Exhibit 2.5
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STOCK PURCHASE AGREEMENT
BY AND AMONG
CERTIFIED FABRICATORS, INC.,
CALBRIT DESIGN, INC.
AND THEIR STOCKHOLDERS
AND
PRECISION PARTNERS, INC.,
DATED AS OF FEBRUARY 19, 1999
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TABLE OF CONTENTS
PAGE
I. DEFINITIONS..............................................................................................1
1.1. Definitions................................................................................1
II. THE PURCHASE; CLOSING..................................................................................11
2.1. Purchase of Common Stock..................................................................11
2.2. Purchase Price............................................................................11
2.3. Estimated Closing Shareholders' Equity....................................................11
2.4. Post-Closing Adjustment...................................................................11
2.5. Adjustments to Closing Payments...........................................................13
2.6. Disposition of Escrow Amount..............................................................14
2.7. Earnout Amount............................................................................16
2.8. Closing...................................................................................17
2.9. Proceedings...............................................................................17
III. REPRESENTATIONS AND WARRANTIES OF THE COMPANIES AND THE SHAREHOLDERS..................................17
3.1. ..........................................................................................17
3.1.1. Corporate Existence and Power....................................................17
3.1.2. Corporate Authorization; Enforceability..........................................18
3.1.3. Governmental Authorization.......................................................18
3.1.4. Non-Contravention; Consents......................................................18
3.1.5. Capitalization...................................................................18
3.1.6. Financial Statements; Books and Records..........................................19
3.1.7. No Undisclosed Liabilities.......................................................20
3.1.8. Intercompany Accounts............................................................20
3.1.9. Tax Matters......................................................................20
3.1.10. Absence of Certain Changes.......................................................22
3.1.11. Contracts........................................................................22
3.1.12. Insurance Coverage...............................................................24
3.1.13. Litigation.......................................................................24
3.1.14. Compliance with Laws; Permits....................................................25
3.1.15. Properties; Sufficiency of Assets................................................25
3.1.16. Intellectual Property............................................................26
3.1.17. Environmental Matters............................................................26
3.1.18. Plans and Material Documents.....................................................27
3.1.19. Interests in Customers, Suppliers, Etc...........................................29
3.1.20. Customer, Supplier and Employee Relations; Employee Compensation; Bonuses........29
3.1.21. Other Employment Matters.........................................................30
3.1.22. Accounts Receivable..............................................................30
3.1.23. Inventory........................................................................31
3.1.24. Millennium Compliance............................................................31
3.1.25. Finders' Fees....................................................................31
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3.2. Representations and Warranties of the Shareholders........................................31
3.2.1. Authority; Enforceability........................................................31
3.2.2. No Conflicts.....................................................................32
3.2.3. No Consents......................................................................32
3.2.4. Ownership of Shares; Title.......................................................32
3.2.5. Litigation.......................................................................32
IV. REPRESENTATIONS AND WARRANTIES OF BUYER...............................................................32
4.1. Corporate Existence and Power.............................................................32
4.2. Corporate Authorization; Enforceability...................................................33
4.3. Governmental Authorization................................................................33
4.4. Non-Contravention.........................................................................33
4.5. Litigation................................................................................33
4.6. Finders' Fees.............................................................................33
4.7. Purchase for Investment...................................................................33
V. CERTAIN COVENANTS.......................................................................................34
5.1. Conduct of Business of the Companies......................................................34
5.2. Exclusive Dealing.........................................................................35
5.3. Review of the Companies; Confidentiality..................................................36
5.4. Best Efforts..............................................................................37
5.5. Satisfaction and Termination of Equity Arrangements.......................................37
5.6. Plan Assets...............................................................................37
5.7. Monthly Financial Statements..............................................................37
5.8. Supplements to Schedules..................................................................37
5.9. Further Assurances........................................................................37
VI. TAX MATTERS............................................................................................38
6.1. Tax Returns...............................................................................38
6.2. Apportionment of Taxes....................................................................39
6.3. Cooperation; Audits.......................................................................39
6.4. Controversies.............................................................................39
6.5. Amended Returns...........................................................................40
6.6. Non-foreign Person Affidavit..............................................................40
VII. CONDITIONS TO CLOSING.................................................................................40
7.1. Conditions to Obligations of Buyer........................................................40
7.1.1. Representations, Warranties and Covenants of the Companies.......................40
7.1.2. Certificate of each of the Companies.............................................41
7.1.3. Representations, Warranties and Covenants of the Shareholders....................41
7.1.4. No Injunction, etc...............................................................41
7.1.5. No Proceedings...................................................................41
7.1.6. Required Filings.................................................................41
7.1.7. Opinion of Counsel...............................................................41
7.1.8. Spousal Consent..................................................................41
7.1.9. Due Diligence; Schedule Supplements..............................................41
7.1.10. Ancillary Agreements.............................................................42
7.1.11. Resignation of Directors.........................................................42
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7.1.12. Third Party Consents; Governmental Approvals.....................................42
7.1.13. FIRPTA...........................................................................42
7.1.14. No Material Adverse Change.......................................................42
7.1.15. Financing........................................................................42
7.1.16. Shareholder Indebtedness; Intercompany Accounts..................................42
7.1.17. HSR Act..........................................................................42
7.2. Conditions to Obligations of Each of the Companies and the Shareholders...................42
7.2.1. Representations, Warranties and Covenants of Buyer...............................43
7.2.2. Buyer's Certificate..............................................................43
7.2.3. No Injunction, etc...............................................................43
7.2.4. No Proceedings...................................................................43
7.2.5. Required Filings.................................................................43
7.2.6. Opinion of Counsel...............................................................43
7.2.7. Ancillary Agreements.............................................................43
7.2.8. HSR Act..........................................................................43
7.2.9. Shareholder Guarantees...........................................................43
VIII. SURVIVAL; INDEMNIFICATION............................................................................44
8.1. Survival..................................................................................44
8.2. Indemnification...........................................................................44
8.3. Tax Indemnification.......................................................................45
8.4. Procedures................................................................................46
8.5. Personal Liability of the Shareholders; Indemnification Cap...............................48
8.6. Treatment of Indemnification Payments.....................................................48
8.7. Indemnification Amounts Net of Benefits Received; Set-off.................................48
8.8. Exclusive Remedy..........................................................................49
IX. MISCELLANEOUS..........................................................................................49
9.1. Termination...............................................................................49
9.2. Notices...................................................................................50
9.3. Amendments and Waivers....................................................................50
9.4. Expenses..................................................................................50
9.5. Successors and Assigns....................................................................50
9.6. No Third Party Beneficiaries..............................................................50
9.7. Governing Law.............................................................................50
9.8. Jurisdiction..............................................................................51
9.9. Waiver of Jury Trial......................................................................51
9.10. Counterparts..............................................................................51
9.11. Headings..................................................................................51
9.12. Entire Agreement..........................................................................51
9.13. Severability..............................................................................51
9.14. No Waiver.................................................................................51
9.15. Certain Interpretive Matters..............................................................51
9.16. Transfer of Proceeds......................................................................52
9.17. Shareholders' Representative..............................................................52
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EXHIBIT INDEX
EXHIBIT A: Form of Amendment to Asset Lease Agreements
EXHIBIT B-1: Form of Employment and Consulting Letter between CFI Holding
and Buehler
EXHIBIT B-2: Form of Employment and Consulting Letter between CFI Holding
and Reagan
EXHIBIT C: Form of Escrow Agreement among CFI Holding, the Escrow Agent
and the Stockholders' Representative
EXHIBIT D: Form of Financial Advisory Services Letter between CFI Holding
and SKM
EXHIBIT E-1: Form of Noncompetition Agreement between CFI Holding and
Buehler
EXHIBIT E-2: Form of Noncompetition Agreement between CFI Holding and
Reagan
EXHIBIT F-1: Form of Earnout Note
EXHIBIT F-2: Form of Subordination Agreement
EXHIBIT G-1: Form of Opinion of Ward, Kroll & Jampol
EXHIBIT G-2: Form of Opinion of LeBoeuf, Lamb, Greene & MacRae
EXHIBIT H: Form of Spousal Consent
EXHIBIT I: Form of Opinion of Jones, Day, Reavis & Pogue
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SCHEDULE INDEX
SCHEDULE 1: Shareholders
SCHEDULE 3.1.4: Non-Contravention; Consents
SCHEDULE 3.1.5(a): Authorized, Issued and Outstanding Capital Stock
SCHEDULE 3.1.5(b): Capitalization; Outstanding Interest to repurchase,
redeem or otherwise acquire company securities.
SCHEDULE 3.1.5(c): Capitalization; Company Owned Interests in Other
Entities
SCHEDULE 3.1.6(d): Changes in Companies' reserve or accrual amounts or
policies
SCHEDULE 3.1.7: Undisclosed Liabilities
SCHEDULE 3.1.8: Inter-Company balances
SCHEDULE 3.1.9(a): Tax Matters
SCHEDULE 3.1.9(b): Jurisdictions to which any Tax on overall Net Income
is Properly Payable
SCHEDULE 3.1.10: Absence of Certain Changes
SCHEDULE 3.1.11(a): Contracts
SCHEDULE 3.1.11(b): Contracts
SCHEDULE 3.1.11(c): Grants of Severance or Termination Pay
SCHEDULE 3.1.13: Litigation
SCHEDULE 3.1.14(a): Compliance with Laws; Permits
SCHEDULE 3.1.14(b): Government or Regulatory Permits and Licenses
SCHEDULE 3.1.15(a): Properties; Sufficiency of Assets
SCHEDULE 3.1.15(b): Real Property assets owned or leased
SCHEDULE 3.1.16: Intellectual Property
SCHEDULE 3.1.17: Environmental Matters
SCHEDULE 3.1.18(a): Benefit Plans
SCHEDULE 3.1.18(b): Benefit Plans; ERISA and Code Compliance
SCHEDULE 3.1.18(c): Benefit Plans: Compliance with the law or statutory,
regulatory and contractual obligations
SCHEDULE 3.1.18(d): Benefit Plans without favorable IRS determination
letters
SCHEDULE 3.1.18(h): Bonus, retirement, severance, job security or similar
benefits
SCHEDULE 3.1.18(i): Employee options to purchase shares
SCHEDULE 3.1.19: Interests in Customers, Suppliers, Etc.
SCHEDULE 3.1.20(a): Customer, Supplier and Employee Relations; Employer
Compensation
SCHEDULE 3.1.20(b): Bonuses
SCHEDULE 3.1.21: Other Employment Matters
SCHEDULE 3.1.22: Accounts Receivable
SCHEDULE 3.1.23: Inventories acquired or produced since Balance Sheet
Date
SCHEDULE 3.1.24: Millennium Compliance
SCHEDULE 3.1.25: Finder's Fees
SCHEDULE 3.2.5: Litigation
SCHEDULE 4.5: Litigation
SCHEDULE 7.2.9 Shareholder Guarantees
SCHEDULE 9.2: Notices
SCHEDULE 9.15(c)(i): Knowledge of the Companies
SCHEDULE 9.15(c)(ii): Knowledge of Buyer
vi
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (this "AGREEMENT"), dated as of
February 19, 1999, by and among CERTIFIED FABRICATORS, INC., a California
corporation ("CFI"), CALBRIT DESIGN, INC., a California corporation ("CALBRIT"),
the Persons listed on SCHEDULE 1 attached hereto (the "SHAREHOLDERS"), and
PRECISION PARTNERS, INC., a Delaware corporation ("BUYER").
RECITALS
A. The Shareholders own all of the issued and outstanding
common stock, no par value (collectively, the "COMMON STOCK"), of each of CFI
and Calbrit (each, a "COMPANY," and both collectively, the "COMPANIES") in the
proportions set forth across from their names on SCHEDULE 1.
B. Buyer desires to purchase from the Shareholders and the
Shareholders desire to sell to Buyer (the "PURCHASE") the Common Stock in
exchange for the Aggregate Consideration, all on the terms and conditions set
forth herein.
C. The parties desire to make certain representations,
warranties and covenants in connection with the Purchase and to prescribe
various conditions to the Purchase.
Accordingly, the parties hereto agree as follows:
I. DEFINITIONS
1.1. DEFINITIONS. In addition to the terms defined elsewhere
herein, the following terms, as used herein, have the following meanings when
used herein with initial capital letters:
"1999 EBITDA" has the meaning ascribed to such term in Section
2.7(b).
"1999 PAYOUT RATIO" has the meaning ascribed to such term in
Section 2.7(b).
"2000 EBITDA" has the meaning ascribed to such term in Section
2.7(c).
"2000 PAYOUT RATIO" has the meaning ascribed to such term in
Section 2.7(c).
"ACCOUNTANTS" has the meaning ascribed to such term in Section
2.4(b).
"AFFILIATE" means, with respect to any Person, any other
Person directly or indirectly controlling, controlled by or under common control
with the first Person. For the purposes of this definition, "CONTROL," when used
with respect to any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of such
Person, whether through the ownership of voting securities, by contract or
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otherwise, and the terms "CONTROLLING" and "CONTROLLED" have meanings
correlative to the foregoing.
"AGGREGATE CLOSING CONSIDERATION" has the meaning ascribed to
such term in Section 2.2(a).
"AGGREGATE CONSIDERATION" means the sum of the Aggregate
Closing Consideration, the Escrow Amount, if any, payable to the Shareholders,
and the Earnout Amount, if any, payable to the Shareholders.
"AGREEMENT" has the meaning ascribed to such term in the
introductory paragraph of this Agreement, as the same may be amended from time
to time in accordance with the terms hereof.
"ANCILLARY AGREEMENTS" means the Asset Lease Agreements, the
Employment Letters, the Escrow Agreement and the Noncompetition Agreements.
"ASSET LEASE AGREEMENTS" means the lease agreements disclosed
in SCHEDULE 3.1.15(b) between Certified Fabricators, a California general
partnership, and the Company relating to the following properties:
(a) 6291 Burnham Avenue, Buena Park, CA;
(b) 6332 Burnham Avenue, Buena Park, CA;
(c) 6351 Burnham Avenue, Buena Park, CA; and
(d) 6350 Altura, Buena Park, CA;
in each case as amended to the effect set forth in EXHIBIT A
attached hereto.
"ASSET SALE" means any direct or indirect issuance,
conveyance, transfer, lease (other than operating leases entered into in the
ordinary course of business), assignment or other transfer for value by either
Company or any of their Subsidiaries to any Person of any property or assets of
either Company or any of their Subsidiaries other than in the ordinary course of
business.
"AUDITED BALANCE SHEET" means the audited balance sheet of CFI
as of October 31, 1998 contained in the Audited Statements.
"AUDITED STATEMENTS" means the audited balance sheets of CFI
as of October 31, 1998, 1997 and 1996, together with the related statements of
earnings and retained earnings, shareholders' equity and cash flows for the
fiscal years then ended, together with the notes thereto and reports thereon of
Ernst & Young, LLP.
"BALANCE SHEET DATE" means October 31, 1998.
"BALANCE SHEET PRINCIPLES" has the meaning ascribed to such
term in Section 2.4(a).
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"BASE SHAREHOLDERS' EQUITY" means shareholders equity
reflected in the Audited Balance Sheet.
"BONUSES" have the meaning ascribed to such term in Section
3.1.20(b).
"BUSINESS DAY" means a day other than a Saturday or Sunday or
a day on which banks located in New York City or Los Angeles are authorized or
required to close.
"BUYER" has the meaning ascribed to such term in the
introductory paragraph of this Agreement.
"CALBRIT FINANCIAL STATEMENTS" means the unaudited balance
sheet of Calbrit through the period ending October 31, 1998, together with the
related statement of earnings, and, for each monthly period thereafter, the
unaudited balance sheet of Calbrit covering such monthly period (or portion
thereof) from November 1, 1998 through January 31, 1999 (or such later period as
may be available prior to the Closing Date) , together with the related
statement of earnings.
"CAP" means, as of any point in time, the aggregate of the
following two definitions:
(i) "CASH CAP" means, as of any point in time, an
amount equal to (a) $3.5 million plus (b) to the extent paid to the Shareholders
or the Shareholders' Representative (for the benefit of the Shareholders) as
required under this Agreement, up to 75% of the sum of any cash payments of the
Escrow Amount and any cash payments of the Earnout Amount.
(ii) "NON-CASH CAP" means, as of any point in time,
to the extent the Earnout Amount (or portion thereof) is not paid in cash (but
by tender of an Earnout Note) to the Shareholders or the Shareholders'
Representative (for the benefit of the Shareholders), up to 75% of the Earnout
Notes issued from time to time, reduced by the Earnout Amount previously paid in
cash (under the Earnout Notes) or set off against previously issued Earnout
Notes.
"CAPITAL STOCK" means (a) with respect to any Person that is a
corporation, any and all shares, interests, participation or other equivalents
(however designated and whether or not voting) of corporate stock, including the
common stock of such Person and (b) with respect to any Person that is not a
corporation, any and all partnership or other equity interests of such Person.
"CAPITALIZED LEASE OBLIGATIONS" means, with respect to either
Company, for any applicable period, the obligations of such Person under a lease
that are required to be classified and accounted for as capital lease
obligations under GAAP, and the amount of such obligations at any date shall be
the capitalized amount of such obligations at such date, determined in
accordance with GAAP.
"CLOSING" has the meaning ascribed to such term in Section
2.8.
"CLOSING DATE" has the meaning ascribed to such term in
Section 2.8.
3
"CLOSING DATE BALANCE SHEET" has the meaning ascribed to such
term in Section 2.4(a).
"CLOSING SHAREHOLDERS' EQUITY" has the meaning ascribed to
such term in Section 2.4(a).
"CLOSING SHAREHOLDERS' EQUITY STATEMENT" has the meaning
ascribed to such term in Section 2.4(a).
"CODE" means the Internal Revenue Code of 1986, as amended,
and the regulations promulgated thereunder.
"COMMON STOCK" has the meaning ascribed to such term in
Recital A of this Agreement.
"COMPANY" and "COMPANIES" have the meaning ascribed to such
terms in Recital A of this Agreement.
"COMPANY PROPERTY" means any real property and improvements at
any time owned, leased, used, operated or occupied (whether for storage,
disposal or otherwise) by either of the Companies.
"COMPANY SCHEDULES" has the meaning ascribed to such term in
Section 5.8.
"COMPANY SECURITIES" has the meaning ascribed to such term in
Section 3.1.5(b).
"COMPUTER SYSTEMS" has the meaning ascribed to such term in
Section 3.1.24.
"CONSTITUENTS OF CONCERN" means any substance defined as a
hazardous substance, hazardous waste, hazardous material, pollutant, or
contaminant by any Environmental Law, any petroleum hydrocarbon and any
degradation product of a petroleum hydrocarbon, asbestos, PCB or similar
substance, the handling, storage, treatment or exposure of or to which is
subject to regulation under any Environmental Law.
"DAMAGES" has the meaning ascribed to such term in Section
8.2(a).
"DIRECT CLAIM" means a claim by an Indemnified Party on
account of Damages which does not result from a Third Party Claim or a Third
Party Notice.
"EARNOUT AMOUNT" has the meaning ascribed to such term in
Section 2.7.
