EXHIBIT 2.3
STOCK PURCHASE AGREEMENT
AMONG
EMJ DATA SYSTEMS LTD.,
as Buyer,
DAISYTEK, INCORPORATED,
as Seller,
and
DAISYTEK (CANADA) INC.,
as the Company
Dated as of August 21, 2003
TABLE OF CONTENTS
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SECTION 1. DEFINITIONS.......................................................1
SECTION 2. PURCHASE AND SALE OF SHARES.......................................8
2.1 Purchase and Sale..................................................8
SECTION 3. DEPOSIT AND PURCHASE PRICE........................................9
3.1 Deposit............................................................9
3.2 Purchase Price.....................................................9
3.3 Payments at Closing................................................9
3.4 Post-Closing Payments..............................................9
3.5 Post-Closing Procedures...........................................10
3.6 Section 116 Certificate...........................................11
SECTION 4. CLOSING..........................................................12
4.1 Closing Date......................................................12
4.2 Actions to Occur at Closing.......................................12
4.3 Transfer Taxes....................................................13
SECTION 5. REPRESENTATIONS AND WARRANTIES REGARDING THE COMPANY.............13
5.1 Authorization for Agreement; Consent and No Violation.............13
5.2 Organization......................................................14
5.3 Subsidiaries......................................................14
5.4 Capital Structure.................................................14
5.5 No Finder's Fee...................................................14
5.6 Indebtedness......................................................15
5.7 Litigation........................................................15
5.8 Absence of Undisclosed Liabilities................................15
5.9 Title to Assets...................................................15
5.10 Taxes.............................................................15
SECTION 6. REPRESENTATIONS AND WARRANTIES OF SELLER.........................16
6.1 Authorization for Agreement; Consent and No Violation.............16
6.2 Organization......................................................16
6.3 Owner of Shares...................................................16
6.4 No Finder's Fee...................................................17
SECTION 7. REPRESENTATIONS AND WARRANTIES OF BUYER..........................17
7.1 Authorization for Agreement; Consents and No Violations...........17
7.2 Organization......................................................18
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7.3 Finder's Fees.....................................................18
7.4 No Rights or Options to Purchase..................................18
7.5 Financing.........................................................18
7.6 Investment Intent.................................................18
SECTION 8. COVENANTS........................................................18
8.1 Seller's Chapter 11 Bankruptcy Case...............................18
8.2 Break-Up Fee......................................................19
8.3 Company's Employees...............................................19
8.4 Access............................................................19
8.5 Conduct of the Business...........................................20
8.6 Notification......................................................20
8.7 Injunctions.......................................................20
8.8 Additional Agreements.............................................20
8.9 Resignations of Directors and Officers............................20
8.10 Bank Accounts.....................................................21
8.11 Transition Services...............................................21
8.12 Collection of Accounts Receivable.................................21
8.13 Sales of Inventory................................................21
8.14 Payment of Indebtedness...........................................21
8.15 Inter-Company Indebtedness........................................22
8.16 Competition Act...................................................22
8.17 Litigation Claim..................................................22
SECTION 9. CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS......................23
9.1 Representations and Warranties True...............................23
9.2 Compliance with Agreement.........................................23
9.3 Bankruptcy Court Approval.........................................23
9.4 Compliance with Applicable Law....................................23
9.5 No Injunctions....................................................24
9.6 Material Adverse Effect...........................................24
9.7 No Liens or Claims................................................24
9.8 Competition Act...................................................24
9.9 Transaction Documents.............................................24
SECTION 10. CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS.....................24
10.1 Representations and Warranties True...............................24
10.2 Compliance with Agreement.........................................24
10.3 Bankruptcy Court Approval.........................................25
10.4 Compliance with Applicable Law....................................25
10.5 No Injunctions....................................................25
10.6 Competition Act...................................................25
10.7 Transaction Documents.............................................25
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SECTION 11. TERMINATION, BREAK-UP FEE AND REMEDIES...........................25
11.1 Termination and Abandonment.......................................25
11.2 Break-Up Fee......................................................26
11.3 Return of Deposit and Remedies....................................27
SECTION 12. MISCELLANEOUS....................................................27
12.1 Indemnification...................................................27
12.2 Expenses..........................................................30
12.3 Assignment........................................................31
12.4 Governing Law.....................................................31
12.5 Amendment and Modification; Waiver................................31
12.6 Notices...........................................................31
12.7 Entire Agreement..................................................32
12.8 Successors........................................................32
12.9 Counterparts......................................................32
12.10 Headings..........................................................33
12.11 Schedules.........................................................33
12.12 Jurisdiction; Service of Process..................................33
12.13 Rules of Construction.............................................33
12.14 Access to Information.............................................33
12.15 Public Announcements..............................................34
12.16 Severability......................................................34
12.17 Currency..........................................................34
12.18 "AS IS" TRANSACTION...............................................34
12.19 No Waiver Relating to Claims for Fraud............................35
Exhibits
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A Procedure Approval Order
B Form of Deposit Escrow Agreement
C Form of Holdback Escrow Agreement
D Balance Sheet
E Form of Section 116 Escrow Agreement
Schedules
- ---------
Schedule 1 Share Ownership
Section 5.1(b) Required Consents
Section 5.1(c) Conflicts, Defaults, and Liens
Section 5.5 Company's Broker
Section 5.6 Indebtedness
Section 5.7 Litigation
Section 5.9 Liens and Claims
Section 6.1(b) Required Consents
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Section 6.1(c) Conflicts, Defaults, and Liens
Section 6.3 Liens and Claims
Section 6.4 Seller's Broker
Section 7.1(b) Required Consents
Section 7.1(c) Conflicts and Defaults
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EXHIBIT 2.3
STOCK PURCHASE AGREEMENT
------------------------
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made and entered into
as of this 21st day of August, 2003, by and among Daisytek, Incorporated, a
debtor-in-possession and a Delaware corporation (with and including its
bankruptcy estate), ("Seller"), Daisytek (Canada) Inc., a company organized
under the laws of the Province of Ontario, Canada (the "Company"), and EMJ Data
Systems Ltd., a corporation incorporated under the laws of the Province of
Ontario, Canada ("Buyer").
WITNESSETH:
WHEREAS, the Company is engaged in the business of distributing computer
and office supplies and products in Canada (the "Business");
WHEREAS, Seller is currently operating as a debtor in possession pursuant
to chapter 11 of title 11 of the United States Code under the administratively
consolidated cases styled Daisytek, Incorporated et al., Case No. 03-34762 (the
"Bankruptcy Cases"), presently pending in the United States Bankruptcy Court for
the Northern District of Texas, Dallas Division (the "Bankruptcy Court"), and
Seller, upon proper approval and authorization from the Bankruptcy Court, may
sell and assign assets outside of the ordinary course of business in accordance
with 11 U.S.C Section 363;
WHEREAS, Seller owns, as of the date hereof, the number of shares (the
"Shares") of the Company's common stock (the "Company Common Stock") set forth
opposite Seller's name in Disclosure Schedule, Schedule 1, representing all of
the issued and outstanding capital stock of the Company as of the date of this
Agreement; and
WHEREAS, Buyer desires to purchase from Seller, and Seller desires to sell
to Buyer, the Shares in consideration of the Purchase Price (hereinafter
defined), upon the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual covenants,
agreements, representations and warranties contained herein, the parties hereto
agree as follows:
SECTION 1. DEFINITIONS.
-----------
The following terms used in this Agreement shall have the following
meanings unless some other meaning is clearly intended:
"Accounts Receivable" means all of the trade note or accounts receivable of
the Company (net of any allowance for uncollectible accounts) as determined in
accordance with GAAP.
"Adversary Proceeding" has the meaning assigned to such term in the
definition of "Litigation Claim".
"Affiliate", as applied to any Person, means any other Person directly or
indirectly controlling, controlled by, or under common control with, that
Person. For the purposes of this definition, "control" (including, with
correlative meanings, the terms "controlling", "controlled by" and "under common
control with"), as applied to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of that Person, whether through ownership of voting securities, by
contract or otherwise. For purposes of this definition, a Person shall be deemed
to be "controlled by" a Person if such Person possesses, directly or indirectly,
power to vote 10% or more of the securities having ordinary voting power for the
election of directors of such Person.
"Applicable Law" means, with respect to any Person, any Law applicable to
such Person or its business, properties or assets.
"Auditors" means KPMG LLP or such other auditor mutually agreed between the
parties hereto.
"Balance Sheet" means the balance sheet of the Company as of July 31, 2003
attached hereto as Exhibit D.
"Bankruptcy Cases" has the meaning assigned to such term in the third
recital of this Agreement.
"Bankruptcy Code" means title 11 of the United States Code, as amended.
"Bankruptcy Court" has the meaning assigned to such term in the third
recital of this Agreement.
"Bankruptcy Rules" means the Federal Rules of Bankruptcy Procedure, as
amended.
"Break-Up Fee" has the meaning assigned to that term in Section 8.2 of this
Agreement.
"Business" has the meaning assigned to such term in the first recital of
this Agreement.
"Business Day" means any day of the year other than (a) any Saturday or
Sunday or (b) any other day on which banks located in Dallas, Texas or the
Province of Ontario generally are closed for business other than the retail
depository business.
"Business Employee" has the meaning assigned to such term in Section 8.3 of
this Agreement.
"Buyer" has the meaning assigned to such term in the preamble to this
Agreement.
"Claim" means any and all charges, complaints, claims, causes of action,
promises, agreements, rights to payment, rights to any equitable remedy, rights
to any equitable subordination, demands, debts, liabilities, express or implied
contracts, obligations of payment or performance, rights or claims to
substantively consolidate or merge the Company or its assets with any Affiliate
of the Company who are debtors in possession in the Bankruptcy Cases, rights of
offset or recoupment, accounts, damages, costs, losses or expenses (including
attorneys' and
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other professional fees and expenses), whether known or unknown, matured or
unmatured, suspected or unsuspected, liquidated or unliquidated, absolute or
contingent, direct or derivative, including, without limitation, any right to
payment or right to any equitable remedy for breach of performance that
constitutes a "claim", as that term is defined in the Bankruptcy Code.
"Closing" means the closing of the transactions contemplated by this
Agreement.
"Closing Balance Sheet" means the balance sheet of the Company prepared by
the Auditors in accordance with GAAP as at and for the fiscal period ended 12:01
a.m. on the Closing Date and being substantially in the same form as the Balance
Sheet.
"Closing Date" has the meaning assigned to such term in Section 4.1 of this
Agreement.
"Closing Day Payment" has the meaning assigned to such term in Section 3.3.
"Closing Statements" has the meaning assigned to such term in Section
3.5(a) of this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended.
"Comment Notice" has the meaning assigned to such term in Section 3.5(b) of
this Agreement.
"Comment Period" has the meaning assigned to such term in Section 3.5(b) of
this Agreement.
"Committee" means the official committee of unsecured creditors appointed
under Section 1102 of the Bankruptcy Code in the Bankruptcy Cases.
"Company" has the meaning assigned to such term in the preamble of this
Agreement.
"Company Common Stock" has the meaning assigned to such term in the
recitals of this Agreement.
"Competition Act" means Competition Act (Canada).
"Contracts" means all contracts, commitments, understandings, binding
arrangements, unexpired leases of real and personal property, licenses, purchase
orders and all other legally binding arrangements.
"Credit Arrangements" has the meaning assigned to such term in Section 8.14
of this Agreement.
"Delinquent Accounts Receivable" shall have the meaning assigned to such
term in the definition of Total Equity.
"Deposit" has the meaning assigned to such term in Section 3.1 of this
Agreement.
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"Deposit Escrow Agreement" has the meaning assigned to such term in Section
3.1 of this Agreement.
"Disclosure Schedule" means the exhibit attached hereto and made a part
hereof containing schedules with specific disclosures regarding this Agreement.
"Effective Time" has the meaning assigned to that term in Section 4.2 of
this Agreement.
"Escrow Agent" has the meaning assigned to such term in Section 3.1 of this
Agreement.
"Estimated Transfer Taxes" has the meaning assigned to such term in Section
4.3(c) of this Agreement.
"Final Claim" means that the Litigation Claim shall have (a) been finally
settled by agreement of the parties thereto or (b) finally adjudicated by a
court of competent jurisdiction and such adjudication shall have become a final
and non-appealable order or judgment.
"Final Order" means an order of the Bankruptcy Court or other court of
competent jurisdiction: (a) as to which no appeal, notice of appeal or motion
for rehearing or new trial has been timely filed or, if any of the foregoing has
been timely filed, it has been disposed of in a manner that upholds and affirms
the subject order in all material respects without the possibility for further
appeal or rehearing thereon, (b) as to which the time for instituting an appeal
or motion for rehearing or new trial shall have expired, and (c) as to which no
stay is in effect.
"Final Total Equity" has the meaning assigned to such term in Section 3.5
of this Agreement.
"GAAP" means generally accepted accounting principles that have been
established in the United States. For purposes of this Agreement, the parties
have agreed to use the first-in, first-out (FIFO) methodology in accounting for
Inventory.
"Governmental Authority" means any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to any United States or foreign, federal, state or local government, including
any governmental authority, agency, department, board, commission or
instrumentality of such government or any political subdivision thereof, and any
tribunal, court or arbitrator(s) of competent jurisdiction, and shall include
the Bankruptcy Court.
"Holdback" shall have the meaning assigned to such term in Section 3.4(b)
of this Agreement.
"Holdback Escrow Agreement" shall have the meaning assigned to such term in
Section 3.4(b) of this Agreement.
"Income Taxes" means income, franchise or other Taxes measured by or based
upon income or profits or interest or penalties thereon.
"Indebtedness" shall mean the following: (a) all obligations for borrowed
money (excluding obligations to trade creditors incurred in the ordinary course
of business), (b) all
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obligations evidenced by bonds, debentures, notes or other similar instruments,
(c) all capital lease obligations, (d) all obligations, contingent or otherwise,
in respect of any letter of credit or bankers acceptances, (e) all guaranties
and (f) any obligations for borrowed money of the Company to any of its
Affiliates.
"Independent Accountant" has the meaning assigned to such term in Section
3.5(d) of this Agreement.
"Independent Certificate" has the meaning assigned to such term in Section
3.5(d) of this Agreement.
"Inventory" means (i) all inventories of the Company consisting of finished
goods, samples, and labels, cartons and packaging materials that are used in
connection with, are held for use solely in, or otherwise relate solely to, the
operations of the Business and (ii) all raw materials and work-in-process of the
Company as determined in accordance with GAAP.
"Joint Certificate" has the meaning assigned to such term in Section 3.5(c)
of this Agreement.
"Law" means any foreign, federal, state or local law (including common
law), statute, code, ordinance, rule, regulation or other requirement enacted,
promulgated, issued or entered by a Governmental Authority.
"Liability" means any liability, obligation, debt or commitment of any kind
(whether known or unknown, whether asserted or unasserted, whether absolute or
contingent, whether accrued or unaccrued, whether liquidated or unliquidated,
and whether due or to become due), including any liability for Taxes.
"Liens" means any mortgage, pledge, security interest, encumbrance, lien,
assignment, interest, hypothecation, right of first refusal, right of consent or
approval, right of termination or charge of any kind (including any agreement to
give any of the foregoing), any conditional sale or other title retention
agreement, any lease in the nature thereof or the filing of or agreement to give
any financing statement under the Uniform Commercial Code of any jurisdiction.
"Litigation Claim" means all claims and causes of action which have been
asserted against the Company by DSLangdale Two, LLC and/or DSLangdale Three,
Inc. in that certain lawsuit styled DSLangdale Two, LLC and DSLangdale Three,
Inc. vs. Daisytek (Canada) Inc. currently pending in the United States
Bankruptcy Court for the Southern District of Ohio (Eastern Division) (Misc.
Case No. 03-00203) and originally filed as Case No. 03-CV-H-06-422 in the Court
of Common Pleas, Delaware County, Ohio (the "Ohio Lawsuit"), including any such
claims that may be transferred from the Ohio Lawsuit to or otherwise filed in
adversary proceeding No. 03-3613 styled Daisytek International Corporation and
Digital Storage, Inc. v. DSLangdale Two, LLC and DSLangdale Three, Inc.,
currently pending in the United States Bankruptcy Court for the Northern
District of Texas, Dallas Division (Case No. 03-34762-HDH-11, In Re: Daisytek
Incorporated, et. al.) (the "Adversary Proceeding").
"Losses" has the meaning assigned to such term in Section 12.1(a)(ii) of
this Agreement.
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"Material Adverse Effect" means a material adverse effect on the condition
(financial or otherwise), business, assets or results of operations of the
Company other than to the extent caused by (a) the transactions contemplated and
the restrictions and limitations imposed on the Business and the Company by this
Agreement, (b) generally applicable financial, economic, political, banking,
currency, capital market or other similar conditions or (c) conditions generally
affecting the industry in which the Business or the Company operates.
"Negative Total Equity Adjustment" means an amount equal to the absolute
value of the amount (if any) by which Final Total Equity is less than
$16,994,000.
"Ohio Lawsuit" has the meaning assigned to such term in the definition of
"Litigation Claim".
"Order" means any order, injunction, judgment, decree, ruling, writ,
assessment or arbitration award.
"Outside Date" has the meaning assigned to such term in Section 11.1(a)(iv)
of this Agreement.
"Person" means and includes natural persons, corporations, limited
partnerships, general partnerships, limited liability companies, limited
liability partnerships, joint stock companies, joint ventures, associations,
companies, trusts, banks, trust companies, land trusts, business trusts or other
organizations, and Governmental Authorities, whether or not legal entities.
"Positive Total Equity Adjustment" means an amount equal to the amount (if
any) by which Final Total Equity exceeds $16,994,000.
"Post-Closing Payment Date" means the day that is the later of (a) 150 days
following the Closing Date and (b) five Business Days following the earlier of
(i) the end of the Comment Period referred to in Section 3.5(b), (ii) receipt of
Joint Certificate referred to in Section 3.5(c) or (iii) the resolution of any
dispute provided for in Section 3.5(d), as the case may be.
"Procedure Approval Order" means the "Order Establishing Procedures for the
Sale of Substantially All of the Assets of the Seller" of the Bankruptcy Court
entered on or about July 30, 2003 that approves, inter alia, bidding and auction
procedures to be followed by Seller and all potential bidders for the Assets
attached hereto as Exhibit A.
"Purchase Price" has the meaning assigned to such term in Section 3.2 of
this Agreement.
"Released Claims" means any and all charges, complaints, claims, causes of
action, promises, agreements, rights to payment, rights to any equitable remedy,
rights to any equitable subordination, demands, debts, liabilities, express or
implied contracts, obligations of payment or performance, rights of offset or
recoupment, accounts, damages, costs, losses or expenses (including attorneys'
and other professional fees and expenses) held by any party hereto, whether
known or unknown, matured or unmatured, suspected or unsuspected, liquidated or
unliquidated, absolute or contingent, direct or derivative.
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"Representation and Covenant Loss" has the meaning assigned to such term in
Section 12.1(a)(i).
"Sale Motion" has the meaning assigned to such term in Section 8.1(b) of
this Agreement.
