ASSET PURCHASE AGREEMENT
by and between
EMPLOYEE SOLUTIONS, INC., as Buyer,
THE XxXXXXX-XXXXX GROUP OF COMPANIES,
as Seller,
and
THE STOCKHOLDERS OF THE XxXXXXX-XXXXX GROUP OF COMPANIES,
as Stockholders
November 1, 1996
TABLE OF CONTENTS
1. Definitions................................................................................... 1
2. Purchase and Sale of Business and Assets. ................................................... 6
3. Purchase Price................................................................................ 6
(a) Agreement to Pay..................................................................... 6
(b) Interim Adjustment................................................................... 6
(c) Final Adjustment..................................................................... 6
(d) Time of Payment...................................................................... 7
(e) Method of Payment.................................................................... 7
(f) Escrow Account....................................................................... 8
4. Closing Matters............................................................................... 8
(a) Time and Place. .................................................................... 8
(b) Seller's and Stockholders' Deliveries................................................ 8
(c) ESI's Deliveries..................................................................... 9
(d) Further Assurances................................................................... 10
(e) Power of Attorney.................................................................... 10
(f) Prorations........................................................................... 10
5. Representations and Warranties of Seller and Stockholders..................................... 11
(a) Organization, Standing and Qualification............................................. 11
(b) Consents; Authority.................................................................. 11
(c) Authority; Enforceability............................................................ 11
(d) Subsidiaries......................................................................... 11
(e) Transactions with Certain Persons.................................................... 12
(f) No Violation, Conflict or Required Filing............................................ 12
(g) Capitalization....................................................................... 13
(h) Ownership of Seller's Capital Stock.................................................. 13
(i) Unaudited Financial Statements....................................................... 13
(j) Absence of Undisclosed Liabilities................................................... 13
(k) Taxes................................................................................ 13
(l) Absence of Changes or Events......................................................... 14
(m) Litigation........................................................................... 16
(n) [Reserved]........................................................................... 16
(o) Title to Properties.................................................................. 16
(p) Schedules............................................................................ 17
(q) Patents, etc......................................................................... 19
(r) No Guaranties........................................................................ 19
(s) Inventory and Supplies............................................................... 19
(t) [Reserved]........................................................................... 19
(u) Employees; Employee Benefit Plans.................................................... 19
(i)
(v) [Reserved]........................................................................... 23
(w) Records.............................................................................. 23
(x) Absence of Certain Business Practices................................................ 23
(y) Labor Matters........................................................................ 23
(z) No Broker............................................................................ 24
(aa) Investment Intent.................................................................... 24
(ab) Suitability and Sophistication....................................................... 24
(ac) Receipt of Information............................................................... 25
(ad) Disclosure........................................................................... 25
6. Representations and Warranties by ESI......................................................... 25
(a) Organization......................................................................... 25
(b) Authorization and Approval of Agreement.............................................. 25
(c) Execution, Delivery and Performance of Agreement..................................... 26
(d) Litigation........................................................................... 26
(e) No Consents or Approvals............................................................. 26
(f) Commission Filings................................................................... 26
(g) Actions to Limit Net Business Attrition Loss......................................... 27
(h) No Broker............................................................................ 27
(i) ESI Stock............................................................................ 27
(j) Disclosure........................................................................... 27
7. Conduct of Business Prior to Closing.......................................................... 27
8. Agency Operations............................................................................. 28
(a) ESI as Agent......................................................................... 28
(b) Access to Records and Properties..................................................... 29
(c) Operation of Seller.................................................................. 29
(d) Limitation on ESI Obligations........................................................ 30
9. Employment and Noncompete Agreements.......................................................... 31
10. Directors and Stockholders Authorization; Change of Corporate Name; No-
Shopping...................................................................................... 32
11. Bulk Sales Compliance......................................................................... 32
12. [Reserved.]................................................................................... 33
13. Conditions Precedent to ESI's Obligations..................................................... 33
14. Conditions Precedent to Seller's and Stockholder's Obligations................................ 34
15. [Reserved.]................................................................................... 35
(ii)
16. Indemnification............................................................................... 35
(a) Indemnification by Seller and Stockholders........................................... 35
(b) Indemnification by ESI............................................................... 36
(c) Right of Offset...................................................................... 36
(d) Notice and Defense................................................................... 36
(e) Basket............................................................................... 37
17. Nature and Survival of Representations and Warranties......................................... 37
18. Registration Rights........................................................................... 37
(a) [Reserved.].......................................................................... 38
(b) Demand Registration Rights........................................................... 38
(c) Additional Agreements of Seller...................................................... 38
(d) [Reserved.].......................................................................... 39
(e) [Reserved.].......................................................................... 39
(f) Responsibility for Fees.............................................................. 39
(g) Indemnifications..................................................................... 39
19. Allocation of Purchase Price.................................................................. 39
20. Access to Information and Documents........................................................... 39
21. Notices....................................................................................... 40
22. Termination................................................................................... 41
23. Miscellaneous................................................................................. 42
24. Completion of Schedules and Exhibits.......................................................... 43
(iii)
ASSET PURCHASE AGREEMENT
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This Asset Purchase Agreement (this "Agreement"), effective as of
November 1, 1996, is by and among: all of those companies comprising The
XxXxxxx-Xxxxx Group, each of which is listed, along with the address of its
principal office, on Schedule A attached hereto (severally and collectively,
"Seller"); all of the stockholders which are listed, along with their respective
addresses, on Schedule A attached hereto (severally and collectively,
"Stockholder(s)"); and Employee Solutions, Inc., an Arizona corporation having
its principal office at 0000 Xxxx Xxxxxxxxx Xxxx, Xxxxx 000, Xxxxxxx, Xxxxxxx
00000 ("ESI").
In consideration of the mutual covenants and agreements hereinafter set
forth, the parties hereby agree as follows:
1. Definitions.
"Administrative Employees" shall mean the employees of Seller who
perform their duties and responsibilities directly for Seller in the ordinary
course of Seller's business.
"Agency Operations Period" shall mean the period from and including the
Closing Date until but excluding the Transfer Effective Date.
"Xxxxxx Xxxxxxxx" shall mean ESI's auditors, Xxxxxx Xxxxxxxx, L.L.P.
"Assets" or "Seller's Assets" shall mean all of the business, assets,
properties, goodwill and rights of Seller as a going concern, of every nature,
kind and description, tangible and intangible, wheresoever located and whether
or not carried or reflected on the books and records of Seller, other than the
Retained Assets, including, without limitation, (i) the assets referred to in
the Conveyance Documents and (ii) the assets reflected on the Balance Sheet,
with only such dispositions of such assets reflected on the Balance Sheet as
shall have occurred in the ordinary course of Seller's business between the
Balance Sheet Date and the Closing and which are permitted by the terms hereof,
and excluding only Seller's tax and accounting records, minute books, corporate
seal and stock records (provided, however, that ESI shall have full access to
all such excluded items at all times hereafter upon reasonable notice to
Seller). Notwithstanding anything in the paragraph to the contrary, the terms
"Assets" or "Seller's Assets" shall not include the Retained Assets. The
Retained Assets will remain the property of Seller.
"Balance Sheet" shall mean the combined balance sheet, excluding
footnotes, for all of the companies comprising Seller, dated as of August 31,
1996, prepared in accordance with GAAP, and audited by Xxxxxx Xxxxxxxx.
"Balance Sheet Date" shall mean August 31, 1996.
"Claims Notice" shall mean notice given by an Indemnitee to an
Indemnitor of any asserted losses, liabilities or damages claimed to give rise
to indemnification hereunder.
"Closing Date" or "Closing" shall mean November 1, 1996, or such other
date as the parties actually close the transaction contemplated herein, provided
that if the Closing occurs at a date later than November 1, 1996, the effective
date for the transactions to occur at Closing shall be deemed November 1, 1996.
"Conveyance Documents" shall mean the documents referred to in Sections
4(b)(ii) - 4(b)(xi) of this Agreement.
"Customer(s)" shall mean all customers of Seller as of August 31, 1996,
based upon revenues derived from such customers during the one year period from
September 1, 1995 through August 31, 1996, with all such customers and revenues
listed on Schedule B attached hereto. Any references herein to Customers after
the Transfer Effective Date shall refer to the same Customers in their capacity
as customers of ESI, rather than Seller.
"Customer Employees" shall mean the employees of Seller who are leased
to Seller's Customers to work directly for a Customer in the ordinary course of
a Customer's business.
"Defaulting Party" shall mean a party who defaults in its obligations
under this Agreement.
"EBIT" shall mean earnings before interest and taxes for the
consolidated group of companies comprising Seller for the 12-month period ended
August 31, 1996, excluding any extraordinary or nonrecurring items of income and
any changes to earnings arising from a change in accounting methods, as
determined in accordance with GAAP. For purposes of determining the Preliminary
Purchase Price and the Purchase Price, EBIT shall be adjusted to reflect the
assumed combined operations of all companies comprising Seller in the manner
indicated on the Schedule of Recasted Operating Income. For purposes solely of
calculating the Preliminary Purchase Price as of the Closing Date (and prior to
completion of the audit of the Financial Statements by Xxxxxx Xxxxxxxx), EBIT
shall be based upon the Unaudited Financial Statements. Immediately upon
completion by Xxxxxx Xxxxxxxx of its audit, EBIT shall be based upon the
Financial Statements. Any adjustment to the Preliminary Purchase Price because
of any difference between the Unaudited Financial Statements and the Financial
Statements shall be made in accordance with Section 3(b) hereof.
"Employment Agreement" shall mean all employment agreements, severally
and collectively, referred to in Section 9(a) hereof.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
"Escrow Account" shall mean the deposit account or accounts established
with Escrow Agent for the deposit of one-half of the Preliminary Purchase Price.
"Escrow Agent" shall mean Bank One Arizona, which is the escrow agent
selected by the parties hereto to monitor and service the Escrow Account.
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"Escrow Instructions" shall mean the agreement between the Escrow Agent
and the parties hereto with respect to their various rights and obligations
regarding the Escrow Account, the form of which is attached hereto as Exhibit A.
"ESI" shall mean Employee Solutions, Inc.
"ESI Customers" shall mean any employee leasing or other customers of
ESI or its affiliates. Any references to ESI Customers after the Transfer
Effective Date shall include all customers of ESI that were customers of Seller
prior to the Transfer Effective Date (including, but not limited to, Customers).
"ESI Stock" shall mean restricted, unregistered shares of common stock
of ESI paid as part of the Purchase Price.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Final Payment Date" shall mean January 31, 1998, or such earlier date
as ESI may elect, in its sole discretion.
"Financial Statements" shall mean the Balance Sheet and Seller's
combined statement of earnings, as of and for the 12-month period ended August
31, 1996, all prepared in accordance with GAAP and audited by Xxxxxx Xxxxxxxx,
as adjusted to reflect the assumed combined operations of all companies
comprising Seller in the manner indicated on the Schedule of Recasted Operating
Income. The scope of the audit shall include verification of the amounts set
forth in the Schedule of Recasted Operating Income, but shall not address the
method of cost findings therein. If there is a dispute between Xxxxxx Xxxxxxxx
and Xxxxxxxx & Fugit, P.C. with respect to the audit, the parties shall use
their best efforts to resolve the dispute. Absent a mutual resolution, the
parties shall select a public audit company mutually acceptable to both parties
to resolve the dispute, and the decision of such company shall be binding with
respect to the audit. The fees of the third party company shall be borne equally
by Seller and ESI, unless the decision primarily or totally supports the audit
position taken by a particular party, in which case, the other party shall bear
the fees.
"GAAP" shall mean generally accepted accounting principles consistently
applied.
"Indemnitee" shall mean a party entitled to indemnification hereunder.
"Indemnitor" shall mean a party providing indemnification to an
Indemnitee.
"Interim Adjustment" shall mean the adjustment set forth in Section
3(b) hereof.
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"Knowledge" shall mean with respect to any entity, the actual knowledge
of any of the officers or employees of (i) such entity after due inquiry into
the matter to which the knowledge relates, and (ii) any other related entity
having any responsibility for any portion of Assets, operations or liabilities
with respect to which such knowledge relates.
"Monthly EBIT" shall mean earnings before interest and taxes for each
calendar month (or portion thereof) during the Agency Operations Period,
excluding any extraordinary or nonrecurring items of income and any changes to
earnings arising from a change in accounting matters, as determined in
accordance with GAAP.
"Net Business Attrition Loss" shall mean (a) 95% minus the Postclosing
Ratio, as defined below, times (b) the Preliminary Purchase Price, after the
Interim Adjustment, if any. Notwithstanding anything herein to the contrary, the
Net Business Attrition Loss shall equal zero (0) if the Postclosing Ratio is 95%
or higher.
"Net Revenues" shall mean gross revenues from Customers, less returns
and allowances for credit.
"Non-Defaulting Party" shall mean the party who, as a result of a
default, seeks to legally enforce its rights hereunder against the Defaulting
Party.
"Nonunion Employees" shall mean all permanent and full-time employees
of Seller not subject to collective bargaining agreements.
"Operational Fee" shall mean a fee consisting of the entire amount of
Monthly EBIT, which shall accrue monthly during the Agency Operations Period,
and shall be payable within 30 days following the end of each calendar month
during the Agency Operations Period.
"Postclosing Period" shall mean the one year period commencing November
1, 1996 and ending on October 31, 1997.
"Postclosing Ratio" shall mean the ratio of the sum of (w) Seller's
combined Net Revenues from Customers during the Postclosing Period, (x)
September/October 1996 Net Revenue from New Business, as defined below, (y)
Postclosing Period Net Revenue from New Business, as defined below, and (z) each
dollar (or, with respect to prospective customers on or after November 1, 1996,
50 cents for each dollar) of Net Revenue lost which would have been received (1)
from a Customer(s) but for the gross negligence or intentional misconduct of
ESI, or (2) from a Customer(s) or prospective customers but for the breach of
ESI of any of its representations and warranties set forth in Section 6(g)
hereof to the combined Net Revenues set forth in the Financial Statements. For
purposes of defining Postclosing Ratio, "September/October 1996 Net Revenue from
New Business" shall mean each dollar of Net Revenue received during the
Postclosing Period by Seller from customers who first initiated business during
the months of September 1996 and October 1996; and "Postclosing Period Net
Revenue from New Business" shall mean one dollar ($1.00) for each two dollars
($2.00) of Net
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Revenue received by Seller from customers, other than the Customers, during the
Postclosing Period. In order for revenue to be counted as September/October 1996
Net Revenue from New Business or Postclosing Period Net Revenue from New
Business the net revenue must be from customers who satisfy ESI's normal
underwriting and intake standards. Net Revenues for any period shall be
established by Xxxxxx Xxxxxxxx in accordance with GAAP and reviewed by Xxxxxxxx
& Fugit, P.C. Seller shall be given credit within the above guidelines for all
Net Revenue generated by its employees, agents or contractors regardless of
where ESI decides to place such business within its organization.
"Preclosing Period" shall mean the period from September 1, 1996,
through August 31, 1996.
"Preliminary Purchase Price" shall mean five times (5x) EBIT, prior to
adjustment by the Purchase Price Adjustment, which is $10,655,490 as of the date
hereof, but which is subject to recalculation immediately upon completion of the
Financial Statements, as set forth in the definition of EBIT herein.
"Purchase Price" shall mean five times (5x) EBIT, as adjusted by the
Purchase Price Adjustment.
