EXHIBIT 10.1
STOCK EXCHANGE AGREEMENT
BY AND AMONG
PROTOSOURCE CORPORATION,
SUNCOAST AUTOMATION, INC., AND
THE SHAREHOLDERS OF SUNCOAST AUTOMATION, INC.
Dated as of August 22, 2000
Effective as of August 1, 2000
TABLE OF CONTENTS
Section Page
- ------- ----
Article I EXCHANGE OF SHARES .............................................. 1
1.1 Exchange of Shares ............................................. 1
Article II EXCHANGE RATIO, EARNOUT AND LOCK-UP ............................ 1
2.1 Exchange Ratio ................................................. 1
2.2 Exercise of Options ............................................ 2
2.3 Earnout of Additional Purchaser Common Stock ................... 2
2.4 Lockup Provision ............................................... 4
2.5 Stock Legend ................................................... 4
Article III CLOSING ....................................................... 5
3.1 Closing Date ................................................... 5
Article IV REPRESENTATIONS AND WARRANTIES OF THE REPRESENTING SELLERS ..... 5
4.1 Organization and Good Standing ................................. 5
4.2 Authorization of Agreement ..................................... 5
4.3 Capitalization ................................................. 6
4.4 No Subsidiaries ................................................ 6
4.5 Corporate Records .............................................. 6
4.6 Conflicts; Consents of Third Parties ........................... 6
4.7 Financial Statements ........................................... 7
4.8 No Undisclosed Liabilities ..................................... 7
4.9 Absence of Certain Developments ................................ 8
4.10 Taxes .......................................................... 9
4.11 Real Property .................................................. 11
4.12 Tangible Personal Property ..................................... 12
4.13 Intangible Property ............................................ 13
4.14 Material Contracts ............................................. 13
4.15 Employee Benefits .............................................. 14
4.16 Labor .......................................................... 16
4.17 Litigation ..................................................... 17
4.18 Compliance with Laws; Permits .................................. 17
4.19 Environmental Matters .......................................... 17
4.20 Insurance ...................................................... 18
4.21 Inventories; Receivables; Payables ............................. 18
4.22 Related Party Transactions ..................................... 18
4.23 Customers and Suppliers ........................................ 19
4.24 Banks .......................................................... 19
4.25 No Misrepresentation ........................................... 19
4.26 Financial Advisors ............................................. 19
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Article V REPRESENTATIONS AND WARRANTIES OF THE SELLERS ................... 19
5.1 Organization and Good Standing ................................. 20
5.2 Authorization of Agreement ..................................... 20
5.3 Capitalization ................................................. 20
5.4 Conflicts; Consents of Third Parties ........................... 20
5.5 Ownership and Transfer of Shares ............................... 20
5.6 Taxes .......................................................... 21
5.7 Employee Benefits .............................................. 21
5.8 Related Party Transactions ..................................... 21
5.9 No Misrepresentation ........................................... 21
5.10 Financial Advisors ............................................. 21
Article VI REPRESENTATIONS AND WARRANTIES OF PURCHASER .................... 22
6.1 Organization and Good Standing ................................. 22
6.2 Authorization of Agreement ..................................... 22
6.3 Conflicts; Consents of Third Parties ........................... 22
6.4 Litigation ..................................................... 23
6.5 Investment Intention ........................................... 23
6.6 Financial Advisors ............................................. 23
6.7 SEC Documents .................................................. 23
6.8 Tax Free Exchange .............................................. 24
Article VII COVENANTS ..................................................... 24
7.1 Access to Information .......................................... 24
7.2 Conduct of the Business Pending the Closing .................... 25
7.3 Consents ....................................................... 27
7.4 Filings with Governmental Bodies ............................... 27
7.5 Updated Financial Statements ................................... 28
7.6 Other Actions .................................................. 28
7.7 No Solicitation ................................................ 28
7.8 Preservation of Records ........................................ 28
7.9 Publicity ...................................................... 29
7.10 Use of Name .................................................... 29
7.11 Environmental Matters .......................................... 29
7.12 Employment Agreements .......................................... 29
7.13 Board of Directors Representation .............................. 30
7.14 Registration Rights ............................................ 30
Article VIII CONDITIONS TO CLOSING ........................................ 33
8.1 Conditions Precedent to Obligations of Purchaser ............... 33
8.2 Conditions Precedent to Obligations of the Sellers ............. 34
Article IX DOCUMENTS TO BE DELIVERED ...................................... 35
9.1 Documents to be Delivered by the Sellers ....................... 35
9.2 Documents to be Delivered by the Purchaser ..................... 35
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Article X INDEMNIFICATION ................................................. 36
10.1 Non-Tax Indemnification ........................................ 36
10.2 Limitations on Indemnification for Breaches of
Representations and Warranties ................................. 37
10.3 Non-Tax Indemnification Procedures ............................. 38
10.4 Tax Matters .................................................... 39
10.5 Employee Benefits and Labor Indemnity .......................... 43
10.6 Tax Treatment of Indemnity Payments ............................ 44
Article XI MISCELLANEOUS .................................................. 44
11.1 Certain Definitions ............................................ 44
11.2 Payment of Sales, Use or Similar Taxes ......................... 49
11.3 Expenses ....................................................... 49
11.4 Survival of Representations and Warranties ..................... 49
11.5 Further Assurances ............................................. 49
11.6 Submission to Jurisdiction; Consent to Service of Process ...... 50
11.7 Entire Agreement; Amendments and Waivers ....................... 50
11.8 Governing Law .................................................. 50
11.9 Table of Contents and Headings ................................. 50
11.10 Notices ........................................................ 51
11.11 Severability ................................................... 51
11.12 Binding Effect; Assignment ..................................... 51
11.13 Counterparts ................................................... 52
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STOCK EXCHANGE AGREEMENT
STOCK EXCHANGE AGREEMENT, dated as of August 22, 2000 and effective as of
August 1, 2000 (the "Agreement"), by and among ProtoSource Corporation, a
California corporation existing under the laws of California (the "Purchaser"),
Suncoast Automation, Inc., a Delaware corporation (the "Company"), and the
shareholders of the Company listed on the signature pages hereof (collectively
the "Sellers").
W I T N E S S E T H:
--------------------
WHEREAS, the Sellers own an aggregate of 143,282 shares of common stock,
$0.001 par value (the "Shares"), of the Company, which Shares constitute all of
the issued and outstanding shares of all classes of capital stock of the
Company; and
WHEREAS, the Sellers desire to exchange their Shares for shares of voting
common stock of the Purchaser because such transaction would be classified as a
tax-free corporate reorganization, and the Purchaser desires to effect that
exchange upon the terms and conditions hereinafter set forth and pursuant to the
provisions of Section 368(a)(1)(B) of the Code; and
WHEREAS, certain terms used in this Agreement are defined in Section 11.1.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements hereinafter contained, the parties hereby agree as follows:
ARTICLE I
EXCHANGE OF SHARES
1.1 Exchange of Shares.
-----------------------
Upon the terms and subject to the conditions contained herein, on the
Closing Date each Seller shall transfer, convey and deliver to the Purchaser,
and the Purchaser shall receive and accept from each Seller, the Shares of such
Seller set forth opposite such Seller's name on Annex A hereto. In exchange
therefore, the Purchaser shall issue to each Seller a stock certificate
representing the appropriate number of shares of Purchaser Common Stock, as
determined in accordance with the Exchange Ratio. The exchange of the Shares for
the shares of Purchaser's common stock pursuant to this Agreement shall be
effective as of the close of business on August 22, 2000 (the "Effective Time").
ARTICLE II
EXCHANGE RATIO, EARNOUT AND LOCK-UP
2.1 Exchange Ratio.
-------------------
The Purchaser shall deliver to the Sellers 1,303,072 shares (the
"Acquisition Shares") of common stock, no par value, of the Purchaser
("Purchaser Common Stock") in exchange for the Shares. Each Seller shall receive
the number of shares of Purchaser Common Stock equal to the number of Shares
transferred by that Seller, as listed on Annex A hereto, multiplied by the
Exchange Ratio. The Exchange Ratio shall be determined by dividing the
Acquisition Shares by the total number of Shares transferred by the Sellers.
2.2 Exercise of Options.
------------------------
Prior to or on the Closing Date, each Seller shall exercise any options to
purchase Shares pursuant to the terms of the options. Any options not exercised
prior to or on the Closing Date shall terminate and cease to exist at the
Effective Time.
2.3 Earnout of Additional Purchaser Common Stock.
-------------------------------------------------
(a) The Purchaser shall deposit 1,000,000 shares of Purchaser Common Stock
(the "Earnout Shares") with the Escrow Agent. The Escrow Agent shall hold the
Earnout Shares pursuant to the Escrow Agreement, substantially in the form
attached hereto as Exhibit A. The Earnout Shares shall be held by the Escrow
Agent for a maximum of twenty seven (27) months from the date of this Agreement
(the "Earnout Period").
(i) The Purchaser shall direct the Escrow Agent to transfer fifty
percent (50%) of the Earnout Shares to the Sellers, in accordance with their pro
rata ownership of the Shares, upon the Company achieving both (A) 19,000
Subscribers/Rooms and (B) a Cumulative Cash Flow of $1,300,000 during the
Earnout Period (the "Initial Earnout Terms").
(ii) The Purchaser shall direct the Escrow Agent to transfer five
percent (5%) of the Earnout Shares to the Sellers, in accordance with their pro
rata ownership of the Shares, upon the Company achieving:
(I) 20,900 Subscribers/Rooms and a Cumulative Cash Flow of
$1,490,000;
(II) 22,800 Subscribers/Rooms and a Cumulative Cash Flow of
$1,680,000
(III) 24,700 Subscribers/Rooms and a Cumulative Cash Flow of
$1,870,000
(IV) 26,600 Subscribers/Rooms and a Cumulative Cash Flow of
$2,060,000
(V) 28,500 Subscribers/Rooms and a Cumulative Cash Flow of
$2,250,000
(VI) 30,400 Subscribers/Rooms and a Cumulative Cash Flow of
$2,440,000,
(VII) 32,300 Subscribers/Rooms and a Cumulative Cash Flow of
$2,630,000;
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(VIII) 34,200 Subscribers/Rooms and a Cumulative Cash Flow of
$2,820,000;
(IX) 36,100 Subscribers/Rooms and a Cumulative Cash Flow of
$3,010,000; and
(X) 38,000 Subscribers/Rooms and a Cumulative Cash Flow of
$3,200,000 (the "Completed Earnout Terms").
(b) Upon the expiration of the Earnout Period, the Escrow Agent shall
return to the Purchaser all Earnout Shares not earned by the Sellers, except:
(i) if the Company shall have subscribers under a buildout contract
"Buildout Contract"), which Buildout Contract has not been instituted upon the
expiration of the Earnout Period. Such Buildout Contract not instituted upon the
expiration of the Earnout Period shall have a grace period of one hundred and
twenty (120) days from the Earnout Period for the Company to complete such
installation and initiate service; or
(ii) if the Company shall have partially completed a contract on a
site that has not more than 4,000 Subscribers/Rooms and is generating revenue
for the Company, the Company shall have a grace period of one hundred and eighty
(180) days from the Earnout Period to complete such installation and initiate
service to every Subscriber/Room.
(c) Earnout calculations for any grace period results in Sections 2.3(b)(i)
and 2.3(b)(ii) shall have a ceiling equal to the best results obtained by the
Company in any fiscal reporting quarter during the Earnout Period.
(d) In the event that the Purchaser shall not fund the Company as provided
for on Annex B, the Earnout Period shall be extended by an amount of time equal
to one hundred twenty-five percent (125%) of the time period in which the
Purchaser is in default of funding the Company.
(e) In the event that an agreement is reached whereby the Purchaser would
be sold during the Earnout Period at a time when its market capitalization is
greater than fifty million dollars ($50,000,000) and the acquiring company
provides written notice to the Purchaser that it will refuse to honor the
earnout provisions of this Section 2.3, the Purchaser shall direct the Escrow
Agent to transfer a percentage of the remaining Earnout Shares (but in no event
shall the percentage be greater than 100%), not previously earned by the
Company, to the Sellers in accordance with their pro rata ownership of the
Shares, prior to the sale of the Purchaser, as follows:
Market Cap - $50,000,000
-------------------------- X 2 = % of remaining Earnout Shares transferred
$1,000,000
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2.4 Lockup Provision.
---------------------
Any common stock of the Purchaser acquired by the Sellers pursuant to this
Agreement, including the Earnout Shares, shall be subject to a lockup agreement
(the "Lockup Agreement"), for a period of three (3) years from the date of this
Agreement (the "Lockup Period").
The common stock of the Purchaser subject to the Lockup Agreement shall be
released from the Lockup Agreement prior to the expiration of the Lockup Period
upon:
(i) the common stock of the Purchaser closing at or above $15.00 per
share for twenty (20) consecutive trading days on any Nasdaq Market;
(ii) the common stock of the Company trading 500,000 or more shares
per week on average on any Nasdaq Market for twenty (20) consecutive trading
days at a closing price not less than $10.00; or
(iii) the Purchaser being sold for a market capitalization above one
hundred million dollars ($100,000,000) and the acquiring party shall not agree
to honor the earnout provisions of Section 2.3 of this Agreement.
2.5 Stock Legend.
-----------------
The Purchaser Common Stock acquired by the Sellers in connection with this
Agreement shall bear the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED AND MAY NOT BE
SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN
THE ABSENCE OF (I) AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH
SECURITIES UNDER SAID ACT OR (II) AN OPINION OF COMPANY COUNSEL THAT
SUCH REGISTRATION IS NOT REQUIRED.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A THREE
YEAR LOCK-UP AGREEMENT BY AND BETWEEN THE HOLDER AND THE COMPANY,
DATED AS OF AUGUST 22, 2000 AND MAY NOT BE TRANSFERRED, SOLD OR
ASSIGNED BEFORE AUGUST 22, 2003 EXCEPT AS PERMITTED BY THE LOCK-UP
AGREEMENT.
THE COMPANY'S TRANSFER AGENT HAS ISSUED "STOP TRANSFER" INSTRUCTIONS
AGAINST THIS CERTIFICATE IN ORDER TO ENSURE COMPLIANCE WITH THE
FOREGOING.
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ARTICLE III
CLOSING
3.1 Closing Date.
-----------------
Subject to the satisfaction of the conditions set forth in Sections 8.1 and
8.2 hereof (or the waiver thereof by the party entitled to waive that
condition), the closing of the exchange of the Shares for the Acquisition Shares
provided for in Section 1.1 hereof (the "Closing") shall take place at 9:00 a.m.
at the offices of Sichenzia, Ross & Friedman LLP located at 135 West 50th
Street, 20th Floor, New York, New York 10020 (or at such other place as the
parties may designate in writing) on August 22, 2000, or on such other date as
the Sellers and the Purchaser may designate in writing. The date on which the
Closing shall be held is referred to in this Agreement as the "Closing Date".
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE REPRESENTING SELLERS
Mark Blanchard, Kent Spears and David Jennings (the "Representing Sellers")
hereby jointly and severally represent and warrant to the Purchaser that:
4.1 Organization and Good Standing.
-----------------------------------
The Company is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation as set forth
above and has all requisite corporate power and authority to own, lease and
operate its properties and to carry on its business as now conducted. The
Company is duly qualified or authorized to do business as a foreign corporation
and is in good standing under the laws of each jurisdiction in which it owns or
leases real property and each other jurisdiction in which the conduct of its
business or the ownership of its properties requires such qualification or
authorization, except where the failure to be so qualified would not have a
Material Adverse Effect.
4.2 Authorization of Agreement.
-------------------------------
The Company has all requisite power, authority and legal capacity to
execute and deliver this Agreement and each other agreement, document, or
instrument or certificate contemplated by this Agreement or to be executed by
the Company in connection with the consummation of the transactions contemplated
by this Agreement (together with this Agreement, the "Company Documents"), and
to consummate the transactions contemplated hereby and thereby. This Agreement
has been, and each of the Company Documents will be at or prior to the Closing,
duly and validly executed and delivered by the Company and (assuming the due
authorization, execution and delivery by the other parties hereto and thereto)
this Agreement constitutes, and each of the Company Documents when so executed
and delivered will constitute, legal, valid and binding obligations of the
Company, enforceable against the Company in accordance with their respective
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
and similar laws affecting creditors' rights and remedies generally, and
subject, as to enforceability, to general principles of equity, including
principles of commercial reasonableness, good faith and fair dealing (regardless
of whether enforcement is sought in a proceeding at law or in equity).
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4.3 Capitalization.