"Sale Order" means an order of the Bankruptcy Court, in form and substance
reasonably satisfactory to Buyer and Seller, which, among other things, shall:
(a) authorize the sale, assignment and conveyance of the Shares, pursuant
to the terms and conditions of this Agreement and Sections 363(b) and
(f) of the Bankruptcy Code and to the extent, if any, necessary,
Section 105 of the Bankruptcy Code, free and clear of all Liens,
Claims, encumbrances and other interests in or against the Shares
(other than the interests of the bankruptcy estate of Seller as the
debtor in possession, which interests are to be conveyed to Buyer at
Closing);
(b) provide that the Bankruptcy Court shall retain jurisdiction to resolve
any controversy or claim arising out of or relating to this Agreement
or breach thereof;
(c) authorize and direct Seller to make all payments provided for by this
Agreement, including, without limitation, the Break-Up Fee, and the
other Transaction Documents on the dates that Seller is obligated to
make such payments; and
(d) authorize and direct the Seller and its bankruptcy estate to effect
the release of the Company set forth in Section 8.15 hereof;
"Section 116 Certificate" has the meaning assigned to such term in Section
3.6 of this Agreement.
"Section 116 Withholding Escrow Agreement" has the meaning assigned to such
term in Section 3.6 of this Agreement.
"Service Provider" shall have the meaning assigned to such term in Section
8.11(b) of the Agreement.
"Shares" has the meaning assigned to such term in the recitals of this
Agreement.
"Sludge Amount" shall have the meaning assigned to such term in Section
3.4(a) of this Agreement.
"Surviving Representations" has the meaning assigned to such term in
Section 12.1(a) of this Agreement.
"Tax" and "Taxes" mean any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Section 59A of
the Code), customs duties, capital stock,
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franchise, profits, withholding, social security (or similar), unemployment,
disability, real property, personal property, sales, use, transfer,
registration, value added, alternative or add-on minimum, estimated, or other
tax of any kind whatsoever, including any interest, penalty, or addition
thereto, whether disputed or not.
"Tax Return" means all returns, declarations, reports, estimates,
information returns and statements required to be filed by or with respect to
the Company in respect of Taxes, including Federal, state, local or foreign
Income Tax returns filed on a consolidated, combined or unitary basis.
"Third Party Claim" has the meaning assigned to such term in Section
12.1(d)(i) of this Agreement.
"Total Equity" means the assets of the Company minus the liabilities of the
Company as determined in accordance with GAAP; provided, however, that for
purposes of calculating Total Equity, (i) any Accounts Receivable reflected in
the Closing Balance Sheet that are not collected by the Company during the 120
days following the Closing Date (such Accounts Receivable, the "Delinquent
Accounts Receivable") shall not be included in the calculation of Total Equity
and (ii) any Inventory reflected in the Closing Balance Sheet that is not sold
by the Company during the 120 days following the Closing Date (such Inventory,
the "Unsold Inventory") shall not be included in the calculation of Total
Equity; provided, further, however that in no event shall the aggregate amount
of Delinquent Accounts Receivable and Unsold Inventory not included in the
calculation of Total Equity provided in the previous proviso exceed $5,000,000.
"Transaction Documents" means this Agreement and any other agreements or
documents executed by or on behalf of a party hereto in connection with the
transactions contemplated by this Agreement.
"Transfer Date" shall have the meaning assigned to such term in Section
8.11(a) of the Agreement.
"Transfer Taxes" means all sales, use, goods and services, transfer,
excise, stock, stamp, document, filing, recording, authorization and similar
taxes, fees and charges.
"Transition Services" shall have the meaning assigned to such term in
Section 8.11(a) of the Agreement.
"Transition Service Losses" has the meaning assigned to such term in
Section 12.1(a)(ii).
"Unsold Inventory" shall have the meaning assigned to such term in the
definition of Total Equity.
SECTION 2. PURCHASE AND SALE OF SHARES.
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2.1 Purchase and Sale. Subject to the terms and conditions hereof, and
subject to the representations and warranties made herein, at the Closing,
Seller will sell and deliver to Buyer,
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and Buyer shall purchase and accept from Seller, the Shares, free and clear of
all Liens and Claims in accordance with Sections 105 and 363 of the Bankruptcy
Code.
SECTION 3. DEPOSIT AND PURCHASE PRICE.
--------------------------
3.1 Deposit. Upon execution of this Agreement, Buyer and Seller are
establishing with Wells Fargo Bank Texas, N.A. (the "Escrow Agent") an escrow
account, and Buyer is depositing $2,000,000 with the Escrow Agent (the
"Deposit"), which Deposit shall be earnest money and shall be distributed
pursuant to Sections 3.3(b) or 11.3, as applicable, and shall be held pursuant
to an escrow agreement in the form attached hereto as Exhibit B (the "Deposit
Escrow Agreement").
3.2 Purchase Price. The aggregate purchase price ("Purchase Price")
payable by Buyer to Seller in consideration for the Shares shall be an amount
equal to $20,000,000 (as adjusted pursuant to Section 3.4).
3.3 Payments at Closing.
(a) At the Closing, subject to the satisfaction of the other terms
and conditions of this Agreement, including Section 3.6(b), Buyer shall pay or
cause to be paid:
(i) to Seller, by wire transfer of immediately available funds
to an account designated by Seller and in addition to the Deposit, $10,000,000
(the "Closing Day Payment"); and
(ii) to the appropriate Governmental Authorities, the Estimated
Transfer Taxes.
(b) At the Closing, subject to the satisfaction of the other terms
and conditions of this Agreement, Seller and Buyer shall instruct the Escrow
Agent to release the Deposit held pursuant to the Deposit Escrow Agreement to
Seller.
3.4 Post-Closing Payments.
(a) Subject to Section 12.1, on the Post-Closing Payment Date, Buyer
shall pay or cause to be paid to Seller, in immediately available funds to an
account designated by Seller, the amount of $8,000,000, plus (1) the Positive
Total Equity Adjustment, if any, minus (2) the Negative Total Equity Adjustment,
if any, minus (3) if the Litigation Claim has not become a Final Claim as of the
Post-Closing Payment Date, the Holdback, plus (4) an amount equal to ten percent
(10%) of the sum of the Unsold Inventory and Delinquent Accounts Receivable
(such amount in this clause (4), the "Sludge Amount"), minus (5) one-half of the
fees and expenses of the Independent Accountant paid pursuant to Section 3.5(d),
minus (6) the filing fees contemplated by Section 8.16, minus (7) an amount
equal to any pending indemnification claims pursuant to Section 12.1(f), minus
(8) one-half of the fees and expenses of the Auditors; provided, however that
Seller may elect by prompt written notice to Buyer to forego some or all of the
payment required by clause (4) above and, upon such election, Buyer, at Seller's
expense, shall cause the Company to (i) assign all rights, title and interest to
the applicable Unsold Inventory and/or Delinquent Accounts Receivable to Seller
on the Post-
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Closing Payment Date, (ii) deliver any such Unsold Inventory to Seller within 90
days following the Post-Closing Payment Date. Buyer agrees that if it breaches
its obligation to make the payments required by this Section 3.4(a) when due and
owing, such payment shall accrue interest from the Post Closing Payment Date
until full satisfaction of such payment obligation at an interest rate equal to
the U.S. prime rate of the Royal Bank of Canada plus 2% (calculated daily).
(b) If the Litigation Claim has not become a Final Claim as of the
Post-Closing Payment Date, Buyer and Seller shall establish with the Escrow
Agent an escrow account, and Buyer shall deposit an amount (the "Holdback")
equal to the lesser of (i) $4,200,000 and (ii) $8,000,000, minus the Negative
Total Equity Adjustment, if any, plus, the Sludge Amount, with the Escrow Agent,
which shall be held pursuant to an escrow agreement in the form attached hereto
as Exhibit C (the "Holdback Escrow Agreement").
(c) If the Litigation Claim has become a Final Claim on or before
the Post-Closing Payment Date, Buyer shall not subtract the Holdback from any
payments required to be made to Seller pursuant to Section 3.4(a).
(d) On or before the Post-Closing Payment Date, Buyer shall cause
the Company to pay Seller, in immediately available funds to an account
designated by Seller, the amount due pursuant to Section 8.15.
(e) Following the final adjudication or settlement of each pending
indemnification claim pursuant to Section 12.1 following the Post-Closing
Payment Date, to the extent that Seller is not required to indemnify Buyer or
the Company pursuant to Section 12.1, Buyer shall pay such amount withheld
pursuant to Section 12.1(f) with respect to such pending claim to Seller in
immediately available funds to an account designated by Seller.
3.5 Post-Closing Procedures.
(a) On or before the 130th day following the Closing Date, Buyer
shall cause the Auditors to deliver draft copies of the Closing Balance Sheet,
together with a calculation of the Total Equity of the Company as of the Closing
Date (the "Final Total Equity"), the Positive Total Equity Adjustment (if any),
the Negative Total Equity Adjustment (if any) and the Sludge Amount (if any)
(collectively, the "Closing Statements") to Seller. The fees and expenses of the
Auditor shall be paid by Buyer.
(b) Seller shall have 20 Business Days following receipt of the
Closing Statements to advise Buyer in writing (the "Comment Notice") that Seller
does not agree with the draft Closing Statements. If Seller does not issue a
Comment Notice within the said 20 Business Day period (the "Comment Period"),
then Seller shall be deemed to have accepted the Closing Statements.
(c) If a Comment Notice is issued by Seller, then Seller, Buyer and
the Auditors will use good faith efforts during the 10 Business Day period
following the date of receipt of the Comment Notice by Buyer to resolve any
difference they may have as to the issues in dispute. Such Comment Notice will
identify with specificity the calculations or amounts with which Seller
disagrees, or any other basis for such disagreement. In the event that Seller
and Buyer reach agreement to resolve their differences within the 10 Business
Day period they shall
10
jointly prepare, execute and deliver to each other and the Auditors a
certificate (the "Joint Certificate") setting forth their determinations with
respect to all matters in dispute.
(d) If Buyer and Seller cannot reach agreement during such 10
Business Day period referred to in Section 3.5(c), the disagreement shall be
promptly submitted to an internationally recognized independent chartered
accounting firm that does not have a conflict of interest with Seller or Buyer
and selected by the Auditors (the "Independent Accountant"). The Independent
Accountant shall conduct such additional review as is necessary to resolve the
specific disagreements referred to it. The review of the Independent Accountant
will be restricted as to scope to address only those matters as to which Buyer
and Seller have not reached agreement pursuant to the preceding provisions. The
Independent Accountant's determinations shall be completed as promptly as
practicable but in no event later than 20 Business Days following its selection.
Upon reaching its determinations with respect to those matters referred to it,
the Independent Accountant shall then determine the terms of the Closing
Statements. The Independent Accountant shall verify its determinations in
writing by way of a certificate resolving the dispute submitted to it and the
terms of the Closing Statements (the "Independent Certificate"), which shall be
final and binding on Buyer and Seller and shall not be subject to appeal. The
fees and expenses of the Independent Accountant shall be paid by Buyer.
(e) If no Comment Notice is issued in accordance with subclause (b),
or upon the Joint Certificate being delivered to the Auditors in accordance with
subclause (c), or upon resolution of such dispute in accordance with subclause
(d), then in any such case, the Auditors shall prepare the Closing Statements
(reflecting any such dispute resolution) in final form and shall deliver same to
Buyer and Seller within 5 Business Days of the end of the Comment Period
referred to in subclause (b), receipt of the Joint Certificate referred to in
subclause (c) or the resolution of the dispute as provided for in subclause (d),
as the case may be.
(f) Upon the Litigation Claim becoming a Final Claim, Seller and
Buyer, if applicable, shall instruct the Escrow Agent to release the Holdback
held pursuant to the Holdback Escrow Agreement as follows: (i) any cost, expense
or other Liability incurred by the Company with respect to the Litigation Claim
after the Closing Date shall be paid to the Company from the Holdback and (ii)
any amounts remaining in the Holdback after payment is made pursuant to clause
(i) shall be paid to Seller.
3.6 Section 116 Certificate. Seller convenants and agrees with Buyer as
follows:
(a) Seller shall take all commercially reasonable steps to obtain
and deliver to Buyer on or before Closing a certificate issued by the Minister
of National Revenue under section 116 of the Income Tax Act (Canada) which
references Seller as seller and Buyer as purchaser and which states that the
proceeds of disposition or certificate limit is an amount which is no less than
the Canadian dollar equivalent as of the Closing Date of the Purchase Price (a
"Section 116 Certificate"); and
(b) if a Section 116 Certificate is not so delivered on or before
Closing, Buyer shall be entitled to withhold from the Closing Day Payment and
deliver to the Escrow Agent an amount equal to the Canadian dollar equivalent as
of the Closing Date of 25 percent of the
11
Purchase Price, which shall be held pursuant to an escrow agreement in the form
attached hereto as Exhibit E (the "Section 116 Withholding Escrow Agreement").
SECTION 4. CLOSING.
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4.1 Closing Date. Subject to the satisfaction or waiver of the conditions
set forth in Section 9 and Section 10, the Closing shall take place at 10:00
a.m. on the first Business Day which the parties may mutually agree upon in
writing following the satisfaction of Section 9.3 (provided that such date shall
be no later than ten Business Days following the satisfaction of Section 9.3),
at the office of Vinson & Elkins L.L.P., 2001 Ross Avenue, Suite 3700, Dallas,
Texas 75201. Subject to the provisions of Section 11 of this Agreement, failure
to consummate the purchase and sale provided for in this Agreement on such date
shall not result in the termination of this Agreement and shall not relieve any
party of any obligation under this Agreement. The date on which the Closing
takes place is referred to herein as the "Closing Date".
4.2 Actions to Occur at Closing. At the Closing, effective as of 12:01
a.m. on the Closing Date (the "Effective Time"):
(a) Seller and/or the Company shall sell, transfer and deliver the
Shares to Buyer, free and clear of all Liens and Claims;
(b) Seller and/or the Company shall deliver:
(i) certificates representing the Shares, duly endorsed in
blank or accompanied by stock powers duly endorsed in blank, and otherwise in
proper form for transfer, to Buyer;
(ii) the certificates described in Sections 9.1 and 9.2, to
Buyer;
(iii) the resignations described in Section 8.9, to Buyer;
(iv) evidence of the replacement of the Company's bank account
signatories with Buyer's designees, to Buyer; and
(v) the Section 116 Certificate;
(c) Buyer shall deliver:
(i) an amount equal to the Closing Day Payment, to Seller;
(ii) the certificates referred to in Sections 10.1 and 10.2, to
Seller; and
(iii) the Estimated Transfer Taxes, to the appropriate
Government Authorities; and
(d) Buyer and Seller shall execute and deliver from a joint
instruction letter to the Escrow Agent instructing the Escrow Agent to
distribute the Deposit to Seller.
12
4.3 Transfer Taxes.
(a) In accordance with Section 1146(c) of the Bankruptcy Code, the
making or delivery of any instrument of transfer under a plan confirmed under
Section 1129 of the Bankruptcy Code shall not be taxed under any Law imposing a
Transfer Tax. The stock powers transferring the Shares to Buyer shall contain
the following endorsement:
"Because this instrument has been authorized pursuant to
Order of the United States Bankruptcy Court for the Northern
District of Texas relating to a plan of reorganization of
Daiseytek, Incorporated, it is exempt from transfer taxes,
stamp taxes or similar taxes pursuant to 11 U.S.C. Section
1146(c)."
(b) In the event Transfer Taxes are assessed at Closing or at any
time thereafter on the transfer of any Shares, such Taxes incurred as a result
of the transactions contemplated hereby shall be paid by Buyer. Buyer and Seller
shall cooperate in providing each other with any appropriate resale exemption
certifications and other similar documentation.
(c) No later than the close of business on the third Business Day
before the Closing Date, Buyer shall deliver to Seller a good faith estimate of
the Transfer Taxes required to be paid by Buyer pursuant to Section 4.3(b) (the
"Estimated Transfer Taxes"). Buyer shall consult with Seller in good faith in
determining the Estimated Transfer Taxes.
SECTION 5. REPRESENTATIONS AND WARRANTIES REGARDING THE COMPANY.
----------------------------------------------------
The Company and Seller hereby, jointly and severally, represent and warrant
to Buyer as follows:
5.1 Authorization for Agreement; Consent and No Violation.
(a) The Company has all requisite corporate power and authority to
enter into this Agreement and the other Transaction Documents to which it is a
party and to consummate the transactions contemplated hereby and thereby.
Subject to the entry of the Sale Order, the execution, delivery and performance
of this Agreement and the other Transaction Documents by the Company and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate actions of the Company, and, subject to
the entry and effectiveness of the Sale Order, this Agreement is, and the other
Transaction Documents will be, duly executed and delivered and legal, valid and
binding obligations of the Company enforceable in accordance with their terms.
(b) Except for the entry of the Sale Order and as otherwise set
forth on the Disclosure Schedule, Section 5.1(b), neither the execution and
delivery of this Agreement or the other Transaction Documents nor the
consummation of the transactions contemplated hereby or thereby by the Company
requires the consent or approval of, the giving of notice to, registration,
filing or recording with or the taking of any other action by, any Governmental
Authority or any other Person.
13
(c) Except as otherwise set forth in Disclosure Schedule, Section
5.1(c), the execution and delivery of this Agreement and the other Transaction
Documents and the consummation of the transactions contemplated hereby and
thereby by the Company shall not conflict with, or result in any violation of,
or default (with or without notice or lapse of time, or both) under, or give
rise to a right of termination, cancellation or acceleration of any material
obligation or the loss of a material benefit under, or the creation of any Lien,
upon any of the Shares, pursuant to (i) any provision of the organizational
documents of the Company, (ii) the provisions of any material Contract to which
the Company is a party, or (iii) applicable Law.
5.2 Organization. The Company is an entity duly organized, validly
existing under the laws of the Province of Ontario, has all requisite corporate
power and authority to own, lease and operate its properties and to carry on its
business as now being conducted.
5.3 Subsidiaries. The Company does not have any subsidiaries.
5.4 Capital Structure. The authorized capital stock of the Company
consists of an unlimited number of shares of Company Common Stock and an
unlimited number of shares of non-cumulative, non-voting, redeemable Class A
Preference Stock. As of the date of this Agreement, there are 3,150,020 shares
of Company Common Stock issued and outstanding, and no shares of Company Common
Stock are held by the Company in its treasury. No shares of capital stock of the
Company are reserved for issuance for any other purpose. All the issued and
outstanding shares of capital stock of the Company are duly authorized, validly
issued, fully paid and nonassessable and have not been issued in violation of
any preemptive or similar rights. There are no bonds, debentures, notes or other
indebtedness issued or outstanding having the right to vote ("Voting Debt") on
any matters on which holders of Company Common Stock may vote. There are no
options, warrants, calls, rights, commitments, or agreements of any character to
which the Company is a party or by which it is bound obligating the Company to
issue, deliver, or sell, or cause to be, issued, delivered or sold, additional
shares of capital stock or any Voting Debt of the Company, or obligating the
Company to grant, extend, or enter into any such option, warrant, call, right,
commitment, or agreement. There are no outstanding contractual obligations of
the Company to repurchase, redeem, or otherwise acquire any shares of Company
Common Stock or other capital stock of the Company. Schedule 1 identifies as of
the date of this Agreement the record and beneficial owner, if different, of the
issued and outstanding shares of Company Common Stock. Upon entry and
effectiveness of the Sale Order and Buyer's acquisition of the Shares at the
Closing pursuant to the terms and conditions of this Agreement, Buyer will
acquire 100% of the issued and outstanding capital stock of the Company and all
securities convertible into, exercisable for or exchangeable into capital stock
of the Company, free and clear of any Liens and Claims.
5.5 No Finder's Fee. Except as set forth in the Disclosure Schedule,
Section 5.5, the Company has not employed or retained any broker, agent, finder,
financial advisor or other party, or incurred any obligation for brokerage fees,
finder's fees, financial advisory fees or commissions with respect to the
transactions contemplated by this Agreement or the other Transaction Documents,
or otherwise dealt with anyone purporting to act in the capacity of a finder,
broker or financial advisor with respect thereto whereby Buyer may be obligated
to pay such a fee or commission.
