EXHIBIT 2.5
EXECUTION COPY
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STOCK PURCHASE AND RECAPITALIZATION AGREEMENT
by and among
TELPRO TECHNOLOGIES, INC.
THE SELLERS NAMED HEREIN
and
LINC.NET, INC.
Dated as of March 13, 2000
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TABLE OF CONTENTS
Page
ARTICLE I
CERTAIN DEFINITIONS...........................................................1
1.1 Definitions.......................................................1
ARTICLE II
PURCHASE AND SALE OF THE SHARES........ ......................................8
2.1 Basic Transaction.................................................8
2.2 Transactions at the Closings......................................8
2.3 Purchase Price...................................................11
ARTICLE III
CONDITIONS TO CLOSINGS. ....................................................13
3.1 Conditions to Buyer's Obligations at Initial Closing.............13
3.2 Conditions to Sellers' Obligations...............................17
3.3 Condition to Buyer's Obligations at Second Closing...............18
ARTICLE IV
[INTENTIONALLY OMITTED] .....................................................18
ARTICLE V
REPRESENTATIONS AND WARRANTIES CONCERNING
THE COMPANY AND SELLERS......................................................19
5.1 Organization, Corporate Power and Licenses.......................19
5.2 Capital Stock and Related Matters; Title to Shares...............19
5.3 Authorization; Noncontravention..................................20
5.4 Subsidiaries.....................................................21
5.5 Financial Statements.............................................21
5.6 Accounts Receivable..............................................21
5.7 Inventory........................................................22
5.8 Absence of Undisclosed Liabilities...............................22
5.9 No Material Adverse Effect.......................................22
5.10 Absence of Certain Developments..................................22
5.11 Assets...........................................................25
5.12 Contracts and Commitments........................................26
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5.13 Intellectual Property Rights.....................................28
5.14 Litigation.......................................................29
5.15 Compliance with Laws.............................................30
5.16 Environmental and Safety Matters.................................30
5.17 Employees........................................................31
5.18 Employee Benefit Plans. ........................................32
5.19 Insurance........................................................33
5.20 Tax Matters......................................................33
5.21 Brokerage and Transaction Bonuses................................35
5.22 Bank Accounts....................................................35
5.23 Names and Locations..............................................35
5.24 Affiliate Transactions...........................................35
5.25 Service Warranties...............................................36
5.26 Customers and Suppliers..........................................36
5.27 Disclosure.......................................................36
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF BUYER......................................37
6.1 Organization and Power...........................................37
6.2 Capitalization...................................................37
6.3 Authorization....................................................37
6.4 No Violation.....................................................37
6.5 Governmental Authorities and Consents............................38
6.6 Litigation.......................................................38
6.7 Brokerage........................................................38
ARTICLE VII
[INTENTIONALLY OMITTED]......................................................38
ARTICLE VIII
ADDITIONAL AGREEMENTS; COVENANTS AFTER CLOSING...............................38
8.1 Survival of Representations and Warranties.......................38
8.2 Indemnification..................................................39
8.3 Mutual Assistance................................................43
8.4 Non-Competition; Non-Solicitation................................43
8.5 Press Release and Announcements..................................45
8.6 Expenses.........................................................45
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8.7 Specific Performance.............................................45
8.8 Arbitration Procedure............................................46
8.9 Further Assurances...............................................47
8.10 Confidentiality..................................................47
8.11 Tax Matters......................................................47
8.12 Minority Owned Subsidiary........................................49
ARTICLE IX
MISCELLANEOUS................................................................49
9.1 Amendment and Waiver.............................................49
9.2 Notices..........................................................50
9.3 Successors and Assigns...........................................51
9.4 Severability.....................................................52
9.5 Interpretation...................................................52
9.6 Captions.........................................................52
9.7 No Third-Party Beneficiaries.....................................52
9.8 Complete Agreement...............................................52
9.9 Counterparts.....................................................53
9.10 Delivery by Facsimile............................................53
9.11 Governing Law....................................................53
9.12 Schedules........................................................53
9.13 Attorney's Fees..................................................53
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EXHIBITS AND SCHEDULES
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Exhibits:
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Exhibit A - Escrow Agreement
Exhibit B-1 - Employment Agreement
Exhibit B-2 - Employment Agreement
Exhibit C - Executive Stock Purchase Agreement
Exhibit D - Amended and Restated Stockholders Agreement
Exhibit E - Amended and Restated Registration Agreement
Exhibit F - Form of Opinion of Counsel for Sellers and the Company
Exhibit G - Option Agreement
Exhibit H - Promissory Note of the Company
Exhibit I - Promissory Note of Ismael Perera
Schedules
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Schedule of Sellers
Permitted Liens Schedule
Officers and Directors Schedule
Capital Stock Schedule
Restrictions Schedule
Subsidiary Schedule
Financial Statements Schedule
Accounts Receivable Schedule
Liabilities Schedule
Contracts Schedule
Developments Schedule
Assets Schedule
Leased Realty Schedule
Intellectual Property Schedule
Litigation Schedule
Compliance Schedule
Permits Schedule
Environmental Schedule
Employees Schedule
Employee Benefits Schedule
Insurance Schedule
Taxes Schedule
Brokerage Schedule
Transaction Bonuses Schedule
Bank Account Schedule
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Names and Locations Schedule
Affiliated Transactions Schedule
Warranty Schedule
Customers and Suppliers Schedule
Buyer Consent Schedule
Buyer Brokerage Schedule
Indemnification Schedule
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "AGREEMENT") is made
and entered into as of March 13, 2000, by and among Telpro Technologies Inc.,
a California corporation (the "COMPANY"), the Sellers set forth on the
SCHEDULE OF SELLERS attached hereto (collectively, the "SELLERS", and each a
"SELLER") and Linc.net, Inc., a Delaware corporation ("BUYER").
WHEREAS, Sellers own all of the issued and outstanding
capital stock of the Company (the "SHARES"); and
WHEREAS, on the terms and subject to the conditions set
forth in this Agreement, Buyer desires to purchase from Sellers, and Sellers
desire to sell to Buyer, all of the Shares.
NOW, THEREFORE, in consideration of the mutual covenants,
agreements and understandings contained herein and intending to be legally
bound, the parties hereto hereby agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
1.1 DEFINITIONS. For the purposes of this Agreement, the following
terms have the meanings set forth below:
"ACCOUNTING FIRM" has the meaning set forth in Section 2.3(c).
"AFFILIATE" of any particular Person means any other Person
controlling, controlled by or under common control with such Person. For
purposes of this definition, "CONTROL" (including the terms "CONTROLLING,"
"CONTROLLED BY" and "UNDER COMMON CONTROL WITH") means the possession, direct
or indirect, of the power to direct or cause the direction of the management
and policies of a Person, whether through the ownership of voting securities,
by contract or otherwise, and such "control" will be presumed if any Person
owns 10% or more of the voting capital stock or other ownership interests,
directly or indirectly, of any other Person.
"AFFILIATED GROUP" means an affiliated group as defined in
Section 1504 of the Code (or any analogous combined, consolidated or unitary
group defined under state, local or foreign income Tax law) of which the
Company or any of its Subsidiaries is or has been a member.
"AGREEMENT" has the meaning set forth in the preamble.
"APPLICABLE RATE" means the primate rate of interest
reported from time to time by the Wall Street Journal.
"BANK" means PNC Bank National Association or such other
financial institution as shall be selected by Buyer.
"BUYER" has the meaning set forth in the preamble.
"BUYER PARTIES" has the meaning set forth in Section 8.2(a).
"CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended.
"CLOSINGS" has the meaning set forth in Section 2.2(a).
"CLOSING BALANCE SHEET" has the meaning set forth in
Section 2.3(c).
"CLOSING DATES" has the meaning set forth in Section 2.2(a).
"CLOSING INDEBTEDNESS" has the meaning set forth in Section
2.3(a).
"CLOSING NET CURRENT ASSETS" has the meaning set forth in
Section 2.3(a).
"CLOSING NET WORTH" has the meaning set forth in Section
2.3(a).
"CLOSING TAX LIABILITY" has the meaning set forth in
Section 2.3(a).
"CODE" means the Internal Revenue Code of 1986, as amended,
and any reference to any particular Code section shall be interpreted to
include any revision of or successor to that section regardless of how
numbered or classified.
"COMPANY" has the meaning set forth in the preamble.
"COMPANY TRANSACTION" means any (a) reorganization,
liquidation, dissolution or recapitalization of the Company or any of its
Subsidiaries, (b) merger or consolidation involving the Company or any of its
Subsidiaries, (c) purchase or sale of any assets or capital stock (or any
rights to acquire, or securities convertible into or exchangeable for, any
such capital stock) of the Company or any of its Subsidiaries (other than the
purchase and sale of inventory and capital equipment in the ordinary course
of business consistent with past custom and practice), or (d) similar
transaction or business combination involving the Company or any of its
Subsidiaries or their business or assets.
"CONFIDENTIAL INFORMATION" means all information of a
confidential or proprietary nature (whether or not specifically labeled or
identified as "confidential"), in any form or medium, that relates to the
business, products, services or research or development of the Company or its
Subsidiaries or their respective suppliers, distributors, customers,
independent contractors or other business relations. Confidential Information
includes, but is not limited to, the following: (i)
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internal business information (including information relating to strategic
and staffing plans and practices, business, training, marketing, promotional
and sales plans and practices, cost, rate and pricing structures and
accounting and business methods); (ii) identities of, individual requirements
of, specific contractual arrangements with, and information about, the
Company's or any of its Subsidiaries' suppliers, distributors, customers,
independent contractors or other business relations and their confidential
information; (iii) trade secrets, know-how, compilations of data and
analyses, techniques, systems, formulae, recipes, research, records, reports,
manuals, documentation, models, data and data bases relating thereto; (iv)
inventions, innovations, improvements, developments, methods, designs,
analyses, drawings, reports and all similar or related information (whether
or not patentable); and (v) other Intellectual Property Rights.
"DISPUTES" has the meaning set forth in Section 8.8(a).
"DISPUTING PERSON" has the meaning set forth in Section
8.8(b).
"ENCUMBRANCE" means any lien, charge, security interest,
claim, pledge, Tax, option, warrant, right, contract, call, commitment,
equity, demand, proxy, voting agreement, restriction on transfer (other than
restrictions on transfer under the Securities Act and applicable state
securities laws) or other encumbrance.
"ENVIRONMENTAL AND SAFETY REQUIREMENTS" means all federal,
state, local and foreign statutes, regulations, ordinances and other
provisions having the force or effect of law, all judicial and administrative
orders and determinations, all contractual obligations and all common law, in
each case concerning public health and safety, worker health and safety and
pollution or protection of the environment (including all those relating to
the presence, use, production, generation, handling, transport, treatment,
storage, disposal, distribution, labeling, testing, processing, discharge,
release, threatened release, control or cleanup of any hazardous or otherwise
regulated materials, substances or wastes, chemical substances or mixtures,
pesticides, pollutants, contaminants, toxic chemicals, petroleum products or
byproducts, asbestos, polychlorinated biphenyls, noise, radiation or radon),
each as amended and as now or hereafter in effect.
"ESCROW AGENT" means Norwest Bank Minnesota, N.A.
"ESCROW AGREEMENT" means the escrow agreement in the form
of EXHIBIT A attached hereto.
"ESCROW AMOUNT" means $4,000,000.
"ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
"ESTIMATED PURCHASE PRICE" has the meaning set forth in
Section 2.3(b).
"EXECUTIVES" means Larry Jordan, Wayne Jensen, Gary Keck
and Mark Carlson.
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"EXECUTIVE SECURITIES" means the shares of Buyer's Common
Stock and Series B Preferred Stock issued to Sellers pursuant to the
respective Executive Purchase Agreements between each Seller and Buyer.
"FINAL DETERMINATION" has the meaning set forth in Section
8.8(d).
"GAAP" means United States generally accepted accounting
principles, as in effect from time to time.
"GOVERNMENTAL APPROVALS" has the meaning set forth in
Section 3.1(c).
"GUARANTY" means any agreement, undertaking or arrangement
by which any Person guarantees, endorses or otherwise becomes or is
contingently liable upon the debt, obligation or other liability of any other
Person (other than by endorsements of instruments in the ordinary course of
collection), or guaranties of the payment of dividends or other distributions
upon the shares of any other Person.
"HSR ACT" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
"INDEBTEDNESS" means, with respect to any Person at any
date, without duplication: (i) all obligations of such Person for borrowed
money or in respect of loans or advances, (ii) all obligations of such Person
evidenced by bonds, debentures, notes or other similar instruments or debt
securities, (iii) all obligations in respect of letters of credit and
bankers' acceptances issued for the account of such Person, (iv) all
obligations arising from cash/book overdrafts, (v) all obligations arising
from deferred compensation arrangements, (vi) all obligations of such Person
secured by a Lien, (vii) all Guaranties of such Person in connection with any
of the foregoing, (viii) all capital lease obligations, (ix) all deferred
rent, (x) all indebtedness for the deferred purchase price of property or
services with respect to which a Person is liable, contingently or otherwise,
as obligor or otherwise (other than trade payables incurred in the ordinary
course of business which are not past due) (xi) all other liabilities
classified as non-current liabilities in accordance with GAAP as of the
Closing Date and (xii) all accrued interest, prepayment premiums or penalties
related to any of the foregoing.
"INDEMNITEE" has the meaning set forth in Section 8.2(d).
"INDEMNITOR" has the meaning set forth in Section 8.2(d).
"INITIAL CLOSING" has the meaning set forth in Section 2.2.
"INITIAL CLOSING DATE" has the meaning set forth in Section
2.2.
"INSTITUTE" has the meaning set forth in Section 8.8(a).
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"INTELLECTUAL PROPERTY RIGHTS" means all (i) patents,
patent applications, patent disclosures and inventions, (ii) Internet domain
names, trademarks, service marks, trade dress, trade names, logos and
corporate names and registrations and applications for registration thereof
together with all of the goodwill associated therewith, (iii) copyrights
(registered or unregistered) and copyrightable works and registrations and
applications for registration thereof, (iv) mask works and registrations and
applications for registration thereof, (v) computer software, data, data
bases and documentation thereof, (vi) trade secrets and other confidential
information (including ideas, formulas, recipes, compositions, inventions
(whether patentable or unpatentable and whether or not reduced to practice),
know-how, manufacturing and production processes and techniques, research and
development information, drawings, specifications, designs, plans, proposals,
technical data, copyrightable works, financial and marketing plans and
customer and supplier lists and information), (vii) other intellectual
property rights and (viii) copies and tangible embodiments thereof (in
whatever form or medium).
"INVESTMENT" as applied to any Person means (i) any direct
or indirect purchase or other acquisition by such Person of any notes,
obligations, instruments, stock, securities or ownership interest (including
limited liability company interests, partnership interests and joint venture
interests) of any other Person and (ii) any capital contribution by such
Person to any other Person.
"JORDAN" means Larry Jordan.
"LATEST BALANCE SHEET" has the meaning set forth in Section
5.5(b).
"LEASED REAL PROPERTY" and "LEASED REALTY" have the
respective meanings set forth in Section 5.11(b).
"LIEN" means any mortgage, pledge, hypothecation, lien
(statutory or otherwise), preference, priority, security interest, security
agreement, easement, covenant, restriction or other encumbrance of any kind
or nature whatsoever (including any conditional sale or other title retention
agreement and any lease having substantially the same effect as any of the
foregoing and any assignment or deposit arrangement in the nature of a
security device).
"LOSSES" has the meaning set forth in Section 8.2(a).
"MATERIAL ADVERSE EFFECT" means a material and adverse
effect or development upon the business, operations, assets, liabilities,
financial condition, value, business prospects, operating results, cash flow,
net worth or employee, customer or supplier relations of the Company and its
Subsidiaries.
"NET CURRENT ASSETS" means as of any date of determination,
the excess of the Company's total current assets as of such date over the
Company's total current liabilities (excluding
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Indebtedness and Closing Tax Liability to the extent such amounts are
included in the calculation of total current liabilities) as of such date
determined in accordance with GAAP. In determining total current assets and
total current liabilities hereunder, (i) all accounting entries shall be
taken into account regardless of their amount and all errors and omissions
corrected, (ii) all proper adjustments shall be made, and (iii) appropriate
reserves for all liabilities and obligations for which reserves are
appropriate in accordance with GAAP shall be included.
"NET WORTH" means, as of any date of determination, the
excess of the Company's total assets as of such date over the Company's total
liabilities (excluding Indebtedness and Closing Tax Liability) as of such
date, determined in accordance with GAAP. In determining total assets and
total liabilities hereunder, (i) all accounting entries shall be taken into
account regardless of their amount and all errors and omissions shall be
corrected, (ii) all proper adjustments shall be made, and (iii) appropriate
reserves for all liabilities and obligations for which reserves are
appropriate in accordance with GAAP shall be included.
"NOTICE OF ARBITRATION" has the meaning set forth in
Section 8.8(b).
"NOTICE OF DISAGREEMENT" has the meaning set forth in
Section 2.3(c).
"PERMITTED LIENS" means (i) Liens that are set forth on the
PERMITTED LIENS SCHEDULE attached hereto, (ii) Liens for Taxes not delinquent
or the validity of which are being contested in good faith by appropriate
proceedings and as to which adequate reserves have been established on the
Company's financial statements in accordance with GAAP, (iii) statutory
landlord's, mechanic's, carrier's, workmen's, repairmen's or other similar
Liens arising or incurred in the ordinary course of business and (iv) Liens
arising from zoning ordinances.
"PERSON" means any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated association, corporation,
limited liability company, entity or governmental entity (whether federal,
state, county, city or otherwise and including any instrumentality, division,
agency or department thereof).
"PLAN" has the meaning set forth in Section 5.18(a).
"PRE-CLOSING TAXES" has the meaning set forth in Section
8.11(b).
"PRINCIPAL STOCKHOLDERS" means Larry Jordan, the Wayne E.
Jensen and Lenore C. Jensen Family Trust, Gary Keck and Mark Carlson.
"PURCHASE PRICE" has the meaning set forth in Section
2.3(a).
"REALTY LEASES" has the meaning set forth in Section
5.11(b).
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"RESTRICTED STOCKHOLDERS" means Larry Jordan, Wayne E.
Jensen, Gary Keck, Mark Carlson and Larry Cook.
"RESTRICTED TERRITORIES" has the meaning set forth in
Section 8.4(a).