-------------------
(a) The authorized capital stock of the Company consists of 2,000,000
shares of Common Stock, $0.001 par value and 500,000 shares of Preferred Stock,
$0.001 par value. As of the date hereof, there are 147,028 shares of Common
Stock issued and outstanding and no shares of Preferred Stock issued and
outstanding. All of the issued and outstanding shares of Common Stock were duly
authorized for issuance and are validly issued, fully paid and non-assessable.
(b) Except as set forth on Schedule 4.3(b) hereto, there is no existing
option, warrant, call, right, commitment or other agreement of any character to
which the Company is a party requiring, and there are no securities of the
Company outstanding which upon conversion or exchange would require, the
issuance, sale or transfer of any additional shares of capital stock or other
equity securities of the Company or other securities convertible into,
exchangeable for or evidencing the right to subscribe for or purchase shares of
capital stock or other equity securities of the Company. The Company is not a
party to any voting trust or other voting agreement with respect to any of the
Shares or to any agreement relating to the issuance, sale, redemption, transfer
or other disposition of the capital stock of the Company.
4.4 No Subsidiaries.
--------------------
The Company does not, directly or indirectly, own any stock or other equity
interest in any other Person.
4.5 Corporate Records.
----------------------
(a) The Company has delivered to the Purchaser true, correct and complete
copies of the certificate of incorporation (certified by the Secretary of State
or other appropriate official of the applicable jurisdiction of organization)
and by-laws (certified by the secretary, assistant secretary or other
appropriate officer) or comparable organizational documents of the Company.
(b) The minute books of the Company previously made available to the
Purchaser contain complete and accurate records of all meetings and accurately
reflect all other corporate action of the stockholders and board of directors
(including committees thereof) of the Company. The stock certificate books and
stock transfer ledgers of the Company previously made available to the Purchaser
were true, correct and complete as of the date of delivery. All stock transfer
taxes levied or payable with respect to all transfers of shares of the Company
prior to the date hereof have been paid and appropriate transfer tax stamps
affixed.
4.6 Conflicts; Consents of Third Parties.
-----------------------------------------
(a) None of the execution and delivery by any Seller of this Agreement and
the Company Documents, the consummation of the transactions contemplated hereby
or thereby, or compliance by any Seller with any of the provisions hereof or
thereof will (i) conflict with, or result in the breach of, any provision of the
certificate of incorporation or by-laws or comparable organizational documents
of the Company; (ii) conflict with, violate, result in the breach or termination
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of, or constitute a default under any note, bond, mortgage, indenture, license,
agreement or other instrument or obligation to which the Company is a party or
by which any of them or any of their respective properties or assets is bound;
(iii) violate any statute, rule, regulation, order or decree of any governmental
body or authority by which the Company is bound; or (iv) result in the creation
of any Lien upon the properties or assets of the Company except, in case of
clauses (ii), (iii) and (iv), for such violations, breaches or defaults as would
not, individually or in the aggregate, have a Material Adverse Effect.
(b) No consent, waiver, approval, Order, Permit or authorization of, or
declaration or filing with, or notification to, any Person or Governmental Body
is required on the part of the Company in connection with the execution and
delivery of this Agreement or the Company Documents, or the compliance by the
Company with any of the provisions hereof or thereof.
4.7 Financial Statements.
-------------------------
The Company has delivered to the Purchaser copies of (i) the audited
balance sheets of the Company as at December 31, 1998 and 1999 and the related
audited statements of income and of cash flows of the Company for the years then
ended and (ii) the unaudited balance sheet of the Company as of May 31, 2000 and
the related statements of income and cash flows of the Company for the 5 month
period then ended (such audited and unaudited statements, including the related
notes and schedules thereto, are referred to herein as the "Financial
Statements"). Each of the Financial Statements is complete and correct in all
material respects, has been (or will be) prepared in accordance with GAAP
(subject to normal year-end adjustments in the case of the unaudited statements)
and in conformity with the practices consistently applied by the Company without
modification of the accounting principles used in the preparation thereof and
presents fairly the financial position, results of operations and cash flows of
the Company as at the dates and for the periods indicated. Each of the Financial
Statements comply (or will comply) with the disclosure requirements of Item 3.10
of Regulation SB as promulgated by the Securities and Exchange Commission.
For the purposes hereof, the audited balance sheet of the Company as at
December 31, 1999 is referred to as the "Balance Sheet" and December 31, 1999 is
referred to as the "Balance Sheet Date".
4.8 No Undisclosed Liabilities.
-------------------------------
The Company has no indebtedness, obligations or liabilities of any kind
(whether accrued, absolute, contingent or otherwise, and whether due or to
become due) that would have been required to be reflected in, reserved against
or otherwise described on the Balance Sheet or in the notes thereto in
accordance with GAAP which was not fully reflected in, reserved against or
otherwise described in the Balance Sheet or the notes thereto or was not
incurred in the ordinary course of business consistent with past practice since
the Balance Sheet Date.
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4.9 Absence of Certain Developments.
------------------------------------
Except as expressly contemplated by this Agreement, since the Balance Sheet
Date:
(i) except with regard to the bankruptcy filing by Sunterra
Corporation, which has been disclosed to the Purchaser, there has not been any
Material Adverse Change nor has there occurred any event which is reasonably
likely to result in a Material Adverse Change;
(ii) there has not been any damage, destruction or loss, whether or
not covered by insurance, with respect to the property and assets of the Company
having a replacement cost of more than $1,000 for any single loss or $5,000 for
all such losses;
(iii) there has not been any declaration, setting aside or payment of
any dividend or other distribution in respect of any shares of capital stock of
the Company or any repurchase, redemption or other acquisition by any Seller or
the Company of any outstanding shares of capital stock or other securities of,
or other ownership interest in, the Company;
(iv) except as set forth on Schedule 4.9(iv), the Company has not
awarded or paid any bonuses to employees of the Company with respect to the
fiscal year ended December 31, 1999, except to the extent accrued on the Balance
Sheet or entered into any employment, deferred compensation, severance or
similar agreement (nor amended any such agreement) or agreed to increase the
compensation payable or to become payable by it to any of the Company's
directors, officers, employees, agents or representatives or agreed to increase
the coverage or benefits available under any severance pay, termination pay,
vacation pay, company awards, salary continuation for disability, sick leave,
deferred compensation, bonus or other incentive compensation, insurance, pension
or other employee benefit plan, payment or arrangement made to, for or with such
directors, officers, employees, agents or representatives (other than normal
increases in the ordinary course of business consistent with past practice and
that in the aggregate have not resulted in a material increase in the benefits
or compensation expense of the Company);
(v) there has not been any change by the Company in accounting or tax
reporting principles, methods or policies;
(vi) the Company has not entered into any transaction or Contract or
conducted its business other than in the ordinary course consistent with past
practice;
(vii) except as set forth on Schedule 4.9(vii), the Company has not
failed to promptly pay and discharge current liabilities except where disputed
in good faith by appropriate proceedings;
(viii) except as set forth on Schedule 4.9(viii), the Company has not
made any loans, advances or capital contributions to, or investments in, any
Person or paid any fees or expenses to any Seller or any Affiliate of any
Seller;
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(ix) the Company has not mortgaged, pledged or subjected to any Lien
any of its assets, or acquired any assets or sold, assigned, transferred,
conveyed, leased or otherwise disposed of any assets of the Company, except for
assets acquired or sold, assigned, transferred, conveyed, leased or otherwise
disposed of in the ordinary course of business consistent with past practice;
(x) the Company has not discharged or satisfied any Lien, or paid any
obligation or liability (fixed or contingent), except in the ordinary course of
business consistent with past practice and which, in the aggregate, would not be
material to the Company;
(xi) the Company has not canceled or compromised any debt or claim or
amended, canceled, terminated, relinquished, waived or released any Contract or
right except in the ordinary course of business consistent with past practice
and which, in the aggregate, would not be material to the Company;
(xii) the Company has not made or committed to make any capital
expenditures or capital additions or betterments in excess of $1,000
individually or $5,000 in the aggregate;
(xiii) the Company has not instituted or settled any material Legal
Proceeding; and
(xiv) the Company has not agreed to do anything set forth in this
Section 4.9.
4.10 Taxes.
-----------
(a) Except as set forth on Schedule 4.10, (A) all Tax Returns required to
be filed by or on behalf of the Company have been properly prepared and duly and
timely filed with the appropriate taxing authorities in all jurisdictions in
which such Tax Returns are required to be filed (after giving effect to any
valid extensions of time in which to make such filings), and all such Tax
Returns were true, complete and correct in all material respects; (B) all Taxes
payable by or on behalf of the Company or in respect of its income, assets or
operations have been fully and timely paid, and adequate reserves or accruals
for Taxes have been provided in the Closing Date Balance Sheet with respect to
any period for which Tax Returns have not yet been filed or for which Taxes are
not yet due and owing; and (C) the Company has not executed or filed with the
IRS or any other taxing authority any agreement, waiver or other document or
arrangement extending or having the effect of extending the period for
assessment or collection of Taxes (including, but not limited to, any applicable
statute of limitation), and no power of attorney with respect to any Tax matter
is currently in force.
(b) Except as set forth on Schedule 4.10, the Company has complied in all
material respects with all applicable laws, rules and regulations relating to
the payment and withholding of Taxes and has duly and timely withheld from
employee salaries, wages and other compensation and has paid over to the
appropriate taxing authorities all amounts required to be so withheld and paid
over for all periods under all applicable laws.
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(c) Purchaser has received complete copies of (A) all federal, state, local
and foreign income or franchise Tax Returns of the Company relating to the
taxable periods since the Company's inception and (B) any audit report issued
within the last three years relating to Taxes due from or with respect to the
Company, its income, assets or operations. All income and franchise Tax Returns
filed by or on behalf of the Company for the taxable years ended on the
respective dates set forth on Schedule 4.10 have been examined by the relevant
taxing authority or the statute of limitations with respect to such Tax Returns
has expired.
(d) Schedule 4.10 lists all material types of Taxes paid and material types
of Tax Returns filed by or on behalf of the Company. Except as set forth on
Schedule 4.10, no claim has been made by a taxing authority in a jurisdiction
where the Company does not file Tax Returns such that it is or may be subject to
taxation by that jurisdiction.
(e) Except as set forth on Schedule 4.10, all deficiencies asserted or
assessments made as a result of any examinations by the IRS or any other taxing
authority of the Tax Returns of or covering or including the Company have been
fully paid, and there are no other audits or investigations by any taxing
authority in progress, nor have the Sellers or the Company received any notice
from any taxing authority that it intends to conduct such an audit or
investigation. No issue has been raised by a federal, state, local or foreign
taxing authority in any current or prior examination which, by application of
the same or similar principles, could reasonably be expected to result in a
proposed deficiency for any subsequent taxable period.
(f) Except as set forth on Schedule 4.10, neither the Company nor any other
Person (including any of the Sellers) on behalf of the Company has (A) filed a
consent pursuant to Section 341(f) of the Code or agreed to have Section
341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as
such term is defined in Section 341(f)(4) of the Code) owned by the Company, (B)
agreed to or is required to make any adjustments pursuant to Section 481(a) of
the Code or any similar provision of state, local or foreign law by reason of a
change in accounting method initiated by the Company or has any knowledge that
the IRS has proposed any such adjustment or change in accounting method, or has
any application pending with any taxing authority requesting permission for any
changes in accounting methods that relate to the business or operations of the
Company, (C) executed or entered into a closing agreement pursuant to Section
7121 of the Code or any predecessor provision thereof or any similar provision
of state, local or foreign law with respect to the Company, or (D) requested any
extension of time within which to file any Tax Return, which Tax Return has
since not been filed.
(g) No property owned by the Company is (A) property required to be treated
as being owned by another Person pursuant to the provisions of Section 168(f)(8)
of the Internal Revenue Code of 1954, as amended and in effect immediately prior
to the enactment of the Tax Reform Act of 1986, (B) constitutes "tax-exempt use
property" within the meaning of Section 168(h)(1) of the Code or (C) is
"tax-exempt bond financed property" within the meaning of Section 168(g) of the
Code.
(h) The Company is not a foreign person within the meaning of Section 1445
of the Code.
10
(i) The Company is not a party to any tax sharing or similar agreement or
arrangement (whether or not written) pursuant to which it will have any
obligation to make any payments after the Closing.
(j) There is no contract, agreement, plan or arrangement covering any
person that, individually or collectively, could give rise to the payment of any
amount that would not be deductible by the Purchaser or its affiliates by reason
of Section 280G of the Code, or would constitute compensation in excess of the
limitation set forth in Section 162(m) of the Code.
(k) The Company is not subject to any private letter ruling of the IRS or
comparable rulings of other taxing authorities.
(l) There are no liens as a result of any unpaid Taxes upon any of the
assets of the Company.
(m) The Company has no elections in effect for federal income tax purposes
under Sections 108, 168, 338, 441, 463, 472, 1017, 1033 or 4977 of the code.
(n) The Company has never owned any Subsidiaries and has never been a
member of any consolidated, combined or affiliated group of corporations for any
Tax purposes.
4.11 Real Property.
-------------------
(a) Schedule 4.11(a) sets forth a complete list of (i) all real property
and interests in real property owned in fee by the Company (individually, an
"Owned Property" and collectively, the "Owned Properties"), and (ii) all real
property and interests in real property leased by the Company (individually, a
"Real Property Lease" and the real properties specified in such leases, together
with the Owned Properties, being referred to herein individually as a "Company
Property" and collectively as the "Company Properties") as lessee or lessor. The
Company has good and marketable fee title to all Owned Property, free and clear
of all Liens of any nature whatsoever except Liens set forth on Schedule
4.11(a). The Company Property constitutes all interests in real property
currently used or currently held for use in connection with the business of the
Company and which are necessary for the continued operation of the business of
the Company as the business is currently conducted. The Company has a valid and
enforceable leasehold interest under each of the Real Property Leases, subject
to applicable bankruptcy, insolvency, reorganization, moratorium and similar
laws affecting creditors' rights and remedies generally and subject, as to
enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity), and the Company has
not received any written notice of any default or event that with notice or
lapse of time, or both, would constitute a default by the Company under any of
the Real Property Leases. All of the Company Property, buildings, fixtures and
improvements thereon owned or leased by the Company are in good operating
condition and repair (subject to normal wear and tear). The Company has
delivered or otherwise made available to the Purchaser true, correct and
complete copies of (i) all deeds, title reports and surveys for the Owned
Properties and (ii) the Real Property Leases, together with all amendments,
modifications or supplements, if any, thereto.
(b) The Company has all material certificates of occupancy and Permits of
any Governmental Body necessary or useful for the current use and operation of
each Company Property, and the Company has fully complied with all material
conditions of the Permits applicable to it. No default or violation, or event
that with the lapse of time or giving of notice or both would become a default
or violation, has occurred in the due observance of any Permit, except as would
not have a Material Adverse Effect.
11
(c) There does not exist any actual or, to the best knowledge of the
Representing Sellers, threatened or contemplated condemnation or eminent domain
proceedings that affect any Company Property or any part thereof, and none of
the Representing Sellers have received any notice, oral or written, of the
intention of any Governmental Body or other Person to take or use all or any
part thereof.
(d) None of the Representing Sellers nor the Company has received any
written notice from any insurance company that has issued a policy with respect
to any Company Property requiring performance of any structural or other repairs
or alterations to such Company Property.
(e) The Company does not own or hold, and is not obligated under or a party
to, any option, right of first refusal or other Contractual right to purchase,
acquire, sell, assign or dispose of any real estate or any portion thereof or
interest therein.
4.12 Tangible Personal Property.
--------------------------------
(a) Schedule 4.12(a) sets forth all leases of personal property ("Personal
Property Leases") involving annual payments in excess of $1,000 relating to
personal property used in the business of the Company or to which the Company is
a party or by which the properties or assets of the Company is bound. The
Company has delivered or otherwise made available to the Purchaser true, correct
and complete copies of the Personal Property Leases, together with all
amendments, modifications or supplements thereto.
(b) The Company has a valid leasehold interest under each of the Personal
Property Leases under which it is a lessee, subject to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting creditors'
rights and remedies generally and subject, as to enforceability, to general
principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity), and there is no default under any Personal
Property Lease by the Company or, to the best knowledge of the Representing
Sellers, by any other party thereto, and no event has occurred that with the
lapse of time or the giving of notice or both would constitute a default
thereunder.
(c) The Company has good and marketable title to all of the items of
tangible personal property reflected in the Balance Sheet (except as sold or
disposed of subsequent to the date thereof in the ordinary course of business
consistent with past practice), free and clear of any and all Liens other than
the Permitted Exceptions. All such items of tangible personal property which,
individually or in the aggregate, are material to the operation of the business
of the Company are in good condition and in a state of good maintenance and
repair (ordinary wear and tear excepted) and are suitable for the purposes used.