"EARNOUT EBITDA STATEMENTS" has the meaning set forth in
Section 2.7(a).
"EARNOUT NOTE" and "EARNOUT NOTES" have the meanings ascribed
to such terms in Section 2.7(d).
4
"EBITDA" means, with respect to CFI and its Subsidiaries the
sum (without duplication) of (a) Net Income and (b) to the extent Net Income has
been reduced thereby, (i) all income Taxes of CFI recorded as a Tax provision in
accordance with GAAP for such period (other than income Taxes attributable to
extraordinary, unusual or nonrecurring gains or losses or Taxes attributable to
sales or dispositions outside the ordinary course of business), (ii) Interest
Expense and (iii) Non-cash Charges, all as determined in accordance with GAAP.
"EBITDA STATEMENT" has the meaning ascribed to such term in
Section 2.6(a).
"EMPLOYMENT AND CONSULTING LETTERS" means the employment or
consulting letter agreements between Buyer and each of BRW, Inc. and Robert
Reagan, substantially to the effect set forth in EXHIBITS B-1 and B-2.
"ENVIRONMENTAL CLAIMS" means administrative, regulatory or
judicial actions, suits, demands, demand letters, claims, liens, citations,
summonses, notices of non-compliance or violation, requests for information,
investigations or proceedings relating to any Environmental Law or any permit
issued under any such Law, including (a) Environmental Claims by Governmental
Authorities for enforcement, cleanup, removal, response, remedial or other
actions or damages pursuant to any applicable Environmental Law, and (b)
Environmental Claims by any third party seeking damages, contribution,
indemnification, cost recovery, compensation or injunctive relief resulting from
Constituents of Concern or arising from alleged injury or threat of injury to
human health and safety or the environment.
"ENVIRONMENTAL CONDITION" means a condition with respect to
the environment which has resulted or could result in a material loss,
liability, cost or expense to the Companies.
"ENVIRONMENTAL LAW" means any Law in effect or to the
Companies' and the Shareholders' knowledge, any Law reasonably expected to be
adopted or made effective, in each case as amended as of the Closing Date, and
any judicial or administrative interpretation thereof as of the Closing Date,
including any judicial or administrative order, consent decree or judgment,
relating to the environment, human health and safety, including, the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
42 U.S.C. Sections 9601, et seq. ("CERCLA") and any state and local counterparts
or equivalents.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"ERISA AFFILIATE" means any Person that, together with either
of the Companies, would be considered a single employer within the meaning of
Section 4001 of ERISA or Section 414 of the Code.
"ESCROW AGENT" means Orange Coast Title Company.
"ESCROW AGREEMENT" means the Escrow Agreement among Buyer, the
Escrow Agent and the Shareholders' Representative, substantially to the effect
set forth in EXHIBIT C.
"ESCROW AMOUNT" has the meaning ascribed to such term in
Section 2.2(b).
5
"ESTIMATED CLOSING SHAREHOLDERS' EQUITY" has the meaning
ascribed to such term in Section 2.3.
"ESCROW EBITDA STATEMENT" has the meaning ascribed to such
term in Section 2.6(a).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"FINANCIAL ADVISORY SERVICES LETTER" means the Financial
Advisory Services Letter Agreement between Buyer and Saunders Karp & Megrue,
L.P., in respect of advisory and monitoring services to be provided to the
Companies, substantially to the effect set forth in EXHIBIT D.
"FISCAL YEAR" means any 12-month period commencing on November
1.
"GAAP" means U.S. generally accepted accounting principles,
consistently applied.
"GOVERNMENTAL AUTHORITY" means any domestic or foreign
governmental or regulatory authority.
"HSR ACT" has the meaning ascribed to such term in Section
3.1.3.
"INDEBTEDNESS" means with respect to any Person, at any date,
without duplication, (i) all outstanding obligations of such Person for borrowed
money, including, without limitation, all principal, interest, premiums, fees,
expenses, overdrafts and penalties with respect thereto, (ii) all outstanding
obligations of such Person evidenced by bonds, debentures, notes or other
similar instruments, (iii) all outstanding obligations of such Person to pay the
deferred purchase price of the property or services, except trade payables
incurred in the ordinary course of business, (iv) all outstanding obligations of
such Person to reimburse any bank or other Person in respect of amounts paid
under a letter of credit or similar instrument, (v) all outstanding obligations
of such Person as lessee under Capitalized Leases; and (vi) all Indebtedness of
any other Person of the type referred to in clauses (i) to (v) above directly or
indirectly guaranteed by such Person or secured by any assets of such Person.
"INDEMNIFIED PARTY" means a Person who or which is seeking
indemnification under Section 8.2 or Section 8.3.
"INDEMNIFYING PARTY" means a Person against whom or which
indemnification under Section 8.2 or Section 8.3 is being sought.
"INTELLECTUAL PROPERTY RIGHT" means any trademark, service
mark, trade name, invention, patent, trade secret, copyright, know-how
(including any registrations or applications for registration of any of the
foregoing) or any other similar type of proprietary intellectual property right,
in each case which is used or held for use or otherwise necessary in connection
with the conduct of the businesses of either of the Companies as now conducted
or as conducted at the Closing Date.
6
"INTEREST EXPENSE" means, with respect to CFI and its
Subsidiaries, for any applicable period, the sum of, without duplication: (a)
the aggregate of the interest expense (net of interest income) of CFI and its
Subsidiaries during such period determined in accordance with GAAP and (b) the
interest component of Capitalized Lease Obligations paid, accrued and/or
scheduled to be paid or accrued by CFI during such period as determined in
accordance with GAAP.
"IRS" means the Internal Revenue Service.
"KNOWLEDGE" has the meaning ascribed to such term in Sections
9.15(c)(i), (ii) and (iii).
"LAST OFFER" has the meaning ascribed to such term in Section
2.4(b).
"LAW" means any federal, state or local statute, law, rule,
regulation, ordinance, code, permit or license issued by a Governmental
Authority or rule of common law.
"LIEN" means, with respect to any property or asset, any
mortgage, lien, pledge, charge, security interest, encumbrance or other adverse
claim of any kind in respect of such property or asset. For the purposes of this
Agreement, a Person will be deemed to own, subject to a Lien, any property or
asset which it has acquired or holds subject to the interest of a vendor or
lessor under any conditional sale agreement, capital lease or other title
retention agreement relating to such property or asset.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on
the business, assets, liabilities, condition (financial and other) or results of
operations of the Companies, taken as a whole.
"MILLENNIUM COMPLIANCE" means that the Computer Systems are
capable of the following, during and/or after January 1, 2000: (a) handling date
information involving all and any dates, including accepting input, providing
output and performing date calculations in whole or in part; (b) operating
accurately without interruption on and in respect of any and all dates and
without any change in performance; (c) responding to and processing two digit
year input without creating any ambiguity as to the century; and (d) storing and
providing date input information without creating any ambiguity as to the
century.
"MONTHLY CFI FINANCIAL STATEMENTS" means, for each month from
November 1, 1998 through January 31, 1999 (or such later period as may available
prior to the Closing Date), the unaudited monthly balance sheet of CFI covering
such monthly period together with the related monthly statements of earnings and
retained earnings, shareholders' equity and cash flows.
"NET INCOME" means, with respect to CFI and its Subsidiaries
for any applicable period, the aggregate net income (or loss) of CFI and its
Subsidiaries for such period, determined in accordance with GAAP, PROVIDED,
HOWEVER, that the calculation of such aggregate net income or loss will be made
without giving effect to, by excluding from the calculation thereof, the
following items: (a) after-tax gains and losses from Asset Sales or abandonments
or reserves relating thereto, (b) after-tax items classified as extraordinary or
nonrecurring gains or losses, (c)
7
the net income of any Person acquired in a "pooling of interests" transaction or
a recapitalization accrued prior to the date it becomes a subsidiary of CFI or
is merged or consolidated with CFI or any subsidiary of either Company, (d) the
net income of any subsidiary of CFI to the extent that the declaration of
dividends or similar distributions by that subsidiary of that income is
restricted by a contract, operation of law or otherwise, (e) the net income of
any other Person, other than a subsidiary of CFI, except to the extent of cash
dividends or distributions paid to CFI or to a subsidiary of CFI by such other
Person, (f) in the case of a successor to either Company by consolidation or
merger or as a transferee of CFI's assets, any net income (or loss) of the
successor corporation prior to such consolidation, merger or transfer of assets,
(g) the aggregate of gross interest income of CFI and its subsidiaries
determined in accordance with GAAP, and (h) Transaction Fees and Expenses
expensed during any such period.
"NON-CASH CHARGES" means, with respect to CFI and its
Subsidiaries for any applicable period, the aggregate depreciation and
amortization of the Companies and their Subsidiaries reducing Net Income of the
Companies and their Subsidiaries for such period, determined in accordance with
GAAP.
"NONCOMPETITION AGREEMENTS" means the Noncompetition
Agreements between Buyer and each of Gary Buehler and Robert Reagan
substantially to the effect set forth in EXHIBITS E-1 and E-2.
"NOTIFIED PARTY" has the meaning ascribed to such term in
Section 8.4(a).
"NOTIFYING PARTY" has the meaning ascribed to such term in
Section 8.4(a).
"OPERATING COMPANY" means an "operating company" within the
meaning of Department of Labor Regulation ss. 2510.3-101(c) or successor rule or
regulation, as from time to time amended and in effect.
"ORDER" means any judgment, injunction, judicial or
administrative order or decree.
"PERCENTAGE INTEREST" means, with respect to any Shareholder,
the percentage set forth opposite such Shareholder's name on SCHEDULE 1.
"PERMITTED LIEN" means (i) mechanics', workmen's, repairmen's
or other like Liens arising or incurred in the ordinary course of business in
respect of obligations that are not overdue or (ii) other imperfections of title
or encumbrances, which do not materially affect the value (including the
transferability) of the property subject thereto.
"PERSON" means an individual, corporation, partnership,
association, trust or other entity or organization, including a Governmental
Authority.
"PERSONAL LIABILITY AMOUNT" has the meaning ascribed to such
term in Section 8.5(a).
"PLANS" has the meaning ascribed to such term in Section
3.1.18(a).
8
"POST-CLOSING TAX PERIOD" means any Tax period (or portion
thereof) ending after the Closing Date.
"POST-OCTOBER 31, 1995 TAX MATTERS" has the meaning ascribed
to such term in Section 6.4(a).
"PRE-CLOSING TAX PERIOD" means any Tax period (or portion
thereof) ending on or before the Closing Date.
"PRE-OCTOBER 31, 1995 TAX MATTERS" has the meaning ascribed to
such term in Section 6.4(b).
"PURCHASE" has the meaning ascribed to such term in Recital B.
"Q1/Q2 EBITDA" means the aggregate EBITDA of CFI for the first
two quarters of CFI's Fiscal Year ended October 31, 1999.
"REAL PROPERTY" has the meaning ascribed to such term in
Section 3.1.15(b).
"RETURNS" has the meaning ascribed to such term in Section
3.1.9(a)(i).
"SELECTED COMPANY REPRESENTATIONS AND WARRANTIES" has the
meaning ascribed to such term in Section 8.1.
"SELECTED SHAREHOLDER REPRESENTATIONS AND WARRANTIES" has the
meaning ascribed to such term in Section 8.1.
"SHAREHOLDERS' REPRESENTATIVE DISPUTE NOTICE" has the meaning
ascribed to such term in Section 6.1(a).
"SHAREHOLDERS" has the meaning ascribed to such term in the
introductory paragraph of this Agreement.
"SHAREHOLDERS' REPRESENTATIVE" has the meaning ascribed to
such term in Section 9.17(a).
"SUBSIDIARY" means, with respect to a Company, any entity of
which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other persons performing similar
functions and at the time are directly or indirectly owned by such Company.
"TAX" means (a) any net income, alternative or add-on minimum
tax, gross income, gross receipts, sales, use, ad valorem, value added,
transfer, franchise, profits, license, withholding on amounts paid to or by
either of the Companies, payroll, employment, excise, severance, stamp,
occupation, premium, property, environmental or windfall profit tax, custom,
duty or other tax, governmental fee or other like assessment or charge of any
kind whatsoever, together with any interest, penalty, addition to tax or
additional amount imposed by any Taxing Authority (as hereinafter defined), (b)
any liability of either of the Companies for the payment of
9
any amounts of any of the foregoing types as a result of being a member of
an affiliated, consolidated, combined or unitary group, or being a party to any
agreement or arrangement whereby liability of either of the Companies for
payment of such amounts was determined or taken into account with reference to
the liability of any other Person, and (c) liability of either of the Companies
for the payment of any amounts as a result of being a party to any Tax Sharing
Agreements or with respect to the payment of any amounts of any of the foregoing
types as a result of any express or implied obligation to indemnify any other
Person.
"TAX SHARING AGREEMENTS" means all existing Tax sharing
agreements or arrangements (whether or not written) binding either of the
Companies.
"TAXING AUTHORITY" means any Governmental Authority
responsible for the imposition of any Tax.
"THIRD PARTY CLAIM" means any suit or proceeding made or
brought by any Person who or which is not a party to this Agreement.
"THIRD PARTY NOTICE" means any claim, demand, action or notice
from any Person who or which is not a party to this Agreement, which does not
constitute a Third Party Claim.
"THIRD-PARTY TRANSACTION" has the meaning ascribed to such
term in Section 5.2.
"TRANSACTION FEES AND EXPENSES" means (i) the reasonable fees
and expenses of legal counsel, accountants and other advisors engaged by Buyer
incurred in connection with the transactions contemplated hereby, (ii) the fees
and expenses of Saunders Karp & Megrue, L.P., Carlisle Group, L.P. and Harvey &
Company, LLC, (iii) the ongoing fees and expenses referred to in the Financial
Advisory Services Letter, and (iv) corporate overhead allocated by Buyer and
Affiliates of Buyer to each of the Companies.
"TRANSFER" has the meaning ascribed to such term in Section
2.1.
II. THE PURCHASE; CLOSING
2.1. PURCHASE OF COMMON STOCK. On the terms and subject to the
conditions of this Agreement, at the Closing, (a) Buyer will purchase from each
Shareholder and each Shareholder will sell, assign, transfer and deliver
("TRANSFER") to Buyer, the Common Stock owned by such Shareholder. The
certificates representing the Common Stock will be duly endorsed in blank, or
accompanied by stock powers duly executed in blank, by the Shareholder
Transferring the same to Buyer. The Shareholder will cure any deficiencies with
respect to the endorsement of the certificates representing the Common Stock
owned by such Shareholder or with respect to the stock power accompanying any
such certificates.
2.2. PURCHASE PRICE. In consideration for the Transfer by the
Shareholders of the Common Stock to Buyer, Buyer will deliver at the Closing (a)
to the Shareholders'
10
Representative (for the benefit of the Shareholders) an aggregate amount equal
to $11.0 million (the "AGGREGATE CLOSING CONSIDERATION"), subject to adjustment
as provided in Section 2.4 and Section 2.5, payable to each Shareholder in cash
by wire transfer of immediately available funds to one account designated in
writing by the Shareholders' Representative, and (b) to the Escrow Agent $4.0
million (the "ESCROW AMOUNT") by wire transfer of immediately available funds to
the account designated in writing by the Escrow Agent, to be held in escrow
under the Escrow Agreement, payable as set forth therein and in Section 2.6
hereof. The Shareholders' Representative will indemnify and hold Buyer harmless
from any claim of any Shareholder arising out of the alleged misapplication of
any sums paid by Buyer to the Shareholders' Representative or Earnout Notes
delivered to the Shareholders' Representative under this Agreement.
2.3. ESTIMATED CLOSING SHAREHOLDERS' EQUITY. Not less than two
Business Days prior to the Closing Date, CFI and Buyer will prepare and agree on
an estimate of the Closing Shareholders' Equity (the "ESTIMATED CLOSING
SHAREHOLDERS' EQUITY") determined in accordance with Section 2.4, as if it were
the actual Closing Shareholders' Equity, but based upon CFI's and Buyer's review
of monthly financial information then available and inquiries of personnel
responsible for the preparation of the financial information relating to CFI in
the ordinary course. The Aggregate Closing Consideration will be reduced
dollar-for-dollar by the amount, if any, by which the Estimated Closing
Shareholders' Equity, determined in accordance with Section 2.4, is less than
the Base Shareholders' Equity.
2.4. POST-CLOSING ADJUSTMENT. (a) As soon as practicable (and
in no event later than 90 days after the Closing), Buyer will prepare and
deliver or cause to be prepared and delivered to the Shareholders'
Representative a balance sheet of CFI as of the close of business on the Closing
Date, without giving effect to the transactions contemplated hereby (the
"CLOSING DATE BALANCE SHEET") and a proposed statement of the shareholders'
equity of CFI as of the close of business on the Closing Date, without giving
effect to the transactions contemplated hereby (the "CLOSING SHAREHOLDERS'
EQUITY STATEMENT"). The Closing Date Balance Sheet and the Closing Shareholders'
Equity Statement (i) will reflect, respectively, the financial position of CFI
and the components and calculation of the shareholders' equity of CFI in each
case as of the close of business on Closing Date, without giving effect to the
transactions contemplated hereby and (ii) will be prepared and determined in
accordance with GAAP, on a basis consistent with the policies, principles and
methodology used in connection with the preparation of the Audited Balance Sheet
(the policies, principles and methodology in clause (ii) being referred to
herein as the "BALANCE SHEET PRINCIPLES"). Notwithstanding anything contained
herein to the contrary, there will be no changes in reserve or accrual amounts
or policies between The Balance Sheet Date and the Closing Date, without the
prior written consent of Buyer except as set forth on Schedule 3.1.6(d). The
shareholders' equity of CFI as of the Closing Date determined in accordance with
this Section 2.4 is referred to herein as the "CLOSING SHAREHOLDERS' EQUITY."
(b) If, within 45 days after the date of Buyer's delivery of
the Closing Date Balance Sheet and the Closing Shareholders' Equity Statement,
the Shareholders' Representative determines in good faith that the Closing Date
Balance Sheet and the Closing Shareholders' Equity Statement have not been
prepared and determined in accordance with this Agreement, the Shareholders'
Representative will give written notice to Buyer within such 45 day period (i)
setting forth the Shareholders' Representative's proposed changes to the Closing
Date Balance Sheet as prepared by Buyer and the determination by the
Shareholders' Representative of the
11
Closing Shareholders' Equity and (ii) specifying in reasonable detail the
Shareholders' Representative's basis for disagreement with Buyer's
preparation and determination of the Closing Date Balance Sheet and the
Closing Shareholders' Equity. The failure by the Shareholders' Representative
to so express disagreement and provide such specification within such 45 day
period will constitute the acceptance of Buyer's preparation of the Closing
Date Balance Sheet and the computation of the Closing Shareholders' Equity.
