Exhibit 2
STOCK PURCHASE AGREEMENT
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THIS STOCK PURCHASE AGREEMENT (this "Agreement") is dated as of the 29th
day of January, 1999, by and among CHANCELLOR ASSET MANAGEMENT, INC., a Delaware
corporation (the "Buyer"), M. REA BROOKINGS of the State of Georgia
("Brookings"), and DAVID F. HERRING of the State of Georgia ("Herring," and
collectively with Brookings, the "Sellers").
W I T N E S S E T H:
WHEREAS, the Sellers are the owners of all of the issued and outstanding
shares of the capital stock (collectively, the "Shares") of M.R.B., Inc., a
Georgia corporation d/b/a "Tomahawk Truck Sales" ("MRB"), Tomahawk Truck &
Trailer Sales, Inc., a Florida corporation ("Tomahawk Florida"), Tomahawk Truck
& Trailer Sales of Virginia, Inc., a Virginia corporation ("Tomahawk Virginia"),
and Tomahawk Truck & Trailer Sales of Missouri, Inc., a Missouri corporation
("Tomahawk Missouri") (each, a "Company" and collectively, the "Companies"); and
WHEREAS, the Sellers desire to sell the Shares to the Buyer, and the Buyer
desires to purchase the Shares from the Sellers, upon the terms and subject to
the conditions contained in this Agreement.
NOW, THEREFORE, in consideration of the mutual promises and agreements set
forth herein, the parties hereto agree as follows:
1. PURCHASE AND SALE OF SHARES.
1.1. Purchase and Sale. Subject to the terms and conditions set forth in
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this Agreement, the Sellers agree to sell to the Buyer, and the Buyer agrees to
purchase from the Sellers, at the Closing (as defined in Section 2 hereof), all
of the Shares, in exchange for the payment of the Purchase Price (as defined in
Section 1.2 hereof).
1.2. Purchase Price. The Buyer shall pay and cause to be delivered to the
Sellers, as the aggregate purchase price for the Shares (the "Purchase Price"),
the following: (a) 4,500,000 shares (the "Closing Shares") of the common stock,
$.01 par value per share (the "Common Stock"), of Chancellor Corporation, a
Massachusetts corporation and corporate parent of the Buyer ("Chancellor"); (b)
the Earn Out Payments, if any, payable pursuant to Section 3 hereof; (c) the
payments to be made to the Sellers pursuant to Section 4.4 hereof; and (d) the
Contingent Shares, as defined in, and deliverable to the Seller pursuant to the
terms of, Section 4.5 hereof. Each Seller shall receive one-half (1/2) of the
Closing Shares and, if applicable, the Contingent Shares. The Closing Shares
and the Contingent Shares are sometimes hereinafter collectively referred to as
the "Chancellor Shares."
2. CLOSING.
2.1. Time and Place. The closing of the sale and purchase of the Shares
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(the "Closing") shall be held at the offices of Bingham Dana LLP, 150 Federal
Street, Boston, Massachusetts, at 10:00 a.m. on January 29, 1999. The date on
which the Closing is actually held hereunder is sometimes referred to herein as
the "Closing Date".
2.2. Transactions at Closing. At the Closing, in addition to any other
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instruments or documents referred to herein:
(a) The Sellers shall deliver to the Buyer, free and clear of any lien,
claim or encumbrance, certificates representing the Shares, duly endorsed in
blank or with duly executed stock powers attached.
(b) Each Seller shall execute and deliver to the Buyer a Seller Closing
Note (as defined in Section 4.2 hereof).
(c) Each Seller shall execute and deliver to the Buyer a Pledge
Agreement (as defined in Section 4.2 hereof), together with the certificate
Representing the Pledged Shares (as defined in Section 4.2 hereof), with duly
Executed stock powers attached thereto.
(d) The Buyer shall deliver to each Seller, free and clear of any lien,
claim or encumbrance, certificates representing such Seller's Closing Shares, a
portion of which shall be delivered by each Seller to the Buyer as "Pledged
Shares" pursuant to Section 2.2(c) hereof.
(e) The Buyer shall cause to be repaid to each Seller in immediately
available funds $25,000 of such Seller's Existing Loan (as defined in Section
4.1 hereof).
(f) Brookings and MRB shall execute and deliver an employment agreement
in the form of Exhibit A-1 hereto (the "Brookings Employment Agreement").
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(g) Herring and MRB shall execute and deliver an employment agreement
in the form of Exhibit A-2 hereto (the "Herring Employment Agreement"; and
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together with the Brookings Employment Agreement, the "Employment Agreements").
(h) The Sellers and the Buyer shall execute and deliver the Lease ( as
defined in Section 4.6 hereof).
(i) The Sellers and the Buyer shall execute and deliver such other
instruments, agreements and documents as any of the parties or their respective
legal counsel may reasonably request in order to effectuate the terms and
conditions contained in this Agreement.
3. EARN OUT.
(a) The Sellers shall be entitled to receive, as additional purchase
price for the Shares (and irrespective of whether a Seller remains employed with
any of the Companies), a payment (each, an "Earn-Out Payment") with respect to
each of the four (4) quarters (each, an "Earn-Out Quarter") in the six (6) full
consecutive fiscal years of
the Companies, beginning with the fiscal year ended on December 31, 1999 and
ending with the fiscal year ended on December 31, 2004, determined as
hereinafter provided (each such fiscal year being referred to herein as an
"Earn-Out Year"). With respect to each Earn-Out Quarter, an Earn-Out Payment
shall be payable to each Seller in an amount equal to seven and one-half percent
(7.5%) of the Adjusted Pre-Tax Earnings (as defined in Section 11 hereof) during
each such Earn-Out Quarter. Each Earn-Out Payment, if any, due to the Sellers
shall be paid by the Buyer within ninety (90) days after the end of the
applicable Earn-Out Quarter in respect of which it has been achieved.
(b) All determinations of the Adjusted Pre-Tax Earnings during each
Earn-Out Quarter, and the amount of the Earn-Out Payout, if any, due to each
Seller in respect thereof (each, a "Determination"), shall initially be made by
the Buyer in good faith from the combined unaudited, internally prepared
financial statements for the Companies for each such Earn-Out Quarter, and shall
be made within twenty (20) days after the end of such Earn-Out Quarter. Upon
each Determination, the Buyer shall immediately thereafter (but in any event
within five (5) days) furnish to the Sellers written notice of such
Determination, together with a copy of the applicable financial statements for
such Earn-Out Quarter.
(c) Following the end of each Earn-Out Year, the Buyer shall instruct
its then certified public accounting firm (the "Buyer's Accountants") to
prepare, as part of the Buyer's Accountant's audit of the Companies for such
Earn-Out Year, a determination of the Adjusted Pre-Tax Earnings during each
Earn-Out Quarter in such Earn-Out Year, and a determination of the Earn-Out
Payments, if any, due and owing to the Sellers in respect thereof. In
connection with such process, the Buyer's Accountants shall determine whether
the amount of the Earn-Out Payments, if any, paid by the Buyer to the Sellers in
respect of each such Earn-Out Quarter, was correct, and if not, shall calculate
the net amount that the Buyer or the Sellers, as the case may be, owe the
other(s) on account thereof (any such net amount being referred to herein as an
"Earn-Out Adjustment). As soon as practicable after the Buyer's Accountants
have determined the Earn-Out Adjustment, if any, as aforesaid, they shall
furnish a copy of their calculation, together with such reasonably supporting
information and worksheets, to the Buyer and the Sellers (herein, an "Earn-Out
Adjustment Determination"). Within twenty (20) days after the Sellers' receipt
of an Earn-Out Adjustment Determination (a "Determination Review Period"), each
Seller shall notify the Buyer in writing as to whether such Seller accepts the
Earn-Out Adjustment Determination. If any Seller does not object to the
Earn-Out Adjustment Determination within the Determination Review Period, then
the Earn-Out Adjustment Determination shall be final and binding upon the Buyer
and such Seller. If, however, a Seller objects to the Earn-Out Adjustment
Determination within the Determination Review Period, then the Buyer and such
Seller shall promptly meet and use their best efforts in good faith to resolve
the dispute. If, after ten (10) days, the parties are unable to resolve the
dispute, then the matter shall be submitted to Tofias, Fleischman Shapiro & Co.,
P.C. of Boston, Massachusetts (who shall have no prior or existing relationship
with Chancellor or any of its Affiliates (as defined in Section 11 hereof),
including the Buyer, or the Sellers) for resolution, whose determination shall
be made within forty-five (45) days and shall be final and binding upon the
parties, and whose fees shall be borne by the party against whom the matter is
resolved.
(d) All Earn-Out Payments, if any, shall be payable in cash; provided,
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however, that after consummation of the Buyer IPO (as defined in Section 11
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hereof), at the election of the Buyer, the Buyer may offer both of the Sellers
the option of receiving
Earn-Out Payments in cash or shares of the Buyer's common stock, $.01 par value
per share (the "Buyer Common Stock"), or MRB common stock, $1.00 par value per
share (the "MRB Common Stock"), as the case may be; provided, further, that if
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the Buyer offers the Sellers such an option, the Sellers shall be entitled
separately to elect to receive their Earn-Out Payments in cash or shares of
Buyer Common Stock or MRB Common Stock, as the case may be. If a Seller so
elects to receive an Earn-Out Payment in shares of Buyer Common Stock or MRB
Common Stock, as the case may be, such Seller shall be entitled to receive a
number of shares of Buyer Common Stock or MRB Common Stock, as the case may, be
equal to the Earn-Out Payment divided by the average share price of the Buyer
Common Stock or MRB Common Stock, as the case may be, for the twenty (20)
trading days immediately prior to the end of the particular Earn-Out Quarter in
respect of which the Earn-Out Payment is due.
4. ANCILLARY MATTERS.
4.1. Repayment of Loans from Sellers. At and after the Closing, the
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Buyer shall cause the Companies to remit to each Seller $150,000 in the
aggregate in immediately available funds in repayment of existing loans made by
the Sellers to the Companies (as to each Seller, such Seller's "Existing Loan"),
payable to each Seller in accordance with the following schedule:
Date Amount
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Closing Date $ 25,000
July 1, 1999 $ 25,000
January 2, 2000 $ 25,000
July 1, 2000 $ 25,000
January 2, 2001 $ 25,000
July 1, 2001 $ 25,000
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Total: $150,000
4.2. Loans to Sellers at Closing. At the Closing, the Buyer shall loan
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to each Seller the sum of $150,000 (collectively, the "Seller Closing Loans"),
which Seller Closing Loans shall be made by the Buyer from the proceeds of the
Capital Contribution (as defined in Section 8.12 hereof), and shall be repaid by
each Seller to the Buyer pursuant to the terms of a five (5) year promissory
note from each Seller in the original principal amount of $150,000 in the form
of Exhibit B hereto (as to each Seller, such Seller's "Seller Closing Note").
