STOCK PURCHASE AGREEMENT
by and among
Crescent Computers, Inc., a Georgia corporation, and its shareholders
and
tekgraf, inc., a Texas corporation, and its shareholders
Dated as of May 1, 1997
TABLE OF CONTENTS
Page
ARTICLE I
PURCHASE OF STOCK........................................................1
Section 1.1 Purchase and Sale...........................................1
Section 1.2 Purchase Price..............................................1
Section 1.3 Purchase Price Adjustment...................................2
Section 1.4 The Closing.................................................4
ARTICLE II
REPRESENTATIONS AND WARRANTIES...........................................4
Section 2.1 Representations and Warranties of the Companies and the
Shareholders .............................................4
Section 2.2 Representations and Warranties of Purchaser................20
Section 2.3 Survival of Representations and Warranties.................21
Section 2.4 Disclosure.................................................21
ARTICLE III
COVENANTS...............................................................21
Section 3.1 Covenants Against Disclosure...............................21
Section 3.2 Access to Information......................................22
Section 3.3 Interim Period.............................................22
Section 3.5 On and After Closing.......................................23
Section 3.6 Non-Competition............................................23
Section 3.7 Further Assurances.........................................24
ARTICLE IV
CONDITIONS PRECEDENT TO OBLIGATIONS.....................................25
Section 4.1 Conditions to Obligations of Purchaser.....................25
Section 4.2 Conditions to Obligations of the Company and the Selling
Shareholders ............................................26
ARTICLE V
INDEMNIFICATION.........................................................27
Section 5.1 Survival of Representations, Warranties, Covenants and
Agreements ...............................................27
Section 5.2 Indemnification of Purchaser...............................28
Section 5.3 Indemnification of the Selling Shareholders................28
Section 5.4 Procedure for Indemnification with Respect to Third-Party
Claims ..................................................28
Section 5.5 Procedure For Indemnification with Respect to Non-Third
Party Claims ............................................29
Section 5.6 Escrowed Shares............................................30
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ARTICLE VI
TERMINATION AND CONDITIONS SUBSEQUENT...................................30
Section 6.1 Termination................................................30
Section 6.2 Effect of Termination......................................30
Section 6.3 Conditions Subsequent to Obligations.......................30
ARTICLE VII
MISCELLANEOUS PROVISIONS................................................31
Section 7.1 Notice.....................................................31
Section 7.2 Entire Agreement...........................................31
Section 7.3 Binding Effect: Assignment.................................31
Section 7.4 Expenses of Transaction....................................31
Section 7.5 Waiver; Consent............................................32
Section 7.6 Management of Purchaser's Business.........................32
Section 7.7 Counterparts...............................................32
Section 7.8 Severability...............................................32
Section 7.9 Remedies of the Parties....................................32
Section 7.10 Governing Law..............................................32
Section 7.11 Arbitration; Attorneys' Fees...............................32
Section 7.12 Cooperation and Records Retention..........................33
SCHEDULE 1.2............................................................36
SCHEDULE 2.1(b).........................................................37
SCHEDULE 2.2(b).........................................................38
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is dated as of May 1, 1997
among , Crescent Computers, Inc., a Georgia corporation ("Purchaser"), the
shareholders of Crescent set forth on the signature page of this Agreement (the
"Crescent Shareholders") and tekgraf, inc., a Texas corporation ("Tekgraf" or
the "Company"), and the shareholders of Tekgraf set forth on the signature page
of this Agreement (the "Selling Shareholders").
WHEREAS, the Company is engaged in, among other things, the business of
computer integration and wholesale distribution of computer products (such
business is referred to herein collectively as the "Business"); and
WHEREAS, Purchaser desires to purchase all the issued and outstanding
shares of capital stock of the Company held by the Selling Shareholders and the
Selling Shareholders desire to sell such shares to Purchaser, subject to the
terms and conditions hereinafter set forth (such purchase and sale of capital
stock of the Company shall be referred to herein as the "Acquisition"); and
WHEREAS, Purchaser and the Selling Shareholders desire to enter into this
Agreement with the understanding that this Agreement will supercede all prior
oral and written agreements between the parties.
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, the parties hereto hereby agree as follows:
ARTICLE I
PURCHASE OF STOCK
Section 1.1 Purchase and Sale. Subject to the terms and conditions of this
Agreement, Purchaser agrees to purchase on the Closing Date (as hereinafter
defined), and the Selling Shareholders each agree to sell to Purchaser at the
Closing (as hereinafter defined), all of the issued and outstanding shares of
the capital stock of the Company, which consists of the number of shares of
common stock, and all rights existing with respect thereto, held by each of the
Selling Shareholders, as set forth on Schedule 2.1(b) attached hereto.
Section 1.2 Purchase Price. (a) In consideration for the Capital Stock (as
defined in Section 2.1(b)) and in full payment therefor Purchaser will pay the
Selling Shareholders $675,000 (hereinafter the "Purchase Price"), but subject to
the adjustments to the Purchase Price set out in Section 1.3, such payment to be
evidenced by the issuance to the Selling Shareholders of an aggregate of 834
shares of Purchaser's common stock (the "Common Stock") in the respective
amounts reflected in Schedule 1.2 attached hereto (hereinafter called the
"Purchase Price"). All shares of Common Stock issued as herein described shall
have identical rights as to dividends, voting and all other matters. Except as
expressly provided in this Agreement, there shall be no other consideration paid
to or for the account of the Selling Shareholders in connection with or relating
in any way to the transactions contemplated hereby.
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Section 1.3 Purchase Price Adjustment. (a) As used in this Section 1.3,
the following capitalized terms shall have the meanings set forth below:
"Actual Company Value" shall mean the aggregate of the Company's and any
subsidiary's Fixed Assets, plus their Current Assets, less their Liabilities on
the Closing Date.
"Company Shortfall" means the excess, if any, of the Warranted Company Value (as
hereinafter defined) over the Actual Company Value on the Closing Date, subject
to the limitations set forth in this Section 1.3.
"Current Assets" shall be used in all respects in accordance with generally
accepted accounting principles consistently applied ("GAAP") and comprises the
aggregate of all cash, cash equivalents, receivables and inventory, but
specifically excludes any deferred assets including without limitation deferred
tax and deferred income, and valued in accordance with GAAP, and on a basis in
all material respects consistent with that adopted for the purposes of the last
audited financial statements of the Company and the value of all receivables and
inventory has been written down to realizable market value and adequate
provision has been made therefor.
"Fixed Assets" shall be used in all respects in accordance with GAAP and shall
mean fixed assets at the values at which they were included in the latest
audited financial statements (or if acquired after the balance sheet date, their
cost), less depreciation calculated in accordance with the method adopted in the
financial statements. Fixed Assets shall specifically exclude, and no value
shall be attributable to, any intangible assets (including without limitation
goodwill, trademarks, service marks, formulas, franchise rights and patents),
and no asset shall be written up or revalued above its original cost less
applicable depreciation.
"Liabilities" shall be used in all respects in accordance with GAAP and shall
mean all liabilities, whether long-term or current, including without limitation
all actual liabilities of the Company on the Closing Date, with proper provision
in accordance with GAAP, having been made therein for all other liabilities of
the Company then outstanding whether contingent, quantified, disputed or not,
including without limitation the cost of any work or material for which payment
has been received or credit taken, any future loss which may arise in connection
with uncompleted contracts and any claims against the Company in respect of
completed contracts.
"Net Asset Value Shortfall" means the excess, if any, of the Warranted Tangible
Net Asset Value over the Actual Tangible Net Asset Value on the Closing Date,
subject to the limitations set forth in this Section 1.3.
"Actual Tangible Net Asset Value" shall mean the aggregate amount of the Current
Assets less Liabilities on the Closing Date.
"Warranted Company Value" shall mean $254,690.
"Warranted Tangible Net Asset Value" shall mean $220,690.
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(b) Each Selling Shareholder represents and warrants to the Purchaser that
the Warranted Company Value and the Warranted Tangible Net Asset Value of the
Company shall be not less than the amounts set forth above. The Purchase Price
shall be increased by the amount (if any) by which the Company's Actual Tangible
Net Asset Value exceeds its Warranted Tangible Net Asset Value on the Closing
Date. Such amount will be paid by the Purchaser to the Selling Shareholders
within ninety (90) days after the determination of Actual Company Value and
Actual Tangible Net Asset Value, in cash provided the Purchase has net assets of
at least $8,000,000 on such date. Otherwise such amount remaining unpaid shall
bear interest at the rate which is three percent (3%) per annum in excess of the
then prime rate of interest of NationsBank of Georgia, N.A., to be evidenced by
a six month promissory note issued by Purchaser to the Selling Shareholders in
substantially the form of Exhibit 1.3(b) attached hereto. The Purchase Price
payable by Purchaser to the Selling Shareholders shall be reduced by one of the
following, whichever is greater:
Company Shortfall / Warranted Company Value x Purchase Price
Net Asset Value Shortfall / Warranted Tangible Net Asset Value x Purchase
Price
(c) If any receivable of the Company existing as of the Closing Date
remains uncollected by the Company or its successor the later of 90 days after
the Closing Date or 150 days after the date of invoice, or has, as of the later
of such dates, been collected at less than its full value as shown in Current
Assets on the Closing Date ("Collection Shortfall"), then (i) the Purchaser
shall have the option of assigning such receivable to the Selling Shareholders,
without representation or warranty, not more than 180 days after the Closing
Date, and demanding the amount of the Collection Shortfall, and upon such
assignment, such Selling Shareholders shall pay the Company such amount, in
cash, within sixty (60) days after demand; provided that Purchaser shall have
exercised all reasonable efforts at collecting such receivable at such full
value; and (ii) the Selling Shareholders shall have the option of causing the
Purchaser to sell such receivable to the Selling Shareholders, without
representation or warranty, not more than 180 days after the Closing Date, and
paying the amount of the Collection Shortfall, and upon such assignment, the
Selling Shareholders shall pay Purchaser such amount, in cash, within sixty (60)
days after demand. The Selling Shareholders shall thereafter be free to pursue
such collection measures as they in their sole discretion shall deem necessary
or appropriate. To the extent, if any, that the Collection Shortfall remains
unpaid after such sixty (60) day period, Purchaser shall adjust the Selling
Shareholders' shares of Common Stock, effective as of the Closing Date, in
accordance with the formulae set forth in Section 1.3(b) above, adding
Collection Shortfall to Company Shortfall or Net Asset Value Shortfall, as the
case may be.
(d) If any items of the Company's inventory existing as of the Closing
Date remain unsold by the Company or its successor 180 days thereafter or have
been sold at less than full value as shown in Current Assets on the Closing Date
("Inventory Shortfall"), Purchaser not more than 210 days after the Closing Date
shall deliver and transfer such unsold inventory to the Selling Shareholders
without representation or warranty and shall demand the amount of the Inventory
Shortfall, and upon such transfer and delivery, the Selling Shareholders shall
pay the Company such amount, in cash, within thirty (30) days of demand;
provided that Purchaser shall have exercised all reasonable efforts at selling
such inventory at such full value. Such Selling Shareholders shall, at any time
after Purchaser's demand of the Inventory Shortfall, be free to sell such
inventory as they in their sole discretion shall deem necessary or appropriate.
To the extent if any that the Inventory Shortfall remains unpaid after such
thirty (30) day
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period, Purchaser shall adjust such Selling Shareholders' shares of Common
Stock, effective as of the Closing Date, in accordance with the formulae set
forth in Section 1.3(b) above, adding Inventory Shortfall to Company Shortfall
or Net Asset Value Shortfall, as the case may be.
(e) Purchaser and each Selling Shareholder shall escrow twenty percent
(20%) of the shares of Common Stock to be delivered to such Selling Shareholder
(the "Escrowed Shares"), to be subject to redistribution by Purchaser in the
circumstances described in this Section 1.3. The terms of the escrow shall be
substantially as set forth in the form of Escrow Agreement attached as Exhibit
1.3(e) hereto. Any Escrowed Shares not subject to redistribution for the
purposes of this Section shall be released to such Selling Shareholders as
follows: one-half within thirty (30) days of the determination of the
application of this Section 1.3 pursuant to the provisions of subsection (b),
(c) or (d) above, as the case may be, and one-half on the first anniversary of
the Closing Date.
