FIRST CONSENT TO
CREDIT FACILITIES AGREEMENT
This FIRST CONSENT TO CREDIT FACILITIES AGREEMENT (this "Agreement") is
entered into and effective as of September 20, 2001, by and among Pomeroy
Computer Resources, Inc., Pomeroy Select Integration Solutions, Inc., Pomeroy
Select Advisory Services, Inc., Pomeroy Computer Resources Sales Company, Inc.,
Pomeroy Computer Resources Holding Company, Inc., Pomeroy Computer Resources
Operations, LLP, Technology Integration Financial Services, Inc., T.I.F.S.
Advisory Services, Inc., TheLinc, LLC and Val Tech Computer Systems, Inc.
(collectively and separately referred to as, "Borrower"), and Deutsche Financial
Services Corporation ("DFS"), as Administrative Agent, and DFS and the other
lenders listed on Exhibit 3 of this Agreement and the signature pages thereto
(and their respective successors and permitted assigns), as "Lenders" (the
"Lenders").
RECITALS:
--------
A. Borrower, Administrative Agent and Lenders are party to that certain Credit
Facilities Agreement dated as of June 28, 2001 (the "Original Loan
Agreement").
B. Required Lenders and Borrower have agreed to the provisions set forth
herein on the terms and conditions contained herein.
AGREEMENT
---------
Therefore, in consideration of the mutual agreements herein and other
sufficient consideration, the receipt of which is hereby acknowledged, Borrower,
Administrative Agent and the Required Lenders hereby agree as follows:
1. DEFINITIONS.
All references to the "Agreement" or the "Loan Agreement" in the Original Loan
Agreement and in this Agreement shall be deemed to be references to the Original
Loan Agreement as it may be amended, restated, extended, renewed, replaced, or
otherwise modified from time to time. Capitalized terms used and not otherwise
defined herein have the meanings given them in the Original Loan Agreement.
2. EFFECTIVENESS OF AGREEMENT.
This Agreement shall become effective as of the date first written above upon
the due execution and delivery of this Agreement by the Borrower and the
Required Lenders.
3. CONSENT TO TRANSACTIONS.
Notwithstanding the terms of Section 14.11 of the Original Loan Agreement, the
Required Lenders consent to the redemption by Pomeroy Computer Resources, Inc.
of the lesser of (i) One Million Five Hundred Thousand Dollars ($1,500,000)
market value of shares of Pomeroy Computer Resources, Inc.'s common stock, or
(ii) One Hundred Thousand (100,000) shares of Pomeroy Computer Resources, Inc.'s
common stock, in any case if and only if there is no Existing Default and no
Default or Event of Default will occur or is reasonably likely to occur as a
result of such redemption. Such redemption may occur in one or more
redemptions, in each case subject to the conditions set forth in the preceding
sentence.
4. REAFFIRMATION.
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Each Borrower hereby acknowledges and confirms that (i) the Original Loan
Agreement and the other Loan Documents remain in full force and effect, (ii)
such Borrower has no defenses to its obligations under the Original Loan
Agreement and the other Loan Documents, (iii) the Security Interests of the
Administrative Agent under the Security Documents secure all the Loan
Obligations under the Original Loan Agreement, continue in full force and effect
and have the same priority as before this Agreement, and (iv) such Borrower has
no claim against Administrative Agent or any Lender arising from or in
connection with the Original Loan Agreement or the other Loan Documents.
5. GOVERNING LAW.
This Agreement has been executed and delivered in St. Louis, Missouri, and shall
be governed by and construed under the laws of the State of Missouri without
giving effect to choice or conflicts of law principles thereunder.
6. SECTION TITLES.
The section titles in this Agreement are for convenience of reference only and
shall not be construed so as to modify any provisions of this Agreement.
7. COUNTERPARTS; FACSIMILE TRANSMISSIONS.
This Agreement may be executed in one or more counterparts and on separate
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. Signatures to this
Agreement may be given by facsimile or other electronic transmission, and such
signatures shall be fully binding on the party sending the same.
8. INCORPORATION BY REFERENCE.
Administrative Agent, Required Lenders and Borrower hereby agree that all of the
terms of the Loan Documents are incorporated in and made a part of this
Agreement by this reference.
9. NOTICE-ORAL COMMITMENTS NOT ENFORCEABLE.
The following notice is given pursuant to Section 432.045 of the Missouri
Revised Statutes; nothing contained in such notice shall be deemed to limit or
modify the terms of the Loan Documents:
ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO FORBEAR
FROM ENFORCING REPAYMENT OF A DEBT INCLUDING PROMISES TO EXTEND OR RENEW
SUCH DEBT ARE NOT ENFORCEABLE. TO PROTECT YOU (BORROWER) AND US (CREDITOR)
FROM MISUNDERSTANDING OR DISAPPOINTMENT, ANY AGREEMENTS WE REACH COVERING
SUCH MATTERS ARE CONTAINED IN THIS WRITING, WHICH IS THE COMPLETE AND
EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN US, EXCEPT AS WE MAY LATER
AGREE IN WRITING TO MODIFY IT.
10. NOTICE-INSURANCE.
The following notice is given pursuant to Section 427.120 of the Missouri
Revised Statutes; nothing contained in such notice shall be deemed to limit or
modify the terms of the Loan Documents:
UNLESS YOU PROVIDE EVIDENCE OF THE INSURANCE COVERAGE REQUIRED BY YOUR
AGREEMENT WITH US, WE MAY PURCHASE INSURANCE AT YOUR EXPENSE TO PROTECT OUR
INTERESTS IN YOUR COLLATERAL. THIS INSURANCE MAY, BUT NEED NOT, PROTECT
YOUR INTERESTS. THE COVERAGE THAT WE PURCHASE MAY NOT PAY ANY CLAIM THAT
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YOU MAKE OR ANY CLAIM THAT IS MADE AGAINST YOU IN CONNECTION WITH THE
COLLATERAL. YOU MAY LATER CANCEL ANY INSURANCE PURCHASED BY US, BUT ONLY
AFTER PROVIDING EVIDENCE THAT YOU HAVE OBTAINED INSURANCE AS REQUIRED BY
OUR AGREEMENT. IF WE PURCHASE INSURANCE FOR THE COLLATERAL, YOU WILL BE
RESPONSIBLE FOR THE COSTS OF THAT INSURANCE, INCLUDING THE INSURANCE
PREMIUM, INTEREST AND ANY OTHER CHARGES WE MAY IMPOSE IN CONNECTION WITH
THE PLACEMENT OF THE INSURANCE, UNTIL THE EFFECTIVE DATE OF THE
CANCELLATION OR EXPIRATION OF THE INSURANCE. THE COSTS OF THE INSURANCE MAY
BE ADDED TO YOUR TOTAL OUTSTANDING BALANCE OR OBLIGATION. THE COSTS OF THE
INSURANCE MAY BE MORE THAN THE COST OF INSURANCE YOU MAY BE ABLE TO OBTAIN
ON YOUR OWN.
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IN WITNESS WHEREOF, this Agreement has been duly executed as of the date
first above written.
POMEROY COMPUTER RESOURCES SALES COMPANY, INC.
as Borrowing Agent on behalf of itself and each other Borrower pursuant to the
authority and power of attorney duly granted to it by each other Borrower
By: ____________________________________________
Name: __________________________________________
Title: _________________________________________
DEUTSCHE FINANCIAL SERVICES CORPORATION,
as Administrative Agent and a Lender
By: ____________________________________________
Name: Kenneth MacDonell
Title: Vice President
FIRSTAR BANK, NATIONAL ASSOCIATION, AS A LENDER
By: ____________________________________________
Name: __________________________________________
Title: _________________________________________
NATIONAL CITY BANK, AS A LENDER
By: ____________________________________________
Name: __________________________________________
Title: _________________________________________
IBM CREDIT CORPORATION, AS A LENDER
By: ____________________________________________
Name: __________________________________________
Title: _________________________________________
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UPS CAPITAL CORPORATION, AS A LENDER
By: ____________________________________________
Name: __________________________________________
Title: _________________________________________
FIFTH THIRD BANK, NORTHERN KENTUCKY, INC., AS A LENDER
By: ____________________________________________
Name: __________________________________________
Title: _________________________________________
E5
FIRST AMENDMENT TO
CREDIT FACILITIES AGREEMENT
This FIRST AMENDMENT TO CREDIT FACILITIES AGREEMENT (this "Agreement") is
entered into and effective as of November 13, 2001, by and among Pomeroy
Computer Resources, Inc., Pomeroy Select Integration Solutions, Inc., Pomeroy
Select Advisory Services, Inc., Pomeroy Computer Resources Sales Company, Inc.,
Pomeroy Computer Resources Holding Company, Inc., Pomeroy Computer Resources
Operations, LLP, Technology Integration Financial Services, Inc., T.I.F.S.
Advisory Services, Inc., TheLinc, LLC and Val Tech Computer Systems, Inc.
(collectively and separately referred to as, "Borrower"), and Deutsche Financial
Services Corporation ("DFS"), as Administrative Agent, and DFS and the other
lenders listed on the signature pages and Exhibit 3 to the Original Loan
Agreement, as defined below (and their respective successors and permitted
assigns), as "Lenders" (the "Lenders").
RECITALS:
--------
A. Borrower, Administrative Agent and Lenders are party to that certain Credit
Facilities Agreement dated as of June 28, 2001 (the "Original Loan
Agreement").
B. Required Lenders and Borrower have agreed to the provisions set forth
herein on the terms and conditions contained herein.
AGREEMENT
---------
Therefore, in consideration of the mutual agreements herein and other
sufficient consideration, the receipt of which is hereby acknowledged, Borrower,
Administrative Agent and the Required Lenders hereby agree as follows:
1. DEFINITIONS.
All references to the "Agreement" or the "Loan Agreement" in the Original Loan
Agreement and in this Agreement shall be deemed to be references to the Original
Loan Agreement as it may be amended, restated, extended, renewed, replaced, or
otherwise modified from time to time. Capitalized terms used and not otherwise
defined herein have the meanings given them in the Original Loan Agreement.
2. EFFECTIVENESS OF AGREEMENT.
This Agreement shall become effective as of November 13, 2001, or such other
date as expressly set forth herein, but only if this Agreement has been executed
by Borrower, Administrative Agent and the Lenders, and only if all of the
documents listed on Exhibit A to this Agreement have been delivered and, as
applicable, executed, sealed, attested, acknowledged, certified, or
authenticated, each in form and substance satisfactory to Administrative Agent
and the Lenders. The Amendment Fee set forth on Exhibit A shall be shared among
the Lenders in accordance with their pro-rata shares as set forth on Exhibit 3
to the Loan Agreement.
3. WAIVER OF DEFAULTS.
Borrower has notified Administrative Agent that Borrower has violated the
Minimum Net Income After Tax covenant contained in Section 15.5 as of the end of
Borrower's fiscal quarter ended October 5, 2001. Under Section 16.1.7,
Borrower's violation of the referenced financial covenant constitutes an Event
of Default. The Borrower has requested that the Required Lenders waive such
Event of Default. The Required Lenders hereby waive the Event of Default
arising under Section 16.1.7 due to Borrower's violation of the Minimum Net
E6
Income After Tax covenant contained in Section 15.5 as of the end of Borrower's
fiscal quarter ended October 5, 2001. The waivers contained in this Section 3
are specific in intent and are valid only for the specific purposes for which
given. Nothing contained herein obligates Administrative Agent or any Lender to
agree to any additional waivers of any provisions of any of the Loan Documents,
including but not limited to Sections 15.5 and 16.1.7. The waivers contained in
this Section are waivers of known Events of Default only, and shall not operate
as a waiver of Administrative Agent's or any Lenders' right to exercise remedies
resulting from (i) existing and/or continuing Defaults or Events of Default of
which Administrative Agent or such Lender is not actually aware, or (ii) other
future Defaults or Events of Default, whether or not of a similar nature and
whether or not known to Administrative Agent or any Lender.
4. AMENDMENTS.
4.1. MINIMUM NET INCOME AFTER TAX.
Section 15.5 of the Loan Agreement is deleted in its entirety and replaced with
the following:
"15.5. MINIMUM NET INCOME AFTER TAX. Each Borrower covenants that its Net
Income as a percentage of net sales as set forth in its income statement,
calculated as of the last day of each fiscal quarter for the four fiscal
quarter period then ended, shall be no less than (i) 2.00%, for the fiscal
quarters ending January 5, 2002, April 5, 2002, July 5, 2002 and October 5,
2002, and (ii) 2.25% for the fiscal quarter ending January 5, 2003 and for
each fiscal quarter ending thereafter."
5. REPRESENTATIONS AND WARRANTIES OF BORROWER.
Each Borrower hereby represents and warrants to Administrative Agent and the
Lenders that (i) such Borrower's execution of this Amendment has been duly
authorized by all requisite action of such Borrower; (ii) no consents are
necessary from any third parties for such Borrower's execution, delivery or
performance of this Amendment, and (iii) this Amendment, the Original Loan
Agreement, as amended hereby, and each of the other Loan Documents, constitute
the legal, valid and binding obligations of Borrower enforceable against
Borrower in accordance with their terms, except to the extent that the
enforceability thereof against Borrower may be limited by bankruptcy, insolvency
or other laws affecting the enforceability of creditors rights generally or by
equity principles of general application.
6. REAFFIRMATION.
Each Borrower hereby acknowledges and confirms that (i) the Original Loan
Agreement and the other Loan Documents remain in full force and effect, (ii)
such Borrower has no defenses to its obligations under the Original Loan
Agreement and the other Loan Documents, (iii) the Security Interests of the
Administrative Agent under the Security Documents secure all the Loan
Obligations under the Original Loan Agreement, continue in full force and effect
and have the same priority as before this Agreement, and (iv) such Borrower has
no claim against Administrative Agent or any Lender arising from or in
connection with the Original Loan Agreement or the other Loan Documents.
7. GOVERNING LAW.
This Agreement has been executed and delivered in St. Louis, Missouri, and shall
be governed by and construed under the laws of the State of Missouri without
giving effect to choice or conflicts of law principles thereunder.
8. SECTION TITLES.
The section titles in this Agreement are for convenience of reference only and
shall not be construed so as to modify any provisions of this Agreement.
E7
9. COUNTERPARTS; FACSIMILE TRANSMISSIONS.
This Agreement may be executed in one or more counterparts and on separate
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. Signatures to this
Agreement may be given by facsimile or other electronic transmission, and such
signatures shall be fully binding on the party sending the same.
10. INCORPORATION BY REFERENCE.
Administrative Agent, Required Lenders and Borrower hereby agree that all of the
terms of the Loan Documents are incorporated in and made a part of this
Agreement by this reference.
11. NOTICE-ORAL COMMITMENTS NOT ENFORCEABLE.
The following notice is given pursuant to Section 432.045 of the Missouri
Revised Statutes; nothing contained in such notice shall be deemed to limit or
modify the terms of the Loan Documents:
ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO FORBEAR
FROM ENFORCING REPAYMENT OF A DEBT INCLUDING PROMISES TO EXTEND OR RENEW
SUCH DEBT ARE NOT ENFORCEABLE. TO PROTECT YOU (BORROWER) AND US (CREDITOR)
FROM MISUNDERSTANDING OR DISAPPOINTMENT, ANY AGREEMENTS WE REACH COVERING
SUCH MATTERS ARE CONTAINED IN THIS WRITING, WHICH IS THE COMPLETE AND
EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN US, EXCEPT AS WE MAY LATER
AGREE IN WRITING TO MODIFY IT.
12. NOTICE-INSURANCE.
The following notice is given pursuant to Section 427.120 of the Missouri
Revised Statutes; nothing contained in such notice shall be deemed to limit or
modify the terms of the Loan Documents:
UNLESS YOU PROVIDE EVIDENCE OF THE INSURANCE COVERAGE REQUIRED BY YOUR
AGREEMENT WITH US, WE MAY PURCHASE INSURANCE AT YOUR EXPENSE TO PROTECT OUR
INTERESTS IN YOUR COLLATERAL. THIS INSURANCE MAY, BUT NEED NOT, PROTECT
YOUR INTERESTS. THE COVERAGE THAT WE PURCHASE MAY NOT PAY ANY CLAIM THAT
YOU MAKE OR ANY CLAIM THAT IS MADE AGAINST YOU IN CONNECTION WITH THE
COLLATERAL. YOU MAY LATER CANCEL ANY INSURANCE PURCHASED BY US, BUT ONLY
AFTER PROVIDING EVIDENCE THAT YOU HAVE OBTAINED INSURANCE AS REQUIRED BY
OUR AGREEMENT. IF WE PURCHASE INSURANCE FOR THE COLLATERAL, YOU WILL BE
RESPONSIBLE FOR THE COSTS OF THAT INSURANCE, INCLUDING THE INSURANCE
PREMIUM, INTEREST AND ANY OTHER CHARGES WE MAY IMPOSE IN CONNECTION WITH
THE PLACEMENT OF THE INSURANCE, UNTIL THE EFFECTIVE DATE OF THE
CANCELLATION OR EXPIRATION OF THE INSURANCE. THE COSTS OF THE INSURANCE MAY
BE ADDED TO YOUR TOTAL OUTSTANDING BALANCE OR OBLIGATION. THE COSTS OF THE
INSURANCE MAY BE MORE THAN THE COST OF INSURANCE YOU MAY BE ABLE TO OBTAIN
ON YOUR OWN.
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E8
IN WITNESS WHEREOF, this Agreement has been duly executed as of the date
first above written.
POMEROY COMPUTER RESOURCES SALES COMPANY, INC.
as Borrowing Agent on behalf of itself and each other Borrower pursuant to the
authority and power of attorney duly granted to it by each other Borrower
By:______________________________________
Name:____________________________________
Title:___________________________________
DEUTSCHE FINANCIAL SERVICES CORPORATION,
as Administrative Agent and a Lender
By:______________________________________
Name: Kenneth MacDonell
Title: Vice President
FIRSTAR BANK, NATIONAL ASSOCIATION, AS A LENDER
By:______________________________________
Name:____________________________________
Title:___________________________________
NATIONAL CITY BANK, AS A LENDER
By:______________________________________
Name:____________________________________
Title:___________________________________
IBM CREDIT CORPORATION, AS A LENDER
By:______________________________________
Name:____________________________________
Title:___________________________________
Signature Page 1 of 2
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UPS CAPITAL CORPORATION, AS A LENDER
By:______________________________________
Name:____________________________________
Title:___________________________________
FIFTH THIRD BANK, NORTHERN KENTUCKY, INC., AS A LENDER
By:______________________________________
Name:____________________________________
Title:___________________________________
Signature Page 2 of 2
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EXHIBIT A
---------
DOCUMENTS AND REQUIREMENTS
--------------------------
1. First Amendment to Credit Facilities Agreement.
2. Certified Resolutions of each Borrower authorizing the execution and
delivery of the First Amendment to Credit Facilities Agreement on its
behalf and reaffirming appointment of Pomeroy Computer Resources Sales
Company, Inc. as its attorney-in-fact and grant of power of attorney as set
forth in the Credit Facilities Agreement.
3. Payment in cash of a $100,000 Amendment Fee to be shared among the Lenders
in accordance with their pro-rata shares as set forth on Exhibit 3 to this
Agreement.
4. Payment to Administrative Agent of all fees, expenses and other amounts
owing to Administrative Agent and the Lenders under the Original Loan
Agreement and the other Loan Documents.
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ASSET PURCHASE AGREEMENT
------------------------
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is made and is entered into this
21st day of September, 2001, by, between and among POMEROY COMPUTER RESOURCES,
INC., a Delaware corporation ("Purchaser No. 1"), POMEROY SELECT INTEGRATION
SOLUTIONS, INC. ("Purchaser No. 2"), SYSTEM 5 TECHNOLOGIES, INC., a North
Carolina corporation ("Seller"), DALE TWEEDY ("D. Tweedy"), JILL TWEEDY ("J.
Tweedy"), and PHIL TETREAULT ("P. Tetreault")(D. Tweedy, J. Tweedy and P.
Tetreault hereinafter referred to collectively as the "Shareholders" and
individually as the "Shareholder").
W I T N E S S E T H :
WHEREAS, Seller is a single source provider of a variety of computer service and
support solutions, including providing the infrastructure for data management,
e-business and IT strategies to large and medium size commercial, governmental
and other professional customers throughout the Southeastern portion of the
United States; and
WHEREAS, Shareholders are the owners of one thousand fifty-three (1,053) shares
of the outstanding stock of Seller, in the following proportions: D. Tweedy -
600 shares, J. Tweedy - 400 shares and P. Tetreault - 53 shares, which stock
constitutes all of the outstanding stock of Seller; and
WHEREAS, Purchaser No. 1 is in the business of marketing and selling a broad
range of microcomputers and related products including equipment selection,
procurement and configuration; and
WHEREAS, Purchaser No. 2, a wholly-owned subsidiary of Purchaser No. 1, is a
single source provider of integrated desktop management and network services
including life cycle services, internetworking services, and end user support
services; and
WHEREAS, Purchaser No. 1 desires to purchase certain of the assets of the Seller
used in its business of marketing and selling a broad range of microcomputers
and related products including equipment selection, procurement and
configuration ("Business No. 1") and assume certain of the liabilities of the
Seller in connection with Business No. 1 and Purchaser No. 2 desires to
purchase certain of the assets of the Seller used in its integrated desktop
management and network services business ("Business No. 2") and assume certain
of the liabilities of the Seller in connection with Business No. 2; and Seller
desires to sell certain of such assets, subject to such liabilities, but only
upon (i) the terms and subject to the conditions set forth in this Agreement,
(ii) the representations, warranties, covenants, indemnifications, assurances
and undertakings of the Seller, each Shareholder and of Purchaser No. 1 and
Purchaser No. 2 contained in this Agreement, (iii) the agreement of the Seller
to refrain from competition with Purchaser No. 1 and Purchaser No. 2 for the
term set forth in its Non-Competition Agreement, (iv) the agreement of each
Shareholder to refrain from competition for the term set forth in his/her
respective Non-Competition Agreement.
NOW, THEREFORE, in consideration of the above premises and the mutual promises,
covenants, agreements, representations and warranties herein contained, the
parties hereto agree as follows:
E12
1.
DEFINITIONS
-----------
1.1 Affiliate. "Affiliate" shall have the meaning ascribed to such term in Rule
---------
405 promulgated under the Securities Act of 1933, as amended.
1.2 Assumed Liabilities No 1. The "Assumed Liabilities No. 1" are the
---------------------------
liabilities of Seller assumed or paid at Closing by Purchaser No. 1
pursuant to Section 3.1 of this Agreement.
1.3 Assumed Liabilities No 2. The "Assumed Liabilities No. 2" are the
---------------------------
liabilities of Seller assumed or paid at Closing by Purchaser No. 2
pursuant to Section 3.2 of this Agreement.
1.4 Balance Sheet. The "Balance Sheet" is the unaudited balance sheet of Seller
-------------
as of August 31st, 2001, included as part of the Financial Statements.
1.5 Closing. The "Closing" shall be the consummation of the transactions
-------
contemplated under this Asset Purchase Agreement.
1.6 Closing Date. The "Closing Date" shall be as of 9:00 a.m., E.D.T.,
-------------
September 21, 2001.
1.7 Code. The "Code" is the Internal Revenue Code of 1986, as amended, 26
----
U.S.C. Sec.1 et seq.
-------
1.8 Court. A "Court" is any federal, state, municipal, domestic, foreign or
-----
other governmental tribunal or an arbitrator or person with similar power
or authority.
1.9 Disclosure Schedule. The "Disclosure Schedule" is the Disclosure Schedule
--------------------
dated the date of this Agreement and delivered by Seller to Purchaser No. 1
and Purchaser No. 2, respectively.
1.10 Encumbrance. An "Encumbrance" is any security interest, lien, or
-----------
encumbrance whether imposed by agreement, understanding, law or otherwise,
on any of the Purchased Assets No. 1 and/or the Purchased Assets No. 2 (as
defined herein).
1.11 Excluded Assets. An "Excluded Asset" is any asset set forth in Section 2.4.
---------------
1.12 Financial Statements. The "Financial Statements" are the unaudited
---------------------
financial statements of Seller for the years ending December 31st, 2000 and
December 31st, 1999, including any and all notes thereto, and the unaudited
financial statements of the Seller for the period commencing January 1,
2001 and ending August 31st, 2001, including any and all notes thereto.
1.13 Governmental Entity. A "Governmental Entity" is any Court or any federal,
--------------------
state, municipal, domestic, foreign or other administrative agency,
department, commission, board, bureau or other governmental authority or
instrumentality.
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1.14 Knowledge of Seller and Any Shareholder or Seller's Knowledge. "Knowledge
---------------------------------------------------------------
of Seller and Shareholders and/or Seller's Knowledge" shall mean actual
knowledge of any Shareholder.
1.15 Net Asset Amount No. 1. "Net Asset Amount No. 1" shall have the meaning set
----------------------
forth in Section 5.1.
1.16 Net Asset Amount No. 2. "Net Asset Amount No. 2" shall have the meaning set
----------------------
forth in Section 5.1.
1.17 EBITDA. The earnings before interest, taxes, depreciation and amortization
------
of Purchaser No. 1's System 5/Ballantyne Division and Purchaser No. 2's
System 5/Ballantyne Division for the applicable period as set forth in
Section 4.6. The determination of EBITDA shall be determined in accordance
with the provisions set forth in Section 4.6.
1.18 Person. Any natural person, firm, partnership, association, corporation,
------
company, limited liability company, limited partnership, trust, business
trust, governmental authority or other entity.
1.19 Pro Forma Balance Sheet No. 1. The "Pro Forma Balance Sheet No. 1" is the
--------------------------------
balance sheet of Seller prepared as described in Section 5.1 and adjusted
for Excluded Assets of Seller and Excluded Liabilities relating to Business
No. 1 of Seller as of the Closing Date, as adjusted by Section 5.1 which
sets forth certain Excluded Liabilities that shall be included within the
Net Asset Amount determination.
1.20 Pro Forma Balance Sheet No. 2. The "Pro Forma Balance Sheet No. 2" is the
-------------------------------
balance sheet of Seller prepared as described in Section 5.1 and adjusted
for Excluded Assets of Seller and Excluded Liabilities relating to Business
No. 2 of Seller as of the Closing Date.
1.21 Purchase Price No. 1. The "Purchase Price No. 1" is the total consideration
--------------------
paid by Purchaser No. 1 to Seller for Purchased Assets No. 1 as set forth
in Sections 4.1 and 4.6.
1.22 Purchase Price No. 2. The "Purchase Price No. 2" is the total consideration
--------------------
paid by Purchaser No. 2 to Seller for Purchased Assets No. 2 as set forth
in Sections 4.2 and 4.6
1.23 Purchased Assets No. 1. The "Purchased Assets No. 1" are the assets of
-------------------------
Seller, used in Business No. 1, acquired by Purchaser No. 1 pursuant to the
terms of this Agreement.
1.24 Purchased Assets No. 2. The "Purchased Assets No. 2" are the assets of
---------------------
Seller, used in Business No. 2, acquired by Purchaser No. 2 pursuant to the
terms of this Agreement.
1.25 Seller's Accountant. "Seller's Accountant" shall mean BDO Seidman.
--------------------
1.26 August 31st Pro-Forma Balance Sheet No. 1. The "August 31st Pro-Forma
------------------------------------------------
Balance Sheet No. 1" is the unaudited balance sheet of the Seller adjusted
for Excluded Assets and Excluded Liabilities of Seller relating to Business
No. 1 as of August 31st, 2001, as adjusted by Section 5.1 which sets forth
certain Excluded Liabilities that shall be included within the August 31st
Pro Forma Balance Sheet for purposes of reflecting the procedure in which
the Net Asset Amount No. 1 shall be calculated.
E14
1.27 August 31st Pro-Forma Balance Sheet No. 2. The "August 31st Pro-Forma
----------------------------------------------
Balance Sheet No. 2" is the unaudited balance sheet of Seller adjusted for
Excluded Assets and Excluded Liabilities of Seller relating to Business No.
2 as of August 31st, 2001.
1.28 Tax or Taxes. Any federal, state, provincial, local, foreign or other
---------------
income, alternative, minimum, any taxes under Section 1374 of the Code, any
taxes under Section 1375 of the Code, accumulated earnings, personal
holding company, franchise, capital stock, net worth, capital, profits,
windfall profits, gross receipts, value added, sales, use, goods and
services, excise, customs duties, transfer, conveyance, mortgage,
registration, stamp, documentary, recording, premium, severance,
environmental, including taxes under Section 59A of the Code), real
property, personal property, ad valorem, intangibles, rent, occupancy,
license, occupational, employment, unemployment insurance, social security,
disability, workers' compensation, payroll, health care, withholding,
estimated or other similar tax, duty or other governmental charge or
assessment or deficiencies thereof (including all interest and penalties
thereon and additions thereto whether disputed or not).
1.29 Tax Return. A "Tax Return" is a report, return or other information
-----------
required to be supplied to a Governmental Entity in connection with Taxes
including, where permitted or required, combined or consolidated returns
for any group of entities that includes Seller.
2.
TERMS
-----
2.1 Agreement.
---------
Seller agrees to sell and convey to Purchaser No. 1 the Purchased Assets
No. 1 as hereinafter set forth in Section 2.2 owned by such entity. Seller
agrees to sell and convey to Purchaser No. 2 the Purchased Assets No. 2 as
hereinafter set forth in Section 2.3 owned by such entity. Purchaser No. 1
agrees to purchase the Purchased Assets No. 1 and Purchaser No. 2 agrees to
purchase the Purchased Assets No. 2. The agreements of Purchaser No. 1 and
Purchaser No. 2 and Seller are expressly conditioned upon the terms,
conditions, covenants, representations and warranties as hereinafter set
forth.
2.2 Assets to be Sold by Seller and Purchased by Purchaser No. 1.
-----------------------------------------------------------------------
At the Closing of this Agreement, Purchaser No. 1 shall purchase and Seller
shall sell all the assets of Seller used in Business No. 1, except for the
Excluded Assets relating to Business No. 1 and excepting for all purposes
all such assets being transferred pursuant to Section 2.3 whether used or
relating to Business No. 1. The Purchased Assets No. 1 shall include, but
not be limited to:
(a) All tangible personal property and assets of Seller of every kind and
description, real, personal or mixed, wherever located, used in
Business No. 1, including without limitation, all such assets as
reflected on the August 31st, 2001 Pro Forma Balance Sheet No. 1
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(excepting those assets disposed of, and including those assets
acquired, in the ordinary course of business since the date of the
August 31st, 2001 Pro Forma Balance Sheet No. 1).
(b) All intangible assets of Seller which are used in Business No. 1 of
Seller, including without limitation, all purchase orders, contract
rights and agreements, work in process, customer lists, supplier
agreements, patents, trademarks and service marks (including the
goodwill associated with the marks), office supplies, computer
programs, claims of Seller, the right to use of the corporate and
trade names of or used by Seller, or any derivative thereof, as all or
part of a corporate or trade name;
(c) All investment securities, cash and cash equivalents and customer
notes receivable relating to Business No. 1;
(d) All inventory of Business No. 1 which shall be valued consistent with
the Seller's historical practices;
(e) All accounts receivable and vendor receivables relating to Business
No. 1, except for several accounts receivable and vendor receivables
that are designated as Excluded Assets;
(f) Certain vehicles of Seller set forth on attached Exhibit A;
(g) All prepaid expenses applicable to Business No. 1, including but not
limited to all prepaid software licenses;
(h) All vendor rebates, spiff money, retainage amounts under any contracts
and any customer deposits relating to contracts for Business No. 1,
which contracts are being assumed by Purchaser No. 1;
(i) All distribution contracts and authorizations of Seller relating to
Business No. 1;
(j) All base artwork, photo materials, plates (if owned by Seller),
separations and other materials that are used by Seller for printing
brochures and promotional materials including all intellectual
property rights therein relating to Business No. 1;
(k) The assignment of any telephone numbers, telefax numbers, e-mail
addresses and internet websites used in Business No. 1 of Seller;
(l) The entire right, title, benefit and interest of Seller now existing
or hereafter arising, in or to all indemnities, guaranties,
warranties, claims and choses of action of Seller against other
parties with respect to Purchased Assets No. 1, including by way of
example and not limitation, any rights under insurance policies and
any other rights thereunder, but only with respect to Purchased Assets
No. 1;
E16
(m) Originals or copies of Seller's books, records, files, correspondence,
manuals, documents, agreements, lists and other writings used in or
relating to Business No. 1, including paid accounts payable, paid
accounts receivable, purchase, sales, customer, representative,
marketing, advertising, distribution, operations, personnel, research
and development records, data, information and materials;
(n) Seller's rights under the agreements set forth in Schedule 2.2(n) with
respect to the parties set forth therein, pursuant to which such
parties agreed not to disclose, use or communicate information
regarding such parties' business (which is part of Business No. 1) and
not to engage in certain activities competitive with Business No. 1;
(o) All other fees, assets, property, business and going concern value,
and rights of Seller (including the rights under covenants or
agreements not to disclose confidential information or not to compete,
if any) and rights under the respective asset purchase agreements,
stock purchase agreements or other documents set forth on Disclosure
Schedule 2.2(o) (and related documents) pursuant to which Seller
acquired certain of the assets of the parties set forth in such
Disclosure Schedule.