12
(d) All of the items of tangible personal property used by the Company
under the Personal Property Leases are in good condition and repair (ordinary
wear and tear excepted) and are suitable for the purposes used.
4.13 Intangible Property.
-------------------------
Schedule 4.13 contains a complete and correct list of each patent,
trademark, trade name, service mark and copyright owned or used by the Company
as well as all registrations thereof and pending applications therefor, and each
license or other agreement relating thereto. Except as set forth on Schedule
4.13, each of the foregoing is owned by the party shown on such Schedule as
owning the same, free and clear of all mortgages, claims, liens, security
interests, charges and encumbrances and is in good standing and not the subject
of any challenge. There have been no claims made and neither the Representing
Sellers, nor the Company has received any notice or otherwise knows or has
reason to believe that any of the foregoing is invalid or conflicts with the
asserted rights of others. The Company possesses all patents, patent licenses,
trade names, trademarks, service marks, brand marks, brand names, copyrights,
know-how, formulai and other proprietary and trade rights necessary for the
conduct of its business as now conducted, not subject to any restrictions and
without any known conflict with the rights of others and the Company has not
forfeited or otherwise relinquished any such patent, patent license, trade name,
trademark, service mark, brand mark, brand name, copyright, know-how, formulate
or other proprietary right necessary for the conduct of its business as
conducted on the date hereof. The Company is not under any obligation to pay any
royalties or similar payments in connection with any license to any Seller or
any affiliate thereof.
4.14 Material Contracts.
------------------------
Schedule 4.14 sets forth all of the following Contracts to which the
Company is a party or by which it is bound (collectively, the "Material
Contracts"): (i) Contracts with any of the Sellers or any current officer or
director of the Company; (ii) Contracts with any labor union or association
representing any employee of the Company; (iii) Contracts pursuant to which any
party is required to purchase or sell a stated portion of its requirements or
output from or to another party; (iv) Contracts for the sale of any of the
assets of the Company other than in the ordinary course of business or for the
grant to any person of any preferential rights to purchase any of its assets;
(v) joint venture agreements; (vi) Material Contracts containing covenants of
the Company not to compete in any line of business or with any person in any
geographical area or covenants of any other person not to compete with the
Company in any line of business or in any geographical area; (vii) Contracts
relating to the acquisition by the Company of any operating business or the
capital stock of any other person; (viii) Contracts relating to the borrowing of
money; or (ix) any other Contracts, other than Real Property Leases, which
involve the expenditure of more than $5,000 in the aggregate or $1,000 annually
or require performance by any party more than one year from the date hereof.
There have been made available to the Purchaser, its affiliates and their
representatives true and complete copies of all of the Material Contracts. All
of the Material Contracts and other agreements are in full force and effect and
are the legal, valid and binding obligation of the Company, enforceable against
it in accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally and subject, as to enforceability, to general principles of
equity (regardless of whether enforcement is sought in a proceeding at law or in
equity). Except as set forth on Schedule 4.14, the Company is not in default in
any material respect under any Material Contracts, nor, to the knowledge of any
Representing Seller, is any other party to any Material Contract in default
thereunder in any material respect.
13
4.15 Employee Benefits.
-----------------------
(a) Schedule 4.15(a) sets forth a complete and correct list of (i) all
"employee benefit plans", as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and any other pension plans
or employee benefit arrangements, programs or payroll practices (including,
without limitation, severance pay, vacation pay, company awards, salary
continuation for disability, sick leave, retirement, deferred compensation,
bonus or other incentive compensation, stock purchase arrangements or policies,
hospitalization, medical insurance, life insurance and scholarship programs)
maintained by the Company or to which the Company contributes or is obligated to
contribute thereunder with respect to employees of the Company ("Employee
Benefit Plans") and (ii) all "employee pension plans", as defined in Section
3(2) of ERISA, maintained by the Company or any trade or business (whether or
not incorporated) which are under control, or which are treated as a single
employer, with Company under Section 414(b), (c), (m) or (o) of the ("ERISA
Affiliate") or to which the Company or any ERISA Affiliate contributed or is
obligated to contribute thereunder ("Pension Plans"). Schedule 4.15(a) clearly
identifies, in separate categories, Employee Benefit Plans or Pension Plans that
are (i) subject to Section 4063 and 4064 of ERISA ("Multiple Employer Plans"),
(ii) multiemployer plans (as defined in Section 4001(a)(3) of ERISA)
("Multiemployer Plans") or (iii) "benefit plans", within the meaning of Section
5000(b)(1) of the Code providing continuing benefits after the termination of
employment (other than as required by Section 4980B of the Code or Part 6 of
Title I of ERISA and at the former employee's or his beneficiary's sole
expense).
(b) The Company would not have any withdrawal or other liability
(contingent or otherwise) under Title IV of ERISA with respect to any Multiple
Employer Plan or Multiemployer Plan if the Purchaser had not acquired the Shares
from the Sellers at the Effective Time in accordance with the terms of this
Agreement.
(c) Each of the Employee Benefit Plans and Pension Plans intended to
qualify under Section 401 of the Code ("Qualified Plans") so qualify and the
trusts maintained thereto are exempt from federal income taxation under Section
501 of the Code, and nothing has occurred with respect to the operation of any
such plan which could cause the loss of such qualification or exemption or the
imposition of any liability, penalty or tax under ERISA or the Code.
(d) All contributions and premiums required by law or by the terms of any
Employee Benefit Plan or Pension Plan which are defined benefit plans or money
purchase plans or any agreement relating thereto have been timely made (without
regard to any waivers granted with respect thereto) to any funds or trusts
established thereunder or in connection therewith, and no accumulated funding
deficiencies exist in any of such plans subject to Section 412 of the Code.
14
(e) The benefit liabilities, as defined in Section 4001(a)(16) of ERISA, of
each of the Employee Benefit Plans and Pension Plans subject to Title IV of
ERISA using the actuarial assumptions that would be used by the Pension Benefit
Guaranty Corporation (the "PBGC") in the event it terminated each such plan do
not exceed the fair market value of the assets of each such plan. The
liabilities of each Employee Benefit Plan that has been terminated or otherwise
wound up, have been fully discharged in full compliance with applicable Law.
(f) There has been no "reportable event" as that term is defined in Section
4043 of ERISA and the regulations thereunder with respect to any of the Employee
Benefit Plans or Pension Plans subject to Title IV of ERISA which would require
the giving of notice, or any event requiring notice to be provided under Section
4041(c)(3)(C) or 4063(a) of ERISA.
(g) There has been no violation of ERISA with respect to the filing of
applicable returns, reports, documents and notices regarding any of the Employee
Benefit Plans or Pension Plans with the Secretary of Labor or the Secretary of
the Treasury or the furnishing of such notices or documents to the participants
or beneficiaries of the Employee Benefit Plans or Pension Plans.
(h) True, correct and complete copies of the following documents, with
respect to each of the Employee Benefit Plans and Pension Plans (as applicable),
have been delivered to the Purchaser (A) any plans and related trust documents,
and all amendments thereto, (B) the most recent Forms 5500 for the past three
years and schedules thereto, (C) the most recent financial statements and
actuarial valuations for the past three years, (D) the most recent Internal
Revenue Service determination letter, (E) the most recent summary plan
descriptions (including letters or other documents updating such descriptions)
and (F) written descriptions of all non-written agreements relating to the
Employee Benefit Plans and Pension Plans.
(i) There are no pending Legal Proceedings which have been asserted or
instituted against any of the Employee Benefit Plans or Pension Plans, the
assets of any such plans or the Company, or the plan administrator or any
fiduciary of the Employee Benefit Plans or Pension Plans with respect to the
operation of such plans (other than routine, uncontested benefit claims), and
there are no facts or circumstances which could form the basis for any such
Legal Proceeding.
(j) Each of the Employee Benefit Plans and Pension Plans has been
maintained, in all material respects, in accordance with its terms and all
provisions of applicable Law. All amendments and actions required to bring each
of the Employee Benefit Plans and Pension Plans into conformity in all material
respects with all of 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 and are disclosed on Schedule 4.15(j).
(k) The Company and any ERISA Affiliate which maintains a "benefits plan"
within the meaning of Section 5000(b)(1) of ERISA, have complied with the notice
and continuation requirements of Section 4980B of the Code or Part 6 of Title I
of ERISA and the applicable regulations thereunder.
15
(l) The Company nor any ERISA Affiliate or any organization to which any is
a successor or parent corporation, has divested any business or entity
maintaining or sponsoring a defined benefit pension plan having unfunded benefit
liabilities (within the meaning of Section 4001(a)(18) of ERISA) or transferred
any such plan to any person other than the Sellers or any ERISA Affiliate during
the five-year period ending on the Closing Date.
(m) Neither the Company nor any "party in interest" or "disqualified
person" with respect to the Employee Benefit Plans or Pension Plans has engaged
in a "prohibited transaction" within the meaning of Section 4975 of the Code or
Section 406 of ERISA.
(n) Neither the Company nor any ERISA Affiliate has terminated any Employee
Benefit Plan or Pension Plan subject to Title IV of ERISA, or incurred any
outstanding liability under Section 4062 of ERISA to the Pension Benefit
Guaranty Corporation or to a trustee appointed under Section 4042 of ERISA.
(o) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
payment becoming due to any employee of Company; (ii) increase any benefits
otherwise payable under any Employee Benefit Plan or Pension Plan; or (iii)
result in the acceleration of the time of payment or vesting of any such
benefits.
(p) No stock or other security issued by Company forms or has formed a
material part of the assets of any Employee Benefit Plan or Pension Plan.
4.16 Labor.
-----------
(a) The Company is not party to any labor or collective bargaining
agreement and there are no labor or collective bargaining agreements which
pertain to employees of the Company.
(b) No employees of the Company are represented by any labor organization.
No labor organization or group of employees of the Company has made a pending
demand for recognition, and there are no representation proceedings or petitions
seeking a representation proceeding presently pending or, to the best knowledge
of the Representing Sellers, threatened to be brought or filed, with the
National Labor Relations Board or other labor relations tribunal. There is no
organizing activity involving the Company pending or, to the best knowledge of
any Representing Seller, threatened by any labor organization or group of
employees of the Company.
(c) There are no (i) strikes, work stoppages, slowdowns, lockouts or
arbitrations or (ii) material grievances or other labor disputes pending or, to
the best knowledge of any Representing Seller, threatened against or involving
the Company. There are no unfair labor practice charges, grievances or
complaints pending or, to the best knowledge of any Representing Seller,
threatened by or on behalf of any employee or group of employees of the Company.
16
4.17 Litigation.
----------------
There is no suit, action, proceeding, investigation, claim or order pending
or, to the knowledge of the Representing Sellers or the Company, overtly
threatened against the Company (or to the knowledge of the Representing Sellers
or the Company, pending or threatened, against any of the officers, directors or
key employees of the Company with respect to their business activities on behalf
of the Company), or to which the Representing Sellers or the Company is
otherwise a party, which, if adversely determined, would have a Material Adverse
Effect, before any court, or before any governmental department, commission,
board, agency, or instrumentality; nor to the knowledge of the Sellers nor the
Company is there any reasonable basis for any such action, proceeding, or
investigation. The Company is not subject to any judgment, order or decree of
any court or governmental agency except to the extent the same are not
reasonably likely to have a Material Adverse Effect and the Company is not
engaged in any legal action to recover monies due it or for damages sustained by
it.
4.18 Compliance with Laws; Permits.
-----------------------------------
The Company is in compliance with all Laws applicable to the Company or to
the conduct of the business or operations of the Company or the use of its
properties (including any leased properties) and assets, except for such
non-compliances as would not, individually or in the aggregate, have a Material
Adverse Effect. The Company has all governmental permits and approvals from
state, federal or local authorities which are required for the Company to
operate its business, except for those the absence of which would not,
individually or in the aggregate, have a Material Adverse Effect.
4.19 Environmental Matters.
---------------------------
(a) the operations of the Company are in compliance with all applicable
Environmental Laws and all permits issued pursuant to Environmental Laws or
otherwise;
(b) the Company has obtained all permits required under all applicable
Environmental Laws necessary to operate its business;
(c) the Company is not the subject of any outstanding written order or
Contract with any governmental authority or person respecting (i) Environmental
Laws, (ii) Remedial Action or (iii) any Release or threatened Release of a
Hazardous Material;
(d) the Company has not received any written communication alleging either
or both that the Company may be in violation of any Environmental Law, or any
permit issued pursuant to Environmental Law, or may have any liability under any
Environmental Law;
(e) the Company does not have any current contingent liability in
connection with any Release of any Hazardous Materials into the indoor or
outdoor environment (whether on-site or off-site);
(f) to the Representing Sellers' knowledge, there are no investigations of
the business, operations, or currently or previously owned, operated or leased
property of the Company pending or threatened which could lead to the imposition
of any liability pursuant to Environmental Law;
17
(g) there is not located at any of the properties of the Company any (i)
underground storage tanks, (ii) asbestos-containing material or (iii) equipment
containing polychlorinated biphenyls; and
(h) the Company has provided to the Purchaser all environmentally related
audits, studies, reports, analyses, and results of investigations that have been
performed with respect to the currently or previously owned, leased or operated
properties of the Company.
4.20 Insurance.
---------------
Schedule 4.20 sets forth a complete and accurate list of all policies of
insurance of any kind or nature covering the Company or any of its employees,
properties or assets, including, without limitation, policies of life,
disability, fire, theft, workers compensation, employee fidelity and other
casualty and liability insurance. All such policies are in full force and
effect, and, to the Representing Sellers' knowledge, the Company is not in
default of any provision thereof, except for such defaults as would not,
individually or in the aggregate, have a Material Adverse Effect.
4.21 Inventories; Receivables; Payables.
----------------------------------------
(a) The inventories of the Company are in good and marketable condition,
and are saleable in the ordinary course of business. Adequate reserves have been
reflected in the Balance Sheet for shorts, drops, off-cuts, obsolete or
otherwise unusable inventory, which reserves were calculated in a manner
consistent with past practice and in accordance with GAAP consistently applied.
(b) All accounts receivable of the Company have arisen from bona fide
transactions in the ordinary course of business consistent with past practice.
All accounts receivable of the Company reflected on the Balance Sheet are good
and collectible at the aggregate recorded amounts thereof, net of any applicable
reserve for returns or doubtful accounts reflected thereon, which reserves are
adequate and were calculated in a manner consistent with past practice and in
accordance with GAAP consistently applied. All accounts receivable arising after
the Balance Sheet Date are good and collectible at the aggregate recorded
amounts thereof, net of any applicable reserve for returns or doubtful accounts,
which reserves are adequate and were calculated in a manner consistent with past
practice and in accordance with GAAP consistently applied.
(c) All accounts payable of the Company reflected in the Balance Sheet or
arising after the date thereof are the result of bona fide transactions in the
ordinary course of business and have been paid or are not yet due and payable.
4.22 Related Party Transactions.
--------------------------------
Except as set forth on Schedule 4.22, neither the Company nor any of its
Affiliates have borrowed any moneys from or has outstanding any indebtedness or
other similar obligations to the Company. The Company nor any Affiliate, officer
or employee of the Company (i) owns any direct or indirect interest of any kind
in, or controls or is a director, officer, employee or partner of, or consultant
to, or lender to or borrower from or has the right to participate in the profits
of, any Person which is (A) a competitor, supplier, customer, landlord, tenant,
creditor or debtor of the Company, (B) engaged in a business related to the
business of the Company, or (C) a participant in any transaction to which the
Company is a party or (ii) is a party to any Contract with the Company.
18
4.23 Customers and Suppliers.
-----------------------------
Schedule 4.23 sets forth a list of the five (5) largest customers and the
five (5) largest suppliers of the Company, as measured by the dollar amount of
purchases therefrom or thereby, during each of the fiscal years ended December
31, 1998 and 1999, showing the approximate total sales by the Company to each
such customer and the approximate total purchases by the Company from each such
supplier, during such period. Since December 31, 1999, there has not been any
Material Adverse Change in the business relationship of the Company with any
customer or supplier listed on Schedule 4.23.
4.24 Banks.
-----------
Schedule 4.24 contains a complete and correct list of the names and
locations of all banks in which Company has accounts or safe deposit boxes and
the names of all persons authorized to draw thereon or to have access thereto.
Except as set forth on Schedule 4.24, no person holds a power of attorney to act
on behalf of the Company.