(f) As an example of the application of subsections (b) and (c) above, if
on the Closing Date the Actual Company Value of Tekgraf shall be $229,690,
rather than the Warranted Company Value of $254,690, being a $15,000 shortfall
in Warranted Tangible Net Asset Value and a $10,000 shortfall in Fixed Assets,
and an additional shortfall is determined under subsection (c) above in the
amount of $25,000 and such amount remains unpaid, the Purchaser shall decrease
the shares of Common Stock to be distributed to the Selling Shareholders of
Tekgraf by 163 shares, computed as follows:
$50,000 / $254,690 x 834 = 163 Shares
$40,000 / $220,690 x 834 = 151 Shares
Section 1.4 The Closing. Subject to termination of this Agreement as
provided in Article VI below, the closing and consummation of the Acquisition
contemplated by this Agreement shall take place in the offices of Purchaser's
attorneys on such date that the conditions of closing set forth in Article IV
hereof have been satisfied or waived, or such other date as the parties hereto
may mutually select (the "Closing Date"), which in no event shall be later than
45 days after the date of this Agreement, unless extended by the unanimous
agreement of Purchaser and the Selling Shareholders. The "Closing" shall mean
the deliveries to be made by the parties hereto on the Closing Date in
accordance with this Agreement. The Acquisition shall be deemed to have become
effective as of 12:01 a.m. Atlanta, Georgia Time on the Closing Date.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 Representations and Warranties of the Companies and the
Shareholders. The Company and each of the Selling Shareholders hereby severally
represents and warrants to Purchaser that:
(a) Organization. The Company is a corporation duly organized and
validly existing under the laws of the State of Texas (the "State"), and has all
requisite power and authority to lease, own, and operate its properties and
carry on the Business and operations and to directly own, lease, and operate its
assets. The Company is duly qualified or licensed to do business as a
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corporation, and is in good standing in the State. The Company has delivered to
Purchaser complete and accurate copies of its Articles of Incorporation and
Bylaws and all amendments thereto, and all minutes and actions of its Board of
Directors and shareholders. Neither the Company nor any of the Selling
Shareholders is in violation of any of the provisions of the Articles of
Incorporation or the Bylaws.
(b) Capitalization and Ownership. The authorized and outstanding
capital stock of the Company (including without limitation all voting
securities) (the "Capital Stock") and its par value per share, if any, is as set
forth on Schedule 2.1(b) hereto. Each person listed on Schedule 2.1(b) is the
lawful owner of that number of the issued and outstanding shares of capital
stock of the Company set forth opposite such person's name, free and clear of
any restrictions upon transfer except as indicated in Schedule 2.1(b), all of
which restrictions shall be removed no later than the Closing Date. The shares
of Capital Stock set forth on Schedule 2.1(b) constitute all of the shares of
capital stock of the Company and all such shares have been duly authorized and
are validly issued, fully paid and nonassessable, and to the best of the
knowledge and belief of the Company and the Selling Shareholders, have been
issued in compliance with all applicable federal and state securities laws.
There are no outstanding subscriptions, warrants, calls, options, conversion
rights, rights of exchange or other commitments, plans, agreements, or
arrangements of any nature under which the Company or the Selling Shareholder
may be obligated to issue, assign, exchange, purchase, redeem or transfer any
shares of capital stock of the Company, and there are no shareholders'
agreements to which the Company or the Selling Shareholders is a party, or
proxies, voting trust agreements or similar agreements or options executed by
the Company or the Selling Shareholders or to which the Capital Stock is
subject. There are no outstanding subscriptions, options, warrants, rights,
convertible securities or other agreements or commitments of any character
relating to the issued or unissued capital stock or other securities of the
Company obligating the Company or the Selling Shareholders to grant, extend or
enter into any subscription, option, warrant, right, convertible security or
other similar agreement or commitment. Upon issuance of shares of Common Stock
for the shares of the Company's Capital Stock, as set forth herein, Purchaser
shall acquire good and marketable title to the shares of Capital Stock of the
Company, free and clear of any liens, pledges, encumbrances, security interests,
charges, equities or restrictions of any nature. The Company has satisfied all
of its obligations to all current and past shareholders, and none of such
current or past shareholders has any claims, or any basis therefor, against the
Company arising out of or relating to obligations of the Company to such current
or past shareholders. None of the shares of the Company's Capital Stock was
issued pursuant to awards, grants, or bonuses.
(c) Subsidiaries. Except as set forth in Schedule 2.1(c), the
Company does not own, directly or indirectly, any capital stock or other equity
or ownership or proprietary interest in any corporation, partnership,
association, limited liability company, trust, joint venture or other entity.
(d) Authorization. The Company and each of the Selling Shareholders
have full power and authority to enter into this Agreement, to perform their
respective obligations hereunder and to consummate the transactions contemplated
hereby. Each individual named in Section 4.2(f) has full power and authority to
enter into the Shareholders' Employment Agreements in the form attached hereto
as Exhibit 4.2(f) (the Shareholders' Employment Agreements are collectively
referred
5
to herein as the "Related Agreements") to which such Selling Shareholder is a
party, to perform his or her obligations thereunder and to consummate the
transactions contemplated thereby. Each corporate Selling Shareholder is duly
organized and existing under the laws of the jurisdiction of its incorporation.
The Company and/or each of the Selling Shareholders, as appropriate, have taken
all necessary and appropriate corporate action with respect to the execution and
delivery of this Agreement and the Related Agreements. This Agreement and the
Related Agreements constitute valid and binding obligations of the Company and
the Selling Shareholders (to the extent to which each is a party), enforceable
in accordance with their respective terms; except as limited by applicable
bankruptcy, insolvency, moratorium, reorganization or other laws affecting
contracts, creditors' rights and other laws and remedies generally.
(e) Financial Information. The Company has delivered its unaudited
balance sheets and related statements of operations and cash flows at and for
the fiscal years ended 1994 and 1995, and 1996 to date, and will deliver to
Purchaser before May 31, 1997 its audited balance sheets and related statements
of operations and cash flows at and for the fiscal year ended 1996 (the "Annual
Financial Statements"), and on the Closing Date the unaudited balance sheet and
statement of operations at and for the four-month period ended April 30, 1997
(the "Unaudited Financial Statements"). To the best of the knowledge and belief
of the Company and the Selling Shareholders, the Annual Financial Statements and
Unaudited Financial Statements (collectively, the "Financial Statements") have
been prepared in accordance with Generally Accepted Accounting Principles
("GAAP") on a consistent basis throughout the periods indicated and with each
other, and the Financial Statements present accurately the financial condition
of the Company as of the respective dates thereof and the results of operations
for the periods then ended. All of the Company's general ledgers, books, and
records are located at the Company's principal place of business in the State or
at the offices of its accountant. The Company agrees to engage, at its own cost
and expense, an accounting firm selected by Purchaser and reasonably acceptable
to the Company to audit the Annual Financial Statements.
(f) Deposit Accounts; Powers of Attorney. Schedule 2.1(f) hereto
lists:
(i) the name of each financial institution in which the
Company has accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account; and
(iv) the name of each person authorized to draw thereon or
have access thereto.
There are no persons, corporations, firms or other entities holding a general or
special power of attorney from the Company.
(g) Liabilities and Obligations. Other than as set forth in the
unaudited Financial Statements at the date of this Agreement, Schedule 2.1(g)
sets forth an accurate list of all liabilities of
6
the Company, and any significant liabilities incurred thereafter in the ordinary
course of business or liabilities which are not reflected in the balance sheet
of any kind, character, or description, whether accrued, absolute, secured or
unsecured, contingent or otherwise, together with, in the case of those
liabilities which are not fixed, an estimate of the maximum amount which may be
payable. For each such liability for which the amount is not fixed or is
contested, whether in litigation or otherwise, the Company shall provide the
following information:
(i) a summary description of the liability together with the
following:
(a) copies of all relevant documentation relating
thereto;
(b) amounts claimed and any other action or relief
sought; and
(c) name of claimant and all other parties to the claim,
suit, or proceeding.
(ii) the name of each court or agency before which such claim,
suit, or proceeding is pending;
(iii) the date such claim, suit, or proceeding was instituted;
(iv) a reasonable estimate by the Company of the maximum
amount, if any, which is likely to become payable with respect to each such
liability. If no estimate is provided, the Company's best estimate shall for
purposes of this Agreement be deemed to be zero.
(h) Product and Service Warranties and Reserves. Except as set forth
in Schedule 2.1(h), there are no product warranty claims relating to sales of
the Company's products occurring on or prior to the date of this Agreement. The
only express warranties, written or oral, with respect to the products or
services sold by the Company are set forth in Schedule 2.1(h).
(i) Absence of Certain Changes and Events. Except as set forth in
Schedule 2.1(i) hereto, to the best of the knowledge and belief of the Company
and the Selling Shareholders, since the date of the Unaudited Financial
Statements there has not been:
(i) Any material adverse change in the financial condition,
results of operation, assets, liabilities or prospects of the Company or the
Business, or any occurrence, circumstance, or combination thereof which
reasonably could be expected to result in any such material adverse change;
(ii) Any transaction relating to or involving the Company, the
Business, the assets of the Company or the Selling Shareholders which was
entered into or carried out by the Company or the Selling Shareholders other
than in the ordinary and usual course of business;
(iii) Any change by the Company in its accounting or tax
practices or procedures;
7
(iv) Any incurrence of any liability, other than liabilities
incurred in the ordinary course of business consistent with past practices;
(v) Any sale, lease, or disposition of, or any agreement to
sell, lease, or dispose of any of its properties (whether leased or owned), or
the assets of the Company, other than sales, leases, or dispositions of goods,
materials, or equipment in the usual and ordinary course of business and
consistent with prior practice;
(vi) Any event permitting any of the assets or the properties
of the Company (whether leased or owned) to be subjected to any pledge,
encumbrance, security interest, lien, charge, or claim of any kind whatsoever
(direct or indirect) (collectively, "liens");
(vii) Any increase in compensation or any adoption of, or
increase in, any bonus, incentive compensation, pension, profit sharing,
retirement, insurance, medical reimbursement or other employee benefit plan,
payment or arrangement to, for, or with any employee of the Company, other than
certain bonuses paid to the Selling Shareholders and disclosed in writing to the
Purchaser;
(viii) Any payment or distribution of any bonus to, or
cancellation of indebtedness owing from, or incurring of any liability relating
to any employees, consultants, directors, officers, or agents, or any persons
related thereto, other than certain bonuses paid to the Selling Shareholders;
(ix) Any notice (written or unwritten) from any employee of
the Company that such employee has terminated, or intends to terminate, such
employee's employment with the Company;
(x) Any adverse relationship or condition with Suppliers (as
defined in Section 2.1(q)(i) hereof), vendors, or Customers (as defined in
Section 2.1(ae) hereof) that may have an adverse effect on the Company, the
Business, or the assets of the Company;
(xi) Any event, including, without limitation, shortage of
materials or supplies, fire, explosion, accident, requisition or taking of
property by any governmental agency, flood, drought, earthquake, or other
natural event, riot, act of God or a public enemy, or damage, destruction, or
other casualty, whether covered by insurance or not, which has had an adverse
effect on the Company, the properties (whether leased or owned), the Business,
or the assets of the Company or any such event which could be expected to have
an adverse effect on the Company, the properties (whether leased or owned), the
Business, or the assets of the Company;
(xii) Any modification, waiver, change, amendment, release,
rescission, accord and satisfaction, or termination of, or with respect to, any
term, condition, or provision of any contract, agreement, license, or other
instrument to which the Company or the Selling Shareholders are a party and
relating to or affecting the Business or the assets of the Company other than
any satisfaction by performance in accordance with the terms thereof in the
usual and ordinary course of business and consistent with prior practice;
8
(xiii) Any discharge or satisfaction of any Lien or payment of
any liabilities, other than in the ordinary course of business;
(xiv) Any waiver of any rights of substantial value by the
Company, other than waivers having no material adverse effect on the Company;
(xv) Any issuance of equity securities of the Company or any
issuance of warrants, calls, options or other rights calling for the issuance,
sale, or delivery of the Company's equity securities;
(xvi) Any declaration of any dividend or any distribution of
any shares of its capital stock, or redemption, purchase, or other acquisition
of any shares of its capital stock or any grant of an option, warrant, or other
right to purchase or acquire any such shares;
(xvii) Any amendment, or agreement to amend, the Company's
Articles of Incorporation or Bylaws, or any merger or consolidation with, or any
agreement to merge or consolidate with, any other corporation, partnership,
limited liability company or any other entity;
(xviii) Any reduction, or agreement to reduce, the cash or
short-term investments of the Company, other than to meet cash needs arising in
the ordinary course of business;
(xix) Any work interruptions, labor grievances or claims
filed, proposed law or regulation or any event of any character, materially
adversely affecting the Business or future prospects of the Company;
(xx) Any revaluation by the Company of any of its assets;
(xxi) Any loan by the Company to any person or entity, or any
guaranty by the Company of any loan; or
(xxii) To the best knowledge of the Company and the Selling
Shareholders, any other event or condition of any character which materially
adversely affects, or reasonably may be expected to so affect, the assets of the
Company, the Business, or the properties (whether leased or owned) of the
Company.