2.3 Assets to be Sold by Seller and Purchased by Purchaser No. 2.
-----------------------------------------------------------------------
At the Closing of this Agreement, Purchaser No. 2 shall purchase and Seller
shall sell all the assets of Seller used in Business No. 2, except for the
Excluded Assets relating to Business No. 2 and excepting for all purposes
all such assets being transferred pursuant to Section 2.2 whether used or
relating to Business No. 2. The Purchased Assets No. 2 shall include, but
not be limited to:
(a) All tangible personal property and assets of Seller of every kind and
description, real, personal or mixed, wherever located, used in
Business No. 2, including without limitation, all such assets as
reflected on the August 31st, 2001 Pro Forma Balance Sheet No. 2
(excepting those assets disposed of, and including those assets
acquired, in the ordinary course of business since the date of the
August 31st, 2001 Pro Forma Balance Sheet No. 2).
(b) All intangible assets of Seller which are used in Business No. 2 of
the Seller, including without limitation, all purchase orders,
contract rights and agreements, work in process, customer lists,
supplier agreements, patents, trademarks and service marks (including
the goodwill associated with the marks), office supplies, computer
programs, claims of Seller, the right to use of the corporate and
trade names of or used by Seller, or any derivative thereof, as all or
part of a corporate or trade name;
(c) All investment securities, cash and cash equivalents and customer
notes receivable relating to Business No. 2;
(d) All inventory of Business No. 2 which shall be valued consistent with
the Seller's historical practices;
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(e) All accounts receivable and vendor receivables relating to Business
No. 2, except for several accounts receivable and vendor receivables
that are designated as Excluded Assets;
(f) Certain vehicles of Seller set forth on attached Exhibit A-1;
(g) All prepaid expenses applicable to Business No. 2, including but not
limited to all prepaid software licenses;
(h) All of Seller's fixed rate contracts and time and material contracts
relating to Business No. 2;
(i) All vendor rebates, spiff money, retainage amounts under any contracts
and any customer deposits relating to contracts for Business No. 2,
which contracts are being assumed by Purchaser No. 2;
(j) All of Seller's service and consulting contracts relating to Business
No. 2;
(k) All distribution contracts and authorizations of Seller relating to
Business No. 2;
(l) All base artwork, photo materials, plates (if owned by Seller),
separations and other materials that are used by Seller for printing
brochures and promotional materials including all intellectual
property rights therein relating to Business No. 2;
(m) The assignment of any telephone numbers, telefax numbers, e-mail
addresses and internet websites used in Business No. 2 of Seller;
(n) The entire right, title, benefit and interest of Seller now existing
or hereafter arising, in or to all indemnities, guaranties,
warranties, claims and chooses of action of Seller against other
parties with respect to Purchased Assets No. 2, including by way of
example and not limitation, any rights under insurance policies and
any other rights thereunder, but only with respect to Purchased Assets
No. 2;
(o) Originals or copies of Seller's books, records, files, correspondence,
manuals, documents, agreements, lists and other writings used in or
relating to Business No. 2, including paid accounts payable, paid
accounts receivable, purchase, sales, customer, representative,
marketing, advertising, distribution, operations, personnel, research
and development records, data, information and materials;
(p) Seller's rights under the agreements set forth in Schedule 2.3(p) with
respect to the parties set forth therein, pursuant to which such
parties agreed not to disclose, use or communicate information
regarding such parties' business (which is part of Business No. 2) and
not to engage in certain activities competitive with Business No. 2;
and
E18
(q) All other fees, assets, property, business and going concern value,
and rights of Seller (including the rights under covenants or
agreements not to disclose confidential information or not to compete,
if any) and rights under the respective asset purchase agreements,
stock purchase agreements or other documents set forth on Disclosure
Schedule 2.3(q) (and related documents) pursuant to which Seller
acquired certain of the assets of the parties set forth in such
Disclosure Schedule.
2.4 Excluded Assets.
----------------
The Excluded Assets are set forth on Exhibit B hereto.
2.5 Lease Agreements.
----------------
Seller is the lessee under certain lease agreements calling for payments of
more than $5,000.00 per year covering the following real and personal
properties as set forth on Disclosure Schedule 2.5. At the Closing, Seller
and Purchaser No. 1 or Purchaser No. 2 shall execute necessary
documentation for the assignment of these leases and all of Seller's right
and interest thereunder to Purchaser No. 1 and/or Purchaser No. 2, as
agreed upon by the parties. Purchaser No. 1 and Purchaser No. 2 agree to
indemnify and hold Seller harmless from any liability with respect to the
aforementioned leases occurring after the Closing Date which is assumed by
such party. To the extent that the assignment of any lease shall require
the consent of other parties thereto, this Agreement shall not constitute
an assignment thereof and Seller shall obtain any such necessary consents
or assignments by the Closing, or as reasonably possible after the Closing.
E19
2.6 Instruments of Transfer.
-------------------------
Except as otherwise provided herein, at Closing, Seller will deliver to
Purchaser No. 1 and Purchaser No. 2, respectively, such bills of sale,
endorsements, assignments and other good and sufficient instruments of
transfer and assignment as shall be effective to vest in Purchaser No. 1
and Purchaser No. 2, as applicable, good title and interest in and to
Purchased Assets No. 1 and Purchased Assets No. 2, respectively. At or
after the Closing, but without further consideration, Seller will execute
and deliver to Purchaser No. 1 and Purchaser No. 2, as applicable, such
further instruments of conveyance and transfer and take such other action
as Purchaser No. 1 and/or Purchaser No. 2 may reasonably request in order
to more effectively convey and transfer to Purchaser No. 1 and/or Purchaser
No. 2, as applicable, any of the Purchased Assets No. 1 and/or Purchased
Assets No. 2 or for aiding and assisting and collecting and reducing to
possession and exercising rights with respect thereto. Seller and each
Shareholder agree to use commercially reasonable efforts without additional
cost to them to obtain and deliver to Purchaser No. 1 and Purchaser No. 2,
as applicable, such consents, approvals, assurances and statements from
third parties as Purchaser No. 1 and Purchaser No. 2, as applicable, may
reasonably require in a form reasonably satisfactory to Purchaser No. 1 and
Purchaser No. 2. In addition to the foregoing, Seller will deliver to
Purchaser No. 1 and Purchase No. 2, as applicable, the originals or copies
of all of Seller's books, records and other data relating to Purchased
Assets No. 1 and Purchased Assets No. 2, respectively; and simultaneously
with such delivery, Seller shall take all such acts as may be reasonably
necessary to put Purchaser No. 1 in actual possession, and operating
control of Purchased Assets No. 1 and put Purchaser No. 2 in actual
possession, and operating control of Purchased Assets No. 2. Seller shall
cooperate with Purchaser No. 1 and Purchaser No. 2 to permit such parties,
if possible, to enjoy such Seller's ratings and benefits under workmen's
compensation laws and unemployment compensation laws to the extent
permitted by such laws.
2.7 Instruments Giving Certain Powers and Rights.
-------------------------------------------------
At the Closing, Seller shall, by appropriate instrument, constitute and
appoint Purchaser No. 1 and Purchaser No. 2, their respective successors
and assigns, the true and lawful attorney of Seller with full power of
substitution, in the name of Purchaser No. 1 and/or Purchaser No. 2, as
applicable, or the name of Seller, on behalf of and for the benefit of
Purchaser No. 1 and Purchaser No. 2, as applicable, to collect all accounts
receivable and/or vendor receivables and other items being transferred and
assigned to Purchaser No. 1 and/or Purchaser No. 2, as applicable, as
provided herein, to endorse, without recourse, any and all checks in the
name of Seller the proceeds of which Purchaser No. 1 and/or Purchaser No.
2, as applicable, is entitled to hereunder, to institute and prosecute, in
the name of Seller or otherwise, all proceedings which Purchaser No. 1
and/or Purchaser No. 2, as applicable, may deem proper in order to collect,
assert or enforce any claim, right or title of any kind in or to Purchased
Assets No. 1 and/or Purchased Assets No. 2, as applicable, to defend and
compromise any and all actions, suits and proceedings in respect of any of
Purchased Assets No. 1 and/or Purchased Assets No. 2, as applicable, and to
do all such acts and things in relation thereto as such party may deem
advisable. Purchaser No. 1 and/or Purchaser No. 2, as applicable, shall
provide Seller with notice of any collection action(s) instituted by it
under this provision. Seller agrees that the foregoing powers are coupled
with an interest and shall be irrevocable by the Seller, directly or
indirectly, by the dissolution of Seller or in any manner or for any
reason. Seller further agrees that Purchaser No. 1 and/or Purchaser No. 2,
as applicable, shall retain for its own respective account any amounts
E20
collected pursuant to the foregoing powers, and Seller shall pay or
transfer to Purchaser No.1 and/or Purchaser No. 2, as applicable, if and
when received, any amounts which shall be received by Seller after the
Closing in respect of any such receivables or other assets, properties,
rights or business to be transferred and assigned to Purchaser No. 1 and/or
Purchaser No. 2, as provided herein. Seller further agrees that, at any
time or from time to time after the Closing, it will, upon the request of
Purchaser No. 1 and/or Purchaser No. 2 and without additional expense to
Seller, do, execute, acknowledge and deliver, or will cause to be done,
executed, acknowledged or delivered, all such further reasonable acts,
assignments, transfers, powers of attorney or assurances as may be required
in order to further transfer, assign, grant, assure and confirm to
Purchaser No. 1 and/or Purchaser No. 2, as applicable, or to aid and assist
in the collection or granting of possession by Purchaser No. 1 and/or
Purchaser No. 2, as applicable, of any of the Purchased Assets No. 1 and/or
the Purchased Assets No. 2, or to vest in Purchaser No. 1 good and
marketable title to Purchased Assets No. 1 and to vest in Purchaser No. 2
good and marketable title to Purchased Assets No. 2.
To the extent that any assignment does not result in a complete transfer of
the contracts to Purchaser No. 1 and/or Purchaser No. 2, as applicable,
because of a provision in any contract against Seller's assignment of any
its right thereunder, Seller shall cooperate with Purchaser No. 1 and
Purchaser No. 2 in any reasonable manner proposed by Purchaser No. 1 and/or
Purchaser No. 2, as applicable, to complete the acquisition of the
contracts and Seller's rights, benefits and privileges thereunder in order
to fulfill and carry out Seller's obligations under this Agreement. Such
additional action may include, but is not limited to: (i) entering into a
subcontract between Seller and Purchaser No. 1 and/or Purchaser No. 2, as
applicable, which allows such party to perform Seller's duties under such
contracts and to enforce Seller's rights thereunder; or (ii) entering into
a new multi-party agreement with such customers which allows Purchaser No.
1 and/or Purchaser No. 2, as applicable, to perform Seller's obligations
and enforce Seller's rights under the contracts.
3.
ASSIGNMENT OF LIABILITIES
-------------------------
3.1 Liabilities to be Paid Off at Closing or Assumed by Purchaser No. 1.
-----------------------------------------------------------------------
A. At the Closing, Purchaser No. 1 shall pay off or discharge when due as
to Section 3.1.A.(ii) (and secure the release of Seller and
Shareholder from any and all personal liability or guaranty with
respect to such obligation), the following:
(i) Seller's obligation to BB&T under a floor plan credit facility,
the outstanding amount of which on August 31st, 2001 is Nine
Hundred Sixty-One Thousand Four Hundred Twenty-Six Dollars
($961,426.00), plus accrued interest, and as of the Closing Date
is $469,051.54, which is collateralized by a security interest in
Seller's assets;
(ii) All of the trade accounts payable of the Seller relating to
Business No. 1 incurred in the ordinary course of business
consistent with Seller's prior practices, the outstanding amount
E21
of which was $2,701,538.00 on August 31st, 2001, and as may be
incurred, increased or decreased since August 31st, 2001 to the
Pro Forma Balance Sheet No. 1 for operations in the ordinary
course of business.
The Assumed Liabilities to be paid off as set forth in Section 3.1 A., as
may be incurred, increased or decreased since the August 31st, 2001 Pro
Forma Balance Sheet No. 1 to the Pro Forma Balance Sheet No. 1 for
operations in the ordinary course of business or any other transaction
permitted by this Agreement, and subject to the satisfaction of the Net
Asset Amount No. 1 requirement set forth in Section 4.1(d) as of the
Closing Date.
It is intent of the parties that Purchaser No. 1 shall pay off at Closing,
or assume and pay off or discharge when due, all obligations of Seller set
forth in Section 3.1 A above for which any Shareholder has personal
liability and Purchaser No. 1 agrees to use its best efforts to secure the
release of the Shareholders from such liability after the Closing if such
releases are not secured prior to Closing.
3.2 Liabilities to be Paid Off at Closing or Assumed by Purchaser No. 2.
-----------------------------------------------------------------------
At the Closing, Purchaser No. 2 shall assume and pay off or discharge when
due (and secure the release of Seller and the Shareholders from any and all
personal liability or guaranty with respect to such obligation), the
following:
A. All of the trade accounts payable of the Seller relating to Business
No. 2 incurred in the ordinary course of business consistent with
Seller's prior practices, the outstanding amount of which is $0 on
August 31st, 2001, and as may be incurred, increased or decreased
since August 31st, 2001 for operations in the ordinary course of
business or any other transaction provided by this Agreement, and
subject to the satisfaction of the Net Asset Amount No. 2 requirement
set forth in Section 4.1(d) as of the Closing Date.
3.3 Executory Contracts to be Assumed by Purchaser No. 1.
------------------------------------------------------------
At the Closing, Purchaser No. 1 shall assume and pay, perform and discharge
when due the following:
(i) All of the obligations and liabilities of Seller arising after the
Closing under the contracts described in Section 2.2.
(ii) All future liabilities for merchandise in transit FOB shipping point
relating to Business No. 1 which has not been received and/or entered
into inventory by Seller and for which no bill has been posted by
Seller as of the Closing.
3.4 Executory Contracts to be Assumed by Purchaser No. 2.
------------------------------------------------------------
At the Closing, Purchaser No. 2 shall assume and pay, perform and discharge
when due the following:
E22
(i) All of the obligations and liabilities of Seller arising after the
Closing under the contracts described in Section 2.3.
(ii) All future liabilities for merchandise in transit FOB shipping point
relating to Business No. 2 which has not been received and/or entered
into inventory by Seller and for which no bill has been posted by
Seller as of the Closing.
3.5 Excluded Liabilities.
---------------------
Purchaser No. 1 and Purchaser No. 2 shall not assume or become responsible
for any claim, liability or obligation of any nature whatsoever, whether
known or unknown, accrued, absolute, contingent or otherwise of Seller (a
"Liability") of Seller except Assumed Liabilities No. 1 and Assumed
Liabilities No. 2 that are specifically assumed by such party. Without
limiting the generality of the foregoing, the following are included among
the Liabilities of Seller which Purchaser No. 1 and Purchase No. 2 shall
not assume or become responsible for (unless specifically included as
Assumed Liabilities No. 1 or Assumed Liabilities No. 2):
(a) all Liabilities for any Taxes whether deferred or which have accrued
or may accrue or become due and payable by Seller either prior to, on
or after the Closing Date, including, without limitation, all Taxes
and fees of a similar nature arising from the sale and transfer of
Purchased Assets No. 1 and Purchased Assets No. 2 to Purchaser No. 1
and Purchaser No. 2, respectively;
(b) all Liabilities to any current or former shareholders, directors,
officers, employees or agents of Seller, including, without
limitation, all Liabilities of Seller for wages, salary, bonuses,
commissions, vacation or severance pay, deferred compensation,
retirement pay, profit sharing or pension benefits, and all
Liabilities arising under any bonus, commission, salary or
compensation plans or arrangements, whether accruing prior to, on or
after the Closing Date, including without limitation Seller's
obligations under its Bonus Point Plan;
(c) all Liabilities of Seller with respect to unemployment compensation
claims and workmen's compensation claims and claims for race, age and
sex discrimination or sexual harassment or for unfair labor practice
based on or arising from occurrences, circumstances or events, or
exposure to conditions, existing or occurring prior to the Closing
Date and for which any claim may be asserted by any of Seller's
employees, prior to, on or after the Closing Date against Seller;
(d) all Liabilities of Seller to third parties for personal injury or
damage to property based on or arising from occurrences, circumstances
or events, or exposure to conditions, existing or occurring prior to
the Closing Date and for which any claim may be asserted by any third
party prior to, on or after the Closing Date;
(e) all Liabilities of Seller arising under or by virtue of federal or
state environmental laws based on or arising from occurrences,
circumstances or events, or exposure to conditions, existing or
E23
occurring prior to the Closing Date and for which any claim may be
asserted prior to, on or after the Closing Date;
(f) all Liabilities of Seller including any costs of attorneys' fees
incurred in connection therewith, for litigation, claims, demands or
governmental proceedings arising from occurrences, circumstances or
events, or exposure to conditions occurring or existing prior to the
Closing Date, and which may be asserted or commenced prior to, on or
after the Closing Date;
(g) all Liabilities of Seller based on any theory of liability or product
warranty with respect to any product manufactured or sold prior to the
Closing Date and for which any claim may be asserted by any third
party, prior to, on or after the Closing Date;
(h) all attorneys' fees, accountants' or auditors' fees, and other costs
and expenses incurred by Seller and/or the Shareholders in connection
with the negotiation, preparation and performance of this Agreement or
any of the transactions contemplated hereby;
(i) all Liabilities of Seller in connection with the Excluded Assets;
(j) all Liabilities of Seller with respect to any options, warrants,
agreements or convertible or other rights to acquire shares of its
capital stock of any class;
(k) all Liabilities of Seller incurred incident to any indemnification for
breach of any representations, warranties, covenants, or other
agreements made by Seller under any of the asset purchase, stock,
reorganization, or other legal transaction(s) of Seller;
(l) all Liabilities of Seller with respect to any loans or advances made
by the Shareholders or any Affiliate to Seller;
(m) all other debts, Liabilities, obligations, contracts and commitments
(whether direct or indirect, known or unknown, contingent or fixed,
liquidated or unliquidated, and whether now or hereinafter arising)
arising out of or relating to the ownership, operation or use of any
of Purchased Assets No. 1 and/or Purchased Assets No. 2 on or prior to
the Closing Date or the conduct of the Business No. 1 of Seller and/or
Business No. 2 of Seller prior to the Closing Date, except only for
the liabilities and obligations to be assumed or paid, performed or
discharged by Purchaser No. 1 and/or Purchaser No. 2 constituting
Assumed Liabilities No. 1 or Assumed Liabilities No. 2; and
(n) all Liabilities of Seller with respect to any unpaid sales tax as of
the Closing Date related to accounts receivable as of such date.
Seller shall pay all liabilities not being assumed hereunder by Purchaser
No. 1 or Purchaser No. 2 within the customary time for payment of such
liabilities.
E24
It is the intent of the parties that upon Closing, all employees of Seller will
be terminated by Seller and Purchaser No. 1 or Purchaser No. 2 will extend
offers of employment to all such individuals.
4.
CONSIDERATION FOR
-----------------
PURCHASED ASSETS NO. 1 AND PURCHASED ASSETS NO. 2
-------------------------------------------------
4.1 Purchase Price No. 1 for Purchased Assets No. 1.
-------------------------------------------------------
Subject to the other terms of this Agreement, Purchase Price No. 1 for
Purchased Assets No. 1 shall be the sum of:
(a) Two Million Nine Hundred Sixty-Three Thousand Eight Hundred Seventy-
Seven Dollars and Sixty-Eight Cents ($2,963,877.68), less the amount
of any funded indebtedness as of the Closing Date in excess of Eight
Hundred Ninety-Two Thousand Eight Hundred Seventy-Four Dollars
($892,874.00).
(b) The liabilities assumed or paid off at Closing under Section 3.1; and
(c) Any amount that may be paid pursuant to Section 4.6 that is allocated
to Purchase Price No. 1.
The amount set out in Section 4.1(a) above shall be adjusted by the amounts
determined under Sections 4.1(d) and/or (e), as follows:
(d) If Net Asset Amount No. 1 and Net Asset Amount No. 2 of the Seller in
the aggregate, as of the Closing Date as shown on the Pro Forma
Balance Sheet No. 1 and the Pro Forma Balance Sheet No. 2 is less than
Two Hundred Seventy-Three Thousand Seven Dollars ($273,007.00), the
Purchase Price No. 1 and Purchase Price No. 2 (to be allocated
according to the respective percentages determined by the parties)
shall be decreased on a dollar-for-dollar basis equal to the
difference between $273,007.00 and such amount. In the event that Net
Asset Amount No. 1 and Net Asset Amount No. 2 of the Seller, in the
aggregate as of the Closing Date, is greater than $273,007.00, no
increase to Purchase Price No. 1 and/or Purchase Price No. 2 shall be
made under this Section 4.1(d). The determination of Net Asset Amount
No. 1 and Net Asset Amount No. 2 shall be made in the manner provided
for in Section 5.1 hereof.
(e) If the account receivable owed Seller by Performaworks in the amount
of Four Hundred Eighteen Thousand Five Hundred Dollars ($418,500.00)
is not paid to Purchaser No. 1 in whole or in part within one (1) year
of the Closing, the Purchase Price shall be decreased on a
dollar-for-dollar basis equal to the difference between $418,500.00
and the amount of such receivable collected by Purchaser No. 1 during
said period. The first $209,250.00 of such receivable that is not
collected shall be paid to Purchaser No. 1 from the funds held in the
escrow fund with interest earned thereon as set forth in Section 4.3.
The other one-half (1/2) of such receivable that is not collected
shall be offset against the amount owed Seller by Purchaser No. 1
E25
under the Subordinated Promissory Note as set forth in Section 4.3.
The determination of the collectability of the Performaworks account
receivable shall be made in the manner provided for in Section 5.2
hereof.
4.2 Purchase Price No. 2 for Purchased Assets No. 2.
-------------------------------------------------------
Subject to the other terms of this Agreement, the Purchase Price for
Purchased Assets No. 2 shall be the sum of:
(a) Ninety-One Thousand Six Hundred Sixty-Six Dollars and Thirty-Two Cents
($91,666.32);
(b) The liabilities assumed or paid off at Closing under Section 3.2; and
(c) Any amount that may be paid pursuant to Section 4.6 that is allocated
to Purchase Price No. 2.
The amount set out in Section 4.2(a) above shall be adjusted by the
amounts determined under Section 4.2(d) as follows:
(d) Purchase Price No. 2 shall be decreased by the portion of any deficit
in the Net Asset Amount No. 1 and Net Asset Amount No. 2 of Seller, if
any, allocated to Purchase Price No. 2 under Section 4.1(d).
4.3 Payment of the Purchase Price for Purchased Assets No. 1.
-----------------------------------------------------------------
Subject to the conditions, covenants, representations and warranties
hereof, at Closing, Purchaser No. 1 shall deliver:
(a) By certified or bank cashier's check or by wire transfer to Seller,
the amount of One Million Four Hundred Sixty-Two Thousand Five Hundred
Fifty-Two Dollars ($1,462,552.00), less the amount of funded
indebtedness in excess of $892,874.00. The parties acknowledge that
Purchaser No. 1 is receiving a projected credit in the amount of
$295,262.00 for the projected deficit in the 4.1(d) Net Asset Amount
determination with any further adjustment being made pursuant to the
provisions of Section 5.1. In addition, Purchaser No. 1 is receiving a
projected credit in the amount of $68,552.00 predicated on a projected
deficit in the amount of funded indebtedness in excess of the
threshold amount.
(b) By certified or bank cashier's check or by wire transfer to Lindhorst
& Dreidame Co., LPA, the amount of Two Hundred Nine Thousand Two
Hundred Fifty Dollars ($209,250.00), which funds shall be held
pursuant to the terms of the Escrow Agreement attached hereto as
Exhibit D.
(c) The remaining sum of Nine Hundred Twenty-Seven Thousand Eight Hundred
Seventy-Two Dollars ($927,872.00) shall be payable to Seller pursuant
to the terms of Purchaser No. 1's Subordinated Promissory Note in the
form attached hereto as Exhibit E. The note shall bear interest at the
prime rate of Chase Manhattan Bank as of the date of Closing. The
principal of the note shall be payable in two (2) equal annual
E26
installments, with the first principal payment being due and payable
on the first annual anniversary of the Closing, and the remaining
principal payment being due and payable on the second annual
anniversary date of the Closing. Interest on the unpaid principal
balance of the note shall be paid quarterly with the first interest
payment being due and payable ninety (90) days from Closing. Such note
and all obligations of Purchaser No. 1 thereunder will be subordinated
and made junior in right of payment to the extent and in the manner
provided in a Subordination Agreement to be executed between Deutsche
Financial Services Corporation, as Administrative Agent for itself and
other lenders, and Purchaser No. 1 and Seller in the form attached
hereto as Exhibit F.
(d) The Assumed Liabilities No. 1 assumed or paid off under Section 3.1.
4.4 Payment of the Purchase Price for Purchased Assets No. 2.
-----------------------------------------------------------------
Subject to the conditions, covenants, representations and warranties
hereof, at Closing, Purchaser No. 2 shall deliver:
(a) By certified or bank cashier's check or by wire transfer to Seller,
the amount of Ninety-One Thousand Six Hundred Sixty-Six Dollars and
Thirty-Two Cents ($91,666.32);
(b) The Assumed Liabilities No. 2 assumed or paid off under Section 3.2.
4.5 Allocation of Purchase Price.
-------------------------------
Purchase Price No. 1 to be paid to the Seller hereunder, including the
liabilities assumed or paid by Purchaser No. 1 pursuant to Section 3.1,
shall be allocated as set forth on Exhibit G attached hereto. Purchase
Price No. 2 to be paid to the Seller hereunder, including the liabilities
assumed or paid by Purchaser No. 2 pursuant to Section 3.2, shall be
allocated as set forth on Exhibit G-1 attached hereto. Seller, Purchaser
No. 1, Purchaser No. 2 and each Shareholder agree that each shall act in a
manner consistent with such allocation in (a) filing Internal Revenue Form
8594; and (b) in paying sales and other transfer taxes in connection with
the purchase and sale of assets pursuant to this Agreement.
4.6 Potential Adjustment to Purchase Price.
------------------------------------------
If the earnings before interest, taxes, depreciation and amortization
("EBITDA") of the Purchaser No. 1's and Purchaser No. 2's System
5/Ballantyne Divisions in the aggregate during any of fiscal years 2002
(January 6, 2002 to January 5, 2003), 2003 and 2004 exceed the applicable
EBITDA threshold for such year set forth below:
Fiscal Year 2002 - $1,358,744
Fiscal Year 2003 - $1,358,744
Fiscal Year 2004 - $1,358,744
E27
Purchaser No. 1 and Purchaser No. 2 (according to the percentages set forth
below) shall pay Seller, by bank check or wiring within ninety (90) days
following the end of the fiscal year, an amount equal to 57.40% of fifty
percent (50%) of the aggregate EBITDA of Purchaser No. 1's and Purchaser
No. 2's System 5/Ballantyne Divisions in excess of the EBITDA Threshold for
the applicable year, subject to a cumulative limitation of Three Million
Two Hundred Seventy-One Thousand Nine Hundred Seventy-Four Dollars
($3,271,974.00) during such aggregate period. Any EBITDA shortfall in any
year shall not be offset against any excess EBITDA in any subsequent
year(s) hereunder, it being the intent of the parties that the EBITDA
Threshold set forth herein shall apply to each applicable year separately,
subject, however, to the cumulative limitation of Three Million Two Hundred
Seventy-One Thousand Nine Hundred Seventy-Four Dollars ($3,271,974.00)
during such aggregate period. Such cash payment by Purchaser No. 1 and
Purchaser No. 2 shall be additional Purchase Price No. 1 and Purchase Price
No. 2, in the proportions set forth below, which will be added to the good
will allocation of Purchase Price No. 1 and Purchase Price No. 2, in the
proportions set forth below, provided, however, Purchaser No. 1 and/or
Purchaser No. 2 shall not be liable to pay to Seller the first Two Hundred
Ninety-Five Thousand Two Hundred Sixty-Two Dollars ($295,262.00), as may be
adjusted pursuant to the provisions of Section 5.1, that may be earned
under this Section 4.6, it being the intent of the parties that such amount
to the extent earned hereunder shall not be due and payable to Seller but
rather Purchaser No. 1 and/or Purchaser No. 2 shall be entitled to an
offset against any amount owing hereunder until it has recovered such
amount. Commencing upon the earlier of February 1, 2002 or the installation
of the Astea (MAS and Accounting) System at the Purchaser No. 1's and
Purchaser No. 2's System 5/Ballantyne Division, a 1.5% MAS royalty fee and
a .3% Ad Fund royalty fee on gross sales by the Purchaser No. 1's and
Purchaser No. 2's System 5/Ballantyne Division shall be made incident to
said determination. The parties shall exercise good faith in effectuating
the implementation of said Astea Accounting System at Purchaser No. 1's and
Purchaser No. 2's System 5/Ballantyne Division. In the event the Astea (MAS
and Accounting) System is not implemented by February 1, 2002 because of
the determination of Purchaser No. 1 and/or Purchaser No. 2, the 1.5% MAS
royalty free and the .3% Ad Fund royalty fee shall not be made incident to
said EBITDA determination until said Astea (MAS and Accounting) System is
installed at the Purchaser No. 1's and Purchaser No. 2's System
5/Ballantyne Division. For each subsequent year described above in this
paragraph for which Purchaser No. 1 and Purchaser No. 2 may be required to
pay additional Purchase Price No. 1 and Purchase Price No. 2, in the
proportions set forth below, the parties shall, in good faith, agree upon
the MAS royalty fee and the Ad Fund royalty fee to be charged hereunder
based on the level of services and support being provided by Purchaser No.
1 and Purchaser No. 2 to its respective System 5/Ballantyne Divisions.
Provided, however, such MAS royalty fee shall be 1.5% and the Ad Fund
royalty fee shall be .3% if the parties are unable to come to an agreement
for each subsequent year. For purposes of this Section, the term "System
5/Ballantyne Divisions" shall be defined as Business No. 1 and Business No.
2 acquired from Seller by Purchaser No. 1 and Purchaser No. 2,
respectively, and the business acquired from Ballantyne Consulting Group,
Inc. by Purchaser No. 2 pursuant to an Asset Purchase Agreement of even
date. It shall not include any EBITDA from any business of Purchaser No. 1
or Purchaser No. 2 from any of its other branches that is relocated to the
System 5/Ballantyne Divisions unless it is mutually agreed upon by all
parties to include such EBITDA within the System 5/Ballantyne Divisions.
Purchaser No. 1 and Purchaser No. 2 shall pay their respective percentage
of any amounts due hereunder, which percentage shall be predicated on the
respective EBITDA contribution made by each of their System 5/Ballantyne
Divisions to the computation set forth above.
