STOCK PURCHASE AGREEMENT
BY AND AMONG
MLC HOLDINGS, INC.,
CLG Inc.,
AND
CENTURA BANK
AS THE SOLE SHAREHOLDER OF CLG, INC.
Dated as of August 31, 1999
TABLE OF CONTENTS
Page
Parties.......................................................................................................1
Background....................................................................................................1
ARTICLE 1-TRANSACTIONS AND TERMS OF ACQUISITION...............................................................1
1.1 Acquisition.....................................................................................1
1.2 Time and Place of Closing.......................................................................1
1.3 Effective Time..................................................................................1
ARTICLE 2-CONSIDERATION.......................................................................................1
2.1 Consideration...................................................................................1
2.2 Exchange Procedures.............................................................................2
ARTICLE 3-REPRESENTATIONS AND WARRANTIES OF SELLER AND THE SOLE SHAREHOLDER...................................2
3.1 Organization, Standing, and Foreign Qualification...............................................2
3.2 Authority of Seller and the Sole Shareholder; No Breach By Agreement............................2
3.3 Validity of Contemplated Transactions, Restrictions.............................................3
3.4 Capital Stock...................................................................................3
3.5 Subsidiaries and Investments....................................................................3
3.6 Financial Statements............................................................................3
3.7 Absence of Undisclosed Liabilities..............................................................3
3.8 Absence of Changes..............................................................................4
3.9 Tax Matters.....................................................................................4
3.10 Title to Assets; Encumbrances; Condition........................................................4
3.11 Real Property...................................................................................5
3.12 Intellectual Property...........................................................................5
3.13 Computer Software and Databases.................................................................6
3.14 Accounts Receivable.............................................................................6
3.15 Insurance.......................................................................................6
3.16 Compliance with Law.............................................................................6
3.17 Environmental...................................................................................7
3.18 Litigation and Claims...........................................................................7
3.19 Benefit Plans...................................................................................8
3.20 Contracts.......................................................................................9
3.21 Suppliers and Customers.........................................................................10
3.22 Labor Matters...................................................................................10
3.23 Interested Transactions.........................................................................11
3.24 Leases..........................................................................................11
3.25 Eligibility Under Section 338(h)(10)............................................................11
3.26 Brokers and Finders.............................................................................11
3.27 Only Representations............................................................................11
ARTICLE 4-REPRESENTATIONS AND WARRANTIES OF PURCHASER.........................................................11
4.1 Organization, Standing, and Foreign Qualification...............................................11
4.2 Authority and Binding Effect....................................................................12
4.3 Validity of Contemplated Transactions, Restrictions.............................................12
-i-
4.4 Capital Stock...................................................................................12
4.5 SEC Filings; Financial Statements...............................................................12
4.6 Absence of Undisclosed Liabilities..............................................................13
4.8 Brokers and Finders.............................................................................13
4.9 Only Representations............................................................................13
ARTICLE 5-COVENANTS AND ADDITIONAL AGREEMENTS OF SELLER, THE SOLE SHAREHOLDER, AND PURCHASER..................13
5.1 Conduct of Business Pending Consummation........................................................13
5.2 Right of Inspection; Access.....................................................................14
5.3 Confidentiality.................................................................................14
5.4 Schedules.......................................................................................14
5.5 Other Offers and Exclusive Dealing..............................................................15
5.6 Certain Tax Matters.............................................................................15
5.7 Consents and Approvals..........................................................................15
5.8 Supplying Financial Statements..................................................................15
5.9 Consummation of Transactions; Closing Conditions................................................15
5.10 Expenses........................................................................................15
5.11 Further Assurances..............................................................................16
5.12 Qualification and Corporate Existence...........................................................16
5.13 Repayment of Debts to Seller....................................................................16
5.14 Employee Benefits and Contracts.................................................................16
5.15 Exchange Listing................................................................................16
5.16 Press Releases..................................................................................17
5.17 Representations of the Sole Shareholder.........................................................17
5.18 Information Pursuant to Regulation D............................................................17
5.19 Undertaking of the Sole Shareholder - SEC Rule 144..............................................17
5.20 Registration Rights.............................................................................18
5.21 Employment Agreements...........................................................................22
5.22 Bank Loans......................................................................................23
5.23 Reimbursement of Security Deposits..............................................................23
5.24 Inventory and Leasehold Improvements............................................................23
5.25 Termination of Commission Plan..................................................................24
5.26 Election Under Section 338(h)(10)...............................................................24
5.27 Shareholders'Equity of Seller...................................................................24
5.28 Office Lease....................................................................................24
5.29 Nonsolicitation.................................................................................32
ARTICLE 6-CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER....................................................25
6.1 Representations True and Covenants Performed at Effective Time..................................25
6.2 Certified Copies of Resolutions; Incumbency Certificate.........................................25
6.3 No Injunction, Etc..............................................................................25
6.4 No Material Adverse Change......................................................................25
6.5 Opinions of Counsel.............................................................................25
6.6 ▇▇▇▇-▇▇▇▇▇ Act Approval.........................................................................25
6.7 Exchange Listing................................................................................26
6.8 Financing.......................................................................................26
6.9 Year 2000 Compliance............................................................................26
6.10 Financial Statements............................................................................26
6.11 Board Approval..................................................................................35
ARTICLE 7-CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER AND THE SOLE SHAREHOLDER..............................26
7.1 Representations True and Covenants Performed at Closing.........................................26
7.2 Certified Copies of Resolutions; Incumbency.....................................................27
7.3 No Injunction, Etc..............................................................................27
7.4 ▇▇▇▇-▇▇▇▇▇ Act Approval.........................................................................27
7.5 Exchange Listing................................................................................27
ARTICLE 8-SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND INDEMNIFICATION......................................27
8.1 Survival of Representations and Warranties......................................................27
8.2 Obligation of the Sole Shareholder to Indemnify.................................................28
8.3 Obligation of Purchaser to Indemnify............................................................28
8.4 Notice of Loss or Asserted Liability............................................................28
8.5 Opportunity to Contest..........................................................................29
8.6 Limitations on Indemnification..................................................................29
8.7 Subrogation Rights..............................................................................29
8.8 Tax Effect......................................................................................30
8.9 Indemnification Payments........................................................................30
8.10 Indemnification Exclusive Remedy................................................................30
8.11 Arbitration.....................................................................................30
ARTICLE 9-TERMINATION.........................................................................................30
9.1 Method of Termination...........................................................................30
9.2 Notice of Termination...........................................................................31
9.3 Effect of Termination...........................................................................31
9.4 Risk of Loss....................................................................................31
ARTICLE 10-DEFINITIONS........................................................................................31
ARTICLE 11-MISCELLANEOUS......................................................................................36
11.1 Notices.........................................................................................36
11.2 Entire Agreement................................................................................37
11.3 Modifications, Amendments, and Waivers..........................................................37
11.4 Successors and Assigns..........................................................................38
11.5 Time of the Essence.............................................................................38
11.6 Table of Contents; Captions; References.........................................................38
11.7 Governing Law...................................................................................38
11.8 Pronouns........................................................................................38
11.9 Severability....................................................................................38
11.10 Counterparts....................................................................................38
11.11 Interpretations.................................................................................38
SIGNATURES....................................................................................................40
-ii-
EXHIBITS AND SCHEDULES
Schedule 3.1 Organization, Standing, and Foreign Qualification
Schedule 3.7 Absence of Undisclosed Liabilities
Schedule 3.8 Dividends and Distributions
Schedule 3.9 Tax Matters
Schedule 3.10 Title to Assets; Encumbrances, Conditions
Schedule 3.11(a) Owned Real Property
Schedule 3.11(c) Leased Real Property
Schedule 3.12 Intellectual Property
Schedule 3.13 Computer Software and Databases
Schedule 3.15 Insurance
Schedule 3.17 Environmental
Schedule 3.18 Litigation and Claims
Schedule 3.19 Benefit Plans and Benefit Plan Matters
Schedule 3.20(a)(i) Real Property Contracts
Schedule 3.20(a)(ii) Personal Property Contracts
Schedule 3.20(a)(iii) Purchase Orders - Non Capital Assets
Schedule 3.20(a)(iv) Purchase Orders - Capital Assets
Schedule 3.20(a)(v) Sales
Schedule 3.20(a)(vi) Employment; Other Affiliate Contracts
Schedule 3.20(a)(vii) Sales Representatives
Schedule 3.20(a)(viii) Any Other Contracts
Schedule 3.20(b) No Default
Schedule 3.21 Large Suppliers and Large Customers
Schedule 3.22 Labor Matters
Schedule 3.23 Interested Transactions
Schedule 5.14 Employee Benefits and Contracts
Schedule 5.22 Leases
Schedule 5.24 Assets
Schedule 5.28 Significant Customers
Exhibit 6.5 Form of Opinion of ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇.
Exhibit 6.9 Commitment Letter
-iii-
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made and
entered into as of August 31, 1999, by and among MLC HOLDINGS, INC.
("Purchaser"), a Delaware corporation; CLG, INC. ("Seller"), a North Carolina
corporation; and CENTURA BANK, a North Carolina banking corporation and the sole
shareholder of Seller (the "Sole Shareholder").
BACKGROUND
This Agreement provides for the acquisition of Seller by
Purchaser in consideration of a combination of cash and common stock of
Purchaser. As a result, Seller shall continue to conduct its business and
operations as a wholly owned subsidiary of Purchaser. The transactions described
in this Agreement are subject to the expiration of the required waiting period
under the ▇▇▇▇-▇▇▇▇▇ Act and the satisfaction of certain other conditions
described in this Agreement.
Certain terms used in this Agreement are defined in Article 10
of this Agreement.
IN CONSIDERATION OF the foregoing, the mutual covenants,
agreements, representations, and warranties contained in this Agreement, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1
TRANSACTIONS AND TERMS OF ACQUISITION
1.1 Acquisition. Subject to the terms and conditions of this Agreement, at
the Effective Time, the Sole Shareholder shall sell and Purchaser shall purchase
all of the outstanding shares of capital stock and rights to purchase
outstanding shares of capital stock of Seller (the "Acquisition"). Seller shall
become a wholly-owned Subsidiary of Purchaser and shall continue to be a
corporation governed by the Laws of the State of North Carolina. The Acquisition
shall be consummated pursuant to the terms of this Agreement, which has been
approved and adopted by the respective Boards of Directors of Seller and the
Sole Shareholder.
1.2 Time and Place of Closing. The closing of the transactions contemplated
hereby (the "Closing") will take place at 11:00 A.M. on the date that the
Effective Time occurs, or at such other time as the Parties, acting through
their authorized officers, may mutually agree (the "Closing Date"). The Closing
shall be held at the offices of ▇▇▇▇▇▇ & Bird LLP, 601 Pennsylvania Avenue,
N.W., North Building, 11th Floor, Washington, D.C. 20004-2601, or such other
location as may be mutually agreed upon by the Parties.
1.3 Effective Time. The Acquisition and other transactions contemplated by
this Agreement shall become effective (the "Effective Time") on the third
business day after the effective date (including expiration of any applicable
waiting period) of the last required Consent of any Governmental Authority
having authority over and approving or exempting the Acquisition, provided that
in no event shall the Effective Time occur after September 30, 1999.
ARTICLE 2
CONSIDERATION
2.1 Consideration. At the Effective Time, Purchaser shall purchase and the
Sole Shareholder shall sell and convey free and clear of all liens and
encumbrances all shares of Seller Common Stock (including any associated Seller
Equity Rights), in consideration of Purchaser delivering (i) a cash payment in
the amount of $33,465,000, and (ii) that number of shares of Purchaser Common
Stock equal to the quotient obtained by dividing (1) $3,045,000 by (2) the
Average Closing Price; provided, that at Purchaser's sole election, up to
$1,965,000 of the $33,465,000 cash payment to be made pursuant to clause
(i) may be paid in shares of Purchaser Common Stock, with such number of shares
of Purchaser Common Stock to be issued pursuant to this proviso being determined
by dividing that amount of cash elected by Purchaser to be paid in shares of
Purchaser Common Stock pursuant to this proviso, up to a maximum of $1,965,000,
by (ii) the Average Closing Price. For purposes of this Agreement, the phrase
"Average Closing Price" shall mean the average of the closing prices of
Purchaser Common Stock on the Nasdaq NMS (as reported by The Wall Street Journal
or, if not reported thereby, any other authoritative source selected by
Purchaser) for the ten (10) full trading days ending on the fifth full trading
day immediately preceding the Closing Date; provided however, that in the event
the Average Closing Price shall be less than $7.00, the Average Closing Price
shall be deemed to be $7.00..
2.2 Exchange Procedures. On the Closing Date, the Sole Shareholder shall
surrender and endorse to Purchaser the certificate or certificates representing
all outstanding shares of Seller Common Stock and shall upon surrender thereof
receive in exchange therefor (i) the Cash Payment (without interest), by wire
transfer of immediately available funds, or in such other form and manner as may
be mutually satisfactory, and (ii) certificates representing the shares of
Purchaser Common Stock calculated as provided in Section 2.1
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER AND THE SOLE SHAREHOLDER
Each of Seller and the Sole Shareholder hereby jointly and
severally represents and warrants to Purchaser that the statements made in this
Article 3 are accurate as of the date of this Agreement (or as of such other
date as is indicated below), and shall be accurate as of the Effective Time,
except as disclosed in the Schedules attached hereto.
3.1 Organization, Standing, and Foreign Qualification. Seller is a
corporation duly organized, validly existing and in good standing under the Laws
of the State of North Carolina with the corporate power and authority to carry
on its business and to own, lease, and operate its Assets. Seller is duly
qualified or licensed to transact business as a foreign corporation in good
standing in the jurisdictions listed in Schedule 3.1, and the character of its
Assets or the nature of its business do not require such qualification or
licensing in any other jurisdiction wherein the failure to be duly qualified or
licensed is reasonably likely to have a Material Adverse Effect on Seller.
Copies of Seller's Articles of Incorporation and all amendments thereto
(certified by the Secretary of State of the State of North Carolina) and
Seller's Bylaws and all amendments thereto (certified by the Secretary of
Seller), are attached hereto as part of Schedule 3.1. Copies of the corporate
minutes of Seller, which have been or will be made available to Purchaser for
review, accurately reflect all proceedings of the shareholders and the Board of
Directors (and all committees thereof) of Seller.
3.2 Authority of Seller and the Sole Shareholder; No Breach By Agreement.
(a) Seller has the corporate power and authority necessary to execute,
deliver, and perform its obligations under this Agreement and to consummate the
transactions contemplated hereby, including the Acquisition. The execution,
delivery, and performance of this Agreement and the consummation of the
transactions contemplated herein, including the Acquisition, have been duly and
validly authorized by all necessary corporate and shareholder action in respect
thereof on the part of Seller. This Agreement represents a legal, valid, and
binding obligation of Seller, enforceable against Seller in accordance with its
terms (except in all cases as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, receivership, conservatorship,
moratorium, or similar Laws affecting the enforcement of creditors' rights
generally and except that the availability of the equitable remedy of specific
performance or injunctive relief is subject to the discretion of the court
before which any proceeding may be brought).
(b) The Sole Shareholder has the corporate power and authority necessary to
execute, deliver, and perform its obligations under this Agreement and to
consummate the transactions contemplated hereby, including the Acquisition. The
execution, delivery, and performance of this Agreement and the consummation of
-2-
the transactions contemplated herein, including the Acquisition, have been duly
and validly authorized by all necessary corporate and shareholder action in
respect thereof on the part of the Sole Shareholder. This Agreement represents a
legal, valid, and binding obligation of the Sole Shareholder, enforceable
against the Sole Shareholder in accordance with its terms (except in all cases
as such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, receivership, conservatorship, moratorium, or similar Laws
affecting the enforcement of creditors' rights generally and except that the
availability of the equitable remedy of specific performance or injunctive
relief is subject to the discretion of the court before which any proceeding may
be brought).
3.3 Validity of Contemplated Transactions, Restrictions. The execution,
delivery, and performance of this Agreement by Seller and the Sole Shareholder
and the consummation of the transactions contemplated hereby, will not (i)
violate any provision of the Articles of Incorporation or Bylaws of Seller or
the Sole Shareholder, or any Law or Order relating to Seller or the Sole
Shareholder, (ii) result in a Default under, or require the consent or approval
of any party to, any Contract or License of Seller or the Sole Shareholder, or
(iii) result in the creation or imposition of any Lien on any of the Assets of
Seller
3.4 Capital Stock.
(a) The authorized capital stock of Seller consists of (i) 25,000,000
shares of Seller Class A Common Stock, of which 4,500 shares are issued and
outstanding as of the date of this Agreement and not more than 4,500 shares will
be issued and outstanding at the Effective Time and (ii) 25,000,000 shares of
Seller Class B Common Stock, of which no shares are issued and outstanding as of
the date of this Agreement. All of the issued and outstanding shares of capital
stock of Seller are duly and validly issued and outstanding, are fully paid and
nonassessable under the NCBCA, and are held by the Sole Shareholder. None of the
outstanding shares of capital stock of Seller has been issued in violation of
any preemptive rights of the current or past shareholders of Seller.
(b) Except as set forth in Section 3.4(a), there are no shares of capital
stock or other equity securities of Seller outstanding and no outstanding Equity
Rights relating to the capital stock of Seller. The Sole Shareholder is the
owner of all right, title, and interest (legal and beneficial), free and clear
of all Liens in and to all of the issued and outstanding shares of Seller's
capital stock. Except as specifically contemplated by this Agreement, no Person
has any Contract or any right or privilege (whether pre-emptive or contractual)
capable of becoming a Contract for the purchase from the Sole Shareholder of any
of the shares of Seller capital stock, or any Contract or Equity Right for the
purchase, subscription or issuance of any securities of Seller.