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The obligations of each Seller to pay such Seller's Seller Closing Note shall be
secured by a pledge by each Seller to the Buyer of such number of the Closing
Shares determined by dividing (a) 150,000, by (b) the closing price of the
Common Stock on the day immediately preceding the Closing Date (as to each
Seller, such Seller's "Pledged Shares," which term will also include the Closing
Shares pledged to the Buyer pursuant to Section 4.6 hereof), pursuant to the
terms of a pledge agreement between such Seller and the Buyer in the form of
Exhibit C hereto (as to each Seller, such Seller's "Pledge Agreement").
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4.3. Chancellor Employee Options. At the Closing, Chancellor shall
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reserve in the aggregate 500,000 shares of Common Stock for issuance upon the
exercise of options granted to key management and personnel of the Companies (as
recommended by the Sellers in their reasonable judgment as hereinbelow provided)
pursuant to the Chancellor Corporation 1997 Stock Option Plan (the "Chancellor
Employee Options"). The Chancellor Employee Options shall be granted by the
Compensation Committee of the Chancellor Board of Directors (the "Compensation
Committee"), on or prior to the fifth anniversary of the Closing, pursuant to
the terms of the Chancellor Corporation 1997 Stock Option Plan; provided, that
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in no event shall the Compensation Committee grant less than 100,000 shares of
Common Stock to key management and personnel of the Companies (as recommended by
the Sellers in their reasonable judgment as hereinbelow provided) during each
fiscal year, commencing with the 1999 fiscal year ending on December 31, 1999.
The Sellers shall be entitled to provide recommendations to the Compensation
Committee with respect to the grantee, number of shares issuable upon exercise
and vesting schedule of the Chancellor Employee Options, which recommendations
are set forth on Schedule 4.3 hereto, which the Compensation Committee shall be
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required in good faith to consider adopting; provided, however, that all final
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decisions with respect to the Chancellor Employee Options, and the terms and
conditions thereof, shall be determined by the Compensation Committee.
4.4. Reimbursement for 1998 S Corp. Tax Liability. On April 15, 1999,
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the Buyer shall reimburse the Sellers the amount by which the aggregate 1998
federal and state income tax liability incurred by the Sellers on account of the
Companies having elected S corp. status under Section 1362 of the Internal
Revenue Code of 1986, as amended (the "1998 Tax Liability") exceeds the
aggregate amount of $200,000, up to a maximum aggregate reimbursement amount of
$100,000. In the event that the 1998 Tax Liability is less than $200,000 (such
shortfall being referred to herein as the "1998 Tax Liability Shortfall"), the
amount of the 1998 Tax Liability Shortfall shall be reimbursed by the Sellers to
the Buyer within five (5) days after such 1998 Tax Liability Shortfall has been
determined.
4.5. Loans to Sellers Post-Closing. On April 15, 1999, the Buyer shall
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loan to each Seller the sum of $100,000 (collectively, the "Seller Post-Closing
Loans"), which Seller Post-Closing Loans shall be repaid by each Seller to the
Buyer pursuant to the terms of a five (5) year promissory note from each Seller
in the original principal amount of $100,000 in the form of Exhibit D hereto (as
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to each Seller, such Seller's "Seller Post-Closing Note"). The obligations of
each Seller to pay such Seller's Seller Post-Closing Note shall be secured by a
pledge by each Seller to the Buyer of such number of Closing Shares determined
by dividing (a) 100,000, by (b) the closing price of the Common Stock on the day
immediately preceding the Closing Date (as to each Seller, such Closing Shares
so pledged shall be included in such Seller's "Pledged Shares"), pursuant to
such Seller's Pledge Agreement.
4.6. Real Estate. The Sellers own the approximately six (6) acre
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parcel of land and improvements thereon located at 4382 S. Moreland Avenue
(Highway 42), Conley, Georgia, on which MRB's business and operations are
conducted, as more particularly described on Exhibit E hereto (the "Conley Real
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Estate"). At the Closing, the Sellers and the Buyer shall enter into a lease
for the Conley Real Estate in the form of Exhibit F hereto (the "Lease"), but
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specifically providing for the following: a five (5) year term with a five (5)
year option term; (b) rent at the rate of $8,500 per month for the initial five
(5) year term, and rent at the rate of $10,000 for the five (5) year option
term; and an option (the "Option") in favor of the Buyer to purchase the Conley
Real Estate, exercisable by the Buyer for a period of six (6) months after the
Closing (the "Option Period"), for a purchase price equal to the sum of (i)
$300,000, plus (ii) the total of the three (3) existing mortgage loans secured
by the Conley Real Estate, but which mortgage loans shall not exceed $650,000 in
the aggregate. In the event that the Buyer exercises the Option, the Buyer and
the Sellers shall enter into a real estate purchase and sale agreement
containing mutually agreeable terms and conditions (subject to the purchase
price being as hereinabove provided, the closing date being within sixty (60)
days following the date on which the Option was exercised by the Buyer, and
title being satisfactory to the Buyer in its sole discretion), with usual and
customary closing conditions. In the event, however, that the Buyer does not
exercise the Option, and/or does not consummate the purchase of the Conley Real
Estate after exercising the Option for reasons other than any breach or failure
to satisfy one or more closing conditions
by the Sellers, then the Buyer shall cause to be delivered to each Seller
250,000 additional shares of Common Stock (collectively, the "Contingent
Shares"), which Contingent Shares shall be delivered to the Sellers, if due,
within thirty (30) days after the expiration of the Option Period, or within
thirty (30) days after the failure of the Buyer to consummate the purchase of
the Conley Real Estate within the required time period after the Buyer has
exercised the Option, as the case may be.
4.7. Release of Personal Guaranties of Sellers. Prior to the Closing, and
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if not satisfied prior to the Closing, then thereafter, the Buyer shall use its
best efforts to cause the Sellers to be released from any personal guaranties
(the "Seller Guaranties") which the Sellers (or either of them) have executed
with respect to Indebtedness (as defined in Section 11 hereof) of the Companies.
In connection therewith, the Buyer shall indemnify and hold harmless the Sellers
from and against any Losses (as defined in Section 12.1 hereof) suffered by any
Seller under or in respect of any one or more of the Seller Guaranties
(including, without limitation, the Seller Guaranties of Indebtedness to
Associates Commercial Corporation or any Affiliates thereof) in the event that
the Buyer is unable to cause the Sellers to be released therefrom as aforesaid.
4.8. Conversion of Chancellor Shares. At any time upon not less than
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thirty (30) days prior notice to the Buyer, each Seller shall have the right to
convert all, but not less than all, of such Seller's Chancellor Shares, into
such number of shares of Buyer Common Stock representing ten percent (10%) of
the issued and outstanding shares of capital stock of the Buyer determined at
the time of conversion on a fully-diluted basis.
4.9. Board of Directors. At the Closing, each Seller shall be elected
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to the Board of Directors of the Buyer. Until the conclusion of the final
Earn-Out Year, the Sellers shall be entitled at all times to have one of the
Sellers remain as a member of the Board of Directors of the Buyer, unless the
employment of both Sellers shall have been terminated for "Cause" under the
Employment Agreements, in which case no Seller shall be entitled to so serve.
In addition, the Buyer shall cause Brookings, for so long as she shall remain
employed by the MRB, to be recommended to the Board of Directors of Chancellor
(or Herring, for so long as he shall remain employed by MRB, in the event that
Brookings is unable or unwilling to so serve), subject to election by
Chancellor's stockholders (the outcome of which Brookings and Herring
acknowledge the Buyer cannot control).
5. REPRESENTATIONS AND WARRANTIES OF THE SELLERS. The Sellers, jointly
and severally, represent and warrant to the Buyer as follows:
5.1. Organization of the Company; Authority. Each Company is a corporation
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duly organized, validly existing and in corporate good standing under the laws
of its respective state of incorporation as set forth on Schedule 5.1(a) hereto.
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Each Company is duly qualified and in good standing as a foreign corporation in
all jurisdictions in which the character of the properties owned or leased or
the nature of the activities conducted by it makes such qualification necessary,
including those jurisdictions listed on Schedule 5.1(b) hereto. The Sellers
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have delivered to the Buyer complete and correct copies of each Company's
charter documents and By-laws and all amendments thereto. Each Company has all
requisite power and authority to own or lease and operate its properties and to
carry on its business as such business is now conducted.
5.2. Rights to Sell Shares; Approvals; Binding Effect. Each of the
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Sellers has all requisite power and full legal right and authority to enter into
this Agreement and the other Transaction Documents (as defined in Section 11
hereof) to which each is a party, and to perform all of such Seller's respective
agreements and obligations thereunder, each in accordance with its respective
terms. Each of the Sellers has all requisite power and full legal right and
authority to sell to the Buyer all of the Shares held by such Seller. Each of
the Transaction Documents to which the Sellers are parties has been duly
executed and delivered by the Sellers, as applicable, and constitutes the legal,
valid and binding obligation of the Sellers, enforceable against the Sellers, as
applicable, in accordance with its terms, except as the enforceability thereof
may be limited by any applicable bankruptcy, reorganization, insolvency or other
laws affecting creditors' rights generally or by general principles of equity.
5.3. Subsidiaries. No Company has any Subsidiaries (as defined in Section
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11 hereof), and no Company owns or holds, of record and/or beneficially, any
shares of any class in the capital of any corporations. In addition, no Company
owns or holds any legal and/or beneficial interests in any partnerships,
business trusts or joint ventures or in any other unincorporated trade or
business enterprises.
5.4. Capitalization. The authorized capital stock of each Company, and
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the issued and outstanding shares of which, are as set forth on Schedule 5.4
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hereto. All of the Shares are owned of record and beneficially by the Sellers,
and are validly issued and outstanding, fully paid and non-assessable. There
are no commitments for the purchase or sale of, and no options, warrants or
other rights to subscribe for or purchase, any securities of any Company.
5.5. Title to Shares. The Sellers have, and as of the consummation of the
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Closing the Buyer will have, sole record and beneficial ownership to all of the
Shares, free and clear of any mortgage, lien, pledge, charge, security interest,
encumbrance, title retention agreement, option, equity or other adverse claim
thereto.
5.6. Non-Contravention. The execution and delivery of this Agreement and
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the other Transaction Documents by the Sellers, and the consummation by the
Sellers of the transactions contemplated hereby and thereby, will not (a)
violate or conflict with any provision of the charter documents or By-laws of
any Company, each as amended to date; or (b) constitute a violation of, or be in
conflict with, or constitute or create a default under, or result in the
creation or imposition of any encumbrance upon any property of any Company
pursuant to (i) any agreement or instrument to which the Seller or any Company
is a party or by which any of their respective properties is bound, or (ii) any
statute, judgment, decree, order, regulation or rule of any court or
governmental or regulatory authority applicable to the Sellers or any Company,
or to which the Sellers or any Company are subject.
