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EXHIBIT 10.13
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STOCK PURCHASE AGREEMENT
BETWEEN
THE J.H. HEAFNER
COMPANY, INC.
AND
THE SHAREHOLDERS OF
THE SPEED MERCHANT, INC.
DATED AS OF MARCH 11, 1998
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TABLE OF CONTENTS
INTRODUCTION...................................................................1
ARTICLE I
PURCHASE AND SALE OF THE SHARES
SECTION 1.1. The Shares........................................................1
SECTION 1.2. Purchase Price....................................................1
SECTION 1.3. Closing...........................................................1
SECTION 1.4. Purchase Price Adjustment.........................................2
(a) Closing Date Balance Sheet.....................................2
(b) Cooperation....................................................2
(c) Adjustments to Purchase Price..................................2
(d) Payment of Adjustments.........................................2
(e) Disputes.......................................................2
SECTION 1.5. Changes in Closing Date and Non-Compete Payments..................3
ARTICLE II
REPRESENTATIONS AND WARRANTIES
SECTION 2.1. Representations and Warranties of the Sellers.....................3
(a) Organization, Standing and Power...............................3
(b) Authority; Binding Agreements; Title to Shares.................3
(c) Capitalization; Equity Interests...............................4
(d) Conflicts; Consents............................................5
(e) Financial Information..........................................5
(f) Absence of Changes.............................................6
(g) Assets, Property and Related Matters; Real Property............7
(h) Intellectual Property.........................................10
(i) Insurance.....................................................10
(j) Agreements....................................................11
(k) Litigation....................................................11
(l) Compliance; Governmental Authorizations.......................11
(m) Labor Relations; Employees....................................13
(n) Related Party Transactions....................................15
(o) Taxes.........................................................16
(p) Disclosure....................................................17
(q) Bank Accounts; Powers-of-Attorney.............................17
(r) Inventory.....................................................17
(s) Brokers.......................................................17
(t) Parnelli-Jones................................................17
(u) Phase III Materials..........................................18
SECTION 2.2. Representations and Warranties by the Purchaser.................18
(a) Organization and Standing.......................................18
(b) Authority; Binding Agreements...................................18
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(c) Conflicts; Consents.............................................18
(d) Investment Representation.......................................18
(e) Brokers.........................................................18
ARTICLE III
ADDITIONAL AGREEMENTS
SECTION 3.1. Costs and Expenses...............................................19
SECTION 3.2. Conduct of Business..............................................19
SECTION 3.3. Reasonable Efforts; Further Assurances...........................20
SECTION 3.4. No Shopping......................................................20
SECTION 3.5. Access and Information...........................................21
(a) Access Prior to Closing.........................................21
(b) Confidentiality.................................................21
(c) Equitable Relief................................................22
SECTION 3.6. Confidentiality; Non-Competition.................................22
(a) Confidential Information........................................22
(b) Covenant Not To Compete.........................................22
(c) Enforceability..................................................24
(d) Remedies........................................................24
(e) Acknowledgment..................................................24
SECTION 3.7. Releases; Prior Compensation.....................................25
SECTION 3.8. Public Announcements.............................................25
SECTION 3.9. Tax Matters......................................................25
(a) Transfer Taxes..................................................25
(b) Responsibility for Company Taxes................................25
(c) Tax Treatment...................................................26
(d) Filing of Returns...............................................26
(e) Cooperation in Tax Matters......................................26
(f) Tax Audits and Assessments......................................26
(g) Activities between Signing and Closing..........................27
(h) Payment of Pre-Closing Date Taxes...............................27
SECTION 3.10. Fresno Warehouse................................................27
SECTION 3.11. Additional Adjustment Amount....................................27
(a) Management of Arizona Business..................................28
(b) Additional Adjustment Amount....................................28
(c) Payment.........................................................28
SECTION 3.12. Additional Information..........................................29
(a) Delivery of Final Disclosure Schedule...........................29
(b) Phase III Materials.............................................29
(c) Disclosure Supplements..........................................30
ARTICLE IV
CONDITIONS PRECEDENT
SECTION 4.1. Conditions to Obligations of the Purchaser.......................30
(a) Authorization...................................................30
(b) Representations, Warranties and Covenants.......................30
(c) Consents, Amendments and Terminations...........................30
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(d) Certificates....................................................31
(e) Opinion of Counsel..............................................31
(f) Financial Statements............................................31
(g) Due Diligence...................................................31
(h) Financing.......................................................31
(i) Employment Agreements...........................................31
(j) Corporate Directors and Officers................................31
(k) Share Certificates and Corporation Records......................31
(l) HSR Act.........................................................31
(m) No Legal Bar....................................................31
(n) No Legal Bar....................................................32
(n) Other Documents.................................................32
SECTION 4.2. Conditions of Obligations of the Sellers.........................39
(a) Authorization...................................................32
(b) Representations, Warranties and Covenants.......................32
(c) Certificate.....................................................32
(f) Employment Agreements...........................................32
(g) HSR Act.........................................................32
(h) No Legal Bar....................................................32
(i) Other Documents.................................................33
ARTICLE V
INDEMNITY
SECTION 5.1. Indemnification..................................................33
(a) Indemnification by Sellers......................................33
(b) Indemnification by Purchaser....................................33
(c) Indemnification Procedures......................................33
(d) Tax Benefits....................................................34
(e) Insurance Proceeds..............................................34
(f) Treatment of Payments...........................................35
SECTION 5.2. Limitations......................................................35
(a) Expiration Date.................................................35
(b) Cap.............................................................35
(c) Threshold.......................................................35
(d) Sole Remedy.....................................................35
(e) Several Liability; Certain Representations......................36
SECTION 5.3. No Election......................................................36
ARTICLE VI
MISCELLANEOUS
SECTION 6.1. Entire Agreement.................................................36
SECTION 6.2. Termination......................................................36
SECTION 6.3. Descriptive Headings; Certain Interpretations....................37
SECTION 6.4. Notices..........................................................37
SECTION 6.5. Counterparts.....................................................38
SECTION 6.6. Survival.........................................................38
SECTION 6.7. Benefits of Agreement............................................38
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SECTION 6.8. Amendments and Waivers...........................................38
SECTION 6.9. Assignment.......................................................39
SECTION 6.10. Enforceability..................................................39
SECTION 6.11. Governing Law...................................................39
SECTION 6.12. Dispute Resolution; Consent To Jurisdiction.....................39
ANNEXES
A Shareholders; Ownership of Shares
B Dispute Resolution Procedure
EXHIBITS
A-1 Form of Officers' Certificate
A-2 Form of Seller's Certificate
B Form of Opinion of Counsel of the Company and the Sellers
C-1 Form of Soares Employment Agreement
C-2 Form of Barney Employment Agreement
C-3 Form of Roberts Employment Agreement
D Form of Fresno Warehouse Sale/Leaseback
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STOCK PURCHASE AGREEMENT, dated as of March 11, 1998 (the "Agreement"),
between The J. H. Heafner Company, Inc., a North Carolina corporation
(the "Purchaser"), and each of the Stockholders (each, a "Seller" and,
collectively, the "Sellers") of The Speed Merchant, Inc., a California
corporation d/b/a the Speed Merchant and Competition Parts Warehouse
(the "Company").
INTRODUCTION
The Company owns and operates a wholesale and retail tire and
automotive parts business located in California and Arizona. The Sellers desire
to sell all of the outstanding shares (the "Shares") of common stock, no par
value (the "Common Stock"), of the Company to the Purchaser, and the Purchaser
desires to purchase the Shares on the terms and conditions set forth in this
Agreement.
The parties agree as follows:
ARTICLE I
PURCHASE AND SALE OF THE SHARES
SECTION 1.1. The Shares. Upon the terms and subject to the conditions
set forth in this Agreement, at the Closing (defined below), each Seller shall
sell, convey, assign, transfer and deliver to the Purchaser, and the Purchaser
shall purchase, acquire and accept from each Seller, all of the Shares owned by
such Seller (which Shares are listed on Annex A), free and clear of all security
interests, liens, pledges, charges, escrows, options, rights of first refusal,
mortgages, indentures, security agreements or other claims, encumbrances,
agreements, arrangements or commitments of any kind or character, whether
written or oral and whether or not relating in any way to credit or the
borrowing of money (collectively, "Claims").
SECTION 1.2. Purchase Price. The purchase price (the "Purchase Price")
for the Shares and the non-compete agreements set forth in Section 3.6 shall be
cash in the amount of $42,400,000, of which $35,000,000 is payable as
consideration for the Shares (the "Closing Date Payment") and $7,400,000 is
payable as set forth in Section 3.6(b) as consideration for such non-compete
agreements (the "Non-Compete Payments"). The Closing Date Payment shall be made
to the Sellers at Closing in proportion to their ownership of Shares as set
forth on Annex A and shall be made by wire transfer of immediately available
funds to accounts designated by the Sellers no later than two business days
prior to the Closing Date. The Non-Compete Payments shall be due and payable
according to the terms set forth in Section 3.6(b).
SECTION 1.3. Closing. The closing (the "Closing") for the consummation
of the transactions contemplated by this Agreement shall take place at the
offices of Howard, Darby & Levin, 1330 Avenue of the Americas, New York, New
York 10019, or such other place or places as the Sellers and the Purchaser shall
agree, at 10:00 a.m. (New York time) on the later of April 29, 1998 and two
business days following the date on which all conditions set forth in Article IV
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shall have been satisfied or waived, or such other date and time agreed to by
the Sellers and the Purchaser (such date, the "Closing Date").
SECTION 1.4. Purchase Price Adjustment.
(a) Closing Date Balance Sheet. Within 90 days after the Closing Date,
the Purchaser and the Sellers shall cause Arthur Andersen LLP to audit the
balance sheet of the Company as of the Closing Date (the "Closing Date Balance
Sheet"), in accordance with generally accepted accounting principles.
Notwithstanding the foregoing sentence, the parties have reviewed the accounting
principles applied in connection with the Company's October 31, 1997 balance
sheet (as referred to in Section 2.1(e)(i)(A)) and hereby agree that such
accounting principles shall be applied in connection with the preparation of the
Closing Date Balance Sheet.
(b) Cooperation. The Sellers shall be responsible for preparing the
Closing Date Balance Sheet. Each of the Sellers, the Purchaser and their
respective representatives shall have the right to review the others' work
papers or records of the Company used or prepared in connection with the
preparation of the Closing Date Balance Sheet, and shall, if requested, make
available such work papers or records and direct the auditors or other
representatives to allow the Sellers, the Purchaser, or their respective
representatives to review any and all work papers or records of such auditors or
other representatives used in connection with the preparation of the Closing
Date Balance Sheet.
(c) Adjustments to Purchase Price. If (i) the Company's net worth (the
difference between the Company's assets and liabilities) as of the Closing Date
as shown on the Closing Date Balance Sheet is less than an amount equal to the
sum of (x) $6,296,402 plus (y) an amount equal to the Company's net earnings for
the period beginning on October 31, 1997 and ending on the Closing Date or (ii)
the Company's working capital (the difference between the Company's current
assets and current liabilities) as of the Closing Date as shown on the Closing
Date Balance Sheet is less than $4,000,000, the Sellers shall pay to the
Purchaser an amount equal to the largest of the differences in dollar amount
under clauses (i) or (ii) above. The amounts described in clauses (i) and (ii)
of the preceding sentence shall be computed in accordance with the accounting
principles used in the preparation of the Closing Date Balance Sheet and shall
each be further adjusted to give effect to the acquisition of certain assets
(the "Arizona Business") by Phoenix Racing, Inc., a California corporation and a
wholly owned subsidiary of the Company ("Phoenix"), and to give effect to the
transaction costs incurred by the Company in connection with the acquisition of
certain assets from RPJ Tire Company, Inc. and Dob's Tire Stores, Inc.
("Parnelli-Jones") and the acquisition itself, if it is consummated on or prior
to the Closing Date.
(d) Payment of Adjustments. Any payment under this Section shall be
made within 10 days after the later of (i) the date of delivery of the Closing
Date Balance Sheet and (ii) the date on which any dispute referred to in clause
(e) is resolved. The Sellers shall be jointly and severally liable with respect
to any such payment.
(e) Disputes. Each of the Sellers and the Purchaser shall have the
right to dispute any amounts shown on the Closing Date Balance Sheet by giving
written notice to the other
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within 15 days after receipt of the Closing Date Balance Sheet as audited and
opined on by Arthur Andersen LLP, which notice shall specify in reasonable
detail the nature and extent of such disagreement. If the Sellers and the
Purchaser have not resolved the dispute within 15 days of such notice, the
dispute shall be submitted to an independent accountant of national standing
reasonably acceptable to the Sellers and the Purchaser, whose decision shall be
binding on the parties hereto. The cost of such accountant shall be shared
equally by the Sellers and the Purchaser.
SECTION 1.5. Changes in Closing Date and Non-Compete Payments.
Notwithstanding Section 1.2, if the Sellers determine in good faith that the
security to be arranged by the Purchaser pursuant to Section 3.6(b)(v) is not
reasonably satisfactory to the Sellers, the Purchaser and the Sellers agree for
all purposes of this Agreement that the aggregate amount of the Closing Date
Payment shall be increased to $40,000,000 and the aggregate amount of the
Non-Compete Payment shall be reduced to $2,400,000 (payable in each case as set
forth in Section 1.2), whereupon the covenant set forth in Section 3.6(b)(v)
shall be deemed to have been performed and complied with for purposes of Section
4.2(b). Annex A shall be amended to reflect any changes made pursuant to this
Section 1.5.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
SECTION 2.1. Representations and Warranties of the Sellers. The Sellers
jointly and severally represent and warrant to the Purchaser as follows:
(a) Organization, Standing and Power. Each of the Company and Phoenix
(i) is a corporation duly organized, validly existing and in good standing under
the laws of the State of California and (ii) has all requisite corporate power
and authority to own, lease and operate its properties and to carry on its
business as now being conducted. Each of the Company and Phoenix is duly
qualified to do business and is in good standing in each jurisdiction in which
such qualification is necessary because of the property owned, leased or
operated by it or because of the nature of its business as now being conducted,
and each such jurisdiction is listed in Section 2.1(a) of the disclosure
schedule being delivered to the Purchaser simultaneously with the execution of
this Agreement (the "Disclosure Schedule"). Each of the Company and Phoenix has
delivered to the Purchaser complete and correct copies of its articles of
incorporation and by-laws, in each case as amended to the date of this
Agreement, and has made available to the Purchaser its minute books and stock
records. Section 2.1(a) of the Disclosure Schedule contains a true and correct
list of the directors and officers of the Company and Phoenix as of the date of
this Agreement and at all times since the last action of the board of directors
and the shareholders of the Company.