"Purchase Price Adjustment" shall mean the adjustment set forth in
Section 3(c) hereof.
"Retained Assets" shall mean the assets listed on Schedule D, which
will continue to be owned by Seller after consummation of the transactions
contemplated by this Agreement.
"SEC" shall mean the Securities and Exchange Commission.
"SEC Reports" shall mean ESI's report on Form 10-K for the year ended
1995, and all forms, reports and documents required to be filed by ESI with the
SEC under the Exchange Act thereafter and prior to the Closing Date.
"Schedule of Recasted Operating Income" shall mean the adjustments to
net income from operations identified on Schedule C, attached hereto and
incorporated herein.
"Seller" shall mean, jointly and severally, those companies listed on
Schedule A.
"Stockholders" shall mean, jointly and severally, those stockholders
listed on Schedule A.
"Transfer Effective Date" shall mean January 1, 1997.
"Unaudited Financial Statements" shall mean Seller's unaudited combined
balance sheet and combined statement of earnings, all as of and for the 12-month
period ended August 31, 1996, all prepared in accordance with GAAP, reviewed by
Xxxxxx Xxxxxxxx, but not yet audited
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by Xxxxxx Xxxxxxxx, and adjusted to reflect the assumed combined operations of
all of the companies comprising Seller in the manner indicated in the Schedule
of Recasted Operating Income.
"1933 Act" shall mean the Securities Act of 1933, as amended.
2. Purchase and Sale of Business and Assets.
(a) Purchase and Sale. Subject to and upon the terms and conditions set
forth in this Agreement, Seller will sell, transfer, convey, assign and deliver
to ESI, and ESI will purchase, at the Closing hereunder, effective control of
all of Seller's Assets; provided that actual ownership of Seller's Assets shall
not be conveyed to ESI until the Transfer Effective Date. Seller's Assets shall
be conveyed free and clear of all liabilities, obligations, liens and
encumbrances excepting only those liabilities and obligations, if any, which are
expressly to be assumed by ESI hereunder and those liens and encumbrances
securing the same which are specifically disclosed herein or expressly permitted
by the terms hereof. Although Seller will not transfer ownership of the Assets
to ESI until the Transfer Effective Date, Seller will transfer operational
control of the Assets to ESI at closing, with the Assets subject to ESI's
management pursuant to the terms of Section 8 below.
(b) Nominee. ESI, in its sole discretion, may take title to Seller's
Assets in its own name or in the name of a nominee. If ESI elects to take title
in the name of a nominee, all references herein to the party taking title to the
Assets shall be deemed as references to such nominee, rather than ESI, and all
other references to ESI shall remain unaffected.
3. Purchase Price.
(a) Agreement to Pay. In full payment for the sale, transfer,
conveyance, assignment and delivery of Seller's Assets by Seller to ESI, and in
reliance upon the representations and warranties made herein by Seller and
Stockholders, ESI will pay to Seller the Purchase Price.
(b) Interim Adjustment. Upon completion of the Financial Statements
after Closing, if the Financial Statements provide for EBIT that differs by more
than $50,000 from EBIT in the Unaudited Financial Statements, the Preliminary
Purchase Price shall be adjusted to an amount equal to five times (5x) EBIT
based upon the Financial Statements.
(c) Final Adjustment. On or before the Final Payment Date, the
Preliminary Purchase Price, as calculated after the Interim Adjustment, if any,
shall be adjusted to arrive at the Purchase Price. The final adjustment, if any,
shall be a deduction from the Preliminary Purchase Price equal to the Net
Business Attrition Loss. The adjustment shall be credited against all future
payments of Purchase Price or other amounts owing from ESI in chronological
order of when such payments become due. ESI shall look solely to the Escrow
Account for payment of any such amounts.
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(d) Time of Payment. The Purchase Price shall be paid in installments,
as set forth below.
(i) Amount Payable at Closing. At Closing, ESI will pay to
Seller the sum of $5,327,745, which sum is equal to 50% of the Preliminary
Purchase Price, and to Escrow Agent the sum set forth in Section 3(f).
(ii) Amount Payable Upon Interim Adjustment. Upon completion
of the Interim Adjustment, ESI will pay (one-half to Seller and one-half to
Escrow Agent) such sum, if any, which when added to the amounts paid by ESI to
Escrow Agent and Seller at Closing equals the Preliminary Purchase Price, as
calculated after the Interim Adjustment, if any. If upon completion of the
Interim Adjustment, the Preliminary Purchase Price is a smaller amount than the
sum of the amounts paid by ESI to Seller and deposited into the Escrow Account
at Closing, Escrow Agent and Seller each shall reimburse ESI immediately in cash
for one-half the amount of the difference. If the total of all payments made by
ESI to Seller toward the Purchase Price and deposited into the Escrow Account
exceeds the Purchase Price, no further payment shall be required from ESI, and
Seller and Escrow Agent each shall remit promptly to ESI one-half of the total
amount paid by ESI in excess of the Purchase Price.
(iii) Amount Payable Upon July 31, 1997. On or before July 31,
1997, provided that there is no Net Business Attrition Loss of Seller as of such
date (with Net Business Attrition Loss calculated for purposes of this provision
only based upon a comparison of (A) Net Revenues for the Preclosing Period and
(B) Net Revenues for the period from November 1, 1996 through June 30, 1997, as
annualized, plus Net Revenues from September and October 1996, rather than the
Preclosing Period and the Postclosing Period), ESI will pay to Seller the sum,
if any, which when added to the amount(s) previously paid by ESI toward the
Purchase Price equals 75% of the Purchase Price, less any offsets or claims for
indemnifications properly asserted by ESI hereunder.
(iv) Final Payment. On the Final Payment Date, ESI will pay,
and/or will cause the Escrow Agent to pay from the Escrow Account, to Seller the
remainder of the Purchase Price, plus any interest remaining in the Escrow
Account after payment of one-half of the costs of the escrow, less any offsets
or claims for indemnifications properly asserted by ESI hereunder.
(e) Method of Payment. ESI shall be under no obligation to assume any
liabilities of Seller at the Closing; provided, however, that ESI, in its sole
discretion may elect to assume liabilities, in which case ESI shall be deemed to
have paid a portion of the Purchase Price in cash at Closing equal to the entire
amount of all liabilities assumed. Such deemed payment, to the extent it exceeds
the payment required from ESI at Closing pursuant to Section 3(c)(i) hereof,
shall be applied to all future payments owing from ESI in chronological order of
when such payments become due. Subject to the preceding two sentences, ESI shall
pay 90% the Purchase Price in cash and 10% of the Purchase Price in ESI Stock.
The portion of the Purchase Price payable in ESI Stock shall be held in the
Escrow Account until paid as part of
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the Final Payment. If the Final Payment is not large enough to allow for the
issuance of ESI Stock equal to 10% of the Purchase Price, ESI shall have the
right to substitute ESI Stock for portions of the Purchase Price previously paid
by ESI in cash until the portion of the Purchase Price paid in ESI Stock equals
10%, and Seller shall return any cash payment for which the ESI Stock is
substituted. The number of shares of ESI Stock to be issued shall be equal to
the Purchase Price amount to be paid in ESI Stock divided by the average closing
price on the NASDAQ National Market for ESI common stock for the calendar month
preceding the Closing Date. ESI shall pay any fractional amount in cash. The
average shall be calculated by adding together the ESI Stock closing prices for
each trading day in the applicable calendar month, and dividing by the number of
trading days.
(f) Escrow Account. At Closing, the parties shall open the Escrow
Account with the Escrow Agent, and ESI shall deposit into the Escrow Account
one-half of the Preliminary Purchase Price as follows: 40% in cash and 10% in
ESI Stock (which ESI Stock shall be entitled to all of the registration rights
described in Section 18 hereof). The parties and the Escrow Agent shall execute
Escrow Instructions at Closing, in the form to be attached hereto as Exhibit A.
4. Closing Matters.
(a) Time and Place. Subject to the remainder of this paragraph, the
Closing shall take place at 10:00 A.M., local time, on November 1, 1996, at the
offices of Xxxxxxx & Xxxxx in Phoenix, Arizona, or at such other time and place
as the parties may agree. If either of the parties is entitled not to close on
the scheduled date because a condition to the Closing set forth herein has not
been met (or waived by the party or parties entitled to waive it), such party
may, in its sole discretion, elect to postpone the Closing from time to time, by
giving at least five days' prior notice to the other party, until the condition
has been met (which all parties will use their best efforts to cause to happen),
but in no event to a date later than November 15, 1996.
(b) Seller's and Stockholders' Deliveries. At the Closing, Seller and
Stockholders will deliver to ESI:
(i) [Reserved];
(ii) a Xxxx of Sale duly executed by Seller, dated as of the
Transfer Effective Date, in form to be agreed upon by the parties and
annexed hereto as Exhibit "B" on or prior to Closing;
(iii) an Assignment of Contract Rights duly executed by
Seller, dated as of the Transfer Effective Date, in form to be agreed
upon by the parties and annexed hereto as Exhibit "C" on or prior to
Closing
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(iv) an Assignment of Lease for each real property lease
included as part of the Assets, each duly executed by Seller, dated as
of the Transfer Effective Date, in form to be agreed upon by the
parties and annexed hereto as Exhibit "D" on or prior to Closing;
(v) [Reserved];
(vi) the Employment Agreement(s) required pursuant to Section
9(a) below;
(vii) the Non-Competition Agreement(s) required pursuant to
Section 9(b) below;
(viii) the Opinion of Seller's Counsel required pursuant to
Section 13(f) below;
(ix) such third party consents and approvals as may be
necessary to ensure the conveyance of all of the Assets free from the
claims of any third parties;
(x) a Certificate of Seller, as required pursuant to Section
13(d) below;
(xi) such other good and sufficient instruments of conveyance,
assignment and transfer, in form and substance reasonably satisfactory
to ESI's counsel, as shall be effective to vest in ESI effective
control in Seller's Assets as of the Closing Date and good and
marketable title to Seller's Assets as of the Transfer Effective Date;
and
(xii) all contracts, files and other data and documents
pertaining to Seller's Assets.
(c) ESI's Deliveries. At the Closing, ESI will deliver to Seller:
(i) a cashier's or certified check or wire transfer to the
order of Seller in the aggregate amount of the Purchase Price payable
at Closing, less miscellaneous fees and costs relating to the
transaction, allocated in accordance with Exhibit J.
(ii) [Reserved];
(iii) a Certificate of ESI, as required pursuant to Section
14(c) below;
(iv) the Opinion of ESI's Counsel required pursuant to
Section 14(d) below;
(v) a cashier's or certified check or wire transfer,
payable to the order of the Escrow Agent in the
amount of 40% of the Preliminary Purchase Price; and
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(vi) a stock certificate for the shares of ESI Stock
constituting 10% of the Preliminary Purchase Price,
computed in accordance with Section 3(e).
(d) Further Assurances. At the Transfer Effective Date and from time to
time after the Closing, at ESI's request and without further consideration,
Seller and Stockholders will execute and deliver such other instruments of sale,
transfer, conveyance, assignment and confirmation and take such action as ESI
may reasonably deem necessary or desirable in order more effectively to
transfer, convey and assign to ESI, and to confirm ESI's control of and/or title
to, all of Seller's Assets, to put ESI in actual possession and operating
control thereof and to assist ESI in exercising all rights with respect thereto.
After the Closing, at reasonable times and on reasonable notice, Seller shall
have access to the books and records pertaining to its operations prior to the
Closing, and ESI shall retain such books and records for a period of three years
after the Closing.
(e) Power of Attorney. Seller agrees that, effective upon Closing, ESI
and its successors and assigns shall hereby be constituted and appointed the
true and lawful attorney of Seller with full power of substitution in the name
of ESI or in the name of but for the benefit and at the expense of ESI (i) to
institute and prosecute all proceedings which ESI may in its sole discretion
deem proper in order to collect, assert, or enforce any right, title, or
interest of any kind in, to, or under Seller's Assets, to defend or compromise
any and all actions, suits, or proceedings in respect of any of Seller's Assets
and to do all such acts and things in relation thereto as ESI shall deem
advisable; and (ii) to take all actions which ESI may deem proper in order to
provide for the benefits under any contracts, licenses, leases, commitments, or
sale or purchase orders where any required consent of another party thereto to
the assignment thereof to ESI pursuant to this Agreement shall not have been
obtained. Seller acknowledges that the foregoing powers are coupled with an
interest in such contracts, licenses, leases, commitments, and sale and purchase
orders and shall be irrevocable by Seller or by the subsequent dissolution of
any of them or in any manner or for any reason. The power of attorney granted
herein shall not affect or apply to any of the Retained Assets.
(f) Prorations. Seller shall be responsible for and shall pay all
expenses of operating the Assets through and including the Closing Date, and
such payments shall be prorated in accordance with GAAP as of the Closing Date.
Seller also shall be responsible for payment of such expenses during the Agency
Operations Period; provided that such payments shall be made by ESI for the
benefit of Seller, in accordance with ESI's responsibilities under Section 8
hereof, and shall be a reduction in calculating Monthly EBIT. From and after the
Transfer Effective Date, ESI shall be responsible for payment of such expenses.
During the Agency Operations Period, ESI shall fund any necessary working
capital to cover expenses; provided that after completion of the transition of
various expense and payroll matters (which ESI estimates will be some time in
December 1996), ESI and Seller shall examine all pre-Closing receivables (for
which Seller shall receive credit), post-Closing receivables (for which ESI
shall receive credit), pre-Closing payables (which shall be Seller's
obligation), post-Closing payables (which shall be paid by ESI for the benefit
of Seller pursuant to Section 8 hereof), and amounts actually paid
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or received by the parties, and allocate such items appropriately and account
for any difference. ESI shall assume liability and receive a credit for those
Customer deposits listed on Schedule 4(f).
5. Representations and Warranties of Seller and Stockholders. Seller
and Stockholders, jointly and severally, represent and warrant to ESI, as of the
date hereof, as of the actual and effective dates of Closing and as of the
Transfer Effective Date, as follows:
(a) Organization, Standing and Qualification. Each company comprising
Seller is a corporation duly organized, validly existing and in good standing
under the laws of the state listed next to such company's name on Schedule 5(a)
attached hereto, which Seller shall prepare and annex hereto as promptly as
possible prior to Closing. Seller has all requisite corporate power and
authority and is entitled to carry on its business as now being conducted and to
own, lease or operate its properties as and in the places where such business is
now conducted and such properties are now owned, leased or operated; and, except
as disclosed on Schedule 5(a), Seller is duly qualified, licensed or
domesticated and in good standing as a foreign corporation authorized to do
business in every such jurisdiction where such registration is required. Seller
has delivered to ESI true and complete copies of Seller's certificate or
articles of incorporation and all amendments thereto, certified by the Secretary
of State for the state of Seller's incorporation, and the by-laws of Seller as
presently in effect, certified as true and correct by Seller's Secretary.
(b) Consents; Authority. Except for any filing under the
Xxxx-Xxxxx-Xxxxxx Act, which, if required, shall be completed prior to Closing,
and except as set forth on Schedule 5(b), all consents, approvals,
authorizations and orders necessary for the execution, delivery and performance
of this Agreement have been obtained, and Seller has full right, and all
necessary power and authority, to enter into this Agreement. Except as set forth
on Schedule 5(b), no permission, approval, determination, consent or waiver by,
or any declaration, filing or registration with, any governmental or regulatory
authority is required in connection with the execution, delivery and performance
of this Agreement by Seller or the Company, except those that already have been
obtained prior to the Closing.