If Buyer and the Shareholders' Representative are unable to resolve any
disagreement between them with respect to the preparation of the Closing Date
Balance Sheet and the determination of the Closing Shareholders' Equity
within 30 days after the giving of notice by the Shareholders' Representative
to Buyer of such disagreement, the items in dispute will be referred by Buyer
for determination to PricewaterhouseCoopers LLP (the "ACCOUNTANTS") as
promptly as practicable, but not later than five days after the expiration of
such 30 day period. Buyer and the Shareholders' Representative will use
reasonable efforts to cause the Accountants to render their decision as soon
as practicable thereafter, including without limitation by promptly complying
with all reasonable requests by the Accountants for information, books,
records and similar items. Buyer and the Shareholders' Representative will
cause the Accountants to make a determination as to each of the items in
dispute (but only those items in dispute), which determination will be (A) in
writing, (B) furnished to each of the parties hereto as promptly as
practicable after the items in dispute have been referred to the Accountants,
(C) made in accordance with this Section 2.4. Such determination of the
Accountants will be conclusive and binding upon each of the parties hereto.
Nothing herein will be construed to authorize or permit the Accountants to
determine (i) any question or matter whatsoever under or in connection with
this Agreement, except the determination of what adjustments, if any, must be
made in one or more disputed items reflected in the Closing Date Balance
Sheet and the Closing Shareholders' Equity Statement delivered by Buyer in
order for the Closing Shareholders' Equity to be determined in accordance
with the provisions of this Agreement, in Section 2.4, or (ii) a Closing
Shareholders' Equity that is not equal to one of, or between, the Closing
Shareholders' Equity as determined by the Shareholders' Representative and as
determined by Buyer. The fees and expenses of the Accountants will be paid by
the party whose last written settlement offer related to all items in
dispute, in the aggregate, submitted to the Accountants immediately prior to
the initial referral of the matter to the Accountants in accordance with this
Section 2.4(b) (each, a "LAST OFFER") varies by the greatest absolute amount
from the determination by the Accountants of all such disputed items. No
party will disclose to the Accountants, and the Accountants will not consider
for any purpose, any settlement discussions or settlement offer (other than
the Last Offer) made by any party.
(c) During the period that the Shareholders' Representative's
advisors and personnel are conducting their review of Buyer's preparation of the
Closing Date Balance Sheet and determination of the Closing Shareholders'
Equity, the Shareholders' Representative and his representatives will have
reasonable access during normal business hours to the work papers, prepared by
or on behalf of Buyer and its representatives in connection with Buyer's
preparation of the Closing Shareholders' Equity Statement and determination of
the Closing Shareholders' Equity; PROVIDED, HOWEVER, that the Shareholders'
Representative will conduct such review in a manner that does not unreasonably
interfere with the conduct of the businesses of the Companies or result in
substantial out-of-pocket costs to Buyer. To the extent any such work papers are
in the control of the Shareholders' Representative after the Closing, the
Shareholders' Representative will grant Buyer and its representatives reciprocal
access rights for the purpose of finalizing the preparation of the Closing Date
Balance Sheet and the determination of the Closing
12
Shareholders' Equity. The Shareholders' Representative and Buyer agree in good
faith to use all reasonable efforts to provide such information and access
described in this Section 2.4(c).
2.5. ADJUSTMENTS TO CLOSING PAYMENTS. (a) Upon the final
determination of the Closing Shareholders' Equity, the parties shall make the
following adjustments:
(i) If the Closing Shareholders' Equity exceeds the Estimated
Closing Shareholders' Equity, then the Aggregate Closing Consideration (if
reduced pursuant to Section 2.3) will be increased by, and Buyer shall pay to
the Shareholders' Representative (for the benefit of the Shareholders) the
amount of, such difference; provided that the Aggregate Closing Consideration
will in no event exceed $11.0 million.
(ii) If the Closing Shareholders' Equity is less than the
Estimated Closing Shareholders' Equity, then the Aggregate Closing Consideration
will be decreased by, and each Shareholder will pay to Buyer, the amount of such
difference multiplied by such Shareholders' Percentage Interest.
(b) Any payment in respect of an adjustment required to be
made under Section 2.5(a) will be made by Buyer or the Shareholders, as
applicable, in cash by wire transfer of immediately available funds to one
account specified by Buyer or the Shareholders' Representative (for the benefit
of the Shareholders), as applicable, in writing, prior to the date such payment
is required to be made hereunder. Such payment will be made on such of the
following dates as may be applicable: (i) if the Shareholders' Representative
shall have not objected to the preparation of the Closing Date Balance Sheet and
the determination of the Closing Shareholders' Equity, the earlier of (A) 30
days after delivery to the Shareholders' Representative of the Closing Date
Balance Sheet and Closing Shareholders' Equity Statement or (B) five days after
the Shareholders' Representative has indicated that he has no objections to the
preparation of the Closing Date Balance Sheet and the determination of the
Closing Shareholders' Equity, or (ii) if the Shareholders' Representative shall
have objected to the preparation of the Closing Date Balance Sheet and the
determination of the Closing Shareholders' Equity by Buyer, within five Business
Days following final agreement or decision with respect to the Closing Date
Balance Sheet and the Closing Shareholders' Equity as provided in Section 2.4
and this Section 2.5.
2.6. DISPOSITION OF ESCROW AMOUNT. (a) As soon as practicable
(and in no event later than 90 days after the end of the second quarter of CFI's
Fiscal Year ended October 31, 1999), Buyer shall prepare and deliver to the
Shareholders' Representative a statement of EBITDA for CFI and its subsidiaries
(an "EBITDA STATEMENT") for the first two quarters of CFI's Fiscal Year ended
October 31, 1999 (such EBITDA Statement, the "ESCROW EBITDA STATEMENT") prepared
in accordance with GAAP and the Balance Sheet Principles.
(b) If within 45 days after the date of the Buyer's delivery
of the EBITDA Statement, the Shareholders' Representative determines in good
faith that the Escrow EBITDA Statement and the Q1/Q2 EBITDA have not been
prepared and determined in accordance with this Agreement, the Shareholders'
Representative will give written notice to Buyer within such 45 day period (i)
setting forth the Shareholders' Representative's proposed changes to the Escrow
EBITDA Statement and (ii) specifying in reasonable detail the Shareholders'
Representative's basis for disagreement with the preparation of the Escrow
EBITDA Statement
13
and the determination of the Q1/Q2 EBITDA. The failure by the Shareholders'
Representative to so express disagreement and provide such specification
within such 45 day period will constitute the acceptance by the Shareholders
of the preparation of the Escrow EBITDA Statement and the determination of
the Q1/Q2 EBITDA. If Buyer and the Shareholders' Representative are unable to
resolve any disagreement between them with respect to the preparation of the
Escrow EBITDA Statement and the determination of the Q1/Q2 EBITDA within 30
days after the giving of notice by the Shareholders' Representative to Buyer
of such disagreement, the items in dispute will be referred by Buyer for
determination to the Accountants as promptly as practicable, but not later
than five Business Days after the expiration of such 30 day period. Buyer and
the Shareholders' Representative will use reasonable efforts to cause the
Accountants to render their decision as soon as practicable thereafter,
including without limitation by promptly complying with all reasonable
requests by the Accountants for information, books, records and similar
items. Buyer and the Shareholders' Representative will cause the Accountants
to make a determination as to each of the items in dispute (but only those
items in dispute), which determination will be (A) in writing, (B) furnished
to each of the parties hereto as promptly as practicable after the items in
dispute have been referred to the Accountants (but in no event later than 30
days thereafter) and (C) made in accordance with this Section 2.6. Such
determination by the Accountants will be conclusive and binding upon each of
the parties hereto. Nothing herein will be construed to authorize or permit
the Accountants to determine (i) any question or matter whatsoever under or
in connection with this Agreement, except the determination of what
adjustments, if any, must be made in one or more disputed items reflected in
the Escrow EBITDA Statement delivered by Buyer in order for the Q1/Q2 EBITDA
to be determined in accordance with the provisions of this Section 2.6, or
(ii) a Q1/Q2 EBITDA that is not equal to one of, or between, the Q1/Q2 EBITDA
as determined by the Shareholders' Representative and as determined by Buyer.
The fees and expenses of the Accountants will be paid by the party whose Last
Offer varies by the greatest absolute amount from the determination by the
Accountants of all such disputed items. No party will disclose to the
Accountants, and the Accountants will not consider for any purpose, any
settlement discussions or settlement offer (other than the Last Offer) made
by any party.
(c) During the period that the Shareholders' Representative's
advisors and personnel are conducting their review of Buyer's preparation of the
Escrow EBITDA Statement, the Shareholders' Representative and his
representatives will have reasonable access during normal business hours to the
work papers, prepared by or on behalf of Buyer and its representatives in
connection with Buyer's preparation of the Escrow EBITDA Statement; PROVIDED,
HOWEVER, that the Shareholders' Representative will conduct such review in a
manner that does not unreasonably interfere with the conduct of the business of
Buyer or the Company or result in substantial out-of-pocket costs to the
Company. To the extent that such work-papers are in the control of the
Shareholders' Representative, the Shareholders' Representative will grant Buyer
and its representatives reciprocal access rights for the purpose of finalizing
the preparation of the Escrow EBITDA Statement and the determination of the
Q1/Q2 EBITDA. The Shareholders' Representative and Buyer agree in good faith to
use all reasonable efforts to provide such information and access described in
this Section 2.6(c).
(d) Within five Business Days after the final determination of
the Escrow EBITDA Statement and the Q1/Q2 EBITDA in accordance with this Section
2.6, Buyer and the Shareholders' Representative or, if applicable, the
Accountants will execute and deliver, to the Escrow Agent, a certificate
reflecting the amounts to be distributed as determined in accordance
14
with this Section 2.6 and the Escrow Amount (together with all Investment
Income, as defined in the Escrow Agreement) shall be disbursed as follows:
(i) If the Q1/Q2 EBITDA is equal to or greater than
$3,000,000, the entire Escrow Amount (together with all Investment
Income) will be disbursed to the Shareholders' Representative for the
benefit of the Shareholders, subject to and in accordance with the
terms of the Escrow Agreement.
(ii) If the Q1/Q2 EBITDA is greater than $2,500,000 and less
than $3,000,000, a portion of the Escrow Amount equal to the product
(such product not to exceed the Escrow Amount) of (A) the Escrow Amount
and (B) the following fraction will be disbursed to the Shareholders'
Representative for the benefit of the Shareholders, subject to and in
accordance with the terms of the Escrow Agreement:
Q1/Q2 EBITDA - $2,500,000
-------------------------
$500,000
The applicable pro rata portion of all Investment Income with respect
to the above-referenced portion of the Escrow Amount to be disbursed to
the Shareholders' Representative in this Section 2.6(d)(ii) will be
disbursed together with such portion of the Escrow Amount, subject to
and in accordance with the terms of the Escrow Agreement. The balance
of the Escrow Amount, if any (together with all Investment Income with
respect to such balance) will be disbursed to Buyer or its designee,
subject to and in accordance with the terms of the Escrow Agreement.
(iii) If the Q1/Q2 EBITDA is equal to or less than $2,500,000,
the entire Escrow Amount (together with all Investment Income) will be
disbursed to Buyer or its designee, subject to and in accordance with
the terms of the Escrow Agreement.
2.7. EARNOUT AMOUNT. As further consideration for the Transfer
of the Common Stock to Buyer, the Shareholders will be eligible to receive up to
an additional $15.7 million (the "EARNOUT AMOUNT"), subject to the following
terms and conditions:
(a) As soon as practicable (and in no event later than 90 days
after the end of the applicable Fiscal Years of CFI set forth below in this
Section 2.7(a), Buyer will prepare and deliver to the Shareholders'
Representative an EBITDA Statement for each Fiscal Year of CFI ended October 31,
1999 and 2000 (collectively, the "EARNOUT EBITDA STATEMENTS"), prepared in
accordance with GAAP and the Balance Sheet Principles. Each such Earnout EBITDA
Statement and the 1999 EBITDA and 2000 EBITDA determined therein will be
otherwise prepared, reviewed and finally determined on basis consistent with
Sections 2.6(b) and 2.6(c) above.
(b) An amount equal to $5.0 million multiplied by the 1999
Payout Ratio will be payable to the Shareholders within five Business Days after
determination of the EBITDA of CFI for CFI's Fiscal Year ended October 31, 1999
("1999 EBITDA") in accordance with this Agreement. The "1999 PAYOUT RATIO" will
equal a fraction, the numerator of which will be 1999 EBITDA less $6.0 million,
and the denominator of which shall be $4.0 million; PROVIDED,
15
that the 1999 Payment Ratio will in no event exceed 1.0; and PROVIDED, FURTHER,
that if the 1999 Payout Ratio is negative, no amount under this Section 2.7(b)
will be payable to the Shareholders.
(c) An amount equal to $10.7 million multiplied by the 2000
Payout Ratio will be payable to the Shareholders within five Business Days after
determination of the EBITDA of CFI for CFI's Fiscal Year ended October 31, 2000
("2000 EBITDA") in accordance with this Agreement. The "2000 PAYOUT RATIO" will
equal a fraction, the numerator of which will be 2000 EBITDA less $6.6 million,
and the denominator of which shall be $4.4 million; provided that the 2000
Payout Ratio will in no event exceed 1.0; provided further that if the 2000
Payout Ratio is negative, no amount under this Section 2.7(c) will be payable to
the Shareholders.
(d) Payments required under this Section 2.7 will be made by
or on behalf of Buyer when due pursuant to the applicable subsection of this
Section 2.7; provided that Buyer may, in its discretion, make all or any portion
of such payments when due either by: (i) wire transfer of immediately available
funds to one account specified by the Shareholders' Representative (for the
Shareholders' benefit) in writing prior to the date such payment is due, or (ii)
by delivery to the Shareholders' Representative (for the Shareholders' benefit)
of unsecured, subordinated promissory notes (collectively, "EARNOUT NOTES")
issued by Precision Partners Holding Company to each Shareholder in principal
amount equal to the aggregate Earnout Amount then due pursuant to this Section
2.7 multiplied by such Shareholder's Percentage Interest. Each such Earnout Note
will be in substantially to the effect set forth in EXHIBIT F-1. Each
Shareholder agrees to execute and deliver to Buyer at the Closing a
subordination agreement substantially to the effect set forth in EXHIBIT F-2
(subject to reasonable revision prior to the Closing pursuant to the
requirements of Buyer's lenders and as necessary to avoid "push down" accounting
treatment of the Earnout Notes) to be effective as to a Shareholder upon the
issuance of an Earnout Note pursuant to this Section 2.7(d) to such Shareholder.
(e) Earnout Amounts payable to Mr. Reagan will, if previously
unpaid, be subject to setoff at the discretion of Buyer or the issuer of the
Earnout Notes, to the extent that Buyer or any other subsidiary of Precision
Partners Holding Company is damaged as a result of the breach by Mr. Reagan of
his obligations under Section 1(b) of his Noncompetition Agreement.
2.8. CLOSING. The closing of the Purchase (the "CLOSING") will
take place at the offices of Jones, Day, Reavis & Pogue located at 599 Lexington
Avenue, New York, New York, at 10:00 a.m., New York time as soon as possible
after the date hereof but in no event later than ten Business Days after the
satisfaction or waiver of the conditions to Closing (the date on which the
Closing occurs is herein referred to as the "CLOSING DATE"). At the Closing, the
Shareholders and the Companies will also deliver the other agreements,
instruments and certificates provided for in Article VII.
2.9. PROCEEDINGS. Except as otherwise specifically provided
for herein, all proceedings that will be taken and all documents that will be
executed and delivered by the parties hereto on the Closing Date will be deemed
to have been taken and executed simultaneously, and no proceeding will be deemed
taken nor any document executed and delivered until all have been taken,
executed and delivered.
16
III. REPRESENTATIONS AND WARRANTIES
OF THE COMPANIES AND THE SHAREHOLDERS
3.1. The Shareholders and each of the Companies (severally but
not jointly) represent and warrant to Buyer as of the date hereof and the
Closing Date as follows:
3.1.1. CORPORATE EXISTENCE AND POWER. Each of the Companies is
a corporation duly incorporated, validly existing and in good standing under the
laws of its jurisdiction of incorporation. Each of the Companies has all
corporate power and all governmental licenses, authorizations, permits, consents
and approvals required to carry on its business as now conducted, except where
the failure to have any such governmental licenses, authorizations, permits,
consents and approvals could not reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect. Each of the Companies is duly
qualified to conduct business as a foreign corporation and is in good standing
in each jurisdiction where such qualification is necessary except for those
jurisdictions where the failure to be so qualified or in good standing could not
reasonably be expected to, individually or in the aggregate, have a Material
Adverse Effect. Each of the Companies has heretofore delivered to Buyer true and
complete copies of each of its respective articles of incorporation and by-laws.
3.1.2. CORPORATE AUTHORIZATION; ENFORCEABILITY. The execution,
delivery and performance by each of the Companies of this Agreement are within
its corporate powers and have been duly authorized by all necessary corporate
action on its part. This Agreement has been duly executed and delivered by such
Company and constitutes and will constitute as of the Closing Date the valid and
binding agreement of such Company, enforceable against it in accordance with its
terms, except to the extent that its enforceability may be subject to applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws affecting
the enforcement of creditors' rights generally and by general equitable
principles.
3.1.3. GOVERNMENTAL AUTHORIZATION. Except as may be required
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR ACT"), the execution, delivery and performance by the Companies of this
Agreement require no action by or in respect of, or filing with, any
Governmental Authorities.
3.1.4. NON-CONTRAVENTION; CONSENTS. Except as disclosed on
SCHEDULE 3.1.4, the execution, delivery and performance by the Companies of this
Agreement will not (a) violate the articles of incorporation or by-laws or
comparable organizational documents of either of the Companies, (b) violate any
applicable Law or Order, (c) require any filing with or permit, consent or
approval of, or the giving of any notice to, any Person other than as provided
in Section 3.1.3 (including filings, consents or approvals required under any
permits of either of the Companies or any licenses to which either of the
Companies is a party), (d) result in a violation or breach of, conflict with,
constitute (with or without due notice or lapse of time or both) a default
under, or give rise to any right of termination, cancellation or acceleration of
any right or obligation of, either of the Companies or to a loss of any benefit
to which either of the Companies is entitled under any agreement or other
instrument binding upon, either of the Companies or any license, franchise,
permit or other similar authorization held by either of the Companies, or (e)
result in the creation or imposition of any Lien on any asset of either of the
Companies, except in the case of clauses (c), (d) and (e) for such filings,
permits, consents,
17
approvals or notices and violations, breaches, conflicts and Liens which,
individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect.
3.1.5. CAPITALIZATION. (a) Immediately prior to the Closing,
the authorized, issued and outstanding Capital Stock of the Companies will be as
set forth on SCHEDULE 3.1.5(a). The Common Stock to be acquired by Buyer will be
duly authorized, validly issued, fully-paid, nonassessable and free and clear of
any Lien and, subject to applicable federal and state securities laws, will be
free and clear of any other limitation or restriction (including any restriction
on the right to vote, sell or otherwise dispose of such shares).