5.7. Consents; Transferability of Licenses, Etc. Except as set forth on
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Schedule 5.7 hereto, no consent, approval or authorization of, or registration,
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qualification or filing with, any governmental agency or authority or other
Person (as defined in Section 11 hereof) is required for the execution and
delivery by the Sellers of this Agreement or the other Transaction Documents to
which they are party, or for the consummation by the Sellers of the transactions
contemplated hereby or thereby. Each Company has and maintains, and the permits
listed on Schedule 5.7 hereto include, all licenses, permits and other
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authorizations from all governmental authorities (collectively, the "Permits")
as are necessary or desirable for the conduct of each Company's business.
Except as expressly designated on Schedule 5.7 hereto, all of the Permits will
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remain in full force and effect after the sale of the Shares by the Sellers to
the Buyer, and true and complete copies of such Permits have previously been
delivered to the Buyer.
5.8. Financial Statements. The Sellers have delivered the following
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financial statements (the "Financial Statements") to the Buyer, and there are
attached as Schedule 5.8(i) hereto: (a) the audited balance sheets of each of
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MRB and Tomahawk Virginia as of December 31, 1997; (b)
the compiled combined balance sheets of MRB, Tomahawk Virginia and Tomahawk
Florida as of December 31, 1997; (c) the unaudited consolidated statements of
income of MRB, Tomahawk Virginia and Tomahawk Florida for the fiscal year ended
December 31, 1997; (d) the unaudited consolidated balance sheets of MRB,
Tomahawk Virginia and Tomahawk Florida as of July 31, 1998, and the related
statements of income of MRB, Tomahawk Virginia and Tomahawk Florida for the
seven-month period then ended; (e) the unaudited consolidated balance sheets of
MRB, Tomahawk Virginia and Tomahawk Florida as of November 30, 1998 (such
balance sheets being referred to herein as the "November 1998 Balance Sheets"),
and the related statements of income of MRB, Tomahawk Virginia and Tomahawk
Florida for the 11-month period then ended; and (f) the unaudited balance sheet
of Tomahawk Missouri as of November 30, 1998 (the financial statements in the
foregoing clauses (d), (e) and (f) being referred to herein as the "Interim
Financials"). Except as set forth on Schedule 5.8(ii) hereto, each of the
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Financial Statements are true and correct in all material respects and have been
prepared in accordance with generally accepted accounting principles
consistently applied (subject, in the case of the Interim Financials, to the
absence of footnotes and to year-end audit adjustments); each of such balance
sheets contained therein fairly and accurately presents the financial condition
of the Company as of its respective date in all material respects; and each such
statements of income, retained earnings and cash flows contained therein fairly
and accurately present the results of operations for the periods covered
thereby.
5.9. Absence of Certain Changes. Except as set forth on Schedule 5.9
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hereto, since November 30, 1998: (a) each Company has carried on its business
generally in the ordinary course consistent with past practice, and (b) there
has not been (i) any change in the assets, liabilities, sales, income or
business of any Company, or in its relationships with suppliers, customers or
lessors, other than changes which were both in the ordinary course of business
and have not been, either in any case or in the aggregate, materially adverse;
(ii) any acquisition or disposition by any Company of any asset or property
other than in the ordinary course of business; (iii) any damage, destruction or
loss, whether or not covered by insurance, materially and adversely affecting,
either in any case or in the aggregate, the property or business of any Company;
(iv) any declaration, setting aside or payment of any dividend or any other
distributions in respect of the Shares; (v) any issuance of any shares of the
capital stock of any Company or any direct or indirect redemption, purchase or
other acquisition of any of the Shares; (vi) any increase in the compensation,
pension or other benefits payable or to become payable by any Company to any of
its officers or employees, or any bonus payments or arrangements made to or with
any of them (other than pursuant to the terms of any existing written agreement
or plan of which the Buyer has been supplied complete and correct copies of);
(vii) any forgiveness or cancellation of any debt or claim by any Company or any
waiver of any right of material value other than compromises of accounts
receivable, debts or claims of any Company in the ordinary course of business;
(viii) any entry by any Company into any transaction other than in the ordinary
course of business; (ix) any incurrence by any Company of any obligations or
liabilities, whether absolute, accrued, contingent or otherwise (including,
without limitation, liabilities as guarantor or otherwise with respect to
obligations of others), other than obligations and liabilities incurred in the
ordinary course of business; (x) any mortgage, pledge, lien, lease, security
interest or other charge or encumbrance on any of the assets, tangible or
intangible, of any Company; or (xi) any discharge or satisfaction by any Company
of any lien or encumbrance or payment by any Company of any obligation or
liability (fixed or contingent) other than (A) current liabilities included in
such Company's November 1998 Balance Sheet, and (B) current liabilities incurred
since the date of such Company's November 1998 Balance Sheet in the ordinary
course of business.
5.10. Litigation, Etc. Except as set forth on Schedule 5.10 hereto, no
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action, suit, proceeding or investigation is pending or threatened against any
Company or the Sellers (nor is there any basis therefor actually known to the
Sellers).
5.11. Conformity to Law. Each Company has complied with, and is in
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compliance with (a) all laws, statutes, governmental regulations and all
judicial or administrative tribunal orders, judgments, writs, injunctions,
decrees or similar commands applicable to any Company or any of its properties
(including, without limitation, any labor, environmental, occupational health,
zoning or other law, regulation or ordinance), and (b) all unwaived terms and
provisions of all contracts, agreements and indentures to which such Company is
a party, or by which such Company or any of its properties is subject. Except
as set forth on Schedule 5.11 hereto, no Company has committed, been charged
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with, or been under investigation with respect to, nor does there exist, any
violation of any provision of any federal, state or local law or administrative
regulation in respect of such Company or any of its properties.
5.12. Title to Property; Real PropertyLeases, etc. Except as set forth on
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Schedule 5.12(a) hereto, each Company has good and marketable title to all of
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its properties and assets, including, without limitation, all those reflected in
its November 1998 Balance Sheet (except for properties or assets sold or
otherwise disposed of in the ordinary course of business since November 30,
1998), all free and clear of all liens, pledges, charges, security interests,
encumbrances or title retention agreements of any kind or nature. Except as
hereinafter provided with respect to vehicles, all such properties and assets
are in good condition and repair and are adequate and sufficient to carry on the
business of each such Company as presently conducted; provided, however, that,
--------
except with respect to not more than twenty percent (20%) of all vehicles owned
by the Companies, with respect to all remaining vehicles owned by the Companies,
each such vehicle: is in "trade package" condition, without any glass damage;
has no body damage in excess of $500; has tires with an average tread depth of
at least 40%, which tires shall have matched treads; is in a condition to pass
all applicable Federal and state safety inspections; and is mechanically and
structurally sound and legal for operation on public roads. Schedule 5.12(b)
-------- -------
hereto sets forth a complete and correct list of all capital assets of each
Company having a book or fair market value in excess of $1,000, and all real
property owned or leased by each Company (the "Real Property"). There are no
material defects in any such capital assets or Real Property, as to title or
condition, not described on Schedule 5.12(b) hereto. None of the Sellers or any
-------- -------
Company has received any notice that either the whole or any portion of any Real
Property is to be condemned, requisitioned or otherwise taken by any public
authority. None of the Sellers or any Company has any actual knowledge of any
public improvements that may result in special assessments against or otherwise
affect any Real Property. Schedule 5.12(c) hereto sets forth a complete and
-------- -------
correct description of all leases of Real Property to which any Company is a
party, and a complete legal description of all Real Property owned by each
Company. Complete and correct copies of all such leases have been delivered to
the Buyer. Each such lease is valid and subsisting and no event or condition
exists which constitutes, or after notice or lapse of time or both would
constitute, a default thereunder. The leasehold interests, if any, of each
Company are subject to no lien or other encumbrance, and each Company is in
quiet possession of the properties covered by such leases.
5.13. Environmental Matters.
------------- -------
(a) Except as set forth on Schedule 5.13(a) hereto:
-------- -------
(i) no Company nor any operator of any real property
presently or formerly owned, leased or operated by any Company is in violation
or alleged violation of any judgment, decree, order, law, license, rule or
regulation pertaining to environmental matters, including without limitation,
those arising under the Resource Conservation and Recovery Act ("RCRA"), the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended ("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986
("SARA"), the Federal Water Pollution Control Act, the Solid Waste Disposal Act,
as amended, the Federal Clean Water Act, the Federal Clean Air Act, the Toxic
Substances Control Act, or any federal, state or local statute, regulation,
ordinance, order or decree relating to health, safety or the environment
(hereinafter "Environmental Laws");
(ii) none of the Sellers or any Company has received notice
from any third party, including, without limitation, any federal, state or local
governmental authority, (A) that any Company or any predecessor in interest has
been identified by the United States Environmental Protection Agency (the "EPA")
as a potentially responsible party under CERCLA with respect to a site listed on
the National Priorities List, 40 C.F.R. Part 300 Appendix B (1986); (B) that any
hazardous waste, as defined by 42 U.S.C. 6903(5), any hazardous substance, as
defined by 42 U.S.C. 9601(14), any pollutant or contaminant, as defined by 42
U.S.C. 9601(33), or any toxic substance, oil or hazardous material or other
chemical or substance regulated by any Environmental Laws (hereinafter
"Hazardous Substances") which any Company or any predecessor in interest has
generated, transported or disposed of has been found at any site at which a
federal, state or local agency or other third party has conducted or has ordered
that such Company or any predecessor in interest conduct a remedial
investigation, removal or other response action pursuant to any Environmental
Law; or (C) that any Company or any predecessor in interest is or shall be a
named party to any claim, action, cause of action, complaint (contingent or
otherwise), or legal or administrative proceeding arising out of any third
party's incurrence of costs, expenses, losses or damages of any kind whatsoever
in connection with the release of Hazardous Substances;
(iii) (A) no portion of any real property presently or
formerly owned, leased or operated by any Company has been used for the
handling, manufacturing, processing, storage or disposal of Hazardous Substances
except in accordance with applicable Environmental Laws; and no underground tank
or other underground storage receptacle for Hazardous Substances is located on
such properties; (B) in the course of any activities conducted by each Company
or operators of any real property presently or formerly owned, leased or
operated by such Company, no Hazardous Substances have been generated or are
being used on such property except in accordance with applicable Environmental
Laws; (C) all real property presently or formerly owned, leased or operated by
each Company are free from contamination of every kind, including without
limitation, groundwater, surface water, soil, sediment and air contamination,
and such properties do not contain asbestos in any form, urea formaldehyde foam
insulation, transformers or other equipment containing polychlorinated biphenyls
or any other chemical, material or substance, exposure to which is prohibited,
limited or regulated by any Environmental Law, or which poses a hazard to the
health and safety of the occupants of such properties or those adjacent thereto;
(D) there have been no releases (i.e., any past or present releasing, spilling,
leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping,
disposing or dumping) or threatened releases of Hazardous Substances on, upon,
into or from any real property presently or formerly owned, leased or operated
by any Company except in accordance with applicable Environmental Laws; (E)
there have been no releases on, upon, from or into any real property in the
vicinity of any real property presently or formerly owned, leased or operated by
any Company which, through soil or groundwater contamination, may have come to
be located on such real property; and (F) in addition, any Hazardous Substances
that have been generated on any real property presently or formerly owned,
leased or operated by each Company have been transported offsite only by
carriers having identification numbers issued by the EPA and have been treated
or disposed of only by treatment or disposal facilities maintaining valid
permits as required under applicable Environmental Laws, which transporters and
facilities have been and are, to the best of the Sellers' knowledge, operating
in compliance with such permits and applicable Environmental Laws; and
(iv) no real property presently or formerly owned, leased or
operated by any Company is or shall be subject to any applicable environmental
cleanup responsibility law or environmental restrictive transfer law or
regulation, by virtue of the transactions set forth herein and contemplated
hereby.