(j) Inventory. Schedule 2.1(j) sets forth the reasonable value of
the Company's inventory. All inventory is owned by the Company, including all
goods customarily sold and/or rented by the Company in connection with the
Business (whether located on the premises of the Company, in transit to or from
such premises, in other storage facilities, or otherwise) (collectively, the
"Inventory"), and the Company maintains appropriate records of such inventory.
The Company has continued to replenish the Inventory in a normal and customary
manner consistent with past practices. To actual knowledge of the Company and
the Selling Shareholders, the Company has not received written or oral notice
that the Company will experience in the future any difficulty in obtaining, in
the desired quantity and quality and upon reasonable terms and conditions, the
vehicles, materials, supplies, or equipment required for the Business.
9
(k) Taxes.
(i) Definitions. For purposes of this Agreement:
(a) the term "Taxes" means (A) all federal, state,
local, foreign and other net income, gross income, gross receipts, sales, use,
ad valorem, transfer, franchise, profits, license, lease, service, service use,
withholding, payroll, employment, excise, severance, stamp, occupation, premium,
property, windfall profits, customs, duties or other taxes, fees, assessments or
charges of any kind whatever, together with any interest and any penalties,
additions to tax or additional amounts with respect thereto, (B) any liability
for payment of amounts described in clause (A) whether as a result of transferee
liability, of being a member of an affiliated, consolidated, combined or unitary
group for any period, or otherwise through operation of law, and (C) any
liability for the payment of amounts described in clauses (A) or (B) as a result
of any tax sharing, tax indemnity or tax allocation agreement or any other
express or implied agreement to indemnify any other person; and the term "Tax"
means any one of the foregoing Taxes; and
(b) the term "Returns" means all returns, declarations,
reports, statements and other documents required to be filed in respect of
Taxes, and the term "Return" means any one of the foregoing Returns.
(ii) To the best of the knowledge and belief of the Company
and the Selling Shareholders, the Company has properly completed and filed on a
timely basis (including extensions) and in correct form all Returns required to
be filed on or prior to the Closing Date. As of the time of filing, the
foregoing Returns correctly reflected the facts regarding the income, business,
assets, operations, activities, status or other matters of the Company or any
other information required to be shown thereon. In particular, to the best of
the knowledge of the Company and the Selling Shareholders, the foregoing Returns
are not subject to unpaid penalties under Section 6662 of the Internal Revenue
Code of 1986, as amended (the "Code"), relating to accuracy-related penalties
(or any corresponding provision of state, local or foreign Tax law) or any other
unpaid penalties.
(iii) To the best of the knowledge and belief of the Company
and the Selling Shareholders, with respect to all amounts in respect of Taxes
imposed upon the Company, or for which the Company is liable, whether to taxing
authorities (as, for example, under law) or to other persons or entities (as,
for example, under tax allocation agreements), with respect to all taxable
periods ending on or before the Closing Date and portions of periods commencing
before the Closing Date and ending after the Closing Date, all applicable tax
laws and agreements have been fully complied with, and all such amounts required
to be paid by the Company to taxing authorities or others on or before the
Closing Date have been paid, and all such amounts required to be paid by the
Company to taxing authorities or others after the Closing which have not been
paid are reflected on the Financial Statements.
(iv) No notices raising tax issues have been received by the
Company from any taxing authority in connection with any of the Returns. No
extensions or waivers of statutes of limitations with respect to the Returns
have been given by or requested from the Company. Schedule 2.1(l)(iv) sets forth
taxable years for which examinations have been completed, those years for which
10
examinations are presently being conducted, and those years for which required
Returns have not yet been filed. Except to the extent indicated in Schedule
2.1(l)(iv), all deficiencies asserted or assessments made as a result of any
examinations have been fully paid, or are fully reflected as a liability in the
Financial Statements of the Company, or are being contested and an adequate
reserve therefor has been established and is fully reflected in the Financial
Statements of the Company.
(v) There are no liens for Taxes (other than for current Taxes
not yet due and payable) upon the assets of the Company.
(vi) The Company is not a party to or bound by (nor will the
Company become a party to or become bound by) any tax indemnity, tax sharing or
tax allocation agreement.
(vii) The Company has never been a member of an affiliated
group of corporations within the meaning of Section 1504 of the Code.
(viii) The Company has not filed a consent pursuant to the
collapsible corporation provisions of Section 341(f) of the Code (or any
corresponding provision of state, local or foreign income Tax law) or agreed to
have Section 341(f)(2) of the Code (or any corresponding provision of state,
local or foreign income Tax law) apply to any disposition of any asset owned by
it.
(ix) None of the assets of the Company directly or indirectly
secures any debt the interest on which is tax exempt under Section 103(a) of the
Code.
(x) None of the assets of the Company is "tax-exempt use
property" within the meaning of Section 168(h) of the Code.
(xi) The Company has not made and will not make a deemed
dividend election under Treas. Reg. ss. 1.1502-32(f)(2) or a consent dividend
election under Section 565 of the Code.
(xii) The Company has not agreed to make, nor is it required
to make, any adjustment under Sections 481(a) or 263A of the Code or any
comparable provision of state or foreign tax laws by reason of a change in
accounting method or otherwise.
(xiii) None of the Selling Shareholder is other than a United
States person within the meaning of the Code.
(xiv) The Company is not party to any joint venture,
partnership, or other arrangement or contract which could be treated as a
partnership for federal income tax purposes.
(xv) The Company's tax basis of each of its assets is
reflected in its Unaudited Financial Statements.
11
(xvi) All elections with respect to Taxes made during the
fiscal years ended December 31, 1995 are reflected on the Returns for such
periods, copies of which have been provided to Purchaser.
(l) Employee Payments.
(i) The hours worked by and payments made to the Company's
employees have not been in violation in any respect of the Fair Labor Standards
Act or any other applicable federal, foreign, state or local laws dealing with
such matters.
(ii) All payments due from the Company on account of employee
health and welfare insurance have been paid or accrued.
(iii) All severance, sick, or vacation payments by the
Company, which are or were due under the terms of any agreement or otherwise
have been paid or are described in Schedule 2.1(l)(iii).
(m) Compliance With Law. The Company has complied and is in
compliance with all applicable zoning decisions and, to the best of the
knowledge of the Company and the Selling Shareholders, has complied and is in
compliance with all applicable federal, state, and local laws, statutes,
licensing requirements, rules, and regulations, and judicial or administrative
decisions. To the best of the knowledge and belief of the Company and the
Selling Shareholders, the Company has been granted all licenses, permits
(temporary and otherwise), authorizations, and approvals from federal, state,
and local government regulatory or zoning bodies necessary to carry on the
Business and maintain the assets of the Company, all of which are currently
valid and in full force and effect. All such licenses, permits, authorizations
and approvals shall be valid and in full force and effect upon the consummation
of the transactions contemplated by this Agreement to the same extent as if the
Company prior to the Closing Date were continuing the Business and operations of
the Company. To the best of the knowledge and belief of the Company and the
Selling Shareholders, there is no order issued, or proceeding pending or
threatened, or notice served with respect to any violation of any law,
ordinance, order, writ, decree, rule, or regulation issued by any federal state,
local, or foreign court or governmental agency or instrumentality applicable to
the Company. The Company has valid use permits for the Business and its
operations.
(n) No Disclosure Items. Except as otherwise indicated in Schedule
2.1(n), there is no adverse information with respect to the Company, the Selling
Shareholder(s) or any officer, director or employee of the Company which
information would require disclosure in connection with a filing by the Company
under the federal securities acts. Neither the Company nor any Selling
Shareholder has failed to disclose any material fact which would be required to
be disclosed for purposes of a proxy statement or other communication involved
in a public offering in accordance with the provisions of Rule 10b-5 or Rule
14a-9(a) of the U.S. Securities and Exchange Commission.
(o) Governmental Consents. To the best of the knowledge of the
Company and the Selling Shareholders, no consent, approval, order, or
authorization of, or registration, qualification, designation, declaration, or
filing with, any federal, state, local, or provincial governmental authority
12
on the part of the Company or the Selling Shareholders is required in connection
with the consummation of the transactions contemplated hereunder.
(p) Proprietary Rights. The Company owns all rights to computer
programs, databases, logos, trade names, trademarks, service marks, intellectual
property, Customer and Supplier lists, and other trade secrets, together with
the goodwill associated therewith, necessary for the Business as now conducted
(collectively, the "Proprietary Rights") and as proposed to be conducted
without, to the knowledge of the Company or the Selling Shareholders, any
conflict with or infringement upon the rights of others.
(q) Restrictive Documents or Orders. To the best of the knowledge of
the Company and the Selling Shareholders, the Company is not a party to nor
bound under any agreement, contract, order, judgment, or decree, or any similar
restriction which adversely affects, or reasonably could be expected to
adversely affect (i) the continued operation by Purchaser (through its ownership
of the Company) of the Business and operations of the Company on and after the
Closing Date on substantially the same basis as said business was theretofore
operated or (ii) the consummation of the transactions contemplated by this
Agreement.
(r) Contracts and Commitments.
(i) Schedule 2.1(r)(i) hereto sets forth a list of all
material written agreements and contracts, contract rights, licenses, and other
executory commitments (written or unwritten) other than purchase and sale orders
and quotations (collectively, the "Contracts") including, without limitation,
those contracts with insurance companies, credit companies, governmental
agencies, rental agencies, and all others under which the Company is supplied
with materials, supplies, or equipment ("Materials") (such suppliers shall be
referred to herein as "Suppliers") to which the Company is a party or to which
any of the assets of the Company are subject. To the best of the knowledge and
belief of the Company and the Selling Shareholders, there are no oral agreements
or commitments that would have a material adverse effect on the Company.
(ii) To the best of the knowledge of the Company and the
Selling Shareholders, the Company has performed all of its obligations under the
terms of each Contract, and is not in default thereunder, except as described in
Schedule 2.1(r)(ii). No event or omission has occurred which but for the giving
of notice or lapse of time or both would constitute a default by any party
thereto under any such Contract. To the best of the knowledge and belief of the
Company and the Selling Shareholders, each such Contract is valid and binding on
all parties thereto and in full force and effect.
(s) Debt. Schedule 2.1(s) sets forth a list of all agreements for
the incurring of indebtedness for borrowed money and all agreements relating to
industrial development bonds to which the Company is a party or guarantor. None
of the obligations pursuant to such agreements are subject to acceleration by
reason of the consummation of the transactions contemplated hereby, nor would
the execution of this Agreement or the consummation of the transactions
contemplated hereby result in any default under such agreements. The Company has
furnished Purchaser with true and correct copies of each such agreement listed
in Schedule 2.1(s). The Company is not in default under
13
any of the agreements listed thereon, nor is the Company aware of any event
that, with the passage of time, or notice, or both, would result in an event of
default thereunder.