(b) Except as disclosed in SCHEDULES 3.1.5(a) and 3.1.5(b),
there are no outstanding (i) shares of capital stock or other securities of
either of the Companies, (ii) securities of either of the Companies convertible
into or exchangeable for shares of capital stock or other securities of either
of the Companies, or (iii) options or other rights to acquire from either of the
Companies, or other obligation of either of the Companies to issue, any capital
stock, other securities or securities convertible into or exchangeable for
capital stock or other securities of either of the Companies (the items in
clauses (i), (ii) and (iii) being referred to collectively as the "COMPANY
SECURITIES"). Except as disclosed in SCHEDULE 3.1.5(b), there are no outstanding
obligations of either of the Companies to repurchase, redeem or otherwise
acquire any Company Securities.
(c) Except as disclosed in SCHEDULE 3.1.5(c) and except for
investments reflected in the Audited Statements, neither of the Companies owns
any Capital Stock or other equity or ownership or proprietary interest in any
corporation, partnership, association, trust, joint venture or other entity.
3.1.6. FINANCIAL STATEMENTS; BOOKS AND RECORDS. (a) The
Audited Statements, including the footnotes thereto, fairly present in all
material respects the financial position of CFI at the respective dates thereof
and the results of the operations and cash flows of CFI for the periods
indicated.
(b) CFI has heretofore furnished Buyer the Monthly CFI
Financial Statements through the month ended January 31, 1999. Such Monthly CFI
Financial Statements have been, and the Monthly CFI Financial Statements
required to be delivered pursuant to Section 5.7 when delivered shall have been,
prepared from the books and records of CFI (including the general ledger) and
fairly present or will fairly present (in the case of the Monthly CFI Financial
Statements required to be delivered pursuant to Section 5.7) in all material
respects the financial position of CFI at the respective dates thereof and the
results of operations of CFI for the respective periods indicated, in each case,
subject to the adjustments required by reason of the methodology used in the
calculation of annual net income in the Audited Statements.
(c) Calbrit has heretofore furnished Buyer the Calbrit
Financial Statements through October 31, 1998. Such Calbrit Financial Statements
have been, and the Calbrit Financial Statements required to be delivered
pursuant to Section 5.7 when delivered shall have been, prepared from the books
and records of Calbrit (including the general ledger) and fairly present or will
fairly present (in the case of the Calbrit Financial Statements required to be
delivered pursuant to Section 5.7) in all material respects the financial
position of Calbrit at the respective dates thereof and results of operations of
Calbrit for the respective periods indicated,
18
in each case, subject to adjustments, if any, required by reason of the
methodology used in the calculation of annual net income in the Audited
Statements.
(d) Except as disclosed on SCHEDULE 3.1.6(d), there have been
no changes in either of the Companies' reserve or accrual amounts or policies
from the Balance Sheet Date.
(e) The books of account, minute books, stock record books,
and other corporate records of the Companies, all of which have been made
available to Buyer, are in all material respects complete and correct and have
been maintained in accordance with customary business practices. The minute
books of each of the Companies in all material respects contain accurate and
complete records of all meetings held of, and corporate action taken by, the
Shareholders and the Board of Directors of each of the Companies, and no meeting
of any such Shareholders or Board of Directors has been held for which minutes
have not been prepared and are not contained in such minute books. There are no
and have not been any committees of the Board of Directors of either Company
during the five years preceding the date hereof.
3.1.7. NO UNDISCLOSED LIABILITIES. There are no liabilities of
the Companies or any facts or circumstances which could give rise to liabilities
of either of the Companies, whether accrued, contingent, absolute, determined,
determinable or otherwise, other than (a) liabilities fully provided for in the
most recent Monthly CFI Financial Statements and Calbrit Financial Statements
prior to the date hereof; (b) liabilities expressly disclosed on SCHEDULE 3.1.7
or on any other Schedule attached to this Agreement or (c) other undisclosed
liabilities incurred since the Balance Sheet Date in the ordinary course of
business which, individually or in the aggregate, could not have a Material
Adverse Effect.
3.1.8. INTERCOMPANY ACCOUNTS. SCHEDULE 3.1.8 contains a
complete list of all intercompany balances through the date of this Agreement
between any Shareholder and such Shareholder's Affiliates, on the one hand, and
either of the Companies, on the other hand. Other than (a) as disclosed on
SCHEDULE 3.1.8, (b) the lease agreements listed on Schedule 3.1.15(b) and marked
with an asterisk and (c) compensation paid in the ordinary course consistent
with past practice, since such date, there has not been any accrual of liability
by either of the Companies to any Shareholder or such Shareholder's Affiliates
or other transaction between either of the Companies and any Shareholder and
such Shareholder's Affiliates or any action taken (other than this Agreement)
which could reasonably be expected to result in any such accrual, or the
incurrence of any legal or financial obligation to any such Person, after such
date.
3.1.9. TAX MATTERS. (a) Except as disclosed in SCHEDULE
3.1.9(a):
(i) All Tax returns, statements, reports and forms (including
estimated tax or information returns and reports) required to be filed
with any Taxing Authority with respect to any Pre-Closing Tax Period by
or on behalf of either of the Companies (collectively, the "RETURNS")
have, to the extent required to be filed on or before the date hereof,
been filed when due in accordance with all applicable laws;
(ii) The Returns correctly reflect in all material respects,
the income, business, assets, and financial status of each of the
Companies consistent with applicable Law;
(iii) All Taxes owed by each of the Companies (whether or not
shown as due
19
and payable on the Returns) have been timely paid, or withheld and
remitted to the appropriate Taxing Authority or reserved in the most
recent balance sheet contained in the Monthly CFI Financial Statements
and the Calbrit Financial Statements;
(iv) Any reserves established for Taxes with respect to either
of the Companies for any Pre-Closing Tax Period (including any
Pre-Closing Tax Period for which no Return has yet been filed)
reflected on the books of either of the Companies (excluding any
provision for deferred income taxes) are adequate in accordance with
GAAP;
(v) Neither of the Companies is delinquent in the payment of
any Tax and neither of the Companies has requested any extension of
time within which to file any Return except for extensions granted as a
matter of right or granted automatically upon the filing of a request
for such extension;
(vi) Each of the Companies (or any member of any affiliated,
consolidated, combined or unitary group of which either of the
Companies is or has been a member) has not granted any extension or
waiver of the statute of limitations period applicable to any Return,
which period (after giving effect to such extension or waiver) has not
yet expired;
(vii) There is no action, suit, claim, audit, investigation or
proceeding now pending, (in each case, in respect of which either of
the Companies or any Shareholder has been served with process or has
otherwise received written notice) or, to the knowledge of either of
the Companies, threatened against or with respect to either of the
Companies in respect of any Tax;
(viii) Neither of the Companies owns any interest in real
property in any jurisdiction in which a Tax is imposed on the transfer
of a controlling interest in an entity that owns any interest in real
property;
(ix) Neither of the Companies nor any other Person on behalf
of either of the Companies has entered into any agreement or consent
pursuant to Section 341(f) of the Code;
(x) There are no Liens for Taxes upon the assets of either of
the Companies, except Liens for current Taxes not yet due;
(xi) Neither of the Companies will be required to include any
adjustment in taxable income for any Post-Closing Tax Period under
Section 481(c) of the Code (or any similar provision of the Tax laws of
any jurisdiction) as a result of a change in method of accounting for a
Pre-Closing Tax Period or pursuant to the provisions of any agreement
entered into with any Taxing Authority with regard to the Tax liability
of either of the Companies for any Pre-Closing Tax Period;
(xii) Neither of the Companies has been a member of an
affiliated, consolidated, combined or unitary group or participated in
any other arrangement whereby any income, revenues, receipts, gain or
loss of either of the Companies was
20
determined or taken into account for Tax purposes with reference to or
in conjunction with any income, revenues, receipts, gain, loss, asset
or liability of any other Person; and
(xiii) Neither of the Companies has been an "S Corporation"
within the meaning of the Code at any time during the ten years prior
to the Closing Date.
(b) SCHEDULE 3.1.9(b) contains a list of all jurisdictions
(whether foreign or domestic) to which any Tax imposed on overall net income is
properly payable for a Pre-Closing Tax Period by either of the Companies.
3.1.10. ABSENCE OF CERTAIN CHANGES. Except as disclosed on
SCHEDULE 3.1.10, since the Balance Sheet Date, there has not been any event,
occurrence, development, circumstances or state of facts which (a) has had or
could reasonably be expected to have a Material Adverse Effect or (b) would have
constituted a violation of any covenant of any Shareholder or either of the
Companies hereunder (including Section 5.1) had such covenant applied to any of
them since the Balance Sheet Date; provided, however, that no representation or
warranty is made hereunder with respect to macro-economic or industry conditions
which are generally available to the public.
3.1.11. CONTRACTS. (a) Except as expressly disclosed in
SCHEDULE 3.1.11(a) or any other Schedule attached hereto, neither of the
Companies is a party to or bound by any of the following, including all
amendments and supplements thereto (whether written or oral, unless otherwise
expressly set forth below in this Section 3.11):
(i) any lease (whether of real or personal property) providing
for annual rentals of $25,000 or more;
(ii) any agreement (other than purchase orders or invoices in
the ordinary course of business) for the purchase of materials,
supplies, goods, services, equipment or other assets (including in
terms of quantity and dollar amount) which by its terms requires either
(A) annual payments by either of the Companies of $25,000 or more or
(B) aggregate annual payments by the Companies of $50,000 or more;
(iii) any sales, distribution or other similar agreement
(other than purchase orders or invoices in the ordinary course of
business) providing for the sale by the Company or any Subsidiary of
materials, supplies, goods, services, equipment or other assets that
provides for either (A) annual payments to either of the Companies of
$25,000 or more or (B) aggregate annual payments to the Companies of
$50,000 or more;
(iv) any partnership, joint venture or limited liability
company agreement;
(v) any agreement, other than this Agreement, relating to the
acquisition or disposition of any business (whether by merger, sale of
stock, sale of assets or otherwise);
21
(vi) any agreement evidencing Indebtedness (in any case,
whether incurred, assumed, guaranteed or secured by any asset) of
either of the Companies, other than any agreement identified in any
other subparagraph of this Section 3.1.11;
(vii) any license, franchise or similar agreement (other than
"off the shelf" computer software licenses or as disclosed on SCHEDULE
3.1.16);
(viii) any agency, dealer, sales representative, marketing or
other similar agreement, other than any agreement identified in clause
(xiv) below;
(ix) other than the Noncompetition Agreements to be entered
into as part of the transactions contemplated hereby, any agreement or
covenant of either of the Companies not to compete in any line of
business, geographic area or with any Person or which would so limit
the freedom of either of the Companies after the Closing Date;
(x) other than the lease agreements disclosed on SCHEDULE
3.1.15(b) and marked with an asterisk, any agreement with (A) any
Shareholder or any of such Shareholder's Affiliates, (B) any Person
directly or indirectly owning, controlling or holding with power to
vote, 5% or more of the outstanding voting securities of any
Shareholder's Affiliates, (C) any Person 5% or more of whose
outstanding voting securities are directly or indirectly owned,
controlled or held with power to vote by a Shareholder or any of such
Shareholder's Affiliates, (D) any director or officer of a
Shareholder's Affiliates or any "associates" or members of the
"immediate family" (as such terms are respectively defined in Rule
12b-2 and Rule 16a-1 of the Exchange Act) of any such director or
officer, or (E) any director or officer of either of the Companies or
with any "associate" or any member of the "immediate family" (as such
terms are respectively defined in Rules 12b-2 and 16a-1 of the Exchange
Act) of any such director or officer;
(xi) other than any agreements identified in clause (vi)
above, any agreement, indenture or other instrument which contains
restrictions with respect to payment of dividends or any other
distribution in respect of capital stock of either of the Companies;
(xii) any management service, consulting or any other similar
type of contract;
(xiii) any warranty, guaranty or other similar undertaking
with respect to a contractual performance extended by either of the
Companies other than in the ordinary course of business consistent with
past practice;
(xiv) any written employment, deferred compensation,
severance, bonus, retirement or other similar agreement or plan in
effect as of the date hereof and entered into or adopted by either of
the Companies, on the one hand, and any director or officer of either
of the Companies or any other employee of either of
22
the Companies receiving annual compensation of $100,000 or more, on the
other hand; or
(xv) any other agreement, commitment, arrangement or plan not
made in the ordinary course of business that is material to the
operations or business of either of the Companies as currently
conducted or as conducted between the date hereof and the Closing Date.
(b) Except as set forth on SCHEDULE 3.1.11(b), each agreement,
contract, plan, lease, arrangement or commitment disclosed in SCHEDULE 3.1.11(a)
or any other Schedule to this Agreement or required to be disclosed pursuant to
this Section has, in the case of such written agreements, contracts, plans,
leases, arrangements or commitments, been executed and delivered by the Company
and, to the knowledge of the Companies and the Shareholders, is in full force
and effect and neither CFI, or, to the knowledge of either of the Companies and
the Shareholders, any other party thereto, is in default or breach in any
material respect under the terms of any such agreement, contract, plan, lease,
arrangement or commitment. To the knowledge of each of the Companies and the
Shareholders, there is no event, occurrence, condition or act (including the
consummation of the transactions contemplated hereby) which, with the giving of
notice or the passage of time, or the happening of any other event or condition,
could become a material default or event of default thereunder.
(c) SCHEDULE 3.1.11(c) sets forth every continuing obligation
to pay as of the Closing Date by either of the Companies in the past three years
of any severance or termination pay to any director or officer of either of the
Companies or any other employee of either of the Companies receiving annual
compensation of $100,000 or more.
3.1.12. INSURANCE COVERAGE. Each of the Companies has
furnished to Buyer a list of, and true and complete copies of, all insurance
policies and fidelity bonds covering the assets, business, operations,
employees, officers and directors of each of the Companies. To the knowledge of
the Companies and the Shareholders, there is no material claim asserted by
either of the Companies pending under any of such policies or bonds as to which
coverage has been questioned, denied or disputed by the underwriters of such
policies or bonds. All premiums which have become due and payable under all such
policies and bonds have been paid and each of the Companies has complied in all
material respects with the terms and conditions of all such policies and bonds.
Such policies of insurance and bonds (or other policies and bonds providing
substantially similar insurance coverage) are in full force and effect. Such
policies of insurance and bonds are of the type and in amounts reasonably deemed
by the respective management of each of the Companies to be sufficient to cover
risks reasonably anticipated by such management based upon past risk occurrences
and knowledge of operations. Neither of the Companies knows of any threatened
termination of, or premium increase with respect to, any of such policies or
bonds.
3.1.13. LITIGATION. Except as disclosed in SCHEDULE 3.1.13,
there is no action, suit, investigation, arbitration or administrative or other
proceeding (in each case, in respect of which either of the Companies or any of
the Shareholders has been served with process or has otherwise received written
notice) pending, or, to the knowledge of either of the Companies or any
Shareholder, threatened against or affecting either of the Companies or any
Shareholder or any properties of either Company before any court or arbitrator
or any Governmental Authorities
23
which, if determined or resolved adversely to either of the Companies, could
reasonably be expected to, individually or when considered together with all
other such matters, (a) materially and adversely affect the right or ability of
either of the Companies to carry on its business as now conducted, (b) have a
Material Adverse Effect, or (c) which in any manner challenges or seeks to
prevent, enjoin, alter or materially delay the transactions contemplated by this
Agreement; and neither of the Companies or any Shareholder knows of any valid
basis for any such action, proceeding or investigation.
3.1.14. COMPLIANCE WITH LAWS; PERMITS. (a) Except as disclosed
in SCHEDULE 3.1.14(a), neither of the Companies is and neither of the Companies
has been since the Balance Sheet Date in violation of any applicable Law or
Order, except for such violations that have not had and could not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect.
(b) SCHEDULE 3.1.14(b) sets forth a list of each government or
regulatory license, authorization, permit, consent and approval necessary for
the conduct of the business of such Company as conducted on the Balance Sheet
Date and through and including the Closing Date. Except as disclosed in SCHEDULE
3.1.14(b) each such license, authorization, permit, consent and approval, to the
knowledge of the Companies and the Shareholders, is valid and in full force and
effect, and will not be terminated or impaired (or become terminated or
impaired) as a result of the transactions contemplated hereby. Neither of the
Companies is in default under, and no condition exists that with notice or lapse
of time or both would constitute a default under, any license, franchise,
permit, consent or approval or similar authorization held by either of the
Companies except for such defaults which could not, individually or in the
aggregate reasonably be expected to have a Material Adverse Effect.
3.1.15. PROPERTIES; SUFFICIENCY OF ASSETS. (a) Except as
disclosed in SCHEDULE 3.1.15(a) and except for inventory disposed of in the
ordinary course of business, the Companies have good title to, or in the case of
leased property have valid leasehold interests in, all property and assets
(whether real or personal, tangible or intangible) reflected in the Audited
Balance Sheet or acquired after the Balance Sheet Date. None of such property or
assets is subject to any Liens, except for (i) Liens disclosed in the Audited
Balance Sheet; (ii) Liens for Taxes not yet due or being contested in good faith
(and for which adequate accruals or reserves have been established on the
Audited Balance Sheet); and (iii) Permitted Liens.
(b) SCHEDULE 3.1.15(b) sets forth a list of all real property
assets owned or leased by each of the Companies ("REAL PROPERTY"). Except as
disclosed on SCHEDULE 3.1.15(b), all such leases of real property have been
executed and delivered by the Company and, to the knowledge of the Companies and
the Shareholders, are in full force and effect. The applicable Company is a
tenant or possessor in good standing thereunder and all rents due under such
leases have been paid. There does not exist under any such lease any default or
any event which with notice or lapse of time or both would constitute a default,
except for such defaults that have not and could not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect. Each of the
Companies is in peaceful and undisturbed possession of the space and/or estate
under each lease of which it is a tenant and has good and valid rights of
ingress and egress to and from all the Real Property from and to the public
street systems for all usual street, road and utility purposes. Neither of the
Companies nor any Shareholder has received any notice of any appropriation,
condemnation or like proceeding, or of any violation of any applicable
24
zoning Law or Order relating to or affecting the Real Property, and to each of
the Companies' and each Shareholder's knowledge, no such proceeding has been
threatened or commenced.
(c) The assets owned or leased by each of the Companies
(including, real, personal, tangible and intangible property), or which they
otherwise have the right to use (including, real, personal, tangible and
intangible property), constitute all of the assets held for use or used in
connection with the businesses of the Companies and are generally in good
operating condition and repair (normal wear and tear excepted) and are adequate
to conduct such businesses as currently conducted.
3.1.16. INTELLECTUAL PROPERTY. Except as disclosed in SCHEDULE
3.1.16, neither of the Companies owns or uses (under license or otherwise) any
proprietary Intellectual Property Rights in connection with the operation of its
business. Neither of the Companies has since January 1, 1993, been sued or
charged in writing with or been a defendant in any claim, suit, action or
proceeding relating to its business that is either pending (in respect of which
either of the Companies or any Shareholder has been served with process or has
otherwise received written notice), or, to the knowledge of either of the
Companies or any Shareholder, threatened that, in either case, has not been
finally terminated prior to the date hereof and that involves a claim of
infringement by either of the Companies of any trademark, service mark, trade
name, invention, patent, trade secret, copyright, know-how or any other similar
type of proprietary intellectual property right of any other Person or
continuing infringement by any other Person of any Intellectual Property Rights,
and neither of the Companies has any knowledge of any basis for such claim of
infringement or of any continuing infringement by any other Person of any
Intellectual Property Rights.