E28
For purposes of this Section, the term "EBITDA" shall mean the earnings
before interest, taxes, depreciation and amortization of Purchaser No. 1's
and Purchaser No. 2's System 5/Ballantyne Divisions during the applicable
period. The EBITDA shall be determined by the internally-generated
financial statements of Purchaser No. 1 and Purchaser No. 2 determined in
the manner set forth above in accordance with generally accepted accounting
principles, consistently applied, provided that no effect shall be given to
any gain or loss attributable to sale of assets by Purchaser No. 1's and
Purchaser No. 2's System 5/Ballantyne Divisions not in the ordinary course
of business. Said determination of EBITDA shall be subject to verification
as described below. In addition, for purposes of determining EBITDA for any
particular year, except as noted above, no item of income or expense will
be allocated by Purchaser No. 1 or Purchaser No. 2 to Purchaser No. 1's
and/or Purchaser No. 2's System 5/Ballantyne Divisions unless such items
are initially agreed to be reasonably calculated to contribute to the
increase in profits of Purchaser No. 1's and Purchaser No. 2's System
5/Ballantyne Divisions, it being the intent of the parties that the
Purchaser No. 1 and Purchaser No. 2 shall exercise the utmost good faith
with respect to allocations of income and expense to Purchaser No. 1's and
Purchaser No. 2's System 5/Ballantyne Divisions. Incident to the
determination of EBITDA of Purchaser No. 1's and Purchaser No. 2's System
5/Ballantyne Divisions, no compensation of any executive or other employee
of Purchaser No. 1 and/or Purchaser No. 2 or their respective affiliates
who do not work directly for Purchaser No. 1's and/or Purchaser No. 2's
System 5/Ballantyne Divisions shall be allocated to such division. No
payment made to Seller pursuant to this Section 4.6, nor any legal or
accounting costs of the transaction contemplated by this Agreement, shall
be charged against the EBITDA for any year. No severance payable to any
Shareholders of Seller pursuant to their Employment Agreements shall be
charged against the EBITDA for any year in the event Shareholder was
terminated without cause and all the parties mutually agree that the cost
of said severance pay should not be charged against the EBITDA for any such
year. All compensation payable to Shareholders under their respective
Employment Agreements shall be deducted in determining the EBITDA for any
years, unless as otherwise set forth above.
Within ninety (90) days after the end of each fiscal year or period
described herein, Purchaser No. 1 and Purchaser No. 2 will deliver to
Seller a copy of the report of EBITDA prepared by Purchaser No. 1 and
Purchaser No. 2 for the subject period along with any supporting
documentation reasonably requested by Seller. Within thirty (30) days
following delivery to Seller of such report, Seller shall have the right to
object in writing to the results contained in such determination. If timely
objection is not made by Seller to such determination, such determination
shall become final and binding for purposes of this Agreement. If timely
objection is made by Seller to Purchaser No. 1 and Purchase No. 2 and
Seller and Purchaser No. 1 and Purchaser No. 2 are able to resolve their
differences in writing within thirty (30) days following the expiration of
the thirty-day (30-day) period, then such determination shall become final
and binding as it regards to this Agreement. If timely objection is made by
Seller to Purchaser No. 1 and Purchaser No. 2 and Seller and Purchaser No.
1 and Purchaser No. 2 are unable to resolve their differences in writing
within thirty (30) days following the expiration of the thirty-day (30-day)
period, then all disputed accounting matters pertaining to the report shall
be submitted to and reviewed by an arbitrator (the "Arbitrator") which
shall be an independent accounting firm selected by Purchaser No. 1 and
Purchaser No. 2 and Seller. If Purchaser No. 1 and Purchaser No. 2 and
Seller are unable to agree promptly on an accounting firm to serve as the
Arbitrator, each shall select by no later than the 30th day following the
expiration of the sixty-day (60-day) period, an accounting firm, and the
two selected accounting firms shall be instructed to select promptly
another independent accounting firm, such newly selected firm to serve as
the Arbitrator. The Arbitrator shall consider only the disputed accounting
E29
matters pertaining to the determination and shall act promptly to resolve
all disputed accounting matters, and its decision with respect to all
disputed accounting matters shall be final and binding upon Seller and
Purchaser. Expenses of the Arbitration shall be borne one-half (1/2) by
Purchaser No. 1 and Purchaser No. 2 and one-half (1/2) by Seller. Each
party shall be responsible for its own attorney and accounting fees. The
resolution of any disputed legal matters pertaining to the report shall be
subject to judicial review.
4.7 Certain Closing Expenses.
--------------------------
Except as set forth below, the Seller shall be responsible for and shall
pay all federal, state and local sales tax (if any), documentary stamp tax
and all other duties, or other like charges properly payable upon and in
connection with the conveyance and transfer of the Purchased Assets No. 1
by the Seller to Purchaser No. 1 and the conveyance and transfer of the
Purchased Assets No. 2 by the Seller to Purchaser No. 2.
5.
CLOSING AND POST-CLOSING ADJUSTMENTS
------------------------------------
E30
5.1 Within sixty (60) days after the Closing Date (the "Post Closing
Date"), Seller's Accountant will deliver to Purchaser No.1 and to
Purchaser No. 2 copies of Pro Forma Balance Sheet No. 1 and Pro Forma
Balance Sheet No. 2, respectively, prepared by Seller's Accountant
along with any supporting documentation reasonably requested by
Purchaser No. 1 or Purchaser No. 2 reflecting Net Asset Amount No. 1
and Net Asset Amount No. 2 as of the Closing which shall be defined as
the total of the Purchased Assets No. 1 less the total of the Assumed
Liabilities No. 1 relating to Business No. 1, as reflected on Pro
Forma Balance Sheet No. 1 (the "Net Asset Report No. 1") and the total
of the Purchased Assets No. 2 less the total of the Assumed
Liabilities No. 2 relating to Business No. 2, as reflected on Pro
Forma Balance Sheet No. 2 (the "Net Asset Report No. 2"). The Pro
Forma Balance Sheet No. 1 and the Pro Forma Balance Sheet No. 2 shall
be prepared using the same accounting methods, policies, practices and
procedures, with consistent classifications, judgments, estimations
and methodologies as used in the preparation of the August 31st, 2001
Pro Forma Balance Sheet No. 1 and the August 31st, 2001 Pro Forma
Balance Sheet No. 2. In determining the Net Asset Amount No. 1, the
Excluded Liabilities relating to the sales tax payable of $28,889.00,
employee benefits payable of $18,733.00, payroll accrual of $45,918.00
and a sales commission payable of $34,452.00, which total $127,992.00
in the aggregate, shall be utilized in the computation notwithstanding
the fact that such items are Excluded Liabilities, as such items may
be incurred, increased or decreased since the August 31st, 2001 Pro
Forma Balance Sheet No. 1 to the Pro Forma Balance Sheet No. 1 for
operations in the ordinary course of business or any other transaction
permitted by this Agreement subject to satisfaction of the Net Asset
Amount No. 1 requirements set forth in Section 4.1(d) as of the
Closing Date. The parties acknowledge that as of the Closing Date, the
projected deficit in the Net Asset Amount No. 1 totaled the sum of
$590,524.00 and that the Purchase Price No. 1 was decreased by this
amount, and the amount of cash that Purchaser No. 1 was required to
pay at the Closing was adjusted by one-half (1/2) of said amount, and
a credit against any future earn-out payment was established for
one-half (1/2) of said amount in Section 4.6. If the sum of the Net
Asset Amount No. 1 (as shown on the Net Asset Report No. 1) and the
Net Asset Amount No. 2 (as shown on the Net Asset Report No. 2) is
less than or greater than the projected $590,524.00 deficit as set
forth above, Purchase Price No. 1 and Purchase Price No. 2 (to be
allocated according to the respective percentages as determined by the
parties) shall be further increased or decreased on a
dollar-for-dollar basis for any upward or downward adjustments from
the projected deficit. If the final deficit is greater than the
projected difference, Seller shall pay one-half (1/2) of said amount
to Purchaser No. 1 by certified or cashier's check, and the additional
one-half (1/2) of said additional deficit shall increase the amount
that shall be an offset against the Earn-Out as set forth in Section
4.6. In the event the deficit is less than the projected deficit set
forth above, one-half (1/2) of said difference shall be repaid to
Seller by Purchaser No. 1 from the projected credit provided in
Section 4.3, and the other one-half (1/2) of such decrease in the
deficit from the projected deficit shall reduce the amount that shall
be an offset against the Earn-Out as set forth in Section 4.6. In
addition, for purposes of this determination, any charge-offs made
prior to Closing, including but not limited to, the write-off of the
Physicians Data Corp. account receivable in the amount of Three
Hundred Sixty-One Thousand Ninety-Five Dollars and Seventy-Six Cents
($361,095.76) shall be included in these determinations. In addition,
upon the Post Closing Date, the parties shall determine whether any
adjustments (either upward or downward) shall be made to the funded
indebtedness credit as it relates to the projected credit initially
made under the provisions of Section 4.1 in the amount of $68,552.00,
based on the final determination of whether any projected deficit
existed, if any, in the amount of the funded indebtedness in excess of
the threshold amount. For example, in the event the funded
E31
indebtedness as of the Closing Date is below the threshold amount, all
$68,552.00 of the projected credit given to Purchaser No. 1 under
Section 4.3(a) at Closing shall be returned to Seller at such time. In
the event the deficit of the funded indebtedness on the Closing Date
was greater than the projected deficit set forth in Section 4.3(a),
any additional amount owing shall be paid by Seller to Purchaser No. 1
at such time. Within thirty (30) days following delivery to Purchaser
No. 1 of Net Asset Report No. 1 and to Purchaser No. 2 of Net Asset
Report No. 2, Purchaser No. 1 and Purchaser No. 2 shall have the right
to object in writing to the results contained therein. If timely
objection is not made by Purchaser No. 1 and/or Purchaser No. 2 to Net
Asset Report No. 1 and/or Net Asset Report No. 2, as applicable, Net
Asset Report No. 1 and Net Asset Report No. 2 shall become final and
binding for purposes of this Agreement. If timely objection is made by
Purchaser No. 1 and/or Purchaser No. 2 to Net Asset Report No. 1
and/or Net Asset Report No. 2, and the Seller and Purchaser No. 1
and/or Purchaser No. 2, as applicable, are able to resolve their
differences in writing within fifteen (15) days following the
expiration of such thirty (30) day period, then Net Asset Report No. 1
and/or Net Asset Report No. 2, as resolved, shall become final and
binding as it relates to this Agreement. If timely objection is made
by Purchaser No. 1 and/or Purchaser No. 2, as applicable, to Net Asset
Report No. 1 and/or Net Asset Report No. 2 and/or Seller and Purchaser
No. 1 and/or Purchaser No. 2, as applicable, are unable to resolve
their differences in writing within such fifteen (15) day period, then
all disputed accounting matters pertaining to Net Asset Report No. 1
and/or Net Asset Report No. 2 shall be submitted to and reviewed by an
arbitrator (the "Arbitrator") which shall be an independent accounting
firm selected by the Seller and Purchaser No. 1 and/or Purchaser No.
2, as applicable. If Purchaser No. 1 and/or Purchaser No. 2, as
applicable, and the Seller are unable to agree promptly on the
accounting firm to serve as the Arbitrator, each shall select by not
later than the seventh (7th) day following the expiration of the Net
Asset Report objection period, an accounting firm, and each selected
accounting firm shall be instructed to jointly select promptly another
independent accounting firm, such third accounting firm shall serve as
the Arbitrator. The Arbitrator shall consider only the disputed
accounting matters pertaining to the determination and shall act
promptly and fairly to resolve all disputed accounting matters and its
decision with respect to all disputed accounting matters shall be
final and binding upon the Seller, Purchaser No. 1 and Purchaser No.
2, as applicable. The expenses of the arbitration shall be borne
one-half (1/2) by Purchaser No. 1 and/or Purchaser No. 2, as
applicable, and one-half (1/2) by the Seller. Each party shall be
responsible for its own attorney and accounting fees.
5.2 To the extent any of the accounts receivable from Performaworks in the
amount of $418,500.00 which, on the first year anniversary following
the Closing, are uncollected, such uncollected portion of such
accounts receivable shall be considered a bad debt and shall reduce
the Purchase Price No. 1 as set forth in Section 4.1(e), and Purchaser
No. 1 shall assign and deliver such uncollected account receivable to
Seller. Upon collection or partial collection, or upon the failure to
collect all of said receivable, the uncollected amount shall first be
offset against the Escrow Fund referenced in Exhibit C, and in the
event the amount of the uncollected receivable exceeds the $209,250.00
in the Escrow Fund, the remaining amount that is uncollected shall be
offset against the Subordinated Promissory Note payable by Purchaser
No. 1 to Seller. In the event Purchaser No. 1 is able to collect all
or a portion of any of such account receivable, any remaining funds
that remain in the Escrow Fund shall be returned to Seller with a
proportionate part of interest thereon at the expiration of the period
set forth above. In the event that any such account shall be paid to
Purchaser No. 1 after assignment to Seller, Purchaser No. 1 shall
promptly deliver any such amounts received to Seller. After the
Closing, payments received from Performaworks shall be first applied
E32
to any amount owing to Purchaser No. 1 or Purchaser No. 2 for
transactions arising after the Closing Date and thereafter shall be
applied to the oldest account of Seller that is subject to Section 5.2
first, unless such account-debtor identifies the invoice against which
such payment is to be applied.
6.
EMPLOYMENT AGREEMENTS
---------------------
6.1 Employment Agreements of Shareholders.
----------------------------------------
At Closing, Purchaser No. 1 shall enter into respective Employment
Agreements with D. Tweedy and P. Tetreault. Copies of said Employment
Agreements are attached hereto and made a part hereof as Exhibits H and
H-1.
7.
COVENANT NOT TO COMPETE AGREEMENTS
----------------------------------
7.1 Covenant Not to Compete Agreements of Seller and Shareholders.
---------------------------------------------------------------------
At Closing, Seller and each Shareholder shall enter into Non-Competition
Agreements with Purchaser No. 1 and Purchaser No. 2. Copies of said
Non-Competition Agreements are attached hereto and made a part hereof as
Exhibits I, I-1, I-2 and I-3.
8.
BULK SALES ACT
--------------
8.01 Compliance with Bulk Sales Act.
----------------------------------
Purchaser No. 1 and Purchaser No. 2 waive compliance with the provisions of
any applicable bulk sales law and the Seller agrees to indemnify and hold
harmless Purchaser No. 1 and Purchaser No. 2 from any liability incurred as
a result of the failure to so comply, except to liabilities explicitly
assumed hereunder by Purchaser No. 1 and/or Purchaser No. 2.
9.
REPRESENTATIONS AND WARRANTIES
------------------------------
OF SELLER AND EACH SHAREHOLDER
------------------------------
Except as set forth in the Disclosure Schedule attached hereto, Seller and
Shareholders, jointly and severally, represent and warrant to Purchaser No.
1 and Purchaser No. 2 that the following statements are true and correct as
of the date hereof.
E33
9.1 Organization, Good Standing, Qualification and Power of Seller.
---------------------------------------------------------------------
Seller is a corporation duly organized, validly existing and in good
standing under the laws of the State of North Carolina and has the
corporate power and authority to own, lease and operate the Purchased
Assets No. 1 and the Purchased Assets No. 2 and to conduct Business No. 1
and Business No. 2 currently being conducted by it. Seller is duly
qualified in good standing in each of the other jurisdictions in which it
is required by the nature of its business or the ownership of its
properties to so qualify. Seller has no corporate subsidiaries. The
Disclosure Schedule correctly lists, with respect to Seller, each
jurisdiction in which it is qualified to do business as a foreign
corporation.
9.2 Capitalization.
--------------
The authorized capitalization of Seller consists solely of one hundred
thousand (100,000) shares of common stock, without par value, of which one
thousand fifty-three (1,053) shares, representing One Hundred Percent
(100%) of the issued stock are currently owned by the Shareholders, are
fully paid and nonassessable and have not been issued in violation of the
preemptive rights of any person. Except as set forth in the Disclosure
Schedule, Seller is not obligated to issue or acquire any of its
securities, nor has it granted options or any similar rights with respect
to any of its securities.
9.3 Authority to Make Agreement.
------------------------------
The Seller and each Shareholder have the full legal power and authority to
enter into, execute, deliver and perform their respective obligations under
this Agreement and each of the other agreements, instruments and other
instruments to be delivered incident hereto ("Other Seller Documents").
This Agreement and the Other Seller Documents have been duly and validly
executed and delivered by Seller and each Shareholder, and are the legal
and binding obligation of each of them, enforceable in accordance with
their respective terms, subject to principles of equity, bankruptcy laws,
and laws affecting creditors' rights generally. The Seller has taken all
necessary action (including action of Seller's Board of Directors and its
Shareholders) to authorize and approve the execution and delivery of this
Agreement and the Other Seller Documents, the performance of its
obligations thereunder and the consummation of the transactions
contemplated thereby.
E34
9.4 Existing Agreements, Governmental Approvals and Permits.
------------------------------------------------------------
(a) The execution, delivery and performance of this Agreement and the
Other Seller Documents by the Seller and each Shareholder, the sale,
transfer, conveyance, assignment and delivery of the Purchased Assets
No. 1 to Purchaser No. 1 and of the Purchased Assets No. 2 to
Purchaser No. 2 as contemplated in this Agreement, and the
consummation of the other transactions contemplated thereby: (i) do
not violate any provisions of law, statute, ordinance or regulation
applicable to the Seller, any Shareholder or Purchased Assets No. 1
and/or Purchased Assets No. 2, (ii) (except for any of Seller's
secured creditors set forth in Sections 3.1 and/or 3.2, whose consent
shall be obtained prior to Closing and except as set forth in the
Disclosure Schedule), will not conflict with, or result in the breach
or termination of any provision of, or constitute a default under (in
each case whether with or without the giving of notice or the lapse of
time or both) the Articles of Incorporation or Bylaws of Seller, or
any indenture, mortgage, lease, deed of trust, or other instrument,
contract or agreement or any license, permit, approval, authority, or
any order, judgment, arbitration award, or decree to which Seller or
any Shareholder is a party or by which Seller or any Shareholder or
any of their assets and properties are bound (including, without
limitation, the Purchased Assets No.1 and/or Purchased Assets No. 2),
and (iii) will not result in the creation of any encumbrance upon any
of the properties, assets, or Business No. 1 or Business No. 2 of
Seller or of any Shareholder. Except as disclosed in the Disclosure
Schedules, neither the Seller, nor any Shareholder, nor any of their
assets or properties (including, without limitation, the Purchased
Assets No. 1 and/or Purchased Assets No. 2) is subject to any
provision of any mortgage, lease, contract, agreement, instrument,
license, permit, approval, authority, order, judgment, arbitration
award or decree, or to any law, rule, ordinance, or regulation, or any
other restriction of any kind or character, which would prevent Seller
or any Shareholder from entering into this Agreement or any of the
Other Seller Documents or from consummating the transactions
contemplated thereby.
(b) Neither the Seller nor any Shareholders are a party to, subject to or
bound by any agreement, judgment, award, order, writ, injunction or
decree of any court, governmental body or arbitrator which would
prevent the use by Purchaser No. 1 of Purchased Assets No. 1 or by
Purchaser No. 2 of Purchased Assets No. 2 in accordance with present
practices of Seller after the Closing Date or which, by operation of
law, or pursuant to its terms, would be breached, terminate, lapse or
be subject to termination or default under (in each case whether with
or without notice, the passage of time or both) upon the consummation
of the transactions contemplated in this Agreement.
(c) Except as provided in this Agreement or as disclosed in the Disclosure
Schedules, no approval, authority or consent of, or filing by Seller
with, or notification to, any foreign, federal, state or local court,
authority or governmental or regulatory body or agency or any person
is necessary to authorize the execution and delivery of this Agreement
or the Other Seller Documents by Seller or any Shareholder, the sale,
transfer, conveyance, assignment and delivery of the Purchased Assets
No. 1 to Purchaser No. 1 or of Purchased Assets No. 2 to Purchaser No.
2, or the consummation of the other transactions contemplated thereby,
E35
or to continue the use and operation of Purchased Assets No. 1 by
Purchaser No. 1 or Purchased Assets No. 2 by Purchaser No. 2 after the
Closing Date.
9.5 Financial Statements.
---------------------
(a) Copies of the Financial Statements have been delivered to Purchaser
No. 1 and Purchaser No. 2. Each of the Financial Statements are true
and complete in all material respects and were prepared in a manner
consistent with the Company's historical practices throughout the
periods indicated and fairly present in all material respects the
financial condition and operations of Seller as of the respective
dates thereof and the results of its operations and changes in
financial position for the respective periods then ended.
(b) Except to the extent reflected, reserved against, or disclosed on Pro
Forma Balance Sheet No. 1 and/or Pro Forma Balance Sheet No. 2, or the
Financial Statements, or the Disclosure Schedule, Seller had, as of
such date, no material liabilities or obligations of any nature,
whether accrued, absolute, contingent, or otherwise, including without
limitation, unfunded pension or other retirement plan liabilities and
tax liabilities whether or not incurred in respect of or measured by
the Seller's income, for any period prior to the date of said
Financial Statements, or arising out of transactions entered into or
any set of facts existing prior thereto. Except to the extent
disclosed on the Disclosure Schedule, there exists no basis for the
assertion against Seller, as of the date of the Financial Statements
or of Pro Forma Balance Sheet No. 1 and/or Pro Forma Balance Sheet No.
2, of any material liability of any nature or in any amount not fully
reflected, reserved against, or disclosed in the Financial Statements
or in Pro Forma Balance Sheet No. 1 and/or Pro Forma Balance Sheet No.
2.
9.6 Customers.
---------
The Disclosure Schedule includes a correct list of the twenty-five (25)
largest customers of Seller by sales in dollars for each of fiscal year
2000, and January through August of 2001, and the amount of business done
by the Seller with each such customer for such periods. Except as disclosed
on the Disclosure Schedule, to the Knowledge of Seller and the
Shareholders, none of such current customers of Seller will or intend to
(a) cease doing business with Seller; or (b) materially alter the amount of
business they are presently doing with Seller; or (c) not do business with
the Purchaser No. 1 and/or Purchaser No. 2, as applicable, after the
Closing.
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9.7 Intangible Property.
--------------------
The Disclosure Schedule includes an accurate list and summary description
of all patents, franchises, distributorships, registered and unregistered
trademarks, trade names and service marks, licenses, brand names and
company lists and all applications for the foregoing, presently owned
and/or held (as a licensee or otherwise) by the Seller. The Seller is not a
licensor in respect to any patents, trade secrets, inventions, shop rights,
know-how, trademarks, trade names, copyrights, or applications therefore.
The Disclosure Schedule contains an accurate and complete description of
such intangible property and the items of all licenses and other agreements
relating thereto. All of the above-mentioned intangibles used in the
Seller's Business No. 1 and/or Seller's Business No. 2 are the sole
property of the Seller and do not require the consent of or consent to any
other person as a condition to their use or the transaction provided for
herein and do not infringe upon the rights of others.
9.8 Significant Agreements.
-----------------------
The Disclosure Schedule contains an accurate and complete list of all
contracts, agreements, licenses, instruments and understandings (whether or
not in writing) to which Seller is a party or is bound and that are
material to the assets, financial condition or results of operations of the
Seller. Without limiting the generality of the foregoing, such list
includes all such contracts, agreements, licenses and instruments:
(a) Providing for payments of more than Five Thousand Dollars ($5,000.00)
per year, other than purchase orders incurred in the ordinary course
of business;
(b) Providing for the extension of credit other than consistent with
normal credit terms described in the Disclosure Schedule;
(c) Limiting the ability of the Seller to conduct Business No. 1 or
Business No. 2 or any other business or to otherwise compete in its or
any other business, including as to manner or place;
(d) Providing for a guarantee or indemnity by Seller, including but not
limited to any indemnification provided under any asset purchase
agreement, stock purchase agreement, or other transaction that Seller
is a party to;
(e) With any Affiliate of Seller;
(f) With any labor union or employees' association connected with Seller's
Business No. 1 and/or Seller's Business No. 2;
(g) For the employment or retention of any director, officer, employee,
agent, shareholder, consultant, broker or advisor of Seller or any
other contract between Seller and any director, officer, employee,
agent, shareholder, consultant or advisor which does not provide for
termination at will by Seller without further cost or other liability
to Seller as of or at any time after the Closing;
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(h) In the nature of a profit sharing, bonus stock option, stock purchase,
pension, deferred compensation, retirement, severance,
hospitalization, insurance or other plan or contract providing benefit
to any person or former director, officer, employee, agent,
shareholder, consultant, broker or advisor of Seller, or such person's
dependents, beneficiaries or heirs;
(i) In the nature of an indenture, mortgage, promissory note, loan or
credit agreement or other contract relating to the borrowing of money
or a line of credit by Seller or relating to the direct or indirect
guarantee or assumption by Seller of obligations of others;
(j) Leases or subleases with respect to any property, real, personal or
mixed, in which Seller is involved, as lessor or lessee; and
(k) Distributorship Agreement(s) or License Agreement(s) with respect to
any property which Seller has entered into as licensor.
True and correct copies of all items so disclosed in the Disclosure
Schedule (if written) have been provided or made available to Purchaser No.
1 and/or Purchaser No. 2. Each of such items listed, or required to be
listed, is a valid and binding obligation of the parties thereto
enforceable in accordance with its terms, subject to principles of equity,
bankruptcy laws, and laws affecting creditors' rights generally, and there
have been no material defaults or to Seller Knowledge claims of material
default by Seller and to Seller's Knowledge, there are no facts or
conditions that have occurred or that are anticipated to occur which,
through the passage of time or the giving of notice, or both, would
constitute a default by Seller, or would cause the acceleration of any
obligation of any party thereto or the creation of an Encumbrance upon any
asset of Seller. There are no material oral contracts, agreements or
understandings made by any Shareholder, material to Purchased Assets No. 1
or Purchased Assets No. 2, except such as have been disclosed in the
Disclosure Schedule and for which an accurate summary description has been
provided.
9.9 Inventory.
---------
Except as specifically described on the Disclosure Schedule, all inventory
is reflected on the August 31st, 2001 Pro Forma Balance Sheet, and at the
Closing Date will consist of items of quality and quantity which are usable
or saleable in the ordinary course of business of Seller in the conduct of
Business No. 1 and/or Business No. 2, and items of below standard quality
and items not usable or saleable in the ordinary course of Seller's
business have been written down in value in accordance with good business
practices to estimated net realizable market value or adequate reserves
have been provided therefor. The values at which the inventory are carried
on the list attached to the Disclosure Schedule reflect the normal
valuation policy of Seller. Except as set forth on the Disclosure Schedule,
since August 31st, 2001, the inventory of Seller has been maintained at
normal and adequate levels for the continuation of the Business No. 1
and/or Business No. 2 in its normal course. No change has occurred in such
inventory which affects or will affect the usability or salability thereof,
no write-downs or write-offs of the value of such inventory has occurred
and no additional amounts have been reserved with respect to such
inventories except in each case those adjustments made in the ordinary
course of business. The Disclosure Schedule lists the location of all
inventory together with a brief description of the type and amount at each
location.
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9.10 Accounts Receivable and Vendor Receivables.
----------------------------------------------
All accounts receivable and vendor receivables of the Seller which have
arisen in connection with Business No. 1 and/or Business No. 2 or otherwise
and which are reflected on the Financial Statements and all receivables
which have arisen since August 31st, 2001 through the Closing shall have
arisen only from bonafide transactions in the ordinary course of business
and represent valid, collectible and existing claims, net of any reserve as
reflected on the Pro Forma Balance Sheet No. 1 and/or the Pro Forma Balance
Sheet No. 2. Subject to customer credit, the payment of each account and
vendor receivable will not be subject to any known defense, counterclaim
condition (other than Seller's performance in the ordinary course of
business) whatsoever. The Disclosure Schedule hereto accurately lists, as
of the Closing Date, all receivables arising out of or relating to Business
No. 1 and/or Business No. 2, the amount owing and aging of such accounts
receivable, the name of the party from whom such account receivable is
owing, any security in favor of any Seller for the repayment of such
account receivable which Seller purports to have. Seller has made available
to Purchaser No. 1 and Purchaser No. 2 complete and correct copies of all
instruments, documents and agreements evidencing such accounts receivable
and of all instruments, documents or agreements (if any) creating security
therefore. The parties acknowledge that Seller is making no representation
as to the Performaworks account receivable that is subject to the
arrangement set forth and described in Section 5.2.
9.11 Taxes.
-----
Except as to Taxes not yet due and payable, and except for Taxes the
payment of which is being diligently contested in good faith and by proper
proceedings and for which adequate reserves have been established in
accordance with generally accepted accounting principles, and except as set
forth in the Disclosure Schedule, Seller has filed all Tax Returns that are
now required to be filed by it in connection with any federal, state or
local tax, duty or charge levied, assessed or imposed upon them, or their
property, including unemployment, social security and similar taxes; and
all of such Taxes have been either paid or adequate reserves or other
provision has been made therefor. Seller and each Shareholder shall pay,
without right of reimbursement from Purchaser No. 1 and/or Purchaser No. 2,
all of Seller's and any Shareholder's income Taxes including but not
limited to any Taxes attributable to any gain under Section 1374 of the
Code, including any interest and penalties thereon, that relate to the
activities of Seller through the Closing including this transaction, as
due.
9.12 Title to Purchased Assets; Encumbrances.
-------------------------------------------
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(a) With respect to Purchased Assets No. 1 and Purchased Assets No. 2
sold, at the Closing Seller shall have good title to Purchased Assets
No. 1 and/or Purchased Assets No. 2 owned by it being acquired by
Purchaser No. 1 and/or Purchaser No. 2, respectively, and except for
matters expressly set forth in Sections 3.1 or Section 3.2, which
Encumbrances, if any, upon Purchased Assets No. 1 and/or Purchased
Assets No. 2 shall be removed at Closing, free and clear of all
Encumbrances whatsoever; immediately after the transfer of Purchased
Assets No. 1 being acquired by Purchaser No. 1 from Seller and
Purchased Assets No. 2 being acquired by Purchaser No. 2 from Seller,
Purchaser No. 1 will own all of said Purchased Assets No. 1 and
Purchaser No. 2 will own all of said Purchased Assets No. 2, free and
clear of all Encumbrances whatsoever, whether perfected or
unperfected; and, by way of illustration but not limitation, there are
not any unpaid taxes, assessments or charges due or payable by Seller
to any federal, state or local agency, or any obligations or
liabilities or any unsatisfied judgments against, or, to Seller's
Knowledge, any litigation or proceedings pending or threatened against
Seller by any of Seller's employees, clients, customers, creditors,
suppliers, or any other party (nor state of facts for any such
obligation, liability, litigation or proceeding), that could become a
claim, obligation, liability, lien or other charge of or against
Purchaser No. 1, Purchaser No. 2, or Purchased Assets No. 1 or
Purchased Assets No. 2. To Seller's Knowledge, all of Seller's
tangible and other operating assets used in Business No. 1 and/or
Business No. 2 which are being sold hereunder to Purchaser No. 1
and/or Purchaser No. 2, respectively, are, in all material respects,
in good operating condition and repair, free of all structural,
material or mechanical defects and conform with all applicable laws
and regulations.
(b) Except as otherwise specifically set forth herein, Seller is not a
party to any contract, agreement, lease or commitment that would
result in any claim, obligation, liability, lien or other charge
against Purchaser No. 1 and/or Purchaser No. 2 or Purchased Assets No.
1 or Purchased Assets No. 2, and Purchaser No. 1 and Purchaser No. 2
are not obligated to assume the obligations under any contract,
agreement, lease or commitment of Seller, except as specifically set
forth herein.
9.13 Pending Actions.
----------------
Seller has not been served with or received notice of any actions, suits,
arbitrations, OSHA, EPA or other governmental violations, or any other
proceedings or investigations, either administrative or judicial, strikes,
lockouts or NLRB charges or complaints ("Actions and Disputes"). Except as
shown on the Disclosure Schedules, there are no Actions or Disputes pending
or, to the best of Seller's knowledge, threatened against or affecting
(directly or indirectly) Seller or its property or assets nor, to Seller's
Knowledge, are there any facts or conditions which exist which would give
rise to any such Actions or Disputes which, if determined adversely to
Seller, would have a material adverse effect upon Seller's Business No. 1
and/or Seller's Business No. 2.
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9.14 Insurance.
---------
The Disclosure Schedule contains an accurate and complete listing (showing
type of insurance, amount, insurance company, annual premium and special
exclusions) of all policies of fire, liability, worker's compensation and
other forms of insurance owned or held by Seller. All such policies are in
full force and effect; are sufficient for compliance with all requirements
of law and of all agreements to which Seller is a party; are valid,
outstanding and enforceable policies; provide adequate insurance coverage
for the assets and operations of Seller and will remain in full force and
effect through the Closing. There are no outstanding requirements or
recommendations by any insurance company that issued a policy with respect
to any of the properties and assets of Seller by any Board of Fire
Underwriters or other body exercising similar functions or by any
Governmental Entity requiring or recommending any repairs or other work to
be done on or with respect to any of the properties and assets of Seller or
requiring or recommending any equipment or facilities to be installed on or
in connection with any of the properties or assets of Seller.
