employees
	Section 1.2C	 	
Persons with Knowledge
	Section 4.2	 	
Government Authorization



EXHIBITS




	 	 	 
	Exhibit 2.5(a)(iii)	 	
Employment Agreements
	Exhibit 2.5(a)(iv)	 	
Employee Noncompetition Agreements
	Exhibit 2.5(a)(v)	 	
Transition Services Agreement
	Exhibit 2.5(a)(vii)	 	
Seller’s Legal Opinion
	Exhibit 2.5(a)(viii)	 	
Estoppel Certificates
	Exhibit 2.5(a)(xiv)	 	
Escrow Agreement
	Exhibit 2.5(b)(viii)	 	
Legal Opinion of Baker & McKenzie