3.1.17. ENVIRONMENTAL MATTERS. (a) Except as disclosed in
SCHEDULE 3.1.17:
(i) Constituents of Concern have not been generated, recycled,
used, treated or stored on, transported to or from, or released or
disposed on, the Company Property or, to the knowledge of each of the
Companies and the Shareholders, any property adjoining or adjacent
except in compliance with Environmental Laws;
(ii) Except as could not individually, or in the aggregate,
reasonably be expected to have a Material Adverse Effect, each of the
Companies is in compliance with Environmental Laws and the requirements
of permits issued under such Environmental Laws with respect to the
Company Property;
(iii) There are no pending Environmental Claims (in respect of
which either of the Companies or any Shareholder has been served with
process or has received written notice) against either of the Companies
or any Company Property, or, to the knowledge of each of the Companies
and the Shareholders, threatened Environmental Claims against either of
the Companies or any Company Property;
(iv) There are not now and, to the knowledge of each of the
Companies and the Shareholders, there have never been any underground
storage tanks or sumps located on any Company Property or, to the
knowledge of each of the
25
Companies and the Shareholders, located on any property that adjoins or
is adjacent to any Company Property;
(v) Neither of the Companies nor any Company Property is
listed or has received notice of proposed listing on the National
Priorities List under CERCLA, or CERCLIS (as defined in CERCLA) or on
any similar federal, state or foreign list of sites requiring
investigation or clean-up;
(vi) Neither of the Companies has any liability under any
Environmental Law (including an obligation to remediate any
Environmental Condition whether caused by either of the Companies or
any other Person) which could reasonably be expected to have a Material
Adverse Effect.
(b) There has been no environmental investigation, study,
audit, test, review or other analysis commenced or conducted by or at the
request of either of the Companies (or by a third party of which either of the
Companies or any Shareholder has knowledge (other than the Companies' past and
current lenders)) in relation to the current or prior business of either of the
Companies, or any property or facility currently or, to the knowledge of either
of the Companies or any Shareholder, previously owned or leased by either of the
Companies, which has not been disclosed or delivered to Buyer prior to the date
hereof.
(c) Neither of the Companies owns or leases or has owned or
leased any property, and does not conduct and has not conducted any operations
(other than periodic shipments of product), in New Jersey or Connecticut.
(d) For purposes of this Section, the terms "Company" or
"Companies" (including the use of such terms in the term "Company Property")
will include any entity which is, in whole or in part, a predecessor of either
of the Companies.
3.1.18. PLANS AND MATERIAL DOCUMENTS. (a) SCHEDULE 3.1.18(a)
sets forth a list of all employee benefit plans (as defined in Section 3(3) of
ERISA), and all other employee benefit plans, programs, arrangements, contracts
or schemes, written or oral, statutory or contractual, with respect to which
either of the Companies or any ERISA Affiliate has or has had in the six years
preceding the date hereof any obligation or liability or which are or were in
the six years preceding the date hereof maintained, contributed to or sponsored
by either of the Companies or any ERISA Affiliate for the benefit of any current
or former employee, officer or director of either of the Companies or any ERISA
Affiliate (collectively, the "PLANS"). With respect to each employee pension
benefit plan subject to ERISA, CFI has delivered to Buyer a true and complete
copy of each such Plan (including all amendments thereto) and a true and
complete copy of each material document (including all amendments thereto)
prepared in connection with each such Plan including, without limitation, (i) a
copy of each trust or other funding arrangement, (ii) each summary plan
description and summary of material modifications, and (iii) the most recently
filed IRS Form 5500 for each such Plan, if any. Neither of the Companies has any
express or implied commitment, whether legally enforceable or not, to create,
incur liability with respect to or cause to exist any employee benefit plan or
to modify any Plan, other than as required by law.
(b) Except as disclosed in SCHEDULE 3.1.18(b), none of the
Plans is a plan that is or has ever been subject to Title IV of ERISA, Section
302 of ERISA or Section 412 of the
26
Code. None of the Plans is (i) a "multiemployer plan" as defined in Section
3(37) of ERISA, (ii) a plan or arrangement described under Section 4(b)(5) or
401(a)(1) of ERISA, or (iii) a plan maintained in connection with a trust
described in Section 501(c)(9) of the Code. Except as disclosed in SCHEDULE
3.1.18(b), (A) none of the Plans provides for the payment of separation,
severance, termination or similar-type benefits to any person, and (B) none of
the Plans provides for or promises retiree medical or life insurance benefits to
any current or former employee, officer or director of either of the Companies
(other than as required by Section 601 of ERISA). Except as disclosed in
SCHEDULE 3.1.18(b), each of the Plans is subject only to the laws of the United
States or a political subdivision thereof.
(c) Except as disclosed in SCHEDULE 3.1.18(c), each Plan is in
compliance in all material respects with, and has always been operated in all
material respects in accordance with, its terms and the requirements of all
applicable law, foreign and domestic, and each of the Companies and the ERISA
Affiliates have satisfied in all material respects all of their statutory,
regulatory and contractual obligations with respect to each such Plan. No legal
action, suit or claim is pending or, to the knowledge of each of the Companies
and any Shareholder, threatened with respect to any Plan (other than claims for
benefits in the ordinary course) and no fact or event exists that could give
rise to any such action, suit or claim.
(d) Except as disclosed in SCHEDULE 3.1.18(d), each Plan or
trust which is intended to be qualified or exempt from taxation under Section
401(a), 401(k) or 501(a) of the Code has received a favorable determination
letter from the IRS that it is so qualified or exempt, and, to the knowledge of
the Companies and the Shareholders, no fact or event has occurred since the date
of such determination letter to adversely affect the qualified or exempt status
of any Plan or trust.
(e) There has been no non-exempt prohibited transaction
(within the meaning of Section 406 of ERISA or Section 4975 of the Code) with
respect to any Plan. Neither of the Companies nor any ERISA Affiliate has
incurred any material liability for any excise tax arising under Section 4971,
4972, 4975, 4980 or 4980B of the Code and, to the knowledge of the Companies and
the Shareholders, no fact or event exists which could give rise to such
liability. Neither of the Companies nor any ERISA Affiliate has incurred any
material liability relating to Title IV of ERISA (other than for the payment of
premiums to the Pension Benefit Guaranty Corporation), and, to the knowledge of
the Companies and the Shareholders, no fact or event exists which could give
rise to such liability.
(f) All material contributions, premiums or payments required
to be made with respect to any Plan have been made on or before their due dates.
All such contributions with respect to which the Companies have claimed a
deduction have been fully deducted for income tax purposes and no such deduction
has been challenged or disallowed by any Government Authorities, and, to the
knowledge of the Companies and the Shareholders, no fact or event exists which
could give rise to any such challenge or disallowance.
(g) There has been no amendment to, written interpretation of
or announcement (whether or not written) by either of the Companies or any ERISA
Affiliate thereof relating to, or change in employee participation or coverage
under, any Plan that would increase materially the expense of maintaining such
Plan above the level of the expense incurred in respect thereto for the most
recent fiscal year ended prior to the date hereof.
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(h) Except as disclosed in SCHEDULE 3.1.18(h) or in this
Agreement or the Ancillary Agreements, no employee or former employee of either
of the Companies or any ERISA Affiliate thereof will become entitled to any
bonus, retirement, severance, job security or similar benefit or enhanced such
benefit (including acceleration of vesting or exercise of an incentive award) as
a result of the transactions contemplated hereby.
(i) Except as disclosed in SCHEDULE 3.1.18(i) or any Schedule
under Section 3.1.5, no current or former employee of either of the Companies or
any ERISA Affiliate thereof holds any option to purchase shares of either of the
Companies.
3.1.19. INTERESTS IN CUSTOMERS, SUPPLIERS, ETC. Except as
disclosed in SCHEDULE 3.1.19 and except for the lease agreements listed in
SCHEDULE 3.1.15(b) and marked with an asterisk, to the knowledge of each of the
Companies and the Shareholders, no Shareholder, nor any other officer or
director of either of the Companies possesses, directly or indirectly, any
ownership interest in, or is a director, officer or employee of, any Person
which is a supplier, customer, lessor, lessee, licensor, developer, competitor
or potential competitor of either of the Companies. Ownership of securities of a
company whose securities are registered under the Exchange Act of 2% or less of
any class of such securities will not be deemed to be a financial interest for
purposes of this Section 3.1.19.
3.1.20. CUSTOMER, SUPPLIER AND EMPLOYEE RELATIONS; EMPLOYEE
COMPENSATION; BONUSES. (a) To the knowledge of the Companies and the
Stockholders, the relationships of each of the Companies with its customers,
suppliers and employees are good commercial working relationships. Except as
disclosed in SCHEDULE 3.1.20(a), none of the Companies' (i) existing customers
or suppliers has, since the Balance Sheet Date, canceled, terminated or
otherwise altered or notified either of the Companies of any intention or
otherwise threatened to cancel, terminate or alter the gross volume of purchases
and sales to or from either of the Companies or (ii) employees receiving annual
compensation in excess of $100,000 or having managerial status has canceled,
terminated or otherwise altered or notified either of the Companies of any
intention or otherwise threatened to cancel, terminate or materially alter his
or her employment relationship with either of the Companies, in the case of
clauses (i) and (ii) of this Section 3.1.20, which cancellations, terminations
or alterations having become effective prior to the Closing or having been
noticed to become effective as of, or within one year after, the Closing, other
than such cancellations, terminations or material alterations which could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. Except as disclosed on SECTION 3.1.20(a), as of the date hereof
there has not been, and each of the Companies has no knowledge that there will
be, any change in relations with material customers, material suppliers or
material employees of either of the Companies as a result of the transactions
contemplated by this Agreement.
(b) SCHEDULE 3.1.20(b) lists all bonuses and any other amounts
to be paid by either of the Companies to employees of either of the Companies at
or in connection with the Closing ("BONUSES").
3.1.21. OTHER EMPLOYMENT MATTERS. (a) Each of the Companies is
in material compliance with all Federal, state or other applicable laws,
domestic or foreign, respecting employment and employment practices, terms and
conditions of employment and wages and hours, and has not, and is not, engaged
in any unfair labor practice, which could, individually or
28
in the aggregate, reasonably be expected to have a Material Adverse Effect; no
unfair labor practice complaint against either of the Companies is pending (in
respect of which either of the Companies or any Shareholder has been served with
process or has otherwise received written notice) before the National Labor
Relations Board; there is no labor strike, dispute, slowdown or stoppage
actually pending (in respect of which either of the Companies or any Shareholder
has received written notice) or, to the knowledge of the Companies and the
Shareholders, threatened against or involving either of the Companies; neither
of the Companies is a party to any collective bargaining agreement and no
collective bargaining agreement is currently being negotiated by either of the
Companies; to the knowledge of each of the Companies and the Shareholders, no
representation question exists respecting employees of either of the Companies;
and, except as specifically set forth on SCHEDULE 3.1.21, no claim in respect of
the employment of any employee of either of the Companies has been asserted (in
respect of which either of the Companies or any Shareholder has been served with
process or has otherwise received written notice) by such employee or any third
party with respect to such employee's employment and is currently pending or, to
the knowledge of each of the Companies and the Shareholders threatened, against
either of the Companies by such employee or any third party with respect to such
employee's employment.
(b) To the knowledge of the Companies and the Shareholders, no
current employee who receives annual compensation in excess of $100,000 per year
or current director of either of the Companies is, a party to, or is otherwise
bound by, any agreement or arrangement, including any confidentiality,
non-competition, or proprietary rights agreement, between such employee or
director and any other Person that in any way adversely, affects or will affect
(i) the performance of his duties as an employee or director of either of the
Companies, or (ii) the ability of either of the Companies to conduct its
respective business consistent with past practice.
(c) SCHEDULE 3.1.21 also contains a complete and accurate list
of the following information for each retired employee or director of each of
the Companies, or their dependents currently receiving benefits as of the date
hereof or scheduled to receive benefits in the future: name, pension benefits,
pension option election, retiree medical insurance coverage, retiree life
insurance coverage, and other benefits.
3.1.22. ACCOUNTS RECEIVABLE. Except as set forth on SCHEDULE
3.1.22, all accounts receivable which have arisen since the Balance Sheet Date
(net of any additional reserves established since the Balance Sheet Date in
accordance with past practice, none of which is material) and which are
outstanding are valid and enforceable claims, and the goods and services sold
and delivered which gave rise to such accounts receivable were sold and
delivered in conformity with the applicable purchase orders, agreements and
specifications as such may have been changed, modified, amended or supplemented
from time to time, which amendments have been disclosed to Buyer. Such accounts
receivable are subject to no defenses, offsets or recovery in whole or in part
by the Persons whose purchase gave rise to such accounts receivable or by third
parties, and to the knowledge of the Shareholders and the Companies, such
accounts receivable are fully collectible in the ordinary course of business
without resort to legal proceedings, except to the extent of the amount of the
reserve for doubtful accounts reflected on the most recent balance sheet
contained in the Monthly CFI Financial Statements and the Calbrit Financial
Statements delivered on or prior to the date hereof.
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3.1.23. INVENTORY. Except as set forth in SCHEDULE 3.1.23, all
inventories which have been acquired or produced since the Balance Sheet Date
(net of any additional reserves established since the Balance Sheet Date in
accordance with past practice, none of which is material) are in good condition,
conform in all material respects with the applicable specifications and
warranties of each of the Companies, are not obsolete, and are useable or
saleable in the ordinary course of business.
3.1.24. MILLENNIUM COMPLIANCE. SCHEDULE 3.1.24 describes the
measures that have been implemented to determine the extent to which the
computer systems used by each of the Companies in its business (the "COMPUTER
SYSTEMS") are not in Millennium Compliance, and the material details of any
program undertaken with a view towards causing the Computer Systems to achieve
Millennium Compliance.
3.1.25 FINDERS' FEES. Except as set forth in SCHEDULE 3.1.25,
there is no investment banker, broker, finder or other intermediary which has
been retained by or is authorized to act on behalf of the Shareholders or either
of the Companies who might be entitled to any fee or commission in connection
with the transactions contemplated by this Agreement or any of the Ancillary
Agreements.
3.2. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS. Each
Shareholder represents and warrants, severally and not jointly and with respect
to such Shareholder only, to Buyer as of the date hereof and the Closing as
follows:
3.2.1. AUTHORITY; ENFORCEABILITY. Such Shareholder has all
requisite power and authority, and has taken all action necessary, to execute
and deliver this Agreement and each Ancillary Agreement to which such
Shareholder will be a party at the Closing, to consummate the transactions
contemplated hereby and to perform his, her or its obligations hereunder. This
Agreement has been and each of the Ancillary Agreements to which such
Shareholder will be a party at the Closing will have been, duly executed and
delivered by such Shareholder and this Agreement is, and each of the Ancillary
Agreements will be when executed by such Shareholder, legal, valid and binding
obligations of such Shareholder enforceable against such Shareholder in
accordance with their respective terms, except to the extent that their
enforceability may be subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles.
3.2.2. NO CONFLICTS. The execution and delivery of this
Agreement and each Ancillary Agreement to which such Shareholder will be a party
at the Closing do not and will not at the Closing, and the consummation of the
transactions contemplated hereby and compliance with the terms hereof do not and
will not at the Closing, violate or conflict with in any respect or result in a
breach under any contract, license, Order or Law applicable to such Shareholder.
3.2.3. NO CONSENTS. Except as may be required under the HSR
Act, no consent of, approval or filing with, any court or other Person is
required to be obtained or made by or with respect to such Shareholder in
connection with the execution and delivery of this Agreement or any of the
Ancillary Agreements to which such Shareholder will be a party at the Closing or
the consummation by such Shareholder of the transactions contemplated hereby or
thereby.
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3.2.4. OWNERSHIP OF SHARES; TITLE. All of the issued and
outstanding shares of Common Stock set forth opposite such Shareholder's name on
SCHEDULE 1 are lawfully owned of record and beneficially by such Shareholder,
free and clear of any Liens. Such Shareholder has the full legal right, power
and authority to vote, sell, assign, transfer and convey such shares of Common
Stock. Such shares are not subject to any voting trust agreement or other
contract, agreement, arrangement, commitment, option, proxy, right of first
refusal or understanding, including without limitation any contract restricting
or otherwise relating to the voting, dividend rights or disposition of such
shares.
3.2.5. LITIGATION. Except as disclosed in SCHEDULE 3.2.5,
there is no action, suit, investigation, arbitration or administrative or other
proceeding (in each case, in respect of which such Shareholder has been served
with process or has otherwise received written notice) which is currently
pending, or, to the knowledge of such Shareholder, threatened against or
affecting such Shareholder before any court or arbitrator or any Governmental
Authorities which, individually or in the aggregate, if determined or resolved
adversely to such Shareholder could, individually or when considered together
with all other such matters, adversely affect the right or ability of such
Shareholder to consummate and perform the transactions contemplated by this
Agreement and the Ancillary Agreements to which such Shareholder will be a party
at the Closing; and such Shareholder knows of no valid basis for any such
action, proceeding or investigation.
IV. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to each of the Companies and the
Shareholders as of the date hereof and the Closing Date as follows:
4.1. CORPORATE EXISTENCE AND POWER. Buyer is a corporation
duly incorporated, validly existing and in good standing under the laws of its
jurisdiction of organization. Buyer has all power and all governmental licenses,
authorizations, permits, consents and approvals required to carry on its
business as now conducted. Buyer is duly qualified to conduct business as a
foreign corporation and is good standing in each jurisdiction where such
qualification is necessary, except where the failure to be so qualified and in
good standing could not reasonably be expected to have a material adverse effect
on the business, assets, liabilities, conditions (financial or other), results
of operations or prospects of the Buyer, taken as a whole.
4.2. CORPORATE AUTHORIZATION; ENFORCEABILITY. The execution,
delivery and performance by Buyer of this Agreement and each of the Ancillary
Agreements to which it will be a party at the Closing are within, Buyer's
corporate powers and have been duly authorized by all necessary corporate action
on the part of Buyer. This Agreement has been and each of the Ancillary
Agreements to which Buyer will be a party at the Closing will have been duly
executed and delivered by Buyer and constitute and will constitute at the
Closing valid and binding agreements of Buyer, enforceable against Buyer in
accordance with their terms, except to the extent that their enforceability may
be subject to applicable bankruptcy, insolvency, reorganization, moratorium and
similar laws affecting the enforcement of creditors' rights generally and by
general equitable principles.
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4.3. GOVERNMENTAL AUTHORIZATION. Except as may be required
under the HSR Act, the execution, delivery and performance by Buyer of this
Agreement and each of the Ancillary Agreements to which Buyer will be a party at
the Closing require no action by or in respect of, or filing with, any
Governmental Authorities.
4.4. NON-CONTRAVENTION. The execution, delivery and
performance by Buyer of this Agreement and each Ancillary Agreement to which
Buyer will be a party at the Closing will not (a) violate the certificate of
incorporation or bylaws of Buyer, (b) violate any applicable Law or Order, or
(c) require any filing with or permit, consent or approval of, or the giving of
notice to, any Person other than as provided in Section 4.3.