4.25 No Misrepresentation.
--------------------------
No representation or warranty of any Representing Seller or the Company
contained in this Agreement or in any schedule hereto or in any certificate or
other instrument furnished by any Representing Seller to the Purchaser pursuant
to the terms hereof, contains any untrue statement of a material fact or omits
to state a material fact necessary to make the statements contained herein or
therein not misleading.
4.26 Financial Advisors.
------------------------
Except as set forth on Schedule 4.26, no Person has acted, directly or
indirectly, as a broker, finder or financial advisor for the Company in
connection with the transactions contemplated by this Agreement and no Person is
entitled to any fee or commission or like payment in respect thereof.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
Each of the Sellers, not including the Company, hereby severally represent
and warrant to the Purchaser that:
19
5.1 Organization and Good Standing.
-----------------------------------
Each Seller, as applicable, is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation as set forth above and has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as now conducted. Each Seller, as applicable, is duly qualified or authorized to
do business as a foreign corporation and is in good standing under the laws of
each jurisdiction in which it owns or leases real property and each other
jurisdiction in which the conduct of its business or the ownership of its
properties requires such qualification or authorization, except where the
failure to be so qualified would not have a Material Adverse Effect.
5.2 Authorization of Agreement.
-------------------------------
Each Seller has all requisite power, authority and legal capacity to
execute and deliver this Agreement, the Employment Agreements (as applicable)
and each other agreement, document, or instrument or certificate contemplated by
this Agreement or to be executed by such Seller in connection with the
consummation of the transactions contemplated by this Agreement (together with
this Agreement, the "Seller Documents"). This Agreement has been, and each of
the Seller Documents will be at or prior to the Closing, duly and validly
executed and delivered by each Seller and (assuming the due authorization,
execution and delivery by the other parties hereto and thereto) this Agreement
constitutes, and each of the Seller Documents when so executed and delivered
will constitute, legal, valid and binding obligations of each Seller,
enforceable against each Seller in accordance with their respective terms,
subject to applicable bankruptcy, insolvency, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally, and subject, as
to enforceability, to general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity).
5.3 Capitalization.
-------------------
There is no existing option, warrant, call, right, commitment or other
agreement of any character to which any Seller is a party. None of the Sellers
is a party to any voting trust or other voting agreement with respect to any of
the Shares or to any agreement relating to the issuance, sale, redemption,
transfer or other disposition of the capital stock of the Company.
5.4 Conflicts; Consents of Third Parties.
-----------------------------------------
No consent, waiver, approval, Order, Permit or authorization of, or
declaration or filing with, or notification to, any Person or Governmental Body
is required on the part of any Seller in connection with the execution and
delivery of this Agreement or the Seller Documents, or the compliance by each
Seller with any of the provisions hereof or thereof.
5.5 Ownership and Transfer of Shares.
-------------------------------------
Each Seller is the record and beneficial owner of the Shares indicated as
being owned by such Seller on Annex A, free and clear of any and all Liens. Each
Seller has the power and authority to sell, transfer, assign and deliver such
Shares as provided in this Agreement, and such delivery will convey to the
Purchaser good and marketable title to such Shares, free and clear of any and
all Liens.
20
5.6 Taxes.
----------
No Seller is a foreign person within the meaning of Section 1445 of the
Code.
5.7 Employee Benefits.
----------------------
None of the Sellers, any ERISA Affiliate or any organization to which any
is a successor or parent corporation, has divested any business or entity
maintaining or sponsoring a defined benefit pension plan having unfunded benefit
liabilities (within the meaning of Section 4001(a)(18) of ERISA) or transferred
any such plan to any person other than the Sellers or any ERISA Affiliate during
the five-year period ending on the Closing Date.
5.8 Related Party Transactions.
-------------------------------
Except as set forth on Schedule 5.8, neither the Sellers nor any of their
respective Affiliates have borrowed any moneys from or has outstanding any
indebtedness or other similar obligations to the Company. Neither the Sellers
nor any Affiliate of the Sellers nor any officer or employee of any of them (i)
owns any direct or indirect interest of any kind in, or controls or is a
director, officer, employee or partner of, or consultant to, or lender to or
borrower from or has the right to participate in the profits of, any Person
which is (A) a competitor, supplier, customer, landlord, tenant, creditor or
debtor of the Company, (B) engaged in a business related to the business of the
Company, or (C) a participant in any transaction to which the Company is a party
or (ii) is a party to any Contract with the Company.
5.9 No Misrepresentation.
-------------------------
No representation or warranty of any Seller contained in this Agreement or
in any schedule hereto or in any certificate or other instrument furnished by
any Seller to the Purchaser pursuant to the terms hereof, contains any untrue
statement of a material fact or omits to state a material fact necessary to make
the statements contained herein or therein not misleading.
5.10 Financial Advisors.
------------------------
No Person has acted, directly or indirectly, as a broker, finder or
financial advisor for the Sellers in connection with the transactions
contemplated by this Agreement and no Person is entitled to any fee or
commission or like payment in respect thereof.
21
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF PURCHASER
6.1 Organization and Good Standing.
-----------------------------------
The Purchaser is a corporation duly organized, validly existing and in good
standing under the laws of the State of California.
6.2 Authorization of Agreement.
-------------------------------
The Purchaser has full corporate power and authority to execute and deliver
this Agreement, the Employment Agreements and each other agreement, document,
instrument or certificate contemplated by this Agreement or to be executed by
the Purchaser in connection with the consummation of the transactions
contemplated hereby and thereby (together with the Employment Agreements, the
"Purchaser Documents"), and to consummate the transactions contemplated hereby
and thereby. The execution, delivery and performance by the Purchaser of this
Agreement and each Purchaser Document have been duly authorized by all necessary
corporate action on behalf of the Purchaser. This Agreement has been, and each
Purchaser Document will be at or prior to the Closing, duly executed and
delivered by the Purchaser and (assuming the due authorization, execution and
delivery by the other parties hereto and thereto) this Agreement constitutes,
and each Purchaser Document when so executed and delivered will constitute,
legal, valid and binding obligations of the Purchaser, enforceable against the
Purchaser in accordance with their respective terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally, and subject, as to enforceability, to
general principles of equity, including principles of commercial reasonableness,
good faith and fair dealing (regardless of whether enforcement is sought in a
proceeding at law or in equity).
6.3 Conflicts; Consents of Third Parties.
-----------------------------------------
(a) Neither of the execution and delivery by the Purchaser of this
Agreement and of the Purchaser Documents, nor the compliance by the Purchaser
with any of the provisions hereof or thereof will (i) conflict with, or result
in the breach of, any provision of the certificate of incorporation or by-laws
of the Purchaser, (ii) conflict with, violate, result in the breach of, or
constitute a default under any note, bond, mortgage, indenture, license,
agreement or other obligation to which the Purchaser is a party or by which the
Purchaser or its properties or assets are bound or (iii) violate any statute,
rule, regulation, order or decree of any Governmental Body or authority by which
the Purchaser is bound, except, in the case of clauses (ii) and (iii), for such
violations, breaches or defaults as would not, individually or in the aggregate,
have a material adverse effect on the business, properties, results of
operations, prospects, conditions (financial or otherwise) of the Purchaser and
its subsidiaries, taken as a whole.
(b) No consent, waiver, approval, Order, Permit or authorization of, or
declaration or filing with, or notification to, any Person or Governmental Body
is required on the part of the Purchaser in connection with the execution and
delivery of this Agreement or the Purchaser Documents or the compliance by
Purchaser with any of the provisions hereof or thereof, except for compliance
with the applicable requirements of the HSR Act.
22
6.4 Litigation.
---------------
There are no Legal Proceedings pending or, to the best knowledge of the
Purchaser, threatened that are reasonably likely to prohibit or restrain the
ability of the Purchaser to enter into this Agreement or consummate the
transactions contemplated hereby.
6.5 Investment Intention.
-------------------------
The Purchaser is acquiring the Shares for its own account, for investment
purposes only and not with a view to the distribution (as such term is used in
Section 2(11) of the Securities Act of 1933, as amended (the "Securities Act")
thereof. Purchaser understands that the Shares have not been registered under
the Securities Act and cannot be sold unless subsequently registered under the
Securities Act or an exemption from such registration is available.
6.6 Financial Advisors.
-----------------------
Except as set forth on Schedule 6.6, no Person has acted, directly or
indirectly, as a broker, finder or financial advisor for the Purchaser in
connection with the transactions contemplated by this Agreement and no person is
entitled to any fee or commission or like payment in respect thereof.
6.7 SEC Documents.
------------------
The Purchaser has filed all required reports, schedules, forms, statements
and other documents with the SEC since January 1, 1996 (the "SEC Documents"). As
of their respective dates, the SEC Documents complied in all material respects
with the requirements of the Securities Act, or the Exchange Act, as the case
may be, and the rules and regulations of the SEC promulgated thereunder
applicable to such SEC documents, and, at the time of filing, none of the SEC
Documents contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of the Purchaser included in the SEC
Documents comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, have been prepared in accordance with generally accepted accounting
principles (except, in the case of unaudited statements, as permitted by the
applicable form under the Exchange Act) applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto) and fairly
present the consolidated financial position of the Purchaser as of the dates
thereof and their consolidated statements of operations, stockholders' equity
and cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal and recurring year-end audit adjustments which were and
are not expected to have a Material Adverse Effect). Except as and to the extent
set forth on the consolidated balance sheet of the Purchaser as of March 31,
2000, including the notes thereto, the Purchaser has no liability or obligation
of any nature (whether accrued, absolute, contingent or otherwise and whether
required to be reflected on a balance sheet or not), except for liabilities and
obligations incurred in the ordinary course of business consistent with past
23
practices since March 31, 2000 which in the aggregate could not reasonably be
expected to have a Material Adverse Effect. The Purchaser has heretofore made
available to Company complete and correct copies of all of the SEC Documents and
amendments and modifications thereto, as well as, to the extent any shall exist,
all material amendments and modifications that have not been filed by the
Purchaser with the SEC to all agreements, documents and other instruments that
previously had been filed by the Purchaser with the SEC and are currently in
effect.
6.8 Tax Free Exchange.
----------------------
Purchaser agrees that it is the intention of the parties that the
transaction contemplated pursuant to this Agreement be treated as a Tax Free
Reorganization under Section 368(a)(1)(b) of the Code ("Tax Free
Reorganization"). Purchaser warrants that it will not take any action, either
prior to or after the closing of the transaction which would jeopardize the
status of the transaction as a Tax Free Reorganization, nor will it take any
tax, financial, regulatory or any other reporting position ("Reporting
Position") which would be contrary to characterizing this transaction as a Tax
Free Reorganization. Any act of Purchaser or Reporting Position taken by
Purchaser that would be contrary to characterization of this transaction as a
Tax Free Reorganization shall be null and void ab initio. Purchaser agrees to
indemnify, defend and hold Sellers harmless for all valid claims, losses,
liabilities (including tax liabilities, interest and penalties) and damages,
including reasonable attorneys fees resulting from a breach of this provision
(including attorneys fees incurred to enforce this indemnification provision).
Purchaser agrees to execute and deliver any documents reasonably requested by
the Representing Sellers to confirm the status of this transaction as a Tax Free
Reorganization, including (but not limited to) an amendment to this Agreement.
ARTICLE VII
COVENANTS
7.1 Access to Information.
--------------------------
The Representing Sellers agree that, prior to the Closing Date, the
Purchaser shall be entitled, through its officers, employees and representatives
(including, without limitation, its legal advisors and accountants), to make
such investigation of the properties, businesses and operations of the Company
and such examination of the books, records and financial condition of the
Company as it reasonably requests and to make extracts and copies of such books
and records. Any such investigation and examination shall be conducted during
regular business hours and under reasonable circumstances, and the Representing
Sellers shall cooperate, and shall cause the Company to cooperate, fully
therein. No investigation by the Purchaser prior to or after the date of this
Agreement shall diminish or obviate any of the representations, warranties,
covenants or agreements of the Representing Sellers contained in this Agreement
or the Seller Documents. In order that the Purchaser may have full opportunity
to make such physical, business, accounting and legal review, examination or
investigation as it may reasonably request of the affairs of the Company, the
Representing Sellers shall cause the officers, employees, consultants, agents,
accountants, attorneys and other representatives of the Company to cooperate
fully with such representatives in connection with such review and examination.
24
7.2 Conduct of the Business Pending the Closing.
------------------------------------------------
(a) Except as otherwise expressly contemplated by this Agreement or with
the prior written consent of the Purchaser, the Representing Sellers shall, and
shall cause the Company to:
(i) conduct the business of the Company only in the ordinary course
consistent with past practice;
(ii) use its best efforts to (A) preserve its present business
operations, organization (including, without limitation, management and the
sales force) and goodwill of the Company and (B) preserve its present
relationship with Persons having business dealings with the Company;
(iii) maintain (A) all of the assets and properties of the Company in
their current condition, ordinary wear and tear excepted and (B) insurance upon
all of the properties and assets of the Company in such amounts and of such
kinds comparable to that in effect on the date of this Agreement;
(iv) (A) maintain the books, accounts and records of the Company in
the ordinary course of business consistent with past practices, (B) continue to
collect accounts receivable and pay accounts payable utilizing normal procedures
and without discounting or accelerating payment of such accounts, and (C) comply
with all contractual and other obligations applicable to the operation of the
Company; and
(v) comply in all material respects with applicable laws, including,
without limitation, Environmental Laws.
(b) Except as otherwise expressly contemplated by this Agreement or with
the prior written consent of the Purchaser, the Representing Sellers shall not,
and shall cause the Company not to:
(i) declare, set aside, make or pay any dividend or other distribution
in respect of the capital stock of the Company or repurchase, redeem or
otherwise acquire any outstanding shares of the capital stock or other
securities of, or other ownership interests in, the Company;
(ii) transfer, issue, sell or dispose of any shares of capital stock
or other securities of the Company or grant options, warrants, calls or other
rights to purchase or otherwise acquire shares of the capital stock or other
securities of the Company;
(iii) effect any recapitalization, reclassification, stock split or
like change in the capitalization of the Company;
(iv) amend the certificate of incorporation or by-laws of the Company;
25
(v) (A) materially increase the annual level of compensation of any
employee of the Company, (B) increase the annual level of compensation payable
or to become payable by the Company to any of its executive officers, (C) grant
any unusual or extraordinary bonus, benefit or other direct or indirect
compensation to any employee, director or consultant, other than in the ordinary
course consistent with past practice and in such amounts as are fully reserved
against in the Financial Statements, (D) increase the coverage or benefits
available under any (or create any new) severance pay, termination pay, vacation
pay, company awards, salary continuation for disability, sick leave, deferred
compensation, bonus or other incentive compensation, insurance, pension or other
employee benefit plan or arrangement made to, for, or with any of the directors,
officers, employees, agents or representatives of the Company or otherwise
modify or amend or terminate any such plan or arrangement or (E) enter into any
employment, deferred compensation, severance, consulting, non-competition or
similar agreement (or amend any such agreement) to which the Company is a party
or involving a director, officer or employee of the Company in his or her
capacity as a director, officer or employee of the Company;
(vi) except for trade payables and for indebtedness for borrowed money
incurred in the ordinary course of business and consistent with past practice,
borrow monies for any reason or draw down on any line of credit or debt
obligation, or become the guarantor, surety, endorser or otherwise liable for
any debt, obligation or liability (contingent or otherwise) of any other Person;
(vii) subject to any Lien (except for leases that do not materially
impair the use of the property subject thereto in their respective businesses as
presently conducted), any of the properties or assets (whether tangible or
intangible) of the Company;
(viii) acquire any material properties or assets or sell, assign,
transfer, convey, lease or otherwise dispose of any of the material properties
or assets (except for fair consideration in the ordinary course of business
consistent with past practice) of the Company;
(ix) cancel or compromise any debt or claim or waive or release any
material right of the Company except in the ordinary course of business
consistent with past practice;
(x) enter into any commitment for capital expenditures of the Company
in excess of $1,000 for any individual commitment and $5,000 for all commitments
in the aggregate;
(xi) enter into, modify or terminate any labor or collective
bargaining agreement of the Company or, through negotiation or otherwise, make
any commitment or incur any liability to any labor organization with respect to
the Company;
(xii) introduce any material change with respect to the operation of
the Company, including any material change in the types, nature, composition or
quality of its products or services, experience any material change in any
contribution of its product lines to its revenues or net income, or, other than
in the ordinary course of business, make any change in product specifications or
prices or terms of distributions of such products;
26
(xiii) permit the Company to enter into any transaction or to make or
enter into any Contract which by reason of its size or otherwise is not in the
ordinary course of business consistent with past practice;
(xiv) permit the Company to enter into or agree to enter into any
merger or consolidation with, any corporation or other entity, and not engage in
any new business or invest in, make a loan, advance or capital contribution to,
or otherwise acquire the securities of any other Person;
(xv) except for transfers of cash pursuant to normal cash management
practices, permit the Company to make any investments in or loans to, or pay any
fees or expenses to, or enter into or modify any Contract with, any Seller or
any Affiliate of any Seller; or
(xvi) agree to do anything prohibited by this Section 7.2 or anything
which would make any of the representations and warranties of the Representing
Sellers in this Agreement or the Seller Documents untrue or incorrect in any
material respect as of any time through and including the Effective Time.