3.5 Subsidiaries and Investments. Seller has no Subsidiaries and does not
currently own, directly or indirectly, any capital stock or other equity,
ownership, proprietary, or voting interest in any Person.
3.6 Financial Statements. The Seller Financial Statements (i) are in
accordance with the books and records of Seller and (ii) present fairly in all
respects the financial position of Seller as of the dates indicated and the
results of its operations and its cash flows for the periods then ended in
accordance with GAAP, consistently applied. The Seller Financial Statements
contain all adjustments necessary to present fairly the financial condition of
Seller as of the respective dates indicated and the results of operations of
Seller for the respective periods indicated, except for normal audit
adjustments.
3.7 Absence of Undisclosed Liabilities. Except as set forth on Schedule
3.7, there are no Undisclosed Liabilities or any basis for or threat of an
assertion against Seller or the Assets of any Undisclosed Liability, except for
Liabilities incurred since the Unaudited Balance Sheet Date in the ordinary
course of business consistent with past practice.
3.8 Absence of Changes. Since the Unaudited Balance Sheet Date, (i) Seller
has carried on its business only in the ordinary course consistent with past
practice, (ii) there has been no Material Adverse Change, and there has been no
event or circumstance which is reasonably anticipated to result in a Material
Adverse Change, with respect to Seller, (iii) Seller has not made any change in
any method of accounting or accounting practice, and (iv) Seller has not
-3-
canceled, modified or waived, without receiving payment or performance in full,
any (1) Liability owed to Seller, including without limitation, any receivable
of Seller from any Affiliate or any Related Party to an Affiliate, (2)
Litigation Seller may have against other Persons, or (3) other Material rights
of Seller. Except as disclosed on Schedule 3.8, since July 31, 1999, Seller has
not directly or indirectly declared, paid or authorized any dividends or other
distributions or payments in respect of its shares or securities.
3.9 Tax Matters. Except as set forth in Schedule 3.9:
(a) The Sole Shareholder will file, within 90 days after the period end,
for all periods ending at the Effective Time with the appropriate Governmental
Authorities all required Tax Returns in all jurisdictions in which the Tax
Returns are required to be filed, and such Tax Returns are Materially correct
and complete in all respects. Seller is not the beneficiary of any extension of
time within which to file any Tax Return. All Taxes (whether or not shown on any
Tax Return) for all periods ended on or before December 31, 1998, have been
fully paid or appropriate deposits or adequate accruals have been made therefor
on the Unaudited Balance Sheet. To the Knowledge of Seller, no basis exists for
any Material additional assessment of any Taxes.
(b) The reserves for Taxes in the Unaudited Balance Sheet are Materially
sufficient for the payment of all unpaid Liabilities for Taxes of Seller
(whether or not disputed) for all activities which occurred and all Assets owned
during the periods ended on or before the Unaudited Balance Sheet Date. Since
the Unaudited Balance Sheet Date, Seller has not incurred any Liability for
Taxes other than in the ordinary course of business and no such Tax Liability so
incurred is Material. Seller has not been delinquent in the payment of any Tax,
assessment, deposit or other charge by any Governmental Authority and no
Liability is pending or has been assessed, asserted or threatened against Seller
in connection with any Tax and to the Knowledge of Seller, there is no basis for
any such Liability. Seller has not received any notice of assessment or proposed
assessment in connection with any Tax Returns and there are no pending Tax
examinations of or Tax claims asserted against Seller, including without
limitation, any claim by any Governmental Authority in any jurisdiction where
Seller did not file Tax Returns that Seller is or may be subject to or liable
for Taxes imposed by that Governmental Authority or jurisdiction. There are no
Liens for any Taxes (other than any Lien for current real property or ad valorem
Taxes not yet due and payable) on any of the Assets or assets of Seller.
(c) None of Seller's Tax Returns is currently being audited by the IRS or
any other Governmental Authority and Seller has neither waived any statute of
limitations in respect of Taxes nor agreed to a Tax assessment or deficiency.
Seller has not filed any consent under Section 341(f) of the Code relating to
collapsible corporations.
3.10 Title to Assets; Encumbrances; Condition.
(a) Seller has good, valid, and, in the case of the Owned Real Property,
marketable and insurable title to all of Seller's Assets free and clear of any
and all Liens, except Permitted Liens. Schedule 3.10 describes all documents
evidencing the Liens upon Seller's Assets and copies of all title insurance
policies relating to any of the Owned Real Property.
(b) Each of the improvements on any Leased Real Property and each item of
Owned Personal Property is in good condition and repair, reasonable wear and
tear excepted, and is usable in the ordinary course of business consistent with
past practices. Each improvement on any Leased Real Property and each item of
Owned Personal Property is, in the opinion of Seller, adequate for its present
and intended uses and operation and Seller has no intention to use or operate
any such improvement or any item of Owned Personal Property other than as
presently used or operated.
3.11 Real Property.
(a) Schedule 3.11(a) contains a description (including, without limitation,
a legal description) of all of the Owned Real Property. Any and all rights and
easements for public vehicular ingress thereto and egress therefrom (including
curb-cut rights from adjacent public streets) necessary for the Seller's
-4-
business as presently conducted are available to the Owned Real Property. No
facts or circumstances exist which do, or potentially may, adversely affect any
of the ordinary rights of access to and from the Owned Real Property, from and
to the existing public highways and roads, and, to the Knowledge of Seller,
there is no pending or threatened denial, revocation, modification, or
restriction of such access.
(b) Immediately prior to the Effective Time, there will be no Persons in
possession of the Owned Real Property or any part thereof other than Seller. No
claim or right of adverse possession by any Third Party has been claimed or
threatened with respect to the Owned Real Property and none of such property is
subject to any Order for its sale, condemnation, expropriation, or taking (by
eminent domain or otherwise) by any Governmental Authority nor, to the Knowledge
of Seller, has any such sale, condemnation, expropriation, or taking been
proposed or threatened. Seller has not received any notice from any Governmental
Authority with regard to encroachments on or off the Owned Real Property,
violations of building codes, zoning, subdivision, or other similar Laws or
other material defects in the good, valid, marketable, and insurable title of
said Owned Real Property.
(c) Schedule 3.11(c) contains a description of all Leased Real Property.
Each of the Contracts of Seller relating to such Leased Real Property is fully
and accurately identified and described (including, without limitation,
duration, significant terms and details of purchase options, if any) in Schedule
3.20(a)(i) and each such Contract is in full force and effect. Neither the
Leased Real Property nor any of Seller's right, title, or interest therein is
affected by any Lien, prior interests, or superior interests of any nature
whatsoever that will, or potentially could, terminate or otherwise adversely
affect such Leased Real Property or any of Seller's right, title, and interest
therein.
(d) All of the Real Property is in compliance in all respects with all
applicable zoning or similar land use restrictions of all Governmental
Authorities having jurisdiction thereof and with all recorded restrictions,
covenants, and conditions affecting any of the Real Property and Seller has
performed in all respects all affirmative covenants relating to the Real
Property and required to be performed by Seller.
3.12 Intellectual Property.
(a) Schedule 3.12 contains a list of all of Seller's Intellectual Property.
All Licenses included in Seller's Intellectual Property are in full force and
effect and constitute legal, valid, and binding obligations of the respective
parties thereto and there have not been and there currently are not any Defaults
thereunder by any party. Neither Seller nor any of its predecessors or
Affiliates (or any goods or services sold by any of them) has violated,
infringed upon, or unlawfully or wrongfully used the Intellectual Property of
others and, to the Knowledge of Seller, none of Seller's Intellectual Property
or any related rights or any customer lists, supplier lists, or mailing lists,
as used in Seller's business now or heretofore conducted by Seller, infringes
upon or otherwise violates the rights of others, nor has any Person asserted a
claim of such infringement or misuse. Except as set forth on Schedule 3.12,
Seller has taken all reasonable measures to enforce, maintain, and protect its
interests and, to the extent applicable, the rights of Third Parties, in and to
Seller's Intellectual Property. Seller has all right, title, and interest in the
Intellectual Property identified on Schedule 3.12. The consummation of the
transactions contemplated by this Agreement will not alter or impair any
Intellectual Property rights of Seller or result in a Default under any Contract
of Seller. Seller is not obligated nor has Seller incurred any Liability to make
any payments for royalties, fees, or otherwise to any Person in connection with
any of Seller's Intellectual Property. All patents, trademarks, trade names,
service marks, assumed names, and copyrights and all registrations thereof
included in or related to Seller's Intellectual Property are valid, subsisting,
and in full force and effect.
(b) No present or former officer, director, partner, or employee of Seller
owns or has any proprietary, financial, or other interest, direct or indirect,
in any of Seller's Intellectual Property. No officer, director, partner, or
employee of Seller has entered into any Contract that requires such officer,
director, partner, or employee to assign any interest to inventions or other
Intellectual Property or keep confidential any trade secrets, proprietary data,
customer lists, or other business information or which restricts or prohibits
such officer, director, partner, or employee from engaging in competitive
activities with or the solicitation of customers from any competitor of Seller.
3.13 Computer Software and Databases. Schedule 3.13 identifies all Computer
Software and Databases owned, licensed, leased, internally developed, or
-5-
otherwise used in connection with Seller's business ("Seller's Computer Software
and Databases"). Seller has all Computer Software and Databases that are
necessary to conduct Seller's business as presently conducted by Seller and all
documentation relating to all such Computer Software and Databases. Seller's
Computer Software and Databases perform in accordance with the documentation
related thereto or used in connection therewith and are free of defects in
programming and operation. Schedule 3.13 identifies each Person to whom Seller,
in the last two (2) years, has sold, licensed, leased, or otherwise transferred
or granted any interest or rights to any of Seller's Computer Software and
Databases and the date of each such sale, license, lease, or other transfer or
grant.
3.14 Accounts Receivable. The Accounts Receivable are validly existing and
enforceable by Seller in accordance with the terms of the instruments or
documents creating them. The allowance for collection losses on the Unaudited
Balance Sheet was established in the ordinary course of business consistent with
past practices and in accordance with GAAP. The Accounts Receivable represents
monies due for, and have arisen solely out of, bona fide sales and deliveries of
goods, performance of services, and other business transactions in the ordinary
course of business consistent with past practices. None of the Accounts
Receivable represent monies due for goods either sold on consignment or sold on
approval. There are no refunds, discounts, or other adjustments payable with
respect to any such Accounts Receivable, and, to the Knowledge of Seller, there
are no defenses, rights of set-off, counterclaims, assignments, restrictions,
encumbrances, or conditions enforceable by Third Parties on or affecting any
Account Receivable.
3.15 Insurance. All of the Assets and the operations of Seller of an
insurable nature and of a character usually insured by companies of similar size
and in similar businesses are insured by Seller in such amounts and against such
losses, casualties or risks as is (i) usual in such companies and for such
assets, operations, and businesses, (ii) required by any Law applicable to
Seller, or (iii) required by any Contract of Seller relating to Seller's
business. Schedule 3.15 contains a complete and accurate list of all insurance
policies held or owned by Seller and now in force and such Schedule indicates
the name of the insurer, the type of policy, the risks covered thereby, the
amount of the premiums, the term of each policy, the policy number and the
amounts of coverage and deductible in each case and all outstanding claims
thereunder as of the date hereof. All such policies are in full force and effect
and enforceable in accordance with their terms. Seller is not now in Default
regarding the provisions of any such policy, including, without limitation,
failure to make timely payment of all premiums due thereon, and has not failed
to give any notice or present any claim thereunder in due and timely fashion.
Seller has not been refused, or denied renewal of, any insurance coverage in
connection with the ownership or use of the Assets or the operation of Seller's
business. In addition to the deductibles set forth on Schedule 3.15, such
Schedule discloses all risks that are self-insured by Seller that in the
ordinary course of business would reasonably be insured by companies of similar
size.
3.16 Compliance with Law. Seller is in compliance in all respects with all
Laws, Licenses, and Orders applicable to, required of or binding on Seller, and
Seller has no Knowledge of any basis for any claim of current or past Material
non-compliance with any such Law, License, or Order. No notices from any
Governmental Authority with respect to any failure or alleged failure of Seller,
to comply in all respects with any Law, License, or Order have been received by
Seller, nor, to the Knowledge of Seller, are any such notices proposed or
threatened.
3.17 Environmental.Except as set forth in Schedule 3.17:
(a) There are no Environmental Claims (or any Litigation against any Person
whose Liability for environmental matters, or any violation of Environmental
Laws, Seller has or may have retained or assumed contractually or by operation
of Law) pending or threatened with respect to (i) the ownership, use, condition,
or operation of Seller's business, or any Asset currently held by Seller or any
Asset formerly held for use or sale by Seller or any of its predecessors, or
(ii) any violation or alleged violation of any Environmental Law or any Order
related to environmental matters. There are no existing violations of (i) any
Environmental Law, or (ii) any Order related to environmental matters, with
-6-
respect to the ownership, use, condition, or operation of Seller's business, any
Asset currently held by Seller or any Asset formerly held for use or sale by
Seller or any of its predecessors or any of its current or former Subsidiaries,
except for violations which are not reasonably likely to have a Material Adverse
Effect on Seller. Neither Seller nor any of its predecessors nor anyone known to
Seller has, to the Knowledge of Seller, used any Assets or premises of Seller or
any of its predecessors or any part thereof for the handling, treatment,
storage, or disposal of any Hazardous Substances.
(b) Except as set forth on Schedule 3.17, no release, discharge, spillage,
or disposal of any Hazardous Substances has occurred or is occurring at any
Assets of Seller or any of its predecessors or any part thereof while or before
such Assets or premises were owned, leased, operated, or managed, directly or
indirectly, by Seller.
(c) No soil or water in, under, or adjacent to any Assets or premises of
Seller or Assets formerly held for use or sale by Seller or any of its
predecessors or any of its current or former Subsidiaries has been contaminated
by any Hazardous Substance while or before such Assets or premises were owned,
leased, operated, or managed, directly or indirectly, by Seller or any of its
predecessors or any of its current or former Subsidiaries.
(d) All waste containing any Hazardous Substances generated, used, handled,
stored, treated, or disposed of (directly or indirectly) by Seller or any of its
predecessors or any of its current or former Subsidiaries has been released or
disposed of in compliance with all applicable reporting requirements under any
Environmental Laws and Seller is not aware of any Environmental Claim with
respect to any such release or disposal.
(e) All underground tanks and other underground storage facilities
presently or previously located at any real property owned, leased, operated, or
managed by Seller or any of its predecessors or any such tanks or facilities
located at any real property while such real property was owned, leased,
operated, or managed by Seller or any of its predecessors are listed, together
with the capacity and contents (former and current) of each such tank or
facility, in Schedule 3.17. None of such underground tanks or facilities is
leaking or, to the Knowledge of Seller, has ever leaked.
(f) Seller and each of its predecessors has complied in all respects with
all applicable reporting requirements under all Environmental Laws concerning
the disposal or release of Hazardous Substances and neither Seller nor any of
its predecessors or any of its current or former Subsidiaries has made any such
reports concerning any real property or concerning the operations or activities
of Seller or any of its predecessors.
(g) No building or other Improvement or any real property owned, leased,
operated, or managed by Seller contains any friable asbestos-containing
materials.
3.18 Litigation and Claims. Schedule 3.18 contains a list of all Litigation
pending or, to the Knowledge of Seller, threatened against the Seller or any of
its Assets and all outstanding Orders binding upon Seller or Seller's
securities. There are no pending or, to the Knowledge of Seller, threatened
investigations or inquiries regarding Seller by any Governmental Authority.
Schedule 3.18 describes all inspection reports, questionnaires, inquiries,
demands, requests for information, and claims of Material violations or
noncompliance with any Law received by Seller from any Governmental Authority
and all written statements or responses of Seller with respect thereto.
3.19 Benefit Plans.
(a) Schedule 3.19 contains a list of every Employee Benefit Plan of Seller
to which Seller has any obligation to make contributions or in which employees
of Seller are participating. Except as set forth on Schedule 3.19, no Employee
Benefit Plan is or has been a multi-employer plan within the meaning of Section
3(37) of ERISA.
(b) The Employee Benefit Plans listed on Schedule 3.19 have been or will be
made available to Purchaser for review, including: (i) copies of all trust
agreements or other funding arrangements for such Employee Benefit Plans
(including insurance contracts), and all amendments thereto; (ii) with respect
to any such Employee Benefit Plans or amendments, all determination letters,
-7-
rulings, opinion letters, information letters, or advisory opinions issued by
the United States Internal Revenue Service, the United States Department of
Labor, or the Pension Benefit Guaranty Corporation after December 31, 1974;
(iii) annual reports or returns, audited or unaudited Seller Financial
Statements, actuarial valuations and reports and summary annual reports prepared
for any Employee Benefit Plan with respect to the most recent three plan years;
and (iv) the most recent summary plan descriptions and any material
modifications thereto.
(c) The Employee Benefit Plans listed on Schedule 3.19 and the related
trusts subject to ERISA comply with and have been administered in Material
compliance with, (i) the provisions of ERISA, (ii) all provisions of the Code
relating to qualification and tax exemption under Code Sections 401(a) and
501(a) or otherwise applicable to secure intended tax consequences, (iii) all
applicable state or federal securities Laws, and (iv) all other applicable Laws
and collective bargaining agreements, and Seller has not received any notice
from any Governmental Authority questioning or challenging such compliance. With
respect to the Employee Benefit Plans listed on Schedule 3.19, no event has
occurred which is reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on Seller, except Liabilities that are disclosed,
accrued, or reserved against in the Seller Financial Statements.