"RESTRICTIVE COVENANTS" has the meaning set forth in
Section 8.4(c).
"RULES" has the meaning set forth in Section 8.8(a).
"SECOND CLOSING" has the meaning set forth in Section 2.2.
"SECOND CLOSING DATE" has the meaning set forth in Section
2.2.
"SECURITIES ACT" means the Securities Act of 1933, as
amended, or any similar federal law then in force.
"SELLER" and "SELLERS" have the meanings set forth in the
preamble.
"SELLER REPRESENTATIVE" means Larry Jordan.
"STOCKHOLDERS AGREEMENT" means the Amended and Restated
Stockholders Agreement in the form of EXHIBIT D attached hereto.
"STRADDLE TAX RETURNS" has the meaning set forth in Section
8.11(b).
"SUBSIDIARY" means, with respect to any Person, any
corporation, partnership, limited liability company, association or other
business entity of which (i) if a corporation, a majority of the total voting
power of shares of stock entitled (irrespective of whether, at the time,
stock of any other class or classes of such corporation shall have or might
have voting power by reason of the happening of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time owned
or controlled, directly or indirectly, by that Person or one or more of the
other Subsidiaries of that Person or a combination thereof, or (ii) if a
partnership, limited liability company, association or other business entity,
either (A) a majority of the partnership or other similar ownership interest
thereof is at the time owned or controlled, directly or indirectly, by that
Person or one or more Subsidiaries of that Person or a combination thereof or
(B) such person is a general partner, managing member or managing director of
such partnership, limited liability company, association or other entity.
"TAX" means any (i) federal, state, local or foreign
income, gross receipts, franchise, estimated, alternative minimum, add-on
minimum, sales, use, transfer, registration, value added, excise, natural
resources, severance, stamp, occupation, premium, windfall profit,
environmental, customs, duties, real property, personal property, capital
stock, social security, unemployment, disability, payroll, license, employee
or other withholding, or other tax, of any kind whatsoever,
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including any interest, penalties or additions to tax or additional amounts
in respect of the foregoing; (ii) liability of the Company or any of its
Subsidiaries for the payment of any amounts of the type described in clause
(i) above arising as a result of being (or ceasing to be) a member of any
Affiliated Group (or being included (or required to be included) in any Tax
Return relating thereto); and (iii) liability of the Company or any of its
Subsidiaries for the payment of any amounts of the type described in clause
(i) above as a result of any express or implied obligation to indemnify or
otherwise assume or succeed to the liability of any other Person.
"TAX RETURNS" means returns, declarations, reports, claims
for refund, information returns or other documents (including any related or
supporting schedules, statements or information) filed or required to be
filed in connection with the determination, assessment or collection of any
Taxes of any party or the administration of any laws, regulations or
administrative requirements relating to any Taxes.
"THIRD-PARTY APPROVALS" has the meaning set forth in
Section 3.1(b).
"TREASURY REGULATIONS" means the United States Treasury
Regulations promulgated under the Code, and any reference to any particular
Treasury Regulation section shall be interpreted to include any final or
temporary revision of or successor to that section regardless of how numbered
or classified.
ARTICLE II
PURCHASE AND SALE OF THE SHARES
2.1 BASIC TRANSACTION. On the terms and subject to the conditions
set forth in this Agreement, at the Closings, Buyer or the Company shall
purchase from Sellers, and Sellers shall sell, convey, assign, transfer and
deliver to Buyer or the Company, certain of the Shares, free and clear of all
Encumbrances set forth on the SCHEDULE OF SELLERS.
2.2 TRANSACTIONS AT THE CLOSINGS.
(a) INITIAL CLOSING. The initial closing of the
transactions contemplated by this Agreement (the "INITIAL CLOSING") shall
take place at the offices of Kirkland & Ellis in Chicago, Illinois, at 9:00
a.m. local time on March 13, 2000, or at such other time or place as is
mutually agreeable to the parties, or, if any of the conditions to Initial
Closing set forth in Article III have not been satisfied at or waived by the
party entitled to the benefit thereof on or prior to such date, on the second
business day following satisfaction or waiver of such conditions (the
"INITIAL CLOSING DATE").
(b) SECOND CLOSING. The second closing of the transaction
contemplated by this Agreement (the "SECOND CLOSING" and together with the
Initial Closing, the "CLOSINGS") shall take place at the offices of Kirkland
& Ellis at 9:00 a.m. local time on May 17, 2000, or at such other time or
place as is mutually agreeable to the parties, or, if any of the conditions
to the Second Closing set
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forth in Article III have not been satisfied at or waived by the party
entitled to the benefit thereof on or prior to such date, on the second
business day following satisfaction or waiver of such conditions.
(c) DELIVERIES. At the Initial Closing:
(i) Buyer shall (A) pay to each of the Sellers set
forth on the SCHEDULE OF SELLERS attached hereto under the heading "Initial
Closing" cash in an aggregate amount equal to (1) Gross Proceeds of the
Estimated Purchase Price set forth opposite his, her or its name on the
SCHEDULE OF SELLERS, LESS (2) the escrow amount set forth opposite his, her
or its name on the SCHEDULE OF SELLERS and LESS (3) the rollover amount set
forth opposite his, her or its name on the SCHEDULE OF SELLERS, by wire
transfer of immediately available funds to the account designated in advance
in writing by the Sellers at the Initial Closing and (B) deliver to each of
the Principal Stockholders and Larry Cook the number of shares of Buyer's
Series B Preferred Stock and Common Stock set forth opposite such Seller's
name on the SCHEDULE OF SELLERS, which shares shall be subject to the terms
and conditions of the Executive Purchase Agreement by and between the Buyer
and each such Seller in exchange for the number of shares of the Company's
common stock set forth opposite each person's name on the SCHEDULE OF
SELLERS, in exchange for the number of shares of the Company's common stock
sold as set forth opposite his, her or its name on the SCHEDULE OF SELLERS;
(ii) The Company shall issue Linc.net a promissory
note in the aggregate principal amount of $16,305,550, substantially in the
form attached hereto as EXHIBIT H;
(iii) The Company shall pay to each of the Sellers
set forth on the SCHEDULE OF SELLERS attached hereto under the heading
"Initial Closing" cash in an aggregate amount equal to the Net Proceeds of
the Estimated Purchase Price set forth opposite such Seller's name on the
SCHEDULE OF SELLERS, by wire transfer of immediately available funds to the
respective accounts designated in advance in writing by such Sellers at the
Initial Closing in exchange for the number of shares of the Company's common
stock set forth opposite each such Seller's name on the SCHEDULE OF SELLERS;
(iv) Buyer shall deliver the Escrow Amount to the
Escrow Agent for deposit into an escrow account established pursuant to the
terms of the Escrow Agreement; PROVIDED THAT $905,623 of the Escrow Amount
will be funded by Buyer at such time as it exercises the option granted by
Jordan to Buyer pursuant to the Option Agreement. The Escrow Amount shall be
available on a non-exclusive basis to satisfy amounts owing to the Buyer
Parties pursuant to Section 8.2 below;
(v) Sellers at the Initial Closing shall deliver
to Buyer or the Company, as the case may be, the certificate or certificates
representing the Shares sold or exchanged by them, duly endorsed in blank or
accompanied by duly executed stock powers, with appropriate transfer stamps
(if any) affixed thereto;
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(vi) Buyer shall sell to Ismael Perera 31,000
shares of the Company's Class A Voting Common Stock (representing 2% of the
outstanding Class A Voting Common Stock) in exchange for his promissory note
in the aggregate principal amount of $445,395 in the form attached hereto as
EXHIBIT I;
(vii) Jordan shall issue the Buyer the Option
Agreement in the form attached hereto as EXHIBIT G;
(viii) The Company, Sellers and Buyer, as
applicable, shall deliver the opinions, certificates and other documents and
instruments required to be delivered by or on behalf of such party under
Article III below; and
(ix) Sellers shall deliver to Buyer all corporate
books and records and other property of the Company in their possession.
(d) DELIVERIES. At the Second Closing:
(i) Buyer shall pay to Larry Cook the Net Proceeds
of the Estimated Purchase Price set forth opposite his name on the SCHEDULE
OF SELLERS by wire transfer of immediately available funds to the respective
accounts designated in advance in writing by him at the Second Closing; and
(ii) At the Second Closing, Larry Cook shall
deliver to Buyer the certificate or certificates representing the Shares
owned by him, duly endorsed in blank or accompanied by duly executed stock
powers, with appropriate transfer stamps (if any) affixed thereto.
2.3 PURCHASE PRICE.
(a) The aggregate purchase price to be paid for the Shares
(the "PURCHASE PRICE") shall be an amount equal to $48,000,000, MINUS (i) an
amount equal to the aggregate amount of all Indebtedness (if any) of the Company
and its Subsidiaries existing as of the end of the business day immediately
preceding the Initial Closing Date, but excluding any prepayment fee in
connection with the termination of the Company's line of credit as of the
Closing (the "CLOSING INDEBTEDNESS"), MINUS (ii) an amount equal to the
aggregate amount of all foreign, federal, state and local Taxes of or payable
by the Company and its Subsidiaries with respect to any taxable year or
taxable period or portion thereof ended on or prior to the Initial Closing
Date (the "CLOSING TAX LIABILITY") MINUS (iii) an amount equal to the amount
(if any) by which the Net Current Assets of the Company as of the end of the
business day immediately proceeding the Initial Closing Date as shown on the
Closing Balance Sheet (as defined in Section 2.3(d) below and as prepared in
accordance with the provisions thereof) (the "CLOSING NET CURRENT ASSETS") is
less than $5,900,000, MINUS (iv) an amount equal to the amount (if any) by
which the Net Worth of the Company as of the end of the business day
immediately preceding the Initial Closing Date as shown on the Closing
Balance Sheet (as defined
10
in Section 2.3(d) below and as prepared in accordance with the provisions
thereof) (the "CLOSING NET WORTH") is less than $6,800,000 (without
duplication with any reduction in clause (iii)).
(b) At the Initial Closing, Buyer and the Company shall pay to
the Sellers set forth on the SCHEDULE OF SELLERS under the heading "Initial
Closing" in the manner described in clause (i), (iii) and (iv) of Section
2.2(c), respectively, the Net Proceeds set forth opposite such Seller's name on
the SCHEDULE OF SELLERS of the Purchase Price, as estimated in good faith by
Buyer and the Principal Stockholders (including an estimate of the components of
the Purchase Price) not less than two days prior to the Closing (the "ESTIMATED
PURCHASE PRICE").
(c) At the Second Closing, Buyer shall pay to Larry Cook an
amount equal to the Net Proceeds set forth opposite his name on the SCHEDULE OF
SELLERS of the Estimated Purchase Price.
(d) CLOSING BALANCE SHEET
(i) Within 90 days following the Initial Closing
Date, Buyer shall deliver to the Seller Representative a balance sheet of the
Company (in its final and binding form, the "CLOSING BALANCE SHEET"), setting
forth the Closing Indebtedness, the Closing Tax Liability, the Closing Net
Worth and Closing Net Current Assets and the resulting Purchase Price
calculated with reference to such amounts as of the end of the business day
immediately preceding the Initial Closing Date. The Closing Balance Sheet
shall include all known adjustments required in a year-end closing of the
books and shall be prepared in accordance with GAAP. Sellers shall cooperate
as reasonably requested in connection with the preparation of the Closing
Balance Sheet. During the 20-day period immediately following the Seller
Representative's receipt of the Closing Balance Sheet, Sellers shall be
permitted to review the Company's books and records and the Company's working
papers related to the preparation of the Closing Balance Sheet and
determination of the Purchase Price.
(ii) The Closing Balance Sheet shall become final
and binding upon the parties 20 days following the Seller Representative's
receipt thereof, unless one or more Sellers shall give written notice of his
disagreement (a "NOTICE OF DISAGREEMENT") to Buyer prior to such date. Any
Notice of Disagreement shall specify in reasonable detail the nature and
dollar amount of any disagreement so asserted and shall be delivered only if
(and to the extent that) unless such Seller(s) reasonably and in good faith
determines that the Closing Balance Sheet and the resulting Purchase Price
calculated with reference thereto delivered by Buyer has not been determined
in accordance with the guidelines and procedures set forth in this Agreement.
If a timely Notice of Disagreement is received by Buyer, then the Closing
Balance Sheet (as revised in accordance with clause (x) or (y) below) shall
become final and binding upon the parties on the earliest of (x) the date the
parties resolve in writing any differences they have with respect to the
matters specified in the Notice of Disagreement or (y) the date all matters
in dispute are finally resolved in writing by the Accounting Firm (defined
below). Following delivery of a Notice of Disagreement, Buyer and its agents
and representatives shall be permitted to review Sellers' and their
representatives' working papers relating to the Notice of Disagreement.
11
(iii) During the 20 days immediately following
delivery of a Notice of Disagreement, the Parties shall seek in good faith to
resolve in writing any differences which they have with respect to the
matters specified in the Notice of Disagreement. At the end of such 20-day
period, the parties shall submit to a mutually satisfactory independent
"big-five" accounting firm other than Ernst & Young LLP for review and
resolution of all matters (but only such matters) that remain in dispute and
that were properly included in the Notice of Disagreement. If the parties are
unable to mutually agree upon an accounting firm, Buyer and the Seller
Representative shall select by lot a "big-five" accounting firm other than
Ernst & Young LLP. The parties shall instruct the accounting firm ultimately
agreed upon or selected by lot under this Section 2.3(d)(iii) (the
"ACCOUNTING FIRM") to make a final determination of the Closing Indebtedness,
the Closing Tax Liability, the Closing Net Worth and Closing Net Current
Assets and the resulting Purchase Price calculated with reference to such
amounts to the extent such amounts are in dispute, in accordance with the
guidelines and procedures set forth in this Agreement. The parties will
cooperate with the Accounting Firm during the term of its engagement. The
parties shall instruct the Accounting Firm to not assign a value to any item
in dispute greater than the greatest value for such item assigned by Buyer,
on the one hand, or the Seller Representative, on the other hand, or less
than the smallest value for such item assigned by Buyer, on the one hand, or
the Seller Representative, on the other hand. The Parties shall also instruct
the Accounting Firm to make its determination based solely on presentations
by Buyer and the Seller Representative which are in accordance with the
guidelines and procedures set forth in this Agreement (i.e. not on the basis
of an independent review).
(iv) The Closing Balance Sheet and the
determination of the Closing Indebtedness, the Closing Tax Liability, the
Closing Net Worth and Closing Net Current Assets and the resulting Purchase
Price calculated with reference thereto shall become final and binding on the
parties on the date the Accounting Firm delivers its final resolution in
writing to the parties (which final resolution shall be requested by the
Parties to be delivered not more than 45 days following submission of such
disputed matters). The fees and expenses of the Accounting Firm shall be
shared equally by Buyer, on one hand, and Sellers, on the other hand.
(v) Sellers hereby authorize the Seller
Representative to take the actions contemplated under this Section 2.3(d) on
their behalf, and for purposes of this Section 2.3(d), the actions of the
Seller Representative shall be deemed the actions of the Sellers.
(e) Promptly after the Closing Balance Sheet and the
determination of the Closing Indebtedness, the Closing Tax Liability, the
Closing Net Worth and Closing Net Current Assets and the resulting Purchase
Price calculated with reference to such amounts become final and binding on
the parties under Section 2.3(d) above, the Estimated Purchase Price shall be
recalculated by the parties by giving effect to the final and binding Closing
Indebtedness, Closing Tax Liability, Closing Net Worth and Closing Net
Current Assets (as recalculated, the "FINAL PURCHASE PRICE"). If the
Estimated Purchase Price is greater than the Final Purchase Price, Sellers
shall, and if the Final Purchase Price is greater than the Estimated Purchase
Price, Buyer shall, within three business days after the Closing Balance
Sheet becomes final and binding on the parties, make payment by wire transfer
to Buyer or Sellers, as the case may be, in immediately available funds of
the amount of such
12
difference, together with interest thereon at a rate per annum equal to the
Applicable Rate, calculated on the basis of the actual number of days elapsed
over 360, from the Closing Date to the date of payment.