(b) Attached as Schedule 5.13(b) hereto is a list of all documents,
-----------------
reports, site assessments, data, communications or other materials, in each
Company's and the Sellers' possession, custody or control, which contain any
material information with respect to potential environmental liabilities
associated with any real property presently or formerly owned, leased or
operated by any Company or relating to compliance with Environmental Laws or the
environmental condition of such properties and adjacent properties. The Sellers
have furnished to the Buyer complete and accurate copies of all of the
documents, reports, site assessments, data, communications and other materials
listed on Schedule 5.13(b) hereto.
-----------------
5.14. Insurance. Schedule 5.14 hereto lists all policies of fire,
--------- -------- ----
liability, workmen's compensation, life, property and casualty and other
insurance owned or held by each Company. All such policies of insurance are
maintained with financially sound and reputable insurance companies, funds or
underwriters and are of the kinds and cover such risks and are in such amounts
and with such deductibles and exclusions as are consistent with prudent business
practice. All such policies (a) are in full force and effect, (b) are
sufficient for compliance by each Company with all requirements of law and all
agreements to which such Company is a party, (c) provide that they will remain
in full force and effect through the respective dates set forth in such Schedule
and (d) will not in any way be affected by, or terminate or lapse by reason of,
the transactions contemplated by this Agreement. No Company is in default with
respect to its obligations under any of such insurance policies, and no company
has received any written notification of cancellation of any such insurance
policies.
5.15. Contracts. Schedule 5.15 hereto sets forth a complete and accurate
--------- -------- ----
list of all contracts to which each Company is a party (excluding oral at will
employment contracts with employees), or by or to which it or any of its assets
or properties is bound or subject, except (a) contracts entered into in the
ordinary course of business after the date hereof and prior to the Closing,
which will be identified by the Sellers to the Buyer in writing prior to the
Closing, (b) contracts terminable by any Company upon thirty (30) days' notice
or less without the payment of any termination fee or penalty, and (c) contracts
listed in other Schedules hereto. As used in this Section 5.15, the term
"contract" means and includes every agreement or understanding of any kind,
written or oral, which is legally enforceable by or against each Company, and
specifically includes: (i) contracts and other agreements with any current or
former officer, director, employee, consultant or shareholder or any
partnership, corporation, joint venture or any other entity in which any such
person has an interest; (ii) agreements with any labor union or association
representing any employee; (iii) contracts and other agreements for the
provision of services or products by such Company; (iv) bonds or other security
agreements provided by any party in connection with the business of such
Company; (v) contracts and other agreements for the sale of any of such
Company's assets or properties other than in the ordinary course of business or
for the grant to any person of any preferential rights to purchase any of such
Company's assets or properties; (vi) joint venture agreements relating to the
assets, properties or business of such Company or by or to which it or any of
its assets or properties are bound or subject; (vii) contracts or other
agreements under which such Company agrees to indemnify any party, to share tax
liability of any party, or to refrain from competing with any party; (viii) any
contracts or other agreements with regard to outstanding Indebtedness; or (ix)
any other contract or other agreement whether or not made in the ordinary course
of business. The Sellers have delivered to the Buyer true, correct and complete
copies of all such contracts, together with all modifications and supplements
thereto. Each of the contracts listed on Schedule 5.15 hereto or any of the
-------- ----
other Schedules hereto is in full force and effect, the particular Company party
hereto is not in breach of any of the provisions of any such contract, nor, to
the best knowledge of the Sellers, is any other party to any such contract in
default thereunder, nor does any event or condition exist which with notice or
the passage of time or both would constitute a default thereunder. Each Company
has in all material respects performed all obligations required to be performed
by it to date under each such contract. No approval or consent of any Person is
needed in order that the contracts listed on Schedule 5.15 hereto and other
-------- ----
Schedules hereto continue in full force and effect following the consummation of
the transactions contemplated by this Agreement, and no such contract includes
any provision the effect of which may be to enlarge or accelerate any
obligations of the particular Company thereunder or give additional rights to
any other party thereto or will in any other way be affected by, or terminate or
lapse by reason of, the transactions contemplated by this Agreement.
5.16. Employees. Schedule 5.16 hereto sets forth the name and current
--------- -------- ----
annual salary or hourly wage and other compensation payable by each Company
(including, but not limited to, wages, salary, commissions, normal bonus, profit
sharing, deferred compensation and other extra compensation) to each employee of
such Company.
5.17. Employee Benefit Plans.
-------- ------- -----
(a) Except for the arrangements set forth on Schedule 5.17(a) hereto,
-------- -------
no Company now maintains or contributes to, and no Company has in the current or
preceding six (6) calendar years maintained or contributed to, any pension,
profit-sharing, deferred compensation, bonus, stock option, share appreciation
right, severance, group or individual health, dental, medical, life insurance,
survivor benefit, or similar plan, policy or arrangement, whether formal or
informal, for the benefit of any director, officer, consultant or employee,
whether active or terminated, of such Company. Each of the arrangements set
forth on Schedule 5.17(a) hereto is hereinafter referred to as an "Employee
-------- -------
Benefit Plan," except that any such arrangement which is a multi-employer plan
shall be treated as an Employee Benefit Plan only for purposes of Sections
5.17(d)(iv), (vi) and (viii) and 5.17(g) below.
(b) The Sellers have heretofore delivered to the Buyer true, correct
and complete copies of each Employee Benefit Plan of each Company, and with
respect to each such Employee Benefit Plan (i) any associated trust, custodial,
insurance or service agreements, (ii) any annual report, actuarial report, or
disclosure materials (including specifically any summary plan descriptions)
submitted to any governmental agency or distributed to participants or
beneficiaries thereunder in the current or any of the six (6) preceding calendar
years and (iii) the most recently received IRS determination letters and any
governmental advisory opinions or rulings.
(c) Each Employee Benefit Plan is and has heretofore been maintained
and operated in compliance with the terms thereof and with the requirements
prescribed (whether as a matter of substantive law or as necessary to secure
favorable tax treatment) by any and all statutes, governmental or court orders,
or governmental rules or regulations in effect from time to time, including but
not limited to the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and the Internal Revenue Code of 1986, as amended (the "Code"), and
applicable to such Employee Benefit Plan. Each Employee Benefit Plan which is
intended to qualify under Section 401(a) of the Code has been determined to be
so qualified by the IRS and nothing has occurred since the date of the last such
determination which has resulted or is likely to result in the revocation of
such determination.
(d) Except as set forth on Schedule 5.17(d) hereto:
-------- -------
(i) there is no pending or threatened legal action, proceeding or
investigation, other than routine claims for benefits, concerning any Employee
Benefit Plan or, to the best knowledge of the Sellers, any fiduciary or service
provider thereof and, to the best knowledge of the Sellers, there is no basis
for any such legal action or proceeding;
(ii) no liability (contingent or otherwise) to the Pension Benefit
Guaranty Corporation ("PBGC") or any multi-employer plan has been incurred by
any Company or any Affiliate (as defined in Section 11 hereof) thereof (other
than insurance premiums satisfied in due course);
(iii) no reportable event, or event or condition which presents a
material risk of termination by the PBGC, has occurred with respect to any
Employee Benefit Plan, or any retirement plan of an affiliate of any Company,
which is subject to Title IV of ERISA;
(iv) no Employee Benefit Plan nor any party in interest with respect
thereof, has engaged in a prohibited transaction which could subject any Company
directly or indirectly to liability under Section 409 or 502(i) of ERISA or
Section 4975 of the Code;
(v) no communication, report or disclosure has been made which, at the
time made, did not accurately reflect the terms and operations of any Employee
Benefit Plan;
(vi) no Employee Benefit Plan provides welfare benefits subsequent to
termination of employment to employees or their beneficiaries (except to the
extent required by applicable state insurance laws and Title I, Part 6 of
ERISA);
(vii) no benefits due under any Employee Benefit Plan have been
forfeited subject to the possibility of reinstatement (which possibility would
still exist at or after Closing); and
(viii) no Company has undertaken to maintain any Employee Benefit Plan
for any period of time and each such Employee Benefit Plan is terminable at the
sole discretion of the sponsor thereof, subject only to such constraints as may
be imposed by applicable law.
(e) With respect to each Employee Benefit Plan for which a separate
fund of assets is or is required to be maintained, full payment has been made of
all amounts that each Company is required, under the terms of each such Employee
Benefit Plan, to have paid as contributions to that Employee Benefit Plan as of
the end of the most recently ended plan year of that Employee Benefit Plan, and
no accumulated funding deficiency (as defined in Section 302 of ERISA and
Section 412 of the Code), whether or not waived, exists with respect to any such
Plan. The current value of the assets of each such Employee Benefit Plan, as of
the end of the most recently ended plan year of that Employee Benefit Plan,
exceeded the current value of all accrued benefits under that Employee Benefit
Plan.
(f) The execution of this Agreement and the consummation of the
transactions contemplated hereby will not result in any payment (whether of
severance pay or otherwise) becoming due from any Employee Benefit Plan to any
current or former director, officer, consultant or employee of any Company, or
result in the vesting, acceleration of payment or increases in the amount of any
benefit payable to or in respect of any such current or former director,
officer, consultant or employee.
(g) No Employee Benefit Plan is a multi-employer plan.