9.15 Status of Business.
--------------------
(a) Since August 31st, 2001, Business No. 1 and Business No. 2 of the
Seller have been operated only in the ordinary course, and, except as
set forth in the Disclosure Schedule, there has not been with respect
to Business No. 1 and/or Business No. 2:
(i) Any material change in its condition (financial or other),
assets, liabilities, obligations, business or earnings, except
changes in the ordinary course of business, none of which
individually or in the aggregate has been materially adverse;
(ii) Any material liability or obligation incurred or assumed, or any
material contract, agreement, arrangement, purchase order, lease
(as lessor or lessee), or other commitment entered into or
assumed, on behalf of Business No. 1 and/or Business No. 2,
whether written or oral, except in the ordinary course of
business;
(iii) Any purchase or sale of material assets in anticipation of this
Agreement, or any purchase, lease, sale, abandonment or other
disposition of material assets, except in the ordinary course of
business;
(iv) Any waiver or release of any material rights, except for rights
of nominal value;
(v) Any cancellation or compromise of any material debts owed to
Seller or material claims known by Seller against another person
or entity, except in the ordinary course of business;
(vi) Any damage or destruction to or loss of any physical assets or
property of Seller which materially adversely affects Business
No. 1 and/or Business No. 2 or any of the properties of Seller
(whether or not covered by insurance);
E41
(vii)Any material changes in the accounting practices, depreciation
or amortization policy or rates theretofore adopted by Seller, or
any material revaluation or write-up or write-down of any of
their assets;
(viii)Any direct or indirect redemption, purchase or other acquisition
for value by Seller of its shares or any agreement to do so;
(ix) Any material increase in the compensation levels or in the method
of determining the compensation of any of the Seller's officers,
directors, agents, employees or members, or any bonus payment or
similar arrangement with or for the benefit of any such person,
any increase in benefits expense to Seller, any payments made or
declared into any profit-sharing, pension, or other retirement
plan for the benefit of employees of Seller, except in the
ordinary course of business;
(x) Any loans or advances between Seller and any Shareholder or any
family member or any associate or Affiliate of Seller or of any
Shareholder;
(xi) Any material contract canceled or the terms thereof amended or
any notice received with respect to any such contract terminating
or threatening termination or amendment of any such contract;
(xii) Any transfer or grant of any material rights under any leases,
licenses, agreements, or with respect to any trade secrets or
know-how;
(xiii) Any labor trouble or employee controversy materially adversely
affecting Business No. 1 and/or Business No. 2 or assets;
(xiv) Any dividend or other distribution on or in respect of shares of
Seller's capital stock; or
(xv) The incurring of any funded indebtedness except in the ordinary
course of business.
(b) The Seller is not:
(i) in violation of any outstanding judgment, order, injunction,
award or decree specifically relating to Business No. 1 and/or
Business No. 2, or
(ii) in violation of any federal, state or local law, ordinance or
regulation which is applicable to Business No. 1 and/or Business
No. 2, except where such violation does not have a materially
adverse effect on Business No. 1 and/or Business No. 2.
The Seller has all permits, licenses, orders, approvals,
authorizations, concessions and franchises of any federal, state or
local governmental or regulatory body that are material to or
necessary in the conduct of Business No. 1 and/or Business No. 2,
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except where failure to have such permit, license, order, approval,
authorization, concession or franchise does not have a materially
adverse effect on Business No. 1 and/or Business No. 2. All such
permits, licenses, orders, approvals, concessions and franchises are
set forth on the Disclosure Schedule and are in full force and effect
and there is no proceeding pending or, to the knowledge of Seller,
threatened to revoke or limit any of them.
(c) At the Closing, Seller shall have paid in full, to all employees of
Business No. 1 and/or Business No. 2, all wages, salaries,
commissions, bonuses, vacations and other direct compensation for all
services performed by them. To Seller's Knowledge, Seller is in
compliance in all material respects with all federal, state and local
laws, ordinances and regulations relating to employment and employment
practices at Business No. 1 and/or Business No. 2, and all employee
benefit plans and tax laws relating to employment at Business No. 1
and/or Business No. 2. There is no unfair labor practice complaint
against Seller relating to Business No. 1 and/or Business No. 2
pending before the National Labor Relations Board or similar agency or
body and, to Seller's Knowledge, no condition exists that could give
rise to any unfair labor practice complaint. There is no labor strike,
dispute, slowdown or stoppage actually pending or, to Seller's
Knowledge, threatened against or involving Business No. 1 and/or
Business No. 2. Seller has no labor contracts or collective bargaining
agreements with respect to any of its employees.
9.16 Environmental Laws.
-------------------
(a) To Seller's Knowledge, the real estate locations which are leased by
Seller, ("Real Estate") have not been used or operated in any fashion
involving producing, handling and disposing of chemicals, toxic
substances, wastes and effluent materials, x-rays or other materials
or devices in material violation of any laws, rules, regulations or
orders, and to the best of Seller's Knowledge, the Real Estate is in
material compliance with applicable laws, regulations, ordinances,
decrees and orders arising under or relating to health, safety, and
environmental laws and regulations, including without limitation the
Federal Occupation and Safety Health Act, 29 U.S.C. Sec.651, et seq.;
Federal Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C.
Sec.6901, et seq.; Federal Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), 42 U.S.C. Sec.9601, et
seq.; the Federal Clean Air Act, 42 U.S.C. Sec.2401, et seq.; the
Federal Clean Water Act, 33 U.S.C. Sec.1251, et seq.; and all state
and local laws that correspond therewith or supplement such laws.
(b) To Seller's Knowledge, the Real Estate has not been operated, in
violation of any laws, rules, regulations or orders, so as to involve
or create any surface impoundments, incinerators, land fills, waste
storage tanks, waste piles, or deep well injection systems or for the
purpose of storage, treatment or disposal of a hazardous waste as
defined by RCRA or hazardous substance, pollutant or contaminate as
defined by CERCLA and, to Seller's Knowledge, no acts have been
committed that would make the Real Estate or any part thereof subject
to remedial action under RCRA or CERCLA or corresponding state or
local laws.
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(c) To the best of Seller's Knowledge, there have not been, are not now
and as of the Closing Date, there will be no solid waste, hazardous
waste, hazardous substance, toxic substance, toxic chemicals,
pollutants or contaminants, underground storage tanks, purposeful
dumps, or accidental spills in, on or about the Real Estate or any of
the assets of Seller, whether real or personal, owned or leased, or
stored on any real property owned or leased by Seller or by Seller's
lessees, licensees, invites, or predecessors in amounts sufficient to
require any reporting obligations under any applicable environmental
laws, rules or regulations.
(d) Seller is not engaged in, and to Seller's Knowledge is not threatened
with any litigation, or governmental or other proceeding which may
give rise to any claim against the Real Estate. Specifically, there
are no pending suits, charges, actions, governmental investigations,
or other proceedings, involving, directly or indirectly without
limitation, the laws, statutes and regulations set forth in subsection
(a), above, whether initiated by a third party or by Seller and there
are none, to Seller's Knowledge, threatened against or relating to or
involving the Real Estate or the transactions contemplated by this
Agreement. To Seller's Knowledge, Seller is not in default with
respect to any order, writ, injunction or decree of any federal,
state, local or foreign court, department, agency or instrumentality.
(e) The Disclosure Schedule will list all waste disposal sites, dump sites
and other areas either on the Real Estate or offsite at which
hazardous or toxic waste generated by Seller has been disposed (in
each case identifying such waste) and it will specifically identify
each such site or area which is or has been included in any published
federal, state or local (domestic or foreign) superfund or other list
of hazardous or toxic waste sites or areas.
(f) To Seller's Knowledge, Seller has obtained all permits, and licenses
and other authorizations required by all environmental laws; and all
of such permits, licenses and other authorizations are in full force
and effect as of the date hereof. A true and correct list of all such
permits, licenses and other authorizations is set forth in the
Disclosure Schedule.
9.17 Certain Employees
------------------
(a) Each of the following is included in the list of agreements set forth
in the Disclosure Schedule: all collective bargaining agreements,
employment and consulting agreements, bonus plans, deferred
compensation plans, employee pension plans or retirement plans,
employee profit-sharing plans, employee stock purchase and stock
option plans, hospitalization insurance, and other plans and
arrangements providing for employee benefits of employees of the
Seller.
(b) The Disclosures Schedule contains a true, complete and accurate list
of the following: the names, positions, and compensation of the
present employees of Seller, together with a statement of the annual
salary payable to salaried employees and a summary of the bonuses and
description of agreements for additional compensation and other like
benefits, if any, paid or payable to such persons for the period set
forth in the Disclosure Schedule. Except as listed in the Disclosure
Schedule, to Seller's Knowledge, all employees of the Seller are
employees-at-will.
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(c) To Seller's Knowledge, Seller has no retired employees who are
receiving or are entitled to receive any payments, health or other
benefits from Seller.
9.18 Payments to Employees.
-----------------------
To Seller's Knowledge, accrued obligations of Seller relating to employees
and agents of Seller, whether arising by operation of law, by contract, or
by past service, for payments to trusts or other funds or to any
governmental agency, or to any individual employee or agent (or his heirs,
legatees, or legal representatives) with respect to unemployment
compensation benefits, deferred compensation, profit sharing or retirement
benefits, or social security benefits have been paid or accrued by Seller.
To Seller's Knowledge, all obligations of Seller as an employer or
principal relating to employees or agents, whether arising by operation of
law, by contract, or by past practice, for vacation and holiday pay,
bonuses, and other forms of compensation which are or may become payable to
such employees or agents, have been paid or will be paid or accrued by
Seller.
9.19 Change of Corporate Name.
---------------------------
At the Closing, the Seller, if requested by either Purchaser No. 1 and/or
Purchaser No. 2, will adopt and file with the Secretary of State of North
Carolina an Amendment to the Articles of Incorporation of Seller changing
the name of Seller to a name substantially dissimilar to SYSTEM 5
TECHNOLOGIES, INC.
9.20 Brokers and Finders.
---------------------
Except as set forth in the Disclosure Schedule, no broker, finder or other
person or entity acting in a similar capacity has participated on behalf of
Seller in bringing about the transaction herein contemplated, or rendered
any service with respect thereto or been in any way involved therewith.
9.21 Preservation of Organization.
------------------------------
Except as set forth on the Disclosure Schedule, since August 31st, 2001,
the Seller has kept intact Business No. 1 and/or Business No. 2 and
organization of the Seller; retained the services of all the Seller's
material employees and agents, retained the Seller's arrangements with the
manufacturers of the products distributed by Seller in the same manner as
conducted prior to such date, and other than as contemplated by this
Agreement, engaged in no transaction other than in the ordinary course of
Seller's Business No. 1 and/or Business No. 2.
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9.22 Absence of Certain Business Practices.
-----------------------------------------
Neither the Seller nor to the Seller's Knowledge, any officer, employee or
agent of the Seller, nor any other Person acting on its behalf, has,
directly or indirectly, within the past five years given or agreed to give
any gift, bribe, rebate or kickback or otherwise provide any similar
benefit to any customer, supplier, governmental employee or any other
Person who is or may be in a position to help or hinder the Seller or
Business No. 1 and/or Business No. 2 (or assist Seller in connection with
any actual or proposed transaction relating to Business No. 1 and/or
Business No. 2 or any other business previously operated by Seller) (i)
which subjected or might have subjected Seller to any damage or penalty in
any civil, criminal or governmental litigation or proceeding, (ii) which if
not given in the past, might have had a material adverse effect on Business
No. 1 and/or Business No. 2, (iii) which if not continued in the future,
might have a material adverse effect on Business No. 1 and/or Business No.
2 or subject Seller to suit or penalty in any private or governmental
litigation or proceeding, (iv) for any of the purposes described in Section
162(c) of the Code or (v) for the purpose of establishing or maintaining
any concealed fund or concealed bank account.
9.23 Suppliers.
---------
The Disclosure Statement sets forth the names of and description of
contractual arrangements (whether or not binding or in writing) with the
ten (10) largest suppliers of the Seller by sales or services in dollars.
Except as disclosed on the Disclosure Statement and assuming that Purchaser
No.1 and/or Purchaser No. 2, as applicable, continues to conduct Business
No. 1 and/or Business No. 2 in the ordinary course consistent with Seller's
prior practices generally and specifically with respect to Seller's current
suppliers, Seller has no direct knowledge that any of the current suppliers
of the Seller will, or intend to, (a) cease doing business with Seller; or
(b) materially alter the amount of business they are currently doing with
Seller; or (c) not do business with Purchaser No. 1 and/or Purchaser No. 2
after the Closing.
9.24 Product Liability Claims.
--------------------------
To Seller's Knowledge, there are no material product liability claims
against Seller, either potential or existing, which are not fully covered
by product liability insurance coverage with a responsible company which,
if determined adversely to Seller, would have a material adverse effect
upon Seller's Business No. 1 and/or Business No. 2.
9.25 Employee Benefit Plans.
------------------------
For the purposes of this Section 9.25, "Seller" shall include all persons
who are members of a controlled group, a group of trades or businesses
under common control, or an affiliated service group (within the meanings
of Sections 414(b), (c) or (m) of the Code), of which Seller is a member.
(a) The Employee Benefit Plans presently maintained by Seller or to which
Seller has contributed within the past six (6) years, including any
terminated or frozen plans which have not yet distributed all plan
E46
assets, are fully set forth in the Disclosure Schedule. For purposes
of this provision, the term "Employee Benefit Plan" shall mean:
(i) A Welfare Benefit Plan as defined in Section 3(1) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")
established for the purpose of providing for its participants or
their beneficiaries, through the purchase of insurance or
otherwise, medical, surgical, or hospital care or benefits, or
benefits in the event of sickness, accident, disability, death or
unemployment (including any plan or program of severance pay), or
vacation benefits, apprenticeship or other training programs, or
day care centers, scholarship funds, or prepaid legal services,
or any benefit described in Section 302(c) of the Labor
Management Relations Act of 1947;
(ii) An Employee Pension Benefit Plan as defined in Section 3(2) of
ERISA established or maintained by Seller for the purpose of
providing retirement income to employees or for the purpose of
providing deferral of income by employees for periods extending
to the termination of covered employment or beyond; and
(iii) Any other plan or arrangement not covered by ERISA but which
provides benefits to employees or former employees and results in
an accrued liability on the part of Seller either by contract or
by operation of law.
(b) With respect to any such Employee Benefit Plans, the Seller represents
and warrants that, to the best of Seller's Knowledge;
(i) The Seller has not, with respect to any Employee Benefit Plans,
engaged in any prohibited transaction, as such term is defined in
Section 4975 of the Code or Section 406 of ERISA.
(ii) The Seller has, with respect to any Employee Benefit Plans,
substantially complied with all reporting and disclosure
requirements required by Title I, Subtitle B, Part 1 of ERISA.
(iii) There was no accumulated funding deficiency (as defined in
section 302 of ERISA and Section 412 of the Code) with respect to
any Employee Pension Benefit Plan which is a defined benefit
pension plan, whether or not waived, as of the last day of the
most recent fiscal year of the plans ending prior to the date of
this Agreement.
(iv) Except as described on the Disclosure Schedule, there are no
contributions due to any Employee Pension Benefit Plan for the
most recent fiscal year of the plans ending prior to the date of
this Agreement and the Seller's Financial Statements reflect any
liability of Seller to make contributions to the Employee Pension
Benefit Plans, and a pro rata portion of the contributions
(including matching contributions) for the plan year on which the
Closing Date occurs shall have been made on or prior to the
Closing Date for the period ending on the Closing Date.
E47
(v) No material liability to the Pension Benefit Guaranty Corporation
("PBGC") has been asserted with respect to any Employee Pension
Benefit Plan which is a defined benefit pension plan.
(vi) There has been no reportable event as described in Section
4043(b) of ERISA since the effective date of Section 4043 of
ERISA with respect to any Employee Pension Benefit Plan which is
a defined benefit plan.
(vii) Except for claims for benefits by participants and beneficiaries
in the normal course of events, to the best of Seller's
knowledge, there are no claims, pending or threatened, by any
individual or Governmental Entity, which, if decided adversely,
would have a material adverse effect upon the financial condition
of any Employee Benefit Plan, the plan administrator of any
Employee Benefit Plan, or Seller.
(viii) The Seller has made available for inspection all annual reports
for Seller filed on Internal Revenue Service ("IRS") Form 5500 or
5500C, all reports for Seller prepared by an actuary for the last
three plan years, the plan and trust documents and the Summary
Plan Description, as amended, for each Employee Benefit Plan and
the last filed PBGC1 Form (if applicable) for each Employee
Benefit Plan, with respect to any Employee Benefit Plans other
than multi-employer plans (within the meaning of Section 3(37) of
ERISA), and other reports filed with the PBGC during the last
three plan years.
(ix) Except as set forth on the Disclosure Schedule, all Employee
Pension Benefit Plans are intended to be qualified retirement
plans under the Code. The IRS has issued, and Seller has made
available for inspection, one or more determination letters with
respect to the qualification of all such Employee Pension Benefit
Plans stating that the IRS has made a favorable determination as
to the qualification of such Plan under Section 401(a) of the
Code, and that continued qualification of the Plan in its present
form will depend upon its effect in operation. The time for
adoption of any amendments required by changes in the Code since
such determination letters were issued, or changes required by
the IRS as a condition for continued qualification of such plans
has not expired, or did not expire without such amendments being
made. Such plans are now, and always have been, established in
writing and maintained and operated in accordance with the plan
documents, ERISA, the Code, and all other applicable laws. Except
as described in the Disclosure Schedule, such Plans are now and
always have been, established in writing and maintained and
operated substantially in accordance with the plan documents,
ERISA, the Code and all other applicable laws, in all material
respects.
(x) There is no liability arising from the termination or partial
termination of any Employee Benefit Plan, except for liabilities
as to which adequate reserves are reflected on the Financial
Statements, and there exists no condition presenting a material
risk of such liability.
E48
(xi) The Seller has timely made any contributions it is obligated to
make to any multi-employer plan within the meaning of Section
3(37) of ERISA. The Seller has no liability arising as a result
of withdrawal from any multi-employer plan, no such withdrawal
liability has been asserted and no such withdrawal liability will
be asserted with regard to any withdrawal or partial withdrawal
on or before the date of this Agreement.
9.26 Assets Necessary to the Business.
------------------------------------
The Seller owns, leases or holds under license all assets and properties
(tangible and intangible) necessary to carry on Business No. 1 and Business
No. 2 and operations as presently conducted and as shown on the Financial
Statements. Such assets and properties are all of the assets and properties
necessary to carry on Seller's Business No. 1 and Business No. 2 as
presently conducted and Shareholders (other than through their ownership of
stock in Seller and/or as set forth on the Disclosure Schedule) nor any
member of his family owns or leases or has any interest in any assets or
properties presently being used to carry on Business No. 1 or Business No.
2 of Seller.
9.27 Transactions with Affiliates.
------------------------------
Except as disclosed on the Disclosure Schedule, there is no lease,
sublease, contract, agreement or other arrangement of any kind whatsoever
entered into by Seller and its Shareholders.
9.28 Territorial Restrictions.
-------------------------
Except as described in the Disclosure Schedule, Seller is not restricted by
any written agreement or understanding with any other Person from carrying
on the Business No. 1 and/or Business No. 2 anywhere in the world. Neither
Purchaser nor any of its Affiliates will, as a result of its acquisition of
Purchased Assets No. 1 and/or Purchased Assets No. 2 become restricted in
carrying on Business No. 1 and/or Business No. 2 anywhere in the world as a
result of any contract or other agreement to which Seller is a party or by
which it is bound.
9.29 Full Disclosure.
----------------
None of the representations and warranties made by Seller named herein, or
made on its behalf, including any disclosures made in the Disclosure
Schedule, contains or will contain, to Seller's knowledge, any untrue
statement of material fact or omits or will omit any material fact.
10.
REPRESENTATIONS AND WARRANTIES
------------------------------
OF PURCHASER NO. 1 AND PURCHASER NO. 2
--------------------------------------
Purchaser No. 1 hereby represents and warrants to the Seller that the following
statements are true and correct as of the date hereof, and shall be true and
correct as of the Closing Date:
E49
10.1 Organization, Good Standing and Power of Purchaser No. 1.
----------------------------------------------------------------
(a) Purchaser No. 1 is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Delaware and has
full corporate power and lawful authority to execute, deliver and
perform this Agreement and conduct Business No. 1 of the Seller
currently conducted by the Seller in each of the jurisdictions in
which the Seller currently conducts Business No. 1, which are the only
jurisdictions where the failure to be so qualified by Purchaser No. 1
will have a material adverse effect on the business prospects or
financial condition of Purchaser No. 1.
10.2 Status of Agreements.
----------------------
(a) All requisite corporate action (including action of its Board of
Directors) to approve, execute, deliver and perform this Agreement and
each of the other agreements, instruments and other documents to be
delivered by and on behalf of Purchaser No. 1 ("Other Purchaser No. 1
Documents") in connection herewith has been taken by Purchaser No. 1.
This Agreement has been duly and validly executed and delivered by
Purchaser No. 1 and constitutes the valid and binding obligation of
Purchaser No. 1 enforceable in accordance with its terms. All Other
Purchaser No. 1 Documents in connection herewith will, when executed
and delivered, constitute the valid and binding obligation of
Purchaser No. 1 enforceable in accordance with their respective terms.
(b) No authorization, approval, consent or order of, or registration,
declaration or filing with, any court, governmental body or agency or
other public or private body, entity or person is required (except for
Purchaser No. 1's primary lenders, Deutsche Financial Services
Company, et al, whose consent shall be obtained prior to Closing) in
connection with the execution, delivery or performance of this
Agreement or any Other Purchaser No. 1 Documents in connection
herewith.
(c) Neither the execution, delivery nor performance of this Agreement or
any of the Other Purchaser No. 1 Documents in connection herewith does
or will:
(i) conflict with, violate or result in any breach of any judgment,
decree, order, statute, ordinance, rule or regulation applicable
to Purchaser No. 1;
(ii) conflict with, violate or result in any breach of any agreement
or instrument to which Purchaser is a party or by which Purchaser
No. 1 or any of Purchaser's assets or properties is bound, or
constitute a default thereunder or give rise to a right of
acceleration of an obligation of Purchaser No. 1; or
(iii) conflict with or violate any provision of the Articles of
Incorporation or By-Laws of Purchaser No. 1.
10.3 Brokers and Finders.
---------------------
E50
No broker, finder or other person or entity acting in a similar capacity
has participated on behalf of Purchaser No. 1 in bringing about the
transaction herein contemplated, or rendered any service with respect
thereto or been in any way involved therewith.
Purchaser No. 2 hereby represents and warrants to the Seller that the following
statements are true and correct as of the date hereof.
10.4 Organization, Good Standing and Power of Purchaser No. 2.
----------------------------------------------------------------
(a) Purchaser No. 2 is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Delaware and has
full corporate power and lawful authority to execute, deliver and
perform this Agreement and conduct Business No. 2 of the Seller
currently conducted by the Seller in each of the jurisdictions in
which the Seller currently conducts Business No. 2, which are the only
jurisdictions where the failure to be so qualified by Purchaser No. 2
will have a material adverse effect on the business prospects or
financial condition of Purchaser No. 2.
10.5 Status of Agreements.
----------------------
(a) All requisite corporate action (including action of its Board of
Directors) to approve, execute, deliver and perform this Agreement and
each of the other agreements, instruments and other documents to be
delivered by and on behalf of Purchaser No. 2 ("Other Purchaser No. 2
Documents") in connection herewith has been taken by Purchaser No. 2.
This Agreement has been duly and validly executed and delivered by
Purchaser No. 2and constitutes the valid and binding obligation of
Purchaser No. 2 enforceable in accordance with its terms. All Other
Purchaser No. 2 Documents in connection herewith will, when executed
and delivered, constitute the valid and binding obligation of
Purchaser No. 2 enforceable in accordance with their respective terms.
(b) No authorization, approval, consent or order of, or registration,
declaration or filing with, any court, governmental body or agency or
other public or private body, entity or person is required (except for
Purchaser No. 2's primary lenders, Deutsche Financial Services
Company, et al, whose consent shall be obtained prior to Closing) in
connection with the execution, delivery or performance of this
Agreement or any Other Purchaser No. 2 Documents in connection
herewith.
(c) Neither the execution, delivery nor performance of this Agreement or
any of the Other Purchaser No. 2 Documents in connection herewith does
or will:
(i) conflict with, violate or result in any breach of any judgment,
decree, order, statute, ordinance, rule or regulation applicable
to Purchaser No. 2;
(ii) conflict with, violate or result in any breach of any agreement
or instrument to which Purchaser No. 2 is a party or by which
Purchaser No. 2 or any of Purchaser's assets or properties is
E51
bound, or constitute a default thereunder or give rise to a right
of acceleration of an obligation of Purchaser No. 2; or
(iii) conflict with or violate any provision of the Articles of
Incorporation or By-Laws of Purchaser No. 2.
10.6 Brokers and Finders.
---------------------
No broker, finder or other person or entity acting in a similar capacity
has participated on behalf of Purchaser No. 2 in bringing about the
transaction herein contemplated, or rendered any service with respect
thereto or been in any way involved therewith.
10.7 Full Disclosure.
----------------
None of the representations and warranties made by Purchaser No. 1 herein
contains or will contain, to the best of Purchaser No. 1's knowledge, any
untrue statement of material fact or omits or will omit any material fact.
None of the representations and warranties made by Purchaser No. 2 herein
contains or will contain, to the best of Purchaser No. 2's knowledge, any
untrue statement of material fact or omits or will omit any material fact.
11.
SURVIVAL OF AND RELIANCE UPON REPRESENTATIONS,
WARRANTIES AND AGREEMENTS; INDEMNIFICATION
------------------------------------------
11.1 Survival of Representations and Warranties.
----------------------------------------------
The parties acknowledge and agree that all representations, warranties and
agreements contained in this Agreement or in any agreement, instrument,
exhibit, certificate, schedule or other document delivered in connection
herewith, shall survive the Closing and continue to be binding upon the
party giving such representation, warranty or agreement and shall be fully
enforceable to the extent provided for in Sections 11.3 and 11.4 hereof, at
law or in equity, for the period beginning on the date of Closing and
ending two (2) years thereafter, except for the representations, warranties
and agreements designated and identified in Sections 3.1, 3.2, 3.3, 3.4,
4.1, 4.2, 4.6, 9.3, 9.11, 9.12, 9.13, 9.16, 10.2 and 10.5 which shall
survive the Closing and shall terminate in accordance with the statute of
limitations governing written contracts in the State of North Carolina and
Exhibits H and H-1, and Exhibits I, I-1, I-2 and I-3, which shall terminate
as provided therein.
E52
11.2 Reliance Upon and Enforcement of Representations, Warranties and
-----------------------------------------------------------------------
Agreements.
-----------
(a) The Seller hereby agrees that, notwithstanding any right of Purchaser
No. 1 and/or Purchaser No. 2 to fully investigate the affairs of
Seller, and notwithstanding knowledge of facts determined or
determinable by Purchaser No. 1 and/or Purchaser No. 2 pursuant to
such investigation or right of investigation, Purchaser No. and/or
Purchaser No. 2 have the right to rely fully upon the representations,
warranties and agreements of Seller and the Shareholders contained in
this Agreement and upon the accuracy of any document, certificate or
exhibit given or delivered to Purchaser No. 1 and/or Purchaser No. 2
pursuant to the provisions of this Agreement.
(b) Purchaser No. 1 and/or Purchaser No. 2 hereby agree that,
notwithstanding any right of Seller to fully investigate the affairs
of Purchaser No. 1 and/or Purchaser No. 2, and notwithstanding
knowledge of facts determined or determinable by Seller pursuant to
such investigation or right of investigation, Seller have the right to
rely fully upon the representations, warranties and agreements of
Purchaser No. 1 and/or Purchaser No. 2 contained in this Agreement and
upon the accuracy of any document, certificate or exhibit given or
delivered to Seller pursuant to the provisions of this Agreement.
11.3 Indemnification by Seller and Shareholders.
----------------------------------------------
Provided Purchaser No. 1 and/or Purchaser No. 2 make a written claim for
indemnification against Seller and/or Shareholders within any applicable
survival period specified in Section 11.1, and subject to the limitations
set forth in Section 11.7, the Seller and Shareholders (jointly and
severally), shall indemnify Purchaser No. 1 and/or Purchaser No. 2 against
and hold them harmless from any and all loss, damage, liability or
deficiency resulting from or arising out of:
(i) any inaccuracy in or breach of any representation, warranty, covenant,
or obligation made or incurred by Seller or the Shareholders herein or
in any other agreement, (including exhibits and schedules) or legal
instrument delivered by or on behalf of Seller pursuant to the
provisions of the Agreement;
(ii) any imposition (including by operation of law) or attempted imposition
by a third party upon Purchaser No. 1 and/or Purchaser No. 2 of any
Excluded Liability of Seller which Purchaser No. 1 has not
specifically agreed to assume pursuant to Section 3.1 of this
Agreement and/or which Purchaser No. 2 has not specifically agreed to
assume pursuant to Section 3.2 of this Agreement;
(iii)any liability of Seller arising out of Seller's operation of Business
No. 1 and/or Business No. 2, its ownership or use of the Purchased
Assets No. 1 and/or Purchased Assets No. 2, or occupancy and use of
the Real Estate prior to the Closing (except for any Assumed
Liabilities No. 1 or Assumed Liabilities No. 2 described in Sections
3.1 and 3.2, respectively) or other obligation incurred by or imposed
upon Purchaser No. 1 and/or Purchaser No. 2 resulting from the failure
of the parties to comply with the provisions of any law relating to
bulk transfers which may be applicable to the transaction herein
contemplated;
E53
(iv) any and all costs and expenses (including reasonable legal and
accounting fees) related to any of the foregoing.
Except as otherwise provided in this Agreement, nothing in this Section
11.3 shall be construed to limit the amount to which, or the time by which,
by reason of offset or otherwise, that Purchaser No. 1 and/or Purchaser No.
2 may recover from Seller or any Shareholder pursuant to this Agreement
resulting from Seller's or any Shareholder's breach or violation of any
representation, warranty, covenant or agreement contained herein.
Any amounts to which Purchaser No. 1 and/or Purchaser No. 2, their
successors or assigns, is entitled to indemnification pursuant to the
provisions of this Section, shall first be offset against the amount
payable to Seller against the subordinated promissory notes, then against
any payments due under Section 4.6. Provided, however, the offset in any
one year may not exceed the aggregate amount payable of principal and
interest due on said applicable subordinated promissory notes for said
year, and any amount, if any, payable under Section 4.6 for such year.
11.4 Indemnification by Purchaser No. 1 and/or Purchaser No. 2.
-----------------------------------------------------------------
Provided Shareholders and/or Seller make a written claim for
indemnification against Purchaser No. 1 and/or Purchaser No. 2, as
applicable, within any applicable survival period specified in Section 11
and subject to the limitation set forth in Section 11.8, Purchaser No. 1
and/or Purchaser No. 2, jointly and severally, shall indemnify Seller and
each Shareholder against and hold them harmless from any and all loss,
damage, liability or deficiency resulting from or arising out of: (i) any
Assumed Liabilities of Purchaser No. 1 or any Assumed Liabilities of
Purchaser No. 2 , as applicable; (ii) any liability of Purchaser No. 1
and/or Purchaser No. 2 arising out of Purchaser No. 1's and/or Purchaser
No. 2's operations subsequent to the Closing (except to the extent such
liability is the result of a breach of a covenant or warranty of Seller
hereunder); (iii) any inaccuracy in or breach of any representation,
warranty, covenant or obligation made or incurred by Purchaser No. 1 and/or
Purchaser No. 2, as applicable herein or in any other agreement,
instrument, or document delivered by or on behalf of Purchaser No. 1 and/or
Purchaser No. 2 pursuant to the provisions of this Agreement; and (iv) any
and all related costs and expenses (including reasonable legal and
accounting fees). Except as otherwise provided herein, nothing in this
Section 11.4 shall be construed to limit the amount to which, or the time
by which, by reason of offset or otherwise, that Seller may recover from
Purchaser No. 1 and/or Purchaser No. 2 pursuant to this Agreement resulting
from its breach or violation of any representation, warranty, covenant or
agreement contained herein.