ARTICLE III
CONDITIONS TO CLOSINGS
3.1 CONDITIONS TO BUYER'S OBLIGATIONS AT INITIAL CLOSING. The
obligation of Buyer to consummate the transactions contemplated by this
Agreement at the Initial Closing is subject to the satisfaction of the
following conditions on or prior to the Initial Closing Date:
(a) The representations and warranties in Article V hereof
that are subject to materiality qualifications shall be true and correct in
all respects at and as of the Initial Closing and the representations and
warranties contained in Article V hereof that are not subject to materiality
qualifications shall be true and correct in all material respects at and as
of the Initial Closing, and each Seller and the Company shall have performed
in all material respects all of the covenants and agreements required to be
performed by it hereunder prior to the Initial Closing;
(b) Sellers at the Initial Closing and the Company shall
have received or obtained all third-party consents and approvals that are
necessary (i) for the consummation of the transactions contemplated hereby or
(ii) to prevent a breach of or default under, or a termination, modification
or acceleration of, any instrument, contract, lease, license or other
agreement identified with an asterisk on the attached RESTRICTIONS SCHEDULE
(collectively, the "THIRD-PARTY APPROVALS"), in each case on terms reasonably
satisfactory to Buyer;
(c) Buyer and the Company shall have received or obtained
all governmental and regulatory consents, approvals, licenses and
authorizations that are necessary (i) for the consummation of the
transactions contemplated hereby or (ii) for Buyer to own the Shares
purchased at the Initial Closing and to operate the businesses of and control
the Company and its Subsidiaries following the Initial Closing (including any
required approvals from the State of California), in each case on terms and
conditions reasonably satisfactory to Buyer, and all applicable waiting
periods under the HSR Act shall have expired or been terminated
(collectively, the "GOVERNMENTAL APPROVALS");
(d) No suit, action or other proceeding shall be pending or
threatened before any court or governmental or regulatory official, body or
authority or any arbitrator wherein an unfavorable injunction, judgment,
order, decree, ruling or charge would (i) prevent the performance of this
Agreement or the consummation of any of the transactions contemplated hereby
or declare unlawful any of the transactions contemplated hereby, (ii) cause
any of the transactions contemplated by this Agreement to be rescinded
following consummation, (iii) affect adversely the right of Buyer to own the
Shares or operate the businesses of or control the Company and its
Subsidiaries or (iv)
13
affect adversely the right of the Company and its Subsidiaries to own their
respective assets or control their respective businesses, and no such
injunction, judgment, order, decree or ruling shall have been entered or be
in effect;
(e) Since December 31, 1999, there shall have been no
material adverse change or development in the business, financial condition,
value, operating results, assets, operations, business prospects, cash flow,
net worth or customer, supplier or employee relations of the Company and its
Subsidiaries taken as a whole (as determined by Buyer in its sole discretion);
(f) Buyer shall have completed and shall be satisfied in
its sole discretion with the results of its and its attorneys', accountants'
and other representatives' business, legal, accounting and financial due
diligence investigation and evaluation of the Company and its Subsidiaries
(which investigation and evaluation shall include a review of the Company's
relationships with key customers and suppliers, ongoing relationships with
key employees (including the Executives) and Intellectual Property Rights, as
well as the Company's acquisition opportunities and any other matters as
deemed appropriate by Buyer);
(g) Buyer shall have obtained all of the financing it needs
in order to consummate the transactions contemplated hereby and fund the
working capital requirements of the Company and its Subsidiaries following
the Initial Closing (in each case on terms and conditions satisfactory to
Buyer in its sole discretion);
(h) The company shall have obtained and delivered to Buyer
a letter of consent and estoppel certificate and a landlord lien waiver
agreement from each lessor of Leased Realty, each in form and substance
reasonably satisfactory to Buyer and Buyer's lender and their special counsel
and such other endorsements and affidavits and related items as Buyer or
Buyer's lenders may reasonably request;
(i) Each of the Executives shall have entered into an
agreement for employment with the Company or one of its Subsidiaries, each in
form substantially the same as that attached hereto as EXHIBIT B-1 and each
of Daniel Lyons, Jon Hunt, Larry Cook, Allen Carter, John Eagelston, Lynn
Erickson, Gerald Gauer, Walter Laster, Les Minter, Kenneth Pierce and David
Seamans shall have entered into an employment agreement for employment with
the Company or one of its Subsidiaries each in form substantially the same as
that attached hereto as Exhibit B-2 (the "EMPLOYMENT AGREEMENTS"), and all of
such agreements shall be in full force and effect at the Initial Closing;
(j) Each of the Executives shall have entered into an
executive stock purchase agreement with Buyer, each in form substantially the
same as that attached hereto as EXHIBIT C (the "EXECUTIVE PURCHASE
AGREEMENTS"), and all of such agreements shall be in full force and effect at
the Initial Closing;
14
(k) Each of the Executives shall have entered into the
Amended and Restated Stockholders Agreement, dated as of December 21, 1999,
among Buyer and the stockholders of Buyer attached hereto as EXHIBIT D (the
"STOCKHOLDERS AGREEMENT"), and such agreement shall be in full force and
effect at the Initial Closing;
(l) Each of the Executives shall have entered into the
Amended and Restated Registration Agreement, dated as of December 21, 1999,
among Buyer and the stockholders of Buyer attached hereto as EXHIBIT E (the
"REGISTRATION AGREEMENT"), and such agreement shall be in full force and
effect at the Initial Closing;
(m) Each of Executive and the Escrow Agent shall have
executed and delivered the Escrow Agreement, and the Escrow Agreement shall
be in full force and effect as of the Initial Closing and shall not have been
amended or modified;
(n) Buyer shall have received from Morgan, Miller & Blair,
counsel for Sellers and the Company, an opinion with respect to the matters
set forth in EXHIBIT F attached hereto, which shall be addressed to Buyer and
Buyer's lenders, dated as of the Initial Closing Date, and in form and
substance reasonably satisfactory to Buyer and Buyer's lenders;
(o) Buyer shall have received evidence (in form and
substance satisfactory to Buyer) that the Buy/Sell Agreement among certain of
the Company's stockholders shall have been terminated;
(p) The Company shall have obtained releases of all Liens
(other than any Permitted Liens) relating to the assets and properties of the
Company and the Company shall have obtained and delivered to Buyer and
Buyer's lenders payoff letters with respect to all Indebtedness for borrowed
money outstanding as of the Closing (in each case on terms and conditions
satisfactory to Buyer);
(q) Sellers and the Company shall have delivered to Buyer
copies of the Company's interim monthly and year-to-date financial statements
pursuant to Section 4.11 below. If the Closing Date falls on the 20th day of
a month or later, such interim financial statements shall report the
Company's consolidated results through the end of the month that immediately
precedes the month of the Initial Closing;
(r) Jordan shall have entered into the Option Agreement
with Buyer in the form of EXHIBIT G attached hereto;
(s) At the Initial Closing, Sellers at the Initial Closing
shall have delivered to Buyer (i) a certificate signed by the Company, dated
the date of the Initial Closing, stating that the conditions specified in
subsections (a) through (r) above (other than subsections (f), (g) and (n)
above) have been satisfied as of the Initial Closing; (ii) a certificate
signed by the Principal Stockholders and an authorized officer of the Company
indicating their good faith and best estimates
15
of (A) the Closing Indebtedness, (B) the Closing Tax Liability, (C) Closing
Net Worth and (D) Closing Net Current Assets and the resulting Purchase
Price; (iii) copies of all Third-Party Approvals and Governmental Approvals;
(iv) certified copies of the resolutions of the Company's board of directors
authorizing the execution, delivery and performance of this Agreement and the
other agreements contemplated hereby and the consummation of the transactions
contemplated hereby and thereby; (v) the resignations, effective as of the
Initial Closing, of each director of the Company; (vi) good standing
certificates for each of the Company and its Subsidiaries from their
respective jurisdictions of incorporation and each jurisdiction in which the
Company and/or any of its Subsidiaries is qualified to do business as a
foreign corporation, in each case dated as of a recent date prior to the
Initial Closing Date; and (vii) such other documents or instruments as are
required to be delivered by Sellers or the Company at the Initial Closing
pursuant to the terms hereof or that Buyer reasonably requests prior to the
Initial Closing Date to effect the transactions contemplated hereby.
All actions and proceedings to be taken by Sellers and the
Company in connection with the consummation of the transactions contemplated
hereby and all certificates, opinions, instruments and other documents
required to effect the transactions contemplated hereby reasonably requested
by Buyer shall be reasonably satisfactory in form and substance to Buyer and
its special counsel. Any condition specified in this Section 3.1 may be
waived by Buyer if such waiver is set forth in a writing duly executed by
Buyer.
3.2 CONDITIONS TO SELLERS' OBLIGATIONS. The obligation of Sellers to
consummate the transactions contemplated by this Agreement is subject to the
satisfaction of the following conditions at or prior to the Initial Closing:
(a) The representations and warranties made in Article VI
hereof shall be true and correct in all material respects at and as of the
Initial Closing Date, and Buyer shall have performed in all material respects
all the covenants and agreements required to be performed by Buyer hereunder
prior to the Initial Closing;
(b) All applicable waiting periods under the HSR Act shall
have expired or been otherwise terminated;
(c) No suit, action or other proceeding shall be pending
before any court or governmental or regulatory official, body or authority
wherein an unfavorable injunction, judgment, order, decree or ruling would
(i) prevent consummation of the transactions contemplated by this Agreement
or (ii) cause the transactions contemplated by this Agreement to be rescinded
following consummation, and no such injunction, judgment, order, decree or
ruling shall be in effect;
(d) Each of Buyer and the Escrow Agent shall have executed
and delivered the Escrow Agreement, and the Escrow Agreement shall be in full
force and effect as of the Initial Closing;
16
(e) Buyer shall have executed and delivered the
Stockholders Agreement, and the Stockholders Agreement shall be in full force
and effect as of the Initial Closing;
(f) Buyer shall have executed and delivered the
Registration Agreement, and the Registration Agreement shall be in full force
and effect as of the Initial Closing;
(g) Buyer shall have executed and delivered each of the
Executive Purchase Agreements, and each of the Executive Purchase Agreements
shall be in full force and effect as of the Initial Closing; and
(h) At the Initial Closing, Buyer shall have delivered to
the Seller Representative (i) a certificate signed by Buyer, dated the date
of the Initial Closing, stating that the conditions specified in subsection
(a) through (c) above have been satisfied and that the waiting period under
the HSR Act has expired or been terminated, (ii) certified copies of the
resolutions of Buyer's board of directors authorizing the execution, delivery
and performance of this Agreement and the other agreements contemplated
hereby and the consummation of the transactions contemplated hereby and
thereby and (iii) such other documents or instruments as are required to be
delivered by Buyer at the Initial Closing pursuant to the terms hereof or
that Sellers reasonably request prior to the Initial Closing Date to effect
the transactions contemplated hereby.
All proceedings to be taken by Buyer in connection with the
consummation of the transactions contemplated hereby and all documents
required to be delivered by Buyer to effect the transactions contemplated
hereby reasonably requested by Sellers shall be reasonably satisfactory in
form and substance to Sellers. Any condition specified in this Section 3.2
may be waived if such waiver is set forth in a writing duly executed by each
Seller.
3.3 CONDITION TO BUYER'S OBLIGATIONS AT SECOND CLOSING. The
obligation of Buyer to consummate the transaction contemplated by this
Agreement at the Second Closing is subject to the satisfaction of the
following conditions on or prior to the Second Closing Date:
(a) The representations and warranties of the Seller at
the Second Closing in the third sentence of Section 5.2 shall be true and
correct as of the Second Closing Date, as though then made and as though the
Second Closing Date was substituted for the date of this Agreement throughout
such representations and warranties;
(b) Buyer and the Company shall have received or obtained
all Governmental Approvals, if any, in each case on terms reasonably
satisfactory to Buyer;
(c) No suit, action or other proceeding shall be pending
or threatened before any court or governmental or regulatory official, body or
authority or any arbitrator wherein an unfavorable injunction, judgment, order,
decree, ruling or charge would (i) prevent the performance or consummation of or
declare unlawful any of the transactions contemplated at the Second Closing,
(ii) cause any of the transactions contemplated at the Second Closing to be
rescinded following
17
consummation or (iii) affect adversely the right of Buyer to own the Shares
sold at the Second Closing; and
(d) At the Second Closing, the Seller at the Second
Closing shall have delivered to Buyer such documents and instruments (if any)
that Buyer reasonably requests prior to the Second Closing Date to effect the
transactions contemplated by the Second Closing.
ARTICLE IV
[INTENTIONALLY OMITTED]
ARTICLE V
REPRESENTATIONS AND WARRANTIES CONCERNING
THE COMPANY AND SELLERS
As a material inducement to Buyer to enter into this Agreement and
consummate the transactions contemplated hereby, each Seller and the Company
hereby jointly and severally represents and warrants to Buyer that:
5.1 ORGANIZATION, CORPORATE POWER AND LICENSES. Each Seller has full
power, authority and capacity to enter into this Agreement and the other
documents contemplated hereby to which such Seller is a party and to perform
his or its obligations hereunder and thereunder. With respect to each Seller
which holds its shares subject to a trust agreement, such trust agreement is
valid, existing and enforceable under the laws of the State of California and
provides its trustees with all necessary power and authority to execute,
deliver and perform its obligations under this Agreement and the other
agreements contemplated hereby to which it is a party. Each person executing
this Agreement and such other agreements contemplated hereby on behalf of any
Seller which is a trust is a duly appointed, qualified and acting trustee of
such Seller, with all requisite power and authority to execute, deliver and
perform all obligations of such Seller under this Agreement and such other
agreements contemplated hereby. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of
California and is qualified to do business in every jurisdiction in which its
ownership of property or conduct of business requires it to qualify. The
Company possesses all requisite corporate power and authority and all
licenses, permits and authorizations necessary to own and operate its
properties, to carry on its businesses as now conducted and presently
proposed to be conducted and to carry out the transactions contemplated by
this Agreement. The copies of the Company's articles of incorporation and
by-laws which have been furnished to Buyer or Buyer's special counsel reflect
all amendments made thereto at any time prior to the date of this Agreement
and are correct and complete. The minute books (containing the records of
meetings of the shareholders, the board of directors), the stock certificate
books and the stock record books of the Company are correct and complete in
all material respects. The Company is not in default under or in violation of
any provision of its articles of incorporation or by-laws. The
18
attached OFFICERS AND DIRECTORS SCHEDULE sets forth a list all of the
officers and directors of the Company.
5.2 CAPITAL STOCK AND RELATED MATTERS; TITLE TO SHARES. The entire
authorized capital stock of the Company consists of 10,000,000 shares of
Class A Common Stock, no par value per share, of which 2,450,000 shares are
issued and outstanding and 2,000,000 shares of Class B Non-Voting Common
Stock, no par value per share, of which 687,617 shares are issued and
outstanding. Sellers together constitute all of the record owners of, and
have good and marketable title to, all of the outstanding shares of common
stock of the Company, free and clear of all Encumbrances. Each Seller is the
record owner of and has good and marketable title to, the shares of common
stock of the Company set forth opposite such Seller's name on the SCHEDULE OF
SELLERS, free and clear of all Encumbrances. At the Closing, Sellers shall
sell to Buyer good and marketable title to the Shares, free and clear of all
Encumbrances. The Company does not have outstanding any stock or securities
convertible or exchangeable for any shares of its capital stock or containing
any profit participation features, nor any rights or options to subscribe for
or to purchase its capital stock or any stock or securities convertible into
or exchangeable for its capital stock or any stock appreciation rights or
phantom stock plan. The Company is not subject to any option or obligation
(contingent or otherwise) to repurchase or otherwise acquire or retire any
shares of its capital stock or any warrants, options or other rights to
acquire its capital stock. The Company has not violated any federal or state
securities laws in connection with the offer, sale or issuance of its capital
stock. Except as set forth on the CAPITAL STOCK SCHEDULE, all of the
outstanding shares of the Company's capital stock have been validly issued
and are fully paid and nonassessable. Except as set forth on the CAPITAL
STOCK SCHEDULE, there are no agreements between the Company's shareholders
with respect to the voting or transfer of the Company's capital stock or with
respect to any other aspect of the Company's affairs.
5.3 AUTHORIZATION; NONCONTRAVENTION. The execution, delivery and
performance of this Agreement and all of the other agreements and instruments
contemplated hereby to which the Company or any Seller is a party have been
duly authorized by the Company and such Seller(s), as applicable, and no
other corporate act or other proceeding on the part of the Company, its board
of directors or any Seller is necessary to authorize the execution, delivery
or performance of this Agreement or the other agreements contemplated hereby
and the consummation of the transactions contemplated hereby or thereby. This
Agreement has been duly executed and delivered by each Seller and the Company
and constitutes a valid and binding obligation of each Seller and the
Company, enforceable in accordance with its terms, and each of the other
agreements and instruments contemplated hereby to which the Company or any
Seller is a party, when executed and delivered by the Company or such
Seller(s), as applicable, in accordance with the terms hereof and thereof,
shall each constitute a valid and binding obligation of such Person,
enforceable in accordance with its respective terms. Except as set forth on
the attached RESTRICTIONS SCHEDULE and except for any filing, notice or
authorization required pursuant to the HSR Act, the execution and delivery by
the Company and Sellers of this Agreement and all of the other agreements and
instruments contemplated hereby to which the Company or any Seller is a party
and the fulfillment of and compliance with the respective terms hereof and
thereof by the Company and Sellers do not and shall not (a) conflict with or
result in a breach of the terms, conditions or provisions of,
19
(b) constitute a default under (whether with or without the passage of time,
the giving of notice or both), (c) result in the creation of any Lien upon
the Company's or any of its Subsidiaries' capital stock or assets pursuant
to, (d) give any third party the right to modify, terminate or accelerate any
obligation under, (e) result in a violation of, or (f) require any
authorization, consent, approval, exemption or other action of or by or
notice or declaration to, or filing with, any third party or any court or
administrative or governmental body or agency pursuant to, any Seller's or
the Company's or any of its Subsidiaries' charter documents, bylaws or other
constituent documents (including trust instruments), or any law, statute,
rule or regulation to which the Company or any of its Subsidiaries or any
Seller is subject, or any agreement, instrument, license, permit, order,
judgment or decree to which the Company or any of its Subsidiaries or any
Seller is subject. Neither the Company nor any of its Subsidiaries nor any
Seller is a party to or bound by any written or oral agreement or
understanding with respect to a Company Transaction other than this
Agreement, and each such Person has terminated all discussions with third
parties (other than with Buyer and its Affiliates) regarding Company
Transactions.
5.4 SUBSIDIARIES. The attached SUBSIDIARY SCHEDULE correctly sets
forth the name of each Subsidiary of the Company, the jurisdiction of its
incorporation and the Persons owning the outstanding capital stock of such
Subsidiary. Each Subsidiary is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, possesses
all requisite corporate power and authority and all material licenses,
permits and authorizations necessary to own its properties and to carry on
its businesses as now being conducted and as presently proposed to be
conducted and is qualified to do business in every jurisdiction in which its
ownership of property or the conduct of business requires it to qualify. All
of the outstanding shares of capital stock of each Subsidiary are validly
issued, fully paid and nonassessable, and all such shares are owned by the
Company free and clear of all Encumbrances. Except as set forth on the
attached SUBSIDIARY SCHEDULE, neither the Company nor any of its Subsidiaries
owns or holds the right to acquire any shares of stock or any other security
or interest in any other Person or has any obligation to make any Investment
in any Person. The attached OFFICERS AND DIRECTORS SCHEDULE sets forth a list
all of the officers and directors of each of the Company's Subsidiaries.
5.5 FINANCIAL STATEMENTS. Attached hereto as the FINANCIAL
STATEMENTS SCHEDULE are the following financial statements:
(a) the reviewed consolidated balance sheet of the Company
and its Subsidiaries as of, December 31, 1998 and December 31, 1997, and the
related statements of income and cash flows (or the equivalent) for the
fiscal years then ended; and
(b) the unaudited consolidated balance sheet of the Company
and its Subsidiaries as of December 31, 1999 (the "LATEST BALANCE SHEET"),
and the related statements of income and cash flows (or the equivalent) for
the twelve-month period then ended.
Each of the foregoing financial statements (including in all cases the notes
thereto, if any) is accurate and complete, is consistent with the books and
records of the Company and its Subsidiaries (which, in turn, are accurate and
complete), fairly presents the financial condition and operating results of
20
the Company and its Subsidiaries and has been prepared in accordance with
GAAP consistently applied throughout the periods covered thereby, subject in
the case of the unaudited financial statements to the absence of footnote
disclosures (none of which footnote disclosures would, alone or in the
aggregate, be materially adverse to the business, operations, assets,
liabilities, financial condition, operating results, value, cash flow or net
worth of the Company and its Subsidiaries taken as a whole).
