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STOCK PURCHASE AGREEMENT
Dated as of November 7, 1996
among
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BUYER:
INTERNATIONAL LOGISTICS LIMITED
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AND
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SELLERS:
Douglas Cruikshank
Ronald S. Cruse
Steve Hitchcock
Paul D. Smith
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TABLE OF CONTENTS
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ARTICLE I - DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II - PURCHASE AND SALE OF STOCK. . . . . . . . . . . . . . . . . . . 11
2.1 Purchase and Sale of Stock. . . . . . . . . . . . . . . . . . . 11
ARTICLE III - POST-CLOSING MATTERS . . . . . . . . . . . . . . . . . . . . . 12
3.1 Post-Closing Adjustment . . . . . . . . . . . . . . . . . . . . 12
3.2 Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE IV - CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.1 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.2 Deliveries at Closing . . . . . . . . . . . . . . . . . . . . . 14
4.3 Other Closing Transactions. . . . . . . . . . . . . . . . . . . 15
ARTICLE V - REPRESENTATIONS AND WARRANTIES OF THE SELLERS. . . . . . . . . . 16
5.1 Organization; Capitalization; Subsidiaries. . . . . . . . . . . 16
5.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.3 Title to Assets . . . . . . . . . . . . . . . . . . . . . . . . 17
5.4 Intellectual Property Rights. . . . . . . . . . . . . . . . . . 17
5.5 Facilities. . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.6 Contracts and Commitments . . . . . . . . . . . . . . . . . . . 19
5.7 No Conflict or Violation. . . . . . . . . . . . . . . . . . . . 21
5.8 Financial Statements. . . . . . . . . . . . . . . . . . . . . . 22
5.9 Absence of Certain Changes or Events. . . . . . . . . . . . . . 22
5.10 THIS SECTION INTENTIONALLY OMITTED. . . . . . . . . . . . . . . 24
5.11 Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . 24
5.12 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.13 Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.14 Permits, Consents and Approvals; Compliance with Law . . . . . 24
5.15 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.16 Severance Arrangements. . . . . . . . . . . . . . . . . . . . . 28
5.17 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.18 THIS SECTION INTENTIONALLY OMITTED. . . . . . . . . . . . . . . 28
5.19 Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.20 Customers and Suppliers . . . . . . . . . . . . . . . . . . . . 29
5.21 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.22 Environmental Matters . . . . . . . . . . . . . . . . . . . . . 29
5.23 Employee Benefit Plans. . . . . . . . . . . . . . . . . . . . . 30
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5.24 No Brokers or Advisors. . . . . . . . . . . . . . . . . . . . . 32
5.25 No Other Agreements to Sell the Assets or
Capital Stock of any Subject Company. . . . . . . . . . . . . . 32
5.26 Acquisition of Buyer Common Stock . . . . . . . . . . . . . . . 32
5.27 No SEC Disclosure . . . . . . . . . . . . . . . . . . . . . . . 33
5.28 Books and Records . . . . . . . . . . . . . . . . . . . . . . . 33
5.29 No Powers of Attorney . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE VI - REPRESENTATIONS AND WARRANTIES OF THE SELLERS WITH RESPECT TO
THE RUSSIAN VENTURES . . . . . . . . . . . . . . . . . . . . . . . 34
6.1 Organization and Capitalization . . . . . . . . . . . . . . . . 34
6.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.3 Contracts and Commitments . . . . . . . . . . . . . . . . . . . 35
6.4 No Conflict or Violation. . . . . . . . . . . . . . . . . . . . 36
6.5 Absence of Certain Changes or Events. . . . . . . . . . . . . . 36
6.6 Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 36
6.7 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . 36
6.8 Permits, Consents and Approvals; Compliance with Law . . . . . 36
6.9 Tax Matters.. . . . . . . . . . . . . . . . . . . . . . . . . . 37
6.10 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . 38
6.11 Environmental Matters . . . . . . . . . . . . . . . . . . . . . 38
6.12 No Other Agreements to Sell the Assets or Capital Stock
of such Subject Company . . . . . . . . . . . . . . . . . . . . 39
6.13 No Powers of Attorney . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE VII - REPRESENTATIONS AND WARRANTIES OF BUYER. . . . . . . . . . . . 39
7.1 Organization of Buyer . . . . . . . . . . . . . . . . . . . . . 39
7.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . 39
7.3 No Conflict or Violation. . . . . . . . . . . . . . . . . . . . 39
7.4 Consents and Approvals. . . . . . . . . . . . . . . . . . . . . 40
7.5 Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . 40
7.6 Issuance of Common Stock. . . . . . . . . . . . . . . . . . . . 40
7.7 Financial Statements. . . . . . . . . . . . . . . . . . . . . . 40
7.8 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . 41
7.9 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
7.10 Investment. . . . . . . . . . . . . . . . . . . . . . . . . . . 41
7.11 Equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
7.12 Solvency. . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
ARTICLE VIII - ACTIONS OF THE SELLERS AND BUYER BEFORE
AND AFTER THE CLOSING . . . . . . . . . . . . . . . . . . . . 42
8.1 Further Assurances. . . . . . . . . . . . . . . . . . . . . . . 42
8.2 Employee Matters. . . . . . . . . . . . . . . . . . . . . . . . 42
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8.3 THIS SECTION INTENTIONALLY OMITTED. . . . . . . . . . . . . . . 42
8.4 Excluded Assets and Excluded Liabilities. . . . . . . . . . . . 42
8.5 Contribution of Sea Bridge Assets . . . . . . . . . . . . . . . 42
8.6 Dividends and Other Distributions . . . . . . . . . . . . . . . 43
8.7 Amendment to Charter and Bylaws . . . . . . . . . . . . . . . . 43
ARTICLE IX - ACTIONS BY THE SELLERS AND BUYER AFTER THE CLOSING. . . . . . . 43
9.1 Books and Records . . . . . . . . . . . . . . . . . . . . . . . 43
9.2 Survival of Representations, Etc. . . . . . . . . . . . . . . . 44
9.3 Indemnifications. . . . . . . . . . . . . . . . . . . . . . . . 44
9.4 Further Actions . . . . . . . . . . . . . . . . . . . . . . . . 48
ARTICLE X - TAX MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . 48
10.1 Tax Indemnification . . . . . . . . . . . . . . . . . . . . . . 48
10.2 Apportionment . . . . . . . . . . . . . . . . . . . . . . . . . 48
10.3 Refunds . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
10.4 Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
10.5 Other Matters . . . . . . . . . . . . . . . . . . . . . . . . . 49
ARTICLE XI - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . 50
11.1 Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . 50
11.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
11.3 Choice of Law . . . . . . . . . . . . . . . . . . . . . . . . . 51
11.4 Entire Agreement; Amendments and Waivers. . . . . . . . . . . . 51
11.5 Multiple Counterparts . . . . . . . . . . . . . . . . . . . . . 52
11.6 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
11.7 Invalidity. . . . . . . . . . . . . . . . . . . . . . . . . . . 52
11.8 Titles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
11.9 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
11.10 Confidential Information. . . . . . . . . . . . . . . . . . . . 52
11.11 Burden and Benefit. . . . . . . . . . . . . . . . . . . . . . . 54
11.12 Knowledge . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
11.13 Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . . . 54
11.14 Reliance on Representations and Warranties. . . . . . . . . . . 54
11.15 THIS SECTION INTENTIONALLY OMITTED. . . . . . . . . . . . . . . 54
11.16 Limitation of Liability . . . . . . . . . . . . . . . . . . . . 54
11.17 Additional Survival . . . . . . . . . . . . . . . . . . . . . . 54
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EXHIBITS
Exhibit
A Registration Rights Agreement . . . . . . . . . . . . . . . . . . . A-1
B Stockholders Agreement . . . . . . . . . . . . . . . . . . . . . . . B-1
C Form of Employment Agreement . . . . . . . . . . . . . . . . . . . . C-1
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT dated as of November 7, 1996 (this
"AGREEMENT"), is by and among International Logistics Limited, a Delaware
corporation ("BUYER"), and Douglas Cruikshank, Ronald S. Cruse, Steve
Hitchcock and Paul D. Smith (each of whom, individually, is a "SELLER," and
collectively, are the "SELLERS"). Each of the Target (as defined below) and
its Subsidiaries (as defined below) are sometimes referred to herein
individually as a "SUBJECT COMPANY" and collectively as the "SUBJECT
COMPANIES."
RECITALS
A. Buyer desires to purchase from the Sellers, and the Sellers
desire to sell to Buyer, all of the issued and outstanding capital stock of the
Target, upon the terms and subject to the conditions contained herein (the
"ACQUISITION").
B. In connection with the Acquisition, the parties desire to set
forth certain representations, warranties and covenants made by each to the
other or others as an inducement to the consummation of the Acquisition, upon
the terms and subject to the conditions contained herein.
C. In connection with the Acquisition, the Sellers are willing to
indemnify Buyer, and Buyer is willing to indemnify the Sellers, against certain
losses and liabilities they may incur as a result of the Acquisition, upon the
terms and subject to the conditions contained herein.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINED TERMS. As used herein, the terms below shall have the
following meanings. Any of these terms, unless the context otherwise requires,
may be used in the singular or plural depending upon the reference.
"ACCOUNTING FIRM" shall have the meaning set forth in Section 3.1(a)
of this Agreement.
"ACQUISITION" shall have the meaning set forth in the Recitals to this
Agreement.
"ACTION" shall mean any action, suit, litigation, proceeding, arbitral
action or criminal prosecution.
"AFFILIATE" shall have the meaning set forth in Rule 12(b)(ii) of the
Securities Exchange Act of 1934, as amended.
"ASSETS" shall mean, with respect to any Person, all of such
Person's right, title and interest in and to all properties, assets and
rights of any kind, whether tangible or intangible, real or personal, owned
by such Person or in which such Person has any interest whatsoever, other
than the Excluded Assets, including without limitation, any right, title and
interest of such Person to the following:
(a) accounts and notes receivable (whether current or non-current),
refunds, deposits, prepayments and prepaid expenses (including,
without limitation, any prepaid insurance premiums);
(b) cash and cash equivalents;
(c) all shares of common stock and any other ownership interests of
such Person in any of the Subject Companies, the Russian Ventures
or Smit-Matrix;
(d) all tangible personal property;
(e) all Contracts;
(f) all Owned Real Property;
(g) all Leases;
(h) all Leasehold Estates;
(i) all Leasehold Improvements;
(j) all Fixtures and Equipment;
(k) all Books and Records;
(l) all Intellectual Property Rights;
(m) the Insurance Policies;
(n) all sales literature and promotional literature;
(o) all claims, causes of action, choses in action, rights of
recovery and rights of set-off of any kind, against any Person,
including without limitation any liens, security interests,
pledges or other rights to payment or to enforce payment in
connection with products delivered by such Person on or prior to
the Closing Date;
(p) all goodwill related to the Business;
(q) all Permits; and
(r) the Sea Bridge Assets.
2
"BOOKS AND RECORDS" shall mean with respect to each Subject Company
(a) all records and lists of such Subject Company pertaining to the Assets,
(b) all records and lists of such Subject Company pertaining to the Business
of the Subject Company or customers, suppliers or personnel of the Subject
Company, (c) all product, Business and marketing plans of the Subject
Company, and (d) all books, ledgers, files, reports, plans, drawings and
operating records of every kind maintained by such Subject Company.
"BUSINESS" shall mean the business conducted by the Subject Companies
of providing origin and destination services, freight forwarding, logistics,
supply chain management, customs clearing services, transportation and
distribution services, together with any ancillary services provided therewith.
"BUYER" shall mean International Logistics Limited, a Delaware
Corporation.
"BUYER COMMON STOCK" shall have the meaning set forth in Section
2.1(b) of this Agreement.
"BUYER FINANCIAL STATEMENTS" shall have the meaning set forth in
Section 7.7 of this Agreement.
"BUYER INDEMNIFIED PARTIES" shall have the meaning set forth in
Section 9.3(a) of this Agreement.
"CASH PORTION" shall have the meaning set forth in Section 2.1(b) of
this Agreement.
"CLAIM" shall have the meaning set forth in Section 9.3(d) of this
Agreement.
"CLAIM NOTICE" shall have the meaning set forth in Section 9.3(d) of
this Agreement.
"CLASS A DIRECTORS" shall have the meaning set forth in Section 8.7 of
this Agreement.
"CLASS B DIRECTORS" shall have the meaning set forth in Section 8.7 of
this Agreement.
"CLOSING" shall have the meaning set forth in Section 4.1 of this
Agreement.
"CLOSING DATE" shall mean (i) November 7, 1996 or (ii) such other date
as Buyer and the Sellers shall mutually agree upon.
"CLOSING BALANCE SHEET" shall have the meaning set forth in Section
3.1(a) of this Agreement.
"CLOSING FINANCIAL STATEMENTS" shall have the meaning set forth in
Section 3.1(a) of this Agreement.
"CLOSING NET WORTH" shall have the meaning set forth in Section 3.1(f)
of this Agreement.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
3
"CONFIDENTIAL INFORMATION" shall have the meaning set forth in Section
11.10(b) of this Agreement.
"CONTRACT" shall mean with respect to any Person any agreement,
contract, note, evidence of indebtedness, letter of credit, indenture, security
or pledge agreement, guarantee, franchise agreement, covenant not to compete,
employment agreement, license agreement, instrument or obligation to which such
Person is a party or to which any of its Assets are subject, whether oral or
written.
"CORPORATION" shall be used solely for the purpose of Section 5.22
hereof and shall mean (i) the Target and each of its Subsidiaries,
(ii) all partnerships, joint ventures and other entities or organizations in
which the Target or any such Subsidiary was at any time or is a partner, joint
venturer, member or participant, (iii) all predecessor or former corporations,
partnerships, joint ventures, organizations, businesses or other entities,
whether in existence as of the date hereof or at any time prior to the date
hereof, the assets or obligations of which have been acquired or assumed by the
Target or any such Subsidiary or to which the Target or any such Subsidiary has
succeeded.
"COURT ORDER" shall mean any judgment, award, decision, consent
decree, injunction, ruling, writ or order of any foreign, federal, state or
local court that is binding on any of the Subject Companies or any Seller or the
Assets or properties of the Subject Companies.
"DAMAGES" shall have the meaning set forth in Section 9.3(a) of this
Agreement.
"DEDUCTIBLE" shall have the meaning set forth in Section 9.3(g) of
this Agreement.
"DEFAULT" shall mean (i) a breach of or default under any Contract,
(ii) the occurrence of an event that with the passage of time or the giving of
notice or both would constitute a breach of or default under any Contract, or
(iii) the occurrence of an event that with or without the passage of time or the
giving of notice or both would give rise to a right of termination,
renegotiation or acceleration under any Contract.
"DISCLOSURE SCHEDULE" shall mean a schedule executed and delivered by
the Sellers to Buyer as of the date hereof which sets forth the exceptions to
the representations and warranties contained in Articles V and VI hereof and
certain other information called for by Articles V and VI hereof and other
provisions of this Agreement. Unless otherwise specified, each reference in
Articles V and VI to any numbered schedule is a reference to that numbered
schedule which is included in the Disclosure Schedule.
"EMPLOYMENT AGREEMENTS" shall have the meaning set forth in Section
4.3(d) of this Agreement.
"ENCUMBRANCES" shall mean any valid claim, lien, pledge, option,
charge, easement, security interest, deed of trust, mortgage, right of way,
encroachment, building or use restriction, conditional sales agreement,
encumbrance or other right of third parties, whether voluntarily incurred or
arising by operation of law, and includes, without limitation, any agreement to
give any of the foregoing in the future, and any contingent sale or other title
retention agreement or lease in the nature thereof. For the purposes of this
Agreement, Encumbrances shall be deemed to exclude restrictions on transfers of
stock pursuant to the Securities Act and applicable state securities laws.
4
"ENVIRONMENTAL ASSESSMENTS" shall mean all written reports, and all
parts thereof, including any drafts of such reports if such drafts are in the
possession or control of any Corporation, of all environmental audits or
assessments in the possession of any Subject Company or any Seller, or any of
their respective professional consultants or advisors, which have been conducted
at any Facility or Former Facility within the past five years, either by any
such Corporation or any attorney, environmental consultant or engineer engaged
for such purpose.
"ENVIRONMENTAL CONDITIONS" shall mean the introduction into the
environment of any pollution, including without limitation any contaminant,
irritant or pollutant or other Hazardous Substance (whether or not upon the
Owned Real Property, the Leased Real Property, or other property of the Business
and whether or not such pollution constituted at the time thereof a violation of
any Environmental Law) as a result of any Release as a result of which any
Corporation is or, to the knowledge of Sellers, may become liable to any Person
or by reason of which the Owned Real Property, the Leased Real Property or any
of the Assets may suffer or be subjected to any lien, to the extent it would
have a Material Adverse Effect.
"ENVIRONMENTAL LAWS" shall mean all federal, state, local or foreign
laws, statutes, ordinances, regulations, rules, judgments, orders, notice
requirements, court decisions, agency guidelines or principles of law, Permits,
restrictions and licenses, which (i) regulate or relate to the protection or
clean-up of the environment; the use, treatment, storage, transportation,
handling, disposal or Release of Hazardous Substances, the preservation or
protection of waterways, groundwater, drinking water, air, wildlife, plants or
other natural resources; or the health and safety of persons or property,
including without limitation protection of the health and safety of employees;
or (ii) impose liability with respect to any of the foregoing, including without
limitation the Federal Water Pollution Control Act (33 U.S.C. Section 1251 ET
SEQ.), Resource Conservation & Recovery Act (42 U.S.C. Section 6901 ET SEQ.)
("RCRA"), Safe Drinking Water Act (21 U.S.C. Section 349, 42 U.S.C. Sections
201, 300f), Toxic Substances Control Act (15 U.S.C. Section 2601 ET SEQ.), Clean
Air Act (42 U.S.C. Section 7401 ET SEQ.), Comprehensive Environmental Response,
Compensation and Liability Act (42 U.S.C. Section 9601 ET SEQ.) ("CERCLA"),
California Health & Safety Code (Section 25100 ET SEQ., Section 39000 ET SEQ.),
and California Water Code (Section 13000 ET SEQ.), or any other similar foreign,
federal, state or local law of similar effect, each as amended.
"EXCLUDED ASSETS" shall mean the following assets of the Subject
Companies which are not to be acquired by Buyer hereunder:
(a) the vehicles listed in Schedule 1.3 hereto, including any
leasehold interest or ownership interest with respect thereto; and
(b) the Florida Condominium.
"EXCLUDED LIABILITIES" shall mean any Liability relating to or arising
out of the Excluded Assets, together with accrued interest thereon, including
without limitation:
(a) any loans and Lease obligations (whether capital or operating)
associated with or relating to the vehicles listed in Schedule 1.3 hereto; and
(b) the Mortgage relating to the Florida Condominium.
5
"FACILITIES" shall mean with respect to each Subject Company all of
the plants, offices, manufacturing facilities, stores, warehouses, improvements,
administration buildings, and all real property of such Subject Company, that
are identified or listed under such Subject Company's name in Schedule 5.5
attached hereto.
"FACILITY LEASES" shall mean, with respect to each Subject Company,
all of the Leases of Facilities listed under such Subject Company's name in
Schedule 5.5.
"FINANCIAL STATEMENTS" shall mean (i) the monthly unaudited
consolidated Financial Statements of the Target beginning on the Interim Balance
Sheet Date through and including the month ended August 31, 1996, (ii) the
Interim Financial Statements and (iii) the Year-End Financial Statements.
"FINANCIAL STATEMENTS DELIVERY DATE" shall have the meaning set forth
in Section 3.1(g) of this Agreement.
"FIXTURES AND EQUIPMENT" shall mean with respect to any Person all of
the furniture, fixtures, furnishings, automobiles, tractors, trailers,
machinery, equipment and supplies owned by such Person, wherever located and
including any such Fixtures and Equipment in the possession of any third party.
"FLORIDA CONDOMINIUM" shall mean the condominium parcel located at 308
Mainsail Circle, Jupiter, Florida 33477, together with all rights, easements and
privileges appertaining or relating thereto, and all buildings, fixtures and
improvements located thereon.
"FOREIGN SUBSIDIARIES" shall mean, collectively, Smit-Matrix, the
Russian Ventures and any of their respective subsidiaries or Affiliates which
are organized under the laws of a country other than the United States.
"FORMER FACILITY" shall be used solely for purposes of Section 5.22
hereof and shall mean, with respect to each Corporation, each plant, office,
manufacturing facility, store, warehouse, improvement, administrative building
and all real property and related facilities which was or were owned, leased or
operated by such Corporation at any time prior to the date hereof, but excluding
any Facilities.