4.5. LITIGATION. Except as disclosed in SCHEDULE 4.5, there is
no action, suit, investigation, arbitration or administrative or other
proceeding pending (in respect of which Buyer has been served with process or
has otherwise received written notice), or, to the knowledge of Buyer,
threatened against or affecting Buyer, or any of Buyer's properties before any
court or arbitrator or any Governmental Authorities which, individually or in
the aggregate, if determined or resolved adversely to Buyer, could reasonably be
expected to materially and adversely affect the right or ability of Buyer to
consummate and perform the transactions contemplated by this Agreement and any
Ancillary Agreement to which Buyer will be a party at the Closing, and Buyer
knows of no valid basis for any such action, proceeding or investigation.
4.6. FINDERS' FEES. Except for Saunders Karp & Megrue, L.P.,
Carlisle Group, L.P. and Harvey & Company, LLC, whose fees and expenses
(including transaction fees) will be paid by Buyer, there is no investment
banker, broker, finder or other intermediary which has been retained by or is
authorized to act on behalf of Buyer who might be entitled to any fee or
commission from the Shareholders or either of the Companies upon consummation of
the transactions contemplated by this Agreement or any of the Ancillary
Agreements.
4.7. PURCHASE FOR INVESTMENT. Buyer is purchasing the Common
Stock for investment for its own account and not with a view to, or for sale in
connection with, any distribution of the Common Stock except in compliance with
applicable securities laws.
V. CERTAIN COVENANTS
5.1. CONDUCT OF BUSINESS OF THE COMPANIES. During the period
from the date of this Agreement to the Closing Date, the Shareholders will cause
each of the Companies to, and each of the Companies will, conduct its respective
operations only according to its ordinary and usual course of business
(including managing its working capital in accordance with its past practice and
custom) and use its respective best efforts to: (a) preserve intact its business
organizations, (b) keep available the services of its officers and employees and
(c) maintain its relationships and goodwill with licensors, suppliers,
distributors, customers, landlords, employees, agents and others having business
relationships with it. Between the date hereof and the Closing Date, each of the
Companies will confer with Buyer concerning the status of operational and
financial matters concerning the Companies in general and otherwise as
reasonably requested by Buyer. Without limiting the generality or effect of the
foregoing, during the period from the date of this Agreement to the Closing
Date, except with the prior written
32
consent of Buyer, neither of the Companies will, and the Shareholders will cause
each of the Companies not to:
(a) Amend or modify its articles of incorporation, bylaws or any other
organizational document from its form on the date of this Agreement;
(b) Change any salaries or other compensation of, or pay any bonuses to
any director, officer, employee or shareholder of either of the Companies, or
enter into any employment agreement, severance agreement, or similar agreement
with any director, officer, shareholder or employee of either of the Companies,
PROVIDED, HOWEVER, that the compensation of employees of either of the Companies
receiving annual compensation of less than $100,000 may be changed in the
ordinary course of business consistent with past practice;
(c) Unless otherwise required by Law (and then only to the extent so
required), adopt or increase any benefits under any profit sharing, bonus,
deferred compensation, savings, insurance, pension, retirement, or other
employee benefit plan for or with any of its employees;
(d) Enter into any contract or commitment except contracts and
commitments (for capital expenditures or otherwise) in the ordinary course of
business consistent with past practice;
(e) Incur, assume or guarantee Indebtedness other than in the ordinary
course of business of the Companies;
(f) Enter into any extraordinary transaction or commitment relating to
the assets or the business of either of the Companies which, individually or in
the aggregate, could reasonably be expected to be material to either of the
Companies, or cancel or waive any claim or right of substantial value which,
individually or in the aggregate, could reasonably be expected to be material to
either of the Companies, or amend any term of any Company Securities;
(g) Set aside or pay any dividend or make any other distribution with
respect to any shares of capital stock of either of the Companies or repurchase,
redeem or otherwise acquire directly or indirectly, any outstanding shares of
capital stock or other securities of, or other ownership interests in, either of
the Companies;
(h) Other than those reflected in the Audited Statements, make any
change in accounting methods or practices (including changes in accrual or
reserve policies) or, other than in the ordinary course of business consistent
with past practice, any change in accrual or reserve amounts;
(i) Issue or sell any Company Securities or make any other changes in
its capital structure, including the grant of any stock option or other right to
purchase shares of capital stock of either of the Companies;
(j) Enter into or effect any extraordinary sale, lease or other
disposition of any material asset or property owned, leased or otherwise used by
either of the Companies;
(k) Except as expressly permitted under this Agreement, write-off as
uncollectible
33
any notes or accounts receivable, except write-offs in the ordinary course of
business charged to applicable reserves, none of which individually or in the
aggregate is material; write-off, write-up or write-down any other material
asset of either of the Companies; or alter (in a manner which is adverse to the
Company or the Buyer) its customary time periods (applicable to each account
party) for collection of accounts receivable or payments of accounts payable;
(l) Create or assume any Lien other than a Permitted Lien;
(m) Make any loan, advance or capital contributions to or investment in
any Person other than between the Companies in the ordinary course of business;
(n) Terminate or close any material facility, business or operation of
either of the Companies;
(o) Cause any damage, destruction or other casualty loss (whether or
not covered by insurance) affecting the business or assets of either of the
Companies which, individually or in the aggregate, could reasonably be expected
to have a Material Adverse Effect;
(p) Cause any other event, occurrence, development or state of
circumstances or facts which individually or together with other matters, could
reasonably be expected to have a Material Adverse Effect; or
(q) Agree to do any of the foregoing.
5.2. EXCLUSIVE DEALING. During the period from the date of
this Agreement to the earlier of the Closing Date and the termination of this
Agreement in accordance with its terms, no Shareholder, nor either of the
Companies, or any of their respective Affiliates, or any officer or director of
either of the Companies, or any of their respective Affiliates, or other
representative of any of the foregoing (including advisors, agents, attorneys,
employees or consultants) will take any action to, directly or indirectly,
encourage, initiate, solicit or engage in discussions or negotiations with, or
provide any information to any Person, other than Buyer (and its affiliates and
representatives), concerning any purchase of any capital stock of either of the
Companies or any purchase or sale of substantially all of the Companies' assets
or similar transaction involving either of the Companies (a "THIRD-PARTY
TRANSACTION"), PROVIDED, HOWEVER, that during such period the directors of the
Companies may, in response to a proposed Third-party Transaction that was not
solicited by the Companies or any Shareholder or any of their respective
Affiliates and that did not otherwise result from a breach of this Section 5.2,
provide information regarding the Companies or engage in negotiations or
substantive discussions with such Person regarding such proposed Third-Party
Transaction, in each case only if the directors of the Companies determine in
good faith, after consultation with counsel and their financial advisors, that
failing to take such action would result in a breach of the fiduciary duties of
the directors of the Companies. Each of the Companies and the Shareholders will
disclose to Buyer the existence or occurrence of any proposal or contract which
it or they or any of their representatives described above may receive in
respect of any such transaction and the identity of the Person from whom such a
proposal or contract is received.
5.3. REVIEW OF THE COMPANIES; CONFIDENTIALITY. (a) Buyer may,
prior to the Closing Date, directly or through its representatives, review the
properties, books and records of
34
each of the Companies and their financial and legal condition to the extent it
deems necessary or advisable to familiarize itself with such properties and
other matters. Each of the Companies will permit Buyer and its representatives
to have, after the date of execution of this Agreement, reasonable access during
the regular business hours of the Companies to the premises and to all the
respective books and records of each of the Companies and to cause the officers
of each of the Companies to furnish Buyer with such financial and operating data
and other information with respect to the respective business and properties of
each of the Companies as Buyer will from time to time reasonably request. Each
of the Companies will deliver or cause to be delivered to Buyer such additional
instruments, documents and certificates as Buyer may reasonably request for the
purpose of (i) verifying the information set forth in this Agreement or on any
Schedule attached hereto and (ii) consummating or evidencing the transactions
contemplated by this Agreement.
(b) Prior to the Closing, without the prior written consent of
the other parties, no party will, or will permit any of its Affiliates to,
disclose to any other Person (other than such party's financing sources,
existing shareholders and such party's directors, officers, employees, advisors
and other representatives that need to know) any proprietary, non-public
information of another party previously delivered or made available to such
other party in connection with the transactions contemplated hereby (including
the existence of and terms of this Agreement and the Ancillary Agreements),
other than to the extent required by applicable Law and upon the advice of
counsel. Each party will direct its financing sources, shareholders, directors,
officers, employees and representatives to keep all such information in strict
confidence; provided, however, that each such person may disclose such
information to the extent required by Law and upon the advice of counsel.
5.4. BEST EFFORTS. Each of the Companies, the Shareholders and
Buyer will cooperate and use their respective best efforts to take, or cause to
be taken, all appropriate actions, and to make, or cause to be made, all filings
necessary, proper or advisable under applicable laws and regulations (including,
without limitation, the filing of Notification and Report Forms under the HSR
Act with the Federal Trade Commission and the Antitrust Division of the
Department of Justice) to consummate and make effective the transactions
contemplated by this Agreement, including, without limitation, their respective
reasonable efforts to obtain, prior to the Closing Date, all licenses, permits,
consents, approvals, authorizations, qualifications and orders of Governmental
Authorities and parties to contracts with each of the Companies, the
Shareholders or Buyer as are necessary, if any, for consummation of the
transactions contemplated by the Agreement and to fulfill the conditions to the
sale contemplated hereby. Notwithstanding any other provision hereof, in no
event will Buyer or any of its Affiliates (including either of the Companies
after the Closing) be required to (a) enter into or offer to enter into any
divestiture, hold-separate, business limitation or similar agreement or
undertaking in connection with this Agreement or the transactions contemplated
hereby or (b) make any payment in connection with any consent or approval or
condition to Closing set forth in any subsection of Section 7.1 or 7.2 (except
for the filing fee associated with the filing of Notification and Report Forms
under the HSR Act) which it is necessary or advisable for the Shareholders or
either of the Companies to obtain or satisfy in order to consummate the
transactions contemplated by this Agreement.
35
5.5. SATISFACTION AND TERMINATION OF EQUITY ARRANGEMENTS. On
or prior to the Closing Date, each of the Companies will terminate all
equity-based plans or agreements listed in any Schedule referred to in Section
3.1.18.
5.6. PLAN ASSETS. Prior to Closing, each of the Companies will
conduct their businesses in the same manner as currently conducted, which the
Companies and the Shareholders believe will cause the Companies to constitute an
Operating Company.
5.7. MONTHLY FINANCIAL STATEMENTS. Prior to the Closing and
promptly after the preparation thereof, the Companies will deliver to Buyer all
Monthly CFI Financial Statements and Calbrit Financial Statements not delivered
to Buyer as of the date hereof.
5.8. SUPPLEMENTS TO SCHEDULES. Prior to the Closing, the
Companies and the Shareholders may supplement the Schedules required by any
subsection of Sections 3.1 and 3.2 of this Agreement ("COMPANY SCHEDULES"),
subject to Buyer's rights under Section 7.1.9
5.9. FURTHER ASSURANCES. From time to time, as and when
requested by any party hereto and subject to Section 5.4, the other parties will
execute and deliver, or cause to be executed and delivered, all such documents
and instruments and will take, or cause to be taken, all such further or other
actions, as the requesting party may reasonably deem necessary or desirable to
consummate the transactions contemplated by this Agreement.
VI. TAX MATTERS
6.1. TAX RETURNS. (a) Buyer will have the exclusive authority
and obligation to prepare and timely file, or cause to be prepared and timely
filed, all Returns of each of the Companies that are due with respect to any
taxable year or other taxable period ending on or prior to the Closing Date.
Such authority will include, but not be limited to, the determination of the
manner in which any items of income, gain, deduction, loss or credit arising out
of the respective income, properties and operations of each of the Companies
will be reported or disclosed in such Returns; PROVIDED, HOWEVER, that such
Returns will be prepared by treating items on such Returns in a manner
consistent with the past practice with respect to such items, unless otherwise
required by Law. Buyer will provide to the Shareholders' Representative drafts
of all Returns of each of the Companies required to be prepared and filed by the
Buyer under this Section 6.1(a) at least 30 days prior to the due date for the
filing of such Returns (including any extensions). At least 15 days prior to the
due date for the filing of such Returns (including any extensions), the
Shareholders' Representative will notify Buyer in writing of the existence of
any objection (specifying in reasonable detail the nature and basis of such
objection) the Shareholders' Representative may have to any items set forth on
such draft Returns (a "SHAREHOLDERS' REPRESENTATIVE DISPUTE NOTICE"). The
Shareholders' Representative and Buyer agree to consult and resolve in good
faith any such objection. Buyer will not file any such Return without the prior
written consent of the Shareholders' Representative, which consent will not be
unreasonably withheld or delayed; PROVIDED, HOWEVER, that no such consent will
be required if the Shareholders' Representative shall not have timely delivered
a Shareholders' Representative Dispute Notice or the objections contained in
such Shareholders' Representative Dispute Notice shall have been finally
resolved.
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(b) If within five days of the delivery of a Shareholders'
Representative Dispute Notice in accordance with Section 6.1(a), Buyer and the
Shareholders' Representative are unable to resolve in good faith any objection
set forth in such Shareholders' Representative Dispute Notice, such objection
will be referred by the parties for determination to the Accountants as promptly
as practicable, but no later than two Business Days after the expiration of such
five day period. Buyer and the Shareholders' Representative will use reasonable
efforts to cause the Accountants to render their decision as soon as practicable
thereafter, including without limitation by promptly complying with all
reasonable requests by the Accountants for information, books, records and
similar items. Buyer and the Shareholders' Representative will cause the
Accountants to make a determination as to each such objection (but only such
objection), which determination will be in writing and furnished to each of the
parties hereto as promptly as practicable after the items in dispute have been
referred to the Accountants (but in no event later than two Business Days prior
to the due date (including extensions) for filing such Return). Such
determination by the Accountants will be conclusive and binding upon each of the
parties hereto. Except as provided for in Section 2.6(b), nothing herein will be
construed to authorize or permit the Accountants to determine any question or
matter whatsoever under or in connection with this Agreement, except the
determination of such objection. The fees and expenses of the Accountants
relating to this Section 6.1(b) will be paid equally by the parties.
6.2. APPORTIONMENT OF TAXES. All Taxes and Tax liabilities
with respect to the income, property or operations of each of the Companies that
relate to a taxable year or other taxable period beginning before and ending
after the Closing Date will be apportioned between the Pre-Closing Tax Period
and the Post-Closing Tax Period as follows: (A) in the case of Taxes other than
income Taxes, payroll Taxes and sales and use Taxes, on a per diem basis, and
(B) in the case of income Taxes, payroll Taxes and sales and use Taxes, as
determined from the books and records of each of the Companies, between
Pre-Closing and Post-Closing Tax Periods as though the taxable year of each of
the Companies terminated at the close of business on the Closing Date without
giving effect to the transactions contemplated hereby and in a manner consistent
with past practices of the Companies. Subject to Section 8.3, the Shareholders
will be liable for the payment of all Taxes of each of the Companies which are
attributable to any Pre-Closing Tax Period (net of reserves for such Taxes to
the extent accurately reflected in the Closing Date Balance Sheet and the
computation of the Closing Shareholders' Equity), whether shown on any original
return or amended return for the period referred to therein. Each of the
Companies will be liable for the payment of all Taxes which are attributable to
any Post-Closing Tax Period.
6.3. COOPERATION; AUDITS. In connection with the preparation
of Returns, audit examinations and any administrative or judicial proceedings
relating to the Tax liabilities imposed on each of the Companies for all
Pre-Closing Tax Periods, Buyer and each of the Companies on the one hand, and
the Shareholders' Representative on the other hand, will cooperate on a
reasonable basis with each other following the Closing, including, but not
limited to, the furnishing or making available during normal business hours of
records, personnel (as reasonably required), books of account, powers of
attorney or other materials necessary or helpful for the preparation of such
Returns, the conduct of audit examinations or the defense of claims by Tax
authorities as to the imposition of Taxes.
6.4. CONTROVERSIES. (a) Buyer or the Shareholders'
Representative (as the case may be) will promptly, but in no event later than 10
Business Days after receipt thereof, notify the
37
other party in writing of any inquiries, claims, assessments, audits or similar
events with respect to Taxes relating to a Pre-Closing Tax Period ending after
October 31, 1995 for which the Shareholders may be liable (any such inquiry,
claim, assessment, audit or similar event, a "POST-OCTOBER 31, 1995 TAX
MATTER"). Buyer, at Buyer's sole expense, with the cooperation of the
Shareholders' Representative, will have the exclusive authority to represent the
interests of each of the Companies with respect to any Post-October 31, 1995 Tax
Matter before the IRS, any other Taxing Authority, any other governmental agency
or authority or any court and will have the sole right, with the cooperation of
the Shareholders' Representative, to extend or waive the statute of limitations,
with respect to any such Post-October 31, 1995 Tax Matter and to control the
defense, compromise or other resolution of any such Post-October 31, 1995 Tax
Matter, including responding to inquiries, filing Tax returns and settling
audits; PROVIDED, HOWEVER, that Buyer will not enter into any settlement of or
otherwise compromise any Post-October 31, 1995 Tax Matter that affects or may
affect the Tax liability of the Shareholders without the prior written consent
of the Shareholders' Representative, which consent will not be unreasonably
withheld or delayed. Each of the Shareholders' Representative and Buyer will, in
good faith, allow the other party to consult with it regarding the conduct of or
positions taken in any such proceeding.
(b) Buyer or the Shareholders' Representative (as the case may
be) will promptly, but in no event later than 10 Business Days after receipt
thereof, notify the other party in writing of any inquiries, claims,
assessments, audits or similar events with respect to Taxes relating to a
Pre-Closing Tax Period ending prior to October 31, 1995 for which either Company
may be liable (any such inquiry, claim, assessment, audit or similar event, a
"PRE-OCTOBER 31, 1995 TAX MATTER"). The Shareholders' Representative, at the
Shareholders' sole expense, with the cooperation of the Buyer, will have the
exclusive authority to represent the interests of each of the Companies with
respect to any Pre-October 31, 1995 Tax Matter before the IRS, any other Taxing
Authority, any other governmental agency or authority or any court and will have
the sole right, with the cooperation of the Buyer, to extend or waive the
statute of limitations, with respect to a Pre-October 31, 1995 Tax Matter and to
control the defense, compromise or other resolution of any Pre-October 31, 1995
Tax Matter, including responding to inquiries, filing Tax returns and settling
audits; PROVIDED, HOWEVER, that the Shareholders' Representative or any other
Shareholder will not enter into any settlement of or otherwise compromise any
Tax Matter that affects or may affect the Tax liability of either Company
without the prior written consent of the Buyer, which consent will not be
unreasonably withheld or delayed. Each of the Shareholders' Representative and
Buyer will, in good faith, allow the other party to consult with it regarding
the conduct of or positions taken in any such proceeding.
6.5. AMENDED RETURNS. Buyer will not file or cause to be filed
any amended return covering any period or adjusting any Taxes for a period which
includes any period prior to the Closing Date without the prior written consent
of the Shareholders' Representative, which consent will not be unreasonably
withheld or delayed.