(t) Related Property. Schedule 2.1(t)(i) hereto lists all of the
Company's ownership interests (except for leasehold interests set forth in
Schedule 2.1(ah)) in real property, machinery, equipment, tooling, furniture,
fixtures, motor vehicles, supplies, spare parts, computer equipment, printers,
copiers, software, telecommunications equipment, miscellaneous supplies, tools,
repair and maintenance parts, chemicals, and fixed assets related to the
Business and operations of the Company (the "Related Property"). To the best
knowledge of the Company and the Selling Shareholders, all of the Related
Property is generally in good operating condition, normal wear and tear
excepted, and is adequate and suitable for the purposes for which it is
presently being used. Schedule 2.1(t)(ii) hereto lists certain property that
belongs solely to and shall be retained by the Selling Shareholders.
(u) Assets. The assets of the Company include all the assets
necessary to operate the Business in the same manner as the Business was
operated by the Company immediately prior to the Closing Date, and none of the
Selling Shareholders, nor any family member or entity affiliated with the
Selling Shareholders or any such family member, owns, or has any interest in,
any asset used in the operation of the Company.
(v) Title to the Property. The Company has good and marketable title
to the assets of the Company (including, but not limited to the Related
Property) and a valid and subsisting leasehold interest in all leased property.
Except as described in Schedule 2.1(v), the Company owns all of its assets and
property free and clear of any lien.
(w) Litigation. Except as described in Schedule 2.1(w), none of the
Company, the Selling Shareholders nor any of the Company's officers or directors
is engaged in, or has received any threat of, any litigation, arbitration,
investigation, or other proceeding relating to the Company, any of the Selling
Shareholders, or the Company's officers, directors, employees, benefit plans,
properties, Proprietary Rights, the Business, or the assets, licenses, permits,
or goodwill of the Company; or against or affecting this Agreement, the Related
Agreements or the actions taken or contemplated in connection herewith and
therewith, nor, to the best of each's knowledge, is there any reasonable basis
therefor. There is no action, suit, proceeding, or (to the best knowledge of the
Company and the Selling Shareholders) investigation pending or threatened
against the Company, or any of the Selling Shareholders, or the officers or
directors of the Company, that questions the validity of this Agreement, the
Related Agreements, or the right of the Company or the Selling Shareholders to
enter into this Agreement, the Related Agreements, any documents to be delivered
in connection with the Closing, or to consummate the transactions contemplated
hereby or thereby, or which might result in any adverse change in the assets of
the Company, the Business, conditions, or properties of the Company, or the
financial condition of the Selling Shareholders. There is no action, suit,
proceeding, or investigation by the Company or the Selling Shareholders
currently pending or which any of them currently intends to initiate. None of
the Company, the Selling Shareholders, nor any of the Company's officers or
directors is bound by any judgment, decree, injunction, ruling or order of any
court, governmental, regulatory or administrative department, commission, agency
or
14
instrumentality, arbitrator or any other person which would or could have a
material adverse effect on the Business or the assets of the Company.
(x) No Conflict or Default. To the best of the knowledge and belief
of the Company and the Selling Shareholders, neither the execution and delivery
of this Agreement or the Related Agreements, nor compliance with the terms and
provisions hereof and thereof including, without limitation, the consummation of
the transactions contemplated hereby and thereby, will violate any statute,
regulation, or ordinance of any governmental or administrative authority, or
conflict with or result in the breach of any term, condition, or provision of
the Company's Articles of Incorporation or Bylaws, as presently in effect, or of
any agreement, deed, contract, mortgage, indenture, writ, order, decree, legal
obligation, or instrument to which the Company or the Selling Shareholders is a
party or by which it or he or any of the assets of the Company are or may be
bound, or constitute a default (or an event which, with the lapse of time or the
giving of notice, or both, would constitute a default) thereunder.
(y) Consents. To the best of the knowledge and belief of the Company
and the Selling Shareholders, no consent, approval, or authorization of any
person, agency or third party or on the part of the Company or the Selling
Shareholders is required in connection with the consummation of the transactions
contemplated hereunder.
(z) Labor Relations.
(i) To the best of the knowledge and belief of the Company and
the Selling Shareholders, with respect to the Business and operation of the
Company, the Company has not failed to comply in any respect with Title VII of
the Civil Rights Act of 1964, as amended, the Fair Labor Standards Act, as
amended, the Occupational Safety and Health Act of 1970, as amended, all
applicable federal, state, and local laws, rules, and regulations relating to
employment, and all applicable laws, rules and regulations governing payment of
minimum wages and overtime rates, and the withholding and payment of taxes from
compensation of employees.
(ii) There are no labor controversies pending or, to the
knowledge of the Company or the Selling Shareholders, threatened between the
Company and any of its employees (the "Employees") or any labor union or other
collective bargaining unit representing any of the Employees.
(iii) The Company has never entered into a collective
bargaining agreement or other labor union contract relating to the Business and
applicable to the Employees.
(iv) Except as set forth in Schedule 2.1(z), there are no
written employment or separation agreements, or oral employment or separation
agreements other than (1) those establishing an "at will" employment
relationship between the Company and any of the Employees and which do not
provide for any advance notice requirements to terminate an Employee's
employment or any severance or salary or benefits continuation obligations on
the part of the
15
Company and (2) any unknown future claims for wrongful termination based upon a
theory of implied agreements arising out of course of conduct.
(aa) Brokers' and Finders' Fees/Contractual Limitations. Neither the
Selling Shareholders nor the Company is obligated to pay any other fees or
expenses of any broker or finder in connection with the origin, negotiation, or
execution of this Agreement, the Related Agreements, or in connection with any
transactions contemplated hereby and thereby. None of the Selling Shareholders,
the Company, or any officer, director, employee, agent, or representative of the
Company (collectively, the "Representatives") is or has been subject to any
agreement, letter of intent, or understanding of any kind which prohibits,
limits, or restricts the Company, the Selling Shareholders or the
Representatives from negotiating, entering into, and consummating this
Agreement, the Related Agreements, and the transactions contemplated hereby and
thereby.
(ab) Environmental and Safety Matters.
(i) To the best of the knowledge and belief of the Company and
the Selling Shareholders, the Company has all permits, licenses, approvals and
registrations required to be issued under applicable federal, state and local
laws, statutes and regulations relating to the protection of human health,
safety, the environment and natural resources ("Environmental Laws") and, to the
best of the knowledge of the Company and the Selling Shareholders, is in
compliance with the terms and conditions thereunder. To the best of the
knowledge and belief of the Company and the Selling Shareholders, the Company is
in compliance with and there are no past or present conditions, activities,
actions, or plans which may prevent compliance with, any current or past law
related to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling, or the release, emission, or discharge of any
hazardous substance or hazardous waste ("Hazardous Substance Issues") or any
regulations, plans, judgments, injunctions, or notices promulgated or approved
thereunder: (1) which are applicable to the operations of the Company, or the
Selling Shareholders, or the property owned or leased by the Company or the
Selling Shareholders, or the assets of the Company, or the Business or
operations of the Company, or (2) which may give rise to any liability of the
Company, or the Selling Shareholders or otherwise form the basis of any ongoing
or threatened claims, actions, demands, suits, proceedings, hearings, studies,
or investigations against or relating to the Company, the property owned or
leased by the Company or the Selling Shareholders, or the Business, or the
assets of the Company, that are based on or related to any Hazardous Substance
Issues.
(ii) To the best of the knowledge of the Company and the
Selling Shareholders, no release of a hazardous substance has come to be located
on or beneath and remain located on or beneath any of the real property upon
which the Business is conducted or upon which any of the property owned or
leased currently or in the past by the Company or the Selling Shareholders or
any predecessor which relates to the Business or operations of the Company are
held or maintained.
(iii) Schedule 2.1(ab) sets forth all reports, studies, and
evaluations conducted by the Company or the Selling Shareholders, or received by
the Company or the Selling Shareholders with respect to such matters.
16
(iv) Neither the Company nor any of the Selling Shareholders
has any knowledge of the possible or actual presence, disposal, release or
threatened release of any hazardous substance or hazardous waste on or under any
adjacent properties.
(v) To the best of the knowledge of the Company and the
Selling Shareholders, the Company has not been alleged to be in violation of, or
been subject to any administrative, judicial, or regulatory proceeding pursuant
to, any applicable Environmental Laws either now or any time during the past. No
Claims (as hereinafter defined) have been or are currently asserted against the
Company based on the Company's or any of the Selling Shareholders' acts or
failures to act prior to the Closing Date with respect to hazardous substances
or hazardous wastes. As used herein, "Claim" shall mean any and all claims,
demands, orders, causes of action, suits, proceedings, administrative
proceedings, losses, judgments, decrees, debts, damages, liabilities, court
costs, attorneys' fees, and any other expenses incurred, assessed or sustained
by or against the Company or the Selling Shareholders.
(vi) To the best of the knowledge of the Company and the
Selling Shareholders, none of the properties owned, leased, or operated by the
Company or any predecessor thereof are now, or were in the past, listed on the
National Priorities List of Superfund Sites, the Comprehensive Environmental
Response, Compensation and Liability Information System, or any other state or
local environmental database.
(ac) Certain Payments. The Company has not, and no person directly
or indirectly on behalf of the Company has, made or received any payment that
was not legal to make or receive.
(ad) Customers. To the best of the knowledge and belief of the
Company and the Selling Shareholders, Schedule 2.1(ad) hereto lists all of the
customers of the Company for the year 1996 to date (such customers referred to
herein individually as a "Customer"). No single Customer of the Company
accounted for more than ten percent (10%) of the net sales or rentals of the
Company (calculated on a unit basis) during 1996. The Company has furnished
Purchaser with complete and accurate copies or descriptions of all current
agreements (written or unwritten) with such Customers. Neither the Company nor
any of the Selling Shareholders is aware of any event, happening, or fact which
would lead it or him to believe that any of such Customers will not continue its
current level of purchases and/or rentals after the Closing Date.
(ae) Books and Records. The books and records of the Company to
which Purchaser and its accountants and attorneys have been given access are the
true books and records of the Company and truly and fairly reflect the
underlying facts and transactions in all respects.
(af) Complete Disclosure. To the best of the knowledge and belief of
the Company and the Selling Shareholders, no representation or warranty by the
Company or the Selling Shareholders in this Agreement, and no exhibit, schedule,
statement, certificate, or other writing furnished to Purchaser pursuant to this
Agreement or the Related Agreements or in connection with the transactions
contemplated hereby and thereby, contains or will contain any untrue statement
or omits or will omit to state any fact necessary to make the statements
contained herein and therein not materially misleading. If the Company or any of
the Selling Shareholders becomes aware of any fact
17
or circumstance which would change a representation or warranty of the Company
or the Shareholders, the Company and the Shareholders shall immediately give
notice of such fact or circumstance to Purchaser. However, such notification
shall not relieve either the Company or the Shareholders of their respective
obligations under this Agreement.
(ag) Leased Properties. The Financial Statements and Schedule
2.1(ag) hereto together list all personal property (including equipment leases)
and real property leased by the Company or by the Selling Shareholders in
connection with the Business (the "Leased Properties") and the aggregate annual
rent or other fees payable under all such leases. The Company has a valid
leasehold or ownership interest in all of the Leased Properties, free and clear
of any liens.
(ah) Employees and Employee Benefit Plans.
(i) Other than as set forth in Schedule 2.1(ah) hereto, the
Company is not a party to any pension, profit sharing, savings, retirement or
other deferred compensation plan, or any bonus (whether payable in cash or
stock) or incentive program, or any group health plan (whether insured or
self-funded), or any disability or group life insurance plan or other employee
welfare benefit plan, or to any collective bargaining agreement or other
agreement, written or oral, with any trade or labor union, employees'
association or similar organization. The Company is not a party to, nor has made
any contribution to or otherwise incurred any obligation under, any
"multi-employer plan" as defined in Section 3(37) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA").
(ii) With respect to each such plan set forth in Schedule
2.1(ah) (a "Plan"), the Company has furnished to Purchaser or its counsel
complete and accurate copies of the Plan documents (including trust documents,
insurance policies or contracts, employee booklets, summary plan descriptions
and other authorizing documents, and any material employee communications). With
respect to each Plan subject to ERISA as either an employee pension benefit plan
within the meaning of Section 3(2) of ERISA or an employee welfare benefit plan
within the meaning of Section 3(l) of ERISA, the Company has prepared in good
faith and timely filed all requisite governmental reports and has properly and
timely posted, or distributed all notices and reports to employees required to
be filed, posted, or distributed with respect to each Plan. Each Plan has at all
times been properly and completely funded by the Company and has been operated
and administered in all respects in accordance with its terms and all applicable
laws, including, but not limited to, ERISA and the Code.