"FOUNDATION DOCUMENTS" shall have the meaning set forth in Section
6.1(a) of this Agreement.
"GAAP" shall mean generally accepted accounting principles in the
United States of America, as in effect from time to time, consistently applied.
The parties acknowledge and agree, however, that for the purposes of this
Agreement, the Target's accounting policies and practices that are set forth in
Schedule 1.4 hereto shall be considered GAAP.
"HARPER LOAN" shall mean that certain term loan made to the Target by
Signet Bank in the outstanding amount of $169,000 for the purpose of
repurchasing any stock of the Subject Companies owned by the Harper Group, Inc.
"HAZARDOUS SUBSTANCE" shall mean any quantity of asbestos in any form,
urea formaldehyde, PCB's, radon gas, crude oil or any fraction thereof, all
forms of natural gas, petroleum
6
products or by-products, any radioactive substance, any toxic, infectious,
reactive, corrosive, ignitible or flammable chemical or chemical compound and
any other hazardous substance, material or waste (as defined in or for
purposes of any Environmental Law), whether solid, liquid or gas.
"HSR ACT" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, and the rules and regulations promulgated thereunder.
"INSURANCE POLICIES" shall mean the insurance policies relating to the
Target or any of its Subsidiaries or the Assets of the Target or any of its
Subsidiaries as described in Schedule 5.17 and any insurance policies of such
Subject Companies not required to be so listed.
"INTELLECTUAL PROPERTY RIGHTS" shall have the meaning set forth in
Section 5.4 of this Agreement.
"INTERIM BALANCE SHEET" shall mean the consolidated balance sheet of
the Target dated the Interim Balance Sheet Date, prepared in accordance with
GAAP, and previously delivered to Buyer and attached hereto as Schedule 1.1.
"INTERIM BALANCE SHEET DATE" shall mean June 30, 1996.
"INTERIM FINANCIAL STATEMENTS" shall mean the Interim Balance Sheet
and the consolidated statements of operations and income, changes in
stockholders' equity and cash flow for each of the Subject Companies for the
period ended on the Interim Balance Sheet Date, prepared in accordance with GAAP
and previously delivered to Buyer and attached hereto as Schedule 1.2.
"LEASED REAL PROPERTY" shall mean with respect to each Subject Company
all leased property described in the Facility Leases of such Subject Company.
"LEASEHOLD ESTATES" shall mean with respect to each Subject Company
all of such Subject Company's rights as lessee under the Facility Leases of such
Subject Company.
"LEASEHOLD IMPROVEMENTS" shall mean with respect to each Subject
Company all of such Subject Company's leasehold improvements situated in or on
the Leased Real Property leased under the Facility Leases of such Subject
Company.
"LEASES" shall mean with respect to each Subject Company all of the
existing leases with respect to the personal or real property of such Subject
Company.
"LEP TRANSACTIONS" shall mean the purchases by Buyer and an indirect
wholly owned subsidiary of Buyer of all of the issued and outstanding capital
stock of LEP Profit International, Inc., a Delaware corporation, and LEP
International, Inc., a corporation organized under the laws of Canada,
respectively, each as of October 31, 1996.
"LIABILITIES" shall mean any liability, indebtedness, obligation,
guaranty or endorsement of or by any Person of any type, whether accrued,
absolute, contingent, matured or unmatured. "LIABILITY" shall have the
correlative meaning.
"LOSSES" shall have the meaning set forth in Section 10.1 of this
Agreement.
7
"MATERIAL ADVERSE EFFECT" shall mean (i) a material adverse effect
or change in (A) when taken as a whole, the condition (financial or
otherwise) of or in the Assets, Business, properties, Liabilities, reserves,
working capital, earnings, technology, prospects or relations with customers
or employees of the Subject Companies, or (B) the right or ability of the
Subject Companies to consummate the transactions contemplated hereby, or (ii)
any event or condition which would, with the passage of time, constitute a
"Material Adverse Effect."
"MORTGAGES" shall mean with respect to each Subject Company all deeds
of trust, mortgages or other Encumbrances securing indebtedness and relating to
any of the Owned Real Property of such Subject Company.
"NET WORTH DEFICIENCY" shall have the meaning set forth in Section
3.1(d) of this Agreement.
"NET WORTH SURPLUS" shall have the meaning set forth in Section 3.1(e)
of this Agreement.
"OFFERING MEMORANDUM" shall have the meaning set forth in Section
4.2(b)(ii) of this Agreement.
"OVERLAP PERIOD" shall have the meaning set forth in Section 10.2 of
this Agreement.
"ORDINARY COURSE OF BUSINESS" or "ORDINARY COURSE" or any similar
phrase shall mean the ordinary course of the Business of each of the Subject
Companies or the Russian Ventures, as the case may be, consistent with the past
practice of such Subject Company or Russian Venture as applicable.
"OWNED REAL PROPERTY" shall mean with respect to each Subject Company
all real property owned in fee by such Subject Company, including without
limitation all rights, easements and privileges appertaining or relating
thereto, all buildings, fixtures and improvements located thereon and all
Facilities thereon, if any.
"PERMITTED ENCUMBRANCES" shall mean any (i) Encumbrances reflected in
the Interim Balance Sheet, (ii) Encumbrances for Taxes assessments or
governmental charges or landlords', mechanics', workmen's, materialmans' or
other similar liens, in each case not yet due or delinquent or which are being
contested in good faith and which, in the aggregate, are not substantial in
amount, do not materially detract from the value of the Assets subject thereto
or interfere with the present use thereof and which have not arisen other than
in the ordinary course of business, (iii) liens or Encumbrances that in the
aggregate are not substantial in amount, do not materially detract from the
value of the Assets subject thereto or interfere with the present use thereof
and have not arisen other than in the ordinary course of business and (iv)
Encumbrances of record set forth in Schedule 1.5 hereto.
"PERMITS" shall mean with respect to any Person all licenses, permits,
franchises, approvals, authorizations, consents or orders of any governmental
authority, whether foreign, federal, state or local required for conduct or
operation of the Business of such Person.
"PERMITTED DISTRIBUTIONS" shall have the meaning set forth in Section
8.6 of this Agreement.
8
"PERSON" shall mean an individual, a partnership, a corporation, a
limited liability company, a joint venture, a trust or unincorporated
organization or a government entity (or department, agency or political
subdivision thereof).
"PERSONNEL" shall have the meaning set forth in Section 5.9(b) of this
Agreement.
"POST-CLOSING PERIOD" shall mean any Tax period (or portion thereof)
that is not a Pre-Closing Period.
"PRE-CLOSING PERIOD" shall mean any Tax period ending on or prior to
the Closing Date and, with respect to any Tax period that includes but does not
end on the Closing Date, the portion of such period that ends on and includes
the Closing Date.
"PURCHASE PRICE" shall have the meaning set forth in Section 2.1(b) of
this Agreement.
"REGISTRATION RIGHTS AGREEMENT" shall have the meaning set forth in
Section 4.3(b) of this Agreement.
"REGULATIONS" shall mean any laws, statutes, ordinances, code,
regulations, rules and orders of any foreign, federal, state or local government
and any other governmental department or agency.
"RELEASE" shall mean and include any spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting, escaping, leaching,
dumping, migrating within the environment or disposing into the environment or
the workplace of any Hazardous Substance, and as otherwise defined in any
Environmental Law.
"RETURNS" shall mean all returns, reports, estimates, information
returns and statements of any nature with respect to Taxes.
"RUSSIAN VENTURES" shall mean Russian-American Company Matrix-St.
Petersburg, a closed joint stock company under the laws of the Russian
Federation; Matrix-Almaty, a limited liability company under the laws of the
Republic of Kazakhstan; Matrix-Mariupol, a limited liability company under the
laws of Ukraine; Matrix International, a commercial organization under the laws
of the Azerbaijan Republic; and the other entities listed in Schedule 6.1(b)(1).
"SHARES" shall have the meaning set forth in Section 2.1(b) of this
Agreement.
"SEA BRIDGE" shall mean Sea Bridge Container Lines, a general
partnership.
"SEA BRIDGE ASSETS" shall mean all of the business, properties, assets
and rights of any kind, whether tangible or intangible, real or personal, owned
by Sea Bridge, including without limitation (a) all records and lists of the
Sellers and Sea Bridge pertaining to the Sea Bridge Assets and Sea Bridge, (b)
all records and lists pertaining to the business, customers, suppliers or
personnel of Sea Bridge, (c) all business and marketing plans of Sea Bridge and
(d) all books, ledgers, files, reports, plans, drawings, operating records and
Permits of every kind maintained by Sea Bridge.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
9
"SELLER INDEMNIFIED PARTIES" shall have the meaning set forth in
Section 9.3(b) of this Agreement.
"SELLERS" shall have the meaning set forth in the forepart of this
Agreement.
"SELLERS' ACCOUNTANT" shall have the meaning set forth in Section
3.1(a) of this Agreement.
"SMIT-MATRIX" shall mean Whelchel N.V., a company organized under the
laws of Curacao, Netherlands Antilles, and its direct and indirect subsidiaries.
"SMIT-MATRIX STOCK" shall mean the number of issued and outstanding
shares of capital stock of Whelchel N.V. owned by the Target as set forth in
Schedule 5.1(b)(ii).
"STOCKHOLDERS AGREEMENT" shall have the meaning set forth in Section
4.3(c) of this Agreement.
"SUBJECT COMPANY" shall have the meaning set forth in the forepart of
this Agreement.
"SUBSIDIARY" shall mean (a) any corporation in an unbroken chain of
corporations beginning with the Target if each corporation other than the last
corporation owns a majority of the common stock or has the power to vote or
direct the voting of sufficient securities to elect a majority of the directors,
(b) any partnership in which any corporation included in (a) above is a general
partner, or (c) any partnership or limited liability company in which any
corporation included in (a) above possesses a 50% or greater interest in the
total capital or total income of such partnership or limited liability company,
as the case may be. Notwithstanding anything to the contrary herein, none of
the Russian Ventures shall be deemed to be a Subsidiary of Target or any
Subsidiary of Target for the purposes of this Agreement.
"TARGET" shall mean Matrix International Logistics, Inc., a Delaware
corporation.
"TARGET STOCK" shall have the meaning set forth in Section 2.1(a) of
this Agreement.
"TAX" or "TAXES" shall mean any federal, state, local or foreign net
or gross income, gross receipts, license, payroll, employment, excise,
severance, stamp, business, occupation, premium, (including taxes under Code
Sec. 59A), customs duties, capital stock, franchise, profits, withholding,
social security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax, levy, impost, governmental fee or like
assessment or charge of any kind whatsoever, including any interest, penalty or
addition thereto, whether disputed or not, imposed by any governmental authority
or arising under any Tax law or agreement, including, without limitation, any
joint venture or partnership agreement.
"THIRD PARTY" shall mean any Person who is not a Subject Company, a
Subsidiary or a Seller (or one of their respective Affiliates).
"WARRANT AGREEMENTS" shall mean (i) the Warrant Agreement by and
between Buyer and William E. Myers, Jr., dated May 2, 1996; (ii) the Warrant
Agreement by and between Buyer and William E. Myers, Jr., dated October 31,
1996; (iii) the Warrant Agreement by and between Buyer
10
and William E. Myers, Jr., dated November 7, 1996; (iv) the Warrant Agreement
by and between Buyer and David W.M. Harvey, dated May 2, 1996; (v) the
Warrant Agreement by and between Buyer and David W.M. Harvey, dated October
31, 1996; (vi) the Warrant Agreement by and between Buyer and David W.M.
Harvey, dated November 7, 1996; (vii) the Warrant Agreement by and between
Buyer and Brian E. Sanderson, dated May 2, 1996; (v) the Warrant Agreement by
and between Buyer and Brian E. Sanderson, dated October 31, 1996; (vi) the
Warrant Agreement by and between Buyer and Brian E. Sanderson, dated November
7, 1996; (vii) the Warrant Agreement by and between Buyer and Kurt Kamm,
dated May 2, 1996; (viii) the Warrant Agreement by and between Buyer and
William Kidd, dated May 2, 1996; and (ix) the Warrant Agreement by and
between Buyer and Edward Mandell, dated May 2, 1996;
"YEAR-END BALANCE SHEET" shall mean the audited consolidated balance
sheet of the Target, dated as of the Year-End Balance Sheet Date, together with
notes thereon, prepared in accordance with GAAP.
"YEAR-END BALANCE SHEET DATE" shall mean December 31, 1995.
"YEAR-END FINANCIAL STATEMENTS" shall mean the Year-End Balance Sheet
and the audited consolidated statements of operations and income, changes in
shareholders' equity and cash flow of each of the Target for the periods ending
on the Year-End Balance Sheet Date, together with notes thereon, prepared in
accordance with GAAP.
ARTICLE II
PURCHASE AND SALE OF STOCK
2.1 PURCHASE AND SALE OF STOCK.
(a) TRANSFER OF STOCK. Upon the terms and subject to the conditions
set forth herein, on the Closing Date each of the Sellers shall sell, convey,
transfer, assign, and deliver to Buyer, and Buyer shall purchase from such
Sellers, all of the outstanding shares of capital stock of the Target (the
"TARGET STOCK") in the amounts set forth next to the name of each such Seller in
Schedule 2.1 hereto.
(b) PURCHASE PRICE. Upon the terms and subject to the conditions set
forth herein, in consideration for the transfer of the Target Stock pursuant to
Section 2.1(a) of this Agreement, on the Closing Date Buyer shall pay to the
Sellers in accordance with Section 4.3(a) an aggregate of (x) Nineteen Million
Two Hundred and Forty-Five Thousand and Twelve Dollars ($19,245,012) (the "CASH
PORTION") and (y) ninety-six thousand (96,000) shares of the common stock of
Buyer (the "BUYER COMMON STOCK"), with a deemed value of Two Million Eight
Hundred and Eighty Thousand Dollars ($2,880,000) (or $30.00 per share) (the
"SHARES" and together with the Cash Portion, the "PURCHASE PRICE"). On the
Closing Date, Buyer shall deliver to the Sellers (i) the Cash Portion in cash by
wire transfer of immediately available funds to the respective bank accounts
designated by the Sellers in a writing delivered to Buyer not less than three
(3) business days prior to the Closing and (ii) stock certificates evidencing
the Shares. The Purchase Price shall be allocated among the Sellers as set
forth in Schedule 2.1 hereto. The Shares shall be entitled to receive the
benefits of, and shall be held pursuant to the limitations set forth in, the
Registration Rights Agreement and the Stockholders Agreement. The Shares, when
delivered by Buyer to the Sellers pursuant to this Section 2.1(b), shall
11
be duly authorized and validly issued, fully paid and nonassessable, and free
and clear of any Encumbrances and preemptive rights (other than as provided
for in the Stockholders Agreement, the Registration Rights Agreement, the
Warrant Agreements, the Employment Agreements, the Amended and Restated
Certificate of Incorporation of Buyer and the Restated Bylaws of Buyer).
ARTICLE III
POST-CLOSING MATTERS
3.1 POST-CLOSING ADJUSTMENT.
(a) As promptly as practicable after the Closing Date (but in no
event more than sixty (60) days after the Closing Date), Buyer shall cause the
Target to prepare and deliver to the Sellers consolidated financial statements
of the Target and its Subsidiaries as of the close of business on the day
immediately preceding the Closing Date (the "CLOSING FINANCIAL STATEMENTS").
Such Closing Financial Statements shall be accompanied by a certificate of the
Chief Financial Officer of Buyer (or if Buyer does not have a Chief Financial
Officer, the Chief Financial Officer of one of Buyer's subsidiaries (other than
the Target or any of its Subsidiaries)) to the effect that the Closing Financial
Statements present fairly, in accordance with GAAP, the financial condition of
the Target and its Subsidiaries as of the close of business on the Closing Date
prior to giving effect to the Acquisition. The balance sheet contained in the
Closing Financial Statements shall be referred to herein as the "CLOSING BALANCE
SHEET." The Closing Financial Statements will be prepared in accordance with
GAAP, applied on a basis consistent with the Interim Financial Statements and
the Year-End Financial Statements. The Sellers and a firm of independent public
accountants designated by the Sellers (the "SELLERS' ACCOUNTANT") will be
entitled to reasonable access during normal business hours to the relevant
records and working papers of the Target and its accountants to aid in their
review of the Closing Financial Statements. The Closing Financial Statements
shall be deemed to be accepted by and shall be conclusive for the purposes of
the adjustment described in Sections 3.1(b) and 3.1(c) hereof with respect to
the Target and its Subsidiaries except to the extent, if any, that the Sellers
or the Sellers' Accountant shall have delivered, within sixty (60) days after
the date on which the Closing Financial Statements are delivered to Sellers, a
written notice to Buyer stating each and every item to which the Sellers takes
exception as not being in accordance with GAAP applied on a basis consistent
with the Interim Financial Statements and the Year-End Financial Statements or
as having computational errors, specifying in reasonable detail the nature and
extent of any such exception (it being understood that any amounts not disputed
shall be paid promptly). If a change proposed by the Sellers is disputed by the
Buyer, then Buyer and the Sellers shall negotiate in good faith to resolve such
dispute. If, after a period of twenty (20) days following the date on which the
Sellers give Buyer notice of any such proposed change, any such proposed change
still remains disputed, then Buyer and the Sellers shall together choose an
independent firm of public accountants of nationally recognized standing (the
"ACCOUNTING FIRM") to resolve any remaining disputes. Each of the parties
agrees not to select an accounting firm to review disputed items pursuant to
this Section 3.1(a) if, at the time of selection, either Buyer, any of the
Sellers or the Target or any of its Subsidiaries retains, uses or employs or
contemplates retaining such accounting firm, for any engagement having a purpose
other than the performance of services pursuant to this Section 3.1(a). The
Accounting Firm shall act as an arbitrator to determine, based solely on
presentations by the Sellers and Buyer, and not by independent review, only
those issues still in dispute. The decision of the Accounting Firm shall be
final and binding and shall be in accordance with the provisions of this Section
3.1(a). All of the fees and expenses of the Accounting Firm, if any, shall be
paid equally by Buyer, on the one hand, and the Sellers, on the other
12
hand; PROVIDED, HOWEVER, that, if the Accounting Firm determines that either
party's position is totally correct, then the other party shall pay one
hundred percent (100%) of the costs and expenses incurred by the Accounting
Firm in connection with any such determination.
(b) In the event that there is a Net Worth Deficiency (as defined
below) with respect to the Target and its Subsidiaries, the Sellers shall pay to
Buyer, as an adjustment to the Purchase Price, an amount equal to the Net Worth
Deficiency. Any payments required to be made by the Sellers pursuant to this
Section 3.1(b) shall be made within ten (10) days of the Financial Statements
Delivery Date (as defined below) by wire transfer of immediately available funds
to an account designated by Buyer.
(c) In the event that there is a Net Worth Surplus (as defined below)
with respect to the Target and its Subsidiaries, Buyer shall pay to the Sellers,
as an adjustment to the Purchase Price, an amount equal to the Net Worth
Surplus. Any payments required to be made by the Buyer pursuant to this Section
3.1(c) shall be made within ten (10) days of the Financial Statements Delivery
Date by wire transfer of immediately available funds to the respective accounts
designated by the Sellers. The percentage of the Net Worth Surplus allocated to
each Seller shall be equal to the percentage of the Purchase Price allocated to
such Seller.
(d) The term "NET WORTH DEFICIENCY" shall mean with respect to the
Target and its Subsidiaries the amount, if any, by which the Closing Net Worth
of the Target and its Subsidiaries is less than three million six hundred and
seventy-one thousand dollars ($3,671,000).
(e) The term "NET WORTH SURPLUS" shall mean with respect to the
Target and its Subsidiaries the amount, if any, by which the Closing Net Worth
of the Target and its Subsidiaries exceeds three million six hundred and
seventy-one thousand dollars ($3,671,000).
(f) The term "CLOSING NET WORTH" shall mean, with respect to the
Target and its Subsidiaries, the amount by which the total Assets of the Target
and its Subsidiaries exceeds the total liabilities other than the Excluded
Liabilities of the Target and its Subsidiaries, in each case as set forth on the
Closing Balance Sheet; PROVIDED, HOWEVER, that if any change to the Closing
Financial Statements is agreed to by Buyer and the Sellers in accordance with
Section 3.1(a) or any dispute between Buyer and the Sellers with respect to the
Closing Financial Statements is resolved in accordance with Section 3.1(a), then
"CLOSING NET WORTH" shall be calculated after giving effect to any such change
or resolution.