7.3 Consents.
-------------
The Representing Sellers shall use their best efforts, and the Purchaser
shall cooperate with the Representing Sellers, to obtain at the earliest
practicable date all consents and approvals required to consummate the
transactions contemplated by this Agreement, including, without limitation, the
consents and approvals referred to in Section 4.6(b) hereof; provided, however,
that neither the Representing Sellers nor the Purchaser shall be obligated to
pay any consideration therefor to any third party from whom consent or approval
is requested.
7.4 Filings with Governmental Bodies.
-------------------------------------
(a) As promptly as practicable after the execution of this Agreement, each
party shall, in cooperation with the other, file or cause to be filed any
reports, notifications or other information that may be required under the HSR
Act and shall furnish or cause to be furnished to the other all such information
in its possession as may be reasonably necessary for the completion of the
reports, notifications or submissions to be filed by the other. Each party
hereto agrees to use its best efforts to comply and cause its Affiliates to
comply in a full and timely manner with any request from a Governmental Body for
additional information.
(b) Notwithstanding anything to the contrary contained herein, nothing in
this Agreement will require the Purchaser, whether pursuant to an order of the
Federal Trade Commission or the United States Department of Justice or
otherwise, to dispose of any assets, lines of business or equity interests in
order to obtain the consent of the Federal Trade Commission or the United States
Department of Justice to the transactions contemplated by this Agreement.
27
7.5 Updated Financial Statements.
---------------------------------
Upon the request of the Purchaser, the Representing Sellers shall provide
to the Purchaser and Purchaser's accountants updated and revised audited
financial statements of the Company in connection with any future financial
statement preparation and any required Securities and Exchange filing.
7.6 Other Actions.
------------------
Each of the Sellers and the Purchaser shall use its best efforts to (i)
take all actions necessary or appropriate to consummate the transactions
contemplated by this Agreement and (ii) cause the fulfillment at the earliest
practicable date of all of the conditions to their respective obligations to
consummate the transactions contemplated by this Agreement.
7.7 No Solicitation.
--------------------
The Representing Sellers will not, and will not cause or permit the Company
or any of the Company's directors, officers, employees, representatives or
agents (collectively, the "Representatives") to, directly or indirectly, (i)
discuss, negotiate, undertake, authorize, recommend, propose or enter into,
either as the proposed surviving, merged, acquiring or acquired corporation, any
transaction involving a merger, consolidation, business combination, purchase or
disposition of any amount of the assets or capital stock or other equity
interest in the Company other than the transactions contemplated by this
Agreement (an "Acquisition Transaction"), (ii) facilitate, encourage, solicit or
initiate discussions, negotiations or submissions of proposals or offers in
respect of an Acquisition Transaction, (iii) furnish or cause to be furnished,
to any Person, any information concerning the business, operations, properties
or assets of the Company in connection with an Acquisition Transaction, or (iv)
otherwise cooperate in any way with, or assist or participate in, facilitate or
encourage, any effort or attempt by any other Person to do or seek any of the
foregoing. The Representing Sellers, upon receiving notice from any Seller, the
Company or any representative of any Seller or the Company of any proposal or
inquiry in respect of any acquisition transaction, will immediately inform the
Purchaser in writing following the receipt of such notice.
7.8 Preservation of Records.
----------------------------
Subject to Section 10.4(e) hereof (relating to the preservation of Tax
records), the Representing Sellers and the Purchaser agree that each of them
shall preserve and keep the records held by it relating to the business of the
Company for a period of three years from the Closing Date and shall make such
records and personnel available to the other as may be reasonably required by
such party in connection with, among other things, any insurance claims by,
legal proceedings against or governmental investigations of the Sellers or the
Purchaser or any of their Affiliates or in order to enable the Sellers or the
Purchaser to comply with their respective obligations under this Agreement, the
Employment Agreements, as applicable, and each other agreement, document or
instrument contemplated hereby or thereby. In the event the Representing Sellers
or the Purchaser wish to destroy such records after that time, such party shall
first give ninety (90) days prior written notice to the other and such other
party shall have the right at its option and expense, upon prior written notice
given to such party within that ninety (90) day period, to take possession of
the records within one hundred and eighty (180) days after the date of such
notice.
28
7.9 Publicity.
--------------
None of the Sellers nor the Purchaser shall issue any press release or
public announcement concerning this Agreement or the transactions contemplated
hereby without obtaining the prior approval of the other party hereto, which
approval will not be unreasonably withheld or delayed, unless, in the sole
judgment of the Purchaser, disclosure is otherwise required by applicable Law or
by the applicable rules of any stock exchange on which the Purchaser lists
securities, provided that, to the extent required by applicable law, the party
intending to make such release shall use its best efforts consistent with such
applicable law to consult with the other party with respect to the text thereof.
7.10 Use of Name.
-----------------
The Sellers hereby agree that upon the consummation of the transactions
contemplated hereby, the Purchaser and the Company shall have the sole right to
the use of the name "Suncoast Automation, Inc." and the Sellers shall not, and
shall not cause or permit any Affiliate to, use such name or any variation or
simulation thereof in any business involving interactive cable television
systems and services or any related business.
7.11 Environmental Matters.
---------------------------
(a) Representing Sellers shall permit Purchaser to conduct such
investigations (including investigations known as "Phase I" and "Phase II"
environmental audits) of the environmental conditions of the Company's
properties and facilities as Purchaser, in its sole discretion, shall deem
necessary. Such investigations shall be conducted in a manner that minimizes the
disruption of the operations of the Sellers.
(b) Sellers shall promptly file all materials required under Environmental
Laws (including, without limitation, foreign or state property transfer laws)
and all requests required for the issuance, transfer or reissuance to Purchaser
of Permits necessary to conduct the Sellers' business prior to the Closing Date.
7.12 Employment Agreements.
---------------------------
Mark Blanchard, Kent Spears and Theodore Triantafilu hereby agree that, on
or prior to the Closing Date, Mark Blanchard, Kent Spears and Theodore
Triantafilu shall execute and deliver to Purchaser an Employment Agreement,
which shall contain among other things, a non-compete clause, substantially in
the form of Exhibit B hereto (the "Employment Agreements"). The Employment
Agreements call for each of Messrs. Blanchard, Spears and Triantafilu to provide
substantially the same services to the Purchaser that they provided to the
Company for substantially the same levels of compensation that each received
from the Company.
29
7.13 Board of Directors Representation.
---------------------------------------
Effective as of the Closing Date, Sellers shall have the irrevocable right
to name one person to be appointed to the Board of Directors of the Purchaser.
The Board of Directors shall use its best effort to have such person elected to
the Board of Directors of the Company until such time as the Sellers inform the
Purchaser of another nominee to be appointed to the Board of Directors.
The Sellers shall have the irrevocable right to name a second person to be
appointed to the Board of Directors of the Purchaser only if the Company
successfully achieves the Completed Earnout Terms during the Earnout Period. The
Board of Directors of the Purchaser shall use its best effort to have such
person elected to the Board of Directors of the Company until such time as the
Sellers inform the Purchaser of another nominee to be appointed to the Board of
Directors.
After the initial appointments of the Sellers' nominees, the Board of
Directors of the Purchaser shall have the right to approve any subsequent
nominee to the Board of Directors, such approval not to be unreasonably
withheld.
7.14 Registration Rights.
-------------------------
(a) If, during any time that the Sellers own any registrable securities,
Purchaser shall determine to register for its own account or the account of
others under the Securities Act any of its equity securities, it shall send to
the Sellers (or their successors in interest) written notice of such
determination and, if within twenty (20) days after receipt of such notice, any
of the Sellers (or their successors in interest) shall so request in writing,
the Purchaser shall include in such registration statement all of the Shares
held by and requested to be registered by such Sellers (or their successors in
interest) (the "Piggyback Sellers"). Notwithstanding the foregoing, in the event
that any registration shall be in whole or in part an underwritten offering, the
number of registrable securities to be included in such an underwriting may be
reduced (pro rata among the Piggyback Sellers and their assigns and the holders
of the other registrable securities contemplated being included in such
registrations based on the number of registrable securities requested to be
registered by each of them) if and to the extent that the managing underwriter
shall be of the good faith opinion (expressed in writing) that such inclusion
would reduce the number of registrable securities to be offered by the Purchaser
or otherwise adversely affect such offering. Nothing herein shall be construed
so as to require the Purchaser, in connection with any proposed offering, to
engage the services of an underwriter, as, for example, if the Purchaser shall
file a registration statement under Rule 415 of the Securities Act without the
services or engagement of any underwriter. This "piggy-back" registration right
shall not apply to an offering of equity securities of Form S-4 or S-8 (or their
then equivalent forms) relating to securities to be issued solely in connection
with an acquisition of any entity or business or securities issuable in
connection with a stock option or other employee benefit plan.
(b) Whenever the Purchaser, under this Section 7.15, undertakes to effect
the registration of any securities under the Securities Act, the Purchaser
shall:
30
(i) prepare and file with the Securities and Exchange Commission (the
"Commission") a registration statement with respect to such securities as
expeditiously as possible. Such registration statement shall remain effective
for the lesser of 180 days or until all of the Sellers securities included in
such registration statement have been sold ("Requisite Period");
(ii) promptly prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
the Requisite Period and comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such registration
statement;
(iii) promptly furnish to the Piggyback Sellers and to each
underwriter, if any, such number of copies of the registration statement and the
prospectus included therein (including each preliminary prospectus) as the
Piggyback Sellers reasonably may request in order to facilitate the intended
disposition of the securities covered by such registration statement;
(iv) use its best efforts (A) to register or qualify the securities
covered by such registration statement under the securities or "blue sky" laws
of such jurisdictions as the Piggyback Sellers or, in the case of an
underwritten public offering, the managing underwriter reasonably shall request,
(B) to prepare and file in those jurisdictions such amendments (including post
effective amendments) and supplements, and take such other actions, as may be
necessary to maintain such registration and qualification in effect at all times
for the Requisite Period and (C) to take such further action as may be necessary
or advisable to enable the disposition of the securities covered by such
registration statement in such jurisdictions; provided, that the Purchaser shall
not for any such purpose be required to qualify generally to transact business
as a foreign corporation in any jurisdiction where it is not so qualified or to
consent to general service of process in any such jurisdiction;
(v) use its best efforts to list the securities covered by such
registration statement with any securities exchange on which the Common Stock is
then listed, or, if the Common Stock is not then listed on a national securities
exchange, use its best efforts to facilitate the reporting of the Common Stock
on the Nasdaq Stock Market;
(vi) promptly notify the Piggyback Sellers and, if applicable, each
underwriter participating in the offering covered by such registration
statement, at any time when a prospectus relating thereto is required to be
delivered under the Securities Act, of the happening of any event of which the
Purchaser has knowledge as a result of which the prospectus contained in such
registration statement, as then in effect, includes any untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing and promptly amend or supplement such registration
statement to correct any such untrue statement or omission;
(vii) promptly notify the Piggyback Sellers of the issuance by the
Commission of any stop order suspending the effectiveness of the registration
statement or the initiation of any proceedings for that purpose and use its best
effort to prevent the issuance of any stop order and, if any stop order is
issued, to obtain the lifting thereof at the earliest possible time;
31
(viii) permit, at the Purchaser's expense subject to the immediately
succeeding proviso, a single firm of counsel and a single accounting firm
designated by the Sellers to review the registration statement and all
amendments and supplements thereto for a reasonable period of time prior to
their filing; provided, however, that in no event shall the Purchaser be
required to reimburse the Sellers for legal and accounting fees in excess of
$10,000 per registration statement and the Purchaser shall not file any document
in a form to which such counsel reasonably objects;
(ix) if the offering is an underwritten offering, enter into a written
agreement with the managing underwriter in such form and containing such
provisions as are usual and customary in the securities business for such an
arrangement between such underwriter and companies of the Purchaser's size and
investment stature, including, without limitation customary indemnification and
contribution provisions;
(x) if the offering is an underwritten offering, at the request of the
Piggyback Sellers, use its best efforts to furnish to the Piggyback Sellers on
the date that securities are delivered to the underwriter(s) for sale pursuant
to such registration: (A) a copy of an opinion dated such date of counsel
representing the Purchaser for the purposes of such registration, addressed to
the underwriter(s), reasonably satisfactory to the Piggyback Sellers and such
underwriter(s) and (B) a copy of a letter dated such date from the independent
public accountants retained by the Purchaser, addressed to the underwriter(s),
reasonably satisfactory to the Piggyback Sellers and such underwriter(s);
(xi) make available for inspection by the Sellers, any underwriter
participating in any distribution pursuant to such registration statement, and
any attorney, accountant or other agent retained by the Sellers or underwriter,
all financial and other records, pertinent corporate documents and properties of
the Purchaser, and cause the Purchaser's officers, directors and employees to
supply all information reasonably requested by the Seller, or such underwriter,
attorney, accountant or agent in connection with such registration statement;
(xii) provide a transfer agent and registrar, which may be a single
entity, for the securities not later than the effective date of the registration
statement;
(xiii) take all actions reasonably necessary to facilitate the timely
preparation and delivery of certificates (not bearing any legend restricting the
sale or transfer of such securities) representing the securities to be sold
pursuant to the registration statement and to enable such certificates to be in
such denominations and registered in such names as the Sellers or any
underwriter may reasonably request; and
(xiv) take all other reasonable actions necessary to expedite and
facilitate the registration of the securities pursuant to the registration
statement.
(c) All expenses incurred by the Purchaser in complying with this Section
7.15, including, without limitation, all registration and filing fees, printing
expenses, fees and disbursements of counsel and independent public accountants,
fees and expenses (including counsel fees) incurred in connection with complying
32
with state securities or "blue sky" laws, fees of the National Association of
Securities Dealers, Inc., fees of transfer agents and registrars and legal and
accounting fees and disbursements of up to $10,000 for the Sellers shall be
borne by the Purchaser; provided that in an underwritten offering, the Piggyback
Sellers shall pay any commissions or discounts associated with the number of the
Piggyback Sellers' shares included in such registration statement.
(d) In connection with any registration pursuant to this Section 7.15, the
Piggyback Sellers and the Purchaser hereby agree to execute such agreements as
are usual and customary in a transaction of this nature, including, without
limitation, agreements relating to hold-back periods (for both the Piggyback
Sellers and the Company), indemnification and contribution. The Piggyback
Sellers shall furnish in writing to the Purchaser such information regarding the
Piggyback Sellers, the shares held by the Piggyback Sellers and the distribution
proposed by the Piggyback Sellers as the Purchaser may reasonable request.