(iii) All Plans that are intended to qualify (the "Qualified
Plans") under Section 401(a) of the Code have been determined by the Internal
Revenue Service to be so qualified, and copies of such determination letters are
included as part of Schedule 2.1(ah) hereof. Except as disclosed on Schedule
2.1(ah), all reports and other documents required to be filed with any
governmental agency or distributed to plan participants or beneficiaries have
been timely filed and distributed, and copies thereof are included as part of
Schedule 2.1(ah) hereof. The Company further represents that:
18
(a) there have been no terminations, partial
terminations, or discontinuance of contributions to any such Qualified Plan
intended to qualify under Section 401(a) of the Code without notice to and
approval by the Internal Revenue Service;
(b) no such plan listed in Schedule 2.1(ah) subject to
the provisions of Title IV of ERISA has been terminated;
(c) there have been no "reportable events" (as that
phrase is defined in Section 4043 of ERISA) with respect to any such plan listed
in Schedule 2.1(ah); and
(d) The Company has not incurred any liability under
Section 4062 of ERISA.
(iv) Neither the Company nor any of the Selling Shareholders
has made any oral or written communications to its current or former employees
that guarantee current or former employees continuation of employer-provided
benefits or retirement coverage under the Company's welfare benefit plans or
which would have any effect on the Purchaser's ability to terminate retiree or
any other benefits to all current or former employees.
(v) To the best of the knowledge of the Company and the
Selling Shareholders, the Company has not violated any of the health care
continuation coverage requirements of the Consolidated Omnibus Budget
Reconciliation Act of 1985 applicable to its Employees prior to the Closing Date
or any prior actions of or transactions entered into by the Company or the
Selling Shareholders.
(ai) Compensation. The Company has delivered to Purchaser an
accurate schedule, attached to this Agreement as Schedule 2.1(ai), showing all
officers, directors, and key employees of the Company and the rate of
compensation (and the portions thereof attributable to salary, bonus, and other
compensation, respectively) of the directors, officers, and key employees.
(aj) Insurance. The Company maintains policies of insurance covering
the assets of the Company, properties, and Business in types and amounts as set
forth in Schedule 2.1(aj). To the best of the knowledge and belief of the
Company and the Selling Shareholders, the Company is in compliance with each of
such policies such that none of the coverage provided under such policies has
been invalidated and the Company has not received any written notice of
cancellation of any such policies. Schedule 2.1(aj) lists and describes all the
Company insurance policies in effect immediately prior to the time of Closing.
To the knowledge of the Company and the Selling Shareholders, such policies are
with reputable insurers and are in amounts sufficient for the prudent protection
of the properties and the Business of the Company.
(ak) Accounts and Notes Receivable. Schedule 2.1(ak) hereto sets
forth all accounts and notes receivable of the Company ("Accounts Receivable").
Schedule 2.1(ak) shows the aging of Accounts Receivable in amounts due in
thirty-day aging categories. All Accounts Receivable represent sales or rentals
actually made or services actually performed in the ordinary and usual course of
the Company's business.
19
(al) Representations and Warranties on the Closing Date. The
Company's and the Selling Shareholders' representations and warranties contained
in this Article II shall be true on and as of the Closing Date with the same
force and effect as though such representations and warranties had been made on
such date, except to the extent any such representations and warranties were
made as of a specified date, in which case such representations and warranties
shall continue on the Closing Date to have been true in all material respects as
of such specified date.
Section 2.2 Representations and Warranties of Purchaser. Purchaser hereby
represents and warrants to each of the Companies and the Selling Shareholders
that immediately prior to the time of Closing:
(a) Organization and Standing. Purchaser is a corporation duly
organized and validly existing under the laws of the State of Georgia, and has
all requisite power and authority to lease, own, and operate its properties and
carry on the Business and operations and to directly own, lease, and operate its
assets. Purchaser has delivered to the Company complete and accurate copies of
its Certificate of Incorporation and Bylaws and all amendments thereto, and all
minutes and actions of its Board of Directors and shareholders. The Purchaser is
not in violation of any of the provisions of the Certificate of Incorporation or
the Bylaws.
(b) Capitalization and Ownership. The authorized and outstanding
capital stock of Purchaser and its par value per share, if any, is as set forth
on Schedule 2.2(b) hereto. Each person listed on Schedule 2.2(b) is the lawful
owner of that number of the issued and outstanding shares of capital stock of
Purchaser set forth opposite such person's name, free and clear of any
restrictions upon transfer. The shares of Common Stock set forth on Schedule
2.2(b) constitute all of the shares of capital stock of the Purchaser issued and
outstanding and have been duly authorized and validly issued, fully paid and
nonassessable, and to the best of the knowledge and belief of the Purchaser,
issued in compliance with all applicable federal and state securities laws.
Except as provided in this Agreement, there are no outstanding subscriptions,
warrants, calls, options, conversion rights, rights of exchange or other
commitments, plans, agreements, or arrangements of any nature under which the
Purchaser or its shareholders may be obligated to issue, assign, exchange,
purchase, redeem or transfer any shares of capital stock of the Purchaser, and
there are no shareholders' agreements to which the Purchaser or its shareholders
is a party, or proxies, voting trust agreements or similar agreements or options
executed by the Purchaser or to which the Common Stock is subject. There are no
outstanding subscriptions, options, warrants, rights, convertible securities or
other agreements or commitments of any character relating to the issued or
unissued capital stock or other securities of the Purchaser obligating the
Purchaser or, to the best knowledge of Purchaser, its shareholders to grant,
extend or enter into any subscription, option, warrant, right, convertible
security or other similar agreement or commitment. Upon issuance of shares of
Common Stock in exchange for the shares of the Company's Capital Stock, as set
forth herein, the Selling Shareholders shall acquire good and marketable title
to the shares of Common Stock, free and clear of any liens, pledges,
encumbrances, security interests, charges, equities or restrictions of any
nature imposed by Purchaser except as set forth in this Agreement.
(c) Authorization. Purchaser has full corporate power and authority
to enter into this Agreement, the Related Agreements, to perform its obligations
hereunder and thereunder, and to
20
consummate the transactions contemplated hereby and thereby, including, without
limitation, the execution and delivery of this Agreement and the Related
Agreements. Purchaser has taken all necessary and appropriate corporate action
with respect to the execution and delivery of this Agreement and the Related
Agreements. This Agreement and the Related Agreements constitute valid and
binding obligations of Purchaser, enforceable in accordance with their
respective terms; except as limited by applicable bankruptcy, insolvency,
moratorium, reorganization, or other laws affecting creditors' rights and
remedies generally, and general principles of equity.
(d) Brokers' and Finders' Fees/Contractual Limitations. Purchaser is
not obligated to pay any fees or expenses of any broker or finder in connection
with the origin, negotiation, or execution of this Agreement, the Related
Agreements, or in connection with any transactions contemplated hereby. Neither
Purchaser nor any officer, director, employee, agent, or representative of
Purchaser (collectively, the "Purchaser Representatives") is or has been subject
to any agreement, letter of intent, or understanding of any kind which
prohibits, limits, or restricts Purchaser or the Purchaser Representatives from
negotiating, entering into, and consummating this Agreement, the Related
Agreements, and the transactions contemplated hereby and thereby.
(e) Financial . Purchase has an Actual Company Value of not less
than $990,941 and an Actual Net Tangible Asset Value of not less than $913,941.
Section 2.3 Survival of Representations and Warranties. Purchaser's and
the Selling Shareholders representations and warranties contained in this
Article II shall survive the Closing for a period of twenty-four (24) months
from the Closing Date unless earlier terminated by exercise by the Selling
Shareholders of the Put Option (as defined in Section 6.3 hereof).
Section 2.4 Disclosure. Disclosure of any item on any schedule hereto
shall be deemed adequate disclosure of such item on all other schedules.
ARTICLE III
COVENANTS
Section 3.1 Covenants Against Disclosure. (a) The terms and provisions of
this Agreement, and any information heretofore disclosed or to be disclosed in
the future in connection herewith by any party hereto to any other party, other
than information which is in the public domain or which the disclosing party
authorizes the receiving party in writing to disclose (such terms, provisions
and information herein called the "Confidential Material") shall be treated
confidentially by the parties; provided that any party may disclose Confidential
Material of another party to the receiving party's employees, accountants,
attorneys and advisors who need to know the same (it being understood that they
shall be informed by the receiving party of the confidential nature of the
Confidential Material, and that the receiving party shall cause them to treat
the same confidentially), and otherwise to the extent required by law. The
parties acknowledge that remedies at law would be inadequate to enforce the
covenants contained in this Section 3.1 and therefore agree that a party
aggrieved hereunder may enforce such covenants through the remedy of specific
performance or other equitable relief. Should an aggrieved party have cause to
seek such relief, no bond shall be required, and the breaching party
21
shall pay all attorney's fees and court costs which the aggrieved party may
incur in enforcing the provisions of this Section. The covenants contained in
this Section 3.1(a) shall survive until expiration of the Put Option described
in Section 6.3 hereof.
(b) The parties shall, by mutual agreement, draft a press release for
public dissemination. No party shall disseminate (except to the parties to this
Agreement) any press release or announcement concerning the transactions
contemplated by this Agreement or the Related Agreements or the parties hereto
or thereto without the prior written consent of the Company and Purchaser,
except as required by law.
Section 3.2 Access to Information. The Company will give Purchaser and its
accountants, legal counsel, and other representatives reasonable access, during
normal business hours, at times mutually agreeable among the parties, to all of
the properties, books, contracts, commitments, and records relating to the
Business and the assets of the Company, and the Company will furnish to
Purchaser, its accountants, legal counsel and other representatives, at the
Company's expense (which expense shall not include the costs and fees of
Purchaser accountants, legal counsel, and other representatives), all such
information concerning the Business or the assets of the Company as Purchaser
may request. Purchaser agrees to indemnify and hold the Company harmless from
and against loss or damage the Company may incur as a result of Purchaser's
activities or the activities of Purchaser's agents, representatives or designees
upon property owned or occupied by the Company and against any and all claims
for death or injury to persons or properties arising out of or connected with
Purchaser's (or its agents', representatives' or designees') going upon such
property pursuant to the provisions of this Agreement. Such indemnification
shall be provided in accordance with the provisions of Article V hereof.
Section 3.3 Interim Period. During the period from the date of execution
hereof through the expiration date of the Put Option in accordance with the
provision of Section 6.3 hereof (the "Interim Period"):
(a) The Company shall continue to operate as a separate wholly-owned
subsidiary of the Purchaser. The Purchaser and the Crescent Shareholders hereby
agree that they will not take any action during the Interim Period to effect a
change in the Board of Directors or the management of the Tekgraf subsidiary or
sell, assign, hypothecate or transfer any of the Capital Stock of the TEKGRAF
subsidiary without the consent of the Tekgraf Board of Directors.
(b) The number of Directors of the Purchaser shall be eight (8).
Xxxxxx Xxxxxx shall be appointed to the Board of Directors of the Purchaser on
the Closing Date and may not be removed during the Interim Period except for
cause. If Xx. Xxxxxx shall be removed for cause or shall be unable or unwilling
to serve as a Director, the Selling Shareholders shall immediately appoint his
successor. The parties acknowledge that after the Interim Period, the Board of
Directors of Purchaser is anticipated to expand through the addition of
independent directors and corporate acquisitions.
(c) During the Interim Period, all votes and action of the Board of
Directors of the Purchaser shall require unanimity, to the extent any such vote
or action relates to any of the following activities by the Purchaser: any
acquisition or disposition, any share issuance, any borrowing of
22
funds, any encumbrance to be created on property of the Purchaser, the issuance
of any guarantee and entering into any lease, agreement or other arrangement
providing for an expenditure exceeding $1,000.00. Notwithstanding the foregoing,
that no party hereto shall be entitled to vote in connection with any proposed
action by Directors relating to any alleged failure by such party to observe or
perform any of his or its obligations under this Agreement.