5.6 ACCOUNTS RECEIVABLE. Except as set forth on the attached
ACCOUNTS RECEIVABLE SCHEDULE, all accounts and notes receivable reflected on
the Latest Balance Sheet and all accounts and notes receivable to be
reflected on the Closing Balance Sheet (net of allowances for doubtful
accounts as reflected thereon and as determined in accordance with GAAP) are
or shall be valid receivables arising in the ordinary course of business and
are or shall be current and collectible at the aggregate recorded amount
therefor as shown on the Latest Balance Sheet and on the Closing Balance
Sheet, as the case may be (net of allowances for doubtful accounts as
reflected thereon and as determined in accordance with GAAP). No Person has
any Lien on such receivables or any part thereof, and no agreement for
deduction, free goods, discount or other deferred price or quantity
adjustment has been made with respect to any such receivables.
5.7 INVENTORY. All of the Company's and its Subsidiaries' inventory
consists of a quantity and quality usable and salable in the ordinary course
of business consistent with past practice, is not obsolete, defective,
damaged or slow-moving, is merchantable and fit for its intended use, and is
being actively marketed in normal commercial channels and in normal
commercial quantities, subject only to the reserves for inventory write-down
set forth on the face of the Latest Balance Sheet and the Closing Balance
Sheet (rather than the notes thereto) and as determined in accordance with
GAAP.
5.8 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth on the
attached LIABILITIES SCHEDULE, neither the Company nor any of its
Subsidiaries has or will have any obligation or liability (whether accrued,
absolute, contingent, unliquidated or otherwise, whether or not known to the
Company or any of its Subsidiaries, whether due or to become due and
regardless of when or by whom asserted) arising out of any transaction
entered at or prior to the date hereof, or any action or inaction at or prior
to the date hereof, or any state of facts existing at or prior to the date
hereof, other than (a) liabilities reflected on the Latest Balance Sheet, (b)
liabilities and obligations which have arisen after the date of the Latest
Balance Sheet in the ordinary course of business (none of which is a
liability for breach of contract, breach of warranty, tort, infringement,
violation of law, claim or lawsuit), (c) obligations under contracts and
commitments described on the attached CONTRACTS SCHEDULE or under contracts
and commitments entered into in the ordinary course of business consistent
with past practice which are not required to be disclosed on such Schedule
pursuant to Section 5.12 below (but not liabilities for any breach of any
such contract or commitment occurring on or prior to the Initial Closing
Date), and (d) other liabilities and obligations expressly disclosed in the
other Schedules referred to in this Article V.
5.9 NO MATERIAL ADVERSE EFFECT. Since December 31, 1999 there has
occurred no fact, event or circumstance which has had or would reasonably be
expected to have a Material Adverse
21
Effect. Since December 31, 1999, each of the Company and its Subsidiaries has
conducted its business only in the ordinary course of business consistent
with past practice.
5.10 ABSENCE OF CERTAIN DEVELOPMENTS. Except as set forth on the
attached DEVELOPMENTS SCHEDULE, since December 31, 1998, neither the Company
nor any of its Subsidiaries has:
(a) issued any notes, bonds or other debt securities or any
capital stock or other equity securities or any securities or rights
convertible, exchangeable or exercisable into any capital stock or other
equity securities;
(b) borrowed any amount or incurred or become subject to
any material liabilities, except current liabilities incurred in the ordinary
course of business consistent with past practice;
(c) discharged or satisfied any material Lien or paid any
material obligation or liability, other than current liabilities paid in the
ordinary course of business;
(d) declared, set aside or made any payment or distribution
of cash (including so-called "tax distributions") or other property to any of
its shareholders with respect to such shareholder's capital stock or
otherwise, or purchased, redeemed or otherwise acquired any shares of its
capital stock or other equity securities (including any warrants, options or
other rights to acquire its capital stock or other equity);
(e) mortgaged or pledged any of its properties or assets or
subjected them to any Lien, except for Permitted Liens;
(f) sold, assigned, transferred, leased, licensed or
otherwise encumbered any of its tangible assets, except in the ordinary
course of business consistent with past practice, or canceled any material
debts or claims;
(g) sold, assigned, transferred, leased, licensed or
otherwise encumbered any Intellectual Property Rights, disclosed any
proprietary confidential information to any Person (other than to Buyer and
its Affiliates and other than in the ordinary course of business consistent
with past practice in circumstances in which it has imposed reasonable
confidentiality restrictions), or abandoned or permitted to lapse any
Intellectual Property Rights;
(h) made or granted any bonus or any wage or salary
increase to any employee or group of employees (except as required by
pre-existing contracts described on the attached CONTRACTS SCHEDULE); or
entered into, amended or terminated any collective bargaining agreement or
other employment agreement; or made or granted any increase in any employee
benefit plan or arrangement; or amended or terminated any existing employee
benefit plan or arrangement; or adopted any new employee benefit plan or
arrangement;
22
(i) implemented any plant closing or other layoff of employees
that could implicate the Worker Adjustment and Retraining Notification Act, as
amended, or any similar foreign, state or local law, regulation or ordinance;
(j) suffered any extraordinary losses or waived any rights of
material value (whether or not in the ordinary course of business or consistent
with past practice) in excess of $10,000 in the aggregate;
(k) made capital expenditures or commitments therefor that
amount in the aggregate to more than $10,000;
(l) delayed or postponed the payment of any accounts payable or
commissions or any other liability or obligation or agreed or negotiated with
any party to extend the payment date of any accounts payable or commissions or
any other liability or obligation or accelerated the collection of (or
discounted) any accounts or notes receivable other than in accordance with past
practice;
(m) made any loans or advances to, guaranties for the benefit
of, or any Investments in, any Person (other than advances to the Company's or
its Subsidiaries' employees in the ordinary course of business consistent with
past practice);
(n) made any charitable contributions or pledges exceeding in
the aggregate $5,000 or made any political contributions;
(o) suffered any damage, destruction or casualty loss exceeding
in the aggregate $10,000, whether or not covered by insurance;
(p) made any change in any method of accounting or accounting
policies or made any write-down in the value of its inventory that is material
or that is other than in the usual, regular and ordinary course of business
consistent with past practice or reversed any accruals (whether or not in the
ordinary course of business or consistent with past practice);
(q) made any Investment in or taken any steps to incorporate
any Subsidiary;
(r) amended its articles of incorporation, by-laws or other
organizational documents;
(s) entered into, amended or terminated any agreement or
arrangement prohibiting or restricting it from freely engaging in any business
or otherwise restricting the conduct of its business anywhere in the world;
(t) taken any action or failed to take any action that has, had
or would reasonably be expected to have the effect of accelerating to
pre-Closing periods sales to the trade or other customers that would otherwise
be expected to occur after the Closing;
23
(u) entered into, amended or terminated any contract other than
in the ordinary course of business consistent with past practice, entered into
any other material transaction, whether or not in the ordinary course of
business or consistent with past practice, or materially changed any business
practice; or
(v) agreed, whether orally or in writing, to do any of the
foregoing.
5.11 ASSETS.
(a) Except as set forth on the attached ASSETS SCHEDULE, the
Company or one of its Subsidiaries has good and marketable title to, or a valid
leasehold interest in, all properties and assets used by it, located on its
premises or shown on the Latest Balance Sheet or acquired after the date
thereof, free and clear of all Liens (other than properties and assets disposed
of for fair consideration in the ordinary course of business since the date of
the Latest Balance Sheet and except for Liens disclosed on the Latest Balance
Sheet (including any notes thereto) and Liens for current property taxes not
yet due and payable and Permitted Liens). The Company and each of its
Subsidiaries owns, has a valid leasehold interest in or has the valid and
enforceable right to use all assets, tangible or intangible, necessary for the
conduct of its business(es) as presently conducted and as presently proposed to
be conducted. Except as set forth on the attached ASSETS SCHEDULE, all of the
Company's and its Subsidiaries' buildings (including all components of such
buildings, structures and other improvements), equipment, machinery, fixtures,
improvements and other tangible assets (whether owned or leased) are in good
condition and repair (ordinary wear and tear excepted) and are fit for use in
the ordinary course of the Company's and such Subsidiaries' business as
presently conducted and as presently proposed to be conducted. All such assets
have been installed and maintained in all material respects in accordance with
all applicable laws, regulations and ordinances. The attached ASSETS SCHEDULE
sets forth and describes in reasonable detail the actual out-of-pocket capital
expenditures (as determined in accordance with GAAP) made by the Company and
its Subsidiaries for the years ended December 31, 1998 and December 31, 1999.
(b) The LEASED REAL PROPERTY SCHEDULE attached hereto contains
a complete list of all real property leased or subleased by the Company or any
of its Subsidiaries (individually "LEASED REAL PROPERTY" and collectively, the
"LEASED REALTY"). Neither the Company nor any of its Subsidiaries owns any real
property or possesses any right to acquire any real property. The Company or
one of its Subsidiaries has a valid leasehold interest in each Leased Real
Property, subject only to Permitted Liens. The Company has previously delivered
to Buyer's special counsel complete and accurate copies of each of the leases
for the Leased Realty (the "REALTY LEASES"). With respect to each Realty Lease:
(i) the Realty Lease is legal, valid, binding, enforceable and in full force
and effect; (ii) neither the Company nor any of its Subsidiaries nor any other
party to the Realty Lease is in breach or default, and no event has occurred
which, with notice or lapse of time or both, would constitute such a breach or
default or permit termination, modification or acceleration under the Realty
Lease; (iii) no party to the Realty Lease has repudiated any provision thereof;
(iv) there are no disputes, oral agreements or forbearance programs in effect
as to the Realty Lease; (v) the Realty Lease has not been modified in any
respect, except to the extent that such modifications are disclosed by the
documents delivered to Buyer; and (vi) neither the Company nor any of its
24
Subsidiaries has assigned, transferred, conveyed, mortgaged, deeded in trust or
encumbered any interest in the Realty Lease.
5.12 CONTRACTS AND COMMITMENTS.
(a) Except as expressly contemplated by this Agreement or as
set forth on the attached CONTRACTS SCHEDULE, neither the Company nor any of
its Subsidiaries is a party to or bound by any written or oral:
(i) pension, profit sharing, stock option, employee
stock purchase or other plan or arrangement providing for deferred or other
compensation to employees, former employees or consultants, or any other
employee benefit plan or arrangement, or any collective bargaining agreement or
any other contract with any labor union, or severance agreements, programs,
policies or arrangements;
(ii) contract for the employment of any officer,
individual employee or other Person on a full-time, part-time, consulting or
other basis or relating to loans to officers, directors or Affiliates;
(iii) contract under which the Company or any of its
Subsidiaries has advanced or loaned any other Person amounts in the aggregate
exceeding $10,000;
(iv) agreement or indenture relating to borrowed money or
other Indebtedness or the mortgaging, pledging or otherwise placing a Lien on
any material asset or material group of assets of the Company or any of its
Subsidiaries;
(v) Guaranty, performance bond or similar agreement;
(vi) lease or agreement under which the Company or any of
its Subsidiaries is lessee of or holds or operates any property, real or
personal, owned by any other party, except for any lease of real or personal
property under which the aggregate annual rental payments do not exceed $10,000;
(vii) lease or agreement under which the Company or any of
its Subsidiaries is lessor of or permits any third party to hold or operate any
property, real or personal, owned or controlled by the Company or any of its
Subsidiaries;
(viii) contract or group of related contracts with the same
party or group of affiliated parties the performance of which involves
consideration in the aggregate in excess of $10,000, other than purchase and
sales orders incurred in the ordinary course of business;
(ix) assignment, license, indemnification or agreement
with respect to any intangible property (including any Intellectual Property
Rights);
25
(x) warranty agreement with respect to its services
rendered or its products sold or leased;
(xi) agreement under which it has granted any Person any
registration rights (including demand or piggyback registration rights);
(xii) sales, distribution, supply or franchise agreement;
(xiii) agreement with a term of more than six months which
is not terminable by the Company or any of its Subsidiaries upon less than 30
days' notice without penalty and involves a consideration in excess of $10,000
annually;
(xiv) contract regarding voting, transfer or other
arrangements related to the Company's capital stock or warrants, options or
other rights to acquire any of the Company's capital stock;
(xv) contract or agreement prohibiting it from freely
engaging in any business or competing anywhere in the world; or
(xvi) any other agreement which is material to its
operations and business prospects or involves a consideration in excess of
$25,000 annually.
(b) All of the contracts, leases, agreements and instruments
set forth or required to be set forth on the CONTRACTS SCHEDULE are valid,
binding and enforceable in accordance with their respective terms and shall be
in full force and effect without penalty in accordance with their terms upon
consummation of the transactions contemplated hereby. Except as set forth on
the CONTRACTS SCHEDULE, (i) each of the Company and its Subsidiaries has
performed all obligations required to be performed by it and is not in default
under or in breach of nor in receipt of any claim of default or breach under
any contract, lease, agreement or instrument to which the Company or any of its
Subsidiaries is subject, including but not limited to, any provisions in any
contract, agreement or instrument concerning the Company's or its Subsidiaries'
status as a Minority Owned Business Enterprise; (ii) no event has occurred
which with the passage of time or the giving of notice or both would result in
a default, breach or event of noncompliance by the Company or any of its
Subsidiaries under any contract, lease, agreement or instrument to which the
Company or any of its Subsidiaries is subject; (iii) neither the Company nor
any of its Subsidiaries has any present expectation or intention of not fully
performing all such obligations; (iv) no partially-filled or unfilled customer
purchase order or sales order is subject to cancellation or any other material
modification by the other party thereto or is subject to any penalty, right of
set-off or other charge by the other party thereto for late performance or
delivery; and (v) neither the Company nor any Seller has knowledge of any
breach or anticipated breach by the other parties to any contract, lease,
agreement, instrument or commitment to which they are parties. Neither the
Company nor any of its Subsidiaries is a party to any contract, agreement or
commitment the performance of which could reasonably be expected to have a
Material Adverse Effect.
26
(c) Buyer or Buyer's counsel has been supplied with a true and
correct copy of each of the written instruments, plans, contracts and
agreements and an accurate description of each of the oral arrangements,
contracts and agreements which are referred to on the attached CONTRACTS
SCHEDULE, together with all amendments, waivers or other changes thereto.
5.13 INTELLECTUAL PROPERTY RIGHTS.
(a) The attached INTELLECTUAL PROPERTY SCHEDULE contains a
complete and accurate list of all (i) patented or registered Intellectual
Property Rights owned or, to the Company's or any Seller's knowledge, used by
the Company or any of its Subsidiaries, (ii) pending patent applications and
applications for other registrations of Intellectual Property Rights filed by
or on behalf of the Company or any of its Subsidiaries, and (iii) material
unregistered Intellectual Property Rights owned or used by the Company or any
of its Subsidiaries. The attached INTELLECTUAL PROPERTY SCHEDULE also contains
a complete and accurate list of all licenses and other rights granted by the
Company or any of its Subsidiaries to any third party with respect to any
Intellectual Property Rights and all licenses and other rights granted by any
third party to the Company or any of its Subsidiaries with respect to any
Intellectual Property Rights, in each case identifying the subject Intellectual
Property Rights. The Company or one of its Subsidiaries owns and possesses all
right, title and interest to, or has the right to use pursuant to a valid and
enforceable license, all Intellectual Property Rights necessary for the
operation of the businesses of the Company and its Subsidiaries as presently
conducted and as presently proposed to be conducted, free and clear of all
Liens. Without limiting the generality of the foregoing, the Company or one of
its Subsidiaries owns and possesses all right, title and interest in and to all
Intellectual Property Rights created or developed by the Company's and its
Subsidiaries' employees and independent contractors or under the direction or
supervision of the Company's and its Subsidiaries' employees or independent
contractors relating to the businesses of the Company and its Subsidiaries or
to the actual or demonstratively anticipated research or development conducted
by the Company and its Subsidiaries. Except as set forth on the attached
INTELLECTUAL PROPERTY SCHEDULE, the loss or expiration of any Intellectual
Property Right or related group of Intellectual Property Rights owned or used
by the Company or any of its Subsidiaries has not had and would not reasonably
be expected to have a Material Adverse Effect, and no loss or expiration of any
Intellectual Property Right is threatened, pending or, to the Company's or any
Seller's knowledge, reasonably foreseeable. The Company and each of its
Subsidiaries has taken all necessary steps to maintain and protect the
Intellectual Property Rights which it owns and uses. To the Company's and each
Seller's knowledge, the owners of any Intellectual Property Rights licensed to
the Company and its Subsidiaries have taken commercially reasonable action to
maintain and protect the Intellectual Property Rights which are subject to such
licenses.
(b) Except as set forth on the attached INTELLECTUAL PROPERTY
SCHEDULE, (i) there have been no claims made against the Company or any of its
Subsidiaries asserting the invalidity, misuse or unenforceability of any of the
Intellectual Property Rights owned or used by the Company or any of its
Subsidiaries and, to the Company's and each Seller's knowledge, there is no
basis for any such claim, (ii) neither the Company nor any Seller has received
any notices of, and has no knowledge of any facts which indicate a likelihood
of, any infringement or misappropriation by, or conflict with, any third party
with respect to any Intellectual Property Rights (including any demand
27
or request that the Company or any of its Subsidiaries license any rights from
a third party), (iii) the conduct of the Company's and its Subsidiaries'
businesses has not infringed, misappropriated or conflicted with and does not
infringe, misappropriate or conflict with any Intellectual Property Rights of
other Persons, and (iv) to the Company's and each Seller's knowledge, the
Intellectual Property Rights owned by or licensed to the Company and its
Subsidiaries have not been infringed, misappropriated or conflicted by other
Persons. The transactions contemplated by this Agreement will not have a
Material Adverse Effect on the Company's or any of its Subsidiaries' right,
title or interest in and to the Intellectual Property Rights listed on the
INTELLECTUAL PROPERTY SCHEDULE and all of such Intellectual Property Rights
shall be owned or available for use by the Company and its Subsidiaries on
identical terms and conditions immediately after the Closing.