ARTICLE VIII
CONDITIONS TO CLOSING
8.1 Conditions Precedent to Obligations of Purchaser.
-----------------------------------------------------
The obligation of the Purchaser to consummate the transactions contemplated
by this Agreement is subject to the fulfillment, on or prior to the Closing
Date, of each of the following conditions (any or all of which may be waived by
the Purchaser in whole or in part to the extent permitted by applicable law):
(a) all representations and warranties of the Sellers contained herein
shall be true and correct as of the date hereof;
(b) all representations and warranties of the Sellers contained herein
qualified as to materiality shall be true and correct, and the representations
and warranties of the Sellers contained herein not qualified as to materiality
shall be true and correct in all material respects, at and as of the Closing
Date with the same effect as though those representations and warranties had
been made again at and as of that time;
(c) the Sellers shall have performed and complied in all material respects
with all obligations and covenants required by this Agreement to be performed or
complied with by them on or prior to the Closing Date;
(d) the Purchaser shall have been furnished with certificates (dated the
Closing Date and in form and substance reasonably satisfactory to the Purchaser)
executed by each Representing Seller certifying as to the fulfillment of the
applicable conditions specified in Sections 8.1(a), 8.1(b) and 8.1(c) hereof;
(e) Certificates representing 100% of the Shares shall have been, or shall
at the Closing be, validly delivered and transferred to the Purchaser, free and
clear of any and all Liens;
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(f) the Purchaser shall have obtained all consents and waivers referred to
in Section 7.3 hereof with respect to the transactions contemplated by this
Agreement and the Purchaser Documents;
(g) there shall not have been or occurred any Material Adverse Change;
(h) the Representing Sellers shall have obtained all consents and waivers
referred to in Section 4.6 hereof, in a form reasonably satisfactory to the
Purchaser, with respect to the transactions contemplated by this Agreement and
the Seller Documents;
(i) no Legal Proceedings shall have been instituted or threatened or claim
or demand made against the Sellers, the Company, or the Purchaser seeking to
restrain or prohibit or to obtain substantial damages with respect to the
consummation of the transactions contemplated hereby, and there shall not be in
effect any Order by a Governmental Body of competent jurisdiction restraining,
enjoining or otherwise prohibiting the consummation of the transactions
contemplated hereby;
(j) each of the Sellers shall have provided the Purchaser with an affidavit
of non-foreign status that complies with Section 1445 of the Code (a "FIRPTA
Affidavit");
(k) the Purchaser shall have received the written resignations of each
director of the Company; and
(l) the Purchaser's investigation of environmental conditions at the
properties and facilities of the Company shall not have revealed any
circumstances which could reasonably result in (1) the criminal prosecution of
the Company or any employee of the Company under Environmental Laws, (2) any
suspension or closure of operations at the Company's properties or facilities or
(3) any liabilities arising under Environmental Laws which, individually or in
the aggregate, could reasonably give rise to a Material Adverse Effect.
8.2 Conditions Precedent to Obligations of the Sellers.
-------------------------------------------------------
The obligations of the Sellers to consummate the transactions contemplated
by this Agreement are subject to the fulfillment, prior to or on the Closing
Date, of each of the following conditions (any or all of which may be waived by
the Sellers in whole or in part to the extent permitted by applicable law):
(a) Certificates representing the Sellers' pro rata share of Purchaser
Common Stock shall have been, or shall at the Closing be, validly delivered and
transferred to the Sellers, free and clear of any and all Liens;
(b) all representations and warranties of the Purchaser contained herein
shall be true and correct as of the date hereof;
(c) all representations and warranties of the Purchaser contained herein
qualified as to materiality shall be true and correct, and all representations
and warranties of the Purchaser contained herein not qualified as to materiality
shall be true and correct in all material respects, at and as of the Closing
Date with the same effect as though those representations and warranties had
been made again at and as of that date;
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(d) the Purchaser shall have performed and complied in all material
respects with all obligations and covenants required by this Agreement to be
performed or complied with by Purchaser on or prior to the Closing Date;
(e) the Sellers shall have been furnished with certificates (dated the
Closing Date and in form and substance reasonably satisfactory to the Sellers)
executed by the Chief Executive Officer and Chief Financial Officer of the
Purchaser certifying as to the fulfillment of the conditions specified in
Sections 8.2(a), 8.2(b) and 8.2(c); and
(f) there shall not be in effect any Order by a Governmental Body of
competent jurisdiction restraining, enjoining or otherwise prohibiting the
consummation of the transactions contemplated hereby.
ARTICLE IX
DOCUMENTS TO BE DELIVERED
9.1 Documents to be Delivered by the Sellers.
---------------------------------------------
At the Closing, the Sellers shall deliver, or cause to be delivered, to the
Purchaser the following:
(a) stock certificates representing the Shares, duly endorsed in blank or
accompanied by stock transfer powers and with all requisite stock transfer tax
stamps attached;
(b) the certificates referred to in Section 8.1(d) and 8.1(e) hereof;
(c) the opinion of Greenberg Traurig, P.A., counsel to the Company, in
substantially the form of Exhibit C hereto;
(d) copies of all consents and waivers referred to in Section 8.1(f)
hereof;
(e) written resignations of each of the directors of the Company;
(f) duly executed FIRPTA Affidavits for each Seller;
(g) certificates of good standing with respect to the Company issued by the
Secretary of State of the State of Delaware and for each state in which the
Company is qualified to do business as a foreign corporation; and
(h) such other documents as the Purchaser shall reasonably request.
9.2 Documents to be Delivered by the Purchaser.
-----------------------------------------------
At the Closing, the Purchaser shall deliver to the Sellers the following:
35
(a) the certificates referred to in Section 8.2(a) hereof;
(b) the certificates referred to in Section 8.2(e) hereof; and
(c) such other documents as the Sellers shall reasonably request.
ARTICLE X
INDEMNIFICATION
10.1 Non-Tax Indemnification.
-----------------------------
(a) Subject to Section 10.2 hereof, the Representing Sellers hereby agree
to jointly and severally indemnify and hold the Purchaser, the Company, and
their respective directors, officers, employees, Affiliates, agents, successors
and assigns (collectively, the "Purchaser Indemnified Parties") harmless from
and against:
(i) any and all liabilities of the Company of every kind, nature and
description, absolute or contingent, existing as against the Company prior to
and including the Closing Date or thereafter coming into being or arising by
reason of any state of facts existing, or any transaction entered into, on or
prior to the Closing Date, except to the extent that the same have been fully
provided for with Balance Sheet or disclosed in the notes thereto or were
incurred in the ordinary course of business between the Balance Sheet Date and
the Closing Date;
(ii) subject to Section 10.2, any and all losses, liabilities,
obligations, damages, costs and expenses based upon, attributable to or
resulting from the failure of any representation or warranty of the Representing
Sellers set forth in Section 4 or the Sellers set forth in Section 5 hereof, or
any representation or warranty contained in any certificate delivered by or on
behalf of the Representing Sellers pursuant to this Agreement, to be true and
correct in all respects as of the date made;
(iii) any and all losses, liabilities, obligations, damages, costs and
expenses based upon, attributable to or resulting from the breach of any
covenant or other agreement on the part of the Sellers under this Agreement;
(iv) any and all losses (including any loss of use of Company Property
or any of the tangible personal property of the Company), liabilities,
obligations, claims, damages, costs and expenses arising from:
(A) any failure of any of the representations and warranties
contained in Section 4.19 of this Agreement, or any representation or warranty
with respect to environmental matters contained in any certificate delivered by
or on behalf of the Representing Sellers pursuant to this Agreement, to have
been true and correct in all respects as of the date made;
36
(B) any Release of Hazardous Materials in, on, at, or from the
Company Properties which occurred, or resulted from operations occurring, as of
or prior to the Closing;
(C) any tort liability to third parties as a result of any
Releases or from exposure to Hazardous Materials arising from any Releases as of
or prior to the Closing;
(D) notification or designation under any Environmental Law as a
potentially responsible party for onsite or offsite disposal of Hazardous
Materials, which disposal occurred as of or prior to the Closing, or the listing
of any Purchased Asset on the CERCLA National Priorities List or any similar
list under any Environmental Law as a result of onsite disposal of Hazardous
Materials as of or prior to the Closing; and
(E) any fines or penalties with respect to any violation of
Environmental Law occurring as of or prior to the Closing; and
(v) any and all notices, actions, suits, proceedings, claims, demands,
assessments, judgments, costs, penalties and expenses, including attorneys' and
other professionals' fees and disbursements (collectively, "Expenses") incident
to any and all losses, liabilities, obligations, damages, costs and expenses
with respect to which indemnification is provided hereunder (collectively,
"Losses").
(b) Subject to Section 10.2, Purchaser hereby agrees to indemnify and hold
the Sellers and their respective Affiliates, agents, successors and assigns
(collectively, the "Seller Indemnified Parties") harmless from and against:
(i) subject to Section 10.3, any and all Losses based upon,
attributable to or resulting from the failure of any representation or warranty
of the Purchaser set forth in Section 6 hereof, or any representation or
warranty contained in any certificate delivered by or on behalf of the Purchaser
pursuant to this Agreement, to be true and correct as of the date made;
(ii) any and all Losses based upon, attributable to or resulting from
the breach of any covenant or other agreement on the part of the Purchaser under
this Agreement; and
(iii) any and all Expenses incident to the foregoing.
10.2 Limitations on Indemnification for Breaches of Representations and
Warranties.
- ----------------------------------------------------------------------------
An indemnifying party shall not have any liability under Section
10.1(a)(ii) or Section 10.1(b)(i) hereof unless the aggregate amount of Losses
and Expenses to the indemnified parties finally determined to arise thereunder
based upon, attributable to or resulting from the failure of any representation
or warranty to be true and correct, other than the representations and
warranties set forth in Sections 4.10, 4.15, 4.19, 4.26, 5.5, 5.6, 5.7, 5.10 and
6.6 hereof, exceeds $50,000 (the "Basket") and, in such event, the indemnifying
party shall be required to pay the entire amount of such Losses and Expenses in
excess of $100,000 (the "Deductible").
37
10.3 Non-Tax Indemnification Procedures.
----------------------------------------
(a) In the event that any Legal Proceedings shall be instituted or that any
claim or demand ("Claim") shall be asserted by any Person in respect of which
payment may be sought under Section 10.1 hereof (regardless of the Basket or the
Deductible referred to above), the indemnified party shall reasonably and
promptly cause written notice of the assertion of any Claim of which it has
knowledge which is covered by this indemnity to be forwarded to the indemnifying
party. The indemnifying party shall have the right, at its sole option and
expense, to be represented by counsel of its choice, which must be reasonably
satisfactory to the indemnified party, and to defend against, negotiate, settle
or otherwise deal with any Claim which relates to any Losses indemnified against
hereunder. If the indemnifying party elects to defend against, negotiate, settle
or otherwise deal with any Claim which relates to any Losses indemnified against
hereunder, it shall within five (5) days (or sooner, if the nature of the Claim
so requires) notify the indemnified party of its intent to do so. If the
indemnifying party elects not to defend against, negotiate, settle or otherwise
deal with any Claim which relates to any Losses indemnified against hereunder,
fails to notify the indemnified party of its election as herein provided or
contests its obligation to indemnify the indemnified party for such Losses under
this Agreement, the indemnified party may defend against, negotiate, settle or
otherwise deal with such Claim. If the indemnified party defends any Claim, then
the indemnifying party shall reimburse the indemnified party for the Expenses of
defending such Claim upon submission of periodic bills. If the indemnifying
party shall assume the defense of any Claim, the indemnified party may
participate, at his or its own expense, in the defense of such Claim; provided,
however, that such indemnified party shall be entitled to participate in any
such defense with separate counsel at the expense of the indemnifying party if,
(i) so requested by the indemnifying party to participate or (ii) in the
reasonable opinion of counsel to the indemnified party, a conflict or potential
conflict exists between the indemnified party and the indemnifying party that
would make such separate representation advisable; and provided, further, that
the indemnifying party shall not be required to pay for more than one such
counsel for all indemnified parties in connection with any Claim. The parties
hereto agree to cooperate fully with each other in connection with the defense,
negotiation or settlement of any such Claim.
(b) After any final judgment or award shall have been rendered by a court,
arbitration board or administrative agency of competent jurisdiction and the
expiration of the time in which to appeal therefrom, or a settlement shall have
been consummated, or the indemnified party and the indemnifying party shall have
arrived at a mutually binding agreement with respect to a Claim hereunder, the
indemnified party shall forward to the indemnifying party notice of any sums due
and owing by the indemnifying party pursuant to this Agreement with respect to
such matter and the indemnifying party shall be required to pay all of the sums
so due and owing to the indemnified party by wire transfer of immediately
available funds within 10 business days after the date of such notice.
(c) The failure of the indemnified party to give reasonably prompt notice
of any Claim shall not release, waive or otherwise affect the indemnifying
party's obligations with respect thereto except to the extent that the
indemnifying party can demonstrate actual loss and prejudice as a result of such
failure.
38
10.4 Tax Matters.
-----------------
(a) Tax Indemnification.
(i) Except to the extent Taxes are reserved for on the Closing Date
Balance Sheet, each Representing Seller, jointly and severally, agrees to be
responsible for and to indemnify and hold the Purchaser Indemnified Parties
harmless from and against any and all Taxes that may be imposed upon or assessed
against the Company or the assets thereof:
(I) with respect to all taxable periods ending on or prior to the
Closing Date;
(II) with respect to any and all Taxes of the Company for the
period allocated to the Sellers pursuant to Section 10.4(b)(iv);
(III) arising by reason of any breach by the Sellers or
inaccuracy of any of the representations contained in Sections 4.10 and 5.6
hereof; and
(IV) with respect to any and all Taxes of any member of a
consolidated, combined or unitary group of which the Company (or any
predecessor) is or was a member on or prior to the Closing Date, by reason of
the liability of Company pursuant to Treasury Regulation Section 1.1502-6(a) or
any analogous or similar state, local or foreign law or regulation.
The Representing Sellers shall also pay and shall indemnify and hold
harmless the Purchaser Indemnified Parties from and against any losses, damages,
liabilities, obligations, deficiencies, costs and expenses (including, without
limitation, reasonable expenses and fees for attorneys and accountants)
("Related Costs") incurred in connection with the Taxes for which the
Representing Sellers are responsible to indemnify the Purchaser Indemnified
Parties pursuant to this Section 10.4(a) (or any asserted deficiency, claim,
demand, action, suit, proceeding, judgment or assessment, including the defense
or settlement thereof, relating to such Taxes) or the enforcement of this
Section 10.4(a).
(V) Purchaser agrees to indemnify and hold harmless the Sellers
from and against any and all Taxes (A) of the Company with respect to any
taxable period of the Company beginning after the Closing Date and (B)
attributable to the period allocated to Purchaser pursuant to Section
10.4(b)(iv).
(VI) If any indemnification payment under Article 10 (including,
without limitation, this Section 10.4(a)(VI)) is determined to be taxable to the
party receiving such payment by any taxing authority, the paying party shall
also indemnify the party receiving such payment for any Taxes incurred by reason
of the receipt of such payment (taking into account any actual reduction in tax
liability to the receiving party) and any Related Costs incurred by the party
receiving such payment in connection with such Taxes (or any asserted
deficiency, claim, demand, action, suit, proceeding, judgment or assessment,
including the defense or settlement thereof, relating to such Taxes).
39
(b) Preparation of Tax Returns; Payment of Taxes.
(i) The Representing Sellers shall cause the Company to file all the
federal, state, local and foreign Tax Returns required to be filed by the
Company on or prior to the Closing Date and shall pay any and all Taxes due with
respect to such returns. All Tax Returns described in this Section 10.4(b)(i)
shall be prepared in a manner consistent with prior practice unless a past
practice has been finally determined to be incorrect by the applicable taxing
authority or a contrary treatment is required by applicable tax laws (or
judicial or administrative interpretations thereof). The Representing Sellers
shall cause the Company to provide Purchaser with copies of such completed Tax
Returns at least 10 days prior to the filing date, and Purchaser shall be
provided an opportunity to review such Tax Returns and supporting workpapers and
Schedules prior to the filing of such Tax Returns. The failure of the Purchaser
to propose any changes to any such Tax Return within such 10 days shall be
deemed to be an indication of its approval thereof. The Representing Sellers and
Purchaser shall attempt in good faith mutually to resolve any disagreements
regarding such Tax Returns prior to the due date for filing thereof. Any
disagreements regarding such Tax Returns which are not resolved prior to the
filing thereof shall be promptly resolved pursuant to Section 10.4(h) which
shall be binding on the parties.
(ii) Following the Closing, Purchaser shall be responsible for
preparing or causing to be prepared all federal, foreign, state and local Tax
Returns required to be filed by the Company after the Closing Date. To the
extent any Taxes shown due on any such Tax Return are indemnifiable by the
Representing Sellers, (A) such Tax Return shall be prepared in a manner
consistent with prior practice unless otherwise required by applicable tax laws;
(B) Purchaser shall provide the Representing Sellers with copies of such Tax
Return at least 30 days prior to the due date for filing such return; and (C)
the Representing Sellers shall have the right to review and approve (which
approval shall not be unreasonably withheld) such Tax Returns for 15 days
following receipt thereof. The failure of the Representing Sellers to propose
any changes to any such Tax Return within such 15 days shall be deemed to be an
indication of its approval thereof. The Representing Sellers and Purchaser shall
attempt in good faith mutually to resolve any disagreements regarding such Tax
Returns prior to the due date for filing thereof. Any disagreements regarding
such Tax Returns which are not resolved prior to the filing thereof shall be
promptly resolved pursuant to Section 10.4(h) which shall be binding on the
parties. Purchaser shall file or cause to be filed all such Tax Returns and
shall, subject to receiving the payments from the Representing Sellers referred
to in Section 10.4(b)(iii), pay the Taxes shown due thereon; provided, however,
that nothing contained in the foregoing shall in any manner terminate, limit or
adversely affect any right of Purchaser Indemnified Parties, the Sellers or the
Company to receive indemnification pursuant to any provision in this Agreement.