(b) Authority; Binding Agreements; Title to Shares. Each Seller has the
legal power and capacity to enter into this Agreement, and to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by each of the Sellers, and constitutes the valid and binding
obligation of each Seller, enforceable against such Seller in accordance with
its terms, subject to the laws of general application relating to
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bankruptcy, insolvency and the relief of debtors and rules and laws governing
specific performance, injunctive relief and other equitable remedies. Each
Seller is the lawful owner of record and beneficially of the number of Shares
set forth opposite such Sellers' name on Annex A, and such Seller has, and will
transfer to the Purchaser at the Closing, good and marketable title to such
number of Shares, free and clear of all Claims, and with no restriction on the
voting rights or other incidents of record and beneficial ownership attaching to
such Shares.
(c) Capitalization; Equity Interests. The authorized capital stock of
the Company consists of 1,000,000 shares of Common Stock and no shares of
preferred stock. At the time of execution of this Agreement, 14,118 shares of
Common Stock were issued and outstanding. The authorized capital stock of
Phoenix consists of 1,000,000 shares of common stock, no par value, and no
shares of preferred stock. At the time of execution of this Agreement, 1,000,000
shares of common stock of Phoenix were issued and outstanding. The Sellers own
of record and beneficially all of the outstanding capital stock of the Company,
and the Company owns of record and beneficially all of the outstanding capital
stock of Phoenix. Except as set forth above, at the time of execution of this
Agreement, no shares of capital stock or other voting securities of the Company
or Phoenix are issued, reserved for issuance or outstanding. All outstanding
shares of capital stock of the Company and Phoenix are duly authorized, validly
issued, fully paid and nonassessable and not subject to preemptive rights. There
are no bonds, debentures, notes or other indebtedness or securities of the
Company or Phoenix having the right to vote (or convertible into, or
exchangeable for, securities having the right to vote) on any matters on which
shareholders of the Company or Phoenix, as applicable, may vote. There are no
securities, options, warrants, calls, rights, commitments, agreements,
arrangements or undertakings of any kind to which the Company or Phoenix is a
party or by which the Company or Phoenix is bound obligating the Company or
Phoenix to issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of capital stock or other voting securities of the Company or
Phoenix or obligating the Company or Phoenix to issue, grant, extend or enter
into any such security, option, warrant, call right, commitment, agreement,
arrangement or undertaking. There are no outstanding rights, commitments,
agreements, arrangements or undertakings of any kind obligating the Company or
Phoenix to repurchase, redeem or otherwise acquire any shares of capital stock
or other voting securities of the Company or Phoenix or any securities of the
type described in the two immediately preceding sentences. The Company does not
have any subsidiaries or own or hold any equity or other security interests in
any other entity other than Phoenix, and Phoenix does not have any subsidiaries
or own or hold any equity or other security interests in any other entity.
Except as set forth in Section 2.1(c) of the Disclosure Schedule, neither the
Company nor Phoenix is subject to any liability for any claim that the Company
or Phoenix violated any applicable Federal or state securities laws in
connection with the issuance of capital stock. For purposes of this Agreement, a
"subsidiary" of any person means another person under the control of such person
(where "control" means the direct or indirect possession of the power to elect
at least a majority of the Board of Directors or other governing body of a
person through the ownership of voting securities, ownership or partnership
interests, by contract or otherwise, or if no such governing body exists, the
direct or indirect ownership of 50% or more of the equity interests of a
person); and a "person" means an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity (governmental or private).
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(d) Conflicts; Consents. The execution and delivery by the Sellers of
this Agreement, the consummation of the transactions contemplated hereby and
compliance by the Sellers with any of the provisions hereof does not and will
not (i) conflict with or result in a breach of the articles of incorporation,
by-laws or other constitutive documents of the Company or Phoenix, (ii) conflict
with or result in a default (or give rise to any right of termination,
cancellation or acceleration) under any of the provisions of any note, bond,
lease, mortgage, indenture, or any license, franchise, permit, agreement or
other instrument or obligation to which the Company or Phoenix or any Seller is
a party, or by which the Company or Phoenix or any Seller or any of the
Company's or Phoenix's or any Seller's properties or assets, may be bound or
affected, except for such conflicts, breaches or defaults as to which requisite
waivers or consents have been obtained before the Closing (which waivers or
consents are set forth in Section 2.1(d) of the Disclosure Schedule), (iii)
violate any law, statute, rule or regulation or order, writ, injunction or
decree applicable to the Company or Phoenix or any Seller or any of the
Company's or Phoenix's or any Seller's properties or assets or (iv) result in
the creation or imposition of any Claim upon any Shares or any property or
assets used or held by the Company or Phoenix. Except as set forth in Section
2.1(d) of the Disclosure Schedule, no consent or approval by, or notification of
or filing with, any person is required in connection with the execution,
delivery and performance by any Seller of this Agreement or the consummation of
the transactions contemplated hereby except for the filing of a premerger
notification and report form under the Hart-Scott-Rodino Act of 1976, as
amended, and the rules and regulations promulgated thereunder (the "HSR Act")
and the expiration or early termination of the applicable waiting period under
the HSR Act.
(e) Financial Information. (i) The following financial statements are
contained in Section 2.1(e) of the Disclosure Schedule:
(A) the consolidated balance sheets of the Company at October
31, 1995, 1996 and 1997 and the related consolidated statements of
income and retained earnings and cash flows for the fiscal years then
ended together with the opinion of KPMG Peat Marwick LLP thereon; and
(B) (i) the unaudited, internally prepared quarterly
consolidated balance sheets of the Company at January 31, April 30,
July 31 and October 31, 1997 and (ii) the unaudited, internally
prepared monthly consolidated balance sheets of the Company at November
30 and December 31, 1997, together with the related consolidated
statements of income for each such fiscal quarter or calendar month, as
applicable.
Except as set forth in Section 2.1(e) of the Disclosure Schedule, all such
financial statements have been prepared in conformity with generally accepted
accounting principles applied on a basis consistent with prior periods and
fairly present the financial condition, results of operations and cash flows of
the Company. The consolidated balance sheets of the Company as at the dates set
forth present fairly the financial position of the Company as at the dates
thereof, and the related consolidated statements of income and retained earnings
and cash flows of the Company for each of the respective specified periods then
ended present fairly the results of operations of the Company for each of the
respective periods then ended. For the purposes of this Agreement,
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all financial statements referred to in this paragraph shall include any notes
and schedules to such financial statements.
(ii) Except as set forth in Section 2.1(e)(ii) of the Disclosure
Schedule, the Company does not have, and as a result of the transactions
contemplated herein, will not have, any liabilities or obligations (whether
absolute, accrued, contingent or otherwise, and whether due or to become due),
except for liabilities and obligations (A) reflected on the balance sheets of
the Company referred to in Section 2.1(e)(i), (B) liabilities and obligations in
respect of acquisitions of inventory made in the ordinary course of business,
and (C) liabilities and obligations not described in clause (B) that have been
(1) incurred in the ordinary course of business consistent with past practice
since December 31, 1997 or (2) which individually do not exceed $50,000 or in
the aggregate do not exceed $100,000. All reserves established by the Company
are reflected on the balance sheets of the Company or in the footnotes to the
financial statements of the Company and are adequate and there are no loss
contingencies that are required to be accrued by Statement of Financial
Accounting Standard No. 5 of the Financial Accounting Standards Board which are
not provided for on such balance sheets.
(f) Absence of Changes. Except as set forth in Section 2.1(f) of the
Disclosure Schedule, since October 31, 1997, the Company and Phoenix have been
operated in the ordinary course consistent with past practice and there has not
been:
(i) any material adverse change in the condition (financial or
otherwise), assets, liabilities, operations, business or prospects of
the Company and Phoenix taken as a whole;
(ii) any obligation or liability (whether absolute, accrued,
contingent or otherwise, and whether due or to become due) incurred by
the Company or Phoenix, other than obligations under customer
contracts, current obligations and liabilities incurred in the ordinary
course of business and consistent with past practice;
(iii) any payment, discharge, satisfaction or settlement of
any claim or obligation of the Company or Phoenix, except in the
ordinary course of business and consistent with past practice;
(iv) any declaration, setting aside or payment of any dividend
or other distribution with respect to any shares of capital stock of
the Company or Phoenix or any direct or indirect redemption, purchase
or other acquisition of any such shares;
(v) any issuance or sale, or any contract entered into for the
issuance or sale, of any shares of capital stock or securities
convertible into or exercisable for shares of capital stock of the
Company or Phoenix;
(vi) any sale, assignment, pledge, encumbrance, transfer or
other disposition of any tangible asset of the Company or Phoenix
(other than sales of inventory to customers in the ordinary course of
business consistent with past practice), or any sale, assignment,
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transfer or other disposition of any patents, trademarks, service
marks, trade names, copyrights, licenses, franchises, know-how or any
other intangible assets;
(vii) any creation of any claim or other encumbrance on any
property of the Company or Phoenix, except in the ordinary course of
business consistent with past practice and which claims or encumbrances
together with all other such claims and encumbrances would not have a
material adverse effect on the business of the Company and Phoenix,
taken as a whole;
(viii) any write-down of the value of any asset of the Company
or Phoenix or any write-off as uncollectible of any accounts or notes
receivable or any portion thereof, other than write-downs or write-offs
which, individually or in the aggregate, do not exceed $25,000;
(ix) any cancellation of any debts or claims or any amendment,
termination or waiver of any rights of value to the Company or Phoenix,
other than debts, claims or rights which individually do not exceed
$25,000 or in the aggregate do not exceed $50,000;
(x) any capital expenditure or commitment or addition to
property, plant or equipment of the Company or Phoenix, individually in
excess of $10,000;
(xi) any general increase in the compensation of employees of
the Company or Phoenix (including any increase pursuant to any written
bonus, pension, profit-sharing or other benefit or compensation plan,
policy or arrangement or commitment), or any increase in any such
compensation or bonus payable to any officer, shareholder, director,
consultant or agent of the Company or Phoenix having an annual salary
or remuneration in excess of $75,000;
(xii) any damage, destruction or loss (whether or not covered
by insurance) affecting any asset or property of the Company or Phoenix
resulting in liability or loss in excess of $25,000;
(xiii) any change in the independent public accountants of the
Company or Phoenix or in the accounting methods or accounting practices
followed by the Company or Phoenix or any change in depreciation or
amortization policies or rates;
(xiv) to the knowledge of the Sellers any agreement or action
not otherwise referred to in items (i) through (xiii) above entered
into or taken that is material to the Company or Phoenix; or
(xv) any agreement, whether in writing or otherwise, to take
any of the actions specified in the foregoing items (i) through (xiv).
(g) Assets, Property and Related Matters; Real Property. (i) The
Company has good title to, or a valid leasehold interest in, as applicable, all
of the assets reflected on the financial statements contained in Section 2.1(e)
of the Disclosure Schedule, free and clear of all
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Claims except as set forth in Section 2.1(g)(i) of the Disclosure Schedule. Such
assets (A) are in good operating condition and repair, subject to ordinary wear
and tear and (B) constitute all of the properties, interests, assets and rights
held for use or used in connection with the business and operations of the
Company and constitute all those necessary (in the reasonable business judgment
of the Sellers) to continue to operate the business of the Company consistent
with current and historical practice. All items of personal property owned by
the Company with an original cost or book value in excess of $10,000 are listed
in Section 2.1(g)(i) of the Disclosure Schedule.
(ii) Section 2.1(g)(ii) of the Disclosure Schedule sets forth
a list of all real property owned or leased by the Company or Phoenix (each a
"Company Property"). The Company or Phoenix is the sole owner or holder of, and
has, good and marketable fee title to, or a good, valid and existing leasehold
estate in each Company Property, free and clear of all liens, encumbrances and
restrictions affecting title to or the use and occupancy of such Company
Property, except as disclosed in Section 2.1(g)(ii) of the Disclosure Schedule
("Permitted Encumbrances"). No Company Property violates the terms or conditions
of any Permitted Encumbrance.
(iii) With respect to each Company Property leased by the
Company or Phoenix, (A) the Company or, to the knowledge of the Sellers, Phoenix
is the owner and holder of all the leasehold interests and estates purported to
be granted by such leases, (B) all leases to which the Company or Phoenix is a
party are in writing and in full force and effect and constitute valid and
binding obligations of the Company or Phoenix and, to the knowledge of the
Sellers, of the other parties thereto, enforceable in accordance with their
terms, subject to the laws of general application relating to bankruptcy,
insolvency and the relief of debtors and rules and laws governing specific
performance, injunctive relief and other equitable remedies, and (C) the Company
has delivered to the Purchaser true and complete copies of all such leases.
There exists no default, or any event which upon notice or the passage of time,
or both, would give rise to any default, in the performance by the Company or
Phoenix or, to the knowledge of the Sellers, by any lessor under any lease
(except for such defaults that are, individually and in the aggregate,
immaterial). Except as set forth in Section 2.1(g)(ii) of the Disclosure
Schedule, neither the Company nor Phoenix, and to the knowledge of the Sellers,
no other person has, granted any oral or written right to anyone other than the
Company or Phoenix to lease, sublease or otherwise occupy any of the properties
described in Section 2.1(g)(ii) of the Disclosure Schedule through the end of
the applicable lease periods.