E54
11.5 Notification of and Participation in Claims.
------------------------------------------------
(a) No claim for indemnification shall arise until notice thereof is given
to the party from whom indemnity is sought. Such notice shall be sent
within ten (10) days after the party to be indemnified has received
notification of such claim, but failure to notify the indemnifying
party shall in no event prejudice the right of the party to be
indemnified under this Agreement, unless the indemnifying party shall
be prejudiced by such failure and then only to the extent of such
prejudice. In the event that any legal proceeding shall be instituted
or any claim or demand is asserted by any third party in respect of
which Seller/Shareholders on the one hand, or Purchaser No. 1 and/or
Purchaser No. 2, as applicable, on the other hand, may have an
obligation to indemnify the other, the party asserting such right to
indemnity (the "Party to be Indemnified") shall give or cause to be
given to the party from whom indemnity is sought (the "Indemnifying
Party") written notice thereof and the Indemnifying Party shall have
the right, at its option and expense, to participate in the defense of
such proceeding, claim or demand, but not to control the defense,
negotiation or settlement thereof, which control shall at all times
rest with the Party to be Indemnified, unless the Indemnifying Party
irrevocably acknowledges in writing full and complete responsibility
for and agrees to provide indemnification of the Party to be
Indemnified, in which case such Indemnifying Party may assume such
control through counsel of its choice and at its expense. In the event
the Indemnifying Party assumes control of the defense, the
Indemnifying Party shall not be responsible for the legal costs and
expenses of the Party to be Indemnified in the event the Party to be
Indemnified decides to join in such defense. The parties hereto agree
to cooperate fully with each other in connection with the defense,
negotiation or settlement of any such third party legal proceeding,
claim or demand.
(b) If the Party to be Indemnified is also the party controlling the
defense, negotiation or settlement of any matter, and if the Party to
be Indemnified determines to compromise the matter, the Party to be
Indemnified shall immediately advise the Indemnifying Party of the
terms and conditions of the proposed settlement. If the Indemnifying
Party agrees to accept such proposal, the Party to be Indemnified
shall proceed to conclude the settlement of the matter, and the
Indemnifying Party shall immediately indemnify the Party to be
Indemnified pursuant to the terms of Sections 11.3 and 11.4 hereunder.
If the Indemnifying Party does not agree within fourteen (14) days to
accept the settlement (said 14-day period to begin on the first
business day following the date such party receives a complete copy of
the settlement proposal), the Indemnifying Party shall immediately
assume control of the defense, negotiation or settlement thereof, at
that Indemnifying Party's expense. Thereafter, the Party to be
Indemnified shall be indemnified in the entirety for any liability
arising out of the ultimate defenses, negotiation or settlement of
such matter.
(c) If the Indemnifying Party is the party controlling the defense,
negotiation or settlement of any matter, and the Indemnifying Party
determines to compromise the matter, the Indemnifying Party shall
immediately advise the Party to be Indemnified of the terms and
conditions of the proposed settlement. If the Party to be Indemnified
agrees to accept such proposal, the Indemnifying Party shall proceed
to conclude the settlement of the matter and immediately indemnify the
Party to be Indemnified pursuant to the terms of Sections 11.3 or 11.4
hereunder. If the Party to be Indemnified does not agree within
E55
fourteen (14) days to accept the settlement (said 14-day period to
begin on the first business day following the date such party receives
a complete copy of the settlement proposal), the Party to be
Indemnified shall immediately assume control of the defense,
negotiation or settlement thereof, at the Party to be Indemnified's
expense. If the final amount paid to resolve the claim is less than
the amount of the original proposed settlement made by the
Indemnifying Party, then the Party to be Indemnified shall receive
such indemnification pursuant to Sections 11.3 or 11.4 hereof,
including any and all expenses incurred by the Party to be Indemnified
incurred in connection with the defense, negotiation or settlement of
such matter up to the maximum of the original proposed settlement. If
the amount finally paid to resolve the claim is equal to or greater
than the amount of the original proposed settlement proposed by the
Indemnifying Party, then the Indemnifying Party shall provide
indemnification pursuant to Sections 11.3 and 11.4 for the amount of
the original settlement proposal submitted by the Indemnifying Party,
and the Party to be Indemnified shall be responsible for all amounts
in excess of the original settlement proposal submitted by the
Indemnifying Party and all costs and expenses incurred by the Party to
be Indemnified in connection with such defense, negotiation or
settlement.
11.6 Excluded Liabilities.
---------------------
(a) Notwithstanding anything contained herein to the contrary, in the
event any Excluded Liability would attach to Purchased Assets No. 1
and/or Purchased Assets No. 2 under any successor liability statute or
otherwise, notwithstanding the fact that such liability was an
Excluded Liability, Seller and Shareholders shall be jointly and
severally responsible for the payment of such Excluded Liability and
the lien on Purchased Assets No. 1 and/or Purchased Assets No. 2
(which would represent a breach of certain representations under the
Agreement) related to such liability.
11.7 Limitation on Liability.
-------------------------
Notwithstanding the provisions of the Section 11, Seller and Shareholders
shall not have any indemnification obligation under this Agreement unless
and until the aggregate amount of the claimed liability exceeds
[$25,000.00] and Seller and Shareholders shall be liable for
indemnification of the Indemnified Party only to the extent that actual
losses exceed [$25,00.00] as further modified by Section 11. The maximum
liability that Seller and the Shareholder may be required to pay to
Purchaser No. 1 and Purchaser No. 2 under this Section 11 shall not exceed
an amount equal to the total consideration paid to Seller and the maximum
liability that any Shareholder may be individually required to pay to
Purchaser No. 1 and Purchaser No. 2 under this Section 11 shall not exceed
an amount equal to the total consideration paid to Seller hereunder by
Purchaser No. 1 and Purchaser No. 2 hereunder multiplied by the following
respective percentages:
D. Tweedy and J. Tweedy - 95%
P. Tetreault - 5%
E56
11.8 Limitation on Liability.
-------------------------
Notwithstanding anything contained in this Agreement to the contrary, the
maximum amount that Purchaser No. 1 and/or Purchaser No. 2, as applicable,
payable to the Seller under this Section 12 as a result of any and all
breaches shall be limited to the total consideration paid under this
Agreement by Purchaser No. 1 and Purchaser No. 2, as applicable, to the
Seller.
11.9 Miscellaneous.
-------------
The amount payable by an indemnifying party under Sections 11.7 or 11.8
with respect to a loss shall be reduced by the amount of any insurance
proceeds received by the indemnified party with respect to the loss and
each party agrees to use its best efforts to collect any and all insurance
proceeds to which it may be entitled in respect of any loss. The amount
payable by an indemnifying party shall also be net of any federal, state or
local tax benefit (calculated at a 40% rate) derived by the indemnified
party by reason of the loss.
12.
THE CLOSING
-----------
12.1 Date, Time and Place of Closing.
------------------------------------
Consummation of the transactions contemplated hereby (the "Closing") shall
take place simultaneously with the execution of this Agreement at the
offices of Lindhorst & Dreidame Co., LPA, 312 Walnut Street, Suite 2300,
Cincinnati, Ohio 45202, or at such other place as the parties may mutually
agree upon.
12.2 Conditions Precedent to Purchaser No. 1's and Purchaser No. 2's
------------------------------------------------------------------------
Obligations.
------------
The obligation of Purchaser No. 1 and/or Purchaser No. 2 to perform in
accordance with this Agreement and to consummate the transactions herein
contemplated is subject to the satisfaction of the following conditions at
or before the Closing:
(a) Seller shall have complied with and performed all of the
representations, warranties, agreements and covenants hereunder
required to be performed by it prior to or at the Closing;
(b) There shall be no pending or threatened legal action which, if
successful, would prohibit consummation or require substantial
rescission of the transactions contemplated by this Agreement;
(c) The business, aggregate properties and operations of the Seller shall
not have been materially adversely affected as a result of any fire,
accident or other casualty or any labor disturbance or act of God or
the public enemy, and there shall otherwise have been no material
adverse change to the business, aggregate properties, or operations of
the Seller since August 31st, 2001;
E57
(d) Seller shall have delivered to Purchaser No. 1 and/or Purchaser No. 2,
as applicable, at or before the Closing, the following documents, all
of which shall be in form and substance reasonably acceptable to
Purchaser No. 1 and Purchaser No. 2 and its counsel:
(i) The instruments of transfer required by Sections 2.6 and 2.7;
(ii) Releases (or copies thereof) of all liens, claims, charges,
encumbrances, security interests and restrictions on Purchased
Assets No. 1 and Purchased Assets No. 2 necessary to provide
Purchaser No. 1 with good title to each of the Purchased Assets
No. 1 at the Closing and to provide Purchaser No. 2 with good
title to each of the Purchased Assets no. 2 at the Closing;
(iii)Certified copies of the corporate actions taken by the Board of
Directors and Shareholders of Seller authorizing the execution,
delivery and performance of this Agreement;
(iv) Certificates of Existence for Seller from the Secretary of State
of North Carolina dated no earlier than fifteen (15) days prior
to Closing;
(v) The Escrow Agreement referenced in Exhibit C has been executed by
all parties;
(vi) The Seller and each Shareholder shall have entered into the
non-competition agreements as set forth in the respective
Exhibits;
(vii) D. Tweedy and P. Tetreault shall have entered into his respective
Employment Agreement as set forth in the respective Exhibits.
(e) Seller will adopt and file with the Secretary of State of North
Carolina an Amendment to the Charter of Seller changing the name of
Seller to a name substantially dissimilar to SYSTEM 5 TECHNOLOGIES,
INC.
(f) Purchaser No. 1 and Purchaser No. 2 shall have received assurances in
form and substance satisfactory to it that Seller is currently not
providing any COBRA benefits to any former employee, and Purchaser No.
1 and Purchaser No. 2 shall have received assurances in form and
substance satisfactory to them that Seller has made all provisions
necessary under applicable law, with regard to an employer's
obligation to provide for a continuation of health insurance and other
benefits of any employee, who is not employed by Seller following
termination of employment.
12.3 Conditions Precedent to Seller's Obligations.
------------------------------------------------
The obligation of Seller to perform in accordance with this Agreement and
to consummate the transactions herein contemplated is subject to the
satisfaction of the following conditions at or before the Closing:
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(a) Performance by Purchaser No. 1 and Purchaser No. 2 of all of the
representations, warranties, agreements and covenants to be performed
by it at or before the Closing;
(b) There shall be no pending or threatened legal action which, if
successful, would prohibit consummation or require substantial
rescission of the transactions contemplated by this Agreement;
(c) Purchaser No. 1 shall deliver to the Seller at or before the Closing
the following documents, all of which shall be in form and substance
acceptable to the Seller and its counsel:
(i) A certified or bank cashier's check or wire transfer for the
aggregate amount to be paid to Seller at the Closing pursuant to
Section 4.3(a) hereof;
(ii) A certified or bank cashier's check or wire transfer for the
aggregate amount to be paid to Escrow Agent at the Closing
pursuant to Section 4.3(b) hereof;
(iii) A Promissory Note as set forth in Section 4.3(c) hereof;
(iv) An assumption of liability agreement under which Purchaser No. 1
assumes the liabilities set forth in Section 3.1;
(v) Certified copies of the corporate actions taken by Purchaser No.
1 authorizing the execution, delivery and performance of this
Agreement;
(vi) Certificate of Good Standing for Purchaser No. 1 from the
Secretary of State of Delaware dated no earlier than fifteen (15)
days prior to the date of Closing.
(d) Purchaser No. 2 shall deliver to the Seller at or before the Closing
the following documents, all of which shall be in form and substance
acceptable to Seller and its counsel:
(i) A certified or bank cashier's check or wire transfer for the
aggregate amount to be paid to Seller at the Closing pursuant to
Section 4.4(a) hereof;
(ii) An assumption of liability agreement under which Purchaser No. 2
assumes the liabilities set forth in Section 3.2;
(iii) Certified copies of the corporate actions taken by Purchaser No.
2 authorizing the execution, delivery and performance of this
Agreement;
(iv) Certificate of Good Standing for Purchaser No. 2 from the
Secretary of State of Delaware dated no earlier than fifteen (15)
days prior to the date of Closing.
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(e) Purchaser No. 1 shall have entered into the Employment Agreements with
D. Tweedy and P. Tetreault as set forth in Exhibits H and H-1,
respectively;
13.
GENERAL PROVISIONS
------------------
13.1 Publicity.
---------
All public announcements relating to this Agreement or the transactions
contemplated hereby will be made by Purchaser No. 1 and Purchaser No. 2
with the consent of the Seller, which consent will not be unreasonably
withheld, except for any disclosure which may be required because of
Purchaser No. 1's being a publicly-traded corporation on the
over-the-counter market.
13.2 Expenses.
--------
Purchaser No. 1 will bear and pay all of its expenses incident to the
transactions contemplated by this Agreement which are incurred by Purchaser
No. 1 or its representatives, Purchaser No. 2 will bear and pay all of its
expenses incident to the transactions contemplated by this Agreement which
are incurred by Purchaser No. 2 or its representatives, and Seller shall
bear and pay all of the expenses incident to the transactions contemplated
by this Agreement which are incurred by Seller or its representatives.
13.3 Notices.
-------
All notices and other communications required by this Agreement shall be in
writing and shall be deemed given if delivered by hand or mailed by
registered mail or certified mail, return receipt requested, to the
appropriate party at the following address (or at such other address for a
party as shall be specified by notice pursuant hereto):
(a) If to Purchaser No. 1, to:
Pomeroy Computer Resources, Inc.
1020 Petersburg Road
Hebron, Kentucky 41048
(b) If to Purchaser No. 2, to
Pomeroy Select Integration Solutions, Inc.
1020 Petersburg Road
Hebron, Kentucky 41048
With a copy to:
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James H. Smith III, Esq.
Lindhorst & Dreidame
312 Walnut Street, Suite 2300
Cincinnati, Ohio 45202
(c) If to Seller, to:
System 5 Technologies, Inc.
Champions Pointe
16930 W. Catawba Avenue, Suite 200
Cornelius, NC 28031
With a copy to:
Womble Carlyle Sandridge & Rice, PLLC
3300 One First Union Center
Charlotte, NC 28202
Attn: Keith D. Butcher, Esq.
(d) If to Shareholders, to:
Dale Tweedy
146 Brick Kiln Way
Mooresville, NC 28117
Jill Tweedy
146 Brick Kiln Way
Mooresville, NC 28117
Phil Tetreault
4949 Trotter Drive
Raleigh, NC 27603
13.4 Binding Effect.
---------------
Except as may be otherwise provided herein, this Agreement and all the
provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, legal representatives,
successors and assigns.
13.5 Headings.
--------
The headings in this Agreement are intended solely for convenience of
reference and shall be given no effect in the construction or
interpretation of this Agreement.
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13.6 Exhibits.
--------
The Exhibit and Disclosure Schedule referred to in this Agreement
constitute an integral part of this Agreement as if fully rewritten herein.
13.7 Counterparts.
------------
This Agreement may be executed in multiple counterparts, each of which
shall be deemed an original, but all of which constitute together one and
the same document.
13.8 Governing Law.
--------------
This Agreement shall be construed in accordance with and governed by the
laws of the State of Kentucky, without regard to its laws regarding
conflict of laws.
13.9 Severability.
------------
If any provision of this Agreement shall be held unenforceable, invalid, or
void to any extent for any reason, such provision shall remain in force and
effect to the maximum extent allowable, if any, and the enforceability or
validity of the remaining provisions of this Agreement shall not be
affected thereby.
13.10 Waivers; Remedies Exclusive.
-----------------------------
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No waiver of any right or option hereunder by any party shall operate as a
waiver of any other right or option, or the same right or option with
respect to any subsequent occasion for its exercise, or of any right to
damages. No waiver by any party of any breach of this Agreement or of any
representation or warranty contained herein shall be held to constitute a
waiver of any other breach or a continuation of the same breach. No waiver
of any of the provisions of this Agreement shall be valid and enforceable
unless such waiver is in writing and signed by the party granting the same.
Except as otherwise provided in the Subordinated Promissory Notes, the
Employment Agreements and the Covenant Not to Compete Agreements, the
indemnification provided for by Section 12 herein shall constitute the
exclusive remedy of any party with respect to (i) the matters for which
such indemnification is provided and (ii) any other matters arising out of,
relating to or connected with this Agreement or the transactions
contemplated hereby, and whether any claims or causes of action asserted
with respect to any such matters are brought in contract, tort or other
legal theory whatsoever. Such limitations set forth in this Section 15.10
shall not impair the rights of any of the parties: (a) to seek non-monetary
equitable relief, including (without limitation) specific performance or
injunctive relief to address any default or breach of this Agreement; or
(b) to seek enforcement, collection, damages or any non-monetary equitable
relief to address any subsequent default or breach of any transfer
document, assumption, consent or agreement to be delivered at Closing
hereunder or to seek declaratory relief or any related relief relating to
certain issues that may arise under Sections 4.6, 5.1 and 5.2. In
connection with the seeking of any non-monetary equitable relief, each of
the parties acknowledge and agree that the other parties hereto would be
damaged irrevocably in the event any of the provisions of this Agreement
are not performed in accordance with their specific terms or otherwise are
breached. Accordingly, each of the parties hereto agree that the other
parties hereto shall be entitled to an injunction or injunctions or prevent
breaches of the provisions of this Agreement and to enforce specifically
this Agreement and the terms and conditions hereof by any state court of
competent jurisdiction. The parties hereby consent to exclusive
jurisdiction of venue in the state courts of Mecklenburg County, North
Carolina, or if there is exclusive federal jurisdiction, the United States
District Court for the Western District of North Carolina, shall have
exclusive jurisdiction and venue over any dispute arising out of this
Agreement.
13.11 Assignments.
-----------
Except as otherwise provided in this Agreement, no party shall assign its
rights or obligations hereunder prior to Closing without the prior written
consent of the other party.
13.12 Entire Agreement.
-----------------
This Agreement and the agreements, instruments and other documents to be
delivered hereunder constitute the entire understanding and agreement
concerning the subject matter hereof. All negotiations between the parties
hereto are merged into this Agreement, and there are no representations,
warranties, covenants, understandings, or agreements, oral or otherwise, in
relation thereto between the parties other than those incorporated herein
and to be delivered hereunder. Except as otherwise expressly contemplated
by this Agreement, nothing expressed or implied in this Agreement is
intended or shall be construed so as to grant or confer on any person, firm
or corporation other than the parties hereto any rights or privilege
hereunder. No supplement, modification or amendment of this Agreement shall
be binding unless executed in writing by the parties hereto.
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13.13 Business Records.
-----------------
Seller and each Shareholder shall be permitted to retain originals or
copies of such books and records relating to Purchased Assets No. 1 and/or
Purchased Assets No. 2 and relating to the accounting and tax matters of
Business No. 1 and/or Business No. 2 and the party receiving copies shall
have access to all original copies of records at reasonable times, for any
reasonable business purpose, for a period of six (6) years after the
Closing.
13.14 Dissolution of Seller.
-----------------------
Purchaser No. 1 and Purchaser No. 2 acknowledge that following the Closing,
Seller may adopt a plan of liquidation with the intent to dissolve the
corporation. Provided, however, Seller and each Shareholder agree that the
plan of liquidation will not be effectuated and implemented by Seller until
all the conditions set forth in Section 2 of this Agreement regarding the
transfer of all the respective purchased assets have been effectuated by
Seller. Seller acknowledges that Purchaser No. 1 and Purchaser No. 2 will
suffer irreparable harm in the event that Seller would liquidate prior to
satisfying all of its obligations under the terms of this Agreement and the
exhibits hereto.
13.15 Effective Date of Agreement.
------------------------------
This Agreement shall be effective at the close of business on the Closing
Date.
14.
CONSENT TO GRANTING OF A
------------------------
SECURITY INTEREST IN ACQUISITION DOCUMENTS
------------------------------------------
14.1 Seller consents and agrees that upon the Closing of this transaction,
Purchaser No. 1 and Purchaser No. 2 shall have the right to grant to
Deutsche Financial Services Corporation, as Administrative Agent for the
benefit of various lenders under a Credit Facilities Agreement among
Deutsche Financial Services Corporation, as Administrative Agent and
certain other lenders, and Purchaser No. 1 and Purchaser No. 2 and various
Affiliates of such parties, a first priority security interest and lien on
all of Purchaser No. 1's and Purchaser No. 2's rights, remedies, claims and
interests under all the acquisition documents for this transaction.
Seller agrees to execute at Closing an assignment of rights agreement, a
copy of which is attached hereto as Exhibit J.
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The parties hereto have executed this Agreement as of the date first above
written.
WITNESSES: SYSTEM 5 TECHNOLOGIES, INC.
___________________________ By:__________________________________
___________________________ Its: _______________________________
___________________________ SHAREHOLDERS:
___________________________ _____________________________________
DALE TWEEDY
___________________________
___________________________ _____________________________________
JILL TWEEDY
___________________________
___________________________ _____________________________________
PHIL TETREAULT
POMEROY COMPUTER RESOURCES,
___________________________ INC.
___________________________ By:__________________________________
POMEROY SELECT INTEGRATION
___________________________ SOLUTIONS, INC.
___________________________ By:__________________________________
E65
ASSET PURCHASE AGREEMENT
------------------------
This ASSET PURCHASE AGREEMENT (the "Agreement") is made and is entered into this
21st day of September, 2001, by, between and among POMEROY SELECT INTEGRATION
SOLUTIONS, INC. ("Purchaser"), and BALLANTYNE CONSULTING GROUP, INC., a North
Carolina corporation ("Seller"), MARK DeMEO ("M. DeMeo"), JOE SCHMIDT ("J.
Schmidt"), SCOTT SCHNEIDER ("S. Schneider") and DALE TWEEDY ("D. Tweedy") (M.
DeMeo, J. Schmidt, S. Schneider and D. Tweedy hereinafter referred to
collectively as the "Shareholders" and individually as the "Shareholder").
W I T N E S S E T H :
WHEREAS, Seller is a full service provider of a variety of information
technology consulting service and support solutions, including module or full
suite implementations, functional configuration, custom development,
applications training, version upgrades, database management support and data
warehousing and reporting solutions to large and medium size commercial,
governmental and other professional customers throughout the Southeastern
portion of the United States; and
WHEREAS, Shareholders are the owners of Nine Thousand One Hundred Fifty (9,150)
shares of the outstanding stock of Seller, in the following proportions: M.
DeMeo - 3,120 shares, J. Schmidt - 1,350 shares, S. Schneider - 2,600 shares,
and D. Tweedy - 2,080 shares, which stock constitutes 93.6% of all the
outstanding stock of Seller; and
WHEREAS, Purchaser is a single source provider of integrated desktop management
and network services including life cycle services, internetworking services,
and end user support services; and
WHEREAS, Purchaser is a wholly owned subsidiary of Pomeroy Computer Resources,
Inc. ("PCR"), which is in the business of marketing and selling a broad range of
microcomputers and related products, including equipment selection, procurement
and configuration; andWHEREAS, Purchaser desires to purchase certain of the
assets of Seller used in its information technology consulting service and
support solutions business ("the Business"), and assume certain of the
liabilities of the Seller in connection with the Business, and Seller desires to
sell certain of such assets, subject to such liabilities, but only upon (i) the
terms and subject to the conditions set forth in this Agreement, (ii) the
representations, warranties, covenants, indemnifications, assurances and
undertakings of the Seller, each Shareholder and of Purchaser contained in this
Agreement, (iii) the agreement of the Seller to refrain from competition with
Purchaser for the term set forth in its Non-Competition Agreement (iv) the
agreement of each Shareholder to refrain from competition for the term set forth
in his/her respective Non-Competition Agreement .
E66
NOW, THEREFORE, in consideration of the above premises and the mutual promises,
covenants, agreements, representations and warranties herein contained, the
parties hereto agree as follows:
1.
DEFINITIONS
-----------
1.1 Affiliate. "Affiliate" shall have the meaning ascribed to such term in
---------
Rule 405 promulgated under the Securities Act of 1933, as amended.
1.2 Assumed Liabilities. The "Assumed Liabilities" are the liabilities of
--------------------
Seller assumed or paid at Closing by Purchaser pursuant to Section 3.1 of
this Agreement.
1.3 Balance Sheet. The "Balance Sheet" is the unaudited balance sheet of
--------------
Seller as of August 31st, 2001, included as part of the Financial
Statements.
1.4 Closing. The "Closing" shall be the consummation of the transactions
-------
contemplated under this Asset Purchase Agreement.
1.5 Closing Date. The "Closing Date" shall be as of 9:00 a.m., E.D.T.,
-------------
September 21, 2001.
1.6 Code. The "Code" is the Internal Revenue Code of 1986, as amended, 26
----
U.S.C. Sec.1 et seq.
-------
1.7 Court. A "Court" is any federal, state, municipal, domestic, foreign or
-----
other governmental tribunal or an arbitrator or person with similar power
or authority.
1.8 Disclosure Schedule. The "Disclosure Schedule" is the Disclosure Schedule
--------------------
dated the date of this Agreement and delivered by Seller to Purchaser.
1.9 Encumbrance. An "Encumbrance" is any security interest, lien, or
-----------
encumbrance whether imposed by agreement, law or otherwise, on any of the
Purchased Assets (as defined herein).
1.10 Excluded Assets. An "Excluded Asset" is any asset set forth in Section
----------------
2.3.
1.11 Financial Statements. The "Financial Statements" are the unaudited
---------------------
financial statements of Seller for the years ending December 31st, 2000 and
December 31st, 1999, including any and all notes thereto, and the unaudited
financial statements of the Seller for the period commencing January 1st,
2001 and ending August 31st, 2001, including any and all notes thereto.
1.12 Governmental Entity. A "Governmental Entity" is any Court or any federal,
-------------------
state, municipal, domestic, foreign or other administrative agency,
department, commission, board, bureau or other governmental authority or
instrumentality.
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1.13 Knowledge of Seller and Any Shareholder or Seller's Knowledge. "Knowledge
-------------------------------------------------------------
of Seller and Shareholders and/or Seller's Knowledge" shall mean actual
knowledge of any Shareholder.
1.14 Net Asset Amount. "Net Asset Amount" shall have the meaning set forth in
-----------------
Section 5.1.
1.15 2001 ANNUALIZED EBITDA. The earnings before interest, taxes, depreciation
----------------------
and amortization of Seller for the period commencing July 1st, 2001 and
ending upon the Closing Date and for Purchaser's Ballantyne Consulting
Group Division for the period commencing on the Closing Date and ending
December 31st, 2001, as set forth in Section 5.2. The determination of the
2001 Annualized EBITDA shall be determined in accordance with the
provisions set forth in Section 5.2.
1.16 EBITDA. The earnings before interest, taxes, depreciation and
------
amortization of Purchaser's System 5/Ballantyne Division and Purchaser's
parent company, Pomeroy Computer Resources, Inc. System 5/Ballantyne
Division for the applicable period as set forth in Sections 4.4 and 4.5.
The determination of EBITDA shall be determined in accordance with the
provisions set forth in Sections 4.6.
1.17 Person. Any natural person, firm, partnership, association, corporation,
------
company, limited liability company, limited partnership, trust, business
trust, governmental authority or other entity.
1.18 Pro Forma Balance Sheet. The "Pro Forma Balance Sheet" is the balance
--------------------------
sheet of Seller prepared as described in Section 5.1 and adjusted for
Excluded Assets of Seller and Excluded Liabilities relating to the Business
of Seller as of the Closing Date as adjusted by Section 5.1 which sets
forth certain Excluded Liabilities that shall be included within the Net
Asset Amount.
1.19 Purchase Price. The "Purchase Price" is the total consideration paid by
---------------
Purchaser to Seller for the Purchased Assets as set forth in Sections 4.1,
4.4 and 4.5.
1.20 Purchased Assets. The "Purchased Assets" are the assets of Seller used in
----------------
the Business, acquired by Purchaser pursuant to the terms of this
Agreement.
1.21 Seller's Accountant. "Seller's Accountant" shall mean KPMG.
--------------------
1.22 August 31st Pro-Forma Balance Sheet. The "August 31st Pro-Forma Balance
-------------------------------------
Sheet" is the unaudited balance sheet of the Seller adjusted for Excluded
Assets and Excluded Liabilities of Seller relating to the Business as of
August 31st, 2001, as adjusted by Section 5.1 which sets forth certain
Excluded Liabilities that shall be included within the August 31st Pro
Forma Balance Sheet for purposes of reflecting the procedure in which the
Net Asset Amount shall be calculated.
1.23 Tax or Taxes. Any federal, state, provincial, local, foreign or other
--------------
income, alternative, minimum, any taxes under Section 1374 of the Code, any
taxes under Section 1375 of the Code, accumulated earnings, personal
holding company, franchise, capital stock, net worth, capital, profits,
E68
windfall profits, gross receipts, value added, sales, use, goods and
services, excise, customs duties, transfer, conveyance, mortgage,
registration, stamp, documentary, recording, premium, severance,
environmental, including taxes under Section 59A of the Code), real
property, personal property, ad valorem, intangibles, rent, occupancy,
license, occupational, employment, unemployment insurance, social security,
disability, workers' compensation, payroll, health care, withholding,
estimated or other similar tax, duty or other governmental charge or
assessment or deficiencies thereof (including all interest and penalties
thereon and additions thereto whether disputed or not).
1.24 Tax Return. A "Tax Return" is a report, return or other information
-----------
required to be supplied to a Governmental Entity in connection with Taxes
including, where permitted or required, combined or consolidated returns
for any group of entities that includes Seller.
E69
2.
TERMS
-----
2.1 Agreement.
---------
Seller agrees to sell and convey to Purchaser the Purchased Assets as
hereinafter set forth in Section 2.2 owned by such entity. Purchaser agrees
to purchase the Purchased Assets. The agreements of Purchaser and Seller
are expressly conditioned upon the terms, conditions, covenants,
representations and warranties as hereinafter set forth.
2.2 Assets to be Sold by Seller and Purchased by Purchaser.
---------------------------------------------------------------
At the Closing of this transaction, Purchaser shall purchase and Seller
shall sell the assets of Seller used in the Business, except for the
Excluded Assets relating to the Business. The Purchased Assets shall
include, but not be limited to:
(a) All tangible personal property and assets of Seller of every kind and
description, real, personal or mixed, wherever located, used in the
Business, including without limitation, all such assets as reflected
on the August31st, 2001 Pro Forma Balance Sheet (excepting those
assets disposed of, and including those assets acquired, in the
ordinary course of business since the date of the August31st, 2001 Pro
Forma Balance Sheet);
(b) All intangible assets of Seller which are used in the Business of the
Seller, including without limitation, all purchase orders, contract
rights and agreements, work in process, customer lists, supplier
agreements, patents, trademarks and service marks (including the
goodwill associated with the marks), office supplies, computer
programs, claims of Seller, the right to use of the corporate and
trade names of or used by Seller, or any derivative thereof, as all or
part of a corporate or trade name;
(c) All investment securities, cash and cash equivalents and customer
notes receivable relating to the Business;
(d) All accounts receivable and vendor receivables relating to the
Business except for several accounts receivable that are designated as
Excluded Assets;
(e) Certain vehicles of Seller set forth on attached Exhibit A;
(f) All prepaid expenses applicable to the Business, including but not
limited to all prepaid software licenses;
(g) All of Seller's fixed rate contracts and time and material contracts
relating to the Business;
(h) All vendor rebates, spiff money, retainage amounts under any contracts
and any customer deposits relating to the Business;
E70
(i) All of Seller's service contracts relating to the Business;
(j) All of Seller's consulting contracts relating to the Business;
(k) All distribution contracts and authorizations of Seller relating to
the Business;
(l) All base artwork, photo materials, plates (if owned by Seller),
separations and other materials that are used by Seller for printing
brochures and promotional materials including all intellectual
property rights therein relating to the Business;
(m) The assignment of any telephone numbers, telefax numbers, e-mail
addresses and internet websites used in the Business of Seller;
(n) The entire right, title, benefit and interest of Seller now existing
or hereafter arising, in or to all indemnities, guaranties,
warranties, claims and choses of action of Seller against other
parties with respect to the Purchased Assets, including by way of
example and not limitation, any rights under insurance policies and
any other rights thereunder, but only with respect to the Purchased
Assets;
(o) All of Seller's books, records, files, correspondence, manuals,
documents, agreements, lists and other writings used in or relating to
the Business, including paid accounts payable, paid accounts
receivable, purchase, sales, customer, representative, marketing,
advertising, distribution, operations, personnel, research and
development records, data, information and materials;
(p) Seller's rights under the agreements set forth in Schedule 2.2(p) with
respect to the parties set forth therein, pursuant to which such
parties agreed not to disclose, use or communicate information
regarding such parties' business (which is part of the Business) and
not to engage in certain activities competitive with the Business; and
(q) All other fees, assets, property, business and going concern value,
and rights of Seller (including the rights under covenants or
agreements not to disclose confidential information or not to compete,
if any) and rights under the respective asset purchase agreements,
stock purchase agreements or other documents set forth on Disclosure
Schedule 2.2(q) (and related documents) pursuant to which Seller
acquired certain of the assets of the parties set forth in such
Disclosure Schedule.