(d) No oral or written representation or communication with respect to any
aspect of the Employee Benefit Plans has been made to employees of Seller prior
to the date hereof which is not in accordance with the written or otherwise
preexisting terms and provisions of such plans. There are no unresolved claims
or disputes under the terms of, or in connection with, the Employee Benefit
Plans other than claims for benefits which are payable in the ordinary course
and no Litigation has been commenced with respect to any Employee Benefit Plan.
(e) Except as disclosed in Schedule 3.19, all Employee Benefit Plan
documents and annual reports or returns, audited or unaudited financial
statements, actuarial valuations, summary annual reports and summary plan
descriptions issued with respect to the Employee Benefit Plans disclosed in such
Schedule are correct and complete in all respects and there have been no
Material changes in the information set forth therein.
(f) Except as disclosed in Schedule 3.19, there has been no (i) "reportable
event" (as defined in Section 4043 of ERISA), or event described in Section
4062(e) or Section 4063 of ERISA, or (ii) termination or partial termination,
withdrawal or partial withdrawal with respect to any of the ERISA Plans which
Seller maintains or contributes to or has maintained or contributed to. Except
as disclosed in Schedule 3.19, Seller has incurred no liability under Title IV
of ERISA as a result of its membership in a "controlled group" as defined in
ERISA ss. 4001(b)(14).
(g) For any ERISA Plan which is an employee pension benefit plan as defined
in ERISA ss. 3(2) and except as disclosed in Schedule 3.19, the fair market
value of such Plan's assets equals or exceeds the present value of all benefits
(whether vested or not) accrued to date by all present or former participants in
such Plan. For this purpose the assumptions prescribed by the Pension Benefit
Guaranty Corporation for valuing plan assets or liabilities upon plan
termination shall be applied and the term "benefits" shall include the value of
all benefits, rights and features protected under Code Section 411(d)(6) or its
successors and any ancillary benefits (including disability, shutdown, early
retirement and welfare benefits) provided under any such employee pension
benefit plan.
(h) Except as set for the on Schedule 3.19, Seller has not, and does not,
maintain an Employee Benefit Plan providing welfare benefits (as defined in
ERISA Section 3(1)) to employees after retirement or other separation of service
except to the extent required under Part 6 of Title I of ERISA or Code Section
4980B or their successors. Except as set forth on Schedule 3.19, Seller does not
have any Liability for retiree health and life benefits under any Employee
Benefit Plan and there are no restrictions on the rights of Seller to amend or
terminate any such retiree health or benefit plan without incurring Liability
thereunder.
(i) Except as set forth on Schedule 3.19, the consummation of the
transactions contemplated by this Agreement will not (1) entitle any current or
-8-
former employee of Seller to severance pay, unemployment compensation, or any
payment contingent upon a change in control or ownership of Seller, or (2)
accelerate the time of payment or vesting, or increase the amount, of any
compensation due to any such employee or former employee.
3.20 Contracts.
(a) Description.
(i) Real Property. Schedule 3.20(a)(i) contains a list or brief
description of all Contracts affecting or relating to the Owned and Leased
Real Property, including, without limitation, Contracts evidencing Liens
and including those referred to in Schedule 3.10.
(ii) Personal Property. Schedule 3.20(a)(ii) contains a list or brief
description of all Contracts affecting or relating to the Owned and Leased
Personal Property, including, without limitation, Contracts evidencing
Liens and, including those referred to in Schedule 3.1018 (other than
Contracts affecting rights in the Owned and Leased Personal Property each
of which does not involve the payment by Seller of more than $1,000 per
month or $12,000 per year or that can be cancelled by Seller within 60 days
without Liability).
(iii) Purchase Orders-Non-Capital Assets. Schedule 3.20(a)(iii)
contains a list of all outstanding Contracts for the acquisition or sale of
goods, Assets, or services (other than purchase orders or other commitments
for the acquisition of capital Assets), all of which were executed in the
ordinary course of business consistent with past practice by Seller (other
than purchase orders and other commitments which do not exceed $25,000 each
or that can be cancelled by Seller within 60 days without Liability).
(iv) Purchase Orders-Capital Assets. Schedule 3.20(a)(iv) contains a
list of all outstanding Contracts of Seller for the acquisition of capital
Assets that were executed in the ordinary course of business consistent
with past practice of Seller (other than purchase orders and other
commitments which do not exceed $25,000 each or that can be cancelled by
Seller within 60 days without Liability).
(v) Sales. Schedule 3.20(a)(v) contains a list or brief description of
all Contracts (other than those that can be cancelled by Seller within 60
days without Liability) for the sale of products or the performance of
services by Seller and which exceed $100,000 each.
(vi) Employment; Other Affiliate Contracts. Schedule 3.20(a)(vi)
contains a list or brief description of all Contracts with any employee,
officer, agent, consultant, sales representative, distributor, dealer, or
Affiliate of Seller (other than those that can be cancelled by Seller
within 60 days without Liability).
(vii) Sales Representatives. Schedule 3.20(a)(vii) contains a list or
brief description of all Contracts with any agent, broker, sales
representative of, or any Person in a similar representative capacity for,
Seller, including, but not limited to, any Person entitled to fees or
commissions from Seller.
(viii) Any Other Contracts. Schedule 3.20(a)(viii) contains a list or
brief description of any other Contracts of Seller (other than those that
can be cancelled by Seller within 60 days without Liability) that: (1)
provide for monthly payments in excess of $1,000; (2) payments provided for
or actually made thereunder by or to Seller in any calendar year exceed
$12,000; (3) requires performance by Seller of any obligation for a period
of time extending beyond six months from the Effective Time or which is not
terminable by Seller without penalty upon sixty (60) days or less notice;
(4) evidences, creates, guarantees, or services indebtedness of Seller; (5)
establishes or provides for any joint venture, partnership, or similar
arrangement involving the Sole Shareholder or Seller; or (6) guarantees or
endorses the Liabilities of any other Person.
The lists or descriptions in all Schedules referred to above are correct and
complete in all respects as of the date hereof unless otherwise noted thereon.
(b) No Default. Neither Seller nor any other party is in Default under any
of the Contracts referred to in this Section 3.20 and there is no basis for any
-9-
claim of Default under any of the foregoing. Each of the Contracts referred to
in this Section 3.20 is in full force and effect and constitutes a valid, legal
and binding agreement of the parties thereto, enforceable in accordance with its
terms. The continuation, validity, and effectiveness of each of the Contracts
referred to in this Section 3.20 will not be affected in any way by the
consummation of the transactions contemplated by this Agreement.
3.21 Suppliers and Customers. Schedule 3.21 contains a list of each
supplier to whom payments were made which equaled or exceeded five percent (5%)
of Seller's cost of goods sold for the fiscal year ended December 31, 1998 or to
whom payments are projected to equal or exceed such percentage for the current
fiscal year (the "Large Suppliers") and the percentage of Seller's cost of goods
sold allocable to each Large Supplier for each such fiscal year. Schedule 3.21
contains a list of each customer from whom payments were received which equaled
or exceeded five percent (5%) of Seller's gross sales for the fiscal year ended
December 31, 1998 or from whom payments are projected to equal or exceed such
percentage for the current fiscal year (the "Large Customers") and the
percentage of Seller's gross sales allocable to each of such Large Customers for
each such fiscal year. Except as reflected in Schedule 3.21, no Large Supplier
is a sole source of supply of any good or service to Seller. The relationships
of Seller with its Large Suppliers and Large Customers are good commercial
working relationships and neither any of the Large Suppliers or any of the Large
Customers has terminated, or threatened to terminate, its relationship with
Seller or has during the last 12 months decreased or limited, or threatened to
decrease or limit, its services, supplies or materials to Seller or its usage or
purchase of the goods or services of Seller, as the case may be. Seller has no
Knowledge that any of the Large Suppliers or any of the Large Customers intends
to terminate or otherwise modify adversely to Seller its relationship with
Seller or to decrease or limit its services, supplies or materials to Seller or
its usage or purchase of the goods or services of Seller, as the case may be.
3.22 Labor Matters. Schedule 3.22 contains a list of all employees whose
direct annual compensation exceeds $100,000. Except as disclosed on Schedule
3.22, the employment of all employees of Seller is terminable at will by Seller
without any penalty or severance obligation incurred by Seller. Except as set
forth on Schedule 3.22, Seller is not a party to any union agreement or
collective bargaining agreement or work rules or practices agreed to with any
labor organization or employee association applicable to any employees of Seller
and no attempt to organize any of the employees of the Business has been made,
proposed or, to the Knowledge of Seller, threatened. No labor strike, dispute,
slowdown, stoppage, or lockout is pending or, to the Knowledge of Seller,
threatened against or affecting Seller and during the past five (5) years there
has not been any such action. No unfair labor practice charge or complaint
against Seller is pending or, to the Knowledge of Seller, threatened before the
National Labor Relations Board or any similar Governmental Authority. Since the
enactment of the Worker Adjustment and Retraining Notification Act (the "WARN
Act"), Seller has not effectuated (i) a "plant closing" (as defined in the WARN
Act) affecting any site of employment or one or more facilities or operating
units within any site of employment or facility of Seller, or (ii) a "mass
layoff" (as defined in the WARN Act) affecting any site of employment or
facility of Seller; nor has Seller been affected by any transaction or engaged
in layoffs or employment terminations sufficient in number to trigger
application of any similar state or local Law. None of Seller's employees has
suffered an "employment loss" (as defined in the WARN Act) since six (6) months
prior to the date hereof.
3.23 Interested Transactions. Schedule 3.23 contains a list of each
Contract or other transaction to which Seller is a party with any Affiliate of
Seller, any Related Party of any Affiliate of Seller (other than as a
shareholder or employee of Seller), or any Person in which any of the foregoing
(individually or in the aggregate) beneficially or legally owns, directly or
indirectly, five percent (5%) or more of the equity or voting interests. Each of
such Contracts and other transactions described in the preceding sentence was
negotiated on an arm's length basis, contains pricing terms that reflected fair
market value at the time entered into and otherwise contains terms and
conditions comparable to those customarily contained in similar transactions
between unrelated parties. None of the Persons described in the first sentence
of this Section 3.23 owns, or during the last three (3) years has owned,
directly or indirectly, beneficially or legally, (individually or in the
aggregate) five percent (5%) or more of the equity or voting interests of any
Person that competes with Seller.
3.24 Leases. All leases that Seller holds in its portfolio are the legal,
valid, and binding obligations of the lessee of each lease, enforceable in
-10-
accordance with their terms at the present value of the book value of each lease
(except in all cases as such enforceability may be limited by applicable
bankruptcy, insolvency, receivership, reorganization, conservatorship,
moratorium, or similar Laws affecting the enforcement of creditors' rights
generally, and except that the availability of the equitable remedy of specific
performance or injunctive relief is subject to the discretion of the court
before which any proceeding may be brought).
3.25 Eligibility Under Section 338(h)(10). The Sole Shareholder represents
that it filed a consolidated federal income tax return with Seller for the
taxable year immediately preceding the current taxable year and that the Sole
Shareholder is eligible to make an election under Section 338(h)(10) of the Code
(and any comparable election under state, local, or foreign Tax Law) (the
"338(h)(10) Election") with respect to Seller.
3.26 Brokers and Finders. No finder or any agent, broker, or other Person
acting pursuant to authority of Seller or the Sole Shareholder is entitled to
any commission or finder's fee in connection with the transactions contemplated
by this Agreement.
3.27 Only Representations. Except for the express representations and
warranties contained in this Article 3, neither Seller nor the Sole Shareholder
nor any person acting for them makes any other representation or warranty,
express or implied, with respect to the execution, delivery, or performance by
such party of this Agreement or with respect to the transactions contemplated
hereby, including the Acquisition, and Seller and the Sole Shareholder hereby
disclaim any such representation or warranty, whether by Seller, the Sole
Shareholder or any of their respective officers, directors, employees, agents or
representatives, or any other Person.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Seller and the Sole
Shareholder that the statements made in this Article 4 are accurate as of the
date of this Agreement (or as of such other date as is indicated below) and
shall be accurate as of the Effective Time.
4.1 Organization, Standing, and Foreign Qualification. Purchaser is a
banking corporation duly organized, validly existing, and in good standing under
the Laws of the State of Delaware, with the corporate power and authority to
carry on its business and to own, lease, and operate its Assets. Purchaser is
duly qualified or licensed to transact business as a foreign corporation in good
standing in all jurisdictions in which the failure to be duly qualified or
licensed could have a Material Adverse Effect with respect to Purchaser.
4.2 Authority and Binding Effect. Subject to approval of this Agreement by
the Board of Directors of Purchaser, Purchaser has the corporate power and
authority necessary to execute, deliver, and perform its obligations under this
Agreement and to consummate the transactions contemplated hereby. Subject to
approval of this Agreement by the Board of Directors of Purchaser, the
execution, delivery, and performance of this Agreement and the consummation of
the transactions contemplated herein, including the Acquisition, have been duly
and validly authorized by all necessary corporate action in respect thereof on
the part of Purchaser. Subject to approval of this Agreement by the Board of
Directors of Purchaser, this Agreement represents a legal, valid, and binding
obligation of Purchaser, enforceable against Purchaser in accordance with its
terms (except in all cases as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, receivership, conservatorship,
moratorium, or similar Laws affecting the enforcement of creditors' rights
generally and except that the availability of the equitable remedy of specific
performance or injunctive relief is subject to the discretion of the court
before which any proceeding may be brought).
4.3 Validity of Contemplated Transactions, Restrictions. Subject to
approval of this Agreement by the Board of Directors of Purchaser, the
execution, delivery, and performance of this Agreement by Purchaser and the
consummation of the transactions contemplated hereby including the Acquisition,
will not (i) violate any provision of the Certificate of Incorporation or Bylaws
of Purchaser, or any Law or any Order relating to Purchaser, or (ii) result in a
Default under or require the consent or approval of any party to any Contract or
License to which Purchaser is a party.
-11-
4.4 Capital Stock. The authorized capital stock of Purchaser consists of
(i) 25,000,000 shares of Purchaser Common Stock and (ii) 2,000,000 shares of
Purchaser Preferred Stock. On June 30, 1999, there were outstanding 7,482,762
shares of Purchaser Common Stock and no shares of Purchaser Preferred Stock. All
of the issued and outstanding shares of Purchaser capital stock are, and all of
the shares of Purchaser Common Stock to be issued in exchange for shares of
Seller Common Stock upon consummation of the Acquisition, when issued in
accordance with the terms of this Agreement, will be, duly and validly issued
and outstanding and fully paid and nonassessable. None of the outstanding shares
of Purchaser capital stock has been, and none of the shares of Purchaser Common
Stock to be issued in exchange for shares of Seller Common Stock upon
consummation of the Acquisition will be, issued in violation of any preemptive
rights of the current or past shareholders of Purchaser.
4.5 SEC Filings; Financial Statements.
(a) Purchaser has filed and made available to Seller all SEC Documents
required to be filed by Purchaser since December 31, 1995, excluding exhibits
(the "Purchaser SEC Reports"). The Purchaser SEC Reports (i) at the time filed,
complied in all material respects with the applicable requirements of the
Securities Laws, 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 Purchaser SEC Reports or necessary
in order to make the statements in such Purchaser SEC Reports, in light of the
circumstances under which they were made, not misleading. None of Purchaser's
Subsidiaries is required to file any SEC Documents.
(b) Each of the Purchaser Financial Statements (including, in each case,
any related notes) contained in the Purchaser SEC Reports, including any
Purchaser SEC Reports filed after the date of this Agreement until the Effective
Time, complied, or will comply, as to form in all material respects with the
applicable published rules and regulations of the SEC with respect thereto, was,
or will be, prepared in accordance with GAAP applied on a consistent basis
throughout the periods involved (except as may be indicated in the notes to such
financial statements or, in the case of unaudited interim statements, as
permitted by Form 10-Q of the SEC), and fairly presented, or will fairly
present, in all material respects the consolidated financial position of
Purchaser and its Subsidiaries as at the respective dates and the consolidated
results of its operations and cash flows for the periods indicated, except that
the unaudited interim financial statements were or are subject to normal and
recurring year-end adjustments which were not or are not expected to be material
in amount or effect.
4.6 Absence of Undisclosed Liabilities. Purchaser has no Knowledge of any
Undisclosed Liabilities or any basis for threat of an assertion of an assertion
against Purchaser, that are reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on Purchaser, except Liabilities which are
accrued or reserved against in the consolidated balance sheets of Purchaser as
of June 30, 1999, included in the Purchaser Financial Statements made available
prior to the date of this Agreement or reflected in the notes thereto. Purchaser
has not incurred or paid any Liability since June 30, 1999, except for such
Liabilities incurred or paid (i) in the ordinary course of business consistent
with past business practice and which are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Purchaser or (ii)
in connection with the transactions contemplated by this Agreement.
4.7 Brokers and Finders. No finder or any agent, broker or other Person
acting pursuant to authority of Purchaser is entitled to any commission or
finder's fee in connection with the transactions contemplated by this Agreement.