(iv) Each Company Property owned or leased by the Company and,
to the knowledge of the Sellers, each Company Property owned or leased by
Phoenix, together with all appurtenances and improvements, as used, constructed
or maintained by the Company or Phoenix at any time, conform in all material
respects to applicable Federal, state, local and foreign laws, rules,
regulations and orders ("Legal Requirements"), and, except as otherwise
disclosed on Section 2.1(g)(iv) of the Disclosure Schedule, no notices of
violation of any Legal Requirements have been issued by any governmental
authority with respect to any Company Property owned or leased by the Company
or, to the knowledge of the Sellers, owned or leased by Phoenix, including all
building, fire, health, zoning, setback, subdivision and environmental
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laws, regulations or ordinances. Without limiting the foregoing, each Company
Property is in good operating condition and repair and, to the knowledge of the
Sellers, no condition exists which would interfere with the Company's or
Phoenix's customary use and operation thereof. The use of the buildings and
structures located on each Company Property owned or leased by the Company or,
to the knowledge of the Sellers, owned or leased by Phoenix or any appurtenances
or equipment does not violate any restrictive covenants or encroach on any
property owned by others. No condemnation proceeding is pending or, to the
knowledge of the Sellers, threatened which would preclude or impair the use of
any Company Property by the Company or Phoenix for the uses for which they are
intended.
(v) Section 2.1(g)(v) of the Disclosure Schedule lists each
permit necessary or appropriate for the Company and, to the knowledge of the
Sellers, for Phoenix in connection with its ownership, lease or use of any
Company Property. Each such permit held by the Company and, to the knowledge of
the Sellers, each such permit held by Phoenix was duly issued and obtained,
currently is in full force and effect, and shall remain in full force and effect
for the term set forth therefor on Section 2.1(g)(v) of the Disclosure Schedule.
To the knowledge of the Sellers, no default or violation, or event which with
the passage of time or giving of notice or both would become a default or
violation, has occurred in the due observance of any permit (except for such
defaults or violations as are, in the aggregate, immaterial). The Sellers have
delivered to the Purchaser true and complete copies of all such permits.
(vi) Each Company Property owned or leased by the Company and,
to the knowledge of the Sellers, each Company Property owned or leased by
Phoenix is properly and duly zoned for its current use, and such current use is
in all respects a lawful use. No governmental authority having jurisdiction over
any Company Property has issued or, to the knowledge of the Sellers, has
threatened to issue any notice or order that requires, as of the date hereof or
a specified date in the future, any repairs, alterations, additions or
improvements thereto. The Sellers have no knowledge of any actual or pending
imposition of any assessments for public improvements with respect to any
Company Property and, to the knowledge of the Sellers, no such improvements have
been constructed or planned that would be paid for by means of assessments upon
any Company Property.
(vii) Each Company Property is located on public roads and
streets with adequate ingress and egress available between such streets and the
Company Property, and, to the knowledge of the Sellers, all utility systems
required in connection with the use, occupancy and operation of each Company
Property are sufficient for their present purposes, are fully operational and in
working order, and are benefited by customary utility easements providing for
the continued use and maintenance of such systems. In the reasonable business
judgment of the Sellers, each Company Property consists of sufficient land,
parking areas, sidewalks, driveways and other improvements to permit the
continued use of such Company Property in the manner and for the purposes to
which it is presently devoted.
(viii) Except as set forth in Section 2.1(g)(viii) of the
Disclosure Schedule, no portion of any Company Property is located in any flood
zone area designated as Zone A or Zone
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Z (or any Zone having the prefix A or Z) (or any successor designation) pursuant
to applicable regulations of the Federal Emergency Management Agency, or any
successor thereto.
(ix) None of the Sellers is a "foreign person" as defined in
Section 1445 of the Internal Revenue Code of 1986, as amended (the "Code").
(x) Except as set forth in Section 2.1(g)(x) of the Disclosure
Schedule, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated by this Agreement will create a
breach of, or constitute a default under, any lease of the Company or, to the
knowledge of the Sellers, any lease to which Phoenix is a party. No consent from
the lessor or any other person under any lease is required in connection with
the execution or delivery of this Agreement or the consummation of the
transactions contemplated by this Agreement, except for those obtained prior to
the Closing and listed in Section 2.1(d) of the Disclosure Schedule.
(h) Intellectual Property. Except as set forth on Section 2.1(h) of the
Disclosure Schedule, the Company owns or licenses all patents, trademarks,
service marks, trade names and copyrights, in each case registered or
unregistered, inventions, software (including documentation and object and
source code listings relating to software other than commercially available
software used by the Company pursuant to "shrink-wrap" licenses), know-how,
trade secrets and other intellectual property rights (collectively, the
"Intellectual Property") used in its business as presently conducted. Section
2.1(h) of the Disclosure Schedule contains a list of all Intellectual Property
owned and used by the Company (excluding all commercially available software
used by the Company pursuant to "shrink-wrap" licenses) and any Intellectual
Property which is licensed for use by others. No use by the Company in its
business of Intellectual Property owned by the Company, and (to the knowledge of
the Sellers) no use by the Company in its business of Intellectual Property
licensed from third parties for use by the Company, infringes any rights owned
or held by any other person. There is no pending or, to the knowledge of the
Sellers, threatened claim or litigation against the Company contesting its right
to use any Intellectual Property. To the knowledge of the Sellers, no person is
infringing the rights of the Company in any Intellectual Property. Neither the
Company nor any Seller has received any notice that a product or service sold by
the Company violates or infringes any intellectual property right owned or held
by any other person. In the case of commercially available "shrink-wrap"
software programs, neither the Company nor, to the knowledge of the Sellers, any
of its employees has made or is using any unauthorized copies of any such
software programs.
(i) Insurance. Section 2.1(i) of the Disclosure Schedule contains a
true and complete list of all policies of casualty, liability, theft, fidelity,
life and other forms of insurance held by the Company or Phoenix. True and
complete copies of such policies have been delivered to the Purchaser. Except as
set forth in Section 2.1(i) of the Disclosure Schedule, all insurance policies
are in the name of the Company or Phoenix, outstanding and in full force and
effect, all premiums with respect to such policies are currently paid and such
policies will not be affected by, or terminated or lapse by reason of, the
transactions contemplated by this Agreement. Neither the Company nor Phoenix has
received notice of cancellation or termination of any such
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policy, nor has it been denied or had revoked or rescinded any policy of
insurance, nor borrowed against any such policies. Except as set forth in
Section 2.1(i) of the Disclosure Schedule, no claim under any such policy is
pending.
(j) Agreements. Section 2.1(j) of the Disclosure Schedule contains a
true and complete list of all contracts, agreements and other instruments to
which the Company or Phoenix is a party (A) relating to indebtedness for money
borrowed or capital leases, (B) of duration of six months or more from the date
hereof and not cancelable without penalty on 30 days or less notice, (C)
relating to commitments in excess of $100,000, (D) relating to the employment or
compensation of any stockholder, director, officer, employee, consultant or
other agent of the Company or Phoenix which are not terminable at will by the
Company or Phoenix, (E) relating to the sale or other disposition of any assets,
properties or rights which were entered into outside the ordinary course of the
business of the Company or Phoenix, (F) relating to the lease of or similar
arrangement with respect to any machinery, equipment, motor vehicles, furniture,
fixture or similar property which individually provide for annual payments by
the Company or Phoenix in excess of $50,000, (G) between the Company or Phoenix
and any Seller or affiliate of any Seller, (H) that restricts the operation of
the Company or Phoenix anywhere in the world or (I) that is entered into other
than in the ordinary course of business. Each of the Company and Phoenix is not
in default under any such agreement or instrument where such default could,
singly or in the aggregate with defaults under other agreements or instruments,
have a material adverse effect on the condition (financial or otherwise),
assets, liabilities, operations, business or prospects of the Company and
Phoenix, taken as a whole, and, to the knowledge of the Sellers, all such
agreements or instruments are in full force and effect. Except as set forth in
Section 2.1(j) of the Disclosure Schedule, neither the execution and delivery of
this Agreement nor the consummation of the transactions contemplated by this
Agreement will create a breach of, or constitute a default under, any Agreement
required to be listed in Section 2.1(j) of the Disclosure Schedule. The Company
has delivered to the Purchaser true and complete copies of all documents
described in Section 2.1(j) of the Disclosure Schedule.
(k) Litigation. Except as set forth in Section 2.1(k) of the Disclosure
Schedule, there have not been for the past five years, nor are there, any suits,
actions, claims, investigations or legal or administrative or arbitration
proceedings in respect of the Company or Phoenix pending or, to the knowledge of
the Sellers, threatened, whether at law or in equity, or before or by any
Federal, foreign, state or municipal or other governmental department,
commission, board, bureau, agency or instrumentality. Except as set forth in
Section 2.1(k) of the Disclosure Schedule, there have not been for the past five
years, nor are there any judgments, decrees, injunctions or orders of any court,
governmental department, commission, agency, instrumentality or arbitrator
against the Company or Phoenix or any Seller or any of their respective assets
or properties.
(l) Compliance; Governmental Authorizations. (i) The Company and
Phoenix have complied and are in compliance with all Federal, state, local and
foreign laws, ordinances, rules, regulations, interpretations and orders
(including those relating to disposal of materials, environmental protection and
occupational safety and health) applicable to the Company or Phoenix or their
respective businesses (except for instances of non-compliance which
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individually and in the aggregate are immaterial and could not lead to criminal
liability), and, to the knowledge of the Sellers, there are no present or past
conditions relating to the Company or Phoenix, or relating to any Company
Property or any appurtenances thereto or improvements thereon, that could lead
to any material liability against, or have a material adverse effect on, the
Company and Phoenix (taken together), for violation of any health or safety
laws. Each of the Company and Phoenix has all Federal, state, local and foreign
governmental licenses and permits necessary to conduct its business as presently
being conducted, which licenses and permits (and any exceptions thereto) are set
forth in Section 2.1(l)(i) of the Disclosure Schedule. Such licenses and permits
are in full force and effect, no violations are or have been recorded in respect
of any thereof, no proceeding is pending or, to the knowledge of the Sellers,
threatened, to revoke or limit any thereof, and the Sellers do not know of any
basis for any such proceeding, and the consummation of the transactions
contemplated in this Agreement will not result in the non-renewal, revocation or
termination of any such license or permit (except, in each case, for such
violations, proceedings, non-renewals, revocations or terminations as are, in
the aggregate, immaterial).
(ii) Each of the Company and Phoenix validly holds all permits
required under all applicable Federal, state, county or local laws, ordinances,
regulations, official interpretations and orders relating to disposal of
materials or the discharge of chemicals, gases or other substances or Hazardous
Materials (defined below) into the environment or to the safety or protection of
the environment (the "Environmental Laws"). Neither the Company nor Phoenix has
violated, nor is the Company or Phoenix in violation of, any requirements of any
Environmental Laws in connection with the conduct of its business or in
connection with the use, maintenance or operation of any Company Property
(except for violations which individually and in the aggregate are immaterial
and could not lead to criminal liability). There are no present or past
conditions relating to the Company or Phoenix or relating to any Company
Property, or, to the knowledge of the Sellers, relating to any real property
previously owned, leased or operated by the Company or Phoenix or any of their
respective present or past affiliates, that in any such case could lead to any
material liability of the Company or Phoenix under any Environmental Law. Except
as set forth on Section 2.1(l)(ii) of the Disclosure Schedule, the Company and
Phoenix have operated each Company Property and have received, handled, used,
stored, treated, shipped and disposed of all hazardous or toxic materials,
substances and wastes (whether or not on its properties or properties owned or
operated by others) in compliance with all applicable Environmental Laws (except
for instances of non-compliance which individually and in the aggregate are
immaterial and could not lead to criminal liability). Except as set forth in
Section 2.1(l)(ii) of the Disclosure Schedule, neither the Company nor Phoenix
has engaged in or permitted the sale or dispensation (to customers, employees or
other persons), handling, transportation, discharge, emission, treatment,
storage or disposal of gasoline or other motor vehicle fuels at or under any
Company Property or any property or facility previously owned, leased or
operated by the Company. "Hazardous Materials" means (A) any "hazardous
substance" as defined by the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended; (B) any "hazardous waste" or "petroleum,"
as defined by the Resource Conservation and Recovery Act, as amended; (C) any
petroleum product; (D) any pollutant or contaminant or hazardous, dangerous or
toxic chemical, material or substance within the meaning of any other
Environmental Law, as amended or hereafter amended; or (E) any
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radioactive material, including any source, special nuclear or by-product
material as defined at 42 U.S.C. Section 2011 et seq., as amended or hereafter
amended.
(m) Labor Relations; Employees. (i) (A) There is no labor strike,
slowdown, stoppage or lockout pending, affecting, or, to the knowledge of any
Seller, threatened against the Company or Phoenix, and during the last five
years there has not been any such action with respect to the Company or, to the
knowledge of the Sellers, Phoenix; (B) there are no union claims to represent
the employees of the Company or, to the knowledge of the Sellers, Phoenix, nor
have there been any such claims within the last five years with respect to the
Company or, to the knowledge of the Sellers, Phoenix; (C) there is no written or
oral contract, commitment, agreement, understanding or other arrangement with
any labor organization, nor work rules or practices agreed to with any labor
organization or employee association, applicable to employees of the Company or,
to the knowledge of the Sellers, applicable to Phoenix, nor is the Company or,
to the knowledge of the Sellers, Phoenix a party to or bound by any collective
bargaining or similar agreement; (D) there is, and within the last five years
has been, no representation of the employees of the Company or, to the knowledge
of the Sellers, Phoenix by any labor organization and, to the knowledge of the
Sellers, there are no union organizing activities among the employees of the
Company or Phoenix; (E) Section 2.1(m)(i) of the Disclosure Schedule sets forth
all written personnel policies, rules or procedures applicable to employees of
the Company and, to the knowledge of the Sellers, applicable to employees of
Phoenix, and the Sellers have delivered to the Purchaser complete and accurate
copies of all such written policies, rules or procedures; (F) neither the
Company nor, to the knowledge of the Sellers, Phoenix has engaged in any unfair
labor practices as defined in the National Labor Relations Act or other
applicable law, ordinance, regulation, interpretation or order and each of the
Company and, to the knowledge of the Sellers, Phoenix is, and has for the past
five years been, in compliance with all applicable laws, ordinances,
regulations, interpretations or orders respecting employment and employment
practices, terms and conditions of employment, wages, hours of work and
occupational safety and health; (G) there is no unfair labor practice charge or
complaint against the Company (or against any Seller with respect to the
Company) or, to the knowledge of the Sellers, Phoenix pending or, to the
knowledge of any Seller, threatened before the National Labor Relations Board or
any similar state or foreign agency; (H) there is no grievance pending or, to
the knowledge of any Seller, threatened against the Company or, to the knowledge
of the Sellers, Phoenix arising out of any collective bargaining agreement or
other grievance procedure; (I) there are no charges with respect to or relating
to the Company or, to the knowledge of the Sellers, Phoenix pending or, to the
knowledge of any Seller, threatened before the Equal Employment Opportunity
Commission or any other governmental entity responsible for the prevention of
unlawful employment practices; (J) none of the Company or any Seller or, to the
knowledge of the Sellers, Phoenix has received notice of the intent of any
governmental entity responsible for the enforcement of labor or employment laws
to conduct an investigation with respect to or relating to the Company or, to
the knowledge of the Sellers, Phoenix and, to the knowledge of the Sellers, no
such investigation is in progress; and (K) no complaints, lawsuits or other
proceedings are pending or, to the knowledge of any Seller, threatened in any
forum by or on behalf of any present or former employee of the Company or any
applicant for employment by the Company or classes of the foregoing alleging
breach of any express or implied contract, commitment, agreement, understanding
or other arrangement for employment, any law
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governing employment or the termination thereof or other discriminatory,
wrongful or tortious conduct in connection with any employment relationship, nor
to the knowledge of the Sellers is any such complaint, lawsuit or other
proceeding pending or threatened by or on behalf of any present or former
employee of Phoenix or any applicant for employment by Phoenix or classes of the
foregoing.