(c) Authority; Enforceability. Seller has the necessary power and
authority to enter into and deliver this Agreement and all documents
contemplated hereby, to perform its obligations hereunder and thereunder and to
consummate the transactions contemplated hereby and thereby. The execution and
delivery of this Agreement and all documents contemplated hereby and the
consummation of the transactions contemplated hereby and thereby by Seller shall
be duly authorized by all necessary corporate actions on or prior to Closing.
This Agreement and all documents contemplated hereby have each been duly and
validly authorized, executed and delivered by Seller and constitute the legal,
valid and binding obligation of Seller enforceable in accordance with their
respective terms (except as such enforcement may be limited by applicable
bankruptcy, insolvency, moratorium or similar laws affecting the rights of
creditors generally or by the general principles of equity).
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(d) Subsidiaries. Seller has no subsidiaries except those listed on
Schedule 5(d), which Seller shall prepare and annex hereto as promptly as
possible prior to Closing. Seller has no interest, direct or indirect, and has
no commitment to purchase any interest, direct or indirect, in any other
corporation or in any partnership, joint venture or other business enterprise or
entity other than as set forth on Schedule 5(d). Except for the entities listed
on Schedule 5(d), the business carried on by Seller has not been conducted
through any other direct or indirect subsidiary or affiliate of any Stockholder.
(e) Transactions with Certain Persons. Except as set forth on Schedule
5(e), which Seller shall prepare and annex hereto as promptly as possible prior
to Closing, during the past three years Seller has not, directly or indirectly,
purchased, leased from others or otherwise acquired any property or obtained any
services from, or sold, leased to others or otherwise disposed of any property
or furnished any services to, or otherwise dealt with (except with respect to
remuneration for services rendered as a director, officer or employee of
Seller), in the ordinary course of business or otherwise, any Stockholder or any
person, firm or corporation which, directly or indirectly, alone or together
with others, controls, is controlled by or is under common control with any
Stockholder. Except as set forth on Schedule 5(e), Seller does not owe any
amount to, or have any contract with or commitment to, any Stockholder or any
directors, officers, employees or consultants of any Stockholder (other than
compensation for current services not yet due and payable and reimbursement of
expenses arising in the ordinary course of business), and none of the foregoing
owes any amount to Seller. Except as set forth on Schedule 5(e), no part of the
property or assets of any Stockholder or any direct or indirect subsidiary or
affiliate of any Stockholder (other than Seller) has, during the past three
years, been used by Seller. With respect to any contract or commitment listed in
this Section 5(e), Seller shall cause the other party to such contract or
commitment to provide such consents, modifications or terminations thereof as
ESI may require.
(f) No Violation, Conflict or Required Filing. Except as set forth in
Schedule 5(f), which Seller shall prepare and annex hereto as promptly as
possible prior to Closing, Seller has complied with all existing laws, rules,
regulations, ordinances, orders, judgments and decrees now applicable to its
business, properties or operations as presently conducted. Except as disclosed
on Schedule 5(f), neither the execution, delivery nor performance of this
Agreement by Seller or Stockholders, nor the ownership or use of the Assets by
Seller or Stockholders, will with or without the giving of notice or the passage
of time, or both, conflict with, result in a default, right to accelerate or
loss of rights under, or result in, cause or create any liability, reassessment
or revaluation of assets, lien, charge or encumbrance pursuant to, any provision
of Seller's certificate of incorporation or by-laws or any franchise, mortgage,
deed of trust, lease, license, agreement, understanding, or to Seller's
Knowledge any law, ordinance, rule, regulation, order, judgment, decree or other
legal or contractual requirement to which Seller or any Stockholder is a party
or by which any of them or the Seller's Assets may be bound or affected. Seller
is not required to submit any notice, report or other filing with any federal,
state or local governmental authority in connection with the execution or
delivery or performance by Seller of this Agreement or the consummation of the
transactions contemplated hereby, except such as already have been submitted or
filed or will be submitted or obtained in a timely
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manner. Neither Seller nor Stockholders have Knowledge of any proposed laws,
rules, regulations, ordinances, orders, judgments, decrees, governmental
takings, condemnations or other proceedings which would be applicable to its
business, operations or properties and which might adversely affect its
properties, assets, liabilities, operations or prospects, either before or after
the Closing.
(g) Capitalization. The presently authorized, issued and outstanding
shares of capital stock of Seller and the names and addresses of the owners
thereof are as set forth on Schedule A. Except as set forth on Schedule 5(g),
there are no outstanding subscriptions, options, warrants, calls, contracts,
demands, commitments, convertible securities or other agreements or arrangements
of any character or nature whatever under which Seller or any Stockholder is or
may become obligated to issue, assign or transfer any shares of the capital
stock of Seller.
(h) Ownership of Seller's Capital Stock. Stockholders are the lawful
record and beneficial owner of 100% of Seller's capital stock, free and clear of
any liens, claims, encumbrances or restrictions of any kind, and all of such
shares are validly issued and outstanding, fully paid and nonassessable.
(i) Unaudited Financial Statements. Seller and Stockholders have
provided the Unaudited Financial Statements, all of which are complete and
correct, have been prepared in accordance with GAAP (except for the Schedule of
Recasted Operating Income) consistently applied and maintained throughout the
periods indicated and fairly present the financial condition of Seller as at
their respective dates and the results of its operations for the periods covered
thereby. The statement of earnings does not contain any items of special or
nonrecurring income or any other income not earned in the ordinary course of
business except as expressly specified therein, and any interim financial
statements include all adjustments, which consist only of normal recurring
accruals, necessary for such fair presentation.
(j) Absence of Undisclosed Liabilities. Except as and to the extent
reflected or reserved against on the face of the Balance Sheet (excluding the
notes thereto) or as set forth on Schedule 5(j), which Seller shall prepare and
annex hereto as promptly as possible prior to Closing, as of the Balance Sheet
Date Seller had no debts, liabilities or obligations (whether absolute, accrued,
contingent or otherwise) of any nature whatsoever, including, without
limitation, any foreign or domestic tax liabilities or deferred tax liabilities
incurred in respect of or measured by Seller's income, or its period prior to
the close of business on the Balance Sheet Date or any other debts, liabilities
or obligations relating to or arising out of any act, omission, transaction,
circumstance, sale of goods or services, state of facts or other condition which
occurred or existed on or before the Balance Sheet Date, whether or not then
known, due or payable. Except as set forth on Schedule 5(j), none of the
Seller's Administrative Employees is now or, will by the passage of time
hereafter become, entitled to receive any vacation time, vacation pay or
severance pay attributable to services rendered prior to the Balance Sheet Date
except as disclosed on the face of the Balance Sheet (excluding the notes
thereto).
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(k) Taxes. Except as set forth on Schedule 5(k), all taxes, including,
without limitation, income, property, sales, use, franchise, added value,
employees' income withholding (including without limitation employer and
employee portions of FICA, state unemployment taxes, federal unemployment taxes,
and any other payroll taxes for both Administrative Employees and Customer
Employees) and social security taxes, imposed by the United States or by any
foreign country or by any state, municipality, subdivision or instrumentality of
the United States or of any foreign country, or by any other taxing authority,
which are due or payable by Seller, and all interest and penalties thereon,
whether disputed or not, have been paid in full, all tax returns required to be
filed in connection therewith have been accurately prepared and duly and timely
filed and all deposits required by law to be made by Seller with respect to
employees' withholding and other taxes have been duly made. Except as set forth
on Schedule 5(k), Seller has not been delinquent in the payment of any foreign
or domestic tax, assessment or governmental charge or deposit and has no tax
deficiency or claim outstanding, proposed or assessed against it, and there is
no basis for any such deficiency or claim. Seller's federal income tax returns
have not been audited by the Internal Revenue Service for any fiscal year, there
is not now in force any extension of time with respect to the date on which any
tax return was or is due to be filed by or with respect to Seller, or any waiver
or agreement by it for the extension of time for the assessment of any tax, and
Seller is not a "consenting corporation" within the meaning of Section 341(f)(1)
of the Internal Revenue Code of 1986.
(l) Absence of Changes or Events. Except as set forth in Schedule 5(l),
which Seller shall prepare and annex hereto as promptly as possible prior to
Closing, since the Balance Sheet Date, Seller has conducted its business only in
the ordinary course consistent with its prior practices and has not:
(i) incurred any obligation or liability, absolute, accrued,
contingent or otherwise, whether due or to become due, except current
liabilities for trade or business obligations incurred in connection
with the purchase of goods or services in the ordinary course of
business and consistent with its prior practice, none of which
liabilities, in any case or in the aggregate, materially and adversely
affects the business of Seller or the Assets;
(ii) discharged or satisfied any lien, charge or encumbrance
other than those then required to be discharged or satisfied, or paid
any obligation or liability, absolute, accrued, contingent or
otherwise, whether due or to become due, other than current liabilities
shown on the Balance Sheet and current liabilities incurred since the
Balance Sheet Date in the ordinary course of business and consistent
with its prior practice;
(iii) declared or made any payment of dividends or other
distribution to its shareholders or upon or in respect of any shares of
its capital stock, or purchased, retired or redeemed, or obligated
itself to purchase, retire or redeem, any of its shares of capital
stock or other securities;
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(iv) mortgaged, pledged or subjected to lien, charge, security
interest or any other encumbrance or restriction any of its property,
business or assets, tangible or intangible in an amount greater than
$50,000;
(v) sold, transferred, leased to others or otherwise disposed
of any of its assets with a value of greater than $10,000, except for
inventory sold in the ordinary course of business, or canceled or
compromised any debt or claim, or waived or released any right of
substantial value;
(vi) received any notice of termination of any contract, lease
or other agreement or suffered any damage, destruction or loss (whether
or not covered by insurance) which, in any case or in the aggregate,
has had a materially adverse effect on the Assets, operations or
prospects of Seller;
(vii) encountered any labor union organizing activity, had any
actual or threatened employee strikes, work stoppages, slow-downs or
lock-outs, or had any material change in its relations with its
employees, agents, customers or suppliers or with any governmental
authorities or self-regulatory organizations;
(viii) transferred or granted any rights under, or entered
into any settlement regarding the breach or infringement of, any United
States or foreign license, patent, copyright, trademark, trade name,
invention or similar rights, or modified any existing rights with
respect thereto;
(ix) made any change in the rate of compensation, commission,
bonus or other direct or indirect remuneration payable, or paid or
agreed or orally promised to pay, conditionally or otherwise, any
bonus, extra compensation, pension or severance or vacation pay, to any
shareholder, director, officer, Administrative Employee, salesman,
distributor or agent of Seller;
(x) issued or sold any shares of its capital stock or other
securities, or issued, granted or sold any options, rights or warrants
with respect thereto, or acquired any capital stock or other securities
of any corporation or any interest in any business enterprise, or
otherwise made any loan or advance to or investment in any person, firm
or corporation;
(xi) made any capital expenditures or capital additions or
betterments in excess of an aggregate of $25,000;
(xii) changed its banking or safe deposit arrangements;
(xiii) instituted, settled or agreed to settle any litigation,
action or proceeding before any court or governmental body relating to
Seller or its property;
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(xiv) failed to replenish its supplies in a normal and
customary manner consistent with its prior practice and prudent
business practices prevailing in the industry, or made any purchase
commitment in excess of the normal, ordinary and usual requirements of
its business or at any price in excess of the then current market price
or upon terms and conditions more onerous than those usual and
customary in the industry, or made any change in its selling, pricing,
advertising or personnel practices inconsistent with its prior practice
and prudent business practices prevailing in the industry;
(xv) suffered any change, event or condition which, in any
case or in the aggregate, has had or may have a materially adverse
affect on Seller's condition (financial or otherwise), properties,
assets, liabilities, operations or prospects, including, without
limitation, any change in Seller's revenues, costs, backlog or
relations with its employees, agents, customers, or suppliers;
(xvi) entered into any transaction, contract or commitment
other than in the ordinary course of business or paid or agreed to pay
any taxes or other expenses in connection with, or incurred any
severance pay obligations by reason of, this Agreement or the
transactions contemplated hereby; or
(xvii) entered into any agreement or made any commitment to
take any of the types of action described in subparagraphs (i) through
(xvi) above.
(m) Litigation. Except as set forth in Schedule 5(m), which Seller
shall prepare and annex hereto as promptly as possible prior to Closing, to the
Knowledge of Seller and Stockholders, there is no claim, legal action, suit,
arbitration, governmental investigation or other legal or administrative
proceeding, nor any order, decree or judgment in progress, pending or in effect,
or to the Knowledge of Seller or any Stockholder threatened, against or relating
to Seller, its officers, directors or employees, its properties, assets or
business or the transactions contemplated by this Agreement, and, with respect
to any material matters, neither Seller nor any Stockholder knows or has reason
to be aware of any basis for the same.
(n) [Reserved].
(o) Title to Properties. Seller has good, marketable and insurable
title to all the properties and assets it owns or uses in its business or
purports to own, including, without limitation, those reflected in its books and
records and in the Balance Sheet (except inventory sold after the Balance Sheet
Date in the ordinary course of business). Except as set forth on Schedule 5(o),
which Seller shall prepare and annex hereto as promptly as possible prior to
Closing, and other than the Retained Assets, none of such properties and assets
are subject to any mortgage, pledge, lien, charge, security interest,
encumbrance, restriction, lease, license, easement, liability or adverse claim
of any nature whatsoever, direct or indirect, whether accrued, absolute,
contingent or otherwise, except (i) mortgages or security interests shown on the
Balance Sheet as securing specific liabilities or obligations or (ii) those
imperfections of title and encumbrances, if any, which, individually or in the
aggregate, (A) are not substantial in
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character, amount or extent and do not materially detract from the value of the
properties subject thereto, (B) do not interfere with either the present and
continued use of such property or the conduct of Seller's normal operations and
(C) have arisen only in the ordinary course of business.
(p) Schedules. Schedule 5(p), which Seller shall prepare and annex
hereto as promptly as possible prior to Closing, contains an accurate and
complete list and description of:
(i) All real property owned by Seller or in which Seller has a
leasehold or other interest or which is used by Seller in connection
with the operation of its business, together with a description of each
lease, sublease, license, or any other instrument under which Seller
claims or holds such leasehold or other interest or right to the use
thereof or pursuant to which Seller has assigned, sublet or granted any
rights therein, identifying the parties thereto, the rental or other
payment terms, expiration date and cancellation and renewal terms
thereof.
(ii) [Reserved].
(iii) All machinery, tools, equipment, motor vehicles and
other tangible personal property (other than inventory and supplies),
owned, leased or used by Seller except for items having a value of less
than $5000 which do not, in the aggregate, have a total value of more
than $25,000, setting forth with respect to all such listed property a
summary description of all leases, liens, claims, encumbrances,
charges, restrictions, covenants and conditions relating thereto,
identifying the parties thereto, the rental or other payment terms,
expiration date and cancellation and renewal terms thereof.
(iv) All patents, patent applications, licenses, trademarks,
trademark registrations, service marks, service names, trade names,
copyrights and copyright registrations, and applications for any of the
foregoing, wholly or partially owned or held by Seller or used in the
operation of Seller's business (but excluding Seller's corporate name).