(iii) Not later than 5 days before the due date for payment of Taxes
with respect to any Tax Returns which Purchaser has the responsibility to file,
the Representing Sellers shall pay to Purchaser an amount equal to that portion
of the Taxes shown on such return for which the Representing Sellers have an
obligation to indemnify Purchaser and its Affiliates pursuant to the provisions
of Section 10.4(a).
(iv) For federal income tax purposes, the taxable year of the Company
shall end as of the close of the Closing Date and, with respect to all other
Taxes, the Representing Sellers and Purchaser will, unless prohibited by
applicable law, close the taxable period of the Company as of the close of the
Closing Date. Neither the Representing Sellers nor Purchaser shall take any
40
position inconsistent with the preceding sentence on any Tax Return. In any case
where applicable law does not permit the Company to close its taxable year on
the Closing Date or in any case in which a Tax is assessed with respect to a
taxable period which includes the Closing Date (but does not begin or end on
that day), then Taxes, if any, attributable to the taxable period of the Company
beginning before and ending after the Closing Date shall be allocated (i) to the
Representing Sellers for the period up to and including the Closing Date, and
(ii) to Purchaser for the period subsequent to the Closing Date. Any allocation
of income or deductions required to determine any Taxes attributable to any
period beginning before and ending after the Closing Date shall be prepared by
Purchaser and shall be made by means of a closing of the books and records of
the Company as of the close of the Closing Date, provided that exemptions,
allowances or deductions that are calculated on an annual basis (including, but
not limited to, depreciation and amortization deductions) shall be allocated
between the period ending on the Closing Date and the period after the Closing
Date in proportion to the number of days in each such period. Purchaser shall
provide the Representing Sellers with a schedule showing the computation of the
allocation at least 30 days prior to the due date for filing a Tax Return which
includes the Closing Date. The Representing Sellers shall have the right to
review such schedule, and the Purchaser and Representing Sellers shall attempt
in good faith mutually to resolve any disagreements regarding the determination
of such allocation. Any disagreements regarding such determination shall be
resolved pursuant to Section 10.4(h). Any amount owing from Representing Sellers
under this Section 10.4(b)(iv) shall be paid no later than five (5) days prior
to the filing of the underlying Tax Return.
(c) Cooperation with Respect to Tax Returns.
Purchaser and the Representing Sellers agree to furnish or cause to be
furnished to each other, and each at their own expense, as promptly as
practicable, such information (including access to books and records) and
assistance, including making employees available on a mutually convenient basis
to provide additional information and explanations of any material provided,
relating to the Company as is reasonably necessary for the filing of any Tax
Return, for the preparation for any audit, and for the prosecution or defense of
any claim, suit or proceeding relating to any adjustment or proposed adjustment
with respect to Taxes. Purchaser or the Company shall retain in its possession,
and shall provide the Representing Sellers reasonable access to (including the
right to make copies of), such supporting books and records and any other
materials that the Representing Sellers may specify with respect to Tax matters
relating to any taxable period ending on or prior to the Closing Date until the
relevant statute of limitations has expired. After such time, Purchaser may
dispose of such material, provided that prior to such disposition Purchaser
shall give the Representing Sellers a reasonable opportunity to take possession
of such materials.
(d) Tax Audits.
(i) Purchaser shall have the sole right to represent the interests of
the Company in any Tax audit or administrative or court proceeding relating to
taxable periods of the Company beginning after the Closing Date and to employ
counsel of its choice at its expense; provided that if the results of such Tax
audit or proceeding could reasonably be expected to have a Material Adverse
Effect on the assets, business, operations, or financial condition of the
Representing Sellers for taxable periods ending after the Closing Date, then
there shall be no settlement or closing or other agreement with respect thereto
without the written consent of Representing Sellers (which consent shall not be
unreasonably withheld). The Representing Sellers agree that they will cooperate
fully with Purchaser and its counsel in the defense against or compromise of any
claim in any said proceeding.
41
(ii) If any taxing authority in writing asserts a claim, makes an
assessment or otherwise disputes or affects any Tax for which the Representing
Sellers are responsible hereunder, Purchaser shall, promptly upon receipt by
Purchaser or the Company of written notice thereof, inform the Representing
Sellers thereof. The failure of Purchaser or the Company or their Affiliates
timely to forward such notification in accordance with the immediately preceding
sentence shall not relieve the Representing Sellers of their obligation to pay
such liability for Taxes except and to the extent that the failure timely to
forward such notification actually prejudices the ability of Representing
Sellers to contest such liability for Taxes or increases the amount of such
Taxes.
(iii) The Representing Sellers and Purchaser jointly shall represent
the interests of the Company in any Tax audit or administrative or court
proceeding relating to any taxable period of the Company which includes (but
does not begin or end on) the Closing Date. Any disputes regarding the conduct
or resolution of any such audit or proceeding shall be resolved pursuant to
Section 10.4(h). Each of the parties shall be bound by the decision rendered
pursuant to Section 10.4(h). All costs, fees and expenses paid to third parties
in the course of such proceeding shall be borne by Representing Sellers and
Purchaser in the same ratio as the ratio in which, pursuant to the terms of this
Agreement, Representing Sellers and Purchaser would share the responsibility for
payment of the Taxes asserted by the taxing authority in such claim or
assessment if such claim or assessment were sustained in its entirety.
(e) Refund Claims.
Except as otherwise provided in Section 10.4(f), to the extent any
determination of Tax liability of the Company, whether as the result of an audit
or examination, a claim for refund, the filing of an amended return or
otherwise, results in any refund of Taxes paid attributable to (i) any period
which ends on or before the Closing Date or (ii) any period which includes the
Closing Date but does not begin or end on that day, any such refund shall belong
to the Representing Sellers, provided that in the case of any Tax refund
described in clause (ii) of this Section 10.4(e), the portion of such Tax refund
which shall belong to the Representing Sellers shall be that portion that is
attributable to the portion of that period which ends on the Closing Date
(determined on the basis of an interim closing of the books as of the Closing
Date), and Purchaser shall promptly pay any such refund, and the interest
actually received thereon, to the Representing Sellers upon receipt thereof by
Purchaser. Any and all other refunds shall belong to Purchaser. Any payments
made under this Section 10.4(e) shall be net of any Taxes payable with respect
to such refund, credit or interest thereon (taking into account any actual
reduction in Tax liability realized upon the payment pursuant to this Section
10.4(e)).
42
(f) Carrybacks.
To the extent received by them individually, the Representing Sellers shall
pay to Purchaser the amount of any Tax benefit (including interest thereon)
realized by the Representing Sellers or any Affiliate thereof as a result of the
carryback of any Tax loss, deduction or credit of the Company from any taxable
period beginning after the Closing Date to a taxable period ending on or before
the Closing Date. The Representing Sellers shall pay such amount to Purchaser
within 10 business days after such Tax benefit is received by the Representing
Sellers or any Affiliate of it as a refund or otherwise, provided that Purchaser
shall return to the Representing Sellers the amount, if any, by which the amount
of such Tax benefit is thereafter reduced pursuant to a final determination.
(g) Transfer Taxes.
The Representing Sellers shall be liable for and shall pay (and shall
indemnify and hold harmless Purchaser against) all sales, use, stamp,
documentary, filing, recording, transfer or similar fees or taxes or
governmental charges (including, without limitation, real property transfer
gains taxes, UCC-3 filing fees, FAA, ICC, DOT, real estate and motor vehicle
registration, title recording or filing fees and other amounts payable in
respect of transfer filings) as levied by any taxing authority or governmental
agency in connection with the transactions contemplated by this Agreement (other
than taxes measured by or with respect to income imposed on the Representing
Sellers or on Purchaser or its Affiliates). The Representing Sellers hereby
agree to file all necessary Documents (including, but not limited to, all Tax
Returns) with respect to all such amounts in a timely manner.
(h) Any dispute as to any matter covered hereby shall be resolved by an
independent accounting firm mutually acceptable to the Representing Sellers and
the Purchaser. The fees and expenses of such accounting firm shall be borne
equally by the Representing Sellers and the Purchaser.
(i) The indemnification provided for in this Section 10.4 shall be the sole
remedy for any claim in respect of Taxes and the provisions of Sections 10.1
through 10.3 hereof shall not apply to such claims.
(j) Any claim for indemnity under this Section 10.4 may be made at any time
prior to 60 days after the expiration of the applicable Tax statute of
limitations with respect to the relevant taxable period (including all periods
of extension, whether automatic of permissive).
10.5 Employee Benefits and Labor Indemnity.
-------------------------------------------
Representing Sellers hereby agree to jointly and severally indemnify and
hold the Purchaser Indemnified Parties harmless from and against any and all
losses, liabilities, obligations, damages, costs and expenses (including
reasonable attorneys' fees and the cost and expenses of enforcing such right of
indemnification) and penalties, if any, (i) arising out of or based upon or with
respect to any Employee Benefit Plan or Pension Plan or any other "employee
benefit plan" within the meaning of Section 3(3) of ERISA maintained by,
contributed to or to which there is or was an obligation to contribute to by
Representing Sellers, the Company, or any ERISA Affiliate and (ii) as a result
of any claim made with respect to employment prior to or on the Closing Date
with Company including, without limitation, any claim with respect to, relating
to arising out of or in connection with discrimination by the Company or
wrongful discharge (including constructive discharge).
43
10.6 Tax Treatment of Indemnity Payments.
-----------------------------------------
The Representing Sellers and the Purchaser agree to treat any indemnity
payment made pursuant to this Article 10 as an adjustment to the Purchaser's tax
and accounting basis in the Company for federal, state, local and foreign income
tax purposes.
ARTICLE XI
MISCELLANEOUS
11.1 Certain Definitions.
-------------------------
Affiliate means with respect to a specified person, is a person that
directly, or indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with, the person specified.
Agreement means this Stock Exchange Agreement, included exhibits and
schedules attached hereto.
Balance Sheet shall have the meaning ascribed to it in Section 4.7.
Balance Sheet Date shall have the meaning ascribed to it in Section 4.7.
Basket shall have the meaning ascribed to it in Section 10.2.
Buildout Contract shall have the meaning ascribed to it in Section
2.3(b)(i).
CERCLA National Priorities List means the list of hazardous substances
compiled under the Comprehensive Environmental Response, Compensation, and
Liability Act (also known as Superfund), of 1980, as amended from time to time.
Claim shall have the meaning ascribed to it in Section 10.3(a).
Closing shall have the meaning ascribed to it in Section 3.1.
Closing Date shall have the meaning ascribed to it in Section 3.1.
Closing Date Balance Sheet means the statement of financial position of the
Company on August 22, 2000, in conformity with GAAP.
Code mean the Internal Revenue Code of 1986, as amended from time to time.
Commission shall have the meaning ascribed to it in Section 7.15.
44
Company means Suncoast Automation, Inc., a Delaware corporation.
Company Documents shall have the meaning ascribed to it in Section 4.2.
Company Property shall have the meaning ascribed to it in Section 4.11(a).
Company Properties shall have the meaning ascribed to it in Section
4.11(a).
Completed Earnout Terms shall have the meaning ascribed to it in Section
2.3(a)(ii).
Contract means and includes all contracts, agreements, understandings,
indentures, notes, bonds, loans, instruments, leases, mortgages, commitments,
obligations or other binding arrangements, oral or written
Cumulative Cash Flow means earnings before tax, depreciation, and excluding
any corporate allocations.
Deductible shall have the meaning ascribed to it in Section 10.2.
Earnout Period shall have the meaning ascribed to it in Section 2.3(a).
Earnout Shares shall have the meaning ascribed to it in Section 2.3(a).
Effective Time shall have the meaning ascribed to it in Section 1.1.
Employment Agreements shall have the meaning ascribed to it in Section
7.13.
Employee Benefit Plans shall have the meaning ascribed to it in Section
4.15(a).
Environmental Laws mean any laws, statutes, regulations, rules or orders
which relate to or otherwise impose Liability or a standard of conduct
concerning the discharge, emission, storage, treatment, transportation,
handling, release, threatened release, or disposal of Hazardous Materials,
including, but not limited to, the Air Pollution Control Act, as amended, the
Federal Water Pollution Control Act, as amended, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, the Resource
Conservation and Recovery Act of 1976, as amended, and the Toxic Substances
Control Act of 1976, as amended, and any other similar Federal, state or local
statutes.
ERISA shall have the meaning ascribed to it in Section 4.15(a).
ERISA Affiliate shall have the meaning ascribed to it in Section 4.15(a).
Escrow Agent means Sichenzia, Ross & Friedman LLP, 135 West 50th Street,
New York, New York 10020.
45
Escrow Agreement means the agreement by and between the Company and the
Purchaser with regards to the Earnout Shares.
Expenses shall have the meaning ascribed to it in Section 10.1(a)(v).
Financial Statements shall have the meaning ascribed to it in Section 4.7.
FIRPTA Affidavit shall have the meaning ascribed to it in Section 8.1(j).
GAAP means United States generally accepted accounting principles.
Governmental Body means any federal, state, municipal, domestic or foreign
court, tribunal, administrative agency, department, commission, board, bureau or
other governmental authority or instrumentality.
Greenberg Traurig, P.A. means Greenberg Traurig, P.A., 777 South Flagler
Drive, West Palm Beach, Florida 33401, counsel to the Company.
Hazardous Material means any pollutant, contaminant, hazardous, radioactive
or toxic substance, material, constituent or waste, or any other waste,
substance, chemical or material regulated under any Environmental Law, including
(i) petroleum, crude oil and any fractions thereof, (ii) natural gas, synthetic
gas and any mixtures thereof, (iii) asbestos and/or asbestos-containing
material, (iv) radon and (v) polychlorinated biphenyls ("PCBs"), or materials or
fluids containing PCBs.
HSR Act means the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
Initial Earnout Terms shall have the meaning ascribed to it in Section
2.3(a)(i).
IRS means the Internal Revenue Service, or any successor organization.
Laws mean any federal, state, foreign, or local law, statute, ordinance,
rule, regulation, order, judgment or decree. Legal Proceeding means any action,
hearing, trial, or application before a court or governmental body of competent
jurisdiction.
Lien means and includes any lien, pledge, mortgage, security interest,
claim, lease, charge, option, right of first refusal or offer, easement,
servitude, transfer restriction or voting requirement under any or similar
agreement, or any other encumbrance, restriction or limitation whatsoever.
Lockup Agreement shall have the meaning ascribed to it in Section 2.4.
Lockup Period shall have the meaning ascribed to it in Section 2.4.
Losses shall have the meaning ascribed to it in Section 10.1(a)(v).
46
Material Adverse Effect shall mean any effect on the business, stock price,
operations, properties, prospects, or financial condition to that entity that is
material and adverse to that entity and its subsidiaries and affiliates, taken
as a whole, and/or any condition, circumstance, or situation that would prohibit
or otherwise interfere with the ability of that entity to enter into and perform
any of its obligations under this Agreement in any material respect.
Material Adverse Change means any material adverse change (excluding the
occurrence of expenses in connection with the Merger) since December 31, 1999 in
the business, results of operations, condition (financial or otherwise), assets,
properties, liabilities (absolute, accrued, contingent or otherwise), or
reserves of Protosource or Suncoast, as the case may be.
Material Contracts shall have the meaning ascribed to it in Section 4.14.
Multiemployer Plans shall have the meaning ascribed to it in Section
4.15(a).
Multiple Employer Plans shall have the meaning ascribed to it in Section
4.15(a).
Order means any decision issued by a court or governmental body of
competent jurisdiction.
Owned Property shall have the meaning ascribed to it in Section 4.11(a).
Owned Properties shall have the meaning ascribed to it in Section 4.11(a).
Pension Plans shall have the meaning ascribed to it in Section 4.15.
Permit means any written warrant or license granted by any court or
governmental body of competent jurisdiction.
Person means an individual, a corporation, a partnership, an association, a
joint-stock company, a trust, any unicncorporated organization, or a government
or political subdivision thereof.
Personal Property Leases shall have the meaning ascribed to it in Section
4.12(a).
Piggyback Sellers shall have the mean ascribed to it in Section 7.15(a).
Purchaser means Protosource Corporation, a California corporation.
Purchaser Common Stock shall have the meaning ascribed to it in Section
2.1.
Purchaser Documents shall have the meaning ascribed to it in Section 6.2.
Purchaser Indemnified Parties shall have the meaning ascribed to it in
Section 10.1(a).
47
Qualified Plans shall have the meaning ascribed to it in Section 4.15(c).