(ii) Section 2.1(m)(ii) of the Disclosure Schedule contains a list of
each pension, retirement, savings, deferred compensation, and profit-sharing
plan and each stock option, stock appreciation, stock purchase, performance
share, bonus or other incentive plan, severance plan, health, group insurance or
other welfare plan, or other similar plan and any "employee benefit plan" within
the meaning of Section 3(3) of the Employee Retirement Income Security Act of
1974 ("ERISA"), under which the Company has any current or future obligation or
liability (including any potential, contingent or secondary liability under
Title IV of ERISA) or under which any employee or former employee (or
beneficiary of any employee or former employee) of the Company has or may have
any current or future right to benefits (the term "plan" shall include any
contract, agreement, policy or understanding, each such plan being hereinafter
referred to individually as a "Plan"). The Company has delivered to the
Purchaser true and complete copies of (A) each Plan, (B) the summary plan
description for each Plan, (C) the latest annual report, if any, which has been
filed with the IRS for each Plan, (D) the most recent IRS determination letter
for each Plan that is a pension plan (as defined in ERISA) and (E) copies of
reports for the three most recent Plan years showing compliance with
discrimination rules under those of Code Sections 401(a), 401(k), 401(m), 419,
419A, 505. 501(c)(9), 105(h), 125 or 129 applicable to such Plan. Each Plan
intended to be tax qualified under Sections 401(a) and 501(a) of the Code is and
has been determined by the IRS to be tax qualified under Sections 401(a) and
501(a) of the Code and, since such determination, no amendment to or failure to
amend any such Plan and to the knowledge of the Sellers no other event or
circumstance has occurred that could adversely affect its tax qualified status.
There has been no prohibited transaction within the meaning of Section 4975 of
the Code and Section 406 of Title I of ERISA with respect to any Plan.
(iii) No Plan is subject to the provisions of Section 412 of the Code
or Part 3 of Subtitle B of Title I of ERISA. No Plan is subject to Title IV of
ERISA. During the past five years, neither the Company nor any business or
entity then controlling, controlled by, or under common control with the Company
contributed to or was obliged to contribute to an employee pension plan that was
subject to Title IV of ERISA.
(iv) There are no actions, claims, lawsuits or arbitrations (other than
routine claims for benefits) pending, or, to the knowledge of the Sellers,
threatened, with respect to any Plan or the assets of any Plan, and no Seller
has knowledge of any facts which could give rise to any such actions, claims,
lawsuits or arbitrations (other than routine claims for benefits). Each Plan has
been administered in all material respects in accordance with its terms and with
all applicable laws (including, without limitation, ERISA). The Company has
satisfied all funding, compliance and reporting requirements for all Plans. With
respect to each Plan, the Company has paid all contributions (including employee
salary reduction contributions) and all insurance
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premiums that have become due and any such expense accrued but not yet due has
been properly reflected in the financial information in Section 2.1(e) of the
Disclosure Schedule.
(v) No Plan provides or is required to provide, now or in the
future, health, medical, dental, accident, disability, death or survivor
benefits to or in respect of any person beyond termination of employment, except
to the extent required under any state insurance law or under Part 6 of Subtitle
B of Title I of ERISA and under Section 4980(B) of the Code. No Plan covers any
individual other than employees of the Company, other than spouses and
dependents of employees under health and child care policies listed in Section
2.1(m)(ii) of the Disclosure Schedule, true and complete copies of which have
been delivered to the Purchaser.
(vi) Except as set forth in Section 2.1(m)(vi) of the
Disclosure Schedule, the consummation of the transactions contemplated by this
Agreement will not (A) entitle any employee of the Company to severance pay or
termination benefits, (B) accelerate the time of payment or vesting, or increase
the amount of compensation due to any such employee or former employee or (C)
(by itself) obligate the Purchaser or the Company, or any of their respective
affiliates, to pay or otherwise be liable for any compensation, vacation days,
pension contribution or other benefits to any employee, consultant or agent of
the Company for periods before the Closing Date or for personnel whom the
Purchaser does not employ.
(vii) The Company has not made any representations or
warranties (whether written or oral, express or implied) contractually or
otherwise to any client or customer of the Company that the Company employees
rendering services to such client or customer are not "leased employees" (within
the meaning of Section 414(n) of the Code) or that such employees would not be
required to participate under any pension benefit plan (within the meaning of
Section 3(2) of ERISA) (a "Pension Benefit Plan") of such client or customer
relating either to (A) providing benefits to employees of the Company under a
Pension Benefit Plan of the Company or (B) making contributions to or
reimbursing such client or customer for any contributions made to a Pension
Benefit Plan of such client or customer on behalf of employees of the Company.
(n) Related Party Transactions. Except as set forth in Section 2.1(n)
of the Disclosure Schedule, no current or former partner, director, officer,
employee or shareholder of the Company or Phoenix or any associate or affiliate
(as defined in the rules promulgated under the Securities Exchange Act of 1934)
thereof, or any relative with a relationship of not more remote than first
cousin of any of the foregoing, is presently, or during the 12-month period
ending on the date hereof has been, (i) a party to any transaction with the
Company or Phoenix (including any contract, agreement or other arrangement
providing for the furnishing of services by, or rental of real or personal
property from, or otherwise requiring payments to, any such director, officer,
employee or shareholder or such associate) or (ii) to the knowledge of the
Sellers, the direct or indirect owner of an interest in any corporation, firm,
association or business organization which is a present (or potential)
competitor, supplier or customer of the Company or Phoenix, nor does any such
person receive income from any source other than the Company or Phoenix which
relates to the businesses of the Company or Phoenix or should properly accrue to
the Company or Phoenix.
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(o) Taxes. (i) All Federal, state, local and foreign tax returns and
tax reports required to be filed on or prior to the Closing Date by the Company
and Phoenix have been or will be filed or a valid request for extension has been
or will be filed with respect thereto, on a timely basis (including any
extensions) with the appropriate governmental agencies in all jurisdictions in
which such returns and reports are required to be filed. All such returns and
reports are and will be true, correct and complete. All Federal, state, local
and foreign income, profits, franchise, sales, use, occupation, property,
excise, employment and other taxes (including interest, penalties and
withholdings of tax) due from and payable by the Company or Phoenix on or prior
to the Closing Date have been or will be fully paid on a timely basis or will be
adequately reserved for on the Closing Date Balance Sheet. Neither the Company
nor Phoenix is not currently the beneficiary of any extension of time within
which to file any tax return.
(ii) No claim has ever been made by an authority in a
jurisdiction where the Company or Phoenix does not file tax returns that it is
or may be subject to taxation by that jurisdiction, and neither the Company nor
Phoenix has received any notice, or request for information from any such
authority.
(iii) No issues have been raised with the Company or Phoenix
by the Internal Revenue Service (the "IRS") or any other taxing authority in
connection with any tax return or report filed by the Company or Phoenix and
there are no issues which, either individually or in the aggregate, could result
in any liability for tax obligations of the Company or Phoenix relating to
periods ending on or before October 31, 1997 in excess of the accrued liability
for taxes shown on the combined financial statements contained in Section
2.1(e)(i) of the Disclosure Schedule. No waivers of statutes of limitations have
been given or requested with respect to the Company or Phoenix.
(iv) No differences exist between the amounts of the book
basis and the tax basis of assets that are not accounted for by an accrual on
the books of the Company and Phoenix for Federal income tax purposes. Neither
the Company nor Phoenix required to include in income any adjustment pursuant to
Section 481(a) of the Code by reason of a voluntary change in accounting method
initiated by the Company or Phoenix, and the IRS has proposed no adjustment or
change in accounting method.
(v) All transactions or methods of accounting that could give
rise to an understatement of Federal income tax (within the meaning of Section
6661 of the Code for tax returns filed on or before December 31, 1990, and
within the meaning of Section 6662 of the Code for tax returns filed after
December 31, 1990) have been adequately disclosed on the tax returns in
accordance with Section 6661(b)(2)(B) of the Code for tax returns filed on or
prior to December 31, 1990, and in accordance with Section 6662(d)(2)(B) of the
Code for tax returns filed after December 31, 1990.
(vi) Neither the Company nor Phoenix has been a United States
real property holding company (as defined in Section 897(c)(2) of the Code)
during the applicable period specified in Section 897(c)(1)(ii) of the Code.
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(vii) Each of the Company and Phoenix has complied (and until
the Closing will comply) with all applicable laws relating to the payment and
withholding of taxes (including withholding and reporting requirements under
Section 1441 through 1464, 3401 through 3406, 6041 and 6049 of the Code and
similar provisions under any other laws) and, within the time and in the manner
prescribed by law, has withheld from wages, fees and other payments and paid
over to the proper governmental or regulatory authorities all amounts required.
(viii) Neither the Company nor Phoenix is a party to any
tax-sharing or tax indemnity agreement or any other agreement of a similar
nature that remains in effect.
(p) Disclosure. To the knowledge of the Sellers, there have been no
events, transactions or information relating to the Company or Phoenix which,
singly or in the aggregate, could reasonably be expected to have a material
adverse effect on the condition (financial or otherwise), assets, liabilities,
operations or business of the Company and Phoenix, taken as a whole. No
representation or warranty of the Sellers contained in this Agreement, and no
statement contained in any certificate, schedule, annex, list or other writing
furnished to the Purchaser, contains any untrue statement of a material fact.
(q) Bank Accounts; Powers-of-Attorney. Section 2.1(q) of the Disclosure
Schedule contains a true and complete list of (A) all bank accounts and safe
deposit boxes of the Company and Phoenix and all persons who are signatories
thereunder or who have access thereto and (B) the names of all persons holding
general or special powers-of-attorney from the Company or Phoenix and a summary
of the terms thereof.
(r) Inventory. The inventory included in the financial statements
contained in Section 2.1(e) of the Disclosure Schedule is the only inventory
used or held for use in the Company's business, is valued for financial
statement purposes at the lower of cost or market value, and, except as set
forth in Section 2.1(r) of the Disclosure Schedule, is useable and salable in
the ordinary course of business. All inventory used or held for use in the
business of Phoenix is valued for financial statement purposes at the lower of
cost or market value and, except as set forth in Section 2.1(r) of the
Disclosure Schedule, is useable and salable in the ordinary course of business.
(s) Brokers. No agent, broker, investment banker, person or firm acting
on behalf of any Seller or the Company or Phoenix or under the authority of any
Seller or the Company or Phoenix is or will be entitled to any broker's or
finder's fee or any other commission or similar fee directly or indirectly from
any of the parties hereto in connection with any of the transactions
contemplated hereby.
(t) Parnelli-Jones. Notwithstanding any provision to the contrary in
this Section 2.1, the Sellers make no representations or warranties of any kind
with respect to the business to be acquired by Phoenix from Parnelli-Jones,
including, without limitation, the condition (financial or otherwise), assets,
liabilities, operations, business or prospects of the business to be acquired by
Phoenix from Parnelli-Jones.
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(u) Phase III Materials. Section 2.1(u) of the Disclosure Schedule sets
forth a description of certain information relating to the Company's
miscellaneous income, including certain information relating to the tire
supplier annual volume bonus (AVB) programs in which the Company participates.
SECTION 2.2. Representations and Warranties by the Purchaser. The
Purchaser represents and warrants to the Sellers as follows:
(a) Organization and Standing. The Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State of
North Carolina.
(b) Authority; Binding Agreements. The Purchaser has all requisite
corporate power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly authorized by all necessary corporate action on the part of the
Purchaser. This Agreement has been duly executed and delivered by the Purchaser,
and constitutes the valid and binding obligation of the Purchaser, enforceable
against the Purchaser in accordance with its terms, subject to the laws of
general application relating to bankruptcy, insolvency and the relief of debtors
and rules and laws governing specific performance, injunctive relief and other
equitable remedies.
(c) Conflicts; Consents. The execution and delivery by the Purchaser of
this Agreement, the consummation of the transactions contemplated hereby and
compliance by the Purchaser with the provisions hereof do not and will not (i)
conflict with or result in a breach of the certificate of incorporation, by-laws
or other constitutive documents of the Purchaser, (ii) violate any law, statute,
rule or regulation or order, writ, injunction or decree applicable to the
Purchaser or (iii) conflict with or result in a default under (or give rise to
any right of acceleration under) any material term of any material agreement
relating to indebtedness for borrowed money to which the Purchaser is a party or
the material terms of any securities issued by the Purchaser or instruments
convertible or exchangeable for such securities, except for conflicts, breaches
or defaults as to which requisite waivers or consents will have been obtained
before the Closing. No consent or approval by, or notification of or filing
with, any person is required in connection with the execution, delivery and
performance by the Purchaser of this Agreement and the consummation of the
transactions contemplated hereby, except for (i) the filing of a premerger
notification and report form under the HSR Act and the expiration or early
termination of the applicable waiting period under the HSR Act and (ii) the
consent of the Purchaser's senior and subordinated lenders (it being understood
and agreed that obtaining or failing to obtain the consent of the Purchaser's
senior and subordinated lenders is deemed to be within the control of the
Purchaser solely for purposes of Section 3.1(b)(i)).