(c) Except as disclosed on the INTELLECTUAL PROPERTY SCHEDULE,
none of the computer software, computer firmware, computer hardware (whether
general or special purpose) or other similar or related computer systems or
software that are used or relied on by Company or any of its Subsidiaries in
the conduct of its business will malfunction, will cease to function, will
generate incorrect data or will produce incorrect results when processing,
providing or receiving (i) date-related data from, into and between the
twentieth and twenty-first centuries or (ii) date-related data in connection
with any valid date in the twentieth and twenty-first centuries.
5.14 LITIGATION. Except as set forth on the attached LITIGATION
SCHEDULE, there are no (and, during the three years preceding the date hereof,
there have not been any) actions, suits, proceedings (including any arbitration
proceedings), orders, investigations or claims pending or, to the Company's or
any Seller's knowledge, threatened against or affecting the Company or any of
its Subsidiaries (or to the Company's or any Seller's knowledge, pending or
threatened against or affecting any of the officers, directors or employees of
the Company or any of its Subsidiaries with respect to their business or
proposed business activities), or pending or threatened by the Company or any
of its Subsidiaries against any Person, at law or in equity, or before or by
any governmental department, commission, board, bureau, agency or
instrumentality (including any actions, suits, proceedings or investigations
with respect to the transactions contemplated by this Agreement); neither the
Company nor any of its Subsidiaries is subject to any arbitration proceedings
under collective bargaining agreements or otherwise or any governmental
investigations or inquiries; and, to the Company's and each Seller's knowledge,
there is no basis for any of the foregoing. The foregoing includes, without
limitation, actions pending or threatened involving the prior employment of any
of the Company's or its Subsidiaries' employees, their use in connection with
the Company's or its Subsidiaries' businesses of any information or techniques
allegedly proprietary to any of their former employers or their obligations
under any agreements with prior employers. The Company and its Subsidiaries are
fully insured with respect to each of the matters set forth on the attached
LITIGATION SCHEDULE. Neither the Company nor any of its Subsidiaries is subject
to any judgment, order or decree of any court or other governmental agency, and
neither the Company nor any of its Subsidiaries has received any opinion or
memorandum or advice from legal counsel to the effect that it is exposed, from
a legal standpoint, to any material liabilities. There are no actions, suits,
proceedings (including any arbitration proceedings), orders, investigations or
claims pending or, to the Company's or any Seller's knowledge, threatened
against or affecting any Seller or the Company
28
or any of its Subsidiaries in which it is sought to restrain or prohibit or to
obtain damages or other relief in connection with the transactions contemplated
hereby.
5.15 COMPLIANCE WITH LAWS. Except as set forth on the attached
COMPLIANCE SCHEDULE:
(a) Each of the Company and its Subsidiaries has complied and
is in compliance with all applicable laws, ordinances, codes, rules,
requirements and regulations of foreign, federal, state and local governments
and all agencies thereof relating to the operation of its business and the
maintenance and operation of its properties and assets. No notices have been
received by and no claims have been filed against the Company or any of its
Subsidiaries alleging a violation of any such laws, ordinances, codes, rules,
requirements or regulations. Neither the Company nor any of its Subsidiaries
has made any bribes, kickback payments or other similar payments of cash or
other consideration, including payments to customers or clients or employees of
customers or clients for purposes of doing business with such Persons.
(b) Each of the Company and its Subsidiaries holds and is in
compliance with all permits, licenses, bonds, approvals, certificates,
registrations, accreditations and other authorizations of all foreign, federal,
state and local governmental agencies required for the conduct of its business
and the ownership of its properties (including as the same relate to
Environmental and Safety Requirements and status as a Minority Owned Business
Enterprise); and the attached PERMITS SCHEDULE sets forth a list of all of such
material permits, licenses, bonds, approvals, certificates, registrations,
accreditations and other authorizations. No notices have been received by the
Company or any of its Subsidiaries alleging the failure to hold any of the
foregoing. All of such permits, licenses, bonds, approvals, accreditations,
certificates, registrations and authorizations will be available for use by the
Company and its Subsidiaries immediately after the Initial Closing.
5.16 ENVIRONMENTAL AND SAFETY MATTERS. Except as set forth on the
attached ENVIRONMENTAL SCHEDULE:
(a) Each of the Company and its Subsidiaries has complied with
and is in compliance with all Environmental and Safety Requirements (including
without limitation all permits and licenses required thereunder). Neither the
Company nor any of its Subsidiaries have received any oral or written notice,
report or information regarding any actual or alleged violation of
Environmental and Safety Requirements or any liabilities or potential
liabilities (contingent or otherwise), including any investigatory, corrective
or remedial obligations relating to it or its facilities arising under
Environmental and Safety Requirements.
(b) Neither this Agreement nor the consummation of the
transactions contemplated hereby will result in any obligations for site
investigation or cleanup, or notification to or consent of any government
agencies or third parties under any Environmental and Safety Requirements
(including any so called "transaction-triggered" or "responsible property
transfer" laws and regulations).
29
(c) None of the following exists at any property or facility
owned, occupied or operated by the Company or any of its Subsidiaries: (i)
underground storage tanks; (ii) asbestos-containing material in any form or
condition; (iii) materials or equipment containing polychlorinated biphenyls;
or (iv) landfills, surface impoundments or other disposal areas.
(d) Neither the Company nor any of its Subsidiaries nor any of
their respective predecessors or affiliates has treated, stored, disposed of,
arranged for or permitted the disposal of, transported, handled or released any
substance (including any hazardous substance) or owned, occupied or operated
any facility or property (and no such property or facility is contaminated by
any such substance) in a manner that has given or could give rise to any
liabilities (including any liability for response costs, corrective action
costs, personal injury, natural resource damages, property damage or attorneys
fees or any investigative, corrective or remedial obligations) pursuant to
CERCLA or any other Environmental and Safety Requirements.
(e) Neither the Company nor any of its Subsidiaries has, either
expressly or by operation of law, assumed or undertaken any liability or
corrective, investigatory or remedial obligation of any other Person relating
to any Environmental and Safety Requirements.
(f) The Company and each of its Subsidiaries have furnished to
Buyer all environmental audits, reports and other material environmental
documents in their possession, custody or control that relate to the Company
and its Subsidiaries and any of their facilities.
5.17 EMPLOYEES. The attached EMPLOYEES SCHEDULE correctly sets forth
the name and current annual salary of each of the Company's and any of its
Subsidiaries' employees receiving more than $50,000 in annual compensation and
whether any employees are absent from active employment, including, but not
limited to, leave of absence or disability. Except as set forth on the attached
EMPLOYEES SCHEDULE, (a) neither the Company nor any of its Subsidiaries is
aware that any executive or key employee of the Company or any of its
Subsidiaries or any group of employees of the Company or any of its
Subsidiaries have any plans to terminate employment with the Company or any of
its Subsidiaries; (b) the Company and each of its Subsidiaries have complied
with all laws relating to the employment of labor (including provisions thereof
relating to wages, hours, equal opportunity, collective bargaining and the
payment of social security and other Taxes), and neither the Company nor any of
its Subsidiaries is aware that it has any labor relations problems (including
any union organization or decertification activities, threatened or actual
strikes or work stoppages or material grievances); and (c) neither the Company
or any of its Subsidiaries nor, to the best of the Company's and each Seller's
knowledge, any of their respective employees are subject to any noncompete,
nondisclosure, confidentiality, employment, consulting or similar agreements
relating to, affecting or in conflict with the present or proposed business
activities of the Company or any of its Subsidiaries, except for agreements
between the Company or its Subsidiaries and their present and former employees.
The EMPLOYEES SCHEDULE sets forth the bonuses paid and reasonably expected to
be paid to the Company's and its Subsidiaries' officers and employees for the
fiscal years ended December 31, 1998 and December 31, 1999.
30
5.18 EMPLOYEE BENEFIT PLANS.
(a) The attached EMPLOYEE BENEFITS SCHEDULE sets forth an
accurate and complete list of each "employee benefit plan" (as such term is
defined in Section 3(3) of ERISA) and each other employee benefit plan, program
or arrangement providing benefits to current or former employees (including any
bonus plan, plan for deferred compensation, retirement, severance, sick leave,
employee health or other welfare benefit plan or other arrangement), at any
time maintained, sponsored, or contributed to by the Company, or with respect
to which the Company has any liability or potential liability. Each such item
listed on the attached EMPLOYEE BENEFITS SCHEDULE is referred to herein as a
"PLAN."
(b) The Company does not have any obligation to contribute to
(or any other liability, including current or potential withdrawal liability,
with respect to) any "Multiemployer plan" (as defined in Section 3(37) of
ERISA) or any employee benefit plan which is a "defined benefit plan" (as
defined in Section 3(35) of ERISA), whether or not terminated.
(c) The Company does not have any obligation under any Plan or
otherwise to provide medical, health, life insurance or other welfare-type
benefits to current or future retired or terminated employees (except for
limited continued medical benefit coverage required to be provided under
Section 4980B of the Code or as required under applicable state law).
(d) Except as set forth on the EMPLOYEE BENEFITS SCHEDULE under
the heading "Profit Sharing Plans," the Company does not maintain, contribute
to or have any liability or potential liability under (or with respect to) any
employee benefit plan which is a "defined contribution plan" (as defined in
Section 3(34) of ERISA), whether or not terminated.
(e) For purposes of this Section 5.18, the term "Company"
includes all entities treated as a single employer with the Company pursuant to
Section 414 of the Code.
(f) With respect to the Plans, all required or recommended (in
accordance with historical practices) payments, premiums, contributions,
reimbursements or accruals for all periods ending prior to or as of the Closing
shall have been made or properly accrued on the Latest Balance Sheet. None of
the Plans has any unfunded liabilities which are not reflected on the Latest
Balance Sheet.
(g) The Plans and all related trusts, insurance contracts and
funds have been maintained, funded and administered in compliance in all
material respects with their terms and with the applicable provisions of ERISA,
the Code and other applicable laws. Neither the Company nor any trustee or
administrator of any Plan has engaged in any transaction with respect to the
Plans which would subject the Company or any trustee or administrator of the
Plans, or any party dealing with any such Plan, nor do the transactions
contemplated by this Agreement constitute transactions which would subject any
such party, to either a civil penalty assessed pursuant to Section 502(i) of
ERISA or the tax or penalty on prohibited transactions imposed by Section 4975
of the Code. No actions, suits or claims with respect to the assets of the
Plans (other than routine claims for benefits) are pending or, to the Company's
or any Seller's knowledge, threatened which could result in or
31
subject the Company to any liability and there are no circumstances which would
give rise to or be expected to give rise to any such actions, suits or claims.
No liability to the Pension Benefit Guaranty Corporation or otherwise under
Title IV of ERISA has been or could be incurred by the Company.
(h) Each of the Plans which is intended to be qualified under
Section 401(a) of the Code has received a favorable determination from the
Internal Revenue Service that such plan is qualified under Section 401(a) of
the Code, and there are no circumstances which would adversely affect the
qualified status of any such Plan.
(i) The Company has provided Buyer with true and complete
copies of all documents pursuant to which the Plans are maintained, funded and
administered, and the most recent annual reports (Form 5500 and attachments)
for the Plans.
5.19 INSURANCE. The attached INSURANCE SCHEDULE contains a description
of each insurance policy maintained by the Company and its Subsidiaries with
respect to its properties, assets and businesses setting forth the type of
coverage, the annual premiums, deductibles and coverage amounts therefor and an
indication whether such policy is on a "claims made" or "incurrence" basis, and
each such policy is in full force and effect as of the Initial Closing. Neither
the Company nor any of its Subsidiaries is in default with respect to its
obligations under any insurance policy maintained by it, and neither the
Company nor any of its Subsidiaries has been denied insurance coverage. The
insurance coverage of the Company and its Subsidiaries is of a kind and type
routinely carried by corporations of similar size engaged in similar lines of
business. Except as set forth on the INSURANCE SCHEDULE, neither the Company
nor any of its Subsidiaries have any self-insurance or co-insurance programs,
and the reserves set forth on the Latest Balance Sheet are adequate (and the
reserves to be set forth on the Company's books and records as of the Initial
Closing will be adequate) to cover all anticipated liabilities with respect to
any such self-insurance or co-insurance programs.
5.20 TAX MATTERS.
(a) The Company, each Subsidiary and each Affiliated Group has
timely filed all Tax Returns required to be filed by it, each such Tax Return
has been prepared in compliance with all applicable laws and regulations, and
all such Tax Returns are true and accurate. All Taxes due and payable by the
Company and its Subsidiaries have been paid and the Company and its
Subsidiaries have withheld and paid over to the appropriate taxing authority
all Taxes which they are required to withhold from amounts paid or owing to any
employee, stockholder, creditor or other third party. All Taxes accrued but not
yet due are accrued on the Latest Balance Sheet and will be accrued on the
Closing Balance Sheet. The charges, accruals and reserves for Taxes with
respect to the Company and each Subsidiary for any Tax period (or portion
thereof) ending on or before the Initial Closing Date (excluding any provision
for deferred income taxes) to be reflected on the Closing Balance Sheet will be
adequate to cover such Taxes.
(b) Except as set forth on the attached TAXES SCHEDULE:
32
(i) neither the Company nor any of its Subsidiaries
has requested or been granted an extension of the time for filing any Tax Return
which has not yet been filed;
(ii) neither the Company nor any of its Subsidiaries
has consented to extend to a date later than the date hereof the time in which
any Tax may be assessed or collected by any taxing authority;
(iii) no deficiency or proposed adjustment which has
not been settled or otherwise resolved for any amount of Tax has been proposed,
asserted or assessed by any taxing authority against the Company or any
Subsidiary;
(iv) the Company's and its Subsidiaries' Tax returns
have never been audited and there is no action, suit, taxing authority
proceeding or audit now in progress, pending or, to the Company's or any
Seller's knowledge, threatened against or with respect to the Company or any
Subsidiary;
(v) the Company does not reasonably expect any taxing
authority to claim or assess any amount of additional Taxes against the Company
or any Subsidiary;
(vi) no claim has ever been made by a taxing
authority in a jurisdiction where the Company or any Subsidiary, respectively,
does not file Tax Returns claiming that the Company or any Subsidiary,
respectively, is or may be subject to Taxes assessed by such jurisdiction;
(vii) neither the Company nor any Subsidiary has made
any election under Section 341(f) of the Code (or any corresponding provision of
state, local or foreign income Tax law);
(viii) there are no Liens for Taxes (other than for
current Taxes not yet due and payable) upon the assets of the Company or any of
its Subsidiaries;
(ix) neither the Company nor any of its Subsidiaries
will be required (A) as a result of a change in method of accounting for a
taxable period ending on or prior to the Initial Closing Date, to include any
adjustment in taxable income for any taxable period (or portion thereof) ending
after the Closing Date, (B) as a result of any "closing agreement," as described
in Section 7121 of the Code (or any corresponding provision of state, local or
foreign income Tax law), to include any item of income in, or exclude any item
of deduction from, taxable income for any taxable period (or portion thereof)
ending after the Initial Closing Date, (C) as a result of any sale reported on
the installment method, to include in taxable income any amount from a sale in a
taxable period ending on or prior to the Initial Closing Date, or (D) as a
result of any prepaid amount received in a taxable period ending on or prior to
the Closing Date, to include in taxable income such amount (or portion thereof)
for any taxable period (or portion thereof) ending after the Initial Closing
Date;
33
(x) neither the Company nor any of its Subsidiaries
is a party to or bound by any Tax allocation or Tax sharing agreement and has no
current or potential contractual obligation to indemnify any other Person with
respect to Taxes; and
(xi) Buyer will not be required to deduct and
withhold any amount pursuant to Section 1445(a) of the Code upon the transfer of
any cash or property pursuant to this Agreement.
5.21 BROKERAGE AND TRANSACTION BONUSES. Except for brokerage fees set
forth on the attached BROKERAGE SCHEDULE, there are no claims for brokerage
commissions, finders' fees or similar compensation in connection with the
transactions contemplated by this Agreement based on any arrangement or
agreement binding upon any Seller, the Company or any of its Subsidiaries.
Except as set forth on the attached TRANSACTION BONUSES SCHEDULE, there are no
special bonuses or other similar compensation payable to any employee of the
Company or any of its Subsidiaries in connection with the transactions
contemplated hereby. Sellers shall pay, and hold the Company, Buyer and its
Affiliates harmless against, any liability, loss or expense (including
reasonable attorneys' fees and out-of-pocket expenses) arising in connection
with any such claim or special bonus or other similar compensation.
5.22 BANK ACCOUNTS. The BANK ACCOUNT SCHEDULE attached hereto lists all
of the Company's and its Subsidiaries' bank accounts (designating each
authorized signatory and the level of each signatory's authorization).
5.23 NAMES AND LOCATIONS. Except as set forth on the attached NAMES AND
LOCATIONS SCHEDULE, during the five-year period prior to the execution and
delivery of this Agreement, neither the Company nor any of its Subsidiaries or
their respective predecessors has used any name or names under which it has
invoiced account debtors, maintained records concerning its assets or otherwise
conducted business. All of the tangible assets and properties of the Company and
its Subsidiaries are located at the locations set forth on the NAMES AND
LOCATIONS SCHEDULE.
5.24 AFFILIATE TRANSACTIONS. Except as set forth on the attached
AFFILIATED TRANSACTIONS SCHEDULE, no officer, director, shareholder, employee or
Affiliate of the Company or any of its Subsidiaries or, to the Company's or any
Seller's knowledge, any individual related by blood, marriage or adoption to any
such individual or any entity in which any such Person or individual owns any
beneficial interest, is a party to any agreement, contract, commitment or
transaction with the Company or any of its Subsidiaries or has any interest in
any property used by the Company or any of its Subsidiaries (including any
Intellectual Property Rights). Neither the Company nor any of its Subsidiaries
has paid any fees, expenses or costs of the type described in Section 8.6 below
that are to be paid by Sellers pursuant to Section 8.6 below.