(v) All fire, theft, casualty, liability and other insurance
policies insuring Seller or its properties or interests therein,
specifying with respect to each such policy the name of the insurer,
the risk insured against, the limits of coverage, the deductible amount
(if any), the premium rate and the date through which coverage will
continue by virtue of premiums already paid. Except as disclosed in
Schedule 5(p), such policies are with reputable insurers, provide
adequate coverage for all normal risks incident to Seller's assets,
properties and business operations and are in character and amount at
least equivalent to that carried by persons engaged in a business
subject to the same or similar perils or hazards.
-17-
(vi) All sales agency or route distributorship agreements or
franchises or agreements providing for the services of an independent
contractor to which Seller is a party or by which it is bound.
(vii) All contracts, agreements, commitments or licenses
relating to patents, trademarks, trade names, copyrights, inventions,
processes, know how, formulae or trade secrets to which Seller is a
party or by which it is bound.
(viii) All loan agreements, indentures, mortgages, pledges,
conditional sale or title retention agreements, security agreements,
equipment obligations, guaranties, leases or lease purchase agreements
to which Seller is a party or by which it is bound.
(ix) All contracts, agreements and commitments, whether or not
fully performed, pursuant to which Seller has acquired any substantial
portion of its business or assets.
(x) All contracts, agreements, commitments or other
understandings or arrangements in excess of $10,000 to which Seller is
a party or by which it or any of its property is bound or affected.
(xi) All collective bargaining agreements, employment and
consulting agreements, executive compensation plans, bonus plans,
deferred compensation agreements, employee pension plans or retirement
plans, employee stock options or stock purchase plans and group life,
health and accident insurance and other employee benefit plans
agreements, arrangements or commitments, whether or not legally
binding, including, without limitation, holiday, vacation, Christmas
and other bonus practices, to which Seller is a party or is bound or
which relate to the operation of Seller's business.
(xii) The names and current annual salary rates of all
Administrative Employees and independent commission agents whose annual
compensation (direct or indirect) from Seller exceeds $45,000, showing
separately for each such person the amounts paid or payable as salary,
bonus payments and any indirect compensation for the current year and
the most recently completed fiscal year; and
(xiii) The names of all of Seller's directors and officers;
the name of each bank in which Seller has an account or safe deposit
box and the names of all persons authorized to draw thereon or have
access thereto; and the names of all persons, if any, holding tax or
other powers of attorney from Seller and a summary of the terms
thereof.
All of the contracts, agreements, leases, licenses and commitments required to
be listed on Schedule 5(p), other than those which have been fully performed,
are valid and binding, enforceable in accordance with their respective terms, in
full force and effect and, except as otherwise specified in Schedule 5(p),
validly assignable to ESI without the consent of any other party so that, after
the assignment thereof to ESI pursuant hereto, ESI will be entitled to the full
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benefits thereof. Except as disclosed in Schedule 5(p), none of the payments
required to be made under any such contract, agreement, lease, license or
commitment has been prepaid more than 30 days prior to the due date of such
payment thereunder, and there is not thereunder any existing default, or event
which, after notice or lapse of time, or both, would constitute a default or a
basis for force majeure or other claim of excusable delay or non-performance
thereunder or result in a right to accelerate or loss of rights. None of
Seller's existing or completed contracts is subject to renegotiation with any
governmental body. True and complete copies of all such contracts, agreements,
leases, licenses and other documents listed on Schedule 5(p) (together with any
and all amendments thereto) have been delivered to ESI.
(q) Patents, etc. Except as set forth in Schedule 5(q), which Seller
shall prepare and annex hereto as promptly as possible prior to Closing, Seller
owns or possesses the royalty free licenses or other rights to use all
copyrights, trademarks, service marks, service names, trade names, patents,
trade secrets and other proprietary rights necessary to conduct its business as
it is presently operated. To its Knowledge, Seller is not infringing upon or
otherwise acting adversely to any copyrights, trademarks, trademark rights,
service marks, service names, trade names, patents, patent rights, licenses,
trade secrets or other proprietary rights owned by any other person or persons,
and there is no claim or action by any such person pending, or to the Knowledge
of Seller or any Stockholder threatened, with respect thereto.
(r) No Guaranties. Except as set forth in Schedule 5(r), none of the
obligations or liabilities of Seller is guaranteed by, or subject to a similar
contingent liability of, any other person, firm or corporation, nor has Seller
guaranteed, or otherwise become contingently liable for, the obligations or
liabilities of any other person, firm or corporation.
(s) Inventory and Supplies. Seller does not own any inventory or work
in process items. Any of Seller's supplies are suitable and usable for their
intended purpose, none of such items is obsolete or below standard quality.
(t) [Reserved]
(u) Employees; Employee Benefit Plans.
(i) Nonunion Employees. Schedule 5(u)(i), which Seller shall
prepare and annex hereto as promptly as possible prior to Closing, contains a
complete list of all permanent and full-time Administrative Employees of the
Seller not subject to collective bargaining agreements ("Nonunion Employees").
Except as disclosed in Schedule 5(u)(i), no Nonunion Employee has any agreement
as to length of notice required to terminate his or her employment, other than
such as results by law from the employment of an employee without agreement as
to such notice or as to length of service.
(ii) Benefit Plans. Schedule 5(u)(ii), which Seller shall
prepare and annex hereto as promptly as possible prior to Closing, lists all
deferred compensation, pension, profit sharing, stock option, stock purchase,
savings, group insurance and retirement plans, and all
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medical, dental, vision, life, disability, vacation pay, severance pay,
incentive compensation, consulting, bonus and other employee benefit or fringe
benefit plans, policies, or arrangements, both formal and informal, funded and
unfunded, maintained by or for the benefit of Seller with respect to which
contributions are made by or for the benefit of Seller (including health, life
insurance and other benefit plans maintained for retirees) on behalf of
employees or former employees of Seller. Said plans, including but not limited
to all plans or programs that constitute "employee benefit plans" as defined in
Section 3(3) of ERISA, are sometimes collectively referred to in this Section as
"Benefit Plans" and each individually is sometimes referred to as a "Benefit
Plan". True and complete copies of all Benefit Plans, including any insurance
contracts under which benefits are provided, as currently in effect have been or
will be made available to ESI upon request. A true and complete copy of the
current summary plan description, if any was required by ERISA to be prepared
and distributed to participants, for each Benefit Plan has been or will be made
available to ESI upon request. Except as set forth in Schedule 5(u)(ii):
(1) Neither Seller nor any affiliate of Seller, as
determined under Code Section 414(b),(c),(m) or (o) (hereinafter referred to as
an "ERISA Affiliate") is or has ever maintained, contributed to or otherwise
participated in any "defined benefit plan" as defined in Section 3(35) of ERISA;
nor does Seller or any ERISA Affiliate have any liability under Title IV of
ERISA or Part 3 of Subtitle B of Title I of ERISA.
(2) All Benefit Plans comply in all material respects
with all applicable agreements, arrangements and understandings between Seller
and its present and former employees. All contributions, premiums or other
payments due from Seller or any ERISA Affiliate to (or under) any Benefit Plan
have been fully paid or adequately provided for on the books and consolidated
financial statements of Seller. All accruals (including, where appropriate,
proportional accruals for partial periods) have been made in accordance with
prior practices.
(3) Each Benefit Plan that provides medical benefits
has been operated in compliance in all material respects with all requirements
of Sections 601 through 608 of ERISA and Section 4980B of the Code and
regulations thereunder, relating to the continuation of coverage under certain
circumstances in which coverage would otherwise cease, as well as any applicable
state law health continuation of coverage provisions.
(4) Seller maintains no Benefit Plan that provides
post retirement medical benefits, post retirement death benefits or other post
retirement welfare benefits.
(5) Seller has not made or caused to be made to any
current employee, officer, director or independent contractor and there has not
been made to any former employee, officer, director or independent contractor of
Seller, any payment in the form of wages or other consideration pursuant to any
employment agreement, Benefit Plan, or other arrangement that was (in the case
of payments made prior to Closing) or will (in the case of payments made after
Closing) constitute in the aggregate an "excess parachute payment" (within the
meaning of
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Section 280G(b) of the Code) as a consequence in whole or in part of this
Agreement, or thereafter, as a consequence of any change in the ownership or
effective control of Seller.
(6) To the best of Seller's Knowledge, there have
been no statements or communications made or materials provided to any employee
or former employee of Seller by any person (including any ERISA Affiliate or any
employee, officer or director of any ERISA Affiliate) which provide for or could
be construed as a contract or promise by Seller or any ERISA Affiliate to
provide for any pension, welfare, or other insurance-type benefits to any such
employee or former employee, whether before or after retirement, other than
benefits under Benefit Plans set forth on Schedule 5(u)(ii).
(7) There are no current or former Administrative
Employees who are (A) absent on a military leave of absence and eligible for
rehire under the terms of the Uniformed Services Employment and Reemployment
Rights Act, or (B) absent on a leave of absence under the Family and Medical
Leave Act, which in either case would allow any such employee to obtain
restoration of any employee benefit plan contributions or accruals related to
the period of such leave.
(8) The consummation of the transactions contemplated
by the Agreement will not (A) give rise to any liability or obligation of Seller
pursuant to any Benefit Plan, including but not limited to, the payment of
severance pay or benefits, (B) accelerate the time of payment or vesting or
increase the amount of compensation due under any Benefit Plan, (C) cause any
individual to accrue or receive additional benefits, service or accelerated
rights to payment of benefits under any Benefit Plan, or (D) directly or
indirectly cause Seller or any ERISA Affiliate to transfer or set aside any
assets to fund or otherwise provide for benefits for any individual.
(9) Each Benefit Plan complies in all material
respects, in form and operation, with all applicable statutes, laws and
regulations of any public body or authority, including, but not limited to,
ERISA and the Code and all applicable requirements of (A) the Age Discrimination
in Employment Act of 1967, as amended, and regulations thereunder, (B) Title VII
of the Civil Rights Act of 1964, as amended, and regulations thereunder, and (C)
the Americans with Disabilities Act of 1990, as amended, and regulations
thereunder.
(10) The funds available under each Benefit Plan
which is intended to be a funded plan equal or exceed the amounts required to be
paid, or which would be required to be paid, if such Benefit Plan were
terminated, on account of rights vested or accrued.
(11) Any Benefit Plan intended to qualify under
Section 401(a) of the Code meets in all material respects all requirements of
Section 401(a) of the Code and the regulations thereunder, has received a
favorable determination letter from the Internal Revenue Service, and has been
administered in accordance with its terms and the applicable provisions of ERISA
and the Code and the regulations thereunder.
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(12) With respect to each Benefit Plan, except as set
forth on Schedule 12(b)(iv), there have been no "prohibited transactions" within
the meaning of Section 406 or 407 of ERISA or Section 4975 of the Code for which
a statutory or administrative exemption does not exist with respect to such
Benefit Plan; all reports and information relating to each such Benefit Plan
required to be filed with any governmental entity have been accurately and
timely filed; all reports and information relating to each such Benefit Plan
required to be disclosed or provided to participants or their beneficiaries have
been timely disclosed or provided; there is no trust related to any Benefit Plan
which is a voluntary employee beneficiary association pursuant to Section
501(c)(9) of the Code; there exist no restrictions on ESI's right to terminate
or decrease prospectively the level of benefits under any Benefit Plan after the
Closing Date without liability; to the best of Seller's Knowledge, no event has
occurred or circumstance exists that could result in a material increase in
premium costs of any Benefit Plan that is insured or a material increase in
benefit costs of any Benefit Plan that is self-insured; to the best of Seller's
Knowledge, no officer, employee or director of Seller or other fiduciary of any
Benefit Plan has committed a material breach of any responsibility or obligation
imposed upon fiduciaries under Title I of ERISA with respect to such Benefit
Plan.
(13) There has been made available to ESI, with
respect to each Benefit Plan the following: a copy of the annual report (if
required under ERISA) with respect to each such Benefit Plan for the last three
years (including all schedules and attachments); a copy of the summary plan
description, together with each summary of material modifications, required
under ERISA with respect to such Benefit Plan; all material employee
communications relating to such Benefit Plan (including COBRA notices); the most
recent determination letter received with respect to each Benefit Plan intended
to qualify under Code Section 401(a); a true and complete copy of such Benefit
Plan; all trust agreements, insurance contracts, accounts or other documents
which establish the funding vehicle for any Benefit Plan and the latest
financial statements thereof; any investment management agreements,
administrative services contracts, or other agreements and documents relating to
the ongoing administration and investment of any Benefit Plan.
(14) With respect to each such Benefit Plan for which
an annual report has been filed, no material adverse change has occurred with
respect to the matters covered by the latest such annual report since the date
thereof.
(15) There are no actions, suits, proceedings,
investigations or hearings pending with respect to any Benefit Plan, or to
Seller's Knowledge any claims (other than claims for benefits arising in the
ordinary course of an Benefit Plan) threatened against or with respect to any
Benefit Plan or any fiduciary or assets thereof, and there are no facts known to
Seller which could reasonably give rise to any such actions, suits, proceedings,
investigations, hearings or claims.
(16) Neither Seller nor any ERISA Affiliate is or has
ever maintained, contributed to, participated in, or has ever had any obligation
to contribute to or participate in any "multi-employer plan" as defined in
Section 4001(a)(3) of ERISA; nor does Seller or any
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ERISA Affiliate have any liability in connection with any withdrawal (either
complete or partial) (as defined in Section 4203 or 4205 of ERISA) from any
multi-employer plan.
(17) ESI shall not assume any Benefit Plan and shall
have no liability in connection with any Benefit Plan hereunder. All such
Benefit Plans shall continue to be the responsibility of Seller after the
acquisition of Assets contemplated in this Agreement.
(v) [Reserved]
(w) Records. The books of account, stock record books and other records
of Seller are complete and correct in all material respects and have been
maintained in accordance with sound business practices, and there have been no
transactions involving the business of Seller which properly should have been
set forth therein and which have not been accurately so set forth.
(x) Absence of Certain Business Practices. Neither Seller nor any
officer, employee or agent of Seller, nor any other person acting on its behalf,
has, directly or indirectly, within the past five years given or agreed to give
any gift or similar benefit to any customer, supplier, governmental employee or
other person who is or may be in a position to help or hinder the business of
Seller (or assist Seller in connection with any actual or proposed transaction)
which (A) might subject Seller to any damage or penalty in any civil, criminal
or governmental litigation or proceeding, (B), if not given in the past, might
have had an adverse effect on the assets, business or operations of Seller as
reflected in the Financial Statements or (C), if not continued in the future,
might adversely affect Seller's assets, business, operations or prospects or
which might subject Seller to suit or penalty in any private or governmental
litigation or proceeding.
(y) Labor Matters.
(i) Except as set forth on Schedule 5(y), which Seller shall
prepare and annex hereto as promptly as possible prior to Closing, and except
for those contracts that arise pursuant to applicable local law as of the date
hereof (A) there are no collective bargaining or other labor union contracts
applicable to employees of Seller, and (B) to Seller's Knowledge, there is no
organizational activity currently under way with respect to the business being
acquired by the Buyer.
(ii) Except as set forth on Schedule 5(y), Seller has not
engaged in, and has not received any written notice of any unfair labor
practices, discrimination or other complaint or threat to file same arising
under any statute, regulation, administrative or executive order or regulation
relating to any aspect of employment or labor law affecting any of the
facilities being purchased by Seller and no such complaints are pending before
any agency or court having jurisdiction thereof. Schedule 5(y) also lists all
labor and employment litigation of which Seller has received written notice,
that pertains to any of the facilities being acquired by Seller pursuant to this
Agreement.