14
5.6 Indebtedness. Disclosure Schedule, Section 5.6 sets forth a true and
complete list of all agreements evidencing Indebtedness of the Company.
5.7 Litigation. Except as set forth in the Disclosure Schedule, Section
5.7, there is no suit, action, litigation, investigation, claim, complaint,
grievance or proceeding, including appeals and applications for review, in
progress or, to the knowledge of the Company or Seller, threatened against or
relating to the Company before any court, Governmental Authority, agency, board,
commission, bureau or arbitration panel which if determined adversely to the
Company would,
(a) have a Material Adverse Effect;
(b) enjoin, restrict or prohibit the transfer of all or any part of
the Shares as contemplated by this Agreement; or
(c) prevent Seller from fulfilling any or all of its obligations set
out in this Agreement or arising from this Agreement,
and, to the knowledge of the Company or Seller, there is no ground on which any
such action, suit, litigation or proceeding might be commenced. Except as set
forth in the Disclosure Schedule, Section 5.7, there is not presently
outstanding against the Company any judgment, decree, injunction, rule or order
of any court, Governmental Authority, agency, board, commission, bureau or
arbitrator.
5.8 Absence of Undisclosed Liabilities. The Balance Sheet was prepared
in accordance with the past practice of the Company on a consistent basis and
fairly presents in all material respects the financial position of the Company
on July 31, 2003. Since July 31, 2003, the Company has not incurred any
liabilities or obligations (whether accrued, absolute, contingent or otherwise)
which continue to be outstanding other than liabilities or obligations which
were incurred in the ordinary and normal course of business consistent with past
practice or which would not, individually or in the aggregate, have a Material
Adverse Effect.
5.9 Title to Assets. Except as set forth in Disclosure Schedule, Section
5.9, the Company is the sole beneficial owner of all of its material assets and
property, real and personal, with good and valid title, or a valid leasehold or
license interest in, to all such assets and property, free and clear of all
Liens and Claims, except for Liens or Claims which would not, individually or in
the aggregate, have a Material Adverse Effect.
5.10 Taxes. The Company is not in violation of any Laws relating to Taxes
which would have a Material Adverse Effect. The Company does not have any
material liability, obligation or commitment for the payment of any Taxes or
interest or penalties with respect thereto, except such as are disclosed in the
Balance Sheet or such taxes or duties not yet due as have arisen since July 31,
2003 in the ordinary normal course of business and for which adequate provision
in the accounts of the Company has been made. The Company is not a party to or
bound by any Tax sharing agreement or Tax indemnification agreement. The Company
is not in arrears with respect to any required withholdings or installment
payments of any Taxes and has not filed any waiver extending the period for
assessment, reassessment or collection of Taxes under the Income Tax Act
(Canada) or any other legislation imposing Tax on the Company.
15
SECTION 6. REPRESENTATIONS AND WARRANTIES OF SELLER.
----------------------------------------
Seller hereby represents and warrants to Buyer as follows:
6.1 Authorization for Agreement; Consent and No Violation.
(a) Seller has all requisite corporate power and authority to enter
into this Agreement and the other Transaction Documents to which it is a party
and to consummate the transactions contemplated hereby and thereby. Subject to
the entry of the Sale Order, the execution, delivery and performance of this
Agreement and the other Transaction Documents by Seller and the consummation of
the transactions contemplated hereby and thereby have been duly authorized by
all necessary corporate actions of Seller, and, subject to the entry and
effectiveness of the Sale Order, this Agreement is, and the other Transaction
Documents will be, duly executed and delivered and legal, valid and binding
obligations of Seller enforceable in accordance with their terms, except as
enforceability may be limited by applicable bankruptcy, insolvency, moratorium,
or similar Laws from time to time in effect which affect creditors' rights
generally and by legal and equitable limitations on the availability of such
remedies.
(b) Except for the entry of the Sale Order and as otherwise set
forth on the Disclosure Schedule, Section 6.1(b) neither the execution and
delivery of this Agreement or the other Transaction Documents nor the
consummation of the transactions contemplated hereby or thereby by Seller
requires the consent or approval of, the giving of notice to, registration,
filing or recording with or the taking of any other action by, any Governmental
Authority or any other Person.
(c) Except as set forth in Disclosure Schedule, Section 6.1(c), the
execution and delivery of this Agreement and the other Transaction Documents and
the consummation of the transactions contemplated hereby and thereby by Seller
shall not conflict with, or result in any violation of, or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any material obligation or the loss
of a material benefit under, or the creation of any Lien, upon any of the
Shares, pursuant to (i) any provision of the organizational documents of Seller,
(ii) the provisions of any Contract to which Seller is a party or (iii)
applicable Law.
6.2 Organization. Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, has all
requisite power and authority to own, lease and operate its properties and to
carry on its business as now being conducted, and is duly qualified to do
business as a foreign corporation and in good standing to conduct business in
each jurisdiction in which the business it is conducting, or the operation,
ownership or leasing of its properties, makes such qualification necessary,
other than in such jurisdictions where the failure so to qualify could not
reasonably be expected to have a material adverse effect its business.
6.3 Owner of Shares. As of the date of this Agreement, Seller is the
holder of record and owns beneficially that number of shares of Company Common
Stock as set forth opposite its name on Schedule 1 hereto. As of the Closing
Date, Seller will be the holder of record and will own beneficially that number
of shares of such capital stock, as set forth opposite its name on
16
Schedule 1 hereto, free and clear of all Liens. Subject to the Bankruptcy's
Court entry of the Sale Order, at the Closing, Buyer will receive good and valid
title to the Shares owned by Seller, free and clear of all Liens and Claims. On
the date hereof, there are no Liens or Claims against the Shares other than as
disclosed on the Disclosure Schedule, Section 6.3. Subject to the Bankruptcy's
Court entry and effectiveness of the Sale Order, at the Closing: (i) Seller will
sell, deliver and transfer all right, title and interest in and to the Shares of
Seller (and its bankruptcy estate) to Buyer, free and clear of all Liens and
Claims including, without limitation, Liens and Claims of any creditor, any
party in interest, or any Government Authority or any other Person holding a
Claim or Lien against Seller or its bankruptcy estate; and (ii) Buyer will
receive good and valid title to the Shares owned by Seller (and its bankruptcy
estate), free and clear of all Liens and Claims including, without limitation,
Liens and Claims of any creditor, any party in interest, or any Governmental
Authority or any other Person holding a Claim or Lien against Seller or its
bankruptcy estate.
6.4 No Finder's Fee. Except as set forth in the Disclosure Schedule,
Section 6.4, Seller has not employed or retained any broker, agent, finder,
financial advisor or other party, or incurred any obligation for brokerage fees,
finder's fees, financial advisory fees or commissions with respect to the
transactions contemplated by this Agreement or the other Transaction Documents,
or otherwise dealt with anyone purporting to act in the capacity of a finder,
broker or financial advisor with respect thereto whereby Buyer may be obligated
to pay such a fee or commission.
SECTION 7. REPRESENTATIONS AND WARRANTIES OF BUYER.
---------------------------------------
Buyer hereby represents and warrants to Seller as follows:
7.1 Authorization for Agreement; Consents and No Violations.
(a) Buyer has all requisite corporate power and authority to enter
into this Agreement and the other Transaction Documents to which it is a party
and to consummate the transactions contemplated hereby and thereby. The
execution, delivery and performance of this Agreement and the other Transaction
Documents by Buyer and the consummation of the transactions contemplated hereby
and thereby have been duly authorized by all necessary actions of Buyer, and,
subject to the entry and execution of the Sale Order, this Agreement is, and the
other Transaction Documents to be executed and delivered by Buyer pursuant
hereto shall be, duly executed and delivered and legal, valid and binding
obligations of Buyer enforceable in accordance with their terms, except as
enforceability may be limited by applicable bankruptcy, insolvency, moratorium,
or similar Laws from time to time in effect which affect creditors' rights
generally and by legal and equitable limitations on the availability of such
remedies.
(b) Subject to the entry and execution of the Sale Order and
except as set forth in Disclosure Schedule, Section 7.1(b), neither the
execution and delivery of this Agreement or the other Transaction Documents nor
the consummation of the transactions contemplated hereby and thereby by Buyer
requires the consent or approval of, the giving of notice to, registration,
filing or recording with or the taking of any other action by Buyer in respect
of any Governmental Authority or any other Person.
17
(c) Subject to the entry and execution of the Sale Order, and
subject to the receipt of the consents or approvals set forth in Disclosure
Schedule, Section 7.1(c), the execution and delivery of this Agreement and the
other Transactions Documents and the consummation of the transactions
contemplated hereby and thereby by Buyer shall not conflict with, or result in
any violation of, or default (with or without notice or lapse of time, or both),
or give rise to a right of termination, cancellation or acceleration of any
material obligation or the loss of a material benefit under (i) any provision of
the organizational documents of Buyer, (ii) the provisions of any Contract to
which Buyer is a party, or (iii) applicable Law.
7.2 Organization. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the Province of Ontario, has all
the requisite power and authority to own, lease and operate its properties and
to carry on its business as now being conducted, and is duly qualified to do
business as a foreign corporation and in good standing to conduct business in
each jurisdiction in which the business it is conducting, or the operation,
ownership or leasing of its properties, makes such qualification necessary,
other than in such jurisdictions where the failure so to qualify could
materially and adversely affect the ability of Buyer to consummate the
transactions contemplated by this Agreement and the other Transaction Documents.
7.3 Finder's Fees. Buyer has not employed or retained any broker, agent,
finder, financial advisor or other party or incurred any obligation for
brokerage fees, finder's fees, financial advisory fees or commissions with
respect to the transactions contemplated by this Agreement or the other
Transaction Documents, or otherwise dealt with anyone purporting to act in the
capacity of a finder or broker or financial advisor with respect thereto whereby
Seller may be obligated to pay such a fee or a commission.
7.4 No Rights or Options to Purchase. Buyer does not have, nor does any
Affiliate of Buyer have, any interest in, right or option to purchase any of the
Shares which arises or exists outside of the terms of this Agreement.
7.5 Financing. Buyer has sufficient funds available to pay the Purchase
Price and consummate the transactions contemplated hereby and the other
Transaction Documents and all fees and expenses related thereto. Buyer
acknowledges that its obligations under this Agreement are not subject to any
conditions regarding its ability to obtain financing for the transactions
contemplated by this Agreement and the other Transaction Documents.
7.6 Investment Intent. The Shares are being acquired by Buyer for its
own account, for investment and with no intention of distributing or reselling
such Shares or any part thereof or interest therein in any transaction which
would be a violation of the securities laws of the United States of America or
any state or any foreign country or jurisdiction.
SECTION 8. COVENANTS.
---------
8.1 Seller's Chapter 11 Bankruptcy Case.
(a) This Agreement and the transactions contemplated hereby are
subject to (i) the terms and conditions of the Procedure Approval Order, (ii)
the approval and authorization
18
of the Bankruptcy Court by the entry of the Sales Order and (iii) the applicable
provisions of the Bankruptcy Code and the Bankruptcy Rules.
(b) Seller shall file with the Bankruptcy Court a motion with
supporting papers (the "Sale Motion"). The Sale Motion shall seek, inter alia,
the entry of the Sale Order approving this Agreement and the other Transaction
Documents and the transactions contemplated hereby and thereby. Seller shall use
commercially reasonable efforts to promptly seek entry of the Sale Order.
8.2 Break-Up Fee. Pursuant to the Procedure Approval Order, Seller shall
be obligated to pay Buyer, without set-off, a termination fee equal to $600,000
(the "Break-Up Fee") if the Agreement is terminated pursuant to Section
11.1(a)(vi) and shall forthwith provide notice to the Buyer upon such obligation
arising. The Break-Up Fee shall be payable as an allowed administrative expense
under Section 503(b) of the Bankruptcy Code. Seller shall pay the Break-Up Fee
to Buyer by wire transfer of immediately available funds to an account
designated by Buyer within three Business Days after a termination of the
Agreement pursuant to Section 11.1(a)(vi).
8.3 Company's Employees.
(a) Buyer shall take such action as may be necessary so that on and
after the Closing Date and for one year thereafter, the employees of the Company
for so long during such one year period as such employees remain employed by the
Company ("Business Employees") are either, as the Buyer may determine, (i)
provided employee benefits, plans and programs (including but not limited to
incentive compensation, life insurance, welfare, retirement, pension, severance,
salary continuation and fringe benefits) which, in the aggregate, are not
materially less favorable than those made available by the Company immediately
prior to the Closing Date or (ii) provided employee benefits, plans and programs
on substantially the same basis as employees of the Buyer having similar
responsibilities and positions. For purposes of eligibility to participate and
vesting in all benefits provided by Buyer to Business Employees, such Business
Employees will be credited with their years of service with the Company and
prior employers to the extent service with the Company and prior employers is
taken into account under the plans of the Buyer. The eligibility of any Business
Employee to participate in any welfare benefit plan or program of Buyer shall
not be subject to any exclusions for any pre-existing conditions or waiting
periods if such individual has met the participation requirements of similar
benefit plans and programs of the Seller.
(b) The provisions of this Section 8.3 shall neither create any
rights in any Business Employee to continued employment with Buyer for any
specified period of time, nor create any third-party beneficiary rights in any
Business Employee or any other Person (including any heir, beneficiary,
executor, administrator, or representative of any Business Employee or any other
Person claiming through any such employee or other Person), with respect to such
employee's or other Person's employment or any term or condition thereof.
8.4 Access. From and after the date of this Agreement until the Closing
Date, Seller and the Company shall, upon reasonable advance notice, (a) afford
to Buyer's officers, independent public accountants, counsel, lenders,
consultants and other representatives,
19
reasonable access during normal business hours to the Business and the Company
and all records pertaining to the Business and the Company and (b) furnish to
Buyer such documents and information concerning the Business and the Company as
Buyer from time to time may reasonably request. This access shall be subject to
any existing confidentiality agreements and to the execution of additional
confidentiality agreements reasonably required by Seller and the Company. Buyer
shall not be entitled to (i) access to any materials containing privileged
communications, (ii) information about employees, disclosure of which might
violate an employee's reasonable expectation of privacy, (iii) bids, letters of
intent, expressions of interest or other proposals received from others in
connection with the Business, the Shares or the Company, or (iv) information in
violation of Applicable Law or that would cause a breach of any obligation by
which Seller is bound. Buyer shall indemnify, defend and hold harmless Seller
from and against any and all Liabilities asserted against or suffered by them
relating to, resulting from or arising out of, examinations or inspections made
by Buyer or its representatives pursuant to this Section 8.4.
8.5 Conduct of the Business. Without in any way limiting any other
obligations of Seller or the Company hereunder, during the period from the date
hereof to the Closing, the Company agrees to, and the Seller shall cause the
Company to, conduct the Business only in the ordinary and normal course
consistent with past practice since the filing of the Bankruptcy Cases.
8.6 Notification. Prior to the Closing, Seller and the Company shall
notify Buyer, and Buyer shall notify Seller and the Company, of any litigation,
arbitration, appeal or administrative proceeding pending, or, to its knowledge,
threatened against Seller, the Company or Buyer, as the case may be, which
challenges the transactions contemplated hereby.
8.7 Injunctions. Prior to the Closing, if any Governmental Authority
issues or otherwise promulgates any injunction, stay, decree or similar order
which prohibits the consummation of the transactions contemplated hereby, the
parties shall use their respective commercially reasonable best efforts to have
such injunction, stay, decree or order dissolved or otherwise eliminated as
promptly as possible and, prior to or after the Closing, to pursue the
underlying litigation diligently and in good faith.
8.8 Additional Agreements. Subject to the terms and conditions of this
Agreement, each of the parties hereto shall use its commercially reasonable
efforts to do, or cause to be taken all action and to do, or cause to be done,
all things necessary, proper, or advisable under applicable Law to consummate
and make effective the transactions contemplated by this Agreement, including,
the fulfillment of the conditions set forth in Section 9 and Section 10 to the
extent that the fulfillment of such is within the control of such party. If at
any time after the Closing Date, any further action is necessary or desirable to
carry out the purposes of this Agreement, the parties to this Agreement and
their duly authorized representatives shall use commercially reasonable efforts
to take all such action.
8.9 Resignations of Directors and Officers. On or before the Closing,
the Company and Seller shall cause all non-employee directors and/or officers of
the Company to deliver their written resignations to Buyer, which resignations
shall be effective on or before the Closing. Each such resignation shall release
the Company from all claims such directors or officers may
20
have against the Company, including, without limitation, in respect of
termination pay, loans, or advances.
8.10 Bank Accounts. On or before the Closing, the Company shall, and
Seller shall cause the Company to, take all actions necessary to remove the
existing signatories to all bank accounts of the Company as of the Closing Date
and to replace such signatories effective as of the Closing Date with
individuals to be designated at least three (3) Business Days prior to the
Closing Date by Buyer.
8.11 Transition Services.
(a) Seller, at its sole cost and expense, shall provide to the
Company technology, computer and telecommunication services similar to those
provided by Seller or its related entities to the Company as at the date hereof,
including, without limitation, the IBM A/S 400 Computer System and the J.D.
Edwards ERP System (the "Transition Services"). Such Transition Services shall
be provided by the Seller to the Company for a term commencing on the Closing
Date and ending on the date (the "Transfer Date") that such Transition Services
have been assumed by the Company and/or the Service Provider. Other than with
respect to Buyer's or the Company's overhead and/or indirect expenses, Seller
shall pay all costs and expenses, including, without limitation, obtaining valid
and paid-up licenses for all applicable software, related to such transfer.
(b) On or before the Closing Date, Buyer shall identify, by written
notice to Seller, a third party (the "Service Provider") who will provide the
Transition Services to the Company following the transfer described in Section
8.11(a). Following the Closing Date until the Transfer Date, (i) each party
hereto shall work in a commercially reasonable and diligent manner to effect the
assumption of such Transition Services by the Company and/or the Service
Provider and (ii) each party hereto agrees to afford to the other's employees
and other representatives reasonable access, upon reasonable advance notice, to
each other's employees, agents and premises with respect to such assumption.
8.12 Collection of Accounts Receivable. From and after the Closing Date
and for a period of 120 days thereafter, Buyer shall use commercially reasonable
efforts, consistent with the Company's customary collection practices as of the
date hereof, to cause the Company to collect the Accounts Receivable.
8.13 Sales of Inventory. From and after the Closing Date and for a period
of 120 days thereafter, Buyer shall use its commercially reasonable efforts,
consistent with the Company's customary sales practices (including, without
limitation, the sale of Inventory in a first-in, first-out manner) as of the
date hereof, to cause the Company to sell the Inventory on terms and conditions
no less favorable than utilized by the Company on the date hereof.
8.14 Payment of Indebtedness. Immediately prior to the Closing, the
Company shall use all available cash-on-hand to repay outstanding principal and
interest under that certain credit arrangement issued pursuant to a Letter
Commitment dated February 27, 2001 of The Bank of Nova Scotia and that certain
credit arrangement issued pursuant to an Advisory Letter, dated March 15, 2001
of the Toronto-Dominion Bank (collectively, the "Credit Arrangements").