(g) The term "FINANCIAL STATEMENTS DELIVERY DATE" shall mean, with
respect to the Target and its Subsidiaries, the date on which the Closing
Financial Statements are delivered pursuant to Section 3.1(a); PROVIDED,
HOWEVER, that if any change to the Closing Financial Statements is agreed to by
Buyer and the Sellers in accordance with Section 3.1(a), then the date on which
Buyer and the Sellers agree in writing to such change shall be the Financial
Statement Delivery Date; and PROVIDED, FURTHER, that if any dispute with respect
to the Closing Financial Statements is resolved in accordance with
Section 3.1(a), then the date on which the Accounting Firm delivers its decision
with respect to such dispute shall be the "FINANCIAL STATEMENT DELIVERY DATE".
3.2 INTEREST. All payments required to be made pursuant to Section
3.1 shall be paid with interest thereon at the rate of eight percent (8.0%) per
annum and accruing from the Closing Date to the date of payment.
13
ARTICLE IV
CLOSING
4.1 CLOSING. Upon the terms and subject to the conditions set forth
herein, the closing of the transactions contemplated herein (the "CLOSING")
shall be held at 10:00 a.m. local time on the Closing Date at the offices of
Latham & Watkins, Sears Tower, Suite 5800, 233 South Wacker Drive, Chicago, IL
60606, unless the parties hereto otherwise agree.
4.2 DELIVERIES AT CLOSING.
(a) STOCK CERTIFICATES. At the Closing, each of the Sellers shall
deliver to Buyer certificates(s) evidencing that number of shares of Target
Stock set forth opposite such Seller's name on Schedule 2.1 (duly endorsed in
blank for transfer or accompanied by stock powers duly executed in blank).
(b) BUYER CERTIFICATES. Buyer will furnish the Sellers with such
certificates of its officers and others to evidence compliance with the
conditions set forth in this Agreement as may be reasonably requested by the
Sellers, which shall include, but not be limited to:
(i) A certificate executed by the Secretary or an Assistant
Secretary of Buyer certifying as of the Closing Date (i) a true and complete
copy of the Certificate of Incorporation of Buyer, and all amendments thereto
certified as of a recent date by the Secretary of State of Delaware, (ii) a true
and complete copy of the bylaws of Buyer, (iii) a true and complete copy of the
resolutions of the board of directors and, if required by law, the stockholders
of Buyer authorizing the execution, delivery and performance of this Agreement
by Buyer and the consummation of the transactions contemplated hereby, and (iv)
incumbency matters;
(ii) A certificate of the appropriate Secretary of States
certifying the good standing of Buyer in its state of incorporation and all
states in which it is qualified to do business; and
(iii) A certificate acknowledging that Buyer has not relied
on the Confidential Memorandum relating to the Business of the Target prepared
by Ernst & Young, LLP on behalf of the Target and the Sellers and supplied to
Buyer prior to the date hereof (the "OFFERING MEMORANDUM") in consummating the
transactions contemplated hereby and that the Sellers are making no
representations and warranties with respect to the Offering Memorandum.
(c) SELLERS' CERTIFICATES. The Sellers will furnish Buyer with such
certificates of the Sellers and the officers of the Subject Companies and others
to evidence compliance with the conditions set forth in this Agreement as may be
reasonably requested by Buyer, which shall include, but not be limited to:
(i) A certificate executed by the Secretary or an Assistant
Secretary of each Subject Company certifying as of the Closing Date (i) a true
and complete copy of the Certificate of Incorporation of such Subject Company
and all amendments thereto, certified as of a recent date by the appropriate
Secretary of State, (ii) a true and complete copy of the bylaws of such Subject
Company, (iii) a true and complete copy of the resolution of the board of
directors and stockholders of such Subject Company authorizing the consummation
of the transactions contemplated hereby, and (iv) incumbency matters;
14
(ii) A certificate of the appropriate Secretary of State
certifying the good standing of each Subject Company in its state of
incorporation and all states in which it is qualified to do business;
(iii) A certificate executed by each of the Sellers
acknowledging that the Sellers have not relied on any business plan of Buyer
in consummating the transactions contemplated hereby and that Buyer is not
making any representations or warranties regarding projections, forecasts or
estimates, with respect to the future performance of Buyer; and
(iv) A certificate of each of the Sellers' non-foreign
status, pursuant to Treasury Regulation section 1.1445-2(b)(2).
(d) OPINION OF BUYER'S COUNSEL. At the Closing, Buyer shall deliver
to the Sellers an opinion of Latham & Watkins, counsel to Buyer, dated as of the
Closing Date, in form and substance reasonably satisfactory to the parties and
customary in transactions of the type contemplated by this Agreement.
(e) OPINION OF SELLERS' COUNSEL. At the Closing, the Sellers shall
deliver to Buyer an opinion of Winthrop, Stimson, Putnam & Roberts, special
counsel to the Sellers, dated as of the Closing Date, in form and substance
reasonably satisfactory to the parties and customary in transactions of the type
contemplated by this Agreement.
4.3 OTHER CLOSING TRANSACTIONS.
(a) PAYMENT OF PURCHASE PRICE. At the Closing, Buyer shall deliver
to each of the Sellers their respective portions of the Purchase Price as
provided in Section 2.1(b).
(b) REGISTRATION RIGHTS AGREEMENTS. At the Closing, Buyer and the
Sellers shall enter into a second amended and restated registration rights
agreement, in the form of EXHIBIT A hereto (the "REGISTRATION RIGHTS
AGREEMENT").
(c) STOCKHOLDERS AGREEMENT. At the Closing, Buyer and the Sellers
shall enter into a second amended and restated stockholders agreement, in the
form of EXHIBIT B hereto (the "STOCKHOLDERS AGREEMENT").
(d) EMPLOYMENT AGREEMENTS. At the Closing, Buyer shall cause the
Target to enter into employment agreements with each of the Sellers, in the form
of EXHIBIT C hereto (the "EMPLOYMENT AGREEMENTS").
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF
THE SELLERS
Each of the Sellers hereby, severally but not jointly, represents and
warrants to Buyer that:
5.1 ORGANIZATION; CAPITALIZATION; SUBSIDIARIES.
15
(a) SUBJECT COMPANIES.
(i) Each Subject Company is duly incorporated, validly existing and
in good standing under the laws of the state of its incorporation, has full
corporate power and authority and has taken all corporate action necessary
to conduct its Business as it is presently being conducted and to own,
lease and operate its properties and Assets. Except as set forth in
Schedule 5.1(a), each Subject Company is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction in which
such qualification is necessary under the applicable law as a result of the
conduct of its Business or the ownership (or leasing) of its properties,
except where the failure to be so qualified or in good standing would not
have a Material Adverse Effect. Copies of the Certificate or Articles of
Incorporation and Bylaws of each Subject Company and all amendments
thereto, heretofore delivered to Buyer, are accurate and complete as of the
date hereof.
(ii) The capitalization of each of the Subject Companies is set forth
in Schedule 5.1(a)(ii) hereto. All of the outstanding shares of capital
stock of each of the Subject Companies are duly authorized, validly issued,
fully paid and non-assessable. Each Seller represents as to himself that
he has title to all of the outstanding shares of capital stock of the
Target set forth next to his name in Schedule 2.1 free and clear of all
Encumbrances with full right, power and authority to transfer such shares
to Buyer. Except as set forth in Schedule 5.1(a)(ii), the Target owns all
of the issued and outstanding shares of capital stock of each of its
Subsidiaries. Except as set forth in Schedule 5.1(a)(ii), there are no
outstanding subscriptions, calls, commitments, warrants or options for the
purchase of shares of any capital stock or other securities of (or other
ownership interests in) any of the Subject Companies, any securities
convertible into or exchangeable for shares of capital stock or other
securities issued by (or other ownership interests in) such Subject Company
or any other commitments of any kind for the issuance of additional shares
of capital stock or other securities issued by (or other ownership
interests in) such Subject Company. Upon delivery to Buyer, the capital
stock of the Subject Companies will be free and clear of all Encumbrances
(other than Encumbrances imposed on Buyer) and shall be duly authorized,
validly issued, fully paid and non-assessable. Schedule 5.1(a)(ii)
contains a true, correct and complete list of all Subsidiaries of the
Target, including the name, jurisdiction of incorporation, share ownership
of each such Subsidiary, as well as each jurisdiction in which such
Subsidiary is authorized to do business.
(b) SMIT-MATRIX.
(i) Copies of the organizational documents of Smit-Matrix and all
amendments thereto, heretofore delivered to Buyer, are, to the knowledge of
the Sellers, accurate and complete as of the date hereof.
(ii) To the knowledge of the Sellers, the capitalization of Smit-
Matrix is set forth in Schedule 5.1(b)(ii) hereto. To the knowledge of the
Sellers, all of the Smit-Matrix Stock is duly authorized, validly issued,
fully paid and non-assessable. The Target has title to all of the
outstanding shares of capital stock of Smit-Matrix set forth next to the
name of the Target in Schedule 5.1(b)(ii), to the knowledge of the Sellers,
free and clear of all Encumbrances. Except as set forth in Schedule
5.1(b)(ii), to the knowledge of the Sellers, there are no outstanding
subscriptions, calls, commitments, warrants or options for the purchase of
shares of any capital stock or other securities of (or other ownership
interests in) Smit-Matrix, any securities convertible into or exchangeable
for shares of capital stock or other securities issued
16
by (or other ownership interests in) Smit-Matrix or any other commitments
of any kind for the issuance of additional shares of capital stock or other
securities issued by (or other ownership interests in) Smit-Matrix.
5.2 AUTHORIZATION. Each Seller represents as to himself that he has
the requisite power and authority and has taken all action necessary to execute
and deliver this Agreement, to consummate the transactions contemplated hereby
and to perform his obligations hereunder, and no other actions on the part of
such Seller are necessary to authorize this Agreement and the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
each of the Sellers and (assuming due authorization, execution and delivery by
Buyer and each other Seller) is a legal, valid and binding obligation of the
each of the Sellers enforceable against each of them in accordance with its
terms, except as such enforceability may be limited by (i) bankruptcy,
insolvency, moratorium, reorganization and other similar laws affecting
creditors' rights generally and (ii) the general principles of equity,
regardless of whether asserted in a proceeding in equity or at law.
5.3 TITLE TO ASSETS. Schedule 5.3 identifies all personal property
with a book value in excess of $50,000 owned or leased by any of the Subject
Companies (except for Intellectual Property Rights), and sets forth whether such
property is owned or leased by the Subject Companies. Each of the Subject
Companies owns, leases or has rights to use free and clear of any Encumbrances,
the Assets set forth next to its name in Schedule 5.3, except for Permitted
Encumbrances and Encumbrances specifically identified in Schedule 5.3. Except
for those Assets which may be purchased by the Target and its Subsidiaries from
time to time in the Ordinary Course, the Assets include all assets necessary for
the conduct of the Business as presently operated in the Ordinary Course. The
Assets are in reasonable operating condition and repair (except for ordinary war
and tear). With respect to Leases of personal property set forth in Schedule
5.3, no Subject Company nor any of the Sellers has received any notice of
cancellation or termination under any option or right reserved to the lessor,
nor any notice of Default thereunder. All lessors under the Leases set forth in
Schedule 5.3 have, or will have prior to the Closing Date, consented (where such
consent is necessary pursuant to the terms of the applicable Lease) to the
change of control, if any, of the Subject Company which is a lessee under such
Lease.
5.4 INTELLECTUAL PROPERTY RIGHTS. Schedule 5.4 (i) contains, with
respect to each Subject Company, detailed information (including where
applicable the federal registration number and the date of registration or
application for registration and the name in which registration was applied for)
concerning (x) all of such Subject Company's United States and foreign, common
law and registered trademarks and of other marks, trade names or other trade
rights, and all pending applications for any such registrations and all of such
Subject Company's patents and copyrights and all pending applications therefor,
and (y) all other trademarks and other marks, trade names and other trade rights
and all other trade secrets, designs, plans, specifications, and other
intellectual property rights of any kind of such Subject Company, whether or not
registered (all of the items referred to in this clause (i) being "INTELLECTUAL
PROPERTY RIGHTS"). Each Subject Company owns (or, as set forth in Schedule 5.4,
possesses adequate and enforceable licenses or other rights to use) all
Intellectual Property Rights now used or proposed to be used in its Business.
Except as set forth in Schedule 5.4, no Person has a right to receive a royalty
or similar payment in respect of any Intellectual Property Rights pursuant to
any contractual arrangements entered into by any Subject Company and no Subject
Company has licenses granted by or to it or any other agreements to which it is
a party, relating in whole or in part to any of the Intellectual Property
Rights. Except as set forth in Schedule 5.4, no Subject Company has received
written or, to the knowledge of the Sellers, other notice that any Subject
Company's use of the Intellectual Property Rights is interfering with,
infringing upon or otherwise
17
violating the rights of any Third Party in or to such Intellectual Property
Rights, and no proceedings have been instituted against or written, or to the
knowledge of the Sellers, other notices received by any Subject Company or
any of the Sellers alleging that any Subject Company's use of any
Intellectual Property Rights infringes upon or otherwise violates any rights
of a Third Party in or to such Intellectual Property Rights, which
infringement or violation would have a Material Adverse Effect.
5.5 FACILITIES. On the Closing Date, none of the Subject Companies
will have any Owned Real Property. Schedule 5.5 identifies all Facilities and
contains a complete and accurate, in all material respects, description of the
terms of all Facility Leases pursuant to which each Subject Company leases real
property, including without limitation a general description of the leased
property, the term, the applicable rent, and any requirements for the consent of
third parties to "changes of control" or other similar events pursuant to the
terms of the Facility Lease in respect of such Facility. All such Facility
Leases are valid, binding and enforceable against the applicable Subject Company
and, to the knowledge of the Sellers, against each of the other parties thereto
in accordance with their terms and are in full force and effect, except as such
enforceability may be limited by (i) bankruptcy, insolvency, moratorium,
reorganization and other similar laws affecting creditor's rights generally and
(ii) the general principles of equity, regardless of whether asserted in a
proceeding in equity or at law. Each Subject Company which is a party to any
Facility Lease, and, to the knowledge of the Sellers, each other party to such
Facility Leases, has in all material respects performed all obligations required
to be performed by it through the date hereof and no Seller nor any of the
Subject Companies has received written, or to the knowledge of the Sellers,
other notice of any cancellation or termination under any option or right
reserved to the lessor in any Facility Lease, nor any notice of Default
thereunder which would have a Material Adverse Effect. No event has occurred
which (whether with or without notice, lapse of time or both or the happening or
occurrence of any other event) would constitute a Default under any Facility
Lease on the part of any Subject Company, which Default would have a Material
Adverse Effect. To the knowledge of the Sellers, there has been no occurrence
of any event which (whether with or without notice, lapse of time or both or the
happening or occurrence of any other event) would constitute a Default under any
Facility Lease by any party thereto other than a Subject Company, which Default
would have a Material Adverse Effect. All lessors under the Facility Leases
have, or will have prior to the Closing Date, consented (where such consent is
necessary pursuant to the terms of the applicable Lease) to the change of
control, if any, of the Subject Company which is a lessee under such Facility
Lease.
(a) LEASES OR OTHER AGREEMENTS. Except for Facility Leases listed in
Schedule 5.5(a), there are no leases, subleases, licenses, occupancy agreements,
options, rights, concessions or other agreements or arrangements, written or
oral, granting to any Person the right to purchase, use or occupy any Facility
or the Leased Real Property, or any portion thereof or interest therein (other
than Permitted Encumbrances).
(b) FACILITY LEASES AND LEASED REAL PROPERTY. With respect to each
Facility Lease of each Subject Company, such Subject Company has and will have
at the Closing an unencumbered interest in the Leasehold Estate, subject only to
Permitted Encumbrances and those Encumbrances set forth in Schedule 5.5(b).
Each Subject Company enjoys peaceful and undisturbed possession of all its
Leased Real Property, subject to the rights of the fee owners.
(c) UTILITIES. All Facilities are supplied with utilities (including
without limitation water, sewage, disposal, electricity, gas and telephone) and
other services necessary for the operation of such Facilities as currently
operated, except where the failure to be so supplied would not have a Material
Adverse Effect, and, to the knowledge of the Sellers, there is no condition
which would
18
reasonably be expected to result in the termination of the present access
from any Facility to such utility services.
(d) IMPROVEMENTS, FIXTURES AND EQUIPMENT. The Leasehold Improvements
and all Fixtures and Equipment and other tangible assets owned, leased or used
by each Subject Company at the Facilities are (i) to the knowledge of the
Sellers structurally sound, (ii) in good operating condition and repair, subject
to ordinary wear and tear and (iii) sufficient for the current operation of the
Business of each Subject Company as presently conducted except, in the case of
clauses (i), (ii) and (iii), those instances which would not have a Material
Adverse Effect and, in the case of clause (iii), except for Assets which may be
purchased by the Subject Companies from time to time in the Ordinary Course.
None of the Leasehold Improvements is subject to any commitment or other
arrangement for its sale or use by any of the Subject Companies, any of their
respective Affiliates or any other Third Parties, except for arrangements or
commitments which, individually or in the aggregate, would not have a Material
Adverse Effect.
(e) NO SPECIAL ASSESSMENT. None of the Sellers nor any Subject
Company has received notice of any special assessment relating to any Facility
or any portion thereof, and, to the knowledge of the Sellers, there is no
pending or threatened special assessment relating to any such Facility.
5.6 CONTRACTS AND COMMITMENTS. Except for Contracts listed in
Schedule 5.6 and except for Contracts made in the Ordinary Course of Business
since the date hereof or as expressly contemplated by this Agreement and the
transactions contemplated hereby, none of the Subject Companies is a party to,
or bound by, any Contract of any kind to be performed after the Closing Date (i)
pursuant to which it is obligated to expend more than $50,000 in any twelve-
month period and that is not subject to cancellation on not more than thirty
(30) days' notice by such Subject Company, as the case may be, without penalty
or increased cost except for agreements to charter transportation services made
in the Ordinary Course of Business or (ii) with any Personnel or other
Affiliates of such Subject Company. To the best knowledge of the Sellers, there
is no Default by any party to any such Contract, which Default would have a
Material Adverse Effect. Schedule 5.6 lists the following Contracts to which
any Subject Company is a party, or by which any of such Subject Company's Assets
are bound:
(a) any written Contract (or group of related written Contracts)
creating a partnership or joint venture with any other Person;
(b) any promissory notes, loans, agreements in respect of
indebtedness for borrowed money, indentures in respect of indebtedness for
borrowed money, evidences of indebtedness, letters of credit in which the Target
or any of its Subsidiaries is the account party or guarantees of any of the
items described above, individually or in the aggregate in excess of $25,000,
whether any Subject Company shall be the borrower, lender or guarantor
thereunder or whereby any Assets are pledged (excluding credit provided by the
Subject Company in the ordinary course of business to purchasers of its products
or services);
(c) any written Contracts to employ or terminate key Personnel (as
defined below) and other material Contracts with present or former officers,
directors or shareholders or other personnel of any Subject Company.
(d) any written Contract (or group of related written Contracts)
concerning confidentiality or non-competition arrangements;
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(e) any written Contract (or group of related written Contracts)
between any Subject Company and (i) any Russian Venture or (ii) Smit-Matrix;
(f) any written Contract with any of its directors, officers,
shareholders or employees, any Affiliate thereof or any member of any such
person's immediate family (x) providing for the furnishing of material services
by, (y) providing for the rental of material real or personal property from, or
(z) otherwise requiring material payments to (other than for services as
officers, directors or employees of any Subject Company), any such Person or any
corporation, partnership, trust or other entity in which any such Person has a
substantial interest as a shareholder, officer, director, trustee or partner;
(g) except for Contracts with attorneys and accountants for services
to be provided in connection with the Acquisition, any written distribution,
franchise, license, technical assistance, sales, commission, sales agent or
advertising Contracts related to the Assets or the Business of any Subject
Company involving receipts in excess of $500,000 or expenditures in excess of
$50,000 that are not cancelable (without penalty or other termination fees) by
the Subject Company party thereto on not more than thirty (30) days' notice;
(h) any options with respect to any property, real or personal, with
a book value in excess of $50,000 whether a Subject Company is the grantor or
grantee thereunder;
(i) except for agreements to charter or purchase transportation
services made in the Ordinary Course of Business, any Contracts involving
expenditures in excess of $50,000 that are not cancelable (without penalty or
other termination fees) by the Subject Company party thereto on not more than
thirty (30) days' notice;
(j) any written Contract with the United States, any state or local
government or any agency or department thereof;
(k) except for this Agreement, any Contract that (A) limits or
contains restrictions on the ability of any Subject Company to declare or pay
dividends on, to make any other distributions in respect of or to issue or
purchase, redeem or otherwise acquire its capital stock, to incur indebtedness,
to incur or suffer to exist any lien, to purchase or sell all or a material
portion of Assets, to change the lines of business in which it participates or
engages or to engage in any business combination or (B) requires any Subject
Company to maintain specified financial ratios or levels of net worth or other
indicia of financial condition;
(l) any other written Contract (or group of related written
Contracts) involving aggregate payments of more than $500,000 to any Subject
Company or not entered into in the Ordinary Course of Business; or
(m) any written proposal to enter into any contract, agreement or
other arrangement with respect to any of the matters referred to in the
foregoing clauses (a) through (l).