6.6. NON-FOREIGN PERSON AFFIDAVIT. Each of the Shareholders
will furnish to Buyer on or before the Closing Date a non-foreign person
affidavit as required by Section 1445 of the Code.
38
VII. CONDITIONS TO CLOSING
7.1. CONDITIONS TO OBLIGATIONS OF BUYER. The obligations of
Buyer to consummate the transactions contemplated hereby to occur at the Closing
are subject to the satisfaction of the following conditions:
7.1.1. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE
COMPANIES. (a) The representations and warranties of each of the Companies made
in this Agreement will be true and correct in all respects (or, if any such
representation is not expressly qualified by "materiality," "Material Adverse
Effect" or words of similar import, then in all material respects) as of the
date hereof and as of the Closing, as though made as of the Closing; (b) each of
the Companies shall have performed and complied with all terms, agreements and
covenants contained in this Agreement required to be performed or complied with
by each of the Companies on or before the Closing Date; and (c) each of the
Companies shall have delivered to Buyer a certificate of each of the Companies'
Chief Executive Officers, dated the Closing Date, confirming the foregoing and
such other evidence of compliance with its obligations as Buyer may reasonably
request.
7.1.2. CERTIFICATE OF EACH OF THE COMPANIES. Each of the
Companies shall have delivered to Buyer a certificate from its Secretary or an
Assistant Secretary certifying as to the due adoption of resolutions adopted by
its Board of Directors and its shareholders (if required), authorizing the
execution of this Agreement and the taking of any and all actions deemed
necessary or advisable to consummate the transactions contemplated herein.
7.1.3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE
SHAREHOLDERS. (a) The representations and warranties of the Shareholders made in
this Agreement will be true and correct in all respects (or, if any such
representation is not expressly qualified by "materiality," "Material Adverse
Effect" or words of similar import, then in all material respects) as of the
date hereof and as of the Closing, as though made as of the Closing; (b) the
Shareholders shall have performed and complied with all terms, agreements and
covenants contained in this Agreement required to be performed or complied with
by the Shareholders on or before the Closing Date; and (c) the Shareholders
shall have delivered to Buyer certificates dated the Closing Date confirming the
foregoing and such other evidence of compliance with the Shareholders'
obligations as Buyer may reasonably request.
7.1.4. NO INJUNCTION, ETC. No judgment, injunction, order or
decree will be in effect which will prohibit the consummation of the
transactions contemplated hereby to occur at the Closing.
7.1.5. NO PROCEEDINGS. No proceeding challenging this
Agreement, the Ancillary Agreements or the transactions contemplated hereby or
thereby or seeking to prohibit, alter, prevent or materially delay the Closing
or seeking damages will have been instituted by any Person (other than Buyer)
before any court, arbitrator or Governmental Authorities and be pending.
7.1.6. REQUIRED FILINGS. All actions by or in respect of or
filings by each of the Companies or the Shareholders with any Person required to
permit the consummation of the transactions contemplated hereby to occur at the
Closing shall have been taken, made or obtained.
39
7.1.7. OPINION OF COUNSEL. Buyer shall have received the
opinions of Ward, Kroll & Jampol, a Law Corporation and LeBoeuf, Lamb, Greene &
MacRae L.L.P., counsel to the Companies and the Shareholders, dated the Closing
Date, which, taken together are to the effect substantially as set forth in
EXHIBIT G-1 AND EXHIBIT G-2, RESPECTIVELY, together with letters of each such
counsel entitling the banks and underwriters providing the financing
contemplated by Section 7.1.15 to rely on such opinions.
7.1.8. SPOUSAL CONSENT. Each Shareholder will cause to be
delivered to Buyer a spousal consent by such Shareholder's spouse, if any,
pursuant to the laws of the State of California, dated the date hereof,
substantially in the form attached hereto as EXHIBIT H.
7.1.9. DUE DILIGENCE; SCHEDULE SUPPLEMENTS. (a) Buyer shall
have completed, or caused to be completed by its attorneys, accountants and
other representatives, business, legal, environmental and accounting due
diligence investigations and reviews of each of the Companies, with the results
thereof satisfactory to Buyer in its sole discretion.
(b) Buyer shall have been given the opportunity to review and
shall have approved, in its sole discretion, any supplement to a Company
Schedule permitted by Section 5.8.
7.1.10. ANCILLARY AGREEMENTS. Each of the Ancillary Agreements
required to be executed by any party other than Buyer shall have been executed
and delivered by the parties thereto other than Buyer.
7.1.11. RESIGNATION OF DIRECTORS. Each of the Directors of
each of the Companies immediately as of the Closing shall have submitted a
letter of resignation to the applicable Company effective as of the Closing.
7.1.12. THIRD PARTY CONSENTS; GOVERNMENTAL APPROVALS. All
consents, approvals or waivers, if any, disclosed on any Schedule attached
hereto or otherwise required in connection with the consummation of the
transactions contemplated by this Agreement shall have been received. All of the
consents, approvals, authorizations, exemptions and waivers from Governmental
Authorities that will be required in order to enable Buyer to consummate the
transactions contemplated hereby shall have been obtained.
7.1.13. FIRPTA. Each of the Shareholders shall have furnished
to Buyer, on or prior to the Closing Date, a non-foreign person affidavit
required by Section 1445 of the Code.
7.1.14. NO MATERIAL ADVERSE CHANGE. Prior to the Closing, no
event shall have occurred which, individually or when considered together with
all other matters, has had or which could reasonably be expected to have a
Material Adverse Effect.
7.1.15. FINANCING. Buyer shall have obtained financing for the
payment of the Aggregate Closing Consideration, the Escrow Amount and the
Indebtedness of the Companies on terms satisfactory to it in its sole
discretion.
7.1.16. SHAREHOLDER INDEBTEDNESS; INTERCOMPANY ACCOUNTS.
Except for the loan from Mr. Robert Reagan to the Company as disclosed on
SCHEDULE 7.1.16, all Indebtedness (including Indebtedness set forth on SCHEDULE
3.1.8) owed to any Shareholder or any of such Shareholder's
40
Affiliates by either of the Companies and all Indebtedness (including
Indebtedness set forth on SCHEDULE 3.1.8) owed by any Shareholder or any of such
Shareholder's Affiliates to either of the Companies shall have been repaid and
canceled, which may occur by reduction of such Shareholder's portion of the
Aggregate Closing Consideration.
7.1.17. HSR ACT. Any applicable waiting period under the HSR
Act relating to the transactions contemplated hereby will have expired or been
terminated.
7.2. CONDITIONS TO OBLIGATIONS OF EACH OF THE COMPANIES AND
THE SHAREHOLDERS. The obligations of each of the Companies and the Shareholders
to consummate the transactions contemplated hereby to occur at the Closing are
subject to the satisfaction of the following conditions:
7.2.1. REPRESENTATIONS, WARRANTIES AND COVENANTS OF BUYER. (a)
The representations and warranties of Buyer made in this Agreement will be true
and correct in all respects (or, if any such representation is not expressly
qualified by "materiality," "Material Adverse Effect" or words of similar
import, then in all material respects) as of the date hereof and as of the
Closing, as though made as of the Closing; (b) Buyer shall have performed and
complied with all terms, agreements and covenants contained in this Agreement
required to be performed or complied with by Buyer on or before the Closing
Date; and (c) Buyer shall have delivered to each of the Companies and the
Shareholders a certificate of Buyer's Chief Executive Officer, dated the Closing
Date, confirming the foregoing and such other evidence of compliance with its
obligations as either of the Companies or the Shareholders may reasonably
request.
7.2.2. BUYER'S CERTIFICATE. Buyer shall have delivered to each
of the Companies and the Shareholders a certificate from its Secretary or
Assistant Secretary certifying as to the due adoption of resolutions adopted by
the Board of Directors of Buyer authorizing the execution of this Agreement and
the taking of any and all actions deemed necessary or advisable to consummate
the transactions contemplated herein.
7.2.3. NO INJUNCTION, ETC. No judgment, injunction, order or
decree will be in effect which will prohibit the consummation of the
transactions contemplated hereby to occur at the Closing.
7.2.4. NO PROCEEDINGS. No proceeding challenging this
Agreement, the Ancillary Agreements or the transactions contemplated hereby or
thereby or seeking to prohibit, alter, prevent or materially delay the Closing
or seeking damages will have been instituted by any Person (other than the
Companies or any Shareholder) before any court, arbitrator or Governmental
Authorities and be pending.
7.2.5. REQUIRED FILINGS. All actions by or in respect of or
filings by Buyer with any Person required to permit the consummation of the
Closing shall have been taken, made or obtained.
7.2.6. OPINION OF COUNSEL. Each of the Companies and the
Shareholders shall have received an opinion of Jones, Day, Reavis & Pogue,
counsel to Buyer, dated the Closing Date, substantially in the form attached
hereto as EXHIBIT I.
41
7.2.7. ANCILLARY AGREEMENTS. Each of the Ancillary Agreements
required to be executed by Buyer or an Affiliate shall have been executed and
delivered by Buyer or its designee.
7.2.8. HSR ACT. Any applicable waiting period under the HSR
Act relating to the transactions contemplated hereby will have expired or been
terminated.
7.2.9. SHAREHOLDER GUARANTEES. Buyer shall have paid directly
to the applicable creditor or to the Escrow Agent under an escrow arrangement
with terms reasonably acceptable to the parties and the Escrow Agent, an amount
sufficient to pay in full the Indebtedness listed on Schedule 7.2.9.
VIII. SURVIVAL; INDEMNIFICATION
8.1. SURVIVAL. The representations and warranties of the
parties contained in this Agreement or in any certificate or other writing
delivered pursuant hereto or in connection herewith will survive the Closing for
two years thereafter; PROVIDED, HOWEVER, that the representations and warranties
contained in Sections 3.1.9 and 3.1.17 will survive the Closing until the
expiration of the statute of limitations applicable to the matters covered
thereby (after giving effect to any waiver, mitigation or extension thereof
granted by either of the Companies after the Closing) and the representations
and warranties contained in Sections 3.1.1, 3.1.2, 3.1.3, 3.1.4 and 3.1.5
(collectively, the "SELECTED COMPANY REPRESENTATIONS AND WARRANTIES"), 3.2.1,
3.2.2, 3.2.3, 3.2.4 (collectively, the "SELECTED SHAREHOLDER REPRESENTATIONS AND
WARRANTIES"), and 4.1, 4.2, 4.3 and 4.4 will survive the Closing indefinitely.
Notwithstanding the preceding sentence, any representation or warranty in
respect of which indemnity may be sought under this Agreement will survive the
time at which it would otherwise terminate pursuant to the preceding sentence if
written notice of the inaccuracy or breach thereof giving rise to such right of
indemnity (including notice given pursuant to Section 8.4(a)) shall have been
given to the party against whom such indemnity may be sought prior to such time,
PROVIDED, HOWEVER, that the applicable representation or warranty will survive
only with respect to the particular inaccuracy or breach specified in such
applicable written notice. All covenants and agreements of the parties contained
in this Agreement, to the extent required to be performed after the Closing,
will survive the Closing indefinitely.
8.2. INDEMNIFICATION. (a) Provided that notice has been given
pursuant to Section 8.4(a), if required, and the Notified Party fails to cure,
or otherwise to perform its obligations with respect to curing, as provided in
Section 8.4(a), each Shareholder, severally and not jointly, will indemnify,
defend and hold harmless Buyer and its Affiliates (including, after the Closing
Date, each of the Companies) and the successors to the foregoing (and their
respective members and partners), against any and all liabilities, damages and
losses, and, if (but only to the extent) asserted in a Third Party Claim,
punitive damages, and all costs or expenses, including, without limitation,
reasonable attorneys' and consultants' fees and expenses ("DAMAGES"), incurred
or suffered as a result of or arising out of (i) the failure of any
representation or warranty made by either of the Companies or any Shareholder in
any subsection of Section 3.1 to be true and correct as of the Closing Date
(other than a breach of Section 3.1.9 with respect to Taxes, which will be
governed by Section 8.3) or (ii) the breach of any covenant or agreement made or
to be performed by either of the Companies pursuant to this Agreement; PROVIDED,
HOWEVER, that to the extent such breach or failure cannot be cured "DAMAGES"
shall also include the diminution in value of the Common Stock caused by such
42
breach or failure; and, PROVIDED, FURTHER, that no Shareholder will be liable
under this Section 8.2(a) (other than with respect to such breaches of any of
the Selected Company Representations and Warranties) unless the aggregate amount
of Damages exceeds $200,000 and then from the first dollar to the full extent
of such Damages and subject to the limitations set forth elsewhere in this
Article VIII.
(b) Provided that notice has been given pursuant to Section
8.4(a), if required, and the Notified Party fails to cure, or otherwise to
perform its obligations with respect to curing, as provided in Section
8.4(a), each Shareholder, severally and not jointly, will indemnify, defend
and hold harmless Buyer and its Affiliates (including, after the Closing
Date, each of the Companies) and the successors to the foregoing (and their
respective partners and members) against Damages incurred or suffered as a
result of or arising out of (i) the failure of any representation or warranty
made by such Shareholder in any subsection of Section 3.2 of this Agreement
to be true and correct as of the Closing Date or (ii) the breach of any
covenant or agreement made or to be performed by such Shareholder pursuant to
this Agreement.
(c) Provided that notice has been given pursuant to Section
8.4(a), if required, and the Notified Party fails to cure, or otherwise to
perform its obligations with respect to curing, as provided in Section
8.4(a), Buyer and each of the Companies, jointly and severally, on and after
the Closing Date will indemnify, defend and hold harmless each of the
Shareholders against Damages incurred or suffered as a result of or arising
out of (i) the failure of any representation or warranty made by Buyer in
this Agreement to be true and correct as of the Closing Date or (ii) the
breach of any covenant or agreement made or to be performed by Buyer pursuant
to this Agreement; PROVIDED, HOWEVER, that Buyer will not be liable under
this Section 8.2(c) unless the aggregate amount of Damages exceeds $200,000
and then from the first dollar to the full extent of such Damages; PROVIDED,
FURTHER, HOWEVER, that Buyer's liability under this Section 8.2(c) will not
exceed, in the aggregate, the Cap.
8.3. TAX INDEMNIFICATION. (a) Each Shareholder, severally and
not jointly, will indemnify, defend and hold harmless Buyer, and its Affiliates
(including, after the Closing Date, each of the Companies) and the successors to
the foregoing (and their respective members and partners) against the following
Taxes: (i) all Taxes (and losses, claims and expenses related thereto) resulting
from, arising out of, or incurred with respect to, any claims that may be
asserted by any party based upon, attributable to, or resulting from the failure
of any representation or warranty made pursuant to Section 3.1.9 to be true and
correct as of the Closing Date, (ii) all Taxes imposed on or asserted against
each of the Companies or for which either of the Companies may be liable in
respect of the properties, income or operations of either of the Companies for
all Pre-Closing Tax Periods, net of reserves for Taxes to the extent accurately
reflected in the computation of the Closing Shareholders' Equity; PROVIDED,
HOWEVER, that, with respect to income Taxes of CFI for the period from November
1, 1995 through and including October 31, 1998, the Shareholders will be liable
under this Agreement only for such income Taxes for such period which, in the
aggregate, exceed the greater of (x) of $1.1 million plus interest and penalties
thereon, and (y) the product of (I) the difference between (A) the cumulative
aggregate net taxable income of CFI for the fiscal years ended October 31, 1996,
1997 and 1998 set forth in the statements of operations of CFI as audited by
Ernst & Young, LLP and (B) the cumulative aggregate net taxable income of CFI
for the fiscal years ended October 31, 1996, 1997 and 1998 set forth in the
statement of operations of CFI as audited by Kushner, Smith, Joanou & Gregson,
LLP, and (II) applicable federal, state and local income tax rates, plus
interest and penalties thereon.
43
(b) Amounts payable hereunder by the Shareholders pursuant to
Section 8.3(a) in respect of income Taxes, including penalties and interest
thereon: (i) for the period from November 1, 1995 through October 31, 1998, will
be paid from prior or future payments of the Earnout Amount, if any (whether
paid in cash or, if paid by Earnout Notes, by offset against the Earnout Notes)
and (ii) for any period ending prior to November 1, 1995, will be paid from
prior or future payments of the Escrow Amount, if any, and prior or future
payments of the Earnout Amount, if any (whether paid in cash or, if paid by
Earnout Notes, by offset against the Earnout Notes). If the income Tax liability
for the periods described in clauses (i) and (ii) of the immediately preceding
sentence exceeds the respective amounts from which such income Tax liability is
permitted to be paid as set forth in such clauses (respectively, the "TAX
CAPS"), the Shareholders will have no further liability whatsoever for such
income Taxes which would otherwise be payable hereunder but for the Tax Caps.
Amounts paid by the Shareholders under this Section 8.3 will be credited against
the Cap.
8.4. PROCEDURES. (a) (i) Notwithstanding anything to the
contrary contained in Section 8.2, for all matters other than Third Party
Claims, prior to seeking indemnity pursuant to Section 8.2, any party seeking
such indemnification (the "NOTIFYING PARTY") will first notify in writing the
party from whom such indemnification is sought (including the Shareholders'
Representative, in the case of any Shareholder) (the "NOTIFIED PARTY") of such
matter. The Notified Party will respond to the Notifying Party in writing within
30 days after receipt of such notice as to the validity of such matter.
(ii) If such validity is so confirmed by the Notified Party,
the Notified Party will, in consultation with, but without requiring
the approval of, the Notifying Party, diligently and in good faith
(without unreasonably disrupting the business of the Indemnified Party)
pursue the resolution or remedy of the matters set forth in such notice
to the extent that such matters would no longer give rise to a right of
indemnification under Section 8.2 as of the Closing. The Notified Party
will certify in writing to the Notifying Party that the matters set
forth in such notice have been remedied or resolved to the extent
required in the immediately preceding sentence at the time of such
remedy or resolution (the "Cure"). Any Cure effected after the Closing,
shall be deemed to be effective as of the Closing. If the Notifying
Party disagrees with the Notified Party and believes that the Cure has
not been effected, then the Notifying Party may, in good faith, seek
indemnification under Section 8.2 in respect of the matters described
in such notice.
(iii) If the validity of a Direct Claim is disputed or the
notice referred to in the first sentence of this Section 8.4(a) (i) is
not responded to within the stated 30 day period, the Notifying Party
may seek indemnification under Section 8.2 in respect of the matters
set forth in the Direct Claim. If the validity of a Third Party Notice
is disputed or the notice referred to in this Section 8.4(a) (i) is not
responded to within the stated 30 day period, such Third Party Notice
shall be deemed to constitute a Third Party Claim in respect of which,
the Notifying Party may seek indemnification under Section 8.2.