(d) The Board of Directors shall proceed promptly to discuss and
prepare a business plan for the Purchaser in light of the markets, operations,
personnel, expertise, financial condition and prospects of the Company, and such
other factors as the Board may deem relevant. The parties agree that the
Purchaser shall have a Technology Division, whereof Xxx Xxxxxx shall be Chief
Executive Officer, and a Graphics Division, whereof Xxxxxxx Xxxxxx shall be
Chief Executive Officer, provided such individuals are able and willing to
serve. The parties shall use all reasonable efforts to promote the interests of
the Purchaser and the development of the business of the respective companies.
(e) The parties acknowledge that all of the Schedules hereto are not
completed as of the date of execution of this Agreement. All missing or
incomplete Schedules shall be compiled and agreed upon by the parties within 15
days after such execution.
(f) The Purchaser shall exercise its reasonable best efforts to
obtain, effective as soon as reasonably practicable after the execution hereof,
a policy of directors' and officers' liability insurance, in such amounts and
covering such risks as normally are insured for by companies of approximately
the same size as, and engaged in businesses substantially similar to, Purchaser.
(g) Each of the Purchaser and the Company represent and warrant that
during the Interim Period it shall have sufficient Actual Company Value to
enable it to conduct its respective business in an ordinary course manner
without incurring any additional indebtedness.
Section 3.4 Special Crescent Covenants. By executing this Agreement,
Xxxxxxx X. Xxxxxxx ("Xxxxxxx") covenants and agrees that he shall cause Alongal
Extrusions, Inc. ("Alongal") duly to perform and observe all of the covenants,
agreements, representations and warranties of Alongal contained in this
Agreement. Xxx X. Xxxxxx, Xxxxx Xxxxxx, Xxxxxxxx X. Xxxxxxxx and Xxxxxxx X.
Xxxxxxx agree with Alongal that they shall transfer all of their shares of
capital stock of the Purchaser to Alongal prior to the Closing Date in exchange
for an aggregate 49% interest in Alongal to be prorated among them according to
the capital stock of the Purchaser outstanding. Notwithstanding anything
contained in this Agreement, the Crescent Shareholders and the Purchaser consent
that all shares of capital stock of the Purchaser indicated in Schedule 2.1(b)
as not owned by Alongal shall be transferred to Alongal as contemplated by this
Section.
Section 3.5 On and After Closing. Subject to the provisions of Section 6.3
hereof, on and after the Closing Date, none of the shares of stock of the
Purchaser which are subject to the escrow provisions of this Agreement shall be
transferred or pledged except pursuant to the provisions of this Agreement. The
voting rights with respect to such shares shall be exercisable by the owners of
such shares. Dividends, if any, declared on the Common Stock during the
effectiveness of such escrow provisions shall be paid to and reinvested by the
escrow agent as the parties shall agree.
23
Section 3.6 Non-Competition.
(a) Commencing as of the Closing Date and continuing for three (3)
years thereafter, each of the Selling Shareholders agree that he shall not
engage (except in his respective capacity as an employee of Purchaser if
applicable), directly or indirectly, whether on his own account or as a
shareholder (other than as a less than 1% shareholder of a publicly-held
company), partner, joint venturer, employee, consultant, advisor, and/or agent,
of any person, firm, corporation, or other entity, in any or all of the
following activities within a fifty (50) mile radius of the zero milepost of the
respective city in which each Company is located (the "Territory"):
(i) Enter into or engage in the businesses of computer systems
integration, wholesale distribution of computers or computer-peripherals, or
reseller activities in such products, including the wholesale purchase and
selling or leasing of computers and computer-peripheral equipment, data
communications equipment and software, or providing technical support or advice
to end users in relation to such products (such businesses are collectively
referred to herein as the "Protected Business"). As used herein, the term
Protected Business shall not, however, include the commission-based
representation of product manufacturers to facilitate sales of products by such
manufacturers directly to distributors, value-added resellers and end users
("Manufacturer Representation").
(ii) Solicit customers, suppliers, or business patronage in
the Territory which results in competition with the Purchaser or any of its
affiliates in the Protected Business;
(iii) Encourage or solicit any Employees of or service
providers to the Business, Purchaser, or any of its affiliates to leave the
employment of or terminate their service relationship with Purchaser or any of
its affiliates for any reason; or
(iv) Promote or assist, financially or otherwise, any person,
firm, association, corporation or other entity engaged in any aspect of the
Protected Business.
(b) If, in any judicial proceeding, a court shall refuse to enforce
in such action any of the covenants included herein, then at the option of
Purchaser or its affiliates, wholly unenforceable covenants shall be deemed
eliminated from the provisions hereof for the purpose of such proceeding to the
extent necessary to permit the remaining separate covenants to be enforced in
such a proceeding. The parties intend to have covenants enforceable to the
fullest extent of the law as to scope, time and geography.
(c) The parties agree that due to the unique nature of the services
and capabilities of the Company and the Selling Shareholders, there can be no
adequate remedy at law for any breach of their respective obligations hereunder,
that any such breach may allow the Selling Shareholders and/or third parties to
unfairly compete with Purchaser or its affiliates resulting in irreparable harm
to Purchaser or its affiliates, and therefore, that upon any such breach or any
threat thereof, Purchaser or its affiliates shall be entitled to appropriate
equitable relief in addition to whatever remedies it might have at law.
24
(d) Each of the Selling Shareholders acknowledges, represents and
warrants to Purchaser that the covenants of each in this Section 3.6 are
reasonably necessary for the protection of Purchaser's interests under this
Agreement and are not unduly restrictive upon him.
Section 3.7 Further Assurances. On or after the Closing Date, each party
shall prepare, execute, and deliver, at the preparer's expense, such further
instruments, and shall take or cause to be taken such other or further action,
as any party shall reasonably request of any other party at any time or from
time to time in order to consummate, in any other manner, the terms and
provisions of this Agreement.
ARTICLE IV
CONDITIONS PRECEDENT TO OBLIGATIONS
Section 4.1 Conditions to Obligations of Purchaser. Each and every
obligation of Purchaser to be performed on the Closing Date shall be subject to
the satisfaction on or before the Closing Date of the following conditions
(unless waived in writing by Purchaser), and the Company and the Selling
Shareholders shall exercise all reasonable efforts in good faith to satisfy such
conditions:
(a) Representations and Warranties. The representations and
warranties of each of the Selling Shareholders and the Company set forth in
Section 2.1 of this Agreement shall have been true and correct when made and
shall be true and correct at and as of the Closing Date as if such
representations and warranties were made as of such date and time.
(b) Performance of Agreement. All covenants, conditions, and other
obligations under this Agreement and the Related Agreements which are to be
performed or complied with by the Company or each of the Selling Shareholders,
as the case may be, including Boards of Directors approval, shall have been
fully performed and complied with at or prior to the Closing Date.
(c) No Material Adverse Change. Since the date of the Unaudited
Financial Statements, there shall have occurred no material adverse change in
the financial condition, the Business, the assets of the Company, or properties
of the Company which adversely affects the conduct of the Business as presently
being conducted, the assets of the Company, or the financial condition or
properties of the Company.
(d) Absence of Governmental or Other Objection. There shall be no
pending or threatened lawsuit challenging the transaction by any body or agency
of the federal, state, or local government or by any third party, and the
consummation of the transaction shall not have been enjoined by a court of
competent jurisdiction as of the Closing Date and any applicable waiting period
under any applicable federal law shall have expired.
(e) Due Diligence Review. Purchaser shall have completed to its
reasonable satisfaction its due diligence review of the Company and its
operations, the Business, the assets and financial condition of the Company, and
Purchaser shall have received favorable reviews from its advisors of the results
of their due diligence review of the Business.
25
(f) Certificate of President and Shareholders. The Company shall
have delivered to Purchaser a certificate executed by its President and the
Selling Shareholders, dated the date of the Closing Date, to the effect that the
conditions set forth in subsections (a)-(e) of this Section 4.1 have been
satisfied with respect to the Company and the Selling Shareholders.
(g) Approval of Documents. The form and substance of all
certificates, instruments, opinions, and other documents delivered or to be
delivered to Purchaser under this Agreement shall be reasonably satisfactory to
Purchaser and its counsel.
(h) Execution of Related Agreements. Purchaser shall have received
fully executed copies of the Related Agreements.
(i) Licenses. Purchaser shall have received all licenses from all
appropriate governmental agencies to operate the Business in the same manner as
each of the Companies operated the Business prior to the Closing Date. This
condition shall be deemed satisfied in the event that the Purchaser fails to use
reasonable diligence in applying for and pursuing such licenses.
(j) Accounts Receivable; Inventory. The Company shall have delivered
to Purchaser receivables and inventory equal to at least seventy-five percent
(75%) of its Accounts Receivable (as reflected in Schedule 2.1(ak) hereto) and
Inventory (as reflected in Schedule 2.1(j) hereto) as of the date of this
Agreement.
(k) Stock Certificates. Each of the Selling Shareholders shall have
delivered the stock certificates representing his shares of Capital Stock, duly
endorsed for transfer to the Purchaser.
(l) Resignations. The officers and directors of the Company shall
have delivered to Purchaser their resignations, effective as of the expiration
of the Put Option in accordance with Section 6.3 hereof.
(m) Consents. Purchaser shall have received each and every consent,
approval and waiver (if any) required for the execution of this Agreement and
the consummation of the transactions contemplated hereby.
Section 4.2 Conditions to Obligations of the Company and the Selling
Shareholders. Each and every obligation of the Company and the Selling
Shareholders to be performed on the Closing Date shall be subject to the
satisfaction as of or before the Closing Date of the following conditions
(unless waived in writing by the Selling Shareholders or the Company), and the
Purchaser shall exercise all reasonable efforts in good faith to satisfy such
conditions:
(a) Representations and Warranties. The representations and
warranties of Purchaser set forth in Section 2.2 of this Agreement shall have
been true and correct when made and shall be true and correct on and as of the
Closing Date as if such representations and warranties were made as of such date
and time.
26
(b) Performance of Agreement. All covenants, conditions, and other
obligations under this Agreement and the Related Agreements which are to be
performed or complied with by Purchaser, as the case may be, including Board of
Directors and shareholder approval, as applicable, shall have been fully
performed and complied with at or prior to the Closing Date.
(c) Absence of Governmental or Other Objection. There shall be no
pending or threatened lawsuit challenging the transaction by any body or agency
of the federal, state, or local government or by any third party, and the
consummation of the transaction shall not have been enjoined by a court of
competent jurisdiction as of the Closing Date and any applicable waiting period
under any applicable federal law shall have expired.
(d) Certificate of Officers. Purchaser shall have delivered to the
Company a certificate executed by its authorized officer, dated the date of the
Closing Date, to the effect that the conditions set forth in subsections (a)-(c)
of this Section 4.2 have been satisfied.
(e) Execution of Related Agreements. The Company shall have received
fully executed copies of the Related Agreements (and all other documents
required hereunder).
(f) Shareholder Employment Agreements. Purchaser shall have entered
into an employment agreement with Xxxxxx Xxxxxx in substantially the form
attached hereto as Exhibit 4.2(f) and providing for the services to be performed
principally at Houston, Texas and for compensation of not less than $125,000 per
year.
(g) Approval of Documents. The form and substance of all
certificates, instruments, opinions, and other documents delivered or to be
delivered to the Selling Shareholders under this Agreement shall be reasonably
satisfactory to each of the Selling Shareholders and their counsel.
(h) Directorships. At least one individual designated by the Company
shall have been duly appointed as a Director of the Purchaser.
(i) Insurance. The Purchaser shall have exercised its reasonable
best efforts to obtain a policy of directors' and officers' liability insurance,
in such amounts and covering such risks as normally are insured for by companies
of approximately the same size as, and engaged in businesses substantially
similar to, Purchaser.
ARTICLE V
INDEMNIFICATION
Section 5.1 Survival of Representations, Warranties, Covenants and
Agreements.
(a) All representations, warranties, covenants, and agreements of
the Company, the Selling Shareholders, and Purchaser shall survive the
execution, delivery, and performance of this Agreement for two years from the
Closing Date; provided, however, that the representations and warranties set
forth in Sections 2.1(b), 2.1(i) and 2.1(y) and the obligation of indemnity
therefor, and
27
the agreements contained in Sections 1.2 and 3.3(e) shall survive until the
applicable statutes of limitations have expired. All representations and
warranties of the Company, the Selling Shareholders, and Purchaser set forth in
this Agreement shall be deemed to have been made again by the Company, the
Selling Shareholders and Purchaser on and as of the Closing Date.