The Sellers have delivered to Buyer true, correct and complete, in all material
respects, copies of each written Contract listed in Schedule 5.6 to which a
Subject Company is a party, including all amendments and supplements thereto,
and have included as part of Schedule 5.6 a brief summary of any such oral
contracts, agreements or other arrangements and any written proposals to enter
into any such Contracts. Schedule 5.6 sets forth all consents required for the
beneficial assignment by any
20
Subject Company to Buyer of the rights, benefits and claims under the
Contracts as a result of the transactions contemplated hereby. To the
knowledge of the Sellers, all of the Contracts to which any Subject Company
is party or by which it or any of the Assets is bound or affected are valid,
binding and enforceable against the applicable Subject Company and, to the
knowledge of the Sellers, against each of the other parties thereto in
accordance with their terms, except as such enforceability may be limited by
(i) bankruptcy, moratorium, reorganization and other similar laws affecting
creditor's rights generally and (ii) the general principles of equity,
regardless of whether asserted in a proceeding in equity or at law. Each
Subject Company which is a party to such Contracts and, to the knowledge of
the Sellers, each other person which is a party thereto has complied in all
material respects with the provisions thereof, no party is in Default
thereunder and no written, or to the knowledge of the Sellers, other notice
of any claim of Default has been given to such Subject Company, except for
Defaults which would not have a Material Adverse Effect. To the knowledge of
the Sellers, none of the products and services called for by any unfinished
Contract involving payments to any Subject Company in excess of $100,000
cannot be supplied in accordance with the terms of such Contract, including
time specifications and, to the knowledge of the Sellers, no outstanding bid,
proposal or unfinished Contract will upon performance by such Subject Company
result in a loss to such Subject Company.
5.7 NO CONFLICT OR VIOLATION.
(a) None of the execution, delivery or performance of this Agreement
nor the consummation of the transactions contemplated hereby, will result in (i)
a violation of or a conflict with any provision of (x) the Certificate or
Articles of Incorporation or Bylaws of the Target or any of its Subsidiaries or
(y) to the knowledge of the Sellers, the organizational documents of Smit-
Matrix, (ii) a breach of, or a Default under, or the creation of any right of
any party to accelerate, terminate or cancel, any Contract set forth in Schedule
5.6, Permit, authorization or concession to which any Subject Company is a party
or by which any of the Assets of such Subject Company are bound, (iii) a
violation by such Subject Company of any law, statute, rule, regulation,
ordinance, code, order, judgment, writ, injunction, decree or award, or (iv) an
imposition of any Encumbrance, restriction or charge on the Business of such
Subject Company or on any of the Assets of such Subject Company except in the
case of clauses (ii), (iii) and (iv) above, for breaches, Defaults,
terminations, accelerations, cancellations, violations or creations of
Encumbrances which, individually or in the aggregate, would not have a Material
Adverse Effect.
(b) None of the execution, delivery or performance of this Agreement
nor the consummation of the transactions contemplated hereby, nor compliance by
any of the Sellers with the provisions hereof will result in a violation by such
Seller of any law, statute, rule, regulation, ordinance, code, order, judgment,
writ, injunction, decree or award, except for violations which would not,
individually or in the aggregate, have a Material Adverse Effect.
5.8 FINANCIAL STATEMENTS. The Sellers have heretofore caused the
Target to deliver to Buyer true and complete copies of the Financial Statements.
Except as set forth in Schedule 5.8, the Financial Statements (i) were prepared
in accordance with GAAP throughout the periods indicated and (ii) present fairly
and accurately in all material respects, as of the respective dates thereof or
the periods covered thereby, as applicable, the consolidated financial position,
consolidated balance sheet, income statement and cash flow and consolidated
results of operations of the Target (except, in the case of the Interim
Financial Statements and the monthly unaudited consolidated financial
statements, for normal year-end adjustments which were not and are not expected
to be material in effect and the absence of footnotes which, if presented, would
not differ materially from those included in the Year-End
21
Financial Statements). As of the Year-End Balance Sheet Date, there were no
Liabilities of any Subject Company due or to become due, which, in accordance
with GAAP, should have been reflected or shown in the Year-End Financial
Statements, which were not so reflected or shown therein. Except as set
forth in Schedule 5.8 and for Liabilities incurred pursuant to this
Agreement, since the Year-End Balance Sheet Date, there have been no
Liabilities incurred by any Subject Company, except for Liabilities (i)
incurred in the Ordinary Course of Business which would not, individually or
in the aggregate, have a Material Adverse Effect, and (ii) incurred outside
the Ordinary Course of Business which do not exceed $50,000 individually or
$100,000 in the aggregate.
5.9 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in
Schedule 5.9, since December 31, 1995, there has not been:
(a) to the knowledge of the Sellers, any event which has had or would
have a Material Adverse Effect;
(b) except for normal periodic increases in the Ordinary Course of
Business, any (i) increase in the compensation payable or to become payable by
any Subject Company to any of its current or former officers, employees, or
agents (collectively, "PERSONNEL"), (ii) grant, payment or accrual, contingent
or otherwise, for or to the credit of any of the Personnel with respect to any
bonus, incentive compensation, service award or other like benefit, or
(iii) employment agreement (written or verbal) made by any Subject Company to
which such Subject Company is a party;
(c) except for Permitted Distributions, any sale, lease, assignment
or transfer of any of the Assets of any Subject Company, other than in the
Ordinary Course to persons that are not Affiliates;
(d) any cancellation, compromise, waiver or release of any right or
claim (or series of related rights or claims) (i) involving an Affiliate of such
Subject Company, (ii) involving more than $50,000, or (iii) outside the Ordinary
Course of Business;
(e) any amendment, acceleration, cancellation, termination or
modification or threatened acceleration or termination of any Contract, license
or other instrument (i) involving an Affiliate of any Subject Company or (ii)
involving payments in excess of $50,000 in the aggregate;
(f) outside of the Ordinary Course of Business, any unfulfilled
commitments for capital expenditures or the execution of any Lease, Contract,
license, sublease or sublicense (or series of related Contracts, Leases,
subleases, licenses or sublicenses) or any incurring of Liability therefor (i)
involving an Affiliate of any Subject Company, or (ii) involving payments in
excess of $50,000 in the aggregate;
(g) any delay or failure to repay when due any obligation of any
Subject Company, individually in excess of $100,000, or in the aggregate in
excess of $250,000;
(h) failure to operate the Business of any Subject Company in the
Ordinary Course;
(i) any material change in accounting methods or practices by any
Subject Company;
22
(j) except as contemplated by Section 10.16, any declaration, setting
aside for payment or payment of any dividend or distribution in respect of any
capital stock of any Subject Company or any redemption, purchase, or other
acquisition of any of such Subject Company's equity securities or any bonus, fee
or other payment, or any other transfer of any Assets to or on behalf of any
shareholder of such Subject Company, any Affiliate of such Subject Company or
any Affiliate of any shareholder, including, but not limited to, any payment of
principal of or interest on any debt owed to any such shareholder or Affiliate
or any payment of a bonus, fee or other payment to any such shareholder or
Affiliate as an employee of such Subject Company;
(k) any issuance by any Subject Company of, or commitment of such
Subject Company to issue, any shares of stock or other equity securities (or
other ownership interests) or obligations or securities convertible into or
exchangeable for shares of stock or other equity securities (or such other
ownership interests);
(l) any loan to, or any acquisition of the securities or assets of
any other Person (i) involving an Affiliate of any Subject Company, (ii)
involving more than $50,000 in the aggregate, or (iii) outside the Ordinary
Course of Business;
(m) any loan to, or other agreement with, any present Personnel of
any Subject Company outside the Ordinary Course of Business giving rise to any
claim or right on its part against the Person or on the part of the Person
against it;
(n) any charitable contribution made or pledged by such Subject
Company in an aggregate amount in excess of $50,000;
(o) payment of any expenses relating to the transactions contemplated
by this Agreement, including, without limitation, the payment of the fees and
expenses of any professionals engaged in connection with the transactions
contemplated by this Agreement; or
(p) agreement (either oral or written) by any Subject Company or any
of its Personnel to do any of the foregoing.
5.10 THIS SECTION INTENTIONALLY OMITTED.
5.11 ACCOUNTS RECEIVABLE. The accounts receivable reflected on the
Interim Balance Sheet, and all accounts receivable of each of the Subject
Companies arising since the Interim Balance Sheet Date, represent bona fide
claims against debtors for sales made, services performed or other charges
arising on or before the date hereof, and all the goods delivered and services
performed that gave rise to said accounts were delivered or performed in
accordance with the applicable orders, Contracts or customer requirements,
subject to the reserves for doubtful accounts appearing in the Interim Financial
Statements and the Closing Financial Statements which were established in
accordance with GAAP.
5.12 LITIGATION. Except as set forth in Schedule 5.12, there are no
Actions pending or, to the knowledge of the Sellers, threatened (a) against, or,
to the knowledge of the Sellers, relating to or affecting (i) any Subject
Company, the Assets or Facilities of such Subject Company or the Business,
(ii) any Employee Plan of any Subject Company or any trust or other funding
instrument or any fiduciary or administrator thereof in their capacity as such,
(iii) any officers or directors of any Subject Company, as such, or (iv) the
transactions contemplated by this Agreement or before or by any
23
federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, any of which
would have a Material Adverse Effect, (b) which, if determined adversely to
any Subject Company, would reasonably be expected to enjoin or affect the
rights of the parties with respect to the transactions contemplated by this
Agreement, (c) that involves a risk of material criminal liability, or (d) in
which any Subject Company is a plaintiff, including any derivative suits
brought by or on behalf of such Subject Company. No Subject Company is in
Default with respect to any judgment, order, writ, injunction or decree of
any court or governmental agency, and there are no unsatisfied judgments
against such Subject Company or the Business or Assets of such Subject
Company.
5.13 LABOR MATTERS. No Subject Company is a party to any labor
agreement with respect to its employees with any labor organization, union,
group or association and there are no employee unions (nor any other similar
labor or employee organizations) under local statute. No Subject Company has,
in the past two years, experienced any written, or to the knowledge of the
Sellers, other request for an election relating to its employees or an attempt
to make such Subject Company enter into a binding agreement with organized labor
that would cover the employees of such Subject Company. Schedule 5.13 sets
forth the names and current annual salary rates or current hourly wages of all
present employees of any Subject Company whose annual cash compensation for the
1995 fiscal year exceeded $100,000, and also sets forth the earnings for each
such employee as reflected on Form W-2 for the 1995 calendar year. There is no
labor strike or material labor disturbance pending or, to the knowledge of the
Sellers, threatened against any Subject Company nor, to the knowledge of the
Sellers, is any grievance currently being asserted, and in the past two years,
no Subject Company has experienced a labor strike or other material labor
disturbance.
5.14 PERMITS, CONSENTS AND APPROVALS; COMPLIANCE WITH LAW.
(a) Schedule 5.14(a) sets forth a complete list of all Permits used
in the operation of the Business or otherwise owned or validly held by any
Subject Company, except for Permits the failure of which to hold or own would
not have a Material Adverse Effect, setting forth the grantor, the grantee, the
function and the expiration and renewal date of each such Permit. To the
knowledge of the Sellers, each Permit listed in Schedule 5.14(a) is valid,
binding and in full force and effect. Except such Permits the failure of which
to obtain would not have a Material Adverse Effect, each Subject Company has all
Permits required under any Regulation for the operation of its Business or the
ownership of the Assets, and possesses such Permits free and clear of all
Encumbrances except for Permitted Encumbrances and Encumbrances set forth in
Schedule 5.14(a). No Subject Company is in Default, nor has any Subject Company
received any written, or to the knowledge of the Sellers, other notice of any
claim of Default, with respect to any Permit, except for Defaults which,
individually or in the aggregate, would not have a Material Adverse Effect. No
present or former shareholder, director, officer or employee of any Subject
Company or any Affiliate thereof, or any other Person, owns or has any
proprietary, financial or other interest (direct or indirect) in any Permit
which such Subject Company owns, possesses or uses.
(b) Other than in connection with or in compliance with the
provisions of the HSR Act, and except as disclosed in Schedule 5.14(b) hereto,
no consent, approval or authorization of, notice to, declaration, filing or
registration with, or Permit from, any domestic or foreign governmental or
regulatory body or authority, or any other Person, is required to be made or
obtained by any Subject Company or any Seller in connection with the execution,
delivery or performance by the Sellers or the Target or any of its Subsidiaries
of this Agreement and the consummation by the Sellers or the Target
24
or any of its Subsidiaries of the transactions contemplated hereby, except
for those the failure of which to make or obtain would not have a Material
Adverse Effect.
(c) Each Subject Company and the conduct of the Business of each
Subject Company has not violated and is in compliance with all Regulations and
Court Orders relating to the Assets or the Business or operations of such
Subject Company, except where the violation or failure to comply, individually
or in the aggregate, would not have a Material Adverse Effect. No Subject
Company and none of the Sellers have received any written, or to the knowledge
of the Sellers, other notice to the effect that, any Subject Company is not in
compliance with any such Regulations or Court Orders or that any charge or
complaint has been brought with respect thereto, which failure to be in
compliance, in any one case or in the aggregate, would have a Material Adverse
Effect.
5.15 TAX MATTERS
(a) FILING OF TAX RETURNS. Each Subject Company (and any affiliated
group of which any such Subject Company is now or has been a member) has timely
filed with the appropriate taxing authorities all Returns required to be filed
through the date hereof and will timely file any such Returns required to be
filed on or prior to the Closing Date. The Returns and other information filed
are complete and accurate in all material respects. Except as specified in
Schedule 5.15(a), no Subject Company, nor any group of which such Subject
Company is now or was a member, has requested any extension of time within which
to file Returns in respect of any Taxes. Each Subject Company has delivered to
Buyer complete and accurate copies of such Subject Company's foreign, federal,
state and local Returns for the years 1993, 1994 and 1995.
(b) PAYMENT OF TAXES. All Taxes payable by any Subject Company or
any affiliated group with which any Subject Company files a consolidated or
combined Return (whether or not shown on any Return) in respect of Pre-Closing
Periods have been timely paid, or will be timely paid, or an adequate reserve
has been established therefor, as set forth in the Financial Statements, and no
Subject Company has any material Liability for Taxes in excess of the amounts so
paid or reserves so established.
(c) AUDITS, INVESTIGATIONS OR CLAIMS. Except as set forth in
Schedule 5.15(c), no material deficiencies for Taxes have been claimed, proposed
or assessed by any taxing or other governmental authority against any Subject
Company. Except as set forth in Schedule 5.15(c), there are no pending or, to
the knowledge of the Sellers, threatened audits, investigations or claims for or
relating to any material additional Liability in respect of Taxes, and there are
no matters under discussion between any Subject Company or any Seller and any
governmental authorities with respect to Taxes that in the reasonable judgment
of any Subject Company, or its counsel, is likely to result in a material
additional Liability for Taxes. Audits of foreign, federal, state, and local
Returns by the relevant taxing authorities have been completed for each period
and set forth in Schedule 5.15(c) and, except as set forth in Schedule 5.15(c),
no Subject Company has been notified that any taxing authority intends to audit
a Return for any period. Except as set forth in Schedule 5.15(c), no extension
of a statute of limitations relating to Taxes is in effect with respect to any
Subject Company.
(d) LIEN. There are no liens for Taxes (other than for current Taxes
not yet due and payable) on the Assets.
25
(e) SAFE HARBOR LEASE PROPERTY. None of the Assets is property that
is required to be treated as being owned by any other Person pursuant to the so-
called safe harbor lease provisions of former Section 168(f)(8) of the Code.
(f) SECURITY FOR TAX-EXEMPT OBLIGATIONS. None of the Assets directly
or indirectly secures any debt the interest on which is tax-exempt under Section
103(a) of the Code.
(g) TAX-EXEMPT USE PROPERTY. None of the Assets is "tax-exempt use
property" within the meaning of Section 168(h) of the Code.
(h) FOREIGN PERSON. No Subject Company and no Seller is a Person
other than a United States Person within the meaning of the Code.
(i) NO WITHHOLDING. The transaction contemplated herein is not
subject to the tax withholding provisions of Section 3406 of the Code, or of
Subchapter A of Chapter 3 of the Code or of any other provision of law.
(j) PARTNERSHIP. Except as set forth in the Schedule 5.15(j), no
Subject Company is a party to any joint venture, partnership, or other
arrangement or contract that could be treated as a partnership for federal
income tax purposes.
(k) WITHHOLDING. Each Subject Company has withheld all Taxes
required to have been withheld by it in connection with amounts paid or owing to
any employee, independent contractor, creditor, stockholder, or other third
party, and such withheld Taxes have either been duly paid to the proper
governmental authority or set aside in accounts for such purpose.
(l) COLLAPSIBLE CORPORATIONS. No Subject Company has filed a consent
under Code Section 341(f) concerning collapsible corporations.
(m) GOLDEN PARACHUTE PAYMENTS. No Subject Company has made any
payments, nor is any Subject Company obligated to make any payments, and no
Subject Company is a party to any agreement that could obligate it to make any
payments that would not be deductible under Code Section 280G.
(n) TAX ALLOCATION AGREEMENTS. None of the Subject Companies are a
party to any Tax allocation or sharing agreement.
(o) JOINT AND SEVERAL LIABILITY. None of the Subject Companies (A)
has been a member of any affiliated group filing a consolidated federal income
Tax Return (other than a group the common parent of which is Target) and (B) has
any liability for the Taxes of any person as defined in Section 7701(a)(1) of
the Code (other than the Subject Companies) under Treasury Regulation Section
1.1502-6 (or any similar provision of state, local, or foreign law), as a
transferee or successor, by contract, or otherwise.
(p) NO U.S. INVESTMENT BY FOREIGN SUBSIDIARIES. To the knowledge of
the Sellers, neither Smit-Matrix, nor any of the Russian Ventures, nor any of
their respective Subsidiaries or Affiliates which are organized under the laws
of a country other than the United States (the "Foreign Subsidiaries") has any
investment in U.S. property within the meaning of Code Section 956.
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(q) NO SECTION 338 AND 336 ELECTIONS. There are no elections in
effect made by any Subject Company pursuant to Code Sections 338 or 336(e) or
the regulations thereunder and neither the Company nor any of the
Subsidiaries is subject to any constructive elections under Code Section 338
or the regulations thereunder.
(r) CHANGE IN ACCOUNTING METHOD. None of the Subject Companies
has agreed to or is required to make any adjustment pursuant to Code Section
481(a) by reason of a change in accounting method initiated by any such
company and no Subject Company has knowledge that the Internal Revenue
Service has proposed any such adjustment or change in accounting method.
(s) CERTAIN ACTIONS. No Subject Company has taken, and none will
take, any action not in accordance with past practice that would have the
effect of deferring any Tax liability of a Subject Company from any taxable
period ending on or before the Closing Date to any subsequent taxable period.
(t) NO EXCESS LOSS ACCOUNTS. There currently are no excess loss
accounts, deferred intercompany gains or losses, or other like items
pertaining to any subject Company.
(u) NO TRANSFER PRICING AGREEMENTS. No Subject Company has
entered into transfer pricing agreements or other like arrangements with
respect to any foreign jurisdiction.
(v) INFORMATION REGARDING FOREIGN SUBSIDIARIES. To the knowledge
of the Sellers, none of the Foreign Subsidiaries is (i) engaged in a United
States trade or business for federal income tax purposes; (ii) a passive
foreign investment company within the meaning of the Code; or (iii) a foreign
investment company within the meaning of the Code.
(w) INTERNATIONAL BOYCOTT. No Subject Company has participated in
or cooperated with an international boycott or has been requested to do so in
connection with any transaction or proposed transaction.