5.25 SERVICE WARRANTIES. All services rendered by the Company or any of
its Subsidiaries have been in conformity in all material respects with all
applicable contractual commitments and all express and implied warranties, and
neither the Company nor any of its Subsidiaries has any liability (and, to the
Company's and each Seller's knowledge, there is no reasonable basis for any
present or
34
future action, suit, proceeding, hearing, investigation, charge, complaint,
claim or demand against it giving rise to any such liability) for curing or
providing additional services or other damages in connection therewith in excess
of any warranty reserve specifically established with respect thereto and
included on the face of the Latest Balance Sheet (rather than the notes thereto)
or to be included on the Closing Balance Sheet. No services rendered by the
Company or any of its Subsidiaries are subject to any guaranty, warranty or
other indemnity beyond the applicable standard terms and conditions of such sale
(including as a result of any course of conduct between the Company or any of
its Subsidiaries and any Person or as a result of any statements in any of the
Company's or any of its Subsidiaries' service or promotional literature). The
attached WARRANTY SCHEDULE includes copies of such standard terms and conditions
of sale for the Company and its Subsidiaries (containing applicable guaranty,
warranty and indemnity provisions). Neither the Company nor any of its
Subsidiaries has been notified of any claims for (and neither the Company nor
any Seller has any knowledge of any threatened claims for) any extraordinary
warranty obligations or additional services relating to any of its services.
5.26 CUSTOMERS AND SUPPLIERS. The CUSTOMERS AND SUPPLIERS SCHEDULE
attached hereto sets forth (a) a list of the top twenty customers of the Company
and its Subsidiaries (on a consolidated basis) (by volume of sales to such
customers) and (b) a list of the top ten suppliers of the Company and its
Subsidiaries (on a consolidated basis) (by volume of purchases from such
suppliers), for the fiscal years ended December 31, 1998 and December 31, 1999,
and, with respect to such customers, the committed volume of purchases by such
customers for the fiscal years ending December 31, 1998 and December 31, 1999
and prices related thereto. Neither the Company nor any of its Subsidiaries has
received any indication from any material customer of the Company or any of its
Subsidiaries to the effect that, and neither the Company nor any of its
Subsidiaries has any reason to believe that, such customer will stop, materially
decrease the rate of, or materially change the terms (whether related to
payment, price or otherwise) with respect to, buying products from the Company
or any of its Subsidiaries (whether as a result of the consummation of the
transactions contemplated hereby or otherwise). Neither the Company nor any of
its Subsidiaries has received any indication from any material supplier to the
Company or any of its Subsidiaries to the effect that, and neither the Company
nor any of its Subsidiaries has any reason to believe that, such supplier will
stop, materially decrease the rate of, or materially change the terms (whether
related to payment, price or otherwise) with respect to, supplying materials,
products or services to the Company or any of its Subsidiaries (whether as a
result of the consummation of the transactions contemplated hereby or
otherwise).
5.27 DISCLOSURE. Neither this Article V or any of the Exhibits or
Schedules attached hereto nor any of the written statements, documents,
certificates or other items prepared and supplied to Buyer or its Affiliates by
or on behalf of the Company or Sellers in connection with the transactions
contemplated hereby, when taken together as a whole, contain any untrue
statement of a material fact or omit a material fact necessary to make each
statement contained herein or therein, in light of the circumstances in which
they were made, not misleading. There is no fact which the Company has not
disclosed to Buyer in writing and of which any of its shareholders, officers,
directors or executive employees is aware which has had or would reasonably be
expected to have a Material Adverse Effect.
35
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF BUYER
As an inducement to Sellers and the Company to enter into this
Agreement and consummate the transactions contemplated hereby, Buyer hereby
represents and warrants to Sellers and the Company as follows:
6.1 ORGANIZATION AND POWER. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
Buyer has all requisite corporate power and authority to execute and deliver
this Agreement and to perform its obligations hereunder.
6.2 CAPITALIZATION. Immediately prior to the date hereof, the
authorized capital stock of Buyer consists of 1,000,000 shares of common stock
and 100,000 shares of Series Redeemable Preferred Stock, of which 440,927.25
shares of such common stock and 39,570.95 shares of Series A Redeemable
Preferred Stock are issued and outstanding. All of such capital stock has been
validly issued, is fully paid and nonassessable, and has not been issued in
violation of any preemptive rights or rights of refusal. There are no voting
trusts, proxies or any other agreements or understandings with respect to the
voting of the capital stock of Buyer other than under the Stockholders
Agreement. Buyer is not subject to any obligation (contingent or otherwise) to
repurchase or otherwise acquire or retire any shares of its capital stock other
than under the Stockholders Agreement.
6.3 AUTHORIZATION. The execution, delivery and performance by Buyer of
this Agreement and the consummation of the transactions contemplated hereby have
been duly and validly authorized by Buyer and no other corporate act or
proceeding on the part of Buyer, its board of directors or stockholders is
necessary to authorize the execution, delivery or performance of this Agreement
and the consummation of the transactions contemplated hereby. This Agreement has
been duly executed and delivered by Buyer and this Agreement constitutes a valid
and binding obligation of Buyer, enforceable in accordance with its terms.
6.4 NO VIOLATION. Buyer is not subject to nor obligated under its
certificate of incorporation or by-laws, or any applicable law, rule or
regulation of any governmental authority, or any agreement, instrument, license
or permit, or subject to any order, writ, injunction or decree, which would be
breached or violated by its execution, delivery or performance of this Agreement
or the consummation of the transactions contemplated hereby.
6.5 GOVERNMENTAL AUTHORITIES AND CONSENTS. Except as set forth on the
BUYER CONSENT SCHEDULE attached hereto and except as required pursuant to the
HSR Act, no permit, consent, approval or authorization of, or declaration to or
filing with, any governmental or regulatory authority or any other Person is
required in connection with the execution, delivery or performance of this
Agreement by Buyer or the consummation by Buyer of the transactions contemplated
hereby.
36
6.6 LITIGATION. There are no actions, suits, proceedings, orders or
investigations pending or, to Buyer's knowledge, threatened against or affecting
Buyer, at law or in equity, or before or by any federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, which would adversely affect Buyer's
performance under this Agreement or the consummation of the transactions
contemplated hereby.
6.7 BROKERAGE. Except as set forth on the BUYER BROKERAGE SCHEDULE,
there are no claims for brokerage commissions, finders' fees or similar
compensation in connection with the transactions contemplated by this Agreement
based on any arrangement or agreement made by or on behalf of Buyer.
ARTICLE VII
[INTENTIONALLY OMITTED]
ARTICLE VIII
ADDITIONAL AGREEMENTS; COVENANTS AFTER CLOSING
8.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties in this Agreement and the Schedules and Exhibits attached hereto or
in any writing delivered by any party to another party in connection with this
Agreement shall survive the Initial Closing as follows:
(a) the representations and warranties in Section 5.15
(Compliance with Laws), Section 5.16 (Environmental and Safety Matters), Section
5.18 (Employee Benefits Plans) and Section 5.20 (Tax Matters) shall terminate
when the applicable statutes of limitations with respect to the liabilities in
question expire (after giving effect to any extensions or waivers thereof), PLUS
thirty (30) days;
(b) the representations and warranties in Section 5.2 (Capital
Stock and Related Matters; Title to Shares), Section 5.3 (Authorization;
Noncontravention), Section 5.21 (Brokerage and Transaction Bonuses), Section 6.7
(Brokerage) and the last sentence of Section 6.3 (Authorization) shall not
terminate; and
(c) all other representations and warranties in this Agreement
and the Schedules and Exhibits attached hereto or in any writing delivered by
any party to another party in connection with this Agreement shall terminate on
the second anniversary of the Initial Closing; PROVIDED THAT any representation
or warranty in respect of which indemnity may be sought under Section 8.2 below,
and the indemnity with respect thereto, shall survive the time at which it would
otherwise terminate pursuant to this Section 8.1 if notice of the inaccuracy or
breach or potential inaccuracy or breach thereof giving rise to such right or
potential right of indemnity shall have been given to the
37
party against whom such indemnity may be sought prior to such time (regardless
of when the Losses in respect thereof may actually be incurred). The
representations and warranties in this Agreement and the Schedules and Exhibits
attached hereto or in any writing delivered by any party to another party in
connection with this Agreement shall survive for the periods set forth in this
Section 8.1 and shall in no event be affected by any investigation, inquiry or
examination made for or on behalf of any party, or the knowledge of any party's
officers, directors, stockholders, employees or agents or the acceptance by any
party of any certificate or opinion hereunder. The parties acknowledge that
indemnification hereunder with respect to the breach of any covenant or
agreement contained herein, including any breach of any covenant or agreement
contained in this Article VIII, shall not be subject to any time or other
limitations.
8.2 INDEMNIFICATION.
(a) INDEMNIFICATION BY THE PRINCIPAL STOCKHOLDERS. The
Principal Stockholders agree to and shall jointly and severally indemnify Buyer
and its Affiliates, stockholders, officers, directors, employees, agents,
partners, representatives, successors and assigns (collectively, the "BUYER
PARTIES") and save and hold each of them harmless against and pay on behalf of
or reimburse such Buyer Parties as and when incurred for any loss, liability,
demand, claim, action, cause of action, cost, damage, deficiency, Tax, penalty,
fine or expense, whether or not arising out of third-party claims (including
interest, penalties, reasonable attorneys' fees and expenses and all amounts
paid in investigation, defense or settlement of any of the foregoing)
(collectively, "LOSSES"), which any such Buyer Party may suffer, sustain or
become subject to, as a result of, in connection with, relating or incidental to
or by virtue of: (i) any breach by the Company or any Seller of any
representation or warranty made by the Company or any Seller in this Agreement
or any of the Schedules or Exhibits attached hereto, or in any of the
certificates or other instruments or documents furnished by the Company pursuant
to this Agreement; (ii) any nonfulfillment or breach of any covenant, agreement
or other provision by the Company or any Seller under this Agreement or any of
the Schedules and Exhibits attached hereto; (iii) any action, demand,
proceeding, investigation or claim by any Person against or affecting the
Company or any Buyer Party which, if successful, would give rise to or evidence
the existence of or relate to a breach of any of the representations,
warranties, covenants or agreements of the Company or any Seller under this
Agreement; (iv) any Taxes of the Company or any of its Subsidiaries with respect
to any Tax year or portion thereof ending on or before the Initial Closing Date
as determined in accordance with Section 8.11 hereof; or (v) any of the matters
set forth on the INDEMNIFICATION SCHEDULE attached hereto; PROVIDED THAT the
Principal Stockholders shall not have any liability under clause (i) above
(other than with respect to the representations and warranties contained in
Section 5.2 (Capital Stock and Related Matters; Title to Shares), Section 5.3
(Authorization/ Noncontravention), Section 5.20 (Tax Matters), Section
5.21(Brokerage and Transaction Bonuses) and the last sentence of Section 5.24
(Affiliated Transactions)) unless the aggregate of all Losses relating thereto
for which the Principal Stockholders would, but for this proviso, be liable
exceeds on a cumulative basis an amount equal to $100,000 (and then the
Principal Stockholders shall be liable for all such Losses in excess of the
$100,000 deductible amount); and PROVIDED FURTHER that the Principal
Stockholders' aggregate liability under clause (i) above (other than with
respect to the representations and warranties contained in Section 5.2 (Capital
Stock and Related Matters; Title to Shares), Section 5.3
38
(Authorization/Noncontravention), Section 5.20 (Tax Matters), Section 5.21
(Brokerage and Transaction Bonuses) and the last sentence of Section 5.24
(Affiliated Transactions)), shall in no event exceed the amount of the
Purchase Price received by the Principal Stockholders and each Principal
Stockholder's aggregate liability shall in no event exceed the amount of the
Purchase Price received by such Principal Stockholder. Notwithstanding the
foregoing, nothing in this Agreement (including this Section 8.2(a)) shall
limit or restrict any of the Buyer Parties' right to maintain or recover any
amounts in connection with any action or claim based upon fraudulent
misrepresentation or deceit.
(b) INDEMNIFICATION BY BUYER. Buyer agrees to and shall
indemnify the Principal Stockholders and hold each of them harmless against any
Losses which the Principal Stockholders may suffer, sustain or become subject
to, as the result of, in connection with, relating or incidental to or by virtue
of the breach by Buyer of any representation, warranty, covenant or agreement
made by Buyer in this Agreement.
(c) MANNER OF PAYMENT. Except as otherwise provided herein,
any indemnification of the Buyer Parties or the Principal Stockholders pursuant
to this Section 8.2 shall be effected by wire transfer of immediately available
funds from the Principal Stockholders or Buyer, as the case may be, to an
account designated by the applicable Buyer Party or the Principal Stockholders,
as the case may be, within ten days after the determination thereof. Any such
indemnification payments shall include interest at the Applicable Rate
calculated on the basis of the actual number of days elapsed over 360, from the
date any such Loss is suffered or sustained to the date of payment. Any amounts
owing from the Principal Stockholders pursuant to this Section 8.2 shall first
be made to the extent possible from the Escrow Funds (as defined in the Escrow
Agreement) in the Escrow Account (as defined in the Escrow Agreement) and
thereafter shall be made directly by the Principal Stockholders (i) in
accordance with the terms of this Section 8.2(c) and/or (ii) at the option of
Buyer, by delivery by the Principal Stockholders to Buyer of a certificate or
certificates representing Executive Securities having an aggregate value (based
on the cost of such shares to the Principal Stockholders as of the Initial
Closing), equal to the amounts owing, duly endorsed in blank or accompanied by
duly executed stock powers); PROVIDED THAT amounts (if any) owing from Sellers
to any Buyer Party pursuant to Section 2.3 above shall be made from the Escrow
Funds only with the prior written consent of Buyer. The Buyer Parties shall be
entitled to (but shall not be required to) set-off any amounts due or payable to
any of the Buyer Parties by the Principal Stockholders pursuant to this Section
8.2 against any amounts otherwise due and payable by any of the Buyer Parties or
any of their Affiliates to the Principal Stockholders (including any amounts
payable by Buyer in respect of its capital stock). All indemnification payments
under this Section 8.2 shall be deemed adjustments to the Purchase Price set
forth in Section 2.3(a) above.
(d) DEFENSE OF THIRD-PARTY CLAIMS. Any Person making a claim
for indemnification under this Section 8.2 (an "INDEMNITEE") shall notify the
indemnifying party (an "INDEMNITOR") of the claim in writing promptly after
receiving written notice of any action, lawsuit, proceeding, investigation or
other claim against it (if by a third party), describing the claim, the amount
thereof (if known and quantifiable) and the basis thereof; PROVIDED THAT the
failure to so notify an Indemnitor shall not relieve the Indemnitor of its
obligations hereunder except to the extent
39
that (and only to the extent that) such failure shall have caused the damages
for which the Indemnitor is obligated to be greater than such damages would have
been had the Indemnitee given the Indemnitor prompt notice hereunder. Any
Indemnitor shall be entitled to participate in the defense of such action,
lawsuit, proceeding, investigation or other claim giving rise to an Indemnitee's
claim for indemnification at such Indemnitor's expense, and at its option
(subject to the limitations set forth below) shall be entitled to assume the
defense thereof by appointing a recognized and reputable counsel acceptable to
the Indemnitee to be the lead counsel in connection with such defense; PROVIDED
THAT prior to the Indemnitor assuming control of such defense it shall first (i)
verify to the Indemnitee in writing that such Indemnitor shall be fully
responsible (with no reservation of any rights) for all liabilities and
obligations relating to such claim for indemnification (without regard to any
dollar limitations otherwise set forth herein) and that it shall provide full
indemnification (whether or not otherwise required hereunder) to the Indemnitee
with respect to such action, lawsuit, proceeding, investigation or other claim
giving rise to such claim for indemnification hereunder and (ii) enter into an
agreement with the Indemnitee in form and substance satisfactory to the
Indemnitee which agreement unconditionally guarantees the payment and
performance of any liability or obligation which may arise with respect to such
action, lawsuit, proceeding, investigation or facts giving rise to such claim
for indemnification hereunder; and PROVIDED FURTHER, that:
(i) the Indemnitee shall be entitled to participate
in the defense of such claim and to employ counsel of its choice for such
purpose; PROVIDED THAT the fees and expenses of such separate counsel shall be
borne by the Indemnitee (other than any fees and expenses of such separate
counsel that are incurred prior to the date the Indemnitor effectively assumes
control of such defense which, notwithstanding the foregoing, shall be borne by
the Indemnitor, and except that the Indemnitor shall pay all of the fees and
expenses of such separate counsel if the Indemnitee has been advised by counsel
that a reasonable likelihood exists of a conflict of interest between the
Indemnitor and the Indemnitee);
(ii) the Indemnitor shall not be entitled to assume
control of such defense (unless otherwise agreed to in writing by the
Indemnitee) and shall pay the fees and expenses of counsel retained by the
Indemnitee if (1) the claim for indemnification relates to or arises in
connection with any criminal or quasi-criminal proceeding, action, indictment,
allegation or investigation; (2) the Indemnitee reasonably believes an adverse
determination with respect to the action, lawsuit, investigation, proceeding or
other claim giving rise to such claim for indemnification would be detrimental
to or injure the Indemnitee's reputation or future business prospects; (3) the
claim seeks an injunction or equitable relief against the Indemnitee; (4) the
Indemnitee has been advised by counsel that a reasonable likelihood exists of a
conflict of interest between the Indemnitor and the Indemnitee; (5) the claim
involves environmental matters in which case the Indemnitee shall have sole
control and management authority over the resolution of such claim (including
hiring legal counsel and environmental consultants, conducting environmental
investigations and cleanups, negotiating with governmental agencies and third
parties and defending or settling claims and actions); PROVIDED THAT the
Indemnitee shall keep the Indemnitor apprised of any major developments relating
to any environmental claim; or (6) upon petition by the Indemnitee, the
appropriate court rules that the Indemnitor failed or is failing to vigorously
prosecute or defend such claim; and
40
(iii) if the Indemnitor shall control the defense of
any such claim, the Indemnitor shall obtain the prior written consent of the
Indemnitee before entering into any settlement of a claim or ceasing to defend
such claim if, pursuant to or as a result of such settlement or cessation,
injunctive or other equitable relief will be imposed against the Indemnitee or
if such settlement does not expressly and unconditionally release the Indemnitee
from all liabilities and obligations with respect to such claim, without
prejudice.