4.8 Only Representations. Except for the express representations and
warranties contained in this Article 4, neither Purchaser nor any person acting
for it makes any other representation or warranty, express, or implied, with
respect to the execution, delivery, or performance by such party of this
Agreement, or with respect to the transactions contemplated by these documents,
and Purchaser hereby disclaims any such representation or warranty, whether by
Purchaser or any of its officers, directors, employees, agents, or
representatives or any other Person.
-12-
ARTICLE 5
COVENANTS AND ADDITIONAL AGREEMENTS OF SELLER,
THE SOLE SHAREHOLDER, AND PURCHASER
5.1 Conduct of Business Pending Consummation. Prior to the Effective Time,
except with the prior written consent of Purchaser and except as necessary to
effect the transactions contemplated in this Agreement, Seller shall, and the
Sole Shareholder shall use their respective reasonable efforts to, cause Seller
to:
(a) conduct its business in substantially the same manner as presently
being conducted, and refrain from entering into any transaction or Contract
other than in the ordinary course of business consistent with past
practice;
(b) confer on a regular and frequent basis with Purchaser to report
Material operational matters and to report the general status of ongoing
operations;
(c) notify Purchaser of any unexpected emergency or other Material
change in the normal course of the operation of Seller, and of any Material
Litigation (or communications indicating that the same may be
contemplated), affecting Seller, and keep Purchaser informed of such events
and permit its representatives prompt access to all materials prepared in
connection therewith;
(d) except in the ordinary course of business consistent with past
practice, not make any capital expenditure in excess of $25,000 in any
individual case;
(e) except as contemplated by this Agreement, not take any action, or
omit to take any action, which would cause the representations and
warranties contained in Article 3 to be incorrect or incomplete in any
respect;
(f) promptly notify Purchaser in writing of any Material Adverse
Change with respect to Seller, or any condition or event which is
reasonably likely to result in a Material Adverse Change with respect to
Seller, of which it is aware;
(g) not declare or pay any dividend or make any other distribution
(including assets) with respect to its capital stock;
(h) not prepay any of the Sole Shareholder Loans; and
(i) not make any agreement or commitment which will result in or cause
to occur a Default of any of the items contained in paragraphs (a) through
(h) above.
5.2 Right of Inspection; Access. In order to allow Purchaser to conduct its
due diligence investigation, including, without limitation, environmental due
diligence, Seller shall give to Purchaser and its designees, during normal
working hours, full and free access to all of its Assets, Contracts, reports,
and other records and shall furnish to Purchaser and its designees all
additional financial, legal, and other information with respect to Seller that
Purchaser may reasonably request. Seller shall also allow and arrange for
Purchaser and its designees free and full access and opportunity, during normal
business hours, to consult and meet with the officers, directors, employees,
attorneys, accountants, and other agents of Seller. Seller shall instruct such
individuals to cooperate fully with Purchaser and its designees. Purchaser and
its designees shall have the right to make copies of any of the records referred
to above.
5.3 Confidentiality. Each of Purchaser, Seller, and the Sole Shareholder
agrees that it will not, and will use reasonable efforts to ensure that none of
its representatives or Affiliates will, use in the conduct of its business
(except as contemplated by this Agreement), or disclose to or file with any
-13-
other Person, any confidential or non-public information relating to the other
parties to this Agreement, except (i) for a disclosure that is required by Law
or by a Governmental Authority or is reasonably believed to be so required, (ii)
information that is ascertainable or obtained from public or published
information, (iii) information received from a Third Party not known to the
disclosing party to be under an obligation to keep such information
confidential, (iv) information independently developed by the disclosing party,
or (v) information disclosed to or filed with any Persons necessary to obtaining
the consents, the equity, and the financing relating to the transactions
contemplated by this Agreement. If any of the parties to this Agreement or any
Affiliate thereof is ordered by a court, administrative agency, or other
governmental body of competent jurisdiction to disclose any of such confidential
information, or if they are served with or otherwise become aware of a motion or
similar request that such an order be issued, then such party will not be liable
for disclosure of such information required by such order if such party complies
with the following requirements: (i) if an already-issued order calls for
immediate disclosure, then such party shall, at the written request expense of
the other party, immediately move for or otherwise request a stay of such order
to permit the other party to respond as set forth in this Section 5.3; (ii) such
party shall immediately notify the other party of the motion or order by the
most expeditious possible means; and (iii) such party shall, at the other
party's written request and expense, join or agree to (or a minimum shall not
oppose) a motion or similar request by the other party for an order protecting
the confidentiality of such information including joining or agreeing to (or
nonopposition to) a motion for leave to intervene by the other party.
5.4 Schedules. Seller agrees to provide complete and accurate Schedules
(other than Schedule 5.22, which shall be provided by Purchaser) with copies of
all Material documents listed in such Schedules, as reasonably requested by
Purchaser, within seven business days after the date of this Agreement, and the
information reflected in such Schedules shall be satisfactory in all Material
respects to the parties. At any time and from time to time between the date
hereof and the Effective Time, Seller, and the Sole Shareholder shall have the
right and the continuing obligation to supplement any of the Schedules contained
in Article 3 with respect to any matter arising after the date hereof that, if
existing or occurring at such date, would have been required to be set forth or
described in such Schedules; provided, however, that Purchaser may unilaterally
extend the Effective Time if necessary to allow Purchaser ten (10) business days
to review such supplements to the Schedules prior to the Effective Time. If, in
Purchaser's reasonable determination, any such supplements to the Schedules
reveal any Material Adverse Change with respect to Seller, or any condition or
event which threatens to result in a Material Adverse Change with respect to
Seller, Purchaser may terminate this Agreement pursuant to Section 9.1.
5.5 Other Offers and Exclusive Dealing. Unless and until this Agreement is
terminated prior to the Effective Time pursuant to Article 9, neither Seller nor
the Sole Shareholder, acting in any capacity, will either directly or
indirectly, through any officer, director, employee, agent, or otherwise of
Seller or of the Sole Shareholder, (i) solicit, initiate, encourage or entertain
submission of proposals or offers from any Person relating to (1) any purchase
of all or substantially all of the Assets of Seller, (2) any acquisition, sale
of substantial Assets, or sale of stock of Seller, or (3) any similar
transaction involving Seller, (ii) participate in any discussions or
negotiations regarding, or, except as required by a legal or judicial process,
furnish to any other Person any information with respect to, or otherwise
cooperate in any way with, or assist or participate in, facilitate or encourage,
any effort or attempt by any other Person to consummate any of the transactions
described in clauses (i)(1) through (3) above involving Seller, or (iii) approve
or undertake any such transaction. Seller shall promptly communicate to
Purchaser the terms of any such proposal or offer upon knowledge or receipt of
such proposal or offer or upon knowledge that such a proposal or offer is likely
to be made.
5.6 Certain Tax Matters.
(a) The Sole Shareholder shall file, within 90 days after the period end,
all Tax Returns required to be filed by it for all periods ending at the
Effective Time in the jurisdictions in which it has previously filed Tax
Returns, described in Schedule 3.9.
(b) Purchaser and the Sole Shareholder shall provide the other parties to
this Agreement, at the expense of the requesting party, with such assistance as
-14-
may reasonably be requested by any of them in connection with the preparation of
any Tax Return, any audit or other examination by any Governmental Authority, or
any judicial or administrative proceedings relating to Liability for Taxes, and
each will retain and provide the requesting party with any records or
information that may be relevant to any of the foregoing.
5.7 Consents and Approvals. Seller shall use its reasonable efforts to
obtain all waivers, consents, and approvals of, and to provide all notices to,
all Persons whose waiver, consent or approval is required by any Contract,
Order, Law, or License relating to Seller in order to consummate the
transactions contemplated by this Agreement. All written waivers, consents, and
approvals obtained by, and all notices provided by, Seller shall be delivered to
Purchaser at or before the Effective Time in form and content reasonably
satisfactory to Purchaser.
5.8 Supplying Financial Statements. Within ten (10) days following the end
of each month, Seller shall deliver to Purchaser true and complete copies of
unaudited balance sheets of Seller as of the end of each calendar month ending
subsequent to the date hereof and prior to the Effective Time and the related
statements of income and cash flows for each month then ended. All such
unaudited interim financial statements shall be in the same format as the Seller
Financial Statements delivered pursuant to Section 3.6.
5.9 Consummation of Transactions; Closing Conditions. Subject to the terms
and conditions herein provided, each of the parties hereto agrees to take, or
cause to be taken, all reasonable actions to consummate the transactions
contemplated by this Agreement, including the Acquisition, and to satisfy the
conditions precedent to Closing set forth in Articles 6 and 7.
5.10 Expenses. Each of the Seller and Purchaser shall bear and pay all
direct costs and expenses incurred by it or on its behalf in connection with the
transactions contemplated hereunder, including filing, registration, and
application fees, printing fees, and fees and expenses of its own financial or
other consultants, investment bankers, accountants, and counsel, provided that
each of Seller and Purchaser shall bear one-half of the filing fee for the
filing under the ▇▇▇▇-▇▇▇▇▇ Act.
5.11 Further Assurances. At any time and from time to time after the
Effective Time, Seller and the Sole Shareholder shall, at the request of
Purchaser, take any and all reasonable actions necessary to fulfill their
respective obligations under this Agreement.
5.12 Qualification and Corporate Existence.
(a) Seller shall deliver to Purchaser (i) a certificate of the Secretary of
State of the State of North Carolina, dated not more than ten (10) days before
the Effective Time, stating that Seller is a corporation in existence under the
Laws of such state and has paid all applicable Taxes due to such state in
connection therewith and (ii) certificates of the appropriate officials of the
states and foreign jurisdictions listed on Schedule 3.1, each dated not more
than ten (10) days before the Effective Time, stating that Seller is duly
qualified and in good standing to transact business as a foreign corporation as
stated in Section 3.1 in each such state or foreign jurisdiction and has paid
all applicable Taxes due to each such state or foreign jurisdiction in
connection therewith.
(b) Purchaser shall deliver to Seller a certificate of the Secretary of
State of the State of Delaware, dated not more than ten (10) days before the
Effective Time, stating that Purchaser is a corporation in existence under the
Laws of such state.
5.13 Repayment of Debts to Seller. On or before the Effective Time, all
loans and advances from Seller to the Sole Shareholder, any Affiliate of Seller
or the Sole Shareholder, or any Related Person of any such Affiliate, shall be
repaid to Seller in full, all guaranties by Seller of loans obtained by any of
such Persons from Third Parties shall have been released, and Seller shall have
delivered to Purchaser appropriate instruments or writings to evidence the
receipt of such repayments and releases.
5.14 Employee Benefits and Contracts. The Sole Shareholder shall be
responsible for all employee benefits and compensation liability (including
deferred compensation) due employees of Seller as a result of participating in
-15-
the benefit plans of Seller or the Sole Shareholder prior to the Effective Time.
Following the Effective Time, Purchaser shall provide generally to officers and
employees of Seller, who at or after the Effective Time become employees of
Purchaser or a Subsidiary of Purchaser, employee benefits under employee benefit
plans, on terms and conditions which when taken as a whole are substantially
similar to those currently provided by Purchaser and its Subsidiaries to their
similarly situated officers and employees. For purposes of participation and
vesting (but not accrual of benefits for defined benefit plans) under such
employee benefit plans, service under any employee benefit plans of Seller shall
be treated as service under any similar employee benefit plans maintained by
Purchaser. Except as otherwise contemplated by this Agreement, Purchaser also
shall cause Seller to honor all employment, severance, consulting, and other
compensation Contracts disclosed in Schedule 5.14 between Seller and any current
or former director, officer, or employee thereof, and all provisions for vested
benefits or other vested amounts earned or accrued through the Effective Time
under any employee benefit plan of Seller. Prior to the Effective Time, Seller
or the Sole Shareholder shall (i) cause to be amended each Employee Benefit Plan
which is tax-qualified under Code Section 401(a) to provide that the benefits
and account balances of employees of the Sole Shareholder under such Plan(s)
shall become fully vested as of the Effective Time, and (ii) cause such Employee
Benefit Plan(s) to distribute to employees of the Sole Shareholder their full
account balances under such Plan(s) as soon as practicable following the
Effective Time.
5.15 Exchange Listing. Purchaser shall use its reasonable efforts to list,
prior to the Effective Time, on the Nasdaq NMS, subject to official notice of
issuance, the shares of Purchaser Common Stock to be issued to the Sole
Shareholder pursuant to the Acquisition, and Purchaser shall give all notices
and make all filings with the Nasdaq NMS required in connection with the
transactions contemplated herein.
5.16 Press Releases. Prior to the Effective Time, the parties hereto shall
consult and agree with each other as to the form and substance of any press
release or other public disclosure materially related to this Agreement or any
transaction contemplated hereby; provided, that nothing in this Section 5.16
shall be deemed to prohibit any party from making any disclosure which its
counsel deems necessary or advisable in order to satisfy such party's disclosure
obligations imposed by law.
5.17 Representations of the Sole Shareholder. The Sole Shareholder hereby
represents and warrants for and on its own behalf that:
(a) The Sole Shareholder is familiar with Section 4(2) of the 1933 Act
and with Regulation D issued by the SEC pursuant to the ▇▇▇▇ ▇▇▇.
(b) The Sole Shareholder has been furnished before the execution of
this Agreement with the information required by SEC Rule 502(b)(2)(ii), has
made such further investigation of Purchaser as deemed appropriate and have
been given the opportunity to ask questions of and receive answers from
Purchaser or any person acting on its behalf concerning the terms and
conditions of the transactions contemplated herein and has obtained such
additional information deemed necessary to verify the accuracy of the
information that was obtained by the Sole Shareholder pursuant to SEC Rule
502(b)(2)(ii).
(c) The Sole Shareholder has access to, and have reviewed and
understood, all material information, including financial statements
concerning the Seller which the Sole Shareholder deems necessary or
advisable in order to evaluate the risks and merits of entering into this
transaction and acquiring the Purchaser Common Stock to be issued to the
Sole Shareholder under this Agreement. The Sole Shareholder has received
and has reviewed the Information (as defined below), including financial
statements, concerning Purchaser which the Sole Shareholder deems necessary
or advisable in order to evaluate the risks and merits of acquiring the
Purchaser Common Stock to be issued to the Sole Shareholder under this
Agreement.
(d) The Sole Shareholder has such knowledge and experience in
financial and business matters that the Sole Shareholder is capable of
evaluating the merits and risks of acquiring the Purchaser Common Stock.
(e) The Sole Shareholder understands it must bear the economic risk of
investment in the Purchaser Common Stock for a limited period of time
-16-
because such shares have not been registered with the SEC under the 1933
Act and, therefore, cannot be sold unless they are subsequently registered
under the 1933 Act or an exemption from registration is available.
5.18 Information Pursuant to Regulation D. The parties acknowledge that
Purchaser has furnished the Sole Shareholder a Private Placement Memorandum,
dated the date of this Agreement,, which includes (i) Purchaser's annual report
to its stockholders for fiscal year ended December 31, 1998, (ii) the definitive
proxy statement filed in connection with such annual report, (iii) Purchaser's
Form 10-K for fiscal year ended December 31, 1998, (iv) Purchaser's Form 10-Q
for the quarter ended June 30, 1999, and (v) a description of the shares of
Purchaser Common Stock being offered (the information referenced in clauses (i)
through (v) is herein referred to collectively as the "Information"). Purchaser
has furnished the Sole Shareholder with such information as needed to update the
foregoing, and has also made available to the Sole Shareholder the opportunity
to ask questions and receive answers concerning the terms and conditions of the
transactions contemplated in this Agreement and to obtain additional information
which Purchaser possesses or could acquire without unreasonable effort or
expense that is necessary to verify the accuracy of information furnished under
this Section 5.18.
5.19 Undertaking of the Sole Shareholder - SEC Rule 144. The Sole
Shareholder hereby represents and undertakes on its own behalf that:
(a) The Sole Shareholders is familiar with the SEC Rule 144. The
shares of Purchaser Common Stock that are being acquired by the Sole
Shareholder in exchange for its shares of Seller Common Stock are being and
will be acquired for itself and not for other persons and are not being and
will not be acquired with a view to the distribution thereof, except to the
extent permitted by the 1933 Act and the rules and regulations thereunder.
(b) None of the shares of Purchaser Common Stock will be transferred
by or through the Sole Shareholder in violation of the 1933 Act or any
state securities laws.
(c) The Sole Shareholder will indemnify Purchaser against any loss,
liability, or expense (including reasonable attorneys' fees and
out-of-pocket expenses) incurred by Purchaser by reason of any breach by
the Sole Shareholder of clauses (a) or (b) of this Section 5.19.
(d) The Sole Shareholder understands that the Purchaser Common Stock
has not been, and except as otherwise set forth herein, will not be,
registered under the 1933 Act and, therefore cannot be sold or otherwise
transferred unless such shares are registered under the 1933 Act or unless
an exemption from registration is available.
(e) The certificates representing the shares of Purchaser Common Stock
to be delivered to the Sole Shareholder pursuant to this Agreement may, and
will, bear a restrictive legend in substantially the following form and an
appropriate stop transfer order may, and will be placed against the
transfer of the share certificates with the transfer agent of such shares:
The securities represented by this certificate have been
issued or transferred to the registered holder as a result of a
transaction to which the exemption provided by Section 4(2) under
the Securities Act of 1933, as amended (the "1933 Act") applied.