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(iii) With respect to Administrative Employees, except as set
forth on Schedule 5(y) and except for those contracts that arise pursuant to
applicable local law, as of the date hereof there are no employment, severance
or consulting agreements between Seller and any of its current or former
employees.
(z) No Broker. Except as set forth on Schedule 5(z), which Seller shall
prepare and annex hereto as promptly as possible prior to Closing, there are no
broker's or finder's fees or obligations due to any persons engaged by Seller or
any other stockholder of the Company, or any of the affiliates, employees,
representatives or agents of any of such persons in connection with the
transactions contemplated by this Agreement, except for the fees and expenses of
Seller's counsel and accountants.
(aa) Investment Intent. The ESI Stock is being or will be purchased by
Seller for its own account and not with the view to, or for resale in connection
with, any distribution or public offering thereof within the meaning of the 1933
Act. Seller understands that the ESI Stock has not been registered under the
1933 Act by reason of its issuance in transactions exempt from the registration
and prospectus delivery requirements of the 1933 Act pursuant to Section 4(2)
thereof and agrees to deliver to the ESI, if requested by the ESI an investment
letter in customary form. Seller understands that the ESI Stock may not be sold,
transferred or otherwise disposed of without registration under the 1933 Act or
an exemption therefrom, and that in the absence of an effective registration
statement covering the ESI Stock, or an available exemption from registration
under the 1933 Act, ESI Stock, must be held indefinitely. In particular, Seller
is aware that the ESI Stock may not be sold pursuant to Rule 144 promulgated
under the Securities Act unless all of the conditions of that Rule are met.
Seller further understands that the certificates representing the ESI Stock will
bear a legend substantially in the following form and agrees that it will hold
such shares subject thereto:
THE SHARES REPRESENTED BY THIS CERTIFICATE AND ANY SHARES THAT
MAY BE ISSUED UPON THE CONVERSION OF SUCH SHARES HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
UNDER ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY
PORTION HEREOF OR INTEREST HEREIN MAY BE SOLD, ASSIGNED,
TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF UNLESS THE SAME
IS REGISTERED UNDER SAID ACT AND APPLICABLE STATE SECURITIES
LAWS OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE AND THE COMPANY SHALL HAVE RECEIVED, AT THE EXPENSE
OF THE HOLDER HEREOF, EVIDENCE OF SUCH EXEMPTION REASONABLY
SATISFACTORY TO THE COMPANY (WHICH MAY INCLUDE, AMONG OTHER
THINGS, AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY).
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(ab) Suitability and Sophistication. Seller has (i) such Knowledge and
experience in financial and business matters that Seller is capable of
evaluating independently the risks and merits of purchasing the ESI Stock; (ii)
independently evaluated the risks and merits of purchasing the ESI Stock and has
independently determined that the ESI Stock is a suitable investment for Seller;
and (iii) sufficient financial resources to bear the loss of its entire
investment in the ESI Stock.
(ac) Receipt of Information. Seller further represents that it has had
an opportunity to ask questions and receive answers from the officers and
directors of ESI regarding the business, properties, prospects and financial
condition of ESI and to obtain additional information (to the extent the ESI
possessed such information or could acquire it without unreasonable effort or
expense) necessary to verify the accuracy of any information furnished to Seller
or to which Seller had access.
(ad) Disclosure. No representation or warranty by Seller or
Stockholders contained in this Agreement, nor any statement or certificate
furnished or to be furnished by Seller or Stockholders to ESI or its
representatives in connection herewith or pursuant hereto, contains or will
contain any untrue statement of a material fact, or omits or will omit to state
any material fact required to make the statements herein or therein contained
not misleading or necessary in order to provide a prospective purchaser of the
business of the Seller with adequate information as to Seller and its condition
(financial and otherwise), properties, assets, liabilities, business and
prospects and Seller and Stockholders have disclosed to ESI in writing all
material adverse facts known to them relating to the same. The representations
and warranties contained in this Section 5 or elsewhere in this Agreement or any
document delivered pursuant hereto shall not be affected or deemed waived by
reason of the fact that ESI and/or its representatives knew or should have known
that any such representation or warranty is or might be inaccurate in any
respect. ESI acknowledges that no claim for a breach of a representation or
warranty can be made against Seller for any information disclosed to ESI in the
Schedules and Exhibits to this Agreement.
6. Representations and Warranties by ESI. ESI represents and warrants
to Seller, as of the date hereof and as of the Closing, as follows:
(a) Organization. ESI is a corporation duly organized, validly existing
and in good standing under the laws of Arizona and has full corporate power and
authority to enter into this Agreement and the related agreements referred to
herein and to carry out the transactions contemplated by this Agreement and to
carry on its business as now being conducted and to own, lease or operate its
properties. ESI is duly qualified, licensed or domesticated and in good standing
as a foreign corporation authorized to do business in every jurisdiction where
such registration is required and the failure to register would have a material
and adverse effect on ESI or its operations.
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(b) Authorization and Approval of Agreement. All proceedings or
corporate action required to be taken by ESI relating to the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby shall have been taken at or prior to the Closing.
(c) Execution, Delivery and Performance of Agreement. Neither the
execution, delivery nor performance of this Agreement by ESI will, with or
without the giving of notice or the passage of time, or both, conflict with,
result in a default, right to accelerate or loss of rights under, or result in
the creation of any lien, charge or encumbrance pursuant to, any provision of
ESI's certificate of incorporation or by-laws or any franchise, mortgage, deed
of trust, lease, license, agreement, understanding, law, ordinance, rule or
regulation or any order, judgment or decree to which ESI is a party or by which
it may be bound or affected. ESI has full power and authority to enter into this
Agreement and to carry out the transactions contemplated hereby, and all
proceedings required to be taken by ESI to authorize the execution, delivery and
performance of this Agreement and the agreements relating hereto, have been
properly taken and this Agreement and all documents contemplated hereby
constitute legal, valid and binding obligations of ESI, enforceable in
accordance with their respective terms.
(d) Litigation. There is no legal action, suit, arbitration,
governmental investigation or other legal or administrative proceeding, nor any
order, decree or judgment in progress, pending or in effect, or to the knowledge
of ESI threatened, against or relating to ESI in connection with or relating to
the transactions contemplated by this Agreement, and ESI does not know or have
any reason to be aware of any basis for the same.
(e) No Consents or Approvals. The execution, delivery and performance
by ESI of this Agreement and the consummation by it of the transactions
contemplated hereby will not require any consent or approval of, or filing or
notice to, any federal, state or local governmental or regulatory authority. In
particular, ESI has complied or will comply before the Closing Date with all
applicable requirements under the Xxxx-Xxxxx-Xxxxxx Act, and the rules and
regulations promulgated thereunder.
(f) Commission Filings. The SEC Reports (i) at the time filed, complied
in all material respects with the applicable requirements of the Exchange Act
and (ii) did not at the time they were filed (or if amended or superseded by a
filing prior to the date of this Agreement, then on the date of such filing)
contain any untrue statement of a material fact or omit to state a material fact
required to be stated in such SEC Reports or necessary in order to make the
statement in such SEC Reports, in the light of the circumstances under which
they were made, not misleading. As of their respective dates, the financial
statements of ESI included in the SEC Reports complied when filed as to form in
all material respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto, and were, when
filed, in accordance with the books and records of ESI, complete and accurate in
all material respects, and presented fairly the consolidated financial position
and the consolidated results of operations, changes in the stockholders' equity
and cash flows of ESI and its subsidiaries as of the dates and of the periods
indicated, in accordance with
-26-
GAAP, subject in the case of interim financial statements to normal year-end
adjustments and the absence of certain footnote information. Since the filing of
the most recent SEC Report, there has not been any material adverse change in
ESI's financial condition, business or prospects, or any material damage,
deterioration or destruction to or of any of ESI's assets, which is not covered
by insurance.
(g) Actions to Limit Net Business Attrition Loss. Solely in order to
limit the amount of the Net Business Attrition Loss and, subject to the ultimate
responsibility and control of its Board of Directors, ESI will not, without the
consent of Seller, between Closing and the end of the Postclosing Period: (i)
increase prices or fees charged to Customers, except as necessary to pass
through cost increases experienced by ESI; (ii) change the processing of payroll
for Customers, including but not limited to moving payroll processing of a
Customer to a different location, changing bank accounts used for the payroll
processing of Customers or materially changing the requirements for payroll
processing; or (iii) refuse the addition of a new customer for a reason other
than the customer's failure to satisfy ESI's normal underwriting standards and
intake process. ESI also shall have the right to move Elite Transportation
Services, Inc.'s existing processing of payroll for all customers as soon as
reasonably practicable at any time on or after January 1, 1997, and such action
by ESI shall not be deemed as violating ESI's obligation to limit Net Business
Attrition Loss hereunder; provided, however, that ESI shall continue to use
AMSOUTH Bank, N.A., for payroll check disbursement, and there shall be a
customer communication link maintained in the Russellville facility. ESI shall
have no obligation to reduce prices or fees to retain any Customer (provided
that ESI, in its sole discretion, may elect to do so).
(h) No Broker. ESI has not employed any broker, agent or finder or
incurred any liability for any brokerage fees, agents' commissions or finders'
fees in connection with the transactions contemplated hereby.
(i) ESI Stock. The ESI shares to be delivered at Closing pursuant to
this Agreement are duly authorized and, when so delivered, will be validly
issued, outstanding, fully paid and nonassessable.
(j) Disclosure. No representation or warranty by ESI contained in this
Agreement, nor any statement or certificate furnished or to be furnished by ESI
to Sellers or Stockholders or its representatives in connection herewith or
pursuant hereto, contains or will contain any untrue statement of a material
fact, or omits or will omit to state any material fact required to make the
statements herein or therein contained not misleading or necessary in order to
provide Seller with adequate information as to ESI and its condition (financial
or otherwise), properties, assets, liabilities, business and prospects and ESI
has disclosed to Seller or Stockholders in writing all material adverse facts
known to them relating to the same. The representations and warranties contained
in this Section 6 or elsewhere in this Agreement or any document delivered
pursuant hereto shall not be affected or deemed waived by reason of the fact
that Seller, and/or its representatives, or Stockholders, knew or should have
known that any such representation or warranty is or might be inaccurate in any
respect.
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7. Conduct of Business Prior to Closing. (a) Prior to the Closing,
Seller shall conduct its business and affairs only in the ordinary course and
consistent with its prior practice and shall maintain, keep and preserve its
assets and properties in good condition and repair and maintain insurance
thereon in accordance with present practices, and Seller and Stockholders will
use their best efforts (i) to preserve the business and organization of Seller
intact, (ii) to keep available to ESI the services of Seller's present officers,
Administrative Employees, agents and independent contractors, (iii) to preserve
for the benefit of ESI the goodwill of Seller's suppliers, customers, landlords
and others having business relations with it, and (iv) to cooperate with ESI and
use reasonable efforts to assist ESI in obtaining the consent of any landlord or
other party to any lease or contract with Seller where the consent of such
landlord or other party may be required by reason of the transactions
contemplated hereby. Without limiting the generality of the foregoing, prior to
the Closing, Seller will not without ESI's prior written approval:
(i) change its certificate or articles of incorporation or
by-laws or merge or consolidate or obligate itself to do so with or
into any other entity;
(ii) enter into any material contract, agreement, commitment
or other understanding or arrangement; or
(iii) perform, take any action or incur or permit to exist any
or the acts, transactions, events or occurrences of the type (1)
described in Section 5(1) of this Agreement, which would have been
inconsistent with the representations and warranties set forth therein
had the same occurred after the Balance Sheet Date and prior to the
date hereof, or (2) described in Section 5(e) of this Agreement, which
would be required to be set forth on Schedule 5(e) hereof if it had
taken place during the past three years.
(b) Seller or ESI, as appropriate, shall give the other prompt written
notice of any change in any of the information contained in the representations
and warranties made in Section 5, Section 6 or elsewhere in this Agreement or
the Schedules referred to herein which occurs prior to the Closing.
(c) Seller will consult with and follow the recommendations of ESI with
respect to (i) the cancellation of contracts, agreements, commitments or other
understandings or arrangements to which Seller is a party, including, without
limitation, purchase orders for any item of inventory and commitments for
capital expenditures or improvements, (ii) the commencement in one or more of
Seller's locations of the orderly and gradual discontinuance of particular items
or operations and (iii) purchasing, pricing or selling policy; provided,
however, that nothing contained in this Section 7(c) shall require Seller to
take or fail to take any action that, in Seller's reasonable judgment, is likely
to give rise to a substantial penalty or a claim for damages by any third party
against Seller, or is likely to result in losses or reduced profits to Seller,
or is otherwise likely to prejudice in any material respect or unduly interfere
with the conduct of Seller's business and operations in the ordinary course
consistent with prior
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practice, or is likely to result in a breach by Seller of any of its
representations, warranties or covenants contained in this Agreement (unless any
such breach is first waived in writing by ESI).
8. Agency Operations. During the Agency Operations Period, the parties
agree as follows:
(a) ESI as Agent. ESI will serve as the exclusive operating agent of
Seller and (except as provided herein) shall have the sole, exclusive and
absolute power, authority, right, duty and responsibility to operate and manage
the Assets; provided, however that it may assign or delegate any or all of its
rights, powers, duties, authorities, or responsibilities, from time to time, to
or among its subsidiaries or affiliates, except that ESI shall remain
responsible for seeing that the duties and responsibilities are exercised with
reasonable care, diligence and prudence; further provided, however, that ESI may
not encumber, transfer, sell, assign or otherwise dispose of the Assets; and
further provided, however, that notwithstanding any other provisions hereof,
inasmuch as it is ESI's intent to not be in any respect a "responsible person"
for payroll tax purposes, ESI its officers, directors, agents, employees and
representatives shall have no authority with respect to check signing or
xxxx-paying functions of each Seller or its business (including the asset
allocation and decision-making aspects thereof) and each Seller, its agents and
employees shall retain and be responsible for all such powers and duties
(collectively, the "Retained Powers") and, furthermore, they shall keep all
post-Closing payroll tax and other payables and obligations current at all times
up through and including the Transfer Effective Date. In consideration of its
duties and responsibilities in operating and managing the Assets, Seller will
pay ESI the Operational Fee.
(b) Access to Records and Properties. In addition to access needed by
ESI to perform its duties under Section 8(a), during the Agency Operations
Period, each Seller shall provide to ESI such access to the premises, books and
records of Seller, and shall cause the officers and employees of Seller to
furnish such financial and operating data and other information, as ESI may from
time to time reasonably request. From and after the Transfer Effective Date,
Seller shall give to ESI free and unrestricted access to the books, files and
records of Seller relating to the operations of Seller for the periods prior to
and including the Transfer Effective Date retained by Seller, if any. Prior to
any destroying or disposing of any such books, files and records, Seller shall
give 30 days' written notice to ESI of the intended destruction or disposition,
and ESI shall have the right to take possession of the same or to make copies
thereof, at its sold discretion.
(c) Operation of Seller. Subject to the provisions of Section 8(a),
during the Agency Operations Period, Seller shall:
(1) Operate its business diligently and only in the usual,
ordinary manner and, to the extent consistent with such operations, use its best
efforts to (A) preserve the current business organizations of Seller intact, and
(B) preserve current relationships with customers, employees and suppliers of
Seller and all other persons having business dealings with Seller.