Real Property Lease shall have the meaning ascribed to it in Section
4.11(a).
Related Costs shall have the meaning ascribed to it in Section
10.4(a)(i)(IV).
Release means any discharge of hazardous materials.
Remedial Action means an action taken to effect long-term restoration of
environmental quality (as under the Comprehensive Environmental Response,
Compensation, and Liability Act).
Representing Sellers mean collectively, Mark Blanchard, Kent Spears and
David Jennings.
Requisite Period shall have the meaning ascribed to it in Section 7.15.
Securities Act means the Securities Act of 1933, as amended.
Seller means individually, any of the shareholders listed on Annex A, and
collectively, the Sellers.
Seller Documents shall have the meaning ascribed to it in Section 5.2.
Seller Indemnified Parties shall have the meaning ascribed to it in Section
10.1(b).
Shares means the 147,028 shares of common stock of the Company, which
represents all of the issued and outstanding shares of the Company.
Sichenzia, Ross & Friedman LLP means Sichenzia, Ross & Friedman LLP, 135
West 50th Street, New York, New York 10020, counsel to the Purchaser.
Subscribers/Rooms means any revenue generating entity.
Subsidiaries mean any person that is directly, or indirectly controlled by
such person.
Tax Returns means all written returns, declarations, reports, forms,
estimates, information returns and statements filed in respect of any Taxes and
supplied to any taxing authority in connection with any Taxes.
Taxes (or "Tax" where the context requires) means all Federal, state,
county, local, foreign and other taxes (including, without limitation, income,
profits, premium, estimated, excise, sales, use, occupancy, gross receipts,
franchise, ad valorem, severance, capital levy, production, transfer,
withholding, employment, unemployment compensation, payroll-related and property
taxes, and other governmental charges and assessments), whether or not measured
in whole or in part by net income, and including deficiencies, interest,
additions to tax or interest and penalties with respect thereto.
48
11.2 Payment of Sales, Use or Similar Taxes.
--------------------------------------------
All sales, use, transfer, intangible, recordation, documentary stamp or
similar Taxes or charges, of any nature whatsoever, applicable to, or resulting
from, the transactions contemplated by this Agreement shall be borne by the
Sellers.
11.3 Expenses.
--------------
Upon consummation of this Agreement, the Purchaser, in addition to paying
its own expenses, shall pay the fees and expenses incurred by the Company and
the Sellers in connection with this Agreement. The Representing Sellers shall
pay any fees and expenses incurred by the Company not in connection with this
Agreement. Any fees and expenses incurred by any Seller or Sellers not in
connection with this Agreement shall be borne by such Seller or Sellers.
11.4 Survival of Representations and Warranties.
------------------------------------------------
The parties hereto hereby agree that the representations and warranties
contained in this Agreement or in any certificate, document or instrument
delivered in connection herewith, shall survive the execution and delivery of
this Agreement, and the Closing hereunder, regardless of any investigation made
by the parties hereto; provided, however, that any claims or actions with
respect thereto (other than claims for indemnifications with respect to the
representation and warranties contained in Sections 4.10, 4.15, 4.19, 4.26, 5.5,
5.6, 5.7 and 5.10 which shall survive for periods coterminous with any
applicable statutes of limitation) shall terminate unless within twenty-seven
(27) months after the Closing Date written notice of such claims is given to the
Representing Sellers or such actions are commenced.
11.5 Further Assurances.
------------------------
The Sellers and the Purchaser each agrees to execute and deliver such other
documents or agreements and to take such other action as may be reasonably
necessary or desirable for the implementation of this Agreement and the
consummation of the transactions contemplated hereby.
49
11.6 Submission to Jurisdiction; Consent to Service of Process.
---------------------------------------------------------------
(a) The parties hereto hereby irrevocably submit to the non-exclusive
jurisdiction of any federal or state court located within the State of New York
over any dispute arising out of or relating to this Agreement or any of the
transactions contemplated hereby and each party hereby irrevocably agrees that
all claims in respect of such dispute or any suit, action proceeding related
thereto may be heard and determined in such courts. The parties hereby
irrevocably waive, to the fullest extent permitted by applicable law, any
objection which they may now or hereafter have to the laying of venue of any
such dispute brought in such court or any defense of inconvenient forum for the
maintenance of such dispute. Each of the parties hereto agrees that a judgment
in any such dispute may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law.
(b) Each of the parties hereto hereby consents to process being served by
any party to this Agreement in any suit, action or proceeding by the mailing of
a copy thereof in accordance with the provisions of Section 11.9.
11.7 Entire Agreement; Amendments and Waivers.
----------------------------------------------
This Agreement (including the schedules and exhibits hereto) represents the
entire understanding and agreement between the parties hereto with respect to
the subject matter hereof and can be amended, supplemented or changed, and any
provision hereof can be waived, only by written instrument making specific
reference to this Agreement signed by the party against whom enforcement of any
such amendment, supplement, modification or waiver is sought. No action taken
pursuant to this Agreement, including without limitation, any investigation by
or on behalf of any party, shall be deemed to constitute a waiver by the party
taking such action of compliance with any representation, warranty, covenant or
agreement contained herein. The waiver by any party hereto of a breach of any
provision of this Agreement shall not operate or be construed as a further or
continuing waiver of such breach or as a waiver of any other or subsequent
breach. No failure on the part of any party to exercise, and no delay in
exercising, any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of such right, power or remedy
by such party preclude any other or further exercise thereof or the exercise of
any other right, power or remedy. All remedies hereunder are cumulative and are
not exclusive of any other remedies provided by law.
11.8 Governing Law.
-------------------
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York.
11.9 Table of Contents and Headings.
------------------------------------
The table of contents and section headings of this Agreement are for
reference purposes only and are to be given no effect in the construction or
interpretation of this Agreement.
50
11.10 Notices.
--------------
All notices and other communications under this Agreement shall be in
writing and shall be deemed given when delivered personally or mailed by
certified mail, return receipt requested, to the parties (and shall also be
transmitted by facsimile to the Persons receiving copies thereof) at the
following addresses (or to such other address as a party may have specified by
notice given to the other party pursuant to this provision):
If to the Purchaser: Protosource Corporation
2800 28th Street, Suite 170
Santa Monica, California 90405
Attn: William Conis
With a copy to: Sichenzia, Ross & Friedman LLP
135 West 50th Street, 20th Floor
New York, New York 10020
Attn: Gregory Sichenzia, Esq.
With a copy to: Andrew, Alexander, Wise & Company, Inc.
17 State Street, 16th Floor
New York, New York 10004
Attn: Michael A. Gales
If to the Sellers: The addresses as listed on Annex A hereto.
With a copy to: Greenberg Traurig, P.A.
777 South Flagler Drive
West Palm Beach, FL 33401
Attn: Morris C. Brown, Esq.
11.11 Severability.
-------------------
If any provision of this Agreement is invalid or unenforceable, the balance
of this Agreement shall remain in effect.
11.12 Binding Effect; Assignment.
---------------------------------
This Agreement shall be binding upon and inure to the benefit of the
parties and their respective successors and permitted assigns. Nothing in this
Agreement shall create or be deemed to create any third party beneficiary rights
in any person or entity not a party to this Agreement except as provided below.
No assignment of this Agreement or of any rights or obligations hereunder may be
made by either the Sellers or the Purchaser (by operation of law or otherwise)
without the prior written consent of the other parties hereto and any attempted
assignment without the required consents shall be void; provided, however, that
the Purchaser may assign this Agreement and any or all rights or obligations
hereunder (including, without limitation, the Purchaser's rights to acquire the
Shares by exchange and the Purchaser's rights to seek indemnification hereunder)
to any Affiliate of the Purchaser. Upon any such permitted assignment, the
references in this Agreement to the Purchaser shall also apply to any such
assignee unless the context otherwise requires.
51
11.13 Counterparts.
-------------------
This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original and all of which shall constitute together but one
and the same instrument.
52
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
set forth above.
PROTOSOURCE CORPORATION
---------------------------------------
By: William Conis
Title: Chief Executive Officer
SUNCOAST AUTOMATION, INC.
By:
---------------------------------------
Title:
---------------------------------------
SHA CABLE HOLDINGS
By:
---------------------------------------
Title:
---------------------------------------
2330 LLC
By:
---------------------------------------
Title:
---------------------------------------
ANDREW, ALEXANDER, WISE & COMPANY, INC.
By:
---------------------------------------
Title:
---------------------------------------
53
---------------------------------------
Kent P. Spears
---------------------------------------
Mark G. Blanchard
---------------------------------------
Virginia M. Blanchard
---------------------------------------
David Jennings
---------------------------------------
Jeanne Jennings
---------------------------------------
Ted Triantafilu
---------------------------------------
William Cawley
---------------------------------------
Mike Quale
---------------------------------------
Jeff Beeko
---------------------------------------
Glenn Viera
---------------------------------------
Lisa Viera
54
---------------------------------------
Troy Jones
---------------------------------------
Rick Becker
---------------------------------------
Robert Bradley
---------------------------------------
Guy Ashley
---------------------------------------
George Teichner
---------------------------------------
Arthur Shinensky
55
ANNEX A
Suncoast ProtoSource # of Earnout
Name(1) Shares Shares Shares(2)
------- ------ ------ ---------
Kent P. Spears 38,750 352,411 270,446
Mark G. Blanchard 38,750 352,411 270,447
Virginia M. Blanchard 5,000 45,472 34,896
Jeanne Jennings 9,000 81,850 62,813
SHA Cable Holdings 19,418 176,596 135,523
2330 LLC 10,000 90,945 69,792
Ted Triantafilu 7,338 66,735 51,214
William Cawley 4,500 40,925 31,407
Mike Quale 1,500 13,642 10,469
Jeff Beekoo 1,000 9,094 6,979
Glenn and Lisa Viera 500 4,547 3,490
Troy Jones 1,000 9,094 6,979
Rick Becker 750 6,821 5,234
Robert Bradley 750 6,821 5,234
Guy Ashley 486 4,420 3,392
George Teichner 470 4,274 3,280
Arthur Shinensky 470 4,274 3,280
Andrew, Alexander, Wise & Company, Inc.
17 State Street, 16th Floor
New York, New York 10004 3,600 32,740 25,125
Total 143,282 1,303,072 1,000,000
- ------------
(1) Unless otherwise indicated, the mailing address of each Shareholder shall
be: c/o Suncoast Automation, Inc., 150 Dunbar Ave., Bldg. C, Oldsmar,
Florida 34677.
(2) # of Earnout Shares assuming 100% Earnout, which shall be reduced
accordingly per Earnout milestone.
ANNEX B
Funding
The Purchaser shall fund $3,000,000 during the 2000 fiscal year and
$4,000,000 during the 2001 fiscal year for the operations of the Company.
A-2
EXHIBIT A
Form of Escrow Agreement
E-1
EXHIBIT B
Form of Employment Agreement
E-2
EXHIBIT C
Opinion of Greenberg Traurig, P.A., counsel to the Sellers.
E-3
SCHEDULE 4.3(b)
CAPITALIZATION
Name Shares
---- ------
Kent P. Spears 38,750
Mark G. Blanchard 38,750
Virginia M. Blanchard 5,000
Jeanne Jennings 9,000
SHA Cable Holdings 19,418
2330 LLC 10,000
Ted Triantafilu 7,338
William Cawley 4,500
Mike Quale 1,500
Jeff Beekoo 1,000
Glenn and Lisa Viera 500
Troy Jones 1,000
Rick Becker 750
Robert Bradley 750
Guy Ashley 486
George Teichner 470
Arthur Shinensky 470
AAW 3,600
Total 143,282
S-1
SCHEDULE 4.9(iv)
ABSENCE OF CERTAIN LIABILITIES
S-2
SCHEDULE 4.10
TAXES
TAX RETURNS FILED:
------------------
1998 Return for Suncoast Home Automation, Inc.
1999 Return for Suncoast Home Automation, Inc.
1999 Return for Suncoast Automation, Inc.
Suncoast has also paid all State, local, intangible and tangible taxes as
required by the State of Florida for the above-listed entities and tax periods.
There are no un-filed or delinquent tax returns for Suncoast Automation,
Inc.
S-3
SCHEDULE 4.11(a)
REAL PROPERTY
NONE
----
S-4
SCHEDULE 4.12(a)
TANGIBLE PERSONAL PROPERTY
NONE
----
S-5
SCHEDULE 4.13
INTANGIBLE PERSONAL PROPERTY
REGISTRANT: SUNCOAST AUTOMATION (GOSUNCOAST-DOM)
DOMAIN NAME: GOSUNCOAST.COM
S-6
SCHEDULE 4.14
MATERIAL CONTRACTS
Company Name Date of Agreement Term & Type
- ------------ ----------------- -----------
1. Resort Consulting Services (RCS) July of 1999 For as long as they
provide services
2. Cox Cable Dec. 1, 1999 7 Year Bulk Cable
Agreement
A. Greensprings Resort
B. Powhatan Resort
3. Sunterra Communications Corp. Sept. 1, 1999 7 Year Agreements
A. Greensprings Resort Cable Development/Services Agreement
B. Powhatan Resort Cable Development/Services Agreement
4. Sunterra Communications Corp. Sept. 7, 1999 7 Year Agreements
A. Scottsdale Village Mirrage Resort Cable Development/Services Agreement
5. Sunterra Communications Corp. May 25, 1999 7 Year Agreements
A. Royal Palm Resort Cable Development/Services Agreement
B. Flamingo Resort Cable Development/Services Agreement
C. Carambola Resort Cable Development/Services Agreement
6. Walt Disney World Company Nov. 1, 1999 Indefinite/Nondisclosure
Agreement
7. Walt Disney World Company Aug. 18, 1999 Sept. 30, 2000
Master Construction Agreement
8. Jackson and Tull April 29, 1999 3 Year Nondisclosure
9. Planet Web Dec. 17, 1999 3 Year Agreement
OEM Software Development Agreement
10. Boca Research Feb. 15, 2000 Nondisclosure Software
Development Agreement
S-7
SCHEDULE 4.15(a)
EMPLOYEE BENEFITS
S-8
SCHEDULE 4.15(j)
EMPLOYEE BENEFIT PLANS AND PENSION PLANS AMENDMENTS
S-9
SCHEDULE 4.20
INSURANCE
The Ohio Casualty Group - Liability Insurance
Liability $1,000,000 per occurrence
Aggregate $2,000,000
S-10
SCHEDULE 4.22
RELATED PARTY TRANSACTIONS
LOANS MADE BY SUNCOAST AUTOMATION:
Name Loan Amount Date of Loan Date of Repayment Repayment Terms
---- ----------- ------------ ----------------- ---------------
MARK BLANCHARD $60,183
GLEN VIEIRA 50,000
S-11
SCHEDULE 4.23
CUSTOMERS & SUPPLIERS
5 Largest Suppliers Contact 1999 Gross Sales
- ------------------- ------- ----------------
Cable Link Chris Marshall $62,773.24
Electroline Dave Allen $49,355.51
NSTREAMS Jim Oots $35,923.31
Boca Research Larry Light $21,750.00
Netgame Sebastion Pereira $18,571.25
5 Largest Customers 1999 Gross Sales
- ------------------- ----------------
Sunterra Communication Corporation $ 130,000
Walt Disney World Company $ 34,535
S-12
SCHEDULE 4.24
BANKS
First Union Bank Signatories
- ---------------- -----------
Cap Account 1 9983256574 Mark Blanchard, Kent Spears, Ted Triantafilu
Cap Account 2 9983256587 Mark Blanchard, Kent Spears, Ted Triantafilu
Cap Account 3 9984956158 Mark Blanchard, Kent Spears, Ted Triantafilu,
Bill Conis
S-13
SCHEDULE 4.26
FINANCIAL ADVISORS
Suncoast Automation, Inc. has entered into an investment Banking Agreement
with Andrew, Alexander, Wise & Company, Inc.
S-14
SCHEDULE 5.8
RELATED PARTY TRANSACTIONS
Glen Vieira, a 0.35% Shareholder of Suncoast Automation is the sole owner
of Resort Consulting Services ("RCS") a D/B/A company that consults with the
Timeshare Industry and has introduced Suncoast Automation, Inc. to his contacts.
Suncoast Automation, Inc. has contracted with RCS for further introductions for
as long as RCS provides services to Suncoast. Suncoast pays RCS ten dollars
($10) per unit upon installation and one dollar ($1) per unit, per month for the
length of the contract for each customer that was introduced by RCS.
S-15
SCHEDULE 6.6
FINANCIAL ADVISORS
ProtoSource Corporation has entered into an investment Banking Agreement
with Andrew, Alexander, Wise & Company, Inc.
S-16