The securities represented by this certificate have not been
issued to such holder pursuant to an effective registration under
the 1933 Act and may not be sold, transferred or assigned, and
the issuer is not required to give effect to any attempted sale,
transfer or assignment, except (i) pursuant to a current or then
effective registration statement under the 1933 Act; (ii) in a
transaction permitted by Rule 144 under the 1933 Act and as to
which the issuer has received reasonably satisfactory evidence of
compliance with the provisions of Rule 144; or (iii) upon receipt
of a legal opinion acceptable to the issuer to the effect that
the transaction does not require registration under the 1933 Act.
(g) The Sole Shareholder also understands that (i) an exemption for any
public sale of his or her Purchaser Common Stock under SEC Rule 144 will not be
-17-
available for at least one (1) year from the date the said shares are fully paid
for, which will be the Closing Date, (ii) thereafter limited amounts of the said
shares can be sold publicly in unsolicited brokers' transactions under Rule 144
if all the conditions of the Rule are satisfied and if the Rule is then
applicable, (iii) Rule 144 is available only if all of its conditions are
satisfied and, in particular, if Purchaser is making current public disclosures
about itself and there is a trading market for the said shares, (iv) as of the
date of this Agreement, not all of these conditions have been satisfied, and (v)
if Rule 144 is not available, then any public sales of the said shares cannot be
made unless they are registered under the 1933 Act or in compliance with
Regulation A issued by the SEC pursuant to the 1933 Act or some other exemption
to the registration requirements of the 1933 Act.
5.20 Registration Rights.
(a) Demand Registration.
(i) Subject to the satisfaction of the condition included in
Section 6.10, the Sole Shareholder shall have one right (the "Demand
Right") to request registration under the 1933 Act of any or all of
the shares of Purchaser Common Stock that the Sole Shareholder
receives in connection with the Acquisition, as contemplated by
Section 2.1. The Sole Shareholder shall exercise the Demand Right by
delivering a written notice (the "Demand Notice") to Purchaser which
specifies the number of shares of Purchaser Common Stock that the Sole
Shareholder wants to be included in the registration, provided
however, that the Sole Shareholder shall have only one Demand Right,
and that in the event the Sole Shareholder exercises the Demand Right
with respect to less than all of the shares of Purchaser Common Stock
that the Sole Shareholder receives in the Acquisition, the Sole
Shareholder shall not have a Demand Right with respect to the
remaining shares.
(ii) Upon receipt of the Demand Notice, Purchaser shall use its
reasonable efforts to effect the registration of the shares of
Purchaser Common Stock referred to in the Demand Notice, not later
than 90 days after the receipt of such notice, with such registration
to be on any form available to Purchaser.
(b) Incidental Registration.
(i) At any time Purchaser proposes to register any shares of
Purchaser Common Stock under the 1933 Act (other than in connection
with an employee benefit plan), whether in connection with a primary
or secondary offering, Purchaser will give written notice to the Sole
Shareholder at least thirty (30) days prior to the initial filing of
the registration statement with the SEC of its intent to file such
registration statement and of the Sole Shareholder's rights under this
Section 5.20(b). Upon the written request of the Sole Shareholder made
within twenty (20) days after any such notice is given which request
shall specify the number of shares of Purchaser Common Stock that the
Sole Shareholder wants included in the registration, Purchaser will
use its reasonable best efforts to effect the registration (an
"Incidental Registration") under the 1933 Act of all of the shares of
Purchaser Common Stock which the Sole Shareholder has so requested to
be registered; provided, however, that if, at any time after giving
written notice of its intention to register any shares of Purchaser
Common Stock and prior to the effective date of the registration
statement filed in connection with an Incidental Registration,
Purchaser shall determine for any reason not to register or to delay
registration of such shares of Purchaser Common Stock, Purchaser may,
at its election, give written notice of such determination to the Sole
Shareholder and, thereupon, (1) in the case of a determination not to
register, Purchaser shall be relieved of its obligation to register
any shares of Purchaser Common Stock under this Section 5.20(b) (but
not from its obligation to pay the expenses incurred in connection
therewith), and (2) in the case of a determination to delay
registration, Purchaser shall be permitted to delay an Incidental
Registration during the period that the registration of such other
shares of Purchaser Common Stock is delayed.
-18-
(ii) If the sole or managing underwriter of a registered offering
which gives rise to an Incidental Registration advises Purchaser in
writing that in its opinion the number of shares of Purchaser Common
Stock requested to be included in an Incidental Registration exceeds
the number of shares of Purchaser Common Stock which can be sold in
such offering without adversely affecting (1) the distribution of the
shares of Purchaser Common Stock being sold in such offering, (2) the
price that will be paid for the shares of Purchaser Common Stock being
sold in such offering, or (3) the marketability of the shares of
Purchaser Common Stock, Purchaser will include in such registration
the greatest amount of shares of Purchaser Common Stock requested to
be included in the Incidental Registration by the Sole Shareholder
which in the opinion of such underwriter can be sold in such offering
without adversely affecting (1) the distribution of the shares of
Purchaser Common Stock being sold in such offering, (2) the price that
will be paid for the shares of Purchaser Common Stock being sold in
such offering, or (3) the marketability of the shares of Purchaser
Common Stock being sold in such offering.
(c) Holdback Agreement. The Sole Shareholder agrees that if requested in
connection with an underwritten offering made pursuant to Section 5.20(b) by the
managing underwriter or underwriters of such underwritten offering, the Sole
Shareholder will not effect any public sale or distribution of any of the shares
of Purchaser Common Stock being registered, during the period beginning 10 days
prior to, and ending 180 days after, the closing date of each underwritten
offering made pursuant to such registration statement (or for such shorter
period as to which the managing underwriter or underwriters may agree).
(d) Registration and Maintenance Procedures. In connection with the Demand
Registration or any Incidental Registration Purchaser shall, to the extent
applicable, at its own expense, as promptly as possible:
(i) Prepare and file with the SEC a registration statement or
registration statements on a form or forms available for the sale of the
shares of Purchaser Common Stock acquired by the Sole Shareholder in
connection with the Acquisition, in accordance with the intended method of
distribution thereof, and use its reasonable best efforts to cause each
such registration statement to become effective;
(ii) Prepare and file with the SEC such amendments and post-effective
amendments to each registration statement as may be necessary to keep such
registration statement continuously effective for a period ending on the
earlier of (1) 90 days from the effective date of the registration
statement and (2) such time as all of such securities have been disposed of
in accordance with the intended method of disposition thereof, and cause
the related prospectus to be supplemented by any required prospectus
supplement, and as so supplemented to be filed pursuant to Rule 424 (or any
similar provisions then in force) under the 1933 Act; and comply with the
provisions of the 1933 Act, the 1934 Act, and the rules and regulations of
the SEC promulgated thereunder applicable to it with respect to the
disposition of all securities covered by such registration statement as so
amended or in such prospectus as so supplemented;
(iii) Notify the Sole Shareholder promptly (but in any event within
two business days), and confirm such notice in writing, (1) when a
prospectus or any prospectus supplement or post-effective amendment with
respect to a registration statement filed in connection with a Demand
Registration or an Incidental Registration has been filed, and when the
-19-
same has become effective, (2) of the issuance by the SEC of any stop order
suspending the effectiveness of a registration statement filed in
connection with a Demand Registration or an Incidental Registration or of
any order preventing or suspending the use of any preliminary prospectus
contained in such registration statement, (3) of the receipt by Purchaser
of any notification with respect to the suspension of the qualification or
exemption from qualification of a registration statement filed in
connection with a Demand Registration or an Incidental Registration for
offer or sale in any jurisdiction, and (4) if Purchaser becomes aware of
the happening of any event that makes any statement made in such
registration statement or related prospectus, or any document incorporated
or deemed to be incorporated therein by reference untrue in any material
respect or that requires the making of any changes in such registration
statement, prospectus or documents so that, in the case of such
registration statement, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, and
that in the case of the prospectus, it will not contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading;
(iv) Use its reasonable best efforts to prevent the issuance of any
order suspending the effectiveness of a registration statement filed in
connection with a Demand Registration or an Incidental Registration or of
any order preventing or suspending the use of a prospectus contained in
such registration statement or suspending the qualification (or exemption
from qualification) of any of shares of Purchaser Common Stock held by the
Sole Shareholder for sale in any jurisdiction, and, if any such order is
issued, to obtain the withdrawal of any such order at the earliest possible
moment;
(v) Deliver to the Sole Shareholder without charge, as many copies of
the prospectus or prospectuses (including each form of prospectus) and each
amendment or supplement thereto as such persons may reasonably request;
and, Purchaser hereby consents to the use of such prospectus and each
amendment or supplement thereto by the Sole Shareholder in connection with
the offering and sale of the shares of Purchaser Common Stock owned by the
Sole Shareholder covered by such prospectus and any amendment or supplement
thereto;
(vi) Prior to any public offering of shares of Purchaser Common Stock,
to use its reasonable best efforts to register or qualify, and cooperate
with the Sole Shareholder, the underwriters, if any, the sales agents and
their respective counsel in connection with the registration or
qualification (or exemption from such registration or qualification) of
such shares of Purchaser Common Stock for offer and sale under the
securities or "blue sky" laws of such jurisdictions within the United
States as necessary;
(vii) Upon the occurrence of any event contemplated by paragraph (iii)
(D) above, as promptly as practicable prepare a supplement or
post-effective amendment to the registration statement or a supplement to
the related prospectus or any document incorporated or deemed to be
incorporated therein by reference, or file any other required document so
that, as thereafter delivered to the purchasers of the Purchaser Common
Stock being sold thereunder, such prospectus will not contain an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading; and
-20-
(viii) Use its reasonable best efforts to cause all such shares of
Purchaser Common Stock covered by such registration statement pursuant to a
Demand Registration or an Incidental Registration to be designated as a
Nasdaq NMS or listed on the principal securities exchange on which
Purchaser Common Stock is then listed (if any).
Purchaser may require the Sole Shareholder to furnish to Purchaser such
information regarding the Sole Shareholder as Purchaser may, from time to time,
reasonably request in writing; provided that such information shall be used only
in connection with a registration of the Sole Shareholder's shares of Purchaser
Common Stock. Purchaser may exclude from a registration the shares of Purchaser
Common Stock owned by the Sole Shareholder in the event the Sole Shareholder
fails to furnish such information promptly after receiving such request. The
Sole Shareholder agrees that, upon receipt of any notice from Purchaser of the
happening of any event of the kind described in paragraph (iii) above, Sole
Shareholder will forthwith discontinue disposition of the shares of Purchaser
Common Stock covered by such registration statement or prospectus until the Sole
Shareholder's receipt of the copies of the supplemented or amended prospectus
contemplated by this Section 5.20(d), or until the Sole Shareholder is advised
in writing by Purchaser that the use of the applicable prospectus may be
resumed, and has received copies of any amendments or supplements thereto.
(e) Registration Expenses. All fees and expenses incident to the
performance of or compliance by Purchaser with the provisions of this Section
5.20 shall be borne by Purchaser, whether or not any registration statement is
filed or becomes effective, including, without limitation, (i) all registration
and filing fees (including, without limitation, fees and expenses of compliance
with state securities or "blue sky" laws), (ii) reasonable messenger, telephone,
and delivery expenses, (iii) fees and disbursements of counsel for Purchaser,
(iv) fees and disbursements of all independent certified public accountants, and
(v) the fees and expenses incurred in connection with the listing of the
securities to be registered on any securities exchange.
(f) Indemnification; Contribution.
(i) Purchaser shall, without limitation as to time, indemnify and hold
harmless, to the full extent permitted by law, the Sole Shareholder and the
officers, directors, members, agents, and employees of the Sole Shareholder
(each, an "Indemnified Party"), to the fullest extent lawful, from and
against any and all losses, claims, damages, liabilities, actions, or
proceedings (whether commenced or threatened) reasonable costs (including,
without limitation, reasonable costs of preparation and reasonable
attorneys' fees) and reasonable expenses (including reasonable expenses of
investigation) (collectively, "Losses"), as incurred, arising out of or
based upon any untrue or alleged untrue statement of a material fact
contained in any registration statement filed in connection with a Demand
Registration or an Incidental Registration, any related prospectus or form
of prospectus or in any amendment or supplements thereto or in any
preliminary prospectus, or arising out of or based upon any omission or
alleged omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading, except to the
extent, but only to the extent, that such untrue or alleged untrue
statement is contained in, or such omission or alleged omission is required
to be contained in, any information so furnished in writing by the Sole
Shareholder to the Purchaser expressly for use in such registration
statement or prospectus and that such statement or omission was reasonably
relied upon by Purchaser in preparation of such registration statement,
prospectus or form of prospectus; provided, however, that the Sole
Shareholder shall not be liable in any such case to the extent that the
Sole Shareholder has furnished in writing to Purchaser within a reasonable
period of time prior to the filing of any such registration statement or
related prospectus or amendment or supplement thereto information expressly
for use in such registration statement or prospectus or any amendment or
supplement thereto which corrected or made not misleading, information
previously furnished to Purchaser, and Purchaser failed to include such
information therein.
(ii) Any Indemnified Party shall give prompt notice to Purchaser of
the commencement of any action, suit, proceeding, or investigation or
written threat thereof (a "Proceeding") with respect to which such
Indemnified Party seeks indemnification or contribution pursuant hereto;
provided, however, that the failure to so notify Purchaser shall not
relieve Purchaser from any obligation or liability except to the extent
-21-
that Purchaser has been prejudiced by such failure. Purchaser shall have
the right, exercisable by giving written notice to an Indemnified Party
promptly after the receipt of written notice from such Indemnified Party of
such Proceeding, to assume, at the Purchaser's expense, the defense of any
such Proceeding, with counsel reasonably satisfactory to such Indemnified
Party; provided, however, that an Indemnified Party or Indemnified Parties
(if more than one such Indemnified Party is named in any Proceeding) shall
have the right to employ separate counsel in any such Proceeding and to
participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of such Indemnified Party or Indemnified
Parties. Purchaser shall not consent to entry of any judgment or enter into
any settlement which (1) provides for other than monetary damages without
the consent of the Indemnified Party or Indemnified Parties (which consent
shall not be unreasonably withheld or delayed) or (2) does not include as
an unconditional term thereof the giving by the claimant or plaintiff to
such Indemnified Party or Indemnified Parties of a release, in form and
substance satisfactory to the Indemnified Party or Indemnified Parties,
from all liability in respect of such Proceeding for which such Indemnified
Party would be entitled to indemnification hereunder.
5.21 Employment Agreements. Prior to the Effective Time, Seller shall
assign to the Sole Shareholder those employment contracts listed in
Schedule 5.14, and thereafter, Seller shall have no further obligations
thereunder and the Sole Shareholder shall be responsible for satisfying all
amounts and benefits that are due and payable under such employment
agreements. The Sole Shareholder shall enforce the non-competition
provisions of such employment agreements. Purchaser agrees that it shall
not employ any of the individuals who are parties to such agreements
without the express written consent of the Sole Shareholder, which may be
withheld in its entire discretion, and that this agreement will be
reflected in the assignments of the employment agreements; provided, that
▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇., may serve as a director of Purchaser without the
consent of the Sole Shareholder. Notwithstanding the foregoing, after the
Effective Time the Sole Shareholder shall consent to Purchaser retaining
during a transition period determined by Purchaser, but not to exceed six
months, any person who is a party to an employment contract listed in
Schedule 5.14, with Purchaser reimbursing the Sole Shareholder for the
salary of such individual so retained.
5.22 Bank Loans. The parties agree that the loans that are outstanding as
of the date of this Agreement from the Sole Shareholder to Seller (the "Sole
Shareholder Loans") shall (i) remain outstanding until their maturity, (ii) not
be prepaid, (iii) maintain the same pricing in effect as of the date of this
Agreement, and (iv) after the Effective Time, be non-recourse to Seller and
Purchaser, subject to the further provisions of this Section 5.22. The parties
further agree that the following Assets of Seller shall be allocated to the Sole
Shareholder Loans as follows: (i) the book value and remaining residuals for the
customer leases identified on Schedule 5.22 shall be allocated to the Sole
Shareholder Loans, with such allocation being made first to the Sole Shareholder
Loans with the lowest interest rate or rates; (ii) all accounts receivable of
Seller that are sixty (60) or more days past due at the Effective Time shall be
allocated to the Sole Shareholder Loans, with such allocation being made first
to the Sole Shareholder Loans with the lowest interest rate or rates after the
allocation contemplated by clause (i)and the terms of the Sole Shareholder Loans
shall be extended to the extent necessary to match the respective terms of the
selected leases; and (iii) the remainder of the discounted value of the income
stream and residual value of the leases of Seller shall be allocated to the Sole
Shareholder Loans and the terms of the Sole Shareholder Loans shall be extended
to the extent necessary to match the respective terms of the selected leases. In
connection with allocating the book value and remaining residuals for the
customer leases identified in clause (i), to the extent that the principal and
interest relating to a lease is paid in full and the underlying equipment that
is the subject of the leases is disposed of either through sale or lease, 20% of
the profit in excess of the book value of the equipment that is the subject of
the lease, shall be paid to the Purchaser as consideration for its efforts with
respect to such leases, and Purchaser and Seller shall each be paid 50% of the
remaining profit in excess of the book value. With respect to leases referred to
-22-
in clause (iii) of this Section 5.22, the parties agree that the Sole
Shareholder shall have recourse to Purchaser with respect to such Sole
Shareholder Loans until losses incurred by Purchaser as a result of such
recourse shall equal $450,000, and that all Sole Shareholder Loan amounts
thereafter shall be non-recourse to Purchaser. Purchaser agrees to use all
reasonable efforts to collect amounts owed under the leases referred to in this
Section 5.22, to apply such collected amounts to the allocated Sole Shareholder
Loans, and to take such steps as the Sole Shareholder may reasonably request to
assign to it leases securing non-recourse Sole Shareholder Loans and to provide
to it such information and assistance as it may reasonably require to collect
any of such leases that are in default . The parties further agree that at the
Effective Time, the Sole Shareholder Loans shall be increased by (i) an amount
necessary to repay any loans from third party lenders to Seller with respect to
which Seller has not received in writing any consent required under the loan
documentation relating to such loans of such lender to the transactions
contemplated by this Agreement, with the interest rate and payment terms of the
additional Sole Shareholder Loans being the same as the loan being repaid,
provided, that any loans in respect of Schedule 5.22 shall be financed in
accordance with the prior provisions of this Section 5.22, it being agreed that
the parties will take such steps as are necessary to secure such loans with such
leases; and (ii) an amount equal to $1,965,000 with an interest rate equal to
the lowest interest rate of any the then outstanding Sole Shareholder Loans and
funded against residuals not already serving as collateral for third-party
loans.