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(2) Maintain its books, accounts and records in the usual and
ordinary manner, and in a manner that fairly and correctly reflects their
respective income, expenses, assets and liabilities in accordance with generally
accepted accounting principles, consistently applied.
(3) Comply in all material respects with all Federal, state,
local and other governmental (domestic or foreign) laws, statutes, ordinances,
rules, regulations, orders, writs, injunctions, decrees, awards or other
requirements of any court or other governmental or other authority or body
applicable to them or their properties and assets or to the conduct of their
business (including, but not necessarily limited to, the Federal Bankruptcy Laws
and the Bankruptcy Court), and to substantially perform all of their obligations
under all contracts, agreements, franchises, licenses, permits, instruments,
undertakings or otherwise without any material default.
(4) Except in the ordinary course of business: make no change
in the compensation payable or to become payable to any employee; make no change
in any existing, or enter into any new, arrangement or contract relating to
management, executive or clerical services or relating to the sharing of
administrative or other overhead or any management or supervisory fee; establish
or make no bonus, stock option, profit sharing, retirement or other similar
payment, plan or arrangement except as otherwise provided for herein in the
ordinary course of the administration of existing incentive, welfare, retirement
or other similar plans or arrangements hereinabove referred to; and enter into
no union contract and no employment agreement, or agreement with any salesman or
sales agent or any franchise agreement, independent dealer/distributor agreement
or other contract or arrangement with respect to the performance of services for
Seller, unless agreed to in advance by ESI.
(5) Not enter into, modify or extend any leases, contracts, or
other agreements, or engage in any activity or transaction not substantially in
the ordinary course of business and in accordance with past practice, unless
agreed to in advance by ESI.
(6) Not sell or dispose of any of the Assets, unless agreed to
in advance by ESI.
(7) Not mortgage, pledge or subject to any lien, charge or
other encumbrance, any of the Purchased Assets, tangible or intangible, other
than the lien of current state or local property taxes not yet due.
(8) Apply cash receipts received by Seller after the Closing
Date solely in satisfaction of liabilities arising after the Closing Date.
(9) Not make any agreement, commitment or arrangement to take
any action materially inconsistent with the obligations under, or prohibited by,
the foregoing provisions of this Section 8(c).
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(d) Limitation on ESI Obligations. Except as otherwise
specifically provided herein to the contrary:
(1) No party to this Agreement or any other person or
entity shall incur any obligations on behalf of ESI or any of its affiliates,
without first obtaining the written consent of ESI. Subject to Section 6(g), all
agreements between ESI and ESI Customers are subject to written acceptance or
approval of ESI, which may be withheld or delayed by ESI for any reason
whatsoever, in its sole and absolute discretion. No party hereto shall have any
authority to bind ESI or any of its affiliates by any promise or representation,
unless specifically authorized in writing to do so.
(2) Subject only to applicable law and the terms and
conditions of all applicable contracts or other binding agreements between ESI
and an ESI Customer, and subject to Section 6(g) with respect to prospective
customers, ESI reserves the right, exercisable in its sole and absolute
discretion, to terminate any agreement or relationship with an ESI Customer or
reject any existing or prospective ESI Customer, at any time or for any reason,
without having any obligation to the Sellers or any other person or entity as a
result thereof.
(3) In no event shall ESI be liable to Seller based
upon any income, profits, receivables or other items not being collected for any
reason whatsoever.
9. Employment and Noncompete Agreements.
(a) At the Closing, ESI will execute and deliver, and Seller will cause
each of Xxxxx XxXxxxx, Xxxx Xxxxx, Xxxxxx Xxxxx and Xxxxxx Xxxx to execute and
deliver, an employment contract in the form to be agreed upon by the parties and
annexed hereto as Exhibit "F" on or prior to Closing.
(b) Seller and Stockholders each agree that, for a period of five (5)
years after any expiration or termination of this Agreement, it or he shall not,
directly or indirectly, whether on its or his own account or as a shareholder
(other than as a less than one percent (1%) shareholder of a publicly-held
company), partner, joint venturer, employee, consultant, advisor, and/or agent,
of any person, firm, corporation, or other entity, in any state in which Seller
operated on or prior to November 1, 1996 (collectively, the "Restricted
States"):
(i) Enter into or engage in the business of
employee leasing or training persons in connection with any such business in any
manner whatsoever in any one or more of the Restricted States or provide
employee leasing services or leased employees to any employers located or
conducting business in any one or more of said Restricted States;
(ii) Solicit customers, suppliers, or
business patronage, or use any customer lists for the purpose of or which
results in competition with ESI concerning the employee leasing business in the
Restricted States;
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(iii) Solicit the employment of any ESI
officers, directors, employees or independent contractors; or
(iv) Promote or assist, financially or
otherwise, any person, firm, association, corporation, or other entity engaged
in the employee leasing business in any one or more of the Restricted States.
It is agreed that the restrictions contained in this Section 9(b) are
reasonable, but it is recognized that damages in the event of the breach of any
of the restrictions will be difficult or impossible to ascertain; and,
therefore, in addition to and without limiting any other right or remedy ESI may
have, ESI shall have the right to an injunction issued by a court of competent
jurisdiction enjoining any such breach, and in addition thereto, ESI shall be
entitled to the following amounts in the event of any such breach or violation,
not as a penalty but as liquidated damages: fifty percent (50%) of any and all
salaries, wages, fees, compensation, remuneration, gross profits or other gross
income of any kind or nature whatsoever resulting from or otherwise derived in
connection with said breach or violation. In the event that the period of time
and/or geographic limitation described above are nevertheless held to be in any
respect an unreasonable restriction, then it is agreed that the court so holding
may reduce the territory to which the restriction pertains or the period of time
in which it operates or may reduce both such territory and such period, to the
minimum extent necessary to render such provision enforceable.
10. Directors and Stockholders Authorization; Change of Corporate Name;
No- Shopping.
(a) At or prior to the Closing, Seller will deliver to ESI a copy of
the resolutions of the Board of Directors, approving the execution and delivery
of this Agreement and the consummation of all of the transactions contemplated
hereby, duly certified by an officer of Seller.
(b) At Closing, Seller will deliver to ESI a duly executed and
acknowledged certificate of amendment to Seller's certificate or articles of
incorporation or other appropriate document which is required to change Seller's
corporate name to a new name bearing no resemblance to its present name so as to
make Seller's present name available to ESI. ESI is hereby authorized to file
such certificate or other document (at Seller's expense) in order to effectuate
such change of name at or after the Closing as ESI shall elect.
(c) In consideration of the substantial expenditures of time, effort
and expense to be undertaken by ESI in connection with the various
investigations referred to in this Agreement, Stockholders and Seller shall not
(nor will either permit any of their respective officers, directors,
shareholders, agents, representatives or affiliates to), directly or indirectly,
take any of the following actions with any party other than ESI and its
designees: (i) solicit, encourage, initiate or participate in any negotiations
or discussions with respect to any offer or proposal to acquire all or
substantially all of Seller's business and properties or capital stock whether
by merger, purchase of assets, tender offer or otherwise; (ii) disclose any
information not
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customarily disclosed to any person concerning Seller's business and properties
or afford access to its property, books or records to any person or entity not
customarily having access thereto; or (iii) assist or cooperate with any person
to make any proposal to consummate a transaction of the type referred to in
clause (i).
11. Bulk Sales Compliance. ESI hereby waives compliance by Seller with
the provisions of the Bulk Sales Law of any state, and Seller warrants and
agrees to pay and discharge when due all claims of creditors which could be
asserted against ESI by reason of such non-compliance to the extent that such
liabilities are not specifically assumed by ESI under this Agreement. Seller and
Stockholders, jointly and severally, hereby indemnify and agree to hold ESI
harmless from, against and in respect of (and shall on demand reimburse ESI for)
any loss, liability, cost or expense, including, without limitation, attorneys'
fees, suffered or incurred by ESI by reason of the failure of Seller to pay or
discharge such claims. Seller shall furnish to ESI such evidence as ESI may
reasonably request in order to confirm that the provisions of this Section 11
have been complied with.
12. [Reserved.]
13. Conditions Precedent to ESI's Obligations. All obligations of ESI
hereunder are subject, at the option of ESI, to the fulfillment of each of the
following conditions at or prior to the Closing and the Transfer Effective Date,
and Seller and Stockholders shall exert their best efforts to cause each such
condition to be so fulfilled:
(a) All representations and warranties of Seller and Stockholders
contained herein or in any document delivered pursuant hereto shall be true and
correct in all material respects when made and shall be deemed to have been made
again at and as of the date of the Closing, and shall then be true and correct
in all material respects.
(b) All covenants, agreements and obligations required by the terms of
this Agreement to be performed by Seller or by Stockholders at or before the
Closing shall have been duly and properly performed in all material respects.
(c) Since the Balance Sheet Date, there shall not have occurred any
material adverse change in the condition (financial or otherwise), business,
properties, assets or prospects of Seller.
(d) There shall be delivered to ESI a certificate executed by President
and Secretary of Seller and by the Stockholders, dated the date of the Closing,
certifying that the conditions set forth in paragraphs (a), (b), and (c) of this
Section 13 have been fulfilled, and that the schedules and exhibits to be
attached hereto are complete and accurate as of the Closing Date.
(e) All documents required to be delivered to ESI at or prior to the
Closing shall have been so delivered.
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(f) ESI shall have received an Opinion of Seller's Counsel, dated the
date of the Closing, in form and content to be agreed upon by the parties and
annexed hereto as Exhibit "H."
(g) Seller shall have obtained written consents to the transfer or
assignment to ESI of all consignment agreements, licenses, leases and other
material contracts of Seller (other than immaterial purchase and sales orders in
the ordinary course of business) where the consent of any other party to any
such contract may, in the opinion of ESI's counsel, be required for such
assignment or transfer.
(h) All applicable filings, consents and expirations of waiting periods
required by law, regulatory authorities or contracts shall have been obtained,
including without limitation the completion of any required Xxxx-Xxxxx-Xxxxxx
filings and the expiration or early termination of all applicable waiting
periods thereunder.
(i) ESI's due diligence investigation and review of Seller's business,
prospects, capitalization and properties, including, but not limited to, an
evaluation of the minute books, financial records, tax returns, contracts,
leases, governmental authorizations, employment agreements, employee benefit
plans, all other contracts material to the operation of its business and
compliance with laws shall have been completed to ESI's sole satisfaction.
(j) [Reserved]
(k) Xxxxxx Xxxxxxxx shall have commenced its audit of the Financial
Statements at ESI's expense.
(l) ESI's review of the schedules and exhibits to be prepared by Seller
and attached hereto shall have been completed to ESI's sole satisfaction.
14. Conditions Precedent to Seller's and Stockholder's Obligations. All
obligations of Seller and Stockholders at the Closing are subject, at the option
of Seller, to the fulfillment of each of the following conditions at or prior to
the Closing, and ESI shall exert its best efforts to cause each such condition
to be so fulfilled:
(a) All representations and warranties of ESI contained herein or in
any document delivered pursuant hereto shall be true and correct in all material
respects when made and as of the Closing.
(b) All covenants, agreements and obligations required by the terms of
this Agreement to be performed by ESI at or before the Closing shall have been
duly and properly performed in all material respects.
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(c) There shall be delivered to Seller a certificate executed by the
President and Secretary of ESI, dated the date of the Closing, certifying that
the conditions set forth in paragraphs (a) and (b) of this Section 14 have been
fulfilled.
(d) Seller shall have received an Opinion of ESI's Counsel, dated the
date of the Closing, in the form and content to be agreed upon by the parties
and annexed hereto as Exhibit "I."
(e) Xxxxx Xxxxxx shall have received a binding commitment letter from
ESI which addresses Xx. Xxxxxx'x compensation as a broker or agent for ESI,
which is satisfactory to Xx. Xxxxxx.
15. [Reserved.]
-----------
16. Indemnification.
----------------
(a) Indemnification by Seller and Stockholders. Seller and
Stockholders, jointly and severally, hereby indemnify and agree to hold ESI and
its affiliates and their respective stockholders, officers, directors, employees
and agents (all of which are included in any reference to ESI in this Section)
harmless from, against and in respect of (and shall on demand reimburse ESI
for):
(i) any and all losses, liabilities or damages suffered or
incurred by ESI by reason of any untrue representation, breach of
warranty or nonfulfillment of any covenant by Seller or Stockholders
contained herein or in any certificate, document or instrument
delivered to ESI hereunder;
(ii) [Reserved];
(iii) any and all losses, damages, debts, liabilities or
obligations of Seller, direct or indirect, fixed, contingent or
otherwise, which exist at or as of the date of the Closing hereunder or
which arise after the Closing but which are based upon or arise from
any act, omission, transaction, circumstance, providing of goods or
services, state of facts or other condition which occurred or existed
on or before the date of the Closing, whether or not then known, due or
payable, except to the extent (A) reflected or reserved against on the
face of the Balance Sheet (excluding the notes thereto) or incurred
after the Balance Sheet Date in connection with the purchase of goods
or services in the ordinary course of Seller's business and in
conformity with the representations, warranties and covenants of Seller
contained in this Agreement (or a Schedule hereto) and (B) expressly
assumed by ESI pursuant to the terms of the Liabilities Undertaking;
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(iv) any and all losses, liabilities or damages suffered or
incurred by ESI (a) by reason of any claim for severance or vacation
pay accruing or incurred or triggered by a discharge at any time on or
after the date hereof or (b) relating to employee benefits attributable
to services performed prior to the Closing, except to the extent set
forth on Schedule 16(a)(vi) annexed hereto;
(v) any and all losses, liabilities or damages suffered or
incurred by ESI by reason of or in connection with any claim for a
finder's fee or brokerage or other commission arising by reason of any
services alleged to have been rendered to or at the instance of Seller
or Stockholders with respect to this Agreement or any of the
transactions contemplated hereby; and
(vi) any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs and reasonable expenses, including,
without limitation, reasonable legal fees and expenses, incident to any
of the foregoing or incurred in investigating or attempting to avoid
the same or to oppose the imposition thereof, or in enforcing this
indemnity.
(b) Indemnification by ESI. ESI hereby agrees to indemnify and hold
Seller and Stockholders harmless from, against and in respect of (and shall on
demand reimburse them for):
(i) Any and all losses, liabilities or damages resulting from
any untrue representation, breach of warranty or non-fulfillment of any
covenant or agreement by ESI contained herein or in any certificate,
document or instrument delivered to Seller hereunder;
(ii) Any and all claims asserted directly against Seller by
reason of any and all losses, damages, debts, liabilities or
obligations of ESI, direct or indirect, fixed, contingent or otherwise,
except for those based upon or arising from any circumstance giving
rise to a right of indemnification under Section 9(a) (regardless of
whether timely asserted);
(iii) Any and all losses, liabilities or damages suffered or
incurred by Seller by reason of or in connection with any claim for a
finder's fee or brokerage or other commission arising by reason of
services alleged to have been rendered to ESI with respect to this
Agreement or any transactions contemplated hereby; and
(iv) Any and all actions, suits, proceedings, claims, demands,
assessments, judgements, costs and expenses, including, without
limitation, legal fees and expenses, incident to any of the foregoing
or incurred in investigating or attempting to avoid the same or to
oppose the imposition thereof, or in enforcing this indemnity.