(d) Investment Representation. The Purchaser is acquiring the Shares
for its own account and not with a view to distribution within the meaning of
the applicable Federal securities laws.
(e) Brokers. No agent, broker, investment banker, person or firm acting
on behalf of the Purchaser or under the authority of the Purchaser is or will be
entitled to any broker's or
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finder's fee or any other commission or similar fee directly or indirectly from
any of the parties hereto in connection with any of the transactions
contemplated hereby.
ARTICLE III
ADDITIONAL AGREEMENTS
SECTION 3.1. Costs and Expenses. (a) All fees, costs and expenses
incurred in the pursuit of the transactions contemplated by this Agreement,
including the fees and expenses of its counsel, financial advisors and
accountants (collectively, "Transaction Costs"), incurred by the Purchaser shall
be paid by the Purchaser. Any Transaction Costs incurred by the Sellers or the
Company shall be paid or reimbursed by the Purchaser up to an aggregate maximum
of $100,000 (plus any Transaction Costs incurred in connection with the
additional legal opinion work done by the Sellers' counsel after the date hereof
relating to the issues of enforceability of the covenant not to compete,
employment agreements and choice of law provisions), and any Transaction Costs
incurred by the Sellers or the Company in excess of such $100,000 shall be paid
or reimbursed by the Sellers.
(b) The Purchaser shall pay the Sellers a fee in immediately available
funds of $1,000,000 if (i) the Closing does not occur on or prior to the close
of business on June 22, 1998 for any reason in the control of the Purchaser
(including the failure to satisfy the condition set forth in Section 4.1(h)) and
this Agreement is terminated pursuant to Section 6.2 and (ii) (A) the condition
set forth in Section 4.1(g) has been satisfied or deemed satisfied and (B) the
condition set forth in Section 4.1(b) has been satisfied (assuming for purposes
of this Section 3.1(b) that the date of termination of this Agreement is the
Closing Date).
(c) In the event that the Closing does not occur on or prior to the
close of business on June 22, 1998 for any reason in the control of the Company
or the Sellers not precipitated by the Purchaser and this Agreement is
terminated pursuant to Section 6.2, the Sellers shall pay the Purchaser a fee in
immediately available funds of $1,000,000; provided that the Purchaser has
performed or complied with all covenants and agreements required to be performed
or complied with on or prior to the date of termination of this Agreement and
the representations and warranties of the Purchaser as set forth in Section 2.2
above are true and correct as of such date.
(d) Any fee due pursuant to Section 3.1(b) or (c) (i) shall be paid
within five business days after the termination of this Agreement pursuant to
Section 6.2, (ii) is in addition to, and not in lieu of, any other remedies
available at law or equity for a breach of this Agreement prior to its
termination and (iii) shall be paid without deduction, set-off or counterclaim
of any kind.
SECTION 3.2. Conduct of Business. From the date of this Agreement until
the Closing Date, except as set forth in Section 3.2 of the Disclosure Schedule
or as otherwise consented to by the Purchaser in writing, the Sellers shall
cause the Company and Phoenix to operate their respective businesses only in the
ordinary course of business consistent with past practice. The Sellers shall use
all commercially reasonable efforts to cause the Company and Phoenix to preserve
intact the present organization of the Company and Phoenix; keep available
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the services of the present officers and employees of the Company and Phoenix;
preserve the Company's and Phoenix's goodwill and relationships with customers,
suppliers, licensors, licensees, contractors, distributors, lenders and other
persons having significant business dealings with the Company or Phoenix;
continue all current sales, marketing and other promotional policies, programs
and activities; maintain the assets of the Company and Phoenix in good repair,
order and condition; and maintain the Company's and Phoenix's insurance policies
and risk management programs and in the event of casualty, loss or damage to any
assets of the Company or Phoenix, repair or replace such assets with assets of
comparable quality, as the case may be. Without limiting the generality of the
foregoing, the Sellers shall not (and shall not permit the Company or Phoenix
to), without the prior written consent of the Purchaser, directly or indirectly
(i) cause or permit any state of affairs, action or omission described in
Section 2.1(f) (substituting $25,000 for $10,000 in clause (x) of Section 2.1(f)
for purposes of this Section 3.2), (ii) enter into or give any material waiver,
amendment or consent under the definitive purchase agreement between the Company
and Parnelli-Jones, or (iii) take, or agree in writing or otherwise to take, any
action which would make any representation or warranty of any Seller contained
in this Agreement untrue or incorrect as of the date when made or as of any
future date or which could prevent the satisfaction of any condition to closing
set forth in Article IV. The Sellers shall promptly notify the Purchaser if they
intend to take any action with respect to the acquisition of assets or
properties from Parnelli Jones that could reasonably be expected to be of
material interest to the Purchaser, and shall refrain from taking such actions
if the Purchaser so instructs (such instruction to be delivered within
twenty-four hours).
SECTION 3.3. Reasonable Efforts; Further Assurances. The Purchaser and
the Sellers each agree to use all commercially reasonable efforts to take, or
cause to be taken, all action, and to do, or cause to be done, all things
necessary and reasonably appropriate under applicable laws and regulations, to
consummate and make effective the transactions contemplated by this Agreement as
expeditiously as practicable and to ensure that the conditions set forth in
Article IV are satisfied, insofar as such matters are within the control of any
of them. In case at any time after the Closing Date, any further action is
necessary or desirable to carry out the purposes of this Agreement, each of the
parties to this Agreement shall take or cause to be taken all such necessary
action, including the execution and delivery of such further instruments and
documents, as may be reasonably requested by any party for such purposes or
otherwise to complete or perfect the transactions contemplated by this
Agreement.
SECTION 3.4. No Shopping. From the date of this Agreement until the
earlier of (i) the Closing Date and (ii) the date this Agreement is terminated
in accordance with Section 6.2, no Seller shall, and no Seller shall permit the
Company or Phoenix or any partner, director, officer or agent of the Company or
Phoenix to, directly or indirectly, solicit or initiate, enter into or conduct,
discussions concerning, or exchange information (including by way of furnishing
information concerning the Company or Phoenix or their respective businesses) or
enter into any negotiations concerning, or respond to any inquiries or solicit,
receive, entertain or agree to any proposals for, the acquisition of the assets
of, or any substantial part thereof (except for sales of inventory in the
ordinary course of the Company's or Phoenix's business), or a merger involving,
the Company or Phoenix or the transfer of all or a substantial part of the
capital stock of the Company or Phoenix to any person other than the Purchaser
or one of its affiliates or the formation of any joint venture or
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strategic alliance involving the Company or Phoenix. In addition, during such
time period, no Seller shall authorize, direct or knowingly permit any employee
or agent of the Company or Phoenix to do any of the foregoing and the Sellers
shall notify the Purchaser of the identity of any person who approaches any
Seller or the Company or Phoenix with respect to any of the foregoing.
SECTION 3.5. Access and Information.
(a) Access Prior to Closing. From the date of this Agreement until the
first to occur (i) of the Closing Date and (ii) the termination of this
Agreement in accordance with Section 6.2, the Sellers shall cause the Company
and Phoenix to permit the Purchaser, its financing parties and their respective
representatives to make such investigation of the business, operations and
properties of the Company and Phoenix as the Purchaser deems necessary or
desirable in connection with the transactions contemplated by this Agreement.
Such investigation shall include access to the respective directors, officers,
employees, agents and representatives (including legal counsel and independent
accountants) of the Company and Phoenix and the properties, books, records and
commitments of the Company and Phoenix. Sellers shall furnish the Purchaser and
its representatives with such financial, operating and other data and
information, and copies of documents with respect to the Company or Phoenix or
any of the transactions contemplated by this Agreement, as the Purchaser shall
from time to time request. Such access and investigation shall be coordinated
through Sellers (or Company representatives as designated by Sellers) and shall
occur only during periods reasonably determined by Sellers so as not to disrupt
the operations of the Company and Phoenix. Such access and information shall not
in any way affect or diminish any of the representations or warranties
hereunder. Without limiting the foregoing, during such period, Sellers shall
keep the Purchaser informed as to the business and operations of the Company and
Phoenix and shall consult with the Purchaser as appropriate. Notwithstanding
this Section 3.5, it is understood and agreed that the Sellers may refuse to
permit the Purchaser to commence employee interviews until the Purchaser has
notified the Sellers of its acceptance of the materials furnished pursuant to
Section 3.12(b).
(b) Confidentiality. Until Closing and at all times following the
termination of this Agreement pursuant to Section 6.2, the Purchaser and the
Sellers each agree that all financial or other information about the Purchaser,
the Company or any Seller, or other information of a confidential or proprietary
nature, disclosed to the other at any time in connection with the proposed
transaction shall be kept confidential by the party receiving such information
and shall not be disclosed to any person or used by the receiving party (other
than to its agents or employees, and, in the case of the Purchaser, its
financing parties which have been bound by confidentiality obligations similar
to those contained in this Section 3.5(b)), in connection with the transactions
contemplated by this Agreement) except: (i) with the prior written consent of
the disclosing party; (ii) as may be required by applicable law or court
process; (iii) such information which may have been acquired or obtained by
lawful means by such party (other than through disclosure by the other party in
connection with the transaction contemplated by this Agreement); or (iv) such
information which is or becomes generally available to the public other than as
a result of a violation of this provision.
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(c) Equitable Relief. The parties acknowledge that damages at law would
be an inadequate remedy for the breach by any party of Section 3.5(b), and agree
in the event of such breach that any non-breaching party may obtain temporary
and permanent injunctive relief restraining the breaching party from such
breach, and, to the extent permissible under applicable statutes and rules of
procedure, a temporary injunction may be granted immediately upon the
commencement of any such suit.
SECTION 3.6. Confidentiality; Non-Competition.
(a) Confidential Information. Each Seller recognizes and hereby
acknowledges that, as a stockholder and senior executive of the Company, he
knows of, and has been exposed to, confidential business information concerning
information, ideas, know how, trade secrets, processes, computer software,
methods, practices, techniques, technical plans, customer lists, pricing
techniques and information, marketing plans, financial information, and all
other compilations of information that relate to the business of the Company
Group and its current and prospective customers ("Confidential Information").
Each Seller recognizes and hereby acknowledges that such Confidential
Information is a valuable asset of the Company Group. Each Seller agrees to
safeguard such Confidential Information for the exclusive benefit of the members
of the Company Group and agrees that, after the Closing, he will not disclose,
distribute or publish such Confidential Information to any person, company,
business or corporation, provided that Confidential Information shall not
include information that is or becomes generally available to the public (other
than as a result of a disclosure in violation of this Agreement by such Seller
or by a person who received such information from such Seller in violation of
this Agreement). "Company Group" shall mean the Purchaser, the Company and their
respective subsidiaries and affiliates.
(b) Covenant Not To Compete. (i) Each Seller acknowledges and
recognizes his possession of Confidential Information and acknowledges and
recognizes the highly competitive nature of the business of the members of the
Company Group. Accordingly, in consideration of the Purchaser entering into this
Agreement, the transactions contemplated by this Agreement, the payments
specified in subsections (ii) and (iii) below and the premises contained herein,
each Seller agrees that, during the Covenant Period (defined below), such Seller
will not, for any reason whatsoever, either individually or as an officer,
director, stockholder, partner, agent or principal or another business or firm,
directly or indirectly (1) engage in the States of Arizona, California, New
Mexico, Nevada, Oregon, Utah and Washington in any Competing Business, (2)
divert, take away or solicit, or attempt to divert, take away or solicit any
businesses or individuals that were customers of the Company Group, (3) contact
or communicate with any employee of any member of the Company Group for the
purpose of inducing or otherwise encouraging such employee to terminate his or
her employment with such person, provided, however, that this Section 3.6(b)
shall not preclude such Seller from giving an employment reference at the
request of a prospective employer of such employee, or (4) assist others in
engaging in any of the foregoing actions described in clauses (1), (2) or (3)
above. "Covenant Period" means the five-year period commencing on the Closing
Date and ending on the fifth anniversary of the Closing Date. "Competing
Business" means any business that is competitive
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with the business of any member of the Company Group (including, without
limitation, the wholesale or retail tires or automotive parts businesses).
(ii) The covenant not to compete of the Sellers set forth in
Section 3.6(b)(i) is in further consideration of the payment by the Purchaser to
Arthur C. Soares ("Soares") of a Non-Compete Payment in an amount equal to
$6,500,000 payable in annual installments as follows: $500,000 on the first-year
anniversary of the Closing Date, $1,000,000 on the second-year anniversary of
the Closing Date, $1,670,000 on each of the third-year and fourth-year
anniversaries of the Closing Date, and $1,660,000 on the fifth-year anniversary
of the Closing Date. Notwithstanding the foregoing sentence, if the aggregate
amount of the Non-Compete Payment is reduced pursuant to Section 1.5, the
Non-Compete Payment payable to Soares shall be in an amount equal to $2,250,000
payable in installments as follows: $750,000 on each of the third-year,
fourth-year and fifth-year anniversaries of the Closing Date. The Purchaser
shall also pay Soares interest on the unpaid balance of such Non-Compete Payment
at a rate of 8% per annum for the period from and including the Closing Date to
but excluding the date payment is due under this Section 3.6. Such interest
payments shall be made annually at the same time as the payment of the annual
installment of such Non-Compete Payment. Soares acknowledges and agrees that the
Purchaser shall be entitled to set off or apply all or a portion of the unpaid
Non-Compete Payment (including the interest payments thereon) payable to Soares
against any obligations of Soares to the Purchaser or its affiliates now or
hereafter existing under Article V. In the event Purchaser intends to set-off
any amount payable to Soares under this Section 3.6 against any such
obligations, the Purchaser shall notify Soares no later than the date on which
such amount is payable.