(b) (i) The Indemnifying Party will have the right to
participate in, or, by giving written notice to the Indemnified Party, to
assume, the defense of any Third Party Claim at the Companies' costs and
expenses (subject to reimbursement, if required hereunder) and by such
Indemnifying Party's own counsel (approved by the Indemnified Party), and the
Indemnified Party will cooperate in good faith in such defense. If an
Indemnified Party receives written notice from the
44
Indemnifying Party that the Indemnifying Party has elected to assume the defense
of such Third Party Claim as provided in the immediately preceding sentence, the
Company will pay as and when due all costs and expenses (subject to
reimbursement, if required hereunder) in connection with the defense thereof;
PROVIDED, HOWEVER, that if the Indemnifying Party fails, within ten days after
the Indemnified Party's receipt of such written notice from the Indemnified
Party, to take reasonable steps necessary to defend diligently such Third Party
Claim, the Indemnified Party may assume its own defense.
(ii) Without the prior written consent of the Indemnified
Party, the Indemnifying Party will not enter into any settlement of any
Third Party Claim and, if the Indemnifying Party desires to accept and
agree to such offer of settlement, the Indemnifying Party will give
reasonable prior written notice to the Indemnified Party to that
effect. If the Indemnified Party fails to consent, prior to the time
period set forth in such offer of settlement (but in no event shall the
Indemnified Party have less than three days after receipt of such
notice to consent), to a firm offer (which includes a release of all
claims alleged against the Indemnified Party and provides for the
payment of monetary damages only), in such event, the maximum amount of
Damages to be paid by the Indemnifying Party as to such Third Party
Claim will not exceed the amount of such settlement offer (and the
Indemnified Parties' costs and expenses in respect of the indemnifiable
claims to which such settlement offer relates) and the Indemnified
Party may continue to contest or defend such Third Party Claim at its
own cost and expense without any further right of reimbursement
hereunder.
(iii) The Shareholders will reimburse the Company for all
costs and expenses in connection with defense of Third Party Claims
unless (A) such Third Party Claim was settled without payment or any
other liability relating to such Third Party Claim to such third party,
or (B) a favorable determination has been made for the Indemnified
Party and/or Indemnifying Party (without payment or any other liability
relating to such Third Party Claim to such third party).
(iv) The Indemnified Party will cooperate with the
Indemnifying Party and will provide the Indemnifying Party with
reasonable access during normal business hours (without unreasonably
disrupting the business of the Indemnifying Party) to books, records,
premises and employees of the Indemnified Party, in each such case, to
the extent necessary in connection with the Indemnifying Party's
defense of any Third Party Claim which is the subject of a claim for
indemnification by an Indemnified Party hereunder.
(c) A failure to give timely notice or to include any
specified information in any notice as provided in Sections 6.4, 8.4(a) or
8.4(b) will not affect the rights or obligations of any party hereunder, except
and only to the extent that, as a result of such failure, any party which was
entitled to receive such notice was deprived of its right to recover any payment
under its applicable insurance coverage or was otherwise prejudiced as a result
of such failure. In the event the failure to give timely notice prejudices the
Indemnifying Party, the Indemnified Party's liability for Damages will be
reduced to the extent of the shortfall in insurance recovery or to the extent of
such other dollar amount which constitutes prejudice to the Indemnifying Party
resulting from the failure to give such timely notice.
(d) Notwithstanding anything to the contrary contained in this
Agreement but without limiting the effect of any other provisions in this
Article VIII, Persons entitled to receive
45
indemnification for Damages hereunder will be entitled to indemnification solely
for the reasonable fees and expenses in connection therewith of no more than one
law firm.
8.5. PERSONAL LIABILITY OF THE SHAREHOLDERS; INDEMNIFICATION
CAP. (a) Notwithstanding anything in this Agreement to the contrary, but subject
to Section 8.4(d), the aggregate personal liability of each Shareholder with
respect to claims for indemnification under this Agreement is and will be
limited to the following product (the "PERSONAL LIABILITY AMOUNT"): (i) sum of
the Aggregate Closing Consideration (as adjusted pursuant to Sections 2.4 and
2.5), and the amount of the Escrow Amount and the Earnout Amount which becomes
due to Shareholders, and (ii) the Percentage Interest.
(b) Notwithstanding anything to the contrary contained in this
Agreement, (i) the Shareholders' liability under this Agreement (other than with
respect to a breach of any of the representations and warranties contained in
Sections 3.1.9 or 3.2.4, liability under Section 8.3, or the breach of any
representation, warranty or covenant of the Company or any Shareholder which
constitutes fraud) will not exceed, in the aggregate, the Cap, (ii) the amounts
payable under the Cap will be reduced by all amounts paid by the Shareholders to
Indemnified Parties under Article VI or this Article VIII, and (iii) the amount
of indemnifiable Damages otherwise due under Section 8.3 will be reduced by all
amounts previously paid by the Shareholders to Indemnified Parties under this
Article VIII (other than Section 8.3) and under Article VI.
(c) All indemnifiable Damages under this Agreement will be
paid in cash in immediately available funds up to the amount of the Cash Cap,
and all other amounts owed by reason of such indemnifiable Damages by the
Shareholders will be offset against the Non-cash Cap.
(d) Whenever stated in this Agreement that the Shareholders
indemnify "severally" or words of similar import, the aggregate amount of
indemnifiable Damages (including Taxes) shall be multiplied by each
Shareholder's Percentage Interest to ascertain the total amount due by such
Shareholder including, without limitation, amounts owed pursuant to any section
or subsection of this Article VIII.
8.6. TREATMENT OF INDEMNIFICATION PAYMENTS. Any amount paid by
any Shareholder or Buyer under Section 8.2 or 8.3 will be treated as a capital
contribution, on the one hand, and/or an adjustment to the Aggregate
Consideration on the other hand.
8.7. INDEMNIFICATION AMOUNTS NET OF BENEFITS RECEIVED;
SET-OFF. The amount of Damages for which indemnification is provided under
Sections 8.2 and 8.3 will be computed net of any insurance proceeds received by
the Indemnified Party in connection with such Damages, reduced by all costs and
expenses related thereto and any premium increase or expense resulting
therefrom. If the amount with respect to which any claim is made under this
Section 8.7 gives rise to a currently realizable Tax benefit, the indemnity
payment will be reduced by the amount of such currently realizable benefit then
available to the party making the claim if and to the extent actually realized
by such party in the fiscal year in which such indemnity payment is made to such
party or in the next succeeding fiscal year. The Shareholders agree and
acknowledge that Buyer may, but, except as otherwise expressly set forth herein,
will not be obligated to, withhold against amounts payable pursuant to Section
2.7 any amount claimed by Buyer under this Article VIII ("INDEMNIFICATION
CLAIMS") pending final resolution (by settlement or final, unappealable court
46
order) of any such claim and to set off the amount of any such finally resolved
Indemnification Claim against such amount payable pursuant to Section 2.7.
8.8. EXCLUSIVE REMEDY. Article VI and this Article VIII
constitute the exclusive remedies for the breach of or default under any of the
covenants, provisions or agreements, or the failure of any representations or
warranties contained in this Agreement; PROVIDED, HOWEVER, that the provisions
of this Section 8.8 will not prevent the Shareholders, the Company or Buyer from
seeking the remedies of specific performance or injunctive relief (other than
recission of this Agreement by any party hereto which right is expressly waived
hereby) in connection with the breach of a covenant or agreement of any party
hereto.
IX. MISCELLANEOUS
9.1. TERMINATION. (a) This Agreement may be terminated at any
time prior to the Closing:
(i) by the mutual written consent of Buyer and the
Shareholders' Representative;
(ii) by Buyer, if there has been a material violation or
breach by either of the Companies or a Shareholder of any covenant,
representation or warranty contained in this Agreement which has prevented the
satisfaction of any condition to the obligations of Buyer at the Closing, and
such violation or breach has not been waived by Buyer or, in the case of a
covenant breach, cured by either of such Companies or such Shareholder within
the earlier of (x) ten days after written notice thereof from Buyer or (y) the
Closing Date;
(iii) by the Shareholders' Representative if there has been a
material violation or breach by Buyer of any covenant, representation or
warranty contained in this Agreement which has prevented the satisfaction of any
condition to the obligations of the Companies at the Closing, and such violation
or breach has not been waived by the Shareholders' Representative or, in the
case of a covenant breach, cured by Buyer within the earlier of (x) ten days
after written notice thereof from the Shareholders' Representative or (y) the
Closing Date;
(iv) by Buyer or the Shareholders' Representative if the
transactions contemplated hereby have not been consummated by March 31, 1999;
PROVIDED, HOWEVER, that neither Buyer nor the Shareholders' Representative will
be entitled to terminate this Agreement pursuant to this Section 9.1(a)(iv) if
such Person's (or, in the case of the Shareholders' Representative, either of
the Companies' or a Shareholder's) breach of this Agreement has prevented the
consummation of the transactions contemplated hereby; or
(v) by Buyer, if the conditions to Closing set forth in
Sections 7.1.9 or 7.1.15 have not been satisfied.
(b) In the event that this Agreement is terminated pursuant to
Sections 9.1(a) (ii) and (iii), all further obligations of the parties hereto
under this Agreement (other than pursuant to Section 9.4, which will continue in
full force and effect) will terminate without further liability or obligation of
any party to any other party hereunder; PROVIDED, HOWEVER, that no party will be
47
released from liability hereunder if this Agreement is terminated and the
transactions abandoned by reason of (i) failure of such party to have performed
its obligations hereunder or (ii) any misrepresentation made by such party of
any matter set forth herein.
9.2. NOTICES. All notices, requests and other communications
to any party hereunder will be in writing (including facsimile transmission) and
will be given to such party at its address set forth in SCHEDULE 9.2. All such
notices, requests and other communications will be deemed received on the date
of receipt by the recipient thereof if received prior to 5:00 p.m. in the place
of receipt and such day is a business day in the place of receipt. Otherwise,
any such notice, request or communication will be deemed not to have been
received until the next succeeding business day in the place of receipt.
9.3. AMENDMENTS AND WAIVERS. (a) Any provision of this
Agreement may be amended or waived if, but only if, such amendment or waiver is
in writing and is signed, in the case of an amendment, by each party to this
Agreement (subject to Section 9.17(b)(iii)), or in the case of a waiver, by the
party against whom the waiver is to be effective.
(b) No failure or delay by any party in exercising any right,
power or privilege hereunder will operate as a waiver thereof nor will any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided will be cumulative and not exclusive of any rights or
remedies provided by law.
9.4. EXPENSES. Except as otherwise expressly provided for
herein, the parties will pay or cause to be paid all of their own fees and
expenses incident to this Agreement and in preparing to consummate and
consummating the transactions contemplated hereby, including the fees and
expenses of any broker, finder, financial advisor, legal advisor or similar
person engaged by such party. Buyer acknowledges that the Companies are
responsible for and will pay prior to or at Closing all such fees and expenses
incurred by either of the Companies and/or the Shareholders.
9.5. SUCCESSORS AND ASSIGNS. The provisions of this Agreement
will be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; PROVIDED that no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the consent of each other party hereto; PROVIDED, that, Buyer may assign
its rights (to be exercised through Buyer) under this Agreement to its senior
bank lenders which will provide the financing contemplated by Section 7.1.15
without the consent of any other party hereto.
9.6. NO THIRD PARTY BENEFICIARIES. Except as provided in
Article VIII, this Agreement is for the sole benefit of the parties hereto and
their permitted assigns and nothing herein expressed or implied will give or be
construed to give to any Person, other than the parties hereto and such
permitted assigns any legal or equitable rights hereunder.
9.7. GOVERNING LAW. This Agreement will be governed by, and
construed in accordance with, the law of the State of New York, without regard
to the conflict of laws rules of such state.
48
9.8. JURISDICTION. Except as otherwise expressly provided in
this Agreement, any suit, action or proceeding seeking to enforce any provision
of, or based on any matter arising out of or in connection with, this Agreement
or the transactions contemplated hereby may be brought in any court of competent
jurisdiction in the Borough of Manhattan or the United States District Court for
the Southern District of New York and each of the parties hereby consents to the
exclusive jurisdiction of such courts (and of the appropriate appellate courts
therefrom) in any such suit, action or proceeding and irrevocably waives, to the
fullest extent permitted by law, any objection which it may now or hereafter
have to the laying of the venue of any such suit, action or proceeding in any
such court or that any such suit, action or proceeding which is brought in any
such court has been brought in an inconvenient forum. Process in any such suit,
action or proceeding may be served on any party anywhere in the world, whether
within or without the jurisdiction of any such court. Without limiting the
foregoing, each party agrees that service of process on such party by certified
or registered mail, return receipt requested will be deemed effective service of
process on such party.
9.9. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
9.10. COUNTERPARTS. This Agreement may be signed in any number
of counterparts, each of which will be an original but all of which will
constitute one and the same instrument, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
9.11. HEADINGS. The headings, the table of contents and the
Schedule and Exhibit indices in this Agreement are for convenience of reference
only and will not control or affect the meaning or construction of any
provisions hereof.
9.12. ENTIRE AGREEMENT. This Agreement (including the
Schedules and Exhibits hereto) constitutes the entire agreement among the
parties with respect to the subject matter of this Agreement. This Agreement
(including the Schedules and Exhibits hereto) supersedes all prior agreements
and understandings, both oral and written, between the parties with respect to
the subject matter hereof of this Agreement.
9.13. SEVERABILITY. If any provision of this Agreement or the
application of any such provision to any person or circumstance is held invalid,
illegal or unenforceable in any respect by a court of competent jurisdiction,
such invalidity, illegality or unenforceability will not affect any other
provision hereof.
9.14. NO WAIVER. No action or inaction taken or omitted
pursuant to this Agreement will be deemed to constitute a waiver of compliance
with any representations, warranties or covenants contained in this Agreement
and will not operate or be construed as a waiver of any subsequent breach,
whether of a similar or dissimilar nature.
9.15. CERTAIN INTERPRETIVE MATTERS. (i) Unless the context
otherwise requires, (a) all references to Sections, Articles, Exhibits or
Schedules are to Sections, Articles, Exhibits, or Schedules of or to this
Agreement, (ii) each of the Schedules will apply only to the corresponding
Section or Subsection of this Agreement, PROVIDED, HOWEVER, that an item set
forth on a Schedule may be deemed to be disclosed on another Schedule if the
disclosure relating to such item is, on its
49
face, expressly responsive to the representation and warranty to which such
other Schedule relates, (iii) each term defined in this Agreement has the
meaning assigned to it, (iv) each accounting term not otherwise defined in this
Agreement has the meaning assigned to it in accordance with GAAP, (v) words in
the singular include the plural and VICE VERSA, and (vi) the term "INCLUDING"
means "including without limitation." All references to $ or dollar amounts will
be to lawful currency of the United States. To the extent the term "day" or
"days" is used, it shall mean calendar days.
(b) No provision of this Agreement will be interpreted in
favor of, or against, any of the parties hereto by reason of the extent to which
any such party or its counsel participated in the drafting thereof or by reason
of the extent to which any such provision is inconsistent with any prior draft
hereof or thereof.
(c) (i) All references to the "KNOWLEDGE OF THE COMPANIES",
"KNOWLEDGE OF EITHER OF THE COMPANIES" or to words of similar import will be
deemed to be references to the actual knowledge of one or more of the executive
officers or directors of each of the Companies whose names are listed on
SCHEDULE 9.15(c)(i), and will include such knowledge as such executive officers
or directors would have had after due inquiry of the responsible individuals of
each of the Companies whose names are listed separately on SCHEDULE 9.15(c)(i).
(ii) All references to the "KNOWLEDGE OF BUYER" or to words of
similar import will be deemed to be references to the actual knowledge
of one or more of the executive officers, directors or members of the
management committee of Buyer whose names are listed on SCHEDULE
9.15(c)(ii) and, will include such knowledge as such executive
officers, directors or management committee members would have had
after due inquiry of the responsible individuals of Buyer whose names
are listed separately on SCHEDULE 9.15(c)(ii).
(iii) All references to the "KNOWLEDGE OF SHAREHOLDER",
"KNOWLEDGE OF THE SHAREHOLDERS" or to words of similar import will be
deemed to be references to the actual knowledge of such Shareholder, as
applicable.
9.16. TRANSFER OF PROCEEDS. No Shareholder will transfer or
permit the transfer of any of the Aggregate Closing Consideration received by or
on behalf of such Shareholder if the result thereof would make such Shareholder
unable to satisfy such Shareholder's obligations hereunder as to
indemnification.
9.17. SHAREHOLDERS' REPRESENTATIVE. (a) By the execution
and delivery of this Agreement, each Shareholder hereby irrevocably constitutes
and appoints Mr. Gary Buehler as shareholders' representative ("SHAREHOLDERS'
REPRESENTATIVE") with the exclusive authority to act in accordance with
Section 9.17(b). In the event of the death, resignation or inability to act
of Mr. Buehler, Robert Reagan will be successor Shareholders' Representative
with all powers of his predecessor.
(b) The Shareholders' Representative will have full power:
(i) to act on each Shareholder's behalf in accordance with the
terms of this Agreement, to give and receive notices on behalf of all
Shareholders and to act on their behalf in connection with any matter as to
which one or more Shareholders is an "Indemnified Party" or
50
"Indemnifying Party" under this Agreement, all in the absolute discretion of
Shareholders' Representative;
(ii) in general, to do all things and to perform all acts,
including executing and delivering all agreements, certificates, receipts,
instructions and other instruments contemplated by or in connection with this
Agreement to substantiate the representations or warranties or to perform the
covenants made by the Shareholders herein; and
(iii) to amend this Agreement on behalf of the Shareholders.
Notwithstanding anything in this Section 9.17 to the contrary, the Shareholders'
Representative will not be authorized to alter, change or modify the Aggregate
Closing Consideration or the Personal Liability Amount on behalf of the
Shareholders.
This power of attorney, and all authority hereby conferred, is granted in
consideration of the mutual covenants and agreements made herein, and is
irrevocable and will not be terminated by any act of any Shareholder or by
operation of Law, whether by the death or incapacity of any Shareholder or by
the occurrence of any other event. The Shareholders' Representative will not be
liable for any action taken in the capacity of Shareholders' Representative in
accordance with the terms of this Agreement, including the compromise,
settlement, payment or defense of any claim (including expenses and costs
associated therewith) under this Agreement regardless of whether any Shareholder
is the claimant or the party against whom a claim is being made. In connection
with the exercise of his duties, the Shareholders' Representative will be
entitled to consult with and rely upon legal counsel and other professional
advisors, with the costs thereof to be allocated among the Shareholders and will
have no liability hereunder for actions taken in good faith reliance upon the
advice of such advisors. Each Shareholder will, jointly and severally, hold the
Shareholders' Representative harmless from any and all Damage which they, or any
one of them, may sustain as a result of any action taken in good faith
hereunder.
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The parties hereto have caused this Agreement to be duly
executed by their respective authorized officers or in their individual
capacity, if applicable, as of the day and year first above written.
CERTIFIED FABRICATORS, INC.
By: /s/ Gary J. Buehler
------------------------------------
Name: Gary J. Buehler
Title: President
CALBRIT DESIGN, INC.
By: /s/ Gary J. Buehler
------------------------------------
Name: Gary J. Buehler
Title: President
PRECISION PARTNERS, INC.
By: /s/ John Clark
------------------------------------
Name: John Clark
Title: Vice President
/s/ Gary J. Buehler
---------------------------------------------
Gary J. Buehler, individually and as
Shareholders' Representative