5.23 Reimbursement of Security Deposits. The Sole Shareholder agrees to
reimburse Seller and Purchaser for security deposits that (i) customers of
Seller request to be repaid and (ii) Seller is obligated to repay and does, in
fact, repay.
5.24 Inventory and Leasehold Improvements. Prior to the Effective Time, the
Sole Shareholder shall purchase from Seller for $1,518,000 in cash, the
inventory and leasehold improvements of Seller set forth on Schedule 5.24.
During the period ending 180 days after the Effective Time, Purchaser shall be
entitled to use the leasehold improvements, without charge, and Purchaser shall
have the option to purchase such leasehold improvements at their then fair
market value by giving written notice to the Sole Shareholder. In addition, the
Sole Shareholder shall contribute prior to the Effective Time, $635,000 in cash
to Seller as payment for the commissions previously paid by Seller.
5.25 Termination of Commission Plan. At the Effective Time, Seller and the
Sole Shareholder shall have taken all action necessary to terminate the existing
commission plan of Seller in effect immediately prior to the Effective Time
(including providing notice to all affected parties). The Sole Shareholder
agrees to reimburse Seller and Purchaser for (i) any commission amounts
(including any deferred compensation) owed by Seller for sales made prior to the
Effective Time or otherwise deemed payable under a commission plan maintained by
Seller prior to the Effective Time that become due or payable after the
Effective Time and (ii) all costs and expenses associated with any claims that
may be brought in connection with collecting any such commissions; provided,
however, that Purchaser acknowledges and agrees that Seller may in its
discretion prior to Closing pay to its employees commissions accrued on Seller's
financial statements and earned by such employees through the Closing Date.
5.26 Election Under Section 338(h)(10).
(a) Purchaser and the Sole Shareholder shall make an election under Section
338(h)(10) of the Code (and any comparable election under state, local, or
foreign Law) (the "338(h)(10) Elections") with respect to the Acquisition.
Purchaser and the Sole Shareholder shall cooperate fully with each other in the
making of such election. In particular, the Sole Shareholder shall be
responsible for the preparation and filing of all Tax Returns and forms (the
"Section 338 Forms") required under applicable law to be filed in connection
with the making the 338(h)(10) Election. Purchaser shall deliver to the Sole
Shareholder, within ninety (90) days prior to the date the Section 338 Forms are
required to be filed, such documents and other forms as reasonably required, and
which are timely requested, by the Sole Shareholder to properly complete the
Section 338 Forms.
(b) Purchaser and the Sole Shareholder shall allocate the consideration set
forth in Section 2.1 of this Agreement in the manner required by Section 338 of
the Code and the Treasury Regulations promulgated thereunder. Such allocation
shall be used for purposes of determining the modified aggregate deemed sales
price under the applicable Treasury Regulations and in reporting the deemed sale
of Assets of Seller in connection with the 338(h)(10) Elections.
(c) The Sole Shareholder shall prepare a complete set of IRS Forms 8023-A
(and any comparable forms required to be filed under state, local, or foreign
Tax Law) and any additional data or materials required to be attached to IRS
Form 8023-A for Purchaser's review and approval, provided that Purchaser shall
not unreasonably withhold such approval.
(d) The Sole Shareholder shall be responsible for all Taxes attributable to
Seller for periods ending on or before the Effective Time (including any Tax
resulting from the 338(h)(10) Elections). Purchaser shall be responsible for all
Taxes of Seller for periods ending after the Effective Time.
-23-
5.27 Shareholders' Equity of Seller. No later than thirty (30) days after
the Closing Date, the Sole Shareholder shall deliver to Purchaser a balance
sheet and an income statement of Seller as of September 30, 1999, on a
stand-alone basis, audited by the Sole Shareholder's independent accountants in
accordance with GAAP (the "Closing Balance Sheet"), and the Closing Balance
Sheet shall reflect a shareholders' equity of Seller of not less than
$27,000,000. In the event the Closing Balance Sheet reflects shareholders'
equity of less than $27,000,000, the Sole Shareholder shall make a payment in
cash to Seller equal to the difference between $27,000,000 and Seller's
shareholders' equity as reflected in the Closing Balance Sheet, with such
payment to be made no later than 35 days after the Closing Date, or five days
after the Closing Balance Sheet is delivered, whichever is earlier.
5.28 Office Lease. The Sole Shareholder shall assume and continue to
perform the obligations under the lease of the premises in Raleigh, North
Carolina, where Seller currently conducts its business, and Purchaser shall have
a right to sublease such premises from the Sole Shareholder for the six-month
period commencing on the Closing Date at a monthly rate no greater than the rent
paid by the Sole Shareholder to lease such premises. In addition, after the
expiration of the six-month period commencing on the Closing Date, the Parties
shall negotiate in good faith any continuation of such sublease.
5.29 Nonsolicitation. The Sole Shareholder agrees not to solicit any of the
customers of Seller listed on Schedule 5.29 for the two-year period ending on
the second anniversary of the Effective Time for purposes of offering any lease
products to, or engaging in lease transaction with, such customers.
ARTICLE 6
CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER
The obligations of Purchaser to consummate the transactions
contemplated by this Agreement shall be subject to the satisfaction, on or
before the Effective Time, of each of the following conditions, any of which may
be waived, in whole or in part, by Purchaser for purposes of consummating such
transactions:
6.1 Representations True and Covenants Performed at Effective Time. For
purposes of this Section 6.1, the accuracy of the representations and warranties
of Seller and the Sole Shareholder set forth in this Agreement shall be assessed
as of the date of this Agreement and as of the Effective Time with the same
effect as though all such representations and warranties have been made on and
as of the Effective Time (provided that representations and warranties which are
confined to a specified date shall speak only as of such date). The
representations and warranties of Seller and the Sole Shareholder set forth in
Section 3.4 of this Agreement shall be true and correct. There shall not exist
inaccuracies in the representations and warranties of Seller or the Sole
Shareholder as set forth in this Agreement (including the representations and
warranties set forth in Section 3.4) such that the aggregate effect of such
inaccuracies has, or is reasonably likely to have, a Material Adverse Effect on
Seller; provided that, for purposes of this sentence only, those representations
and warranties which are qualified by reference to "Material," "Material Adverse
Effect," or "Knowledge" shall be deemed not to include such qualifications. Each
of Seller and the Sole Shareholder shall have duly performed in all Material
respects all of the agreements and covenants and satisfied all of the conditions
to be performed or complied with by either of them on or prior to the Effective
Time. Seller shall execute and deliver to Purchaser a certificate dated as of
the Effective Time certifying the fulfillment of the conditions of this Section
6.1.
6.2 Certified Copies of Resolutions; Incumbency Certificate. Seller shall
have delivered to Purchaser copies, certified by the duly qualified and acting
Secretary or Assistant Secretary of Seller, of resolutions adopted by the Board
of Directors and the Sole Shareholder approving this Agreement, and the
consummation of the transactions contemplated hereby including the Acquisition.
Seller shall have delivered to Purchaser an incumbency certificate dated as of
the Effective Time certifying the incumbency of all officers of Seller who have
executed this Agreement.
6.3 No Injunction, Etc. At the Effective Time, there shall not be in effect
any injunction, writ, preliminary restraining order, or any order of any nature
-24-
issued by a court of competent jurisdiction or agency or other authority
prohibiting, restricting or making illegal the consummation of the Acquisition
or any of the other transactions contemplated by this Agreement.
6.4 No Material Adverse Change. There shall not have occurred any Material
Adverse Change with respect to Seller, or any condition or event which is
reasonably likely to result in a Material Adverse Change with respect to Seller,
from the Unaudited Balance Sheet Date.
6.5 Opinions of Counsel. Purchaser shall have received an opinion, dated
the Effective Time, of ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇., counsel to Seller, substantially in
the form attached hereto as Exhibit 6.5.
6.6 ▇▇▇▇-▇▇▇▇▇ Act Approval. Unless waived by the parties, all waiting
periods applicable to this Agreement and the transactions contemplated hereby
under the ▇▇▇▇-▇▇▇▇▇ Act shall have expired or been terminated.
6.7 Exchange Listing. The shares of Purchaser Common Stock issuable
pursuant to the Acquisition shall have been approved for listing on the Nasdaq
NMS, subject to official notice of issuance.
6.8 Financing. Purchaser shall have obtained the financing necessary to
satisfy its obligations under this Agreement in accordance with the terms of the
commitment letter included as Exhibit 6.8.
6.9 Year 2000 Compliance. The Sole Shareholder shall have effected all
action necessary to ensure that Seller's hardware, software, and computer
systems, chips, and microprocessors are year 2000 compliant and can execute and
accurately process all date-related data, whether from years in the same century
or in different centuries; provided that the Sole Shareholder shall not be
responsible for customization to Purchaser's particular requirements.
6.10 Financial Statements. The Sole Shareholder shall have provided
financial statements (including balance sheets, statements of earnings, changes
in shareholders' equity, and cash flow) of Seller, on a stand-alone basis,
audited by the Sole Shareholder's independent accountants in accordance with
GAAP and Regulation S-X as of December 31, 1998 and 1997, and for the two fiscal
years (and to the extent reasonably practicable, three fiscal years) ended
December 31, 1998 (including appropriate footnote disclosure). To the extent the
Sole Shareholder is unable to provide at the Effective Time the requisite
financial statements as of and for the fiscal year ended December 31, 1996, the
Sole Shareholder shall provide such financial statements as soon as reasonably
practicable but not later than 15 days after the Effective Time. In addition,
the Sole Shareholder shall have provided quarterly financial statements
(including balance sheets, statements of earnings, changes in shareholders'
equity, and cash flow) of Seller, on a stand-alone basis, for each of the
quarters of the three fiscal years ended December 31, 1998, and for the first
three fiscal quarters (to the extent practicable) of the fiscal year ending
December 31, 1999.
6.11 Board Approval. Purchaser shall have obtained the approval of its
Board of Directors of this Agreement and the consummation of the transactions
contemplated hereby.
ARTICLE 7
CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER AND THE SOLE SHAREHOLDER
The obligations of Seller and the Sole Shareholder to consummate the
Acquisition and the other transactions contemplated by this Agreement shall be
subject to the satisfaction, on or before the Effective Time, of each of the
following conditions, any of which may be waived, in whole or in part, by Seller
and the Sole Shareholder for purposes of consummating such transactions:
7.1 Representations True and Covenants Performed at Closing. For purposes
of this Section 7.1, the accuracy of the representations and warranties of
Purchaser set forth in this Agreement shall be assessed as of the date of this
Agreement and as of the Effective Time with the same effect as though all such
-25-
representations and warranties have been made on and as of the Effective Time
(provided that representations and warranties which are confined to a specified
date shall speak only as of such date). The representations and warranties of
Purchaser set forth in Section 4.4 of this Agreement shall be true and correct.
There shall not exist inaccuracies in the representations and warranties of
Purchaser as set forth in this Agreement (including the representations and
warranties set forth in Section 4.4) such that the aggregate effect of such
inaccuracies has, or is reasonably likely to have, a Material Adverse Effect on
Purchaser; provided that, for purposes of this sentence only, those
representations and warranties which are qualified by reference to "Material,"
"Material Adverse Effect," or "Knowledge" shall be deemed not to include such
qualifications. Purchaser shall have duly performed in all respects all of the
agreements and covenants and satisfied all of the conditions to be performed or
complied with by it on or prior to the Effective Time. Purchaser shall execute
and deliver to Seller a certificate dated as of the Effective Time certifying
the fulfillment of the conditions of this Section 7.1.
7.2 Certified Copies of Resolutions; Incumbency. Purchaser shall have
delivered to Seller and the Sole Shareholder copies, certified by the duly
qualified and acting Secretary or Assistant Secretary of Purchaser, of
resolutions adopted by the Board of Directors of Purchaser approving this
Agreement, the consummation of the Acquisition and the other transactions
contemplated by this Agreement. Purchaser shall have delivered to Seller an
incumbency certificate or certificates dated the Effective Time certifying the
incumbency of all officers of Purchaser who have executed this Agreement.
7.3 No Injunction, Etc. At the Effective Time, there shall not be in effect
any injunction, writ, preliminary restraining order, or any order of any nature
issued by a court of competent jurisdiction or agency or other authority
prohibiting, restricting or making illegal the consummation of the transactions
contemplated by this Agreement.
7.4 ▇▇▇▇-▇▇▇▇▇ Act Approval. Unless waived by the parties, all waiting
periods applicable to this Agreement and the transactions contemplated hereby
under the ▇▇▇▇-▇▇▇▇▇ Act shall have expired or been terminated.
7.5 Exchange Listing. The shares of Purchaser Common Stock issuable
pursuant to the Acquisition shall have been approved for listing on the Nasdaq
NMS, subject to official notice of issuance.
ARTICLE 8
SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND INDEMNIFICATION
8.1 Survival of Representations and Warranties.
(a) All representations, warranties, agreements, and covenants made or
undertaken by the parties in this Agreement are material, have been relied upon
by the other parties hereto, shall survive the Effective Time hereunder, shall
not merge in the performance of any obligation by any party hereto and shall
terminate and expire (i) with respect to any "General Claim" (as herein defined)
with respect to which a Claims Notice has not been given pursuant to Section
8.4, on the later of (1) the second anniversary of the Effective Time or (2) the
second anniversary of the date on which such covenant or agreement is to be
performed hereunder or thereunder, (ii) with respect to any "Tax Claim" (as
herein defined) with respect to which a Claims Notice has not been given
pursuant to Section 8.4, on the later of (1) the date upon which the liability
to which any such Tax Claim may relate is barred by all applicable statutes of
limitation and (2) the date upon which any claim for refund or credit related to
such Tax Claim is barred by all applicable statutes of limitation, and (iii)
with respect to any "Environmental Claim" (as herein defined) with respect to
which a Claims Notice has not been given pursuant to Section 8.4, on the date
upon which the liability to which any such Environmental Claim may relate is
barred by all applicable statutes of limitation. As used in this Agreement, the
following terms have the following meanings:
(1) "General Claim" means any claim based upon, arising out of or
otherwise in respect of any inaccuracy in any representation or warranty or
any breach of any covenant or agreement made or to be performed by (i)
Seller or the Sole Shareholder or (ii) Purchaser pursuant to this
Agreement, provided that a "General Claim" shall not include any Tax Claim
or Environmental Claim;
-26-
(2) "Tax Claim" means any claim based upon, arising out of or
otherwise in respect of any inaccuracy in any representation or warranty or
any breach of any covenant or agreement made or to be performed by Seller
or the Sole Shareholder pursuant to this Agreement related to any Taxes,
including, without limitation, those representations and warranties made by
Seller and the Sole Shareholder in Section 3.9;
(3) "Environmental Claim" means any claim arising out of or otherwise
in respect of any inaccuracy in any representation or warranty made by
Seller and the Sole Shareholder in Section 3.17;
(b) The Sole Shareholder acknowledges and agrees that prior to the
Effective Time, Purchaser intends to perform such investigation of Seller,
Seller's business and Assets as it may deem necessary or appropriate; however,
no investigation by Purchaser will diminish or obviate any of the
representations, warranties, covenants or agreements made or to be performed by
Seller or the Sole Shareholder pursuant to this Agreement or Purchaser's right
to fully rely upon such representations, warranties, covenants and agreements.
8.2 Obligation of the Sole Shareholder to Indemnify. Subject to the
limitations contained in Sections 8.2 and 8.6, the Sole Shareholder agrees to
indemnify Purchaser against, and hold Purchaser harmless from, all Losses
asserted against, imposed upon or incurred by Purchaser by reason of, resulting
from, arising out of, based upon or otherwise in respect of the following
notwithstanding any actual or alleged negligence of Purchaser:
(a) any inaccuracy in any representation or warranty made by Seller or
the Sole Shareholder pursuant to this Agreement; provided that, for
purposes of this sentence only, those representations and warranties which
are qualified by reference to "Material," "Material Adverse Effect," or
"Knowledge" shall be deemed not to include such qualifications; or
(b) any breach of any covenant or agreement made or to be performed by
Seller or the Sole Shareholder pursuant to this Agreement.