(iii) The covenant not to compete of the Sellers set forth in
Section 3.6(b)(i) is in further consideration of the payment by the Purchaser to
Ray C. Barney ("Barney") of a Non-Compete Payment in an amount equal to $900,000
payable in installments as follows: $100,000 on the second-year anniversary of
the Closing Date, $200,000 on the third-year anniversary of the Closing Date,
and $300,000 on each of the fourth-year and fifth-year anniversaries of the
Closing Date. Notwithstanding the foregoing sentence, if the aggregate amount of
the Non-Compete Payment is reduced pursuant to Section 1.5, the Non-Compete
Payment payable to Barney shall be in an amount equal to $150,000 payable in
installments as follows: $50,000 on each of the third-year, fourth-year and
fifth-year anniversaries of the Closing Date. The Purchaser shall also pay
Barney interest on the unpaid balance of such Non-Compete Payment at a rate of
8% per annum for the period from and including the Closing Date to but excluding
the date payment is due under this Section 3.6. Such interest payments shall be
made annually at the same time as the payment of the annual installment of such
Non-Compete Payment. Barney acknowledges and agrees that the Purchaser shall be
entitled to set off or apply all or a portion of the unpaid Non-Compete Payment
(including the interest payments thereon) payable to Barney against any
obligations of Barney to the Purchaser or its affiliates now or hereafter
existing under Article V. In the event Purchaser intends to set-off any amount
payable to Barney under this Section 3.6 against any such obligations, the
Purchaser shall notify Barney no later than the date on which such amount is
payable.
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(iv) Any amount payable by the Purchaser to either Seller
pursuant to this Section 3.6 and not paid when due shall bear interest, payable
on demand, for each day from and including the date payment thereof was due to
but excluding the date of actual payment at a rate of 10% per annum.
(v) The Purchaser agrees on or prior to the Closing to use all
commercially reasonable efforts to arrange for security for the Non-Compete
Payments on terms and conditions reasonably satisfactory to each Seller and to
execute and deliver or obtain such security agreements, letters of credit or
other documents and instruments in favor of the Sellers as are necessary in
connection therewith.
(c) Enforceability. It is the desire and intent of the parties hereto
that the provisions of this Section 3.6 shall be enforced to the fullest extent
permissible under the laws and public policies applied in each jurisdiction in
which enforcement is sought. Accordingly, although the Sellers and the Purchaser
consider the restrictions contained in this Section 3.6 to be reasonable for the
purposes of preserving the Company's goodwill and proprietary rights, if any
particular provision of this Section 3.6 shall be adjudicated to be invalid or
unenforceable, such provision shall be deemed amended to delete therefrom the
portion thus adjudicated to be invalid or unenforceable, such deletion to apply
only with respect to the operation of such provision in the particular
jurisdiction in which such adjudication is made. It is expressly understood and
agreed that, although the Sellers and the Purchaser consider the restrictions
contained in Section 3.6 to be reasonable, if a final determination is made by a
court of competent jurisdiction that the time or territory or any other
restriction contained in this Section 3.6 is unenforceable against any Seller,
the provisions of this 3.6 shall be deemed amended to apply as to such maximum
time and territory and to such maximum extent as such court may judicially
determine or indicate to be enforceable.
(d) Remedies. The parties acknowledge that the Purchaser's damages at
law would be an inadequate remedy for the breach by any Seller of any provision
of this Section 3.6, and agree in the event of such breach that the Purchaser
may obtain temporary and permanent injunctive relief restraining such Seller
from such breach, and, to the extent permissible under the applicable statutes
and rules of procedure, a temporary injunction may be granted immediately upon
the commencement of any such suit. Nothing contained in this Agreement shall be
construed as prohibiting the Purchaser from pursuing other remedies available at
law or equity for such breach or threatened breach of this Section 3.6 of this
Agreement. Without limiting the generality of the foregoing, the Sellers
acknowledge that, in the event of a breach or threatened breach by any Seller of
any of the provisions of subsection (b) of this Section 3.6, the Purchaser's
damages may exceed the amount paid to the Sellers (singly or in the aggregate)
in consideration of their covenants set forth in such paragraph (b).
(e) Acknowledgment. Each Seller acknowledges that he is entering into
the covenants contained in this Section 3.6, inter alia, due to his position,
prior to the Closing Date, as a stockholder of the Company.
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SECTION 3.7. Releases; Prior Compensation. Each Seller will agree and
acknowledge, effective upon the Closing, that such Seller has been paid in full
for all services rendered to the Company and Phoenix and has no outstanding
claims against the Company or Phoenix or the Purchaser for any amounts arising
because of such employment or otherwise except as contemplated by this Agreement
or by the employment agreements referred to in Section 4.1(i). Each Seller
agrees to release, effective as of the Closing Date, the Company and all of the
Company's subsidiaries and affiliates from all rights such Seller may have to
acquire any securities of the Company or any of its subsidiaries and affiliates
and all actions, suits, debts, promises, agreements, damages, demands or claims
of any kind whatsoever arising from any event or action prior to the Closing
Date that any Seller had, has or may in the future have against the Company or
any of its subsidiaries and affiliates (including, without limitation, all
claims or rights either of the Sellers may have at any time as a result of the
failure to take any action described in Section 2.1(c) of the Disclosure
Schedule), except for the matters arising under this Agreement or related to the
transactions contemplated hereby.
SECTION 3.8. Public Announcements. The Purchaser, on the one hand, and
the Sellers, on the other hand, will consult with each other before issuing, and
provide each other the opportunity to review and comment upon, any press release
or other public statements with respect to the transactions contemplated by this
Agreement, and shall not issue any such press release or make any such public
statement prior to such consultation.
SECTION 3.9. Tax Matters.
(a) Transfer Taxes. The Sellers shall be responsible for all transfer,
excise, stamp, sales, use, recording or similar taxes or fees arising out of the
sale, transfer, conveyance or assignment of the Shares by the Sellers and the
transactions contemplated hereby.
(b) Responsibility for Company Taxes.
(i) Notwithstanding any other provision of this Agreement
(including, without limitation, Section 5.1), in the event that the Closing
occurs, the Sellers shall be liable for and shall indemnify the Purchaser and
the Company for taxes of the Company and Phoenix for any taxable years or
periods that end on or before the Closing Date and, with respect to any taxable
years or periods beginning before and ending after the Closing, the portion of
such taxable years ending on and including the Closing Date but only to the
extent such taxes exceed the aggregate amount accrued (to the extent such
accruals are consistent with past practice) for taxes on the Closing Date
Balance Sheet.
(ii) In the event that the Closing occurs, the Purchaser and
the Company and Phoenix shall be liable for and shall indemnify the Sellers for
taxes of the Company and Phoenix for any taxable years or periods that begins
after the Closing Date and, with respect to any taxable years or periods
beginning before and ending after the Closing, the portion of the taxable years
beginning on the day after the Closing Date.
(iii) For purposes of subparagraphs (b)(i) and (b)(ii) above,
whenever it is necessary to determine the liability for taxes of the Company or
Phoenix for a portion of a taxable year or
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period that begins before and ends after the Closing Date, the determination of
such taxes for the portion of the year or period ending on, and the portion of
the year or period beginning after, the Closing Date, shall be determined by
assuming that the Company or Phoenix had a taxable year or period which ended at
the close of business on the Closing Date, except that exemptions, allowances or
deductions that are calculated on an annual basis, such as the deduction for
depreciation, shall be apportioned based on the number of days in the year
elapsed to and including the Closing Date.
(c) Tax Treatment. Any payment by the Purchaser or any Seller under
this Section 3.9 will be treated for tax purposes as an adjustment (an increase
or a reduction) to the Purchase Price.
(d) Filing of Returns. All tax returns with respect to the Company and
Phoenix (i) shall, to the extent required to be filed on or before the Closing
Date (taking into account any valid extensions), be caused by the Sellers to be
filed by the Company or Phoenix when due in accordance with all applicable laws
and (ii) shall, as of the time of filing, correctly reflect in all material
respects the facts regarding the income, business, assets, operations,
activities and status of the Company or Phoenix, as applicable, and any other
information required to be shown therein.
(e) Cooperation in Tax Matters.
After the Closing Date, the Purchaser and each Seller shall:
(i) assist in all reasonable respects (and cause their
respective affiliates to assist) the other party in preparing any tax
returns or reports which such other party is responsible for preparing
and filing in accordance with this Section 3.9;
(ii) cooperate in all reasonable respects in preparing for any
audits of, or disputes with taxing authorities regarding, and tax
returns of the Company or Phoenix;
(iii) make available to the other and to any taxing authority
as reasonably requested all information, records and documents relating
to taxes of the Company or Phoenix;
(iv) provide timely notice to the other in writing of any
pending or threatened tax audit or assessments of the Company or
Phoenix for taxable periods for which the other may have a liability
under this Section 3.9; and
(v) furnish the other with copies of all correspondence
received from any taxing authority in connection with any tax audit or
information request with respect to any such taxable period.
(f) Tax Audits and Assessments.
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(i) The Purchaser shall notify the Sellers in writing upon
receipt by the Purchaser or the Company or Phoenix of notice of any pending or
threatened Federal, state, local or foreign tax audits or assessments which may
materially affect the tax liabilities of the Company or Phoenix for which the
Sellers would be required to indemnify the Purchaser and the Company or Phoenix.
The Sellers shall have the right to participate in the resolution of any such
tax audit or assessment.
(ii) The Sellers shall notify the Purchaser in writing upon
receipt by any of the Sellers of notice of any pending or threatened federal,
state, local or foreign tax audits or assessments which may materially affect
the tax liabilities of the Company or Phoenix for which the Purchaser and the
Company or Phoenix would be required to indemnify the Sellers. The Purchaser
shall have the right to participate in the resolution of any such tax audit or
assessment.
(g) Activities between Signing and Closing. From the date hereof until
the Closing, without the prior written consent of Purchaser, neither the Company
nor Phoenix shall make or change any tax election, change any annual tax
accounting period, adopt or change any method of tax accounting, file any
amended tax return, enter into any closing agreement, settle any tax claim or
assessment, surrender any right to claim a tax refund, consent to any extension
or waiver of the limitations period applicable to any tax claim or assessment or
take or omit to take any other action, if any such other action or omission
would have the effect of materially increasing the tax liability of the Company
or Phoenix.
(h) Payment of Pre-Closing Date Taxes. All taxes that are not due and
payable on or prior to the Closing Date but which relate to a tax period ending
on or prior to the Closing Date shall be paid by Seller when due but only to the
extent such taxes exceed the amount accrued (to the extent such accruals are
consistent with past practice) on the Closing Date Balance Sheet.
SECTION 3.10. Fresno Warehouse. On or prior to the Closing Date, the
Sellers shall have the right, at their option, to (i) cause the Company to sell
to the Sellers the premises known as 5333 North Cornelia Ave., Fresno,
California (the "Fresno Warehouse") and (ii) enter into a long-term lease with
the Company relating to the continued use and occupation by the Company of the
Fresno Warehouse, in each case pursuant to definitive documentation in form and
substance reasonably satisfactory to the Purchaser containing the terms and
conditions set forth in Exhibit D. In the event that any taxes, charges or fees
are payable by the Company in connection with the transfer of the Fresno
Warehouse to the Sellers (including, without limitation, in connection with the
repayment or assumption of any indebtedness relating to the Fresno Warehouse) or
such transfer has an adverse effect on the earnings of the Company, the Sellers
shall pay to the Company any additional amounts necessary for the Company to be
in the same economic position (after taking into account any taxes imposed as a
result of the payment of such additional amounts) as if such taxes, charges or
fees had not been imposed or such adverse effect had not occurred.
SECTION 3.11. Additional Adjustment Amount.
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(a) Management of the Company and the Arizona Business. The Purchaser
agrees that the Sellers shall be given the opportunity, during the period
beginning on the Closing Date and ending on the first-year anniversary of the
Closing Date (the "Management Period"), to manage the Company and the Arizona
Business, subject only to (i) the exercise of reasonable and prudent business
judgment on the part of each Seller, (ii) the terms of the employment agreements
between the Company and each Seller and (iii) the fiduciary duties of the
members of the Board of Directors of the Purchaser. It is the intent of the
parties to this Agreement that the Sellers be given broad managerial discretion
and responsibility within the Company Group during the Management Period for
decisions affecting the Company and the Arizona Business, including those
affecting earnings and profitability. The Sellers shall promptly notify the
Purchaser in writing in the event they believe that any corporate-level decision
made during the Management Period could reasonably be expected to have an net
adverse impact on the earnings and profitability of the Company or the Arizona
Business, such notice to set forth in reasonable detail the basis for the
Sellers' belief. The Purchaser and the Sellers agree to negotiate in good faith
to make appropriate adjustments to the EBITDA of the Arizona Business (when
calculating the Additional Adjustment Amount, as defined below) and the EBITDA
of the Company (when calculating the Synergy Bonus and Incentive Bonus, each as
defined in the employment agreements between the Company and each Seller) to the
extent such decision has a net negative effect on EBITDA of the Arizona Business
or the Company, as applicable.
(b) Additional Adjustment Amount. An Additional Adjustment Amount
relating to the Arizona Business shall be payable by the Purchaser to the
Sellers in accordance with Section 3.11(c). "Additional Adjustment Amount" shall
mean an amount (to be calculated by the Purchaser within 30 days following the
end of the Management Period) equal to (i) the product of (A) the earnings
before interest, taxes, depreciation and amortization ("EBITDA") of the Arizona
Business during the Management Period and (B) 6.0, minus (ii) the aggregate
purchase price paid by the Company for the Arizona Business, minus (iii) the
amount of any additional costs or expenses incurred, or purchase price payable,
by the Company, in connection with the acquisition of the Arizona Business
(including amounts reserved against such costs, expenses or payments). For
purposes of calculating the Additional Adjustment Amount, (x) the Purchaser
shall account for the Arizona Business on a stand-alone basis using the
accounting principles applied in preparing the Closing Date Balance Sheet and
(y) no corporate-level overhead costs incurred by the Purchaser shall be
allocated to the Arizona Business.