(h) For purposes of this Section 5.17, "multi-employer plan," "party in
interest," "current value," "accrued benefit," "reportable event" and "benefit
liability" have the same meaning assigned such terms under Sections 3, 4043(b)
or 4001(a) of ERISA, and "affiliate" means, as to any Company, any entity which
under Section 414 of the Code is treated as a single employer with such Company.
5.18. Labor Relations. Except as set forth on Schedule 5.18 hereto, each
----- --------- -------- ----
Company is in full compliance with all federal and state laws respecting
employment and employment practices, terms and conditions of employment, wages
and hours and nondiscrimination in employment, and is not engaged in any unfair
labor practice. Except as set forth on Schedule 5.18 hereto, there is no charge
-------- ----
pending or threatened against any Company alleging unlawful discrimination in
employment practices before any court or agency, and there is no charge of or
proceeding with regard to any unfair labor practice against any Company pending
before the National Labor Relations Board. There is no labor strike, dispute,
slow-down or work stoppage actually pending or threatened against or involving
any Company. No one has petitioned within the last five (5) years, and no one
is now petitioning, for union representation of any of any Company's employees.
No grievance or arbitration proceeding arising out of or under any collective
bargaining agreement is pending against any Company and no claim therefor has
been asserted. None of the employees of any Company is covered by any
collective bargaining agreement, and no collective bargaining agreement is
currently being negotiated by such Company. Except as set forth on Schedule
--------
5.18 hereto, no Company has experienced any work stoppage during the last five
- ----
(5) years.
5.19. Potential Conflicts of Interest. Except as set forth on Schedule
--------- --------- -- -------- --------
5.19 hereto, no officer, director or stockholder of any Company (a) owns,
- ----
directly or indirectly, any interest in (excepting not more than 1% stock
holdings for investment purposes in securities of publicly held and traded
companies) or is an officer, director, employee or consultant of any Person
which is a competitor, lessor, lessee, customer or supplier of such Company; (b)
owns, directly or indirectly, in whole or in part, any tangible or intangible
property which such Company is using or the use of which is necessary for the
business of such Company; or (c) has any cause of action or other claim
whatsoever against, or owes any amount to, such Company, except for claims in
the ordinary course of business, such as for accrued vacation pay, accrued
benefits under Employee Benefit Plans and similar matters and agreements.
5.20. Trademarks; Patents, Etc. Schedule 5.20 hereto sets forth a
---------- ------- --- -------- ----
complete and accurate list of (a) all patents, trademarks, trade names and
copyrights registered in the name of each Company or used or proposed to be used
by each Company, all applications therefor, and all licenses (as licensee or
licensor) and other agreements relating thereto, and (b) all written agreements
relating to other technology, know-how and processes which each Company is
licensed or authorized by others to use or which each Company has licensed or
authorized for use by others (other than retail shrink-wrap licenses for
ordinary course computer software such as Microsoft Windows 95, Microsoft Office
and the like). Except to the extent set forth in Schedule 5.20 hereto, each
-------- ----
Company owns or has the sole and exclusive right to use all patents, trademarks,
trade names and copyrights, and has the right without restrictions to use all
technology, know-how and processes, used or necessary for the ordinary course of
business as presently conducted or proposed to be conducted, and the
consummation of the transactions contemplated hereby will not alter or impair
any such right. No claims have been asserted, and no claims are pending, by any
Person regarding the use of any such patents, trademarks, trade names,
copyrights, technology, know-how or processes, or challenging or questioning the
validity or effectiveness of any license or agreement, and there is no basis for
such claim. To the best knowledge of the Sellers, the use by each Company of
such patents, trademarks, trade names, copyrights, technology, know-how or
processes in the ordinary course of business does not infringe on the rights of
any Person.
5.21. Suppliers and Customers. Schedule 5.21(a) hereto sets forth the ten
--------- --- --------- -------- -------
(10) largest suppliers and ten (10) largest customers of each Company as of the
date hereof, in each case based on sales volume for the 1997 and 1998 fiscal
years. The relationships of each Company with such suppliers and customers are
good commercial working relationships and, except as set forth on Schedule
--------
5.21(a) hereto, no supplier or customer of material importance to such Company
- -------
has cancelled or otherwise terminated, or threatened to cancel or otherwise to
terminate, its relationship with such Company, or has during the last twelve
(12) months decreased materially, or threatened to decrease or limit materially,
its services, supplies or materials for use by such Company or its usage or
purchase of the services or products of such Company except for normal cyclical
changes related to customers' businesses. To the best knowledge of the Sellers,
no such supplier or customer intends to cancel or otherwise substantially modify
its relationship with any Company, or to decrease materially or limit its
services, supplies or materials to such Company, or its usage or purchase of
such Company's services or products, and to the best knowledge of the Sellers,
the communication of the
transactions contemplated hereby will not adversely affect the relationship of
the Company with any such supplier or customer. Schedule 5.21(b) hereto sets
-------- -------
forth all agreements, written or oral, pursuant to which the Company is an
exclusive supplier of services or products.
5.22. Accounts Receivable. Except to the extent reflected or reserved
-------- -----------
against in the November 1998 Balance Sheets or described on any Schedule hereto,
all accounts and notes receivable reflected on the November 1998 Balance Sheets,
and all accounts and notes receivable of the Companies arising subsequent to
November 30, 1998, have arisen in the ordinary course of business, represent
valid obligations owing to the applicable Company, and have been collected or
will be collected in the aggregate recorded amounts thereof in accordance with
their terms.
5.23. No Undisclosed Liabilities. Except to the extent (a) reflected or
-- ----------- -----------
reserved against in the November 1998 Balance Sheets, (b) incurred in the
ordinary course of business after November 30, 1998 or (c) described on any
Schedule hereto, no Company has any liabilities or obligations of any nature,
whether accrued, absolute, contingent or otherwise (including, without
limitation, as guarantor or otherwise with respect to obligations of others),
other than performance obligations with respect to each Company's contracts that
would not be required to be reflected or reserved against on a balance sheet
prepared in accordance with generally accepted accounting principles or in the
footnotes thereto.
5.24. Taxes. Each Company has duly filed with the appropriate government
-----
agencies all of the income, sales, use, employment and other tax returns and
reports required to be filed by it. No waiver of any statute of limitations
relating to taxes has been executed or given by any Company. All taxes,
assessments, fees and other governmental charges upon each Company or upon any
of its properties, assets, revenues, income and franchises which are owed by
such Company with respect to any period ending on or before the Closing Date
have been paid, other than those currently payable without penalty or interest.
Each Company has withheld and paid all taxes required to be withheld or paid in
connection with amounts paid or owing to any employee, creditor, independent
contractor or third party. No federal tax return of any Company is currently
under audit by the IRS (as defined in Section 11 hereof), and no other tax
return of any Company is currently under audit by any other taxing authority.
The Sellers have not received any written notice that either the IRS or any
other taxing authority is now asserting or threatening to assert against any
Company any deficiency or claim for additional taxes or interest thereon or
penalties in connection therewith or any adjustment that would have a material
adverse effect on such Company.
5.25. Indebtedness. Except for Indebtedness described on Schedule
------------ --------
5.25hereto, no Company has any Indebtedness outstanding as of the date hereof.
Except as disclosed on Schedule 5.25 hereto, no Company is in default with
-------- ----
respect to any outstanding Indebtedness or any instrument relating thereto and
no such Indebtedness, or any instrument or agreement relating thereto purports
to limit the issuance of any securities by any Company or the operation of the
business of any Company. Complete and correct copies of all instruments and
agreements (including all amendments, supplements, waivers and consents)
relating to any Indebtedness of each Company described on Schedule 5.25 hereto
-------- ----
have been furnished to the Buyer.
5.26. Illegal Payments. None of the Sellers or any officer, director,
------- --------
employee or consultant of any Company has at any time during the past five (5)
years (a) made any unlawful contribution to any candidate for foreign office, or
failed to disclose fully any contribution in violation of law, or (b) made any
payment to any federal or state governmental officer or official, or other
persons charged with public or quasi-public duties, other than payments required
or permitted by the laws of the United States or any jurisdiction thereof.
5.27. Bank Accounts; Signing Authority; Powers of Attorney. Except as set
---- -------- ------- --------- ------ -- --------
forth on Schedule 5.27 hereto, no Company has any account or safe deposit box in
-------- ----
any bank and no Person has any power, whether singly or jointly, to sign any
checks on behalf of any Company to withdraw any money or other property from any
bank, brokerage or other account of any Company, or to act under any power of
attorney granted by the Company at any time for any purpose. Schedule 5.27
-------- ----
hereto also sets forth the names of all Persons authorized to borrow money or
sign notes on behalf of each Company.
5.28. Minute Books. The minute books of each Company made available to
------ -----
the Buyer for inspection accurately record therein all actions taken by each
such Company's Board of Directors and shareholders.
5.29. Brokers. None of the Sellers or any Company has retained, utilized
-------
or been represented by any broker, agent, finder or other intermediary in
connection with the negotiation or consummation of the transactions contemplated
by this Agreement.
5.30. Securities Matters. Each Seller is an "accredited investor" under
------------------
Rule 501(a) of the Securities Act of 1933, as amended. Each Seller has received
and reviewed copies of the following: (a) Chancellor's Annual Report on Form
10KSB for the fiscal year ended December 31, 1997; (b) Chancellor's Interim
Report on Form 10QSB for the fiscal quarter ended March 31, 1998; (c)
Chancellor's Interim Report on Form 10QSB for the fiscal quarter ended June 30,
1998; (d) Chancellor's Interim Report on Form 10QSB for the fiscal quarter ended
September 30, 1998; and (e) Chancellor's Proxy Statement dated April 9, 1998
furnished to its stockholders in connection with Chancellor's Annual Meeting of
Stockholders held on May 15, 1998; all of the foregoing which Chancellor has
filed with the United States Securities and Exchange Commission under the United
States Securities Exchange Act of 1934. Each Seller and his or her
representatives has had an adequate opportunity to ask questions and receive
answers (and have asked such questions and received such answers to their
satisfaction) from Chancellor and its officers concerning the business,
operations and financial condition of Chancellor. Each Seller has received all
materials and information regarding Chancellor which they have requested from
Chancellor and its representatives. Each Seller is acquiring such Seller's
Chancellor Shares for his or her own account for investment and not with a view
to, or for sale in connection with, any distribution thereof, nor with any
present intention of distributing or selling the same, and each Seller does not
have any contract, undertaking, agreement or understanding, whether oral or
written, with any third party to sell, transfer or grant participation in any
Chancellor Shares to be acquired by such Seller in connection with the
consummation of the transactions contemplated under this Agreement. Each Seller
will not sell, assign, transfer, pledge or otherwise encumber (except pursuant
to the terms of the Pledge Agreements) any of such Seller's Chancellor Shares
for a period of one (1) year after the Closing Date.