(b) As used in this Article V, except as otherwise indicated in this
Article V, any reference to a representation, warranty, agreement, or covenant
contained in any section of this Agreement shall include the schedule relating
to such section.
Section 5.2 Indemnification of Purchaser.
Each of the Selling Shareholders hereby agrees to indemnify and hold
harmless Purchaser and its affiliates, the Companies and the other Selling
Shareholders (collectively the "Indemnified Parties") against any and all
losses, liabilities, damages, demands, claims, suits, actions, judgments, causes
of action, assessments, costs, and expenses, including, without limitation,
interest, penalties, attorneys' fees, any and all expenses incurred in
investigating, preparing, and defending against any litigation, commenced or
threatened, and any claim whatsoever, and any and all amounts paid in settlement
of any claim or litigation (collectively, "Damages"), asserted against,
resulting from, imposed upon, or incurred or suffered by the Indemnified Parties
directly or indirectly, as a result of or arising from any inaccuracy in or
breach or nonfulfillment of any of the representations, warranties, covenants,
or agreements made by the Company or the Selling Shareholders in this Agreement
or any facts or circumstances constituting such an inaccuracy, breach, or
nonfulfillment (all of which shall be referred to as "Company Indemnifiable
Claims").
Section 5.3 Indemnification of the Selling Shareholders. Purchaser hereby
agrees to indemnify and hold harmless each of the Selling Shareholders against
any and all Damages, asserted against, reasonably resulting from, imposed upon,
or incurred or suffered by such Selling Shareholders as a result of or arising
from any inaccuracy in or breach or nonfulfillment of any of the
representations, warranties, covenants, or agreements made by Purchaser in this
Agreement or the Related Agreements or any facts or circumstances constituting
such an inaccuracy, breach, or nonfulfillment or any claim for the Company or
Business liability disclosed to the Purchaser, and which are attributable to
occurrences on or after the Closing Date (all of which shall be referred to as
"Purchaser Indemnifiable Claims").
Section 5.4 Procedure for Indemnification with Respect to Third-Party
Claims.
(a) If any party hereto determines to seek indemnification (the
party seeking such indemnification hereinafter referred to as the "Indemnified
Party" and the party against whom such indemnification is sought is hereinafter
referred to as the "Indemnifying Party") under this Article V with respect to
Company Indemnifiable Claims where the Indemnified Party is Purchaser or any of
its affiliates or Purchaser Indemnifiable Claims where the Indemnified Party is
any of the Selling Shareholders (such Claims shall be referred to herein as
"Indemnifiable Claims") resulting from the assertion of liability by third
parties, the Indemnified Party shall give notice to the Indemnifying Parties
within 60 days of the Indemnified Party becoming aware of any such Indemnifiable
Claim or of facts upon which any such Indemnifiable Claim will be based; the
notice shall set forth such
28
material information with respect thereto as is then reasonably available to the
Indemnified Party. In case any such liability is asserted against the
Indemnified Party or its affiliates, and the Indemnified Party notifies the
Indemnifying Parties thereof, the Indemnifying Parties will be entitled, if such
Indemnifying Parties so elect by written notice delivered to the Indemnified
Party within 20 days after receiving the Indemnified Party's notice, to assume
the defense thereof with counsel satisfactory to the Indemnified Party.
Notwithstanding the foregoing, (i) the Indemnified Party or its affiliates shall
also have the right to employ its own counsel in any such case, but the fees and
expenses of such counsel shall be at the expense of the Indemnified Party unless
the Indemnified Party or its affiliates shall reasonably determine that there is
a conflict of interest between or among the Indemnified Party or its affiliates
and any Indemnifying Party with respect to such Indemnifiable Claim, in which
case the fees and expenses of such counsel will be borne by such Indemnifying
Parties, (ii) the Indemnified Party shall have no obligation to give any notice
of any assertion of liability by a third party unless such assertion is in
writing, and (iii) the rights of the Indemnified Party or its affiliates to be
indemnified hereunder in respect of Indemnifiable Claims resulting from the
assertion of liability by third parties shall not be adversely affected by their
failure to give notice pursuant to the foregoing unless, and, if so, only to the
extent that, such Indemnifying Parties are materially prejudiced thereby;
provided, however, the Indemnifying Party shall not be liable for attorneys fees
and expenses incurred by the Indemnified Party prior to the Indemnified Party's
giving notice to the Indemnifying Party of an Indemnifiable Claim. With respect
to any assertion of liability by a third party that results in an Indemnifiable
Claim, the parties hereto shall make available to each other all relevant
information in their possession material to any such assertion.
(b) In the event that such Indemnifying Parties, within 20 days
after receipt of the aforesaid notice of an Indemnifiable Claim fail to assume
the defense of the Indemnified Party or its affiliates against such
Indemnifiable Claim, the Indemnified Party or its affiliates shall have the
right to undertake the defense, compromise, or settlement of such action on
behalf of and for the account, expense, and risk of such Indemnifying Parties.
(c) Notwithstanding anything in this Article V to the contrary, (i)
if there is a reasonable probability that an Indemnifiable Claim may materially
adversely affect the Indemnified Party or its affiliates, the Indemnified Party
or its affiliates shall have the right to participate in such defense,
compromise, or settlement and such Indemnifying Parties shall not, without the
Indemnified Party's written consent (which consent shall not be unreasonably
withheld), settle or compromise any Indemnifiable Claim or consent to entry of
any judgment in respect thereof unless such settlement, compromise, or consent
includes as an unconditional term thereof the giving by the claimant or the
plaintiff to the Indemnified Party a release from all liability in respect of
such Indemnifiable Claim.
Section 5.5 Procedure For Indemnification with Respect to Non-Third Party
Claims. In the event that the Indemnified Party asserts the existence of a claim
giving rise to Damages (but excluding claims resulting from the assertion of
liability by third parties), it shall give written notice to the Indemnifying
Parties. Such written notice shall state that it is being given pursuant to this
Section 5.5, specify the nature and amount of the claim asserted and indicate
the date on which such assertion shall be deemed accepted and the amount of the
claim deemed a valid claim (such date to be established in accordance with the
next sentence). If such Indemnifying Parties, within 30 days after the mailing
of notice by the Indemnified Party, shall not give written notice to the
Indemnified Party
29
announcing their intent to contest such assertion of the Indemnified Party, such
assertion shall be deemed accepted and the amount of claim shall be deemed a
valid claim. In the event, however, that such Indemnifying Parties contest the
assertion of a claim by giving such written notice to the Indemnified Party
within said period, then the parties shall act in good faith to reach agreement
regarding such claim. If the parties hereto, acting in good faith, cannot reach
agreement with respect to such claim within ten (10) days after notice thereof,
such claim will be submitted to and settled by arbitration pursuant to Section
7.11 hereof.
Section 5.6 Escrowed Shares. Each of the Selling Shareholders shall escrow
twenty percent (20%) of the Common Stock to be issued to such Selling
Shareholder to be available for distribution to Purchaser in the event of an
Indemnified Claim not paid in cash by the Indemnifying Party. Such escrow shall
expire on the date not less than two (2) years and sixty (60) days after the
Date of Closing, when there shall be no pending Indemnification Claim for which
notice has been given under Section 5.4, and upon such expiration any original
share certificates shall be delivered to the owners thereof. Not later than the
Closing Date The parties shall enter into a Pledge, Security and Escrow
Agreement in substantially the form and substance attached hereto as Exhibit
5.6.
ARTICLE VI
TERMINATION AND CONDITIONS SUBSEQUENT
Section 6.1 Termination. (a) At any time prior to the time of Closing,
this Agreement may be terminated by express written consent of Purchaser and
each of the Selling Shareholders.
(b) Purchaser may terminate this Agreement in the event the
conditions set forth in Section 4.1 of this Agreement have not been satisfied or
waived prior to the time of Closing.
(c) Each of the Selling Shareholders may terminate this Agreement in
the event the conditions set forth in Section 4.2 of this Agreement have not
been satisfied or waived prior to the time of Closing.
(d) If the failure of such conditions to be fulfilled arises from
the fault or intentional act of a party hereto, such party shall be liable to
the other parties up to the amount of the documented out-of-pocket expense
incurred by such parties in negotiating, structuring and documenting the
transaction contemplated by this Agreement. No party shall be responsible for
indirect, special or expectancy damages for such nonfulfillment of conditions.
Section 6.2 Effect of Termination. In the event of termination as provided
in Section 6.1 above, Sections 3.1, 7.4 and 7.11 shall survive such termination
and continue in full force and effect.
Section 6.3 Conditions Subsequent to Obligations.
(a) In the event that the Purchaser has been unable to procure
exclusive distribution agreements with manufacturers of high end graphic
technology products to the satisfaction of the Selling Shareholders prior to
September 30, 1997 (the "Put Date"), the Selling Shareholders shall
30
have the right to put all, but not less than all, of the shares of the Purchaser
received by them in connection with this Agreement to the Purchaser (the "Put
Option") and the Purchaser shall be obligated to repurchase such shares from the
Selling Shareholders.
(b) The Put Option may be exercised by the Selling Shareholders at
any time prior to the Put Date by delivery of written notice of exercise to
Purchaser.
(c) Upon exercise of the Put Option in accordance with this Section
6.3, Purchaser shall return to the Selling Shareholders, in the respective
amounts set forth on Schedule 2.1(b), all of the shares of Capital Stock of the
Company delivered to Purchaser pursuant to the provisions of Article I. Delivery
of the certificates by each of the parties shall take place no more than five
business days after the date of such notice at the offices of the Purchaser.
ARTICLE VII
MISCELLANEOUS PROVISIONS
Section 7.1 Notice. All notices and other communications required or
permitted under this Agreement shall be delivered to the parties at the address
set forth below their respective signature blocks, or at such other address that
they designate by notice to all other parties in accordance with this Section
7.1. Any party delivering notice to Purchaser shall deliver a copy to: Xxxxxxx
X. Xxxxxx, Bachner, Tally, Xxxxxxx & Xxxxxx LLP, 000 Xxxxxxx Xxxxxx, Xxx Xxxx,
Xxx Xxxx 00000. All notices and communications shall be deemed to have been
received unless otherwise set forth herein: (i) in the case of personal
delivery, on the date of such delivery; (ii) in the case of telex or facsimile
transmission, on the date on which the sender receives confirmation by telex or
facsimile transmission that such notice was received by the addressee, provided
that a copy of such transmission is additionally sent by mail as set forth in
(iv) below; (iii) in the case of overnight air courier, on the second business
day following the day sent, with receipt confirmed by the overnight courier; and
(iv) in the case of mailing by first class certified or registered mail, postage
prepaid, return receipt requested, on the fifth business day following such
mailing.
Section 7.2 Entire Agreement. This Agreement, the exhibits and schedules
hereto, and the documents referred to herein embody the entire agreement and
understanding of the parties hereto with respect to the subject matter hereof,
and supersede all prior and contemporaneous agreements and understandings, oral
or written, relative to said subject matter.
Section 7.3 Binding Effect: Assignment. This Agreement and the various
rights and obligations arising hereunder shall inure to the benefit of and be
binding upon the Company and the Selling Shareholders, their respective
successors and permitted assigns, and Purchaser and its successors and permitted
assigns. Neither this Agreement nor any of the rights, interests, or obligations
hereunder shall be transferred or assigned (by operation of law or otherwise) by
any of the parties hereto without the prior written consent of the other
parties; provided, however, that Purchaser may assign its rights hereunder in
connection with any sale of all or substantially all of Purchaser's assets or
any merger, consolidation, or conversion of Purchaser.