(e) CERTAIN WAIVERS; ETC. Each Seller hereby agrees that he
shall not make any claim for indemnification against Buyer, the Company or any
of their respective Affiliates by reason of the fact that such Seller is or was
a shareholder, director, officer, employee or agent of the Company or any of its
Affiliates or is or was serving at the request of the Company or any of its
Affiliates as a partner, trustee, director, officer, employee or agent of
another entity (whether such claim is for judgments, damages, penalties, fines,
costs, amounts paid in settlement, losses, expenses or otherwise and whether
such claim is pursuant to any statute, charter document, bylaw, agreement or
otherwise) with respect to any action, suit, proceeding, complaint, claim or
demand brought by any of the Buyer Parties against such Seller pursuant to this
Agreement or applicable law or otherwise, and each Seller hereby acknowledges
and agrees that he shall not have any claim or right to contribution or
indemnity from the Company or any of its Affiliates with respect to any amounts
paid by him pursuant to this Agreement or otherwise. Effective upon the Initial
Closing, each Seller hereby irrevocably waives, releases and discharges the
Company and its Affiliates from any and all liabilities and obligations to it or
him of any kind or nature whatsoever, whether in his capacity as a shareholder,
officer or director of the Company or any of its Affiliates or otherwise
(including in respect of any rights of contribution or indemnification, but
excluding compensation otherwise payable as an employee of the Company or any of
its Subsidiaries for periods after the Company's last regularly scheduled pay
period), in each case whether absolute or contingent, liquidated or
unliquidated, known or unknown, and whether arising under any agreement or
understanding (other than this Agreement and any of the other agreements
executed and delivered in connection herewith) or otherwise at law or equity,
and each Seller agrees that he shall not seek to recover any amounts in
connection therewith or thereunder from the Company or any of its Affiliates. In
no event shall the Company or any of its Affiliates have any liability
whatsoever to any Seller for any breaches of the representations, warranties,
agreements or covenants of the Company hereunder, and each Seller agrees not to
seek contribution from the Company or any of its Affiliates in respect of any
payments required to be made by Seller pursuant to this Agreement.
8.3 MUTUAL ASSISTANCE. Buyer, the Company and Sellers agree that they
will mutually cooperate in the expeditious filing of all notices, reports and
other filings with any governmental authority required to be submitted jointly
by the Company and Buyer in connection with the execution and delivery of this
Agreement and/or the other agreements contemplated hereby and the consummation
of the transactions contemplated hereby or thereby.
41
8.4 NON-COMPETITION; NON-SOLICITATION.
(a) Each Restricted Stockholder hereby acknowledges that he is
familiar with the Company's and its Subsidiaries' trade secrets and with other
Confidential Information. Each Restricted Stockholder acknowledges and agrees
that the Company and its Subsidiaries would be irreparably damaged if he were to
provide services to or otherwise participate in the business of any Person
competing with the Company in a similar business and that any such competition
by such Restricted Stockholder would result in a significant loss of goodwill by
the Company and its Subsidiaries. Each Restricted Stockholder further
acknowledges and agrees that the covenants and agreements set forth in this
Section 8.4 were a material inducement to Buyer to enter into this Agreement and
to perform its obligations hereunder, and that Buyer and its stockholders would
not obtain the benefit of the bargain set forth in this Agreement as
specifically negotiated by the parties hereto if such Restricted Stockholder
breached the provisions of this Section 8.4. Therefore, in further consideration
of the amounts to be paid hereunder for the Shares and the goodwill of the
Company sold by such Restricted Stockholder, each Restricted Stockholder agrees
that until the fifth anniversary of the Initial Closing, such Restricted
Stockholder shall not (and such Restricted Stockholder shall cause his
Affiliates not to) directly or indirectly own any interest in, manage, control,
participate in (whether as an officer, director, employee, partner, agent,
representative or otherwise), consult with, render services for, or in any other
manner engage anywhere in the Restricted Territories in any business engaged
directly or indirectly in the engineering, consulting, development,
installation, maintenance and removal of telecommunication network systems and
equipment, including premise wiring; PROVIDED THAT nothing herein shall prohibit
such Restricted Stockholder or his Affiliates from being a passive owner of not
more than 2% of the outstanding stock of any class of a corporation which is
publicly traded so long as none of such Persons has any active participation in
the business of such corporation. For purposes of this Agreement, "RESTRICTED
TERRITORIES" shall mean the United States of America. Each Restricted
Stockholder acknowledges that the Company's business has been conducted or is
presently proposed to be conducted throughout the Restricted Territories and
that the geographic restrictions set forth above are reasonable and necessary to
protect the goodwill of the Company's and its Subsidiaries' business being
acquired by Buyer pursuant to this Agreement.
(b) No Restricted Stockholder shall (and each Restricted
Stockholder shall cause his Affiliates not to) directly, or indirectly through
another Person, (i) induce or attempt to induce any employee of the Company or
any of its Subsidiaries or Affiliates to leave the employ of the Company or any
of its Subsidiaries or Affiliates, or in any way interfere with the relationship
between the Company or any of its Subsidiaries or Affiliates and any employee
thereof, (ii) hire any person who was an employee of the Company or any of its
Subsidiaries or Affiliates at any time during the six-month period immediately
prior to the date on which such hiring would take place (it being conclusively
presumed by the parties so as to avoid any disputes under this Section 8.4(b)
that any such hiring within such six-month period is in violation of clause (i)
above), or (iii) for so long as such Restricted Stockholder has continuing
obligations under Section 8.4(a) above, call on, solicit or service any
customer, supplier, licensee, licensor or other business relation of the Company
or any of its Subsidiaries or Affiliates in order to induce or attempt to induce
such Person to cease doing business with the Company or any of its Subsidiaries
or Affiliates, or in any way interfere with the
42
relationship between any such customer, supplier, licensee or business relation
and the Company or any of its Subsidiaries or Affiliates (including making any
negative statements or communications about the Company or any of its
Subsidiaries or Affiliates).
(c) If, at the time of enforcement of the covenants contained
in this Section 8.4 (the "RESTRICTIVE COVENANTS"), a court shall hold that the
duration, scope or area restrictions stated herein are unreasonable under
circumstances then existing, the parties agree that the maximum duration, scope
or area reasonable under such circumstances shall be substituted for the stated
duration, scope or area and that the court shall be allowed and directed to
revise the restrictions contained herein to cover the maximum period, scope and
area permitted by law. Each Restricted Stockholder acknowledges and agrees that
he has consulted with legal counsel regarding the Restrictive Covenants and
based on such consultation has determined and hereby acknowledges that the
Restrictive Covenants are reasonable in terms of duration, scope and area
restrictions and are necessary to protect the goodwill of the Company's and its
Subsidiaries' business and the substantial investment in the Company and its
Subsidiaries made by Buyer hereunder. Each Restricted Stockholder further
acknowledges and agrees that the Restrictive Covenants are being entered into by
him in connection with the sale by such Restricted Stockholder of the portion of
the Shares owned by him and the sale by the Restricted Stockholder and the other
Sellers of the goodwill of the Company's business pursuant to this Agreement and
not directly or indirectly in connection with such Restricted Stockholder's
employment or other relationship with the Company.
(d) If any Restricted Stockholder or any of his Affiliates
breaches, or threatens to commit a breach of, any of the Restrictive Covenants,
the Company shall have the following rights and remedies, each of which rights
and remedies shall be independent of the others and severally enforceable, and
each of which is in addition to, and not in lieu of, any other rights and
remedies available to the Company or its Affiliates at law or in equity:
(i) the right and remedy to have the Restrictive
Covenants specifically enforced by any court of competent jurisdiction, it being
agreed that any breach or threatened breach of the Restrictive Covenants would
cause irreparable injury to the Company and that money damages would not provide
an adequate remedy to the Company; and
(ii) the right and remedy to require each Restricted
Stockholder to account for and pay over to the Company any profits, monies,
accruals, increments or other benefits derived or received by such Restricted
Stockholder as the result of any transactions constituting a breach by such
Restricted Stockholder of the Restrictive Covenants.
(iii) In the event of any breach or violation by any
Restricted Stockholder of any of the Restrictive Covenants, the time period of
such covenant shall be tolled until such breach or violation is resolved.
43
8.5 PRESS RELEASE AND ANNOUNCEMENTS. Unless required by law (in
which case each of Buyer and the Company agree to use reasonable efforts to
consult with the other party prior to any such disclosure as to the form and
content of such disclosure), after the date hereof and through and including
the Initial Closing Date, no press releases, announcements to the employees,
customers or suppliers of the Company or any of its Subsidiaries or other
releases of information related to this Agreement or the transactions
contemplated hereby will be issued or released without the consent of each of
Buyer and the Company. After the Initial Closing, Buyer and the Company may
issue any such releases of information without the consent of any other party
hereto.
8.6 EXPENSES. Except as otherwise provided herein, Sellers and Buyer
shall pay all of their own respective fees, costs and expenses (including
fees, costs and expenses of legal counsel, investment bankers, brokers or
other representatives and consultants and appraisal fees, costs and expenses)
incurred in connection with the negotiation of this Agreement, the
performance of its obligations hereunder and the consummation of the
transactions contemplated hereby. In addition, Sellers shall pay all fees,
costs and expenses of the Company incurred in connection with the negotiation
of this Agreement, the performance of its obligations hereunder and the
consummation of the transactions contemplated hereby, and the Company shall
not pay any fees, costs or expenses (including legal and accounting fees,
costs and expenses) arising in connection with the transactions contemplated
hereby if the transactions are consummated. Notwithstanding the foregoing, if
Buyer abandons the transaction contemplated hereunder as a result of (i) a
material breach of any representation, or warranty or covenant set forth
herein by the Company or any Seller, (ii) any material misrepresentation of
fact made in writing by the Company or any Seller, the Company shall promptly
reimburse Buyer for all of its reasonable out-of-pocket costs, including the
reasonable fees and expenses of Buyer and Buyer's advisors. Damages suffered
by Buyer for a breach of this Agreement shall in no way be limited by the
amounts described in this Section 8.6.
8.7 SPECIFIC PERFORMANCE. The Company, Sellers and Buyer acknowledge
and agree that the other parties would be damaged irreparably in the event
any of the provisions of this Agreement is not performed in accordance with
its specific terms or is otherwise breached. Accordingly, the Company,
Sellers and Buyer agree that the other parties shall be entitled to an
injunction or injunctions to prevent breaches of the provisions of this
Agreement and to enforce specifically this Agreement and the terms and
provisions hereof in any action instituted in any court in the United States
or in any state having jurisdiction over the parties and the matter in
addition to any other remedy to which they may be entitled pursuant hereto.
8.8 ARBITRATION PROCEDURE.
(a) Buyer and Sellers agree that the arbitration procedure
set forth below shall be the sole and exclusive method for resolving and
remedying claims for money damages arising out of the provisions this Article
VIII (the "DISPUTES") following the Closing; PROVIDED THAT nothing in this
Section 8.8 shall prohibit a party hereto from instituting litigation to
enforce any Final Determination (as defined below). The parties hereby
acknowledge and agree that, except as otherwise provided in this Section 8.8
or in the Rules for Non-Administered Arbitration of Business Disputes (the
"RULES") promulgated by the Center for Public Resources Institute for Dispute
44
Resolutions (the "INSTITUTE") as in effect from time to time, the arbitration
procedures and any Final Determination hereunder shall be governed by, and
shall be enforced pursuant to, the United States Arbitration Act, 9 U.S.C.
Section 1 ET. SEQ.
(b) In the event that any party asserts that there exists a
Dispute, such party shall deliver a written notice to each other party
involved therein specifying the nature of the asserted Dispute and requesting
a meeting to attempt to resolve the same. If no such resolution is reached
within ten business days after the delivery of such notice, the party
delivering such notice of Dispute (the "DISPUTING PERSON") may thereafter
commence arbitration hereunder by delivering to each other party involved
therein a notice of arbitration (a "NOTICE OF ARBITRATION"). Such Notice of
Arbitration shall specify the nature of any Dispute and any other matters
required by the Rules as in effect from time to time to be included therein.
The Arbitrator shall permit and facilitate such discovery as the party
initiating such claim shall reasonably request. Buyer and the Seller
Representative (on behalf of Sellers) shall mutually agree upon one
arbitrator to resolve any Dispute pursuant to the procedures set forth in
this Section 8.8 and the Rules.
(c) The arbitrator selected pursuant to Section 8.8(b) will
determine the allocation of the costs and expenses of arbitration based upon
the percentage which the portion of the contested amount not awarded to each
party bears to the amount actually contested by such party. For example, if
Buyer submits a claim for $1,000 and if Sellers contest only $500 of the
amount claimed by Buyer, and if the arbitrator ultimately resolves the
dispute by awarding Buyer $300 of the $500 contested, then the costs and
expenses of arbitration will be allocated 60% (i.e., 300 DIVIDED BY 500) to
Sellers and 40% (i.e., 200 DIVIDED BY 500) to Buyer.
(d) The arbitration shall be conducted in Miami, Florida
under the Rules as in effect from time to time. The arbitrator shall conduct
the arbitration so that a final result, determination, finding, judgment
and/or award (the "FINAL DETERMINATION") is made or rendered as soon as
practicable, but in no event later than 90 business days after the delivery
of the Notice of Arbitration nor later than 10 days following completion of
the arbitration. The Final Determination shall be final and binding on all
parties and there shall be no appeal from or reexamination of the Final
Determination, except for fraud, perjury, evident partiality or misconduct by
an arbitrator prejudicing the rights of any party and to correct manifest
clerical errors.
(e) Buyer or Sellers may enforce any Final Determination in
any state or federal court of competent jurisdiction. For the purpose of any
action or proceeding instituted with respect to any Final Determination, each
party hereto hereby irrevocably submits to the jurisdiction of such courts,
irrevocably consents to the service of process by registered mail or personal
service and hereby irrevocably waives, to the fullest extent permitted by
law, any objection which it may have or hereafter have as to personal
jurisdiction, the laying of the venue of any such action or proceeding
brought in any such court and any claim that any such action or proceeding
brought in any court has been brought in an inconvenient forum.
45
8.9 FURTHER ASSURANCES. In the event that at any time after the
Closing any further action is necessary or desirable to carry out the
purposes of this Agreement, each of the parties hereto will take such further
action (including the execution and delivery of such further instruments and
documents) as any other party hereto reasonably may request. Sellers
acknowledge and agree that, from and after the Initial Closing, Buyer will be
entitled to possession of all documents, books, records (including Tax
records), agreements and financial data of any sort relating to the Company
and its Subsidiaries. No Seller shall in any manner take any action which is
designed, intended or might be reasonably anticipated to have the effect of
discouraging customers, suppliers, lessors, licensors and other business
associates from maintaining the same business relationships with the Company
and its Affiliates at any time after the date of this Agreement as were
maintained with the Company and its Affiliates prior to the date of this
Agreement.
8.10 CONFIDENTIALITY. Each Seller agrees not to disclose or use at
any time (and shall cause each of his Affiliates not to use or disclose at
any time) any Confidential Information, except to the extent that such
disclosure or use is directly related to and required by the performance of
such Seller's duties to the Company or its Subsidiaries as an officer or
employee. Each Seller further agrees to take all appropriate steps (and to
cause each of his Affiliates to take all appropriate steps) to safeguard such
Confidential Information and to protect it against disclosure, misuse,
espionage, loss and theft. In the event one or more Sellers or any of their
Affiliates are required by law to disclose any Confidential Information, such
Seller(s) shall promptly notify Buyer in writing, which notification shall
include the nature of the legal requirement and the extent of the required
disclosure, and such Seller(s) shall cooperate with Buyer and the Company to
preserve the confidentiality of such information consistent with applicable
law.
8.11 TAX MATTERS.
(a) TAX PERIODS ENDING ON OR BEFORE THE CLOSING DATE.
Sellers shall prepare or cause to be prepared and file or cause to be filed
all Tax Returns for the Company for all periods ending on or prior to the
Initial Closing Date or for which the date of measurement for such Tax occurs
prior to the Initial Closing Date which are filed after the Initial Closing
Date. All such Tax Returns shall be prepared in accordance with past practice
insofar as they relate to the Company. Sellers shall permit Buyer to review
and comment on each such Tax Return prior to filing. Sellers shall reimburse
Buyer for Taxes of Sellers and the Company with respect to such periods
within fifteen (15) days prior to any payment by Buyer or the Company of such
Taxes to the extent such Taxes are not accrued as a liability on the Closing
Balance Sheet and used to determine the Purchase Price pursuant to Section
2.3.
(b) TAX PERIODS BEGINNING BEFORE AND ENDING AFTER THE
INITIAL CLOSING DATE. Buyer shall prepare or cause to be prepared and file or
cause to be filed any Tax Returns of the Company for Tax periods which begin
before the Initial Closing Date and end after the Initial Closing Date
("STRADDLE TAX RETURNS"). Buyer shall permit Sellers to review and comment on
each such Tax Return prior to filing. Any portion of any Tax which must be
paid in connection with the filing of a Straddle Tax Return, to the extent
attributable to any period or portion of a period ending on or before the
Initial Closing Date, shall be referred to herein as "PRE-CLOSING TAXES."
Sellers shall
46
pay to Buyer an amount equal to the Pre-Closing Taxes due with any Straddle
Tax Returns (to the extent such Taxes are not accrued as a liability on the
Closing Balance Sheet used to determine the Purchase Price pursuant to
Section 2.3) at least ten (10) days before Buyer is required to cause to be
paid the related Tax liability. Where the Pre-Closing Taxes involve a period
which begins before and ends after the Initial Closing Date, such Pre-Closing
Taxes shall be calculated as though the taxable year of the Company
terminated as of the close of business on the Initial Closing Date; PROVIDED,
HOWEVER, that in the case of a tax not based on income, receipts, proceeds,
profits or similar items, Pre-Closing Taxes shall be equal to the amount of
tax for the taxable period multiplied by a fraction, the numerator of which
shall be the number of days from the beginning of the taxable period through
the Initial Closing Date and the denominator of which shall be the number of
days in the taxable period. All determinations necessary to give effect to
the foregoing allocations shall be made in a manner consistent with prior
practice of the Company.
(c) COOPERATION ON TAX MATTERS.
(i) Sellers, the Company and Buyer shall cooperate
fully, as and to the extent reasonably requested by the other party, in
connection with the filing of Tax Returns pursuant to this Section 8.11 and
any audit, litigation or other proceeding with respect to Taxes. Such
cooperation shall include signing any Tax Return, amended Tax Returns, claims
or other documents necessary to settle any Tax controversy, the retention and
(upon the other party's request) the provision of records and information
which are reasonably relevant to any such audit, litigation or other
proceeding and making employees available on a mutually convenient basis to
provide additional information and explanation of any material provided
hereunder. Sellers agree to retain all books and records with respect to Tax
matters pertinent to the Company relating to any taxable period beginning
before the Initial Closing Date until the expiration of the statute of
limitations (and, to the extent notified by Buyer, any extensions thereof) of
the respective taxable periods, and to abide by all record retention
agreements entered into with any taxing authority and to give Buyer
reasonable written notice prior to transferring, destroying or discarding any
such books and records and, if the other party so requests, Buyer shall allow
Sellers to take possession of such books and records.