5.31. Disclosure. No representation or warranty by the Sellers in this
----------
Agreement or in any exhibit, schedule, written statement, certificate or other
document delivered or to be delivered to the Buyer pursuant hereto or in
connection with the consummation of the transactions contemplated hereby
contains or will contain any untrue statement of a material fact or omits or
will omit to state a material fact required to be stated therein or necessary to
make the statements contained therein not misleading or necessary in order to
provide the Buyer with proper and complete information as to the business,
condition, operations and prospects of any Company. There is no fact which the
Sellers have not disclosed to the Buyer in writing which materially adversely
affects, or so far as any Seller can now foresee will materially adversely
affect, the
business or condition (financial or other) of each Company, or the ability of
the Sellers to perform this Agreement or any of the transactions contemplated
hereby.
6. REPRESENTATIONS AND WARRANTIES OF THE BUYER. The Buyer represents and
warrants to the Sellers as follows:
6.1. Organization of Buyer; Authority. The Buyer is a corporation duly
------------ -- ----- ---------
organized, validly existing and in good standing under the laws of the State of
Delaware. The Buyer has all requisite power and authority to execute and
deliver the Transaction Documents to which it is a party and to carry out all of
the actions required of it pursuant to the terms thereof.
6.2. Corporate Approval; Binding Effect. The Buyer has obtained all
--------- -------- ------- ------
necessary authorizations and approvals from its Board of Directors required for
the execution and delivery of this Agreement and the other Transaction Documents
to which it is a party and the consummation of the transactions contemplated
hereby and thereby. Each of the Transaction Documents to which the Buyer is a
party has been duly executed and delivered by the Buyer and constitutes the
legal, valid and binding obligation of the Buyer, enforceable against the Buyer
in accordance with its terms, except as the enforceability thereof may be
limited by any applicable bankruptcy, reorganization, insolvency or other laws
affecting creditors' rights generally or by general principles of equity.
6.3. Non-Contravention. The execution and delivery by the Buyer of this
-----------------
Agreement and the other Transaction Documents to which it is a party, and the
consummation by the Buyer of the transactions contemplated hereby and thereby,
will not (a) violate or conflict with any provisions of the Certificate of
Incorporation or By-laws of the Buyer, each as amended to date; or (b)
constitute a violation of, or be in conflict with, constitute or create a
default under, or result in the creation or imposition of any lien upon any
property of the Buyer pursuant to (i) any agreement or instrument to which the
Buyer is a party or by which the Buyer or any of its properties is bound or to
which the Buyer or any of its properties is subject, or (ii) any statute,
judgment, decree, order, regulation or rule of any court or governmental or
regulatory authority applicable to the Buyer, or to which the Buyer is subject.
6.4. Consents. No consent, approval or authorization of, or
--------
registration, qualification or filing with, any governmental agency or authority
or other Person is required for the execution and delivery by the Buyer of this
Agreement and the other Transaction Documents to which it is a party, or for the
consummation by the Buyer of the transactions contemplated hereby or thereby.
6.5. Brokers. The Buyer has not retained, utilized or been represented by
-------
any broker, agent, finder or other intermediary in connection with the
negotiation or consummation of the transactions contemplated by this Agreement.
7. CONDUCT OF BUSINESS BY THE COMPANIES PENDING CLOSING. INTENTIONALLY
DELETED.
8. CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS. The obligation of the
Buyer to consummate the Closing shall be subject to the satisfaction at or prior
to the Closing of each of the following conditions (to the extent noncompliance
is not waived in writing by the Buyer, or waived by Buyer's consummating the
Closing notwithstanding the failure of the Sellers to satisfy at or prior to
Closing all such conditions precedent):
8.1. Representations and Warranties True at Closing. The representations
--------------- --- ---------- ---- -- -------
and warranties made by the Sellers in or pursuant to this Agreement shall be
true and correct at and as of the Closing Date with the same effect as though
such representations and warranties had been made or given at and as of the
Closing Date.
8.2. Compliance with Agreement. The Sellers shall have performed and
---------- ---- ---------
complied with all of their obligations under this Agreement to be performed or
complied with by them on or prior to the Closing Date.
8.3. Closing Certificate. The Sellers shall have delivered to the Buyer
------- -----------
in writing, at and as of the Closing, a certificate duly executed by each of the
Sellers, in form and substance reasonably satisfactory to the Buyer and the
Buyer's counsel, certifying that the conditions in each of Sections 8.1 and 8.2
hereof have been satisfied.
8.4. No Material Change. Between November 30, 1998 and the Closing, there
-- -------- ------
shall not have been or threatened to be, any material damage to or loss or
destruction of any properties or assets owned or leased by any Company (whether
or not covered by insurance) or any material adverse change in the condition
(financial or otherwise), operations, business, prospects or assets of any
Company, or the imposition of any laws, rules or regulations which would
materially adversely affect the condition (financial or otherwise), operations,
business, prospects or assets of any Company.
8.5. Opinion of Counsel. Wilson, Brock & Irby, LLC, counsel to the
------- -- -------
Sellers and the Companies, shall have delivered to the Buyer a written opinion,
addressed to the Buyer and dated the Closing Date, substantially in the form of
Exhibit G hereto.
- ------- -
8.6. Board Approvals. The respective Boards of Directors of the Buyer and
----- ---------
Chancellor shall have approved the transactions contemplated by this Agreement
and the other Transaction Documents.
8.7. No Litigation. No restraining order or injunction shall prevent the
-- ----------
transactions contemplated by this Agreement, and no action, suit or proceeding
shall be pending or threatened before any court or administrative body in which
it will be or is sought to restrain or prohibit or obtain damages or other
relief in connection with this Agreement or the consummation of the transactions
contemplated hereby.
8.8. Due Diligence. The Buyer shall have completed a due diligence
--- ---------
investigation, satisfactory to the Buyer in its sole discretion, of each
Company's business, assets and liabilities.
8.9. Environmental Report. The Buyer shall have obtained, at the Buyer's
------------- ------
cost and expense, reports, in form and substance satisfactory to it in its sole
discretion, of an environmental engineering firm satisfactory to the Buyer, as
to compliance of the Real Property, including without limitation, the Conley
Real Estate, with all applicable environmental statutes, rules and regulations,
including without limitation, the absence of any Hazardous Materials on such
Real Property.
8.10. Regulatory and Other Consents. The Sellers shall have obtained all
---------- --- ----- --------
necessary governmental consents and approvals required with respect to the
consummation of the transactions contemplated under this Agreement and the other
Transaction Documents, in order to so consummate said transactions, and all
consents and approvals to the consummation of the
transactions contemplated under this Agreement and the other Transaction
Documents by each Person to any contract, commitment or other obligation of any
Company under which said transactions would constitute a default, would
accelerate obligations of any Company or would permit cancellation of any such
contract or commitment.
8.11. Resignations of Directors and Officers. The officers and directors
------------ -- --------- --- --------
of each Company set forth on Schedule 8.11 hereto shall have resigned their
-------- ----
positions with each such Company, on the Closing Date, and on such date shall
have executed such appropriate documents with respect to the transfer or
establishment of bank accounts, signing authority, etc., as the Buyer shall
reasonably request.
8.12. Capital Contribution and Letter of Credit. Chancellor shall have
------- ------------ --- ------ -- ------
simultaneously with the Closing (a) contributed $1,500,000 to the capital of the
Buyer (the "Capital Contribution"), and (b) caused a letter of credit in the
face amount of $2,000,000 to be issued in favor of the Buyer (the "Letter of
Credit").
9. CONDITIONS PRECEDENT TO THE SELLERS' OBLIGATIONS. The obligation of
the Sellers to consummate the Closing shall be subject to the satisfaction, at
or prior to the Closing, of each of the following conditions (to the extent
noncompliance is not waived in writing by the Sellers, or waived by the Sellers'
consummating the Closing notwithstanding the failure of the Buyer to satisfy at
or prior to Closing all such conditions precedent):
9.1. Representations and Warranties True at Closing. The representations
--------------- --- ---------- ---- -- -------
and warranties made by the Buyer in this Agreement shall be true and correct at
and as of the Closing Date with the same effect as though such representations
and warranties had been made or given at and as of the Closing Date.
9.2. Compliance with Agreement. The Buyer shall have performed and
---------- ---- ---------
complied with all of its obligations under this Agreement that are to be
performed or complied with by it at or prior to the Closing.
9.3. Closing Certificate. The Buyer shall have delivered to the Sellers
------- -----------
in writing, at and as of the Closing, a certificate duly executed by the
President of the Buyer, in form and substance satisfactory to the Sellers and
their counsel, to the effect that the conditions in each of Sections 9.1 and 9.2
hereof have been satisfied.
9.4. Opinion of Counsel. Bingham Dana LLP, counsel to the Buyer, shall
------- -- -------
have delivered to the Sellers a written opinion, dated the Closing Date and
addressed to the Sellers, substantially in the form of Exhibit H hereto.
------- -
9.5. No Litigation. No restraining order or injunction shall prevent the
--- ----------
transactions contemplated by this Agreement, and no action, suit or proceeding
shall be pending or threatened before any court or administrative body in which
it will be or is sought to restrain or prohibit or obtain damages or other
relief in connection with this Agreement or the consummation of the transactions
contemplated hereby.
9.6. Regulatory and Other Consents. The Buyer shall have obtained all
---------- --- ----- --------
necessary governmental consents and approvals required with respect to the
consummation of the transactions contemplated under this Agreement and the other
Transaction Documents, in order to so consummate said transactions, and all
consents and approvals to the consummation of the transactions contemplated
under this Agreement and the other Transaction Documents by each
Person to any contract, commitment or other obligation of the Buyer under which
said transactions would constitute a default, would accelerate obligations of
the Buyer or would permit cancellation of any such contract or commitment.
9.7. Capital Contribution and Letter of Credit. Chancellor shall have
------- ------------ --- ------ -- ------
simultaneously with the Closing (a) consummated the Capital Contribution, and
(b) caused the Letter of Credit to be issued.
10. CERTAIN COVENANTS.
10.1. Confidential Information. The Sellers and the Buyer agree that any
------------ -----------
and all information disclosed by the Buyer to the Sellers or by the Sellers to
the Buyer as a result of the negotiations leading to the execution of this
Agreement, or in furtherance thereof, or disclosed by either the Sellers or the
Buyer in connection with any of the transactions contemplated hereby, which
information is of a proprietary nature, or was not already publicly available or
known to the Sellers or to the Buyer, as the case may be, shall remain
confidential to the Sellers and the Buyer and their respective directors,
officers, employees, agents, representatives and lenders (collectively, "Related
Parties"), until the Closing Date. If the Closing does not take place for any
reason, each of the Sellers and the Buyer agrees that such Person will not, and
will use best efforts to cause such Person's Related Parties to not, further
divulge or disclose or use for such Person's benefit or purposes any such
information at any time in the future unless it has otherwise become public.