(x) SUBPART F INCOME. Buyer would not be required to include any
amount in gross income with respect to any of the Foreign Subsidiaries
pursuant to section 951 of the Code if the taxable year of any such Foreign
Subsidiaries were deemed to end on the Closing Date after the Closing.
5.16 SEVERANCE ARRANGEMENTS. Except as set forth in Schedule
5.16, no Subject Company has entered into any severance agreement in respect
of any Personnel of such Subject Company that will result in any obligation
(absolute or contingent) of Buyer, any Subject Company or any other Person to
make any payment to any such Personnel following termination of employment.
5.17 INSURANCE. Schedule 5.17 contains a complete and accurate
list, in all material respects, of all policies or binders of fire,
liability, title, workers' compensation, product liability and other forms of
insurance (showing as to each policy or binder the carrier, policy number,
coverage limits, expiration dates, annual premiums and a general description
of the type of coverage provided) maintained by each Subject Company on the
Business, the Assets or Personnel of such Subject Company. To the knowledge
of the Sellers, all of such policies are in full force and effect and are
sufficient for compliance with all Contracts to which such Subject Company is
a party. No Subject Company is in Default under any of such policies or
binders, and no Subject Company has failed to give any notice or to present
any claim under any such policy or binder in a due and timely fashion,
27
except for Defaults or failures to give notice which would not have a
Material Adverse Effect. No insurer has advised any Subject Company or the
Sellers in writing that it intends to reduce coverage, increase premiums or
fail to renew any existing policy or binder. There are no outstanding unpaid
premiums except in the ordinary course of business and no notice of
cancellation or nonrenewal of any such coverage has been received. There are
no provisions in such insurance policies for retroactive or retrospective
premium adjustments. All products liability, general liability and workers'
compensation insurance policies maintained by any Subject Company have been
occurrence policies and not claims made policies. Except as set forth in
Schedule 5.17, there are no outstanding performance bonds covering or issued
for the benefit of any Subject Company. There are no outstanding unpaid
claims under any such policies or binders. No policies or binders will be
cancelled by the Target or any of its Subsidiaries before the Closing Date
with the current carrier of such policy or binder, PROVIDED, HOWEVER, that if
any such policy or binder is cancelled by the carrier, the Sellers shall use
commercially reasonable efforts to cause the applicable Subject Company to
replace such policy or binder on substantially similar terms and subject to
substantially similar conditions. No Subject Company nor any Person to whom
any policy referred to in this Section has been issued has received notice
that any insurer under such policy is denying liability with respect to a
claim thereunder or defending under a reservation of rights clause.
5.18 THIS SECTION INTENTIONALLY OMITTED.
5.19 PAYMENTS. No Subject Company has (i) directly or indirectly,
paid or delivered any fee, commission or other sum of money or item or
property, however characterized, to any finder, agent, client, customer,
supplier, government official or other party, in the United States or any
other country, which is in any manner related to the Business, Assets or
operations of such Subject Company, and which is, or may be with discovery,
illegal under any federal, state or local laws of the United States currently
in effect (including without limitation the U.S. Foreign Corrupt Practices
Act) or any other country having jurisdiction, (ii) participated, directly or
indirectly, in any illegal boycotts or other similar illegal practices
affecting any of its actual or potential customers, or (iii) established or
maintained any unrecorded fund or asset for any purpose or made any false
entries on the Books and Records of such Subject Company for any reason.
5.20 CUSTOMERS AND SUPPLIERS. Schedule 5.20 contains a complete
and accurate list of (i) the fifteen (15) largest volume customers (in
dollars) of the Subject Companies during the fiscal year ended December 31,
1995, showing the approximate total sales by the Subject Companies to each
such customer during such fiscal year; and (ii) the fifteen (15) largest
volume suppliers (in dollars) of the Subject Companies during the fiscal year
ended December 31, 1995, showing the approximate total purchases by such
Subject Company from each such supplier during such fiscal year. Since the
Interim Balance Sheet Date, there has been no adverse change in the business
relationship with any customer or supplier named in Schedule 5.20, except for
changes which, individually or in the aggregate, would not have a Material
Adverse Effect.
5.21 BANK ACCOUNTS. Schedule 5.21 contains a true and correct
list of the names of each bank, savings and loan, securities broker or other
financial institution in which each Subject Company has an account, including
cash contribution accounts, or safe deposit boxes, and the names of all
Persons authorized to draw thereon or to have access thereto.
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5.22 ENVIRONMENTAL MATTERS
(a) COMPLIANCE WITH ENVIRONMENTAL LAWS. Except as set forth in
Schedule 5.22(a), each Corporation, the Facilities and, to the knowledge of
the Sellers, all Former Facilities have been maintained at all times in
compliance with all the Environmental Laws, except for noncompliance which
would not have, individually or in the aggregate, a Material Adverse Effect.
(b) PERMITS REQUIRED. Except as set forth in Schedule 5.22(b),
the consummation of any of the transactions contemplated by this Agreement
will not require an application for the issuance, renewal, transfer or
extension of, or any other administrative action regarding, any Permit
required under any Environmental Law, except where the failure to so apply
would not have a Material Adverse Effect;
(c) CLAIMS. None of the Corporations has received any written, or
to the knowledge of the Sellers, other notice that it is in violation of or
in non-compliance with the conditions of any Permit required under any
Environmental Law or the provisions of any Environmental Law, nor is there
now pending or, to the knowledge of the Sellers, threatened, any Action
against any Corporation under any Environmental Law, except for violations,
non-compliance or Actions which either singly or in the aggregate would not
have a Material Adverse Effect;
(d) JUDGMENTS. There are no consent decrees, judgments, judicial
or administrative orders or agreements with, or liens by, any governmental
authority or quasi-governmental entity relating to any Environmental Law
which regulate, obligate or bind in any way any Corporation or, to the
knowledge of the Sellers, otherwise affect any Corporation, Facility or
Former Facility;
(e) ENVIRONMENTAL CONDITIONS. Except as set forth in Schedule
5.22(e), there are no Environmental Conditions in any way relating to the
Business, including the Owned Real Property and the Leased Real Property that
would have a Material Adverse Effect;
(f) STORAGE TANK OR PIPELINE. Except as set forth in Schedule
5.22(f), there is not now and, to the knowledge of the Sellers, there has not
been at any time in the past, any underground or above-ground storage tank or
pipeline at any Facility or Former Facility where the installation, use,
maintenance, repair, testing, closure or removal of such tank or pipeline was
not in compliance with all Environmental Laws and there has been no Release
from or rupture of any such tank or pipeline, including without limitation
any such Release from or in connection with the filling or emptying of such
tank that would have a Material Adverse Effect;
(g) ENVIRONMENTAL AUDITS OR ASSESSMENTS. True, complete and
correct copies of all Environmental Assessments, have been delivered to Buyer
and a list of all such reports, audits and assessments and any other similar
report, audit or assessment of which any such Corporation has knowledge is
included in Schedule 5.22(g);
(h) INDEMNIFICATION AGREEMENTS. No Corporation is a party,
whether as a direct signatory or as successor, assign or third party
beneficiary, or otherwise bound, to any Lease or other Contract (excluding
insurance policies disclosed in the Disclosure Schedule) under which such
Corporation is obligated by or entitled to the benefits of, directly or
indirectly, any representation, warranty, indemnification, covenant,
restriction or other undertaking concerning Environmental Conditions; and
29
(i) RELEASES OR WAIVERS. No Corporation has released any other
Person from any claim under any Environmental Law or waived any rights
concerning any Environmental Condition.
5.23 EMPLOYEE BENEFIT PLANS.
(a) Schedule 5.23 attached hereto sets forth all "employee benefit
plans," as defined in Section 3(3) of ERISA, and any other employee benefit
plans or arrangements (each, an "EMPLOYEE BENEFIT PLAN" and, collectively,
the "EMPLOYEE BENEFIT PLANS"), including, without limitation, severance or
termination pay, sick leave, vacation pay, salary continuation for
disability, consulting or change in control compensation and death benefit
agreements, other compensation agreements, retirement, deferred compensation,
bonus, stock option or purchase, hospitalization, medical insurance, life
insurance and scholarship programs, any executive arrangements, programs, or
contracts, employee fringe benefit arrangements, programs or contracts, and
all "employee pension plans," as defined in Section 3(2) of ERISA (the
"PENSION PLANS"), (i) sponsored, maintained or contributed by (A) any Subject
Company or (B) any other organization which is a member of a controlled group
of organizations (within the meaning of Sections 414(b), (c), (m) or (o) of
the Code) of which any Subject Company is a member (an "ERISA AFFILIATE"),
which covers present or former employees of any Subject Company or any ERISA
Affiliate.
(b) No Subject Company nor any ERISA Affiliate currently
maintains, sponsors, contributes to or is required to contribute to (or has
ever sponsored, maintained or contributed to or been required to sponsor,
maintain or contribute to) a Pension Plan subject to Section 412 of the Code
or Title IV of ERISA.
(c) Each Pension Plan and related trust intended to qualify under
Sections 401(a) and 501 of the Code is subject of a valid opinion letter from
the IRS with respect to conformance with Sections 401(a) and 501 of the Code
for all periods from the effective date of each such Pension Plan to the date
of this Agreement and each of the Subject Companies has adopted all
amendments and is in compliance with all applicable requirements in order to
rely on such opinion letter for purposes of maintaining a Pension Plan
qualified under Sections 401(a) and 501 of the Code.
(d) Neither any Subject Company nor any ERISA Affiliate has at any
time contributed to or been required to contribute to a "multiemployer plan"
within the meaning of Section 3(37) or Section 4001(a)(3) of ERISA.
(e) All contributions and premium payments required to be made to
or with respect to an Employee Benefit Plan prior to the Closing Date have
been made when due.
(f) The execution and delivery of this Agreement by the Sellers
and the consummation of the transactions contemplated hereunder will not
result in any obligation or Liability (with respect to accrued benefits or
otherwise) or the acceleration of any obligation or Liability to any Employee
Benefit Plan, to any employee or former employee of any Subject Company or
any ERISA Affiliate.
(g) There is no material violation of ERISA with respect to the
filing of applicable reports, documents, and notices regarding the Employee
Benefit Plans with the Secretary of Labor and the Secretary of the Treasury
or the furnishing of such documents to the participants or beneficiaries of
the Employee Benefit Plans.
30
(h) True, correct and complete copies of the following documents,
with respect to each of the Employee Benefit Plans, have been delivered or
made available to the Buyer by or on behalf of the Subject Companies, where
applicable, (i) any plans and related trust documents, and amendments
thereto, (ii) the most recent IRS Forms 5500 with all attachments thereto,
(iii) IRS opinion letter, and (iv) summary plan descriptions.
(i) There are no pending actions, claims or lawsuits which have
been asserted or instituted against any of the Employee Benefit Plans, the
assets of any of the trusts under such plans or the plan sponsor or the plan
administrator, or, to the knowledge of the Sellers, against any fiduciary of
any of the Employee Benefit Plans with respect to the operation of such plans
(other than routine benefit claims).
(j) All amendments and actions required to bring the Employee
Benefit Plans into conformity in all material respects with the applicable
provisions of ERISA and other applicable laws have been made or taken except
to the extent that such amendments or actions are not required by law to be
made or taken until a date after the Closing Date.
(k) The Employee Benefit Plans have been maintained, in all
material respects, in accordance with their terms and with the provisions of
ERISA (including the rules and regulations thereunder), the Code and other
applicable Federal and state law. Neither any Subject Company nor any ERISA
Affiliate has engaged in a prohibited transaction, as such term is defined in
Section 4975 of the Code or Section 406 of ERISA, or any transaction in
violation of Section 404 or Section 406 of ERISA. To the knowledge of the
Sellers, no Person has engaged in a prohibited transaction, as such term is
defined in Section 4975 of the Code or Section 406 of ERISA, or any
transaction in violation of Section 404 or Section 406 of ERISA.
(l) Neither any Subject Company nor any ERISA Affiliate maintains
retired life and retired health insurance plans which are Employee Benefit
Plans which are "welfare benefit plans" within the meaning of Section 3(1) of
ERISA and which provide for continuing benefits or coverage for any
participant or any beneficiary of a participant except as may be required
under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended
("COBRA") and at the expense of the participant or the participant's
beneficiary. Each Subject Company and each ERISA Affiliate which maintains a
"welfare benefit plan" within the meaning of Section 3(1) of ERISA has
complied with the notice and continuation requirements of COBRA and the
regulations thereunder.
(m) Neither any Subject Company nor any ERISA Affiliate has any
announced plan or legally binding commitment (i) to create any additional
Employee Benefit Plans which are intended to cover employees or former
employees of such Subject Company (with respect to their relationship with
such entity) or (ii) amend or modify (other than amendments and modifications
required by law) any existing Employee Benefit Plan which covers or has
covered employees or former employees of such Subject Company (with respect
to their relationship with such entities) which would result in a material
Liability to Buyer or any of its Affiliates.
5.24 NO BROKERS OR ADVISORS. Except for Ernst & Young LLP, none
of the Subject Companies and none of the Sellers has employed any broker,
finder, advisor or intermediary in connection with the transactions
contemplated by this Agreement which would be entitled to a broker's,
finder's or similar fee or commission in connection therewith or upon the
consummation thereof. The Target shall bear the cost of any payments to
which Ernst & Young LLP shall be entitled.
31
5.25 NO OTHER AGREEMENTS TO SELL THE ASSETS OR CAPITAL STOCK OF
ANY SUBJECT COMPANY. Except as set forth in Schedule 5.25, no Subject
Company or Seller has any legal obligation, absolute or contingent, to any
other Person or firm to sell or effect a sale of all or a material portion of
the Assets of any Subject Company, to sell or effect a sale of all or a
majority of the capital stock of any Subject Company, or to effect any
merger, consolidation or other reorganization of such Subject Company or to
enter into any agreement or cause the entering into of an agreement with
respect thereto.
5.26 ACQUISITION OF BUYER COMMON STOCK.
(a) Each of the Sellers represents that any shares of Buyer Common
Stock acquired by him pursuant to Article II shall be acquired by him for his
own account and not as nominee or agent for any other Person and not with a
view to, or for offer or sale in connection with, any distribution thereof
(within the meaning of the Securities Act that would violate the securities
laws of the United States of America or any state thereof.
(b) Each of the Sellers is an "accredited investor" as such term
is defined in Rule 501(a) of Regulation D under the Securities Act. Each of
the Sellers further represents that he is knowledgeable, sophisticated and
experienced in business and financial matters and that he is able to bear the
economic risks of his investment in the shares of Buyer Common Stock and is
currently able to afford the complete loss of such investment.
(c) Each of the Sellers hereby acknowledges that he was afforded
the opportunity (i) to ask such questions as he has deemed necessary of, and
to receive answers from, representatives of Buyer concerning the terms and
conditions of the issuance of shares of Buyer Common Stock and the merits and
risks of acquiring such Buyer Common Stock and (ii) to obtain such additional
information which Buyer possesses or can acquire without unreasonable effort
or expense that is necessary to verify the accuracy and completeness of the
information provided to such Seller. Each of the Sellers acknowledges that
he is aware of the LEP Transactions, and that he was afforded the opportunity
to exercise the rights set forth in clauses (i) and (ii) above with respect
to the LEP Transactions.
(d) Each of the Sellers acknowledges that if he desires to sell or
otherwise dispose of all or any shares of Buyer Common Stock acquired by him
pursuant to Article II (other than pursuant to an effective registration
statement under the Securities Act or a sale or other disposition made
pursuant to Rule 144 promulgated thereunder), if requested by Buyer, such
Seller will deliver to Buyer an opinion of counsel, reasonably satisfactory
in form and substance to Buyer, that registration and qualification under the
Securities Act are not required. Upon original issuance thereof, and until
such time as the same is no longer required under the applicable requirements
of the Securities Act, the shares of Buyer Common Stock acquired by the
Sellers pursuant to Article II (and all securities issued in exchange
therefor or substitution thereof) shall bear the following legends:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY
STATE SECURITIES LAW, AND SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED
OR OTHERWISE DISPOSED OF UNLESS THE SAME ARE REGISTERED AND QUALIFIED
IN ACCORDANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS,
OR IN THE OPINION
32
OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY
SUCH REGISTRATION AND QUALIFICATION ARE NOT REQUIRED."
"THE SHARES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO THAT CERTAIN
SECOND AMENDED AND RESTATED STOCKHOLDERS AGREEMENT, DATED AS OF
NOVEMBER 7, 1996, THAT CERTAIN SECOND AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT DATED AS OF NOVEMBER 7, 1996 AND AN
EMPLOYMENT AGREEMENT DATED AS OF NOVEMBER 7, 1996 COPIES OF WHICH ARE
ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY AND WILL BE FURNISHED
TO THE HOLDER ON REQUEST TO THE SECRETARY OF THE COMPANY. SUCH
STOCKHOLDERS AGREEMENT, REGISTRATION RIGHTS AGREEMENT AND EMPLOYMENT
AGREEMENT PROVIDE, AMONG OTHER THINGS, FOR CERTAIN RESTRICTIONS ON
VOTING, SALE, TRANSFER, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF
THE SECURITIES EVIDENCED BY THIS CERTIFICATE AND THAT SUCH SECURITIES
MAY BE SUBJECT TO PURCHASE BY THE COMPANY AS WELL AS CERTAIN OTHER
PERSONS UPON THE OCCURRENCE OF CERTAIN EVENTS. ANY ISSUANCE, SALE,
ASSIGNMENT, TRANSFER OR OTHER DISPOSITION OF THE SECURITIES EVIDENCED
BY THIS CERTIFICATE TO PERSONS WHO ARE NOT A PARTY TO SUCH
STOCKHOLDERS AGREEMENT INCONSISTENT THEREWITH SHALL BE NULL AND VOID."
5.27 NO SEC DISCLOSURE. Each of the Sellers represents and
warrants as to himself that no event has occurred during the past five years
that, if such individual were a director or executive officer of a company
registered under the Securities Act, would be required to be disclosed
pursuant to Item 401(f) of Regulation S-K promulgated under the Securities
Act.
5.28 BOOKS AND RECORDS. The minute books and other similar records
of the Subject Companies as made available to Buyer prior to the execution of
this Agreement contain a true and complete record, in all material respects,
of all action taken at all meetings and by all written consents in lieu of
meetings of the stockholders of the Subject Companies, the boards of
directors and committees of the boards of directors of the Subject Companies.
The stock transfer ledgers and other similar records of the Subject
Companies as made available to Buyer prior to the execution of this Agreement
accurately reflect all record transfers prior to the execution of this
Agreement in the capital stock of the Subject Companies.
5.29 NO POWERS OF ATTORNEY. Except as set forth in Schedule 5.29,
no Subject Company has delegated any powers of attorney or made any
comparable delegations of authority, which delegations remain outstanding.
33
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF
THE SELLERS WITH RESPECT TO THE RUSSIAN VENTURES
Each of the Sellers hereby, severally but not jointly, represents and
warrants, to the knowledge of such Seller, as follows:
6.1 ORGANIZATION AND CAPITALIZATION.
(a) Each of the Russian Ventures is duly organized, validly
existing and in good standing under the laws of its jurisdiction of
organization, has full power and authority and has taken all action necessary
to conduct its Business as it is presently being conducted and to own, lease
and operate its properties and Assets. Copies of the foundation agreements,
charters, and certificates of registration, or such similar documents as are
required in the relevant jurisdiction (the "FOUNDATION DOCUMENTS") of each of
the Russian Ventures, and all amendments thereto, heretofore delivered to
Buyer, are accurate and complete as of the date hereof.
(b) A list of the owners of all of the issued and outstanding
shares of capital stock (or other ownership interests) of each of the Russian
Ventures is set forth in Schedule 6.1(b) hereto. All of the outstanding
shares of capital stock (or other ownership interests) of each of the Russian
Ventures are duly authorized, validly issued, fully paid and non-assessable.
The Target has title to all of the outstanding shares of capital stock of
each of the Russian Ventures set forth next to its name in Schedule 6.1(b)
free and clear of all Encumbrances. There are no outstanding subscriptions,
calls, commitments, warrants or options for the purchase of shares of any
capital stock or other securities of (or other ownership interests in) any
Russian Venture or any securities convertible into or exchangeable for shares
of capital stock or other securities issued by (or other ownership interests
in) such Russian Venture or any other commitments of any kind for the
issuance of additional shares of capital stock or other securities issued by
(or other ownership interests in) such Russian Venture.