21
8.15 Inter-Company Indebtedness. On or before the Post-Closing Payment
Date, Buyer shall cause the Company to pay to Seller all amounts outstanding
shown as "I/Co Payables" on the Closing Balance Sheet. Upon the Effective Time,
Seller and Seller's Affiliates who are debtors in possession in the Bankruptcy
Cases shall release, waive and discharge any and all Claims, Liens and causes of
action they have or may have against the Company, and its existing employees or
assets, including, without limitation, Claims under Chapter 5 of the Bankruptcy
Code and any avoidance claims or causes of action under the Bankruptcy Code and
any alleged obligations or Indebtedness owed by Company to Seller; provided
however, that the foregoing release does not release, waive or discharge any
obligations of the Company or Buyer contained in this Agreement or related
documents, including without limitation, Buyer's obligation in this Section
8.15.
8.16 Competition Act. Within ten (10) Business Days after the execution
of this Agreement, Buyer and Seller shall file an appropriate pre-merger
notification under Section 114 of the Competition Act. Filing fees shall be the
responsibility of Buyer provided that each party hereto shall be responsible for
its own legal fees in connection with the pre-merger notification. Each of Buyer
and Seller shall (i) consult with the other and its representatives in preparing
and making any filings and communications in connection with any application or
filing made under the Competition Act; (ii) provide the other and its
representatives with copies of all applications, filings, notifications,
submissions and other correspondence or documents (including drafts thereof and
any correspondence provided to or from the Commissioner) in order for the other
to provide its reasonable comments, related to the satisfaction of the
conditions to Closing together with such written advice and information with
respect to the status of the other's efforts to obtain the satisfaction of the
conditions to Closing as the other or its representatives may reasonably
request; and (iii) keep the other and it representatives reasonably informed as
to the status of the proceedings related to its filings. Each party shall use
all reasonable efforts with respect to all matters within its control to satisfy
the conditions referred to in Sections 9.8 and 10.6.
8.17 Litigation Claim. Until the date that the Litigation Claim becomes a
Final Claim, Seller or its designee shall assume and provide the defense of the
Company with respect thereto, including any settlement or possible appeal. Such
defense of the Company shall be conducted through counsel selected by Seller and
approved by Buyer, which approval shall not be unreasonably withheld or delayed,
and Buyer and the Company (as applicable) shall fully cooperate with Seller and
counsel selected by Seller in connection therewith. Buyer and Seller acknowledge
that Bailey Cavalieri, LLC is currently representing the Company with respect to
the Ohio Lawsuit with the assistance of Vinson & Elkins L.L.P., and that Vinson
& Elkins L.L.P. is representing the Company's Affiliates in the Adversary
Proceeding with respect to the Litigation Claim. By its execution of this
Agreement, Buyer approves of such counsel pursuant to this Section 8.17. In the
event that Seller fails to actively and diligently defend the Litigation Claim,
within ten Business Days after receipt of written notification from Buyer or the
Company challenging the adequacy of such defense, and upon failure of Seller to
satisfy Buyer's or the Company's concerns in this regard, Buyer or the Company
shall have the right to undertake the defense of the Litigation Claim or any
appeal related thereto. Seller shall obtain the prior written approval of the
Company (such approval not to be unreasonably withheld or delayed) before
entering into or making any settlement, compromise, admission, or acknowledgment
of the validity of all or any portion of the Litigation Claim or any liability
in respect thereof. Seller shall not consent to the entry of any judgment or
enter into any settlement with respect to the
22
Litigation Claim that does not include as an unconditional term thereof the
giving to the Company by each claimant or plaintiff of a release from all
liability in respect of the Litigation Claim.
SECTION 9. CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS.
-------------------------------------------
The obligations of Buyer at the Closing hereunder are subject to the
satisfaction or, to the extent permitted by Applicable Law, waiver, on or prior
to the Closing Date of the conditions set forth below.
9.1 Representations and Warranties True. Each of the representations and
warranties made by Seller and the Company in this Agreement shall be true and
correct in all material respects on and as of the Closing Date with the same
effect as though such representations and warranties had been made or given on
and as of the Closing Date (except to the extent that such representations or
warranties speak as of an earlier date, in which case such representations and
warranties shall speak as of such earlier date); provided that any such
representation or warranty that by its terms is qualified by a materiality
standard or a Material Adverse Effect qualification shall not be further
qualified by the above reference to "in all material respects." Seller and the
Company shall have delivered to Buyer a certificate, dated the Closing Date and
signed by an officer of Seller and the Company, respectively, as to the
satisfaction of the condition contained in this Section 9.1.
9.2 Compliance with Agreement. Each of Seller and the Company shall have
performed and complied in all material respects with all of its covenants and
obligations under this Agreement which are to be performed or complied with by
Seller or the Company (as appropriate) prior to or on the Closing Date. Seller
and the Company shall have delivered to Buyer a certificate, dated the Closing
Date and signed by an officer of Seller and the Company, respectively, as to the
satisfaction of the condition contained in this Section 9.2.
9.3 Bankruptcy Court Approval.
(a) This Agreement and the transactions contemplated hereby shall
have been approved by the Bankruptcy Court by entry of the Sale Order;
(b) Any stay of the Sale Order under Bankruptcy Rule 6004 or
otherwise shall have expired, and such Sale Order shall not have been stayed as
of the Closing Date; and
(c) The Sale Order and notice of the Sale Motion and the sale of the
Shares to Buyer shall be reasonably satisfactory to Buyer in form and substance.
9.4 Compliance with Applicable Law. Other than with respect to
compliance with the Competition Act, all requirements of any Applicable Law
necessary for the valid consummation of the transactions contemplated herein to
occur at the Closing shall have been fulfilled and all filings required to be
made with any Governmental Authority under any Applicable Law and all consents,
approvals and orders required to be obtained from any Governmental Authority
under any Applicable Law, in each case, in order to permit the parties hereto to
consummate the transactions contemplated hereby shall have been made or
obtained.
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9.5 No Injunctions. No temporary restraining order, preliminary or
permanent injunction, stay or other order issued by any Governmental Authority
preventing the consummation of the transactions contemplated hereby to occur at
the Closing shall be in effect.
9.6 Material Adverse Effect. The Business shall not have incurred or
suffered any event or circumstance that has had a Material Adverse Effect.
9.7 No Liens or Claims. Seller shall have delivered evidence, reasonably
satisfactory to Buyer, that (i) all Liens against the Shares have been released
and discharged and (ii) all guarantee (other than any guarantee asserted in the
Litigation Claim) of the Company delivered, and/or security granted by the
Company, in respect of obligations or liabilities of Seller shall have been
discharged.
9.8 Competition Act. The appropriate time period specified in Section
123 of the Competition Act shall have expired and neither the Commissioner nor
the Competition Tribunal as authorized under the said Act shall have taken, or
have indicated their intention to take, any action under the said Act, whether
before or after the Closing Date which could materially interfere with or
detrimentally affect the transactions contemplated by the Transaction Documents.
9.9 Transaction Documents. Seller and the Company shall have executed
and tendered for delivery to Buyer all Transaction Documents to be delivered by
Seller and the Company at Closing pursuant to this Agreement.
SECTION 10. CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS.
--------------------------------------------
The obligations of Seller at the Closing hereunder are subject to the
satisfaction or, to the extent permitted by Applicable Law, waiver, on or prior
to the Closing Date of the conditions set forth below.
10.1 Representations and Warranties True. Each of the representations and
warranties made by Buyer in this Agreement shall be true and correct in all
material respects on and as of the Closing Date with the same effect as though
such representations and warranties had been made or given on and as of the
Closing Date; provided that any such representation or warranty that by its
terms is qualified by a materiality standard or a material adverse effect
qualification shall not be further qualified by the above reference to "in all
material respects." Buyer shall have delivered to Seller and the Company a
certificate, dated the Closing Date and signed by an officer of Buyer, as to the
satisfaction of the condition contained in this Section 10.1.
10.2 Compliance with Agreement. Buyer shall have performed and complied
in all material respects with all of its covenants and obligations under this
Agreement which are to be performed or complied with by it prior to or on the
Closing Date. Buyer shall have delivered to Seller and the Company a
certificate, dated the Closing Date and signed by an officer of Buyer, as to the
satisfaction of the condition contained in this Section 10.2.
24
10.3 Bankruptcy Court Approval. This Agreement and the transactions
contemplated hereby shall have been approved by the Bankruptcy Court by entry of
the Sale Order, and the Sale Order shall not have been stayed as of the Closing
Date.
10.4 Compliance with Applicable Law. Other than with respect to
compliance with the Competition Act, all requirements of any Applicable Law
necessary for the valid consummation of the transactions contemplated herein to
occur at the Closing shall have been fulfilled and all filings required to be
made with any Governmental Authority under any Applicable Law and all consents,
approvals and orders required to be obtained from any Governmental Authority
under any Applicable Law, in each case, in order to permit the parties hereto to
consummate the transactions contemplated hereby shall have been made or
obtained.
10.5 No Injunctions. No temporary restraining order, preliminary or
permanent injunction, stay or other order issued by any Governmental Authority
preventing the consummation of the transactions contemplated hereby to occur at
the Closing shall be in effect.
10.6 Competition Act. The appropriate time period specified in Section
123 of the Competition Act shall have expired and neither the Commissioner nor
the Competition Tribunal as authorized under the said Act shall have taken, or
have indicated their intention to take, any action under the said Act, whether
before or after the Closing Date which could materially interfere with or
detrimentally affect the transactions contemplated by the Transaction Documents.
10.7 Transaction Documents. Buyer shall have executed and tendered for
delivery to Seller and the Company all Transaction Documents to be delivered by
Buyer at Closing pursuant to this Agreement.
SECTION 11. TERMINATION, BREAK-UP FEE AND REMEDIES.
--------------------------------------
11.1 Termination and Abandonment.
(a) This Agreement may be terminated and abandoned on or prior to
the Closing Date as follows:
(i) by Buyer, upon the occurrence of a material breach of one
or more representations, warranties, covenants or obligations of Seller or the
Company that has not been waived by Buyer; provided that any representation or
warranty that by its terms is qualified by a materiality standard or material
adverse effect qualification shall not be further qualified by the above
reference to "material"; provided, further that, if such material breach of any
representation, warranty, covenant or obligation is capable of being cured by
Seller or the Company, Seller or the Company (as appropriate) shall have the
opportunity to cure such material breach for a period of 10 days from the date
of written notice of such breach;
(ii) by Seller or the Company, upon the occurrence of a
material breach of one or more representations, warranties, covenants or
obligations of Buyer that has not been waived by Seller and the Company;
provided that any representation or warranty that by its terms is qualified by a
materiality standard or material adverse effect qualification shall not be
further qualified by the above reference to "material"; provided, further that,
if such material
25
breach of a representation, warranty, covenant or obligation (other than any
covenant to or obligation to pay money pursuant to this Agreement) is capable of
being cured by Buyer, Buyer shall have the opportunity to cure such material
breach for a period of 10 days from the date of written notice of such material
breach;
(iii) by mutual written consent of the parties hereto;
(iv) by either Seller and the Company, on one hand, or Buyer,
on the other hand, if the Closing has not occurred on or before October 27, 2003
(the "Outside Date"); provided, however, that this right to terminate this
Agreement shall not be available to a party hereto whose breach of this
Agreement has been the cause of, or resulted in, the failure of the Closing to
occur on or before such date;
(v) by either Buyer, on one hand, or Seller and the Company,
on the other hand, if a Governmental Authority shall have issued an order,
decree, or ruling or taken any other action, in each case permanently
restraining, enjoining, or otherwise prohibiting the transactions contemplated
by this Agreement, and such order, decree, ruling, or other action shall have
become a Final Order; and
(vi) by Seller and the Company, upon payment of the Break-Up
Fee and the Deposit to Buyer, contemporaneously with the closing and funding of
a transaction with a Successful Bidder (as such term is defined in the Procedure
Approval Order) involving all or any portion of the Shares or substantially all
of the assets of the Company that is approved by the Bankruptcy Court by entry
of the Sale Order.
(b) In the event of termination of this Agreement by Seller and the
Company, on one hand, or Buyer, on the other hand, written notice shall promptly
be given to the other party and, subject to Section 12.2, each party shall pay
its own expenses incident to the preparation for the consummation of this
Agreement and the transactions contemplated hereby. Upon termination of this
Agreement pursuant to Section 11.1(a), the obligations of the parties set forth
herein shall forthwith be of no further force and effect; provided, however,
that Section 11.1(a), this Section 11.1(b) and Sections 8.2, 11.2, 11.3 and 12.2
through 12.16, and the obligations thereunder and the rights and remedies for
any breaches of this Agreement occurring prior to such termination, in each
case, shall survive any such termination.
11.2 Break-Up Fee.
(a) If this Agreement is terminated by Seller and the Company
pursuant to Section 11.1(a)(vi), upon receiving a Break-Up Fee and Deposit
pursuant to Section 8.2, Section 11.1(a)(vi), and Section 11.3(c), Buyer may not
claim any additional damages as a result of such termination, and Buyer hereby
waives any right to seek any additional damages against Seller, the Company or
any of their Affiliates, including consequential damages.
(b) As a condition of payment, and upon receipt of the Break-Up Fee
and Deposit pursuant to Section 8.2, Section 11.1(a)(vi) and Section 11.3(c),
Buyer hereby irrevocably and unconditionally releases, acquits, and forever
discharges Seller and the Company and their respective successors, assigns,
officers, directors, employees, agents, stockholders, subsidiaries, parent
companies and other Affiliates (corporate or otherwise) of and from any and
26
all Released Claims arising out of, based upon, resulting from or relating to
the negotiation, execution, performance, breach or otherwise related to or
arising out of the Transaction Documents or any agreement entered into in
connection therewith or related thereto.
(c) Upon the Break-Up Fee and Deposit being payable to Buyer
pursuant to Section 8.2, Section 11.1(a)(vi) and Section 11.3(c), Seller hereby
irrevocably and unconditionally releases, acquits, and forever discharges Buyer
and its respective successors, assigns, officers, directors, employees, agents,
stockholders, subsidiaries, parent companies and other Affiliates (corporate or
otherwise) of and from any and all Released Claims arising out of, based upon,
resulting from or relating to the negotiation, execution, performance, breach or
otherwise related to or arising out of the Transaction Documents or any
agreement entered into in connection therewith or related thereto.
11.3 Return of Deposit and Remedies.
(a) If, prior to the Closing, Buyer should breach this Agreement in
a manner which gives rise to a termination right pursuant to Section
11.1(a)(ii), then Seller shall receive the Deposit and Seller and the Company
may pursue any and all other rights and remedies available to it under law or
equity, including the right to seek consequential damages.
(b) If, prior to the Closing, Seller should breach this Agreement
in a manner that gives rise to a termination right pursuant to Section
11.1(a)(i), then Buyer shall receive from Seller within two Business Days of
such termination the Deposit, and Buyer may pursue all other rights and remedies
available to it under law or equity, including the right to seek consequential
damages.
(c) If this Agreement is terminated by Seller and the Company
pursuant to Section 11.1(a)(ii), Buyer and Seller shall promptly instruct the
Escrow Agent to release the Deposit to Seller. If this Agreement is terminated
either by Buyer, on one hand, or Seller and the Company, on the other hand,
pursuant to any provision of Section 11 (other than a termination by Seller and
the Company pursuant to Section 11.1(a)(ii)), then, Buyer and Seller shall
promptly instruct the Escrow Agent to release the Deposit to Buyer.
(d) Except as expressly provided in this Article 11, Buyer, on the
one hand, Seller and the Company, on the other hand, shall be entitled to pursue
any and all rights and remedies available to it under law or equity, including
the right to seek consequential damages, for, or by reason of, any breach of
this Agreement by Seller and/or Company, on the one hand, or Buyer, on the other
hand, respectively.
SECTION 12. MISCELLANEOUS
-------------
12.1 Indemnification.
(a) Indemnification by Seller.
(i) From and after the Closing and subject to the limitations
set forth in this Section 12.1, Seller shall indemnify, defend and hold harmless
Buyer and the Company from and against any and all claims, losses, damages,
liabilities, obligations or expenses of any
27
kind or type, including reasonable third-party legal fees and expenses, but
excluding lost profits or other consequential or punitive damages claimed by
each of Buyer and the Company for its own account (collectively, "Representation
and Covenant Losses"), to the extent arising or resulting from (x) the
inaccuracy or breach of any representation or warranty contained in Section 5.8,
Section 5.10 or Section 6.3 (collectively, such representations and warranties,
the "Surviving Representations") or (y) the covenants of Seller contained in
this Agreement to be performed following the Closing (other than the covenants
of Seller contained in Section 8.11.
(ii) From and after the Closing and subject to the limitations
set forth in this Section 12.1, Seller shall indemnify, defend and hold harmless
Buyer and the Company from and against any and all claims, losses, damages,
liabilities, obligations or expenses of any kind or type, including reasonable
third-party legal fees and expenses, but excluding punitive damages claimed by
each of Buyer and the Company for its own account (collectively, "Transition
Services Losses" and collectively with the Representation and Covenant Losses,
the "Losses"), to the extent arising or resulting from the covenants of Seller
contained in Section 8.11 this Agreement to be performed following the Closing.
(b) Survival. Regardless of any investigation at any time (whether
before or after the execution of this Agreement) made by or on behalf of any
party hereto or of any information any party may have in respect thereof, the
representations and warranties contained in this Agreement shall not survive the
Closing. Notwithstanding the previous sentence, the Surviving Representations
shall survive the Closing until the Post-Closing Payment Date. The covenants
contained in this Agreement that are performable in their entirety prior to or
at Closing shall not survive the Closing, and the covenants that are able to be
performed after Closing shall survive the Closing indefinitely until such are
fully performed.
(c) Indemnification Amounts. Any indemnification owing to Buyer or
the Company pursuant to Section 12.1(a) shall be (1) reduced by any amounts
recovered by Buyer or the Company pursuant to (i) any insurance coverage with
respect thereto, and (ii) amounts recovered pursuant to any counterclaim or
otherwise from any third party based on any claims Buyer or the Company has
against any such third party that reduces the Losses that would otherwise be
sustained (in each case net of the costs of recovery thereof), and (2) reduced
by any Tax benefit realized by Buyer or the Company arising from the incurrence
or payment of any such Losses. In computing the amount of any such Tax benefit,
Buyer or the Company (as applicable) shall be deemed to fully utilize, at the
highest marginal Tax rate then in effect, all Tax items arising from the receipt
of any indemnity payment hereunder or the incurrence or payment of any
indemnified Losses.
(d) Indemnification Procedures - Third Party Claims.
(i) If Buyer or the Company receives written notice of the
commencement of any action or proceeding or the assertion of any claim by a
third party (including, but not limited to, any Governmental Authority) or the
imposition of any penalty or assessment for which indemnity may be sought under
this Section 12.1 (a "Third Party Claim"), and Buyer or the Company intends (as
applicable) to seek indemnity pursuant to this Section 12.1, Buyer or the
Company shall promptly provide Seller with notice of such Third Party Claim.
Seller shall be entitled to participate in or, at its option, assume the
defense, appeal
28
or settlement of such Third Party Claim (without admitting liability to Buyer,
the Company or the third party). Such defense, appeal or settlement shall be
conducted through counsel selected by Seller and approved by Buyer, which
approval shall not be unreasonably withheld or delayed, and Buyer or the Company
(as applicable) shall fully cooperate with Seller in connection therewith. In
the event that Seller fails to so assume, or for any reason is unable to assume,
the defense, appeal or settlement of any Third Party Claim within ten Business
Days after receipt of notice thereof from Buyer or the Company, Buyer or the
Company (as applicable) shall have the right to undertake the defense, appeal or
settlement of such Third Party Claim and, if such Third Party Claim is one for
which Buyer or the Company (as applicable) is entitled to be indemnified under
this Section 12.1, such defense, appeal or settlement of such Third Party Claim
shall be at the expense and for the account of Seller.