(c) Payment. If the Additional Adjustment Amount with respect to the
Arizona Business is less than zero, the Purchaser shall be entitled to set off
or apply all or a portion of any such Additional Adjustment Amount against the
Non-Compete Payments due to the Sellers under Section 3.6. Any such set-off
shall be made pro rata in proportion to the Sellers' ownership of Shares on the
Closing Date as set forth on Annex A. If the Additional Adjustment Amount with
respect to the Arizona Business is greater than zero, the Purchaser shall pay
such Additional Adjustment Amount to the Sellers as an addition to the Purchase
Price within 30 days following the calculation of such Additional Adjustment
Amount in accordance with Section 3.11(b). Any Additional Adjustment Amount
payable to the Sellers shall be payable in cash or, at the election of any
Seller, (i) in shares of common stock of the Purchaser having a fair market
value equal to such Additional Adjustment Amount or (ii) options or warrants to
acquire the
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number of shares of common stock of the Purchaser referred to in clause (i). Any
Additional Adjustment Amounts payable to the Sellers shall be allocated among
the Sellers in proportion to their ownership of Shares on the Closing Date as
set forth on Annex A.
SECTION 3.12. Additional Information.
(a) Delivery of Final Disclosure Schedule. (i) As soon as practicable,
but in no event more than seven days, after the date of this Agreement, the
Sellers shall deliver to the Purchaser and its representatives a final draft of
the Disclosure Schedule (as of the date of this Agreement) (the "Final Draft
Disclosure Schedule"), together with true and complete copies of all documents
and information relating to any item set forth on such Final Draft Disclosure
Schedule which the Purchaser and its representatives have not had the
opportunity to review as of the time of such delivery. The Sellers shall
promptly furnish any other supporting documents or information reasonably
necessary to verify the disclosures made on the Final Draft Disclosure Schedule
which may be requested by the Purchaser after the date of delivery of the Final
Draft Disclosure Schedule. Delivery of such documents and information shall in
no way limit the Sellers' obligations under Section 3.5(a).
(ii) On or before the fourteenth day from and after delivery
of the Final Draft Disclosure Schedule and all supporting documentation referred
to in the first two sentences of Section 3.12(a)(i), the Purchaser shall inform
the Sellers in writing whether the Final Draft Disclosure Schedule is acceptable
to the Purchaser. The Purchaser shall have the opportunity to request
modifications to the Final Draft Disclosure Schedule during such fourteen-day
period, and the Purchaser and the Sellers shall attempt in good faith to resolve
any disputes regarding the Final Draft Disclosure Schedule. If as of such
fourteenth day the Purchaser has not informed the Sellers in writing that the
Final Draft Disclosure Schedule is acceptable, this Agreement shall terminate
forthwith with no liability or obligations whatsoever from any party to any
other party hereto. It is understood and agreed that the Purchaser may deem the
Final Draft Disclosure Schedule acceptable or unacceptable in its sole
discretion, and may elect to terminate this Agreement as set forth in this
Section 3.12(a)(ii) for any reason or no reason.
(iii) If the Purchaser does not elect to terminate this
Agreement as set forth in Section 3.12(a)(ii), the Final Draft Disclosure
Schedule (as modified through and including the date of acceptance by the
Purchaser by mutual agreement of the Purchaser and the Sellers) shall be deemed
for all purposes of this Agreement to be the Disclosure Schedule as of the date
of this Agreement. Notwithstanding anything contained in this Section 3.12(a),
any modification, supplement or amendment to the Final Draft Disclosure Schedule
that arises from or relates to facts, events or circumstances occurring after
the date of this Agreement shall not be deemed to be a part of the Disclosure
Schedule as of the date accepted by the Purchaser but shall be deemed to be a
supplement or amendment to the Disclosure Schedule made pursuant to Section
3.12(c).
(b) Phase III Materials. Promptly upon the Purchaser's request, but in
no event more than five days after the date the Disclosure Schedule has been
accepted by the Purchaser pursuant to Section 3.12(a), the Sellers shall deliver
to the Purchaser and its representatives true and complete copies of all
documents and information relating to the items described in Section
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2.1(u) of the Disclosure Schedule. Delivery of such documents and information
shall in no way limit the Sellers' obligations under Section 3.5(a).
(c) Disclosure Supplements. Each Seller shall have the continuing
obligation until the Closing promptly to supplement or amend the Disclosure
Schedule with respect to any matter hereafter arising or discovered which, if
existing or known at the date of this Agreement, would have been required to be
set forth or described in the Disclosure Schedule (a "Subsequent Development");
provided, that (i) if the Purchaser is notified by way of any such supplement or
amendment of a Subsequent Development that occurs or arises after the date of
this Agreement and the Closing thereafter occurs, then all rights of the
Purchaser to seek indemnification pursuant to Section 5.1(a)(i) based upon a
breach of representation or warranty caused by such Subsequent Development shall
be deemed to have been waived, and (ii) no supplement or amendment to the
Disclosure Schedule delivered to the Purchaser shall have any effect for the
purpose of determining whether the condition set forth in Section 4.1(b) has
been satisfied unless such supplement or amendment has previously been accepted
in writing by the Purchaser.
ARTICLE IV
CONDITIONS PRECEDENT
SECTION 4.1. Conditions to Obligations of the Purchaser. The
obligations of the Purchaser to perform this Agreement are subject to the
satisfaction of each of the following conditions unless waived on or prior to
the Closing Date by the Purchaser:
(a) Authorization. All actions necessary to authorize the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated by this Agreement shall have been duly and validly
taken by each of the Sellers and each of the Sellers shall have full power and
authority to enter into and deliver this agreement and to consummate the
transactions contemplated by this Agreement.
(b) Representations, Warranties and Covenants. The representations and
warranties of the Sellers shall be true and correct in all respects as of the
date of this Agreement and as of the Closing Date as if made on and as of the
Closing Date; provided, that the foregoing condition shall be deemed to have
been satisfied if the facts, events or circumstances underlying any inaccuracies
in any such representations and warranties as of the Closing Date (without
giving effect to any material adverse effect qualification or any other
materiality or similar qualifications contained therein) individually or in the
aggregate could not reasonably be expected to have a material adverse effect on
the condition (financial or otherwise), assets, liabilities, operations,
business or prospects of the Company and Phoenix (taken as a whole). The Sellers
shall have performed and complied with all covenants and agreements required to
be performed or complied with on or prior to the Closing Date. As of the Closing
Date, there shall have been no material adverse change in the condition
(financial or otherwise), assets, liabilities, operations, business or prospects
of the Company and Phoenix (taken as a whole).
(c) Consents, Amendments and Terminations. The Purchaser shall have
received duly executed and delivered copies of all waivers, consents,
terminations and approvals listed in
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Section 2.1(d) of the Disclosure Schedule, all in form and substance reasonably
satisfactory to the Purchaser.
(d) Certificates. The Purchaser shall have received a certificate of
the chief executive officer and the chief financial officer of the Company and a
certificate of each Seller, each in substantially the form of Exhibits A-1 and
A-2, respectively.
(e) Opinion of Counsel. The Purchaser shall have received the opinion
dated the Closing Date of counsel to the Sellers and the Company, in
substantially the form of Exhibit B.
(f) Financial Statements. The Purchaser shall have received a balance
sheet of the Company and related statements of income and retained earnings and
cash flows for the most recent month end prior to the Closing Date (the "Closing
Date Financial Statement"), certified by the chief executive officer and chief
financial officer of the Company.
(g) Due Diligence. The Purchaser and its representatives shall have
completed a due diligence review of the condition (financial or otherwise),
assets, liabilities, operations and business of, and any other matters relating
to, the Company and Phoenix and the Sellers, and the results of such due
diligence shall be satisfactory to the Purchaser; provided, that the condition
set forth in this Section 4.1(g) shall be deemed to have been satisfied unless
the Purchaser notifies the Sellers in writing within five business days after
the date all materials required to be delivered to the Purchaser pursuant to
Section 3.12(b) have been delivered that such materials are not substantially as
represented to the Purchaser in Section 2.1(u).
(h) Financing. The Purchaser shall have received adequate financing to
consummate the transactions contemplated by this Agreement, all on terms
satisfactory to the Purchaser.
(i) Employment Agreements. Each of Arthur C. Soares, Ray C. Barney and
Elizabeth Roberts shall have duly executed and delivered to the Purchaser
Employment Agreements in substantially the forms of Exhibits C-1, C-2 and C-3,
respectively.
(j) Corporate Directors and Officers. At the request of Purchaser, the
Purchaser shall have received the resignations (effective upon Closing) of the
officers and directors of the Company so requested to resign.
(k) Share Certificates and Corporate Records. The Purchaser shall have
received certificates representing all of the Shares, together with stock powers
duly endorsed in blank and the Purchaser shall have received the complete stock
ledgers, minute books and similar corporate records of the Company.
(l) HSR Act. The waiting period (and any extension thereof) applicable
to the transactions contemplated by this Agreement under the HSR Act shall have
been terminated or shall have expired.
(m) No Legal Bar. No action or proceeding by or before any governmental
authority or agency shall be pending or threatened challenging or seeking to
restrain or prohibit any of the
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transactions contemplated by this Agreement. No statute, rule, regulation,
executive order, decree, temporary restraining order, preliminary injunction,
permanent injunction or other order enacted, entered, promulgated, enforced or
issued by any governmental authority or agency or other legal restraint or
prohibition preventing the transactions contemplated by this Agreement shall be
in effect.
(n) Releases. The Purchaser shall have received a release from each
Seller effective upon the Closing with respect to all matters set forth in
Section 3.7, each in form and substance satisfactory to the Purchaser.
(o) Other Documents. The Purchaser shall have received such other
customary documents, certificates or instruments as it may reasonably request.
SECTION 4.2. Conditions of Obligations of the Sellers. The obligations
of the Sellers to perform this Agreement are subject to the satisfaction of each
of the following conditions unless waived on or prior to the Closing Date by all
of the Sellers:
(a) Authorization. All actions necessary to authorize the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated by this Agreement shall have been duly and validly
taken by the Purchaser and the Purchaser shall have full power and authority to
enter into and deliver such agreements and to consummate transactions
contemplated by this Agreement.
(b) Representations, Warranties and Covenants. The representations and
warranties of the Purchaser contained herein shall be true and correct in all
respects as of the date of this Agreement and as of the Closing Date as if made
on and as of the Closing Date, and the Purchaser shall have performed and
complied with all covenants and agreements required to be performed or complied
with on or prior to the Closing Date.
(c) Certificate. The Sellers shall have received a certificate of the
President or a Vice President of the Purchaser confirming the matters set forth
in Section 4.2(b) in form and substance reasonably satisfactory to the Sellers.
(f) Employment Agreements. Each of Arthur C. Soares, Ray C. Barney and
Elizabeth Roberts shall have duly executed and delivered to the Purchaser
Employment Agreements in substantially the forms of Exhibits C-1, C-2 and C-3,
respectively
(g) HSR Act. The waiting period (and any extension thereof) applicable
to the transactions contemplated by this Agreement under the HSR Act shall have
been terminated or shall have expired.
(h) No Legal Bar. No action or proceeding by or before any governmental
authority or agency shall be pending or threatened challenging or seeking to
restrain or prohibit any of the transactions contemplated by this Agreement. No
statute, rule, regulation, executive order, decree, temporary restraining order,
preliminary injunction, permanent injunction or other order enacted, entered,
promulgated, enforced or issued by any governmental authority or agency or
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other legal restraint or prohibition preventing the transactions contemplated by
this Agreement shall be in effect.
(i) Other Documents. The Sellers shall have received such other
customary documents, certificates or instruments as it may reasonably request.
ARTICLE V
INDEMNITY
SECTION 5.1. Indemnification.
(a) Indemnification by Sellers. The Sellers jointly and severally
indemnify and hold harmless the Purchaser and its affiliates, directors,
officers, employees and other agents and representatives from and against any
and all liabilities, judgments, claims, settlements, losses, damages, lost
profits, diminutions in value, fees, liens, taxes, penalties, obligations and
expenses (collectively, "Losses") incurred or suffered by any such person
arising from, by reason of or in connection with:
(i) any misrepresentation or breach of any representation,
warranty, covenant or agreement of any Seller contained in this
Agreement or any certificate or other document delivered by any Seller
or the Company under this Agreement;
(ii) the non-fulfillment by any Seller of any agreement made
by such Seller in this Agreement; or
(iii) any and all actions, suits, proceedings, demands,
judgments, costs and legal and other expenses incident to any of the
matters referred to in clauses (i) through (ii) of this Section 5.1(a).
(b) Indemnification by Purchaser. The Purchaser indemnifies and holds
harmless the Sellers, and their respective agents and representatives, from and
against any and all Losses incurred or suffered by any such person arising from,
by reason of or in connection with:
(i) any misrepresentation or breach of any representation,
warranty, covenant or agreement of the Purchaser contained in this
Agreement or any certificate or other document delivered by the
Purchaser under this Agreement;
(ii) the non-fulfillment by the Purchaser of any agreement
made by it in this Agreement; or
(iii) any and all actions, suits, proceedings, demands,
judgments, costs and legal and other expenses incident to any of the
matters referred to in clauses (i) through (ii) of this Section 5.1(b).
(c) Indemnification Procedures. In case any claim or litigation which
might give rise to any obligation of a party under the indemnity and
reimbursement provisions of this Agreement
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(each an "Indemnifying Party") shall come to the attention of the party seeking
indemnification hereunder (the "Indemnified Party"), the Indemnified Party shall
notify in writing promptly the Indemnifying Party of the existence, nature and
amount of potential loss. Failure to give such notice shall not prejudice the
rights of the Indemnified Party, except to the extent that the Indemnifying
Party shall have been materially prejudiced by such failure. With respect to
claims or litigation concerning third parties, the Indemnifying Party shall be
entitled to participate in and, if (i) in the judgment of the Indemnified Party
such claim can properly be resolved by money damages alone and the Indemnifying
Party has the financial resources to pay such damages and (ii) the Indemnifying
Party admits that this indemnity fully covers the claim or litigation, the
Indemnifying Party shall be entitled to direct the defense of any claim at its
expense, but such defense shall be conducted by legal counsel reasonably
satisfactory to the Indemnified Party. The parties shall cooperate in all
reasonable respects in the preparation and conduct of any such defense,
including making available (upon reasonable notice and during normal business
hours) to the other party and legal counsel books and records of such party
relevant to such defense. No Indemnifying Party in the defense of any third
parties claim or litigation shall, except with the consent of each Indemnified
Party, consent to entry of any judgment or enter into any settlement which (i)
contains any equitable order, judgment or term that affects, restrains or
interferes with the business of an Indemnified Party and (ii) does not include
as an unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect of such claim or
litigation.