(c) Schedule 6.1(c) contains a true, correct and complete list
of all Subsidiaries or Affiliates of the Russian Ventures, including the
name, jurisdiction of organization and share ownership of each such
Subsidiary or Affiliate.
6.2 AUTHORIZATION. Each of the Russian Ventures has all requisite
power and authority and has taken all action necessary to own, lease and operate
the Assets, and to conduct its Business as it is presently being conducted.
6.3 CONTRACTS AND COMMITMENTS.
(a) Schedule 6.3(a) lists the following Contracts to which any
Russian Venture is a party, or by which any of such Russian Venture's Assets are
bound:
(i) any labor or union contracts;
(ii) any Contracts to employ or terminate or pay severance to
Personnel and any other Contracts with present or former officers,
directors or shareholders or other personnel or any of any Russian Venture
or any of their respective affiliates or family members; and
34
(iii) any written arrangement with any of its directors, officers,
shareholders or employees, any affiliate thereof or any member of any such
person's immediate family (x) providing for the furnishing of material
services by, (y) providing for the rental of material real or personal
property from, or (z) otherwise requiring material payments to (other than
for services as officers, directors or employees of any Russian Venture),
any such Person or any corporation, partnership, trust or other entity in
which any such Person has a substantial interest as a shareholder, officer,
director, trustee or partner.
(b) None of the Russian Ventures is a party to any of the Contracts
listed below:
(i) any promissory notes, loans, agreements with respect to
indebtedness of borrowed money, indentures with respect to indebtedness of
borrowed money, evidences of indebtedness, letters of credit, guarantees,
or other instruments relating to an obligation to pay money, individually
in excess of or in the aggregate in excess of $25,000, whether any Russian
Venture shall be the borrower, lender or guarantor thereunder or whereby
any Assets are pledged (excluding credit provided by the Russian Venture in
the Ordinary Course of Business to purchasers of its products);
(ii) any written arrangement (or group of related written
arrangements) concerning non-competition; or
(iii) any other written arrangement (or group of related written
arrangements) under which the consequences of a Default or termination
would have a Material Adverse Effect.
The Sellers have delivered to Buyer true, correct and complete, in all
material respects, copies of each written Contract listed in Schedule 6.3(a)
to which a Russian Venture is a party, including all amendments and
supplements thereto, and have included as part of Schedule 6.3(a) a brief
summary of any such oral contracts, agreements or other arrangements and any
written proposals to enter into any such Contracts. All of the Contracts set
forth in Schedule 6.3(a) are valid, binding and enforceable in accordance
with their terms, except as such enforceability may be limited by (i)
bankruptcy, moratorium, reorganization, and other similar laws affecting
creditors' rights generally, and (ii) the general principles of equity,
regardless of whether asserted in a proceeding in equity or at law.
6.4 NO CONFLICT OR VIOLATION.
(a) None of the execution, delivery or performance of this
Agreement nor the consummation of the transactions contemplated hereby, will
result in (A) a violation of or a conflict with any provision of the
Foundation Documents of any Russian Venture, (B) a breach of, or a Default
under, or the creation of any right of any party to accelerate, terminate or
cancel, any Contract set forth in Schedule 6.3, Permit, authorization or
concession to which any Russian Venture is a party or by which any of the
Assets of such Russian Venture are bound, (C) a violation by such Russian
Venture of any law, statute, rule, regulation, ordinance, code, order,
judgment, writ, injunction, decree or award, or (D) an imposition of any
Encumbrance, restriction or charge on the Business of such Russian Venture or
on any of the Assets of such Russian Venture, except in the case of clauses
(B), (C) and (D) above, for breaches, Defaults, terminations, accelerations,
cancellations, violations or creations of Encumbrances which, individually or
in the aggregate, would not have a Material Adverse Effect.
35
6.5 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in
Schedule 6.5, since December 31, 1995, there has not been any event which has
had or would have a Material Adverse Effect.
6.6 LIABILITIES. No Russian Venture has any Liabilities or
obligations (absolute, accrued, contingent or otherwise) due or to become due,
except for Liabilities which, individually or in the aggregate, would not have a
Material Adverse Effect.
6.7 LITIGATION. There are no Actions pending or threatened (i)
against or relating to or affecting (A) any Russian Venture, the Assets of such
Russian Venture or the operation of the Business, (B) any Employee Plan of any
Russian Venture or any trust or other funding instrument, or any fiduciary or
administrator thereof in their capacity as such, (C) any officers or directors
of any Russian Venture, as such or by any governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, any of which
would have a Material Adverse Effect, (ii) which, if determined adversely to any
Russian Venture, would enjoin or affect the rights of the parties with respect
to the transactions contemplated by this Agreement, (iii) that involves a risk
of material criminal liability, or (iv) in which any Russian Venture is a
plaintiff. No Russian Venture is in Default with respect to any judgment,
order, writ, injunction or decree of any court or governmental agency, and there
are no unsatisfied judgments against such Russian Venture or the Business or
Assets of any Russian Venture.
6.8 PERMITS, CONSENTS AND APPROVALS; COMPLIANCE WITH LAW.
(a) Schedule 6.8(a) sets forth a complete list of all Permits used
in the operation of the Business of any Russian Venture or otherwise owned or
validly held by any Russian Venture, except for Permits the failure of which to
hold or own would not have a Material Adverse Effect, setting forth the grantor,
the grantee, the function and the expiration and renewal date of each such
Permit. Each Permit listed in Schedule 6.8(a) is valid, binding and in full
force and effect. Except such Permits the failure of which to obtain would not
have a Material Adverse Effect, each Russian Venture has all Permits required
under any Regulation in the operation of its Business or the ownership of the
Assets, and possesses such Permits free and clear of all Encumbrances, except
for Permitted Encumbrances and Encumbrances set forth in Schedule 6.8. No
Russian Venture is in Default, nor has any Russian Venture received any notice
of any claim of Default, with respect to any Permit, except for Defaults which,
individually or in the aggregate, would not have a Material Adverse Effect. No
present or former director, officer or employee of any Russian Venture or any
affiliate thereof, or any other Person, owns or has any proprietary, financial
or other interest (direct or indirect) in any Permit which such Russian Venture
owns, possesses or uses.
(b) Except as set forth in Schedule 6.8(b), no notice to, consent,
approval or authorization of, declaration, filing or registration with, or
Permit from, any domestic or foreign governmental or regulatory body or
authority, or any other Person, is required to be made or obtained by any
Russian Venture in connection with the execution, delivery or performance of
this Agreement and the consummation of the transactions contemplated hereby,
except for those the failure of which to make or obtain would not have a
Material Adverse Effect.
(c) No Russian Venture has, directly or indirectly, paid or
delivered any fee, commission or other sum of money or item of property, however
characterized, to any finder, agent, client, customer, supplier, government
official or other party, in any country, which is in any manner related to the
business, Assets or operations of such Russian Venture, and which is, or may be
with the
36
passage of time or discovery, illegal under any federal, state or local laws
of the United States currently in effect (including, without limitation the
U.S. Foreign Corrupt Practices Act) or any other country having jurisdiction.
Each Russian Venture and the conduct of the business of each Russian Venture
has not violated and is in compliance with all Regulations and Court Orders
relating to the Assets or the Business or operations of such Russian Venture,
except where the violation or failure to comply, individually or in the
aggregate, could not have a Material Adverse Effect. No Russian Venture and
none of the Sellers have received any notice to the effect that, any Russian
Venture is not in compliance with any such Regulations or Court Orders or
that any charge or complaint has been brought with respect thereto, which
failure to be in compliance could, in any one case or in the aggregate, have
a Material Adverse Effect.
6.9 TAX MATTERS.
(a) FILING OF TAX RETURNS. Each Russian Venture has timely filed
with the appropriate taxing authorities all returns (including without
limitation information returns and other material information) in respect of
Taxes required to be filed through the date hereof and will timely file any such
returns required to be filed on or prior to the Closing Date. The returns and
other information filed are complete and accurate in all material respects.
Each Russian Venture has delivered to Buyer complete and accurate copies of each
Russian Venture's tax returns for the years 1993, 1994 and 1995.
(b) PAYMENT OF TAXES. All Taxes payable by any Russian Venture in
respect of periods beginning before the Closing Date have been timely paid and
no Russian Venture has any Liability for Taxes in excess of $100,000.
(c) AUDITS, INVESTIGATIONS OR CLAIMS. No material deficiencies for
Taxes have been claimed, proposed or assessed by any taxing or other
governmental authority against any Russian Venture. There are no pending or
threatened audits, investigations or claims for or relating to any material
additional Liability in respect of Taxes, and there are no matters under
discussion with any governmental authorities with respect to Taxes that in the
reasonable judgment of any Russian Venture, or its counsel, is likely to result
in a material additional Liability for Taxes.
(d) LIEN. There are no liens for Taxes (other than for current
Taxes not yet due and payable) on the Assets of any of the Russian Ventures.
(e) PARTNERSHIP. No Russian Venture is a party to any joint
venture, partnership, or other arrangement or contract that could be treated as
a partnership for the purpose of applicable tax law.
(f) WITHHOLDING. Each Russian Venture has withheld all Taxes
required to have been withheld by it in connection with amounts paid or owing to
any employee, independent contractor, creditor, stockholder, or other third
party, and such withheld Taxes have either been duly paid to the proper
governmental authority or set aside in accounts for such purpose.
(g) NO U.S. INVESTMENT BY FOREIGN SUBSIDIARIES. None of the
Russian Ventures has any investment in U.S. property within the meaning of Code
Section 956.
(h) CERTAIN ACTIONS. No Russian Venture has taken, and none will
take, any action not in accordance with past practice that would have the effect
of deferring any Tax liability of a
37
Russian Venture from any taxable period ending on or before the Closing Date
to any subsequent taxable period.
(i) NO EXCESS LOSS ACCOUNTS. There currently are no excess loss
accounts, deferred intercompany gains or losses, or other like items pertaining
to any Russian Venture.
(j) NO TRANSFER PRICING AGREEMENTS. No Russian Venture has entered
into transfer pricing agreements or other like arrangements with respect to any
foreign jurisdiction including the United States.
(k) INFORMATION REGARDING FOREIGN SUBSIDIARIES. None of the
Russian Ventures is (i) engaged in a United States trade or business for federal
income tax purposes; (ii) a passive foreign investment company within the
meaning of the Code; or (iii) a foreign investment company within the meaning of
the Code.
(l) BOOKS AND RECORDS. The minute books and other similar records
of the Russian Ventures as made available to Buyer prior to the execution of
this Agreement contain a true and complete record, in all material respects, of
all action taken at all meetings and by all written consents in lieu of meetings
of the Sellers, the boards of directors and committees of the boards of
directors of the Russian Ventures. The shareholder's register, the book of
pledges and other similar records of the Russian Ventures as made available to
Buyer prior to the execution of this Agreement accurately reflect all record
transfers prior to the execution of this Agreement in the capital stock of the
Russian Ventures.
6.10 BANK ACCOUNTS. Schedule 6.10 contains a true and correct list
of the names of each bank or other financial institution in which each Russian
Venture has an account, including cash contribution accounts, or safe deposit
boxes, and the names of all Persons authorized to draw thereon or to have access
thereto.
6.11 ENVIRONMENTAL MATTERS.
(a) COMPLIANCE WITH ENVIRONMENTAL LAWS. Except as set forth in
Schedule 6.11(a), each Russian Venture and each of the facilities and former
facilities thereof have been maintained at all times in compliance with all
environmental laws in the place of its operation, except for noncompliance which
would not have, individually or in the aggregate, a Material Adverse Effect; and
(b) JUDGMENTS. There are no consent decrees, judgments, judicial
or administrative orders or agreements with, or liens by, any governmental
authority or quasi-governmental entity relating to any Environmental Law which
regulate, obligate, bind or in any way affect any Russian Venture.
6.12 NO OTHER AGREEMENTS TO SELL THE ASSETS OR CAPITAL STOCK OF SUCH
SUBJECT COMPANY. No Russian Venture has any legal obligation, absolute or
contingent, to any Person or firm to sell or effect a sale of all or
substantially all of its Assets, to sell or effect a sale of any or all of its
capital stock, or to effect any merger, consolidation or other reorganization or
to enter into any agreement or cause the entering into of an agreement with
respect thereto.
38
6.13 NO POWERS OF ATTORNEY. Except as set forth in Schedule 6.13,
no Russian Venture has delegated any powers of attorney or made any comparable
delegations of authority, which delegations remain outstanding.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to the Sellers as follows:
7.1 ORGANIZATION OF BUYER. Buyer is duly incorporated, validly
existing and in good standing under the laws of the state of its incorporation,
has full corporate power and authority and has taken all corporate action
necessary to conduct its business as it is presently being conducted and to own,
lease and operate its properties and Assets. Buyer is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
in which such qualification is necessary under the applicable law as a result of
the conduct of its business or the ownership (or leasing) of its properties,
except where the failure to be so qualified or in good standing would not have a
material adverse effect on Buyer or its ability to perform its obligations
hereunder. Copies of the Certificate of Incorporation and Bylaws of Buyer and
all amendments thereto, heretofore delivered to the Sellers are accurate and
correct as of the date hereof.
7.2 AUTHORIZATION. Buyer has all necessary corporate power and
authority and has taken all corporate action necessary to enter into this
Agreement, to consummate the transactions contemplated hereby and to perform its
obligations hereunder and no other actions on the part of Buyer are necessary to
authorize this Agreement and the transactions contemplated hereby. This
Agreement has been duly executed and delivered by Buyer and (assuming due
authorization, execution and delivery by each of the Sellers) is a legal, valid
and binding obligation of Buyer, enforceable against it in accordance with its
terms, except as such enforceability may be limited by (i) bankruptcy,
insolvency, moratorium, reorganization and other similar laws affecting
creditors' rights generally and (ii) the general principles of equity,
regardless of whether asserted in a proceeding in equity or at law.
7.3 NO CONFLICT OR VIOLATION. None of the execution, delivery or
performance of this Agreement nor the consummation of the transactions
contemplated hereby, nor compliance by Buyer with the provisions hereof will
result in (i) a violation of or a conflict with any provision of the Certificate
of Incorporation or Bylaws, each as amended to date, of Buyer, (ii) a breach of,
or a default under, or the creation of any right of any party to accelerate,
terminate or cancel, any contract, permit, authorization or concession to which
Buyer is a party or by which any of the Assets of Buyer is bound, (iii) a
violation by Buyer of any law, statute, rule, regulation, ordinance, code,
order, judgment, writ, injunction, decree or award, or (iv) an imposition of any
Encumbrance, restriction or charge on the business of Buyer or on any of the
Assets of Buyer, except in the case of clauses (ii), (iii) and (iv) above for
breaches, defaults, terminations, accelerations, cancellations, violations, and
creations of encumbrances which, individually or in the aggregate, would not
have a material adverse effect on the business, operations, conditions
(financial or otherwise) or properties of Buyer.
7.4 CONSENTS AND APPROVALS. Other than in connection with or in
compliance with the provisions of the HSR Act, no notice to, consent, approval
or authorization of, or declaration, filing or registration with, or permit
from, any domestic or foreign governmental or regulatory body or authority, or
any other Person, is required to be made or obtained by Buyer in connection with
the
39
execution, delivery or performance of this Agreement and the consummation of
the transactions contemplated hereby.
7.5 CAPITALIZATION. The capitalization of Buyer is set forth in
Schedule 7.5 hereto. All of the outstanding shares of capital stock of Buyer
and each of its subsidiaries are duly authorized, validly issued, fully paid and
non-assessable. Buyer owns all of the issued and outstanding shares of capital
stock of each of its direct subsidiaries. Except as set forth in Schedule 7.5,
there are no outstanding subscriptions, calls, commitments, warrants or options
for the purchase of shares of any capital stock or other securities of (or other
ownership interests in) Buyer or its subsidiaries, any securities convertible
into or exchangeable for shares of capital stock or other securities issued by
(or other ownership interests in) Buyer or its subsidiaries or any other
commitments of any kind for the issuance of additional shares of capital stock
or other securities issued by (or other ownership interests in) Buyer or its
subsidiaries. Schedule 7.5 contains a true, correct and complete list of all
direct subsidiaries of Buyer, including the name, jurisdiction of incorporation
and share ownership of each such subsidiary, as well as each jurisdiction in
which such subsidiary is authorized to do business.
7.6 ISSUANCE OF COMMON STOCK. The shares of Buyer Common Stock to be
issued to the Sellers pursuant to Article II will be free and clear of all
Encumbrances and will be duly authorized, validly issued, fully paid and non-
assessable. The shares of Buyer Common Stock issued to the Sellers pursuant to
Article II hereof will not be subject to registration under the Securities Act.
7.7 FINANCIAL STATEMENTS. Buyer has heretofore delivered to the
Sellers true and complete copies of the following financial statements: (i) the
audited balance sheet of The Bekins Company as of March 31, 1996, (ii) the
audited income statement for the year then ended and (iii) the consolidated
monthly unaudited financial statement of The Bekins Company for the month ended
September 30, 1996, (clauses (i), (ii) and (iii) above, together with the notes
thereto, as applicable, being collectively referred to as the "BUYER FINANCIAL
STATEMENTS"). The Buyer Financial Statements (i) were prepared in accordance
with GAAP throughout the periods indicated and (ii) present fairly and
accurately in all material respects, as of the respective dates thereof or the
periods covered thereby, as applicable, the consolidated financial position,
consolidated balance sheet, income statement and cash flow and consolidated
results of operations of The Bekins Company (except in the case of the monthly
consolidated unaudited financial statements, for normal year-end adjustments
which were not and are not expected to be material in effect, and the absence of
footnotes, which, if inserted, would not differ materially from those included
in the audited consolidated financial statements of The Bekins Company dated as
of March 31, 1996 for the year then ended). Since the organization of Buyer,
until the consummation of the LEP Transactions, The Bekins Company (together
with its subsidiaries) has been the sole operating entity owned by Buyer.
Except as disclosed in the Buyer Financial Statements, as of March 31, 1996,
there were no actual or contingent debts, liabilities or obligations of Buyer
which were required by GAAP to be disclosed in the Buyer Financial Statements
which were not disclosed on the Buyer Financial Statements. Each of the parties
hereto acknowledge that, as of the date hereof, the Buyer has neither made an
allocation of the purchase price with respect to its acquisition of The Bekins
Company nor completed an amortization schedule with respect to the assets of The
Bekins Company.
7.8 LITIGATION. Except as set forth in Schedule 7.8, there is no
action, suit, proceeding or investigation pending or, to the knowledge of Buyer,
threatened against Buyer, The Bekins Company or any of the subsidiaries of The
Bekins Company at law, in equity or otherwise, in, before, or by any court or
governmental agency or authority which if adversely determined could reasonably
be expected to enjoin or affect the rights of the parties with respect to the
transactions contemplated by this Agreement or which is reasonably likely to
have a material adverse effect on the business,
40
operations, condition (financial or otherwise) or properties of Buyer. The
Buyer is not in Default with respect to any judgment, order, writ,
injunction, or decree of any court or governmental agency and there are no
unsatisfied judgments against Buyer or its Assets or business.
7.9 BROKERS. Buyer has not employed any broker, finder, advisor or
intermediary in connection with the transactions contemplated by this Agreement
which would be entitled to a broker's, finder's, or similar fee or commission in
connection therewith or upon the consummation thereof, other than William E.
Myers & Company, the fees of which will be paid by Buyer.
7.10 INVESTMENT. Buyer is acquiring the Target Stock for its own
account for investment, without a view to, or for resale in connection with, the
distribution thereof in violation of federal or state securities laws and with
no present intention of distributing any part thereof. Buyer will not
distribute or resell any Target Stock in violation of any such law.
7.11 EQUITY. For the period from May 1, 1996 through the Closing
Date, Buyer shall have issued shares of its common stock for cash proceeds of
not less than $45,000,000.
7.12 SOLVENCY. Buyer is not and will not be after giving effect to
the transactions contemplated by this Agreement (x) insolvent or (y) left with
unreasonably small capital with which to engage in its business as contemplated
pursuant to the transactions hereby, and Buyer has not and will not have after
giving effect to the transactions contemplated by this Agreement, incurred debts
beyond its ability to pay such debts as they mature.