Notwithstanding the foregoing, Seller's and Stockholder's only right with
respect to any violation by ESI of any obligation, representation or warranty
regarding retention of Customers and
-36-
minimization of Net Business Attrition Loss shall be to reduce or eliminate, as
appropriate, the amount of any Net Business Attrition Loss, and no direct claim
shall be asserted against, nor shall any obligation to indemnify or exist with
respect to, ESI.
(c) Right of Offset. Notwithstanding anything in this Agreement to the
contrary, and in addition to any other rights hereunder or at law or in equity,
ESI shall have the right to offset any loss, damage or liability that it may
occur by virtue of any breach by Seller or any Stockholder of any
representation, warranty , covenant or agreement hereunder, or any other action
by Seller or any Stockholder that would give rise to a right of indemnification
hereunder, against any unpaid portion of the Purchase Price held in the Escrow
Account or any other amount otherwise payable or transferable by ESI hereunder.
(d) Notice and Defense. If at any time, the Indemnitee shall receive
notice of any asserted losses, liabilities or damages claimed to give rise to
indemnification hereunder, the Indemnitee shall promptly give a Claims Notice to
the Indemnitor. The Claims Notice shall set forth a brief description of the
facts and circumstances giving rise to such claim for indemnification, and, if
known, the amount of the losses, liabilities or damages that have been or may be
suffered by the Indemnitee. Thereafter, the Indemnitor shall have at its
election, the right to settle or defend any such matter at the Indemnitor's sole
cost and expense through counsel chosen by the Indemnitor and approved by the
Indemnitee (which approval shall not unreasonably be withheld); provided,
however, that any such settlement or defense shall be conducted in a manner
which is reasonable and not contrary to the Indemnitee's interests and the
Indemnitee shall in all events have a right to reasonably veto any non-monetary
settlement or any defense which would jeopardize in any material respect any
assets or business of the Indemnitee or any of its affiliates or increase the
potential liability of, or create a new liability for, the Indemnitee or any of
its affiliates and provided further that the Indemnitor shall in all events
indemnify the Indemnitee and its affiliates against any damage resulting from
the manner in which such matter is settled or defended including any failure to
pay any such claim which such litigation is pending. If the Indemnitee
unreasonably vetoes any settlement or defense, the Indemnitee shall be deemed to
have waived any right against the Indemnitor with respect to such matter. In the
event that the Indemnitor does so undertake to settle and defend a claim, the
Indemnitor shall notify the Indemnitee of its intention to do so. Even if the
Indemnitor undertakes to settle or defend a claim, the Indemnitee shall have the
right to settle any matter for which a claim for indemnification has been made
hereunder upon notice to the Indemnitor and by waiving any right against
Indemnitor with respect to such matter. Each party agrees in all cases to
cooperate with the defending party and its counsel in the settlement of or
defending of any such liabilities or claims. In addition, the non-defending
party shall at all times be entitled to monitor such defense through the
appointment, at its own cost and expense, of advisory counsel of its own
choosing.
(e) Basket. The right of every party to be indemnified pursuant to
Section 16 of this Agreement shall not apply until the sum of the damages
suffered by such party on a cumulative basis exceeds $100,000, at which time all
of such damages shall become subject to indemnification.
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17. Nature and Survival of Representations and Warranties. Each
statement, representation, warranty, indemnity, covenant and agreement made by
Seller or Stockholders in this Agreement or in any document, certificate or
other instrument delivered by or on behalf of Seller or any Stockholder pursuant
to this Agreement or in connection herewith shall be deemed the joint and
several statement, representation, warranty, indemnity, covenant and agreement
of Seller and Stockholders. All statements, representations, warranties,
indemnities, covenants and agreements made by each of the parties hereto shall
survive the Closing and shall not expire until the termination of the Escrow
Account. Claims for violations of representations and warranties shall be
subject to the same mechanics as claims for indemnification, as set forth in
Sections 16(d), and limited by the provisions of the last sentence of Section
16(b).
18. Registration Rights.
--------------------
(a) [Reserved.]
(b) Demand Registration Rights. In the event Seller does not have the
right to dispose of all of the ESI Stock under SEC Rule 144, for a period of one
year after the ESI Stock is released from the Escrow Account, ESI agrees that,
upon written demand by holders of more than 50% of the ESI Stock, ESI will use
its reasonable efforts on a one-time basis only (except as provided in Section
18(e) below) to prepare and file a registration statement under the 1933 Act
covering the ESI Stock, to cause such registration statement to become effective
as expeditiously as possible, and to register and qualify the ESI Stock for sale
in such reasonable number of states as Seller may reasonably designate (provided
that the maximum number of states in any offering shall be five (5) if ESI's
common stock ceases to be listed on any nationally recognized exchange,
including without limitation, The Nasdaq National Market), and do any and all
other reasonable acts and things which may be necessary to enable Seller to
consummate the public sale or other disposition of the ESI Stock, all at no
expense to Seller (except as otherwise provided herein and specifically except
for any underwriting broker or other selling discounts and commissions, which
shall be paid by Seller); provided, however, that all Seller shall furnish
information and indemnification as set forth in Section 18(c) below, and
provided further that ESI shall not be required to maintain the effectiveness of
the registration statement covering the ESI Stock for more than sixty (60) days
(six (6) months if not done pursuant to an underwritten offering) following its
becoming effective. ESI may delay any requested registration by up to one
hundred twenty (120) days if ESI determines that effecting the registration
would adversely affect ESI or the Company.
(c) Additional Agreements of Seller. In consideration of the demand
registration rights provided by the provisions of Section 18(b) above, Seller
agrees as follows: (i) Whenever pursuant to Section 18(b) above a registration
statement and/or preliminary or final prospectus relating to the ESI Stock is
filed under the 1933 Act, amended or supplemented, Seller will indemnify and
hold harmless ESI, each of its directors, officers, agents, representatives
(including legal counsel, accountants and underwriters), and each person, if
any, who controls ESI (within the meaning of said Act) against any and all
actions, losses, claims, damages or liabilities, to which ESI or any such
director, officer or controlling person may become subject,
-38-
under said Act or otherwise, insofar as such losses, claims, damages or
liabilities, or actions with respect thereto, arise out of or are based upon (1)
any untrue or alleged untrue statement of any material fact contained in said
registration statement, said preliminary prospectus, said final prospectus, or
said amendment or supplement, or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such action, loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in said registration statement,
said preliminary prospectus, said final prospectus or said amendment or
supplement in reliance upon and in conformity with information furnished in
writing, by or on behalf of Seller expressly for use in the preparation thereof,
or (2) Seller's failure to comply with any applicable prospectus delivery
requirements after ESI has furnished Seller with a sufficient number of copies
of the same; and will reimburse ESI or any such director, officer, agent,
representative or controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action.
(d) [Reserved.]
(e) [Reserved.]
(f) Responsibility for Fees. With respect to each inclusion of shares
of ESI Stock in a registration statement pursuant to Section 18(b) hereof, ESI
agrees to bear all fees, costs and expenses of and incidental to such
registration and the public offering in connection therewith; provided that
Seller shall bear his own attorneys' fees and a pro rata share of the
underwriting, broker or other selling discounts and commissions.
(g) Indemnifications. In connection with any registration of an
Seller's shares of ESI Stock, ESI agrees to indemnify, to the extent permitted
by law, Seller against all losses, claims, damages, liabilities and expenses
(including, without limitation, attorneys' fees) arising out of or based upon
any untrue or alleged untrue statement of a material fact contained in any
registration statement, prospectus or any amendment thereof or supplement
thereto or any omission or alleged omission of a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as the same are caused by or contained in any information
furnished in writing to ESI by Seller expressly for use therein or by Seller's
failure to deliver a copy of the registration statement or prospectus or any
amendments or supplements thereto after ESI has furnished Seller with a
sufficient number of copies of the same or any violation or alleged violation by
Seller of any applicable law, rule or regulation in connection with such
registration or sale.
19. Allocation of Purchase Price. Although ESI would not purchase less
than all of Seller's Assets separately, the total Purchase Price described in
Section 3 above shall be allocated among said purchased items in the manner
provided in Exhibit "J." The parties have made a mutual good faith determination
of the respective values of the components of Seller's
-39-
Assets and the noncompetition agreement and the allocations set forth in Exhibit
"J" are based on such determination. Each party agrees that it will not take any
position for purposes of computing federal or state income or franchise taxes
that is inconsistent with the foregoing allocations. If any party fails to
comply with the provisions of the preceding sentence, such party shall be liable
for all taxes, reasonable legal and accounting fees, and other expenses actually
incurred by the other parties as a consequence of such failure; provided,
however, that should such fees and other expenses be incurred in connection with
any audit or other inquiry involving issues beyond the scope of this Agreement,
any party liable for reimbursement of such fees and expenses hereunder shall be
responsible only for the portion of the total fees and expenses incurred that
are reasonably related to the issues arising hereunder.
20. Access to Information and Documents. Upon reasonable notice and
during regular business hours, Seller will give ESI and ESI's attorneys,
accountants and other representatives full access to Seller's key personnel, and
distributors (with prior approval of Seller management) and all properties,
documents, contracts, books and records of Seller and will furnish ESI with
copies of such documents (certified as complete and correct by Seller's officers
if so requested) and with such information with respect to the affairs of Seller
as ESI may from time to time request, and ESI will not improperly disclose the
same prior to the Closing. Any such furnishing of information to ESI or any
investigation by ESI shall not affect ESI's right to rely on any representations
and warranties made in this Agreement or in connection herewith or pursuant
hereto.
21. Notices. All notices and other communications required or permitted
under this Agreement shall be in writing and shall be delivered or sent to the
parties at the address set forth below, or at such other address that they
designate by notice to all other parties in accordance with this Section 21. Any
party delivering notice to Seller shall deliver it to:
[Name of applicable XxXxxxx or Xxxxx Entity]
[Address and Fax No. on Schedule A]
with a copy to:
Xxxxxx X. Xxxxxxx, Esq.
Sirote & Permutt, P.C.
0000 Xxxxxxxxx Xxxxxx Xxxxx
Xxxxxxxxxx, XX 00000
Fax No. (000) 000-0000
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Any party delivering any notice to any Stockholder shall deliver it to the
address for the applicable Stockholder set forth on Schedule A attached hereto.
Any party delivering notice to ESI shall deliver it to:
Xxxxxx X. Xxxxx
Chairman of the Board
-and-
Xxxx X. Xxxxx, Esq.
Vice President and General Counsel
EMPLOYEE SOLUTIONS, INC.
0000 X. Xxxxxxxxx Xxxx, Xxxxx 000
Xxxxxxx, Xxxxxxx 00000
Fax No. (000) 000-0000
with a copy to:
Xxxxxx X. Xxxxxxxx, Esq.
XXXXXXX & XXXXX
Xxx X. Xxxxxxxxx, Xxxxx 000
Xxxxxxx, Xxxxxxx 00000
Fax No. (000) 000-0000
All notices and communications shall be deemed to have been received:
(1) in the case of personal delivery, on the date of such delivery; (2) in the
case of telex or facsimile transmission, on the date on which the sender
receives confirmation by telex or facsimile transmission that such notice was
received by the addressee, provided that a copy of such transmission is
additionally sent by mail as set forth in (4) below; (3) in the case of
overnight air courier, on the second business day following the day sent, with
receipt confirmed by the courier; and (4) in the case of mailing by first class
certified or registered mail, postage prepaid, return receipt requested, on the
date of delivery, as evidenced by the certified or registered mail receipt.
22. Termination.
------------
(a) This Agreement may be terminated and the transactions contemplated
hereby may be abandoned at any time prior to the Closing:
(i) by Seller or ESI if the Closing has not occurred by
November 15, 1996;
(ii) by mutual consent of Seller and ESI;
-41-
(iii) by ESI, if any representation or warranty of Seller or
any Stockholder made in or pursuant to this Agreement is untrue or incorrect in
any material respect; Seller or any Stockholder materially breaches the
covenants or other terms of this Agreement; or any of the conditions precedent
to Closing contained in Section 13 cannot be satisfied; or
(iv) by Seller, if any representation or warranty of ESI made
in or pursuant to this Agreement is untrue or incorrect in any material respect;
ESI materially breaches the covenants or other terms of this Agreement; or any
of the conditions precedent to Closing contained in Section 14 cannot be
satisfied.
(b) A party terminating this Agreement pursuant to Section 22(a) shall
give written notice thereof to each other party thereto, whereupon this
Agreement shall terminate and the transactions contemplated hereby shall be
abandoned without further action by any party; provided, however, that if such
termination is by ESI pursuant to Section 22(a)(iii), or if such termination is
by Seller pursuant to Section 22(a)(iv), such termination shall not affect the
right, if any, of the non-defaulting parties to damages on account of breach by
any other party.
23. Miscellaneous.
(a) This writing constitutes the entire agreement of the parties with
respect to the subject matter hereof and may not be modified, amended or
terminated except by a written agreement specifically referring to this
Agreement signed by all of the parties hereto.
(b) No waiver of any breach or default hereunder shall be considered
valid unless in writing and signed by the party giving such waiver, and no such
waiver shall be deemed a waiver of any subsequent breach or default of the same
or similar nature.
(c) This Agreement shall be binding upon and inure to the benefit of
each corporate party hereto, its successors and assigns, and each individual
party hereto and his heirs, personal representatives, successors and assigns.
(d) The paragraph headings contained herein are for the purposes of
convenience only and are not intended to define or limit the contents of said
paragraphs.
(e) Each party hereto shall cooperate, shall take such further action
and shall execute and deliver such further documents as may be reasonably
requested by any other party in order to carry out the provisions and purposes
of this Agreement.
(f) Seller will pay all sales, transfer and documentary taxes, if any,
payable in connection with the sale, conveyances, assignments, transfers and
deliveries to be made to ESI hereunder.
-42-
(g) This Agreement may be executed in one or more counterparts, all of
which taken together shall be deemed one original.
(h) This Agreement and all amendments thereof shall be governed by and
construed in accordance with the law of the State of Arizona applicable to
contracts made and to be performed therein, without regard to principles
relating to conflicts of laws.
(i) Any controversy or claim arising out of or relating to this
agreement or the breach or validity thereof shall be settled exclusively by
arbitration in Phoenix, Arizona, by a panel of three arbitrators in accordance
with the rules of the American Arbitration Association. Judgment upon the award
rendered by the arbitrators may be entered in any court having jurisdiction
thereof, and the parties consent to the exclusive jurisdiction of the Maricopa
County, Arizona courts for this purpose.
(j) ESI, Seller and Stockholders hereby consent to the exclusive
jurisdiction of the State and Federal courts sitting in Maricopa County, Arizona
in any action arising out of or connected in any way with this Agreement, and
Seller and Stockholders further agree that the service of process or of any
other papers upon them or any of them by registered mail at their respective
addresses set forth herein shall be deemed good, proper and effective service
upon them.
(k) Each party agrees that neither it nor any of its affiliates will
make any public statement regarding the transactions contemplated by this
Agreement without first consulting the other parties hereto in order than such
public statement shall be jointly worded and issued by the parties, except that
ESI shall be entitled to make such disclosures as it reasonably concludes are
required of it by law.
(l) Upon any default, in addition to all damages and other remedies to
which the Non-Defaulting Party is entitled by reason of such default, the
Defaulting Party shall promptly pay to the Non-Defaulting Party an amount equal
to all costs and expenses (including reasonable attorneys' fees) paid or
incurred by the Non-Defaulting Party in connection with enforcement of its
rights hereunder.