(ii) Buyer or the Company (as applicable) shall be entitled, at
its own expense, to participate in the defense of such Third Party Claim;
provided, however, that Seller shall pay the reasonable attorneys' fees of Buyer
or the Company if (1) the employment of separate counsel shall have been
authorized in writing by Seller in connection with the defense of such Third
Party Claim, (2) Buyer or the Company shall have reasonably concluded that there
may be defenses available to it that are different from or additional to those
available to Seller, or (3) Buyer's or the Company's counsel shall have advised
Buyer or the Company in writing, with a copy delivered to Seller, that there is
a conflict of interest that would make it inappropriate under applicable
standards of professional conduct to have common counsel.
(iii) Seller shall obtain the prior written approval of Buyer or
the Company (as appropriate) before entering into or making any settlement,
compromise, admission, or acknowledgment of the validity of any Third Party
Claim or any liability in respect thereof if, pursuant to or as a result of such
settlement, compromise, admission, or acknowledgment, injunctive or other
equitable relief would be imposed against Buyer or the Company.
(iv) Seller shall not consent to the entry of any judgment or
enter into any settlement that does not include as an unconditional term thereof
the giving by each claimant or plaintiff to Buyer and the Company of a release
from all liability in respect of such Third Party Claim.
(v) Notwithstanding Section 12.1(d)(i), Seller shall not be
entitled to control (but shall be entitled to participate at its own expense in)
the defense or settlement, compromise, admission, or acknowledgment of any Third
Party Claim (1) as to which Seller fails to assume the defense within ten
Business Days after receipt of notice thereof from Buyer or the Company or (2)
to the extent the Third Party Claim seeks an order, injunction, or other
equitable relief against Buyer; provided, however, that, with respect to this
clause (2) above, Buyer shall make no settlement, compromise, admission, or
acknowledgment that would give rise to liability on the part of Seller without
the prior written consent of Seller (which consent shall not unreasonably be
withheld).
(e) Direct Claims. In any case in which Buyer or the Company seeks
indemnification hereunder which is not subject to Section 12.1(d) because no
Third Party Claim
29
is involved, Buyer or the Company (as appropriate) shall promptly notify Seller
in writing of any Losses which it claims are subject to indemnification under
the terms hereof.
(f) Limited Recourse. Whenever Seller is required to pay any claim
by Buyer or the Company pursuant to this Section 12.1 such payment shall not be
actually made by Seller to Buyer or the Company (as appropriate), but shall be
deemed made by Seller to Buyer or the Company (as applicable) by means of a
set-off against the payment due to Seller pursuant to Section 3.4(a).
Notwithstanding anything to the contrary in this Agreement, Seller's liability
pursuant to this Section 12.1 shall not (i) exceed the aggregate amount due to
Seller from Buyer pursuant to Section 3.4(a) or (ii) be set-off against any
other payment due to Seller pursuant to this Agreement or otherwise. If Buyer or
the Company has asserted good faith indemnification claim(s) on or before 5:00
p.m. Dallas time on the Post Closing Payment Date in accordance with Section
12.1(g), Buyer may withhold from the payment due to Seller pursuant to Section
3.4(a) the amount of all such unresolved claims pending the final adjudication
or settlement of such claim or Losses. Following such final adjudication or
settlement of each such pending claim or Losses, to the extent that Seller is
not required to indemnify Buyer or the Company pursuant to this Section 12.1,
Buyer shall pay such withheld amount with respect to such pending claim or
Losses to Seller in immediately available funds to an account designated by
Seller.
(g) Limitation as to Time. Seller shall not be liable for any claims
or Losses pursuant to this Section 12.1 unless a written claim for
indemnification in accordance with this Section 12.1 is given by the Company or
Buyer with respect thereto on or before 5:00 p.m. Dallas time on the Post
Closing Payment Date.
(h) Sole and Exclusive Remedy. Seller, the Company and Buyer each
acknowledge and agree that, after the Closing Date, notwithstanding any other
provision of this Agreement or the other Transaction Documents to the contrary,
Buyer's and the Company's sole and exclusive remedy with respect to breaches of
the Surviving Representations and the covenants to be performed by Seller
following the Closing and any and all other claims or Losses relating to the
subject matter of the Transaction Documents shall be in accordance with, and
limited by, the provisions set forth in this Section 12.1.
(i) Treatment of Payments. Any indemnification payments made
pursuant to this Section 12.1 shall be treated by Buyer and Seller as an
adjustment to the Purchase Price for tax purposes unless otherwise required by
Applicable Law.
12.2 Expenses. Except as otherwise set forth in this Section 12.2, each
of the parties hereto agrees to be responsible for its own costs, without right
of reimbursement from the others, incurred by it incident to the performance of
its obligations hereunder, whether or not the transactions contemplated by this
Agreement shall be consummated, including those costs incident to the
preparation, execution and delivery of this Agreement and the other Transaction
Documents, and the fees and disbursements of legal counsel, the accountants and
consultants employed by the respective parties in connection with the
transactions contemplated by this Agreement. In the event of a dispute between
Buyer, on the one hand, and Seller and the Company, on the other hand, in
connection with this Agreement and the transactions contemplated hereby, each of
the parties hereto hereby agrees that, without limiting in any
30
respect any of its other rights and remedies, the prevailing party shall be
entitled to reimbursement by the other party of reasonable legal fees and
expenses incurred in connection with any action or proceeding.
12.3 Assignment. No party shall assign any of its rights or obligations
under this Agreement without the prior written consent of the other parties to
this Agreement and any attempted assignment without such written consent shall
be null and void and without legal effect.
12.4 Governing Law. This Agreement shall be governed by and construed and
interpreted in accordance with the laws of the United States of America
(including, without limitation, the Bankruptcy Code), to the extent applicable,
and the laws of the State of Texas applicable to agreements made and to be
performed entirely within such state, including all matters of construction,
validity and performance.
12.5 Amendment and Modification; Waiver. Buyer, on the one hand, and
Seller and the Company, on the other hand, may amend, modify and supplement this
Agreement in such manner as may be mutually agreed by them in writing. Any
provision of this Agreement may be waived only in a writing signed by the party
to be charged with such waiver. No course of dealing between Buyer, on the one
hand, and Seller and the Company, on the other hand, shall be effective to amend
or waive any provision of this Agreement.
12.6 Notices. All notices, requests, demands and other communications
hereunder shall be in writing and deemed to be duly given, (i) when delivered by
hand, with a record of receipt, (ii) the fourth day after mailing, if mailed by
certified or registered mail, return receipt requested with postage prepaid,
(iii) the day delivered by a nationally recognized overnight courier, with a
record of receipt, or (iv) the day of transmission, with confirmation of
receipt, if delivered by facsimile or telecopy during regular business hours
(which regular business hours shall be 9:00 am - 5:00 pm on each Business Day),
or the day after transmission, with confirmation of receipt, if delivered by
facsimile or telecopy after regular business hours, to the parties at the
following addresses or telecopy numbers (or to such other address or telecopy
number as a party may have specified by the notice given to the other party
pursuant to this provision):
If to Buyer or, following the Closing, the Company:
EMJ Data Systems Ltd.
7067 Wellington Road 124
R.R. 6, Guelph, Ontario
Canada N1H 6N1
Attention: President
Fax: (519) 837-1479
with a copy to:
Gowling Lafleur Henderson LLP
31
Suite 1020, 50 Queen Street North
Kitchener, Ontario
Canada N2H 6M2
Attention: W. David Petras
Fax: (519) 571-5006
If to Seller or, prior to the Closing, the Company:
Daisytek, Incorporated
1025 Central Expressway South
Suite 200
Allen, Texas 75013
Attention: Dale Booth
Fax: (972) 424-4604
with a copy to:
Vinson & Elkins L.L.P.
2001 Ross Avenue
Suite 3700
Dallas, Texas 75201
Attention: Paul E. Heath
Facsimile: (214) 999-7976
or to such other addresses as either party may provide to the other in writing.
12.7 Entire Agreement. Except for any confidentiality agreements between
the parties not contained in this Agreement (which shall survive the execution
and delivery of this Agreement), this Agreement (including the exhibits and
schedules hereto), together with the Sale Order, cancels, merges and supersedes
all prior and contemporaneous understandings and agreements relating to the
subject matter of this Agreement, written or oral, between the parties hereto
and contains the entire agreement of the parties hereto, and the parties hereto
have no agreements, representations or warranties relating to the subject matter
of this Agreement which are not set forth herein.
12.8 Successors. This Agreement shall be binding upon and shall inure to
the benefit of each of the parties hereto and to their respective successors and
permitted assigns, and nothing in this Agreement, express or implied, is
intended to confer upon any other Person any rights or remedies of any nature
whatsoever under or by reason of this Agreement.
12.9 Counterparts. This Agreement may be executed in one or more
counterparts each of which shall be deemed an original but all of which together
shall constitute but one and the same instrument.
32
12.10 Headings. The headings used in this Agreement are for convenience
only and shall not constitute a part of this Agreement.
12.11 Schedules. All of the exhibits and schedules attached hereto are
incorporated herein and made a part of this Agreement by reference. Any
capitalized term used in any exhibit or schedule but not otherwise defined
therein shall have the meaning as defined in this Agreement.
12.12 Jurisdiction; Service of Process. During the Bankruptcy Cases, and
prior to the entry of a final decree by the Bankruptcy Court closing such cases,
any suit, action or proceeding between the parties hereto relating to this
Agreement, or in any other manner arising out of or relating to the transactions
contemplated by or referenced in this Agreement or any other Transaction
Document shall be commenced and maintained exclusively in the Bankruptcy Court.
The parties hereto submit themselves unconditionally and irrevocably to the
personal jurisdiction of such court. Buyer, and the Company following the
Closing, hereby appoints Mark Estill - Vice President, EMJ America, 220 Chatham
Business Drive, Pittsbourough, North Carolina 27312, as agent for service of
process hereunder.
12.13 Rules of Construction. Unless the context otherwise requires, as used
in this Agreement: (a) a term has the meaning assigned to it; (b) an accounting
term not otherwise defined has the meaning assigned to it in accordance with
GAAP; (c) "including" means including, without limitation; and (d) words in the
singular include the plural and words in the plural include the singular.
12.14 Access to Information. After the Closing Date, Buyer and the Company,
on one hand, and Seller, on the other hand, shall grant to the other such access
to their respective financial records and other books and records in their
possession related to their conduct of the Business and such cooperation and
assistance as shall be reasonably required to enable each of them to complete
their legal, regulatory, stock exchange and financial reporting requirements, to
complete their Tax Returns or for other reasonable business purposes. In the
event that any such Tax Return becomes the subject of any audit or
investigation, Buyer and the Company, on one hand, and Seller, on the other
hand, shall give the other all reasonable cooperation, access and assistance as
needed during normal business hours with respect to such financial data and
other books and records as may be necessary to enable such first party to defend
any such audit or investigation. Each party shall, for a period of six years
after the Closing Date plus any additional time during which such party has been
advised that there is an ongoing Tax audit or investigation with respect to such
periods, keep such financial records and other books and records reasonably
accessible and not destroy or dispose of such materials without the written
consent of Buyer and the Company, on one hand, or the Seller, on the other hand,
as applicable. Buyer and the Company, on one hand, and Seller, on the other
hand, shall promptly reimburse the other for its reasonable out-of-pocket
expenses associated with requests made by such first party under this Section
12.14, but no other charges shall be payable by the requesting party to the
other party in connection with such requests.
33
12.15 Public Announcements.
(a) No party hereto shall issue any press release or other public
announcement with respect to this Agreement or the transactions contemplated
hereby without the prior written approval of the others, except that (i) after
consultation with the other parties, a party or its Affiliate shall be permitted
to make disclosures to the public or to any Governmental Authority as such
party's counsel shall deem necessary under Applicable Law or as may be mutually
agreed in advance, and (ii) Seller and the Company may provide this Agreement to
its lenders, the Committee and other Persons in connection with Seller's
Bankruptcy Cases.
(b) Notwithstanding anything herein to the contrary, the parties
hereto (and each employee, representative, Affiliate or other agent of the
parties hereto) may disclose to any and all Persons, without limitation of any
kind, the U.S. federal income tax treatment and tax structure of the
transactions contemplated herein and all materials of any kind (including
opinions and other tax analyses) that are provided to the parties hereto
relating to such tax treatment and tax structure. For this purpose, "tax
structure" is limited to facts relevant to the U.S. federal income tax treatment
of the transactions contemplated herein and does not include information
relating to the identity of the Parties hereto, their respective Affiliates,
agents or advisors.
12.16 Severability. If any term or other provision of this Agreement is
invalid, illegal, or incapable of being enforced under applicable Law, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated herein are not affected in any manner adverse to any party. Upon
such determination that any term or other provision is invalid, illegal, or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in a mutually acceptable manner in order that the
transactions contemplated herein are consummated as originally contemplated to
the fullest extent possible.
12.17 Currency. All references to money amounts are references to United
States of America currency and references to "$" are to United States dollars.
12.18 "AS IS" TRANSACTION. BUYER HEREBY ACKNOWLEDGES AND AGREES THAT,
EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, SELLER MAKES NO (AND SELLER
EXPRESSLY DISCLAIMS AND NEGATES ANY) REPRESENTATIONS OR WARRANTIES OF ANY KIND,
WRITTEN OR ORAL, STATUTORY, EXPRESS OR IMPLIED, WITH RESPECT TO THE SHARES OR
ANY OTHER MATTER WHATSOEVER. BUYER FURTHER ACKNOWLEDGES THAT BUYER HAS CONDUCTED
AN INDEPENDENT INSPECTION AND INVESTIGATION OF THE COMPANY AND THE BUSINESS AND
ALL SUCH OTHER MATTERS RELATING TO OR AFFECTING THE BUSINESS AS BUYER DEEMED
NECESSARY OR APPROPRIATE AND THAT IN PROCEEDING WITH ITS ACQUISITION OF THE
SHARES, EXCEPT FOR ANY REPRESENTATIONS AND WARRANTIES EXPRESSLY SET FORTH
HEREIN, BUYER IS DOING SO BASED SOLELY UPON SUCH INDEPENDENT INSPECTIONS AND
INVESTIGATIONS. ACCORDINGLY, SUBJECT TO BUYER'S RIGHTS UNDER THIS AGREEMENT,
BUYER WILL ACCEPT THE SHARES AT THE CLOSING "AS IS,"
34
"WHERE IS," AND "WITH ALL FAULTS" AND WITHOUT RECOURSE AGAINST SELLER.
12.19 No Waiver Relating to Claims for Fraud. The liability of Seller under
Section 12.1 shall be in addition to, and not exclusive of any other liability
that Seller may have at law or equity based on its fraudulent acts or omissions.
None of the provisions set forth in this Agreement, including but not limited to
the provisions set forth in Section 12.1 shall be deemed a waiver by Buyer or
the Company of any right or remedy which it may have at law or equity based on
Seller's fraudulent acts or omissions; provided, that with respect to such
rights and remedies at law or equity, the parties acknowledge and agree that
none of the provisions of this Section 12.19 shall be deemed a waiver of any
defenses which may be available in respect of actions or claims for fraud,
including but not limited to, defenses of statutes of limitations or limitations
of damages.
[Signature page follows]
35
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
SELLER:
DAISYTEK , INCORPORATED
Debtor in Possession
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
THE COMPANY:
DAISYTEK (CANADA) INC.
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
BUYER:
EMJ DATA SYSTEMS LTD.
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
S - 1
Exhibit A
Procedure Approval Order
------------------------
A - 1
Exhibit B
---------
Form of Deposit Escrow Agreement
--------------------------------
THIS DEPOSIT ESCROW AGREEMENT (this "Agreement") is made and entered into
as of August 21, 2003, by and among Daisytek, Incorporated, a
debtor-in-possession and a Delaware corporation (with and including its
bankruptcy estate) ("Seller"), EMJ Data Systems Ltd., a corporation incorporated
under the laws of the Ontario, Canada (the "Buyer"), and Wells Fargo Bank Texas,
N.A., a national banking association with its headquarters in Dallas, Texas (the
"Escrow Agent").
RECITALS
--------
A. Pursuant to that certain Stock Purchase Agreement dated as of August
21, 2003, by and among the Seller, Daisytek (Canada) Inc., a company organized
under the laws of Ontario, Canada (the "Company"), and the Buyer (the "Purchase
Agreement"), concurrently with the execution hereof, the Buyer has agreed to
acquire all of the outstanding capital stock of the Company from Seller (the
"Acquisition"). Unless otherwise defined herein, capitalized terms used herein
shall have the meanings assigned to them in the Purchase Agreement.
B. The Buyer and the Seller wish to enter into this Agreement in order
to provide security for the Buyer's obligations with respect to all or a portion
of the damages that may become payable by the Buyer to the Seller under the
terms of the Purchase Agreement.
AGREEMENTS
----------
NOW, THEREFORE, in consideration of the recitals and of the respective
agreements and covenants contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties, intending to be legally bound hereby, agree as follows:
1. Appointment of the Escrow Agent. The Escrow Agent is hereby appointed
escrow agent and depository for the Buyer and the Seller with respect to the
Escrowed Property (as hereinafter defined).
2. Escrow. Concurrently with the execution hereof and pursuant to the
terms of the Purchase Agreement, the Buyer shall deliver to the Escrow Agent the
amount of $2,000,000 in cash by wire transfer of immediately available funds to
an account designated by the Escrow Agent as the "EMJ Escrow Account" (the
"Escrow Account") to secure the Buyer's obligations with respect to all or a
portion of the damages that may become payable by the Buyer to the Seller under
the terms of the Purchase Agreement (the "Escrowed Property"). The Buyer and the
Seller direct that the Escrowed Property and any and all interest, dividends,
income or other proceeds earned thereon from and after the date hereof (the
"Interest") be held and disposed of by the Escrow Agent as herein provided.
3. Disbursement of Escrow. The Escrowed Property and Interest, if any,
shall be held and disbursed by the Escrow Agent as follows:
B-1
(a) Upon the Closing. If the Closing of the transactions
contemplated by the Purchase Agreement occurs, then upon receipt of written
instructions from the Buyer and the Seller, the Escrow Agent shall (i) deliver
the Escrowed Property to the Seller, and (b) deliver the Interest not previously
distributed pursuant to Section 3(c), if any, to the Buyer.
(b) Failure to Close.
(i) If the Purchase Agreement is terminated and the Buyer and
the Seller agree on who is entitled to the Escrowed Property, then upon
receipt of joint written instructions from the Buyer and the Seller, the
Escrow Agent (1) shall deliver the Escrowed Property as set forth in such
instructions to the party designated in such instructions and (2) deliver
the Interest not previously distributed pursuant to Section 3(c), if any,
to the Buyer;
(ii) If the Purchase Agreement is terminated and the Buyer and
the Seller do not agree on who is entitled to the Escrowed Property, then,
upon a Final Determination (as defined below), the prevailing party shall
submit such Final Determination to the Escrow Agent, together with an
opinion of counsel for the presenting party reasonably satisfactory to the
Escrow Agent to the effect that such decision is a Final Determination, and
the Escrow Agent shall (A) deliver the Escrowed Property as instructed in
such Final Determination, and (B) deliver any Interest then held by the
Escrow Agent to Buyer.