2.3 Excluded Assets.
----------------
The Excluded Assets are set forth on Exhibit B hereto.
2.4 Lease Agreements.
-----------------
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Seller is the lessee under certain lease agreements of real and personal
properties as listed on Schedule 2.4:
(the "Leases")
At the Closing, Seller and Purchaser shall execute necessary documentation
for the assignment of Leases and all of Seller's right and interest
thereunder to Purchaser, as agreed upon by the parties and, at the Closing,
Seller shall assign all its respective rights and interest in said Leases
to Purchaser. Seller and Purchaser shall use best efforts to obtain
terminations of any personal guarantees relating to such Leases. Purchaser
agrees to indemnify, defend and hold Seller and the Shareholders harmless
from any loss, damage, claim, liability or deficiency with respect to the
obligations and liabilities of Seller under the aforementioned leases
arising or accruing after the Closing Date which is assumed by Purchaser.
To the extent that the assignment of any Lease shall require the consent of
other parties thereto, this Agreement shall not constitute an assignment
thereof and Seller shall obtain any such necessary consents or assignments
by the Closing, or as reasonably possible after the Closing.
2.5 Instruments of Transfer.
-------------------------
Except as otherwise provided herein, at Closing, Seller will deliver to
Purchaser such bills of sale, endorsements, assignments and other good and
sufficient instruments of transfer and assignment as shall be effective to
vest in Purchaser good title and interest in and to the Purchased Assets.
At or after the Closing, and without further consideration, Seller will
execute and deliver to Purchaser such further instruments of conveyance and
transfer and take such other action as Purchaser may reasonably request in
order to more effectively convey and transfer to Purchaser any of the
Purchased Assets or for aiding and assisting and collecting and reducing to
possession and exercising rights with respect thereto. Seller and each
Shareholder agree to use their best efforts to obtain and deliver to
Purchaser such consents, approvals, assurances and statements from third
parties as Purchaser may reasonably require in a form reasonably
satisfactory to Purchaser. In addition to the foregoing, Seller will
deliver to Purchaser the originals or copies of all of Seller's books,
records and other data relating to the Purchased Assets; and simultaneously
with such delivery, Seller shall take all such acts as may be necessary to
put Purchaser in actual possession and operating control of the Purchased
Assets. Seller shall cooperate with Purchaser to permit such parties, if
possible, to enjoy such Seller's ratings and benefits under workmen's
compensation laws and unemployment compensation laws to the extent
permitted by such laws.
2.6 Instruments Giving Certain Powers and Rights.
-------------------------------------------------
At the Closing, Seller shall, by appropriate instrument, constitute and
appoint Purchaser, its successors and assigns, the true and lawful attorney
of Seller with full power of substitution, in the name of Purchaser or the
E72
name of Seller, on behalf of and for the benefit of Purchaser, to collect
all accounts receivable and/or vendor receivables and other items being
transferred and assigned to Purchaser as provided herein, to endorse,
without recourse, any and all checks in the name of Seller the proceeds of
which Purchaser is entitled to hereunder, to institute and prosecute, in
the name of Seller or otherwise, all proceedings which Purchaser may deem
proper in order to collect, assert or enforce any claim, right or title of
any kind in or to the Purchased Assets, to defend and compromise any and
all actions, suits and proceedings in respect of any of the Purchased
Assets, and to do all such acts and things in relation thereto as such
party may deem advisable. Purchaser shall provide Seller with notice of any
collection action(s) instituted by it under this provision. Seller agrees
that the foregoing powers are coupled with an interest and shall be
irrevocable by the Seller, directly or indirectly, by the dissolution of
Seller or in any manner or for any reason. Seller further agrees that
Purchaser shall retain for its own respective account any amounts collected
pursuant to the foregoing powers, and Seller shall pay or transfer to
Purchaser, if and when received, any amounts which shall be received by
Seller after the Closing in respect of any such receivables or other
assets, properties, rights or business to be transferred and assigned to
Purchaser as provided herein. Seller further agrees that, at any time or
from time to time after the Closing, it will, upon the request of Purchaser
and at Seller's expense, do, execute, acknowledge and deliver, or will
cause to be done, executed, acknowledged or delivered, all such further
reasonable acts, assignments, transfers, powers of attorney or assurances
as may be required in order to further transfer, assign, grant, assure and
confirm to Purchaser, or to aid and assist in the collection or granting of
possession by Purchaser, of any of the Purchased Assets, or to vest in
Purchaser good and marketable title to the Purchased Assets.
To the extent that any assignment does not result in a complete transfer of
the contracts to Purchaser because of a provision in any contract against
Seller's assignment of any its right thereunder, Seller shall cooperate
with Purchaser in any reasonable manner proposed by Purchaser to complete
the acquisition of the contracts and Seller's rights, benefits and
privileges thereunder in order to fulfill and carry out Seller's
obligations under this Agreement. Such additional action may include, but
is not limited to: (i) entering into a subcontract between Seller and
Purchaser which allows such party to perform Seller's duties under such
contracts and to enforce Seller's rights thereunder; (ii) entering into a
new multi-party agreement with such customers which allows Purchaser to
perform Seller's obligations and enforce Seller's rights under the
contracts.
3.
ASSIGNMENT OF LIABILITIES
-------------------------
3.1 Liabilities to be Paid Off at Closing or Assumed by Purchaser.
-----------------------------------------------------------------------
E73
A. At the Closing, Purchaser shall assume and pay off or discharge when
due (and secure the release of Seller and Shareholders from any and
all personal liability or guaranty with respect to such obligation),
the following:
(i) Seller's obligation to BB&T under an asset base credit facility,
the outstanding amount of which on August 31st, 2001 is One
Million Four Hundred Sixty-One Thousand Two Hundred Seventy-Seven
Dollars ($1461,277.00) plus accrued interest, and as of the
Closing Date is $_____________, which is collateralized by a
security interest in Seller's assets;
(ii) All of the trade accounts payable of the Seller relating to the
Business incurred in the ordinary course of business consistent
with Seller's prior practices, the outstanding amount of which is
$224,508.00 on August31st, 2001, and as may be incurred,
increased or decreased since August31st, 2001 to the Pro Forma
Balance Sheet for operations in the ordinary course of business
or any other transaction provided by this Agreement, and subject
to the satisfaction of the Net Asset Amount requirement set forth
in Section 4.1(d) as of the Closing Date.
(iii) All of the obligations and liabilities of Seller arising after
the Closing under the contracts described in Section 2.2 and the
Leases described in Section 2.4.
The Assumed Liabilities to be paid off as set forth in Section 3.1 A.
(i)-(iii), as may be incurred, increased or decreased since the
August31st, 2001 Pro Forma Balance Sheet to the Pro Forma Balance
Sheet for operations in the ordinary course of business or any other
transaction permitted by this Agreement, and subject to the
satisfaction of the Net Asset Amount requirement set forth in Section
4.1(d) as of the Closing Date.
It is intent of the parties that Purchaser shall pay off at Closing,
or assume and pay off or discharge when due, all obligations of Seller
set forth in Section 3.1 A above for which any Shareholder has
personal liability and Purchaser agrees to use its best efforts to
secure the release of the Shareholders from such liability after the
Closing if such releases are not secured prior to Closing.
B. Purchaser agrees to indemnify, defend and hold Seller and Shareholders
harmless from any loss, damage, claim, liability or deficiency with
respect to Assumed Liabilities.
3.2 Excluded Liabilities.
---------------------
Notwithstanding anything in this Agreement to the contrary, Purchaser shall
not assume or become responsible for any claim, liability or obligation of
any nature whatsoever, whether known or unknown, accrued, absolute,
contingent or otherwise (a "Liability") of Seller except the Assumed
Liabilities that are specifically assumed by such party. Without limiting
the generality of the foregoing, the following are included among the
Liabilities of Seller which Purchaser shall not assume or become
responsible for (unless specifically included as Assumed Liabilities):
(a) all Liabilities for any Taxes whether deferred or which have
accrued or may accrue or become due and payable by Seller either
prior to, on or after the Closing Date, including, without
limitation, all Taxes and fees of a similar nature arising from
the sale and transfer of the Purchased Assets to Purchaser;
(b) all Liabilities to any current or former shareholders, directors,
officers, employees or agents of Seller, including, without
limitation, all Liabilities and obligations for wages, salary,
bonuses, commissions, vacation or severance pay, deferred
compensation, retirement pay, profit sharing or pension benefits,
and all Liabilities arising under any bonus, commission, salary
E74
or compensation plans or arrangements, whether accruing prior to,
on or after the Closing Date including, but not limited to,
Seller's obligations under the Ballantyne Consulting Group, Inc.
Basis Point Plan, and including Seller's obligation under a
401(k) payable, its payroll liabilities and an additional accrued
payroll liability, all as set forth in more detail in Section
5.1;
(c) all Liabilities with respect to unemployment compensation claims
and worker's compensation claims and claims for race, age and sex
discrimination or sexual harassment or for unfair labor practice
based on or arising from occurrences, circumstances or events, or
exposure to conditions, existing or occurring prior to the
Closing Date and for which any claim may be asserted by any of
Seller's employees, prior to, on or after the Closing Date;
(d) all Liabilities of Seller to third parties for personal injury or
damage to property based on or arising from occurrences,
circumstances or events, or exposure to conditions, existing or
occurring prior to the Closing Date and for which any claim may
be asserted by any third party prior to, on or after the Closing
Date;
(e) all Liabilities of Seller arising under or by virtue of federal
or state environmental laws based on or arising from occurrences,
circumstances or events, or exposure to conditions, existing or
occurring prior to the Closing Date and for which any claim may
be asserted prior to, on or after the Closing Date;
(f) all Liabilities of Seller including any costs of attorneys' fees
incurred in connection therewith, for litigation, claims, demands
or governmental proceedings arising from occurrences,
circumstances or events, or exposure to conditions occurring or
existing prior to the Closing Date, and which may be asserted or
commenced prior to, on or after the Closing Date;
(g) all Liabilities based on any theory of liability or product
warranty with respect to any product manufactured or sold prior
to the Closing Date and for which any claim may be asserted by
any third party, prior to, on or after the Closing Date;
(h) all attorneys' fees, accountants' or auditors' fees, and other
costs and expenses incurred by Seller and/or the Shareholders in
connection with the negotiation, preparation and performance of
this Agreement or any of the transactions contemplated hereby;
(i) all Liabilities of Seller in connection with the Excluded Assets;
(j) all Liabilities of Seller with respect to any options, warrants,
agreements or convertible or other rights to acquire shares of
its capital stock of any class;
(k) all Liabilities of Seller incurred incident to any
indemnification for breach of any representations, warranties,
covenants, or other agreements made by Seller under any of the
asset purchase, stock, reorganization, or other legal
transaction(s) set forth in Disclosure Schedule 2.2(q);
(l) all Liabilities of Seller with respect to any loans or advances
made by the Shareholders or any Affiliate to Seller;
(m) all other debts, Liabilities, obligations, contracts and
commitments (whether direct or indirect, known or unknown,
contingent or fixed, liquidated or unliquidated, and whether now
or hereinafter arising) arising out of or relating to the
ownership, operation or use of any of the Purchased Assets on or
prior to the Closing Date or the conduct of the Business of
Seller prior to the Closing Date, except only for the liabilities
and obligations to be assumed or paid, performed or discharged by
Purchaser constituting Assumed Liabilities; and
E75
(n) all Liabilities of Seller with respect to any unpaid sales tax as
of the Closing Date related to accounts receivable as of such
date.
Seller shall pay all liabilities not being assumed hereunder by
Purchaser within the customary time for payment of such liabilities.
It is the intent of the parties that upon Closing, all employees of
Seller will be terminated by Seller and Purchaser will extend offers
of employment to such individuals.
4.
CONSIDERATION FOR THE PURCHASED ASSETS
--------------------------------------
4.1 Purchase Price for the Purchased Assets.
--------------------------------------------
Subject to the other terms of this Agreement, the Purchase Price for the
Purchased Assets shall be the sum of:
(a) Two Million One Hundred Twenty-Five Thousand Two Hundred Sixty-Nine
Dollars ($2,125,269.00), less the amount of any funded indebtedness of
Seller in excess of $1,507,486.00 as of the Closing Date;
(b) The liabilities assumed or paid off at Closing under Section 3.1; and
(c) Any amount that may be paid pursuant to Section 4.4 and/or Section 4.5
that is allocated to the Purchase Price.
The sum of the items contained in Sections 4.1(a), (b) and (c) above shall
be adjusted by the amounts determined under Sections 4.1(d) and/or (e), as
follows:
(d) If the Net Asset Amount of the Seller as of the Closing Date as shown
on the Pro Forma Balance Sheet is less than Six Hundred Twenty-Nine
Thousand Seventy-Six Dollars ($629,076.00), the Purchase Price shall
be decreased on a dollar-for-dollar basis equal to the difference
between $629,076.00 and such amount. In the event the Net Asset Amount
of the Seller as of the Closing Date is greater than $629,076.00, no
increase to the Purchase Price shall be made under this Section
4.1(d). The determination of the Net Asset Amount shall be made in the
manner provided for in Section 5.1 hereof.
(e) If the 2001 Annualized EBITDA is less than Seven Hundred Three
Thousand Dollars ($703,000.00), the Purchase Price shall be decreased
once the shortfall exceeds Ten Percent (10%), or Seventy Thousand
Three Hundred Dollars ($70,300.00) of such amount. In such event, any
shortfall below $632,700.00 shall reduce the Purchase Price by the
amount of such shortfall multiplied by two (2) provided; however, that
such reduction will be set off against the $400,000 subordinated
promissory note described in Section 4.2(b) and the amount of such
reduction shall not exceed the principal and interest on such noteIn
the event that the 2001 Annualized EBITDA is greater than $703,000.00,
no increase to the Purchase Price shall be made under this Section
4.1(e). The determination of the 2001 Annualized EBITDA shall be made
in the manner provided for in Section 5.2 hereof.
4.2 Payment of the Purchase Price for the Purchased Assets.
--------------------------------------------------------------
Subject to the conditions, covenants, representations and warranties
hereof, at Closing, Purchaser shall deliver:
(a) By certified or bank cashier's check or by wire transfer to Seller,
the amount of One Million Seven Hundred Twenty-Five Thousand Two
Hundred Sixty-Nine Dollars ($1,725,269.00), as may be adjusted by the
amount of Seller's funded indebtedness assumed or paid off by
E76
Purchaser under Section 3.1(a) in excess of One Million Five Hundred
Seven Thousand Four Hundred Eighty-Six Dollars ($1,507,486.00) as of
the Closing Date;
(b) The remaining sum of Four Hundred Thousand Dollars ($400,000.00) shall
be payable to Seller pursuant to the terms of Purchaser's subordinated
promissory note. The note shall bear interest at the prime rate of
Chase Manhattan Bank as of the date of Closing. The principal of the
note shall be payable in two (2) equal annual installments, with the
first principal payment commencing on the first annual anniversary of
the Closing, and the remaining principal payment being due on the
second annual anniversary date of the Closing. Interest on the unpaid
principal balance of the note shall be paid quarterly with the first
interest payment being due and payable ninety (90) days from Closing.
Such note and all obligations of Purchaser thereunder will be
subordinated and made junior in right of payment to the extent and in
the manner provided in a Subordination Agreement to be executed
between Deutsche Financial Services Corporation, as Administrative
Agent for itself and other lenders, and Purchaser and Seller. A copy
of said note is attached hereto as Exhibit D. Such note shall be
subordinate to Purchaser's lenders pursuant to the terms of a
Subordination Agreement in the form attached hereto as Exhibit E. The
obligation of Purchaser under said note shall be guaranteed by PCR in
the form attached hereto as Exhibit F.
(c) The Assumed Liabilities assumed or paid off under Section 3.1.
4.3 Allocation of Purchase Price.
-------------------------------
The Purchase Price to be paid to the Seller hereunder, including the
liabilities assumed or paid by Purchaser pursuant to Section 3.1, shall be
allocated as set forth on Exhibit G attached hereto. Seller and Purchaser
and each Shareholder agree that each shall act in a manner consistent with
such allocation in (a) filing Internal Revenue Form 8594; and (b) in paying
sales and other transfer taxes in connection with the purchase and sale of
assets pursuant to this Agreement. Seller and Purchaser acknowledge that
the promissory note payable to Seller by Purchaser pursuant to the
provisions of Section 4.2(b) shall be attributable to a portion of the
Purchase Price being allocated to good will under Exhibit G.
4.4 Potential Adjustment to Purchase Price.
------------------------------------------
Earn-Out No. 1.
----------------
If the EBITDA ("EBITDA") of Purchaser's System 5/Ballantyne Divisions
computed as set forth in Section 4.6 during any of the fiscal periods
set forth below equals or exceeds 70%, but is less than 100% of the
applicable EBITDA Threshold for such period set forth below:
Fiscal Year 2002 -
(January 6, 2002 to January 5, 2003) $1,358,744
Fiscal Year 2003 - $1,358,744
Fiscal Year 2004 - $1,358,744
Purchaser shall pay Seller, by bank check or wiring within ninety (90)
days following the end of the fiscal year, the following for such
period: [(actual EBITDA / 1,358,744) - .7] (3.33) ($697,543.00). If
the EBITDA ("EBITDA") of Purchaser's System 5/Ballantyne Divisions is
greater than 100% of the applicable EBITDA Threshold, as listed above,
Purchaser shall pay Seller, by bank check or wiring within ninety (90)
E77
days following the end of the fiscal year, the amount of Six Hundred
Ninety-Seven Thousand Five Hundred Forty-Three Dollars ($697,543.00)
for such period. Any EBITDA shortfall in any year shall not offset any
excess EBITDA in any subsequent year(s) hereunder, it being the intent
of the parties that the EBITDA Threshold set forth herein shall apply
to each applicable year separately, subject, however, to the ability
of Seller to earn $697,543.00 for each fiscal year, or Two Million
Ninety-Two Thousand Six Hundred Thirty Dollars ($2,092,630.00) if the
EBITDA Threshold criteria were satisfied in all three years. Such cash
payment by Purchaser shall be additional Purchase Price which will be
added to the goodwill allocation of the Purchase Price.
4.5 Potential Adjustment to Purchase Price.
------------------------------------------
Earn-Out No. 2.
----------------
If the EBITDA of Purchaser's System 5/Ballantyne Divisions in the
aggregate during any of fiscal years 2002 (January 6, 2002 to January
5, 2003), 2003 and 2004 exceed the applicable EBITDA threshold for
such year set forth below:
Fiscal Year 2002 - $1,358,744
Fiscal Year 2003 - $1,358,744
Fiscal Year 2004 - $1,358,744
Purchaser shall pay Seller, by bank check or wiring within ninety (90) days
following the end of the fiscal year, an aggregate amount equal to 42.60%
of Fifty Percent (50%) of the EBITDA of Purchaser's System 5/Ballantyne
Divisions in excess of the EBITDA threshold for the applicable year,
subject to a cumulative limitation of Three Million Two Hundred Seventy-One
Thousand Nine Hundred Seventy-Four Dollars ($3,271,974.00) during such
aggregate period. Any EBITDA shortfall in any year shall not offset any
excess EBITDA in any subsequent year(s) hereunder, it being the intent of
the parties that the EBITDA threshold set forth herein shall apply to each
applicable year separately, subject, however, to the cumulative limitation
of $3,271,974.00 during such aggregate period. Such cash payment by
Purchaser shall be additional Purchase Price, which will be added to the
goodwill allocation of the Purchase Price.
4.6 Operation of and Accounting for Purchaser's System 5/Ballantyne Divisions
---------------------------------------------------------------------------
and Procedure for Determination of EBITDA.
------------------------------------------------
For purposes of this Agreement, "Purchaser's System 5/Ballantyne Divisions"
shall be defined as the Business acquired from Seller by Purchaser and the
businesses acquired from System 5 Technologies, Inc. by Purchaser and its
parent company, Pomeroy Computer Resources, Inc. pursuant to an Asset
Purchase Agreement of even date. Purchaser agrees that subsequent to the
Closing and through the end of fiscal year 2004 (the "Earnout Period"),
Purchaser shall operate Purchaser's System 5/Ballantyne Divisions as
separate divisions or direct or indirect subsidiary of Purchaser and shall
maintain separate books of account (the "System5/BCG Books of Account") for
Purchaser's System 5/Ballantyne Divisions as if Purchaser's System
5/Ballantyne Divisions were a "stand alone" entity in order to calculate
EBITDA of Purchaser's System 5/Ballantyne Divisions.
For purposes of Sections 4.4 and 4.5, the term "EBITDA" shall mean the
earnings before interest, taxes, depreciation and amortization of
Purchaser's System 5/Ballantyne Divisions during the applicable period.
E78
The EBITDA shall be determined by the internally-generated System 5/BCG
Books of Account determined in accordance with generally accepted
accounting principles, consistently applied, provided that (i) for the
period commencing on the earlier of the installation of the Astea (MAS and
Accounting) System at Purchaser's System 5/Ballantyne Divisions, or
February 1, 2002, through the end of Fiscal Year 2002, the System 5/BCG
Books of Account will provide for a 1.5% MAS royalty fee and a .3% Ad Fund
royalty fee on the gross sales by Purchaser's System 5/Ballantyne Divisions
during such period. The parties shall exercise good faith in effectuating
the implementation of said Astea Accounting System at Purchaser's System
5/Ballantyne Divisions. In the event that the Astea (MAS and Accounting)
System is not implemented by February 1, 2002 because of the determination
of Purchaser, the 1.5% MAS royalty fee and the .3% Ad Fund royalty fee
shall not be made incident to said EBITDA determination until said Astea
(MAS and Accounting) System is installed at Purchaser's System 5/Ballantyne
Divisions, (ii) for Fiscal Years 2003 and 2004, the MAS royalty fee and Ad
Fund royalty fee included in the System 5/BCG Books of Account, shall be in
amounts agreed to, in good faith, by the parties based on the level of
services and support being provided by Purchaser to its System 5/Ballantyne
Divisions; provided, however, if the parties are unable to come to an
agreement for the amount of the MAS royalty fee and/or the Ad Fund royalty
fee for either such Fiscal Year, the MAS royalty fee shall be 1.5% and the
Ad Fund royalty fee shall be .3%, (iii) no effect shall be given on the
System 5/BCG Books of Account to any gain or loss attributable to any sale
of assets or services by Purchaser's System 5/Ballantyne Divisions outside
the ordinary course of business, except as agreed to by the parties, (iv)
no items of income or expense from any business of Purchaser from its other
branches that is relocated to Purchaser's System 5/Ballantyne Divisions
will be included in the System 5/BCG Books of Account, unless it is
mutually agreed upon by the parties to include such income or expense in
the System 5/BCG Books of Account, (v) severance pay for S. Schneider
during the Earnout Period shall be excluded from the EBITDA calculations,
and any other severance pay payable to any other Shareholder of Seller
whose employment with Purchaser is terminated without cause if all the
parties mutually agree that the cost of said severance pay should be
excluded from the EBITDA calculations during the Earn-out Period, (vi) any
payment made to Seller pursuant to Section 4.4 or 4.5 shall not be charged
against EBITDA for any year and (vii) except as noted above with respect to
the MAS royalty fee and Ad Fund royalty fee, no indirect income or expense
allocations (such as overhead or other corporate allocation) will be
allocated to Purchaser's System 5/Ballantyne Divisions, unless such items
are reasonably calculated to contribute to the increase in profits of
Purchaser's System 5/Ballantyne Divisions and are agreed to by the parties,
it being the intent of the parties that Purchaser shall exercise utmost
good faith with respect to allocations of income and expense to Purchaser's
System 5/Ballantyne Divisions.
The determination of EBITDA shall be subject to verification as set forth
in this Section 4.6. Within ninety (90) days after the end of each fiscal
year or period described herein in Sections 4.4 and 4.5, Purchaser will
deliver to Seller a copy of the report of EBITDA prepared by Purchaser for
the subject period, along with any documentation reasonably requested by
Seller. Within thirty (30) days following delivery to Seller of such
report, Seller shall have the right to object in writing to the results
contained in such determination. If timely objection is not made by Seller
to such determination, such determination shall become final and binding
for purposes of this Agreement. If timely objection is made by Seller to
Purchaser and Seller and Purchaser are able to resolve their differences in
writing within thirty (30) days following the expiration of the thirty-day
(30-day) period, then such determination shall become final and binding as
it regards to this Agreement. If timely objection is made by Seller to
Purchaser and Seller and Purchaser are unable to resolve their differences
in writing within thirty (30) days following the expiration of the
thirty-day (30-day) period, then all disputed accounting matters pertaining
to the report shall be submitted to and reviewed by an arbitrator (the
"Arbitrator") which shall be an independent accounting firm selected by
E79
Purchaser and Seller. If Purchaser and Seller are unable to agree promptly
on an accounting firm to serve as the Arbitrator, each shall select by no
later than the 30th day following the expiration of the sixty-day (60-day)
period, an accounting firm, and the two selected accounting firms shall be
instructed to select promptly another independent accounting firm, such
newly selected firm to serve as the Arbitrator. The Arbitrator shall
consider only the disputed accounting matters pertaining to the
determination and shall act promptly to resolve all disputed accounting
matters, and its decision with respect to all disputed accounting matters
shall be final and binding upon Seller and Purchaser. If the determination
of the Arbitrator results in additional payments being due under Section
4.4 or 4.5, Purchaser shall pay Seller such amount, by bank check or
wiring, within three business days following the determination by the
Arbitrator. Expenses of the Arbitration shall be borne one-half ( ) by
Purchaser and one-half ( ) by Seller. Each party shall be responsible for
its own attorney and accounting fees. The resolution of any disputed legal
matters pertaining to the report shall be subject to judicial review.
4.7 Certain Closing Expenses.
--------------------------
Except as set forth below, the Seller shall be responsible for and shall
pay all federal, state and local sales tax (if any), documentary stamp tax
and all other duties, or other like charges properly payable upon and in
connection with the conveyance and transfer of the Purchased Assets by the
Seller to Purchaser and the conveyance and transfer of the Purchased Assets
by the Seller to Purchaser.
E80
5.
POST-CLOSING ADJUSTMENTS
------------------------
5.1 Within sixty (60) days after the Closing Date (the "Post Closing Date"),
Seller's Accountant will deliver to Purchaser a copy of the Pro Forma
Balance Sheet prepared by Seller's Accountant along with any supporting
documentation reasonably requested by Purchaser reflecting the Net Asset
Amount as of the Closing which shall be defined as the total of the
Purchased Assets less the amount of the Assumed Liabilities relating to the
Business, as reflected on the Pro Forma Balance Sheet (the "Net Asset
Report"). The Pro Forma Balance Sheet shall be prepared using the same
accounting methods, policies, practices and procedures, with consistent
classifications, judgments, estimations and methodologies as used in the
preparation of the August 31st, 2001 Pro Forma Balance Sheet. For purposes
of determining the Net Asset Amount, the Excluded Liabilities consisting of
Seller's 401(k) account payable in the amount of $36,292.00, payroll
liabilities of $162,181.00, and additional accrued payroll liability of
$177,700.00, as of August 31st, 2001, shall be included in such
calculation, as such amounts may be increased or decreased since the August
31st, 2001 Pro Forma Balance Sheet to the Pro Forma Balance Sheet for
operations in the ordinary course of business, or any other transaction
permitted by this Agreement, and subject to the satisfaction of the Net
Asset Amount requirements set forth in Section 4.1(d) as of the Closing
Date. Within thirty (30) days following delivery to Purchaser of the Net
Asset Report, Purchaser shall have the right to object in writing to the
results contained therein. If timely objection is not made by Purchaser to
the Net Asset Report, the Net Asset Report shall become final and binding
for purposes of this Agreement. If timely objection is made by Purchaser to
the Net Asset Report, and the Seller and Purchaser are able to resolve
their differences in writing within fifteen (15) days following the
expiration of such thirty (30) day period, then the Net Asset Report, as
resolved, shall become final and binding as it relates to this Agreement.
If timely objection is made by Purchaser to the Net Asset Report and Seller
and Purchaser are unable to resolve their differences in writing within
such fifteen (15) day period, then all disputed accounting matters
pertaining to the Net Asset Report shall be submitted to and reviewed by an
arbitrator (the "Arbitrator") which shall be an independent accounting firm
selected by the Seller and the Purchaser. If Purchaser and Seller are
unable to agree promptly on the accounting firm to serve as the Arbitrator,
each shall select by not later than the seventh (7th) day following the
expiration of the Net Asset Report objection period, a nationally
recognized accounting firm, and each selected accounting firm shall be
instructed to jointly select promptly another nationally recognized
accounting firm, such third accounting firm shall serve as the Arbitrator.
The Arbitrator shall consider only the disputed accounting matters
pertaining to the determination and shall act promptly and fairly to
resolve all disputed accounting matters and its decision with respect to
all disputed accounting matters shall be final and binding upon the Seller
and Purchaser. The expenses of the arbitration shall be borne one-half ( )
by Purchaser and one-half ( ) by the Seller. Each party shall be
responsible for its own attorney and accounting fees. The resolutions of
any disputed legal matters pertaining to the report shall be subject to
judicial review. If the Net Asset Amount (as shown on the Net Asset Report)
is less than Six Hundred Twenty-Nine Thousand Seventy-Six Dollars
($629,076.00) in the aggregate, the Purchase Price shall be decreased on a
dollar-for-dollar basis for such difference by Seller first repaying to
Purchaser by certified or cashier's check or wire transfer, from the cash
paid under Section 4.2(a).
E81
5.2 Within sixty (60) days after the close of the 2001 fiscal year (January 5,
2002), Seller will deliver to Purchaser the determination of the 2001
Annualized EBITDA for the period commencing July 1, 2001 to Closing,
prepared by Seller's Accountant, along with any supporting documentation
reasonably requested by Purchaser, and Purchaser will deliver to Seller the
determination of the 2001 Annualized EBITDA for the period commencing with
the Closing and ending December 31st, 2001, prepared by Purchaser's
internally generated accounting statements, along with any supporting
documentation reasonably requested by Seller. The 2001 Annualized EBITDA
shall be prepared in accordance with generally accepted accounting
principles using the same principles as set forth in the Financial
Statements. Provided, however, the two-week payroll accrual of One Hundred
Seventy-Seven Thousand Seven Hundred Ninety-Six Dollars ($177,796.00) shall
not be taken into account incident to the determination of the 2001
Annualized EBITDA. Thirty (30) days following delivery of such reports,
both parties shall have the right to object in writing to the results
contained in such determinations. If timely objection is not made by either
party to such determination, such determination shall become final and
binding. If timely objection is made by any party and the parties are able
to resolve their differences in writing within fifteen (15) days following
the expiration of the 2001 Annualized EBITDA objection period, then such
determination as resolved shall become final and binding as it relates to
this agreement. If timely objection is made by any party and Seller and
Purchaser are unable to resolve their differences in writing within ten
(10) days following the expiration of the 2001 Annualized EBITDA objection
period, then all disputed accounting matters relating to the report shall
be submitted to and reviewed by an Arbitrator according to the process and
procedure set forth in Section 5.1 above. The expenses of the arbitration
shall be borne one-half ( ) by Purchaser and one-half ( ) by Seller. Each
party shall be responsible for its own accounting and attorney fees. The
resolution of any disputed legal issues pertaining to those reports shall
be subject to judicial review. Any net reduction in the Purchase Price as a
result of said adjustment as determined by Section 4.1(e) shall be offset
against the Promissory Note set forth in Section 4.2(b).
6.
EMPLOYMENT AGREEMENTS
---------------------
6.1 Employment Agreements of Shareholders.
----------------------------------------
At Closing, Purchaser shall enter into Employment Agreements with M. DeMeo,
J. Schmidt and S. Schneider. Copies of said Employment Agreements are
attached hereto and made a part hereof as Exhibits I, I-1 and I-2.
E82
7.
COVENANT NOT TO COMPETE AGREEMENTS
----------------------------------
7.1 Covenant Not to Compete Agreements of Seller and Shareholders.
---------------------------------------------------------------------
At Closing, Seller and each Shareholder shall enter into Covenant Not to
Compete Agreements with Purchaser. Copies of said Covenant Not to Compete
Agreements are attached hereto and made a part hereof as Exhibits J, J-1,
J-2, J-3 and J-4.
7.2 As an express condition of this Agreement, certain Shareholders of Seller
who are not parties to this Agreement, specifically, the individuals set
forth on Disclosure Schedule 7.2, shall enter into Covenant Not to Compete
Agreements in the form of Exhibits J-5, J-6, J-7, J-8, J-9, J-10, J-11,
J-12, J-13, J-14, J-15, J-16, J-17 and J-18.