24. Completion of Schedules and Exhibits. The parties shall use their
best efforts to complete the exhibits referred to herein, and Seller shall use
its best efforts to complete the schedules referred to herein, as soon as
possible and in any event prior to the Closing Date.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
SELLER: DIVERSIFIED RESOURCES, INC.
By ________________________________
Xxxxxxx X. XxXxxxx
Its___________________________
PAY SOURCE, INC.
By ________________________________
Xxxxxxx X. XxXxxxx
Its___________________________
PERMASTAFF, INC.
By ________________________________
Xxxxxxx X. XxXxxxx
Its___________________________
STAFFING ALTERNATIVES, INC.
By ________________________________
Xxxxxxx X. XxXxxxx
Its___________________________
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UNISERVE SOUTH, INC.
By ________________________________
Xxxxxxx X. XxXxxxx
Its___________________________
ELITE TRANSPORTATION SERVICES, INC.
By ________________________________
Xxxxxxx X. Xxxxx
Its___________________________
BUYER: EMPLOYEE SOLUTIONS, INC.
By_________________________________
Xxxxxx X. Xxxxx
Chairman and CEO
STOCKHOLDERS:
___________________________________
XXXXXXX X. XxXXXXX
___________________________________
XXXXXXX X. XXXXX
___________________________________
XXXXXX X. XXXXX
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THE INDIGO GROUP, INC.
By_________________________________
Its___________________________
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EXHIBIT LIST
EXHIBIT SECTION REFERENCE
A - Escrow Instructions 3(f)
B - Xxxx of Sale 4(b)(ii)
C - Assignment of Contract Rights 4(b)(iii)
D - Assignment of Lease 4(a)(iv)
E - [Reserved]
F - Employment Agreement 9(a)
G - [Reserved]
H - Opinion of Seller's Counsel 13(f)
I - Opinion of ESI's Counsel 14(d)
J - Allocation of Purchase Price 19
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SCHEDULE LIST
A List of Companies, Stockholders, Stock Ownership Interests
and Addresses
B List of Customers
C Schedule of Recasted Operating Income
D List of Retained Assets
4(f) Customer Deposits
5(a) List of Jurisdictions
5(b) Consents; Authority
5(c) Authority; Enforceability
5(d) List of Subsidiaries
5(e) Transactions with Certain Persons
5(j) Absence of Undisclosed Liabilities
5(k) Taxes
5(l) Absence of Changes or Events
5(m) Litigation
5(n) Compliance with Laws and Other Instruments
5(o) Title to Properties
5(r) Guaranties
5(u)(i) Nonunion Employees
5(u)(ii) Deferred Employee Benefits Plans
5(u)(iii) Multi-employer Plans
5(x) Absence of Certain Business Practices
5(y) Labor Matters
5(z) No Broker
12(b)(iv) Prohibited Transactions to Benefit Plan
16(a)(vi) Indemnification
-48-
Exhibit "A"
XXXX OF SALE
____________________________, a ______________ corporation (hereinafter
called "Assignor"), for One Dollar ($1.00) and other valuable consideration to
it in hand paid, receipt of which is hereby acknowledged, by these presents does
sell, assign, transfer and convey unto _______________________, a ____________
corporation (hereinafter called "Assignee"), its successors and assigns, the
following described property:
All property of every kind and description and wherever
situated, tangible and intangible, owned by Assignor or to which
Assignor has any right, title or interest on the date hereof, excepting
only those properties of Assignor listed on Schedule A annexed hereto,
and including, without limitation, all of "Seller's Assets" as defined
in a certain Agreement of Purchase and Sale of Assets, dated
____________, ____ between Assignor as Seller and Assignee as ESI (the
"Agreement"), which includes the following:
(i) Cash on hand and in bank accounts, notes and
loans receivable from customers, employees and others,
marketable securities and investments, merchandise and all
other inventories, packaging and shipping materials and other
supplies and supply inventories, prepaid insurance, prepaid
interest and other prepaid items and deposits, cash surrender
values of all life insurance policies, contracts, choses in
action and causes of action, claims and rights of recovery or
setoff of every kind or character arising out of transactions
or events occurring on or prior to the date hereof
irrespective of the date on which any such cause of action,
claim or right may arise or accrue; and
(ii) Fixed assets including, without limitation,
leaseholds and leasehold improvements, fixtures, machinery,
tools, equipment, cars, trucks and other automotive equipment;
and
(iii) Inventions, patents, transferable licenses,
transferable permits and transferable franchises (except
Assignor's franchise to be a corporation), trademarks, trade
names, service marks, service names, copyrights, know-how,
stationery and other imprinted material and office supplies,
the right to receive mail and other communications and
shipment of merchandise addressed to assignor, its goodwill as
a going concern, and the Assignor's entire right to use the
name "______________________"; and
(iv) Books and records of Assignor, excepting only its
minute books, corporate seal and stock ledger records.
Assignor hereby authorizes and grants its power of attorney to Assignee
and appoints Assignee and the officers thereof as Assignor's attorney-in-fact to
take any appropriate action in connection with any of said rights, claims,
causes of action and property, in the name of Assignor or in its own or any
other name but at its own expense, it being understood that this authorization
and power of attorney are coupled with an interest and irrevocable.
TO HAVE AND TO HOLD said rights, claims, causes of action, property,
assets, business and goodwill, as a going concern, unto the said Assignee, its
successors and assigns, to and for its use forever.
AND, Assignor does hereby warrant, covenant and agree that it:
(a) has good and marketable title to the properties and assets
hereby sold, assigned, transferred, conveyed and delivered, subject to
such liens and other encumbrances as are disclosed in the Agreement or
any schedules or exhibits thereto and except as otherwise provided in
the Agreement; and
(b) will warrant and defend the sale of said properties and
assets against all and every person or persons whomsoever claiming or
to claim against any or all of the same, subject to the terms and
provisions of the Agreement.
IN WITNESS WHEREOF, Assignor has caused this instrument to be duly
executed this ____ day of ______________, 19__.
Assignor
ATTEST: By ___________________________
______________________________
Secretary
Exhibit "B"
Assignment of Contract Rights--to come
Exhibit "C"
Assignment of Lease--to come
Exhibit "D"
LIABILITIES UNDERTAKING
-----------------------
UNDERTAKING dated _________________, 19__ by _________________________
(hereinafter called "ESI") in favor of __________________________________, a
________________ corporation (hereinafter called "Seller").
W I T N E S S E T H:
WHEREAS, pursuant to an Agreement of Purchase and Sale dated __________________,
19__ among ESI, Seller and the shareholders of Seller (the "Agreement"), Seller
has concurrently herewith sold, assigned, transferred, conveyed and delivered to
ESI substantially all of the business, assets, properties, goodwill and rights
of Seller as a going concern (the "Seller's Assets"); and
WHEREAS, in partial consideration therefor, the Agreement requires ESI
to execute and deliver to seller this Undertaking;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt of which by ESI is hereby acknowledged, ESI
hereby agrees as follows:
1. ESI hereby undertakes, assumes and agrees, subject to the
limitations contained herein, to perform, pay or discharge the following:
(a) all unpaid debts and liabilities of Seller existing at the
Closing under the Agreement, but only if and to the extent they are
expressly set forth or reserved against in the balance sheet of Seller,
dated ____________________, 19__, delivered to ESI pursuant to Section
5(g) of the Agreement (the "Balance Sheet") or are incurred subsequent
to the date of the Balance Sheet and prior to the Closing in the
ordinary course of Seller's business and otherwise in conformity with
the representations, warranties and covenants of Seller with respect
thereto contained in the Agreement;
(b) all unperformed and unfulfilled obligations which are
required to be performed and fulfilled by Seller under the terms of all
executory written contracts, agreements, leases, licenses, commitments
and undertakings (i) which are listed in Schedule 5(n) referred to in
the Agreement and assigned to purchaser or which are not by the terms
thereof required to be so listed and which, in all cases, conform to
the representations and warranties with respect thereto contained in
the Agreement and (ii) which have been entered into by Seller on or
after the date of the Agreement and prior to the Closing, which are
permitted by the terms of the Agreement and which, in all cases,
conform to the
Exhibit D - 1
representations, warranties and covenants of Seller with respect
thereto contained in the Agreement.
2. Notwithstanding anything to the contrary contained above, the debts,
liabilities and obligations assumed by ESI under Paragraph 1 hereof shall not
include any:
(a) legal, accounting, brokerage, finder's fee, taxes or other
expenses incurred by Seller in connection with the Agreement or the
consummation of the transactions contemplated thereby; or
(b) debts, liabilities or obligations of any nature to any
past or present shareholder of Seller; or
(c) [need to discuss how to approach taxes]federal, state or
local income, franchise, excise, sales, use, property, payroll or
similar taxes imposed on Seller except to the extent that (i) such
taxes constitute debts or liabilities of Seller which would be assumed
by ESI under the provisions of paragraph 1(a) above; (ii) ESI gets the
benefits of all deposits, escrow accounts or other payments made or
collected by Seller on account of or with respect to such tax
liabilities; and (iii) Seller complies with each of the following
conditions:
(A) Seller shall afford ESI the right, at its option,
to assume the entire control of the preparation and filing of
all tax returns with respect thereto, and Seller shall keep
ESI fully advised as to any and all investigations, audits or
other proceedings or communications by any taxing agent or
authority which may affect the amount of the tax liabilities
being assumed hereunder; and
(B) Seller shall afford ESI the right, at its option,
to assume the entire control of any such audit or other
proceeding insofar as it may relate to the liabilities of
Seller assumed hereunder, including the defense, compromise or
settlement thereof, and in connection therewith Seller and the
Stockholders shall cooperate fully and make available to ESI
all information under their control relating thereto which ESI
may reasonably request and shall execute and deliver to ESI
such powers-of-attorney or other documents which ESI may
reasonably deem necessary or desirable to effectuate the
foregoing.
(d) liabilities or obligations of Seller resulting or arising
from claims for personal injury or property damage or out of any breach
or any non-performance by Seller of any contract, commitment or
obligation imposed by law or otherwise, except to the extent covered by
insurance proceeds payable to or on behalf of ESI; or
Exhibit D - 2
(e) debts, liabilities or obligations arising under any
contract which has not been assigned to ESI so that ESI will enjoy the
full benefits thereunder or which is listed in any Schedule to the
Agreement and specifically designated thereon as "Not Assumed"; or
(f) debts, liabilities or obligations of Seller, direct or
indirect, fixed, contingent or otherwise, which exist at or as of the
date of the Closing or which arise after the Closing but which are
based upon or arise from any act, omission, transaction, circumstance,
sale of goods or services, state of facts or other condition which
occurred or existed on or before the date of the Closing, whether or
not then known, due or payable, except to the extent reflected or
reserved against on the face of the Balance Sheet (excluding the notes
thereto) or incurred after the Balance Sheet Date in connection with
the purchase of goods or services in the ordinary course of Seller's
business and in conformity with the representations, warranties and
covenants contained in the Agreement.
3. Nothing contained herein shall require ESI to pay or discharge any
debts or obligations expressly assumed hereby so long as ESI shall in good faith
contest or cause to be contested the amount or validity thereof.
4. Other than as specifically stated above or in the Agreement, ESI
assumes no debt, liability or obligation of Seller by this Undertaking, and it
is expressly understood and agreed that all debts, liabilities and obligations
not assumed hereunder by ESI shall remain the sole obligation of Seller, its
successors and assigns, and no person, firm or corporation other than Seller and
the shareholders of Seller shall have any rights under this Undertaking or the
provisions contained herein.
By:___________________________
President
Exhibit D - 3
Exhibit "E"
Business Description--to come
Exhibit "F"
Form of Employment Agreement
[To come]
Exhibit "G"
NON-COMPETITION AND CONTINUITY
OF BUSINESS DEALINGS UNDERTAKING
--------------------------------
UNDERTAKING dated ________________, 19__ by
_____________________________________________________ in favor of
_____________________________, a _______________ corporation (hereinafter called
the "Company").
W I T N E S S E T H:
WHEREAS, the Company has entered into an Agreement of Purchase and Sale of
Assets, dated ______________, 19__ (the "Agreement"), with
________________________, a _______________ corporation, having its principal
office at _______________________, ______________________, (hereinafter called
"Seller") and the shareholders of Seller, pursuant to which the Company is to
Purchase from Seller, and Seller is to sell to the Company, all of the business,
assets, properties, goodwill and rights of Seller (the "Seller's Assets"); and
WHEREAS, the undersigned is one of the parties referred to in the
Agreement as being required to execute and deliver this Undertaking.
NOW, THEREFORE, in consideration of One Dollar ($1.00) and other good
and valuable consideration, the receipt of which by the undersigned is hereby
acknowledged, and in order to induce the Company to purchase the Seller's Assets
pursuant to the terms of the Agreement, the undersigned hereby undertakes and
agrees as follows:
1. The undersigned will not, for a period of five (5) years
from the date of the closing of the transactions contemplated by the
Agreement (hereinafter called the "Closing"), or, if the undersigned
shall be or become an employee of the Company, for a period of three
(3) years after the termination of undersigned's employment, whichever
is later (the "Limited Period"), directly or indirectly, anywhere in
the United States or Canada or within the geographical area or
territory where the business of Seller is presently being conducted or
may from time to time be conducted by the Company during the Limited
Period, own, manage, operate or control, or participate in the
ownership, management, operation or control of, or be connected with or
have any interest in, as a stockholder, director, officer, employee,
agent, consultant, partner or otherwise, (a) any business which
manufactures, produces, sells or distributes _______________________ or
any other products which have been manufactured, produced, sold or
distributed by Seller or which are competitive therewith or (b) any
other business which is competitive with any business conducted by
Seller or any of its subsidiaries during the Limited Period; provided,
however, that nothing contained herein shall prohibit the undersigned
from owning less than 5% of any class of securities listed on a
national securities exchange or traded publicly in the
Exhibit G- 1
over-the-counter market. If any of the provisions of this paragraph is
held to be unenforceable because of the scope, duration or area of its
applicability, the court making such determination shall have the power
to modify such scope, duration of area or all of them, and such
provision shall then be applicable in such modified form.
2. The undersigned will use his or its best efforts to
preserve the business organization of Seller; to keep available to the
Company the services of Seller's present officers, employees and agents
and to preserve for the Company Seller's present business relations
with its suppliers, distributors, customers and others, and the
undersigned shall not, either before or after the Closing, commit any
act, or in any way assist others to commit any act, which will injure
the Company or the business heretofore conducted by Seller, and,
without limiting the generality of the foregoing, the undersigned will
not divulge any confidential information or make available to any
others any documents, files or other papers concerning the business or
financial affairs of Seller.
3. Since the Company will be irreparably damaged if the
provisions hereof are not specifically enforced, the Company shall be
entitled to an injunction restraining any violation of this Undertaking
by the undersigned (without any bond or other security being required),
or any other appropriate decree of specific performance. Such remedies
shall not be exclusive and shall be in addition to any other remedy
which the Company may have.
This Undertaking shall inure to the benefit of the Company and its
successors and assigns, shall be binding upon the undersigned and his or its
successors and assigns and may not be modified or terminated orally.
______________________________
Exhibit G- 2
Exhibit "H"
Form of Opinion of Seller's Counsel
[To Come]
Exhibit "I"
Form of Opinion of ESI's Counsel
[To Come]
Exhibit "J"
Allocation of Assets
[To Come]