A "Final Determination" shall mean any dispute with respect to the
delivery of the Escrowed Property shall have (a) been finally settled by the
parties hereto or (b) finally adjudicated by a court of competent jurisdiction
and such adjudication shall have become final and non-appealable and shall be
accompanied by an opinion of counsel for the presenting party reasonably
satisfactory to the Escrow Agent to the effect that such judgment is a Final
Determination. The Escrow Agent shall act on such Final Determination (and
opinion of counsel) without further question.
(c) Interest. Any Interest on the Escrowed Property (other than that
Interest distributed as provided in Section 3(a) or Section 3(b)) shall be
distributed to the Buyer within ten days of the end of each calendar quarter in
which the Interest was paid. Notwithstanding anything to the contrary contained
herein, any provision hereof requiring the disbursement of Interest by the
Escrow Agent shall be construed to refer only to Interest which has accrued and
been paid to the Escrow Agent. Any Interest which has accrued and, except for
the fact that it has not been paid to the Escrow Agent, would otherwise be
required to be disbursed, shall be disbursed within two Business Days of being
paid.
(d) Early Release of Escrowed Property. Prior to the release of all
of the Escrowed Property in accordance with Section 3(a) or Section 3(b) hereof,
the Buyer and the Seller may, by joint written notice, instruct the Escrow Agent
to release the Escrowed Property and Interest to the Buyer and/or the Seller in
such amounts as are set forth in the written instructions, and the Escrow Agent
shall be entitled to conclusively rely without liability thereon.
B-2
4. Investment of Escrowed Property. The Escrow Agent shall, from time to
time invest and reinvest the Escrowed Property, if any, in such of the following
investments as the Buyer and the Seller may from time to time elect by joint
notice in writing ("Permitted Investments"):
(i) Any U.S. Government or U.S. Government Agency security;
(ii) Any commercial paper rated A1/P1 or better;
(iii) Any certificate of deposit or time deposit in any bank
with a long-term debt rating of A or better from Moody's Investors Services
Inc. or Standard & Poor's Corporation;
(iv) The Wells Fargo 100% Treasury Fund; or
(v) The following institutional money market funds:
(1) Dreyfus Treasury Cash Management Fund
(2) Federated Treasury Obligations Fund
(3) AIM Treasury Portfolio
In the absence of joint written instructions to the contrary from the Buyer and
the Seller, the Escrow Agent shall invest the Escrowed Property in Permitted
Investments set forth in clause (iv) of this Section 4(a).
(b) Any Interest received on such investment and reinvestment of the
Escrowed Property shall be reinvested as provided in this Section 4 until
distributed as provided in Section 3.
(c) The Escrow Agent will act upon investment instructions the
Business Day after such instructions are received, provided the requests are
communicated within a sufficient amount of time to allow the Escrow Agent to
make the specified investment. Instructions received after an applicable
investment cutoff deadline will be treated as being received by the Escrow Agent
on the next Business Day, and the Escrow Agent shall not be liable for any loss
arising directly or indirectly, in whole or in part, from the inability to
invest the Escrowed Property on the day the instructions are received. The
Escrow Agent shall not be liable for any loss incurred by the actions of third
parties or by any loss arising by error, failure or delay in making of an
investment or reinvestment, and the Escrow Agent shall not be liable for any
loss of principal or income in connection therewith, unless such error, failure
or delay results from the Escrow Agent's gross negligence or willful misconduct.
As and when the Escrowed Property or any Interest, if any, or any portion
thereof is to be released under this Agreement, the Escrow Agent shall cause the
Permitted Investments to be converted into cash, and the Escrow Agent shall not
be liable for any loss of principal or income in connection therewith. None of
the parties hereto shall be liable for any loss of principal or income due to
the choice of Permitted Investments in which the Escrowed Property is invested
or the choice of Permitted Investments that are converted into cash pursuant to
this Section 4.
B-3
5. The Escrow Agent. To induce the Escrow Agent to act hereunder, it is
further agreed by the Buyer and the Seller that:
(a) The Escrow Agent shall not be under any duty to give the
Escrowed Property held by it hereunder any greater degree of care than it gives
its own similar property and shall not be required to invest any Escrowed
Property held hereunder except as directed in this Agreement. Uninvested funds
held hereunder shall not earn or accrue interest.
(b) This Agreement expressly sets forth all the duties of the Escrow
Agent with respect to any and all matters pertinent hereto. No implied duties or
obligations shall be read into this Agreement against the Escrow Agent. The
Escrow Agent shall not be bound by the provisions of any agreement among the
other parties hereto except this Agreement.
(c) The Escrow Agent shall not be liable, except for its own gross
negligence or willful misconduct and, except with respect to claims based upon
such gross negligence or willful misconduct that are successfully asserted
against the Escrow Agent, the Buyer and the Seller shall, severally and not
jointly, indemnify and hold harmless the Escrow Agent (and any successor escrow
agent) from and against one-half of any and all losses, liabilities, claims,
actions, damages, and expenses, including reasonable attorneys' fees and
disbursements, arising out of and in connection with this Agreement. Without
limiting the foregoing, the Escrow Agent shall in no event be liable in
connection with its investment or reinvestment of any cash held by it hereunder
in good faith, in accordance with the terms hereof, including without
limitation, any liability for any delays (not resulting from its gross
negligence or willful misconduct) in the investment or reinvestment of the
Escrowed Property or any loss of interest incident to any such delays. This
Section 5(c) shall survive notwithstanding any termination of this Agreement or
the resignation of the Escrow Agent.
(d) The Escrow Agent shall be entitled to rely in good faith upon
any order, judgment, certification, demand, notice, instrument or other writing
delivered to it hereunder in accordance with the terms hereof without being
required to determine the authenticity or the correctness of any fact stated
therein or the propriety or validity of the service thereof. The Escrow Agent
may act in reliance upon any instrument or signature believed by it in good
faith to be genuine and may assume that any person purporting to give receipt or
advice or make any statement or execute any document in connection with the
provisions hereof has been duly authorized to do so.
(e) The Escrow Agent may act pursuant to the advice of counsel with
respect to any matter relating to this Agreement and shall not be liable for any
action taken or omitted in good faith in accordance with such advice.
(f) The Escrow Agent does not have any interest in the Escrowed
Property deposited hereunder but is serving as escrow holder only and has only
possession thereof. The Buyer and the Seller shall each pay or reimburse the
Escrow Agent upon request for one-half of any transfer taxes or other taxes
relating to the Escrowed Property incurred in connection herewith and shall
indemnify and hold harmless the Escrow Agent from any amounts that it is
obligated to pay in the way of such taxes. Any payments of income from the
Escrow Account shall be subject to withholding regulations therein in force with
respect to United States taxes. It
B-4
is understood that the Escrow Agent shall be responsible for income reporting
only with respect to income earned on investment of the Escrowed Property and is
not responsible for any other reporting. This Section 5(f) shall survive
notwithstanding any termination of this Agreement or the resignation of the
Escrow Agent.
(g) The Escrow Agent makes no representation as to the validity,
value, genuineness or the collectability of any security or other document or
instrument held by or delivered to it.
(h) The Escrow Agent shall not be called upon to advise any party as
to the wisdom in selling or retaining or taking or refraining from any action
with respect to any securities or other property deposited hereunder.
(i) The Escrow Agent (and any successor escrow agent) may at any
time resign as such by delivering the Escrowed Property and Interest, if any, to
any successor escrow agent jointly designated by the Buyer and the Seller in
writing or to any court of competent jurisdiction, whereupon the Escrow Agent
shall be discharged of and from any and all further obligations arising in
connection with this Agreement. The resignation of the Escrow Agent will take
effect on the date (the "Resignation Date") which is the earlier to occur of:
(i) the date a successor is appointed (including a court of competent
jurisdiction) or (ii) the date which is 30 days after the date of delivery of
its written notice of resignation to the other parties hereto. Upon the
appointment of a successor escrow agent, such successor escrow agent shall
deliver written notice to the Buyer and the Seller on the appointment of such
successor escrow agent. If at the Resignation Date the Escrow Agent has not
received a designation of a successor escrow agent, the Escrow Agent's sole
responsibility after the Resignation Date shall be to safekeep the Escrowed
Property and Interest, if any, until receipt of a designation of successor
escrow agent or a joint written disposition instruction by the other parties
hereto.
(j) The Escrow Agent shall have no responsibility for the contents
of any writing of any third party contemplated herein as a means to resolve
disputes and may rely without any liability upon the contents thereof.
(k) In the event of any disagreement between the Buyer and the
Seller resulting in adverse claims or demands being made in connection with the
Escrowed Property and Interest, if any, or in the event that the Escrow Agent in
good faith is in doubt as to what action it should take hereunder, the Escrow
Agent shall be entitled to retain the Escrowed Property and Interest, if any,
until the Escrow Agent shall have received (i) a Final Determination (as defined
in Section 3(b) and accompanied by the opinion of counsel referred to in Section
3(b)) directing delivery of the Escrowed Property and Interest, if any, or (ii)
a written agreement executed by the Buyer and the Seller directing delivery of
the Escrowed Property and Interest, if any, in which event the Escrow Agent
shall disburse the Escrowed Property and Interest, if any, in accordance with
such Final Determination or agreement. The Escrow Agent shall act on such Final
Determination or agreement without further question.
(l) The compensation of the Escrow Agent (as payment in full) for
the services to be rendered by the Escrow Agent hereunder shall be the amount of
$2,500 for the initial year paid by the Buyer at the time of execution of this
Agreement and $2,000 annually
B-5
thereafter, together with reimbursement for all reasonable expenses,
disbursements and advances incurred or made by the Escrow Agent in performance
of its duties hereunder (including reasonable fees, expenses and disbursements
of its counsel). All fees and expenses of the Escrow Agent hereunder shall be
paid by the Buyer. Any fees or expenses of the Escrow Agent or its counsel which
are not paid as provided for herein may be taken from any property held by the
Escrow Agent hereunder.
(m) No prospectuses, press releases, reports and promotional
material or other similar materials which mentions the Escrow Agent's name or
the rights, powers, or duties of the Escrow Agent shall be issued by the other
parties hereto or on such parties' behalf unless the Escrow Agent shall first
have given its specific written consent thereto.
(n) The other parties hereto authorize the Escrow Agent, for any
securities held hereunder, to use the services of any United States central
securities depository it deems appropriate, including, but not limited to, the
Depository Trust Company and the Federal Reserve Book Entry System.
6. Time of Performance. Whenever, under the terms hereof, the time for
performance of any provision shall fall on a date which is not a regular
business day of the Escrow Agent, the performance thereof on the next succeeding
regular business day by the Escrow Agent shall be deemed to be in full
compliance with the terms hereof.
7. Amendment; Termination. This Agreement may be modified only by a
writing signed by all of the parties hereto. This Agreement shall terminate
without further action of any party when all of the terms hereof shall have been
fully performed.
8. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, and such counterparts shall constitute and be
one and the same instrument.
9. Headings. The paragraph headings contained herein are for convenience
of reference only and are not intended to define, limit, or describe the scope
or intent of any provision of this Agreement.
10. Notices. All notices, requests, consents, waivers, and other
communications required or permitted to be given hereunder shall be in writing
and shall be deemed to have been duly given (a) if transmitted by facsimile,
upon acknowledgment of receipt thereof in writing by facsimile or otherwise; (b)
if personally delivered, upon delivery or refusal of delivery; (c) if mailed by
registered or certified United States mail, return receipt requested, postage
prepaid, upon delivery or refusal of delivery; or (d) if sent by a nationally
recognized overnight delivery service, upon delivery or refusal of delivery. All
notices, consents, waivers, or other communications required or permitted to be
given hereunder shall be addressed to the respective party to whom such notice,
consent, waiver, or other communication relates at the following addresses:
If to the Buyer:
B-6
EMJ Data Systems Ltd.
7067 Wellington Road 124
R.R.6,
Guelph, Ontario
N1H 6N1
Attention: President
Fax: (519) 837-1479
with a copy to:
Gowling Lafleur Henderson LLP
Suite 1020, 50 Queen Street North
Kitchener, Ontario
Canada N2H 6M2
Attention: W. David Petras
Fax: (519) 571-5006
If to Seller:
Daisytek, Incorporated
1025 Central Expressway South
Suite 200
Allen, Texas 75013
Attention: Dale Booth
Fax: (972) 424-4604
with a copy to:
Vinson & Elkins L.L.P.
2001 Ross Avenue
Suite 3700
Dallas, Texas 75201
Attention: Paul E. Heath
Facsimile: (214) 999-7976
if to the Escrow Agent, to:
Wells Fargo Bank Texas, N.A.
1445 Ross Avenue, 2nd Floor
MAC: T5303-022
Dallas, Texas 75202
Attn: Nancye Patterson
B-7
Telephone: (214) 777-4078
Facsimile: (214) 777-4086
or to such other addresses as either party may provide to the other in writing.
11. Severability. The invalidity, illegality or unenforceability of any
provision of this Agreement shall in no way affect the validity, legality or
enforceability of any other provision and if any provision is held to be
unenforceable as a matter of law, the other provisions shall not be affected
thereby and shall remain in full force and effect.
12. Taxpayer Identification Numbers. The parties acknowledge that payment
of any Interest earned on the Escrowed Property invested in this escrow, or the
distribution of any other amounts under this escrow, will be subject to backup
withholding penalties unless a properly completed Internal Revenue Service Form
W-8 or W-9 certification is submitted to the Escrow Agent by the party entitled
to receive such payment. Any Form W-8 or W-9 certification shall be submitted to
the Escrow Agent on or before the execution of this Agreement.
13. Waivers. Any waiver by any party hereto of any breach of or failure
to comply with any provision of this Agreement by any other party hereto shall
be in writing and shall not be construed as, or constitute, a continuing waiver
of such provision, or a waiver of any other breach of, or failure to comply
with, any other provision of this Agreement.
14. Assignment; Third Parties. No party may assign any of its rights or
obligations under this Agreement without the written consent of the other
parties, except as provided in Section 5(i). Subject to the foregoing, this
Agreement shall be binding upon and inure solely to the benefit of the parties
hereto and their respective permitted successors and assigns, heirs,
administrators and representatives and shall not be enforceable by or inure to
the benefit of any other third party, except as provided in Section 5(i) with
respect to a resignation by the Escrow Agent.
15. Governing Law; Choice of Forum. This Agreement shall be construed in
accordance with and governed by the internal law of the State of Texas (without
reference to its rules as to conflicts of law).
16. Waiver of Offset Rights. The Escrow Agent hereby waives any and all
rights to offset that it may have against the Escrowed Property and Interest, if
any, including, without limitation, claims arising as a result of any claims,
amounts, liabilities, costs, expenses or other losses ("Claims") that the Escrow
Agent may be otherwise entitled to collect from any party to this Agreement,
other than Escrow Agent Claims arising under this Agreement.
B-8
IN WITNESS WHEREOF, the parties have duly executed this Agreement to be
effective as of the date first written above.
BUYER:
EMJ DATA SYSTEMS LTD.
By:
---------------------------------
Name:
---------------------------------
Title:
---------------------------------
SELLER:
DAISYTEK, INCORPORATED
Debtor-in-Possession
By:
---------------------------------
Name:
---------------------------------
Title:
---------------------------------
ESCROW AGENT:
WELLS FARGO BANK
By:
---------------------------------
Name:
---------------------------------
Title:
---------------------------------
B-9
Exhibit C
Form of Holdback Escrow Agreement
---------------------------------
THIS HOLDBACK ESCROW AGREEMENT (this "Agreement") is made and entered into
as of ____________, 2003, by and among Daisytek, Incorporated, a
debtor-in-possession and a Delaware corporation (with and including its
bankruptcy estate) ("Seller"), EMJ Data Systems Ltd., a corporation incorporated
under the laws of the Ontario, Canada (the "Buyer"), and Wells Fargo Bank Texas,
N.A., a national banking association with its headquarters in Dallas, Texas (the
"Escrow Agent").
RECITALS
--------
A. Pursuant to that certain Stock Purchase Agreement dated as of August
21, 2003, by and among the Seller, Daisytek (Canada) Inc., a company organized
under the laws of Ontario, Canada (the "Company"), and the Buyer (the "Purchase
Agreement"), the Buyer has acquired all of the outstanding capital stock of the
Company from Seller (the "Acquisition"). Unless otherwise defined herein,
capitalized terms used herein shall have the meanings assigned to them in the
Purchase Agreement.
B. The Buyer and the Seller wish to enter into this Agreement in order
to provide security for the Company's obligations with respect to all or a
portion of the damages that may become payable by the Company pursuant to the
Litigation Claim.
AGREEMENTS
----------
NOW, THEREFORE, in consideration of the recitals and of the respective
agreements and covenants contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties, intending to be legally bound hereby, agree as follows:
1. Appointment of the Escrow Agent. The Escrow Agent is hereby appointed
escrow agent and depository for the Buyer and the Seller with respect to the
Escrowed Property (as hereinafter defined).
2. Escrow. Concurrently with the execution hereof and pursuant to the
terms of the Purchase Agreement, the Buyer shall deliver to the Escrow Agent the
amount of $[________] in cash by wire transfer of immediately available funds to
an account designated by the Escrow Agent as the "Daiseytek Canada Litigation
Escrow Account" (the "Escrow Account") to secure the Company's obligations with
respect to all or any portion of the damages or settlement payment that
ultimately becomes payable by the Company pursuant to the Litigation Claim (the
"Escrowed Property"). The Buyer and the Seller direct that the Escrowed Property
and any and all interest, dividends, income or other proceeds earned thereon
from and after the date hereof (the "Interest") be held and disposed of by the
Escrow Agent as herein provided.
3. Disbursement of Escrow. The Escrowed Property and Interest, if any,
shall be held and disbursed by the Escrow Agent as follows:
C-1
(a) Upon a Final Claim.
(i) If, and only if, the Litigation Claim becomes a Final
Claim, upon receipt of joint written instructions from the Buyer and the Seller,
the Escrow Agent shall (A) deliver the Escrowed Property as instructed therein
by Buyer and Seller, and (B) deliver the Interest not previously distributed
pursuant to Section 3(c), if any, to the Buyer.
(ii) If the Litigation Claim becomes a Final Claim and the
Buyer and the Seller do not agree on who is entitled to the Escrowed Property,
then, upon a Final Determination (as defined below), the prevailing party shall
submit such Final Determination to the Escrow Agent, together with an opinion of
counsel for the presenting party, reasonably satisfactory to the Escrow Agent,
to the effect that such decision is a Final Determination, and the Escrow Agent
shall (A) deliver the Escrowed Property as instructed in such Final
Determination, and (B) deliver any Interest then held by the Escrow Agent to
Buyer.
A "Final Determination" shall mean written evidence of the occurrence
of a Final Claim, in the form of a settlement agreement disposing of the
Litigation Claim and signed by all parties to be bound thereby, or a final and
non-appealable order or judgment of a court of competent jurisdiction that
resolves or disposes of the Litigation Claim, which evidence shall be
accompanied by an opinion of counsel for the presenting party reasonably
satisfactory to the Escrow Agent to the effect that a Final Claim has occurred.
The Escrow Agent shall act on such Final Determination without further question.
(b) Interest. Any Interest on the Escrowed Property (other than that
Interest distributed as provided in Section 3(a)) shall be distributed to the
Buyer within ten days of the end of each calendar quarter in which the Interest
was paid. Notwithstanding anything to the contrary contained herein, any
provision hereof requiring the disbursement of Interest by the Escrow Agent
shall be construed to refer only to Interest which has accrued and been paid to
the Escrow Agent. Any Interest which has accrued and, except for the fact that
it has not been paid to the Escrow Agent, would otherwise be required to be
disbursed, shall be disbursed within two Business Days of being paid.