(d) Tax Benefits. The amount of any and all Losses for which
indemnification is provided pursuant to this Article V shall be (i) increased to
take account of any net tax cost incurred by the Indemnified Party arising from
the receipt of indemnity payments hereunder ("grossed-up" for taxes on such
increase) and (ii) reduced to take account of any net tax benefit realized by
the Indemnified Party arising from the incurrence or payment of any such Losses.
In computing the amount of any such tax cost or tax benefit, the Indemnified
Party shall be deemed to recognize all other items of income, gain, loss,
deduction or credit before recognizing any item arising from the receipt of any
indemnity payment hereunder or the incurrence or payment of any and all Losses.
(e) Insurance Proceeds. The amount of any and all Losses for which
indemnification is provided pursuant to this Article V shall be net of any
amounts actually received by the Indemnified Party under insurance policies with
respect to such Losses. In the event that any claim for indemnification asserted
under this Article V is, or may be, the subject of the Company's or any party's
hereto insurance coverages or other right to indemnification or contribution
from any third party (a "Third Party Contributor"), the Indemnified Party agrees
to promptly notify the applicable insurance carrier of such claim and tender
defense thereof to such carrier, and shall also promptly notify any potential
Third Party Contributor. Each Indemnified Party agrees to pursue, at the sole
cost and expense of the Indemnifying Party, such claims diligently and to
reasonably cooperate, at the sole cost and expense of the Indemnifying Party,
with each such insurance carrier and Third Party Contributor, and to make no
claim for indemnification under this Article V for a period of 180 days after
making a claim for such insurance or contribution. If insurance coverage or
contribution is denied (in whole or in part), or if no resolution of an
insurance or contribution claim shall have occurred within such 180 days, the
Indemnified Party may proceed for indemnification
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under this Article V, and such Indemnifying Party shall be subrogated to the
rights of the Indemnified Party against such insurance carrier or Third Party
Contributor.
(f) Treatment of Payments. Any payment made pursuant to this Section
5.1 shall be treated as an adjustment to the Purchase Price for income tax
purposes.
SECTION 5.2. Limitations.
(a) Expiration Date. The indemnification and reimbursement obligations
hereunder shall expire on the second anniversary of the Closing Date (the
"Expiration Date"), except (i) as to any claims for, or any claims that may
result in, any Loss for which indemnity may be sought hereunder of which the
Indemnifying Party has received written notice from the Indemnified Party on or
before the Expiration Date or (ii) as to any representations, warranties,
covenants or agreements expressly surviving such two year period as set forth in
Section 6.6.
(b) Cap. The total indemnification obligations of the Sellers (other
than for claims relating to or arising out of Section 1.4, Section 2.1(b), (c),
(o) or (s), Section 3.1, Section 3.6, Section 3.7, Section 3.9, Section 3.10 or
Section 3.11 (collectively, the "Purchaser Excluded Claims")) to the Purchaser
pursuant to this Article V shall not exceed (i) for all Sellers in the aggregate
$9,000,000 and (ii) for each Seller an amount equal to the product of (x)
$9,000,000 and (y) the quotient obtained by dividing (1) the number of Shares
owned by such Seller as specified on Annex A by (2) 14,118. Notwithstanding
anything to the contrary set forth in this Agreement, the indemnification
obligations of the Sellers to the Purchaser with respect to Purchaser Excluded
Claims shall not count towards, or be subject to, the limitations set forth in
the first sentence of this paragraph (b) or the $250,000 threshold set forth in
Section 5.2(c), and there shall be no limitation on such indemnification
obligations. The total indemnification obligations of the Purchaser (other than
for claims relating to or arising out of Section 2.2(b), Section 3.1, Section
3.6(b)(ii), Section 3.6(b)(iii), Section 3.9 or Section 3.11) to the Sellers
pursuant to this Article V shall not exceed in the aggregate $9,000,000.
(c) Threshold. The Purchaser shall not be entitled to indemnification
pursuant to this Article V with respect to any claim for indemnification (other
than in connection with Purchaser Excluded Claims), unless the aggregate Losses
to the Purchaser, with respect to all claims for indemnification pursuant to
Section 5.1(a), exceed $250,000, in which case the Sellers shall be obligated,
subject to the limitations set forth in paragraph (b) of this Section 5.2, to
pay an amount equal to all such Losses (including such first $250,000). The
Sellers shall not be entitled to indemnification pursuant to this Article V with
respect to any claim for indemnification (other than claims relating to or
arising out of Section 2.2(b), Section 3.1, Section 3.6(b)(ii), Section
3.6(b)(iii), Section 3.9 or Section 3.11), unless the aggregate Losses to the
Sellers, with respect to all claims for indemnification pursuant to Section
5.1(c), exceeds $250,000, in which case the Purchaser shall be obligated,
subject to the limitations set forth in paragraph (b) of this Section 5.2, to
pay an amount equal to all such Losses (including such first $250,000).
(d) Sole Remedy. If the Closing occurs, and except for the Purchaser's
rights of set-off contained in Sections 3.6(b)(ii) and (iii) and 3.11(c), the
provisions of this Article V shall represent the sole remedy available to any
party hereto for a claim for money damages arising from,
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by reason of or in connection with any misrepresentation or breach or
non-fulfillment of any representation, warranty, covenant or agreement contained
in this Agreement or otherwise.
(e) Several Liability; Certain Representations. Notwithstanding any
provision in this Agreement to the contrary, (i) the representations and
warranties made in Sections 2.1(b) and 2.1(d) (but only to the extent Section
2.1(d) relates to agreements binding on, legal requirements applicable to, and
properties or assets of, any Seller) are hereby deemed to be made by each Seller
severally in proportion to such Seller's ownership of Shares on the Closing Date
and not jointly and severally by the Sellers and (ii) the representation and
warranty made in Section 2.1(c) is hereby deemed for purposes of this Article V
to have been made without reference to any matter described in Section 2.1(c) of
the Disclosure Schedule.
SECTION 5.3. No Election. Subject to Section 5.2(d), nothing contained
in this Article V shall be deemed an election of remedies under this Agreement
or limit in any way the liability of any party under any other agreement to
which such party is a party relating to this Agreement or the transactions
contemplated by this Agreement.
ARTICLE VI
MISCELLANEOUS
SECTION 6.1. Entire Agreement. This Agreement and the Employment
Agreements and the schedules, annexes and exhibits hereto and thereto contain
the entire agreement among the parties with respect to the transactions
contemplated by this Agreement and the Employment Agreements and supersede all
prior agreements or understandings among the parties. The Letter of Intent,
dated December 5, 1997, is expressly superseded, void and no longer of any force
or effect.
SECTION 6.2. Termination. (a) This Agreement shall terminate on the
first to occur of any of the following events:
(i) the mutual written agreement of the Purchaser and the
Sellers;
(ii) by written notice of the Purchaser, on one hand, or the
Sellers, on the other hand, to the other, if the Closing shall not have
occurred prior to the close of business on June 22, 1998;
(iii) by written notice of the Purchaser to the Sellers, in
the event any Seller shall have materially breached any of its
representations, warranties or agreements contained in this Agreement
if such Seller fails to cure such breach within five business days
following notification thereof by the Purchaser;
(iv) by written notice of the Sellers to the Purchaser, in the
event the Purchaser shall have materially breached any of its
representations, warranties or agreements contained in this Agreement
if the Purchaser fails to cure such breach within five business days
following notification thereof by the Sellers; or
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(v) by written notice of the Purchaser to the Sellers, as set
forth in Section 3.12(a)(ii).
(b) Nothing in this Section shall relieve any party of any liability
for a breach of this Agreement prior to its termination. Except as aforesaid,
upon the termination of this Agreement, all rights and obligations of the
parties under this Agreement shall terminate, except their obligations under
Sections 3.1, 3.5(b) and 3.8.
SECTION 6.3. Descriptive Headings; Certain Interpretations. (a)
Descriptive headings are for convenience only and shall not control or affect
the meaning or construction of any provision of this Agreement.
(b) Whenever any party makes any representation, warranty or other
statement to such party's knowledge, such party will be deemed to have made due
inquiry into the subject matter of such representation, warranty or other
statement.
(c) Except as otherwise expressly provided in this Agreement, the
following rules of interpretation apply to this Agreement: (i) the singular
includes the plural and the plural includes the singular; (ii) "or" and "any"
are not exclusive and "include" and "including" are not limiting; (iii) a
reference to any agreement or other contract includes permitted supplements and
amendments; (iv) a reference to a law includes any amendment or modification to
such law and any rules or regulations issued thereunder; (v) a reference to a
person includes its permitted successors and assigns; (vi) a reference to
generally accepted accounting principles refers to United States generally
accepted accounting principles; and (vii) a reference in this Agreement to an
Article, Section, Annex, Exhibit or Schedule is to the Article, Section, Annex,
Exhibit or Schedule of this Agreement.
SECTION 6.4. Notices. All notices, requests and other communications to
any party hereunder shall be in writing and sufficient if delivered personally
or sent by facsimile (with confirmation of receipt) or by registered or
certified mail, postage prepaid, return receipt requested, addressed as follows:
If to the Purchaser, to:
The J.H. Heafner Company, Inc.
814 East Main Street
P.O. Box 837
Lincolnton, NC 28093-0837
Facsimile: (704) 732-6480
Attention: President
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with a copy to:
Howard, Darby & Levin
1330 Avenue of the Americas
New York, New York 10019
Facsimile: (212) 841-1010
Attention: Scott F. Smith
If to any Seller, to the address or facsimile number of such Seller set
forth on the signature pages of this Agreement, with a copy to:
Jackson Tufts Cole & Black, LLP
60 South Market Street
10th Floor
San Jose, California 95113-2336
Facsimile: (408) 998-4889
Attention: Richard Scudellari
or to such other address or facsimile number as the party to whom notice is to
be given may have furnished to the other party in writing in accordance
herewith. Each such notice, request or communication shall be effective when
received or, if given by mail, when delivered at the address specified in this
Section or on the fifth business day following the date on which such
communication is posted, whichever occurs first.
SECTION 6.5. Counterparts. This Agreement may be executed in any number
of counterparts, and each such counterpart hereof shall be deemed to be an
original instrument, but all such counterparts together shall constitute but one
agreement.
SECTION 6.6. Survival. Except as set forth in 5.2, all representations
and warranties, agreements and covenants contained in this Agreement or in any
document delivered pursuant to this Agreement or in connection with this
Agreement (unless otherwise expressly provided) shall survive the Closing and
shall remain in full force and effect until the Expiration Date; provided that
the representations and warranties in Section 2.1(a), (b) (c), (l) and (o) and
the covenants and agreements in Section 3.1, 3.3, 3.5(b), 3.6, 3.7 and 3.9 shall
not expire on the Expiration Date and shall survive, as set forth in such
Sections, or, if not set forth, shall survive forever or until the expiration of
the applicable statute of limitations.
SECTION 6.7. Benefits of Agreement. All of the terms and provisions of
this Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns, including in the case of the
Purchaser, to its financing parties. This Agreement is for the sole benefit of
the parties hereto and not for the benefit of any third party.
SECTION 6.8. Amendments and Waivers. No modification, amendment or
waiver of any provision of, or consent required by, this Agreement, nor any
consent to any departure
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herefrom, shall be effective unless it is in writing and signed by the parties
hereto. Such modification, amendment, waiver or consent shall be effective only
in the specific instance and for the purpose for which given.
SECTION 6.9. Assignment. This Agreement and the rights and obligations
hereunder shall not be assignable or transferable by any party hereto without
the prior written consent of the other parties; except that the Purchaser may
assign this Agreement and all of its rights and obligations to an affiliate of
the Purchaser provided that the Purchaser guarantees such affiliate's
obligations under this Agreement. Any instrument purporting to make an
assignment in violation of this Section shall be void.
SECTION 6.10. Enforceability. It is the desire and intent of the
parties hereto that the provisions of this Agreement shall be enforced to the
fullest extent permissible under the laws and public policies applied in each
jurisdiction in which enforcement is sought. Accordingly, if any particular
provision of this Agreement shall be adjudicated to be invalid or unenforceable,
such provision shall be deemed amended to delete therefrom the portion thus
adjudicated to be invalid or unenforceable, such deletion to apply only with
respect to the operation of such provision in the particular jurisdiction in
which such adjudication is made.
SECTION 6.11. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SECTION 6.12. DISPUTE RESOLUTION; CONSENT TO JURISDICTION. EACH OF THE
PARTIES TO THIS AGREEMENT AGREES TO BE BOUND BY THE PROVISIONS SET FORTH IN
ANNEX B TO THIS AGREEMENT. EACH OF THE PARTIES TO THIS AGREEMENT HEREBY
IRREVOCABLY AND UNCONDITIONALLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF THE
UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK SITTING IN
NEW YORK CITY FOR PURPOSES OF ALL LEGAL PROCEEDINGS WHICH ARE NOT GOVERNED BY
ANNEX B AND WHICH ARISE OUT OF OR RELATE TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY. EACH OF THE PARTIES TO THIS AGREEMENT IRREVOCABLY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF VENUE IN ANY SUCH COURT OR ANY CLAIM THAT A
LEGAL PROCEEDING COMMENCED IN SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT
FORUM.
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
duly executed and delivered as of the day and year first above written.
THE J.H. HEAFNER COMPANY, INC.
By: /s/ J. MICHAEL GAITHER
------------------------------
J. Michael Gaither
Senior Vice President and General Council
SELLERS:
Agreed and acknowledged by:
/s/ ARTHUR C. SOARES
- ------------------------------ ------------------------------
Name: Arthur C. Soares
(Spouse) Address: 16641 Harwood Road
Los Gatos, CA 95032
Agreed and acknowledged by:
/s/ KATHY L. BARNEY /s/ RAY C. BARNEY
- ------------------------------ ------------------------------
Name: Ray C. Barney
(Spouse) Address: 216 Fieldcrest Court
Danville, CA 94506