8.3 Obligation of Purchaser to Indemnify. Subject to the limitations
contained in Sections 8.1 and 8.6, Purchaser agrees to indemnify the Sole
Shareholder against, and hold each of them harmless from, all Losses asserted
against, imposed upon or incurred by any of the foregoing by reason of,
resulting from, arising out of, based upon or otherwise in respect of the
following notwithstanding any actual or alleged negligence of Seller or the Sole
Shareholder:
(a) any inaccuracy in any representation or warranty made by Purchaser
pursuant to this Agreement; provided that, for purposes of this sentence
only, those representations and warranties which are qualified by reference
to "Material," "Material Adverse Effect," or "Knowledge" shall be deemed
not to include such qualifications; or
(b) any breach of any covenant or agreement made or to be performed by
Purchaser pursuant this Agreement.
8.4 Notice of Loss or Asserted Liability. Promptly after (i) becoming aware
of circumstances that have resulted in a Loss for which any Person or Persons
entitled to indemnification pursuant to Section 8.2 or Section 8.3 intends to
seek indemnification under such Section (the "Indemnified Party") or (ii)
receipt by the Indemnified Party of written notice of any demand, claim or
circumstances which, with the lapse of time, the giving of notice or both, would
give rise to a claim or the commencement (or threatened commencement) of any
Litigation that may result in a Loss (an "Asserted Liability"), the Indemnified
Party shall give notice thereof (the "Claims Notice") to any other party or
parties obligated to provide indemnification pursuant to Section 8.2 or Section
8.3 (the "Indemnifying Party"). The Claims Notice shall describe the Loss or the
Asserted Liability in reasonable detail, and shall indicate the amount
(estimated, if necessary) of the Loss that has been or may be suffered by the
Indemnified Party. The Claims Notice may be amended on one or more occasions
-27-
with respect to the amount of the Asserted Liability or the Loss at any time
prior to final resolution of the obligation to indemnify relating to the
Asserted Liability or the Loss. If a Claims Notice is not provided promptly as
required by this Section 8.4, the Indemnified Party nonetheless shall be
entitled to indemnification by the Indemnifying Party to the extent that the
Indemnifying Party has not established that it has been prejudiced by such late
receipt of the Claims Notice. Notwithstanding the foregoing sentence, however,
if the Claims Notice is not provided prior to compromise or payment of any
Asserted Liability by the Indemnified Party, the Indemnified Party shall only be
entitled to indemnification by the Indemnifying Party to the extent that the
Indemnified Party has established that the Indemnifying Party has not been
prejudiced by such late receipt of the Claims Notice.
8.5 Opportunity to Contest. The Indemnifying Party may elect to compromise
or contest, at its own expense and with counsel reasonably acceptable to the
Indemnified Party, any Asserted Liability. If the Indemnifying Party elects to
compromise or contest such Asserted Liability, it shall within thirty (30) days
(or sooner, if the nature of the Asserted Liability so requires) notify the
Indemnified Party of its intent to do so by sending a notice to the Indemnified
Party (the "Contest Notice"), and the Indemnified Party shall cooperate, at the
expense of the Indemnifying Party, in the compromise or contest of such Asserted
Liability. If the Indemnifying Party elects not to compromise or contest the
Asserted Liability, fails to notify the Indemnified Party of its election as
herein provided or contests its obligation to indemnify under this Agreement,
the Indemnified Party (upon further notice to the Indemnifying Party) shall have
the right to pay, compromise or contest such Asserted Liability on behalf of and
for the account and risk of the Indemnifying Party. Anything in this Section 8.5
to the contrary notwithstanding, (i) the Indemnified Party shall have the right,
at its own cost and for its own account, to compromise or contest any Asserted
Liability, and (ii) the Indemnifying Party shall not, without the Indemnified
Party's written consent, settle or compromise any Asserted Liability or consent
to entry of any judgment which does not include an unconditional term releasing
the Indemnified Party from all Liability in respect of such Asserted Liability.
In any event, the Indemnified Party and the Indemnifying Party may participate,
at their own expense, in the contest of such Asserted Liability. Each of Seller,
the Sole Shareholder, and Purchaser shall cooperate fully with the others as to
all Asserted Liabilities, shall make available to the others as reasonably
requested all information, records and documents relating to all Asserted
Liabilities and shall preserve all such information, records and documents until
the termination of any Asserted Liability. To the extent reasonably practicable,
each of Seller, the Sole Shareholder and Purchaser also shall make available to
the others, as reasonably requested, its personnel, agents, and other
representatives who are responsible for preparing or maintaining information,
records, or other documents or who may have particular Knowledge with respect to
any Asserted Liability.
8.6 Limitations on Indemnification.
(a) Indemnitors shall have no liability with respect to the matters
described in clauses (a) or (b) of Sections 8.2 or 8.3 until the total of all
Losses with respect thereto exceeds $75,000 (the "Threshold Amount") and then
only for the amount by which such Losses exceed $75,000. Notwithstanding the
foregoing, (i) any Losses incurred as a result of any matter for which
indemnification is required under this Article 8 will be first satisfied by
applying any reserves specifically established by Seller prior to the Closing
Date for such resulting liability before such Losses are applied to Threshold
Amount and (ii) no claim for a Loss may be made for indemnification or
aggregated with any other claim for indemnification if the amount of such claim
does not exceed $1,000.
(b) The limitations set forth in this Section shall not apply to any
intentional misrepresentation or breach of warranty of any Indemnitor or any
intentional failure to perform or comply with any covenant or agreement of any
Indemnitor, and the Indemnitors shall be liable for all Losses with respect
thereto. No party otherwise entitled to indemnification under this Agreement
shall be indemnified pursuant to this Agreement to the extent that such party's
Losses are increased or extended by the willful misconduct, violation of Law or
bad faith of such party.
8.7 Subrogation Rights. In the event that the Indemnifying Party shall be
obligated to indemnify the Indemnified Party pursuant to this Article 8, the
Indemnifying Party shall, upon payment of such indemnity in full, be subrogated
to all rights of the Indemnified Party with respect to the Loss to which such
indemnification relates; provided, however, that the Indemnifying Party shall
only be subrogated to the extent of any amount paid by it pursuant to this
Article 8 in connection with such Loss.
-28
8.8 Tax Effect. The Liability of the Indemnitors with respect to any
Indemnification Claim shall be reduced by the tax benefit actually realized as a
result of any Losses upon which such Indemnification Claim is based, and shall
include any tax detriment actually suffered by the Indemnitees as a result of
such Losses. The amount of any such tax benefit or detriment shall be determined
by taking into account the effect, if any and to the extent determinable, of
timing differences resulting from the acceleration or deferral of items of gain
or loss resulting from such Losses and shall otherwise be determined so that
payment by the Indemnitors of the Indemnification Claim, as adjusted to give
effect to any such tax benefit or detriment, will make the Indemnitee as
economically whole as is reasonably practical with respect to the Losses upon
which the Indemnification Claim is based. Any dispute as to the amount of such
tax benefit or detriment shall be resolved by arbitration as provided in Section
8.11 of this Agreement.
8.9 Indemnification Payments. Subject to the terms hereof and unless
contested in good faith, an Indemnifying Party shall pay to the Indemnified
Party the full amount of any and all Losses (other than Losses resulting from an
Asserted Liability) under this Article 8 within thirty (30) days of receipt of
the Claims Notice thereof and the full amount of any Loss resulting from an
Asserted Liability within thirty (30) days of the date such Litigation is
terminated or the date a final judgment or award is rendered and no appeal is
taken, and thereafter the amount of such Loss shall bear interest at the legal
rate on judgments, provided that interest on such amount shall not accrue during
the pendancy of an amount that is being contested in good faith, including a
contest through arbitration.
8.10 Indemnification Exclusive Remedy. If the Effective Time occurs, except
for remedies based upon fraud and except for equitable remedies, the remedies
provided in this Article 8 constitute the sole and exclusive remedies for
recovery against a party to this Agreement based upon the inaccuracy, untruth,
incompleteness or breach of any representation or warranty of such party
contained herein or in any certificate, Schedule, or Exhibit furnished by such
party in connection herewith, or based upon the failure of such party to perform
any covenant, agreement, or undertaking required by the terms hereof to be
performed by such party.
8.11 Arbitration. All disputes arising under this Article 8 (other than
claims in equity) shall be resolved by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association.
Arbitration shall be by a single arbitrator experienced in the matters at issue
and selected by the Indemnifying Party and the Indemnified Party and in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association. The arbitration shall be held in such place in Reston, Virginia as
may be specified by the arbitrator (or any place agreed to by the Indemnifying
Party, the Indemnified Party and the arbitrator). The decision of the arbitrator
shall be final and binding as to any matters submitted under this Article 8;
provided, however, if necessary, such decision and satisfaction procedure may be
enforced by either the Indemnifying Party or the Indemnified Party or in any
court of record having jurisdiction over the subject matter or over any of the
parties to this Agreement. All costs and expenses incurred in connection with
any such arbitration proceeding (including reasonable attorneys' fees) shall be
borne by the party against which the decision is rendered, or, if no decision is
rendered, such costs and expenses shall be borne equally by the Indemnitors as
one party and the Indemnitees as the other party. If the arbitrator's decision
is a compromise, the determination of which party or parties bears the costs and
expenses incurred in connection with any such arbitration proceeding shall be
made by the arbitrator on the basis of the arbitrator's assessment of the
relative merits of the parties' positions.
ARTICLE 9
TERMINATION
9.1 Method of Termination. This Agreement and the transactions contemplated
by it may be terminated at any time prior to the Effective Time:
(a) By the mutual consent of Seller and Purchaser at any time;
-29-
(b) By Seller at any time after September 30, 1999, if any of the
conditions set forth in Article 7 have not been fulfilled or waived, unless such
fulfillment has been frustrated or made impossible by any act or failure to act
by Seller or the Sole Shareholder;
(c) By Purchaser at any time after September 30, 1999, if any of the
conditions set forth in Article 6 have not been fulfilled or waived, unless such
fulfillment has been frustrated or made impossible by any act or failure to act
of Purchaser;
(d) By Purchaser pursuant to Section 5.457.
9.2 Notice of Termination. Notice of termination of this Agreement, as
provided for in this Article 9, shall be given by the parties so terminating to
the other parties hereto in accordance with Section 9.1.
9.3 Effect of Termination. In the event of a termination of this Agreement
pursuant to Section 9.1, this Agreement (other than Section 5.3 and this Section
9.3) shall become void and of no further force and effect, and each party shall
pay the costs and expenses incurred by it in connection with this Agreement, and
no party (or any of its agents, counsel, representatives, Affiliates or assigns)
shall be liable to any other party for any Loss hereunder. In addition, in the
event Seller terminates this Agreement pursuant to Section 9.1(b), Purchaser
shall promptly pay to Seller the sum of $250,000. Seller and the Sole
Shareholder acknowledge that the payment provided in this Section 9.3 is
intended by the parties to constitute liquidated damages for any breach by
Purchaser of the terms of this Agreement, and not a penalty, and the exclusive
remedy after termination of this Agreement. Upon payment of any such sum
required by this Section 9.3, Seller and the Sole Shareholder shall have no
further rights or claims against Purchaser.
9.4 Risk of Loss. Seller assumes all risk of condemnation, destruction or
Loss due to fire or other casualty from the date of this Agreement until the
Effective Time. If the condemnation, destruction or Loss is such that it has a
Material Adverse Effect on Seller, then Purchaser shall have the right to
terminate this Agreement.
ARTICLE 10
DEFINITIONS
The following terms (in their singular and plural forms as
appropriate) as used in this Agreement shall have the meanings set forth below
unless the context requires otherwise:
"Accounts Receivable" shall mean all accounts receivable, notes receivable,
and other monies due to Seller for sales and deliveries of goods, performance of
services and other business transactions (whether or not on the books of Seller)
on the Effective Time.
"Affiliate" of a Person shall mean (i) any Person directly, or indirectly
through one or more intermediaries, controlling, controlled by, or under common
control with, such Person, (ii) any officer, director, partner, employee, agent,
or representative or direct or indirect beneficial or legal owner of any 10% or
greater equity or voting interest of such Person, or (iii) any entity for which
a Person described in (ii) above acts in any such capacity.
"Agreement" shall mean this Agreement, including the Exhibits and Schedules
delivered pursuant hereto or referred to herein.
"Assets" of a Person shall mean all of the Assets, properties, and rights
of Seller of every kind, nature, character, and description, whether real,
personal or mixed, whether tangible or intangible, whether accrued, contingent,
or otherwise relating to or utilized in such Person's business, directly or
indirectly, in whole or in part, in existence on the date hereof and any
additions thereto on or before the Effective Time, whether or not carried on the
books and records of such Person, and whether or not owned in the name of such
Person or any Affiliate of such Person and wherever located.
-30-
"Code" shall mean the Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder.
"Computer Software" shall mean all computer programs, materials, tapes,
source and object codes, and all prior and proposed versions, releases,
modifications, updates, upgrades, and enhancements thereto, as well as all
documentation and listings related thereto.
"Consent" shall mean any consent, approval, authorization, clearance,
exemption, waiver, or similar affirmation by any Person pursuant to any
Contract, Law, Order, or Permit.
"Contract" shall mean any written or oral contract, agreement,
understanding, lease, usufruct, license plan, instrument, commitment,
restriction, arrangement, obligation, undertaking, practice, or authorization of
any kind or character or other document to which any Person is a party or that
is binding on any Person or its securities, Assets, or business.
"Databases" shall mean databases in all forms, versions and media, together
with prior and proposed updates, modifications and enhancements thereto, as well
as all documentation and listings therefor, other than Licenses.
"Default" shall mean (i) a breach of, default under, or misrepresentation
in or with respect to any Contract or License, (ii) the occurrence of an event
that with the passage of time or the giving of notice or both would constitute a
breach of, default under, or misrepresentation in any Contract or License, or
(iii) the occurrence of an event that with or without the passage of time or the
giving of notice or both would give rise to a right to terminate, change the
terms of or renegotiate any Contract or License or to accelerate, increase, or
impose any Liability under any Contract or License.
"Employee Benefit Plan" shall mean collectively, each pension, retirement,
profit-sharing, deferred compensation, stock option, employee stock ownership,
severance pay, vacation, bonus or other incentive plan, any other written or
unwritten employee program, arrangement, agreement or understanding, whether
arrived at through collective bargaining or otherwise, any medical, vision,
dental or other health plan, any life insurance plan, or any other employee
benefit plan or fringe benefit plan, including, without limitation, any
"employee benefit plan," as that term is defined in Section 3(3) of ERISA
currently or previously adopted, maintained by, sponsored in whole or in part
by, or contributed to by Seller or any Affiliate for the benefit of employees,
retirees, dependents, spouses, directors, independent contractors, or other
beneficiaries and under which employees, retirees, dependents, spouses,
directors, independent contractors or other beneficiaries are eligible to
participate. The "employee benefit plans" as defined in Section 3(3) of ERISA
and any other plan, fund, policy, program, practice, custom, understanding or
arrangement providing compensation or other benefits to any current or former
officer or employee of Seller, or any dependent or beneficiary thereof,
maintained by Seller or under which Seller has any obligation or Liability,
whether or not they are or are intended to be (i) covered or qualified under the
Code, ERISA or any other applicable Law, (ii) written or oral, (iii) funded or
unfunded, (iv) actual or contingent, or (v) generally available to any or all
employees (or former employees) of Seller or any Subsidiary (or their
beneficiaries or dependents), including, without limitation, all incentive,
bonus, deferred compensation, flexible spending accounts, cafeteria plans,
vacation, holiday, medical, disability, share purchase or other similar plans,
policies, programs, practices or arrangements.
"Environmental Laws" shall mean all Laws relating to pollution or
protection of human health or the environment (including ambient air, surface
water, ground water, land surface, or subsurface strata) and which are
administered, interpreted, or enforced by the United States Environmental
Protection Agency and state and local agencies with jurisdiction over, and
including common law in respect of, pollution or protection of the environment,
including the Comprehensive Environmental Response Compensation and Liability
Act, as amended, 42 U.S.C. 9601 et seq. ("CERCLA"), the Resource Conservation
and Recovery Act, as amended, 42 U.S.C. 6901 et seq. ("RCRA"), and other Laws
relating to emissions, discharges, releases, or threatened releases of any
Hazardous Material, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling of any
Hazardous Material.
-31-
"Equity Rights" shall mean all arrangements, calls, commitments, Contracts,
options, rights to subscribe to, scrip, understandings, warrants, or other
binding obligations of any character whatsoever relating to, or securities or
rights convertible into or exchangeable for, shares of the capital stock of a
Person or by which a Person is or may be bound to issue additional shares of its
capital stock or other Equity Rights.
"ERISA" shall mean Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Plan" shall mean any Employee Benefit Plan which is an "employee
pension benefit plan," as that term is defined in Section 3(2) of ERISA, or an
"employee welfare benefit plan" as that term is defined in Section 3(1) of
ERISA.
"GAAP" shall mean generally accepted accounting principles consistently
applied.
"Governmental Authority" shall mean any federal, state, county, local,
foreign or other governmental or public agency, instrumentality, commission,
authority, board or body.
"▇▇▇▇-▇▇▇▇▇ Act" shall mean the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements
Act of 1976, 15 U.S.C.A. ss. 18(a), as amended, and all Laws promulgated
thereunder.
"Hazardous Substance" shall mean (i) any hazardous substance, hazardous
material, hazardous waste, regulated substance or toxic substance (as those
terms are defined by any applicable Environmental Laws) and (ii) any chemicals,
pollutants, contaminants, petroleum, petroleum products or oil.
"Improvements" shall mean all buildings, structures, fixtures and other
improvements included in the Real Property.