The information intended to be protected hereby shall include, but not be
limited to, financial information, customers, sales representatives, and any
other nonpublicly available information having an economic or pecuniary benefit
to the Buyer or the Sellers, respectively. Notwithstanding anything to the
contrary set forth in this Section 10.1, nothing herein shall prohibit any
disclosure under Section 14.12 hereof in strict accordance with the terms
thereof.
10.2. Non-Competition and Non-Solicitation. Each of the Sellers agrees
--------------- --- ----------------
that for a period from the Closing Date until the fifth anniversary of the
Closing Date, such Seller and such Seller's Affiliates shall not, without the
prior written consent of the Buyer, (a) engage anywhere in the United States,
directly or indirectly, alone or as a shareholder (other than as a holder of
less than 3% of the capital stock of any publicly traded corporation), member,
partner, manager, officer, director, employee or consultant, in any business
that is engaged or becomes engaged in the business of the Companies as existing
on the Closing Date, (b) divert or attempt to divert to any competitor of the
Companies or any Affiliate of any such competitor, any customer or client, or
any prospective customer or client, of the Companies, or (c) solicit or
encourage, or attempt to solicit or encourage, any employee of the Companies to
leave its employ for employment by or with either Seller or such Seller's
Affiliates, or any competitor of the Companies or any of any such competitor's
Affiliates. If at any time the provisions of this Section 10.2 shall be
determined to be invalid or unenforceable, by reason of being vague or
unreasonable as to area, duration or scope of activity, this Section 10.2 shall
be considered divisible and shall become and be immediately amended to only such
area, duration and scope of activity as shall be determined to be reasonable and
enforceable by the court or other body having jurisdiction over the matter; and
the Sellers agree that this Section 10.2 as so amended shall be valid and
binding as though any invalid or unenforceable provisions had not been included
therein. Notwithstanding anything to the contrary set forth in this Section
10.2, in the event that any Earn-Out Payment due and owing to either Seller is
not paid when due in accordance with Section 3 hereof, and continues unpaid
after written notice thereof has been furnished from such Seller to the Buyer
and a fifteen (15) day period to remedy same has expired, then the
non-competition covenants set forth in this Section 10.2 shall terminate as to
such Seller as of the end of such fifteen (15) day period.
10.3. Equitable Remedies. It is recognized by the parties hereto that
--------- --------
damages for breaches of covenants of the nature contained in Sections 10.1 and
10.2 are difficult, if not impossible, to ascertain. Accordingly, it is agreed
that the covenants set forth in Sections 10.1 and 10.2 may be enforceable by any
party hereto by injunction, specific performance and/or equitable relief, in
addition to any other remedies available to such party at law or in equity.
10.4. Line of Credit. The Buyer shall use its reasonable commercial
---- -- ------
efforts to obtain from one or more lenders, within six (6) months after the
Closing Date, and shall provide for MRB's use, a warehouse inventory line of
credit in an amount not less than $20,000,000 on terms and conditions
satisfactory to the Buyer and Chancellor.
11. DEFINITIONS. As used herein the following terms not otherwise
defined have the following respective meanings:
"Adjusted Pre-Tax Earnings": As of any measuring period, the combined
-------- ------- --------
pre-tax earnings of the Companies during such period, determined in accordance
with generally accepted accounting principles consistently applied; provided,
--------
that in determining such after-tax earnings, (a) an allocable portion determined
in good faith by the Chancellor Board of Directors based upon a fair and
reasonable standard which reflects the Companies' share of Chancellor's
overhead, including, without limitation, costs associated with benefits
administration, management information systems maintenance and upgrade, and
costs and expenses reasonably incurred by Chancellor's SEC, investor relations
and M&A departments, and other costs and expenses which are reasonably incurred
by Chancellor to benefit all of Chancellor's subsidiaries and affiliates, shall
be allocated as expenses of the Companies, and (b) any of such costs and
expenses attributable solely and directly to any Company shall be charged as
expenses of such Company. Notwithstanding anything to the contrary set forth
herein, in no event shall the Companies' allocable portion of Chancellor's
overhead under clause (a) above exceed $50,000 in the aggregate per month.
"Affiliate". As applied to any specified Person, any other Person
---------
controlling, controlled by or under common control with, such specified Person.
"Buyer IPO": The initial public offering of the Buyer Common Stock or the
----- ---
MRB Common Stock, as the case may be.
"Indebtedness": As applied to any Person, (a) all indebtedness of such
------------
Person for borrowed money, whether current or funded, or secured or unsecured,
(b) all indebtedness of such Person for the deferred purchase price of property
or services represented by a note or other security, (c) all indebtedness of
such Person created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person (even
though the rights and remedies of the seller or lender under such agreement in
the event of default are limited to repossession or sale of such property), (d)
all indebtedness of such Person secured by a purchase money mortgage or other
lien to secure all or part of the purchase price of property subject to such
mortgage or lien, (e) all obligations under leases which shall have been or must
be, in accordance with generally accepted accounting principles, recorded as
capital leases in respect of which such Person is liable as lessee, (f) any
liability of such Person in respect of banker's acceptances or letters of
credit, and (g) all indebtedness referred to in clause (a), (b), (c), (d), (e)
or (f) above which is directly or indirectly guaranteed by such Person or which
such Person has agreed (contingently or otherwise) to purchase or otherwise
acquire or in respect of which it has otherwise assured a creditor against loss.
"IRS": The United States Internal Revenue Service.
---
"Person": A corporation, an association, a limited liability company, a
------
partnership, an organization, a business, an individual, a government or
political subdivision thereof or a governmental agency.
"Subsidiary": With respect to any Person, any corporation a majority (by
----------
number of votes) of the outstanding shares of any class or classes of which
shall at the time be owned by such Person or by a Subsidiary of such Person, if
the holders of the shares of such class or classes (a) are ordinarily, in the
absence of contingencies, entitled to vote for the election of a majority of the
directors (or persons performing similar functions) of the issuer thereof, even
though the right so to vote has been suspended by the happening of such a
contingency, or (b) are at the time entitled, as such holders, to vote for the
election of a majority of the directors (or persons performing similar
functions) of the issuer thereof, whether or not the right so to vote exists by
reason of the happening of a contingency.
"Transaction Documents": This Agreement, the Seller Closing Notes, the
----------- ---------
Seller Post-Closing Notes, the Pledge Agreements, the Employment Agreements, and
the Lease.
12. INDEMNIFICATION.
12.1. Indemnity by the Sellers. Subject to the time limitations set
---------------------------
forth in Section 12.5 hereof, the Sellers, jointly and severally, agree to
indemnify and hold the Buyer and each Company (and their respective directors,
officers, employees and Affiliates) harmless from and with respect to any and
all claims, liabilities, losses, damages, costs and expenses, including without
limitation, the fees and disbursements of counsel reasonably and actually
incurred (collectively, the "Losses") suffered or incurred by the Buyer and/or
any Company, related to or arising, directly or indirectly, out of or with
respect to (a) any failure or any breach by the Sellers of any representation or
warranty, covenant, obligation or undertaking made by the Sellers in or pursuant
to this Agreement or any other Transaction Document, any Schedule or Exhibit
hereto, or any other statement, certificate or other instrument delivered
pursuant hereto or in connection herewith, and (b) any of the litigation
disclosed on Schedule 5.10 hereto, subject to the provisions of Section 13
-------- ----
hereof; provided, that no Person entitled to indemnification by the Sellers
--------
under this Section 12.1 shall be entitled to seek such indemnification until the
Losses suffered by all such Persons, in the aggregate, equal at least $50,000,
after which the Sellers shall be obligated to indemnify all such Persons in full
for all Losses suffered thereby, excluding however such initial $50,000 of
Losses; provided, further, that this limitation shall not apply to any Losses
--------
suffered by such Persons on account of the matters set forth in clause (b)
above.
12.2. Indemnity by the Buyer. Subject to the time limitations set forth
------------------------
in Section 12.5 hereof, the Buyer agrees to indemnify and hold the Sellers
harmless from and with respect to any and all Losses suffered or incurred by any
Seller related to or arising from, directly or indirectly, any failure or any
breach by the Buyer of any representation or warranty, covenant, obligation or
undertaking made by the Buyer in or pursuant to this Agreement or any other
Transaction Document, any Schedule or Exhibit hereto, or any other statement,
certificate or other instrument delivered pursuant hereto or in connection
herewith; provided, that no Person entitled to indemnification by the Buyer
--------
under this Section 12.2 shall be entitled to seek such indemnification until the
Losses suffered by all such Persons, in the aggregate, equal at least $50,000,
after which the Buyer shall be obligated to indemnify all such Persons in full
for all Losses suffered thereby, excluding however such initial $50,000 of
Losses.
12.3. Claims.
------
(a) Notice. Any party seeking indemnification hereunder (the
------
"Indemnified Party") shall promptly notify the other party hereto (the
"Indemnifying Party") of any action, suit, proceeding, demand or breach (a
"Claim") with respect to which the Indemnified Party claims indemnification
hereunder; provided, that the failure of the Indemnified Party to give such
--------
notice shall not relieve the Indemnifying Party of its obligations under this
Section 12 except to the extent, if at all, that such Indemnifying Party shall
have been materially and adversely prejudiced thereby.
(b) Third Party Claims. If such Claim relates to any action, suit,
----- ----- ------
proceeding or demand instituted against the Indemnified Party by a third party
(a "Third Party Claim"), the Indemnified Party shall promptly notify the
Indemnifying Party of such Third Party Claim and the Indemnified Party's claim
of indemnification with respect thereto. Within thirty (30) days after receipt
of such notice from the Indemnified Party, the Indemnifying Party may assume the
defense of such Third Party Claim by delivering a notice to the Indemnified
Party, in which case the Indemnifying Party shall have the authority to
negotiate, compromise and settle such Third Party Claim, if and only if the
following conditions are satisfied:
(i) the Indemnifying Party shall have confirmed in writing that it is
obligated hereunder to indemnify the Indemnified Party with respect to such
Third Party Claim; and
(ii) such Third Party Claim involves only money damages and does not
seek an injunction or other equitable relief and any settlement thereof releases
the Indemnified Party from any further liability with respect thereto.
The Indemnified Party shall retain the right to employ its own counsel and to
participate in the defense of any Third Party Claim, the defense of which has
been assumed by the Indemnifying Party pursuant hereto, but the Indemnified
Party shall bear and shall be solely responsible for its own costs and expenses
in connection with such participation. If the Indemnifying Party fails to
notify the Indemnified Party of its election to assume the defense within thirty
(30) days after its receipt of notice of a particular matter from the
Indemnified Party, the Indemnified Party shall be entitled to assume the defense
of such Third Party Claim at the expense of the Indemnifying Party.