ARTICLE VIII
ACTIONS OF THE SELLERS AND BUYER BEFORE AND AFTER THE CLOSING DATE
Each of the Sellers and Buyer covenant and agree with each other as
follows:
8.1 FURTHER ASSURANCES. Upon the terms and subject to the conditions
contained herein, each of the parties hereto agree, both before and after the
Closing, (i) to use all reasonable efforts to take, or cause to be taken, all
actions and to do, or cause to be done, all things necessary, proper or
advisable to consummate and make effective the transactions contemplated by this
Agreement, (ii) to execute any documents, instruments or conveyances of any kind
which may be reasonably necessary or advisable to carry out any of the
transactions contemplated hereunder, and (iii) to cooperate with each other in
connection with the foregoing, including using commercially reasonable efforts
(A) to obtain all necessary waivers, consents and approvals from other parties
to the Contracts, Intellectual Property Rights and Leases; PROVIDED, HOWEVER,
that no party shall be required to make any payments, commence litigation or
agree to modifications of the terms thereof in order to obtain any such waivers,
consents or approvals, (B) to obtain all necessary Permits as are required to be
obtained under any Regulations, (C) to defend all Actions challenging this
Agreement or the consummation of the transactions contemplated hereby, (D) to
lift or rescind any injunction or restraining order or other Court Order
adversely affecting the ability of the parties to consummate the transactions
contemplated hereby, (E) to effect all registrations and filings, including
without limitation submissions of information requested by governmental
authorities, and (F) to fulfill all conditions to this Agreement.
41
8.2 EMPLOYEE MATTERS. (a) Following the Closing, Buyer will cause
the Subject Companies to continue to offer employment to all of the respective
employees (other than the Sellers), with said offer being on remuneration and
benefit levels comparable, in the aggregate, to those presently offered by the
Subject Companies to such employees. Such employment will be on an "at will"
basis and no employee will be guaranteed continuing employment with any Subject
Company on an ongoing basis. Each party hereto will cooperate with the other
party in their joint efforts to retain such employees.
(b) No provision of this Agreement shall create any third party
beneficiary rights in any employees of any Subject Company, any beneficiary or
dependents thereof or any collective bargaining representatives thereof, with
respect to the compensation, terms and conditions of employment and benefits
that may be provided to any employee of any Subject Company by Buyer or under
any benefit plan which Buyer may maintain.
8.3 THIS SECTION INTENTIONALLY OMITTED.
8.4 EXCLUDED ASSETS AND EXCLUDED LIABILITIES. On or prior to the
Closing, the Target shall cause the Excluded Assets to be distributed to the
Sellers and the Sellers shall discharge the Excluded Liabilities.
8.5 CONTRIBUTION OF SEA BRIDGE ASSETS. On or prior to the Closing
Date, the Sellers shall create a new wholly-owned subsidiary of the Target in
such form as shall be reasonably satisfactory to Buyer and shall cause Sea
Bridge to contribute the Sea Bridge Assets to such newly created subsidiary.
8.6 DIVIDENDS AND OTHER DISTRIBUTIONS. Prior to the Closing Date,
no Subject Company nor any of its Affiliates shall have set aside, made or
otherwise paid any direct or indirect distributions or dividends in respect of
the capital stock of (or other ownership interests in) any Subject Company,
other than current salaries, from April 9, 1996 through the Closing Date, except
for those amounts reserved for such purpose in the Interim Balance Sheet, which,
in no event shall be greater than $2,550,000,(1) MINUS (i) the amount of the
Harper Loan ($169,000) and (ii) the amount of any expenses of professionals or
other persons (including without limitation Winthrop, Stimson, Putnam & Roberts
and Ernst & Young, LLP) paid or payable by the Target in connection with the
transactions contemplated hereby (such distributions referred to herein as
"PERMITTED DISTRIBUTIONS"). On or prior to the Closing Date, (i) the Permitted
Distributions shall have been made by the Target to the Sellers, (ii) all
amounts deducted from the Permitted Distributions shall have been paid to the
party to whom such amounts are due and (iii) Buyer shall receive evidence of
payment in full of all amounts due by the Target pursuant hereto. The amount of
any expenses of professionals or other persons to be paid by the Sellers or the
Target in connection with this Agreement after the Closing Date shall be borne
exclusively by the Sellers.
8.7 AMENDMENT TO CHARTER AND BYLAWS. The Certificate of
Incorporation and/or Bylaws of the Target shall have been amended by the
Sellers in a form satisfactory to Buyer to include, without limitation, the
establishment of a five person board of directors with two classes of
directors. One class of directors ("CLASS B DIRECTORS") will be made up of
four directors, each of whom will have
- -------------------------------
(1) This number is the sum of the accrued compensation ($2.7 million) plus the
approximate value of the Excluded Liabilities ($311k) minus the approximate
value of the Excluded Assets ($461).
42
one vote on all matters presented to such board of directors. The second class
of directors ("CLASS A DIRECTORS"), shall be made up of one director who shall
have a single vote weighted to equal five times the vote of any individual Class
B Director. The amended Certificate of Incorporation and Bylaws shall become
effective as of the Closing. At the Closing, each of the Sellers shall have
been designated a Class B Director, and Buyer shall have designated the Class A
Director.
ARTICLE IX
ACTIONS BY THE SELLERS AND BUYER
AFTER THE CLOSING
9.1 BOOKS AND RECORDS. The Sellers and Buyer agree that each will
cooperate with and make available to the other party, during normal business
hours, all Books and Records of each of the Subject Companies and the books and
records of Buyer, information and current Personnel (without substantial
disruption of employment) retained and remaining in existence after the Closing
Date that are necessary or useful in connection with any Tax inquiry, audit,
investigation or dispute, any litigation or investigation or any other matter
requiring any such Books and Records (or with respect to Buyer, books and
records), information or employees for any reasonable business purpose. The
party requesting any such Books and Records (or with respect to Buyer, books and
records), information or employees shall bear all of the out-of-pocket costs and
expenses (including without limitation, attorneys' fees, but excluding
reimbursement for salaries and employee benefits) reasonably incurred in
connection with providing such Books and Records (or with respect to Buyer,
books and records), information or employees (except that the costs and expenses
of the Sellers of copying applicable sections of the Books and Records for such
purpose shall be borne by the Target).
9.2 SURVIVAL OF REPRESENTATIONS, ETC. The representations and
warranties of the Sellers and Buyer contained herein and as provided in the
preceding sentence shall survive the Closing Date until June 30, 1998; PROVIDED,
HOWEVER, that the representations and warranties contained in Section 5.22 shall
survive the Closing Date until June 30, 1999, and the representations and
warranties contained in Section 5.15 and Section 5.23 shall continue to survive
until sixty (60) days after the expiration of the applicable statute of
limitations (giving effect to any waiver or extension thereof).
9.3 INDEMNIFICATIONS.
(a) BY THE SELLERS. In addition to the indemnification obligations
of the Sellers set forth in Article X hereof, the Sellers shall severally, but
not jointly, indemnify, save and hold harmless Buyer, the Subject Companies,
their respective Affiliates and Subsidiaries, and each of their respective
representatives (collectively, the "BUYER INDEMNIFIED PARTIES"), from and
against any and all costs, losses, Liabilities, obligations, damages, lawsuits,
deficiencies, claims, demands, and expenses (whether or not arising out of
third-party claims), including without limitation interest, penalties, costs of
mitigation, losses in connection with any Environmental Law (including without
limitation any clean-up, remedial correction or responsive action), damages to
the environment, attorneys' fees and all amounts paid in investigation, defense
or settlement of any of the foregoing (herein, "DAMAGES"), incurred in
connection with, arising out of, resulting from or incident to (i) any breach of
any representation or warranty made by the Sellers (other than any
representation or warranty contained in Section 5.15 of this Agreement, for
which indemnification is provided pursuant to the terms of Section 10.1 hereof)
in this Agreement; (ii) any breach of any covenant or agreement made by the
Sellers in this Agreement; (iii) any Liabilities or obligations of any of the
Subject Companies in connection with
43
Abe Ranish's purchase and ownership of shares of Buyer common stock; (iv) any
Liability or obligations of the Sellers with respect to Smit-Matrix incurred
or arising out of occurrences on or prior to the Closing; or (v) any Excluded
Liability.
The term "DAMAGES" as used in this Section 9.3 is not limited to
matters asserted by third parties against any indemnified party, but includes
Damages incurred or sustained by an indemnified party in the absence of third
party claims. Payments by any indemnified party of amounts for which such
indemnified party is indemnified hereunder shall not be a condition precedent to
recovery. The rights and remedies provided in this Article IX shall be
exclusive as to any Damages incurred by a party under this Agreement; PROVIDED,
HOWEVER, that nothing herein shall preclude a party from exercising its rights
under this Agreement and applicable law to such equitable remedies, including
without limitation specific performance and injunctions.
(b) BY BUYER. Buyer shall indemnify and save and hold harmless the
Sellers and their respective Affiliates and representatives (the "SELLER
INDEMNIFIED PARTIES") from and against any and all Damages incurred in
connection with, arising out of, resulting from or incident to (i) any breach of
any representation or warranty made by Buyer in this Agreement; or (ii) any
breach of any covenant or agreement made by Buyer in this Agreement; (iii) any
Liabilities of any Subject Company arising on or prior to the Closing Date
(except for (A) the Excluded Liabilities, and (B) any Liabilities incurred or
assumed by the Sellers or any Subject Company or Russian Venture in or pursuant
to this Agreement, including without limitation the obligations of the Sellers
set forth in Sections 9.3(a) and 10.1.)
(c) COOPERATION. The indemnified party shall cooperate in all
reasonable respects with the indemnifying party and its representatives
(including without limitation its attorneys) in the investigation, trial and
defense of such lawsuit or action and any appeal arising therefrom; PROVIDED,
HOWEVER, that the indemnified party may, at its own cost, participate in
negotiations, arbitrations and the investigation, trial and defense of such
lawsuit or action and any appeal arising therefrom. The parties shall cooperate
with each other in any notifications to insurers.
(d) DEFENSE OF CLAIMS. If a claim for Damages (a "CLAIM") is to
be made by a party entitled to indemnification hereunder against the
indemnifying party, the party claiming such indemnification shall, subject to
Section 9.2 hereof, give written notice (a "CLAIM NOTICE") to the
indemnifying party as soon as practicable after the party entitled to
indemnification becomes aware of any fact, condition or event which may give
rise to Damages for which indemnification may be sought under this Section
9.3. If any lawsuit or enforcement action is filed against any party
entitled to the benefit of indemnity hereunder, written notice thereof shall
be given to the indemnifying party as promptly as practicable (and in any
event within thirty (30) calendar days after the service of the citation or
summons). The failure of any indemnified party to give timely notice
hereunder shall not affect rights to indemnification hereunder, except to the
extent that the indemnifying party has been damaged by such failure. After
such notice, if the indemnifying party promptly (and in any event within 30
days) confirms in writing to the indemnified party that the indemnifying
party shall assume the defense and management of the claim under the terms of
its indemnity hereunder, then the indemnifying party shall be entitled, if it
so elects at its own cost, risk and expense, (i) to take control of the
defense and investigation of such lawsuit or action, (ii) to employ and
engage attorneys of its own choice, but, in any event, reasonably acceptable
to the indemnified party, to handle and defend the same unless the named
parties to such action or proceeding (including any impleaded parties)
include both the indemnifying party and the indemnified party and the
indemnified party has been advised in writing by counsel that there may be
one or more legal defenses available to such indemnified party that are
different from or additional to those available to the indemnifying party, in
which event the
44
indemnified party shall be entitled, at the indemnifying party's cost, risk
and expense, to separate counsel of its own choosing, and (iii) to compromise
or settle such lawsuit or action, which compromise or settlement shall be
made only with the written consent of the indemnified party, such consent not
to be unreasonably withheld. If, at any time, the indemnifying party
hereunder reasonably believes that any part of a Claim for which it has
agreed to assume the defense, negotiation, investigation and management
involves matters beyond the scope of its indemnification obligations
hereunder, the indemnifying party shall so notify the indemnified party in
writing of such determination and the indemnified party shall have the right,
at its own cost and expense, to assume the defense, negotiation,
investigation and management of such portion of such Claim; PROVIDED,
HOWEVER, that if such portion of such Claim is ultimately determined to have
been the obligation of the indemnifying party pursuant to the terms of the
indemnification obligations described herein, all reasonable costs and
expenses incurred by the indemnified party in connection with its defense,
negotiation, investigation and management of such portion of such Claim shall
be reimbursed to the indemnified party by the indemnifying party. If the
indemnifying party fails to assume the defense of such lawsuit or action
within thirty (30) calendar days after receipt of the Claim Notice, the
indemnified party against which such lawsuit or action has been asserted will
(upon delivering notice to such effect to the indemnifying party) have the
right to undertake, at the indemnifying party's cost and expense, the
defense, compromise or settlement of such lawsuit or action on behalf of and
for the account and risk of the indemnifying party; PROVIDED, HOWEVER, that
such Lawsuit or action shall not be compromised or settled without the
written consent of the indemnifying party, which consent shall not be
unreasonably withheld. In the event the indemnified party assumes the
defense of the lawsuit or action, the indemnified party will keep the
indemnifying party reasonably informed of the progress of any such defense,
compromise or settlement. The indemnifying party shall be liable for any
settlement of any action effected pursuant to and in accordance with this
Section 9.3 and for any final judgment (subject to any right of appeal), and
the indemnifying party agrees to indemnify and hold harmless an indemnified
party from and against any Damages by reason of such settlement or judgment.
(e) BROKERS AND FINDERS; ADVISORS. Other than William E. Myers &
Co. and Ernst & Young, LLP, no agent, broker, investment banker, financial
advisor or other Person is or will be entitled to any broker's or finder's fee
or any other commission or similar fee in connection with any of the
transactions contemplated hereby. Each party hereto agrees to hold the other
parties hereto harmless from and against any and all claims, liabilities or
obligations with respect to any such fee or commission or expenses related
thereto asserted by any Person (i) with respect to any such fee or commission or
expenses related thereto or (ii) on the basis of any act or statement alleged to
have been made by any party hereto or any of their respective representatives or
Affiliates, it being understood and agreed that the cost of any payments to
which Ernst & Young LLP shall be entitled shall be deducted from the Permitted
Distributions and shall be paid by the Target prior to Closing pursuant to
Section 8.6.
(f) REPRESENTATIVES. No individual representative of any party
shall be personally liable for any Damages under the provisions contained in
this Section 9.3. Nothing herein shall relieve either party of any Liability to
make any payment expressly required to be made by such party pursuant to this
Agreement.
(g) LIMITATION ON INDEMNITY/COMMITMENTS.
(i) The indemnification obligation of the parties hereto
with respect to any breach of any representation or warranty pursuant to
Sections 9.3(a) or (b) shall be limited to Claims for Damages made prior to
last date of survival thereof referred to in Section 9.2. The
45
indemnification obligation of the parties hereto with respect to any breach
of any covenant or agreement pursuant to Sections 9.3(a) or (b) shall
survive indefinitely subject to the terms of this Agreement.
(ii) The Buyer Indemnified Parties may not recover Damages
from any Seller pursuant to Section 9.3(a)(i) until the aggregate amount of
Damages relating to such Claims for which the Buyer Indemnified Parties, in
the aggregate, are seeking indemnification under Section 9.3(a)(i) exceeds
two hundred and fifty thousand dollars ($250,000); PROVIDED, HOWEVER, in
the event that the aggregate amount of Damages for which the Buyer
Indemnified Parties are seeking indemnification under Section 9.3(a)(i)
exceeds such amount, the Buyer Indemnified Parties may recover the full
amount of such Damages less two hundred thousand dollars ($200,000) (the
"DEDUCTIBLE"). Notwithstanding the foregoing, the maximum amount of
Damages for which the Sellers shall be liable pursuant to this Section 9.3
shall be $20,000,000 plus (in the case of payments to the Sellers pursuant
to Section 3.1(c)) or minus (in the case of payments to Buyer pursuant to
Section 3.1(b)) the amount of any post closing adjustment as set forth in
Section 3.1 hereof. The Buyer Indemnified Parties shall have the right to
make a Claim hereunder prior to the time at which the Deductible (if any)
that is applicable to such Claim has been surpassed for the purpose of
asserting such Claim within the relevant survival period of the applicable
indemnification obligation, and any such Claim made within such period
shall, to the extent such Deductible ultimately is met, survive until its
final resolution.
(iii) The Seller Indemnified Parties may not recover Damages
from Buyer pursuant to Section 9.3(b)(i) until the aggregate amount of
Damages for which the Seller Indemnified Parties, in the aggregate, are
seeking indemnification exceeds two hundred and fifty thousand dollars
($250,000); PROVIDED, HOWEVER, in the event that the aggregate amount of
Damages for which the Sellers Indemnified Parties, are seeking
indemnification under Section 9.3(b)(i) exceeds such amount, the Seller
Indemnified Parties may recover the full amount of such Damages less the
Deductible. Notwithstanding the foregoing, the maximum amount of Damages
for which Buyer shall be liable pursuant to this Section 9.3 shall be an
amount equal to $10,000,000. The Seller Indemnified Parties shall have the
right to make a Claim hereunder prior to the time at which the Deductible
(if any) that is applicable to such Claim has been surpassed for the
purpose of asserting such Claim within the relevant survival period of the
applicable indemnification obligation, and any such Claim made within such
period shall, to the extent such Deductible ultimately is met, survive
until its final resolution.
(iv) The Sellers' liability under the indemnification
provisions of Section 9.3(a) hereof or otherwise under this Agreement shall
be subject to reduction in an amount equal to the value of any (i) net tax
benefit (giving effect to the time value of money at a discounting rate of
10%) realized by Buyer (by reason of a tax deduction, basis adjustment,
shifting of income, credits and/or deductions or otherwise from one or more
fiscal periods to another); (ii) insurance benefit realized by Buyer in
connection with the loss or damage suffered by Buyer which forms the basis
of the Sellers' liability hereunder and (iii) third party (i.e., non-
Seller) indemnified benefit realized by Buyer in connection with the loss
or damage suffered by Buyer which forms the basis of Sellers' liability
hereunder; PROVIDED, HOWEVER, that Buyer shall have no obligation to pursue
any benefits described in clause (iii) above but shall be required to
pursue benefits described in clause (ii) above, in each case before making
a claim against the Sellers pursuant to the terms of this Section 9.3;
46
(v) Buyer's liability under the indemnification provisions
of Section 9.3(b) hereof or otherwise under this Agreement shall be subject
to reduction in an amount equal to the value of any (i) net tax benefit any
Seller (giving effect to the time value of money at a discounting rate of
10%) realized (by reason of a tax deduction, basis adjustment, shifting of
income, credits and/or deductions or otherwise from one or more fiscal
periods to another); (ii) insurance benefit realized by any Seller in
connection with the loss or damage suffered by such Seller which forms the
basis of Buyer's liability hereunder and (iii) third party (i.e., non-
Buyer) indemnified benefit realized by Buyer in connection with the loss or
damage suffered by the Sellers which forms the basis of Buyer's liability
hereunder; PROVIDED, HOWEVER, that the Sellers shall have no obligation to
pursue any benefits described in clause (iii) above but shall be required
to pursue benefits described in clause (ii) above, in each case before
making a claim against Buyer pursuant to the terms of this Section 9.3;
(vi) Neither (a) the termination of the representations or
warranties contained herein, nor (b) the expiration of the indemnification
obligations described above, will affect the rights of a Person in respect
of any Claim made by such Person received by the indemnifying party prior
to the expiration of the applicable survival period provided herein;
(vii) It is specifically understood and agreed that in the
event a misrepresentation made herein or pursuant hereto or a breach of any
representation, warranty or covenant contained herein is discovered by any party
hereto and asserted by it after the Closing, the remedy of such party shall be
limited to indemnification as set forth in Section 9.3(a) (in the case of Buyer)
and Section 9.3(b) (in the case of the Sellers) hereof (as limited by the
provisions set forth in this Section or elsewhere in this Agreement), and such
party shall not be entitled to the rescission of this Agreement, nor shall a
multiplier be used in the computation of Damages as the amount of a Claim, nor
shall such party otherwise be entitled to any consequential damages including,
without limitation, lost profits.
9.4 FURTHER ACTIONS. (a) Following the Closing, the Sellers agree to
execute such documents and take such actions as may be requested by Buyer's
counsel and otherwise cooperate with Buyer and its Affiliates and their
representatives in connection with any filings required to be made with the
Securities and Exchange Commission as a consequence of the transactions
contemplated by this Agreement.
ARTICLE X
TAX MATTERS
10.1 TAX INDEMNIFICATION. Except to the extent covered by
Liabilities or reserves reflected on the Closing Balance Sheet, the Sellers
shall be responsible for and pay and shall, severally, but not jointly,
indemnify and hold harmless Buyer and each of the Subject Companies (and each of
their respective Affiliates, successors and assigns) with respect to (i) any and
all Taxes imposed on any of the Subject Companies, or for which any of the
Subject Companies is liable, with respect to any Pre-Closing Periods, (ii) all
Taxes arising out of a breach of the Sellers' representations and warranties
contained in Section 5.15 hereof and (iii) any costs or expenses ("LOSSES") with
respect to the Taxes indemnified hereunder.