(ii) Buyer shall have the right to participate in
any Tax proceeding related to a pre-Closing Tax year of the Company which may
have the effect of increasing Buyer's or the Company's Tax liability for any
Tax period ending after the Initial Closing, and no Seller shall settle or
compromise any such proceeding without Buyer's prior written consent;
PROVIDED HOWEVER, Buyer hereby agrees to consent if Sellers fully indemnify
Buyer for any increase in Buyer's or the Company's Tax liability.
(iii) Buyer and Sellers further agree, upon
request by the other, to use their best efforts to obtain any certificate or
other document from any governmental authority or any other Person as may be
necessary to mitigate, reduce or eliminate any Tax that could be imposed
(including, but not limited to, with respect to the transactions contemplated
hereby).
47
(iv) Without the prior written consent (which
shall not be unreasonably withheld) of Buyer, neither any Seller nor the
Company shall make or change any election, change an annual accounting
period, file any amended Tax Return, enter into any closing agreement, settle
any Tax claim or assessment relating to the Company, surrender any right to
claim a refund of Taxes, or take any other similar action, or omit to take
any action relating to the filing of any Tax Return or the payment of any
Tax, if such action or omission would have the effect of increasing the
present or future Tax liability or decreasing any present or future Tax asset
of the Company, Buyer or any Affiliate of Buyer. Each Seller shall notify
Buyer of any consent to any extension or waiver of the limitation period
applicable to any Tax claim or assessment relating to the Company within
fifteen (15) days of making such consent or waiver.
8.12 MINORITY OWNED SUBSIDIARY. Within 180 days after the Initial
Closing Date, the Company shall: (i) create a wholly-owned corporate
subsidiary ("NEWCO"), (ii) contribute the assets and liabilities (and
properly assign any contracts or agreements, without violation of any
assignment provisions thereof) relating to the Company's business as a
minority owned company to Newco as a capital contribution, (iii) file for
certification of Newco as a minority owned business with the appropriate
certification agency or agencies in order to continue the business of a
minority owned company previously conducted by the Company, (iv) sell shares
of voting common stock and non-voting common stock of Newco to Ismael Perera
and Jordan such that Ismael Perera and Larry Jordan own approximately 49% and
2%, respectively of the outstanding voting common stock of Newco and
approximately 39% and 1% of the total outstanding common stock, (v) enter
into a stockholders agreement of Newco by and among Ismael Perera, Jordan and
the Company containing restrictions on transfer of Newco's capital stock and
provisions regarding the repurchase of Newco's capital stock upon the death
or disability of Ismael Perera or Jordan. Neither the Company nor any of the
Sellers has made any representation or warranty as to the effect of the
consummation of any of the transactions contemplated by this Agreement,
including without limitation, the acquisition of the Company's stock at the
Initial Closing and the Second Closing, and transactions described in this
Section 8.12, on the Company's status as a minority-owned business
enterprise. Buyer acknowledges and agrees that neither the Company nor any of
the Sellers shall be liable to Buyer, by way of indemnity or otherwise, for
any damages or losses suffered by the Company or Buyer as a result of a
change in or loss of the Company's status as a minority-owned business
enterprise resulting from or arising, directly or indirectly, out of the
consummation of any of the transactions contemplated by this Agreement,
including without limitation, the acquisition of the Company's stock at the
Initial Closing and the Second Closing, and transactions described in this
Section 8.12, and Buyer hereby accepts and assumes in full the risk of any
such change in or loss of the Company's status as a minority-owned business
enterprise as a result of the transactions contemplated. The parties
understand and agree, however, that the foregoing two sentences shall in no
way affect the Company's and the Sellers' representations and warranties
regarding the Company's status as a minority-owned business enterprise
immediately prior to the sale of the Shares at the Closing as contemplated
hereunder.
48
ARTICLE IX
MISCELLANEOUS
9.1 AMENDMENT AND WAIVER. This Agreement may be amended, and any
provision of this Agreement may be waived; PROVIDED THAT any such amendment
or waiver will be binding upon the Company, prior to the Initial Closing, and
Sellers only if such amendment or waiver is set forth in a writing executed
by the Principal Stockholders, and any such amendment or waiver will be
binding upon the Company, after the Initial Closing, and Buyer only if such
amendment or waiver is set forth in a writing executed by Buyer or the
Company, as the case may be. No course of dealing between or among any
Persons having any interest in this Agreement shall be deemed effective to
modify, amend or discharge any part of this Agreement or any rights or
obligations of any Person under or by reason of this Agreement. No waiver of
any of the provisions of this Agreement shall be deemed or shall constitute a
waiver of any other provisions, whether or not similar, nor shall any waiver
constitute a continuing waiver.
9.2 NOTICES. All notices, demands and other communications to be
given or delivered under or by reason of the provisions of this Agreement
shall be in writing and shall be deemed to have been given (i) when
personally delivered, sent by telecopy (with hard copy to follow) or sent by
reputable overnight express courier (charges prepaid), or (ii) five days
following mailing by certified or registered mail, postage prepaid and return
receipt requested. Unless another address is specified in writing, notices,
demands and communications to Sellers, the Company and Buyer shall be sent to
the addresses indicated below:
NOTICES TO THE SELLERS:
Telpro Technologies, Inc.
3000 Executive Parkway, Suite 225
San Ramon, CA 94583
Attn: Larry Jordan
Fax: (925) 277-9022
WITH A COPY TO (WHICH SHALL NOT CONSTITUTE
NOTICE TO THE SELLERS):
Morgan, Miller & Blair
1676 North California Blvd., Suite 200
Walnut Creek, CA 94596-3600
Attn: George S. Cabot
Fax: (925) 943-1106
49
NOTICES TO THE COMPANY AND BUYER:
Linc.net, Inc.
781 Crandon Blvd.
Suite 1801
Key Biscayne, FL 33149
Attn: Ismael Perera
Fax: (305) 365-7289
WITH COPIES TO (WHICH SHALL NOT CONSTITUTE NOTICE TO THE COMPANY OR BUYER):
First Chicago Equity Capital
55 West Monroe
16th Floor
Chicago, IL 60670
Attn: Burton E. McGillivray
Fax: (312) 732-7483
Kirkland & Ellis
200 East Randolph
Chicago, IL 60601
Attn: Ted H. Zook
E. Paul Quinn
Fax: (312) 861-2200
Saunders Karp & Megrue, L.P.
262 Harbor Drive
Stamford, CT 06902
Attn: Timothy B. Armstrong
Fax: (203) 708-6677
9.3 SUCCESSORS AND ASSIGNS. This Agreement and all of the covenants
and agreements contained herein and rights, interests or obligations
hereunder, by or on behalf of any of the parties hereto, shall bind and inure
to the benefit of the respective heirs, successors and assigns of the parties
hereto whether so expressed or not, except that neither this Agreement nor
any of the covenants and agreements herein or rights, interests or
obligations hereunder may be assigned or delegated by Sellers prior to or
after the Initial Closing, or assigned or delegated by the Company prior to
the Initial Closing, without the prior written consent of Buyer. Buyer may
assign its rights and obligations hereunder (including its right to purchase
the Shares), in whole or in part, to any of its Affiliates without the
consent of any of the other parties hereto. In addition, Buyer may assign its
rights and obligations pursuant to this Agreement, including its rights and
obligations under the Escrow Agreement, in whole or in part, in connection
with any disposition or transfer of all or any portion of the Company or any
of its Subsidiaries or their respective businesses in any form of transaction
without the consent of any of the other parties hereto. Buyer and, following
the Initial
50
Closing, the Company and its Subsidiaries may assign any or all of its rights
pursuant to this Agreement, including its rights to indemnification, to any
of its lenders as collateral security.
9.4 SEVERABILITY. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
prohibited by or invalid under applicable law, such provision will be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Agreement.
9.5 INTERPRETATION. The headings and captions used in this
Agreement, in any Schedule or Exhibit hereto, in the table of contents or in
any index hereto are for convenience of reference only and do not constitute
a part of this Agreement and shall not be deemed to limit, characterize or in
any way affect any provision of this Agreement or any Schedule or Exhibit
hereto, and all provisions of this Agreement and the Schedules and Exhibits
hereto shall be enforced and construed as if no caption or heading had been
used herein or therein. Any capitalized terms used in any Schedule or Exhibit
attached hereto and not otherwise defined therein shall have the meanings set
forth in this Agreement. Each defined term used in this Agreement shall have
a comparable meaning when used in its plural or singular form. The use of the
word "including" herein shall mean "including without limitation" and, unless
the context otherwise required, "neither," "nor," "any," "either" and "or"
shall not be exclusive. The parties hereto intend that each representation,
warranty and covenant contained herein shall have independent significance.
If any party has breached any representation, warranty or covenant contained
herein in any respect, the fact that there exists another representation,
warranty or covenant relating to the same subject matter (regardless of the
relative levels of specificity) which such party has not breached shall not
detract from or mitigate the fact that such party is in breach of the first
representation, warranty or covenant. The parties have participated jointly
in the negotiation and drafting of this Agreement. In the event an ambiguity
or question of intent or interpretation arises, this Agreement shall be
construed as if drafted jointly by the parties, and no presumption or burden
of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any of the provisions of this Agreement.
9.6 CAPTIONS. The captions used in this Agreement are for
convenience of reference only and do not constitute a part of this Agreement
and shall not be deemed to limit, characterize or in any way affect any
provision of this Agreement, and all provisions of this Agreement shall be
enforced and construed as if no caption had been used in this Agreement.
9.7 NO THIRD-PARTY BENEFICIARIES. Nothing herein expressed or
implied is intended or shall be construed to confer upon or give to any
Person other than the parties hereto and their respective permitted
successors and assigns, any rights or remedies under or by reason of this
Agreement, such third parties specifically including employees and creditors
of the Company.
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9.8 COMPLETE AGREEMENT. This Agreement and the agreements and
documents referred to herein contain the entire agreement and understanding
between the parties with respect to the subject matter hereof and supersede
all prior agreements and understandings (including without limitation that
certain letter of intent dated August 27, 1999, between Buyer and the
Company), whether written or oral, relating to such subject matter in any way.
9.9 COUNTERPARTS. This Agreement may be executed in one or more
counterparts (including by means of telecopied signature pages), all of which
taken together shall constitute one and the same instrument.
9.10 DELIVERY BY FACSIMILE. This Agreement and any signed agreement
or instrument entered into in connection with this Agreement, and any
amendments hereto or thereto, to the extent signed and delivered by means of
a facsimile machine, shall be treated in all manner and respects as an
original agreement or instrument and shall be considered to have the same
binding legal effect as if it were the original signed version thereof
delivered in person. At the request of any party hereto or to any such
agreement or instrument, each other party hereto or thereto shall re-execute
original forms thereof and deliver them to all other parties. No party hereto
or to any such agreement or instrument shall raise the use of a facsimile
machine to deliver a signature or the fact that any signature or agreement or
instrument was transmitted or communicated through the use of a facsimile
machine as a defense to the formation of a contract and each such party
forever waives any such defense.
9.11 GOVERNING LAW. All questions concerning the construction,
validity, enforcement and interpretation of this Agreement shall be governed
by the internal law of the State of California without giving effect to any
choice of law or conflict of law provision or rule (whether of the State of
California or any other jurisdictions) that would cause the application of
the laws of any jurisdictions other than the State of California.
9.12 SCHEDULES. Nothing in any schedule attached hereto shall be
adequate to disclose an exception to a representation or warranty made in
this Agreement unless such schedule identifies the exception with
particularity and describes the relevant facts in reasonable detail. Without
limiting the generality of the foregoing, the mere listing (or inclusion of a
copy) of a document or other item shall not be adequate to disclose an
exception to a representation or warranty made in this Agreement, unless the
representation or warranty has to do with the existence of the document or
other item itself. No exceptions to any representations or warranties
disclosed on one schedule shall constitute an exception to any other
representations or warranties made in this Agreement unless the exception is
disclosed as provided herein on each such other applicable schedule or cross
referenced in such other applicable section or schedule.
9.13 ATTORNEY'S FEES. In the event any attorney is employed by any
party to this Agreement with regard to any legal action, arbitration or other
proceeding brought by any party for the enforcement of this Agreement, or
because of an alleged dispute, breach, default or misrepresentation in
connection with any of the provisions of this Agreement, then the party or
parties prevailing in such proceeding, whether at trial or, arbitration or
other proceeding, shall be entitled to recover reasonable attorneys' fees and
other costs and expenses incurred, in addition to any other relief to which
it may be entitled.
52
* * * * *
53
IN WITNESS WHEREOF, the parties hereto have executed this
Stock Purchase Agreement on the date first written above.
LINC.NET, INC.
By:_________________________________
Name:
Title:
TELPRO TECHNOLOGIES, INC.
By:_________________________________
Name:
Title:
____________________________________
Larry Jordan
WAYNE E. JENSEN & LENORE C. JENSEN
FAMILY TRUST
By:_________________________________
Its: Trustee
____________________________________
Gary Keck
____________________________________
Mark Carlson
____________________________________
Ivan James
____________________________________
Lynn Erickson
____________________________________
Jon Hunt
____________________________________
Dan Lyons
EAGELSTON FAMILY TRUST
Dated July 2, 1996
By:_________________________________
Its: Trustee
____________________________________
Kenneth Pierce
____________________________________
Les Minter
____________________________________
David Seamans
____________________________________
Valerie White
____________________________________
Walt Laster
____________________________________
Gerald Gauer
____________________________________
Allen Carter
____________________________________
Larry Cook
____________________________________
Wayne E. Jensen
SCHEDULE OF SELLERS
Number and
Class (A or B) of Number and
Number and Shares to be Sold Class (A or B) of Gross Proceeds
Class (A or B) of and Exchanged to Shares to be of Estimated
Name Shares Owned Buyer Sold to Telpro Purchase Price
---- ----------------- ----------------- ----------------- --------------
INITIAL CLOSING
Larry Jordan 1,275,000(A) 461,171(A) -- $ 6,625,917
Wayne E. Jensen & Lenore C. 512,500(A)
Jensen Family Trust 550,117(B)
- Sold to Buyer 301,093(B) -- $ 4,325,981
- Sold to Telpro -- 512,500(A) $10,941,266
-- 294,024(B)
Gary Keck 250,000(A)
- Sold to Buyer 68,750(B)
- Sold to Telpro 68,750(B) -- $ 987,772
-- 250,000(A) $ 3,591,898
Mark Carlson 125,000(A)
- Sold to Buyer 34,375(B)
- Sold to Telpro 1,640(A) 123,360(A) $ 517,449
34,375(B) -- $ 1,772,386
Larry Cook 125,000(A) 48,707(B) 1,193,688
34,375(B) 34,375(B)
Ivan James 25,000(A) 25,000(A) -- $ 359,189
Lynn Erickson 12,500(A) 12,500(A) -- $ 179,595
Jon Hunt 12,500(A) 12,500(A) -- $ 179,595
Dan Lyons 12,500(A) 12,500(A) -- $ 179,595
Eagelston Family Trust
Dated July 2, 1996 12,500(A) 12,500(A) -- $ 179,595
Shares of
Shares of Buyer's Buyer's
Escrow Rollover Series B Common
Name Amount Amount Preferred Stock Stock Net Proceeds
---- ------ -------- ----------------- --------- ------------
INITIAL CLOSING
Larry Jordan $ 905,622 $1,904,669 1,714.202 19,046.690 $ 3,815,626
Wayne E. Jensen & Lenore C.
Jensen Family Trust
- Sold to Buyer $1,509,537 $1,587,399 1,428.659 15,873.990 $ 1,229,045
- Sold to Telpro -- -- -- -- $10,941,266
Gary Keck
- Sold to Buyer
- Sold to Telpro $ 452,811 $ 476,167 428.550 4,761.670 $ 58,794
-- -- -- -- $ 3,591,898
Mark Carlson
- Sold to Buyer
- Sold to Telpro $ 226,406 $ 238,084 214.276 2,380.840 $ 52,958
-- -- -- -- $ 1,772,386
Larry Cook -- $1,193,681 1,074.313 11,936.810 [7]
Ivan James -- -- -- -- $ 359,189
Lynn Erickson -- -- -- -- $ 179,595
Jon Hunt -- -- -- -- $ 179,595
Dan Lyons -- -- -- -- $ 179,595
Eagelston Family Trust
Dated July 2, 1996 -- -- -- -- $ 179,595
Number and
Class (A or B) of Number and
Number and Shares to be Sold Class (A or B) of Gross Proceeds
Class (A or B) of and Exchanged to Shares to be of Estimated
Name Shares Owned Buyer Sold to Telpro Purchase Price
---- ----------------- ----------------- ----------------- --------------
Kenneth Pierce 12,500(A) 12,500(A) -- $179,595
Les Minter 12,500(A) 12,500(A) -- $179,595
David Seamans 12,500(A) 12,500(A) -- $179,595
Valerie White 12,500(A) 12,500(A) -- $179,595
Walt Laster 12,500(A) 12,500(A) -- $179,595
Gerald Gauer 12,500(A) 12,500(A) -- $179,595
Allen Carter 12,500(A) 12,500(A) -- $179,595
--------
Subtotal $32,291,091
===========
SECOND CLOSING
Larry Cook 76,293(A) 76,293 -- $1,096,091
----------
Totals $33,387,238
===========
Shares of
Shares of Buyer's Buyer's
Escrow Rollover Series B Common
Name Amount Amount Preferred Stock Stock Net Proceeds
---- ------ -------- ----------------- --------- ------------
Kenneth Pierce -- -- -- -- $ 179,595
Les Minter -- -- -- -- $ 179,595
David Seamans -- -- -- -- $ 179,595
Valerie White -- -- -- -- $ 179,595
Walt Laster -- -- -- -- $ 179,595
Gerald Gauer -- -- -- -- $ 179,595
Allen Carter -- -- -- -- $ 179,595
---------- ---------- ----- ------ -----------
Subtotal $3,094,377 $5,400,000 4,860 54,000 $23,796,714
========== ========== ===== ====== ===========
SECOND CLOSING
Larry Cook -- -- -- -- $ 1,096,147
---------- ---------- ----- ------ -----------
Totals $3,094,377 $5,400,000 4,860 54,000 $24,892,861
========== ========== ===== ====== ===========