12.4. Method and Manner of Paying Claims. In the event of any Claims
------------------------------------
under this Section 12, the claimant shall advise the party or parties who are
required to provide indemnification therefor in writing of the amount and
circumstances surrounding such Claim. Any amount owed by an Indemnifying Party
hereunder with respect to any Claim (the "Claim Amount") may be set-off by the
Indemnified Party against any amounts owed by the Indemnified Party to any
Indemnifying Party, including; provided, however, that with respect to any such
--------
Claim Amount owed by the Sellers to the Buyer, such Claim Amount shall be
satisfied in the following manner and order of priority: first, by deducting the
Claim Amount against any Earn-Out Payments then owing by the Buyer to the
Sellers at the time any such Claim Amount is owed to the Buyer; second, to the
extent any such available Earn-Out Payments are insufficient to pay such Claim
Amount, by the Sellers forfeiting to Chancellor such number of Chancellor Shares
determined by dividing (a) the amount of the unsatisfied Claim Amount, by (b)
the closing price of the Common Stock on the day immediately preceding the day
the Claim giving rise to such
Claim Amount becomes final and agreed upon; and third, to the extent any such
Chancellor Shares are insufficient to pay the amount of the unsatisfied Claim
Amount, by the Sellers paying
the Buyer the amount of such remaining unsatisfied Claim Amount in cash or
immediately available funds.
12.5. Limitations on Indemnification. No Indemnifying Party shall be
----------- -- ---------------
liable for any Losses pursuant to this Section 12 unless a written claim for
indemnification in accordance with this Section 12 is given by the Indemnified
Party to the Indemnifying Party with respect thereto within eighteen months (18)
after the Closing Date, except that this time limitation shall not apply to any
Losses related to or arising directly or indirectly out of any (i) breaches by
the Sellers of the representations and warranties set forth in Sections 5.2,
5.4, 5.5, 5.13, 5.24 and 5.29 hereof, (ii) breaches by the Sellers of the
provisions of Section 10 hereof, (iii) breaches by the Buyer of the
representation and warranty set forth in Section 6.5 hereof, and (iv) claim by
the Buyer under Section 12.1(b) hereof, as to which in each case the applicable
statute of limitations shall apply.
12.6. Survival of Representations and Warranties. The representations and
-------- -- --------------- --- ----------
warranties of the parties hereto contained in this Agreement or otherwise made
in writing in connection with the transactions contemplated hereby (in each case
except as affected by the transactions contemplated by this Agreement) shall be
deemed material and, notwithstanding any investigation by the Buyer or the
Sellers, shall be deemed to have been relied on by the Buyer and the Sellers, as
the case may be, and shall survive the Closing, and the consummation of the
transactions contemplated hereby. Each representation and warranty made by the
Sellers or the Buyer in this Agreement shall expire on the last day, if any,
that Claims for breaches of such representation or warranty may be made pursuant
to Section 12.5 hereof, except that any such representation or warranty that has
been made the subject of a Claim prior to such expiration date shall survive
with respect to such Claim until the final resolution of such Claim pursuant to
Section 12.
13. AGREEMENT REGARDING LITIGATION. In the event that MRB recovers any
amounts in respect of the litigation disclosed on Schedule 5.10 hereto, the
-------- ----
Buyer shall cause MRB to promptly remit to the Sellers the full amount of any
such recovery, after deducting the amount of any costs and expenses, including
attorney's fees and expenses, incurred by MRB in respect thereof.
14. GENERAL.
14.1. Expenses. The Sellers shall pay all transfer and sales taxes
--------
payable in connection with the sale of the Shares. All expenses of the
preparation, execution and consummation of this Agreement and of the
transactions contemplated hereby, including without limitation, attorneys',
accountants' and outside advisers' fees and disbursements, shall be borne by the
party incurring such expenses; provided, however, that MRB shall be permitted to
-------- -------
pay up to $37,500 of such fees and expenses incurred by the Sellers.
14.2. Notices. All notices, requests, demands or other communications
-------
required or permitted to be given hereunder shall be in writing and shall be
addressed and delivered by hand delivery, or by certified mail, return receipt
requested, or by overnight or local commercial courier, to each party at the
address set forth below:
Any such notice shall be effective upon receipt or actual delivery.
Rejection or other refusal to accept or inability to deliver because of a change
of address as to which proper notice
was not furnished shall be deemed to be receipt of the notice, request, demand
or other communication.
If to the Sellers, to:
M. Rea Brookings
1285 Iris Lake Road
McDonough, Georgia 30252
David F. Herring
707 Lexington Avenue
Jonesboro, Georgia 30236
with a copy sent contemporaneously to:
Frank L. Wilson, III, Esq.
Wilson, Brock & Irby, LLC
Overlook I, Suite 700
2849 Paces Ferry Road
Atlanta, Georgia 30339
If to the Buyer, to:
Chancellor Asset Management, Inc.
c/o Chancellor Corporation
210 South Street, 10th Floor
Boston, Massachusetts 02111
Attention: Peter J. Mullen, Clerk
with a copy sent contemporaneously to:
Victor J. Paci, Esq.
Bingham Dana LLP
150 Federal Street
Boston, Massachusetts 02110
or such other address as such party shall designate by written notice to the
other parties hereto in accordance with the terms hereof. Legal counsel for the
Sellers and the Companies on the one hand, and the Buyer on the other hand,
shall be permitted to send to the other parties any notices, requests, demands
or other communications required or permitted to be given hereunder by such
party.
14.3. Entire Agreement. This Agreement contains the entire understanding
------ ---------
of the parties, supersedes all prior agreements and understandings relating to
the subject matter hereof, including, without limitation, any management
agreements or arrangements between the parties, and shall not be amended except
by a written instrument hereafter signed by all of the parties hereto.
14.4. Governing Law. The validity and construction of this Agreement
--------- ---
shall be governed and construed and enforced in accordance with the internal
laws (and not the choice-of-law rules) of the State of Delaware.
14.5. Sections and Section Headings. The headings of sections and
-------- --- ------- --------
subsections are for reference only and shall not limit or control the meaning
thereof.
14.6. Assigns. This Agreement shall be binding upon and inure to the
-------
benefit of the parties hereto and their respective heirs, legal representatives,
successors and permitted assigns. Neither this Agreement nor the obligations of
any party hereunder shall be assignable or transferable by such party without
the prior written consent of the other party hereto, which may be withheld in
the sole discretion of such party; provided, however, that nothing contained in
-------- -------
this Section 14.6 shall prevent the Buyer, without the consent of the Sellers
(a) from transferring or assigning this Agreement or its rights or obligations
hereunder to another entity controlling, under the control of, or under common
control with, Chancellor, or (b) from assigning all or part of its rights or
obligations hereunder by way of collateral assignment to any bank or financing
institution providing financing for the acquisition contemplated hereby, but no
such transfer or assignment made pursuant to clauses (a) or (b) shall relieve
the Buyer of its obligation under this Agreement.
14.7. Severability. In the event that any covenant, condition, or other
------------
provision herein contained is held to be invalid, void, or illegal by any court
of competent jurisdiction, the same shall be deemed to be severable from the
remainder of this Agreement and shall in no way affect, impair, or invalidate
any other covenant, condition, or other provision contained herein.
14.8. Further Assurances. The parties agree to take such reasonable steps
------- ----------
and execute such other and further instruments, agreements and documents as may
be necessary or appropriate and which are reasonably requested to cause the
terms and conditions contained herein to be carried into effect.
14.9. No Implied Rights or Remedies. Except as otherwise expressly
-- ------- ------ -- --------
provided herein, nothing herein expressed or implied is intended or shall be
construed to confer upon or to give any Person, other than the Sellers and the
Buyer and their respective shareholders, if any, any rights or remedies under or
by reason of this Agreement.
14.10. Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
14.11. Satisfaction of Conditions Precedent. The Sellers and the Buyer
------------ -- ---------- ---------
will use their best efforts to cause the satisfaction of the conditions
precedent contained in this Agreement; provided, however, that nothing contained
-------- -------
in this Section 14.11 shall obligate either party hereto to waive any right or
condition under this Agreement.
14.12. Public Statements or Releases. Except as otherwise required by law
------ ---------- -- --------
and in the case of the Buyer's prior issuance of a press release disclosing the
parties entering into of a letter of intent for the purchase and sale of Shares,
each of the parties hereto agrees that prior to the consummation of the Closing,
no party to this Agreement will make, issue or release any public announcement,
statement or acknowledgment of the existence of, or reveal the status of, this
Agreement or the transactions contemplated hereby or any negotiations or
discussions related thereto or hereto, without first obtaining the consent of
the other parties hereto. Nothing contained in this Section 14.12 shall prevent
any party from making such disclosures as such party may consider necessary to
satisfy such party's legal or contractual obligations; provided,
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that the party seeking to make such disclosures shall provide written notice to
the other parties to this Agreement immediately upon the knowledge thereof.
15. NON-BINDING MEDIATION. If a dispute (a "Dispute") arises
between the Buyer and either or both of the Sellers under this Agreement which
is not resolved within ten (10) days, the Dispute shall, within thirty (30) days
after notice from either the Buyer or a Seller, be submitted to mediation before
any such party proceeds with any other rights or remedies to which any such
party may be entitled. The mediation shall be conducted through any mutually
agreeable commercial mediation and arbitration service, which shall appoint a
mediator (a "Mediator") to mediate the Dispute. If no commercial mediation and
arbitration service is mutually agreeable to the parties, the Mediator shall be
appointed by the American Arbitration Association in Boston, Massachusetts in
accordance with its Commercial Arbitration Rules. The parties shall meet with
the Mediator and present their evidence and arguments at such time and at such
place in Boston, Massachusetts as shall be directed by the Mediator which, in
any event, shall be as soon as reasonably practicable following submission of
the Dispute to mediation. The Mediator shall be requested to provide a written
decision to the parties within ten (10) days following the conclusion of
presentation of evidence and arguments. The fees and expenses of the Mediator
shall be borne equally by the Buyer on the one hand, and either or both of
Sellers on the other hand. The decision of the Mediator will be considered in
good faith by the parties before proceeding with any further dispute resolution,
but such decision will not be binding and will not be admissible as evidence in
any judicial or other proceeding.
IN WITNESS WHEREOF, and intending to be legally bound hereby, the parties
hereto have caused this Agreement to be duly executed and delivered as a sealed
instrument as of the date first above written.
BUYER:
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CHANCELLOR ASSET MANAGEMENT, INC.
By: /s/ Franklyn E. Churchill
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Franklyn E. Churchill
President
SELLERS:
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/s/ M. Rea Brookings
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M. Rea Brookings
/s/ David F. Herring
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David F. Herring