47
10.2 APPORTIONMENT. Any Taxes with respect to any Subject Company
that relate to a Tax period beginning on or before the Closing Date and ending
after the Closing Date (an "OVERLAP PERIOD") shall be apportioned between the
Pre-Closing Period and the Post-Closing Period, (i) in the case of real or
personal property Taxes (and any other Taxes not measured or measurable, in
whole or in part, by net or gross income or receipts), on a per diem basis and,
(ii) in the case of other Taxes, as determined from the Books and Records of
such Subject Company during the portion of such period ending on the Closing
Date and the portion of such period beginning on the day following the Closing
Date consistent with the past practices of each Subject Company. Buyer shall
cause each Subject Company to file any Returns for any Overlap Period, and Buyer
shall pay all Taxes shown as due on any such Returns. The Sellers shall pay
Buyer all such Taxes apportioned to the Pre-Closing Period (to the extent not
paid by any Subject Company prior to the Closing Date or accrued or otherwise
reflected as a Liability on the Closing Balance Sheet) due pursuant to the
filing of any such Returns under the provisions of this Section 10.2(b) within
fifteen (15) business days of receipt of notice of such filing by Buyer, which
notice shall set forth in reasonable detail the calculations regarding the
Sellers' share of such Taxes.
10.3 REFUNDS. Buyer agrees to assign and promptly remit (and to cause
each Subject Company to assign and promptly remit) all refunds (including
interest thereon) net of any tax effect to Buyer or any Subject Company,
received by Buyer or any Subject Company of any Taxes for which the Sellers have
indemnified Buyer or any Subject Company hereunder; PROVIDED, HOWEVER, that
Buyer shall be entitled to the portion of any refund resulting from a carryback
of a net operating loss, net capital loss, tax credit or similar item sustained
or arising in any period after the Closing Date. Buyer agrees that upon
reasonable request of the Sellers, Buyer shall file or cause the Subject
Companies to file, at the Sellers' reasonable expense, a claim for refund of any
Tax for which the Sellers have indemnified Buyer or the Subject Companies
hereunder with the exception of any resulting from the operation of the Subject
Companies subsequent to the Closing Date.
10.4 RETURNS. The Sellers shall prepare or cause to be prepared, and
timely file or cause to be filed, all Returns of any Subject Company for all
taxable periods of such Subject Company ending on or prior to the Closing Date
and shall pay or cause to be paid all Taxes due with respect to such Returns.
With respect to any such Returns required to be filed by the Sellers and not
required to be filed before the Closing Date, the Sellers shall provide Buyer
and its authorized representatives with copies of any such completed Return at
least fifteen (15) business days prior to the due date for filing of such Return
and Buyer and its representatives shall have the right to review such Return
prior to the filing of such Return. The Sellers and Buyer agree to consult and
resolve in good faith any issues arising as a result of such review.
10.5 OTHER MATTERS. (a) Buyer shall pay, or cause to be paid, and
shall indemnify and hold harmless the Sellers (and each of their successors and
assigns) against any Liability for Taxes imposed on Buyer or any Subject Company
or for which the Buyer or any Subject Company is liable with respect to Post-
Closing Periods.
(b) Buyer shall promptly notify the Sellers in writing upon receipt by
Buyer or any Affiliate of Buyer of notice of (i) any pending or threatened
federal, state, local or foreign Tax audits or assessments of any Subject
Company, so long as any Pre-Closing Period remains open, and (ii) any pending or
threatened federal, state, local or foreign Tax audits or assessments of Buyer
or any Affiliate of Buyer which may affect the Tax Liabilities of any Subject
Company with respect to any Pre-Closing Period. The Sellers shall promptly
notify Buyer in writing upon receipt by the Sellers or
48
any Affiliate of the Sellers of notice of any pending or threatened federal,
state, local or foreign Tax audits or assessments relating to the income,
properties or operations of any Subject Company.
(c) Buyer shall have the right to represent the interests of any
Subject Company in any Tax audit or administrative or court proceeding relating
to any Returns (including any proceeding relating to such Subject Company for
Pre-Closing Periods). In the event that Buyer compromises or settles any Tax
claim, or consents or agrees to any Tax Liability, relating to any Subject
Company for any Pre-Closing Period, the Sellers shall have the right to review
such compromise, settlement, consent or agreement. Notwithstanding anything to
the contrary contained or implied in this Agreement, without the prior written
consent of the Sellers, not to be unreasonably withheld, neither Buyer nor any
of its Affiliates shall agree or consent to compromise or settle, either
administratively or after the commencement of litigation, any issue or claim
arising in any such audit or proceeding, or otherwise agree or consent to any
Tax Liability of Buyer, any of its Affiliates, or any Subject Company, to the
extent that any such compromise, settlement, consent or agreement may affect the
Tax Liability of the Sellers, any of their respective Affiliates, or any Subject
Company for any Pre-Closing Period (including without limitation the reduction
of asset basis or cost adjustments, the lengthening of any amortization or
depreciation periods, the denial of amortization or depreciation deductions, or
the reduction of loss or credit carrybacks).
(d) After the Closing Date, Buyer and the Sellers shall make available
to the other, as reasonably requested, all information, records or documents
relating to Tax Liabilities or potential Tax Liabilities of the Sellers, any
Affiliate of the Sellers or any Subject Company for any Pre-Closing Period, and
shall preserve all such information, records and documents until 60 days
following the expiration of any applicable statute of limitations, including
extensions thereof, or such other period as required by law or upon request of
the other party. Buyer and the Sellers shall also make available to each other
as reasonably requested by Buyer or the Sellers, as the case may be, personnel
responsible for preparing or maintaining information, records and documents, in
connection with Tax matters. In case at any time after the Closing Date any
further action is necessary to carry out the purposes of this Agreement, the
parties hereto shall take all such necessary action.
(e) All sales, value added, use, state or local transfer and gains
Taxes, registration, stamp and similar Taxes imposed in connection with the
transactions contemplated by this Agreement shall be borne equally by Buyer, on
the one hand, and the Sellers, on the other hand.
(f) Any payments made to the Sellers, any Subject Company or Buyer
pursuant to this Article X or in Article IX shall constitute an adjustment of
the Purchase Price for Tax purposes and shall be treated as such by Buyer and
the Sellers on their Returns to the extent permitted by law.
(g) All Tax sharing or similar agreements, if any, to which any
Subject Company is a party will be canceled at or prior to the Closing and
neither the Buyer nor any Subject Company shall have any obligation under any
such agreement.
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ARTICLE XI
MISCELLANEOUS
11.1 ASSIGNMENT. Neither this Agreement nor any of the rights or
obligations hereunder may be assigned by any party without the prior written
consent of the other party; except that Buyer may, without such consent, assign
all such rights to any lender as collateral security and assign all such rights
and obligations to a wholly owned subsidiary (or a partnership controlled by
Buyer) or Subsidiaries of Buyer or to a successor in interest to Buyer which
shall assume all obligations and Liabilities of Buyer under this Agreement,
PROVIDED, HOWEVER, that no such assignment by Buyer shall relieve Buyer in any
way of its obligations hereunder. Subject to the foregoing, this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
11.2 NOTICES. All notices, requests, demands and other
communications which are required or may be given under this Agreement shall
be in writing and shall be deemed to have been duly given when received if
personally delivered; when transmitted if transmitted by telecopy, electronic
or digital transmission method; the day after it is sent, if sent for next
day delivery to a domestic address by recognized overnight delivery service
(E.G., Federal Express); and upon receipt, if sent by certified or registered
mail, return receipt requested. In each case notice shall be sent to:
If to any of the Sellers, addressed to such Seller at:
Matrix International Logistics, Inc.
205 South Whiting Street
Alexandria, VA 22304
Telephone: (703) 461-8700
Telecopy: (703) 461-3679
with a copy to:
Winthrop, Stimson, Putnam & Roberts
One Battery Park Plaza
New York, New York 10004
Attn: Kenneth E. Adelsberg
Telephone: (212) 858-1000
Telecopy: (212) 858-1500
If to Buyer, addressed to:
International Logistics Limited
310 South Street
Morristown, NJ 07962
Attention: Roger E. Payton
Telephone: (201) 898-0290
Telecopy: (201) 898-0840
50
With a copy to:
Latham & Watkins
633 W. Fifth Street, Suite 4000
Los Angeles, CA 90071-2007
Attn: Paul D. Tosetti
Telephone: (213) 485-1234
Telecopy: (213) 891-8763
or to such other place and with such other copies as either party may designate
as to itself by written notice to the others.
11.3 CHOICE OF LAW. This Agreement shall be construed in accordance
with and governed by the laws of the State of New York (without giving effect to
its choice of law principles), except with respect to matters of law concerning
the internal corporate affairs of any corporate entity which is a party to or
the subject of this Agreement, and as to those matters the law of the
jurisdiction under which the respective entity derives its powers shall govern.
11.4 ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS. This Agreement,
together with all exhibits and schedules hereto (including the Disclosure
Schedule and the other agreements referred to herein), constitutes the entire
agreement among the parties pertaining to the subject matter hereof and
supersedes all prior agreements, understandings, negotiations and discussions,
whether oral or written, of the parties. This Agreement may not be amended
except in an instrument in writing signed on behalf of each of the parties
hereto. No amendment, supplement, modification or waiver of this Agreement
shall be binding unless executed in writing by the party to be bound thereby.
No waiver of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver of any other provision hereof (whether or not similar), nor
shall such waiver constitute a continuing waiver unless otherwise expressly
provided.
11.5 MULTIPLE COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11.6 EXPENSES. Except as otherwise specified herein, Buyer shall pay
its own legal, accounting, out-of-pocket and other expenses incident to this
Agreement and to any action taken by Buyer in preparation for carrying this
Agreement into effect. Subject to the provisions of Section 8.6 of this
Agreement, the Target shall pay the legal, accounting, out-of-pocket and other
expenses of the Sellers incidental to this Agreement and to any action taken by
the Sellers in preparation for carrying this Agreement into effect, which
expenses shall be deducted from the Permitted Distributions as set forth in
Section 8.6 of this Agreement.
11.7 INVALIDITY. In the event that any one or more of the provisions
contained in this Agreement or in any other instrument referred to herein,
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, then to the maximum extent permitted by law, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement or any other such instrument.
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11.8 TITLES. The titles, captions or headings of the Articles and
Sections herein are inserted for convenience of reference only and are not
intended to be a part of or to affect the meaning or interpretation of this
Agreement.
11.9 PUBLICITY. Except as required by law, neither Buyer nor the
Target or the Sellers shall issue any press release or make any public statement
regarding this Agreement and the transactions contemplated hereby, without prior
written approval of the other party; PROVIDED, HOWEVER, that in the case of
announcements, statements, acknowledgments or revelations which either party is
required by law to make, issue or release, the making, issuing or releasing of
any such announcement, statement, acknowledgment or revelation by the party so
required to do so by law shall not constitute a breach of this Agreement if such
party shall have given, to the extent reasonably possible, not less than two (2)
calendar days prior notice to the other party, and shall have attempted, to the
extent reasonably possible, to clear such announcement, statement,
acknowledgment or revelation with the other party. Each party hereto agrees
that it will not unreasonably withhold any such consent or clearance. Buyer
may, with the consent of Sellers, issue or make an appropriate press release or
public announcement after the Closing.
11.10 CONFIDENTIAL INFORMATION.
(a) NO DISCLOSURE. The parties acknowledge that the transaction
described herein is of a confidential nature and shall not be disclosed except
to consultants, advisors and Affiliates, or as required by law, until such time
as the parties make a public announcement regarding the transaction as provided
in Section 11.9.
(b) PRESERVATION OF CONFIDENTIALITY. In connection with the
negotiation of this Agreement, the preparation for the consummation of the
transactions contemplated hereby, and the performance of obligations hereunder,
Buyer acknowledges that it will have access to confidential and proprietary
information relating to the Subject Companies and the Target and the Sellers
acknowledge that they will have access to confidential information relating to
the Buyer and its Affiliates, in each case, including technical, manufacturing
or marketing information, ideas, methods, developments, inventions,
improvements, business plans, trade secrets, scientific or statistical data,
diagrams, drawings, specifications or other proprietary information relating
thereto, together with all analyses, compilations, studies or other documents,
records or data prepared by the Target or Buyer, as the case may be, or their
respective representatives or Affiliates, which contain or otherwise reflect or
are generated from such information ("CONFIDENTIAL INFORMATION"). The term
"CONFIDENTIAL INFORMATION" does not include information received by one party in
connection with the transactions contemplated hereby which (i) is or becomes
generally available to the public other than as a result of a disclosure by such
party or its representatives, (ii) was within such party's possession prior to
its being furnished to such party by or on behalf of the other party in
connection with the transactions contemplated hereby, provided that the source
of such information was not known by such party to be bound by a confidentiality
agreement with or other contractual, legal or fiduciary obligation of
confidentiality to the other party or any other Person with respect to such
information or (iii) becomes available to such party on a non-confidential basis
from a source other than the other party or any of their respective
representatives, provided that such source is not bound by a confidentiality
agreement with or other contractual, legal or fiduciary obligation of
confidentiality to the other party or any other Person with respect to such
information.
(c) Each party shall treat all Confidential Information of the
other party as confidential, preserve the confidentiality thereof and not
disclose any such Confidential Information,
52
except to its representatives and Affiliates who need to know such
Confidential Information in connection with the transactions contemplated
hereby. Each party shall use all reasonable efforts to cause its
representatives to treat all such Confidential Information of the other party
as confidential, preserve the confidentiality thereof and not disclose any
such Confidential Information. Each party shall be responsible for any
breach of this Agreement by any of its representatives. If, however,
Confidential Information is disclosed, the party responsible for such
disclosure shall immediately notify the other party in writing and take all
reasonable steps required to prevent further disclosure.
(d) Until the Closing or the termination of this Agreement, all
Confidential Information shall remain the property of the party who originally
possessed such information. In the event of the termination of this Agreement
for any reason whatsoever, each party shall, and shall cause its representatives
to, return to the other party all Confidential Information (including all
copies, summaries and extracts thereof) furnished to such party by the other
party in connection with the transactions contemplated hereby.
(e) If one party or any of its representatives or Affiliates is
requested or required (by oral questions, interrogatories, requests for
information or documents in legal proceedings, subpoena, civil investigative
demand or other similar process) or is required by operation of law to disclose
any Confidential Information, such party shall provide the other party with
prompt written notice of such request or requirement, which notice shall, if
practicable, be at least 48 hours prior to making such disclosure, so that the
other party may seek a protective order or other appropriate remedy and/or waive
compliance with the provisions of this Agreement. If, in the absence of a
protective order or other remedy or the receipt of such a waiver, such party or
any of its representatives are nonetheless, in the opinion of counsel, legally
compelled to disclose Confidential Information, then such party may disclose
that portion of the Confidential Information which such counsel advises is
legally required to be disclosed, provided that such party uses its reasonable
efforts to preserve the confidentiality of the Confidential Information,
whereupon such disclosure shall not constitute a breach of this Agreement.
11.11 BURDEN AND BENEFIT. This Agreement shall be binding upon and
shall inure to the benefit of, the parties hereto and their respective
successors and permitted assigns. There are no third party beneficiaries of
this Agreement; PROVIDED, HOWEVER, that any Person that is not a party to this
Agreement but, by the terms of Section 9.3 or Section 10.1, is entitled to
indemnification, shall be considered a third party beneficiary of this
Agreement, with full rights of enforcement as though such Person was a signatory
to this Agreement.
11.12 KNOWLEDGE. Whenever a phrase herein is qualified by "to the
knowledge of the Sellers" or a similar phrase, it is intended to refer to the
actual knowledge of the Sellers, collectively, after having made a reasonable
investigation of the circumstances forming the basis of his knowledge by
consulting with those persons listed in Schedule 11.12 hereto, it being
understood that the Sellers shall have no other investigatory obligations.
Notwithstanding the foregoing, Buyer and the Sellers agree and acknowledge that
(i) the Sellers were actively involved in the organization of the Russian
Ventures, (ii) the Sellers have been and are currently involved in the conduct,
operation and financial administration of the Russian Ventures and (iii) "the
knowledge of the Sellers" with respect to the representations and warranties
made by the Sellers in Article VI of this Agreement incorporates the collective
knowledge acquired by the Sellers as a result of such involvement.
11.13 ATTORNEYS' FEES. If any party to this Agreement brings an
action to enforce its rights under this Agreement, the prevailing party shall be
entitled to recover its costs and expenses,
53
including without limitation reasonable attorneys' fees, incurred in
connection with such action, including any appeal of such action.
11.14 RELIANCE ON REPRESENTATIONS AND WARRANTIES. The Sellers and
the Target understand that Buyer, and for purposes of certain opinions to be
delivered at the Closing, Latham & Watkins and Winthrop, Stimson, Putnam &
Roberts, will rely upon the accuracy and truth of the representations and
warranties set forth in Article V and it hereby consents to such reliance.
Buyer understands that Latham & Watkins and Winthrop, Stimson, Putnam &
Roberts, for purposes of certain opinions to be delivered at the Closing,
will rely upon the accuracy and truth of the representations and warranties
set forth in Article VII and it hereby consents to such reliance.
11.15 THIS SECTION INTENTIONALLY OMITTED.
11.16 LIMITATION OF LIABILITY. Notwithstanding anything to the
contrary in this Agreement, in no event shall any party hereto be liable for any
incidental or consequential damages occasioned by any failure to perform or the
breach of any obligation under this Agreement.
11.17 ADDITIONAL SURVIVAL. In addition to the survival of
representations and warranties and other provisions referenced in Section 11.2
of this Agreement, which shall survive pursuant to the terms of such Section,
the obligations of the Sellers and Buyer contained in Sections 2.1, 3.1, 3.2,
4.2, 4.3, 8.1, 8.2 and 11.10 and in Articles IX and X of this Agreement shall
survive the Closing Date indefinitely.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed on their respective behalf, by their respective officers
thereunto duly authorized, all as of the day and year first above written.
BUYER:
INTERNATIONAL LOGISTICS LIMITED
/s/ Roger E. Payton
-----------------------------------
By: Roger E. Payton
Title: President
SELLERS:
/s/ Douglas Cruikshank
-----------------------------------
Douglas Cruikshank
/s/ Ronald S. Cruse
-----------------------------------
Ronald S. Cruse
/s/ Steve Hitchcock
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Steve Hitchcock
/s/ Paul D. Smith
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Paul D. Smith
55
SCHEDULES
Schedule 1.1 Interim Balance Sheet
Schedule 1.2 Interim Financial Statements
Schedule 1.3 Excluded Assets
Schedule 1.4 Target's Accounting Practices
Schedule 1.5 Permitted Encumbrances
Schedule 2.1 Purchase Price Allocation and Stock Ownership
Schedule 5.1 Target's Organization; Capitalization
Schedule 5.3 Title to Assets
Schedule 5.4 Intellectual Property Rights
Schedule 5.5 Facility Leases
Schedule 5.6 Contracts and Commitments
Schedule 5.8 Financial Statements
Schedule 5.9 Absence of Certain Changes or Events
Schedule 5.12 Litigation
Schedule 5.13 Labor Matters
Schedule 5.14 Permits, Consents, Approvals, Compliance with Law
Schedule 5.15 Tax Matters
Schedule 5.16 Severance Arrangements
Schedule 5.17 Insurance
Schedule 5.20 Customers and Suppliers
Schedule 5.21 Bank Accounts
Schedule 5.22 Environmental Matters
Schedule 5.23 Employee Benefit Plans
Schedule 5.25 Agreements to Sell Assets or Capital Stock
Schedule 5.29 Power of Attorney
Schedule 6.1 Russian Ventures' Organization; Capitalization
Schedule 6.3 Russian Ventures' Contracts and Commitments
Schedule 6.5 Russian Ventures' Absence of Certain Changes or Events
Schedule 6.8 Russian Ventures' Permits, Consents, Approvals, Compliance
with Law
Schedule 6.10 Russian Ventures' Bank Accounts
Schedule 6.11 Russian Ventures' Environmental Matters
Schedule 6.13 Russian Ventures' Power of Attorney
Schedule 7.5 Buyer's Capitalization
Schedule 7.8 Buyer's Litigation
Schedule 11.12 Sellers' Knowledge
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