"Intellectual Property" shall mean (i) patents and pending patent
applications together with any and all continuations, divisions, reissues,
extensions and renewals thereof, (ii) trade secrets, know-how, inventions,
formulae and processes, whether trade secrets or not, (iii) tradenames,
trademarks, service marks, logos, assumed names, brand names, and all
registrations and applications therefor together with the goodwill of the
business symbolized thereby, (iv) copyrights and any registrations and
applications therefor, (v) technology rights and licenses, and (vi) Computer
Software and all other intellectual property owned by, registered in the name
of, or used in the business of a Person or in which a Person or its business has
any interest.
"Inventory" shall mean all inventories of raw materials, supplies,
purchased parts to be incorporated in finished products, operating parts and
supplies, work-in-process, finished products, advertising materials and other
inventories.
"IRS" shall mean the Internal Revenue Service of the United States of
America.
"Knowledge" shall mean those facts the Chairman, President, and Chief
Financial Officer of such Person after due inquiry knew or reasonably should
have known.
"Law" shall mean any code, law, order, ordinance, regulation rule, or
statute of any Governmental Authority.
"Leased Personal Property" shall mean all personal property used in
Seller's business that is not owned by Seller that Seller either uses or has the
right to use.
"Leased Real Property" shall mean all Real Property used in Seller's
business that is not owned in fee simple by Seller that Seller either occupies
or uses or has the right to occupy or use.
"Liability" shall mean any direct or indirect, primary or secondary,
liability, indebtedness, obligation, penalty, expense (including, without
limitation, costs of investigation, collection and defense), claim, deficiency,
-32-
guaranty or endorsement of or by any Person (other than endorsements of notes,
bills and checks presented to banks for collection or deposit in the ordinary
course of business) of any type, whether accrued, absolute, contingent,
liquidated, unliquidated, matured, unmatured or otherwise.
"License" shall mean any license, franchise, notice, permit, easement,
right, certificate, authorization, approval or filing to which any Person is a
party or that is or may be binding on any Person or its securities, property or
business.
"Lien" shall mean any mortgage, lien, security interest, pledge,
hypothecation, encumbrance, restriction, reservation, encroachment,
infringement, easement, conditional sale agreement, title retention or other
security arrangement, defect of title, adverse right or interest, charge or
claim of any nature whatsoever of, on, or with respect to any property or
property interest.
"Litigation" shall mean any action, administrative or other proceeding,
arbitration, cause of action, claim, complaint, criminal prosecution, inquiry,
hearing, investigation (governmental or otherwise), notice (written or oral) by
any Person alleging potential liability or requesting information relating to or
affecting Seller, the Business, the Assets (including, without limitation,
Contracts relating to Seller) or the transactions contemplated by this
Agreement.
"Loss" shall mean any and all direct or indirect demands, claims, payments,
obligations, recoveries, deficiencies, fines, penalties, interest, assessments,
actions, causes of action, suits, losses, damages, liabilities, costs, expenses
(including without limitation, (i) interest, penalties and reasonable attorneys'
fees and expenses, (ii) attorneys' fees and expenses necessary to enforce rights
to indemnification hereunder, and (iii) consultant's fees and other costs of
defense or investigation), and interest on any amount payable to a Third Party
as a result of the foregoing, whether accrued, absolute, contingent, known,
unknown, or otherwise as of the Effective Time or thereafter, but excluding
punitive, exemplary, incidental or consequential damages (including, but not
limited to, lost income and profits and interruptions of business).
"Material" or "Materially" shall be determined in light of the facts and
circumstances of the matter in question; provided, however, that any specific
monetary amount cited in this Agreement shall be deemed to determine materiality
in that instance.
"Material Adverse Change" or "Material Adverse Effect" on or with respect
to a Person means any Material adverse change in or effect on (i) the business,
operations, Assets, Liabilities, condition (financial or otherwise), or results
of operations of such Person, (ii) the ability of such party to consummate the
transactions contemplated by this Agreement to which it is or will be a party,
or (iii) the ability of such party to perform any of its obligations under this
Agreement to which it is or will be a party, if such change or effect Materially
impairs the ability of such party to perform its obligations hereunder or
thereunder, taken as a whole, provided that "Material Adverse Change" or
"Material Adverse Effect" shall not be deemed to include the impact of (1)
changes in GAAP generally applicable to companies engaged in the business of
Seller, (2) actions and omissions of a party taken with the prior informed
written consent of the other party in contemplation of the transactions
contemplated hereby, and (3) the direct effects of compliance with this
Agreement on the operating performance of the parties, including expenses
incurred by the parties in consummating the transactions contemplated by this
Agreement.
"Nasdaq NMS" shall mean the Nasdaq National Market System.
"NCBCA" shall mean the North Carolina Business Corporation Act.
"1933 Act" shall mean the Securities Act of 1933, as amended.
"1934 Act" shall mean the Securities Exchange Act of 1934, as amended.
"Order" shall mean any decree, injunction, judgment, order, ruling, writ,
quasi-judicial decision or award or administrative decision or award of any
federal, state, local, foreign or other court, arbitrator, mediator, tribunal,
administrative agency or Governmental Authority to which any Person is a party
or that is or may be binding on any Person or its securities, Assets or
business.
-33-
"Owned Personal Property" shall mean all personal property used in Seller's
business other than Leased Personal Property.
"Owned Real Property" shall mean all Real Property used in Seller's
business other than Leased Real Property.
"Permit" shall mean any federal, state, local, and foreign governmental
approval, authorization, certificate, easement, filing, franchise, license,
notice, permit, or right to which any Person is a party or that is or may be
binding upon or inure to the benefit of any Person or its securities, Assets, or
business.
"Permitted Liens" shall mean (i) Liens for current real property taxes not
yet due and payable and (ii) Liens that do not Materially affect the value or
use of the Asset subject to such Lien.
"Person" shall mean a natural person or any legal, commercial or
governmental entity, such as, but not limited to, a corporation, general
partnership, joint venture, limited partnership, limited liability company,
trust, business association or any person acting in a representative capacity.
"Purchaser Common Stock" shall mean the $ .01 par value common stock of
Purchaser.
"Purchaser Financial Statements" shall mean (i) the consolidated balance
sheets (including related notes and schedules, if any) of Purchaser as of June
30, 1999 and March 31, 1999 and 1998, and the related statements of earnings,
changes in shareholders' equity, and cash flows (including related notes and
schedules, if any) for the three (3) months ended June 30, 1999 and for each of
the years ended March 31, 1999, 1998 and 1997, as filed by Purchaser in SEC
Documents, and (ii) the consolidated balance sheets of Purchaser (including
related notes and schedules, if any) and related statements of earnings, changes
in shareholders' equity, and cash flows (including related notes and schedules,
if any) included in SEC Documents filed with respect to periods ended subsequent
to June 30, 1999.
"Related Person" shall mean, with regard to any natural Person, his spouse,
parent, sibling, child, aunt, uncle, niece, nephew, in-law, grandparent and
grandchild (including by adoption) and any trustees or other fiduciaries for the
benefit of such relatives.
"Purchase Preferred Stock" shall mean the $ .01 par value preferred stock
of Purchaser.
"SEC" shall mean the United States Securities and Exchange Commission.
"SEC Documents" shall mean all forms, proxy statements, registration
statements, reports, schedules, and other documents filed, or required to be
filed, by a Party or any of its Subsidiaries with any Regulatory Authority
pursuant to the Securities Laws.
"Securities Laws" shall mean the 1933 Act, the 1934 Act, the Investment
Company Act of 1940, as amended, the Investment Advisors Act of 1940, as
amended, the Trust Indenture Act of 1939, as amended, and the rules and
regulations of any Regulatory Authority promulgated thereunder.
"Seller Common Stock" shall mean the $ 1.00 par value Class A Common Stock
of Seller.
"Seller Financial Statements" shall mean (i) the unaudited balance sheets
of Seller as of July 31, 1999, and the related statements of income for the
period then ended, (ii) the unaudited balance sheets of Seller as of December
31, 1998, and December 31, 1997, and the related statements of income and cash
flows for each of the years then ended, together with the notes thereto, and
(iii) the financial statements delivered by Seller pursuant to Section 5.8
subsequent to July 31, 1999.
"Subsidiary" shall mean any corporation, association, or other business
entity of which the Person in question either (i) owns or controls 50% or more
of the outstanding equity securities either directly or through an unbroken
chain of entities as to each of which 50% or more of the outstanding equity
-34-
securities is owned directly or indirectly by its parent (provided, there shall
not be included any such entity the equity securities of which are owned or
controlled in a fiduciary capacity), (ii) in the case of partnerships, serves as
a general partner, (iii) in the case of a limited liability company, serves as a
managing member, or (iv) otherwise has the ability to elect a majority of the
directors, trustees or managing members thereof.
"Tax" or "Taxes" shall mean any federal, state, county, local, or foreign
taxes, charges, fees, levies, imposts, duties, or other assessments, including
income, gross receipts, excise, employment, sales, use, transfer, license,
payroll, franchise, severance, stamp, occupation, windfall profits,
environmental, federal highway use, commercial rent, customs duties, capital
stock, paid-up capital, profits, withholding, Social Security, single business
and unemployment, disability, real property, personal property, registration, ad
valorem, value added, alternative or add-on minimum, estimated, or other tax or
governmental fee of any kind whatsoever, imposes or required to be withheld by
the United States or any state, county, local, or foreign government or
subdivision or agency thereof, including any interest, penalties, and additions
imposed thereon or with respect thereto.
"Tax Returns" shall mean any report, return, information return, filings,
declarations, statements or other information required to be supplied to a
Governmental Authority in connection with Taxes.
"Third Party" or "Third Parties" shall mean any Person that is not
Purchaser, Seller, or a Shareholder or an Affiliate of Purchaser, Seller, or a
Shareholder.
"Unaudited Balance Sheet" shall mean (i) at the time of executing this
Agreement, the unaudited balance sheet of Seller as of July 31, 1999 included in
the Seller Financial Statements and (ii) at the Effective Time, the unaudited
balance sheet of Seller delivered pursuant to Section 5.8 for the month ended
immediately preceding the Effective Time.
"Unaudited Balance Sheet Date" shall mean the date of the Unaudited Balance
Sheet.
"Undisclosed Liabilities" shall mean any Liability that is not reflected or
reserved against in the Seller or Purchaser Financial Statements or disclosed in
a Schedule.
ARTICLE 11
MISCELLANEOUS
11.1 Notices.
(a) All notices, requests, demands and other communications hereunder
shall be (i) delivered by hand, (ii) mailed by registered or certified
mail, return receipt requested, first class postage prepaid and properly
addressed, (iii) sent by national overnight courier service, or (iv) sent
by facsimile, graphic scanning or other telegraphic communications
equipment to the parties or their assignees, addressed as follows:
To Seller: CLG, INC.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopy Number: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇
To Sole Shareholder: CENTURA BANKS
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopy Number: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
-35-
with a copy to: CENTURA BANKS
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopy Number: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇.
To Purchaser: MLC HOLDINGS, INC.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopy Number: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
with a copy to: ▇▇▇▇▇▇ & BIRD LLP
▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇.
▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇-▇▇▇▇
Telecopy Number: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ III
-and-
▇▇▇▇▇▇▇ & ASSOCIATES, P.C.
Number Ten E Street, S.E.
Washington, D.C. 20003-2611
Telecopy Number: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
(b) All notices, requests, instructions or documents given to any party in
accordance with this Section 11.1 shall be deemed to have been given (i) on the
date of receipt if delivered by hand, overnight courier service or if sent by
facsimile, graphic scanning or other telegraphic communications equipment or
(ii) on the date three (3) business days after depositing with the United States
Postal Service if mailed by United States registered or certified mail, return
receipt requested, first class postage prepaid and properly addressed.
(c) Any party hereto may change its address specified for notices herein by
designating a new address by notice in accordance with this Section 11.1.
11.2 Entire Agreement. This Agreement, the Schedules, the Exhibits
constitute the entire agreement between the parties relating to the subject
matter hereof and thereof and supersede all prior oral and written, and all
contemporaneous oral negotiations, discussions, writings and agreements relating
to the subject matter of this Agreement.
11.3 Modifications, Amendments, and Waivers.
(a) At any time prior to or subsequent to the Closing, the parties hereto
may, by mutual written agreement and in no other manner, (a) extend the time for
the performance of any of the obligations or other acts of the parties hereto
other than the conditions contained in Articles 6 and 7, the time for completion
of which may be extended unilaterally or which may be waived unilaterally by
Purchaser and Seller, respectively, (b) waive any inaccuracies in the
representations and warranties contained in this Agreement or in any document
delivered pursuant hereto, (c) waive compliance with any of the covenants or
agreements contained in this Agreement, or (d) make any other modifications of
this Agreement approved by each of the parties hereto.
-36-
(b) The failure or delay of any party at any time or times to require
performance of any provision of this Agreement shall in no manner affect its
right to enforce that provision. No single or partial waiver by any party of any
condition of this Agreement, or the breach of any term, agreement or covenant or
the inaccuracy of any representation or warranty of this Agreement, whether by
conduct or otherwise, in any one or more instances shall be construed or deemed
to be a further or continuing waiver of any such condition, breach or inaccuracy
or a waiver of any other condition, breach or inaccuracy.
11.4 Successors and Assigns. This Agreement shall be binding upon and shall
inure to the benefit of and be enforceable by the parties hereto, and their
respective estates, successors, legal or personal representatives, heirs,
distributees, designees and assigns, but no assignment shall relieve any party
of the obligations hereunder. The Sole Shareholder acknowledges that Purchaser
intends to merge Seller into and with a subsidiary of Purchaser and that as a
result of such merger, all rights and obligations of Seller under this Agreement
shall be binding upon and shall inure to the benefit of and be enforceable by
the subsidiary of Purchaser. This Agreement cannot be assigned by any party
without the prior written consent of the other parties hereto.
11.5 Time of the Essence. The parties agree that time is of the essence in
the performance and satisfaction of this Agreement and each of the conditions
specified in Articles 6 and 7 are material for purposes of this Agreement.
11.6 Table of Contents; Captions; References. The table of contents and the
captions and other headings contained in this Agreement as to the contents of
particular articles, sections, paragraphs or other subdivisions contained herein
are inserted for convenience of reference only and are in no way to be construed
as part of this Agreement or as limitations on the scope of the particular
articles, sections, paragraphs or other subdivisions to which they refer and
shall not affect the interpretation or meaning of this Agreement. All references
in this Agreement to "Section" or "Article" shall be deemed to be references to
a Section or Article of this Agreement.
11.7 Governing Law. This Agreement shall be controlled, construed and
enforced in accordance with the substantive Laws of the State of Delaware,
without respect to the Laws related to choice or conflicts of Laws.
11.8 Pronouns. All pronouns used herein shall be deemed to refer to the
masculine, feminine or neuter gender as the context requires.
11.9 Severability. Should any one or more of the provisions of this
Agreement be determined to be invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining provisions hereof
shall not in any way be affected or impaired thereby. To the extent such
determination is reasonably likely to give rise to a Material Adverse Effect,
the parties shall endeavor in good faith to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as practicable to that of the invalid, illegal or unenforceable
provisions.
11.10 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original; but all of such counterparts
shall together constitute one and the same instrument.
11.11 Interpretations. Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against Purchaser, Seller or the
Sole Shareholder, whether under any rule of construction or otherwise. No party
to this Agreement shall be considered the draftsman. On the contrary, this
Agreement has been reviewed, negotiated and accepted by all parties and their
attorneys and shall be construed and interpreted according to the ordinary
meaning of the words used so as fairly to accomplish the purposes and intentions
of all parties hereto.
-37-
IN WITNESS WHEREOF, the parties have caused their duly authorized
representatives to execute this Agreement as of the date first above written.
MLC HOLDINGS, INC.
[CORPORATE SEAL]
Attest: By:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Secretary Chairman of the Board,
President, and Chief Executive
Officer
CLG, INC.
[CORPORATE SEAL]
Attest: By:
▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇. ▇▇▇
Secretary President
CENTURA BANKS
[CORPORATE SEAL]
Attest: By:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇. ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Secretary President
-38-
Exhibit 6.5
OPINION OF COUNSEL
This opinion is delivered pursuant to Section 6.5 of the Agreement.
Capitalized terms used in this opinion shall have the meaning set forth in the
Agreement.
1. The Sole Shareholder and Seller are corporations duly
organized, validly existing, and in good standing under the laws of the State of
North Carolina with full corporate power and authority to carry on the business
in which they are engaged.
2. The execution and delivery of the Agreement and compliance
with its terms, and consummation of the transactions contemplated thereby, do
not and will not violate or contravene any provision of the Articles of
Incorporation or Bylaws of the Sole Shareholder or of Seller.
3. In accordance with the laws of North Carolina, the Articles
of Incorporation of the Sole Shareholder and of Seller, and the Bylaws of the
Sole Shareholder and of Seller, and pursuant to resolutions duly adopted by
their Boards of Directors, the Agreement has been duly adopted and approved by
the respective Boards of Directors of the Sole Shareholder and Seller.
4. All proceeds required by law or by provisions of the
Agreement to be taken by the Sole Shareholder and by Seller in connection with
the due consummation of the transactions contemplated by the Agreement have been
duly and validly taken.
5. The Agreement has been duly and validly executed and
delivered by the Sole Shareholder and by Seller, and assuming valid
authorization, execution, and delivery by Purchaser, constitutes a valid and
binding agreement of the Sole Shareholder and of Seller enforceable in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, or similar laws affecting creditors'
rights generally, provided, however, that I express no opinion as to the
availability of the equitable remedy of specific performance.
-39-