8.
BULK SALES ACT
--------------
8.01 Compliance with Bulk Sales Act.
----------------------------------
Purchaser waives compliance with the provisions of any applicable bulk
sales law and the Seller and Shareholders, jointly and severally, agree to
indemnify and hold harmless Purchaser from any liability incurred as a
result of the failure to so comply, except to liabilities explicitly
assumed hereunder by Purchaser.
9.
REPRESENTATIONS AND WARRANTIES
------------------------------
OF SELLER AND EACH SHAREHOLDER
------------------------------
Except as set forth in the Disclosure Schedule attached hereto, (i) Seller
and Shareholders, jointly and severally, represent and warrant to Purchaser
that the following statements are true and correct as of the date hereof.
9.1 Organization, Good Standing, Qualification and Power of Seller.
---------------------------------------------------------------------
(a) Seller is a corporation duly organized, validly existing and in good
standing under the laws of the State of North Carolina and has the
corporate power and authority to own, lease and operate the Purchased
Assets and to conduct the Business currently being conducted by it.
Seller is duly qualified and validly existing in North Carolina and in
good standing in each of the other jurisdictions in which it is
required by the nature of its business or the ownership of its
properties to so qualify. Seller has no corporate subsidiaries. The
Disclosure Schedule correctly lists, with respect to Seller, each
jurisdiction in which it is qualified to do business as a foreign
corporation.
9.2 Capitalization.
--------------
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(a) The outstanding capitalization of Seller consists solely of Nine
Thousand Seven Hundred Seventy-Five (9,775) shares of common stock,
without par value, of which Nine Thousand One Hundred Fifty (9,150)
shares, representing 93.6% of the issued stock are currently owned by
the Shareholders. All outstanding Shares of Seller's capital stock are
fully paid and nonassessable and have not been issued in violation of
the preemptive rights of any person. Except as set forth in the
Disclosure Schedule, Seller is not obligated to issue or acquire any
of its securities, nor has it granted options or any similar rights
with respect to any of its securities.
9.3 Authority to Make Agreement.
------------------------------
The Seller and each Shareholder have the full legal power and authority to
enter into, execute, deliver and perform their respective obligations under
this Agreement and each of the other agreements, instruments and other
instruments to be delivered incident hereto ("Other Seller Documents").
This Agreement and the Other Seller Documents have been duly and validly
executed and delivered by Seller and each Shareholder, and are the legal
and binding obligation of each of them, enforceable in accordance with
their respective terms, subject to principles of equity, bankruptcy laws,
and laws affecting creditors' rights generally. The Seller has taken all
necessary action (including action of Seller's Board of Directors and its
Shareholders) to authorize and approve the execution and delivery of this
Agreement and the Other Seller Documents, the performance of its
obligations thereunder and the consummation of the transactions
contemplated thereby.
9.4 Existing Agreements, Governmental Approvals and Permits.
------------------------------------------------------------
(a) The execution, delivery and performance of this Agreement and the
Other Seller Documents by the Seller and each Shareholder, the sale,
transfer, conveyance, assignment and delivery of the Purchased Assets
to Purchaser as contemplated in this Agreement, and the consummation
of the other transactions contemplated thereby: (i) do not violate any
provisions of law, statute, ordinance or regulation applicable to the
Seller, any Shareholder or the Purchased Assets, (ii) (except for any
of Seller's secured creditors set forth in Section 3.1, whose consent
shall be obtained prior to Closing and except as set forth in the
Disclosure Schedule), will not conflict with, or result in the breach
or termination of any provision of, or constitute a default under (in
each case whether with or without the giving of notice or the lapse of
time or both) the Articles of Incorporation or Bylaws of Seller, or
any indenture, mortgage, lease, deed of trust, or other instrument,
contract or agreement or any license, permit, approval, authority, or
any order, judgment, arbitration award, or decree to which Seller or
any Shareholder is a party or by which Seller or any Shareholder or
any of their assets and properties are bound (including, without
limitation, the Purchased Assets), and (iii) will not result in the
creation of any encumbrance upon any of the properties, assets, or the
Business of Seller or of any Shareholder. Neither the Seller, nor any
Shareholder, nor any of their assets or properties (including, without
limitation, the Purchased Assets) is subject to any provision of any
mortgage, lease, contract, agreement, instrument, license, permit,
approval, authority, order, judgment, arbitration award or decree, or
to any law, rule, ordinance, or regulation, or any other restriction
of any kind or character, which would prevent Seller or any
Shareholder from entering into this Agreement or any of the Other
Seller Documents or from consummating the transactions contemplated
thereby.
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(b) Neither the Seller nor any Shareholders are a party to, subject to or
bound by any agreement, judgment, award, order, writ, injunction or
decree of any court, governmental body or arbitrator which would
prevent the use by Purchaser of the Purchased Assets in accordance
with present practices of Seller after the Closing Date or which, by
operation of law, or pursuant to its terms, would be breached,
terminate, lapse or be subject to termination or default under (in
each case whether with or without notice, the passage of time or both)
upon the consummation of the transactions contemplated in this
Agreement.
(c) No approval, authority or consent of, or filing by Seller with, or
notification to, any foreign, federal, state or local court, authority
or governmental or regulatory body or agency or any person is
necessary to authorize the execution and delivery of this Agreement or
the Other Seller Documents by Seller or any Shareholder, the sale,
transfer, conveyance, assignment and delivery of the Purchased Assets
to Purchaser, or the consummation of the other transactions
contemplated thereby, or to continue the use and operation of the
Purchased Assets by Purchaser after the Closing Date.
9.5 Financial Statements.
---------------------
(a) Copies of the Financial Statements are attached to the Disclosure
Schedule. Each of the Financial Statements are true and complete in
all material respects and were prepared in accordance with generally
accepted accounting principles , applied on a consistent basis
throughout the periods indicated and fairly present in all material
respects the financial condition and operations of Seller as of the
respective dates thereof and the results of its operations and changes
in financial position for the respective periods then ended.
(b) Except to the extent reflected, reserved against, or disclosed on the
Pro Forma Balance Sheet, or the Financial Statements, or the
Disclosure Schedule, Seller had, as of such date, no material
liabilities or obligations of any nature, whether accrued, absolute,
contingent, or otherwise, including without limitation, unfunded
pension or other retirement plan liabilities and tax liabilities
whether or not incurred in respect of or measured by the Seller's
income, for any period prior to the date of said Financial Statements,
or arising out of transactions entered into or any set of facts
existing prior thereto. Except to the extent disclosed on the
Disclosure Schedule, there exists no basis for the assertion against
Seller, as of the date of the Financial Statements or of the Pro Forma
Balance Sheet, of any material liability of any nature or in any
amount not fully reflected, reserved against, or disclosed in the
Financial Statements or in the Pro Forma Balance Sheet.
9.6 Customers.
---------
The Disclosure Schedule includes a correct list of the twenty-five (25)
largest customers of Seller by sales in dollars for each of fiscal year
2000, and January through August of 2001, and the amount of business done
by the Seller with each such customer for such periods. Seller has no
knowledge that any of the current customers of Seller will or intend to (a)
cease doing business with Seller; or (b) cancel or materially modify any
currently contracted projects; or (c) not do business with the Purchaser
after the Closing.
E85
9.7 Intangible Property.
--------------------
The Disclosure Schedule includes an accurate list and summary description
of all patents, franchises, distributorships, registered and unregistered
trademarks, trade names and service marks, licenses, brand names and
company lists and all applications for the foregoing, presently owned
and/or held (as a licensee or otherwise) by the Seller. The Seller is not a
licensor in respect to any patents, trade secrets, inventions, shop rights,
know-how, trademarks, trade names, copyrights, or applications therefor.
The Disclosure Schedule contains an accurate and complete description of
such intangible property and the items of all licenses and other agreements
relating thereto. All of the above-mentioned intangibles used in the
Seller's Business are the sole property of the Seller and do not require
the consent of or consent to any other person as a condition to their use
or the transaction provided for herein and do not infringe upon the rights
of others.
9.8 Significant Agreements.
-----------------------
The Disclosure Schedule contains an accurate and complete list of all
contracts, agreements, licenses, instruments and understandings (whether or
not in writing) to which Seller is a party or is bound and that are
material to the Business, assets, financial condition or results of
operations of the Seller. Without limiting the generality of the foregoing,
such list includes all such contracts, agreements, licenses and
instruments:
(a) Providing for payments of more than Five Thousand Dollars ($5,000.00)
per year, other than purchase orders incurred in the ordinary course
of business;
(b) Providing for the extension of credit other than consistent with
normal credit terms described in the Disclosure Schedule;
(c) Limiting the ability of the Seller to conduct the Business or any
other business or to otherwise compete in its or any other business,
including as to manner or place;
(d) Providing for a guarantee or indemnity by Seller, including but not
limited to any indemnification provided under any asset purchase
agreement, stock purchase agreement, or other transaction that Seller
is a party to;
(e) With any Affiliate of Seller;
(f) With any labor union or employees' association connected with Seller's
Business;
(g) For the employment or retention of any director, officer, employee,
agent, shareholder, consultant, broker or advisor of Seller or any
other contract between Seller and any director, officer, employee,
agent, shareholder, consultant or advisor which does not provide for
termination at will by Seller without further cost or other liability
to Seller as of or at any time after the Closing;
(h) In the nature of a profit sharing, bonus stock option, stock purchase,
pension, deferred compensation, retirement, severance,
hospitalization, insurance or other plan or contract providing benefit
to any person or former director, officer, employee, agent,
E86
shareholder, consultant, broker or advisor of Seller, or such person's
dependents, beneficiaries or heirs;
(i) In the nature of an indenture, mortgage, promissory note, loan or
credit agreement or other contract relating to the borrowing of money
or a line of credit by Seller or relating to the direct or indirect
guarantee or assumption by Seller of obligations of others;
(j) Leases or subleases with respect to any property, real, personal or
mixed, in which Seller is involved, as lessor or lessee; and
(k) Distributorship Agreement(s) or License Agreement(s) with respect to
any property which Seller has entered into as licensor.
True and correct copies of all items so disclosed in the Disclosure
Schedule (if written) have been provided or made available to Purchaser.
Each of such items listed, or required to be listed, is a valid and
enforceable obligation of Seller and to Seller's Knowledge, the other
party(ies) thereto enforceable in accordance with its terms, subject to
principles of equity, bankruptcy laws, and laws affecting creditors' rights
generally, and there have been no material defaults or claims of material
default by Seller or the counterparty thereto and there are no facts or
conditions that have occurred or that are anticipated to occur which,
through the passage of time or the giving of notice, or both, would
constitute a default by Seller, or would cause the acceleration of any
obligation of any party thereto or the creation of an Encumbrance upon any
asset of Seller. There are no material oral contracts, agreements or
understandings made by any Shareholder, material to the Purchased Assets,
except such as have been disclosed in the Disclosure Schedule and for which
an accurate summary description has been provided.
9.9 Inventory.
---------
Seller represents that it does not own any inventory incident to the
operation of its Business.
9.10 Accounts Receivable and Vendor Receivables.
----------------------------------------------
All accounts receivable and vendor receivables of the Seller which have
arisen in connection with the Business or otherwise and which are reflected
on the Financial Statements and all receivables which have arisen since
August31st, 2001 through the Closing shall have arisen only from bonafide
transactions in the ordinary course of business and represent valid,
collectible and existing claims, net of any reserve as reflected on the Pro
Forma Balance Sheet. Subject to customer credit, the payment of each
account and vendor receivable will not be subject to any known defense,
counterclaim condition (other than Seller's performance in the ordinary
course of business) whatsoever. The Disclosure Schedule hereto accurately
lists, as of the Closing Date, all receivables arising out of or relating
to the Business, the amount owing and aging of such accounts receivable,
the name of the party from whom such account receivable is owing, any
security in favor of any Seller for the repayment of such account
receivable which Seller purports to have. Seller has made available to
Purchaser complete and correct copies of all instruments, documents and
agreements evidencing such accounts receivable and of all instruments,
documents or agreements (if any) creating security therefor.
9.11 Taxes.
-----
E87
Except as to Taxes not yet due and payable, and except for Taxes the
payment of which is being diligently contested in good faith and by proper
proceedings and for which adequate reserves have been established in
accordance with generally accepted accounting principles, and except as set
forth in the Disclosure Schedule, Seller has filed all Tax Returns that are
now required to be filed by it in connection with any federal, state or
local tax, duty or charge levied, assessed or imposed upon them, or their
property, including unemployment, social security and similar taxes; and
all of such Taxes have been either paid or adequate reserves or other
provision has been made therefor. Seller and each Shareholder shall pay,
without right of reimbursement from Purchaser, all of Seller's and any
Shareholder's income Taxes including but not limited to any Taxes
attributable to any gain under Section 1374 of the Code, including any
interest and penalties thereon, that relate to the activities of Seller
through the Closing including this transaction, as due.
9.12 Title to Purchased Assets; Encumbrances.
-------------------------------------------
(a) With respect to the Purchased Assets sold, at the Closing Seller shall
have good title to the owned by it being acquired by Purchaser, and
except for matters expressly set forth in Section 3.1, which
Encumbrances, if any, upon the Purchased Assets shall be removed at
Closing, free and clear of all Encumbrances whatsoever; immediately
after the transfer of the Purchased Assets being acquired by Purchaser
from Seller, and Purchaser will own all of said Purchased Assets, free
and clear of all Encumbrances whatsoever, whether perfected or
unperfected; and, by way of illustration but not limitation, there are
not any unpaid taxes, assessments or charges due or payable by Seller
to any federal, state or local agency, or any obligations or
liabilities or any unsatisfied judgments against, or, to the best of
Seller's knowledge, any litigation or proceedings pending or
threatened against Seller by any of Seller's employees, clients,
customers, creditors, suppliers, or any other party (nor state of
facts for any such obligation, liability, litigation or proceeding),
that could become a claim, obligation, liability, lien or other charge
of or against Purchaser or the Purchased Assets. To the best of
knowledge of Seller, all of Seller's tangible and other operating
assets used in the Business which are being sold hereunder to
Purchaser are, in all material respects, in good operating condition
and repair, free of all structural, material or mechanical defects and
conform with all applicable laws and regulations.
(b) Except as otherwise specifically set forth herein, Seller is not a
party to any contract, agreement, lease or commitment that would
result in any claim, obligation, liability, lien or other charge
against Purchaser or the Purchased Assets, and Purchaser is not
obligated to assume the obligations under any contract, agreement,
lease or commitment of Seller, except as specifically set forth
herein.
9.13 Pending Actions.
----------------
E88
Seller has not been served with or received notice of any actions, suits,
arbitrations, OSHA, EPA or other governmental violations, or any other
proceedings or investigations, either administrative or judicial, strikes,
lockouts or NLRB charges or complaints ("Actions and Disputes"). There are
no Actions or Disputes pending or, to the best of Seller's knowledge,
threatened against or affecting (directly or indirectly) Seller or its
property or assets nor, to the best of Seller's knowledge, are there any
facts or conditions which exist which would give rise to any such Actions
or Disputes which, if determined adversely to Seller, would have a material
adverse effect upon the Seller's Business.
9.14 Insurance.
---------
The Disclosure Schedule contains an accurate and complete listing (showing
type of insurance, amount, insurance company, annual premium and special
exclusions) of all policies of fire, liability, worker's compensation and
other forms of insurance owned or held by Seller. All such policies are in
full force and effect; are sufficient for compliance with all requirements
of law and of all agreements to which Seller is a party; are valid,
outstanding and enforceable policies; provide adequate insurance coverage
for the assets and operations of Seller and will remain in full force and
effect through the Closing. There are no outstanding requirements or
recommendations by any insurance company that issued a policy with respect
to any of the properties and assets of Seller by any Board of Fire
Underwriters or other body exercising similar functions or by any
Governmental Entity requiring or recommending any repairs or other work to
be done on or with respect to any of the properties and assets of Seller or
requiring or recommending any equipment or facilities to be installed on or
in connection with any of the properties or assets of Seller.
9.15 Status of the Business.
-------------------------
(a) Since August 31st, 2001, the Business of the Seller has been operated
only in the ordinary course, and, except as set forth in the
Disclosure Schedule, there has not been with respect to the Business:
(i) Any material change in its condition (financial or other),
assets, liabilities, obligations, business or earnings, except
changes in the ordinary course of business, none of which in the
aggregate has been materially adverse;
(ii) Any material liability or obligation incurred or assumed, or any
material contract, agreement, arrangement, purchase order, lease
(as lessor or lessee), or other commitment entered into or
assumed, on behalf of the Business, whether written or oral,
except in the ordinary course of business;
(iii) Any purchase or sale of material assets in anticipation of this
Agreement, or any purchase, lease, sale, abandonment or other
disposition of material assets, except in the ordinary course of
business;
(iv) Any waiver or release of any material rights, except for rights
of nominal value;
E89
(v) Any cancellation or compromise of any material debts owed to
Seller or material claims known by Seller against another person
or entity, except in the ordinary course of business;
(vi) Any damage or destruction to or loss of any physical assets or
property of Seller which materially adversely affects the
Business or any of the properties of Seller (whether or not
covered by insurance);
(vii) Any material changes in the accounting practices, depreciation
or amortization policy or rates theretofore adopted by Seller, or
any material revaluation or write-up or write-down of any of
their assets;
(viii) Any direct or indirect redemption, purchase or other
acquisition for value by Seller of its shares or any agreement to
do so;
(ix) Any material increase in the compensation levels or in the method
of determining the compensation of any of the Seller's officers,
directors, agents, employees or members, or any bonus payment or
similar arrangement with or for the benefit of any such person,
any increase in benefits expense to Seller, any payments made or
declared into any profit-sharing, pension, or other retirement
plan for the benefit of employees of Seller, except in the
ordinary course of business;
(x) Any loans or advances between Seller and any Shareholder or any
family member or any associate or Affiliate of Seller or of any
Shareholder;
(xi) Any material contract canceled or the terms thereof amended or
any notice received with respect to any such contract terminating
or threatening termination or amendment of any such contract;
(xii)Any transfer or grant of any material rights under any leases,
licenses, agreements, or with respect to any trade secrets or
know-how;
(xiii)Any labor trouble or employee controversy materially adversely
affecting the Business or assets;
(xiv)Any dividend or other distribution on or in respect of shares of
Seller's capital stock;
(xv) The incurring of any funded indebtedness except in the ordinary
course of business; or
(b) The Seller is not:
(i) in violation of any outstanding judgment, order, injunction,
award or decree specifically relating to the Business, or
E90
(ii) in violation of any federal, state or local law, ordinance or
regulation which is applicable to the Business, except where such
violation does not have a materially adverse effect on the
Business.
The Seller has all permits, licenses, orders, approvals,
authorizations, concessions and franchises of any federal, state or
local governmental or regulatory body that are material to or
necessary in the conduct of the Business, except where failure to have
such permit, license, order, approval, authorization, concession or
franchise does not have a materially adverse effect on the Business.
All such permits, licenses, orders, approvals, concessions and
franchises are set forth on the Disclosure Schedule and are in full
force and effect and there is no proceeding pending or, to the
knowledge of Seller, threatened to revoke or limit any of them.
(c) No claim, litigation, action, investigation or proceeding is pending
or, to the knowledge of Seller, threatened, and no order, injunction
or decree is outstanding, against or relating to the Business or its
assets, and Seller does not know of any information which could result
in such a claim, litigation, action, investigation or proceeding,
which, if determined adversely to Seller, would have a material
adverse effect upon Seller's Business.
(d) At the Closing, Seller shall have accrued or paid in full, to all
employees of the Business, all wages, salaries, commissions, bonuses,
vacations and other direct compensation for all services performed by
them. Seller is in compliance in all material respects with all
federal, state and local laws, ordinances and regulations relating to
employment and employment practices at the Business, and all employee
benefit plans and tax laws relating to employment at the Business.
There is no unfair labor practice complaint against Seller relating to
the Business pending before the National Labor Relations Board or
similar agency or body and, to the best of Seller's Knowledge, no
condition exists that could give rise to any unfair labor practice
complaint. There is no labor strike, dispute, slowdown or stoppage
actually pending or, to the Knowledge of Seller, threatened against or
involving the Business. Seller has no labor contracts or collective
bargaining agreements with respect to any of its employees.
9.16 Environmental Laws.
-------------------
(a) To the best of Seller's Knowledge, the real estate locations, which
are leased by Seller, ("Real Estate") have not been used or operated
in any fashion involving producing, handling and disposing of
chemicals, toxic substances, wastes and effluent materials, x-rays or
other materials or devices in material violation of any laws, rules,
regulations or orders, and to the best of Seller's Knowledge, the Real
Estate is in material compliance with applicable laws, regulations,
ordinances, decrees and orders arising under or relating to health,
safety, and environmental laws and regulations, including without
limitation the Federal Occupation and Safety Health Act, 29 U.S.C.
Sec.651, et seq.; Federal Resource Conservation and Recovery Act
("RCRA"), 42 U.S.C. Sec.6901, et seq.; Federal Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"), 42
U.S.C. Sec.9601, et seq.; the Federal Clean Air Act, 42 U.S.C.
Sec.2401, et seq.; the Federal Clean Water Act, 33 U.S.C. Sec.1251, et
seq.; and all state and local laws that correspond therewith or
supplement such laws.
E91
(b) To the best of Seller's Knowledge, the Real Estate has not been
operated, in violation of any laws, rules, regulations or orders, so
as to involve or create any surface impoundments, incinerators, land
fills, waste storage tanks, waste piles, or deep well injection
systems or for the purpose of storage, treatment or disposal of a
hazardous waste as defined by RCRA or hazardous substance, pollutant
or contaminate as defined by CERCLA and, to the best of Seller's
Knowledge, no acts have been committed that would make the Real Estate
or any part thereof subject to remedial action under RCRA or CERCLA or
corresponding state or local laws.
(c) To the best of Seller's Knowledge, there have not been, are not now
and as of the Closing Date, there will be no solid waste, hazardous
waste, hazardous substance, toxic substance, toxic chemicals,
pollutants or contaminants, underground storage tanks, purposeful
dumps, or accidental spills in, on or about the Real Estate or any of
the assets of Seller, whether real or personal, owned or leased, or
stored on any real property owned or leased by Seller or by Seller's
lessees, licensees, invites, or predecessors.
(d) Seller is not engaged in, and to the best of Seller's Knowledge and
belief, is not threatened with any litigation, or governmental or
other proceeding which may give rise to any claim against the Real
Estate. Specifically, there are no pending suits, charges, actions,
governmental investigations, or other proceedings, involving, directly
or indirectly without limitation, the laws, statutes and regulations
set forth in subsection (a), above, whether initiated by a third party
or by Seller and there are none, to the best of Seller's Knowledge,
threatened against or relating to or involving the Real Estate or the
transactions contemplated by this Agreement. Seller is not in default
with respect to any order, writ, injunction or decree of any federal,
state, local or foreign court, department, agency or instrumentality.
(e) To the best of Seller's Knowledge, Seller has obtained all permits,
and licenses and other authorizations required by all environmental
laws; and all of such permits, licenses and other authorizations are
in full force and effect as of the date hereof. A true and correct
list of all such permits, licenses and other authorizations is set
forth in the Disclosure Schedule.
9.17 Certain Employees
------------------
(a) Each of the following is included in the list of agreements set forth
in the Disclosure Schedule: all collective bargaining agreements,
employment and consulting agreements, bonus plans, deferred
compensation plans, employee pension plans or retirement plans,
employee profit-sharing plans, employee stock purchase and stock
option plans, hospitalization insurance, and other plans and
arrangements providing for employee benefits of employees of the
Seller.
(b) The Disclosures Schedule contains a true, complete and accurate list
of the following: the names, positions, and compensation of the
present employees of Seller, together with a statement of the annual
salary payable to salaried employees and a summary of the bonuses and
description of agreements for additional compensation and other like
benefits, if any, paid or payable to such persons for the period set
E92
forth in the Disclosure Schedule. Except as listed in the Disclosure
Schedule, to the best of Seller's Knowledge, all employees of the
Seller are employees--at--will.
(c) Seller has no retired employees who are receiving or are entitled to
receive any payments, health or other benefits from Seller.
9.18 Payments to Employees.
-----------------------
All accrued obligations of Seller relating to employees and agents of
Seller, whether arising by operation of law, by contract, or by past
service, for payments to trusts or other funds or to any governmental
agency, or to any individual employee or agent (or his heirs, legatees, or
legal representatives) with respect to unemployment compensation benefits,
deferred compensation, profit sharing or retirement benefits, or social
security benefits have been paid or accrued by such Seller. All obligations
of Seller as an employer or principal relating to employees or agents,
whether arising by operation of law, by contract, or by past practice, for
vacation and holiday pay, bonuses, and other forms of compensation which
are or may become payable to such employees or agents, have been paid or
will be paid or accrued by Seller.
9.19 Change of Corporate Name.
---------------------------
At the Closing, the Seller, if requested by Purchaser, will adopt and file
with the Secretary of State of North Carolina an Amendment to the Charter
of Seller changing the name of Seller to a name substantially dissimilar to
BALLANTYNE CONSULTING GROUP, INC., and the Seller shall also execute a
Consent for Use of Similar Name form, as set forth in the Disclosure
Schedule, granting to Purchaser consenting to the use of the name
BALLANTYNE CONSULTING GROUP, INC.
9.20 Brokers and Finders.
---------------------
Except as set forth in the Disclosure Schedule, no broker, finder or other
person or entity acting in a similar capacity has participated on behalf of
Seller in bringing about the transaction herein contemplated, or rendered
any service with respect thereto or been in any way involved therewith.
9.21 Preservation of Organization.
------------------------------
Except as set forth on the Disclosure Schedule, since August31st, 2001, the
Seller has kept intact the Business and organization of the Seller;
retained the services of all the Seller's material employees and agents,
retained the Seller's arrangements with the manufacturers of the products
distributed by Seller in the same manner as conducted prior to such date,
and engaged in no transaction other than in the ordinary course of Seller's
Business.
9.22 Absence of Certain Business Practices.
-----------------------------------------
Neither the Seller nor to the Seller's Knowledge, any officer, employee or
agent of the Seller, nor any other Person acting on its behalf, has,
directly or indirectly, within the past five years given or agreed to give
any gift, bribe, rebate or kickback or otherwise provide any similar
benefit to any customer, supplier, governmental employee or any other
Person who is or may be in a position to help or hinder the Seller or the
Business(or assist Seller in connection with any actual or proposed
E93
transaction relating to the Business or any other business previously
operated by Seller) (i) which subjected or might have subjected Seller to
any damage or penalty in any civil, criminal or governmental litigation or
proceeding, (ii) which if not given in the past, might have had a material
adverse effect on the Business, (iii) which if not continued in the future,
might have a material adverse effect on the Business or subject Seller to
suit or penalty in any private or governmental litigation or proceeding,
(iv) for any of the purposes described in Section 162(c) of the Code, or
(v) for the purpose of establishing or maintaining any concealed fund or
concealed bank account.
9.23 Suppliers.
---------
The Disclosure Statement sets forth the names of and description of
contractual arrangements (whether or not binding or in writing) with the
ten (10) largest suppliers of the Seller by sales or services in dollars.
Assuming that Purchaser continues to conduct the Business in the ordinary
course consistent with Seller's prior practices generally and specifically
with respect to Seller's current suppliers, Seller has no direct knowledge
that any of the current suppliers of the Seller will, or intend to, (a)
cease doing business with Seller; or (b) materially alter the amount of
business they are currently doing with Seller; or (c) not do business with
the Purchaser after the Closing.
9.24 Product Liability Claims.
--------------------------
To the best of Seller's Knowledge, there are no material product liability
claims against Seller, either potential or existing, which are not fully
covered by product liability insurance coverage with a responsible company
which, if determined adversely to Seller, would have a material adverse
effect upon the Seller's Business.
9.25 Employee Benefit Plans.
------------------------
For the purposes of this Section 9.25, "Seller" shall include all persons
who are members of a controlled group, a group of trades or businesses
under common control, or an affiliated service group (within the meanings
of Sections 414(b), (c) or (m) of the Code), of which Seller is a member.
(a) The Employee Benefit Plans presently maintained by Seller or to which
Seller has contributed within the past six (6) years, including any
terminated or frozen plans which have not yet distributed all plan
assets, are fully set forth in the Disclosure Schedule. For purposes
of this provision, the term "Employee Benefit Plan" shall mean:
(i) A Welfare Benefit Plan as defined in Section 3(1) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")
established for the purpose of providing for its participants or
their beneficiaries, through the purchase of insurance or
otherwise, medical, surgical, or hospital care or benefits, or
benefits in the event of sickness, accident, disability, death or
unemployment (including any plan or program of severance pay), or
vacation benefits, apprenticeship or other training programs, or
day care centers, scholarship funds, or prepaid legal services,
or any benefit described in Section 302(c) of the Labor
Management Relations Act of 1947;
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(ii) An Employee Pension Benefit Plan as defined in Section 3(2) of
ERISA established or maintained by Seller for the purpose of
providing retirement income to employees or for the purpose of
providing deferral of income by employees for periods extending
to the termination of covered employment or beyond; and
(iii) Any other plan or arrangement not covered by ERISA but which
provides benefits to employees or former employees and results in
an accrued liability on the part of Seller either by contract or
by operation of law.
(b) With respect to any such Employee Benefit Plans, the Seller represents
and warrants that, to the best of Seller's Knowledge;
(i) The Seller has not, with respect to any Employee Benefit Plans,
engaged in any prohibited transaction, as such term is defined in
Section 4975 of the Code or Section 406 of ERISA.
(ii) The Seller has, with respect to any Employee Benefit Plans,
substantially complied with all reporting and disclosure
requirements required by Title I, Subtitle B, Part 1 of ERISA.
(iii) There was no accumulated funding deficiency (as defined in
section 302 of ERISA and Section 412 of the Code) with respect to
any Employee Pension Benefit Plan which is a defined benefit
pension plan, whether or not waived, as of the last day of the
most recent fiscal year of the plans ending prior to the date of
this Agreement.
(iv) Except as described on the Disclosure Schedule, there are no
contributions due to any Employee Pension Benefit Plan for the
most recent fiscal year of the plans ending prior to the date of
this Agreement and the Seller's Financial Statements reflect any
liability of Seller to make contributions to the Employee Pension
Benefit Plans, and a pro rata portion of the contributions
(including matching contributions) for the plan year on which the
Closing Date occurs shall have been made on or prior to the
Closing Date for the period ending on the Closing Date.
(v) No material liability to the Pension Benefit Guaranty Corporation
("PBGC") has been asserted with respect to any Employee Pension
Benefit Plan which is a defined benefit pension plan.
(vi) There has been no reportable event as described in Section
4043(b) of ERISA since the effective date of Section 4043 of
ERISA with respect to any Employee Pension Benefit Plan which is
a defined benefit plan.
(vii) Except for claims for benefits by participants and beneficiaries
in the normal course of events, to the best of Seller's
knowledge, there are no claims, pending or threatened, by any
E95
individual or Governmental Entity, which, if decided adversely,
would have a material adverse effect upon the financial condition
of any Employee Benefit Plan, the plan administrator of any
Employee Benefit Plan, or Seller.
(viii) The Seller has made available for inspection all annual reports
for Seller filed on Internal Revenue Service ("IRS") Form 5500 or
5500C, all reports for Seller prepared by an actuary for the last
three plan years, the plan and trust documents and the Summary
Plan Description, as amended, for each Employee Benefit Plan and
the last filed PBGC1 Form (if applicable) for each Employee
Benefit Plan, with respect to any Employee Benefit Plans other
than multi-employer plans (within the meaning of Section 3(37) of
ERISA), and other reports filed with the PBGC during the last
three plan years.
(ix) All Employee Pension Benefit Plans are intended to be qualified
retirement plans under the Code. The IRS has issued, and Seller
has made available for inspection, one or more determination
letters with respect to the qualification of all Employee Pension
Benefit Plans stating that the IRS has made a favorable
determination as to the qualification of such Plan under Section
401(a) of the Code, and that continued qualification of the Plan
in its present form will depend upon its effect in operation. The
time for adoption of any amendments required by changes in the
Code since such determination letters were issued, or changes
required by the IRS as a condition for continued qualification of
such plans has not expired, or did not expire without such
amendments being made. Such plans are now, and always have been,
established in writing and maintained and operated in accordance
with the plan documents, ERISA, the Code, and all other
applicable laws. Except as described in the Disclosure Schedule,
such Plans are now and always have been, established in writing
and maintained and operated substantially in accordance with the
plan documents, ERISA, the Code and all other applicable laws, in
all material respects.