31
Section 7.4 Expenses of Transaction. The Selling Shareholders shall pay
the Selling Shareholders' professional fees and expenses incurred in connection
with the negotiation and closing of this Agreement and the Related Agreements,
including, without limitation the expenses of the preparation of Annual
Financial Statements. The Selling Shareholders shall also pay all the Selling
Shareholders' applicable sales, income, use, excise, transfer, documentary, and
any other taxes arising out of the transactions contemplated herein. The Company
shall pay 8.34%, as adjusted pursuant to Section 1.3, of all professional fees
and expenses incurred by Purchaser in connection with the negotiation and
closing of this Agreement and the Related Agreements. Upon expiration of the Put
Option unexercised, Purchaser shall reimburse the Selling Shareholders for all
Purchaser's expenses and fees paid by the Company.
Section 7.5 Waiver; Consent. This Agreement may not be changed, amended,
terminated, augmented, rescinded, or discharged (other than by performance), in
whole or in part, except by a writing executed by the parties hereto, and no
waiver of any of the provisions or conditions of this Agreement or any of the
rights of a party hereto shall be effective or binding unless such waiver shall
be in writing and signed by the party claimed to have given or consented
thereto. Except to the extent that a party hereto may have otherwise agreed in
writing, no waiver by that party of any condition of this Agreement or breach by
the other party of any of its obligations or representations hereunder or
thereunder shall be deemed to be a waiver of any other condition or subsequent
or prior breach of the same or any other obligation or representation by the
other party, nor shall any forbearance by the first party to seek a remedy for
any noncompliance or breach by the other party be deemed to be a waiver by the
first party of its rights and remedies with respect to such noncompliance or
breach.
Section 7.6 Counterparts. This Agreement may be executed simultaneously in
multiple counterparts, each of which shall be deemed an original, but all of
which taken together shall constitute one and the same instrument.
Section 7.7 Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
Section 7.8 Remedies of the Parties. The Company and the Selling
Shareholders acknowledge that, in addition to all other remedies to which
Purchaser is entitled, Purchaser shall have the right to enforce the terms of
this Agreement by a decree of specific performance, provided Purchaser is not in
material default hereunder. The parties also agree that the rights and remedies
of each party to this Agreement set forth in this Agreement and in all of the
exhibits and schedules attached hereto and documents referred to herein shall be
cumulative and share inure to the benefit of each such party.
Section 7.9 Governing Law. This Agreement shall in all respects be
construed in accordance with and governed by the laws of the State of Georgia.
32
Section 7.10 Arbitration; Attorneys' Fees.
(a) The parties agree to use reasonable efforts to resolve any
dispute arising out of this Agreement, but should a dispute remain unresolved
ten (10) days following notice of the dispute to the other party (but in no
event prior to said ten (10) days, except as specifically provided otherwise
herein), such dispute shall be finally settled by binding arbitration in
Atlanta, Georgia in accordance with the then current Commercial Arbitration
Rules of the American Arbitration Association (the "AAA") or such other
mediation or arbitration service as shall be mutually agreeable to the parties,
and judgment upon the award rendered by the arbitrator shall be final and
binding on the parties and may be entered in any court having jurisdiction
thereof; provided, however, that any party shall be entitled to appeal a
question of law or determination of law to a court of competent jurisdiction;
and provided, further, however, that the parties may first seek appropriate
injunctive relief prior to, and/or in addition to pursuing negotiation or
arbitration. Such arbitration shall be conducted by an arbitrator chosen by
mutual agreement of the parties, or failing such agreement, an arbitrator
appointed by the AAA. There shall be limited discovery prior to the arbitration
hearing as follows: (a) exchange of witness lists and copies of documentary
evidence and documents related to or arising out of the issues to be arbitrated,
(b) depositions of all party witnesses, and (c) such other depositions as may be
allowed by the arbitrator upon a showing of good cause. Depositions shall be
conducted in accordance with the Georgia Code of Civil Procedure and questions
of evidence in any hearings shall be resolved in accordance with the Federal
Rules of Evidence. The arbitrator shall be required to provide in writing to the
parties the basis for the award or order of such arbitrator, and a court
reporter shall record all hearings (unless otherwise agreed to by the parties),
with such record constituting the official transcript of such proceedings.
(b) In the event of arbitration or litigation filed or instituted
between the parties with respect to this Agreement or the Related Agreements,
the prevailing party will be entitled to receive from the other party all costs,
damages and expenses, including reasonable attorney's fees, incurred by the
prevailing party in connection with that action or proceeding whether or not the
controversy is reduced to judgment or award. The prevailing party will be that
party who may be fairly said by the arbitrator(s) or the court to have prevailed
on the major disputed issues.
Section 7.11 Cooperation and Records Retention. Each of the Selling
Shareholders and Purchaser shall (i) provide the other with access to such
records, original or copies, or assistance as may reasonably be requested by
them in connection with the preparation of any Tax Return, in connection with
any audit or other examination by any Taxing authority or any judicial or
administrative proceedings relating to liability for Taxes, or financial
reporting obligations, (ii) each retain and provide the other, with any records
or other information which may be relevant to any such Tax Return, audit or
examination, proceeding or determination, or financial reporting obligations,
and (iii) each provide the other with any final determination of any such audit
or examination, proceeding or determination that affects any amount required to
be shown on any Tax Return of the other for any period. All Tax Returns,
supporting work schedules and other records or information which may be relevant
to such Tax Returns for all tax periods or portions thereof ending before or
including the Closing Date shall remain with Purchaser or the Company and shall
be made available for inspection and copying by the parties hereto during normal
business hours.
33
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
CRESCENT COMPUTERS, INC.
By: /s/ Xxx X. Xxxxxx
Xxx X. Xxxxxx
President
Address: 0000 Xxxxxxx Xxxxx, Xxxxx X
Xxxxxxxx, XX 00000
SHAREHOLDERS:
ALONGAL EXTRUSIONS, INC., as Attorney-in-Fact
for Xxxxx, Ltd.
By: /s/ Xxxxxxx X. Xxxxxxx
Xxxxxxx X. Xxxxxxx, President
Address: 0000 X. Xxxxx 000 Xxxxxxxxx Xx. X.X.
Xxxxxxx, XX 00000
/s/ Xxxxxxx X. Xxxxxxx
---------------------------------------------
Xxxxxxx X. Xxxxxxx
Address: 0000 Xxxxxxx Xxxxx, Xxxxx X
Xxxxxxxx, XX 00000
Xxx X. Xxxxxx /s/ Xxx X. Xxxxxx
Xxxxx Xxxxxx /s/ Xxxxx Xxxxxx
Xxxxxxxx X. Xxxxxxxx /s/ Xxxxxxxx X. Xxxxxxxx
Xxxxxxx X. Xxxxxxx /s/ Xxxxxxx X. Xxxxxxx
34
TEKGRAF, INC.
By: /s/ Xxxxxx X. Xxxxxx
-----------------------------------------
Xxxxxx X. Xxxxxx
President
Address: 0000 Xxxxxxxx, Xxxxx 000
Xxxxxxx, Xxxxx 00000
SHAREHOLDERS:
/s/ Xxxxxx X. Xxxxxx
---------------------------------------------
Xxxxxx X. Xxxxxx
Address: 6227 Xxxxxxx
Xxxxxxx, Xxxxx 00000
35
AMENDMENT TO STOCK PURCHASE AGREEMENT
AMENDMENT dated as of June 2, 1997 to the Stock Purchase Agreement dated
as of May 1, 1997 (the "Stock Purchase Agreement") by and among Crescent
Computers, Inc., a Georgia corporation (the "Purchaser"), the shareholders of
the Purchaser set forth on the signature page of the Stock Purchase Agreement
(the "Crescent Shareholders"), tekgraf, inc., a Texas corporation ("Tekgraf"),
and the shareholders of Tekgraf set forth on the signature page of the Stock
Purchase Agreement (the "Selling Shareholders"). All terms used in this
Amendment, unless otherwise defined herein, shall have such meaning as ascribed
to them in the Stock Purchase Agreement.
WHEREAS, pursuant to the Stock Purchase Agreement, the Purchaser agreed to
purchase all of the issued and outstanding shares of capital stock of Tekgraf
held by the Selling Shareholders (the "Acquisition"); and
WHEREAS, in connection with the Acquisition, the parties hereto desire to
amend certain provisions of the Stock Purchase Agreement as set forth in this
Agreement in accordance with the provisions of Section 7.5 of the Stock Purchase
Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth, the parties intending to be legally bound, hereby agree
as follows:
A. Amendments to Stock Purchase Agreement. The Stock Purchase Agreement is
hereby amended as follows:
(1) Section 2.3 of the Stock Purchase Agreement is deleted in its
entirety and replaced with the following new paragraph:
"Section 2.3 Survival of Representations and Warranties:
Purchaser's and the Selling Shareholders' representations and
warranties contained in this Article II shall survive the Closing
for a period of twenty-four (24) months from the Closing Date."
(2) The last sentence of Section 3.1(a) of the Stock Purchase
Agreement is deleted in its entirety and replaced with the following
sentence:
"The covenants contained in this Section 3.1(a) shall survive
until one hundred twenty (120) days from the Closing Date."
(3) The introductory paragraph of Section 3.3 of the Stock Purchase
Agreement is deleted in its entirety and replaced with the following
paragraph:
"Section 3.3 Interim Period. During the period from the date
of execution hereof through November 1, 1997 or prior thereto upon
the unanimous consent of the Board of Directors of the Purchaser
(the "Interim Period"):"
(4) Section 3.3(a) of the Stock Purchase Agreement is deleted in its
entirety.
(5) The first sentence of Section 3.3(b) of the Stock Purchase
Agreement is deleted in its entirety and replaced with the following
sentence:
"The number of Directors of the Purchaser shall be seven (7)."
(6) Section 3.3(g) of the Stock Purchase Agreement is deleted in its
entirety.
(7) The first eight words of Section 3.5 of the Stock Purchase
Agreement are deleted in their entirety so that Section 3.5 begins with
the words "On and after."
(8) Section 4.1(1) of the Stock Purchase Agreement is deleted in its
entirety and replaced with the following new paragraph:
"(l) Resignations: The officers and directors of the Company
shall have delivered to Purchaser their resignations, effective as
of the Closing Date."
(9) Section 6.3 of the Stock Purchase Agreement is deleted in its
entirety.
(10) The last sentence of Section 7.4 of the Stock Purchase
Agreement is deleted in its entirety.
B. Full Force and Effect. Except as provided herein, all other terms and
provisions of the Stock Purchase Agreement shall remain in full force and
effect.
C. Counterparts. This Amendment may be executed in one or more
counterparts, which taken together shall constitute a single document.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the date first above written.
CRESCENT COMPUTERS, INC.
By: /s/ Xxx X. Xxxxxx
------------------------
Xxx X. Xxxxxx
President
Address: 0000 Xxxxxxx Xxxxx, Xxxxx X
Xxxxxxxx, XX 00000
-2-
SHAREHOLDERS:
ALONGAL EXTRUSIONS, INC., as Attorney-in-Fact
for Xxxxx, Ltd.
By: /s/ Xxxxxxx X. Xxxxxxx
-----------------------------------------
Xxxxxxx X. Xxxxxxx, President
Address: 0000 X. Xxxxx 000 Xxxxxxxxx Xx. X.X.
Xxxxxxx, XX 00000
/s/ Xxxxxxx X. Xxxxxxx
---------------------------------------------
Xxxxxxx X. Xxxxxxx
Address: 0000 Xxxxxxx Xxxxx, Xxxxx X
Xxxxxxxx, XX 00000
/s/ Xxx X. Xxxxxx
---------------------------------------------
Xxx X. Xxxxxx
/s/ Xxxxx Xxxxxx
---------------------------------------------
Xxxxx Xxxxxx
/s/ Xxxxxxxx X. Xxxxxxxx
---------------------------------------------
Xxxxxxxx X. Xxxxxxxx
/s/ Xxxxxxx X. Xxxxxxx
---------------------------------------------
Xxxxxxx X. Xxxxxxx
TEKGRAF, INC.
By: /s/ Xxxxxx X. Xxxxxx
-----------------------------------------
Xxxxxx X. Xxxxxx
President
Address: 0000 Xxxxxxxx, Xxxxx 000
Xxxxxxx, Xxxxx 00000
-3-
SHAREHOLDERS:
/s/ Xxxxxx X. Xxxxxx
---------------------------------------------
Xxxxxx X. Xxxxxx
Address: 6227 Xxxxxxx
Xxxxxxx, Xxxxx 00000
-4-