(c) Early Release of Escrowed Property. Prior to the release of all
of the Escrowed Property in accordance with Section 3(a) hereof, the Buyer and
the Seller may, by joint written notice, instruct the Escrow Agent to release
the Escrowed Property and Interest to the Buyer and/or the Seller in such
amounts as are set forth in the written instructions, and the Escrow Agent shall
be entitled to conclusively rely without liability thereon.
4. Investment of Escrowed Property. The Escrow Agent shall, from time to
time invest and reinvest the Escrowed Property, if any, in such of the following
investments as the Buyer and the Seller may from time to time elect by joint
notice in writing ("Permitted Investments"):
(i) Any U.S. Government or U.S. Government Agency security;
(ii) Any commercial paper rated A1/P1 or better;
C-2
(iii) Any certificate of deposit or time deposit in any bank with a
long-term debt rating of A or better from Moody's Investors Services Inc.
or Standard & Poor's Corporation;
(iv) The Wells Fargo 100% Treasury Fund; or
(v) The following institutional money market funds:
(1) Dreyfus Treasury Cash Management Fund
(2) Federated Treasury Obligations Fund
(3) AIM Treasury Portfolio
In the absence of joint written instructions to the contrary from the Buyer and
the Seller, the Escrow Agent shall invest the Escrowed Property in Permitted
Investments set forth in clause (iv) of this Section 4(a).
(b) Any Interest received on such investment and reinvestment of
the Escrowed Property shall be reinvested as provided in this Section 4 until
distributed as provided in Section 3.
(c) The Escrow Agent will act upon investment instructions the
Business Day after such instructions are received, provided the requests are
communicated within a sufficient amount of time to allow the Escrow Agent to
make the specified investment. Instructions received after an applicable
investment cutoff deadline will be treated as being received by the Escrow Agent
on the next Business Day, and the Escrow Agent shall not be liable for any loss
arising directly or indirectly, in whole or in part, from the inability to
invest the Escrowed Property on the day the instructions are received. The
Escrow Agent shall not be liable for any loss incurred by the actions of third
parties or by any loss arising by error, failure or delay in making of an
investment or reinvestment, and the Escrow Agent shall not be liable for any
loss of principal or income in connection therewith, unless such error, failure
or delay results from the Escrow Agent's gross negligence or willful misconduct.
As and when the Escrowed Property or any Interest, if any, or any portion
thereof is to be released under this Agreement, the Escrow Agent shall cause the
Permitted Investments to be converted into cash, and the Escrow Agent shall not
be liable for any loss of principal or income in connection therewith. None of
the parties hereto shall be liable for any loss of principal or income due to
the choice of Permitted Investments in which the Escrowed Property is invested
or the choice of Permitted Investments that are converted into cash pursuant to
this Section 4.
5. The Escrow Agent. To induce the Escrow Agent to act hereunder, it is
further agreed by the Buyer and the Seller that:
(a) The Escrow Agent shall not be under any duty to give the
Escrowed Property held by it hereunder any greater degree of care than it gives
its own similar property and shall not be required to invest any Escrowed
Property held hereunder except as directed in this Agreement. Uninvested funds
held hereunder shall not earn or accrue interest.
C-3
(b) This Agreement expressly sets forth all the duties of the Escrow
Agent with respect to any and all matters pertinent hereto. No implied duties or
obligations shall be read into this Agreement against the Escrow Agent. The
Escrow Agent shall not be bound by the provisions of any agreement among the
other parties hereto except this Agreement.
(c) The Escrow Agent shall not be liable, except for its own gross
negligence or willful misconduct and, except with respect to claims based upon
such gross negligence or willful misconduct that are successfully asserted
against the Escrow Agent, the Buyer and the Seller shall, severally and not
jointly, indemnify and hold harmless the Escrow Agent (and any successor escrow
agent) from and against one-half of any and all losses, liabilities, claims,
actions, damages, and expenses, including reasonable attorneys' fees and
disbursements, arising out of and in connection with this Agreement. Without
limiting the foregoing, the Escrow Agent shall in no event be liable in
connection with its investment or reinvestment of any cash held by it hereunder
in good faith, in accordance with the terms hereof, including without
limitation, any liability for any delays (not resulting from its gross
negligence or willful misconduct) in the investment or reinvestment of the
Escrowed Property or any loss of interest incident to any such delays. This
Section 5(c) shall survive notwithstanding any termination of this Agreement or
the resignation of the Escrow Agent.
(d) The Escrow Agent shall be entitled to rely in good faith upon
any order, judgment, certification, demand, notice, instrument or other writing
delivered to it hereunder in accordance with the terms hereof without being
required to determine the authenticity or the correctness of any fact stated
therein or the propriety or validity of the service thereof. The Escrow Agent
may act in reliance upon any instrument or signature believed by it in good
faith to be genuine and may assume that any person purporting to give receipt or
advice or make any statement or execute any document in connection with the
provisions hereof has been duly authorized to do so.
(e) The Escrow Agent may act pursuant to the advice of counsel with
respect to any matter relating to this Agreement and shall not be liable for any
action taken or omitted in good faith in accordance with such advice.
(f) The Escrow Agent does not have any interest in the Escrowed
Property deposited hereunder but is serving as escrow holder only and has only
possession thereof. The Buyer and the Seller shall each pay or reimburse the
Escrow Agent upon request for one-half of any transfer taxes or other taxes
relating to the Escrowed Property incurred in connection herewith and shall
indemnify and hold harmless the Escrow Agent from any amounts that it is
obligated to pay in the way of such taxes. Any payments of income from the
Escrow Account shall be subject to withholding regulations therein in force with
respect to United States taxes. It is understood that the Escrow Agent shall be
responsible for income reporting only with respect to income earned on
investment of the Escrowed Property and is not responsible for any other
reporting. This Section 5(f) shall survive notwithstanding any termination of
this Agreement or the resignation of the Escrow Agent.
(g) The Escrow Agent makes no representation as to the validity,
value, genuineness or the collectability of any security or other document or
instrument held by or delivered to it.
C-4
(h) The Escrow Agent shall not be called upon to advise any party as
to the wisdom in selling or retaining or taking or refraining from any action
with respect to any securities or other property deposited hereunder.
(i) The Escrow Agent (and any successor escrow agent) may at
any time resign as such by delivering the Escrowed Property and Interest, if
any, to any successor escrow agent jointly designated by the Buyer and the
Seller in writing or to any court of competent jurisdiction, whereupon the
Escrow Agent shall be discharged of and from any and all further obligations
arising in connection with this Agreement. The resignation of the Escrow Agent
will take effect on the date (the "Resignation Date") which is the earlier to
occur of: (i) the date a successor is appointed (including a court of competent
jurisdiction) or (ii) the date which is 30 days after the date of delivery of
its written notice of resignation to the other parties hereto. Upon the
appointment of a successor escrow agent, such successor escrow agent shall
deliver written notice to the Buyer and the Seller on the appointment of such
successor escrow agent. If at the Resignation Date the Escrow Agent has not
received a designation of a successor escrow agent, the Escrow Agent's sole
responsibility after the Resignation Date shall be to safekeep the Escrowed
Property and Interest, if any, until receipt of a designation of successor
escrow agent or a joint written disposition instruction by the other parties
hereto.
(j) The Escrow Agent shall have no responsibility for the
contents of any writing of any third party contemplated herein as a means to
resolve disputes and may rely without any liability upon the contents thereof.
(k) In the event of any disagreement between the Buyer and the
Seller resulting in adverse claims or demands being made in connection with the
Escrowed Property and Interest, if any, or in the event that the Escrow Agent in
good faith is in doubt as to what action it should take hereunder, the Escrow
Agent shall be entitled to retain the Escrowed Property and Interest, if any,
until the Escrow Agent shall have received (i) a Final Determination (as defined
in Section 3(a) and accompanied by the opinion of counsel referred to in Section
3(a)) directing delivery of the Escrowed Property and Interest, if any, or (ii)
a written agreement executed by the Buyer and the Seller directing delivery of
the Escrowed Property and Interest, if any, in which event the Escrow Agent
shall disburse the Escrowed Property and Interest, if any, in accordance with
such Final Determination or agreement. The Escrow Agent shall act on such Final
Determination or agreement without further question.
(l) The compensation of the Escrow Agent (as payment in full)
for the services to be rendered by the Escrow Agent hereunder shall be the
amount of $2,500 for the initial year paid by the Buyer at the time of execution
of this Agreement and $2,000 annually thereafter, together with reimbursement
for all reasonable expenses, disbursements and advances incurred or made by the
Escrow Agent in performance of its duties hereunder (including reasonable fees,
expenses and disbursements of its counsel). All fees and expenses of the Escrow
Agent hereunder shall be paid by the Buyer. Any fees or expenses of the Escrow
Agent or its counsel which are not paid as provided for herein may be taken from
any property held by the Escrow Agent hereunder.
(m) No prospectuses, press releases, reports and promotional
material or other similar materials which mentions the Escrow Agent's name or
the rights, powers, or duties of the
C-5
Escrow Agent shall be issued by the other parties hereto or on such parties'
behalf unless the Escrow Agent shall first have given its specific written
consent thereto.
(n) The other parties hereto authorize the Escrow Agent, for any
securities held hereunder, to use the services of any United States central
securities depository it deems appropriate, including, but not limited to, the
Depository Trust Company and the Federal Reserve Book Entry System.
6. Time of Performance. Whenever, under the terms hereof, the time for
performance of any provision shall fall on a date which is not a regular
business day of the Escrow Agent, the performance thereof on the next succeeding
regular business day by the Escrow Agent shall be deemed to be in full
compliance with the terms hereof.
7. Amendment; Termination. This Agreement may be modified only by a
writing signed by all of the parties hereto. This Agreement shall terminate
without further action of any party when all of the terms hereof shall have been
fully performed.
8. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, and such counterparts shall constitute and be
one and the same instrument.
9. Headings. The paragraph headings contained herein are for convenience
of reference only and are not intended to define, limit, or describe the scope
or intent of any provision of this Agreement.
10. Notices. All notices, requests, consents, waivers, and other
communications required or permitted to be given hereunder shall be in writing
and shall be deemed to have been duly given (a) if transmitted by facsimile,
upon acknowledgment of receipt thereof in writing by facsimile or otherwise; (b)
if personally delivered, upon delivery or refusal of delivery; (c) if mailed by
registered or certified United States mail, return receipt requested, postage
prepaid, upon delivery or refusal of delivery; or (d) if sent by a nationally
recognized overnight delivery service, upon delivery or refusal of delivery. All
notices, consents, waivers, or other communications required or permitted to be
given hereunder shall be addressed to the respective party to whom such notice,
consent, waiver, or other communication relates at the following addresses:
If to the Buyer:
EMJ Data Systems Ltd.
7067 Wellington Road 124
R.R.6,
Guelph, Ontario
N1H 6N1
Attention: President
Fax: (519) 837-1479
C-6
with a copy to:
Gowling Lafleur Henderson LLP
Suite 1020, 50 Queen Street North
Kitchener, Ontario
Canada N2H 6M2
Attention: W. David Petras
Fax: (519) 571-5006
If to Seller:
Daisytek, Incorporated
1025 Central Expressway South
Suite 200
Allen, Texas 75013
Attention: Dale Booth
Fax: (972) 424-4604
with a copy to:
Vinson & Elkins L.L.P.
2001 Ross Avenue
Suite 3700
Dallas, Texas 75201
Attention: Paul E. Heath
Facsimile: (214) 999-7976
if to the Escrow Agent, to:
Wells Fargo Bank Texas, N.A.
1445 Ross Avenue, 2nd Floor
MAC: T5303-022
Dallas, Texas 75202
Attn: Nancye Patterson
Telephone: (214) 777-4078
Facsimile: (214) 777-4086
or to such other addresses as either party may provide to the other in writing.
11. Severability. The invalidity, illegality or unenforceability of any
provision of this Agreement shall in no way affect the validity, legality or
enforceability of any other provision and if any provision is held to be
unenforceable as a matter of law, the other provisions shall not be affected
thereby and shall remain in full force and effect.
C-7
12. Taxpayer Identification Numbers. The parties acknowledge that payment
of any Interest earned on the Escrowed Property invested in this escrow, or the
distribution of any other amounts under this escrow, will be subject to backup
withholding penalties unless a properly completed Internal Revenue Service Form
W-8 or W-9 certification is submitted to the Escrow Agent by the party entitled
to receive such payment. Any Form W-8 or W-9 certification shall be submitted to
the Escrow Agent on or before the execution of this Agreement.
13. Waivers. Any waiver by any party hereto of any breach of or
failure to comply with any provision of this Agreement by any other party hereto
shall be in writing and shall not be construed as, or constitute, a continuing
waiver of such provision, or a waiver of any other breach of, or failure to
comply with, any other provision of this Agreement.
14. Assignment; Third Parties. No party may assign any of its rights or
obligations under this Agreement without the written consent of the other
parties, except as provided in Section 5(i). Subject to the foregoing, this
Agreement shall be binding upon and inure solely to the benefit of the parties
hereto and their respective permitted successors and assigns, heirs,
administrators and representatives and shall not be enforceable by or inure to
the benefit of any other third party, except as provided in Section 5(i) with
respect to a resignation by the Escrow Agent.
15. Governing Law; Choice of Forum. This Agreement shall be construed in
accordance with and governed by the internal law of the State of Texas (without
reference to its rules as to conflicts of law).
16. Waiver of Offset Rights. The Escrow Agent hereby waives any and all
rights to offset that it may have against the Escrowed Property and Interest, if
any, including, without limitation, claims arising as a result of any claims,
amounts, liabilities, costs, expenses or other losses ("Claims") that the Escrow
Agent may be otherwise entitled to collect from any party to this Agreement,
other than Escrow Agent Claims arising under this Agreement.
C-8
IN WITNESS WHEREOF, the parties have duly executed this Agreement to be
effective as of the date first written above.
BUYER:
EMJ DATA SYSTEMS LTD.
By:
---------------------------------
Name:
---------------------------------
Title:
---------------------------------
SELLER:
DAISYTEK, INCORPORATED
Debtor-in-Possession
By:
---------------------------------
Name:
---------------------------------
Title:
---------------------------------
ESCROW AGENT:
WELLS FARGO BANK
By:
---------------------------------
Name:
---------------------------------
Title:
---------------------------------
C-9
Exhibit D
Daisytek (Canada) Inc.
Balance Sheet
as of July 31, 2003
(U.S. Dollars in Thousands)
Assets
Current Assets
Cash 6,213
Accounts receivable 15,990
Inventory 8,568
Prepaid & Deposits 5,392
Non Current Assets
Property & Equipment - Net 790
------
Total Assets 36,953
======
Liabilities & Equity
Liabilities
Accounts & Accrued Payables 3,316
I/Co Payable 1,377
Long Term Liabilities 15,266
------
Total Liabilities 19,959
Total Equity 16,994
------
Total Liabilities & Equity 36,953
======
D-1
Exhibit E
Form of Section 116 Withholding Escrow Agreement
------------------------------------------------
THIS SECTION 116 WITHHOLDING ESCROW AGREEMENT (this "Agreement") is made
and entered into as of ____________, 2003, by and among Daisytek, Incorporated,
a debtor-in-possession and a Delaware corporation (with and including its
bankruptcy estate) ("Seller"), EMJ Data Systems Ltd., a corporation incorporated
under the laws of the Ontario, Canada (the "Buyer"), and Wells Fargo Bank Texas,
N.A., a national banking association with its headquarters in Dallas, Texas (the
"Escrow Agent").
RECITALS
--------
A. Pursuant to that certain Stock Purchase Agreement dated as of August
21, 2003, by and among the Seller, Daisytek (Canada) Inc., a company organized
under the laws of Ontario, Canada (the "Company"), and the Buyer (the "Purchase
Agreement"), the Buyer has acquired all of the outstanding capital stock of the
Company from Seller (the "Acquisition"). Unless otherwise defined herein,
capitalized terms used herein shall have the meanings assigned to them in the
Purchase Agreement.
B. The Purchase Agreement provides that in the event that the Seller
does not deliver a certificate (the "Section 116 Certificate") under section 116
of the Income Tax Act (Canada) (the "Canadian Tax Act") in respect of the Shares
with a certificate limit equal to or greater than the Canadian dollar equivalent
to the Purchase Price as of the Closing Date, the Buyer will deliver to the
Escrow Agent an amount equal to the Canadian dollar equivalent of 25 percent of
the Purchase Price (the "Escrowed Property").
AGREEMENTS
----------
NOW, THEREFORE, in consideration of the recitals and of the respective
agreements and covenants contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties, intending to be legally bound hereby, agree as follows:
1. Appointment of the Escrow Agent. The Escrow Agent is hereby appointed
escrow agent and depository for the Buyer and the Seller with respect to the
Escrowed Property.
2. Escrow. Concurrently with the execution hereof and if required
pursuant to Section 3.6 of the Purchase Agreement, the Buyer shall deliver to
the Escrow Agent the Escrowed Property in cash by wire transfer of immediately
available funds to an account designated by the Escrow Agent as the "Daiseytek
Canada Section 116 Withholding Escrow Account" (the "Escrow Account"). The Buyer
and the Seller direct that the Escrowed Property and any and all interest,
dividends income or other proceeds earned thereon from and after the date hereof
(the "Interest") be held and disposed of by the Escrow Agent as herein provided.
3. Disbursement of Escrow. The Escrowed Property and Interest, if any,
shall be held and disbursed by the Escrow Agent as follows:
E-1
(a) Payment to CCRA. Subject to Section 3(c) below, on that day (the
"First Due Date") which is 28 days after the end of the month in which the
Closing has occurred, unless the Escrow Agent has received the Section 116
Certificate referred to below in paragraph 3(b), the Escrow Agent shall pay an
amount equal to the Escrowed Property to the Receiver General of Canada on
account of the income tax liability of the Buyer under subsection 116(5) of the
Canadian Tax Act and shall provide proof of payment thereof to the Buyer and to
the Seller, and shall pay any balance remaining in the Escrow Account to the
Seller, including all Interest net of applicable withholding tax, and all the
obligations of the Escrow Agent hereunder shall terminate.
(b) Payment to Seller. Upon receipt at any time by Escrow Agent from
the Seller of a Section 116 Certificate issued by the Minister of National
Revenue pursuant to section 116 of the Canadian Tax Act referencing the Seller
as seller and the Buyer as purchaser having a certificate limit equal to or
greater than the Canadian dollar equivalent of the Purchase Price as of the
Closing Date, the Escrow Agent shall pay to the Seller any amount remaining in
the Escrow Account, including Interest, and all of the obligations of the Escrow
Agent hereunder shall terminate.
(c) Comfort Letter. The parties hereto acknowledge that the Seller
has applied to Canada Customs and Revenue Agency ("CCRA") for a comfort letter
which would permit the Buyer to defer paying the amount on the First Due Date
pending issuance of the Section 116 Certificate (a "Comfort Letter"). If prior
to the First Due Date a Comfort Letter is issued and delivered by the Seller to
the Escrow Agent, payment to CCRA shall not be made as otherwise required under
Section 3(a) but instead, unless the Section 116 Certificate is received before
the Second Due Date (hereinafter defined), in which event the Escrow Agent shall
make payment to the Seller in accordance with Section 3(b) hereof, the Escrow
Agent shall pay an amount equal to the Escrowed Property to the Receiver General
of Canada on account of the income tax liability of the Buyer under subsection
116(5) of the Canadian Tax Act and shall provide proof of payment thereof to the
Buyer and to the Seller, forthwith on or immediately after that day (the "Second
Due Date") which shall be the first to occur of (i) any written termination of
the Comfort Letter by CCRA, or (ii) any written demand for payment by CCRA, in
either case received by the Escrow Agent from any source, and shall pay any
balance remaining in the Escrow Account to the Seller, including Interest, and
all the obligations of the Escrow Agent hereunder shall terminate.