(x) There is no liability arising from the termination or partial
termination of any Employee Benefit Plan, except for liabilities
as to which adequate reserves are reflected on the Financial
Statements, and there exists no condition presenting a material
risk of such liability.
(xi) The Seller has timely made any contributions it is obligated to
make to any multi-employer plan within the meaning of Section
3(37) of ERISA. The Seller has no liability arising as a result
of withdrawal from any multi-employer plan, no such withdrawal
liability has been asserted and no such withdrawal liability will
be asserted with regard to any withdrawal or partial withdrawal
on or before the date of this Agreement.
9.26 Assets Necessary to the Business.
------------------------------------
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The Seller owns, leases or holds under license all assets and properties
(tangible and intangible) necessary to carry on the Business and operations
as presently conducted and as shown on the Financial Statements. Such
assets and properties are all of the assets and properties necessary to
carry on the Seller's Business as presently conducted and neither the
Shareholders (other than through their ownership of stock in Seller and/or
as set forth on the Disclosure Schedule) nor any member of their families
own or lease or has any interest in any assets or properties presently
being used to carry on the Business of Seller.
9.27 Transactions with Affiliates.
------------------------------
Except as disclosed on the Disclosure Schedule, there is no lease,
sublease, contract, agreement or other arrangement of any kind whatsoever
entered into by Seller and its Shareholders.
9.28 Territorial Restrictions.
-------------------------
Except as described in the Disclosure Schedule, Seller is not restricted by
any written agreement or understanding with any other Person from carrying
on the Business anywhere in the world. Neither Purchaser nor any of its
Affiliates will, as a result of its acquisition of the Purchased Assets
become restricted in carrying on the Business anywhere in the world as a
result of any contract or other agreement to which Seller is a party or by
which it is bound.
9.29 Immigration Compliance.
-----------------------
(a) Seller is in compliance with all applicable federal, state and local
laws, rules, directives and regulations relating to the employment
authorization of their respective employees (including, without
limitation, the Immigration Reform and Control Act of 1986, as amended
and supplemented, and Section 212(n) and 274A of the Immigration and
Nationality Act, as amended and supplemented, and all implementing
regulations relating thereto), and Seller has not employed nor is any
such entity currently employing any unauthorized aliens (as such term
is defined under 8 CFR 274a.1(a)).
(b) Seller has not received any notice from the Immigration and
Naturalization Service (the "INS") or the United States Department of
Labor (the "DOL") of the disapproval or denial of any visa petition or
entry permit pending before the INS or labor certification pending
before the DOL on behalf of any employee or prospective employee of
Seller.
(c) Since the approval of each of their respective visa petitions, there
has been no material change in the terms and conditions of employment
of any employees of Seller.
(d) Seller shall have delivered to Purchaser by the Closing Date true,
accurate and complete copies of all visa petitions, entry permits and
visa applications (and all supporting documents) submitted to the INS
for all foreign employees and prospective foreign employees of Seller.
9.30 Redemption of and Settlement Offer/Agreements With Certain Shareholders and
---------------------------------------------------------------------------
Performance fo Ballanytne Consulting Group, Inc. Basis Point Plan.
-------------------------------------------------------------------------
E97
(a) Seller and Shareholders represent and warrant that on or about July 25,
2000 Seller entered into Purchase Agreements (the "Purchase Agreement" and
the purchases of shares of Seller common stock thereunder, the "Minority
Shareholder Purchases") with certain shareholders (the "Minority
Shareholders") listed on Disclosure Schedule 9.30. In connection therewith,
the Minority Shareholders consummated the Minority Shareholder Purchases.
Seller and Shareholders represent and warrant that, in connection with the
Minority Shareholder Purchases, they disclosed in all material facts
concerning the Company and investment in Seller's common stock. On or about
September 19, 2001, Seller has offered to the Minority Shareholders the
opportunity to have the unpaid portion of share of Seller common stock
redeemed through cancellation of the promissory note pursuant to which
payments for the Minority Shareholder Purchases were being made. A number
of Minority Shareholders have accepted such offer and entered into
Settlement of Stockholder Purchase Agreements (the "Settlement Agreements"
and the redemptions of Seller common stock thereunder, the "Redemptions").
Seller and Shareholders represent and warrant that in connection with the
offer of redemption, the Redemptions and the Settlement Agreements, they
have disclosed all material facts concerning this Agreement and Seller's
and Shareholders' transactions with Purchaser, including material terms,
conditions and considerations that occurred prior to the Redemptions. In
making such disclosures to such shareholders and redeeming or having
canceled the shares of common stock owned by such individuals, Seller and
Shareholders did not make any untrue statement of a material fact or omit
to state a material fact necessary to make all such statements and
disclosures not misleading.
(b) Seller and Shareholders represent and warrant that Seller will comply
with and satisfy all obligations and liabilities of Seller and Shareholders
under the Ballantyne Consulting Group, Inc. Basis Point Plan, it being
understood that none of such obligations and liabilities are being assumed
by Purchaser under this Agreement.
9.31 Full Disclosure.
----------------
None of the representations and warranties made by Seller named herein, or
made on its behalf, including any disclosures made in the Disclosure
Schedule, contains or will contain, to the best of Seller's or
Shareholder's knowledge, any untrue statement of material fact or omits or
will omit any material fact.
10.
REPRESENTATIONS AND WARRANTIES OF PURCHASER
-------------------------------------------
Purchaser hereby represents and warrants to the Seller that the following
statements are true and correct as of the date hereof, and shall be true and
correct as of the Closing Date:
E98
10.1 Organization, Good Standing and Power of Purchaser.
--------------------------------------------------------
(a) Purchaser is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Delaware and has full
corporate power and lawful authority to execute, deliver and perform
this Agreement and conduct the Business of the Seller currently
conducted by the Seller in each of the jurisdictions in which the
Seller currently conducts the Business, which are the only
jurisdictions where the failure to be so qualified by Purchaser will
have a material adverse effect on the business prospects or financial
condition of Purchaser.
10.2 Status of Agreements.
----------------------
(a) All requisite corporate action (including action of its Board of
Directors) to approve, execute, deliver and perform this Agreement and
each of the other agreements, instruments and other documents to be
delivered by and on behalf of Purchaser ("Other Purchaser Documents")
in connection herewith has been taken by Purchaser. This Agreement has
been duly and validly executed and delivered by Purchaser and
constitutes the valid and binding obligation of Purchaser enforceable
in accordance with its terms. All Other Purchaser Documents in
connection herewith will, when executed and delivered, constitute the
valid and binding obligation of Purchaser enforceable in accordance
with their respective terms.
(b) No authorization, approval, consent or order of, or registration,
declaration or filing with, any court, governmental body or agency or
other public or private body, entity or person is required (except for
Purchaser's primary lenders, Deutsche Financial Services Company, et
al, whose consent shall be obtained prior to Closing) in connection
with the execution, delivery or performance of this Agreement or any
Other Purchaser Documents in connection herewith.
(c) Neither the execution, delivery nor performance of this Agreement or
any of the Other Purchaser Documents in connection herewith does or
will:
(i) conflict with, violate or result in any breach of any judgment,
decree, order, statute, ordinance, rule or regulation applicable
to Purchaser;
(ii) conflict with, violate or result in any breach of any agreement
or instrument to which Purchaser is a party or by which Purchaser
or any of Purchaser's assets or properties is bound, or
constitute a default thereunder or give rise to a right of
acceleration of an obligation of Purchaser; or
(iii) conflict with or violate any provision of the Articles of
Incorporation or By-Laws of Purchaser.
10.3 Brokers and Finders.
---------------------
E99
No broker, finder or other person or entity acting in a similar capacity
has participated on behalf of Purchaser in bringing about the transaction
herein contemplated, or rendered any service with respect thereto or been
in any way involved therewith.
10.4 Financial Matters.
------------------
Purchaser has provided Seller with its parent company, Pomeroy Computer
Resources, Inc., Form 10-Q filing for the period ending July 5, 2001. Since
July 5, 2001, there have been no materially adverse changes in the results
of operations or financial condition of Purchaser and Pomeroy Computer
Resources, Inc., nor are there any demands, commitments, events of
uncertainty known to Purchaser which could materially effect Purchaser or
Pomeroy Computer Resources, Inc. of liquidity, capital resources or results
of operation as of the date hereof.
10.5 Full Disclosure.
----------------
None of the representations and warranties made by Purchaser herein
contains or will contain, to the best of Purchaser's knowledge, any untrue
statement of material fact or omits or will omit any material fact.
11.
SURVIVAL OF AND RELIANCE UPON REPRESENTATIONS,
WARRANTIES AND AGREEMENTS; INDEMNIFICATION
------------------------------------------
11.1 Survival of Representations and Warranties.
------------------------------------------
The parties acknowledge and agree that all representations, warranties and
agreements contained in this Agreement or in any agreement, instrument,
exhibit, certificate, schedule or other document delivered in connection
herewith, shall survive the Closing and continue to be binding upon the
party giving such representation, warranty or agreement and shall be fully
enforceable to the extent provided for in Sections 11.3 and 11.4 hereof, at
law or in equity, for the period beginning on the date of Closing and
ending two (2) years thereafter, except for the representations, warranties
and agreements designated and identified in Sections 9.3, 9.11, 9.12, 9.13,
9.16 and 10.2 which shall survive the Closing and shall terminate in
accordance with the statute of limitations governing written contracts in
the State of North Carolina and Exhibits I, I-1 and I-2, and Exhibits J,
J-1, J-2, J-3, J-4, J-5, J-6, J-7, J-8, J-9, J-10, J-11, J-12, J-13, J-14,
J-15, J-16, J-17 and J-18, which shall terminate as provided therein.
11.2 Reliance Upon and Enforcement of Representations, Warranties and
-----------------------------------------------------------------------
Agreements.
----------
(a) The Seller hereby agrees that, notwithstanding any right of Purchaser
to fully investigate the affairs of Seller, and notwithstanding
knowledge of facts determined or determinable by Purchaser pursuant to
such investigation or right of investigation, Purchaser shall have the
right to rely fully upon the representations, warranties and
agreements of Seller and the Shareholders contained in this Agreement
and upon the accuracy of any document, certificate or exhibit given or
delivered to Purchaser pursuant to the provisions of this Agreement.
E100
(b) Purchaser hereby agrees that, notwithstanding any right of Seller to
fully investigate the affairs of Purchaser, and notwithstanding
knowledge of facts determined or determinable by Seller pursuant to
such investigation or right of investigation, Seller have the right to
rely fully upon the representations, warranties and agreements of
Purchaser contained in this Agreement and upon the accuracy of any
document, certificate or exhibit given or delivered to Seller pursuant
to the provisions of this Agreement.
11.3 Indemnification by Seller and Shareholders.
----------------------------------------------
Provided Purchaser makes a written claim for indemnification against Seller
within any applicable survival period specified in Section 11.1, and
subject to the limitations set forth in Section 11.7, the Seller and
Shareholders (jointly and severally) shall indemnify Purchaser against and
hold it harmless from any and all loss, damage, liability or deficiency
("Loss") resulting from or arising out of:
(i) any inaccuracy in or breach of any representation, warranty, covenant,
or obligation made or incurred by Seller or the Shareholders herein or
in any other agreement, instrument or document delivered by or on
behalf of Seller pursuant to the provisions of the Agreement;
(ii) any imposition (including by operation of law) or attempted imposition
by a third party upon Purchaser of any Excluded Liability of Seller
which Purchaser has not specifically agreed to assume pursuant to
Section 3.1 of this Agreement;
(iii) any liability of Seller arising out of Seller's operation of the
Business, its ownership or use of the Purchased Assets, or occupancy
and use of the Real Estate prior to the Closing (except for any
Assumed Liabilities described in Section 3.1) or other obligation
incurred by or imposed upon Purchaser resulting from the failure of
the parties to comply with the provisions of any law relating to bulk
transfers which may be applicable to the transaction herein
contemplated;
(iv) any and all costs and expenses (including reasonable legal and
accounting fees) related to any of the foregoing.
Except as otherwise provided in this Agreement, nothing in this Section
11.3 shall be construed to limit the amount to which, or the time by which,
by reason of offset or otherwise, that Purchaser may recover from Seller or
any Shareholder pursuant to this Agreement resulting from Seller's breach
or violation of any representation, warranty, covenant or agreement
contained herein or from any Shareholder's breach or violation of any
representation made by such Shareholder herein.
Any amounts to which Purchaser, its successors or assigns, is entitled to
indemnification pursuant to the provisions of this Section, shall first be
offset against the amount payable to Seller against the subordinated
promissory note, then against any payments due under Sections 4.4 or 4.5.
Provided, however, the offset in any one year may not exceed the aggregate
amount payable of principal and interest due on said applicable
E101
subordinated promissory note for said year, and any amount, if any, payable
under Sections 4.4 or 4.5 in the aggregate for such year.
11.4 Indemnification by Purchaser.
------------------------------
Provided Shareholders and/or Seller make a written claim for
indemnification against Purchaser within any applicable survival period
specified in Section 11 and subject to the limitation set forth in Section
11.8, Purchaser shall indemnify Seller and each Shareholder against and
hold them harmless from any and all loss, damage, liability or deficiency
resulting from or arising out of: (i) any Assumed Liabilities of Purchaser;
(ii) any liability of Purchaser arising out of Purchaser's operations
subsequent to the Closing (except to the extent such liability is the
result of a breach of a covenant or warranty of Seller hereunder); (iii)
any inaccuracy in or breach of any representation, warranty, covenant or
obligation made or incurred by Purchaser herein or in any other agreement,
instrument, or document delivered by or on behalf of Purchaser pursuant to
the provisions of this Agreement; and (iv) any and all related costs and
expenses (including reasonable legal and accounting fees). Except as
otherwise provided herein, nothing in this Section 11.4 shall be construed
to limit the amount to which, or the time by which, by reason of offset or
otherwise, that Seller may recover from Purchaser pursuant to this
Agreement resulting from its breach or violation of any representation,
warranty, covenant or agreement contained herein.
11.5 Notification of and Participation in Claims.
------------------------------------------------
(a) No claim for indemnification shall arise until notice thereof is given
to the party from whom indemnity is sought. Such notice shall be sent
within ten (10) days after the party to be indemnified has received
notification of such claim, but failure to notify the indemnifying
party shall in no event prejudice the right of the party to be
indemnified under this Agreement, unless the indemnifying party shall
be prejudiced by such failure and then only to the extent of such
prejudice. In the event that any legal proceeding shall be instituted
or any claim or demand is asserted by any third party in respect of
which Seller/Shareholders on the one hand, or Purchaser on the other
hand, may have an obligation to indemnify the other, the party
asserting such right to indemnity (the "Party to be Indemnified")
shall give or cause to be given to the party from whom indemnity is
sought (the "Indemnifying Party") written notice thereof and the
Indemnifying Party shall have the right, at its option and expense, to
participate in the defense of such proceeding, claim or demand, but
not to control the defense, negotiation or settlement thereof, which
control shall at all times rest with the Party to be Indemnified,
unless the Indemnifying Party irrevocably acknowledges in writing full
and complete responsibility for and agrees to provide indemnification
of the Party to be Indemnified, in which case such Indemnifying Party
may assume such control through counsel of its choice and at its
expense. In the event the Indemnifying Party assumes control of the
defense, the Indemnifying Party shall not be responsible for the legal
costs and expenses of the Party to be Indemnified in the event the
Party to be Indemnified decides to join in such defense. The parties
hereto agree to cooperate fully with each other in connection with the
defense, negotiation or settlement of any such third party legal
proceeding, claim or demand.
(b) If the Party to be Indemnified is also the party controlling the
defense, negotiation or settlement of any matter, and if the Party to
be Indemnified determines to compromise the matter, the Party to be
Indemnified shall immediately advise the Indemnifying Party of the
E102
terms and conditions of the proposed settlement. If the Indemnifying
Party agrees to accept such proposal, the Party to be Indemnified
shall proceed to conclude the settlement of the matter, and the
Indemnifying Party shall immediately indemnify the Party to be
Indemnified pursuant to the terms of Sections 11.3 and 11.4 hereunder.
If the Indemnifying Party does not agree within fourteen (14) days to
accept the settlement (said 14-day period to begin on the first
business day following the date such party receives a complete copy of
the settlement proposal), the Indemnifying Party shall immediately
assume control of the defense, negotiation or settlement thereof, at
that Indemnifying Party's expense. Thereafter, the Party to be
Indemnified shall be indemnified in the entirety for any liability
arising out of the ultimate defenses, negotiation or settlement of
such matter.
(c) If the Indemnifying Party is the party controlling the defense,
negotiation or settlement of any matter, and the Indemnifying Party
determines to compromise the matter, the Indemnifying Party shall
immediately advise the Party to be Indemnified of the terms and
conditions of the proposed settlement. If the Party to be Indemnified
agrees to accept such proposal, the Indemnifying Party shall proceed
to conclude the settlement of the matter and immediately indemnify the
Party to be Indemnified pursuant to the terms of Sections 11.3 or 11.4
hereunder. If the Party to be Indemnified does not agree within
fourteen (14) days to accept the settlement (said 14-day period to
begin on the first business day following the date such party receives
a complete copy of the settlement proposal), the Party to be
Indemnified shall immediately assume control of the defense,
negotiation or settlement thereof, at the Party to be Indemnified's
expense. If the final amount paid to resolve the claim is less than
the amount of the original proposed settlement made by the
Indemnifying Party, then the Party to be Indemnified shall receive
such indemnification pursuant to Sections 11.3 or 11.4 hereof,
including any and all expenses incurred by the Party to be Indemnified
incurred in connection with the defense, negotiation or settlement of
such matter up to the maximum of the original proposed settlement. If
the amount finally paid to resolve the claim is equal to or greater
than the amount of the original proposed settlement proposed by the
Indemnifying Party, then the Indemnifying Party shall provide
indemnification pursuant to Sections 11.3 and 11.4 for the amount of
the original settlement proposal submitted by the Indemnifying Party,
and the Party to be Indemnified shall be responsible for all amounts
in excess of the original settlement proposal submitted by the
Indemnifying Party and all costs and expenses incurred by the Party to
be Indemnified in connection with such defense, negotiation or
settlement.
11.6 Excluded Liabilities.
---------------------
(a) Notwithstanding anything contained herein to the contrary, in the
event any Excluded Liability would attach to the Purchased Assets
under any successor liability statute or otherwise, notwithstanding
the fact that such liability was an Excluded Liability, Seller and
Shareholders shall be jointly and severally responsible for the
payment of such Excluded Liability and the lien on the Purchased
Assets (which would represent a breach of certain representations
under the Agreement) related to such liability.
E103
11.7 Limitation on Seller and Shareholder Liability.
---------------------------------------------------
Seller's and Shareholders' obligation to indemnify shall be subject to all
of the following limitations:
(a) All Losses shall be computed net of any insurance coverage received by
Purchaser with respect thereto that reduces the Loss that would
otherwise be sustained;
(b) No indemnification shall be required under Section 11.3 until the
aggregate amount of Purchaser's Losses exceeds $25,000; provided,
however, that once Purchaser's Losses exceed $25,000, then
indemnification shall be made without regard to such limitation;
(c) The maximum liability that any Shareholder may be individually
required to pay to Purchaser under this Section 11 shall not exceed an
amount equal to the total consideration paid to Seller hereunder by
Purchaser hereunder multiplied by the following respective
percentages:
M. DeMeo - 61%
J. Schmidt - 7%
S. Schneider - 17.5%
D. Tweedy - 14.5%
11.8 Limitation on Purchaser's Liability.
--------------------------------------
Notwithstanding anything contained in this Agreement to the contrary, the
maximum amount that Purchaser may pay to the Seller under this Section 11
as a result of any and all breaches shall be limited to the total
consideration paid under this Agreement by Purchaser to the Seller.
12. THE CLOSING
-----------
12.1 Date, Time and Place of Closing.
------------------------------------
Consummation of the transactions contemplated hereby (the "Closing") shall
take place on September 20, 2001 (the "Closing Date"), at 9:00 a.m. EDT at
the offices of Lindhorst & Dreidame Co., LPA, 312 Walnut Street, Suite
2300, Cincinnati, Ohio 45202, or on such other Closing Date, or at such
other time and/or place as the parties may mutually agree upon.
12.2 Conditions Precedent to Purchaser's Obligations.
---------------------------------------------------
The obligation of Purchaser to perform in accordance with this Agreement
and to consummate the transactions herein contemplated is subject to the
satisfaction of the following conditions at or before the Closing:
(a) Seller shall have complied with and performed all of the
representations, warranties, agreements and covenants hereunder
required to be performed by it prior to or at the Closing;
E104
(b) There shall be no pending or threatened legal action which, if
successful, would prohibit consummation or require substantial
rescission of the transactions contemplated by this Agreement;
(c) The business, aggregate properties and operations of the Seller shall
not have been materially adversely affected as a result of any fire,
accident or other casualty or any labor disturbance or act of God or
the public enemy, and there shall otherwise have been no material
adverse change to the business, aggregate properties, or operations of
the Seller since August 31st, 2001;
(d) Seller shall have delivered to Purchaser at or before the Closing, the
following documents, all of which shall be in form and substance
reasonably acceptable to Purchaser and its counsel:
(i) The instruments of transfer required by Sections 2.5 and 2.6;
(ii) Releases (or copies thereof) of all liens, claims, charges,
encumbrances, security interests and restrictions on the
Purchased Assets necessary to provide Purchaser with good title
to the Purchased Assets at the Closing;
(iii)Certified copies of the corporate actions taken by the Board of
Directors and Shareholders of Seller authorizing the execution,
delivery and performance of this Agreement;
(iv) Certificates of Existence for Seller from the Secretary of State
of North Carolina dated no earlier than fifteen (15) days prior
to Closing;
(vi) Opinion Letter of Morris, Manning & Martin, L.P. containing the
opinions set forth in Exhibit K;
(vii)The Seller and each Shareholder and the shareholders listed on
Disclosure Schedule 7.2 shall have entered into the
non-competition agreements as set forth in the respective
Exhibits;
(viii)M. DeMeo, J. Schmidt and S. Schneider shall have entered into
Employment Agreements as set forth in the respective Exhibits;
(f) Purchaser shall have received assurances in form and substance
satisfactory to it (that may include insurance certificates) that
Seller has made all provisions necessary under applicable law, with
regard to an employer's obligation to provide for a continuation of
health insurance and other benefits of any employee, who is not
employed by Seller following termination of employment.
12.3 Conditions Precedent to Seller's Obligations.
------------------------------------------------
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The obligation of Seller to perform in accordance with this Agreement and
to consummate the transactions herein contemplated is subject to the
satisfaction of the following conditions at or before the Closing:
(a) Performance by Purchaser of all of the representa-tions, warranties,
agreements and covenants to be performed by it at or before the
Closing;
(b) There shall be no pending or threatened legal action which, if
successful, would prohibit consummation or require substantial
rescission of the transactions contemplated by this Agreement;
(c) Purchaser's representations and warranties shall be true and correct
as of the Closing Date;
(d) Purchaser shall deliver to the Seller at or before the Closing the
following documents, all of which shall be in form and substance
acceptable to the Seller and its counsel:
(i) A certified or bank cashier's check or wire transfer for the
aggregate amount to be paid to Seller at the Closing pursuant to
Section 4.2(a) hereof;
(ii) A Promissory Note as set forth in Section 4.2(b) hereof;
(iii) An assumption of liability agreement under which Purchaser
assumes the liabilities set forth in Section 3.1;
(iv) Certified copies of the corporate actions taken by Purchaser
authorizing the execution, delivery and performance of this
Agreement;
(v) Certificate of Good Standing for Purchaser from the Secretary of
State of Delaware dated no earlier than fifteen (15) days prior
to the date of Closing;
(vi) Opinion Letter of Lindhorst & Dreidame, counsel for Purchaser,
addressed to Seller and dated the Closing Date, containing the
opinions set forth in Exhibit L.
13.
GENERAL PROVISIONS
------------------
13.1 Publicity.
---------
All public announcements relating to this Agreement or the transactions
contemplated hereby will be made by Purchaser with the consent of the
Seller, which consent will not be unreasonably withheld, except for any
disclosure which may be required because of Purchaser's parent company,
PCR, being a publicly-traded corporation on the over-the-counter market.
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13.2 Expenses.
--------
Purchaser will bear and pay all of its expenses incident to the
transactions contemplated by this Agreement which are incurred by Purchaser
or its representatives, and Seller shall bear and pay all of the expenses
incident to the transactions contemplated by this Agreement which are
incurred by Seller or its representatives.
13.3 Notices.
-------
All notices and other communications required by this Agreement shall be in
writing and shall be deemed given if delivered by hand or mailed by
registered mail or certified mail, return receipt requested, to the
appropriate party at the following address (or at such other address for a
party as shall be specified by notice pursuant hereto):
(a) If to Purchaser to:
Pomeroy Select Integration Solutions, Inc.
1020 Petersburg Road
Hebron, Kentucky 41048
With a copy to:
James H. Smith III, Esq.
Lindhorst & Dreidame
312 Walnut Street, Suite 2300
Cincinnati, Ohio 45202
(b) If to Seller, to:
Ballantyne Consulting Group, Inc.
14445 W. Lee Court
Charlotte, North Carolina 28277
With a copy to:
Robert M. Donlon
Morris, Manning & Martin, L.P.
6000 Fairview Road, Suite 1125
Charlotte, NC 28210
(c) If to Shareholders, to:
Mark DeMeo
10745 Alexander Mill Drive
Charlotte, North Carolina 28277
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Joe Schmidt
6380 Maid Marion Close
Alpharetta, Georgia 30005
Scott Schneider
14445 W. Lee Court
Charlotte, North Carolina 28277
Dale Tweedy
4800 Fortunes Ridge Trail
Charlotte, North Carolina 28269
13.4 Binding Effect.
---------------
Except as may be otherwise provided herein, this Agreement and all the
provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, legal representatives,
successors and assigns.
13.5 Headings.
--------
The headings in this Agreement are intended solely for convenience of
reference and shall be given no effect in the construction or
interpretation of this Agreement.
13.6 Exhibits.
--------
The Exhibit and Disclosure Schedule referred to in this Agreement
constitute an integral part of this Agreement as if fully rewritten herein.
13.7 Counterparts.
------------
This Agreement may be executed in multiple counterparts, each of which
shall be deemed an original, but all of which constitute together one and
the same document.
13.8 Governing Law.
--------------
This Agreement shall be construed in accordance with and governed by the
laws of the State of Kentucky, without regard to its laws regarding
conflict of laws.
13.9 Severability.
------------
If any provision of this Agreement shall be held unenforceable, invalid, or
void to any extent for any reason, such provision shall remain in force and
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effect to the maximum extent allowable, if any, and the enforceability or
validity of the remaining provisions of this Agreement shall not be
affected thereby.
13.10 Waivers; Remedies Exclusive.
-----------------------------
No waiver of any right or option hereunder by any party shall operate as a
waiver of any other right or option, or the same right or option with
respect to any subsequent occasion for its exercise, or of any right to
damages. No waiver by any party of any breach of this Agreement or of any
representation or warranty contained herein shall be held to constitute a
waiver of any other breach or a continuation of the same breach. No waiver
of any of the provisions of this Agreement shall be valid and enforceable
unless such waiver is in writing and signed by the party granting the same.
Except as otherwise provided in the Subordinated Promissory Note,
Employment Agreements, and the Covenant Not to Compete Agreements, the
indemnification provided for by Section 12 herein shall constitute the
exclusive remedy of any party with respect to (i) the matters for which
such indemnification is provided and (ii) any other matters arising out of,
relating to or connected with this Agreement or the transactions
contemplated hereby, and whether any claims or causes of action asserted
with respect to any such matters are brought in contract, tort or other
legal theory whatsoever. Such limitations set forth in this Section 15.10
shall not impair the rights of any of the parties: (a) to seek non-monetary
equitable relief, including (without limitation) specific performance or
injunctive relief to address any default or breach of this Agreement; or
(b) to seek enforcement, collection, damages or any non-monetary equitable
relief to address any subsequent default or breach of any transfer
document, assumption, consent or agreement to be delivered at Closing
hereunder or to seek declaratory relief or any related relief relating to
certain issues that may arise under Sections 4.6, 5.1 and 5.2. In
connection with the seeking of any non-monetary equitable relief, each of
the parties acknowledge and agree that the other parties hereto would be
damaged irrevocably in the event any of the provisions of this Agreement
are not performed in accordance with their specific terms or otherwise are
breached. Accordingly, each of the parties hereto agree that the other
parties hereto shall be entitled to an injunction or injunctions or prevent
breaches of the provisions of this Agreement and to enforce specifically
this Agreement and the terms and provisions hereof by any competent court
having jurisdiction over the parties. Accordingly, each of the parties
hereto agree that the other parties hereto shall be entitled to an
injunction or injunctions or prevent breaches of the provisions of this
Agreement and to enforce specifically this Agreement and the terms and
conditions hereof by any state court of competent jurisdiction. The parties
hereby consent to exclusive jurisdiction of venue in the state courts of
Mecklenberg County, North Carolina, or if there is exclusive federal
jurisdiction, the United States District Court for the Western District of
North Carolina, shall have exclusive jurisdiction and venue over any
dispute arising out of this Agreement.
13.11 Assignments.
-----------
Except as otherwise provided in this Agreement, no party shall assign its
rights or obligations hereunder prior to Closing without the prior written
consent of the other party.
13.12 Entire Agreement.
-----------------
This Agreement and the agreements, instruments and other documents to be
delivered hereunder constitute the entire understanding and agreement
concerning the subject matter hereof. All negotiations between the parties
hereto are merged into this Agreement, and there are no representations,
warranties, covenants, understandings, or agreements, oral or otherwise, in
relation thereto between the parties other than those incorporated herein
and to be delivered hereunder. Except as otherwise expressly contemplated
by this Agreement, nothing expressed or implied in this Agreement is
intended or shall be construed so as to grant or confer on any person, firm
E109
or corporation other than the parties hereto any rights or privilege
hereunder. No supplement, modification or amendment of this Agreement shall
be binding unless executed in writing by the parties hereto.
13.13 Business Records.
-----------------
Seller and each Shareholder shall be permitted to retain copies of such
books and records relating to the Purchased Assets and relating to the
accounting and tax matters of the Business and to have access to all
original copies of records so delivered to Purchaser at reasonable times,
for any reasonable business purpose, for a period of six (6) years after
the Closing.
13.14 Dissolution of Seller.
-----------------------
Purchaser acknowledges that following the Closing, Seller may adopt a plan
of liquidation with the intent to dissolve the corporation. Provided,
however, Seller and each Shareholder agree that the plan of liquidation
will not be effectuated and implemented by Seller until all the conditions
set forth in Section 2 of this Agreement regarding the transfer of all the
respective purchased assets have been effectuated by Seller. Seller
acknowledges that Purchaser will suffer irreparable harm in the event that
Seller would liquidate prior to satisfying all of its obligations under the
terms of this Agreement and the exhibits hereto.
13.15 Effective Date of Agreement.
-------------------------------
This Agreement shall be effective at the close of business on the Closing
Date.
14.
CONSENT TO GRANTING OF A
------------------------
SECURITY INTEREST IN ACQUISITION DOCUMENTS
------------------------------------------
14.1 Seller consents and agrees that upon the Closing of this transaction,
Purchaser shall have the right to grant to Deutsche Financial Services
Corporation, as Administrative Agent for the benefit of various lenders
under a Credit Facilities Agreement, and Purchaser and various Affiliates
of such parties, a first priority security interest and lien on all of
Purchaser's rights, remedies, claims and interests under all the
acquisition documents for this transaction.
Seller agrees to execute at Closing an assignment of rights agreement, a copy of
which is attached hereto as Exhibit M.
The parties hereto have executed this Agreement as of the date first above
written.
WITNESSES: BALLANTYNE CONSULTING GROUP, INC.
___________________________ By:__________________________________
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___________________________ Its: _______________________________
POMEROY SELECT INTEGRATION
SOLUTIONS, INC.
___________________________ By:__________________________________
___________________________
___________________________ SHAREHOLDERS:
___________________________ _____________________________________
MARK DeMEO
___________________________
___________________________ _____________________________________
JOE SCHMIDT
___________________________
___________________________ _____________________________________
SCOTT SCHNEIDER
___________________________
___________________________ _____________________________________
DALE TWEEDY
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