(d) Early Release of Escrowed Property. Prior to the release of all
of the Escrowed Property in accordance with Sections 3(a) or (b) or (c) hereof,
the Buyer and the Seller may, by joint written notice, instruct the Escrow Agent
to release the Escrowed Property and Interest to the Buyer and/or the Seller in
such amounts as are set forth in the written instructions, and the Escrow Agent
shall be entitled to conclusively rely without liability thereon.
4. Investment of Escrowed Property. The Escrow Agent shall, from time to
time invest and reinvest the Escrowed Property, if any, in such of the following
investments as the Buyer and the Seller may from time to time elect by joint
notice in writing ("Permitted Investments"):
(i) Any U.S. Government or U.S. Government Agency security;
E-2
(ii) Any commercial paper rated A1/P1 or better;
(iii) Any certificate of deposit or time deposit in any bank with a
long-term debt rating of A or better from Moody's Investors Services Inc.
or Standard & Poor's Corporation;
(iv) The Wells Fargo 100% Treasury Fund; or
(v) The following institutional money market funds:
(1) Dreyfus Treasury Cash Management Fund
(2) Federated Treasury Obligations Fund
(3) AIM Treasury Portfolio
In the absence of joint written instructions to the contrary from the Buyer and
the Seller, the Escrow Agent shall invest the Escrowed Property in Permitted
Investments set forth in clause (iv) of this Section 4(a).
(b) Any Interest received on such investment and reinvestment of the
Escrowed Property shall be reinvested as provided in this Section 4 until
distributed as provided in Section 3.
(c) The Escrow Agent will act upon investment instructions the
Business Day after such instructions are received, provided the requests are
communicated within a sufficient amount of time to allow the Escrow Agent to
make the specified investment. Instructions received after an applicable
investment cutoff deadline will be treated as being received by the Escrow Agent
on the next Business Day, and the Escrow Agent shall not be liable for any loss
arising directly or indirectly, in whole or in part, from the inability to
invest the Escrowed Property on the day the instructions are received. The
Escrow Agent shall not be liable for any loss incurred by the actions of third
parties or by any loss arising by error, failure or delay in making of an
investment or reinvestment, and the Escrow Agent shall not be liable for any
loss of principal or income in connection therewith, unless such error, failure
or delay results from the Escrow Agent's gross negligence or willful misconduct.
As and when the Escrowed Property or any Interest, if any, or any portion
thereof is to be released under this Agreement, the Escrow Agent shall cause the
Permitted Investments to be converted into cash, and the Escrow Agent shall not
be liable for any loss of principal or income in connection therewith. None of
the parties hereto shall be liable for any loss of principal or income due to
the choice of Permitted Investments in which the Escrowed Property is invested
or the choice of Permitted Investments that are converted into cash pursuant to
this Section 4.
5. The Escrow Agent. To induce the Escrow Agent to act hereunder, it is
further agreed by the Buyer and the Seller that:
(a) The Escrow Agent shall not be under any duty to give the
Escrowed Property held by it hereunder any greater degree of care than it gives
its own similar property
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and shall not be required to invest any Escrowed Property held hereunder except
as directed in this Agreement. Uninvested funds held hereunder shall not earn or
accrue interest.
(b) This Agreement expressly sets forth all the duties of the Escrow
Agent with respect to any and all matters pertinent hereto. No implied duties or
obligations shall be read into this Agreement against the Escrow Agent. The
Escrow Agent shall not be bound by the provisions of any agreement among the
other parties hereto except this Agreement.
(c) The Escrow Agent shall not be liable, except for its own gross
negligence or willful misconduct and, except with respect to claims based upon
such gross negligence or willful misconduct that are successfully asserted
against the Escrow Agent, the Buyer and the Seller shall, severally and not
jointly, indemnify and hold harmless the Escrow Agent (and any successor escrow
agent) from and against one-half of any and all losses, liabilities, claims,
actions, damages, and expenses, including reasonable attorneys' fees and
disbursements, arising out of and in connection with this Agreement. Without
limiting the foregoing, the Escrow Agent shall in no event be liable in
connection with its investment or reinvestment of any cash held by it hereunder
in good faith, in accordance with the terms hereof, including without
limitation, any liability for any delays (not resulting from its gross
negligence or willful misconduct) in the investment or reinvestment of the
Escrowed Property or any loss of interest incident to any such delays. This
Section 5(c) shall survive notwithstanding any termination of this Agreement or
the resignation of the Escrow Agent.
(d) The Escrow Agent shall be entitled to rely in good faith upon
any order, judgment, certification, demand, notice, instrument or other writing
delivered to it hereunder in accordance with the terms hereof without being
required to determine the authenticity or the correctness of any fact stated
therein or the propriety or validity of the service thereof. The Escrow Agent
may act in reliance upon any instrument or signature believed by it in good
faith to be genuine and may assume that any person purporting to give receipt or
advice or make any statement or execute any document in connection with the
provisions hereof has been duly authorized to do so.
(e) The Escrow Agent may act pursuant to the advice of counsel with
respect to any matter relating to this Agreement and shall not be liable for any
action taken or omitted in good faith in accordance with such advice.
(f) The Escrow Agent does not have any interest in the Escrowed
Property deposited hereunder but is serving as escrow holder only and has only
possession thereof. The Buyer and the Seller shall each pay or reimburse the
Escrow Agent upon request for one-half of any transfer taxes or other taxes
relating to the Escrowed Property incurred in connection herewith and shall
indemnify and hold harmless the Escrow Agent from any amounts that it is
obligated to pay in the way of such taxes. Any payments of income from the
Escrow Account shall be subject to withholding regulations therein in force with
respect to United States taxes. It is understood that the Escrow Agent shall be
responsible for income reporting only with respect to income earned on
investment of the Escrowed Property and is not responsible for any other
reporting. This Section 5(f) shall survive notwithstanding any termination of
this Agreement or the resignation of the Escrow Agent.
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(g) The Escrow Agent makes no representation as to the validity,
value, genuineness or the collectability of any security or other document or
instrument held by or delivered to it.
(h) The Escrow Agent shall not be called upon to advise any party as
to the wisdom in selling or retaining or taking or refraining from any action
with respect to any securities or other property deposited hereunder.
(i) The Escrow Agent (and any successor escrow agent) may at any
time resign as such by delivering the Escrowed Property and Interest, if any, to
any successor escrow agent jointly designated by the Buyer and the Seller in
writing or to any court of competent jurisdiction, whereupon the Escrow Agent
shall be discharged of and from any and all further obligations arising in
connection with this Agreement. The resignation of the Escrow Agent will take
effect on the date (the "Resignation Date") which is the earlier to occur of:
(i) the date a successor is appointed (including a court of competent
jurisdiction) or (ii) the date which is 30 days after the date of delivery of
its written notice of resignation to the other parties hereto. Upon the
appointment of a successor escrow agent, such successor escrow agent shall
deliver written notice to the Buyer and the Seller on the appointment of such
successor escrow agent. If at the Resignation Date the Escrow Agent has not
received a designation of a successor escrow agent, the Escrow Agent's sole
responsibility after the Resignation Date shall be to safekeep the Escrowed
Property and Interest, if any, until receipt of a designation of successor
escrow agent or a joint written disposition instruction by the other parties
hereto.
(j) The Escrow Agent shall have no responsibility for the contents
of any writing of any third party contemplated herein as a means to resolve
disputes and may rely without any liability upon the contents thereof.
(k) In the event of any disagreement between the Buyer and the
Seller resulting in adverse claims or demands being made in connection with the
Escrowed Property and Interest, if any, or in the event that the Escrow Agent in
good faith is in doubt as to what action it should take hereunder, the Escrow
Agent shall be entitled to retain the Escrowed Property and Interest, if any,
until the Escrow Agent shall have received (i) a Final Determination (as defined
in Section 3(a) and accompanied by the opinion of counsel referred to in Section
3(a)) directing delivery of the Escrowed Property and Interest, if any, or (ii)
a written agreement executed by the Buyer and the Seller directing delivery of
the Escrowed Property and Interest, if any, in which event the Escrow Agent
shall disburse the Escrowed Property and Interest, if any, in accordance with
such Final Determination or agreement. The Escrow Agent shall act on such Final
Determination or agreement without further question.
(l) The compensation of the Escrow Agent (as payment in full)
for the services to be rendered by the Escrow Agent hereunder shall be the
amount of $2,500 for the initial year paid by the Buyer at the time of execution
of this Agreement and $2,000 annually thereafter, together with reimbursement
for all reasonable expenses, disbursements and advances incurred or made by the
Escrow Agent in performance of its duties hereunder (including reasonable fees,
expenses and disbursements of its counsel). All fees and expenses of the Escrow
Agent hereunder shall be paid by the Buyer. Any fees or expenses of the Escrow
Agent
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or its counsel which are not paid as provided for herein may be taken from
any property held by the Escrow Agent hereunder.
(m) No prospectuses, press releases, reports and promotional
material or other similar materials which mentions the Escrow Agent's name or
the rights, powers, or duties of the Escrow Agent shall be issued by the other
parties hereto or on such parties' behalf unless the Escrow Agent shall first
have given its specific written consent thereto.
(n) The other parties hereto authorize the Escrow Agent, for any
securities held hereunder, to use the services of any United States central
securities depository it deems appropriate, including, but not limited to, the
Depository Trust Company and the Federal Reserve Book Entry System.
6. Time of Performance. Whenever, under the terms hereof, the time for
performance of any provision shall fall on a date which is not a regular
business day of the Escrow Agent, the performance thereof on the next succeeding
regular business day by the Escrow Agent shall be deemed to be in full
compliance with the terms hereof.
7. Amendment; Termination. This Agreement may be modified only by a
writing signed by all of the parties hereto. This Agreement shall terminate
without further action of any party when all of the terms hereof shall have been
fully performed.
8. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, and such counterparts shall constitute and be
one and the same instrument.
9. Headings. The paragraph headings contained herein are for convenience
of reference only and are not intended to define, limit, or describe the scope
or intent of any provision of this Agreement.
10. Notices. All notices, requests, consents, waivers, and other
communications required or permitted to be given hereunder shall be in writing
and shall be deemed to have been duly given (a) if transmitted by facsimile,
upon acknowledgment of receipt thereof in writing by facsimile or otherwise; (b)
if personally delivered, upon delivery or refusal of delivery; (c) if mailed by
registered or certified United States mail, return receipt requested, postage
prepaid, upon delivery or refusal of delivery; or (d) if sent by a nationally
recognized overnight delivery service, upon delivery or refusal of delivery. All
notices, consents, waivers, or other communications required or permitted to be
given hereunder shall be addressed to the respective party to whom such notice,
consent, waiver, or other communication relates at the following addresses:
If to the Buyer:
EMJ Data Systems Ltd.
7067 Wellington Road 124
R.R.6,
Guelph, Ontario
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N1H 6N1
Attention: President
Fax: (519) 837-1479
with a copy to:
Gowling Lafleur Henderson LLP
Suite 1020, 50 Queen Street North
Kitchener, Ontario
Canada N2H 6M2
Attention: W. David Petras
Fax: (519) 571-5006
If to Seller:
Daisytek, Incorporated
1025 Central Expressway South
Suite 200
Allen, Texas 75013
Attention: Dale Booth
Fax: (972) 424-4604
with a copy to:
Vinson & Elkins L.L.P.
2001 Ross Avenue
Suite 3700
Dallas, Texas 75201
Attention: Paul E. Heath
Facsimile: (214) 999-7976
if to the Escrow Agent, to:
Wells Fargo Bank Texas, N.A.
1445 Ross Avenue, 2nd Floor
MAC: T5303-022
Dallas, Texas 75202
Attn: Nancye Patterson
Telephone: (214) 777-4078
Facsimile: (214) 777-4086
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or to such other addresses as either party may provide to the other in writing.
11. Severability. The invalidity, illegality or unenforceability of any
provision of this Agreement shall in no way affect the validity, legality or
enforceability of any other provision and if any provision is held to be
unenforceable as a matter of law, the other provisions shall not be affected
thereby and shall remain in full force and effect.
12. Taxpayer Identification Numbers. The parties acknowledge that payment
of any Interest earned on the Escrowed Property invested in this escrow, or the
distribution of any other amounts under this escrow, will be subject to backup
withholding penalties unless a properly completed Internal Revenue Service Form
W-8 or W-9 certification is submitted to the Escrow Agent by the party entitled
to receive such payment. Any Form W-8 or W-9 certification shall be submitted to
the Escrow Agent on or before the execution of this Agreement.
13. Waivers. Any waiver by any party hereto of any breach of or
failure to comply with any provision of this Agreement by any other party hereto
shall be in writing and shall not be construed as, or constitute, a continuing
waiver of such provision, or a waiver of any other breach of, or failure to
comply with, any other provision of this Agreement.
14. Assignment; Third Parties. No party may assign any of its rights or
obligations under this Agreement without the written consent of the other
parties, except as provided in Section 5(i). Subject to the foregoing, this
Agreement shall be binding upon and inure solely to the benefit of the parties
hereto and their respective permitted successors and assigns, heirs,
administrators and representatives and shall not be enforceable by or inure to
the benefit of any other third party, except as provided in Section 5(i) with
respect to a resignation by the Escrow Agent.
15. Governing Law; Choice of Forum. This Agreement shall be construed in
accordance with and governed by the internal law of the State of Texas (without
reference to its rules as to conflicts of law).
16. Waiver of Offset Rights. The Escrow Agent hereby waives any and all
rights to offset that it may have against the Escrowed Property and Interest, if
any, including, without limitation, claims arising as a result of any claims,
amounts, liabilities, costs, expenses or other losses ("Claims") that the Escrow
Agent may be otherwise entitled to collect from any party to this Agreement,
other than Escrow Agent Claims arising under this Agreement.
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IN WITNESS WHEREOF, the parties have duly executed this Agreement to be
effective as of the date first written above.
BUYER:
EMJ DATA SYSTEMS LTD.
By:
---------------------------------
Name:
---------------------------------
Title:
---------------------------------
SELLER:
DAISYTEK, INCORPORATED
Debtor-in-Possession
By:
---------------------------------
Name:
---------------------------------
Title:
---------------------------------
ESCROW AGENT:
WELLS FARGO BANK
By:
---------------------------------
Name:
---------------------------------
Title:
---------------------------------
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Schedule 1
Ownership of Shares
No. of Shares
Daisytek, Incorporated 3,150,020
Schedule 1-1
Section 5.1(b)
Required Consents
The parties hereto must notify the Canadian competition authority of the
transactions contemplated by the Transaction Documents pursuant to the
Competition Act.
Pursuant to the Certificate and Articles of Amalgamation of the Company dated
November 1, 2000, a transfer of shares of the Company shall not be valid unless
and until approved by the shareholders of the Company holding fifty-one percent
(51%) or more of the issued shares of the Company entitled to exercise voting
rights at a meeting.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby by the Company requires the consent of the
Lenders under the Credit Arrangements.
The execution and delivery of this Agreement and the consummation of the
transaction contemplated hereby by the Company requires consent or approval by
the counterparties under the following agreements:
1. Lease Agreement, dated March 30, 2001, by and between GPM Property (6)
Ltd., Endow (6) Inc., and the Company.
2. Lease Agreement, dated June 1, 1995, by and among GPM Real Property (6)
Ltd., Endow (6) Inc., and the Company.
3. Lease, dated October 28, 1994, as amended, between Yenik Enterprises Ltd.
and the Company.
4. HPCL Consumer Products Reseller Agreement, dated March 31, 2002, between
Hewlett-Packard (Canada) Ltd. and the Company.
5. Authorized Supplies Distributor Agreement, dated January 7, 2003, between
the Company and Lexmark Canada Inc.
6. Agreement, dated January 30, 2001, between Canon Canada Inc. and the
Company.
7. Supplies Distributor Agreement, dated February 27, 1998, between the
Company Tektronix Canada Inc.
Section 5.1(c)
Conflicts, Defaults, and Liens
The execution and delivery of this Agreement and the consummation of the
transactions contemplated thereby by the Company may give rise to a right of
termination, cancellation or acceleration of the obligations of:
1. the Credit Arrangements
2. Lease Agreement, dated March 30, 2001, by and between GPM Property (6)
Ltd., Endow (6) Inc., and the Company.
3. Lease Agreement, dated June 1, 1995, by and among GPM Real Property (6)
Ltd., Endow (6) Inc., and the Company.
4. Lease, dated October 28, 1994, as amended, between Yenik Enterprises Ltd.
and the Company.
5. HPCL Consumer Products Reseller Agreement, dated March 31, 2002, between
Hewlett-Packard (Canada) Ltd. and the Company.
6. Authorized Supplies Distributor Agreement, dated January 7, 2003, between
the Company and Lexmark Canada Inc.
7. Agreement, dated January 30, 2001, between Canon Canada Inc. and the
Company.
8. Supplies Distributor Agreement, dated February 27, 1998, between the
Company Tektronix Canada Inc.
Section 5.5
Company's Broker
The Company has retained Houlihan Lokey Howard & Zukin Capital with respect to
the transactions contemplated by the Transaction Documents.
Section 5.6
Indebtedness
Indebtedness evidenced by the Credit Arrangements
Indebtedness evidenced as "I/Co Payable" on the Balance Sheet.
Section 5.7
Litigation
DSLangdale Two, LLC and DSLangdale Three, Inc. vs. Daiseytek (Canada) Inc.
currently pending in the United States Bankruptcy Court for the Southern of Ohio
(Eastern Division) (Misc. Case No. 03-00203).
Section 5.9
Liens
Certain of the Company's assets and properties are subject to Liens and Claims
pursuant to the terms of the Credit Arrangements.
Section 6.1(b)
Required Consents
The parties hereto must notify the Canadian competition authority of the
transactions contemplated by the Transaction Documents pursuant to the
Competition Act.
Pursuant to the Certificate and Articles of Amalgamation of the Company dated
November 1, 2000, a transfer of shares of the Company shall not be valid unless
and until approved by the shareholders of the Company holding fifty-one percent
(51%) or more of the issued shares of the Company entitled to exercise voting
rights at a meeting.
The execution and delivery of this Agreement and consummation of the
transactions contemplated thereby by the Seller requires the consent of the
lenders under that certain Credit Agreement, dated April 24, 2002, as amended,
among Daisytek International Corporation, Bank of America, National Association,
and the other parties thereto (the "Senior Credit Agreement").
Section 6.1(c)
Conflicts, Defaults, and Liens
The execution and delivery of this Agreement and the consummation of the
transactions contemplated thereby by the Seller may give rise to a right of
termination, cancellation or acceleration of the obligations under the Senior
Credit Agreement.
Section 6.3
Liens and Claims
Pursuant to Section 7.06 of By-Law No. A-1 of the Company, the Company shall
have a lien on the shares registered in the name of a shareholder indebted to
the Company.
Section 6.4
Seller's Broker
The Seller has retained Houlihan Lokey Howard & Zukin Capital with respect to
the transactions contemplated by the Transaction Documents.
Section 7.1(b)
Required Consents
The parties hereto must notify the Canadian competition authority of the
transactions contemplated by the Transaction Documents pursuant to the
Competition Act.
Section 7.1(c)
Conflicts and Defaults
None.